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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.           )

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Preliminary Proxy Statement

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Definitive Proxy Statement

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Soliciting Material under §240.14a-12

 

Tetra Tech, Inc.

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LOGO

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Today, Tetra Tech's high-end consulting and engineering services are more in demand than ever before. With our focus on Leading with Science®, we are ideally positioned to provide the sustainable solutions that are needed in a changing world.

Dan Batrack
Chairman and Chief Executive Officer

  January 14, 2021

Dear Tetra Tech Stockholders:

You are cordially invited to attend the Annual Meeting of Stockholders of Tetra Tech, Inc., which will be held on Wednesday, February 24, 2021, at 10:00 a.m. Pacific Time.

Details of the business to be conducted at the Annual Meeting are given in the accompanying Notice of 2021 Annual Meeting of Stockholders and the proxy statement.

We use the internet as our primary means of furnishing proxy materials to our stockholders. Consequently, most stockholders will not receive paper copies of our proxy materials and will instead receive a notice with instructions for accessing the proxy materials and voting via the internet. The notice also provides information on how stockholders can obtain paper copies of our proxy materials if they so choose. Internet transmission and voting are designed to be efficient, minimize cost, and conserve natural resources.

Whether or not you plan to attend the Annual Meeting, please vote as soon as possible. As an alternative to voting in person at the Annual Meeting, you may vote via the internet, by telephone, or by mail. Voting by any of these methods will ensure your representation at the Annual Meeting.

Thank you for your continued support of Tetra Tech. We look forward to seeing you at the Annual Meeting.

Sincerely,

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Dan Batrack
Chairman and Chief Executive Officer


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  Notice of 2021 Annual
Meeting of Stockholders


 
      Annual Meeting of Stockholders


 

 

    Date

 

Wednesday, February 24, 2021

 

 

 

 

    Time

 

10:00 a.m. Pacific Time

 

 

 

 

    Place

 

Tetra Tech, Inc.
3475 East Foothill Boulevard
Pasadena, California 911071

 

 

 

 

    Record Date

 

December 30, 2020

 

 

 


 

 

    Items of Business

 

 

 

 
                 

 

 

  Proposal

 


 

Board
Recommendation


 


 

 

Item 1

 

To elect the eight directors nominated by our Board to serve a one-year term

 

FOR

 

 

 

 

Item 2

 

To approve, on an advisory basis, our executive compensation

 

FOR

 

 

 

 

Item 3

 

To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2021

 

FOR

 

 

   


1 In the event that we are unable to hold the meeting at this location due to COVID-19 pandemic-related government or public health orders, we will provide further details in a supplement to the proxy statement.


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How to vote: Your vote is important

 

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Internet

 

Telephone

 

Mail

 

In Person
             

Follow the instructions provided in the Notice, separate proxy card, or voting instruction form you received.

 

Follow the instructions provided in the separate proxy card or voting instruction form you received.

 

Send your completed and signed proxy card or voting instruction form to the address on your proxy card or voting instruction form.

 

You can vote in person at the Annual Meeting. Beneficial holders must contact their broker or other nominee if they wish to vote in person.
             

 

 

 

 

 

 

 
    Dear Tetra Tech Stockholders:

 

 

Your vote is important. Even if you cannot attend the Annual Meeting, it is important that your shares be represented and voted. To ensure your representation at the Annual Meeting, you may submit your proxy and voting instructions via the internet, by telephone, or by mail by following the instructions listed on your proxy card, notice, or voting instruction form.

 

 

Please refer to "Voting Your Shares" in the Meeting and Voting Information section on page 69 of the accompanying proxy statement for a description of each voting method. If your shares are held by a bank, broker, or other nominee (your record holder) and you have not given your record holder instructions on how to vote your shares, your record holder will not be able to vote your shares on any matter other than ratification of the appointment of the independent registered public accounting firm. We strongly encourage you to vote.

 

 

On behalf of the Board of Directors, management, and associates of Tetra Tech, I thank you for your continued support.

 

 

By order of the Board of Directors,

 

 

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    Preston Hopson
Senior Vice President, General Counsel, and Secretary

 

 

Important Notice about the Availability of Proxy Materials. The Notice of the 2021 Annual Meeting, proxy statement, and our 2020 Annual Report on Form 10-K are available at www.proxyvote.com. You are encouraged to access and review all the important information contained in our proxy materials before voting.

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Contents

Proxy Summary   1

Tetra Tech, Inc. 

  1

Items Being Voted on at the Annual Meeting

  1

Fiscal Year 2020 Performance Highlights

  1

Corporate Governance Highlights

  2

2021 Director Nominees

  3

Executive Compensation Highlights

  5

Ratification of Appointment of PricewaterhouseCoopers LLP

  6
Corporate Governance, Sustainability, and Social Responsibility   7

Corporate Governance

  7

Corporate Sustainability

  8

Corporate Social Responsibility

  8
Human Capital Management   9

Diversity, Equity and Inclusion

  9

Professional Development

  9
Our Board of Directors   11

Board Composition

  11

Board Meetings and Attendance

  11

Corporate Governance Policies

  11

Director Independence

  12

Board Leadership Structure

  13

Board Committees

  13

Executive Sessions

  15

Oversight of Risk Management

  15

Succession Planning

  17

Director, Board, and Committee Evaluations

  17

Selection of Director Nominees

  18

Stockholder Submission of Director Nominees

  18

Director Qualifications

  19

Board Refreshment

  20

Director Diversity

  21

Active Stockholder Engagement and Communication Policy

  21
Item 1: Election of Directors   22

Majority Voting Standard

  22

Recommendation of Board of Directors

  22

2021 Director Nominees

  22

Director Compensation

  27
Item 2: Advisory Vote to Approve Executive Compensation   30

Recommendation of Board of Directors

  30

Meaning of Advisory Vote

  30
Compensation Discussion and Analysis   31

Strong Compensation Governance Practices

  33

2020 Say-on-Pay Vote and Executive Compensation Program

  34

Pay Philosophy and Executive Compensation Components

  35

Summary of Compensation Decisions for FY 2020

  36

Assessment of Pay for Performance

  37

Discussion of Compensation Components and Decisions Impacting FY 2020 Compensation

  38

Other Benefits

  46

Termination and Change in Control

  46

Compensation-Setting Process and Tools

  47

Independent Oversight and Expertise

  48

Advisor Independence

  48

Stock Ownership Guidelines

  49

Clawback Policy

  49

Insider Trading, Anti-Hedging, and Anti-Pledging Policy

  49
Compensation Committee Report   50

Compensation Committee Interlocks and Insider Participation

  50
Executive Compensation Tables   51

Summary Compensation Table

  51

Grants of Plan-Based Awards—FY 2020

  53

Outstanding Equity Awards at FYE 2020

  54

Options Exercised and Stock Vested—FY 2020

  55

Nonqualified Deferred Compensation—FY 2020

  56

Potential Payments upon Termination or Change in Control

  56

Equity Compensation Plan Information

  61

Pay Ratio Disclosure

  61
Item 3: Ratification of Appointment of Independent Registered Public Accounting Firm   62

Recommendation of Board of Directors

  62

Auditor Independence

  62

Auditor Fees

  63

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services

  63
Audit Committee Report   64
Security Ownership Information   65

Security Ownership of Management and Significant Stockholders

  65

Section 16(a) Beneficial Ownership Reporting Compliance

  66

Related Person Transactions

  66
Meeting and Voting Information   68

Delivery of Annual Report on Form 10-K

  68

Delivery of Proxy Materials

  68

Householding

  68

Shares Entitled to Vote

  68

Voting Your Shares

  69

Revoking Your Proxy or Changing Your Vote

  69

Quorum and Votes Required

  70

Voting on Additional Business

  70

Vote Results

  70

Proxy Solicitation

  71

Electronic Access to Proxy Materials and Annual Report

  71

Annual Meeting Procedures

  71

Submission of Stockholder Items for 2022 Annual Meeting

  71

Other Matters

  72

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Proxy Summary

Proxy Summary

This section contains summary information explained in greater detail in other parts of this proxy statement and does not contain all the information you should consider before voting. Stockholders are urged to read the entire proxy statement before voting. On January 14, 2021, we intend to make our proxy materials, including this proxy statement, available to all stockholders entitled to vote at the Annual Meeting.

Tetra Tech, Inc.

Tetra Tech, Inc. is a leading global provider of high-end consulting and engineering services that focuses on water, the environment, sustainable infrastructure, resource management, renewable energy, and international development. We are Leading with Science® to provide innovative solutions for our public and private clients. We typically begin at the earliest stage of a project by identifying technical solutions and developing execution plans tailored to our clients' needs and resources.

Engineering News-Record (ENR), the leading trade journal for our industry, has ranked us the number one water services firm for the past 17 years. In 2020, we were also ranked number one in water treatment/desalination, water treatment and supply, environmental management, environmental science, consulting/studies, solid waste, hydro plants, and wind power. ENR ranks us among the 10 largest firms in numerous other service lines, including engineering/design, chemical and soil remediation, site assessment and compliance, dams and reservoirs, power, transmission and distribution plants, and hazardous waste.

Our reputation for providing high-end consulting and engineering services and our ability to develop workable solutions for water and environmental management issues have supported our growth for more than 50 years. Today, we are proud to be making a difference in people's lives worldwide through broad consulting, engineering, and technology service offerings. We are working on 65,000 projects a year, in more than 100 countries on seven continents, from 450 offices, with a talent force of 20,000 employees. We are Leading with Science® throughout our operations, with domain experts across multiple disciplines supported by advanced analytics, artificial intelligence, machine learning, and digital technologies. Our ability to provide innovative and first-of-kind solutions is enhanced by partnerships with our forward-thinking clients. We are diverse and inclusive, embracing the breadth of experience across our talent force worldwide with a culture of innovation and entrepreneurship. We are disciplined in our business delivering value to customers and high performance to our stockholders. In supporting our clients, we seek to add value and provide long-term sustainable consulting, engineering, and technology solutions.

Items Being Voted on at the Annual Meeting

Stockholders will be asked to vote on the following items at the Annual Meeting:

Item

  Board
Recommendation
  Vote Required   Discretionary
Broker Voting

Item 1. Election of directors

 

FOR
each nominee

 

Majority of votes cast

 

No

Item 2. Advisory vote to approve executive compensation

 

FOR

 

Majority of shares represented and entitled to vote on the item

 

No

Item 3. Ratification of appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for fiscal year 2021

 

FOR

 

Majority of shares represented and entitled to vote on the item

 

Yes

Fiscal Year 2020 Performance Highlights

Tetra Tech's fiscal year (FY) 2020 operating results reflected increased performance compared to FY 2019, which was itself a year of strong operational and financial performance. In FY 2020 we achieved record highs in earnings per share (EPS), cash from operations, and backlog even with the disruption from the global COVID-19 pandemic. Our focus on providing clients with high-

Tetra Tech 2021 Proxy Statement 1


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Proxy Summary

end differentiated consulting and engineering services, primarily in the water, environment, and sustainable infrastructure markets, has resulted in increased margins and reduced risk in our business.

We began FY 2021 with an authorized and funded backlog that reached another all-time high of more than $3.2 billion in the fourth quarter of FY 2020.

Highlights of our FY 2020 operating results as reported in our FY 2020 Annual Report on Form 10-K are noted in the following table.


FY 2020 Highlights

($ in millions, except EPS)

      $
   
vs. FY 2019  

Cash from operations

    $262         +26%  
 

EPS

    $3.16         +11%  
 

Backlog

    $3,239         +5%  
 

Strong Stock Price Performance

Our strong annual total stockholder return (TSR) of 8% in FY 2020 (September 29, 2019 to September 27, 2020) contributed to our cumulative three-year TSR of 101% for the FY 2018 through FY 2020 period (September 30, 2018 to September 27, 2020). TSR measures the return we have provided our stockholders, including stock price appreciation and dividends paid (assuming reinvestment thereof). We compare our TSR to the S&P 1000 and our TSR peer group (listed on page 49 of this proxy statement) for purposes of our long-term incentive (LTI) program, as more fully explained below. We outperformed both market comparisons in FY 2020 and over the cumulative three-year period.


One- and Three-Year TSRs

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Disciplined Capital Allocation

Effectively deploying capital is one of our core strategies, and we have been consistently disciplined in our execution of that strategy by returning cash to our stockholders through dividends and stock repurchases, while being a strategic and financially disciplined investor with respect to acquisitions. Over the last three years, we have returned $381 million to stockholders through dividends and stock repurchases.

Corporate Governance Highlights

Our corporate governance policies and practices reflect our principles (discussed below in the Corporate Governance, Sustainability, and Corporate Social Responsibility section of this proxy statement) and allow our Board to effectively oversee our Company in the interest of creating long-term value. The key elements of our program and the related benefits to our stockholders are set forth in the following table.

Tetra Tech 2021 Proxy Statement 2


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Proxy Summary


Corporate Governance Highlights

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2021 Director Nominees

Our Board has overseen the continuing transformation of our Company, including our strategic decision to focus on our high-end consulting and engineering business. Further, the Board has overseen the continuation of our capital allocation plan, which included share repurchases of $117 million and cash dividends of $35 million in FY 2020. Our Board members have demonstrated their commitment to diligently and effectively execute their fiduciary duties on behalf of our stockholders, and we recommend that each of our incumbent directors (introduced in the table below) be reelected at the Annual Meeting.

Tetra Tech 2021 Proxy Statement 3


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Proxy Summary


2021 Director Nominees


 

 
Name
    Age
    Director Since
    Principal Occupation
    Independent
    AC
    CC
    NC
    SC

                                   
    Dan L. Batrack     62       2005       Chairman and CEO, Tetra Tech, Inc.                                            
   
    Gary R. Birkenbeuel     63       2018       Retired Regional Assurance Managing Partner, Ernst & Young LLP       ·       C               ·            
   
    Patrick C. Haden     67       1992       President, Wilson Avenue Consulting       ·               ·       ·            
   
    J. Christopher Lewis     64       1988       Managing Director, Riordan, Lewis & Haden       ·       ·       ·                    
   
    Joanne M. Maguire     66       2016       Retired Executive Vice President (EVP), Lockheed Martin Space Systems Company       ·                       C       ·    
   
    Kimberly E. Ritrievi     62       2013       President, The Ritrievi Group LLC       ·       ·                       C    
   
    J. Kenneth Thompson*     69       2007       President and CEO, Pacific Star Energy, LLC       ·               C               ·    
   
    Kirsten M. Volpi     56       2013       EVP, Chief Operation Officer, and CFO, Colorado School of Mines       ·       ·       ·                    

 

 
                Meetings Held     4     4     4     2  

 

 

Notes:
AC = Audit Committee
CC = Compensation Committee
NC = Nominating and Corporate Governance Committee
SC = Strategic Planning and Enterprise Risk Committee

 

 

 

 

 

C = Committee Chair
* = Presiding Director

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Tetra Tech 2021 Proxy Statement 4


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Proxy Summary

Executive Compensation Highlights

Our Board's Compensation Committee designs our executive compensation program to motivate our executives to implement our business strategies and deliver long-term stockholder value. We pay for performance with compensation dependent on our achieving financial, share price, and business performance objectives while aligning executives with the long-term interests of our stockholders. The following graphic illustrates the annual and long-term components of executive compensation.


FY 2020 Components of Annual and Long-Term Compensation

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FY 2020 Target Total Direct Compensation Mix(1)

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1 See the Compensation Discussion and Analysis section on page 31 of this proxy statement for a description of the manner in which these amounts are determined.

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Proxy Summary

Compensation Best Practices

As summarized below and described in further detail in the Compensation Discussion and Analysis section on page 31 of this proxy statement, our executive compensation program is aligned with our goals and strategies and reflects what we believe are best practices.


Compensation Best Practices

  What We Do

 

 

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Focus on pay for performance: In FY 2020, 83% of our CEO's target total direct compensation (TDC) and an average of 67% of our other named executive officers' (NEOs') target TDC was at risk; and 58% of our CEO's target TDC and an average of 51% of our other NEOs' target TDC was tied to Company performance

 

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Review the Compensation Committee's charter and evaluate the Compensation Committee's performance
 


 

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Emphasize long-term performance: In FY 2020, 61% of our CEO's target TDC and an average of 42% of our other NEOs' target TDC was equity based and, thereby, tied to creating stockholder value

 

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Use an independent compensation consultant retained directly by the Compensation Committee
 


 

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Require double-trigger for change in control equity vesting and cash severance benefits

 

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Assess potential risks relating to our compensation policies and practices
 


 

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Maintain stock ownership guidelines for both executives and the Board of Directors

 

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Maintain a clawback policy
 

 

  What We Do Not Do


 

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Have employment agreements with our NEOs

 

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Grant stock options with an exercise price less than the fair market value on the date of grant
 


 

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Provide excise tax gross-up payments in connection with change in control severance benefits

 

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Reprice or exchange stock options
 


 

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Provide gross-ups to cover tax liabilities associated with executive perquisites

 

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Promise multiyear guarantees for bonus payouts or salary increases
 


 

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Permit directors, officers, or employees to hedge or pledge Company stock

 

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Pay dividends or dividend equivalents on equity awards unless and until the awards vest
 

Ratification of Appointment of PricewaterhouseCoopers LLP

Our Board's Audit Committee has appointed PricewaterhouseCoopers LLP (PwC) as our independent registered public accounting firm for the 2021 fiscal year, and our Board is seeking stockholder ratification of the appointment. PwC is knowledgeable about our operations and accounting practices and is well qualified to act as our independent registered public accounting firm. The Audit Committee considered the qualifications, performance, and independence of PwC; the quality of its discussions with PwC; and the fees charged by PwC for the level and quality of services provided during FY 2020 and has determined that the reappointment of PwC is in the best interest of our Company and our stockholders.

Tetra Tech 2021 Proxy Statement 6


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Corporate Governance, Sustainability, and Social Responsibility

Corporate Governance, Sustainability, and Social Responsibility


Tetra Tech's Mission, Purpose, and Core Principles


 

 

Our Mission:  To be the premier worldwide high-end consulting and engineering firm, focusing on water, the environment, sustainable infrastructure, resource management, renewable energy, and international development services.

 

       

 

 

Core Principles

 

Purpose

 

  Our core principles form the underpinning of how we work together to serve our clients.

Service: Tetra Tech puts our clients first. We listen to better understand our clients' needs and deliver smart, cost-effective solutions that meet those needs.

Value: Tetra Tech takes on our clients' problems as if they were our own. We develop and implement innovative solutions that are cost-effective, efficient, and practical.

Excellence: Tetra Tech brings superior technical capability, disciplined project management, and excellence in safety and quality to all our work.

Opportunity: Our people are our number one asset. Our workforce is diverse and includes leading experts in our fields. Our entrepreneurial nature and commitment to success provide challenges and opportunities for all our employees.

 

Tetra Tech will enhance the quality of life while creating value for customers, employees, investors, and partners.

 

       

Corporate Governance

Under the oversight of our Board of Directors, we have designed our Corporate Governance Program to ensure continued compliance with applicable laws and regulations, the rules of the Securities and Exchange Commission (SEC), and the listing standards of the Nasdaq Stock Market (Nasdaq); and to reflect best practices as informed by the recommendations of our outside advisors, the voting guidelines of our stockholders, the policies of proxy advisory firms, and the policies of other public companies.

We are committed to operating with honesty and integrity and maintaining the highest level of ethical conduct. We encourage stockholders to visit the Corporate Governance section on our website at www.tetratech.com/en/corporate-governance, which includes the following corporate governance documents:

Corporate Code of Conduct

Finance Code of Professional Conduct, which applies to our Chief Executive Officer (CEO) and all members of our finance department, including our Chief Financial Officer (CFO) and principal accounting officer

Corporate Governance Policies (see page 11 of this proxy statement for more detail on our Corporate Governance policies)

Charters for our Board's Audit Committee, Compensation Committee, Nominating and Corporate Governance (NCG) Committee, and Strategic Planning and Enterprise Risk (SPER) Committee

Stock Ownership Guidelines

Information on our website is not and should not be considered part of, nor is it incorporated by reference into, this proxy statement. You can also receive copies of these documents, without charge, by written request mailed to our Corporate Secretary at Tetra Tech, Inc., 3475 E. Foothill Boulevard, Pasadena, California 91107.

Tetra Tech 2021 Proxy Statement 7


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Corporate Governance, Sustainability, and Social Responsibility

We maintain a 24-hour hotline that is available to all employees for the anonymous submission of employee complaints by telephone and internet. All complaints go directly to our General Counsel and Chief Compliance Officer, and all complaints relating to accounting, internal controls, or auditing matters also go directly to the Chair of our Audit Committee. We also maintain an audit control function that provides critical oversight over the key areas of our business and financial processes and controls, and reports directly to the Audit Committee. Our Board has adopted a written "related person transactions" policy. Under the policy, the Audit Committee (or other committee designated by the NCG Committee) reviews transactions between Tetra Tech and "related persons."

Tetra Tech conducts our business on the bases of the quality of our services and the integrity of our association with our clients and others. Our Corporate Code of Conduct demonstrates our commitment to ascribing to the highest standards of ethical conduct in the pursuit of our business and applies to all our directors, officers, and employees. Our policies have been translated into five languages, and our employees are trained on and affirm their commitment to complying with the policies when they first join our Company and regularly thereafter.

Corporate Sustainability

Tetra Tech supports clients in more than 100 countries around the world, helping them to solve complex problems and achieve solutions that are technically, socially, and economically resilient. Our high-end consulting and engineering services focus on using innovative technologies and creative solutions to enhance environmental sustainability. Our greatest contribution toward sustainability is through the projects we perform every day for our clients. Sustainability is embedded in our projects—from recycling freshwater supplies to recycling waste products, reducing energy consumption, and reducing greenhouse gas emissions.

Our Sustainability Program enables us to further expand our commitment to sustainability by encouraging, coordinating, and reporting on actions to minimize our collective impacts on the environment. The program has four primary pillars: Projects—the solutions we provide for our clients; Procurement—our procurement and subcontracting approaches; Processes—the internal policies and processes that promote sustainable practices, reduce costs, and minimize environmental impacts; and People—the 20,000 staff at Tetra Tech and our partners, clients, and communities worldwide. In addition, our program is based on the Global Reporting Initiative (GRI) Sustainability Report Framework, the internationally predominant sustainability reporting protocol for corporate sustainability plans, which includes three fundamental areas: environmental, economic, and social sustainability.

Our Sustainability Program is led by our Chief Sustainability Officer (CSO), who has been appointed by executive management, reports directly to the CEO, and is supported by other key corporate and operations representatives via our Sustainability Council. The CSO provides regular reports to our Board of Directors. The Board of Directors has oversight responsibility for our Sustainability Program, which includes consideration of environmental issues, climate-related risks and opportunities, health and safety, human rights, and social matters in its regularly scheduled meetings. We have established a clear set of metrics to evaluate our progress toward our sustainability goals. Each metric corresponds with one or more performance indicators from GRI. These metrics include economics, health and safety, information technology, human resources, and real estate. We continuously implement sustainability-related policies and practices, and we assess the results of our efforts in order to improve upon them in the future. Our executive management team develops and implements the Sustainability Program and reports our progress in achieving the goals and objectives outlined in our corporate sustainability plan. We publish a sustainability report on Earth Day each year that documents our progress and is posted on our website at www.tetratech.com/en/sustainability-report-card.

Corporate Social Responsibility

Tetra Tech seeks clear, sustainable solutions that improve the quality of life for everyone. We take this responsibility seriously because our work often places us at the center of our clients' environmental, safety, and sustainability challenges. These challenges often involve the opinions of public, industry, and government stakeholders who seek our advice on complex issues. We have helped thousands of towns, cities, commercial clients, and governments find sustainable solutions to these complex issues concerning resource management and infrastructure.

Our professionals are encouraged to participate in outreach programs to help improve the communities in which they live and work. Tetra Tech employees and offices around the globe participate in many financial, in-kind, volunteer, and pro bono activities each year. In 2020 we advanced our commitment to Leading with Science® through our Science, Technology, Engineering, and Mathematics (STEM) Program to help shape the next generation of innovators and problem-solvers. As a supporter of the nonprofit humanitarian organizations Engineers Without Borders USA and Engineers Without Borders Canada, we are committed to helping communities in developing countries meet their basic human needs through lasting, scalable projects and technologies.

Tetra Tech 2021 Proxy Statement 8


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Corporate Governance, Sustainability, and Social Responsibility

Human Capital Management

Tetra Tech brings together engineers and technical specialists from all backgrounds to solve our clients' most challenging problems. At the end of FY 2020, we had approximately 20,000 employees worldwide. A large percentage of our employees have technical and professional backgrounds and undergraduate and/or advanced degrees. Our professional staff includes archaeologists, architects, biologists, chemical engineers, chemists, civil engineers, data scientists, computer scientists, economists, electrical engineers, environmental engineers, environmental scientists, geologists, hydrogeologists, mechanical engineers, oceanographers, toxicologists and other technical professionals.

Diversity, Equity and Inclusion

We believe our employees are high-performing individuals who reflect the diversity of the communities in which we work and live, while also providing a better understanding of our clients' needs and project objectives. With a highly collaborative workforce of thousands of employees working from hundreds of offices around the world, Tetra Tech truly is a multinational, multicultural organization. Our Diversity and Inclusion Policy guides the Board of Directors, management, employees, subcontractors, and partners in developing an inclusive culture. Our Diversity & Inclusion (D&I) Council monitors Tetra Tech's diversity, equity and inclusion practices and makes recommendations to the Board and CEO for any changes or improvements to our program. The Council includes representatives from across the Company who reflect the diversity and values of our employees.

Tetra Tech values diversity and inclusion and undertakes various efforts throughout our operations to promote these initiatives. Our current efforts are focused in three primary areas:

Safe work environment—We provide training to all employees to improve their understanding of behaviors that can be perceived as discriminatory, exclusionary, and/or harassing and provide safe avenues for employees to report such behaviors. We implement best practices and comply with local regulatory requirements. Our people understand acceptable workplace behavior as covered in our Corporate Code of Conduct.

Equal employment opportunity—Tetra Tech ensures that our practices and processes attract a diverse range of candidates and that candidates are recruited, hired, assigned, developed, and promoted based on merit and their alignment with our values.

Learning and development opportunities—To support our employees in reaching their full potential, Tetra Tech offers a wide range of internal and external learning and development opportunities. Education assistance is offered to financially support employees who seek to expand their knowledge and skill base.

As part of Tetra Tech's commitment to a culture of inclusion, in 2020 we launched our global Employee Resource Group (ERG) Program, which broadens and enhances companywide interaction opportunities for our employees. Tetra Tech's global ERG Program supports our employees and creates collaborative teams, or ERGs, where all voices are heard, all employees feel safe, and each employee has the opportunity to thrive. Our ERGs are open to all and involve activities for both employees whose background is the focus of the ERG and those who are supportive of the group (also known as allies). These global networks build on and coordinate with the many local networks already active throughout our operations and include groups focused on the experiences of Black, Latino, Women, Veterans, and LGBTQ employees. Our D&I Council charters and guides the development of the global ERGs to support our thriving worldwide employee community. For additional information, visit our website at https://www.tetratech.com/en/diversity-and-inclusion-activities.

Professional Development

Tetra Tech invests in the professional development of our employees. This investment enables us to attract and retain the caliber of talent that is integral to our success as a high-end professional consulting and engineering company. Professional development is inherently essential to the successful performance of high-end projects and collaborative multidisciplinary team delivery of responsive solutions. Working on challenging, innovative, and technically cutting-edge projects enhances our employees' professional development and growth. Our work encompasses many sustainable, societal, and beneficial outcomes that enable our employees to make positive contributions that benefit society. Technically innovative projects also provide an opportunity for our employees to "advance the science" in leading applications of our expertise to water, environment, sustainable infrastructure, and international development projects worldwide. We encourage our employees to develop patents, where appropriate, and to

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Corporate Governance, Sustainability, and Social Responsibility

publish journal articles in their field of expertise, often in collaboration with our clients. With our more than 450 offices, our employees can meaningfully contribute to improving the quality of life for the communities in which they work and live.

We provide our employees with developmental opportunities by encouraging collaboration and multidisciplinary teams through Tetra Tech's Growth Initiatives Program. This program facilitates collaboration across major service sectors such as water, power generation, and high-performance building design. We also support the application and integration of technology and skills development through internal webcasts and training.

Employees are also provided with training in leadership development, project management skills, and interpersonal skills development. Our focused programs are designed, taught, and facilitated by Tetra Tech leadership, consistent with our commitment to talent development. These programs include the following:

Leadership Academy—Tetra Tech's Leadership Academy develops our high-potential employees from around the world into outstanding business leaders. Instructors for this intensive, year-long program are executive management and operational leaders from within the Company. Participants are immersed in all aspects of the operations of the Company and complete challenging, real-world assignments designed to hone their leadership and management skills. Completion is personally certified by the Company's CEO and Chairman of the Board.

Tech 1000 Challenge—The Tech 1000 Challenge is a competition to create the most innovative, technology-focused solution to a real client challenge. The event brings together employees from around the world to team up and vie for the top technology solutions that address our clients' needs. Participants from across our markets form teams to focus on client needs, receive briefings on our Tetra Tech Delta technologies from their peers, and hone their skills in designing strategies and pitching client solutions.

Project Excellence Program—Tetra Tech develops project managers who are world class in their abilities and performance. The program is led by our Chief Engineer and involves extensive training on how to effectively manage all components of a project. Completion is certified by a senior member of the Project Excellence Team and leads to participants being assigned more complex projects.

Fearless Entrepreneur Program—Tetra Tech develops employees into client-oriented, business-minded professionals who are driven to understand and meet the needs of our clients. Developing professionals are challenged and mentored through a process of building client relationships. Participants take part in group discussions in a classroom setting and then are required to implement learned strategies with actual and potential clients. This program is led by senior operations management and completion is certified by an executive officer of the Company.

Professional Women's Network—Founded by Leadership Academy alumnae, the Tetra Tech Professional Women's Network provides a monthly platform for issues that affect women in the workplace. All women across the Company are invited to attend the monthly presentations, with topics suggested by network members. Tetra Tech women at various levels of leadership share insights and knowledge acquired throughout their careers. This group provides the opportunity for women at any stage in their careers to ask questions and further their career development by connecting them with mentors across the Company.

Tetra Tech Technology Transfer (T4) and ToolTalk Webcast Series—Tetra Tech holds monthly webcasts to help employees around the world improve their use of available internal tools and to provide better service to clients. Through the T4 and ToolTalk Webcast Series, Tetra Tech experts present and lead discussions about new technologies and programs, best practices, and opportunities for growth across the Company. All employees are invited to participate in the live presentations or view webcast recordings, ensuring that we are growing the knowledge, strength, and leadership of our employees around the world.

By offering our employees meaningful work and career development, Tetra Tech is well positioned to continue our growth through recruitment, development, and retention of the best talent in the industry.

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Our Board of Directors

Our Board of Directors

Our Board of Directors is responsible for overseeing, counseling, and directing management in serving the long-term interests of our Company and stockholders, with the goal of building long-term stockholder value and ensuring the strength of our Company for our clients, employees, and other stakeholders. In this capacity, the Board's primary responsibilities include establishing an effective Corporate Governance Program with a board and committee structure that ensures independent oversight; overseeing our business, strategies, and risks; maintaining the integrity of our financial statements; evaluating the performance of our senior executives and determining their compensation; undertaking succession planning for our CEO, other senior executives, and directors; and reviewing our Annual Operating Plan (AOP) and significant strategic and operational objectives and actions.

Board Composition

Our bylaws provide that our Board shall consist of between five and 10 directors, with the exact number fixed from time to time by Board resolution. The Board has fixed the number at eight as of the Annual Meeting. We believe a limited number of directors helps maintain personal and group accountability. Our Board is independent in composition and outlook, other than our CEO. All our current directors have been nominated for election by the Board of Directors upon recommendation by the NCG Committee.

Board Meetings and Attendance

During FY 2020, our Board of Directors held seven meetings. During that period, all the incumbent directors attended or participated in at least 75% of the total number of meetings of the Board and of the committees of the Board on which each of those directors served, during the period for which each of them served. Our directors are strongly encouraged to attend the Annual Meeting of stockholders, and all but one of our directors then in office attended last year's Annual Meeting.

Corporate Governance Policies

Our corporate governance policies, listed in the following table, are reviewed at least annually and amended from time to time to reflect the beliefs of our Board, changes in regulatory requirements, evolving best practices, and recommendations from our stockholders and advisors.


Corporate Governance Policies

Matter

  Description of Policy

Board Composition

 

Reasonable Size. Our Board shall be between five and 10 directors.

No Overboarded Directors. Our directors sit on three or fewer boards of other public companies.

Mandatory Retirement. Our Board has fixed the retirement age for directors at 75.

     

Director Independence

 

Majority Independent. A majority of our directors satisfy Nasdaq independence standards.

Regular Executive Sessions. Our independent directors meet in executive session following each meeting of the Board, each meeting of the Audit Committee, and certain other committee meetings.

     

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Our Board of Directors

Matter

  Description of Policy

Board Leadership Structure

 

Robust Presiding Director Role. Since our CEO is also Chairman, our independent directors selected one of themselves to serve on a rotating basis as Presiding Director, with established roles and responsibilities. See the Board Leadership Structure section following this table on page 13 for further details.

Annual Review. The Board annually appoints a Chair and determines whether the positions of Chair and CEO will be held by one individual or separated.

     

Board Committees

 

Independence. Board committees are comprised only of independent directors.

Governance. Board committees act under charters evaluated by the Board annually that set forth their purposes and responsibilities. The charters allow for the engagement, at our expense, of independent legal, financial, or other advisors the directors deem necessary or appropriate.

Attendance. Directors prepare for and are expected to attend all meetings of the Board and its committees on which they serve and are strongly encouraged to attend all Annual Meetings of stockholders.

     

Director Qualifications

 

Diverse and Relevant Experience. The NCG Committee works with the Board to determine the appropriate characteristics, skills, and experiences for the directors. The Board is committed to selecting the most qualified candidates regardless of gender, ethnicity, national origin and other underrepresented groups.

     

Board Duties

 

Succession Planning. Our Board conducts executive and director succession planning annually, including progress in current job position and career development in terms of strategy, leadership, and execution.

Financial Reporting, Legal Compliance, and Ethical Conduct. Our Board maintains governance and oversight functions, but our executive management maintains primary responsibility.

Stock Ownership Guidelines. To align the interests of stockholders with the directors and executive officers, our Board has established stock ownership guidelines applicable to executive officers and directors.

     

Continuous Board Improvement

 

New Director Orientation. All new directors participate in an orientation program to familiarize them with our Company.

Continuing Education. Directors continue their education through meetings with executive management and other managers to enhance the flow of meaningful financial and business information. They also receive presentations to assist with their continuing education. Directors also attend outside director education programs to stay informed about relevant issues.

Annual Evaluations. The NCG Committee oversees an annual self-assessment process for the Board and Committees to ensure our Board and each of the committees are functioning effectively.

     

Director Independence

Upon recommendation of the NCG Committee, our Board of Directors has determined that Mr. Birkenbeuel, Mr. Haden, Mr. Lewis, Ms. Maguire, Dr. Ritrievi, Mr. Thompson, and Ms. Volpi each is independent under the criteria established by Nasdaq for director independence. Mr. Batrack is not independent because he is serving as our CEO.

All members of our Audit, Compensation, NCG, and SPER committees are independent directors. In addition, the members of the Audit Committee and Compensation Committee each meet the additional independence criteria required for membership on those committees under applicable Nasdaq listing standards. The Board has also determined that each member of the Audit Committee qualifies as an "audit committee financial expert" under SEC rules.

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Our Board of Directors

Board Leadership Structure

Our Board of Directors does not have a policy with respect to whether the roles of chairman and CEO should be separate or combined. We currently have a combined Chairman/CEO role as well as an independent Presiding Director. We believe that the combined Chairman/CEO role is appropriate because it allows for one individual to lead our Company with a cohesive vision, the ability to execute that vision, and the understanding of the significant enterprise risks that need to be mitigated or overcome to achieve that vision. It also fosters clear accountability, effective decision-making, and alignment on corporate strategy. Combined leadership at the top also provides the necessary flexibility for us to rapidly address the changing needs of our business.

Balancing our combined Chairman/CEO is our Presiding Director, who is independent and has critical duties in the boardroom to ensure effective and independent oversight of Board decision-making. The Board has determined that the role of Presiding Director will rotate to ensure independence and the term will be four years. At a meeting in February 2019, the independent directors elected Mr. Thompson to serve as Presiding Director for a four-year term ending in January 2023.

Our governance policies describe the Presiding Director's duties, which delineate clear responsibilities to ensure independent stewardship of our Board, as summarized below.


 

Presiding Director Roles and Responsibilities

Schedule meetings of the independent directors.

Chair separate, executive session meetings of the independent directors.

Serve as principal liaison between independent directors and Chairman/CEO.

Communicate with Chairman/CEO and disseminate information to remaining directors as appropriate.

Provide leadership to the Board of Directors if circumstances arise in which the role of the Chairman may be, or may be perceived to be, in conflict.

Be available, as appropriate, for consultation and direct communication with major stockholders.

Oversee, with the NCG Committee, the annual self-evaluation of the Board.

Supplementing the Presiding Director are our committee chairs and members, all of whom are independent. With the Compensation Committee conducting a rigorous annual evaluation of the CEO's performance, which is discussed by all independent directors during executive sessions, we believe our Board leadership structure provides independent oversight of our Company.

Board Committees

Each of our Board committees has a separate written charter that describes its purpose, membership, meeting structure, authority, and responsibilities. These charters, which can be found in the Corporate Governance section of our website at www.tetratech.com/en/corporate-governance, are reviewed annually by the respective committee, with any recommended changes adopted upon approval by our Board.

The Board has four standing committees consisting solely of independent directors, each with a different independent director serving as chair of the committee. Our standing committees are the Audit Committee, the Compensation Committee, the NCG Committee, and the SPER Committee. Board committee meetings are held sequentially (i.e., committee meetings do not overlap with one another) and enable each of our Board members to attend each committee meeting. We believe this practice is highly beneficial to our Board specifically and to the Company in general because each of our Board members is aware of the detailed work conducted by each Board committee. This practice also affords each of our Board members the opportunity to provide input to each committee before any conclusions are reached.

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Our Board of Directors

The primary responsibilities, membership, and meeting information for our four standing committees are summarized below.


Standing Committees of the Board of Directors


 

 

Audit Committee

  Meetings in FY 2020: 4

 
Average Attendance in FY 2020: 100%    
  Chair

Gary R. Birkenbeuel

Members

J. Christopher Lewis
Kimberly E. Ritrievi
Kirsten M. Volpi

All members satisfy the audit committee experience and independence standards required by Nasdaq and have been determined to be financially literate.

Each member of the Audit Committee has been determined to be an "audit committee financial expert" under applicable SEC regulations.

  Responsibilities

Review our significant accounting principles, policies, and practices in reporting our financial results under U.S. generally accepted accounting principles.

Review our annual audited financial statements and related disclosures.

Review management letters or internal control reports and review our internal controls over financial reporting.

Review the effectiveness of the independent audit effort.

Appoint, retain, and oversee the work of the independent accountants.

Pre-approve audit and permissible non-audit services provided by the independent registered public accounting firm.

Review our interim financial results for each of the first three fiscal quarters.

Be directly responsible for our internal Management Audit Department, approve its audit plan, and review its reports.

Review and discuss financial, liquidity, tax and treasury, litigation, and Sarbanes-Oxley Act of 2002 compliance matters in accordance with our enterprise risk management (ERM) responsibility matrix.

Review and oversee related party transactions.

With the Compensation Committee, approve the compensation of our CFO.

Review complaints regarding accounting, internal controls, auditing, employee and other matters.

Prepare the annual Audit Committee Report to be included in the proxy statement.

 


 

 

Compensation Committee

  Meetings in FY 2020: 4

 
Average Attendance in FY 2020: 100%    
  Chair

J. Kenneth Thompson

Members

Patrick C. Haden
J. Christopher Lewis
Kirsten M. Volpi

All members satisfy the independence standards required by Nasdaq.

All members qualify as "nonemployee directors" under Rule 16b 3 of the Securities Exchange Act of 1934, as amended, and as "outside directors" under Section 162(m) of the Internal Revenue Code.

  Responsibilities

Review and approve the annual base salaries and annual incentive opportunities of the CEO and other executive officers, including an evaluation of the performance of the executive officers in light of our performance goals and objectives.

Review and approve all other incentive awards and opportunities, any employment agreements and severance arrangements, any change in control agreements, and any special or supplemental compensation and benefits as they affect the executive officers.

Review and discuss comments provided by stockholders and proxy advisory firms regarding our executive compensation.

Oversee our compliance with SEC rules and regulations regarding stockholder approval of certain executive compensation matters.

Review director and executive officer stock ownership under our stock ownership guidelines.

Review and discuss incentives and rewards in accordance with our ERM responsibility matrix.

Make recommendations to the Board with respect to incentive-based compensation plans, equity-based plans, and executive benefits.

Review and approve all grants of equity awards.

Review and discuss the annual Compensation Discussion and Analysis and Compensation Committee Report to be included in the proxy statement.

Retain and work with the independent compensation consultant.

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Our Board of Directors



 

 

Nominating and Corporate Governance Committee

  Meetings in FY 2020: 4

 
Average Attendance in FY 2020: 100%  
  Chair

Joanne M. Maguire

Members
Gary R. Birkenbeuel
Patrick C. Haden

All members satisfy the independence standards required by Nasdaq.

  Responsibilities

Develop criteria for nominating and appointing directors, including board size and composition; corporate governance policies; and individual director expertise, attributes, and skills.

Recommend to the Board the individuals to be nominated as directors.

Recommend to the Board the directors to be selected for service on the Board committees.

Oversee an annual review of the performance of the Board and each committee.

Review annually the adequacy of the committee charters and recommend to the Board proposed changes.

Make recommendations to the Board on changes in the compensation of nonemployee directors.

Review the succession plans relating to the positions held by executive officers and directors.

Review our Corporate Code of Conduct and anti-fraud policies in accordance with our ERM responsibility matrix; and consider any conflict of interest issues between us and directors or executive officers.

 


 

 

Strategic Planning and Enterprise Risk Committee

  Meetings in FY 2020: 2

 
Average Attendance in FY 2020: 100%    
  Chair

Kimberly E. Ritrievi

Members
Joanne M. Maguire
J. Kenneth Thompson

All members satisfy the independence standards required by Nasdaq.

  Responsibilities

Oversee our strategic planning process.

Provide oversight of the development of our three-year strategic plan by the management team.

Review and recommend to the Board certain strategic decisions regarding our exit from existing lines of business, entry into new lines of business, acquisitions, joint ventures, investments in or dispositions of businesses, and review and approval of our capital allocation strategy.

Review, as requested by management, our bid and proposal strategy for high-risk contracts.

Oversee our ERM policies and procedures and work with our Corporate Risk Management Officer on ERM reports to the Board.

Review, as determined by management, any changes in technology and regulatory trends to assess the impact of those changes on business strategy and resource allocation.

Executive Sessions

Our Board believes it is important to have executive sessions without our CEO being present, which are scheduled after every regular meeting of the Board. Our independent directors have robust and candid discussions at these executive sessions during which they can critically evaluate the performance of our Company, CEO, and management.

In addition, executive sessions of the Audit Committee are scheduled following each regular meeting of the Audit Committee (with our independent auditors, with the head of our internal audit department, and with executive management, if deemed necessary). Also, an executive session of the Compensation Committee is scheduled following the Compensation Committee meeting each November at which executive compensation determinations are made.

Oversight of Risk Management

Enterprise Risk Management and Strategic Risks

We believe that risk is inherent in the pursuit of long-term growth opportunities. Our management is responsible for day-to-day risk management activities. The Board of Directors, acting directly and through its committees, is responsible for the oversight of our risk management. With this oversight, we have implemented an enterprise risk management (ERM) program with practices and policies designed to help manage the risks to which we are exposed in our business and to align risk-taking appropriately with our efforts to increase stockholder value.

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Our Board of Directors

The SPER Committee is responsible for the oversight of the ERM program. Our Corporate Risk Management Officer reports the status of the ERM program to the Committee on a semiannual basis. The reports address our risk management effectiveness, projects that might significantly impact our financial condition, and any new risk issues and mitigation measures that have been implemented. The SPER Committee, as well as other members of the Board, also receive regular updates from our Chief Information Officer on the overall cybersecurity risk environment, including our Company's enterprise-wide cybersecurity risk assessment results and key initiatives.

Other committees of the Board oversee certain categories of risk associated with their respective areas of responsibility to better coordinate with management and serve the long-term interests of our stockholders. The reports the Board receives from the committees covering topics discussed at their meetings include any discussion of the areas of risk overseen primarily by each committee.

In addition, the Board participates in regular discussions with our senior management on several core subjects in which risk oversight is an inherent element, including strategy, operations, finance, mergers and acquisitions (M&A), and legal matters. The Board believes the leadership structure described in the Board Leadership Structure section on page 13 of this proxy statement facilitates the Board's oversight of risk management because it allows the Board, with leadership from the Presiding Director and working through its committees, to participate actively in the oversight of management's actions.


Major Areas of Oversight of the Board and Standing Committees

GRAPHIC

Risks Associated with Compensation Policies and Practices

As described in the Compensation Discussion and Analysis section on page 31 of this proxy statement, we maintain what we believe are best practices in compensation and corporate governance that collectively encourage ongoing risk assessment and mitigation. The Compensation Committee regularly reviews our executive compensation program to ensure it does not provide incentives that encourage our employees to take excessive risks in managing their respective business or functional areas. Our compensation program includes the following safeguards:

The program balances executive retention with rewarding stockholder value creation.

The majority of executive compensation is at-risk, with a mix consistent with market practices and primarily equity based to promote long-term performance.

The incentive mix is balanced, with short- and long-term performance metrics that do not overlap, cover different time periods, and are balanced among annual financial objectives and long-term economic and stockholder value creation.

Our annual incentive plan (AIP) and LTIs appropriately balance profitable growth in the near term with sustainable long-term financial success, use multiple performance metrics, measure performance at multiple levels (corporate, business group, and individual), and provide realized compensation based primarily on our performance.

The Compensation Committee may exercise downward discretion to adjust the objective, formulaic AIP awards based on individual performance.

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Our Board of Directors

AIP awards are not guaranteed and are subject to maximum payout caps.

Our incentive metrics and performance goals have multiple approval and oversight levels, including approval by members of the Compensation Committee.

Our performance stock unit (PSU) awards are performance-based, use multiple performance metrics, are subject to maximum payout caps to encourage appropriate performance focus and to limit potential risk-taking, and cliff vest at the end of three years.

Our change of control plan is market aligned, with change of control benefits provided on a double-trigger basis that do not provide excessive incentive to seek a transaction and are not grossed up for excise taxes.

Our clawback policy and stock ownership guidelines are consistent with market practices.

Our stock ownership guidelines, annual stock awards, and vesting provisions create sustained and consistent ownership stakes.

Based on these and other factors as well as on the advice of its independent compensation consultant, the Compensation Committee has concluded that our compensation policies and practices strike an appropriate compensation-risk balance, do not encourage excessive risk-taking, and do not as a whole create risks that are reasonably likely to have a material adverse effect on our Company.

Succession Planning

Our Board is involved in the identification and cultivation of our future leaders. We maintain an annual performance review process and leadership development program for our key employees. Management develops leadership at lower levels of our organization by identifying core talent, cultivating the skills and capabilities that will allow identified individuals to become our future leaders, assessing their development, and identifying gaps and developmental needs in skills and experience. At its meetings, the Board has the opportunity to meet with leaders of our Company, including business group leaders and leaders in finance, law, information technology, risk management, strategy health and safety, and human resources. In addition, Board members have freedom of access to key employees.

The NCG Committee is responsible for conducting executive succession planning annually, including progress in current job position and career development in terms of strategy, leadership, and execution. During this review, the CEO and the independent directors discuss future candidates for senior leadership positions, succession timing for those positions, and development plans for the candidates with the highest potential. This process ensures continuity of leadership over the long term and forms the basis on which we make ongoing leadership assignments. In addition, the NCG Committee is responsible for conducting director succession planning and the selection of director nominees as discussed below.

Director, Board, and Committee Evaluations

The NCG Committee oversees and conducts an annual evaluation of our directors, Board, and Board committees. For the Board, the comprehensive self-assessment covers areas such as effectiveness, composition, culture, resources, and meetings. Each of the topics is scored from 1 (Needs Improvement) to 5 (Role Model), with 3 being Acceptable. The Board then discusses each topic, with a particular focus on any topic that has received a score of 3 or less from any director.

The directors also comment on the Board's most significant contributions to the Company during the last 12 months, the most important issues for the Board to address in the next 12 months, and any areas in which the Company could improve the Board's management practices. Those comments result in action items that are placed on the agenda and addressed in subsequent Board meetings.

For each of the committees, the self-assessment covers areas such as committee composition, effectiveness, structure, information and resources, and meetings. As with the Board self-assessment, each of the areas is scored from 1 to 5. The members of the committee also comment on the committee's greatest contribution to the Company during the last 12 months and the most important issues for the committee to address in the next 12 months. The chair of each committee then leads a discussion of each area among the committee members, with a particular focus on any area that has received a score of 3 or less from any committee member. The comments result in action items that are placed on the agenda and addressed in subsequent committee meetings.

Many of the improvements in our corporate governance practices and board and committee processes have resulted from this annual evaluation process. Our Board views the annual evaluation process as an integral part of its commitment to cultivating excellence and best practices in its performance.

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Selection of Director Nominees

Director nominees are generally recommended to the Board by the NCG Committee for election to the Board. Our Board believes that the backgrounds and qualifications of our directors, considered as a group, provide a mix of complementary experience, knowledge, and abilities that enables our directors to effectively fulfill their oversight responsibilities.

In considering whether to recommend a candidate as a director nominee, the NCG Committee applies the criteria described in our governance policies, including independence, integrity, high personal and professional ethics, sound business judgment, and the ability and willingness to commit sufficient time to the Board. In evaluating the suitability of individual Board members, the NCG Committee takes into account many factors, including a general understanding of business development and strategy, risk management, finance, financial reporting, and other disciplines relevant to the success of a publicly traded company in the then-current business environment; understanding of our business and the issues affecting it; relevant education and professional background; personal accomplishment; and diversity. The NCG Committee does not assign specific weights to the criteria, and no particular criterion is necessarily applicable to all nominees.

In recommending candidates for election to the Board of Directors, the NCG Committee considers nominees recommended by directors, officers, stockholders, and others, using the same criteria to evaluate all candidates. The NCG Committee reviews each candidate's qualifications, including whether the candidate possesses any of the specific qualities and skills desirable in members of the Board of Directors. Evaluations of candidates generally involve a review of background information, internal discussions, and interviews with selected candidates as appropriate. Upon selection of a qualified candidate, the NCG Committee recommends the candidate for consideration by the full Board. The Committee may engage consultants or third-party search firms to assist in identifying and evaluating potential nominees.

Stockholder Submission of Director Nominees

Stockholders may recommend director candidates by submitting candidates' names, together with their qualifications, to NCG Committee Chair, c/o Corporate Secretary, Tetra Tech, Inc., 3475 E. Foothill Boulevard, Pasadena, California 91107. To be considered at the 2022 Annual Meeting, stockholder nominations must comply with the notice procedures and other requirements of our bylaws as described under "Submission of Stockholder Items for 2022 Annual Meeting" in the Meeting and Voting Information section of this proxy statement.

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Director Qualifications

Qualifications that are particularly desirable for our directors to possess in order to provide oversight and stewardship of our Company include those listed in the table.


Desirable Director Qualifications

    
Qualification










Description










Value to Our Board and Stockholders


Senior Leadership Experience

    Service in a senior executive position       Provides us with valuable external perspectives with which to assess our operations, execute our strategies, mitigate related risks, and improve our policies and procedures.
 

Industry and Technical Expertise

    Experience in consulting and engineering services that focus on water, the environment, sustainable infrastructure, resource management, renewable energy, and international development       Allows us to better understand the needs of our clients in developing our business strategies as well as to evaluate acquisition and divestiture opportunities.
 

Government Client Regulatory Experience

    Service in a position that requires interaction with government clients       Provides us with experience and insight into working constructively with government agencies and administrators and addressing significant public policy and regulatory compliance issues in areas related to our business and operations.
 

Business Development and M&A Experience

    Background in business development and in the analysis of proposed M&A transactions       Provides us with insight into developing and implementing strategies for growing our business through combinations with other organizations, including analyses of the "fit" of a proposed acquisition with our Company's strategy, the valuation of the transaction, and the management plan for integration with existing operations.
 

Financial Sophistication

    Understanding of accounting, auditing, tax, banking, insurance, or investments       Helps us oversee our accounting, financial reporting, and internal control processes; manage our capital structure; optimize capital allocation; and undertake significant transactions.
 

Public Board Experience

    Prior or concurrent service on other SEC reporting company boards       Demonstrates understanding of the extensive and complex oversight responsibilities of directors and helps reinforce management accountability for maximizing long-term stockholder value. Also provides insights into a variety of strategic planning, compensation, finance, and governance practices.
 

Innovation / Technology Experience

    Domain expertise and skill; technology/innovation; practical experience with tech transformation and disruption       Allows us to better understand and anticipate technical trends, generate disruptive innovation, and extend and create new business models.
 

International Operations Experience

    Experience with global companies, especially those with operations in Europe and Australia       Provides us with insight into the conduct of global operations, including an understanding of diverse business environments, economic conditions and cultures, and a broad perspective on global business opportunities.
 

Risk Oversight Experience

    Practical experience in risk governance, ERM framework, and knowledge/understanding of risk monitoring and mitigation       Helps us understand ERM program structures as well as practices and policies designed to identify and manage risks and to properly align risk-taking with overall governance and operations.
 

Talent Management / Compensation Experience

    Practical experience developing, managing, motivating, and compensating employees       Provides us with insight into cultivating an inclusive culture consistent with our values and purpose, providing an engaging work environment, attracting top talent, investing in our employees, supporting their career development, and remaining competitive in the marketplace.
 

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The graph below shows the qualifications of our FY 2021 director nominees.

GRAPHIC

Board Refreshment

Our governance policies reflect our belief that directors should not be subject to term limits. While term limits could facilitate fresh ideas and viewpoints being consistently brought to the Board, we believe they are counterbalanced by the disadvantage of causing the loss of a director who over a period of time has developed insight into our strategies, operations, and risks and continues to provide valuable contributions to Board deliberations. Our decision not to establish term limits is consistent with the prevailing practice among companies in the S&P 1000. We recognize that certain governance stakeholders have suggested that longer serving directors may have decreased independence and objectivity; however, we believe that an arbitrary decision to remove knowledgeable directors and the consistent oversight they bring weighs against strict restrictions on director tenure.

We have adopted the policies shown in the table below to facilitate refreshment of our Board and ensure that it continues to appropriately challenge our management.


Policies Supporting Board Refreshment

    
Policy










Description


Mandatory Director Resignation

    Incumbent directors who are not elected by a majority vote of the votes cast by our stockholders must promptly tender their resignation to the Board.
 

Mandatory Retirement

    The Board has fixed the retirement age for directors at 75 (determined as of the Annual Meeting following the director's birthday).
 

Resignation Tendered upon Retirement or Change in Principal Employment

    A director who retires from or changes his/her principal occupation or business association must offer to tender his/her resignation to the chair of the NCG Committee so that there is an opportunity for the Board, through the NCG Committee, to review the continued appropriateness of Board membership under the new circumstances.
 

Overboarding

    Without specific approval from the Board, no director may serve on the boards of more than three other public companies.
 

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The graph below shows the tenure of our FY 2021 director nominees.

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Director Diversity

As provided in our governance policies, we are committed to considering candidates for the Board regardless of age, gender, sexual orientation, ethnicity, or national origin. While diversity is a consideration, nominees are not chosen or excluded solely or primarily based on that basis. Rather, the NCG Committee focuses on skills, expertise, and background to complement the existing Board in light of the diverse and global nature of our businesses and operations. We have made progress recently in diversifying the Board as three of the four most recent independent directors are women. Women comprise nearly half of our director nominees. In addition, one of our director nominees identifies as LGBTQ.

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Active Stockholder Engagement and Communication Policy

Governance Engagement

We value our stockholders' opinions about our governance policies and practices and actively solicit input through our stockholder engagement program. In advance of the Annual Meeting, we proactively contacted our largest institutional stockholders, representing a majority of our then-outstanding shares, to solicit their views on our corporate governance and executive compensation programs. We welcome feedback on our Corporate Governance Program that this active and ongoing engagement with stockholders provides.

Contacting the Board

Stockholders may contact our Board, Chairman, Presiding Director, any committee or committee chair, or any other individual director concerning business-related matters by writing to Board of Directors (or a particular subgroup or individual director), c/o Corporate Secretary, Tetra Tech, Inc., 3475 E. Foothill Boulevard, Pasadena, California 91107 or via email to TES.AskTheBoard@tetratech.com.

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Table of Contents

Item 1: Election of Directors

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Tetra Tech 2021 Proxy Statement 22


Table of Contents

Item 1: Election of Directors

     

Dan L. Batrack

Chairman and CEO Director since 2005

   

   

   

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Age                    62

Experience

CEO and director since November 2005. Chairman since January 2008. President from October 2008 to October 2019.

Joined Tetra Tech in 1980 and has served in numerous capacities, including arctic research scientist, deepwater oceanographic hydrographer, coastal hydrodynamic modeler, environmental data analyst, project and program manager, President of the Engineering Division, and, in 2004, was appointed Chief Operating Officer (COO).

Established the firm's strategic direction and focus on Leading with Science® to become the #1 firm in North America for water consulting and engineering, environmental management, and climate change response.

Led research and engineering programs in locations in the Arctic and throughout South America, the Middle East, and the United States.

Serves as corporate sponsor for several of our clients' programs and remains engaged in our day-to-day operations.

Skills and Qualifications

Senior leadership; industry and technical experience; government client regulatory experience; business development and M&A; financial sophistication; innovation/technology; international operations; risk oversight; talent management/compensation.

Member of Visitors Committee, University of Washington College of Engineering

BA, Business Administration, University of Washington

     


     

Gary R. Birkenbeuel

Independent Director since 2018

   

   

   

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Age                    63


Current             Chair, Audit

Committees    Member, NCG

Experience

Retired after 37 years with Ernst & Young LLP (E&Y).

Former Regional Assurance Managing Partner, E&Y, 2003–2017.

Served as the audit partner in charge of multinational publicly and privately held companies engaged in the aerospace and defense, entertainment, technology, and media industries.

Skills and Qualifications

Senior leadership; financial sophistication; audit committee financial expert; certified public accountant; risk oversight; talent management/compensation.

Visiting Professor, Claremont McKenna College

Director and chairman of the investment and audit committees, American Film Institute

BA, Economics, Claremont McKenna College

     

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Table of Contents

Item 1: Election of Directors

     

Patrick C. Haden

Independent Director since 1992

   

   

   

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Age                           67


Current                    Member, NCG

Committees           Member, Compensation


Other Current        TCW Strategic

Public Boards         Income Fund

Experience

President, Wilson Avenue Consulting, since July 2017.

Advisor to the President, University of Southern California, July 2016 to June 2017.

Athletic Director, University of Southern California, August 2010 to June 2016.

General Partner of Riordan, Lewis & Haden, 1987–2010.

Skills and Qualifications

Senior leadership; business development and M&A; financial sophistication; private equity and investment; public board; risk oversight; talent management/compensation.

Director, TCW Funds; Met West Funds; Auto Club of Southern California; and Rose Hills, Fletcher Jones, Unihealth, and Mayr Foundations

BA, English Literature, University of Southern California; JD, Loyola Law School; BA, Economics, Oxford University (Rhodes Scholar)

Practicing attorney, 1982–1987

     


     

J. Christopher Lewis

Independent Director since 1988

   

   

   

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Age                        64


Current                 Member, Audit

Committees        Member, Compensation

Experience

Managing Director and Co-Founder, Riordan, Lewis & Haden, since 1982.

Skills and Qualifications

Senior leadership; business development and M&A; financial sophistication; audit committee financial expert; private equity and investment; public board; innovation/technology; risk oversight; talent management/compensation.

Director, Silverado Senior Living; ClearView Healthcare Partners; and CrossCountry Consulting

Previously director of two publicly traded companies and privately held company

BS, Business Administration and Finance, and MBA, University of Southern California

     

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Item 1: Election of Directors


     

Joanne M. Maguire

Independent Director since 2016

   

   

   

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Age                        66


Current                  Chair, NCG

Committees         Member, SPER


Other Current     CommScope, Inc.

Public Boards      Visteon Corporation

Experience

EVP of Lockheed Martin Space Systems Company, 2006–2013.

Joined Lockheed Martin Corporation in 2003.

Formerly with TRW's Space & Electronics sector (now part of Northrop Grumman), range of progressively responsible positions from engineering analyst to Vice President and Deputy to the sector's CEO.

Skills and Qualifications

Senior leadership; government client regulatory experience; industry and technical expertise; financial sophistication; risk oversight; corporate governance; public board; innovation/technology; talent management/ compensation.

Director, Draper Laboratory

Chair, Nominating and Corporate Governance Committee, CommScope

Elected to the National Academy of Engineering, 2011

BS, Engineering, Michigan State University; MS, Engineering, University of California, Los Angeles

     


     

Kimberly E. Ritrievi

Independent Director since 2013

   

   

   

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Age                        62


Current                 Member, Audit

Committees        Chair, SPER


Other Current     Schweitzer-Mauduit

Public Boards      International, Inc.

Experience

President, The Ritrievi Group LLC, since 2005.

Advisor to technology and chemical companies on financial strategies, 2005–2018; private investor 2018–present.

Co-Director, Americas Investment Research, Goldman, Sachs & Co., 2001–2004; Specialty Chemical Analyst, Goldman, Sachs & Co., Credit Suisse First Boston, Lehman Brothers, and Paine Webber.

Skills and Qualifications

Senior leadership; business development and M&A; industry and technical expertise; financial sophistication; audit committee financial expert; international operations; public board; innovation/technology; risk oversight; talent management.

Princeton University School of Engineering and Applied Science Leadership Council; Harvard School of Dental Medicine Dean's Advisory Board; Massachusetts Institute of Technology (MIT) Sandbox Funding Board; Wellesley Centers for Women Council of Advisors

Director, Intrinio

MS, Management, MIT Sloan School of Management; ScD, Chemical Engineering, MIT

     

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Item 1: Election of Directors


     

J. Kenneth Thompson

Independent, Presiding Director Director since 2007

   

   

   

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Age                        69


Current                 Chair, Compensation

Committees        Member, SPER


Other Current      Alaska Air Group Inc.

Public Boards       Coeur Mining, Inc.

                                Pioneer Natural

                                Resources Company

Experience

President/CEO and Co-Owner, Pacific Star Energy, LLC, since 2000.

Managing Director, Alaska Venture Capital Group LLC, 2004–2012.

EVP, Atlantic Richfield Company's Asia Pacific Region, 1998–2000.

Former executive head, ARCO's oil and gas research and technology center.

Skills and Qualifications

Senior leadership; industry and technical; business development and M&A; financial sophistication; risk oversight; strategic planning; environmental, safety and regulatory; oil and gas and mining; public board; innovation/technology; international operations; talent management/compensation.

Director, Pioneer Natural Resources Company, since 2011 and Chairman since 2019

Director, Alaska Air Group, since 1999

Director, Coeur Mining, since 2002

Director and Chairman, CDF Capital, since 2017

Chair, Environmental, Health, Safety and Corporate Responsibility Committee, Coeur Mining

Former Chair, Compensation and Leadership Development Committee, Alaska Air Group and Coeur Mining

BS, Petroleum Engineering, Missouri University of Science & Technology

     


     

Kirsten M. Volpi

Independent Director since 2013

   

   

   

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Age                      56


Current               Member, Audit

Committees      Member, Compensation

Experience

EVP, COO, and CFO, Colorado School of Mines, since July 2013; Senior Vice President for Finance and Administration, CFO, and Treasurer, August 2005 to August 2011.

Chief Administrative Officer, U.S. Olympic Committee, August 2011 to July 2013.

Various financial management roles for Rensselaer Polytechnic Institute, University of Colorado Foundation, and American Water Works Association.

Skills and Qualifications

Senior leadership; financial sophistication; audit committee financial expert; certified public accountant; international operations; risk oversight; talent management/compensation.

BS, Accounting, University of Colorado

     

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Item 1: Election of Directors

Chairman Emeritus

Dr. Li San Hwang has served as our Chairman Emeritus since March 2006. As Chairman Emeritus, Dr. Hwang is invited to attend Board and Board committee meetings, but he does not have voting rights. Chairman Emeritus is an unpaid position; however, we reimburse Dr. Hwang for his attendance-related expenses. Dr. Hwang joined our predecessor in 1967 and led our acquisition of the Water Management Group of Tetra Tech, Inc. from Honeywell Inc. in March 1988. He served as our CEO from our formation until November 2005. Dr. Hwang has served as an advisor to numerous government and professional society committees and has published extensively in the field of hydrodynamics. He is a graduate of the National Taiwan University, Michigan State University, and California Institute of Technology, holding BS, MS, and PhD degrees, respectively, in civil engineering, specializing in water resources.

Director Compensation

The NCG Committee works with the independent compensation consultant, Meridian Compensation Partners, LLC (Meridian), to target nonemployee director compensation at the median of our peer companies to support the recruitment and retention of our nonemployee directors. The majority of this compensation is delivered in equity to align director interests with those of our stockholders. Under our stock ownership guidelines, each nonemployee director must own shares having a value equal to the lesser of at least five times the nonemployee director's annual base cash retainer or 6,100 shares.

FY 2020 Cash Compensation

During FY 2020, our nonemployee director cash compensation program consisted of the following elements.

Annual Nonemployee Director Cash Compensation

Cash retainer

 
$100,000

Additional cash retainer for Presiding Director

 
$20,000

Additional cash retainer for Audit Committee Chair

 
$20,000

Additional cash retainer for Compensation Committee Chair

 
$15,000

Additional cash retainer for NCG Committee Chair

 
$10,000

Additional cash retainer for SPER Committee Chair

 
$10,000

Additional cash retainer for Audit and Compensation Committee membership

 
$5,000

Additional fee per in person or telephonic Board or committee meetings in excess of eight

 
$2,000

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Table of Contents

Item 1: Election of Directors

FY 2020 Equity Compensation

During FY 2020, our nonemployee director equity compensation program consisted of an equity award based on a fixed dollar value of $125,000. The following table describes the awards granted on November 21, 2019.


PSU and RSU Awards Granted

Type of Award
    Shares Underlying
Award (#)


    Description

Performance Stock Units (PSUs)

 

 

873

     

Represents target shares underlying the award. PSUs have a 3-year performance period with cliff vesting on the applicable vesting date and with the same terms as the PSUs awarded to our executive officers, subject to the achievement of the applicable performance goals. PSUs vest immediately upon change in control or upon departure from the Board after serving 10 years or more, having served the full term for which the director was elected, and subject to achievement of the applicable performance criteria. Upon the director's departure having served less than 10 years or upon death or disability, PSUs vest on a pro rata basis on the scheduled vesting date and subject to achievement of the applicable performance criteria. For additional information concerning PSU vesting, refer to the Compensation Discussion and Analysis section on page 31 of this proxy statement.

 

Restricted Stock Units (RSUs)

 

 

582

     

Vested on November 18, 2020, if the director had not ceased to be a director prior to that date. RSUs vest immediately upon change in control or upon departure from the Board after serving 10 years or more and having served the full term for which the director was elected. Upon the director's departure having served less than 10 years, RSUs vest on a pro rata basis. Upon the director's death or disability, unvested RSUs are forfeited.

 

Director Compensation Table

The following table provides information concerning the compensation for services of our nonemployee directors during FY 2020.


Direct Compensation by Director

Name


    Fees Earned or
Paid in Cash ($)1

 
    Option Awards ($)2       Stock Awards ($)3       Total ($)

Gary R. Birkenbeuel

 

 
120,000
     
0
     
136,039
     
256,039
 

Patrick C. Haden

    107,000       0       136,039       243,039
 

J. Christopher Lewis

    112,000       0       136,039       248,039
 

Joanne M. Maguire

    112,000       0       136,039       248,039
 

Kimberly E. Ritrievi

    115,000       0       136,039       251,039
 

J. Kenneth Thompson

    139,000       0       136,039       275,039
 

Kirsten M. Volpi

    112,000       0       136,039       248,039
 

1 Mr. Batrack does not appear in the table because he received compensation as our CEO and does not receive any additional compensation as director.

2 No stock options were granted to nonemployee directors in FY 2020. For information regarding the number of stock options held by each nonemployee director as of September 27, 2020, see the Stock Options Outstanding column in the table below.

3 $87,181 of the amounts in the Stock Awards column represent the aggregate grant date fair values, without adjustment for forfeitures, of PSUs that are payable at the end of a three-year performance period provided that the performance objectives are achieved as of the end of the period. The actual number of shares issued can range from 0% to 200% of the target shares at the time of grant. The performance objectives that determine the number of shares that may be earned for the PSUs were (1) as to 50% of the award, growth in EPS, which is a performance condition under Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 718, and (2) as to 50% of the award, TSR, which is a market condition under FASB ASC Topic 718, relative to the TSR of (A) 16 companies objectively determined based on Global Industry Classification Standard (GICS) code and revenue size (25% of award) and (B) the S&P 1000 (25% of award), in each case computed over the three-year performance period. The performance condition component of the fair value of

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Table of Contents

Item 1: Election of Directors

PSUs was determined based on the fair market value of our common stock on the date of grant. The market condition component of the fair value of the PSUs was determined as of the date of grant using the Monte Carlo simulation method, which uses multiple input variables to estimate the probability of meeting the performance objectives established for the award, including the expected volatility of our stock price and other assumptions appropriate for determining fair value. Based on these computations, the grant date fair values of the performance condition-based PSU awards and the market condition-based PSU awards granted on November 21, 2019, to each nonemployee director on that date were $83.95 and $115.74 per share, respectively. The maximum grant date fair value of the PSU awards in FY 2020 (200% vesting) was $174,361 for each of the nonemployee directors. There can be no assurance that these grant date fair values will be realized by the nonemployee directors. For information regarding the number of unvested PSUs held by each nonemployee director as of September 27, 2020, see the Unvested PSUs Outstanding column in the table below. $48,859 of the amounts in the Stock Awards column represent the aggregate grant date fair values, computed in accordance with FASB ASC Topic 718, of RSU awards. The grant date fair value of these awards is calculated using the closing price of our common stock on the grant date as if these awards were vested and issued on the grant date. The grant date fair value of the RSU awards granted on November 21, 2019, to each nonemployee director was $83.95 per share. There can be no assurance that these grant date fair values will ever be realized by the nonemployee directors. For information regarding the number of unvested RSUs held by each nonemployee director as of September 27, 2020, see the Unvested RSUs Outstanding column in the following table.

Each of the nonemployee directors owned the following number of nonqualified stock options, unvested PSUs, and unvested RSUs as of September 27, 2020.


Nonqualified Stock Options, Unvested PSUs, and Unvested RSUs by Director                      

Name


    Stock Options
Outstanding (#)


    Unvested PSUs
Outstanding (#)


    Unvested RSUs
Outstanding (#)

Mr. Birkenbeuel

 

 
243
     
2,646
     
582
 

Mr. Haden

    21,000       3,828       582
 

Mr. Lewis

    29,000       3,828       582
 

Ms. Maguire

    16,400       3,828       582
 

Dr. Ritrievi

    12,600       3,828       582
 

Mr. Thompson

    16,800       3,828       582
 

Ms. Volpi

    21,000       3,828       582
 

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Item 2: Advisory Vote to Approve Executive Compensation

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Compensation Discussion and Analysis

Compensation Discussion and Analysis

This compensation discussion and analysis (CD&A)1 provides an overview of the principles and practices underlying our executive compensation program and the decisions made by the Compensation Committee related to FY 2020 compensation.

This CD&A and the Executive Compensation Tables section on page 51 of this proxy statement provide compensation information for our NEOs for FY 2020, who are identified in the table below.


FY 2020 Named Executive Officers

Name


 

Title


 
Years in
Position at FYE
20201




 
Years at Tetra
Tech at
FYE 2020

Dan L. Batrack

    Chairman, CEO       15       40
 

Steven M. Burdick

    EVP, CFO       9       17
 

Leslie L. Shoemaker

    President       1       29
 

Roger R. Argus

    SVP, and President, Government Services Group (GSG) and United States Government (USG) Division       3       27
 

Preston Hopson

    SVP, General Counsel, and Secretary       3       3

1 FYE 2020 was September 27, 2020.

FY 2020 Performance Summary

Tetra Tech's FY 2020 operating results reflected increased performance compared to FY 2019, which was itself a year of strong operational and financial performance. In FY 2020 we achieved record highs in earnings per share (EPS), cash from operations, and backlog even with the disruption from the global COVID-19 pandemic. Our focus on providing clients with high-end differentiated consulting and engineering services, primarily in the water, environment, and sustainable infrastructure markets, has resulted in increased margins and reduced risk in our business.

We began FY 2021 with an authorized and funded backlog that reached another all-time high of more than $3.2 billion in the fourth quarter of FY 2020.

Highlights of our FY 2020 results of operations as reported in our FY 2020 Annual Report on Form 10-K are noted in the table below.


FY 2020 Highlights
($ in millions, except EPS)


 

 


 

$




 

vs. FY 2019

Cash from operations

    $262       +26%
 

EPS

    $3.16       +11%
 

Backlog

    $3,239       +5%

Disciplined Capital Allocation

We achieved these results while maintaining a healthy balance sheet and continuing the disciplined execution of our capital allocation strategy. Over the last three years, we have returned $381 million to our stockholders through dividends and stock repurchases. In FY 2020, we returned $152 million to our stockholders by:

Repurchasing approximately 1.6 million shares for an aggregate of $117 million, and

Paying an aggregate dividend of $.64 per share for an aggregate of $35 million.

   


1 This CD&A contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from the results, performance, or achievements expressed or implied thereby. For a detailed discussion of these risks, see Part I, Item 1A ("Risk Factors") and Part II, Item 7 ("Management's Discussion and Analysis of Financial Condition and Results of Operations") in our FY 2020 Annual Report on Form 10-K, filed on November 23, 2020, with the SEC (2020 Annual Report). Stockholders should note that statements contained in this CD&A regarding our Company and business group performance targets and goals should not be interpreted as management's expectations, estimates of results, or other guidance.

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Table of Contents

Compensation Discussion and Analysis

We have paid quarterly dividends since April 2014 and increased our dividend from $.07 at inception to $.17 per share in April 2020, a 143% increase over this period.

In January 2020, our Board of Directors approved a new $200-million share repurchase program as part of our continued capital allocation strategy.

Strong Stock Price Performance

Our strong annual TSR in FY 2020 contributed to our cumulative TSR of 101% for the FY 2018 through FY 2020 period. We compared our TSR to the S&P 1000 and our TSR peer group (listed on page 46 of this proxy statement) and outperformed both in FY 2020 and over the cumulative three-year period. TSR measures the return we have provided our stockholders, including stock price appreciation and dividends paid (assuming reinvestment thereof).

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Compensation Discussion and Analysis

Strong Compensation Governance Practices

Our executive compensation program incorporates what we believe are best practices, as shown in the following table, which we believe ensure that the program serves the long-term interests of our stockholders.


Compensation Governance Policies and Best Practices

Policy or Best Practice


 

Description and Benefit to Our Stockholders

Majority of Compensation Performance Based

    For FY 2020, 83% of our CEO's target total direct compensation (TDC) (base salary + annual cash incentive opportunity + long-term equity incentive opportunity) and an average of 67% of our NEOs' target TDC was at-risk (all compensation components other than base salary). Further, 58% of our CEO's target TDC and an average of 51% of our other NEOs' target TDC was performance based (AIP award and PSUs).
 

Median Targeting

    TDC and the components thereof are targeted at the median of companies similar in size, scope, and complexity, giving consideration to responsibilities, individual performance, tenure, retention, succession, and market factors.
 

Capped Annual Incentive

    Annual cash incentive compensation is based primarily on our achievement of performance objectives in the categories of revenue, operating income, cash flow from operating activities, and backlog, with awards ranging from 0% to a cap of 200% of target.
 

Majority Long-Term Equity Incentive Compensation

    The majority of our equity-based incentive awards emphasize our long-term performance, with PSUs cliff vesting at the end of three years, subject to achievement of the applicable performance goals. Equity compensation aligns NEO interests with stockholder interests by delivering compensation dependent on our long-term performance and stockholder value creation.
 

Rigorous Goal Setting Process

    Annual review and approval are completed by the Compensation Committee of the performance goals for the Company (Corporate) and for our business groups. The performance factor used to determine AIP awards is increased or decreased based upon the growth level of the targets from the prior fiscal year.
 

No Employment Agreements

    Our NEOs are employed at will, and they have no special severance benefits in the absence of a change in control.
 

Stock Ownership Guidelines

    Our NEOs are required to obtain and maintain shares having a value equal to the lesser of (1) at least 2x to 6x base salary (based on position) or (2) a fixed number of shares based on position. All our NEOs are in compliance with our stock ownership guidelines.
 

No Hedging or Pledging

    Our insider trading policy prohibits our directors and officers from hedging or pledging our common stock, and all our NEOs are in compliance with that policy.
 

Clawback Policy

    Incentive compensation is subject to clawback if we are required to prepare an accounting restatement as a result of material noncompliance with any financial reporting requirements under the securities laws.
 

No Excise Tax Gross-Ups

    We do not provide gross-up payments received in connection with a change in control for excise taxes.
 

Double-Trigger Equity Vesting

    No equity awards will be accelerated in connection with a change in control unless the NEO's employment is terminated without cause or the NEO terminates employment for good reason within two years thereof.
 

No Repricing/Exchange of Underwater Stock Options

    Our Equity Incentive Plan prohibits the repricing/exchange of underwater options without stockholder approval.
 

Limited Perquisites

    Our NEOs receive limited capped reimbursements for vehicle use, financial planning, tax planning, memberships, and annual physical examinations. These reimbursements are not subject to any tax gross-up.
 

Independent Oversight

    The Compensation Committee is comprised solely of independent directors.
 

Independent Expert Advice

    Meridian, which has been determined by the Compensation Committee to be independent and free of conflicts of interest, provides the Committee with expert executive compensation advice. Meridian has served as the independent advisor since January 2016.

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Compensation Discussion and Analysis

2020 Say-on-Pay Vote and Executive Compensation Program

At the 2020 Annual Meeting, 97% of our stockholders approved our FY 2019 executive compensation program. It is our practice to take stockholder feedback into consideration as we discuss and implement compensation design changes. During FY 2020, the Compensation Committee reviewed best practices for executive compensation and evaluated the vote results at the 2020 Annual Meeting and the results of our ongoing stockholder outreach program. Telephone conferences with our investors were attended by members of management in our legal, investor relations, and executive compensation functions. The feedback was subsequently reported to the Compensation Committee, and the Committee was able to develop a clear understanding of stockholder views. The Compensation Committee remains committed to the ongoing evaluation of our executive compensation program and adjustments to this program to reflect feedback received from stockholders.

Stockholder Engagement

Our ongoing engagement program begins in February of each year, following the filing of our proxy statement in January. After we file our proxy statement with the SEC, we reach out to our largest investors (generally representing 50% to 70% of our shares outstanding as of the record date), sharing these materials and offering a conversation to discuss our executive compensation and answer questions. On the day of the Annual Meeting, we discuss preliminary vote results with our Board and follow up with Board committees in the spring with a more detailed analysis of actual results, including feedback from investors and views of proxy advisory firms. In the fall, we again reach out to our largest investors to discuss executive compensation to hear what issues are important to our stockholders. In the winter, we review the feedback from our fall outreach effort with management and our Board, and consider whether any changes to our executive compensation program are advisable. We also keep investor feedback in mind as we prepare our next proxy statement by enhancing or clarifying our disclosure as appropriate.

Following the 2020 say-on-pay vote, as part of our stockholder outreach program, we proactively contacted our largest institutional stockholders, representing approximately 60% of our outstanding shares as of the record date for the 2020 Annual Meeting, to solicit their views on our executive compensation program and make directors and management available to answer questions and address concerns. Additionally, our senior management team, including our CEO and CFO, regularly engage in meaningful dialogue with our stockholders through our quarterly earnings calls and other channels of communication.

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Compensation Discussion and Analysis

Pay Philosophy and Executive Compensation Components

We believe in a pay-for-performance compensation program in which a majority of the compensation is tied to our success in meeting predetermined performance objectives and creating long-term stockholder value. The objective of this strategy is to motivate our executives to achieve our annual and long-term financial goals, align with stockholders, and recognize the executives' contributions in delivering strong corporate and/or business group performance. The Compensation Committee implements this philosophy and provides incentives to our executives by following three key principles:

Positioning target total direct compensation (TDC) and each component thereof at approximately market median; failure to achieve financial objectives and create stockholder value should directly impact TDC relative to market median compensation.

Aligning our annual incentive awards with our AOP and key financial and strategic objectives, which are predetermined and objectively measurable.

Rewarding long-term performance using metrics such as EPS growth and relative TSR, which focuses executives on consistent and sustainable stockholder value creation.

The Compensation Committee targets TDC for NEOs at the median of companies similar in size, scope, and complexity with which we compete for executive talent, and then considering responsibilities, individual performance, tenure, retention, company performance, succession planning, and market factors for each executive. The Committee believes this positioning and approach is appropriate given our business portfolio mix, the diversity of our services, and the global nature of our operations, which require our executives to have a wide range of business leadership experience and skills.

Our incentive compensation for FY 2020 consisted of the AIP and LTI awards. The AIP award payouts were based on our performance against performance goals established by the Compensation Committee in November 2019 for revenue, operating income, cash flow, and backlog. The AIP rewards NEOs based on corporate and/or business group and/or division performance as well as individual contributions to motivate the NEOs and align their compensation with stockholder interests. Both our AIP and our PSU awards under our LTI program provide upside opportunity for exceeding performance targets and downside risk, including forfeiture of PSUs and no payout under our AIP for failing to achieve predetermined performance targets. Our compensation is aligned with performance, and our ability to exceed or failure to achieve our performance targets directly impacts payments to our NEOs and their compensation relative to the market median. The following graphic illustrates the components of our executive compensation program.


Components of Annual and Long-Term Compensation

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Compensation Discussion and Analysis

In FY 2020, as shown in the following graphic, 83% of our CEO's target TDC and an average of 67% of our other NEOs' target TDC was at-risk (all compensation components other than base salary). Further, 58% of our CEO's target TDC and an average of 51% of our other NEOs' target TDC was performance based (AIP award and PSUs):


FY 2020 NEO Target TDC Mix

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Summary of Compensation Decisions for FY 2020

The key elements of our FY 2020 NEO target TDC are shown in the following table. While we provide consistent, market-competitive TDC opportunities for our NEOs, the actual compensation they realize varies year to year based on our performance.

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Table of Contents

Compensation Discussion and Analysis

Our CEO is not involved in the decisions regarding his own compensation, which is determined by the Compensation Committee in executive session with consultation from Meridian.


FY 2020 NEO TDC

Component


 

Purpose


 

Decisions Impacting FY 2020 Executive Compensation

Fixed

               

Base Salary

    Provides fixed, market-competitive monthly income for performing daily responsibilities      

The Committee increased the CEO's base salary by 6.6% in FY 2020 to reflect prior year performance, tenure, and overall market-competitive base pay around the median.

The Committee adjusted NEO base salaries to reflect prior year performance or position their salaries at or around the market median, with increases ranging from approximately 8% to 9%.

Performance-Based Cash


     

AIP Award

    Provides variable, cash-based incentive to motivate our executives annually to grow revenue, increase profitability, deliver strong cash flow, and replenish backlog consistent with our AOP financial objectives      

Target bonus opportunity, as a percentage of base salary, was 125% for the CEO, 80% for EVP, and 75% for the general counsel and the SVPs with group or division president roles, with the bonus opportunity ranging from 0% to a maximum of 200% of each executive's target bonus opportunity.

The corporate and business group performance factor has a range of 0 to 2.0, with a target of 1.0 based on achievement of four AOP targets (revenue, operating income, cash flow, and backlog).

The Committee may make limited adjustments to AIP payments for individual performance.

Minimum (threshold), target, and maximum performance criteria and payouts were established for each metric, with payout at 0% of target below threshold performance, 50% of target at threshold, 100% of target at target, and 200% of target at maximum.

Long-Term Incentives


     

PSUs
RSUs


 
  Provide variable equity-based incentive compensation to enhance the alignment of our executives' interests with stockholder interests and drive long-term value creation

Provide LTI opportunity, including vehicle selections, performance criteria and weightings based on market data, our pay philosophy, and independent consultant recommendations

     

For FY 2020, the value of the target LTI opportunities for the CEO and the SVPs were adjusted to target the market median while also considering internal equity, retention, and individual performance and role, among other factors.

PSUs have a three-year performance period with cliff vesting, subject to achievement of the applicable performance goals; vesting is determined at 50% by EPS growth and 50% by relative TSR:

o

EPS-based vesting ranges from 0% for less than 2% average annual EPS growth to 200% for greater than or equal to average annual 16% EPS growth.

o

TSR-based vesting ranges from 0% if our TSR is less than the 25th percentile of the TSR peer groups to 200% if our TSR is at the 75th or higher percentile of the TSR peer groups.

RSUs have time-based vesting at the rate of 25% per year, subject to the holder's continuous employment by us through the applicable vesting date.

In addition to these primary elements of our executive compensation program, we also provide our NEOs with limited perquisites and benefits, as specified in the Strong Compensation Governance Practice section on page 33 of this proxy statement.

Assessment of Pay for Performance

Our Compensation Committee designed the executive compensation program to reflect its philosophy that a majority of compensation should be tied to our success in meeting predetermined performance objectives, the achievement of which should positively influence our stock price. The objective is to motivate the executives to achieve these annual and long-term financial goals in order to deliver consistent and sustainable return to our stockholders. For the period FY 2018 through FY 2020, our CEO's reported compensation increased 19% and, on average, our other NEOs' reported compensation increased 22% compared to the 101% increase in our TSR performance over the same period.

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Table of Contents

Compensation Discussion and Analysis

Discussion of Compensation Components and Decisions Impacting FY 2020 Compensation

The Compensation Committee targets base salaries at or around the market median, with the majority of NEO compensation consisting of incentive compensation to advance the Committee's pay-for-performance philosophy. This methodology drives higher realized compensation when our financial performance is stronger and lower realized compensation when our financial performance is weaker. It provides the Committee with the flexibility to respond to changing business conditions, manage compensation in accordance with career progression, and adjust compensation to reflect differences in executive experience and performance.

FY 2020 Base Salary

In November 2019, the Compensation Committee approved the base salary adjustments shown in the following table for our NEOs, and the adjustments were not retroactive to the beginning of FY 2020. Accordingly, the base salary amounts do not necessarily conform to the amounts contained in the Summary Compensation Table on page 51 of this proxy statement, which reflect the salary actually earned during FY 2020. Increases are generally driven by prior year performance, tenure, and overall market median for positions with similar scope and responsibility.


FY 2020 NEO Base Salaries

Name


    FY 2019 Base Salary ($)
    % Increase
    FY 2020 Base Salary ($)

Mr. Batrack

    985,000       6.6       1,050,000
 

Mr. Burdick

    505,000       8.9       550,000
 

Dr. Shoemaker

    505,000       8.9       550,000
 

Mr. Argus

    370,000       8.1       400,000
 

Mr. Hopson

    370,000       8.1       400,000
 

FY 2020 AIP Award Program

The Compensation Committee grants AIP awards under our Executive Compensation Plan approved by our stockholders in 2014. No amounts are paid under the Executive Compensation Plan unless we have positive net income (as defined under the Plan). The AIP awards are used to motivate NEOs to meet and exceed annual company objectives. These incentives are paid to reward the achievement of specified operating, financial, strategic, and individual measures and goals that are expected to contribute to stockholder value creation.

AIP Performance Measures and Targets

The AIP uses four financial metrics when the Committee is determining payments under the Executive Compensation Plan. Each November, a target level is established for each of the four financial metrics based on the AOP for the business groups as well as the Company as a whole. In setting the targets, the Board and Compensation Committee aim to align our long-term financial goals and the drivers of our long-term stockholder value.

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Table of Contents

Compensation Discussion and Analysis

The four financial metrics, including rationale for their inclusion in the AIP and the results of the FY 2020 AIP, are illustrated in the table below.


AIP Award Program Financial Metrics

 
   
   
   
   
   
   
   
   
   
   
   
   




Metric





   

FY 2020
Weighting




   

What it Measures and
How It Aligns




    Threshold/
Maximum
as a % of
Target




    FY 2020
Target1
($ in
thousands)




    FY 2020
Actual2
($ in
thousands)




    FY 2019
Actual2
($ in
thousands)

Revenue

    20%       Measures the growth of our business and is a leading driver of stockholder value creation.

Aligns with our growth and durable competitive advantage drivers.

      85% / 115%       Corporate:
$3,210,000

GSG:
$1,864,000

USG:
$638,000

      Corporate:
$2,994,891

GSG:
$1,759,830

USG:
$622,827

      Corporate:
$3,121,000

GSG:
$1,821,000

USG:
$771,848

 

Operating Income

    40%       Primary measure used by stockholders and analysts to evaluate our profitability.

Aligns with our margin, durable competitive advantage, and ERM drivers.

      75% / 125%       Corporate:
$261,000

GSG:
$168,000

USG:
$77,000

      Corporate:
$234,996

GSG:
$167,037

USG:
$74,495

      Corporate:
$234,000

GSG:
$185,000

USG:
$113,148

 

Cash Flow

    20%       Demonstrates our ability to collect on receivables billed to clients and allows us to invest in our business and return funds to stockholders through dividends and share repurchases.

Aligns with our capital allocation driver.

      75% / 125%       Corporate:
$232,000

GSG:
$204,000

USG:
$107,000

      Corporate:
$262,479

GSG:
$213,922

USG:
$115,594

      Corporate:
$212,000

GSG:
$168,000

USG:
$91,411

 

Backlog

    20%       Positions us for growth going forward based upon authorized and funded projects.

Aligns with our growth and durable competitive advantage drivers.

      85% / 115%       Corporate:
$3,245,000

GSG:
$2,272,000

USG:
$655,000

      Corporate:
$3,239,285

GSG:
$2,264,260

USG:
$674,861

      Corporate:
$3,092,000

GSG:
$2,164,000

USG:
$662,034

 

1 Corporate AOP is based on business group AOPs, augmented by planned acquisitions, which are aligned with our business and stockholder interests. The AOPs for business groups include no acquisitions, since capital allocation strategy is implemented at Corporate.

2 With respect to Corporate, results exclude the impact of acquisition related charges, non-core disposition-related charges, and one-time non-recurring tax adjustments in FY 2020. With respect to the business groups, results include only 50% of the impact of acquisitions in FY 2020. This inclusion reflects the business group presidents' responsibility to oversee the performance of and successfully integrate acquisitions.

The AIP awards for our NEOs are based on the level of achievement of performance of the business for which they were responsible. The chart below indicates respective weightings for business performance for each NEO.

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Table of Contents

Compensation Discussion and Analysis

Minimum (threshold), target, and maximum performance criteria and payouts were established for each metric as indicated above. Payout percentages are reflected in the table below with straight line interpolation for performance between threshold and target and between target and maximum. No bonus is earned with respect to a metric if performance is below threshold, and no additional bonus is earned for performance above maximum.


Payout Percentages

Performance Level


    Payout

Less than Threshold

    0%
 

Threshold

    50%
 

Target

    100%
 

Maximum

    200%
 

Further, a financial modifier or "growth factor" is applied to adjust the payout, either upward or downward, based on whether the AOP target is aggressive or conservative as compared to the prior year. This growth factor assists in validating the rigor of our AOP goals. Additional details on both the financial and individual performance elements of our AIP are provided below.

AIP Award Formula

NEO AIP awards are determined using the following formula.

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FY 2020 Target AIP Opportunities

The following table sets forth the target award and the maximum award possible as a percentage of FY 2020 base salary for each NEO. No bonus is paid if performance is below the threshold performance goals.


Minimum, Target, and Maximum Percentages by NEO

Name