The Audit Committee oversees our financial reporting, internal controls, and audit functions on behalf of the Board of Directors. Our management has the primary responsibility for preparing our financial statements in accordance with generally accepted accounting principles, maintaining effective internal control over financial reporting and assessing the effectiveness of our internal control over financial reporting. We have a full-time internal audit department that reports to the Audit Committee. This department is responsible for the evaluation of the adequacy and effectiveness of the organizations’ governance, risk management, and internal controls as well as carrying out assigned responsibilities to achieve the organizations’ stated goals and objectives.
Our independent registered public accountants, Ernst & Young LLP, or EY, are responsible for auditing our financial statements and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB, and issuing their reports based on that audit. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited consolidated financial statements for the year ended December 31, 2018 that are included in our Annual Report filed with the Securities and Exchange Commission with our management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.
The Audit Committee is comprised of four non-employee independent directors and is governed by a written charter adopted by the Board of Directors that is reviewed by the committee annually and
was last amended on December 18, 2015. The charter is available in the Corporate Governance section of the Investor Relations area of our website at
www.tetratec.com
. Under the charter, the primary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities as to, among other duties: (1) the integrity of our financial statements, including a review of the application of accounting principles, significant financial reporting issues and judgments in connection with the preparation of the financial statements, and the effects of regulatory and accounting initiatives on the financial statements; (2) reviewing and discussing with management and our independent registered public accountants our earnings press releases, as well as public earnings guidance; (3) recommending to the Board the filing of our audited financial statements with the Securities and Exchange Commission; (4) our disclosure controls and procedures and internal control over financial reporting, including review of any material issues as to the adequacy of internal control over financial reporting; (5) our compliance with legal and regulatory requirements and our Code of Business Conduct; (6) the performance of our internal audit function; (7) the performance of our compliance function; (8) our enterprise risk management process; and (9) the evaluation, appointment and retention of our independent registered public accountants, including a review of the firm's qualifications, services, independence, fees and performance. In connection with the evaluation, appointment, compensation, retention and oversight of the independent registered public accountants, each year the Audit Committee reviews and evaluates the qualifications, performance and independence of the independent registered public accountants and lead audit partner, including taking into account the opinions of management and our internal auditor. In doing so, the Audit Committee considers a number of factors including, but not limited to: quality of services provided; sufficiency of firm resources; technical expertise and knowledge of the industry; quality of communication and interaction with the firm; known significant legal or regulatory proceedings related to the firm; external data on audit quality and performance, including PCAOB reports; independence; objectivity; and professional skepticism. The Audit Committee also considers the advisability and potential impact of selecting a different independent registered public accounting firm.
Further, the Audit Committee reviews in advance and pre-approves, explicitly, audit and permissible non-audit services provided to us by EY. For more information regarding the Audit Committee’s preapproval procedures, please read “Audit Committee Preapproval Policies and Procedures” below.
The Audit Committee has also established procedures for the receipt, retention, and treatment, on a confidential basis, of any complaints related to accounting or compliance matters we receive. We encourage employees and third-party individuals and organizations to report concerns about our accounting controls, auditing matters, or anything else that appears to involve financial or other wrongdoing through one of the methods described in our Whistleblower Policy which is available in the Corporate Governance section of the Investor Relations area of our website at www.tetratec.com
.
The Board of Directors has determined that each member of the Audit Committee is independent and possesses the necessary level of financial literacy required to enable him or her to effectively serve as an Audit Committee member and that our Audit Committee Chairman qualifies as Audit Committee Financial Expert. There were five meetings of the Audit Committee during the year ended December 31, 2018. The meetings of the Audit Committee are designed to facilitate and encourage communication among the committee, the Company, our internal audit function and EY.
In connection with the preparation of the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, the Audit Committee discussed with the Company’s internal auditors and EY the overall scope and plans for their respective audits. The Audit Committee met with the internal auditors and EY, with and without management present, to discuss the results of their examinations, their evaluations of our internal control, including internal control over financial reporting, and the overall quality of our financial reporting.
The Audit Committee reviewed with EY, which is responsible for expressing an opinion on the conformity of those audited consolidated financial statements with US generally accepted accounting principles, EY’s judgments as to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussed with the committee by the applicable requirements of the PCAOB, including PCAOB Auditing Standard No. 16,
Communications with Audit Committees
, the rules of the SEC, and other applicable regulations. In addition, the Audit Committee has discussed with EY their independence from our management and the Company, including the matters contained in the letter from EY required by PCAOB Rule 3526,
Communication with Audit Committees Concerning Independence,
and considered the compatibility of non-audit services performed by EY with EY’s independence.
The Audit Committee also reviewed and discussed together with management and EY our audited consolidated financial statements for the year ended December 31, 2018, and the results of management’s assessment of the effectiveness of our internal control over financial reporting and EY’s audit of internal control over financial reporting.
In addition, members of management, the internal auditor, and the independent auditors also made presentations to the Audit Committee throughout the year on specific topics of interest, including our (i) enterprise risk management process, (ii) business continuity plans, (iii) information technology systems and controls, (iv) cybersecurity, (v) the use of non-GAAP financial measures, (vi) new revenue recognition and leasing accounting standards, (vii) the new PCAOB standard regarding the communication of critical audit matters, and (viii) data analytics and automated audit tools that could be utilized in future audits to enhance and streamline the audit process.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, that our audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed by the Company with the SEC.
Mark E. Baldwin, Chairman
Paul D. Coombs
Gina A. Luna
Joseph C. Winkler III
The Audit Committee preapproved 100% of these fees shown in the above table. Before approving these fees, the Audit Committee considered whether the provision of services by Ernst & Young LLP that are not related to the audit of our financial statements was compatible with maintaining the independence of Ernst & Young LLP, and the Audit Committee concluded that it was.
The Audit Committee has adopted a pre-approval policy with respect to the services that may be performed by our independent auditors (the “Audit Firm”). This policy provides that all audit and non-audit services to be performed by the Audit Firm must be specifically pre-approved on a case-by-case basis by the Audit Committee. The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions made by such member(s) to the entire Audit Committee at or before its next scheduled meeting. As of the date hereof, the Audit Committee has delegated this authority to the Chairman of the Audit Committee. Neither the Audit Committee, nor the person to whom pre-approval authority is delegated, may delegate to management their responsibilities to pre-approve services performed by the Audit Firm.
All requests or applications by the Audit Firm to provide services to us must be submitted to the Audit Committee or its chairman by both the Audit Firm and the Chief Financial Officer and must include a description of the services being requested for pre-approval and a joint statement as to whether, in their view, the request or application is consistent with applicable laws, rules, and regulations relating to auditor independence.
(Information regarding the business experience of Messrs. Brightman and Murphy is set forth above under “Nominees for Director.”)
We are a geographically diversified oil and gas services company, focused on completion fluids and associated products and services, comprehensive water management, frac flowback, production well testing, offshore rig cooling, and compression services and equipment. TETRA owns an equity interest, including all of the general partner interest, in CSI Compressco LP (NASDAQ: CCLP), a master limited partnership.
In March of 2018, we acquired SwiftWater Energy Services (“SwiftWater”), buttressing our geographic foothold and expanding our portfolio of core water management products and services in the Permian Basin. As part of this acquisition, we granted material long-term awards of TETRA equity and provided participation in our annual cash incentive plan to key members of SwiftWater’s management team, to secure their ongoing participation in the acquired business. The acquisition of this talent, along with our successful recruitment in 2017 and 2018 of other seasoned leaders in the critical areas of financial planning & analysis, health, safety & environment, global supply chain, and operations management created certain inequities in the total compensation opportunities provided to our Senior Management.
On March 1, 2018, we successfully completed the disposition of the TETRA Offshore Services (“TOS”) business, including the Maritech segment and its significant remaining asset retirement obligations. This disposition was a critical step in our strategy to simplify our business model and increase our focus on those markets where our core products and services enjoy competitive advantages. It also eliminates the uncertainty of future cash outlays related to the completion of Maritech’s asset retirement obligations, and fulfills a long-standing commitment to our stockholders to reduce earnings volatility associated with highly seasonal service offerings.
During the unprecedented and lengthy industry downturn that began in late 2014, more than 250 oil and gas related companies ultimately succumbed to bankruptcy. TETRA did not. Actions taken by the Committee to retain the Senior Management team that successfully navigated the downturn and preserved the investments of our long-term stockholders are further described below.
In May of 2018, our stockholders approved the compensation of our NEOs as described in our 2018 proxy statement, with approximately 70% of stockholder votes cast in favor of our 2018 “say-on-pay” resolution. This was a decrease in support from the prior year when approximately 98% of stockholder votes were cast in favor of our “say-on-pay” resolution, despite no material changes having been made in the structure, scope, or process of our compensation programs for Senior Management in 2018 as compared to 2017.
Nevertheless, the chairman of our Committee led two significant stockholder outreach efforts during 2018 to ensure the perspectives and feedback of our larger institutional stockholders were heard and well understood. We contacted stockholders who owned approximately 73% of our then outstanding common stock and requested opportunities to have calls or in-person meetings with them. Nearly half of the stockholders we contacted accepted the Committee's offer and participated in calls or in-person meetings with our Committee chairman and members of Senior Management. Their comments were summarized and discussed with both the full Committee and our Board of Directors. During the engagement, stockholders were generally supportive of our compensation programs. The following table summarizes several of the topics discussed with our stockholders in these outreach efforts.
COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
|
What We Heard
|
Our Response
|
|
A
dditional
discussion of the
factors considered by the Committee when evaluating the appropriateness of performance metrics
applicable to NEOs
would improve understanding of
the
variable pay programs.
|
The Committee evaluates the appropriateness of performance measures utilized in our short- and long-term incentive plans on an annual basis. In any given year, changes to those performance measures may be made based on factors such as industry outlook, changes in our structure (such as divestitures and acquisitions), and the desire to drive performance in support of a specific strategic goal. In this year’s CD&A, we have included additional discussion of these factors.
|
|
Using the same performance metrics for short- and long-term incentive plans could create a risk of excessive focus on achieving one particular outcome, rather than building a healthy, sustainable organization.
|
The Committee is continually mindful of potential risks related to the design of our compensation programs. In 2017, we replaced one performance measure in our long-term incentive plan that was also being utilized in our short-term plan.
In addition, during 2018, the Committee adopted a Clawback Policy that applies to all forms of incentive pay earned by our Senior Management, further mitigating potential risk arising from our compensation programs.
|
|
Providing more clarity around our peer groups and how those groups are used in development of our target compensation levels would improve understanding of our pay philosophy.
|
The Committee has formalized the adoption of separate peer groups for our evaluation of Senior Management compensation (our “compensation peer group”) and our relative TSR performance measure under our long-term incentive awards (our “performance peer group”). As explained more fully below, we believe that this differentiation will enable better disclosure with regard to our peer groups.
|
Overall Compensation Structure
We seek to structure a balance between achieving positive short-term annual results and ensuring long- term viability and success by providing both annual and long-term incentive opportunities. The following graphic illustrates the components of the total compensation opportunities available to members of our Senior Management:
Alignment of Pay with Stock Price Performance
A significant portion of our NEOs’ total compensation is in the form of long-term incentive awards that are tied to the long-term performance of our stock and certain key measures that drive stockholder returns. The process by which the Committee determines the structure of our NEOs’ long-term incentive awards takes into account TETRA’s performance relative to our peers and internal budgeted expectations, market compensation and the need to retain executive talent over the long-term, and alignment with the experience of our long-term stockholders.
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2019 Proxy Statement
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TETRA Technologies, Inc. I
41
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
To demonstrate this tie to performance, the table below
explain
s the differences between Total Direct Compensation as presented in the Summary Compensation Table, Target Total Direct Compensation as approved by th
e Committee (that is, the
total
compensation opportunity) and Realiz
ed Compensation (that is, compensation earned
or realized
during a given year
, which reflects the performance level of our CEO, Mr. Brightman). T
he table and accompanying graph
represent s
upplemental information that is not intended to be a substitute for the information provided in the Summary Compensation Table on page
63
, which has been prepared in accordance with the SEC’s disclosure rules.
|
|
|
|
|
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|
|
Measure of Compensation
|
Components Included
|
|
Base Salary
|
Annual Performance- Based Cash
|
Long-Term Performance- Based Cash
(1)
|
Time-Based Equity
|
|
Stock Options/SARs
|
Restricted Shares
|
|
Summary Compensation Table: Total Direct Compensation
|
Actual Salary
|
Actual
cash award earned based on annual performance
|
Actual
portion of long-term cash incentive earned based on completed 3-year performance
|
Grant date calculated value of awards made during the year
|
Grant date value of awards made during the year
|
|
Target Total Direct Compensation
|
Same
|
Target
annual cash awards
|
Target
long-term cash awards for 3-year performance
|
Target
value of awards made during the year
|
Target
value of awards made during the year
|
|
Realized Compensation
|
Same
|
Actual
cash award earned based on annual performance
|
Actual
portion of long-term cash incentive earned based on completed 3-year performance
|
Value of stock
options exercised during the year
|
Value of restricted shares vested during the year
|
|
(1)
|
This component refers to the long-term performance-based cash incentive award granted in 2016 for the 3-year performance period of January 1, 2016 through December 31, 2018 that was paid, to the extent earned, in March 2019.
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2019 Proxy Statement
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
The grap
h below shows Mr. Brightman's "Realized C
ompensatio
n" in contrast to the original Tar
get Total Direct C
ompensation opportunity for compensation awarded in 2016, 2017, and 2018 as well as our percentile rank at
the end of each year within
the performa
nce peer group with regard to the relative
TSR performance measure under our long-term perf
ormance-based cash incentive awards granted to certain NEOs and Senior Management in 2016 for the 3-year performance period that ended on December 31, 2018. As illustrated by the chart below, our CEO's Realized Compensation has been well-aligned with our
r
elative TSR, which is our
performance
relative
to our
performance
peer group, who all
navigated the same industry challenges we faced
over the same period
of time
.
In each year shown, the material deficit in Rea
lized Compensation compared to Target T
otal
D
irect C
ompensation is largely attributable to decreases in the market price for our common stock, which
reduces (in the case of restricted shares) or eliminates (in the case of
stock options
)
the intended (target) value of equity awards. During
the past
three years when our absolute TSR was negative, it wa
s this deficit, compared to ta
rget compensation, that reflected
the alignment of our CEO’s compensation with stockholder returns.
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2019 Proxy Statement
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TETRA Technologies, Inc. I
43
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
Key Compensation Practices and Policies
We have implemented and continue to maintain compensation practices and policies that we believe contribute to good governance.
|
|
|
|
What We Do
|
What We Don’t Do
|
|
✓
Tie a significant portion of our pay to performance through objective performance measures
✓
Mitigate compensation risk through our Clawback Policy, which applies to all forms of incentive compensation earned by our executive officers
✓
Monitor robust stock ownership through our stock ownership guidelines
✓
Retain an independent compensation consultant that does not provide any services to management
✓
Ensure a fully independent Compensation Committee
✓
Have established procedures for granting of equity awards
✓
Annually review pay and performance alignment, including S.M.A.R.T.
(1)
goals for our NEOs that are reviewed by our Board of Directors
|
X Enter into employment agreements with fixed terms with our officers
X Allow short sales, transactions involving derivatives of our stock, or certain hedging transactions
X Reload, reprice, or back-date stock options
X Grant stock options with an exercise price less than fair market value
X Provide tax gross-ups or significant executive perquisites
X Enter into single-trigger change of control agreements
X Have a poison pill
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|
(1)
|
Specific, Measurable, Achievable, Relevant, Time-bound
|
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I TETRA Technologies, Inc.
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2019 Proxy Statement
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
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|
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II. COMPENSATION PHILOSOPHY & OBJECTIVES
|
Overview of Compen
sation Philosophy and Objectives
We strive to maintain a compensation program that is competitive in the labor markets in which we operate. Our philosophy is to maintain an executive compensation program that will attract, retain, motivate, and reward highly qualified and talented individuals to enable us to perform better than our competitors. The following are our key objectives in setting the compensation programs for our Senior Management:
|
|
•
|
motivate
our
Senior
Management
to
deliver
outstanding
financial
performance
and
meet
or
exceed general
and
specific
business,
operational,
and
individual
performance
objectives;
|
|
|
•
|
establish
salary
and
annual
cash
incentive
compensation
levels
that
reflect
competitive
market
practices in
relevant
markets,
taking
into
consideration
compensation
practices
for
the
relevant
peer
group;
|
|
|
•
|
provide
long-term
equity
and
cash
incentive
compensation
opportunities
that
are consistent with our overall compensation
philosophy;
|
|
|
•
|
provide
a
significant
percentage
of
total
compensation
that
is
“at
risk,”
or
“variable,”
based
on predetermined
performance
measures
and
objectives;
and
|
|
|
•
|
ensure that a significant portion of the total compensation package is determined by increases in stockholder
value,
thus
assuring
an
alignment
of
Senior
Management
and
our
stockholders’
interests.
|
Focus on Performance-Based Pay
In establishing target compensation levels, the Committee places a significant portion of our NEOs’ compensation “at-risk” through the use of variable compensation, much of which is performance-based. Historically, variable pay has included the following:
|
|
•
|
annual cash incentive awards: performance-based cash incentives based on achievement of specific annual performance objectives;
|
|
|
•
|
long-term performance-based cash or CCLP unit awards: performance-based long-term cash and CSI Compressco LP (“CCLP”) performance phantom units based on achievement of specific long-term financial and other performance objectives;
|
|
|
•
|
stock options: options on TETRA stock that vest over time and create value only if the price of TETRA stock increases;
|
|
|
•
|
restricted stock: shares of TETRA stock that vest over time and have value based on the price of TETRA stock at the time of vesting; and
|
|
|
•
|
phantom units: CCLP units that vest over time and create value based on the price of CCLP common units at the time of vesting.
|
As further discussed in the “Changes for Fiscal Year 2019” section, below, beginning in 2019, based in part on feedback from our stockholders, we have revised the structure of our long-term incentive awards to provide more focus on performance metrics that drive improvement in our long-term financial and operational results, while still aligning the interests of our NEOs and other Senior Management with our stockholders and maintaining our ability to attract and retain high-caliber talent. By increasing the weight of variable pay in our NEOs’ overall target compensation, we promote better alignment with our performance and creation of stockholder value, particularly over the long term.
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2019 Proxy Statement
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TETRA Technologies, Inc. I
45
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
For 201
8
, approximately 8
4
% of the
target compensation opportunities for our CEO and
74
% of the target compensation opportunities for our other NEOs were variable or “at-risk”, as illustrated in the following pie charts.
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2018 NEO TARGET TOTAL DIRECT COMPENSATION
|
|
CEO
|
Other NEOs
|
|
|
|
|
(1)Includes awards of long-term performance-based cash for our CEO and other NEOs and CCLP performance phantom units for Mr. Serjeant, the President of our CCLP subsidiary.
(2)Includes awards of TETRA equity for our CEO and other NEOs and CCLP equity for Mr. Serjeant, the President of our CCLP subsidiary.
|
Role of Committee.
The Committee determines our overall compensation philosophy, sets the compensation of our CEO, approves the compensation of our NEOs, and oversees the compensation of the other members of Senior Management. In making compensation decisions, the Committee considers all of the following factors:
|
|
•
|
our
financial and operational
results;
|
|
|
•
|
our strategic goals and
accomplishments;
|
|
|
•
|
the
performance
and
potential
of
our
CEO
and
other
members
of
Senior
Management;
|
|
|
•
|
compensation paid by companies in our peer
group;
|
|
|
•
|
compensation
data
from
available
surveys
of
the
oilfield
services
industry
for
executive
officers
with similar
positions
and
with
roles
and
responsibilities
similar
to
our
Senior
Management;
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2019 Proxy Statement
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
|
|
•
|
market
data
and
analysis
and
recommendations
provided
by
any
compensation
consultant
engaged
by the
Committee;
|
|
|
•
|
overall
compensation
paid
to
our
CEO
and
members
of
Senior
Management
in
previous
years,
including the value of equity-based
compensation;
|
|
|
•
|
the
recommendations
of
our
CEO
with
respect
to
specific
compensation
matters,
including
changes
in compensation for our Senior Management;
and
|
|
|
•
|
the retention value of long-term compensation
plans.
|
The Committee has the authority to retain compensation consultants, outside counsel, or other advisors to assist the Committee in the discharge of its duties. In any given year, the Committee bases its decision on whether to retain a compensation consultant on factors including prevailing market conditions, regulatory changes governing executive compensation, and the quality of any other relevant data that may be available. If a compensation consultant is engaged, the Chairman of the Committee maintains a direct line of communication with the consultant and arranges meetings with the consultant that may include other members of the Committee and/or the CEO and certain members of Senior Management. The Committee, and/or its Chairman, also periodically meets with the compensation consultant independently of management. Through this communication with the Chairman of the Committee, the consultant reports to, and acts at the direction of, the Committee. Although our CEO and certain members of Senior Management may receive the consultant’s report and data, the Committee retains and exercises sole control and authority over the compensation consultant.
Role of CEO.
Our CEO makes recommendations to the Committee with regard to salary, including any adjustments, and the annual and long-term incentives available to our Senior Management, excluding himself. His recommendations are based on factors such as his judgment and experience, available market data, and his evaluation of individual performance and contribution. In the Committee’s review of the changes in compensation recommended by the CEO, the Committee considers the CEO’s evaluations of and recommendations for each member of Senior Management as well as its own evaluations of Senior Management and the report and analysis of the Committee’s compensation consultant. In conjunction with our CEO, the Committee reviews the compensation of our Senior Management other than our CEO. Subsequently, the Committee, in executive session, establishes the compensation for our CEO.
Role of Compensation Consultant.
The Committee has retained the services of Pearl Meyer & Partners ("Pearl Meyer"), an independent provider of compensation consulting services, to assist the Committee in its review of our compensation programs and consideration of prospective changes. Before engaging Pearl Meyer, the Committee confirmed that Pearl Meyer did not provide other services to us, had procedures in place to prevent conflicts of interest, and did not have a business or personal relationship with any of our executive officers or any member of the Committee. The Committee discussed these considerations and concluded that there were no conflicts of interest with us with respect to the compensation consulting services provided by Pearl Meyer. The Committee continues to consider these matters on an ongoing basis.
Peer Groups
In order to ensure the competitiveness of our compensation program, which is a critical factor in our ability to attract and retain high-caliber executive talent, the Committee reviews compensation paid by other companies in the oilfield services industry. For 2018, the Committee, with the assistance of Pearl Meyer, adopted separate peer groups for our evaluation of Senior Management compensation (our “compensation peer group”) and our relative TSR performance measure under our long-term incentive awards (our “performance peer group”). Going forward, each peer group will be reviewed by the Committee on an annual basis to ensure that we maintain appropriate groups of comparator companies.
The compensation peer group is used to determine market levels of the main elements of executive compensation: base salary, annual incentives, and long-term incentives. The compensation peer group is also used to gauge industry practices regarding the structure and mechanics of annual and long-term incentive plans. Criteria for selecting companies to be included in the compensation peer group include competition with us in terms of the customers we serve, our belief that we compete with them for talent, overall comparability in terms of size (revenue and market cap), and comparable geographic areas of operation.
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2019 Proxy Statement
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TETRA Technologies, Inc. I
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
In Novembe
r of 2017, based on Pearl Meyer’s recommendation, the Committee adopted the following compensation peer group to be used for the purpose of making appropriate peer comparisons for the Committee’s evaluation of our 2017 compensation program and determinatio
n of changes to be made in 2018:
|
|
|
|
|
Compensation Peer Group
Used to evaluate the competitiveness of executive compensation
|
•
Archrock, Inc.
•
Basic Energy Services
•
C&J Energy Services
•
Flotek Industries
•
Forum Energy Technologies
•
Helix Energy
•
Key Energy Services
|
•
Newpark Resources
•
Oil States International
•
Patterson-UTI Energy
•
Pioneer Energy Services
•
RPC
•
Superior Energy Services
•
Tidewater
|
In November of 2017, with the assistance of Pearl Meyer, the Committee developed a performance peer group to measure our RTSR under our long-term cash incentive awards. The performance peer group is comprised of companies that directly compete with us in terms of the products and services we offer and the customers we serve. The following performance peer group was adopted by the Committee early in 2018 in connection with their approval of the long-term cash incentive compensation awards for the performance period of January 1, 2018 through December 31, 2020:
|
|
|
|
|
Performance Peer Group
Used to evaluate our
RTSR under performance-based long-term cash
incentive awards
|
•
Archrock, Inc.
•
Basic Energy Services
•
Flotek Industries
•
Forum Energy Technologies
•
Natural Gas Services
•
Newpark Resources
|
•
Oceaneering
•
Oil States International
•
Select Energy
•
Superior Energy Services
•
Tidewater
•
USA Compression
|
The Role of Market Data.
Pearl Meyer uses compensation data gathered from our compensation peer group as well as supplemental data from market surveys to benchmark our Senior Management compensation. Our review of this data typically focuses on the main elements of Senior Management compensation: base salary, annual incentive cash award opportunity, long-term compensation, and total direct compensation. Although we review both target compensation and actual compensation paid, our focus is on target compensation, including the target amount of annual cash award opportunities, as it provides the best indication of competitive compensation levels for our Senior Management.
We strongly believe that Senior Management should be compensated with a package that includes, at a minimum, the following three elements:
|
|
•
|
salary and industry-standard
benefits,
|
|
|
•
|
annual incentive cash compensation tied to key financial and operating results,
and
|
|
|
•
|
long-term incentive compensation tied to stock price and key long-term value drivers.
|
Each of these components is discussed in greater detail below.
Salary.
The Committee reviews relevant oil and gas industry survey data and information and analysis provided by its compensation consultant, if one is retained for that year, or by management, if no compensation consultant is engaged, to ensure that our salary program is competitive. We believe that a competitive salary program and industry standard benefits are important factors in our ability to attract and retain Senior Management, and we generally compare base salaries paid to our Senior Management to the median base salaries reflected in the survey data as a check for competitiveness. The Committee reviews the salaries of all members of Senior Management at least annually. Salaries may be adjusted for performance, which may include individual, business
|
|
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2019 Proxy Statement
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
unit, and/or company-wide performance, expansion of duties and responsibilities, and changes in market salary levels. In considering salary adjustments, the Committee gives weight to the foregoing factors, with particular emphasis on corporate perfor
mance goals, our CEO’s analysis of the individual’s performance and potential, and our CEO’s specific compensation recommendations (except with regard to his own salary). However, the Committee does not rely on formulas and considers all of the above facto
rs when evaluating salary adjustments.
In its December 2017 review of Senior Management compensation, the Committee noted that the base salaries of Senior Management were, overall, positioned at the 34
th
percentile of the compensation peer group and survey data provided by Pearl Meyer. With regard to members of Senior Management other than our CEO, the Committee also took into account our CEO’s evaluation of each individual’s performance during 2017, as well as the significant improvement in our 2017 financial results (compared to the prior year). Having considered these factors, the Committee approved increases in base salary for certain members of Senior Management, to take effect in March of 2018. The Committee determined that Mr. Serjeant, whose base salary was approved by the Committee prior to his November 20, 2017 date of hire, would not receive an increase in March of 2018. Mr. Murphy was first employed by us on February 12, 2018. The table below shows the 2018 base salary of each of our NEOs, and the date that each base salary became effective.
|
Name
|
Title
|
Effective Date
|
Base Salary
|
|
|
Stuart M. Brightman
|
Chief Executive Officer
|
March 3, 2018
|
$
|
700,000
|
|
|
Elijio V. Serrano
|
Sr. Vice President & Chief Financial Officer
|
March 3, 2018
|
|
450,000
|
|
|
Brady M. Murphy
|
President & Chief Operating Officer
|
February 12, 2018
|
|
540,000
|
|
|
Matthew J. Sanderson
|
Sr. Vice President
|
March 3, 2018
|
|
390,000
|
|
|
Owen A. Serjeant
|
President, CSI Compressco
|
November 20, 2017
|
|
410,000
|
|
Annual Cash Incentives
.
Each member of Senior Management is provided an annual cash incentive compensation opportunity, calculated as a percentage of base salary. For each award opportunity, a threshold, target, stretch, and over- achievement performance objective is established for each applicable performance measure and the amount of the award payment that may be received is based on the level of achievement of such objectives.
As part of its annual review of Senior Management compensation in December, the Committee reviews a preliminary estimate of the aggregate amount of annual cash incentive compensation to be awarded under our Cash Incentive Compensation Plan based on the current year’s performance and discusses the overall effectiveness of the plan in furthering our compensation
philosophy.
In its consideration of changes for the 2018 plan
year,
the Committee noted that target annual incentive award opportunities for our Senior Management, overall, were generally well aligned with the target award opportunities reflected in the compensation peer group and survey data provided by Pearl Meyer, and elected not to make changes to the award opportunities
available
to
our
NEOs
for
the
2018
plan
year.
The following table sets forth the cash award opportunities for the 2018 plan year, shown as a percentage of annual base salary, for our CEO and each of our other NEOs. As an example, as shown below, Mr. Brightman’s target award opportunity is 120% of his base salary; therefore, his threshold award opportunity, which is 30% of his target award opportunity, is 36% of his base salary.
|
|
Threshold %
of Base Salary
(30% of Target Award)
|
|
Target Award as %
of Base Salary
|
|
Stretch %
of Base Salary
(150% of Target Award)
|
|
Over-Achievement % of Base Salary
(200% of Target Award)
|
|
|
Stuart M. Brightman
|
36.0%
|
|
120.0%
|
|
180.0%
|
|
240.0%
|
|
|
Elijio V. Serrano
|
24.0%
|
|
80.0%
|
|
120.0%
|
|
160.0%
|
|
|
Brady M. Murphy
|
30.0%
|
|
100.0%
|
|
150.0%
|
|
200.0%
|
|
|
Matthew J. Sanderson
|
18.0%
|
|
60.0%
|
|
90.0%
|
|
120.0%
|
|
|
Owen A. Serjeant
|
21.0%
|
|
70.0%
|
|
105.0%
|
|
140.0%
|
|
In considering the structure of our Cash Incentive Compensation Plan for 2018, the Committee gave significant weight to each of the following factors:
|
|
•
|
The prolonged downturn that impacted our industry caused us to defer capital growth spending for a period of time. As we entered 2018 and began to evaluate growth opportunities, we considered the need for performance measures that would reward accretive growth.
|
|
|
|
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2019 Proxy Statement
|
|
TETRA Technologies, Inc. I
49
|
COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
|
|
•
|
The recovery
that began in 2017 did not improve the market for all of our products and services at an equal pace – recovery was more gradual for certain of our businesses and in certain geographies. Specifically, the outlook for offshore drilling remained relatively f
lat, and
energy infrastructure limitations in the Permian
Basin
region put constraints on activity levels
. Accordingly, we felt that annual award opportunities for 2018 should reward our regional and product line managers for factors within their line-of-s
ight control.
|
|
|
•
|
In the exceptionally tight labor market of 2017 and 2018, employee retention became more challenging, and particularly in certain geographies, reducing turnover became an operational imperative.
|
The following table sets forth the performance measures and weights approved by the Committee for each of our NEOs for the 2018 plan year under the Cash Incentive Compensation Plan, and the business consideration, based on the factors above, underlying each performance measure. The businesses under Mr. Sanderson’s scope of responsibility, which we refer to internally as “ESG,” include portions of our Completion Fluids & Products Division, our Water & Flowback Services Division, and certain international operations within our Compression Division.
|
|
|
|
Performance Measure
|
Business Consideration
|
|
TETRA Adjusted EBITDA, excluding the results of CCLP and including cash distributions received from CCLP, including the impact of acquisitions and divestitures
|
The TETRA Adjusted EBITDA performance measure ensures focus on the financial outcome of day-to-day and long-term operating decisions that impact the overall profitability of our businesses, including:
•
Ensuring that day-to-day spending is tightly managed and aligned with our annual operating budget, and that operational plans and projects (including acquisitions) are quickly integrated in order to maximize efficiencies.
•
Prioritizing projects across the organization to elevate focus on those that have the greatest potential impact on our profitability.
•
Driving cross-functional alignment among product lines and geographies to capture incremental improvements in productivity.
|
|
ESG Adjusted EBITDA & CCLP Adjusted EBITDA
|
NEOs and our Senior Management impact line-of-sight Adjusted EBITDA by:
•
Ensuring differentiation of service quality and depth of service, which position us to manage pricing through market cycles and pursue and maintain relationships with the most profitable customers.
•
Driving reductions in our cost to deliver services, through robust cost controls, automation, and new technologies.
•
Managing external relationships, including strong marketing efforts to spearhead our introduction to new geographies and customers.
•
Supporting integration of our service offerings, to broaden the scope of products and services we offer to new and existing customers.
|
|
CCLP Distributable Cash Flow (“DCF”)
|
DCF is a critical performance measure for our NEOs and Senior Management of CCLP because it reflects the ability of our compression business to generate cash flow. Management can drive increases in DCF by:
•
Managing costs.
•
Reducing debt.
•
Focusing on accretive investments in growth opportunities that will yield the highest returns.
|
|
Individual Performance Objectives (“IPOs”)
|
IPOs provide an opportunity for each NEO to earn incentive compensation based on their personal performance compared to established target objectives approved by the Committee at the beginning of the plan year. We believe that IPOs are a critical component of the plan structure, as they drive performance related to specific strategic objectives and line-of-sight goals.
|
Under the annual Cash Incentive Compensation Plan awards for 2018, actual results for the TETRA Adjusted EBITDA and ESG Adjusted EBITDA performance measures had to reach a minimum threshold level of 70% of the established target performance objective for any portion of awards based on those measures to be earned. Actual results for the CCLP DCF and CCLP Adjusted EBITDA performance measures had to reach a minimum threshold level of 80% of the established target performance objective for any portion of awards based on those measures to be earned. A threshold payment level of 30% corresponds to the threshold performance level of each established
|
|
|
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2019 Proxy Statement
|
COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
performance objective; for actual results that fall between threshold and target, straight line interpolation is used to determine the earned amount of the award.
During 2018, the target performance objectives for TETRA Adjusted EBITDA and ESG Adjusted EBITDA were increased to reflect the budgeted contributions of acquired businesses. Before approving these adjustments, the Committee confirmed that the amounts by which the target performance objectives were increased were consistent with the financial models presented to our Board prior to their approval of the acquisitions. In addition, budgeted contributions and actual results of our divested business were excluded from the target performance objective and actual results of the TETRA Adjusted EBITDA performance measure.
The following table shows the target performance objective and actual 2018 result for each performance measure applicable to our NEOs, as well as the IPOs that were reviewed and approved by the Committee for each of our NEOs for the 2018 plan year.
|
|
|
|
|
|
|
|
|
|
Performance Measure
|
Target Performance Objective
|
Result of 2018 Performance Period
|
|
|
TTI Adjusted EBITDA
|
$104.9 million
|
$78.6 million
|
|
|
ESG Adjusted EBITDA
|
$107.8 million
|
$85.0 million
|
|
|
CCLP DCF
|
$32.0 million
|
$29.4 million
|
|
|
CCLP Adjusted EBITDA
|
$96.5 million
|
$92.9 million
|
|
|
IPOs
|
NEO to Which Each IPO Applies
|
Result of 2018 Performance Period
|
|
Mr. Brightman
|
Mr. Serrano
(1)
|
Mr. Murphy
|
Mr. Sanderson
|
Mr. Serjeant
|
|
Complete TETRA & CCLP financing, and restructure of balance sheets
|
X
|
X
|
|
|
X
|
Exceeded Expectations
|
|
Launch of partnership with Halliburton for marketing of TETRA CS Neptune fluids, and expanded “New Generation” TETRA CS Neptune fluids capability
|
X
|
|
X
|
X
|
|
Exceeded Expectations
|
|
Complete and successfully integrate an acquisition that enhances our water management offerings, both geographically and through integrated service offerings
|
X
|
X
|
X
|
X
|
|
Exceeded Expectations
|
|
Drive initiative to strengthen leadership team across the organization through internal development and external hiring
|
X
|
X
|
X
|
X
|
X
|
Exceeded Expectations
|
|
Complete divestiture of TOS and Maritech liabilities
|
X
|
X
|
|
|
|
Exceeded Expectations
|
|
Achieve improved safety performance compared to the prior year, as measured by TRIR and CVIR
(2
)
.
|
X
|
X
|
X
|
X
|
X
|
Not Attained
(3
)
|
|
(1)
|
With regard to the completion of TETRA & CCLP financing and restructuring of balance sheets, the completion and integration of an acquisition, and the completion of the divestiture of the TOS and Maritech liabilities, the Committee believes that Mr. Serrano’s leadership in driving these critical initiatives was a material factor in their successful achievement in 2018 and awarded Mr. Serrano 133% of his target award opportunity related to IPOs.
|
|
(2)
|
Total Recordable Incident Rate and Chargeable Vehicle Incident Rate.
|
|
(3
)
|
Improved safety metrics were not achieved on a consolidated basis; however, our compression business, which is led by Mr. Serjeant, did achieve an improved safety performance compared to the prior year.
|
|
|
|
|
|
2019 Proxy Statement
|
|
TETRA Technologies, Inc. I
51
|
COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
The following tables show the weig
ht of each performance measure, the percentage of the award deemed to have been earned based on 201
8
results and the performance criteria discussed above, and the amount of the award opportunity earned related to each performance measure.
|
|
Target Amount of Award Opportunity
|
|
Weight of Metric
|
|
% of Target Achieved
|
|
Weighted % Earned
|
|
|
Amount of Award Earned
|
|
|
Stuart M. Brightman
|
$
|
840,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TTI Adjusted EBITDA
|
|
|
|
|
70.0
|
%
|
|
41.6
|
%
|
|
29.1
|
%
|
|
$
|
244,524
|
|
|
IPOs
|
|
|
|
|
30.0
|
%
|
|
100.0
|
%
|
|
30.0
|
%
|
|
|
252,000
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
59.1
|
%
|
|
$
|
496,524
|
|
|
|
Target Amount of Award Opportunity
|
|
Weight of Metric
|
|
% of Target Achieved
|
|
Weighted % Earned
|
|
|
Amount of Award Earned
|
|
|
Elijio V. Serrano
|
$
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TTI Adjusted EBITDA
|
|
|
|
|
70.0
|
%
|
|
41.6
|
%
|
|
29.1
|
%
|
|
$
|
104,796
|
|
|
IPOs
|
|
|
|
|
30.0
|
%
|
|
133.0
|
%
|
|
39.9
|
%
|
|
|
143,640
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
69.0
|
%
|
|
$
|
248,436
|
|
|
|
Target Amount of Award Opportunity
(1)
|
|
Weight of Metric
|
|
% of Target Achieved
|
|
Weighted % Earned
|
|
|
Amount of Award Earned
|
|
|
Brady M. Murphy
|
$
|
478,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TTI Adjusted EBITDA
|
|
|
|
|
70.0
|
%
|
|
41.6
|
%
|
|
29.1
|
%
|
|
$
|
139,291
|
|
|
IPOs
|
|
|
|
|
30.0
|
%
|
|
100.0
|
%
|
|
30.0
|
%
|
|
|
143,550
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
59.1
|
%
|
|
$
|
282,841
|
|
|
(1)
|
The target amount of Mr. Murphy’s award opportunity is prorated for his period of service with us in 2018. In addition to the earned portion of his Cash Incentive Compensation Plan award for 2018, shown above, Mr. Murphy received a guaranteed bonus in connection with his initial employment with us.
|
|
|
Target Amount of Award Opportunity
|
|
Weight of Metric
|
|
% of Target Achieved
|
|
Weighted % Earned
|
|
|
Amount of Award Earned
|
|
|
Matthew J. Sanderson
|
$
|
234,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TTI Adjusted EBITDA
|
|
|
|
|
30.0
|
%
|
|
41.6
|
%
|
|
12.5
|
%
|
|
$
|
29,203
|
|
|
ESG Adjusted EBITDA
|
|
|
|
|
40.0
|
%
|
|
50.6
|
%
|
|
20.3
|
%
|
|
|
47,385
|
|
|
IPOs
|
|
|
|
|
30.0
|
%
|
|
100.0
|
%
|
|
30.0
|
%
|
|
|
70,200
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
62.7
|
%
|
|
$
|
146,788
|
|
|
|
Target Amount of Award Opportunity
|
|
Weight of Metric
|
|
% of Target Achieved
|
|
Weighted % Earned
|
|
|
Amount of Award Earned
|
|
|
Owen A. Serjeant
|
$
|
287,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCLP DCF
|
|
|
|
|
50.0
|
%
|
|
71.4
|
%
|
|
35.7
|
%
|
|
$
|
102,488
|
|
|
CCLP Adjusted EBITDA
|
|
|
|
|
20.0
|
%
|
|
86.8
|
%
|
|
17.4
|
%
|
|
|
49,795
|
|
|
IPOs
|
|
|
|
|
30.0
|
%
|
|
100.0
|
%
|
|
30.0
|
%
|
|
|
86,100
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
83.1
|
%
|
|
$
|
238,382
|
|
Long-Term Incentive Awards
Long-term incentives (or “LTI”) have historically comprised a significant portion of our Senior Management’s total compensation package. The Committee historically sought to strike a balance between achieving short-term annual results and ensuring strong long-term success through grants of stock options, restricted stock, and long-term cash awards for members of TETRA’s Senior Management, and awards of phantom units and performance phantom units for Mr. Serjeant and other members of CCLP’s Senior Management. These awards are geared toward longer-term performance as they generally vest over multiple years and their values are tied to TETRA stockholder returns or CCLP unitholders returns, and longer term value drivers. We believe that tying a significant portion of the compensation of our CEO and our Senior Management team directly to equity returns is an important aspect of our total compensation plan.
|
|
|
|
|
52
I TETRA Technologies, Inc.
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2019 Proxy Statement
|
COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
In the Committee’s December 2017 evaluation of our compensation program, the Committee’s compensation
consultant, Pearl Meyer, noted that a relatively small number of companies in our industry were still utilizing stock options
as part of their long-term incentive awards. In general, those companies that had previously awarded stock options
had shifted tha
t value to awards of restricted shares, for two primary reasons:
|
|
•
|
The high degree of volatility in the market price of publicly traded equity in the oil and gas services industry make stock options a less attractive vehicle from the perspective of the award holder.
|
|
|
•
|
In the highly competitive labor market of 2017 and 2018, awards of restricted shares provide better retention value, compared to stock options.
|
Accordingly, the Committee determined to reduce the amount of stock options abd/or stock appreciation rights (“SARs”) awarded to members of TETRA’s Senior Management in 2018, and increase the amount of restricted shares awarded. For our NEOs, with the exception of Mr. Serjeant, this resulted in target 2018 long-term incentive awards that consisted 60% of TETRA equity (comprised of 20% stock options and/or SARs and 40% restricted shares), and 40% long-term performance-based cash, compared to our target 2017 long-term incentive awards that consisted 60% of TETRA equity (comprised of 30% stock options and/or SARs and 30% restricted shares), and 40% long-term performance-based cash.
As further discussed in the “Changes for Fiscal Year 2019” section, below, the Committee has continued the transition that began in 2018 by completely eliminating stock options from the long-term incentive awards granted to members of TETRA’s Senior Management in 2019, and moving a portion of that value to long-term performance-based cash. We believe that this change to the structure of our long-term awards will provide more focus on performance metrics that drive improvement in our long-term operational results, while still aligning the interests of our NEOs and other Senior Management with our stockholders and maintaining our ability to attract and retain high-caliber talent.
The following table summarizes the various elements of our 2018 long-term incentive program for our TETRA NEOs and Senior Management, and their alignment with our compensation principles:
|
Component of LTI Program
|
Terms
|
Alignment with
Compensation Principles
|
|
|
Long-Term Performance-Based Cash Incentive
(40% of Total LTI Mix
targeted for TETRA Senior Management)
|
•
3-year performance period
•
Payout range of 0% to 200% of target award
•
Performance based on pre-established metrics
− Relative TSR (50%)
− Cash from Operations (50%)
•
TSR performance relative to the performance peer group
|
Our long-term, performance-based cash incentive awards work in conjunction with annual grants of long-term, equity-based awards to provide us with increased retention value and reward participants for both improved financial results and improved relative stock price performance.
|
|
TETRA Stock Options
or SARs
(20% of Total LTI Mix targeted for TETRA Senior Management)
|
•
Exercise price equal to closing price on date of grant
•
Vests in installments over 3-year period, subject to continued service
•
10-year term
|
Stock options align our Senior Management’s interests with those of our long-term stockholders; these awards only have value if the stock price appreciates.
|
|
TETRA Restricted Stock
(40% of Total LTI Mix targeted for TETRA Senior
Management)
|
•
Vests in installments over 3-year period, subject to continued service
|
Restricted stock awards provide full value shares to our Senior Management which is key to retention and aligning interests with our stockholders; the value of these awards is dependent on stock price.
|
TETRA NEOs & Senior Management
For Mr. Serjeant and other members of CCLP’s Senior Management, long-term incentive equity awards continue to consist 50% of CCLP phantom units, which vest over a three-year period subject to continued service, and CCLP performance phantom units, which may be earned at the end of a three-year performance period only to the extent that the pre-established performance objective has been met.
|
|
|
|
|
2019 Proxy Statement
|
|
TETRA Technologies, Inc. I
53
|
COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
The following table summarizes the various elements of our 2018 long-term incentive program
for
Mr. Serjeant
and
other Senior Management of CCLP, and their alignment with our compensation principles:
|
Component of LTI Program
|
Terms
|
Alignment with
Compensation Principles
|
|
|
CCLP Performance Phantom Units
(50% of Total LTI Mix targeted for CCLP Senior Management)
|
•
3-year performance period
•
Target award amounts denominated in units
•
Payout range of 0% to 200% of target award
•
Performance determined by pre-established 3-year financial metric approved by the Committee
|
Long-term, performance-based phantom units work in conjunction with annual awards of time-based units to provide us with increased retention value and reward participants for both improved financial results and improvement in the market price for CCLP units.
|
|
CCLP Phantom Units
(50% of Total LTI Mix targeted for CCLP Senior Management)
|
•
Units vest in equal installments over 3-year period, subject to continued service
|
Time-based phantom units are a key element in aligning our Senior Management’s interests with those of CCLP’s unitholders.
|
CCLP NEO & Senior Management
2018 Program Awards
While the Committee does consider our compensation peer group’s practices in establishing equity incentive opportunities, it does not specifically benchmark the value of equity awards relative to that peer group or any survey data. The Committee has observed that market price volatility resulting from changes in prices of oil and gas and other industry-specific and broader, macro-economic cycles and trends creates significant year-to-year variances in the value of our equity awards. As these variances are difficult to predict and may not impact all member of our compensation peer group equally, the accuracy and usefulness of our compensation peer group data in establishing specific equity award benchmarks may be limited. The Committee does, however, annually review the equity compensation practices of the members of our compensation peer group in order to gain a general impression of the proportionate share of equity award value and the magnitude of equity awards in the total compensation packages offered by these companies.
The following tables summarizes the 2018 LTI grants to each of our NEOs. Mr. Murphy, who received an inducement award of TETRA restricted shares in connection with his initial employment with us on February 12, 2018, did not receive a separate annual long-term incentive award in 2018.
|
|
|
TETRA Stock
Options / Stock
Appreciation
Rights
|
|
|
TETRA Restricted
Shares / CCLP Phantom Units
|
|
|
Long-Term
Performance
Based Cash / CCLP Performance Phantom Units
|
|
|
Total
Long-Term
Award Value
|
|
|
Stuart M. Brightman
|
|
$
|
572,241
|
|
|
$
|
1,137,641
|
|
|
$
|
1,120,000
|
|
|
$
|
2,829,882
|
|
|
Elijio V. Serrano
|
|
|
194,155
|
|
|
|
393,862
|
|
|
|
380,000
|
|
|
|
968,017
|
|
|
Brady M. Murphy
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Matthew J. Sanderson
|
|
|
102,186
|
|
|
|
203,152
|
|
|
|
200,000
|
|
|
|
505,338
|
|
|
Owen A. Serjeant
|
|
|
—
|
|
|
|
368,792
|
|
|
|
368,792
|
|
|
|
737,584
|
|
Time-Based Awards Granted under the TETRA 2011 Equity Incentive Compensation Plan during 2018
The Committee approved awards of TETRA stock options or SARs and restricted stock to each of our NEOs except Messrs. Murphy and Serjeant on February 22, 2018. One-third of the TETRA stock options or SARs, which were granted with an exercise price equal to 100% of the market price on the date of grant, vested on the first anniversary of the date of grant, and 2.78% portions of the stock options vest monthly thereafter. One-third of the shares of restricted stock vests on the first anniversary of the grant date, and a 16% portion of the shares of restricted stock vests every six months thereafter.
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I TETRA Technologies, Inc.
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2019 Proxy Statement
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
One-Time Restricte
d Stock
Award Granted to Mr. Serrano
In September of 2017, in connection with the annual review of our succession plans that encompasses multiple levels of management across our entire organization, our Board of Directors approved an expansion of our management team, to fill certain positions that had been consolidated or eliminated during the downturn, in some cases, and in other cases to upgrade our capabilities in specific areas, providing credible candidates for succession into key positions.
As a result, during 2017 and 2018 we successfully recruited several seasoned leaders in the critical areas of FP&A, HSEQ, global supply chain, and operations management. In order to secure the services of these individuals in an extremely tight market for labor, we found it necessary to offer higher incentive award targets (for both annual and long-term incentives) than we have historically provided. These arrangements, while highly effective in building our Senior Management bench strength, created certain inequities in the total compensation opportunities provided to our Senior Management, including our NEOs.
Accordingly, we have taken certain actions in 2018 and 2019 to better ensure the parity of compensation opportunities for members of Senior Management who exceed established business objectives and drive our strategic growth.
Mr. Serrano, our Chief Financial Officer, has also served as the Chief Financial Officer of CCLP since March of 2017. As such, Mr. Serrano leads the finance and accounting teams that avoided financial catastrophe during the prolonged downturn and preserved the investments of the TETRA stockholders and CCLP unitholders. The Committee, in recognition of Mr. Serrano’s exemplary service to us and desiring to ensure our retention of his future services, on February 22, 2018, approved a special, one-time award to Mr. Serrano of TETRA restricted shares with an approximate grant date value of $500,000. All of the restricted shares granted as part of this special award will cliff vest on the third anniversary of their date of grant, providing a significant incentive for Mr. Serrano to remain in our service.
Employment Inducement Award Granted to Mr. Murphy
On February 12, 2018, in connection with Mr. Murphy’s initial employment with us, our Board of Directors approved an award to Mr. Murphy of TETRA restricted shares with a grant date value of $1,778,896. Fifty percent of such restricted shares vested on the first anniversary of the grant date, and, subject to Mr. Murphy’s continued employment with us, 25% of the restricted shares will vest on each of the second and third anniversaries of the grant date. This was a one-time award extended as a material inducement to Mr. Murphy’s employment with us. Beginning in 2019, Mr. Murphy participates in annual awards of long-term incentives that conform to the structure of long-term awards granted to our other NEOs and Senior Management.
CCLP Unit Awards Granted under the CCLP 2011 Long Term Incentive Plan during 2018
On February 22, 2018, the Committee recommended to the board of directors of the general partner of CCLP, CSI Compressco GP Inc. (the “CCGP Board”), the approval of an award to Mr. Serjeant consisting of equal proportions of CCLP phantom units and CCLP performance-based phantom units. On February 23, 2018, the CCGP Board approved such awards. A one-third portion of the CCLP phantom units vested on the first anniversary of the awards, and equal one-third portions will vest on the second and third anniversaries of the award, subject to Mr. Serjeant’s continued employment with us. The performance phantom units may be earned at the end of the three-year performance period based on CCLP’s attainment of the sole, cumulative 3-year distributable cash flow (“DCF”) target performance objective.
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2019 Proxy Statement
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
Long-Term Pe
rformance-Based Cash Incentives
In February 2018, the Committee established performance measures and performance objectives applicable to long-term cash incentive awards granted to our NEOs under the Cash Incentive Compensation Plan for the performance period ending on December 31, 2020. The performance measures and the relative weights of each such performance measure for these long-term incentive awards, are:
|
|
•
|
TETRA's three-year cumulative cash from operations for the period ending December 31, 2020, weighted 50%; and
|
|
|
•
|
total stockholder return relative to our performance peer group for the three-year period ending December 31, 2020, weighted 50%.
|
On an annual basis, with the assistance of Pearl Meyer, the Committee develops a performance peer group that is used only to measure our relative total stockholder return (“RTSR”) under our long-term cash incentive awards. The performance peer group is comprised of companies that directly compete with us in terms of the products and services we offer and the customers we serve. The following performance peer group was adopted by the Committee early in 2018 in connection with their approval of the long-term cash incentive compensation awards for the performance period of January 1, 2018 through December 31, 2020:
|
|
|
|
|
Performance Peer Group
Used to evaluate our RTSR under performance-based
long-term incentive awards
|
•
Archrock, Inc.
•
Basic Energy Services
•
Flotek Industries
•
Forum Energy Technologies
•
Natural Gas Services
•
Newpark Resources
|
•
Oceaneering
•
Oil States International
•
Select Energy
•
Superior Energy Services
•
Tidewater
•
USA Compression
|
For each performance measure, a threshold, target, and stretch performance objective has been established by the Committee. The amount of the award that may be earned by a participant at the end of the three-year performance period will be based on our attainment of such performance objectives, subject to the discretion of the Committee.
Payment of Long-Term Performance-Based Cash Incentives Granted in 2016
In February of 2016, the Committee established performance measures and performance objectives applicable to long-term cash incentive awards granted to certain of our NEOs under the Cash Incentive Compensation Plan for the three-year performance period ending on December 31, 2018. The performance measures for these long-term incentive awards, and the weight of each performance measure in the determination of payouts under the awards were:
|
|
•
|
TETRA’s three-year cumulative
free
cash
flow
for
the
period
ended
December
31,
2018,
weighted
50%; and
|
|
|
•
|
total stockholder return relative to our performance peer group for the three-year period ending December 31, 2018, weighted
50%.
|
The following performance peer group was adopted by the Committee early in 2016 in connection with their approval of the long-term cash incentive compensation awards for the performance period of January 1, 2016 through December 31, 2018:
|
|
|
|
|
Performance Peer Group
Used to evaluate our RTSR under performance-based
long-term incentive awards
|
•
Archrock, Inc.
•
Basic Energy Services
•
C&J Energy Services
•
Flotek Industries
•
Forum Energy Technologies
•
Helix Energy
•
Key Energy Services
|
•
Newpark Resources
•
Oil States International
•
Patterson-UTI Energy
•
Pioneer Energy Services
•
RPC
•
Superior Energy Services
•
Tidewater
|
|
|
|
|
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2019 Proxy Statement
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
For each pe
r
formance measure, a threshold, target, stretch, and over achievement performance objective was established by the Committee. Messrs.
Murphy, Sanderson
,
and Serjeant,
who were not employed by us at the time the 201
6
awards were granted, did not receive long-term performance-based cash incentive awards in 201
6
.
The following table provides the specific performance objective established by the Committee for each of the performance measures and the portion of the target amount of the total award that would be earned at each level of performance:
|
Performance & Payout Levels – 2016 Long-Term Performance-Based Cash Incentives
|
|
|
Performance Level
|
|
TSR v. Peer
Group
|
|
Portion of
Target Award
Vested
|
|
|
3-Year
Cumulative
Free Cash Flow
|
|
Portion of
Target Award
Vested
|
|
|
Aggregate
Award
Opportunity
|
|
|
Below Threshold
|
|
below 25th %tile
|
|
—%
|
|
|
$98.0 million
|
|
—%
|
|
|
—%
|
|
|
Threshold
|
|
25th %tile
|
|
10%
|
|
|
$98.0 million
|
|
10%
|
|
|
20%
|
|
|
Target
|
|
50th %tile
|
|
50%
|
|
|
$140.0 million
|
|
50%
|
|
|
100%
|
|
|
Stretch
|
|
75th %tile
|
|
100%
|
|
|
$182.0 million
|
|
80%
|
|
|
180%
|
|
|
Over Achievement
|
|
90th %tile
|
|
100%
|
|
|
$210.0 million
|
|
100%
|
|
|
200%
|
|
Based on analysis of our results for the performance period ended December 31, 2018, the Committee determined that our total stockholder return placed us at the 37
th
percentile of the applicable peer group, between the threshold and target performance levels. While recognizing that our total stockholder return for the performance period was negative, the Committee noted that only two companies in the peer group had achieved a positive total stockholder return for the performance period, four companies had gone bankrupt, and our ability to outperform many of our peers in an extremely challenging market merited payment of 28.7% of the target value of the award.
2016 Peer Group TSR Results
|
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2019 Proxy Statement
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TETRA Technologies, Inc. I
57
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
The Committee further determined that our three-year cumulative free cash flow for the performance period did not reach the required threshold level of performance. Accordingly, the Committee has approved payment
of the following earned portions
of the 201
6
long-term, performance-based cash awards to the following
NEO
s who received such awards:
|
2016 Earned Award Opportunities - Long-Term Cash Incentive Compensation Plan
|
|
|
|
|
Target Value of 2016 Long-Term
Performance-Based Award
|
|
|
Amount Earned as of
December 31, 2018
|
|
|
% of Target Earned
|
|
|
Stuart M. Brightman
|
|
$
|
625,000
|
|
|
$
|
179,375
|
|
|
|
28.7
|
%
|
|
Elijio V. Serrano
|
|
|
237,500
|
|
|
|
68,163
|
|
|
|
28.7
|
%
|
Retirem
ent, Health, and Welfare
Benefits
We offer a variety of health and welfare benefits to all eligible employees. Members of Senior Management are generally eligible for the same benefit programs on the same basis as the broad-base of our employees. Our health and welfare programs are intended to protect employees against catastrophic loss and to encourage a healthy lifestyle. These health and welfare programs include medical, wellness, pharmacy, dental, life insurance, short-term and long-term disability insurance, and insurance against accidental death and disability.
401(k) Plan.
We offer a 401(k) program that is intended to supplement a participant’s personal savings and social security benefits. Under our 401(k) Retirement Plan (the “401(k) Plan”), eligible employees may contribute on a pretax basis up to 70% of their compensation, subject to an annual maximum dollar amount established under the Code. We generally make a matching contribution under the 401(k) Plan equal to 50% of the first 8% of annual compensation the participant contributes to the 401(k) Plan. As of December 31, 2018, approximately 90% of all eligible employees were participating in the 401(k) Plan. All employees (other than nonresident aliens) who have reached the age of eighteen are eligible to participate in the 401(K) Plan beginning on the first day of the month following their completion of 30 days of service with us.
Nonqualified Deferred Compensation Plan.
We provide our Senior Management, directors, and certain other key employees with the opportunity to participate in the Executive Nonqualified Excess Plan, an unfunded, deferred compensation program. There were 22 participants in the program at December 31, 2018. Under the program, participants may defer a specified portion of their annual total cash compensation, including salary and performance-based cash incentive, subject to certain established minimums. The amounts deferred may increase or decrease depending on the deemed investment elections selected by the participant from among various hypothetical investment election options. Deferral contributions and earnings credited to such contributions are 100% vested and may be distributed in cash at a time selected by the participant and irrevocably designated on the participant’s deferral form. In-service distributions may not be withdrawn until two years following the participant’s initial enrollment. Notwithstanding the participant’s deferral election, the participant will receive distribution of his deferral account if the participant becomes disabled or dies, or upon a change in control.
CEO Pa
y Ratio
Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, requires us to disclose the annual total compensation of Mr. Brightman, our CEO, and our median employee, as well as the ratio of their respective annual total compensation to each other (in each case, with annual total compensation calculated in accordance with SEC rules applicable to the Summary Compensation Table). For 2018:
|
|
•
Median employee’s total compensation
|
$ 69,337
|
|
|
•
Mr. Brightman’s total annual compensation
|
$ 3,079,608
|
|
|
•
Ratio of CEO to median employee compensation
|
44.4 to 1
|
|
|
|
|
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2019 Proxy Statement
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
We used a consistently applied
compensation measure to identify the median of the annual total compensation of all of our employees, and to determine the annual total compensation of our CEO. To make them comparable, salaries for newly hired employees who had worked less than a year we
re annualized, and the target annual bonus amount was applied to their total compensation measure. To identify the median of the annual total compensation of all employees and the median employee’s compensation, we took the following steps:
|
|
•
|
We determined that our employee population as of December 31, 2018 consisted of 2,928 full- and part-time employees located in 13 countries (we do not have temporary or seasonal workers).
|
|
|
•
|
We selected December 31, 2018 as our identification date for determining our median employee because it enabled us to make such identification in a reasonably efficient and economic matter.
|
|
|
•
|
For our international employees paid in their local currency, we converted each such employee’s total annual compensation as of December 31, 2018 to U.S. dollars; however, we did not make any cost of living adjustment with respect to any of our U.S. or international employees.
|
The CEO pay ratio reported above is a reasonable estimate calculated in accordance with SEC rules and methods for disclosure. Due to estimates, assumptions, and adjustments, as well as significantly varying workforce structures, CEO pay ratios reported by other companies are not likely to be comparable to our CEO pay ratio.
Perqu
isites
Perquisites (“perks”) are not a material component of our executive compensation. In general, NEOs are not compensated for and do not receive reimbursements for the private use of country clubs, meals, airline and travel costs other than those costs allowed for all employees, or for tickets to sporting events or entertainment events, unless such tickets are used for business purposes. Further, our NEOs do not receive compensation or reimbursements for hunting and fishing camp costs or home security expenses. During 2018, no NEO received any compensation for or reimbursement of any of the foregoing costs or expenses incurred for non-business purposes.
Clawback Policy
In 2018, the Committee adopted the Executive Incentive Compensation Recoupment Policy, or Clawback Policy. This policy covers recoupment of certain incentive compensation paid to certain of our officers, including each of our NEOs. Incentive compensation includes any performance bonuses or incentive awards, including short and long-term incentive bonuses (in cash or otherwise) and all forms of equity-based awards that are granted, earned or vested under any TETRA plan, arrangement or agreement based wholly or in part on the attainment of a financial reporting measure. The policy provides a mechanism to recoup incentive compensation in the event we are required to prepare a restatement of our previously issued financial statements to correct one or more errors that are material to those financial statements (other than to comply with changes in applicable accounting principles or to reflect retrospective reclassification or adjustment in accordance with applicable SEC rules and regulations) due to our material noncompliance with any financial requirement under the federal securities laws or in the event that our board concludes that a covered officer engaged in misconduct that caused significant financial or reputational harm to us but did not cause the need for a restatement of our financial statements.
Severance Pla
n and Termination Payments
With
the
exception
of
the
Change
of
Control
Agreements
described
below,
we do not have a defined severance plan
for,
or any agreement with, any Named Executive Officer that would require us to make any termination
payments.
Employment Agr
eements
We have previously entered into employment agreements with Messrs. Brightman, Serrano, Murphy, Sanderson, and Serjeant that are substantially identical to the form of agreement executed by all of our employees. Each agreement evidences the at-will nature of employment and does not guarantee the term of employment, which is entirely at the discretion of the Board of Directors, or otherwise set forth the salary and other compensation of the NEOs, which is established in accordance with the procedures described above.
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2019 Proxy Statement
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TETRA Technologies, Inc. I
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
Double Trigger Change of Control Agreements
We have entered into change of control agreements ("COC Agreements") with each of our current NEOs and certain other members of our Senior Management. Each COC Agreement has an initial two-year term, with an automatic one-year extension on the second anniversary of the effective date (or any anniversary date thereafter) unless a cancellation notice is given at least 90 days prior to the expiration of the then applicable term. Under the COC Agreements, we have an obligation to provide certain benefits to each NEO upon a qualifying termination event that occurs in connection with or within two years following a “change of control” of TETRA. A qualifying termination event under the COC Agreements includes termination of the NEO’s employment by us other than for Cause (as that term is defined in the COC Agreements) or termination by the NEO for Good Reason (as that term is defined in the COC Agreements). For an overview of the specific terms and conditions of the NEOs' COC Agreements, please read the section titled "Potential Payments upon a Change of Control or Termination" below.
Indemnification Agre
ements
Each of our current directors and NEOs has executed an indemnification agreement that provides that we will indemnify these directors and officers to the fullest extent permitted by our Restated Certificate of Incorporation, Amended and Restated Bylaws and applicable law. The indemnification agreement also provides that our directors and officers will be entitled to the advancement of fees as permitted by applicable law, and sets out the procedures required for determining entitlement to and obtaining indemnification and expense advancement. In addition, our charter documents provide that each of our directors and officers and any person serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise is indemnified to the fullest extent permitted by law in connection with any threatened, pending, or completed action, suit, or proceeding (including civil, criminal, administrative, or investigative proceedings) arising out of or in connection with his or her services to us or to another corporation, partnership, joint venture, trust, or other enterprise, at our request. We purchase and maintain insurance on behalf of any person who is a director or officer of the aforementioned corporation, partnership, joint venture, trust, or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as an officer or director. In addition, Messrs. Brightman, Serrano, Murphy, and Serjeant, in their capacities as directors and/or executive officers of CSI Compressco LP, have executed indemnification agreements with CSI Compressco LP that are substantially similar to the indemnification agreements executed by each of them in connection with their services to us.
Stock Owners
hip Guidelines
Our Board of Directors has adopted a policy regarding stock ownership guidelines for our directors and executive officers. The stock ownership guidelines provided under the policy are intended to align the interests of our directors and executive officers with the interests of our stockholders. Under this policy, our executive officers must hold shares of our common stock equal to a multiple, based upon position, of their base salary. In addition, ownership of the common units of CSI Compressco LP counts toward fulfillment of the ownership requirement. The multiples applicable to our executive officers are as follows: Chief Executive Officer, five-times base salary; President, Chief Operating Officer and Chief Financial Officer, two-times base salary; and, Senior Vice Presidents and Vice Presidents, one-times base salary. Newly elected officers have five years from the date of appointment to achieve compliance with the policy.
As of the date of this report, all directors and officers are in compliance with the policy.
Tax and Accounting Impli
cations of Executive Compensation
Under Section 162(m) of the Code, publicly-held corporations generally may not take a tax deduction for compensation paid in excess of $1,000,000 in a year with respect to the corporation’s chief executive officer and other named executive officers. The former exception to this $1,000,000 limitation for performance-based compensation was repealed by the Tax Cuts and Jobs Act of 2017.
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2019 Proxy Statement
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COMPENSATION DISCUSSION & ANALYSIS (“CD&A”)
We may from time-to-
time pay compensation to our executive officers that may not be deductible, including payments made under our Cash Incentive Compensation Plan, disc
retionary bonuses, and other types of compensation outside of our plans.
Although tax deductibility is one of the factors we consider in the design of our compensation plans and programs, we believe that our interests are best served by providing competiti
ve compensation opportunities to our NEOs and other members of Senior Management, even if that results in the non-deductibility of certain amounts under the Code.
Changes for Fiscal Year 2019
Changes to the Structure of Long-Term Incentive Awards
As further discussed above with regard to annual long-term incentive awards, the Committee has continued the transition that began in 2018 by completely eliminating stock options from the long-term incentive awards granted to members of TETRA’s Senior Management in 2019, and moving a portion of that value to long-term performance-based cash. We believe that this change to the structure of our long-term awards will provide more focus on performance metrics that drive improvement in our long-term operational results, while still aligning the interests of our NEOs and other Senior Management with our stockholders and maintaining our ability to attract and retain high-caliber talent.
With the exception of Mr. Serjeant, whose 2019 long-term incentive award continued to consist 50% of time-based CCLP phantom units and 50% of CCLP performance-based phantom units, target 2019 long-term incentive awards for our NEOs consisted 50% of restricted stock units (RSUs), which vest ratably over a period of three years and may be settled in cash or shares of TETRA’s common stock at the discretion of the Committee, and 50% of long-term, performance-based cash. As discussed in connection with the establishment of our performance peer group, we will be using relative TSR as a performance measure for our 2019 long-term performance-based cash awards. We will also use cash from operations measured on a per share basis as a performance measure for our 2019 long-term performance-based cash awards.
Adoption of Retirement Guidelines
The Compensation Committee has adopted Retirement Guidelines which became effective January 1, 2019 and set forth administrative guidance for purposes of determining the treatment of equity and cash-based incentive awards following a qualifying retirement for employees who reside in the U.S. Under the guidelines, a qualifying retirement will generally occur upon a voluntary resignation from the company on or after attaining age 60 and having completed ten consecutive years of service, provided that the employee gives at least six months’ prior written notice to the company. As a condition to the receipt of any retirement benefits, the employee must also execute a release agreement acceptable to the Company. Following a qualifying retirement, if an employee receiving retirement benefits violates non-competition and non-solicitation restrictions contained in the Retirement Guidelines, all remaining retirement benefits will be forfeited. Application of the guidelines, and receipt of any retirement benefits, is subject to the discretion of the Compensation Committee.
Under the Retirement Guidelines, the employee may receive the full amount of any outstanding cash award for any annual or long-term performance period completed prior to a qualifying retirement. The employee may also receive a pro-rated portion of any outstanding cash award for the performance period during which the qualifying retirement occurs, based on the number of full months occurring prior to the qualifying retirement. For long-term equity-based incentive
awards (performance-based restricted stock awards (“RSAs”) and performance-based restricted stock unit awards (“RSUs”)), the employee may receive a pro-rated settlement based on the number of full months during the performance period occurring prior to the qualifying retirement. Stock option awards, time-vested RSAs and time-vested RSUs that were granted at least twelve months prior to the qualifying retirement may continue to vest pursuant to the vesting schedule set forth in the applicable award agreement and stock options will continue to be exercisable for the remaining term of the option or the sooner expiration of the stock option. Among our NEOs, only Mr. Brightman is currently eligible to retire and receive benefits under the Retirement Guidelines.
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2019 Proxy Statement
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TETRA Technologies, Inc. I
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