NON-EMPLOYEE DIRECTOR COMPENSATION
Our non-employee directors receive cash and restricted stock awards as compensation for their service as directors pursuant to our Non-Employee Director Compensation Plan which, in fiscal
2019
, was as follows:
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Cash Retainer ($)
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Restricted Stock Awards ($)
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Compensation for each non-employee director
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50,000
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|
70,000
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Additional cash retainers:
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Audit Committee Chair
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25,000
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Compensation Committee Chair
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10,000
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|
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Governance/Nominating Committee Chair
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10,000
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Lead Independent Director
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15,000
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We also reimburse our non-employee directors for reasonable expenses incurred in connection with their service as directors. The restricted stock awards are granted on the date of the Annual Meeting each year, and vest on the date of the next Annual Meeting. Directors who are appointed to the Board during the year receive a prorated cash retainer and restricted stock award, the equity component of which is granted on the director's effective start date and has the same vesting date as awards to full-year directors. Directors who terminate service as a director during the year also receive a prorated cash retainer, however, any unvested restricted stock is forfeited, unless the reason for termination of service is death, in which case the award immediately vests.
The following table provides compensation information for our non-employee directors during fiscal
2019
:
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Name
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Fees Earned or Paid in Cash ($)
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Stock Awards ($) (3)
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Total ($)
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Brad Crews (1)
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16,667
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46,665
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63,332
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Tony Christianson
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50,000
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|
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70,000
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120,000
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Stan Dardis
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65,000
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70,000
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135,000
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Stan Erickson
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50,000
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|
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70,000
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120,000
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Christine Hamilton (2)
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45,833
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88,015
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133,848
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John Henderson
|
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60,000
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|
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70,000
|
|
|
130,000
|
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Jody Horner
|
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60,000
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|
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70,000
|
|
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130,000
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Richard Mack
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75,000
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70,000
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145,000
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(1)
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Brad Crews was elected to the Board effective October 1, 2018, and received pro-rated compensation for fiscal 2019. Mr. Crews resigned from the Board effective February 7, 2019 and his restricted stock award for fiscal 2019 has forfeited on that date.
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(2)
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Christine Hamilton was elected to the Board effective March 1, 2018, and received pro-rated compensation for fiscal 2019.
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(3)
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These amounts represent the grant date fair value for each grant awarded in fiscal
2019
, valued in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 718,
Compensation—Stock Compensation
. Mr. Crews was appointed to the Board on October 1, 2018 and received a pro-rated restricted stock award in the amount of 3,060 restricted shares based on the $15.25 closing price for our Common Stock on the grant date of October 1, 2018, which award was subsequently forfeited upon his resignation. Ms. Hamilton was appointed to the Board on March 1, 2018 and received a pro-rated restricted stock award in the amount of 902 restricted shares based on the $19.97 closing price for our Common Stock on the grant date of March 2, 2018. Other than Mr. Crews, each director received an award of 4,037 restricted shares based on the $17.34 closing price for our Common Stock on the grant date of June 7, 2018.
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STOCK OWNERSHIP AND RETENTION GUIDELINES
Stock Ownership Guidelines
In order to align the interests of senior officers and directors of the Company with the interests of our stockholders and to promote our commitment to sound corporate governance, in March 2018, our Compensation Committee adopted stock ownership guidelines for senior officers and directors of the Company (the “Stock Ownership Guidelines”). The Stock Ownership Guidelines require that the officers of the Company listed below must hold the following dollar value of our Common Stock during the duration of their employment with the Company:
•
Chief Executive Officer - 3x annual base salary
•
Chief Financial Officer - 2x annual base salary
•
Chief Operating Officer and all other executive leadership team members - 50% of annual base salary
In addition, the Stock Ownership Guidelines require that each non-employee director of the Company must hold shares of Common Stock with a dollar value equal to four times the annual cash retainer paid to non-employee directors (excluding, for purposes of this calculation, any cash retainer paid to a non-employee director for purposes of serving as the lead independent director or as a committee chair). Also, to further align director and stockholder interests, our restricted stock award agreements with our non-employee directors require that the restricted stock received thereunder must be held by the non-employee director and not sold during his or her term of service.
For purposes of measuring compliance with the Stock Ownership Guidelines, shares of Common Stock owned directly or indirectly by the officer or director or his or her immediate family members residing in the same household and unvested time-based restricted stock are considered “owned” shares. Shares underlying unexercised stock options, unvested performance-based restricted stock and unvested restricted stock units do not count towards satisfying the Stock Ownership Guidelines. The Compensation Committee will review and report to the Board on an annual basis regarding the stock ownership levels of our senior officers and directors with the expectation of seeing meaningful progress towards the achievement of the Stock Ownership Guidelines.
Each of the officer and director of the Company subject to the Stock Ownership Guidelines will be afforded a reasonable period of time to achieve these minimum ownership levels.
Trading Restrictions
Our insider trading policy prohibits our directors and officers from trading our securities on a short-term basis and requires that any of our Common Stock purchased in the open market be held for a minimum of six months. This policy also requires that directors and officers not "pledge" or "sell short" our Common Stock, buy or sell put or call options on our Common Stock, or otherwise engage in speculative or hedging transactions in our Common Stock.
CORPORATE GOVERNANCE
Board Leadership Structure
David J. Meyer serves in the combined role of Board Chair and Chief Executive Officer. The Board believes that this combined role is in the best interests of the Company and its stockholders for the reasons discussed below.
Mr. Meyer possesses unique familiarity with the Company's history, business and industry, making him most capable of effectively leading discussions among directors of diverse backgrounds and experience regarding the Company's operations and strategy. As the Chief Executive Officer, Mr. Meyer has responsibility for overseeing the Company’s day-to-day operations and must continually possess a comprehensive knowledge of the Company’s business, including the Company’s opportunities and challenges. Mr. Meyer is in the best position to prioritize the Board's agenda items, to identify issues to bring to the Board, and to lead the development of the Board’s strategic plans. We feel that certain other practices initiated by the Board secure independent oversight of management without the need to separate the roles of Chief Executive Officer and Board Chair. These include our appointment of a Lead Independent Director, our policy requiring that all members of our standing committees are independent, and our policy that the independent directors of the Board and the committees of the Board hold regular executive sessions outside the presence of the Chief Executive Officer and other management.
Stan Dardis, an independent director, was selected by the Board to continue to serve as the Lead Independent Director during fiscal 2019. The Lead Independent Director has the responsibility of presiding at all executive sessions of the Board, consulting with the Board Chair and Chief Executive Officer on Board and committee meeting agendas, maintaining frequent contact with the Board Chair and Chief Executive Officer, advising the Board Chair and Chief Executive Officer on the efficiency of the Board meetings, and facilitating teamwork and communication among the non-employee directors and management.
Independence
Our Board has determined that six of our eight current directors are independent directors, as defined by Rule 5605(a)(2) of the listing standards of the Nasdaq Stock Market. The six independent directors are: Stan Dardis, Stan Erickson, Christine Hamilton, John Henderson, Jody Horner, and Richard Mack. In making this determination, the Board considered the analysis and recommendations of the Governance/Nominating Committee, as well as any related person transactions and other relationships.
Code of Ethics and Business Conduct
In December 2018, the Board approved an updated Code of Ethics and Business Conduct that applies to all employees, directors, consultants and officers, including the principal executive officer, principal financial officer, principal accounting officer and controller. The Code of Ethics and Business Conduct addresses such topics as protection and proper use of our assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting, conflicts of interest and insider trading. The Code of Ethics and Business Conduct is available under "Corporate Governance" on the "Investor Relations" page of the Company's website at
www.titanmachinery.com
. The Company intends to include on its website at
www.titanmachinery.com
any amendment to, or waiver from, a provision of its Code of Ethics and Business Conduct that applies to the principal executive officer, principal financial officer, principal accounting officer or controller that relates to any element of the code of ethics definition enumerated in Item 406(b) of SEC Regulation S-K.
Board's Role in Risk Oversight
Our enterprise risk management program identifies, prioritizes and monitors risks inherent in the operation of our business and the implementation of our business plan. The Board oversees this enterprise risk management program. In addition to the Board's oversight, each standing committee of the Board oversees the management of enterprise risks that fall within that committee's scope of responsibility. In performing these oversight functions, the Board and each committee have full access to management, as well as the ability to engage advisors. As appropriate, each committee reports back to the full Board on its respective review of applicable enterprise risks. Further, management reports directly to the Board and its committees on a semi-annual basis regarding the implementation of the enterprise risk management program.
Stockholder Communications with the Board of Directors
Stockholders may communicate directly with the Board of Directors. All communications should be directed to the Company's Corporate Secretary at the address below:
Titan Machinery Inc. Board of Directors
Attention: Corporate Secretary
644 East Beaton Drive
West Fargo, North Dakota 58078
The communication should prominently indicate on the outside of the envelope the director or directors to whom it is directed. The Company's Corporate Secretary will forward the communications to all specified directors or, if no directors are specified, to the entire Board.
Directors' Attendance at Annual Meetings
Directors' attendance at annual meetings of stockholders can provide stockholders with an opportunity to communicate with directors about issues affecting the Company. The Board's policy is that, subject to unavoidable personal or business conflicts, directors shall attend stockholders meetings. All of our directors attended the Annual Meeting of Stockholders held on June 7, 2018.
Board and Committees Meetings
During fiscal
2019
, the Board held eight meetings. The directors also participate in periodic telephonic conference calls with management for the purpose of reviewing updates on financial performance and business operations. The independent directors met in executive session at least quarterly during fiscal
2019
. When appropriate, the Board takes formal action by written consent of all directors, in accordance with the Company's Certificate of Incorporation, Bylaws and the General Corporation Law of the State of Delaware.
Our Board has three standing committees: the Audit Committee, the Compensation Committee, and the Governance/Nominating Committee. Members of such committees met formally and informally from time to time throughout fiscal
2019
on committee matters.
During fiscal
2019
, all directors attended 75% or more of the aggregate number of meetings of the Board and of committees of which each respective director was a member.
Committee Membership
The following table sets forth the membership of each of the Company's committees during fiscal
2019
.
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Audit
Committee
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Governance/Nominating
Committee
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Compensation
Committee
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Richard Mack (Chair)
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John Henderson (Chair)
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Jody Horner (Chair)
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Stan Erickson
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Stan Dardis (Service from 5/31/17 - 11/1/18)
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Christine Hamilton (Service from 3/15/18 - present)
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John Henderson
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Jody Horner
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Stan Erickson
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Brad Crews
(Service from 11/1/18 - 2/7/19)
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Christine Hamilton (Service from 3/15/18 - present)
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Stan Dardis (Service from 5/31/17 - 3/15/18)
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Brad Crews
(Service from 11/1/18 - 2/7/19)
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The following table sets forth the current membership of each of the Company's committees as of the date of this proxy statement.
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Audit
Committee
|
Governance/Nominating
Committee
|
Compensation
Committee
|
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Richard Mack (Chair)
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John Henderson (Chair)
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Jody Horner (Chair)
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Stan Erickson
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Christine Hamilton
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Christine Hamilton
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John Henderson
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Jody Horner
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Stan Erickson
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Audit Committee
The Audit Committee acts pursuant to a written charter. The charter, which is reviewed annually by the Audit Committee, may be amended upon approval of the Board. The Audit Committee charter is available under "Corporate Governance" on the "Investor Relations" page of our website at
www.titanmachinery.com
. Among other matters, our Audit Committee:
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•
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assists the Board in fulfilling its oversight responsibility to our stockholders and other constituents with respect to the integrity of our financial statements;
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•
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appoints and has oversight over our independent auditors, approves the compensation of our independent auditors, reviews the independence and the experience and qualifications of our independent auditors' lead partner, and pre-approves the engagement of our independent auditors for audit and permitted non-audit services;
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•
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meets with the independent auditors and reviews the scope and significant findings of audits and meets with management and internal financial personnel regarding these findings;
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•
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reviews the performance of our independent auditors;
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•
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discusses with management, the manager of internal audit, and our independent auditors the adequacy and effectiveness of our financial and accounting controls, practices and procedures, the activities and recommendations of our auditors and our reporting policies and practices, and makes recommendations to the Board for approval;
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•
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establishes procedures for the receipt, retention and treatment of complaints regarding internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and
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•
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prepares the audit committee report required by the SEC rules to be included in our annual proxy statement.
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Our independent auditors, internal audit manager, and management have regular contact with our Audit Committee. The Audit Committee regularly reports to our Board regarding its actions, decisions and recommendations.
Our Board of Directors determined that the following members who served on the Audit Committee in fiscal 2019 qualified as an "audit committee financial expert" (as defined under the SEC rules): Stan Erickson, John Henderson, and Richard Mack. Each member of our Audit Committee satisfies the Nasdaq Stock Market independence standards and the independence standards of Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended. Each member of our Audit Committee possesses the financial qualifications required of Audit Committee members set forth in the Nasdaq Stock Market listing rules.
The Audit Committee met eight times in fiscal
2019
.
Governance/Nominating Committee
The Governance/Nominating Committee acts pursuant to a written charter. The charter, which is reviewed annually by the Governance/Nominating Committee, may be amended upon approval of the Board. The Governance/Nominating Committee charter is available under "Corporate Governance" on the "Investor Relations" page of our website at
www.titanmachinery.com
.
Our Governance/Nominating Committee makes recommendations to our Board regarding candidates for directorships, the size and composition of our Board of Directors, and the organization and membership of our committees. In addition, our Governance/Nominating Committee oversees our Code of Ethics and Business Conduct, related party transactions, and other governance policies and matters. The Governance/Nominating Committee regularly reports to the Board regarding its actions, decisions and recommendations.
The Governance/Nominating Committee will review director nominees proposed by stockholders. Stockholders may recommend a nominee to be considered by the Governance/Nominating Committee by submitting a written proposal to the Chair of the Board of Directors at Titan Machinery Inc., 644 East Beaton Drive, West Fargo, North Dakota 58078. A consent signed by the proposed nominee agreeing to be considered as a director should accompany the written proposal. The proposal should include the name and address of the nominee, in addition to the qualifications and experience of said nominee. Please see the section below entitled "Stockholder Proposals" with regard to timing requirements for nominations made directly by a stockholder for consideration at an annual meeting of stockholders.
When selecting candidates for recommendation to the Board, the Governance/Nominating Committee will consider the attributes of the candidates and the needs of the Board and will review all candidates in the same manner, regardless of the source of the recommendation. In evaluating director nominees, a candidate should have certain minimum qualifications, including the ability to read and understand basic financial statements, familiarity with our business and industry, high moral character and mature judgment, and the ability to work collegially with others. In addition, factors such as the following are also considered:
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•
|
appropriate size and diversity of the Board;
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•
|
needs of the Board with respect to particular talent and experience;
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•
|
knowledge, skills and experience of a nominee;
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•
|
legal and regulatory requirements;
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•
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appreciation of the relationship of our business to the changing needs of society; and
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•
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desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by a new member.
|
The Governance/Nominating Committee does not have a formal diversity policy at this time; however, as stated above, the Governance/Nominating Committee seeks to nominate candidates with a diverse range of knowledge, experience, skills, expertise, and other qualities that will contribute to the overall effectiveness of the Board.
Each member of the Governance/Nominating Committee satisfies the Nasdaq Stock Market independence standards.
The Governance/Nominating Committee met four times in fiscal
2019
.
Compensation Committee
The Compensation Committee acts pursuant to a written charter. The charter, which is reviewed annually by the Compensation Committee, may be amended by approval of the Board. The Compensation Committee charter is available under "Corporate Governance" on the "Investor Relations" page of our website at
www.titanmachinery.com
.
The primary duties and responsibilities of the Compensation Committee include the following:
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•
|
develop and periodically review with management the Company's philosophy of compensation, taking into consideration enhancement of stockholder value and the fair and equitable compensation of all employees;
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•
|
review and approve corporate goals and objectives relevant to the compensation of our Chief Executive Officer, Chief Financial Officer and other executive officers, evaluate the performance of these officers in light of those goals and objectives, and set the compensation of these officers based on such evaluations;
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•
|
determine and approve equity awards to directors and employees made pursuant to the Company's equity incentive plans;
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•
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develop, recommend to the Board, review and administer senior management compensation policy and plans, including incentive plans, benefits and perquisites;
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•
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develop, recommend, review and administer compensation plans for non-employee directors;
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•
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annually consider the relationship between the Company's strategic and operating plans and the various compensation plans for which the Committee is responsible;
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•
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periodically review with management, and advise the Board with respect to, employee deferred compensation plans;
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•
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periodically review with management and advise the Board with respect to employee benefits;
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•
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conduct periodic compensation risk assessments, as further discussed below; and
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•
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review and discuss with management the Compensation Discussion and Analysis required by SEC rules. Based on such review and discussion, the Committee determines whether to recommend to the full Board that the Compensation Discussion and Analysis be included in the annual report or proxy statement.
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Our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and other senior executives do not participate in the Compensation Committee's deliberations or decisions regarding their own compensation. The Compensation Committee regularly reports to the Board regarding its actions, decisions and recommendations.
The Compensation Committee has conducted a risk assessment of our employee compensation programs, including our executive compensation programs. The Compensation Committee has concluded that our employee compensation programs are designed with the appropriate balance of risk and reward in relation to our overall business strategy and do not incent executives or other employees to take unnecessary or excessive risks. As a result, we believe that risks arising from our employee compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.
Each member of the Compensation Committee satisfies the Nasdaq Stock Market independence standards.
The Compensation Committee met four times in fiscal
2019
.
COMPENSATION DISCUSSION AND ANALYSIS
In the following Compensation Discussion and Analysis, we describe the material elements of the compensation awarded to, earned by or paid to David J. Meyer, our Chief Executive Officer, Mark Kalvoda, our Chief Financial Officer and Bryan Knutson, our Chief Operating Officer. In this Proxy Statement, we refer to Messrs. Meyer, Kalvoda and Knutson as our "named executive officers."
Executive Summary
Executive Compensation Overview for Fiscal
2019
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•
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In fiscal
2019
, Mr. Meyer, given challenging industry conditions and its effects on our results of operations, elected not to receive any equity awards and also elected to not participate in the annual performance cash bonus program.
|
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•
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In fiscal
2019
, Messrs. Kalvoda and Knutson each received a portion of the targeted annual performance bonus based upon achievement of two of the three performance objectives.
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•
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We compared our compensation program and the compensation of our named executive officers with our peer group, and concluded that our current executive compensation program is reasonable and appropriate.
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•
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We believe that our compensation program properly aligns the interests of our named executive officers with the interests of our stockholders.
|
We are committed to considering our stockholders' views on executive compensation
We receive direct feedback from stockholders on our compensation programs through the advisory vote on the compensation paid to our named executive officers (commonly known as a "say-on-pay vote"). We hold the say-on-pay vote at each annual meeting of stockholders. At our
2018
Annual Meeting of Stockholders, the say-on-pay proposal received 99.7% approval, which we believe indicates strong stockholder support for our approach to executive compensation. Our Compensation Committee will continue to monitor our stockholders' views with respect to our executive compensation practices and take those views into account when making decisions regarding executive compensation.
Compensation Philosophy
We recognize that top talent is valuable to the Company and our stakeholders, and our compensation programs need to be structured in a way that allows us to attract, motivate and retain leaders who help us achieve our objectives. The primary objectives of our executive compensation programs are stated as follows:
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•
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attracting qualified and talented executives who can provide the appropriate leadership to our Company;
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•
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retaining executives who have the critical skills necessary to achieve our strategic and operational objectives; and
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•
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motivating our executives to drive outstanding Company performance.
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We believe that the achievement of these stated objectives, through well-designed compensation programs, serve the long-term interests of our investors and other stakeholders.
The following principles guide the design of our compensation programs:
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Guiding Principle
|
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Titan Philosophy / Approach
|
Pay for performance
|
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Our compensation programs are designed to align executive compensation with the Company’s overall performance and business strategy. The design of our short-term and long-term compensation programs is driven by business objectives and performance measures that we believe provide a direct link to the creation of stockholder value. We support a pay for performance philosophy by significantly emphasizing variable or at-risk compensation in the overall executive compensation program.
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Alignment with stockholders
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Our long-term incentives are delivered in the form of equity to provide executives with a direct interest in the performance of our stock. We have adopted and implemented stock ownership guidelines for our executives which reinforce this principle.
|
Provide leadership stability and continuity
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Our compensation programs are designed to reward commitment of our executives to our Company. We recognize that the stability of the leadership team enhances our business.
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Be competitive
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We conduct market pay analyses to ensure the compensation we pay our executives is competitive in terms of the elements and mix of pay, program design and resulting actual levels of pay.
|
Reflect factors of role and individual performance
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We use the information from market pay analyses and apply it to the individual situation of each of our executives to ensure we are compensating for the executive’s level of responsibility and the executive’s skills and performance in that role.
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Compensation Program Design
Our compensation programs consist of the following forms of compensation: base salary, annual bonus, long-term incentives, and limited perquisites and benefits.
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•
|
Base Salary
- Base salary is the fixed element of each executive’s cash compensation. Base salary aids in attracting and retaining talented executives.
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•
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Annual Incentive Plan
- The annual incentive plan provides for annual cash awards to eligible employees based on achievement of financial performance goals relating to a specific fiscal year. The annual incentive plan motivates participating executives to achieve financial performance goals by making their cash awards variable and dependent upon the Company’s annual financial performance.
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•
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Long-Term Equity Awards
- The Company provides long-term incentives consisting of equity awards, which may be time-based or performance-based. These awards are designed to motivate executives to focus on creating stockholder value over the longer term. These long-term awards also aid in the retention of our executives.
|
Our Compensation Committee engages in an ongoing review of the design of our compensation programs to evaluate whether they remain consistent with our compensation philosophy and reflect what the Compensation Committee believes to be best practices among our peer group and the broader market.
Fiscal
2019
Executive Compensation as Compared to our Peer Group.
Our Compensation Committee performed a peer group-analysis of the target total direct compensation of our named executive officers, consisting of base salary, annual performance cash bonus, and the grant date fair value of restricted stock equity awards. The results of the peer group analyses are considered important by the Compensation Committee. However, the Compensation Committee does not target compensation at a particular benchmark of the peer group analysis or otherwise make any determination of, or change to, compensation in reaction to market data alone. Rather, the Compensation Committee uses this information as one of several considerations to make its judgments and determinations of appropriate compensation levels.
Role of Compensation Committee and Named Executive Officers in Setting Compensation
Our Compensation Committee sets the compensation for our named executive officers. The named executive officers do not make recommendations or participate in the discussions and decisions respecting their own compensation. Mr. Meyer provides input to the Compensation Committee on compensation for the other named executive officers, as appropriate.
Consideration of Tax and Accounting Implications
In setting executive officer compensation, we are generally aware of the tax implications under Sections 162(m) and 409A of the Internal Revenue Code and compensation expense charges under ASC 718,
Compensation Stock-Compensation
, and we may consider these factors when making future compensation decisions. Section 162(m) of the Internal Revenue Code generally imposes a $1 million cap on the deductibility of compensation paid to certain executive officers of a publicly held corporation during a year. Since the enactment of the Tax Cuts and Jobs Act, the executive officers to whom Section 162(m) applies include our Chief Executive Officer and Chief Financial Officer, the next three most highly compensated executive officers, and any employee who was a “covered employee” for any preceding taxable year beginning after December 31, 2016. Further, the Tax Cuts and Jobs Act eliminated the “qualified performance-based compensation” exception to Section 162(m). Thus, it is expected that compensation deductions for any covered employee will be subject to a $1 million annual deduction limit (other than for certain compensation that satisfies requirements to be grandfathered under the new law). Although the deductibility of compensation is a consideration evaluated by the Compensation Committee, the Compensation Committee may determine to award compensation to a covered employee that is not deductible under Section 162(m), as the Compensation Committee deems appropriate. However, our deductions for executive compensation have not historically been materially impacted by Section 162(m).
Peer Group
In fiscal 2014, the Compensation Committee retained Aon as our compensation consultant to develop the Company's peer group for compensation benchmarking purposes. The Compensation Committee has not since retained a compensation consultant to review the peer group, but the Committee conducted its own review and concluded that the peer group was still appropriate. The Company’s executive officers did not participate in the selection of the companies for inclusion in the peer group. The peer group is stated as follows:
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Alamo Group, Inc.
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Rocky Mountain Dealerships, Inc.
|
Asbury Automotive Group, Inc.
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Rush Enterprises, Inc.
|
Cervus Equipment Corporation
|
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Strongco Corporation
|
Finning International Inc.
|
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Toromont Industries Ltd.
|
H&E Equipment Services, Inc.
|
|
Tractor Supply Company
|
Lithia Motors Inc.
|
|
United Rentals, Inc.
|
Rent-A-Center, Inc.
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The Compensation Committee has engaged Aon in fiscal 2020 to perform a market study of executive compensation, director compensation, and review our peer group.
Executive Compensation Components for Fiscal
2019
The principal elements of our executive compensation program for fiscal
2019
were:
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•
|
Annual Performance Cash Bonus;
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•
|
Long-Term Equity Incentive Awards; and
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•
|
Perquisites and Other Benefits.
|
In allocating compensation across these elements, the Compensation Committee does not follow any strict policy or guidelines. However, consistent with the general compensation objectives and philosophies outlined above, the Compensation Committee sought to place a meaningful percentage of an executive's compensation at risk, subject to achievement of specific performance objectives and long-term equity value creation.
Base Salary
Base salary provides executives with a fixed, regular, non-contingent earnings stream. Our goal is to provide competitive base salaries to our named executive officers in recognition of their job responsibilities. In addition to competitive data, we consider individual work experience, leadership, time in position, performance of our Company (based upon achievement of strategic initiatives) and job performance of each named executive officer. As a result of the Compensation Committee's evaluation of these factors, the Compensation Committee may adjust base salaries to better align an individual's base salary with comparative market compensation, to provide merit increases based upon individual or Company achievement, or to account for changes in roles and responsibilities. The Compensation Committee reviews each named executive officer's base salary following the close of each fiscal year.
During fiscal
2019
, the annual base salary for Mr. Meyer was $475,000, Mr. Kalvoda was $375,000 and Mr. Knutson was $350,000.
Annual Performance Cash Bonus
We establish competitive annual performance cash bonus opportunities for our named executive officers that motivate attainment of, and link annual cash compensation to, the achievement of the annual financial performance objectives of the business. The annual performance bonus is paid in cash.
For the annual cash bonus plan, our Compensation Committee establishes the financial performance categories for the fiscal year, and the percentage of the eligible bonus allocated to each of the categories. For each performance category, the Compensation Committee determines the threshold, target, and maximum goals, and the payout percentage at each goal. If the threshold goal is not satisfied for any financial performance category, then no bonus is payable for that category. If actual performance by the Company for any financial performance category exceeds the threshold, then the percentage payout for that category is calculated proportionately based on where the actual performance falls within the range between the threshold and target goals or the range between the target and maximum goals, as applicable (the calculated percentage payout, based on actual performance for the year, is referred to below as the "bonus payout percentage").
The performance categories for the fiscal
2019
annual cash bonus plan were:
1. Adjusted Pre-Tax Income: Calculated as GAAP pre-tax income before executive cash incentive expense and adjusted to exclude the pre-tax income impact from gains or losses that occur outside of the ordinary course of our business, which, for purposes of fiscal
2019
, were the pre-tax impact of restructuring and impairment charges and the loss realized on the repurchase of our senior convertible notes.
2. Non-GAAP Cash Flow From Operating Activities: Calculated as GAAP net cash provided by operating activities, adjusted to include all floorplan payable activity (including non-manufacturer floorplan payable activity, which is not included in the computation of GAAP cash flow provided by operating activities) and to maintain a constant equity in equipment inventory.
3. Total Revenue: The Company's GAAP total revenue from its statement of operations.
The percentage of the eligible bonus amount allocated to each of the financial performance categories for our fiscal 2019 cash bonus plan was as follows:
|
|
|
Financial Performance Category
|
% Allocation of Eligible Bonus Amount
|
Adjusted Pre-Tax Income
|
40%
|
Non-GAAP Cash Flow From Operating Activities
|
30%
|
Total Revenue
|
30%
|
For each of the three financial performance categories, the cash bonus earned by the executive is calculated as follows: [the dollar amount of the target bonus for the executive] X [% of the eligible bonus amount allocated to the financial performance category - i.e., 40% for Adjusted Pre-Tax Income, 30% for Non-GAAP Cash Flow From Operating Activities, and 30% for Total Revenue] X [the bonus payout percentage for the category (0% to 200%), based on actual results]. The cash bonus paid to the executive is equal to the sum total of the bonus amounts earned for each financial performance category.
Mr. Meyer opted to not participate in the fiscal
2019
annual cash bonus plan, and accordingly he did not earn a cash bonus.
Under Mr. Kalvoda's employment agreement, he was eligible to earn a cash bonus for fiscal
2019
ranging from 0% to 150% of his annual base salary, with a target of 75% of his annual base salary or $281,250 (75% X $375,000). Under the fiscal
2019
cash bonus plan, Mr. Kalvoda earned a bonus of $156,938, as described below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Base Salary Eligible for Cash Bonus
|
|
Eligible Max Cash Bonus Amount
|
|
Bonus Earned
|
|
Bonus Earned as a % of Maximum
|
Mark Kalvoda
|
|
150
|
%
|
|
$
|
562,500
|
|
|
$
|
156,938
|
|
|
27.9
|
%
|
Under the terms of the annual performance cash bonus opportunity established for Mr. Knutson, he was eligible to earn a cash bonus for fiscal
2019
ranging from 0% to 150% of his annual base salary, with a target of 75% of his annual base salary or $262,500 (75% X $350,000). Under the fiscal
2019
cash bonus plan, Mr. Knutson earned a bonus of $146,475, as described below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Base Salary Eligible for Cash Bonus
|
|
Eligible Max Cash Bonus Amount
|
|
Bonus Earned
|
|
Bonus Earned as a % of Maximum
|
Bryan Knutson
|
|
150
|
%
|
|
$
|
525,000
|
|
|
$
|
146,475
|
|
|
27.9
|
%
|
The threshold, target and maximum goals, the applicable bonus payout percentages at these goal levels, and the bonus calculation for each financial performance category are stated below:
1.
Adjusted Pre-Tax Income (40%)
The goals and bonus payout percentage at each goal level are stated below:
|
|
|
|
|
|
|
|
|
Adjusted Pre-Tax Income Goals
|
|
Payout Percentages
|
Threshold
|
$
|
18,701,769
|
|
|
20
|
%
|
Target
|
$
|
20,779,744
|
|
|
100
|
%
|
Maximum
|
$
|
25,974,679
|
|
|
200
|
%
|
Our fiscal
2019
adjusted pre-tax income (loss) was $19,810,754, resulting in a bonus payout percentage of 63%. The bonus payout percentage is determined linearly between the payout percentage of 20% (at threshold goal of $18,701,769) and the payout percentage of 100% (at target goal of $20,779,744).
Mr. Kalvoda earned a bonus of $70,875 for this financial performance category, calculated as follows: $281,250 [target bonus] X 40% [weight for the performance category] X 63% [bonus payout percentage].
Mr. Knutson earned a bonus of $66,150 for this financial performance category, calculated as follows: $262,500 [target bonus] X 40% [weight for the performance category] X 63% [bonus payout percentage].
2.
Non-GAAP Cash Flow From Operating Activities (30%)
The goals and bonus payout percentage at each goal level are stated below:
|
|
|
|
|
|
|
|
|
Non-GAAP Cash Flow From Operating Activities Goals
|
|
Payout Percentages
|
Threshold
|
$
|
61,304,007
|
|
|
20
|
%
|
Target
|
$
|
68,115,563
|
|
|
100
|
%
|
Maximum
|
$
|
85,144,454
|
|
|
200
|
%
|
Our fiscal
2019
Non-GAAP Cash Flow From Operating Activities was $47,393,000, which was below the threshold goal. Therefore, neither Mr. Kalvoda nor Mr. Knutson received a cash bonus attributable to Non-GAAP Cash Flow From Operating Activities.
3.
Total Revenue (30%)
The goals and bonus payout percentage at each goal level are stated below:
|
|
|
|
|
|
|
|
|
Total Revenue Goals
|
|
Percentage Payout
|
Threshold
|
$
|
1,128,949,244
|
|
|
20
|
%
|
Target
|
$
|
1,254,338,049
|
|
|
100
|
%
|
Maximum
|
$
|
1,567,985,061
|
|
|
200
|
%
|
Our total revenue was $1,261,505,375, resulting in a bonus payout percentage of 102%. The bonus payout percentage is determined linearly between the payout percentage of 100% (at target goal of $1,254,338,049) and the payout percentage of 200% (at maximum goal of $1,567,985,061).
Mr. Kalvoda earned a bonus of $86,063 for this financial performance category, calculated as follows: $281,250 [target bonus] X 30% [weight for the performance category] X 102% [bonus payout percentage].
Mr. Knutson earned a bonus of $80,325 for this financial performance category, calculated as follows: $262,500 [target bonus] X 30% [weight for the performance category] X 102% [bonus payout percentage].
Long-Term Equity Incentive Awards
Under the terms of Mr. Meyer's current employment agreement, he was entitled to receive an equity incentive award on June 1, 2018 in an amount determined by dividing his annual base salary in effect on the date of grant by the closing sale price of
the Common Stock on that date, under such terms as determined by the Compensation Committee.
Mr. Meyer declined the award for fiscal
2019
.
Under the terms of Mr. Kalvoda's employment agreement, he received an equity incentive award on June 1, 2018 in an amount determined by dividing his annual base salary in effect on the date of grant by the closing sale price of the Common Stock on that date, under such terms as recommended by the Chief Executive Officer and approved by the Compensation Committee. On June 1, 2018, Mr. Kalvoda received an award of
21,790
shares of restricted stock with a grant date value of
$375,006
(
21,790
shares at
$17.21
per share, the closing price of our Common Stock on June 1, 2018). One-fourth of Mr. Kalvoda's 2018 restricted stock award vests on each of April 1, 2019, 2020, 2021, and 2022, respectively.
Mr. Knutson received an award of
8,716
shares of restricted stock with a grant date value of
$150,002
(
8,716
shares at
$17.21
per share, the closing price of our Common Stock on June 1, 2018). One-fourth of Mr. Knutson's 2018 restricted stock award vests on each of April 1, 2019, 2020, 2021, and 2022, respectively.
All awards of restricted stock were made under our 2014 Equity Incentive Plan, which is administered by our Compensation Committee. Consistent with our compensation philosophies related to performance based compensation, long-term stockholder value creation and alignment of our management's interests with those of our stockholders, we may make future awards of long-term compensation in the form of stock options, restricted stock units, or restricted stock awards to our named executive officers and other key employees. In the future, we may from time to time make one-time awards to recognize promotion or consistent long-term contribution, or for specific incentive purposes. We may also make awards in connection with the hiring of new employees.
Perquisites and Other Benefits
We offer only limited perquisites to our named executive officers. We provide each of Messrs. Meyer, Kalvoda and Knutson with a cellular phone and cellular phone service. All of our named executive officers are eligible for insurance, paid time off, 401(k) Company match and other benefits at the same levels provided to all of our full-time employees.
Employment Agreements
We have written employment agreements with David Meyer to serve as our Chief Executive Officer, Mark Kalvoda to serve as our Chief Financial Officer, and Bryan Knutson to serve as our Chief Operating Officer.
Mr. Meyer’s current employment agreement has a rolling three-year term with automatic annual one-year extensions (running from February 1 through January 31), subject to earlier termination, as described below. Pursuant to the agreement, Mr. Meyer is entitled to be paid a base salary of $500,000 per year, subject to annual review and adjustment by our Compensation Committee. For fiscal
2019
, Mr. Meyer agreed to a 5% reduction in his base salary. Pursuant to the agreement, Mr. Meyer is also eligible for an annual performance cash bonus of up to 200% of his base salary pursuant to terms, conditions and annual objectives established by our Compensation Committee, as further discussed above under "Annual Performance Cash Bonus." The agreement also provides for yearly equity incentive awards in a dollar amount equal to his base salary, as further discussed above under "Long-Term Equity Incentive Awards," pursuant to terms, conditions and annual objectives established by our Compensation Committee. In fiscal
2019
, Mr. Meyer, given challenging industry conditions and its effects on our results of operations, elected not to receive any equity awards and also elected to not participate in the annual performance cash bonus program. Mr. Meyer is eligible to participate in any employee benefit plans and programs generally available to our employees.
Mr. Kalvoda’s current employment agreement has a rolling three-year term with automatic annual one-year extensions (running from February 1 through January 31), subject to earlier termination, as described below. Pursuant to the agreement, Mr. Kalvoda is paid a base salary as established by, and subject to annual review and adjustment, by our Compensation Committee. As of January 31,
2019
, Mr. Kalvoda's base salary was $375,000 per year. Mr. Kalvoda is also eligible for an annual performance cash bonus of up to 150% of his base salary pursuant to terms, conditions and annual objectives established by the Compensation Committee. The agreement also provides for yearly equity incentive awards in a dollar amount equal to his base salary, as further discussed above under "Long-Term Equity Incentive Awards," pursuant to terms, conditions and annual objectives established by our Compensation Committee. Mr. Kalvoda is eligible to participate in any employee benefit plans and programs generally available to our employees.
Mr. Knutson’s current employment agreement has a rolling three-year term with automatic annual one-year extensions (running from February 1 through January 31), subject to earlier termination, as described below. Pursuant to the agreement, Mr. is paid a base salary as established by, and subject to annual review and adjustment, by our Compensation Committee. As of January 31,
2019
, Mr. Knutson's base salary was $350,000 per year. Mr. Knutson is also eligible for an annual cash bonus and equity incentive award pursuant to terms, conditions and annual objectives established by the Compensation Committee. Mr. Knutson is eligible to participate in any employee benefit plans and programs generally available to our employees.
The employment agreements with Messrs. Meyer, Kalvoda, and Knutson each contain a restrictive covenant prohibiting them from owning, operating or being employed by competing agricultural or construction equipment stores during their
employment with us and for a period of 24 months following termination of their employment with us. Each agreement is terminable by either us or Messrs. Meyer, Kalvoda, and Knutson, as applicable, at any time upon 60 days written notice for any reason, or immediately by us for cause. Each of the employment agreements for Mr. Meyer, Mr. Kalvoda, and Mr. Knutson include severance payment provisions in the event of termination of employment. See "Potential Payments upon Termination or Change-In-Control"
for additional information regarding these severance payment provisions.
EXECUTIVE COMPENSATION
Summary Compensation Table for Fiscal
2019
The table below sets forth certain information regarding compensation earned during the last three fiscal years by the Company's named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Fiscal
Year
|
|
Salary
($)(1)
|
|
Stock
Awards
($)(2)
|
|
Non-Equity Incentive Plan Compensation ($)(3)
|
|
All Other
Compensation
($)(4)
|
|
Total
($)
|
David Meyer, Chief Executive Officer (5)
|
|
2019
|
|
475,000
|
|
|
—
|
|
|
—
|
|
|
8,250
|
|
|
483,250
|
|
|
|
2018
|
|
475,000
|
|
|
—
|
|
|
—
|
|
|
8,100
|
|
|
483,100
|
|
|
|
2017
|
|
475,000
|
|
|
—
|
|
|
—
|
|
|
7,950
|
|
|
482,950
|
|
Mark Kalvoda, Chief Financial Officer
|
|
2019
|
|
366,667
|
|
|
375,006
|
|
|
156,938
|
|
|
8,111
|
|
|
906,722
|
|
|
|
2018
|
|
319,917
|
|
|
325,001
|
|
|
108,956
|
|
|
8,176
|
|
|
762,050
|
|
|
|
2017
|
|
294,500
|
|
|
294,499
|
|
|
194,164
|
|
|
7,731
|
|
|
790,894
|
|
Bryan Knutson, Chief Operating Officer
|
|
2019
|
|
343,333
|
|
|
150,002
|
|
|
146,475
|
|
|
8,350
|
|
|
648,160
|
|
|
|
2018
|
|
310,000
|
|
|
49,998
|
|
|
69,285
|
|
|
7,800
|
|
|
437,083
|
|
|
|
(1)
|
Amounts shown are not reduced to reflect the named executive officers' elections, if any, to contribute portions of their salaries to 401(k) plans.
|
|
|
(2)
|
Amounts represent the grant date fair value of time-based restricted stock awards granted in each fiscal year. Fair value of these awards is determined based on the closing market price of the Company's stock on the date of grant. See the Grants of Plan-Based Awards for Fiscal
2019
table for further information regarding the equity awards granted in fiscal
2019
and the Outstanding Equity Awards at January 31,
2019
table for information regarding all outstanding equity awards.
|
|
|
(3)
|
Amount represents the cash bonus compensation earned in each fiscal year under our annual performance cash bonus plan.
|
|
|
(4)
|
For each fiscal year, amounts for Messrs. Meyer, Kalvoda and Knutson represent a Company match to the 401(k) plan.
|
|
|
(5)
|
As discussed above, for fiscal
2019
, Mr. Meyer elected not to receive an equity award or to participate in the annual performance cash bonus plan.
|
Grants of Plan-Based Awards for Fiscal
2019
The following table sets forth information regarding awards to Mr. Kalvoda and Mr. Knutson, two of our named executive officers, of plan-based awards (annual performance cash bonus and long-term equity incentive) in fiscal
2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards($)(1)
|
|
All Other Stock Awards: Number of Shares of Stock(#)(2)
|
|
Grant Date Fair Value of Stock and Option Awards ($)(3)
|
Name
|
|
Grant Date
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
|
David Meyer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mark Kalvoda
|
|
6/1/2018
|
|
56,250
|
|
|
281,250
|
|
|
562,500
|
|
|
21,790
|
|
|
375,006
|
|
Bryan Knutson
|
|
6/1/2018
|
|
52,500
|
|
|
262,500
|
|
|
525,000
|
|
|
8,716
|
|
|
150,002
|
|
|
|
(1)
|
Amounts shown in the table reflect the potential amount of annual performance bonuses that could have been earned in fiscal
2019
by Mr. Kalvoda and Mr. Knutson, based on meeting the threshold goals, target goals and maximum goals amounts, as defined in our fiscal
2019
annual performance cash bonus plan. Actual amounts earned by the named executive officers for fiscal
2019
are reported in the Summary Compensation Table on page
22
under the column entitled "Non-Equity Incentive Plan Compensation."
|
|
|
(2)
|
Mr. Kalvoda and Mr. Knutson each received an award of restricted stock on
June 1, 2018
. The risk of forfeiture for these awards will lapse ratably on April 1
st
of year from 2019 to 2022.
|
|
|
(3)
|
This amount represents the grant date fair value of the restricted stock determined in accordance with FASB ASC Topic 718.
|
Outstanding Equity Awards at January 31,
2019
The following table sets forth certain information regarding equity awards granted to our named executive officers outstanding as of January 31,
2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
|
Number of Securities Underlying Unexercised Options (#) Unexercisable
|
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
|
|
Option Exercise Price ($)
|
|
Option Expiration Date
|
|
Number of Shares or Units of Stock That Have Not Vested (#)(1)
|
|
Market Value of Shares or Units of Stock That Have Not Vested ($)(2)
|
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
|
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
|
David Meyer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mark Kalvoda
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
55,759
|
|
|
1,044,924
|
|
|
—
|
|
|
—
|
|
Bryan Knutson
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,480
|
|
|
290,095
|
|
|
—
|
|
|
—
|
|
|
|
(1)
|
For Mr. Kalvoda,
21,073
shares vest on
April 1, 2019
;
19,166
shares vest on
April 1, 2020
;
10,071
shares vest on
April 1, 2021
; and
5,449
shares vest on
April 1, 2022
. For Mr. Knutson,
5,205
shares vest on
April 1, 2019
;
4,824
shares vest on
April 1, 2020
;
3,272
shares vest on
April 1, 2021
; and
2,179
shares vest on
April 1, 2022
.
|
|
|
(2)
|
The amounts reflect the value based on the closing price of our Common Stock on
January 31, 2019
of
$18.74
.
|
Option Exercises and Stock Vested for Fiscal
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Number of Shares Acquired on Exercise (#)
|
|
Value Realized on Exercise ($)
|
|
Number of Shares Acquired on Vesting (#) (1)
|
|
Value Realized on Vesting ($) (2)
|
David Meyer
|
|
—
|
|
|
—
|
|
|
5,118
|
|
120,580
|
|
Mark Kalvoda
|
|
—
|
|
|
—
|
|
|
24,584
|
|
579,199
|
|
Bryan Knutson
|
|
—
|
|
|
—
|
|
|
3,287
|
|
77,442
|
|
|
|
(1)
|
Represents shares of restricted stock as to which the risk of forfeiture lapsed on
April 1, 2018
.
|
|
|
(2)
|
Calculated based on the closing share price of our Common Stock of
$23.56
on the business day immediately prior to
April 1, 2018
, the date the risk of forfeiture lapsed with regard to the restricted stock.
|
Potential Payments upon Termination or Change-In-Control
The following is a discussion of the agreements, plans or arrangements that provide for payments or benefits to our named executive officers in connection with any termination of employment or change in control of the Company.
As provided under "Compensation Discussion and Analysis - Employment Agreements," we are party to an employment agreement with Mr. Meyer, which provides that if Mr. Meyer is terminated by us without "cause" prior to the expiration of the term or if he resigns for "good reason", we are obligated to pay severance in an amount equal to two times the sum of (i) his annual base salary, plus (ii) the amount of the annual incentive bonus last paid prior to the termination, and we are also required to allow Mr. Meyer to continue to participate in our group medical and dental plans at our expense for a period of 24 months. If such termination occurred on January 31,
2019
, Mr. Meyer would have been entitled to a severance payment of $950,000 (paid in equal monthly installments over 24 months) calculated as follows: two times the sum of (i) the current base salary of $475,000, plus (ii) the amount of the last annual incentive bonus paid of $0. In addition, we would pay for the cost of Mr. Meyer's continued participation in our group medical and dental plans for the 24 month period following termination (currently $1,647.81 per month).
Mr. Meyer's employment agreement does not contain any special provisions or additional payments applicable to a termination following a change in control. Upon termination of employment for any reason, Mr. Meyer's unvested equity awards are forfeited.
Under Mr. Meyer's employment agreement, “cause” is defined to mean the occurrence of any of the following: (i) the commission of a felony; (ii) any intentional and/or willful act of fraud or material dishonesty; (iii) the willful and/or continued failure, neglect, or refusal to perform in all material respects his job duties, or to fulfill his fiduciary responsibilities to the Company; or (iv) a material breach of the Company’s material policies or codes of conduct or other agreement. In addition, "good reason” is defined to mean any of the following: (i) an action that results in a substantial diminution in duties, status or position; (ii) the relocation of the principal office for Company business to a location more than forty (40) miles from the Company’s current headquarters; or (iii) material breach by the Company of any terms or conditions of the employment agreement.
We are also party to an employment agreement with Mr. Kalvoda, which provides that if Mr. Kalvoda is terminated by us without "cause" prior to the expiration of the term or if he resigns for "good reason" (in either case, not following a "change in control"): (a) we are obligated to pay severance in an amount equal to the sum of (i) his annual base salary plus (ii) the amount of the average annual incentive bonus paid to Mr. Kalvoda in the three years preceding termination; (b) his non-vested restricted equity awards that vest with the passage of time will not be forfeited and will vest in accordance with the normal vesting schedule; (c) his non-vested equity-based compensation awards that are intended to constitute performance-based compensation shall remain outstanding and shall vest or be forfeited in accordance with the terms of the applicable award agreements; and (d) we are required to allow Mr. Kalvoda to continue to participate in our group medical and dental plans at our expense for a period of 12 months. If such termination occurred on January 31,
2019
, (not following a "change in control"), Mr. Kalvoda would have been entitled to a severance payment of $476,040 (paid in equal monthly installments over 12 months) calculated as follows: the sum of (i) the current base salary of $375,000, plus (ii) the amount of the average annual incentive bonus paid in the three years preceding termination of $101,040. In addition, the Company would pay for the cost of his participation in our group medical and dental plans for the 12 month period following termination (currently $989.52 per month). Assuming a termination date of January 31,
2019
, the value of the non-vested equity awards that would continue to vest over the established vesting schedules would be
$1,044,924
, calculated based upon the closing price of our Common Stock on January 31,
2019
of
$18.74
.
If Mr. Kalvoda is terminated by the Company without "cause" following a "change in control" or if he resigns for "good reason" within 12 months following a "change in control", the Company is obligated to pay severance in an amount equal to two times the sum of (i) the annual base salary then in effect, plus (ii) the amount of the average annual incentive bonus paid to Mr.
Kalvoda in the three years preceding the termination. These severance payments would be made in 24 equal monthly installments. Also, Mr. Kalvoda's non-performance based equity awards would become fully vested and earned as of the first day following the expiration of the rescission period under the release; and any performance based equity awards would vest and be earned in accordance with the terms of the applicable award agreement. If such termination occurs we would also be required to allow Mr. Kalvoda to continue to participate in our group medical and dental plans at our expense for a period of 24 months following termination. If Mr. Kalvoda was terminated on January 31,
2019
, (following a "change in control") he would have been entitled to a severance payment of $851,040 (paid in equal monthly installments over 24 months) calculated as follows: two times the sum of (i) the current base salary of $375,000, plus (ii) the amount of the average annual incentive bonus paid in the three years preceding termination of $101,040. In addition, the Company would pay for the cost of his participation in our group medical and dental plans for the 24 month period following termination (currently $989.52 per month). Assuming a termination date of January 31, 2019, the value of the equity awards that would vest on a change in control would be
$1,044,924
, calculated based upon the closing price of our Common Stock on January 31,
2019
of
$18.74
.
Under Mr. Kalvoda's employment agreement, “cause” is defined to mean any of the following: (i) material breach of the employment agreement; (ii) willful refusal to perform assigned duties without justification, or willful misconduct or gross negligence in the performance of duties; (iii) a material breach of the Company’s material policies or codes of conduct or of material obligations under any other agreement; (iv) the willful engagement in dishonesty, fraud, illegal conduct, with respect to or in the course of the business or affairs of the Company, which materially and adversely harms the Company; (v) conviction of, or a plea of nolo contendere to, a felony or other crime involving moral turpitude; and (vi) death or permanent disability. In addition, “good reason” is defined to mean any of the following: (i) substantial diminution in duties, status, compensation, or reporting relationship; (ii) the relocation of the principal office for Company business to a location more than forty (40) miles from the Company’s current headquarters; (iii) material breach by the Company of any terms or conditions of the employment agreement; or (iv) the failure of the Company to require a successor to assume the terms of the employment agreement. In addition, “change in control” is defined to mean the occurrence of any of the following: (i) one person (or more than one person acting as a group) acquires ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than 50% of the total voting power of the stock of the Company; (ii) a majority of the members of the Board are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election; or (iii) the sale of all or substantially all of the Company’s assets.
We are also party to an employment agreement with Mr. Knutson, which provides that if Mr. Knutson is terminated by us without "cause" prior to the expiration of the term or if he resigns for "good reason" (in either case, not following a "change in control"): (a) we are obligated to pay severance in an amount equal to the sum of (i) his annual base salary plus (ii) the amount of the average annual incentive bonus paid to Mr. Knutson in the three years preceding termination; (b) his non-vested restricted equity awards that vest with the passage of time will not be forfeited and will vest in accordance with the normal vesting schedule; (c) his non-vested equity-based compensation awards that are intended to constitute performance-based compensation shall remain outstanding and shall vest or be forfeited in accordance with the terms of the applicable award agreements; and (d) we are required to allow Mr. Knutson to continue to participate in our group medical and dental plans at our expense for a period of 12 months. If such termination occurred on January 31,
2019
, (not following a "change in control"), Mr. Knutson would have been entitled to a severance payment of $424,793 (paid in equal monthly installments over 12 months) calculated as follows: the sum of (i) the current base salary of $350,000, plus (ii) the amount of the average annual incentive bonus paid in the three years preceding termination of $74,793. In addition, the Company would pay for the cost of his participation in our group medical and dental plans for the 12 month period following termination (currently $989.52 per month). Assuming a termination date of January 31,
2019
, the value of the non-vested equity awards that would continue to vest over the established vesting schedules would be
$290,095
, calculated based upon the closing price of our Common Stock on January 31,
2019
of
$18.74
.
If Mr. Knutson is terminated by the Company without "cause" following a "change in control" or if he resigns for "good reason" within 12 months following a "change in control", the Company is obligated to pay severance in an amount equal to two times the sum of (i) the annual base salary then in effect, plus (ii) the amount of the average annual incentive bonus paid to Mr. Knutson in the three years preceding the termination. These severance payments would be made in 24 equal monthly installments. Also, Mr. Knutson's non-performance based equity awards would become fully vested and earned as of the first day following the expiration of the rescission period under the release; and any performance based equity awards would vest and be earned in accordance with the terms of the applicable award agreement. If such termination occurs we would also be required to allow Mr. Knutson to continue to participate in our group medical and dental plans at our expense for a period of 24 months following termination. If Mr. Knutson was terminated on January 31,
2019
, (following a "change in control") he would have been entitled to a severance payment of $774,793 (paid in equal monthly installments over 24 months) calculated as follows: two times the sum of (i) the current base salary of $350,000, plus (ii) the amount of the average annual incentive bonus paid in the three years preceding termination of $74,793. In addition, the Company would pay for the cost of his participation in our group medical and dental plans for the 24 month period following termination (currently $989.52 per month). Assuming a termination date of January 31, 2019, the value of the equity awards that would vest on a change in control would be
$290,095
, calculated based upon the closing price of our Common Stock on January 31,
2019
of
$18.74
.
Under Mr. Knutson's employment agreement, “cause” is defined to mean any of the following: (i) material breach of the employment agreement; (ii) willful refusal to perform assigned duties without justification, or willful misconduct or gross negligence in the performance of duties; (iii) a material breach of the Company’s material policies or codes of conduct or of material obligations under any other agreement; (iv) the willful engagement in dishonesty, fraud, illegal conduct, with respect to or in the course of the business or affairs of the Company, which materially and adversely harms the Company; (v) conviction of, or a plea of nolo contendere to, a felony or other crime involving moral turpitude; and (vi) death or permanent disability. In addition, “good reason” is defined to mean any of the following: (i) substantial diminution in duties, status, compensation, or reporting relationship; (ii) the relocation of the principal office for Company business to a location more than forty (40) miles from the Company’s current headquarters; (iii) material breach by the Company of any terms or conditions of the employment agreement; or (iv) the failure of the Company to require a successor to assume the terms of the employment agreement. In addition, “change in control” is defined to mean the occurrence of any of the following: (i) one person (or more than one person acting as a group) acquires ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than 50% of the total voting power of the stock of the Company; (ii) a majority of the members of the Board are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election; or (iii) the sale of all or substantially all of the Company’s assets.
In order to receive the severance and continued benefits described above, each officer would be required to sign a release of claims against us, fulfill his non-competition obligations, cooperate with transitioning his duties and execute a non-disparagement agreement with us. We have arrived at these terms based on the advice and experience of our advisors and directors, including their knowledge of practices and agreements at public companies.
CEO Pay Ratio Disclosure
As required by Section 953(b) of Dodd-Frank Wall Street Reform and Consumer Protection Act, and applicable SEC rules, we are providing the following information about the relationship of the annual total compensation of the employee identified at median of our Company and the annual total compensation of David J. Meyer, our Chief Executive Officer.
For fiscal 2019:
|
|
•
|
the annual total compensation of the employee identified at median of our Company (other than our Chief Executive Officer), was $62,005.78; and
|
|
|
•
|
the annual total compensation of our Chief Executive Officer for purposes of determining the CEO pay ratio was $489,717.07.
|
Based on this information, for fiscal 2019, the ratio of the annual total compensation of Mr. Meyer, our Chief Executive Officer, to the median of the annual total compensation of all employees was estimated to be 7.9 to 1.
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described below. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
To calculate the ratio above, we used an employee in the same pay grade and in a similar position to the median employee that we had identified in fiscal 2018. We believe there have been no changes in our employee population or our compensation arrangements in fiscal 2019 that would result in a material change in our pay ratio disclosure or our median employee. However, we did not use the same median employee for fiscal 2019 as we did in fiscal 2018, because the median employee used in fiscal 2018 for our pay ratio disclosure was promoted. To identify the median employee as of December 31, 2017, we used the following methodology:
|
|
•
|
As of that date, our employee population consisted of approximately 2,118 individuals in the United States and Europe. We selected December 31, 2017, as the date upon which we would identify the “median employee” to allow sufficient time to identify the median employee given our European operations.
|
|
|
•
|
We selected salary and wages as reported to the Internal Revenue Service on Form W-2 for our U.S. employees and used equivalent taxable income for our European employees as our consistently applied compensation measure as it represents the primary compensation component paid to all of our employees. In addition, this approach allows us to reasonably compare compensation for our U.S. employees with that of our employees in Europe. Compensation paid in foreign currencies was converted to U.S. dollars based on exchange rates in effect on December 31, 2017.
|
In determining the annual total compensation of the median employee, such employee’s compensation was calculated in accordance with Item 402(c)(2)(x) of Regulation S-K, as required pursuant to SEC rules, except that we elected to include the
Company-paid portion of a single health insurance premium and the Company-paid contribution to the employees' health savings account, which are normally excluded from the calculation of annual total compensation for purposes of the summary compensation table. As a result, Mr. Meyer’s compensation for purposes of the pay ratio calculation differs from the summary compensation table for fiscal 2019 to reflect the inclusion of the Company-paid portion of a single health insurance premium and the Company-paid contribution to his health savings account, which are excluded for summary compensation table purposes.
Equity Compensation Plan Information
The following table provides information regarding our equity compensation plans as of January 31,
2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)(1)
|
|
Weighted average exercise price of outstanding options, warrants and rights (b)(2)
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)(2)
|
Equity compensation plans approved by security holders
|
|
385,417
|
|
|
$
|
—
|
|
|
755,278
|
|
Equity compensation plans not approved by security holders
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
385,417
|
|
|
$
|
—
|
|
|
755,278
|
|
|
|
(1)
|
Amount includes the number of shares of Common Stock underlying unvested restricted stock awards ("RSAs") and restricted stock units ("RSUs") granted to members of our board of directors and employees.
|
|
|
(2)
|
There is no exercise price for outstanding RSAs or RSUs.
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ADVISORY VOTE ON EXECUTIVE COMPENSATION
(PROPOSAL 2)
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (as set forth in Section 14A of the Securities Exchange Act of 1934, as amended), we are providing our stockholders with the opportunity to cast a non-binding, advisory vote on the compensation that was paid to our named executive officers in fiscal
2019
.
Our compensation philosophy is described in the Compensation Discussion and Analysis contained in this proxy statement. Stockholders are urged to read the Compensation Discussion and Analysis and to review the "Summary Compensation Table" and other related tables and narrative disclosure, which describe the compensation of our Chief Executive Officer, our Chief Financial Officer and our Chief Operating Officer in fiscal
2019
. The Compensation Committee and the Board believe the policies and procedures articulated in the Compensation Discussion and Analysis are effective in implementing our compensation philosophy and in achieving our goals. In addition, they believe the compensation of our named executive officers in fiscal
2019
reflects and supports these compensation policies and procedures.
Stockholders are being asked to vote on the following resolution:
"RESOLVED
, that the stockholders of Titan Machinery Inc. approve, on an advisory basis, the compensation of the Company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis section, the compensation tables, and related narrative disclosures as contained in this Proxy Statement."
This advisory vote on executive compensation, commonly referred to as a "say-on-pay" advisory vote, is required under Section 14A of the Securities Exchange Act of 1934, as amended, and is not binding on our Board. However, the Board and Compensation Committee will take into account the result of the vote when determining future executive compensation arrangements.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE RESOLUTION SET FORTH IN THIS PROPOSAL 2.