Item 11: Executive Compensation
The Company qualifies as a “smaller reporting company” and is providing scaled disclosure on that basis in this section of the Form 10-K.
Named Executive Officers
The purpose of this summary of our executive compensation is to discuss material information relating to compensation awarded to the following individuals who have been identified as the Company’s “Named Executive Officers” or “NEOs” for the fiscal year ended December 31, 2022:
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|
Name |
Title as of December 31, 2022 |
David A. Neumann |
Chief Executive Officer |
Kevin J. McGowan |
Vice President and Chief Financial Officer |
Rishi Bharadwaj |
Senior Vice President and Chief Operating Officer |
Arnt Arvik(1) |
Former Vice President and Chief Sales Officer |
Leslie Sgnilek(1) |
Former Vice President of Corporate Resources and Chief Risk Officer |
(1)Both Mr. Arvik and Mr. Sgnilek is included as a Named Executive Officers as a result of amounts accrued or paid under his respective Separation Agreement and Release filed as an exhibit to our Form 10-K.
Annual Compensation Process
The Role of the Independent Compensation Consultant. The compensation of the CEO and the other executive officers is established prior to the end of the first quarter of the fiscal year. The Compensation Committee has engaged Willis Towers Watson LLP, a global professional services company that serves as independent compensation consultant to the Compensation Committee (the “Independent Compensation Consultant”), to inform its decisions as to appropriate levels and elements of compensation for the NEOs and other executive officers. The Independent Compensation Consultant provides executive compensation consulting services to the Compensation Committee, including (i) assisting with establishing the Company’s compensation goals and objectives, (ii) providing relevant peer group and survey data on compensation, and (iii) advising on industry trends in executive compensation. The Independent Compensation Consultant provides no services to the Company other than the services it provides to the Compensation Committee. The Compensation Committee’s practice is to invite a representative of the Independent Compensation Consultant to attend substantially all Compensation Committee meetings.
In providing these services to the Compensation Committee, the Independent Compensation Consultant analyzes compensation information for comparable executive officers, which it derives from two independent surveys as well as publicly available data from a peer group. The peer group is currently comprised of 15 publicly traded companies that compete with the Company for talent or are comparable to the Company in terms of broad industry sectors, size, and business complexity.
Consideration of Say-On-Pay Results. The Company considered the results of the Say-on-Pay proposal presented to the stockholders for approval in 2022. In light of the approximately 98% support that the proposal received in 2022, the Company’s compensation policies and decisions remain focused on rewarding sustainable financial performance to drive stockholder value.
CEO Compensation. The CEO’s compensation must be approved each year by the independent Board members based on the recommendation of the Compensation Committee. In making its recommendation with respect to the CEO’s compensation, the Compensation Committee takes into consideration, among other factors, the Company’s financial results, the results of a performance evaluation of the CEO for the preceding year, and CEO compensation trends of the Company’s peer group. The annual evaluation of the CEO’s performance is conducted by the Nominating and Governance Committee through an electronic survey completed by all independent Board members. It requires each independent Board member to assess the CEO’s ability to meet the Company’s financial performance objectives, conduct succession planning, execute strategic plans, exhibit leadership, create value, and maintain good relationships with the stockholders, the Board of Directors, and other stakeholders of the Company. The Chair of the Nominating and Governance Committee reports the results to the other independent Board members in executive session and moderates a discussion thereof. In formulating its recommendation to the Board of Directors with respect to the CEO’s compensation, the Compensation Committee exercises its judgment, taking into account the results of the Nominating and Governance Committee’s survey and the discussion thereof, any stockholder input that may have been received, and the comparative data and advice of the Independent Compensation Consultant. The Compensation Committee’s discussions of the elements of compensation for the CEO are conducted in a closed session, typically with the Independent Compensation Consultant in attendance but with no Company employees present. The Chair of the Compensation Committee solicits input from the CEO in the course of the Compensation Committee’s formulation of its recommendation; however, the CEO is not permitted to participate in the deliberations by the Board of Directors in its consideration of the Compensation Committee’s recommendation for CEO compensation.
Other Executive Compensation. The Compensation Committee has full authority to determine the compensation of the NEOs and other executive officers (other than the CEO). In establishing compensation for such executive officers, the Compensation Committee relies on (i) the CEO’s evaluation of each executive officer’s individual performance and compensation recommendation, (ii) the Board’s experience with the executive officer, (iii) the benchmarking data compiled by the Independent Compensation Consultant, and (iv) the Company’s compensation philosophy. The CEO attended six of the seven Compensation Committee meetings in 2022. After consulting with the Independent Compensation Consultant and considering the benchmarking data, the Compensation Committee, in its discretion, approves the annual compensation for NEOs and the executive officers (other than the CEO), including salary and short-term and long-term incentives.
Principal Elements of Executive Compensation
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The principal elements of executive compensation are briefly described in the table below. More extensive descriptions of the elements, and the related plans and benefits, are provided in later sections of this Form 10-K.
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|
Compensation Element |
Description |
Base salary |
Principal element of cash compensation that is not “at risk” |
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The Compensation Committee considers the performance, experience, and responsibilities of the executive officers in setting base salaries. |
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The Compensation Committee seeks to establish base salaries that are competitive with those paid to comparable executive officers based upon benchmarking data provided by the Independent Compensation Consultant. |
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|
Short-Term Incentive Plan |
Annual performance-based incentive plan designed to motivate achievement of specifically identified, short-term corporate objectives, generally achievement of annual revenue and Adjusted EBITDA goals |
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The Company’s annual financial plan plays an important role in establishing the objectives and target performance for this plan. |
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Awards are denominated in cash but may be paid in cash, shares, or a combination of both. |
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Not available to sales executives or sales team |
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Executive Sales Compensation Plan |
Variable compensation linked to the sales team’s success in generating profitable revenue |
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Determined based upon achievement of goals that are aligned with the Company’s annual financial plan |
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Paid in cash |
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|
Long-Term Incentive Plan |
Designed to encourage sustainable growth, consistent earnings, and management retention through consistency in long-term incentives |
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Equity awards can be performance-based, service-based, or a combination of both. |
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Performance-based incentive awards are generally based upon a multiple year performance period. |
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Change of control benefits |
Intended to induce the executive officers to continue to contribute to the success of the Company in connection with an event resulting in (i) the majority of the voting control of the Company being transferred (whether by way of merger, reorganization, or acquisition) or (ii) the sale of all or substantially all of the Company’s assets |
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Includes lump sum payment of a specified percentage of base salary, continuation of Company-paid healthcare benefits for a specified period of time, and vesting of restricted stock previously awarded |
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Triggered if the executive officer’s employment is involuntarily terminated within twelve months of a change of control (i.e., a “double trigger”) |
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Severance benefits |
Intended to compensate executive officers in the event of an involuntary termination of his/her employment unrelated to a change of control |
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Includes salary continuation and Company-paid healthcare benefits for a specified period of time and vesting of certain restricted stock previously awarded |
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Other benefits |
Medical, dental, and vision benefits and term life, accidental death and dismemberment, and short and long-term disability insurance are provided with all or a substantial portion of the cost thereof paid by the Company. |
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Employee Stock Purchase Plan allows employees of the Company to participate electively in a plan under which, through individual payroll deductions, they are permitted twice a year to buy shares of the Company’s common stock at prices discounted from the market price. |
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The Company maintains a 401(k) plan and matches the contribution of a plan participant up to the first 4% of the participant’s compensation. The Company match vests immediately. |
2022 Compensation
The following table presents the compensation of the NEOs for the years indicated below:
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Summary Compensation Table
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|
|
|
Salary(1) |
Bonus(2) |
Stock Awards(3) |
Non-Equity Incentive Plan Compensation(4) |
All Other Compensation(5) |
Total |
|
Year |
($) |
($) |
($) |
($) |
($) |
($) |
David A. Neumann |
2022 |
400,000 |
— |
349,998 |
479,167 |
43,128 |
1,272,293 |
Chief Executive Officer |
2021 |
389,656 |
109,104 |
349,997 |
— |
45,004 |
893,761 |
Kevin J. McGowan |
2022 |
321,371 |
— |
237,600 |
240,612 |
36,699 |
836,282 |
Vice President and Chief Financial Officer |
2021 |
289,913 |
58,345 |
254,100 |
— |
27,767 |
630,125 |
Rishi Bharadwaj |
2022 |
348,989 |
— |
198,000 |
240,384 |
30,115 |
817,488 |
Senior Vice President & Chief Operating Officer |
2021 |
329,469 |
66,306 |
186,340 |
— |
35,814 |
617,929 |
Arnt Arvik(6) |
2022 |
252,551 |
— |
148,500 |
181,633 |
385,282 |
967,966 |
Former Vice President and Chief Sales Officer |
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|
|
|
|
|
Leslie Sgnilek(6) |
2022 |
262,521 |
— |
123,750 |
157,239 |
376,311 |
919,821 |
Former Vice President of Corporate Resources and Chief Risk Officer |
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(1)The amounts shown reflect the actual amounts paid as salary during fiscal years 2022 and 2021. The amount shown for 2021 reflects a temporary 10% salary reduction instituted by the Board of Directors on April 1, 2020 to address the economic disruption caused by the COVID-19 pandemic. Concurrently with the salary reduction, the executive officers received shares of the Company’s common stock with equivalent value to 5% of salary which vested on April 1, 2021. The Board of Directors restored one-half of the 10% salary reduction effective on July 1, 2020 and the other half effective on April 1, 2021.
(2)The amounts shown reflect discretionary awards for 2021.
(3)The amounts shown do not reflect compensation actually received by the NEO in the year indicated. Instead, the amounts shown represent the aggregate grant date fair value of the restricted stock granted in the year indicated, calculated pursuant to FASB ASC Topic 718, excluding the effect of estimated forfeitures, and with performance-based shares valued at target. For a discussion of the valuation assumptions, see Note 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022.
The stock awards are restricted stock granted pursuant to the Long-Term Incentive Plan in effect for the year indicated. The award for each participant under the 2022 Long-Term Incentive Plan (“2022 LTIP”) is comprised of a performance-based incentive award (67%) and a service-based award (33%). The table below shows the maximum number and value of performance-based shares that may vest and be received under the 2022 LTIP. Performance-based shares are earned and vest, if at all, based upon the Company’s performance over the three-year period from 2022 through 2024. Performance is measured against a specified revenue target with a penalty if Adjusted EBITDA, a non-GAAP measure, as a percentage of revenue falls below specified levels. The table below indicates the maximum number of performance shares that would be awarded at the completion of the performance period with performance at or above the maximum revenue goal (without an Adjusted EBITDA penalty), and corresponding values using the closing price of a share of PCTEL common stock on the grant date. For the number of performance shares at target, see “2022 Long-Term Incentive Plan”. No additional shares will be awarded under the 2022 LTIP for performance exceeding the maximum performance goal. Each NEO must be an employee, director or contractor of the Company on the performance determination date to receive the stock award.
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|
Name |
Year |
Maximum (# of Shares) |
|
Value @ Maximum ($) |
|
David A. Neumann |
2022 |
|
79,133 |
|
|
391,710 |
|
Kevin J. McGowan |
2022 |
|
56,000 |
|
|
277,200 |
|
Rishi Bharadwaj |
2022 |
|
46,667 |
|
|
231,003 |
|
Arnt Arvik |
2022 |
|
35,000 |
|
|
173,250 |
|
Leslie Sgnilek |
2022 |
|
29,167 |
|
|
144,378 |
|
(4)Non-Equity Incentive Plan Compensation with respect to Mr. Neumann, Mr. McGowan, Mr. Bharadwaj, and Mr. Sgnilek is discussed under “2022 Short-Term Incentive Plan” below. Non-Equity Incentive Plan Compensation with respect to Mr. Arvik is discussed under “Variable Compensation under 2022 Sales Compensation Plan” below. With respect to Messrs. Sgnilek and Arvik, amounts included in this column represent amounts actually earned prior to their separation from service.
(5)All Other Compensation represents matching contributions under the 401(k) plan, group life, accident and disability insurance premiums, healthcare insurance premiums and contributions to Health Savings Accounts, and dividends on unvested restricted stock awards. For Mr. Neumann, it also reflects an annual reimbursement of $3,721 in 2022 and $5,832 in 2021 for financial and tax advisory services and tax preparation. For Mr. Arvik it also reflects $355,042 accrued or paid in 2022 under his Separation Agreement and Release dated December 15, 2022 filed as an exhibit to our Form 10-K, and for Mr Sgnilek it also reflects $340,148 accrued or paid in 2022 under his Separation Agreement and Release dated November 14, 2022 filed as an exhibit to our Form 10-K.
(6)(6) Mr. Arvik and Mr. Sgnilek were not NEOs for the fiscal year ended December 31, 2021.
2022 Short-Term Incentive Plan. Mr. Neumann, Mr. McGowan, Mr. Bharadwaj, and Mr. Sgnilek, participated in the 2022 Short-Term Incentive Plan (“2022 STIP”). The 2022 STIP was designed to provide incentive awards for the NEOs and other executive officers based on the achievement of the specifically-identified corporate Adjusted EBITDA and revenue goals. The design of the 2022 STIP weighted achievement of the Adjusted EBITDA goal at 70% and achievement of the revenue goal at 30%. The target Adjusted EBITDA and revenue goals were consistent with the Company’s 2022 financial plan targets. The threshold Adjusted EBITDA was 25% below the
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target and the maximum Adjusted EBITDA was 25% above the target. The threshold revenue was 8% below the target and the maximum revenue was 8% above the target. Incentive awards for achievements between the threshold and target goals or between the target and maximum goals were determined on a straight-line basis. The 2022 STIP was designed with no incentive award for performance below the threshold and no increased incentive for performance above the maximum. The percentage of base salary paid as the incentive award at the three levels of achievement is assigned to participants by job category and responsibilities.
The determination of Adjusted EBITDA for 2022 incorporates the actual cash payout made to participants under the 2022 STIP, thereby aligning the 2022 STIP participants’ interests directly with those of the stockholders. “Adjusted EBITDA” is a non-GAAP measure that the Company defines as GAAP operating profit, excluding stock compensation expenses, amortization of intangible assets, depreciation, restructuring charges, impairment charges, gain/loss on sale of product lines, acquisition-related expenses, and expenses included in GAAP operating profit to the extent their recovery is recorded below operating profit. We believe that use of this non-GAAP measure facilitates comparability of results over different periods.
The Compensation Committee believed that the target Adjusted EBITDA and revenue goals for the Company were challenging but achievable with significant effort. The Company achieved Adjusted EBITDA of $10.7 million, between the target and maximum. The Company achieved revenue of $99.4 million, slightly below target. The 2022 STIP paid out at 20% above the target award. The 2022 STIP awards were paid 50% in the Company’s common stock and 50% in cash for NEOs, other executive officers, and key managers and 100% in cash for all other participants.
The actual awards under the 2022 STIP for Mr. Neumann, Mr. McGowan, Mr. Bharadwaj, and Mr. Sgnilek are reflected in the Summary Compensation Table above. The table below reflects the amounts of awards that would have been paid under the 2022 STIP had the Company achieved threshold, target, and maximum performance.
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|
At Threshold(1) |
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|
At Target |
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|
At Maximum(2) |
|
Name |
(% of base salary) |
($) |
|
|
(% of base salary) |
($) |
|
|
(% of base salary) |
($) |
|
David A. Neumann |
25.00% |
|
100,000 |
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|
100.00% |
|
400,000 |
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|
200.00% |
|
800,000 |
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Kevin J. McGowan |
15.60% |
|
50,230 |
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|
62.50% |
|
200,857 |
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|
125.00% |
|
401,714 |
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Rishi Bharadwaj |
14.40% |
|
50,185 |
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|
57.50% |
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200,669 |
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|
115.00% |
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401,338 |
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Leslie Sgnilek |
12.50% |
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32,815 |
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|
50.00% |
|
131,261 |
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|
100.00% |
|
262,521 |
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(1)The threshold award is equal to 25% of the target award.
(2)The maximum award is equal to 200% of the target award.
Variable Compensation under 2022 Sales Compensation Plan. As Chief Sales Officer, Mr. Arvik had a 2022 Sales Compensation Plan intended to more directly link his compensation to the performance of the Company’s sales team in generating profitable sales. Mr. Arvik’s variable compensation under his 2022 Sales Compensation Plan was determined based upon the achievement of the assigned sales quota and Adjusted EBITDA (as defined under “Awards Under the 2022 Short-Term Incentive Plan” above) goals. Mr. Arvik’s sales quota was based upon the Company’s total revenue, with the target consistent with the Company’s 2022 financial plan target. Likewise, the target Adjusted EBITDA goal was consistent with the Company’s 2022 financial plan target. The payout factor on each goal accelerates as the level of revenue and Adjusted EBITDA increases, and payouts are capped as described in the table below.
Mr. Arvik’s actual compensation under his 2022 Sales Compensation plan is reflected in the Summary Compensation Table above. The target and maximum variable compensation under Mr. Arvik’s 2022 Sales Compensation Plan are summarized in the table below:
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At Target |
|
At Maximum |
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Name |
(% of base salary) |
|
$ |
|
(% of base salary)1 |
|
$ |
|
Arnt Arvik |
|
67.0 |
% |
|
176,613 |
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|
167.5 |
% |
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441,532 |
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(1)The maximum variable compensation would be payable if the Company had both revenue and Adjusted EBITA equal to or exceeding 200% of the relevant targets.
2022 Long-Term Incentive Plan. The Long-Term Incentive Plan for 2022 (“2022 LTIP”), consistent with the Long-Term Incentive Plans for 2021 and 2020, featured a substantial percentage of awards subject to performance-based vesting: 67% is a performance incentive award with restricted shares vesting based upon the Company’s revenue growth over a three-year period (the “performance period”) and 33% is a service-based award with restricted shares vesting over three years in equal annual installments. Target performance requires achievement of compound annual growth in revenue of 8% over the performance period (i.e., revenue in 2024 must reflect 8% compound annual growth over revenue in 2021). If the Company achieves the target performance over the performance period, the NEOs will receive the number of performance-based shares indicated in the table below at the conclusion of the performance period, subject to the potential reduction described below relating to achievement of a specified Adjusted EBITDA goal over the
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performance period. The value of the shares in the table below is calculated using the closing price of a share of PCTEL common stock on the grant date.
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Service-Based Shares |
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Value of Service-Based Shares |
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Performance-Based Shares (At Target) |
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Value of Performance-Based Shares (At Target) |
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Total # of Shares |
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Value of Shares Total |
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|
(#) |
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($) |
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(#) |
|
($) |
|
(#) |
|
($) |
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David A. Neumann |
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22,610 |
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116,668 |
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|
45,219 |
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|
233,330 |
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67,829 |
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349,998 |
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Kevin J. McGowan |
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16,000 |
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79,200 |
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32,000 |
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158,400 |
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48,000 |
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|
237,600 |
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Rishi Bharadwaj |
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13,333 |
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65,998 |
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26,667 |
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|
132,002 |
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|
40,000 |
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|
198,000 |
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Arnt Arvik |
|
10,000 |
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49,500 |
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20,000 |
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99,000 |
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30,000 |
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148,500 |
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Leslie Sgnilek |
|
8,333 |
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41,248 |
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16,667 |
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82,502 |
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25,000 |
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123,750 |
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210,829 |
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1,057,848 |
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The actual number of performance-based shares issued to NEOs, if any, will depend upon the Company’s performance relative to target. If the Company achieves greater than the target performance over the performance period, the NEOs will receive more performance-based shares than indicated in the table above, determined in accordance with the table below. The 2022 LTIP payout ranges from 0% to 175% of the target performance award. Achievement of revenue growth between the percentages indicated in the table below will be mathematically interpolated.
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|
Revenue Growth for Performance Period |
% of Target Performance Award |
0.00% or less |
0.00% |
1.00% |
12.50% |
2.00% |
25.00% |
3.00% |
37.50% |
4.00% |
50.00% |
5.00% |
62.50% |
6.00% |
75.00% |
7.00% |
87.50% |
8.00% |
100.00% |
9.00% |
118.75% |
10.00% |
137.50% |
11.00% |
156.25% |
12.00% or more |
175.00% |
The foregoing notwithstanding, the number of performance-based shares earned will be reduced by 20% if the Company’s Adjusted EBITDA (as defined in “2022 Short-Term Incentive Plan” as a percentage of the Company’s revenue for the performance period is less than 8%. Each NEO must be an employee, director, or contractor of the Company on the performance determination date in order to receive the performance-based award and on the vesting date in order to receive the service-based award.
Awards Under 2019 Long-Term Incentive Plan
As disclosed in our Definitive Proxy Statement for our 2020 Annual Meeting of Stockholders, filed with the Securities and Exchange Commission on April 15, 2020, NEOs and executive officers were granted awards pursuant to the 2019 Long-Term Incentive Plan (“2019 LTIP”) comprised of performance-based restricted stock (67%) vesting based upon the Company’s revenue growth over a three-year period and service-based restricted stock (33%) vesting over three years in equal annual installments. None of the performance-based restricted stock under the 2019 LTIP vested because the minimum revenue growth required for the three-year performance period ending December 31, 2021 was not achieved.
Equity Plans and Awards
Stock Plan. Equity issued by the Company under the 2022 STIP and under the 2022 LTIP is issued under the PCTEL, Inc. 2019 Stock Incentive Plan (the “2019 Stock Incentive Plan”). The 2019 Stock Incentive Plan replaced the PCTEL, Inc. Stock Plan adopted in 2015 (the “2015 Stock Plan”). Equity awards granted under the 2015 Stock Plan that were earned or vested subsequent to adoption of the 2019 Stock Incentive Plan were nevertheless issued from shares remaining in the 2015 Stock Plan.
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Although the Compensation Committee can grant stock options under the 2019 Stock Incentive Plan, no stock options were granted to executive officers during 2021 and 2022. The Compensation Committee has never re-priced previously granted stock options, and both the 2015 Stock Plan and the 2019 Stock Incentive Plan expressly prohibit such re-pricing of previously granted stock options. The 2019 Stock Incentive Plan includes further provisions reflecting equity incentive plan “best practices” intended to protect the interests of our stockholders, including (i) limits on the number of shares that can be issued to an individual in a calendar year, (ii) no “evergreen” provision that automatically increases the number of shares authorized under the plan, (iii) no “recycling” of shares used to, for example, satisfy tax withholding obligations, and (iv) a limit on the number of shares that can be issued without a vesting period of at least one year (i.e., 5% of the aggregate shares available for issuance under the plan).
The following table provides information as of December 31, 2022 about PCTEL common stock that may be issued upon the exercise of outstanding awards and shares remaining for issuance in connection with future awards:
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Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights |
Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) |
Plan Category |
(#) |
($) |
(#) |
Equity compensation plans approved by stockholders |
513,986 (1) |
6.02 (2) |
2,853,378 (3) |
Equity compensation plans not approved by stockholders |
— |
— |
— |
(1)Includes options, as well as unvested restricted stock awards and restricted stock units subject to service-based vesting. Does not include shares which may be issued under awards subject to performance-based vesting under the Long-Term Incentive Plans for 2020, 2021, and 2022. The actual number of performance-based shares issued will depend upon the Company’s performance and will fall within a range from zero to the maximum number established by the Compensation Committee. As of December 31, 2022, the maximum number of performance-based shares which may be issued under the Long-Term Incentive Plans for 2020, 2021, and 2022 was 912,107 shares. Does not include purchase rights under the PCTEL, Inc. Employee Stock Purchase Plan (the “ESPP”).
(2)Reflects the weighted average exercise price of options to purchase shares. Does not include purchase rights under the ESPP, restricted stock awards, or restricted stock units.
(3)Includes 1,576,849 shares available for issuance under the 2019 Stock Incentive Plan, including shares which may be issued under awards subject to performance-based vesting under the Long-Term Incentive Plans for 2020, 2021, and 2022 (see footnote 1). Also includes 1,276,529 shares available for issuance under the ESPP.
Stock Retention Guidelines. In order to align further the interests of the Company’s NEOs and other Section 16 officers with the interests of the stockholders, the Board of Directors adopted a stock retention policy that prohibits (i) the CEO from selling or otherwise disposing of PCTEL common stock unless, after giving effect to the sale, he holds shares with a market value equal to five times his annual base salary, and (ii) the other NEOs and Section 16 officers from selling or otherwise disposing of PCTEL common stock unless, after giving effect to the sale, such officer holds shares with a market value equal to his/her annual base salary.
Outstanding Equity Awards. The following table indicates the unexercised options, unvested stock, and equity incentive plan awards for each NEO outstanding as of December 31, 2022:
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Option Awards |
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Stock Awards(1) |
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Securities Underlying Unexercised Options (Exercisable) |
Securities Underlying Unexercised Options (Unexercisable) |
Option Exercise Price |
Option Expiration Date |
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Shares or Units of Stock That Have Not Vested |
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Market Value of Shares or Units of Stock That Have Not Vested(2) |
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Equity Incentive Plan Awards: Unearned Shares, Units or Other Rights That Have Not Vested(3) |
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Equity Incentive Plan Awards:Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(2) |
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Name |
Grant Date |
(#) |
(#) |
($) |
|
|
(#) |
|
($) |
|
(#) |
|
($) |
|
David A. Neumann |
— |
— |
— |
— |
— |
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|
35,199 |
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|
151,356 |
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|
91,468 |
|
|
393,312 |
|
Kevin J. McGowan |
— |
— |
— |
— |
— |
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|
24,267 |
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|
104,348 |
|
|
62,100 |
|
|
267,030 |
|
Rishi Bharadwaj |
— |
— |
— |
— |
— |
|
|
19,700 |
|
|
84,710 |
|
|
50,367 |
|
|
216,578 |
|
Arnt Arvik |
— |
— |
— |
— |
— |
|
— |
|
— |
|
|
8,000 |
|
|
34,400 |
|
Leslie Sgnilek |
— |
— |
— |
— |
— |
|
— |
|
— |
|
|
6,700 |
|
|
28,810 |
|
17
(1)The vesting of the shares indicated in the table above will occur on the dates indicated in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Neumann |
|
Kevin J. McGowan |
|
Rishi Bharadwaj |
|
Grant Date |
Vesting Date |
Number of Shares Vesting |
|
Grant Date |
Vesting Date |
Number of Shares Vesting |
|
Grant Date |
Vesting Date |
Number of Shares Vesting |
|
2/5/2020 |
2/5/2023 |
|
3,498 |
|
2/5/2020 |
2/5/2023 |
|
1,667 |
|
2/5/2020 |
2/5/2023 |
|
1,500 |
|
2/5/2020 |
2023 |
|
23,989 |
|
2/5/2020 |
2023 |
|
10,000 |
|
2/5/2020 |
2023 |
|
9,000 |
|
2/4/2021 |
2/4/2023 |
|
4,545 |
|
2/4/2021 |
2/4/2023 |
|
3,300 |
|
2/4/2021 |
2/4/2023 |
|
2,433 |
|
2/4/2021 |
2/4/2024 |
|
4,546 |
|
2/4/2021 |
2/4/2024 |
|
3,300 |
|
2/4/2021 |
2/4/2024 |
|
2,434 |
|
2/4/2021 |
2024 |
|
27,686 |
|
2/4/2021 |
2024 |
|
20,100 |
|
2/4/2021 |
2024 |
|
14,700 |
|
2/22/2022 |
2/22/2023 |
|
7,536 |
|
2/9/2022 |
2/18/2023 |
|
5,333 |
|
2/9/2022 |
2/18/2023 |
|
4,444 |
|
2/22/2022 |
2/22/2024 |
|
7,537 |
|
2/9/2022 |
2/18/2024 |
|
5,333 |
|
2/9/2022 |
2/18/2024 |
|
4,444 |
|
2/22/2022 |
2/22/2025 |
|
7,537 |
|
2/9/2022 |
2/18/2025 |
|
5,334 |
|
2/9/2022 |
2/18/2025 |
|
4,445 |
|
2/22/2022 |
2025 |
|
39,793 |
|
2/9/2022 |
2025 |
|
32,000 |
|
2/9/2022 |
2025 |
|
26,667 |
|
|
|
|
|
|
|
|
|
|
|
Arnt Arvik |
|
Leslie Sgnilek |
|
Grant Date |
Vesting Date |
Number of Shares Vesting |
|
Grant Date |
Vesting Date |
Number of Shares Vesting |
|
2/5/2020 |
2023 |
|
8,000 |
|
2/5/2020 |
2023 |
|
6,700 |
|
(2)The market value is calculated by multiplying the number of shares that have not vested by $4.30, the closing price per share of PCTEL common stock on December 31, 2022.
(3)The number of performance-based shares is based on achievement of target performance goals and, accordingly, the number of shares actually issued may be less or greater than the number indicated above based upon the Company’s performance relative to target. The vesting date for performance-based shares is dependent on the timing of the completion of the Company’s audit of the final year in the performance period.
Change of Control and Severance Benefits
The Company has entered into Management Retention Agreements to provide retention benefits to its NEOs and other executive officers upon the occurrence of certain events surrounding a Change of Control. These retention benefits are intended to induce the executive officers to continue to contribute to the success of the Company in the transition period and the post-acquisition period to the extent permitted by the successor or acquirer. A “Change of Control” is an event resulting in (i) the majority of the voting control of the Company being transferred (whether by way of merger, reorganization, or acquisition) or (ii) the sale of all or substantially all of the Company’s assets. The retention benefits offered by the Company to executive officers in connection with a Change of Control are based on a “double trigger” requiring both (i) a completed Change of Control event, and (ii) within 12 months following such Change of Control event, either (x) an involuntary termination of such executive officer’s employment other than as a result of cause, death or disability, or (y) a termination by the executive officer of his or her employment pursuant to a “Voluntary Termination for Good Reason” (as defined in the applicable management retention agreement). The principal retention benefits available to the NEOs and participating executive officers upon satisfaction of both triggers are a lump sum payment of a specified percentage of base salary, acceleration of 100% of any then unvested equity incentives, and Company-paid healthcare benefits for a specified period of time, all as indicated in the table below. The Company does not provide any tax gross-up on retention benefits. The Compensation Committee believes that the level of these benefits would not, in the aggregate, represent a financial deterrent to a buyer or successor entity in considering a combination transaction with the Company. The description of the Management Retention Agreements and the benefits payable thereunder is qualified in its entirety by reference to the Form of Management Retention Agreement, and in the case of Mr. Neumann, the Management Retention Agreement dated May 6, 2020 between PCTEL, Inc. and David A. Neumann, filed as exhibits to our Form 10-K.
Under severance benefits letters with the Company (and in the case of Mr. Neumann, his employment agreement with the Company), the NEOs and other executive officers are also entitled to severance and related benefits in connection with (i) an involuntary termination of such executive officer’s employment other than as a result of cause, death or disability, and (ii) a termination by the executive officer of his or her employment pursuant to a “Voluntary Termination for Good Reason” (as defined in the applicable severance benefits letter or employment agreement) in each case, unassociated with a Change of Control. The principal severance benefits include salary continuation, acceleration of the vesting of certain equity awards, and Company-paid healthcare benefits for a specified period of time. Mr. Neumann would also receive a short-term incentive or other bonus based upon the Company’s actual performance for the performance period pro-rated for the period of employment. The Company does not provide any tax gross-up on severance benefits. The description of the severance benefits letters and the benefits payable thereunder is qualified in its entirety by reference to the Form of Severance Benefits Letter filed as an exhibit to our Form 10-K. The description of the Mr. Neumann’s employment agreement and the benefits payable thereunder is qualified in its entirety by reference to the Employment Agreement dated December 5, 2016 between PCTEL, Inc. and David A. Neumann filed as an exhibit to our Form 10-K.
The table below summarizes the severance and Change of Control benefits for our Named Executive Officers, other than Mr. Arvik and Mr. Sgnilek, as of December 31, 2022. Mr. Arvik’s Separation Agreement and Release provides him with salary continuation for twelve months, accelerated vesting of service-based restricted shares scheduled to vest in February 2023 (other service-based restricted shares were forfeited pursuant to the terms of the awards), entitlement to performance-based shares under the Company’s 2020 Long-Term Incentive Plan, payment under his sales compensation plan as if he had remained employed for the last two weeks of 2022, Company
18
paid healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, (“COBRA”) for up to twelve months, and payment for earned but unused paid time off. Mr. Sgnilek’s Separation Agreement and Release provides him with salary continuation for twelve months, accelerated vesting of service-based restricted shares scheduled to vest in February 2023 (other service-based restricted shares were forfeited pursuant to the terms of the awards), entitlement to performance-based shares under the Company’s 2020 Long-Term Incentive Plan, Company paid healthcare coverage under COBRA for up to twelve months, and payment for earned but unused paid time off. These descriptions of Mr. Arvik’s and Mr. Sgnilek’s respective Separation Agreements and Releases are qualified in their entirety by reference to Mr. Arvik’s Separation Agreement and Release dated December 15, 2022 and Mr. Sgnilek’s Separation Agreement and Release dated November 14, 2022 filed as exhibits to our Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
Severance Benefits (i.e., Involuntary Termination Unrelated to a Change of Control) |
|
Change of Control Benefits (i.e., Involuntary Termination Within 12 Months of a Change of Control) |
Name |
Salary Continuation |
Short-Term Incentive Plan |
Healthcare (in months) |
Acceleration of Unvested Options |
Acceleration of Unvested Shares (1) |
|
Multiple of Annual Salary (Paid in Lump Sum) |
Healthcare (in months) |
Acceleration of Unvested Options |
Acceleration of Unvested Shares (2) |
David A. Neumann |
12 months |
Pro-Rata (3) |
Up to 12 months |
100% |
100% |
|
2.25x |
Up to 12 months |
100% |
100% |
Kevin J. McGowan |
12 months |
— |
Up to 12 months |
12 months |
12 months |
|
2x |
Up to 12 months |
100% |
100% |
Rishi Bharadwaj |
12 months |
— |
Up to 12 months |
12 months |
12 months |
|
2x |
Up to 12 months |
100% |
100% |
(1)The occurrence of an involuntary termination (other than for cause, death or disability) or a Voluntary Termination for Good Reason (as defined in the severance benefits letter) of an NEO (other than the CEO) in 2022 would have resulted in service-based restricted shares partially accelerating as if the NEO had continued to be employed for 12 months. The occurrence of an involuntary termination (other than for cause) or a Voluntary Termination for Good Reason (as defined in the CEO’s employment agreement) of the CEO in 2022 would have resulted in an immediate vesting of all unvested service-based equity awards, and performance-based equity awards would vest and pay out in accordance with the terms thereof on a pro-rated basis for the period of his employment.
(2)Upon the occurrence of a Change of Control, performance-based equity awards will automatically convert into service-based equity awards with no performance contingencies but with monthly vesting over the performance period; however, in the event of the involuntary termination (other than for cause, death or disability) or Voluntary Termination for Good Reason (as defined in the applicable management retention agreement) of any NEO within 12 months following a Change of Control, all such NEO’s equity awards will immediately vest.
(3)Under his employment agreement, Mr. Neumann would receive a short-term incentive payment under the 2022 Short-Term Incentive Plan (based upon the Company’s actual performance for the performance period) or other bonus program, pro-rated for the period of employment.
Compensation of Directors
We structure director compensation to attract and retain qualified non-employee directors and to further align the interests of directors with the interests of stockholders. The Compensation Committee annually reviews surveys of non-employee director compensation trends and a competitive analysis of peer company practices prepared by Willis Towers Watson LLP, the independent compensation consultant engaged by the Compensation Committee. The Committee makes recommendations to the Board of Directors on cash and stock compensation for non-employee directors. Each element of director compensation is described in this section.
Commencing with the 2022 annual meeting, the Board of Directors moved away from payment for attendance at board and committee meetings to a retainer-based system that eliminates board and committee meeting fees. This change to a retainer reflects the ongoing work of the Board and its committees throughout the year, is aligned with practices of the Company’s peer group, provides consistency for budgetary purposes, and simplifies administration of payment. In November 2022, the Board made a further change to pay $5,000 of the committee membership and leadership compensation in cash rather than paying such compensation entirely in the Company’s common stock.
Non-employee directors receive an annual cash retainer of $35,000 paid in quarterly installments and shares of common stock with a grant date fair value of $60,000, as well as the following annual compensation for Board leadership roles and committee membership:
•the Chair of the Board of Directors receives a cash retainer of $12,000 and shares of common stock with a grant date fair value of $18,000;
•the Chair of the Audit Committee receives a cash retainer of $5,000 and shares of common stock with a grant date fair value of $12,500;
•the Chair of the Compensation Committee receives a cash retainer of $5,000 and shares of common stock with a grant date fair value of $10,000;
19
•the Chair of the Nominating and Governance Committee receives shares a cash retainer of $5,000 and of common stock with a grant date fair value of $10,000; and
•each other non-employee member of any of the foregoing committees receives a cash retainer of $5,000 and shares of common stock with a grant date fair value of $5,000.
All grants of common stock to non-employee directors, as described above, are awarded on the date of the annual meeting. All grants are made pursuant to the PCTEL, Inc. 2019 Stock Incentive Plan (the “Stock Plan”) and vest on the first anniversary of the grant date. Non-employee directors who become Chair of the Board, chair of a committee, or a committee member between annual meetings receive a pro-rated grant of common stock on the first day of service in such role. The number of shares granted is based on the total dollar value divided by the closing price of PCTEL common stock on the Nasdaq Global Select Market on the date of grant.
In addition to the above-referenced grants, new non-employee directors receive a one-time grant of restricted stock with a grant date fair value of $50,000 based upon the closing price of PCTEL common stock on the Nasdaq Global Select Market as of the first date of service, which vests in equal annual installments over three years.
2022 Director Compensation
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or Paid in Cash |
|
Stock Awards (1)(2) |
|
Total |
|
Name |
($) |
|
($) |
|
($) |
|
Cindy K. Andreotti |
|
39,000 |
|
|
84,999 |
|
|
123,999 |
|
Gina Haspilaire |
|
39,000 |
|
|
84,999 |
|
|
123,999 |
|
Cynthia A. Keith |
|
40,000 |
|
|
86,869 |
|
|
126,869 |
|
Steven D. Levy |
|
41,500 |
|
|
71,496 |
|
|
112,996 |
|
Giacomo Marini |
|
37,000 |
|
|
69,996 |
|
|
106,996 |
|
M. Jay Sinder |
|
49,000 |
|
|
87,121 |
|
|
136,121 |
|
(1)The values shown reflect the grant date fair value of the award, computed in accordance with FASB ASC Topic 718. For a discussion of the valuation assumptions, see Note 10 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022.
(2)The following table shows the aggregate number of unvested restricted stock awards outstanding on December 31, 2022 for each of the directors named in the director compensation table.
|
|
|
|
Name |
Stock Awards (#) |
|
Cindy K. Andreotti |
|
21,144 |
|
Gina Haspilaire |
|
21,144 |
|
Cynthia A. Keith |
|
21,580 |
|
Steven D. Levy |
|
17,785 |
|
Giacomo Marini |
|
17,412 |
|
M. Jay Sinder |
|
21,631 |
|
Based upon information provided by the Compensation Committee’s independent compensation consultant, the Board believes that the total cost of compensation for non-employee directors is slightly below the median of its designated peer group when normalized for board composition.