BTU Peabody Energy Corporation

PROPOSAL 1 – ELECTION OF DIRECTORS

The Board has nominated Samantha B. Algaze, Andrea E. Bertone, William H. Champion, Nicholas J. Chirekos, Stephen E. Gorman, Glenn L. Kellow, Joe W. Laymon, Bob Malone, David J. Miller, Michael W. Sutherlin and Darren R. Yeates for election as directors, each to serve for a term of one year or until his or her successor is duly elected and qualified. None of the Board's director nominations is required under any contractual arrangement, including the Elliott Agreement. Our former directors, Kenneth W. Moore and Teresa S. Madden, resigned from the Board effective June 3, 2020 and July 15, 2020, respectively, to focus on other business obligations. Each nominee is currently serving as a director and has consented to serve for the new term, and each nominee was previously elected to serve for a one-year term at our 2020 Annual Meeting of Stockholders (the “2020 Annual Meeting”), except for William H. Champion, who joined the Board in July 2020. On March 18, 2021, we announced that Mr. Kellow, who currently serves as Peabody’s President and Chief Executive Officer and a member of the Board, will leave Peabody, pursuant to the terms of an employment transition agreement, on the Separation Date. The terms of such agreement also provide that Mr. Kellow will resign as a member of the Board as of the Separation Date. As a result, if elected at the 2021 Annual Meeting, Mr. Kellow will not serve as a member of the Board after the Separation Date. The Board currently expects to elect Mr. Kellow’s replacement as a member of the Board effective as of the Separation Date. Should any of the nominees become unavailable for election, your proxy authorizes each of Stephen E. Gorman and Scott T. Jarboe to vote for such other person, if any, as the Board may recommend.

Overview of Director Election Process

Pursuant to the Amended and Restated Bylaws (“bylaws”), the Board shall consist of at least three members and no more than 15, and may be fixed from time to time by a resolution adopted by the Board or by the stockholders. At present, the Board has 11 members. Directors need not be stockholders at the time of nomination but are subject to certain share ownership requirements as described below.

On February 4, 2020, we entered into the Elliott Agreement. Pursuant to the Elliott Agreement, on February 20, 2020, the Board increased the size of the Board from 10 to 12 directors and appointed Samantha B. Algaze, David J. Miller and Darren R. Yeates to serve as directors of Peabody. On July 15, 2020, promptly following the identification of William H. Champion as the Additional Independent Director (as defined in the Elliott Agreement), the Board appointed Mr. Champion to serve as a director of Peabody.

A description of the Elliott Agreement and a copy thereof are included in a Form 8-K filed with the SEC on February 5, 2020.

Each director to be elected by stockholders shall be elected by the vote of a majority of the stockholders, except that if the number of nominees exceeds the number of directors to be elected, the directors shall be elected by a plurality of votes. There is no cumulative voting in the election of directors. Directors may be removed, with or without cause, by a majority vote of our voting stock.

All directors will be in one class and serve for a term ending at the annual meeting following the annual meeting at which the director was elected. Each of our current directors is subject to reelection at our 2021 Annual Meeting. As described above, if elected at the 2021 Annual Meeting, Mr. Kellow will not serve as a member of the Board after the Separation Date.

The Board recommends that you vote “FOR” the director nominees named below.  

Director Selection and Evaluation Process

Current Board

Our current Board consists of our President and CEO, Glenn L. Kellow, and our Executive Vice President and Chief Operating Officer, Darren R. Yeates, and 9 independent directors: Bob Malone (Chair), Samantha B. Algaze, Andrea E. Bertone, William H. Champion, Nicholas J. Chirekos, Stephen E. Gorman, Joe W. Laymon, David J. Miller and Michael W. Sutherlin. All of our current Board members were elected to serve for a one-year term at the 2020 Annual Meeting, except for William H. Champion, who joined the Board in July 2020. As described above, if elected at the 2021 Annual Meeting, Mr. Kellow will not serve as a member of the Board after the Separation Date. The Board currently expects to elect Mr. Kellow’s replacement as a member of the Board effective as of the Separation Date.

Overview of Director Nominating Process

The Board believes one of its primary goals is to advise management on strategy and to monitor its performance. The Board also believes the best way to accomplish this goal is by choosing directors who possess a diversity of experience, knowledge and skills that are particularly relevant and helpful to us. As such, current Board members and director nominees possess a wide array of skills and experience in the coal industry, related energy industries and other important areas, including engineering, finance and accounting, operations, environmental affairs, international affairs, governmental affairs and administration, public policy, corporate governance, board service and executive management. When evaluating potential members, the Board seeks to enlist the services of candidates who possess high ethical standards and a combination of skills and experience which the Board determines are the most appropriate to meet its objectives. The Board believes all candidates should be committed to creating value over the long term and to serving our best interests and the best interests of our stockholders.

The Nominating and Corporate Governance Committee is responsible for identifying, evaluating and recommending qualified candidates for election to the Board. The Nominating and Corporate Governance Committee will consider director candidates submitted by stockholders in accordance with the process outlined below.

Any stockholder wishing to submit a candidate for consideration should send the following information to the Corporate Secretary, Peabody Energy Corporation, Peabody Plaza, 701 Market Street, St. Louis, Missouri 63101:

Stockholders may submit potential director candidates for consideration at any time in accordance with these procedures. The Nominating and Corporate Governance Committee will consider such candidates if a vacancy arises or if the Board decides to expand its membership, and at such other times as the Nominating and Corporate Governance Committee deems necessary or appropriate. In 2015, we modified our bylaws to implement “proxy access,” a means for stockholders to include stockholder-nominated director candidates in our proxy materials for annual meetings of stockholders. Separate procedures apply if a stockholder wishes to nominate a director candidate at the 2022 Annual Meeting. Those procedures are described below under the heading “Additional Information—Process for Stockholder Proposals and Director Nominations.”

Under its charter, the Nominating and Corporate Governance Committee must review with the Board, at least annually, the requisite qualifications, independence, skills and characteristics of Board candidates, members and the Board as a whole. While the selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, the Nominating and Corporate Governance Committee believes candidates should generally meet the criteria listed below under the heading “Director Qualifications.” The Nominating and Corporate Governance Committee will consider candidates submitted by a variety of sources, including stockholder nominees, when filling vacancies and/or expanding the Board and will evaluate each potential candidate’s educational background, employment history, outside commitments and other relevant factors to determine whether he/she is potentially qualified to serve on the Board. Qualified stockholder nominees will be evaluated on the same basis as those submitted by Board members or other sources.

The Nominating and Corporate Governance Committee believes that its process for selecting directors will consistently produce highly qualified, independent Board members. However, the Committee may choose, from time to time, to use additional resources (including independent third-party search firms) after determining that such resources could enhance a particular director search.

Director Qualifications

Under its charter, the Nominating and Corporate Governance Committee reviews with the Board, at least annually, the requisite qualifications, independence, skills and characteristics of Board candidates, current Board members, and the Board as a whole. While the selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, the Nominating and Corporate Governance Committee believes that candidates should generally meet the following criteria:

The Board believes that all of our current directors meet these criteria. In addition, as outlined below, each director brings a strong and unique background and set of skills to the Board, giving the Board competence, experience and diversity in a wide variety of areas, including mining and related industries, end-user segments (energy/steel), mergers and acquisitions (“M&A”), finance and accounting, human capital and organizational health, restructuring, global operations, health, safety and environmental affairs, international, governmental affairs and administration, public policy, corporate governance, legal and regulatory, board service and executive management. We believe the Board as a whole and each of our directors individually possess the necessary qualifications and skills to effectively advise management on strategy, monitor our performance and serve our best interests and the best interests of our stockholders.

The following table shows our directors’ specific skills, knowledge and experience that the Nominating and Corporate Governance Committee and Board relied upon when determining whether to nominate the individual for election. A particular nominee may possess other valuable skills, knowledge, or experience even though they are not indicated below.

Diversity & Inclusion

Peabody is an equal opportunity employer and, in addition, one of our core values is to offer an inclusive workplace. Our policies and practices support diversity of thought, perspective, sexual orientation, gender, gender identity and expression, race, ethnicity, culture and professional experience, among others. While the Board does not have a formal policy of considering diversity when evaluating director candidates, the Board does believe that its members should reflect diversity in perspectives and experiences, including in professional experience, cultural experience, gender and ethnic background. These factors, together with the director qualifications criteria noted above, are considered by the Nominating and Corporate Governance Committee in assessing potential new directors.

In May 2018, Peabody President and Chief Executive Officer, Glenn Kellow, signed the CEO Action for Diversity & Inclusion Pledge on behalf of Peabody. CEO Action for Diversity & Inclusion is known as the largest CEO-driven business commitment for inclusive workplaces, with more than 650 signatories. By signing the pledge, Peabody commits to a deliberate focus on:

Board Evaluations

The Board conducts an annual self-evaluation to determine whether it and its committees are functioning effectively. Pursuant to its charter, the Nominating and Corporate Governance Committee is responsible for developing and administering an annual review process to evaluate the performance of the Board. This annual review process includes the annual solicitation of comments from all directors, after which the Nominating and Corporate Governance Committee reports to the Board with an assessment of the Board’s performance, which is discussed by the full Board. The Board has confirmed that each committee and the Board as a whole is functioning effectively.

Board Training and Development

From time to time, the Board members attend ongoing training and development sessions. Our directors are members of the National Association of Corporate Directors, and from time to time attend trainings provided through that organization. In 2020, our directors also participated in a virtual in-boardroom training session presented by the company’s advisors.

ADDITIONAL INFORMATION CONCERNING THE BOARD OF DIRECTORS

Committee Overview

Committee Role and Responsibilities

The specific roles and responsibilities of the Board’s Audit, Compensation, Nominating and Corporate Governance, Executive and Health, Safety, Security and Environmental Committees are delineated in written charters adopted by the Board for each committee. Each member of the Audit, Compensation, Nominating and Corporate Governance and Health, Safety, Security and Environmental Committees is independent in accordance with our Corporate Governance Guidelines, which applies the independence standards (the “Independence Standards”) included in the New York Stock Exchange (“NYSE”) Listed Company Manual and the Exchange Act (as defined herein). Our Corporate Governance Guidelines and the charters of each of the Board’s committees are available on the “Governance Documents” page under the “Investor” section of our website at: www.peabodyenergy.com. As provided in their charters, each committee is authorized to engage or consult from time to time, as appropriate, at our expense, with outside independent legal counsel or other experts or advisors it deems necessary, appropriate or advisable to discharge its duties. 

Director Attendance

The Board met 31 times in fiscal year 2020. During fiscal year 2020, each incumbent director attended 75% or more of the aggregate number of meetings of the Board and the committees on which he or she served, and their average attendance was approximately 98%.

In accordance with our Corporate Governance Guidelines, the non-management directors meet in executive session at least quarterly. During fiscal 2020, our non-management directors met in executive session 15 times. Our Chair, Mr. Malone, chaired these executive sessions.

Under Board policy, each director is expected to attend our annual meetings of stockholders in person, subject to occasional excused absences due to illness or unavoidable conflicts. All of our then-current directors attended the 2020 Annual Meeting, and all of our director nominees are expected to attend the 2021 Annual Meeting.

Board’s Role in Risk Oversight

The Board oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to enhance long-term organizational performance and stockholder value. A fundamental part of risk management is not only understanding the risks we face, how those risks may evolve over time, and what steps management is taking to manage and mitigate those risks, but also understanding what level of risk tolerance is appropriate for us. Management is responsible for the day-to-day management of the risks we face, while the Board, as a whole and through its committees, is responsible for the oversight of risk management.

In its risk oversight role, the Board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The Board regularly reviews information regarding marketing, operations, safety performance, trading, finance, business development and environmental, social and governance objectives, policies and performance as well as the risks associated with each. In addition, the Board holds strategic planning sessions with management to discuss our strategies, key challenges, and risks and opportunities. The full Board receives reports on our enterprise risk management initiatives on at least an annual basis.

While the Board is ultimately responsible for risk oversight, Board committees also have been allocated responsibility for specific aspects of risk oversight. The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls, risk assessment and risk management. The Compensation Committee assists the Board in fulfilling its oversight responsibilities with respect to the risks arising from our compensation policies and programs. The Health, Safety, Security and Environmental Committee assists the Board in fulfilling its oversight responsibilities with respect to the risks associated with our health, safety, security and environmental objectives, policies and performance. The Nominating and Corporate Governance Committee assists the Board in fulfilling its oversight responsibilities with respect to the risks associated with board organization, membership and structure, ethics and compliance, political contributions and lobbying expenditures, succession planning for our directors and executive officers, and corporate governance.

Board Independence

In accordance with our Corporate Governance Guidelines, a majority of our Board must be independent as defined by the NYSE listing standards and the Exchange Act. As required by the NYSE listing standards, the Board evaluates the independence of its members at least annually, and at other appropriate times when a change in circumstances could potentially impact the independence or effectiveness of one or more directors (such as in connection with a change in employment status or other significant status changes). This process is administered by the Nominating and Corporate Governance Committee, which consists entirely of directors who are independent under applicable NYSE rules. After carefully considering all relevant relationships, the Nominating and Corporate Governance Committee submits its recommendations regarding independence to the full Board, which then makes a determination with respect to each director.

On February 18, 2021, the Board determined that all the current members except for Mr. Kellow and Mr. Yeates are independent. In making independence determinations, the Nominating and Corporate Governance Committee and the Board consider all relevant facts and circumstances, including (1) the nature of any relationships with us, (2) the significance of the relationship to us, the other organization and the individual director, (3) whether or not the relationship is solely a business relationship in the ordinary course of our and the other organization’s businesses and does not afford the director any special benefits, and (4) any commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. For purposes of this determination, the Board generally deems any relationships that have expired for more than three years to be immaterial. The Board also considered the relationships described below in “Review of Related Person Transactions.” The Audit Committee, Compensation Committee, Health, Safety, Security and Environmental Committee and Nominating and Corporate Governance Committee are each comprised of independent directors.

Board Leadership Structure

Our Board leadership structure provides for strong oversight by independent directors. The Board is currently comprised of Mr. Kellow, Mr. Yeates and 9 independent directors. All Board committees are chaired by and composed entirely of independent directors, except for the Executive Committee, of which Mr. Kellow is a member.

Our bylaws and Corporate Governance Guidelines permit the roles of Chair and CEO to be filled by different individuals. In 2017, the Board elected Mr. Malone to the role of non-executive Chair of the Board of Peabody and continues to believe that separating the roles of Chair and CEO is in the best interest of our stockholders. The Board believes that the current structure provides many advantages to the effective operation of the Board and enhances the Board’s oversight of management.

As Chair, Mr. Malone’s duties are to:

As CEO, Mr. Kellow has primary responsibility for the day-to-day operations of Peabody and provides leadership on our key strategic objectives.

Corporate Governance

Good corporate governance is a priority at Peabody. Our key governance practices are outlined in our Corporate Governance Guidelines, committee charters, and Code of Business Conduct and Ethics. These documents can be found on our website (www.peabodyenergy.com) by clicking on “Investor,” then “Governance Documents.” Information on our website is not considered part of this Proxy Statement.

The Nominating and Corporate Governance Committee is responsible for reviewing the Corporate Governance Guidelines from time to time and reporting and making recommendations to the Board concerning corporate governance matters. Each year, the Nominating and Corporate Governance Committee, with the assistance of outside experts, reviews our corporate governance practices, not only to ensure that they comply with applicable laws and NYSE listing requirements, but also to ensure that they continue to reflect what the Nominating and Corporate Governance Committee believes are best practices and promote our best interests and the best interests of our stockholders.

Director Service on Other Public Company Boards

As stated above, when reviewing qualifications, independence, skills and characteristics of Board candidates and nominees, the Nominating and Corporate Governance Committee examines whether such candidates or nominees have any material outside commitments (e.g., memberships on other boards and committees, charitable foundations, etc.) which might adversely affect their performance as a director on the Board. Current directors are required to advise the Chair of the Board and the Chair of the Nominating and Corporate Governance Committee prior to accepting an invitation to serve on another public company board.

It is the current view of the Board that no director should serve on more than four public company boards, including the Board. Except in extraordinary circumstances, and only after the Board has determined that such simultaneous service would not impair the ability of the director to serve effectively on Peabody’s Audit Committee, no member of Peabody’s Audit Committee shall serve simultaneously on the audit committee of more than two other public companies. For purposes of this guideline and as provided under NYSE rules, (i) service on the boards of multiple funds within a single fund complex shall be deemed as service on one public company board, and (ii) service on multiple audit committees within a single fund complex shall be deemed as service on one public company audit committee.

Majority Voting and Mandatory Director Resignation Policy

Our bylaws provide for majority voting in the election of directors. In the case of uncontested elections, in order to be elected, the number of shares voted in favor of a nominee must exceed 50% of the number of votes cast with respect to that nominee’s election at any meeting of stockholders for the election of directors at which a quorum is present. Votes cast include votes against or votes to withhold authority with respect to that nominee’s election, but exclude abstentions and broker non-votes.

If a nominee is an incumbent director and does not receive a majority of the votes cast with respect to the nominee’s election, such director is expected to promptly tender his or her resignation to the Chair of the Board following certification of the stockholder vote. The Nominating and Corporate Governance Committee will promptly consider the resignation submitted by such director and will recommend to the Board whether to accept or reject the tendered resignation. In considering whether to accept or reject the tendered resignation, the Nominating and Corporate Governance Committee will consider all factors deemed relevant by its members. The Board will act on the Nominating and Corporate Governance Committee’s recommendation no later than 90 days following the date of the stockholders’ meeting where the election occurred. In considering the Nominating and Corporate Governance Committee’s recommendation, the Board will consider the factors considered by the Nominating and Corporate Governance Committee and such additional information and factors the Board deems to be relevant. Any director who tenders his or her resignation under our Corporate Governance Guidelines will not participate in the Nominating and Corporate Governance Committee recommendation or Board consideration regarding whether to accept the tendered resignation.

In the case of contested elections, directors will be elected by a plurality of the votes of the shares present in person or by proxy and voting for nominees in the election of directors at any meeting of stockholders for the election of directors at which a quorum is present. For these purposes, a contested election is any election of directors in which the number of candidates for election as directors exceeds the number of directors to be elected.

Term Limits and Retirement Age

Pursuant to our Corporate Governance Guidelines, the Board has not established term limits for directors. While term limits facilitate Board refreshment, they can also result in the loss of experience and expertise that is critical to effective operation of the Board. Longer tenured directors can provide valuable insight into the company and its operations. To ensure that the Board continues to evolve and benefit from fresh perspectives and ideas, the Nominating and Corporate Governance Committee evaluates qualifications and contributions of each incumbent director before recommending the nomination of such director for an additional term.

Pursuant to our Corporate Governance Guidelines, a director who has reached the age of 75 should submit a letter of resignation to the Board to be effective upon acceptance by the Board. Such letters of resignation will be considered by the Board in consultation with the Nominating and Corporate Governance Committees upon receipt and, if applicable, annually thereafter.

Code of Business Conduct and Ethics

We have adopted a code of ethics, the “Code of Business Conduct and Ethics” which can be found on our website (www.peabodyenergy.com) by clicking on “Investor” and then “Governance Documents.” The Code of Business Conduct and Ethics applies to all our directors, officers and salaried employees.

Succession Planning

Pursuant to the Corporate Governance Guidelines, our CEO provides the Board with an annual report on succession planning and related development recommendations. The report includes a short-term succession plan which delineates temporary delegation of authority in the event that the CEO or any other executive officer is unable to perform his or her duties.

Director Compensation

The 2020 compensation of non-employee directors consisted of cash compensation (annual Board and committee retainers) and equity compensation. Each of these components is described in more detail below. Any director who was also our employee received no additional compensation for serving as a director. In setting director compensation, the Compensation Committee received input from F.W. Cook, its independent compensation consultant. In addition, our 2017 Incentive Plan places a limit of $600,000 total on cash and equity compensation that may be awarded to each non-employee director in any calendar year.

In October 2020, F.W. Cook conducted a competitive market review of our non-employee director compensation program. Data were collected from the same peer group we utilized for executive compensation decisions (as described below under “Compensation Discussion and Analysis”). Based on this review, F.W. Cook presented to the Compensation Committee recommendations for our non-employee director compensation program and the Committee approved the following changes to both (1) enhance certainty in the program by increasing the emphasis on cash which recognizes the significant level of volatility in our stock; and (2) recognize the extraordinary time commitment of the non-employee directors by compensating them for meeting attendance beyond a predetermined minimum number of meetings:

The above changes had the effect of reducing the total (cash and equity) fixed director retainers from $250,000 to $225,000 (excluding any incremental compensation provided for Board/Committee leadership and/or Board meeting attendance above the predetermined threshold). We believe the reduction in fixed retainers is appropriate given the increased certainty in the program as a result of emphasizing cash versus equity.

The following table summarizes the non-employee director compensation structure (before and after the changes approved in October 2020):

The 2020 equity award for our non-employee directors was comprised of deferred stock units (“DSUs”). The number of DSUs granted to each non-employee director in 2020 was determined by dividing $140,000 by a $10 price per share of Peabody’s Common Stock (and rounding down to the nearest whole DSU). A $10 share price was used to determine 2020 non-employee director DSU grants to reduce the number of DSUs granted to directors and align with the approach used by Management in 2020. This had the effect of reducing the 2020 grant value of the DSUs by approximately

$88,200 or 63%. DSUs generally vest monthly over 12 months. However, the underlying shares are generally not distributed until the earlier of (1) three years after the grant date and (2) the director’s separation from service, depending on the director’s election.

Other Elements of Board Compensation

In addition to the compensation described above, we paid travel and accommodation expenses of our non-employee directors to attend meetings and other integral corporate functions. Non-employee directors could be accompanied by a spouse/partner when traveling on company business on our aircraft or charter aircraft. Non-employee directors also had the opportunity to participate in our charitable contribution matching gifts program at the same level and based on the same guidelines applicable to our full-time employees.

The following table sets forth compensation for each director (other than Mr. Kellow and Mr. Yeates) who served on the Board in 2020: 

Non-Employee Director Share Ownership Requirements

Under our share ownership requirements for directors, each non-employee director was required to acquire and retain Common Stock having a value equal to at least five times his or her annual cash retainer. To reflect the higher cash retainer, effective October 13, 2020, the director stock ownership guideline was changed from a multiple of cash retainer to a fixed dollar amount of $500,000. Directors are expected to achieve compliance with the guidelines within 5 years of Board appointment.

If at any time a non-employee director does not meet his or her ownership requirement, the director must retain (1) any Common Stock owned by the director (whether owned directly or indirectly) and (2) any net shares received as the result of the exercise, vesting or payment of any equity award until the ownership requirement is met, in each case unless otherwise approved in writing by the Compensation Committee. For this purpose, “net shares” means the shares of Common Stock that remain after shares are sold or withheld, as the case may be, to (1) pay the exercise price for a stock

option award or (2) satisfy any tax obligations, including withholding taxes, arising in connection with the exercise, vesting or payment of an equity award.

Compliance with these requirements is evaluated as of December 31 of each year. The value of an individual’s share ownership as of such date is determined by multiplying the number of shares of our Common Stock or other eligible equity interests held by the individual by the closing price of our stock as of the business day immediately preceding the date of determination. Currently, each non-employee director is in compliance with these requirements.

For purposes of determining stock ownership levels, only the following forms of equity interests are included:

COMPENSATION DISCUSSION AND ANALYSIS

Dear Fellow Stockholder:

I am writing to you today on behalf of the entire Compensation Committee of Peabody’s Board of Directors. As members of the Compensation Committee, we have a critical responsibility to ensure that Peabody’s executive compensation programs align with interests of our stockholders as well as attracts, retains and incents our executives to execute Peabody’s long-term business strategy.

Our compensation program is grounded in a pay-for-performance approach, with rewards consisting of a combination of base salary, annual cash incentives and equity awards. The 2020 executive compensation program was similar in structure to the 2019 program that received 84% stockholder support at the 2020 Annual Meeting.

In 2020, the COVID-19 pandemic severely impacted the global economy, which in turn impacted Peabody’s operations and pricing and demand for its products. These challenges were evidenced in Peabody’s share price performance during the year – as well as management’s compensation given our pay-for-performance philosophy. By design, a significant portion of management’s target compensation is at risk, subject to achieving both short-term and long-term performance goals. Only the base salary portion of executive compensation is fixed. As a result, based on 2020 business performance, the following outcomes were realized:

In order to maintain an appropriate balance of alignment with stockholders and providing competitive pay to participants for performance within a challenging business environment, the Compensation Committee has made the following changes for the 2021 compensation program:

On behalf of the Compensation Committee, I would like to thank you for your support. Our Committee remains committed to the ongoing evaluation of executive compensation programs to ensure alignment with the interests of our stockholders and support of our business strategy. Thank you.

Sincerely,

Joe Laymon

Compensation Committee Chair

Overview

Peabody’s 2020 executive compensation program included several features that evidence our pay-for-performance approach to executive compensation. This approach aligns with Peabody’s current business strategy and is designed to motivate and reward our leaders for long-term performance and enhanced company value. In addition, we continued to engage with and listen to our investors. We believe that our 2020 executive compensation program supported Peabody’s strategic objectives and was aligned with stockholder interests and the feedback provided by our owners during that engagement process.

2020 Named Executive Officers

This Compensation Discussion and Analysis (the “CD&A”) explains the elements of the compensation of Peabody’s NEOs and describes the objectives and principles underlying Peabody’s executive compensation program and decisions made in fiscal year 2020. For fiscal year 2020, our NEOs were: 

Business Highlights for 2020

For many individuals, communities, and businesses, including Peabody, the COVID-19 pandemic brought with it many challenges. Against this backdrop, we took action throughout 2020 to better position the company and intend to continue to pursue actions to further improve the business in 2021. Key 2020 actions and results include:

Response to Last Year’s Say-on-Pay Vote

At the 2020 Annual Meeting, we conducted a Say-on-Pay vote in which we received 84% support. The Compensation Committee considered the result of the 2020 Say-on-Pay vote in making compensation decisions after the 2020 Annual Meeting, but it did not make any changes to our compensation policies or practices that were specifically driven by the 2020 Say-on-Pay vote.

Peabody engaged in open and constructive dialogue with its stockholders throughout 2020 and into 2021. The Board and the Compensation Committee value these discussions and will continue to engage with stockholders to receive feedback about our executive compensation programs.

Response to Stockholders

In addition to stockholder engagement, we sought the advice of the Compensation Committee’s independent consultant and other external advisors.

The Compensation Committee determined that the 2020 executive compensation program, the overall structure of which was unchanged from 2019, was grounded in a pay-for-performance approach, is aligned with current business realities and is designed to motivate and reward our leaders for long-term performance and enhanced company value.

2020 Executive Compensation Program Structure

Our 2020 executive compensation program reflected a combination of salary, annual cash incentives under our STIP and LTIP equity awards.

The graphs below display the 2020 target total direct compensation mix for our CEO and our other NEOs, as well as the portion that was performance-based. As shown in the graphs below, about 59% of the CEO’s target total direct compensation and, on average, about 53% of the target total direct compensation for the other NEOs was performance-based.

Process for Determining 2020 NEO Compensation

Our executive compensation philosophy is comprised of the following core principles:

Summarized below are roles and responsibilities of the parties that participated in the development of Peabody’s 2020 executive compensation program:

Committees

The Compensation Committee and, as it relates to the CEO, the independent members of the Board (the “Special Committee” and together with the Compensation Committee, the “Committees”), had responsibility for overseeing our executive compensation framework. The Committees, working with the Committees’ independent compensation advisor (discussed further below), other advisors and senior management, sought to align pay with performance and create incentives that reward operational excellence, safety and financial management and that ultimately are designed to create stockholder value.

The Committees’ responsibilities included:

In making compensation decisions for 2020, the Committees reviewed the total compensation opportunity for each of our NEOs and determined base salaries and incentive targets, taking into consideration:

The Committees did not use a predetermined formula to make overall decisions but generally considered all of the above factors.

Management

For 2020, in relation to compensation, the role of the CEO was to review the performance of the other NEOs and make recommendations on base salary, STIP and LTIP opportunities for the other NEOs. The CEO is not present during deliberations or voting with respect to his own compensation.

Independent Compensation Consultants

The Compensation Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other advisor only after taking into consideration all factors relevant to that person’s independence from management and is directly responsible for the appointment, compensation arrangements and oversight of the work of any such person. Under this authority, for 2020 the Compensation Committee engaged an independent compensation consultant, F.W. Cook, after assessing its independence. F.W. Cook does not provide any other services to us and its work in support of the Compensation Committee did not raise any conflicts of interest or independence concerns. F.W. Cook in general provided the Committees with competitive market information, assistance on evaluation of the peer group composition, input to incentive program design, and information on compensation trends. The Board conducts an annual review of the performance of F.W. Cook.

Competitive Market Information

Talent for senior-level management positions and key roles in the organization can be acquired across a broad spectrum of companies. As such, we utilized competitive market compensation information for 2020:

This competitive market information comes from both compensation surveys and from a group of companies of similar size and/or complexity as us (the “Compensation Peer Group”), described in more detail in the section below. The survey data provided a significant sample size, included information for management positions below senior executives, and included other industries from which we might recruit for executive positions. The primary survey source was the Willis Towers Watson Executive Database. We did not select the constituent companies comprising this survey group, and the component companies’ identities were not a material factor in the applicable compensation analysis.

As stated above, while the Compensation Committee examined competitive market information from this survey and the Compensation Peer Group, competitive market information was not the sole factor in its decision-making process.

Compensation Peer Group

In determining the composition of the Compensation Peer Group, our Compensation Committee considered companies that were:

The following table illustrates the changes to the peer group based on this analysis: 

	2020 Compensation Peer Group (16)	Alignment with Peer Median (1)
	Alpha Metallurgical Resources, Inc..(2)
	Antero Resources Corporation
	Arch Resources, Inc.
	Barrick Gold Corporation
	Chesapeake Energy Corporation
	Cleveland-Cliffs Inc.
	CONSOL Energy Inc.
	CVR Energy, Inc.
	Domtar Corporation
	Freeport-McMoRan Inc.
	Newmont Corporation
	Southwestern Energy Company
	The Mosaic Company
	Teck Resources Limited
	United States Steel Corporation
	Warrior Met Coal, Inc.

2020 NEO Compensation Determinations and Outcomes

The following discussion provides details of our executive compensation program determinations and outcomes for each of our NEOs during 2020.

Base Salaries

In general, we pay base salaries to the NEOs to provide them with a level of fixed income for their service to Peabody. There were no increases in base salaries for our NEOs other than for Mr. Spurbeck. Upon Ms. Schwetz’s resignation from her position as Executive Vice President and Chief Financial Officer, the Board appointed Mr. Spurbeck to serve as the company’s Interim Chief Financial Officer effective January 6, 2020. The Compensation Committee approved an annual base salary of $358,750 for Mr. Spurbeck and an additional monthly cash payment of $7,604, paid each month during the duration of his tenure as Interim Chief Financial Officer. Effective June 11, 2020, the Board approved Mr. Spurbeck’s appointment to the position of Executive Vice President and Chief Financial Officer and the Compensation Committee approved an increase of his base salary to $520,000 annually.

Short-Term Incentive Program

The STIP is designed to reward company performance while encouraging management to continue to improve upon our excellent safety record. For 2020, the STIP design remained consistent with the 2019 design, our strategic priorities and our pay-for-performance approach.

The table below provides the definitions for and the purposes of the 2020 STIP performance metrics, which applied to the executive officers and certain other participants in the 2020 STIP:

The 2020 STIP awards were designed so that no 2020 STIP award could exceed $5,000,000.

Summarized in the table below are: the weights for each 2020 STIP performance metric; threshold, target and maximum performance expectations; actual results; and the achievement percentage for each performance metric:

Peabody’s 2020 financial results, including Free Cash Flow and Adjusted EBITDA performance were significantly impacted by the impacts of the COVID-19 pandemic on the global economy, our customers and our operations. Along with the pandemic came lower electricity generation and steel production, depressed natural gas prices, lower global energy prices and the disruption of certain markets across the globe, creating significant financial challenges for Peabody. The Compensation Committee made no discretionary adjustments to the 2020 STI awards due to the impact of the COVID-19 pandemic. In April 2020, recognizing the challenges facing the industry and the company, Mr. Kellow voluntarily forfeited his 2020 STI award.

Long-Term Incentive Program

The LTIP for the NEOs for fiscal year 2020 consisted of PSUs and RSUs. Target aggregate LTIP award values were established for the NEOs as shown in the following table. Approximately 60% of each NEO’s target award was granted as PSUs, and approximately 40% was granted as RSUs. 

RSUs generally represent the right to receive a defined number of shares of our Common Stock after completing a service period established at the time of grant. RSUs granted to the NEOs in 2020 generally vest ratably on each of the first three anniversaries of the grant date, subject to continued employment. The Compensation Committee believes RSUs are important because they link compensation to stock price performance, promote retention, and build executive ownership and alignment with stockholders.

PSUs were granted to the NEOs for a performance period beginning on January 1, 2020 and ending December 31, 2022. The LTIP includes PSUs to provide strong linkage to company performance based on the metrics described below.

The table below provides definitions for and the purposes of the performance metrics applicable to the 2020 PSU awards:

Summarized in the table below are the weights for each performance metric and threshold, target and maximum performance expectations.

With the RTSR modifier, the payout determined based on the ROIC and Environmental Reclamation metrics can be increased or decreased by 25%, as shown in the table below. However, maximum achievement for the 2020 PSUs is capped at 200%, and no positive adjustment will be made where RTSR is negative, even if RTSR is above the 75^th percentile.

The RTSR peer group consists of the companies set forth in the table below. The list includes the VanEck Vectors Coal exchange-traded fund (the “KOL Index”), Peabody’s current peers that are included in the KOL Index, other U.S.-based companies in the KOL Index, Australia-based companies in the KOL Index, as well as other companies in the coal & consumables fuels industry that were excluded from the peer group used to make compensation decisions (as described below) for reasons not applicable for an RTSR performance peer group (for example, because the company used abnormal pay practices or was too small in comparison to Peabody). We used a different peer group for purposes of the RTSR modifier because compensation levels are heavily influenced by scale and certain of our more direct business competitors may be smaller in scale than us.

2020 RTSR Peer Group (14)		Peer Group Categories
KOL Index
Alliance Resource Partners, L.P.
Alpha Metallurgical Resources, Inc.(1)
Arch Resources, Inc.
CONSOL Energy Inc.
Coronado Global Resources, Inc.
Foresight Energy LP (2)
Hallador Energy Company
Natural Resource Partners L.P.
New Hope Corporation Limited
South32 Limited
Teck Resources Limited
Warrior Met Coal, Inc.
Whitehaven Coal Limited

The performance period applicable to the 2018, 2019 and 2020 PSU awards will conclude at the end of fiscal years 2020, 2021 and 2022, respectively, and these awards therefore remained outstanding as of the end of fiscal year 2020.

Earned Performance Unit Awards for 2018 Grant

With respect to the performance units for the 2018 grant, the overall performance was 79.8% as noted below:

Annual ROIC was 20.1%, 9.7% and (5.2%) for the years 2018-2020, respectively, after adjusting for the impairment charges described below. Average ROIC for the period 2018-2020 was 8.2%, as adjusted. The annual ROIC for 2020 was negatively impacted by the effects of the COVID-19 pandemic on the global economy, resulting in lower electricity generation and steel production, depressed natural gas prices, lower global energy prices, and the disruption of certain markets across the globe.

In 2019 and 2020, the company recorded cumulative non-cash impairment charges totaling $1.8 billion related to assets in the Powder River Basin, Illinois Basin, and New Mexico. Changes in multiple assumptions, including lower long-term natural gas prices, timing of coal plant retirements and continued growth from renewable generation, have contributed to the company projecting that coal’s share of the U.S. generation mix will continue to be lower than prior year levels. These factors have led to the expectation of reduced future sales volumes and low probability of reserve development.

Given these factors are largely out of management’s direct control, the net impact of the impairments has been excluded from the calculation of ROIC for purposes of the Performance Unit Awards. This adjustment increased both Net Operating Profit After Tax and Average Invested Capital as defined by approximately $1.7 billion, net of the benefit from lower Depreciation, Depletion and Amortization. However, due to the decline in our share price during the performance period, the value of the award earned was approximately 5% of the original grant date value, resulting in a 95% decline in long-term compensation value for the NEOs. The table below further depicts this payout value using the closing stock price on the last trading day of 2020 ($2.41 per share). If the impairments described above were included in the calculation, the overall achievement would have been 14.2% for the years 2018-2020, resulting in a 99% decline from the original grant date value.

Promotion-Based and Additional Retention Compensation Grants for Mr. Spurbeck

Upon Ms. Schwetz’s resignation from her position as Executive Vice President and Chief Financial Officer, the Board appointed Mr. Spurbeck to serve as the company’s Interim Chief Financial Officer effective January 6, 2020. The Compensation Committee approved a short-term incentive compensation opportunity for Mr. Spurbeck with a target level of 80% of his base salary, prorated for fiscal year 2020 based on his positions held. In addition, on January 22, 2020, Mr. Spurbeck received a supplemental equity grant with a value of $144,750 in RSUs that generally vest ratably on January 22, 2021, January 2, 2022 and January 2, 2023, subject to continued employment, representing the difference between his regular grant and amount for the interim role.

Effective June 11, 2020, the Board approved Mr. Spurbeck’s appointment to the position of Executive Vice President and Chief Financial Officer and the Compensation Committee approved an increase of his base salary to $520,000 annually. His short-term incentive target increased to 85% of base salary. In addition, he received a one-time supplemental equity grant of $680,000 effective July 1, 2020 reflecting the difference between what was previously granted and the target amount of his new role. A $10 share price was used to determine the number of shares granted for this award to align with the approach used for the January 2020 award. This had the effect of reducing this supplemental grant value by approximately 72%. Following the same performance-weighted design as applied to other NEO grants, the supplemental equity award was comprised of a grant of $272,000 in RSUs that generally vest on July 1, 2021, January 2, 2022 and January 2, 2023, subject to continued employment, and a grant of $408,000 in target value of PSUs that generally follow the same design as the other PSUs granted to the other NEOs in January 2020 (as discussed above), with a performance period beginning on January 1, 2020 and ending on December 31, 2022, subject to continued employment.

In recognition of his promotion, Mr. Spurbeck received a one-time cash inducement award equal to 50% of base salary, or $260,000 that vests in two tranches, 50% after 12 months from appointment as CFO and 50% after 18 months.

Employment Agreement with Mr. Yeates

In connection with Mr. Yeates’ appointment as Executive Vice President and Chief Operating Officer of the Company effective November 1, 2020, Mr. Yeates entered into a contract of employment, dated October 26, 2020 (“Employment Agreement”) with Peabody Energy Australia Coal Pty Ltd, a wholly-owned subsidiary of the Company. The material terms of the Employment Agreement are summarized below.

Pursuant to the Employment Agreement, Mr. Yeates received: (i) an annual base salary of $700,000; (ii) a one-time cash signing bonus in the amount of $600,000 within 30 days of the commencement of his employment, which is subject to repayment in full in the event that Mr. Yeates voluntarily resigns or is terminated for cause within one year of commencing employment; (iii) a short-term incentive compensation (“STI”) opportunity with a target level of 100% of his base salary, pursuant to the Peabody Energy Corporation 2017 Incentive Plan (the “Plan”), prorated for fiscal year 2020; and (iv) a target long-term incentive compensation (“LTI”) opportunity valued at approximately 140% of his base salary, pursuant to the Plan. Mr. Yeates’ performance-based STI and LTI payouts will be based upon the achievement of the Company’s performance objectives as approved by the Compensation Committee of the Board. The Employment Agreement requires Mr. Yeates to relocate to the Company’s headquarters in St. Louis, Missouri at the earliest opportunity, but not later than April 12, 2022.

Looking Ahead: Compensation Program Changes for 2021

In order to maintain an appropriate balance of alignment with stockholders and competitive value to participants for performance within a challenging business environment, which is unrelated to the impacts of the COVID-19 pandemic, the Compensation Committee made the following changes for 2021:

Executive Compensation Policies and Practices

Benefits

NEOs participated in 2020 in benefit plans generally available to the broader employee group.

Non-Qualified Defined Contribution Plan

All of our NEOs participated in our non-qualified defined contribution plan (“Non-Qualified Plan”). The Non-Qualified Plan was designed to allow a select group of highly compensated management employees make contributions in excess of certain limits imposed by the Code that apply to our tax-qualified 401(k) plan. The Non-Qualified Plan was designed to restore the benefits, including matching contributions on employee contributions, not permitted due to the limits on the qualified 401(k) plan. Investment options under the Non-Qualified Plan were generally identical to those under the qualified 401(k) plan, except that collective trust options are not available. The target date trust and retirement savings trust funds available under the qualified 401(k) plan have been replaced with target date retirement funds and a money market fund. Our NEOs were each able to defer from 1% to 10% of his or her compensation to the Non-Qualified Plan. Prior to May 13, 2020, for every $1 deferred up to 6%, Peabody contributed $1 to the Non-Qualified Plan. Effective May 13, 2020, the company match was suspended for both the qualified and non-qualified plans. Matching contributions were 100% vested effective January 1, 2019.The PIC Board approved the termination of the non-qualified defined contribution plan in May 2020. Participants in the non-qualified defined contribution plan will receive a lump sum distribution of their account balance under the plan in May 2021. Peabody has established a rabbi trust for the purpose of providing Non-Qualified Plan benefits to participants.

Perquisites

In 2020, we provided limited perquisites that the Committees believed were necessary to enable the NEOs to perform their responsibilities safely and efficiently. The limited perquisites utilized by our NEOs in 2020 are explained in the footnotes to the All Other Compensation table on page 47.

During 2020, we offered our NEOs financial counseling services. Offering such services helped ensure that our NEOs understand, appreciate and maximize our benefit programs. Not all of our NEOs utilized the financial counseling services; however, for those who did, we reported the value of the service as a perquisite in the All Other Compensation table below (these values were not “grossed up” for tax purposes). Additionally, in 2020, we provided the CEO with tax preparation benefits up to $20,000 in value (which benefit was also not “grossed up for tax purposes). This perquisite is reported in the All Other Compensation table below.

Share Ownership Requirements

We have share ownership requirements for our NEOs, which are designed to align their long-term financial interests with those of our stockholders. The NEO share ownership requirements are as follows:

If at any time a NEO does not meet his or her ownership requirement, he or she must retain 100% of net shares received as the result of the exercise, vesting or payment of any equity award until the ownership requirement is met. For this purpose, “net shares” means the shares that remain after shares are sold or withheld to satisfy any tax obligations, including withholding taxes, arising in connection with the exercise, vesting or payment of an equity award. As of December 31, 2020, all NEOs were in compliance with the requirement to retain 100% net shares received as the result of the exercise, vesting or payment of any equity award until such NEO’s ownership requirement is met.

Prohibition on Hedging or Pledging of Company Stock

Our Insider Trading Policy prohibits our directors and all our employees, including our NEOs, from entering into hedging transactions involving our stock, and from holding our stock in a margin account as collateral for a margin loan or otherwise pledging our stock as collateral for a loan. Prohibited hedging transactions specifically include transactions involving the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds.

Clawback Provisions

In 2018, our Compensation Committee approved a revised, stand-alone clawback policy designed to align with current market practice with respect to clawback policies. Under this policy, subject to certain exceptions, if Peabody is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the U.S. federal securities laws, and the Board determines any current or former Section 16 officer of Peabody who received certain incentive-based compensation (including STIP awards and PSUs) has willfully committed an act of fraud, dishonesty, or intentional disregard of company policies in the performance of his or her duties as a Section 16 officer that contributed to the noncompliance that resulted in Peabody’s obligation to prepare the accounting restatement, the Board may recover from each such culpable officer “excess incentive-based compensation.” For this purpose, excess incentive-based compensation generally is the amount of incentive-based compensation received by the culpable officer in excess of the amount that otherwise would have been received had such incentive-based compensation been determined based on the accounting restatement. The clawback policy applies to incentive-based compensation for which the applicable performance period ended (or, for stock options, the grant was made) in, or in the three years prior to, the year in which the Board determines that an accounting restatement is required.

Executive Severance Plan

On February 21, 2019, the Board adopted the Peabody Energy Corporation 2019 Executive Severance Plan, effective as of January 1, 2019 (the “2019 Severance Plan”). The 2019 Severance Plan revised and replaced the Peabody Energy Corporation 2015 Amended and Restated Executive Severance Plan. The 2019 Severance Plan provides for severance payments and benefits to the NEOs upon certain qualifying terminations of employment by Peabody without “Cause,” or by the NEO for “Good Reason” (as such key terms are defined in the 2019 Severance Plan). For more information about the 2019 Severance Plan, see “Potential Payments upon Termination or Change in Control.”