COMPENSATION DISCUSSION AND ANALYSIS (CD&A)
TABLE OF CONTENTS
Compensation Overview
This Compensation Discussion and Analysis ("CD&A") describes the 2019 compensation of our Named Executive Officers ("NEOs") who are identified in the following table:
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Name
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Title
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Gavin D. Southwell
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President and Chief Executive Officer
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Erik M. Helding
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Chief Financial Officer, Secretary and Treasurer
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Michael D. Hershberger (1)
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Former Chief Financial Officer, Secretary and Treasurer
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(1)
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Mr. Hershberger’s service as the Company’s Chief Financial Officer, Treasurer and Secretary ceased effective November 15, 2019. Mr. Hershberger remained employed by the Company until December 31, 2019.
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Compensation Principles
We believe that a skilled, experienced and dedicated senior management team is essential to the future performance of our Company and to building stockholder value. We have sought to establish competitive compensation programs that enable us to attract and retain executive officers with these qualities as well as to motivate management to maximize performance while building stockholder value. Therefore, NEO performance is assessed based on the key metrics our Compensation Committee (the "Committee") considers when making executive compensation decisions for the NEOs. Ultimately, the pay delivered to our NEOs is based on our pay-for-performance philosophy, and we have structured our compensation programs to increasingly emphasize performance-based elements.
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Executive Compensation Governance Practices
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What We Do
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ü
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100% independent Compensation Committee
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ü
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Incentive compensation based on clear, measurable goals with key financial metrics that drive business performance
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What We Don't Do
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û
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No excessive perquisites
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Compensation Elements
We achieve our executive compensation objectives for our NEOs primarily through the following direct compensation elements:
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Element
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Description
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Objectives
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Base Salary
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Annual cash compensation
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Retention
Competitive practices
Individual contribution
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Annual Cash Incentives
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Annual cash incentive with target awards and performance goals established in advance
Payments can be higher (subject to a 200% cap) or lower than target, based on adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")
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Drive superior performance
Competitive practices
Retention
Stockholder alignment
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Long-Term Incentives
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Equity-based time-vesting and performance-vesting awards established on an individual basis
Performance vesting awards are earned only if Adjusted EBITDA goals are achieved
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Drive superior performance
Focus on long-term success
Executive equity ownership
Competitive practices
Retention
Stockholder alignment
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Pay Mix
Executive compensation is linked to the financial performance of the Company. In 2019, approximately 92 percent of our Chief Executive Officer’s target total direct compensation was linked to metrics assessing company performance and therefore meaningfully at risk. Approximately 23 percent of the other NEOs’ target total direct compensation, on average, was in line with a similar risk profile. A significant amount of the Chief Executive Officer's at-risk compensation is delivered through performance-based restricted stock awards. See the forthcoming section of this CD&A titled "Compensation Details for Fiscal Year 2019" for further compensation details.
The following charts show NEO target total fixed and variable compensation:
How Compensation Decisions Are Made
The Committee is responsible for making recommendations to our Board concerning the components of our executive compensation program, consistent with the compensation principles described above, and the executive compensation packages offered to our NEOs. The Board then provides final approval of our executive compensation program. The Committee makes recommendations, and the Board determines, our executive pay levels. The Committee also administers our annual incentive plan and our Long Term Incentive Plan and makes awards under both plans. The Committee reviews data from our peer group companies, which are described below under “Assessing External Market Practice,” and retains an independent compensation consultant to assess our competitive position with respect to total executive compensation.
Linking Pay Levels to the Market and Company Performance. The Committee and our Board take various factors into account in setting compensation levels and do not use a formulaic approach, but generally seek to align target total direct compensation (i.e., the sum of base salary, target annual incentives and target long-term incentives) for our NEOs based on the median levels paid by our peer group companies for similarly situated executive positions. To the extent compensation exceeds targeted levels, it is generally attributable to performance that we believe increases stockholder value and exceeds measurable, clearly defined performance goals. Conversely, total compensation can be less than target for performance that falls short of pre-established threshold levels.
Setting Targets Based on Market Conditions. Our annual incentives and the performance restricted share awards are based on measurable and objective performance metrics. Annual incentive performance targets were set based on Adjusted EBITDA goals. Five-year target goals for performance restricted shares were set based on our long-term operating plans.
Stockholder Advisory Vote. In setting compensation, we also consider the results of the advisory vote of our stockholders on the compensation of our NEOs. At our annual meeting in 2019, which occurred after most of the compensation decisions described in this CD&A had taken place, more than 97% of votes cast in the advisory vote on the compensation of our NEOs were cast in favor of such compensation. In light of this show of strong support for the compensation of our NEOs, we did not make significant changes to our compensation programs in response to the vote.
Role of Independent Consultant
The Committee’s charter provides that the Committee has sole authority to engage the services of an independent compensation consultant for the Committee and approve fees paid to the consultant by the Company. In 2017, the Committee engaged Pearl Meyer as an independent compensation consultant to provide advice on executive compensation matters. The Committee found that Pearl Meyer provided important perspectives about market practices for executive compensation, peer company analysis and selection, the levels and structure of the compensation program, and compensation governance. The Committee assessed the independence of Pearl Meyer pursuant to SEC rules and NASDAQ listing standards and concluded that Pearl Meyer's work for our Committee did not raise any conflict of interest. During 2017, the period of our last review cycle, at the Committee’s request, Pearl Meyer performed the following specific services:
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Competitive pay assessment;
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Stock ownership and equity stake analysis;
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Review of the Company's equity grant practices;
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Business performance analysis;
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"ISS Pay for Performance Analysis;" and
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Provided the Company with a two-year compensation proposal.
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The Committee did not engage a consultant to advise on executive compensation in 2019 but considered the results of Pearl Meyer's 2017 review when structuring 2019 executive compensation.
Assessing External Market Practice
During the review cycle, the Committee, in consultation with management and with support from its independent compensation consultant, develops a peer group comprised of companies that are:
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In similar industries and where the Company competes for business;
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Likely sources of, or competition for, executive talent;
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Reasonably comparable in size, as measured by revenue and market capitalization; and
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Reasonably similar in organizational structure and complexity.
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For our most recent review cycle in 2017, our peer group, which was reviewed with and approved by the Committee, included 17 public companies within the insurance, health care technology, or technology services sector:
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Peer Group Companies(1)
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Company
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Market Capitalization
($ in millions)
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Revenue
($ in millions)
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Employee Population
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Actua Corporation
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515
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109
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700
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Atlas Financial Holdings, Inc.
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217
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178
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230
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Baldwin & Lyons, Inc.
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380
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319
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455
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Benefitfocus, Inc.
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884
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233
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1,430
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Blucora, Inc.
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615
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456
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476
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Castlight Health, Inc.
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513
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102
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381
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Citizens, Inc.
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492
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240
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455
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eHealth, Inc.
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195
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187
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944
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HCI Group, Inc.
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402
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262
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322
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HealthStream, Inc.
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795
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226
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1,065
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Heritage Insurance Holdings, Inc.
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455
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439
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310
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Independence holding Company
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334
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354
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450
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Kinsale Capital Group, Inc.
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713
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142
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144
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Majesco
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222
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126
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2,134
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Patriot National, Inc.
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125
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233
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1,145
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State National Companies, Inc.
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581
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217
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400
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The Rubicon Project, Inc.
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364
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278
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572
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25th Percentile
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334
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178
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381
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Median
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455
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233
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455
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75th Percentile
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581
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278
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944
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Benefytt Technologies, Inc.(2)
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294
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221
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173
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(1)
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Market capitalization, revenue, and employee count were as of December 31, 2016, reflecting the most up-to-date information used at the time of the last periodic review cycle performed by the Company.
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(2)
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Data for the Company reflects projections used at the time of the last periodic review cycle performed by the Company.
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Compensation Details For Fiscal Year 2019
Base Salary
We pay our NEOs a base salary to compensate them for services rendered and to provide them with a steady source of income for living expenses throughout the year. In general, the base salary of each NEO was initially established through arm’s-length negotiations at the time the individual was hired, taking into account the individual’s qualifications, experience and level of responsibility, as well as internal pay equity considerations. As described above, in 2017, the Committee engaged Pearl Meyer to perform a competitive pay assessment and provide recommendations to the Committee for potential changes to compensation, including base salary. Generally, the Committee considers salaries within +/– 10% of median peer group levels to be competitive, but in some circumstances considers a higher salary level necessary to ensure an overall competitive compensation structure and appropriately compensate individuals with uniquely valuable skills and experience.
Based on the Committee’s review and with consideration of Pearl Meyer’s 2017 recommendations, in connection with the second amended and restated employment agreement of Mr. Southwell, the Committee approved a base salary increase effective January 2, 2019 for Mr. Southwell. Mr. Southwell’s salary was increased to $750,000. Mr. Southwell’s salary is above the 75th percentile of peer group base salaries for chief executive officers, but our Committee and our Board believed this was appropriate to ensure a competitive overall compensation structure and appropriately recognize his uniquely valuable skills and experience. Mr. Hershberger’s salary was not changed in 2019.
On November 12, 2019, the Board elected Erik M. Helding as the Chief Financial Officer, Treasurer and Secretary of the Company effective as of November 15, 2019. The Committee set Mr. Helding’s base salary in connection with his election based on his qualifications, experience and level of responsibility, as well as internal pay equity considerations.
Our NEOs’ annual base salaries for 2019 were as follows:
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NEO
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2019 Annual Base Salary
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Gavin D. Southwell
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$
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750,000
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Erik M. Helding
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$
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450,000
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Michael D. Hershberger
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$
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350,000
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The amount of base salary that we actually paid to each of our NEOs in 2019 can be found in the “Salary” column of the Summary Compensation Table below.
Annual Incentive Cash Plan
In 2019, our Board approved an updated 2019 annual incentive cash plan (the “Cash Bonus Plan”), including applicable target award amounts, for our NEOs. Target and maximum award levels under the Cash Bonus Plan were based on a percentage of the NEO's base salary, and cash incentive awards are earned based on performance against metrics, which for 2019 were based on the Company’s annual Adjusted EBITDA in the 2019 fiscal year. Final payouts are subject to such adjustments as the Board or the Committee may determine in its discretion.
For 2019, the Committee set the target and maximum award levels for our NEOs at the following levels as a percentage of base salary, taking into account the peer group company data:
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Name
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Target Award Level as a Percentage of Base Salary
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Maximum Award Level as a Percentage of Base Salary
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Gavin D. Southwell
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100%
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200%
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Erik M. Helding
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100%
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150%
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Michael D. Hershberger
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60%
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120%
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For 2019, the threshold, target, and superior performance goal levels for Mr. Southwell were as follows ($ in thousands):
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Performance Measure
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Threshold
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Target
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Superior
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Actual
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Adjusted EBITDA
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$
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70,800
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$
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78,700
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$
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86,600
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$
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83,300
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For purposes of the Cash Bonus Plan for 2019, Adjusted EBITDA was calculated as GAAP net income plus interest, taxes, depreciation and amortization, further adjusted for items such as stock-based compensation and related costs, and items that are not generally a part of regular operating activities, including tax receivable adjustments, indemnity and other related legal costs, severance, restructuring, and acquisition costs, and amounts for Company bonuses that were accrued above Target amounts. For further details on the calculation of Adjusted EBITDA, please see Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K filed with the SEC on March 4, 2020.
For 2019, actual Adjusted EBITDA was 106% of target. Mr. Southwell therefore achieved and earned 80% of the superior performance level under the Cash Bonus Plan for 2019. The bonus that we actually paid to Mr. Southwell for 2019 performance can be found in the “Non-Equity Incentive Compensation” column of the Summary Compensation Table below.
Mr. Hershberger did not receive any payment under the Cash Bonus Plan for 2019 due to his separation of service from the Company, although he received a payment of $210,000 in satisfaction of the Company’s obligation to pay an accrued bonus under his employment
agreement, as described below under the heading “Employment Agreements.” Mr. Helding did not receive any award or payment under the Cash Bonus Plan for 2019 due to his late-year hire as Chief Financial Officer.
Long-Term Incentive Awards
CEO Long-Term Incentive Awards
In 2019, the Committee recommended, and the Board approved, an award of performance based restricted shares of the Company's Class A common stock to our Chief Executive Officer, under the Long Term Incentive Plan.
Performance-Vesting Restricted Stock. The performance based restricted shares were intended to represent a multi-year grant and accordingly they would vest in five equal annual installments following the grant date, subject to the achievement of the performance metrics described below and Mr. Southwell's continued employment with us on the applicable vesting date. Any performance based restricted shares that do not vest as a result of a performance goal not being achieved for a particular fiscal year (the “Measurement Year”) shall be forfeited unless the Company’s cumulative Adjusted EBITDA for the Measurement Year and the immediately succeeding fiscal year (the “Succeeding Year”) taken together exceed the sum of the performance goals for both of such years, in which event the restricted shares that did not vest for the Measurement Year (the “Catch-Up Vesting Shares”) will vest on the date on which the Company’s Annual Report on Form 10-K is filed for the Succeeding Year. If the Adjusted EBITDA for the Measurement Year and Succeeding Year do not exceed the sum of the performance goals for such years, then the Catch-Up Vesting Shares shall be permanently forfeited on the date on which the Company’s Annual Report on Form 10-K for the Succeeding Year is filed.
The final determination whether the restricted shares would vest would be subject to such adjustments as the Board or the Committee determined in its discretion. Mr. Southwell vested in 20% of the restricted shares, or 50,000 total restricted shares on the day the Company filed its 2019 Annual Report. The performance goals, and our actual performance for fiscal year 2019, for Mr. Southwell were as follows ($ in thousands):
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Measurement Year
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Adjusted EBITDA Performance Goal (%)
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Adjusted EBITDA Performance Goal ($)
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Adjusted EBITDA Actual
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2018 Base Year
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—
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$
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59,431
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2019
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1.13(a)
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$
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77,157
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$
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83,300
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2020
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1.28
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$
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87,399
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—
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2021
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1.45
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$
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99,007
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—
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2022
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1.64
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$
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111,980
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—
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2023
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1.86
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$
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127,002
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—
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(a)
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The Committee determined that an upward adjustment of $10.0 million to the 2019 Adjusted EBITDA performance goal was warranted in light of the expected performance of the Company's 2019 acquisitions as disclosed in Note 2 of its Annual Report on Form 10-K filed with the SEC on March 4, 2020. Adjusted EBITDA was calculated for purposes of the performance based restricted shares in the same manner as the calculation used for purposes of the Cash Bonus Plan, as described above under the heading “Annual Incentive Cash Plan.”
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The Committee recommended, and the Board approved, the award taking into consideration the multi-year nature of the award, the median of the peer group company data relative to long-term incentives, management's recommendations, and the objectives of our compensation programs to provide appropriate retention and performance incentives.
Time-Vesting Restricted Stock. During the term of Mr. Southwell's employment agreement, following each fiscal year beginning with the 2019 fiscal year, Mr. Southwell will also be eligible for a grant of restricted shares of Class A common stock grant under the Company’s Long Term Incentive Plan having a value of up to 100% of Mr. Southwell’s salary then in effect based on performance during the immediately preceding fiscal year. If awarded, these grants will vest 25% on each of the first four anniversaries of the applicable grant date. As of March 30, the Committee had not made a determination if an additional grant would be made for the 2019 fiscal year.
Long-Term Incentive Awards Granted to NEOs Other Than the CEO in 2019
Pursuant to his employment agreement, the Company granted to Mr. Helding 50,000 SARs on November 15, 2019. The SARs will vest in increments of 25% on each of the first four anniversaries of the grant date, subject to acceleration upon a change in control or certain defined termination events.
In addition, pursuant to his employment agreement, the Company granted to Mr. Helding 30,000 restricted shares of the Company’s Class A common stock. The restricted shares will vest in increments of 25% on each of the first four anniversaries of the grant date, subject to acceleration upon a change in control.
We determined the amount and form of the long-term incentive awards to grant to Mr. Helding based on his qualifications, experience and level of responsibility, as well as internal pay equity considerations and negotiations with Mr. Helding.
Mr. Hershberger did not receive a long-term incentive award in 2019.
Other Benefits and Perquisites
Our NEOs participate in the full range of health, welfare and retirement benefits and are covered by the same plans as other exempt employees. Perquisites do not constitute a major element of our executive compensation program for our NEOs. During 2019, Mr. Southwell received approximately $21,200 for housing allowance, $7,900 in club related dues, and personal use of the Company's condominium valued at approximately $44,200. Mr. Hershberger received $17,300 for combined housing and auto allowance and approximately $9,000 in club related dues. Mr. Helding received no additional benefits or perquisites from the Company. We decided to provide these benefits to ensure that our compensation programs were competitive and provide additional retention incentives. The aggregate incremental cost to us of these benefits is included in the “All Other Compensation” column of the Summary Compensation Table and described in the footnotes.
Employment Agreements
Our NEOs have employment agreements that govern their base pay and non-equity incentive plan compensation. Additional information regarding the employment arrangements and compensation agreements of each NEO are as follows:
Gavin D. Southwell. On July 20, 2016, we entered into an employment agreement with Mr. Southwell with a term beginning on that date and ending on July 20, 2017 effective upon the attainment of an O-1 Visa which was granted September 6, 2016. Under this agreement, Mr. Southwell was named President of the Company. On November 15, 2016, in connection with Mr. Southwell’s promotion to Chief Executive Officer, we entered into an amendment to Mr. Southwell’s employment agreement. On June 14, 2017 we entered into another amendment to Mr. Southwell’s amended and restated employment agreement. Under this agreement, Mr. Southwell was entitled to an annual salary of $650,000 during 2018. On January 2, 2019 we entered into a second amended and restated employment agreement with Mr. Southwell. This agreement has a term of five years and will be automatically extended by successive one-year terms unless prior written notice of termination is given. Under this agreement, Mr. Southwell is entitled to an annual salary of $750,000 during 2019. Mr. Southwell will be eligible for performance based annual bonus and long-term incentive awards as determined at the sole discretion of the Board. Mr. Southwell's target bonus under the Company’s management bonus plan is to equal 100% of his salary then in effect. Mr. Southwell will be eligible to participate in any equity incentive plan, restricted share plan, share award plan, stock appreciation rights plan, stock option plan, or similar plan adopted by the Company on the same terms and conditions applicable to other senior Company executives, with the amount of such awards to be determined by the Board in its sole discretion.
Erik M. Helding. On November 12, 2019, we entered into an employment agreement with Mr. Helding, effective November 15, 2019 with a term beginning on that date as our Chief Financial Officer, Secretary, and Treasurer. Under this agreement, Mr. Helding is entitled to an annual salary of $450,000. Mr. Helding shall be eligible for performance based, annual bonus and long-term incentive awards as determined at the sole discretion of the Board. Mr. Helding was awarded 30,000 restricted stock awards and 50,000 SARs on the effective date that will vest 25% on each of the first four anniversaries of the effective date. Mr. Helding’s target bonus under the Company’s management bonus plan is to equal 100% of his salary then in effect. Mr. Helding shall be eligible to participate in any equity incentive plan, restricted share plan, share award plan, stock appreciation rights plan, stock option plan, or similar plan adopted by the Company on the same terms and conditions applicable to other senior Company executives, with the amount of such awards to be determined by the Board in its sole discretion.
Michael D. Hershberger. On November 15, 2019, Mr. Hershberger ceased serving as the Company's Chief Financial Officer, Secretary and Treasurer, and the Company entered into a Separation Agreement (the “Separation Agreement”) with Mr. Hershberger pursuant to which (among other things) Mr. Hershberger’s employment with the Company terminated effective December 31, 2019 (the “Termination Date”) and such termination was deemed to be a “Termination Without Cause” under his employment agreement, dated
September 16, 2015 and amended on June 14, 2017 (the “Hershberger Employment Agreement”). Under the Separation Agreement, the Company agreed to pay Mr. Hershberger severance in an amount equal to 12 months of his base salary under his employment agreement (i.e., $350,000), and $210,000 in satisfaction of the Company’s obligation under the Hershberger Employment Agreement to pay an accrued bonus. In addition, under the Separation Agreement, the 88,472 stock appreciation rights held by Mr. Hershberger as of the date of the Separation Agreement, all of which had already vested, are exercisable for a period of one year after the Termination Date, and the Company agreed to vest 27,500 of the 44,000 unvested restricted shares previously granted to Mr. Hershberger.
Other Compensation Considerations
Tax and Accounting Considerations
In setting compensation for our NEOs, the compensation committee considers the deductibility of compensation under the Internal Revenue Code. Section 162(m) of the Internal Revenue Code limits the tax deductibility of compensation that we pay to certain covered employees, generally including our NEOs, to $1,000,000 in any year. Prior to the changes made to Section 162(m) by the Tax Cuts and Jobs Act, this limitation did not apply to performance-based compensation if certain conditions were met. Starting with 2018, performance-based compensation is generally subject to the $1,000,000 limit. Qualifying performance-based compensation that we pay pursuant to a binding contract in effect on November 2, 2017 and not materially modified will continue to be exempt from the deduction limit under a grandfathering rule. As a result of the changes to Code Section 162(m), any compensation that we pay in the future pursuant to compensation arrangements entered into or materially modified after November 2, 2017, even if performance-based, will be subject to the $1,000,000 fiscal year deduction limit if paid to a covered employee. The compensation committee believes that our interests and those of our stockholders are best served by providing competitive levels of compensation, even if not fully deductible, so some of the compensation that we provide to our executive officers in the future may not be deductible as a result of the changes made to Code Section 162(m).
Executives
We are led by a team of executives that is chosen by the Board. Currently, we have two executive officers. Set forth below is biographical information for the Company's Chief Financial Officer and former Chief Financial Officer. Mr. Southwell's biographical information is included with the biographical information of our directors.
Erik M. Helding (age 47). Erik M. Helding was appointed as our Chief Financial Officer, Treasurer and Secretary effective as of November 15, 2019. Prior, Mr. Helding served as Executive Vice President and Chief Financial Officer of CNO Financial Group, Inc. (NYSE: CNO) (“CNO”) from April 2016 through March 2019. CNO is a holding company for a group of insurance companies operating throughout the United States that develop, market and administer health insurance, annuity, individual life insurance and other insurance products. From August 2012 to April 2016, Mr. Helding served as Senior Vice President, Treasury and Investor Relations of CNO. Mr. Helding also served as Vice President, Financial Planning and Analysis of CNO prior to August 2012 and held various other finance positions after he joined CNO in 2004. During his time at CNO as Chief Financial Officer, Mr. Helding was responsible for the financial operations of the company, including accounting, controls and reporting, financial planning and analysis, investor relations, treasury, and tax.
Summary Compensation Table For Fiscal Year 2019
The following table sets forth the total compensation of our Chief Executive Officer and other Named Executive Officers (as defined by SEC rules and regulations) for 2019, 2018, and 2017:
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Name and Principal Position
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Year
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Salary ($)(1)
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Bonus ($)
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Stock
Awards
($)(2)(3)
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Option
Awards
($)(2)(4)
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Non-Equity Incentive Plan Compensation ($)
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All Other
Compensation
($)
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Total ($)
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Gavin D. Southwell(5)
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2019
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750,000
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—
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8,382,500
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—
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1,200,000
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73,316
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10,405,816
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President and Chief Executive Officer
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2018
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650,000
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—
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—
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—
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1,500,000
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88,600
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2,238,600
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2017
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605,000
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650,000
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7,682,500
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—
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1,300,000
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74,717
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10,312,217
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Erik M. Helding
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2019
|
|
45,000
|
|
—
|
|
702,000
|
|
689,000
|
|
—
|
|
—
|
|
1,436,000
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Hershberger(6)
|
|
2019
|
|
350,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
586,376
|
|
936,376
|
Former Chief Financial Officer
|
|
2018
|
|
350,000
|
|
—
|
|
—
|
|
—
|
|
420,000
|
|
45,400
|
|
815,400
|
|
|
2017
|
|
332,000
|
|
175,000
|
|
1,448,700
|
|
—
|
|
420,000
|
|
57,400
|
|
2,433,100
|
|
|
(1)
|
Reflects actual earnings for 2019, 2018 and 2017, which may differ from approved base salaries due to the effective dates of salary increases.
|
|
|
(2)
|
The assumptions used in determining the grant date fair value of the equity awards to our NEOs under Financial Accounting Standards Board ASC 718 (“ASC 718”) can be found in Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.
|
|
|
(3)
|
Stock Award amounts equal the aggregate grant date fair value pursuant to ASC 718 for the performance share and restricted stock grants in 2019 and 2017. These amounts do not reflect the actual economic value realized by the NEOs. Although the award agreement for Mr. Southwell’s grant of performance based restricted shares shown in this table was dated January 2, 2019, for financial reporting purposes under ASC 718 the grant date did not occur until March 14, 2019 because the performance goals were not finalized until the filing of our Annual Report on Form 10-K for the year ended December 31, 2018 on that date. In accordance with the SEC’s regulations, the grant date fair value shown in this table and the Grants of Plan- Based Awards for Fiscal Year 2019 table is based on the stock price on March 14, 2019, the grant date under ASC 718, rather than January 2, 2019. The grant date fair value of the performance share grants is based on the probable outcome of the performance conditions as of the date of grant, assuming maximum performance.
|
|
|
(4)
|
Option Award amounts include the aggregate grant date fair value pursuant to ASC 718 for SARs granted. These amounts do not reflect the actual economic value realized by the NEO.
|
|
|
(5)
|
Included within All Other Compensation for Mr. Southwell for 2019 is approximately $21,200 for housing allowance, $7,900 in club related dues, and personal use of the Company's condominium valued at approximately $44,200.
|
|
|
(6)
|
Mr. Hershberger's employment agreement was amended on November 11, 2019 at which point he ceased acting as the Company's Chief Financial Officer, Secretary, and Treasurer. Pursuant to the agreement, Mr. Hershberger's employment with the Company terminated on December 31, 2019. Included within All Other Compensation for Mr. Hershberger for 2019 is approximately $17,300 for combined housing and auto allowance, approximately $9,000 in club related dues, $210,000 for accrued bonus paid in connection with his separation from the Company and $350,000 in severance, an amount equal to the sum of his annual base salary payable in 12 equal monthly installments.
|
Grants of Plan-Based Awards For Fiscal Year 2019
The following table provides information regarding all incentive awards we granted to our NEOs during fiscal 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards
|
|
Estimated Future Payouts Under Equity Incentive Plan Awards
|
|
All Other Stock Awards: Number of Shares of Stock or Units
|
|
All Other Option Awards: Number of Securities Underlying Options
|
|
Exercise or base price of option awards
|
|
Grant date fair value of stock and option awards
|
Name*
|
|
Grant Date
|
|
Threshold ($)
|
|
Target ($)
|
|
Maximum ($)
|
|
Threshold ($)
|
|
Target ($)
|
|
Maximum ($)
|
|
(#)
|
|
(#)
|
|
($/Sh)
|
|
($)
|
Gavin D. Southwell
|
|
1/2/2019 (1)
|
|
187,500
|
|
|
750,000
|
|
|
1,500,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
|
—
|
|
|
—
|
|
|
8,382,500
|
|
Erik M. Helding
|
|
11/15/2019
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,000
|
|
|
50,000
|
|
|
23.40
|
|
|
1,391,000
|
|
|
|
*
|
Mr. Hershberger had no grants of plan-based awards in fiscal year 2019.
|
|
|
(1)
|
The grant date of January 2, 2019 for Mr. Southwell’s award of performance based restricted shares shown in this table is the date on which the Board approved the award and the date of the award agreement. However, the grant date for financial reporting purposes under ASC 718 was March 14, 2019 because the performance goals were not finalized until the filing of our Annual Report on Form 10-K for the year ended December 31, 2018 on that date. In accordance with the SEC’s regulations, the grant date fair value shown in this table and the Summary Compensation Table for Fiscal Year 2019 is based on the stock price on March 14, 2019, the grant date under ASC 718, rather than January 2, 2019.
|
Outstanding Equity Awards at Fiscal Year-End 2019
The following table provides information on the holdings of SARs and stock awards by our NEOs at December 31, 2019. This table includes unexercised and unvested SARs awards and unvested stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAR Awards
|
|
Stock Awards
|
Name
|
|
Grant Date(1)
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
Option
Exercise
Price ($)(2)
|
|
Option
Expiration
Date
|
|
Number of
Shares that
have not
Vested (#)
|
|
Market
Value of
Shares of
Stock that
have not
Vested ($)(3)
|
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or other Rights That Have Not Vested(4)
|
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or other Rights That Have Not Vested ($)(3)
|
Gavin D. Southwell
|
|
9/6/2016(5)
|
|
33,333
|
|
—
|
|
5.96
|
|
9/6/2023
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
4/26/2016(6)
|
|
20,000
|
|
—
|
|
6.10
|
|
4/26/2023
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
11/15/2016(7)
|
|
75,000
|
|
25,000
|
|
10.30
|
|
11/15/2023
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
6/14/2017
|
|
—
|
|
—
|
|
—
|
|
—
|
|
125,000
|
|
2,411,250
|
|
—
|
|
—
|
|
|
6/14/2017(8)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
50,000
|
|
964,500
|
|
—
|
|
—
|
|
|
11/15/2016(8)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
25,000
|
|
482,250
|
|
—
|
|
—
|
|
|
1/2/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
250,000
|
|
4,822,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erik M. Helding
|
|
11/15/2019(7)
|
|
—
|
|
50,000
|
|
23.40
|
|
11/15/2026
|
|
30,000
|
|
578,700
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Hershberger
|
|
7/1/2015(5)
|
|
15,000
|
|
—
|
|
4.95
|
|
7/1/2022
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
9/16/2015(5)
|
|
22,500
|
|
—
|
|
4.99
|
|
9/16/2022
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
9/16/2016(5)
|
|
40,972
|
|
—
|
|
5.20
|
|
9/16/2023
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
5/21/2014(9)
|
|
10,000
|
|
—
|
|
10.45
|
|
5/21/2021
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
(1)
|
All of the outstanding equity awards described in the footnotes below were granted under our Long Term Incentive Plan.
|
|
|
(2)
|
This column represents the closing price of Benefytt Technologies' Class A common stock as reported on the NASDAQ Global Market on the date of grant.
|
|
|
(3)
|
Market value was determined by multiplying the number of shares set forth in the preceding column by $19.29, the closing price of Benefytt’s Class A common stock as reported on the NASDAQ Global Market on December 31, 2019, the last trading day of the year. This valuation does not reflect any diminution in value due to the restrictions applicable to such awards.
|
|
|
(4)
|
This column represents the executive's January 2, 2019 performance restricted share grant. Performance restricted shares are performance-vesting equity incentive awards under the Company’s Long Term Incentive Plan, that vest ratably based on the Company’s performance against metrics relating to annual Adjusted EBITDA in each of fiscal years 2019 through 2023. Any restricted shares that do not vest as a result of a performance goal not being achieved for a particular fiscal year (the “Measurement Year”) shall be forfeited unless the Company’s cumulative Adjusted EBITDA for the Measurement Year and the immediately succeeding fiscal year (the “Succeeding Year”) taken together exceed the sum of the performance goals for both of such years, in which event the restricted shares that did not vest for the Measurement Year (the “Catch-Up Vesting Shares”) will vest on the date on which the Annual Report is filed for Succeeding Year. If the Adjusted EBITDA for the Measurement Year and Succeeding Year do not exceed the sum of the performance goals for such years, then the Catch-Up Vesting Shares shall be permanently forfeited on the date on which the Annual Report for the Succeeding Year is filed. The final determination of whether the performance restricted shares vest will be determined by the Board or the Committee and will be subject to such adjustments as the Board or the Committee may determine in its discretion. Because performance as measured against the metrics was trending above target as of December 31, 2019, as required by the SEC’s regulations, the performance restricted share grants are shown at the maximum level.
|
|
|
(5)
|
Reported amounts represent SARs that vest in annual increments of 25%, 25%, and 50% on the grant anniversary dates subject to continued service to us through each vesting date.
|
|
|
(6)
|
Reported amounts represent SARs that vest in annual increments of 50% on the grant anniversary dates subject to continued service to us through each vesting date.
|
|
|
(7)
|
Reported amounts represent SARs that vest in annual increments of 25% on the grant anniversary dates subject to continued service to us through each vesting date.
|
|
|
(8)
|
Reported amounts represent Restricted Stock Awards that vest in annual increments of 25% on the grant anniversary dates subject to continued service to us through each vesting date.
|
|
|
(9)
|
Reported amounts represent SARs that vest in annual increments of 20%, 20%, 20%, and 40% on the grant anniversary dates subject to continued service to us through each vesting date.
|
Option Exercises and Stock Vested For Fiscal Year 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1)
|
|
Stock Awards(2)
|
Name*
|
|
Number of Shares Acquired on Exercise (#)
|
|
Value Realized on Exercise ($)
|
|
Number of Shares Acquired on Vesting (#)
|
|
Value Realized on Vesting ($)
|
Gavin D. Southwell
|
|
—
|
|
|
—
|
|
|
146,388
|
|
|
3,689,982
|
|
Michael D. Hershberger
|
|
—
|
|
|
—
|
|
|
48,967
|
|
|
1,075,988
|
|
|
|
*
|
Mr. Helding had no option award exercises or stock awards vest during 2019.
|
|
|
(1)
|
The Company has no options outstanding, so any amounts shown in these columns would relate to SAR grants.
|
|
|
(2)
|
We computed the aggregate dollar value realized on vesting by multiplying the number of shares of stock that vested by the closing price of our common stock on the vesting date.
|
We did not offer any nonqualified deferred compensation arrangements or defined benefit pension plans in 2019 in which our NEOs participated.
CEO Pay Ratio
For the year ended December 31, 2019:
|
|
•
|
the median of the annual total compensation of all employees of our company (other than our CEO) was $56,796; and
|
|
|
•
|
the annual total compensation of our CEO was $10,405,816.
|
Based on this information, for 2019, the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all other employees was 183:1. This estimate is calculated in a manner consistent with Item 402(u) of Regulation S-K under the Exchange Act. As permitted by SEC rules, to identify our median employee for 2019, we selected total direct compensation as our consistently applied compensation measure, which we calculated as actual salary paid to our employees for 2019 (including overtime for hourly employees), actual bonus or sales commission earned by our employees in 2019. Further, we used December 31, 2019 to determine our employee population and used the consistently applied compensation measure as described
above to determine our median employee. In determining this population, we included all full-time, part-time, seasonal and temporary employees other than our CEO. We did not include any contractors or workers employed through a third-party provider, whose compensation was determined by such third-party provider, in our employee population.
Based on this approach, we selected the individual who represented the median employee for 2019. We then calculated the annual total compensation for this individual using the same methodology we used for our named executive officers in our 2019 Summary Compensation Table.
Mr. Southwell’s 2019 total compensation as reported in the Summary Compensation Table For Fiscal Year 2019 and as used in determining the pay ratio disclosed above includes the full value of the performance based restricted share award granted to Mr. Southwell in 2019, although, as noted above under “Long-Term Incentive Awards,” this equity award was intended as a multi-year grant covering a five-year performance period from 2019-2023. In order to provide a more complete depiction of our pay ratio for 2019, a supplemental pay ratio was calculated using Mr. Southwell’s 2019 compensation as disclosed in the Summary Compensation Table For Fiscal Year 2019, adjusted to exclude four-fifths of the value of his five-year equity award, or $6,706,000. The ratio of Mr. Southwell’s total compensation calculated in this manner to the compensation of the median employee was approximately 65:1.
Potential Payments Upon Termination Or Change In Control
Our NEOs are entitled to certain payments or other benefits upon qualifying terminations of employment or a change in control of our Company, as described below.
Under the employment agreements of Messrs. Southwell and Helding, unless prior written notice of termination is given by either party prior to the agreement expiration dates, the term of the agreements will be automatically extended for additional successive one-year periods. In the event that we determine not to extend Messrs. Southwell's or Helding’s agreement or terminate their employment without cause (as defined in their respective agreements), or either executive terminates his employment for good reason (as defined in their respective agreements), the executive will be entitled to an amount equal to the sum of his annual base salary ($750,000 for Mr. Southwell and $450,000 for Mr. Helding) plus a pro rata portion of any bonus to which he would have otherwise earned, payable in 12 equal monthly installments beginning on the termination date provided that a general release is executed in our favor. “Good reason” generally includes certain changes in responsibilities or duties, reductions in salary, or a material reduction in benefits or a material breach by the Company of the agreement that remains uncured following notice of the breach. “Cause” generally includes (1) the commission of a willful act of dishonesty in the course of the executive’s duties, (2) conviction of, or plea of no contest to, a felony or conviction in respect of, or plea of no contest to, any act involving fraud, dishonesty or moral turpitude, (3) performance under the influence of controlled substances (other than those taken pursuant to a medical doctor’s orders), or continued habitual intoxication, during working hours, (4) frequent or extended, and unjustifiable, absenteeism, (5) personal misconduct or refusal to timely perform duties and responsibilities or to timely carry out the lawful directives of the Board (following notice and a cure period), or (6) material non-compliance with the terms of the employment agreement (following notice and a cure period). Messrs. Southwell and Helding are subject to non-competition, non-disparagement, and non-solicitation covenants that expire two years following termination of employment, and to customary confidentiality obligations.
Under the award agreements for our equity-based awards granted to our NEOs under our Long Term Incentive Plan, upon a change in control of the Company, vesting of restricted stock would be accelerated in full. The Committee would determine the treatment of unearned performance shares in its discretion. The Long Term Incentive Plan provides for full vesting upon any termination of employment without cause during the two-year period following a change in control. A “change in control” is defined in the Plan generally to include (1) certain changes in ownership of more than 50% of the voting power of our outstanding equity securities, (2) certain changes in the majority of the Board that is not approved by incumbent Board members, (3) the consummation of a merger or consolidation (other than certain mergers or consolidations that would represent a continuation in ownership of at least 50% of the combined voting power and total fair market value of our securities or a surviving entity) or (4) the consummation of any sale, lease, exchange or other transfer of all or substantially all of our assets.
Under the award agreement for the performance-based restricted shares granted to Mr. Southwell in 2019, upon any termination of service prior to full vesting, any then-unvested shares would be forfeited. Likewise, under the award agreement for the restricted stock granted to Mr. Helding in 2019, upon any termination of service prior to full vesting, any then-unvested shares would be forfeited.
The award agreements for restricted stock and performance shares granted in 2017 under which restricted shares were issued to Messrs. Southwell and Hershberger in March 2019 provide for awards to be forfeited upon a termination of employment prior to vesting except for a termination of service related to death, disability, termination without cause, or resignation for good reason. In the case of a termination of service due to death or disability, a termination without cause or a resignation for good reason, the award agreements provide for the awards to be 100% vested and non-forfeitable.
Under the award agreement for the SARs granted to Mr. Helding in 2019, upon any termination of service other than for death or disability prior to full vesting, all of the SARs would be forfeited. Upon a termination of service due to death or disability, the SARs would become 100% vested and non-forfeitable.
The award agreements for the SARs granted prior to 2019 provide for awards to be forfeited upon a termination of employment prior to vesting except for termination of service related to death, disability, termination without cause, or resignation for good reason. In the case of a termination of service due to death or disability, a termination without cause or a resignation for good reason, the award agreements, the award agreements provide for the awards to be 100% vested and non-forfeitable. As described above under, “Employment Agreements,” Mr. Hershberger became entitled to severance and accelerated vesting of equity awards in connection with his separation from service in 2019. The estimated value of these benefits was approximately $1.1 million.
The estimated value of the payments and other benefits that would be received by Messrs. Southwell and Helding upon certain hypothetical triggering events are shown in the following table, applying the assumptions that the triggering event(s) occurred on December 31, 2019. The value of equity-based awards was estimated using a per share price of $19.29, which was the closing price of the Company's Class A common stock as reported on the NASDAQ Global Market on December 31, 2019, the last trading day of the year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Termination Without Cause or Resignation for Good Reason ($)
|
|
Termination due to Death ($)
|
|
Termination due to Disability ($)
|
|
Termination Upon a Change in Control ($)
|
|
Change in Control ($)
|
Gavin D. Southwell
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
750,000
|
|
|
—
|
|
|
—
|
|
|
750,000
|
|
|
—
|
|
Annual Incentive
|
|
750,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted Stock
|
|
6,751,500
|
|
|
6,751,500
|
|
|
6,751,500
|
|
|
6,751,500
|
|
|
6,751,500
|
|
Performance Shares
|
|
3,616,875
|
|
|
3,616,875
|
|
|
3,616,875
|
|
|
3,616,875
|
|
|
3,616,875
|
|
Stock Appreciation Rights
|
|
224,750
|
|
|
224,750
|
|
|
224,750
|
|
|
224,750
|
|
|
224,750
|
|
Total
|
|
12,093,125
|
|
|
10,593,125
|
|
|
10,593,125
|
|
|
11,343,125
|
|
|
10,593,125
|
|
Erik M. Helding
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
450,000
|
|
|
—
|
|
|
—
|
|
|
450,000
|
|
|
—
|
|
Annual Incentive
|
|
450,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted Stock
|
|
578,700
|
|
|
578,700
|
|
|
578,700
|
|
|
578,700
|
|
|
578,700
|
|
Stock Appreciation Rights(a)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
1,478,700
|
|
|
578,700
|
|
|
578,700
|
|
|
1,028,700
|
|
|
578,700
|
|
|
|
(a)
|
SARs grant price is higher than the Company's closing price on December 31, 2019, therefore SARs have no value as of the measurement date.
|