AAP_Proxy_2014
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ý
Filed by a Party other than the Registrant o
Check the appropriate box:
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o | Preliminary Proxy Statement |
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o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(5)(2)) |
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x | Definitive Proxy Statement |
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o | Definitive Additional Materials |
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o | Soliciting Material Pursuant to §240.14a-12 |
ADVANCE AUTO PARTS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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ADVANCE AUTO PARTS, INC.
5008 AIRPORT ROAD
ROANOKE, VIRGINIA 24012
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NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS
May 14, 2014
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It is my pleasure to invite you to attend the 2014 Annual Meeting of the Stockholders (the "Annual Meeting") of Advance Auto Parts, Inc. (the "Company"), a Delaware corporation, on Wednesday, May 14, 2014 at 8:30 a.m. Eastern Daylight Time (EDT). The meeting will be held at Advance Auto Parts, Inc., 5008 Airport Road, Roanoke, Virginia 24012.
At the Annual Meeting, stockholders will vote on the following matters, which are further described in the attached proxy statement (the "Proxy Statement"):
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1. | Election of the ten nominees named in the Proxy Statement to the Board of Directors to serve until the 2015 annual meeting of stockholders; |
2.Advisory vote to approve the compensation of the Company’s named executive officers;
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3. | Approval of the 2014 Long-Term Incentive Plan; |
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4. | Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2014; |
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5. | Advisory vote on a stockholder proposal, if presented at our Annual Meeting, regarding the ability of stockholders to act by written consent; and |
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6. | Action upon such other matters, if any, as may properly come before the meeting. |
The Board of Directors recommends a vote FOR Proposal Nos. 1 through 4 and AGAINST Proposal No. 5. The persons named as proxies will use their discretion to vote on other matters that may properly arise at the Annual Meeting.
The Board of Directors set March 18, 2014 as the Record Date. Only holders of record of our common stock at the close of business on that day are entitled to vote at our Annual Meeting or any adjournment of our Annual Meeting.
We invite you to attend our Annual Meeting and vote. We urge you, after reading the Proxy Statement, to sign and return the enclosed proxy card as promptly as possible in the enclosed postage prepaid envelope or vote your proxy by Internet or telephone by following the instructions on the form of proxy. If you attend our Annual Meeting, you may vote in person, even if you previously voted by proxy.
By order of the Board of Directors,
Sarah E. Powell
Senior Vice President, General Counsel
and Corporate Secretary
Roanoke, Virginia
April 9, 2014
TABLE OF CONTENTS
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ABOUT THE ANNUAL MEETING AND VOTING | |
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PROPOSAL NO. 1 ELECTION OF DIRECTORS | |
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| Nominees for Election to Our Board | |
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CORPORATE GOVERNANCE | |
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MEETINGS AND COMMITTEES OF THE BOARD | |
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DIRECTOR COMPENSATION | |
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COMPENSATION COMMITTEE REPORT | |
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COMPENSATION DISCUSSION AND ANALYSIS | |
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ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION | |
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| Summary Compensation Table | |
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| 2013 Grants of Plan-Based Awards Table | |
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| Outstanding Equity Awards at 2013 Fiscal Year-End Table | |
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| 2013 Option Exercises and Stock Vested Table | |
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| 2013 Non-Qualified Deferred Compensation Table | |
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| Potential Payments Upon Termination of Employment or Change in Control Table | |
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PROPOSAL NO. 2 STOCKHOLDER ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY'S NAMED EXECUTIVE OFFICERS | |
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INFORMATION CONCERNING OUR EXECUTIVE OFFICERS | |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | |
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STOCK OWNERSHIP GUIDELINES FOR DIRECTORS AND EXECUTIVE OFFICERS | |
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | |
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PROPOSAL NO. 3 APPROVAL OF THE 2014 LONG-TERM INCENTIVE PLAN | |
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| Equity Compensation Plan Information Table | |
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PROPOSAL NO. 4 RATIFICATION OF APPOINTMENT BY THE AUDIT COMMITTEE OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2014 | |
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AUDIT COMMITTEE REPORT | |
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PROPOSAL NO. 5 STOCKHOLDER ADVISORY VOTE ON A STOCKHOLDER PROPOSAL | |
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OTHER MATTERS | |
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APPENDIX A 2014 LONG-TERM INCENTIVE PLAN | |
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ADVANCE AUTO PARTS, INC.
PROXY STATEMENT
FOR 2014 ANNUAL MEETING OF STOCKHOLDERS
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ABOUT THE ANNUAL MEETING AND VOTING
Important Notice Regarding Availability of Proxy Materials for Stockholder Meeting to be Held on May 14, 2014.
This Proxy Statement and the 2013 annual report to stockholders are available on our Internet website at www.AdvanceAutoParts.com.
What is the purpose of the Annual Meeting?
At our Annual Meeting, the stockholders will act upon the matters outlined in the Notice of Meeting on the first page of this Proxy Statement, including the election of the ten nominees named below as directors, an advisory vote to approve the compensation of our named executive officers, approval of the Company's 2014 Long-Term Incentive Plan, ratification of our independent registered public accounting firm (the "independent auditors"), and an advisory vote on a stockholder proposal, if presented at the Annual Meeting, regarding the ability of stockholders to act by written consent. This Proxy Statement summarizes the information you need to know to vote at the Annual Meeting. This Proxy Statement and form of proxy were first mailed to stockholders on or about April 9, 2014.
When and where will the Meeting be held?
The 2014 Annual Meeting will be held on Wednesday, May 14, 2014 at 8:30 a.m. (EDT), at the Advance Auto Parts Store Support Center located at 5008 Airport Road, Roanoke, Virginia 24012. Our Store Support Center is accessible to persons with disabilities. If you have a disability, we can provide reasonable assistance to help you participate in the meeting upon request.
Who is soliciting my vote?
Our Board of Directors ("Board") is soliciting your proxy to vote at the Annual Meeting.
Will a proxy solicitor be used?
Yes, we have engaged MacKenzie Partners, Inc. ("MacKenzie Partners") to assist in the solicitation of proxies for the Annual Meeting and we estimate we will pay MacKenzie Partners a fee of approximately $30,000. We have also agreed to reimburse MacKenzie Partners for reasonable administrative and out-of-pocket expenses incurred in connection with the proxy solicitation and indemnify MacKenzie Partners against certain losses, costs and expenses.
What will I be voting on?
At the Annual Meeting, stockholders will vote on the following matters:
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1. | The election of the following nominees to the Board to serve until the 2015 annual meeting of stockholders: |
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• John F. Bergstrom | • J. Paul Raines |
• John C. Brouillard | • Gilbert T. Ray |
• Fiona P. Dias | • Carlos A. Saladrigas |
• Darren R. Jackson | • O. Temple Sloan, III |
• William S. Oglesby | • Jimmie L. Wade |
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2. | Advisory vote to approve the compensation of the Company’s named executive officers; |
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3. | Approval of the Company's 2014 Long-Term Incentive Plan; |
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4. | Ratification of the appointment of Deloitte & Touche LLP ("Deloitte") as our independent registered public accounting firm for 2014; |
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5. | Advisory vote on a stockholder proposal, if presented at our Annual Meeting, regarding the ability of stockholders to act by written consent; and |
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6. | Such other matters, if any, as may properly come before the meeting. |
What are the voting recommendations of the Board?
The Board recommends the following votes:
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1. | FOR the election of each of the ten director nominees to the Board ("Proposal No. 1"); |
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2. | FOR the advisory vote on the approval of the compensation of the Company’s named executive officers ("Proposal No. 2"); |
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3. | FOR the approval of the Company's 2014 Long-Term Incentive Plan ("Proposal No. 3"); |
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4. | FOR the ratification of the appointment of Deloitte as our independent registered public accounting firm for 2014 ("Proposal No. 4"); and |
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5. | AGAINST the advisory stockholder proposal regarding the ability of stockholders to act by written consent, if presented at our Annual Meeting ("Proposal No. 5"). |
Will any other matters be voted on?
The Board does not intend to present any other matters at the Annual Meeting. We do not know of any other matters that will be brought before the stockholders for a vote at the Annual Meeting. If any other matter is properly brought before the Annual Meeting, your signed proxy card gives authority to Sarah E. Powell and Michael A. Norona as proxies, with full power of substitution ("Proxies"), to vote on such matters in their discretion in accordance with their best judgment.
Who is entitled to vote?
Stockholders of record as of the close of business on March 18, 2014 (the "Record Date") are entitled to vote at the Annual Meeting.
How many votes do I have?
You will have one vote for every share of Company common stock that you owned at the close of business on the Record Date. You are not entitled to cumulate your votes.
What is the difference between holding shares as a stockholder of record and as a beneficial owner?
Many stockholders hold their shares through a broker or bank rather than directly in their own names. As summarized below, there are some distinctions between shares held of record and those owned beneficially.
Stockholder of Record
If your shares are registered directly in your name with our transfer agent, Computershare, you are considered, with respect to those shares, the stockholder of record, and these proxy materials are being sent directly to you by the Company.
Beneficial Owner
If your shares are held in a stock brokerage account or by a bank, you are considered the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you by your bank or broker, which is considered the stockholder of record of these shares. As the beneficial owner, you have the right to direct your bank or broker how to vote and are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you bring with you a legal proxy from the stockholder of record. Your bank or broker has enclosed a voting instruction card for you to use for providing directions for how to vote your shares.
How do I vote?
If you are a stockholder of record, there are four ways to vote:
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• | By Internet at www.proxyvote.com; |
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• | By toll-free telephone at 1-800-690-6903; |
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• | By completing and mailing your proxy card; or |
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• | By written ballot at the Annual Meeting. |
If you vote by Internet or telephone, your vote must be received by 11:59 P.M. (EDT) on May 13, 2014, the day before the Annual Meeting. Your shares will be voted as you indicate. If you sign and return your proxy card but you do not indicate your voting preferences, the Proxies will vote your shares FOR Proposal Nos. 1 through 4 and AGAINST Proposal No. 5.
If your shares are held in street name, you should follow the voting directions provided by your bank or broker. You may complete and mail a voting instruction card to your bank or broker or, in most cases, submit voting instructions by the Internet or telephone to your bank or broker. If you provide specific voting instructions by mail, the Internet or telephone, your shares should be voted by your bank or broker as you have directed. AS A RESULT OF THE NEW YORK STOCK EXCHANGE’S RULES, YOUR BANK OR BROKER CANNOT VOTE WITH RESPECT TO ANY PROPOSAL, EXCEPT FOR PROPOSAL NO. 4, UNLESS IT RECEIVES VOTING INSTRUCTIONS FROM YOU.
We will distribute written ballots at the Annual Meeting to any stockholder who wants to vote. If you hold your shares in street name, you must request a legal proxy from your bank or broker to vote in person at the Annual Meeting.
Can I change my vote or revoke my proxy?
Yes. If you are a stockholder of record, you can change your vote or revoke your proxy any time before the Annual Meeting by:
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• | Entering a new vote by Internet or telephone by 11:59 P.M. (EDT) on May 13, 2014; |
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• | Returning a later-dated proxy card; |
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• | Sending written notice of revocation to Sarah E. Powell, Senior Vice President, General Counsel and Corporate Secretary, at the Company’s address of record, which is 5008 Airport Road, Roanoke, VA 24012; or |
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• | Completing a written ballot at the Annual Meeting. |
If your shares are held in street name, you must follow the specific directions provided to you by your bank or broker to change or revoke any instructions you have already provided to your bank or broker.
Is my vote confidential?
It is the policy of the Company that all proxies, ballots, voting instructions and tabulations that identify the vote of a stockholder will be kept confidential from the Company, its directors, officers and employees until after the final vote is tabulated and announced, except in limited circumstances, including: any contested solicitation of proxies, when required to meet a legal requirement, to defend a claim against the Company or to assert a claim by the Company and when written comments by a stockholder appear on a proxy card or other voting material.
How are votes counted?
Votes are counted by inspectors of election designated by the corporate secretary.
Who pays for soliciting proxies?
We will pay for the cost of preparing, assembling, printing and mailing this Proxy Statement and the accompanying form of proxy to our stockholders, as well as the cost of soliciting proxies relating to the Annual Meeting, including those of MacKenzie Partners. We may request banks and brokers to solicit their customers, on whose behalf such banks and brokers hold our common stock in street name. We will reimburse these banks and brokers for their reasonable out-of-pocket expenses for these solicitations. We will pay no additional compensation to our officers, directors or employees for these activities.
What is the quorum requirement of the Annual Meeting?
A majority of the outstanding shares of our common stock on the Record Date, represented in person or by proxy at the Annual Meeting, constitutes a quorum for voting on proposals at the Annual Meeting. If you vote, your shares will be part of the quorum. Abstentions, including those recorded by brokers holding their customers’ shares, and broker non-votes will be counted in determining the quorum. On the Record Date, there were 72,940,548 shares outstanding and 1,765 stockholders of record. A majority of our common stock, or 36,470,275 shares, will constitute a quorum. A majority of the shares present at the Annual Meeting may adjourn the meeting even if the number of shares present do not constitute a quorum.
What are broker non-votes?
Broker non-votes occur when holders of record, such as banks and brokers holding shares on behalf of beneficial owners, do not receive voting instructions from the beneficial owners by the date specified in the statement requesting voting instructions that has been provided by the bank or broker.
If that happens, the bank or broker may vote those shares only on matters as permitted by The New York Stock Exchange. The New York Stock Exchange prohibits banks and brokers from voting uninstructed shares in, among other things, the election of directors and matters related to executive compensation; accordingly, banks and brokers cannot vote with respect to any Proposal presented for consideration in this Proxy Statement except for Proposal No. 4 unless they receive voting instructions from the beneficial owners. Broker non-votes are not treated as votes cast under Delaware law.
What vote is required to approve each proposal?
Proposal No. 1. For the election of directors, the ten nominees for director will be elected if they receive a majority of the votes cast at the Annual Meeting for the election of directors. For purposes of the election of directors, a majority of votes cast means that the number of shares voted "for" a director’s election exceeds 50 percent of the number of votes cast with respect to that director’s election, and votes cast include votes to withhold authority and exclude abstentions and broker non-votes. Accordingly, abstentions and broker non-votes will have no effect on the outcome of the proposal.
Proposal No. 2. For the advisory vote to approve the compensation of the Company’s named executive officers, the vote is non-binding and, therefore, no specific vote is required to approve the proposal. However, the Board and the Compensation Committee will review the voting results and consider them in making future decisions about executive compensation programs.
Proposal No. 3. Approval of the Company's 2014 Long-Term Incentive Plan requires the approving vote of a majority of the votes cast on this proposal by the holders of shares of our common stock who are present, or represented by proxy, and entitled to vote at the annual meeting. Abstentions count as votes cast and have the effect of a vote against the proposal. The number of shares entitled to vote excludes broker non-votes, and broker non-votes will have no effect on the outcome of the proposal.
Proposal No. 4. Ratification of our independent registered public accounting firm requires the approving vote of a majority of the votes cast on this proposal by the holders of shares of our common stock who are present, or represented by proxy, and entitled to vote at the Annual Meeting. Abstentions count as votes cast and have the effect of a vote against the proposal. The number of votes cast excludes broker non-votes, and broker non-votes will have no effect on the outcome of the proposal.
Proposal No. 5. For the advisory vote on the stockholder proposal regarding the ability of stockholders to act by written consent, the vote is non-binding and, therefore, no specific vote is required to approve this proposal.
Who can attend the Annual Meeting?
Only Advance Auto Parts stockholders as of the close of business on the Record Date may attend the Annual Meeting.
What do I need to do to attend the Annual Meeting?
If you are a stockholder of record, your proxy card is your admission ticket to the Annual Meeting. If you own shares in street name, you will need to ask your broker or bank for an admission ticket in the form of a legal proxy. You will need to bring the legal proxy with you to the Annual Meeting along with valid picture identification. If you do not receive the legal proxy in time, bring your most recent brokerage statement with you to the Annual Meeting. We can use your statement to verify your ownership of our common stock and admit you to the Annual Meeting; however, you will not be able to vote your shares at the Annual Meeting without a legal proxy.
What does it mean if I get more than one proxy card?
It means you own shares in more than one account. You should vote the shares on each of your proxy cards.
How can I consolidate multiple accounts registered in variations of the same name?
If you have multiple accounts, we encourage you to consolidate your accounts by having all your shares registered in exactly the same name and address. You may do this by contacting our transfer agent, Computershare, toll-free at (866) 865-6327 or at P.O. Box 43006, Providence, RI 02940-3006, Attention: Shareholder Correspondence.
I own my shares indirectly through my broker, bank or other nominee, and I receive multiple copies of the annual report, proxy statement and other mailings because more than one person in my household is a beneficial owner. How can I change the number of copies of these mailings that are sent to my household?
If you and other members of your household are beneficial owners, you may eliminate this duplication of mailings by contacting your broker, bank or other nominee. Duplicate mailings in most cases are wasteful for us and inconvenient for you, and we encourage you to eliminate them whenever you can. If you have eliminated duplicate mailings, but for any reason would like to resume them, you must contact your broker, bank or other nominee.
I own my shares directly as a registered owner of Company stock and so do other members of my family living in my household. How can I change the number of copies of the annual report and proxy statement being delivered to my household?
Family members living in the same household generally receive only one copy per household of the annual report, proxy statement and most other mailings. The only item which is separately mailed for each registered stockholder or account is a proxy card. If you wish to start receiving separate copies in your name, apart from others in your household, you must contact Computershare toll-free at (866) 865-6327 or at P.O. Box 43006, Providence, RI 02940-3006, Attention: Shareholder Correspondence, and request that action. Within 30 days after your request is received we will start sending you separate mailings. If, for any reason, you and members of your household are receiving multiple copies and you want to eliminate the duplications, please also contact Computershare and request that action. That request must be made by each person in the household entitled to receive the materials.
Multiple stockholders live in my household and together we received only one copy of this year’s annual report and Proxy Statement. How can I obtain my own separate copy of those documents for the Annual Meeting in May?
You may pick up copies in person at the Annual Meeting or download them from our Internet website, www.AdvanceAutoParts.com (click on the homepage link to 2014 Annual Meeting materials). If you want copies mailed to you and you are a beneficial owner, you must request them from your broker, bank, or other nominee. If you want copies mailed to you and you are a stockholder of record, we will mail additional copies to you promptly at no charge if you request them from our corporate office by phone at (952) 715-5015 or by mail to 5008 Airport Road, Roanoke, VA 24102, Attention: Investor Relations. We cannot guarantee you will receive mailed copies before the Annual Meeting.
Where can I find the voting results of the Annual Meeting?
We plan to announce preliminary voting results at the Annual Meeting and publish final results in a Report on Form 8-K within four business days following the Annual Meeting.
What is the deadline for consideration of stockholder proposals or director nominations for the 2015 annual meeting of stockholders?
If you are a stockholder and you want to present a proposal at the 2015 annual meeting and have it included in our proxy statement for that meeting, you must submit the proposal in writing at our offices at 5008 Airport Road, Roanoke, Virginia 24012, Attention: Corporate Secretary, on or before December 10, 2014. Applicable Securities and Exchange Commission ("SEC") rules and regulations govern the submission of stockholder proposals and our consideration of them for inclusion in next year’s proxy statement.
If you want to present a proposal at the 2015 annual meeting (other than pursuant to SEC rules and regulations) or to nominate a person for election as a director, you must comply with the requirements set forth in our by-laws. Our by-laws require, among other things, that our corporate secretary receive written notice from the stockholder of intent to present such proposal or nomination no less than 120 days and no more than 150 days prior to the first anniversary of the date of the preceding year’s annual meeting. Therefore, we must receive notice of such proposal no earlier than December 15, 2014, and no later than January 14, 2015. The notice must contain the information required by our by-laws. You may obtain a print copy of our by-laws by submitting a request to: Advance Auto Parts, 5008 Airport Road, Roanoke, Virginia 24012, Attention: Corporate Secretary. Our by-laws are also available on our website at www.AdvanceAutoParts.com. Our Chair or any other person presiding at the meeting may exclude any matter that is not properly presented in accordance with these requirements.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, you will vote to elect as directors the ten nominees listed below to serve until our 2015 Annual Meeting of stockholders or until their respective successors are elected and qualified. Our Board has nominated John F. Bergstrom, John C. Brouillard, Fiona P. Dias, Darren R. Jackson, William S. Oglesby, J. Paul Raines, Gilbert T. Ray, Carlos A. Saladrigas, O. Temple Sloan, III and Jimmie L. Wade for election as directors. All of the nominees are current members of our Board. Each nominee has consented to being named in this Proxy Statement as a nominee and has agreed to serve as a director if elected. None of the nominees to our Board has any family relationship with any other nominee or with any of our executive officers. In the normal course of its deliberations, our Board may decide at a later time to add one or more directors who possess skills and experience that may be beneficial to our Board and our Company.
The persons named as Proxies in the accompanying form of proxy have advised us that at the Annual Meeting, unless otherwise directed, they intend to vote the shares covered by the proxies FOR the election of the nominees named above. If one or more of the nominees are unable to serve, or will not serve, the persons named as Proxies may vote for the election of any substitute nominees that our Board may propose. The persons named as Proxies may not vote for a greater number of persons than the number of nominees named above. Our by-laws provide that a nominee for director in an uncontested election must receive a majority of the votes cast at the Annual Meeting for the election of directors in order to be elected. If a nominee for director who is an incumbent director is not elected and no successor has been elected at the Annual Meeting, the director is expected to tender his or her resignation from the Board contingent on acceptance of such resignation by the Board.
Nominees for Election to Our Board
The following table provides information about our nominees for director as of the Record Date, March 18, 2014.
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Name | | Age | | Position |
John F. Bergstrom (2) | | 67 | | Director |
John C. Brouillard(1)(4) | | 65 | | Chair |
Fiona P. Dias(2) | | 48 | | Director |
Darren R. Jackson | | 49 | | Director and Chief Executive Officer |
William S. Oglesby(3) | | 54 | | Director |
J. Paul Raines(2)(4) | | 49 | | Director |
Gilbert T. Ray(1)(4) | | 69 | | Director |
Carlos A. Saladrigas(1) | | 65 | | Director |
O. Temple Sloan, III(3) | | 53 | | Director |
Jimmie L. Wade(3) | | 59 | | Director |
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(1) | Member of Audit Committee |
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(2) | Member of Compensation Committee |
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(3) | Member of Finance Committee |
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(4) | Member of Nominating and Corporate Governance Committee |
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| Mr. Bergstrom, Director, became a member of our Board in May 2008. Mr. Bergstrom is the Chairman and Chief Executive Officer of Bergstrom Corporation, which is one of the top 50 automobile dealership groups in America. Mr. Bergstrom has served in his current role at Bergstrom Corporation for more than five years. Mr. Bergstrom has served as a director of Associated Banc-Corp, a diversified bank holding company, since December 2010; Kimberly-Clark Corporation, a global health and hygiene company, since 1987; Wisconsin Energy Corporation, a diversified energy company, since 1987; and Midwest Airlines, a passenger airline company, from 1993 to July 2009.
Bergstrom Corporation has been cited as the number one quality automotive dealer in the country and highlighted for its focus on outstanding customer service. With over 35 years of experience in automotive sales, service and parts management in an organization representing all major automotive manufacturers that distribute cars in the United States, Mr. Bergstrom brings a unique and valuable point of view to our Board. In addition, as a result of his service as a director of several other public companies, including membership on the compensation committee of Wisconsin Energy, he is in a position to share with the Board his experience with governance issues facing public companies.
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| Mr. Brouillard, Chair, became a member of our Board in May 2004 and was appointed Lead Director on February 14, 2007. Mr. Brouillard served as the interim Chair, President and Chief Executive Officer of the Company from May 2007 until January 2008, when he became the non-executive Chair of the Board. Mr. Brouillard retired as Chief Administrative and Financial Officer of H.E. Butt Grocery Company, a regional food retailer, in June 2005, a position that he had held since February 1991. From 1977 to 1991, Mr. Brouillard held various positions with Hills Department Stores, a discount department store company, including serving as President of that company. Mr. Brouillard also served as a director of Eddie Bauer Holdings, Inc., a multi-channel retailer, from June 2005 to May 2009.
Mr. Brouillard's background as a chief administrative and financial officer with a grocery retail company recognized for outstanding customer service provides him with strong insights into the types of management and financial issues that face companies in the retail sector. After having served on our Board for over nine years, including six years as the independent Board Chair and eight months as the interim Chief Executive Officer of the Company, Mr. Brouillard is uniquely situated to understand the inner workings of Advance's Board and management processes. His considerable experience in finance and accounting matters are particularly valuable to the deliberations of the Audit Committee, and his past service on the board of another public company has strengthened his understanding of the governance concerns facing public companies. |
| Ms. Dias, Director, became a member of our Board in September 2009. Ms. Dias is currently Chief Strategy Officer of ShopRunner, an online shopping service, and has held this position since August 2011. Previously she was Executive Vice President, Strategy & Marketing, of GSI Commerce, Inc., a provider of e-commerce and interactive marketing services, from February 2007 to June 2011. Ms. Dias also served as Executive Vice President and Chief Marketing Officer at Circuit City Stores, Inc., a specialty retailer of consumer electronics, from May 2005 to August 2006 and held Senior Vice President positions at Circuit City from November 2000 to April 2005. Prior to 2000, Ms. Dias held senior marketing positions with PepsiCo, Inc., Pennzoil-Quaker State Company and The Procter & Gamble Company. Ms. Dias has served as a director of Realogy Holdings Corp., a real estate brokerage company, since June 2013, and she served as a director of Choice Hotels, Inc., a hotel franchisor, from November 2004 to April 2012.
Ms. Dias possesses extensive experience in marketing and managing consumer and retail brands. Her experience with developing, implementing and assessing marketing plans and initiatives allows the Board to benefit from her marketing expertise. In addition, Ms. Dias' e-commerce and digital marketing experience with a broad spectrum of brands aligns well with the Board's assessment of the Company's multi-channel strategies. Her position as a director of other public companies, including membership on the compensation committee of Realogy Holdings and past membership on the compensation committee of Choice Hotels, also enables her to share with the Board her experience with governance issues facing public companies. |
| Mr. Jackson, Director and Chief Executive Officer, became a member of our Board in July 2004. Since January 2008, Mr. Jackson has continuously served as our Chief Executive Officer. During that time period, Mr. Jackson also served as President from January 2008 to January 2009 and from January 1, 2012 to April 21, 2013, when George E. Sherman became our President. Prior to becoming our Chief Executive Officer, Mr. Jackson served in various executive positions with Best Buy Co., Inc., a specialty retailer of consumer electronics, office products, appliances and software, ultimately serving from July 2007 to December 2007 as Executive Vice President of Customer Operating Groups. He joined Best Buy in 2000 and was appointed as its Executive Vice President-Finance and Chief Financial Officer in February of 2001. Prior to 2000, he served as Vice President and Chief Financial Officer of Nordstrom, Inc., Full-line Stores, a fashion specialty retailer, and held various senior positions, including Chief Financial Officer of Carson Pirie Scott & Company, a regional department store company. He began his career at KPMG. Mr. Jackson has served as a director of Fastenal Company, which sells industrial and construction supplies, since July 2012. Mr. Jackson also serves on the Board of Trustees at Marquette University.
Mr. Jackson has served as a member of our Board for over nine years and as the Company's Chief Executive Officer for over six years. Mr. Jackson's experience in customer service and high growth with large retail companies (including both organic growth and growth by means of strategic acquisitions) and his experience in leading the Company provide him with unique insights into the challenges and opportunities of overseeing the operations, expansion and management of the Company. |
| Mr. Oglesby, Director, became a member of our Board in December 2004. Mr. Oglesby is currently Senior Managing Director for The Blackstone Group, L.P., a global investment and advisory firm, and has held this position since April 2004. Mr. Oglesby has over 30 years of investment banking experience as a result of his current position with The Blackstone Group, L.P., and previous managing director positions with Credit Suisse First Boston; Donaldson Lufkin & Jenrette; and Kidder, Peabody & Co.
Mr. Oglesby has served on our Board for over nine years. With his broad experience in the investment banking business, Mr. Oglesby is uniquely equipped to provide the Board with insights into capitalization strategies, capital markets mechanics and strategic expansion opportunities. His experience with us and in the automotive aftermarket industry enables him to provide critical insights into strategic opportunities for our Company, including our recent acquisition of GPI. |
| Mr. Raines, Director, became a member of our Board in February 2010. Mr. Raines is Chief Executive Officer of GameStop Corporation, the world's largest multichannel retailer of video games, and has held this position since June 2010. From September 2008 to June 2010 he served as Chief Operating Officer of GameStop. Mr. Raines has served as a director of GameStop since June 2012. Prior to joining GameStop, Mr. Raines spent eight years with The Home Depot, Inc., a home improvement specialty retailer, in various management positions in retail operations, including serving as Executive Vice President for U. S. Stores and President of the Southern Division for the Atlanta-based company. He also has extensive international expertise covering Latin America, Asia and Europe.
Under Mr. Raines’ leadership, GameStop has undergone a transformation to become a global hybrid physical and digital specialty retailer in the video game, consumer electronics and technology space. The company has operations in 15 countries across Europe, Canada, Australia and the United States, and is a Fortune 500 and S&P 500 company, employing more than 40,000 people. The Board draws on Mr. Raines’ insights gained from his expertise in the areas of retail strategy, store operations, customer service, merchandising, manufacturing, marketing, loss prevention, real estate, supply chain and global sourcing.
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| Mr. Ray, Director, became a member of our Board in December 2002. Mr. Ray was a partner of the law firm of O'Melveny & Myers LLP until his retirement in February 2000. Mr. Ray has been a member of the boards of Towers Watson & Co., formerly Wyatt Worldwide, Inc., a professional services company, since 2000; Dine Equity, Inc., the restaurant holding company of Applebee's and IHOP, since 2004; and Diamond Rock Hospitality Company, a lodging-focused real estate company, since 2004.
Mr. Ray's service on our Board provides institutional knowledge and continuity to our Board. His experience as an attorney allows Mr. Ray to provide guidance to the Company on legal and fiduciary matters. He has extensive experience with conventional corporate and tax-exempt transactions, as well as international finance. In addition, Mr. Ray's service as a director on the boards of other public companies provides the Company with valuable insights on corporate governance issues that face the Board and the Company.
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| Mr. Saladrigas, Director, became a member of our Board in May 2003. Mr. Saladrigas has been the Chairman and Chief Executive Officer of Regis HR Group, a Professional Employee Organization, since July 2009. Also, Mr. Saladrigas founded and has been the Chairman and Chief Executive Officer of Concordia Behavioral Health, a privately held managed behavioral health care organization, since January 2011. Mr. Saladrigas served as Chairman of the Premier American Bank in Miami, Florida from September 2001 until June 2007. Mr. Saladrigas served as the Vice Chairman of Premier American Bank until his resignation in July 2008. A receiver was appointed for Premier American Bank in January 2010. From November 1984 to May 2002, he was the Chief Executive Officer of ADP TotalSource (previously The Vincam Group, Inc.), a human resources outsourcing company that provides human resource functions to small and mid-sized businesses. Mr. Saladrigas has served as a director of Progress Energy, Inc., an energy utility company, from 2001 to July 2012, when he became a director of Duke Energy Corporation, an electric power holding company following its acquisition of Progress Energy; Carolina Power & Light Company, an energy utility company, since 2001; and Florida Progress Corporation, a diversified holding company whose primary businesses are fuel supply and power, since 2001. From June 2006 to April 2009, Mr. Saladrigas served as a director of MBF Healthcare Acquisition Corporation, an acquisition company focused in the healthcare industry. He has also served as a member of the Latino/Hispanic Advisory Board for PepsiCo.
Mr. Saladrigas provides stability and continuity to the Board as well as valuable leadership related to his experience in financial management and as a human resources professional. He has been designated by the Board as an Audit Committee financial expert consistent with SEC regulations. Mr. Saladrigas provides the Board with relevant insights into the Latino/Hispanic segment of the Company's customer base. |
| Mr. Sloan, Director and President of General Parts International, Inc. ("GPI"), became a member of our Board on January 2, 2014. Prior to our acquisition of GPI, he served as President and Chief Executive Officer of GPI from 2008 to January 2, 2014 and as President of GPI from 2001 to 2008. Mr. Sloan has over 30 years of experience in the automotive aftermarket. He currently serves as a director of Car Care Council and a member of a Wells Fargo Bank Regional Advisory Board. Mr. Sloan is also a member of the Board of Trustees of Northwood University.
Mr. Sloan’s extensive experience in the automotive aftermarket industry is an invaluable asset to the Company. He has particular expertise in the Commercial business, which is a key focus of the Company, and will assist the Company in the integration of GPI. Mr. Sloan's experience in acquisitions and the subsequent integration of businesses equips him to serve a key role in our future success and in the Board's analysis of steps to achieve the full integration of GPI. |
| Mr. Wade, Director and Past President, became a member of our Board in September 2011. Mr. Wade served as our President from January 2009 to January 1, 2012 and from October 1999 to May 2005. He continues to provide strategic leadership to the Company, such as playing an integral role in the Company's acquisitions of B.W.P. Distributors, Inc. ("BWP") and GPI. Mr. Wade joined us in February 1994 and has held several key senior executive roles with the Company including as Executive Vice President from May 2005 until January 2009 and as Chief Financial Officer from March 2000 through August 2003. Prior to 1993, Mr. Wade was Vice President, Finance and Operations of S.H. Heironimus, Inc., a regional department store company. Mr. Wade has served as a director of Lumber Liquidators, a specialty retailer of hardwood flooring, since September 2011, and he also serves on numerous non-profit boards.
Mr. Wade has 20 years of experience with the Company in various business, finance and strategic leadership roles and has broad expertise and knowledge of the automotive aftermarket industry, as well as experience in retail finance and operations prior to joining the Company in 1994. During his career, he has gained and developed extensive business, finance, distribution, marketing and leadership skills, as well as solid instincts and understanding regarding acquisition opportunities, challenges and processes. Further, he possesses an understanding of strategic business planning, risk assessment and store operations that makes him uniquely suited to serve as a member of the Board. Mr. Wade's experience and expertise in business integration and in the automotive aftermarket industry are critical to our successful integration of GPI and the Board's evaluation of key milestones in the GPI integration process. |
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR EACH OF OUR BOARD’S NOMINEES.
CORPORATE GOVERNANCE
Overview
Our Company believes that good corporate governance practices reflect our values and support our strong strategic and financial performance. The compass of our corporate governance practices can be found in our by-laws, our Guidelines on Significant Governance Issues and our Code of Ethics and Business Conduct, which were adopted by our Board to guide our Company, our Board and our employees ("Team Members"). Our by-laws provide that in an uncontested election, directors must receive a majority of the votes cast at the Annual Meeting for the election of directors. Each standing committee of the Board has a charter, which can be found at www.AdvanceAutoParts.com, that spells out the committee’s roles and responsibilities assigned to it by the Board. In addition, the Board has established policies and procedures that address matters such as chief executive officer succession planning, transactions with related persons, risk oversight, communications with the Board by stockholders and other interested parties, and the independence and qualifications of our directors. This "Corporate Governance" section provides insights into how the Board has implemented these policies and procedures to benefit our Company and our stockholders.
Guidelines on Significant Governance Issues
The responsibility of our Board is to review, approve and regularly monitor the effectiveness of our fundamental operating, financial and other business plans, as well as our policies and decisions, including the execution of our strategies and objectives. Accordingly, our Board has adopted guidelines on the following significant governance issues:
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• | the structure of our Board, including, among other things, the size, mix of independent and non-independent members, membership criteria, term of service, compensation and assessment of performance of our Board; |
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• | Board procedural matters, including, among other things, selection of the chair of the Board, Board meetings, Board communications, retention of counsel and advisers and our expectations regarding the performance of our directors; |
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• | committee matters, including, among other things, the types of committees, charters of committees, independence of committee members, chairs of committees, service of committee members, committee agendas and committee minutes and reports; |
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• | chief executive officer evaluation, management development and succession planning; |
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• | other matters, including auditor services, Board access to management and interaction with third parties, directors and officers insurance and the indemnification/limitation of liability of directors, our policy prohibiting Company loans to our executive officers and directors, use of the corporate airplane, and confidential stockholder voting. |
A complete copy of our Guidelines on Significant Governance Issues is available on our website at www.AdvanceAutoParts.com under the Investor Relations section.
Director Independence
Our Board, after consultation with and upon the recommendation of the Nominating and Corporate Governance Committee, determined that Messrs. Bergstrom, Brouillard, Raines, Ray and Saladrigas and Ms. Dias are each “independent” directors under the listing standards of the New York Stock Exchange ("NYSE"), because each of these directors: (1) has no material relationship with us or our subsidiaries, either directly or indirectly as a partner, stockholder or officer of an organization that has a relationship with us or our subsidiaries and (2) satisfies the “bright line independence” criteria set forth in Section 303A.02(b) of the NYSE’s listing standards. In addition, based on such standards, the Board determined that Mr. Jackson is not independent because he is our Chief Executive Officer, that Mr. Sloan is not independent because he is an executive officer of the Company and serves as the President of the Company’s subsidiary GPI and that Mr. Wade is not independent because he is currently employed by the Company. Separately, in assessing the materiality of other relationships, the Board also has determined that Mr. Oglesby is not independent for this year because his employer, The Blackstone Group L.P., provided advisory services to the Company during 2013 related to the Company’s acquisition of GPI. The Board noted that this was the first time Mr. Oglesby's employer received compensation from the Company for investment banking services during his tenure on the Board and that it was not currently expected that any other such compensation would be paid to his employer during 2014. The Board noted the addition of Mr. Sloan to the Board and the payment of compensation to Mr. Oglesby's employer, both in connection with the acquisition of GPI, resulted in two directors being determined to not be independent. Given the increased size and complexity of the Company resulting from the acquisition, the Board is currently seeking to increase its size by identifying additional candidates to serve as independent directors with the goal of no less than 75 percent of the Board being determined to be independent under applicable standards. The Board assessed the issue of materiality of any relationship not merely from the standpoint of each director or nominee, but also from that of persons or organizations with which the director or nominee may have an affiliation. Based upon such assessment and all facts and circumstances known to the Board, including, among other things, a review of questionnaires submitted by these directors and a review of a recent resume or biography of each director, the Board made a determination of independence. Our Board reviews each director’s status under this definition annually with the assistance of the Nominating and Corporate Governance Committee. Each director is required to keep the Nominating and Corporate Governance Committee fully and promptly informed as to any developments that might affect his or her independence.
Meetings of Independent Directors
During 2013, the independent directors on our Board met a total of 5 times. During 2013, these meetings were presided over by Mr. Brouillard, the non-executive Chair of the Board. For 2014, our independent directors are scheduled to meet separately in conjunction with each of the four scheduled non-telephonic meetings of the Board. Mr. Brouillard is expected to preside over these meetings during 2014.
Board Leadership Structure
Our Guidelines on Significant Governance Issues and by-laws allow the Board to combine or separate the roles of the Chair of the Board and the Chief Executive Officer. Immediately prior to Mr. Jackson’s appointment as President and Chief Executive Officer, Mr. Brouillard served as the Company’s interim Chair, President and Chief Executive Officer. At the time of Mr. Jackson’s appointment, his prior experience had primarily been in financial management and leadership roles at various retail companies. The Board decided to retain Mr. Brouillard as the independent Chair of the Board in order to provide Mr. Jackson with an opportunity to lead the Company’s management with the support and guidance of an experienced chief executive officer serving in the role of the independent Board Chair. The Board regularly considers whether to maintain the separation of the roles of Chair and Chief Executive Officer. The Board believes that Mr. Brouillard has continued to serve a valuable role in supporting Mr. Jackson and providing leadership to the Board as a whole and has decided to maintain the separation of those roles at this time. In the event that the Board chooses to combine these roles, the Company’s governance guidelines provide for the selection of an independent lead director. The responsibilities of the independent Chair or independent lead director include presiding over meetings of the Board or of the independent directors and participating in development of the Board’s agenda, as well as facilitating the discussions and interaction of the Board to ensure that all directors’ viewpoints are heard and considered.
Stockholder and Interested Party Communications with our Board
Any interested party, including any stockholder, who desires to communicate with our Board generally or directly with a specific director, one or more of the independent directors, our non-management directors as a group or our Board Chair, including on an anonymous or confidential basis, may do so by delivering a written communication to the Board, the independent directors, the non-management directors as a group or to our Board Chair, c/o Advance Auto Parts, Inc., 5008 Airport Road, Roanoke, Virginia 24012, Attention: General Counsel. The general counsel will not open a communication that is conspicuously marked "Confidential" or is addressed to one or more of our independent directors, our non-management directors as a group or our Board Chair and will forward each such communication to the appropriate individual director or group of directors, as specified in the communication. Such communications will not be disclosed to the non-independent or management members of our Board or to management unless so instructed by the independent or non-management directors. Communications will be forwarded by the general counsel on a bi-monthly basis. The general counsel will ensure the timely delivery of time sensitive communications to the extent such communication indicates time sensitivity.
In addition, we have a policy that each of our directors should make every reasonable effort to attend each annual meeting of stockholders. Eight directors were in attendance at our 2013 annual meeting of stockholders.
Nominations for Directors
Identifying Director Candidates. The Nominating and Corporate Governance Committee is responsible for leading the search for and evaluating qualified individuals to become nominees for election as directors. The Committee is authorized to retain a search firm to assist in identifying, screening and attracting director candidates. During 2013 the Committee retained an executive search firm to assist in identifying potential director candidates. Immediately following our acquisition of GPI in January 2014, Mr. O. Temple Sloan, III, the former Chief Executive Officer and President of GPI, was elected to serve as a director. As discussed in the "Director Independence" section of this Proxy Statement, in conjunction with the GPI acquisition we may further increase the size of the Board. The Committee expects to continue its search in 2014 for potential candidates to serve as independent directors. After a director candidate has been identified, the Committee evaluates each candidate for director within the context of the needs of the Board in its composition as a whole. The Committee considers such factors as the candidate’s business experience, skills, independence, judgment and ability and willingness to commit sufficient time and attention to the activities of the Board. At a minimum, committee-recommended candidates for nomination must possess the highest personal and professional ethics, integrity and values, and commit to representing the long-term interests of our stockholders.
In addition to determining whether a candidate for director possesses the qualifications and experience that are a prerequisite for nomination, the Nominating and Corporate Governance Committee considers whether a candidate’s background and experience would complement the skills and experience of the existing Board members. The Nominating and Corporate Governance Committee also considers whether the nominee would likely provide a diverse viewpoint and actively and constructively participate in the Board’s discourse and deliberations. The Board has not adopted a formal policy with regard to diversity (as to gender, ethnic background and experience) in the composition of the Board although the Nominating and Corporate Governance Committee strives to compose a Board that reflects sensitivity to the need for an appreciation of such diversity.
Stockholder Recommendations for Director Candidates. The Nominating and Corporate Governance Committee will consider stockholder suggestions for nominees for directors. Any stockholder who desires to recommend a candidate for director must submit the recommendation in writing and follow the procedures set forth in our by-laws. The by-laws require that a stockholder’s nomination be received by the corporate secretary not less than 120 days nor more than 150 days prior to the first anniversary of the date of the preceding year’s annual meeting. The notice should include the following information about the proposed nominee: name, age, business and residence addresses, principal occupation or employment, the number of shares of Company stock owned by the nominee and additional information required by our by-laws as well as any information that may be required by the SEC’s regulations. In addition, the stockholder providing the notice should provide his or her name and address as they appear on the Company’s books, the number and type of shares or other equitable interests that are beneficially owned by the stockholder and additional information required by the Company’s by-laws. The Committee does not evaluate any candidate for nomination as a director any differently solely because the candidate was recommended by a stockholder. You may obtain a copy of our by-laws by submitting a request to: Advance Auto Parts, Inc., 5008 Airport Road, Roanoke, Virginia 24012, Attention: Corporate Secretary. Our by-laws also are available on our website at www.AdvanceAutoParts.com under the Investor Relations section.
Code of Ethics and Business Conduct
We expect and require all of our Team Members, our officers and our directors, and any parties with whom we do business to conduct themselves in accordance with the highest ethical standards. Accordingly, we have adopted a Code of Ethics and Business Conduct, which outlines our commitment to, and expectations for, honest and ethical conduct by all of these persons and parties in their business dealings. A complete copy of our Code of Ethics and Business Conduct is available on our website at www.AdvanceAutoParts.com under the Investor Relations section.
Code of Ethics for Finance Professionals
We have also adopted a Code of Ethics for Finance Professionals to promote and provide for ethical conduct by our finance professionals, as well as for full, fair and accurate financial management and reporting. Our finance professionals include our chief executive officer, chief financial officer, chief accounting officer, controller and any other person performing similar functions. We expect all of these finance professionals to act in accordance with the highest standards of professional integrity, to provide full and accurate disclosure in any public communications as well as reports and other documents filed with the SEC and other regulators, to comply with all applicable laws, rules and regulations and to deter wrongdoing. Our Code of Ethics for Finance Professionals is intended to supplement our Code of Ethics and Business Conduct. A complete copy of the Code of Ethics for Finance Professionals is available on our website at www.AdvanceAutoParts.com under the Investor Relations section.
Related Party Transactions
Pursuant to our Code of Ethics and Business Conduct and the Board’s policy with respect to related party transactions, officers and directors are required to disclose to the Chair of the Nominating and Corporate Governance Committee of the Board or to our general counsel any transaction or relationship that may create an actual or perceived conflict of interest. Pursuant to the Board’s policy, our general counsel’s office reviews such transactions or relationships and advises the Nominating and Corporate Governance Committee in the event that a transaction or relationship is determined to be a related party transaction. The Nominating and Corporate Governance Committee then reviews the transaction in light of the relevant facts and circumstances and make a determination of whether to ratify or approve the transaction. In the case of a transaction involving a director, the Nominating and Corporate Governance Committee would also review the transaction to determine whether it might have an effect on the independence of the director. The Nominating and Corporate Governance Committee reports its conclusions and recommendations to the Board for its consideration.
In addition, our Guidelines on Significant Governance Issues require directors to disclose to the Board (or Audit Committee) any interest that he or she has in any contract or transaction that is being considered by the Board (or Audit Committee) for approval. After making such a disclosure and responding to any questions the Board may have, the interested director is expected to abstain from voting on the matter and leave the meeting while the remaining directors discuss and vote on such matter.
On an annual basis, each director and executive officer is obligated to complete a Director and Officer Questionnaire which requires disclosure of any transactions with the Company in which the director or executive officer, or any member of his or her immediate family, has a direct or indirect material interest. The annual Director and Officer Questionnaire is prepared and distributed by our general counsel’s office, and each director or executive officer returns the completed questionnaire to the general counsel’s office for review. Any related party transactions with directors or executive officers that have been identified through the processes described above are disclosed consistent with applicable rules and regulations.
During 2013 the Company retained Blackstone Advisory Partners, L.P., to provide financial advisory services and assist with negotiations related to the potential acquisition of GPI by the Company. The Company agreed to pay certain fees upon the execution of a definitive acquisition agreement and additional fees upon the closing of the acquisition by the Company. As a result of the successful completion of the GPI acquisition, the Company paid Blackstone Advisory Partners a total of $8 million for its services. Mr. Oglesby, who is a member of our Board, is a partner of Blackstone Advisory Partners and Blackstone Holdings and an equity owner of The Blackstone Group, L.P. Mr. Oglesby did not receive any compensation directly from us or from The Blackstone Group for the services provided. Mr. Oglesby will share in the profit of The Blackstone Group, L.P. generated by the fees we paid to Blackstone Advisory Partners to the extent of his ownership interest in The Blackstone Group, L.P. The terms of the engagement agreement and Mr. Oglesby's role in the project were reviewed and approved by the Board prior to the execution of the agreement by the Company. No other investment banking fees have been paid by us to Mr. Oglesby or to The Blackstone Group during Mr. Oglesby's tenure on the Board, and Mr. Oglesby has not served as a member of any independent committee of the Board since December 2009.
Prior to our acquisition of GPI in early 2014, GPI was a privately held company controlled by Mr. Sloan and his family. Since the commencement of Fiscal Year 2013, Mr. Sloan and/or various members of his immediate family and/or entities owned, directly or indirectly, wholly or substantially, by any of them (each a "Sloan-related Party"), have been involved in various transactions with GPI or its subsidiaries (a "GPI Entity"), including the following:
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• | GPI Entities received aggregate rent of approximately $415,000 for Fiscal 2013 through March 1, 2014, from a Sloan-related Party for two real property subleases. |
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• | GPI Entities paid aggregate rent of approximately $122,000 for Fiscal 2013 through March 1, 2014, to Sloan-related Parties for multiple real property leases and subleases. |
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• | A GPI Entity guarantees equipment lease obligations of certain GPI customers to a Sloan-related Party lessor. The largest aggregate amount of principal of these guarantee obligations outstanding since the beginning of Fiscal 2013 is approximately $1,823,000. This liability generally decreases on a monthly basis as customers pay off their lease obligations. |
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• | Certain Sloan-related Parties have been, and continue to be, both customers and suppliers of certain GPI Entities. For fiscal year 2013 through March 28, 2014, these Sloan-related Parties, as customers, paid GPI Entities approximately $1,033,000 and, as suppliers, received approximately $1,621,000 from GPI Entities. |
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• | In connection with our acquisition of GPI in early 2014, the Sloan-related Parties, including Mr. Sloan, are entitled in the aggregate to approximately 12% of the purchase price the Company paid to acquire GPI. For more information regarding the GPI acquisition, see the "Subsequent Event" footnote to the Company's Consolidated Financial Statements contained in the Company's 2013 Annual Report on Form 10-K filed with the SEC on February 25, 2014. |
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• | To acquire certain assets (including inventory, fixtures, fixed assets, agreements and national accounts) in connection with the Company's acquisition of BWP, a GPI Entity paid BWP approximately $19,733,000 during Fiscal 2013. In turn, BWP paid a GPI Entity approximately $1,854,000 during Fiscal 2013 for transition services related to the BWP acquisition. In addition, following the transfer to GPI of a distribution center related to the BWP acquisition, BWP paid approximately $5,487,000 to a GPI Entity as a customer of GPI and a GPI Entity paid approximately $11,056,000 to BWP as a customer of BWP during Fiscal 2013. At the time of these transactions, GPI was controlled directly or indirectly by Mr. Sloan and his family. |
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• | In connection with the Company's acquisition of BWP, a Sloan-related Party purchased certain accounts receivable from BWP for $7,315,000 upon the closing of the acquisition of BWP. A GPI Entity subsequently purchased those accounts receivable from such Sloan-related Party for $7,346,000. |
Since the outset of Fiscal 2013, car dealerships owned by Bergstrom Corporation, where Mr. Bergstrom is the Chairman and Chief Executive Officer, paid us a total of approximately $425,000 to purchase automotive parts. Such purchases were made in the ordinary course of business upon terms available to similarly situated Commercial customers of the Company.
Succession Planning
In light of the critical importance of executive leadership to the Company’s success and consistent with the Company’s Guidelines for Significant Governance Issues, the Board has adopted a chief executive officer succession planning process that is led by the Compensation Committee. The Compensation Committee, working in consultation with the Nominating and Corporate Governance Committee, is charged with the responsibility of developing a process for identifying and evaluating candidates to succeed the chief executive officer and to report annually to the Board on the status of the succession plan, including issues related to the preparedness for the possibility of an emergency situation involving senior management and assessment of the long-term growth and development of the senior management team.
MEETINGS AND COMMITTEES OF THE BOARD
The Board
Each director is expected to make every reasonable effort to attend each meeting of the Board and any committee of which the director is a member and to be reasonably available to management and the other directors between meetings. Our Board met 12 times during 2013. Each incumbent director attended 75 percent or more of the total number of meetings of the Board and meetings of the committees of the Board on which he or she served.
Committees of the Board
We currently have an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, each of which is comprised of independent directors in accordance with the listing standards of the NYSE. In addition, we have a Finance Committee. In 2013, the Audit Committee met eleven times, the Compensation Committee met five times, the Finance Committee met four times and the Nominating and Corporate Governance Committee met five times. The following table sets forth the names of each current committee member and the primary responsibilities of each committee.
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Name of Committee and Members | Primary Responsibilities |
Audit Carlos A. Saladrigas (Chair) John C. Brouillard Gilbert T. Ray | •
•
•
•
•
• | monitors the integrity of our financial statements, reporting processes, internal controls, risk management and legal and regulatory compliance; selects, determines the compensation of, evaluates and, when appropriate, replaces our independent registered public accounting firm;
pre-approves all audit and permitted non-audit services to be performed by our independent registered public accounting firm;
monitors the qualifications, independence and performance of our independent registered public accounting firm;
monitors and reviews applicable enterprise risks identified as part of our enterprise risk management program; and
oversees our internal audit function. |
Compensation John F. Bergstrom (Chair) Fiona P. Dias J. Paul Raines | •
•
•
•
•
•
•
• | reviews and approves our executive compensation philosophy;
annually reviews and approves corporate goals and objectives relevant to the compensation of the CEO and evaluates the CEO's performance in light of these goals;
determines the compensation of our executive officers and approves compensation for key members of management;
oversees our incentive and equity-based compensation plans;
oversees development and implementation of executive succession plans, including identifying the CEO's successor and reporting annually to the Board;
reviews and approves our peer companies and data sources for purposes of evaluating our compensation competitiveness and establishing the appropriate competitive positioning of the levels and mix of compensation elements;
reviews compensation-related risks; and
reviews applicable enterprise risks identified as part of our enterprise risk management program as they relate to our human resources, compensation and employment programs and practices. |
Name of Committee and Members | Primary Responsibilities |
Finance
William S. Oglesby (Chair) O. Temple Sloan, III Jimmie L. Wade | •
•
•
•
• | reviews and makes recommendations to the Board regarding our financial policies, including investment guidelines, deployment of capital and short-term and long-term financing;
reviews credit metrics, including debt ratios, debt levels and leverage ratios;
reviews all aspects of financial planning, cash uses and our expansion program;
reviews and recommends the annual financial plan to the Board; and
keeps apprised of applicable enterprise risks as part of the Company's enterprise risk management program as they relate to financial matters. |
Nominating and Corporate Governance
Gilbert T. Ray (Chair) John C. Brouillard J. Paul Raines | •
•
•
•
• | assists the Board in identifying, evaluating and recommending candidates for election to the Board;
establishes procedures and provides oversight for evaluating the Board and management;
develops, recommends and reassesses our corporate governance guidelines;
evaluates the size, structure and composition of the Board and its committees; and
keeps apprised of applicable enterprise risks as part of the Company's enterprise risk management program as they relate to corporate governance matters. |
Our Board has adopted written charters for each committee setting forth the roles and responsibilities of each committee. Each of the charters is available on our website at www.AdvanceAutoParts.com under the Investor Relations section.
Board’s Role in Risk Oversight
As part of its responsibility for the oversight of the Company’s financial matters and regulatory compliance, the Audit Committee is charged with discussing the guidelines and policies with respect to risk assessment and risk management. The Company’s senior internal audit professional, who reports to the Audit Committee, has developed an enterprise risk management ("ERM") framework through which management has identified the key areas of risk that face our Company. After reviewing the enterprise risks identified by management in consultation with senior management, the Audit Committee may approve management’s recommendation to assign certain risk areas for oversight to appropriate committees of the Board or to the full Board. The Company has used elements of the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, ERM framework to build a tailored approach to risk management that fits the culture and risk environment of the Company. The Company’s senior internal audit professional also reviews risk areas with senior management on a regular basis.
Aligning Stockholder Interests and Compensation Risk Mitigation
We have reviewed all of our compensation programs and found none that would be reasonably likely to have a material adverse effect on the Company. Our performance-based executive compensation program, as described more fully in the Compensation Discussion and Analysis ("CD&A") section of this Proxy Statement, coupled with our stock ownership guidelines, aligns the interests of our executives with stockholders by encouraging long-term superior performance without encouraging excessive or unnecessary risk-taking. Our long-standing compensation philosophy discussed in the CD&A is a key component of our history of consistent growth, which demonstrates an alignment of the interests of participants and stockholders and rewards each with increased value over the long term. As shown in the "Total Compensation Mix" table, the compensation of our executives is primarily based on performance over a long-term period. We believe the performance-based vesting of our stock appreciation rights ("SARs"), restricted stock and restricted stock units ("RSUs") drives long-term decision making and mitigates adverse risk-taking that may occur due to year-over-year performance measurements, and rewards growth over the long term. The Compensation Committee, with the guidance and assistance of its independent compensation consultant, reviews and approves compensation components for all named executive officers and other senior executives. Annual incentives are reviewed each year, and payments are limited and subject to Compensation Committee discretion. The bonus plans for other Team Members are linked to financial, customer or operating measures. Management regularly reviews and audits the Company’s bonus plans to ensure short-term incentives are appropriately linked to business outcomes, and the results of the audits are regularly reported to the Compensation Committee. Directors and management are subject to the Company's insider trading policy, which prohibits hedging with Company stock and prohibits the pledging of Company stock unless certain stringent requirements are met.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves, or in the past fiscal year has served, as a member of the Compensation Committee (or other board committee performing equivalent functions, or in the absence of any such committee, the board of directors) or the board of directors of any entity that has one or more of its executive officers serving on our Compensation Committee or Board.
DIRECTOR COMPENSATION
Under our director compensation program, each non-management director receives annual compensation that is comprised of a combination of cash and equity-based compensation. Management directors do not receive any additional compensation for services as a director. Non-management directors receive an annual retainer of $67,500 and all additional applicable retainers or fees as set forth in the following paragraph.
Directors who chair Board committees receive additional retainer amounts annually for their committee chair responsibilities. The Audit Committee chair receives $20,000, and the Compensation Committee chair receives $15,000. Each chair of the other Board committees receives $10,000. The Board chair receives an additional $100,000 retainer.
Each non-management director may elect to receive all or a portion of his or her annual retainer on a deferred basis in the form of deferred stock units, or DSUs. Each DSU is equivalent to one share of our common stock. Dividends paid by the Company are credited toward the purchase of additional DSUs. DSUs are payable in the form of common stock to participating directors over a specified period of time as elected by the participating director, or whenever their Board service ends, whichever is sooner.
In addition, each non-management director receives long-term equity incentives valued at $120,000 per year. The long-term incentives are awarded annually in the form of DSUs. Directors’ annual stock-based compensation is granted to them shortly after the date of the annual stockholder meeting. Board members who are appointed at any time other than at the annual meeting receive a prorated DSU award with a grant value based upon the number of months from their election date until the next annual stockholder meeting. The long-term equity incentives are delivered in the form of DSUs which are fully vested after one year of board service and are distributed in common shares after the director’s service on the board ends. In May 2013, each non-management director received long-term incentives valued at $120,000, which were granted in the form of 1,435 DSUs.
2013 Director Summary Compensation Table
Information provided in the following table reflects the compensation delivered to our directors who are not named executive officers for our last fiscal year:
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| | | | | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash (a) ($) | | Stock Awards (b) ($) | | All Other Compensation(c) ($) | | Total ($) |
John F. Bergstrom | | $ | 82,500 |
| | $ | 120,000 |
| | $ — | | $ | 202,500 |
|
John C. Brouillard | | 167,500 |
| | 120,000 |
| | — | | 287,500 |
|
Fiona P. Dias | | 67,500 |
| | 120,000 |
| | — | | 187,500 |
|
William S. Oglesby | | 77,500 |
| | 120,000 |
| | — | | 197,500 |
|
J. Paul Raines | | 67,500 |
| | 120,000 |
| | — | | 187,500 |
|
Gilbert T. Ray | | 77,500 |
| | 120,000 |
| | — | | 197,500 |
|
Carlos A. Saladrigas | | 87,500 |
| | 120,000 |
| | — | | 207,500 |
|
Jimmie L. Wade | | — |
| | 300,085 |
| | 445,585 |
| | 745,670 |
|
| |
(a) | Information includes paid or deferred board annual retainers and chair retainers during Fiscal 2013. |
| |
(b) | Except in the case of Mr. Wade, represents the grant date fair value of deferred stock units granted during Fiscal 2013. For Mr. Wade, represents the grant date fair value of an annual grant of 2,317 time-based RSUs granted to him on December 12, 2013 and an off cycle grant of 598 time-based RSUs granted to him on May 28, 2013, pursuant to the terms of his Employment Agreement with the Company, which is described in the "CD&A" section of this Proxy Statement. Mr. Wade did not receive any compensation pursuant to the non-management director compensation program. The terms of Mr. Wade's grant are consistent with those described in the "Grants of Plan-Based Awards Table" of this Proxy Statement. The grant date fair value is calculated using the closing price of the Company’s stock on the date of grant. For additional information regarding the valuation assumptions of this award, refer to Note 18 of the Company’s consolidated financial statements in the 2013 Form 10-K filed with the SEC on February 25, 2014. These amounts reflect the aggregate grant date fair value computed in accordance with ASC Topic 718, and do not correspond to the actual value that will be realized by the directors. |
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(c) | Includes Mr. Wade's annual salary of $150,010, pursuant to the terms of his Employment Agreement with the Company, which is described in the "CD&A" section of this Proxy Statement, as well as Company matching contributions according to the terms of the Company’s 401(k) plan, life insurance premiums paid by the Company for Mr. Wade, unrealized gains for deferred compensation balance, and a $250,000 cash award for the vital role he played in negotiating the acquisition of GPI. Mr. Wade did not receive any compensation pursuant to the non-management director compensation program. |
Directors’ Outstanding Equity Awards at 2013 Fiscal-Year End Table
The following table provides information about the equity awards outstanding as of the end of our last fiscal year for our directors who are not also named executive officers:
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| | | | | | | | |
Name | | Outstanding Stock Options and SARs | | Outstanding Deferred Stock Units | Outstanding Restricted Stock and RSUs |
John F. Bergstrom | | 5,709 |
| | 9,244 |
| — |
|
John C. Brouillard(a) | | 20,709 |
| | 13,848 |
| — |
|
Fiona P. Dias | | — |
| | 9,621 |
| — |
|
William S. Oglesby | | 13,209 |
| | 14,123 |
| — |
|
J. Paul Raines | | — |
| | 9,118 |
| — |
|
Gilbert T. Ray | | 13,209 |
| | 12,885 |
| — |
|
Carlos A. Saladrigas | | 13,209 |
| | 15,250 |
| — |
|
Jimmie L. Wade(b) | | 21,087 |
| | — |
| 6,379 |
|
| |
(a) | Outstanding stock options and SARs for Mr. Brouillard reflect stock incentives awarded to him during his tenure as our interim Chair, President, and Chief Executive Officer which continued to vest during his service as a director and will expire in the future according to the terms of the original long-term incentive agreements. |
| |
(b) | Outstanding SARs, restricted stock and RSUs for Mr. Wade reflect equity awards granted to him as an executive of the Company. Outstanding RSUs that are subject to performance conditions are shown at the threshold level, described further in the "CD&A" section of this Proxy Statement. |
COMPENSATION COMMITTEE REPORT
Our Compensation Committee is comprised entirely of three independent directors who meet independence, experience and other qualification requirements of the NYSE listing standards, and the rules and regulations of the SEC. Mr. Bergstrom is the chair of our Compensation Committee. The Compensation Committee operates under a written charter adopted by the Board. Our charter can be viewed on our website at www.AdvanceAutoParts.com under the Investor Relations section.
We have relied on management’s representation that the compensation discussion and analysis presented in this Proxy Statement has been prepared with integrity and objectivity and in conformity with SEC regulations. Based upon our review and discussion with management, we recommended to the Board that the compensation discussion and analysis be included in this Proxy Statement.
THE COMPENSATION COMMITTEE
John F. Bergstrom (Chair)
Fiona P. Dias
J. Paul Raines
COMPENSATION DISCUSSION AND ANALYSIS
This section describes the compensation packages of the Company’s principal executive officer, principal financial officer, and three other most highly compensated officers who were employed by us on December 28, 2013, as well as one former executive officer (we refer to such individuals as the named executive officers, or “NEOs,” in this proxy statement). The Company’s NEOs and their positions are identified below:
•Darren R. Jackson, Chief Executive Officer
•Michael A. Norona, Executive Vice Present, Chief Financial Officer
•George E. Sherman, President
•Charles E. Tyson, Executive Vice President, Merchandising, Marketing and Supply Chain
•William H. Carter, Senior Vice President, Business Development and Integration
•Kevin P. Freeland, former Chief Operating Officer
Executive Summary
Performance Highlights
Advance Auto Parts is a customer-focused company that has a track record of delivering value to our stockholders. Our management team’s execution of customer-focused programs and services has made it possible to grow stockholder value over time. During Fiscal 2013, we achieved solid improvements in our earnings per diluted share ("EPS") and operating income on a comparable operating basis despite a decline in comparable store sales over the prior year. Our EPS and operating income results reported below are on a comparable basis to exclude the $27.0 million impact of transaction expenses ($2.0 million of which is interest related) associated with our acquisition of GPI, on January 2, 2014 and $8.0 million of integration costs associated with our integration of BWP, which we acquired at the beginning of Fiscal 2013. Our overall financial results are more fully described in our current Report on Form 8-K filed with the SEC on February 6, 2014 and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on February 25, 2014. Below is a summary of our financial performance in Fiscal 2013:
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• | Total sales grew 4.7 percent compared to 0.6 percent total sales growth in Fiscal 2012. |
| |
• | Fiscal 2013 comparable store sales decreased 1.5 percent from Fiscal 2012. |
| |
• | Comparable operating income increased 5.5 percent (or $36 million) to $693.3 million, as compared to Fiscal 2012. |
| |
• | Comparable EPS was $5.67, an increase of 8.6 percent over Fiscal 2012, and exceeded our outlook for Fiscal 2013. |
During Fiscal 2013, we maintained our strategic focus and achieved several important strategic and operational milestones that we believe position us well for the future, including:
| |
• | Completion of the acquisition and significant progress toward the integration of BWP, a leading Commercial provider in the Northeast. |
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• | Opening of 172 stores in Fiscal 2013, in addition to the acquisition of 124 BWP stores. |
| |
• | Appointment in the first quarter of George Sherman as our President who led a number of productivity and execution improvements that contributed to our accelerated operating performance during the second half of the fiscal year. |
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• | Negotiations that culminated in the acquisition of GPI, which was completed in the first quarter of Fiscal 2014. |
The pay-for-performance philosophy of our executive compensation programs described in this Proxy Statement has played a significant role in our ability to drive strong financial results by enabling us to attract and retain a highly experienced and successful team to manage our business. Our pay programs strongly support our key business objectives and are aligned with the value provided to our stockholders. Accordingly, if our stockholder value declines, so does the compensation delivered in the form of equity to our executives. Further, as an executive’s level of responsibility within our organization increases, so does the percentage of his or her total compensation that we link to performance (see sections entitled "Compensation Philosophy and Objectives" and "Executive Compensation Components"). At our 2013 Annual Meeting, we received overwhelming stockholder support of our executive compensation programs as evidenced by a favorable vote by more than 97% of the shares voted. The Compensation Committee of the Board ("Committee") considered last year's voting results as they reviewed our compensation practices.
In Fiscal 2013, our executive team led us through a solid year where we saw our operating income accelerate during the second half of the year as we continued to execute on our long-term strategies designed to continue our long-standing traditions of delivering strong performance results for our stockholders and serving our customers and the communities in which we operate. We believe our executive compensation programs, as more fully described in this CD&A and accompanying tables contained in this Proxy Statement, are structured in the best manner possible to support us and grow our business profitably for many years, as well as to support our culture and the traditions that have guided us for more than 80 years.
Fiscal 2013 Executive Officer Compensation Program Highlights
The following table summarizes the compensation elements provided for our named executive officers in Fiscal 2013, as well as the rationale for the key actions and decisions made by the Committee with respect to each element. Executives’ compensation consisted primarily of the following components in addition to limited perquisites and the retirement, health and welfare plans and programs in which all of our full-time U.S. Team Members participate. More information is provided about each compensation element later in this CD&A.
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| | | | | | |
Compensation Element | Key Features | Purpose | Fiscal 2013 Actions |
Base Salary | •
• | Fixed annual cash amount.
Base pay increases considered on a calendar year basis to align within the median range of our peer group (as described on pages 25 and 26 of this Proxy Statement). Actual positioning varies to reflect each officer’s skills, experience, time in job and contribution to our success. | •
• | Provide a fixed amount of cash compensation to attract and retain talented executives.
Differentiate scope and complexity of executives’ positions as well as individual performance over time. | • | The Committee did not increase the base salary of the CEO but did increase the salaries of our other named executive officers in 2013 compared to 2012 to acknowledge additional responsibilities, to reward their performance and contribution to our success and to improve alignment with competitive market levels. |
Annual Incentive Plan ("AIP") Cash Incentive Award | •
•
•
| Performance-based variable pay is tied to achievement of key financial and operating objectives. Primary measures for 2013 included: • Consolidated operating income • Key Commercial customer retention
Individual AIP opportunities are expressed as a percent of base salary and can vary for executives based on their positions. Target AIP award opportunities are generally established so that total annual cash compensation (base salary plus target AIP) approximates the median of our peer group. The range of potential payouts is zero to 200 percent of target.
AIP amount earned is determined based on the results achieved as determined by the Committee after evaluating our performance against pre-established, short-term financial and operating goals. We must achieve a minimum level of Operating Income in order for any executive to receive a payment under the AIP. | •
• | Motivate and reward achieving or exceeding Company performance objectives, reinforcing pay-for-performance.
Ensure alignment of our short-term and long-term strategies. | •
• | For Fiscal 2013, achievement of targeted operating income results and retention of Commercial customers were selected as performance measures to align with our key strategies and were weighted 80 percent and 20 percent, respectively, to reflect the significance of the key performance indicators in driving stockholder value. Achievement of a minimum of 97.6 percent of the target level operating income in Fiscal 2013 was required for named executive officers to receive any 2013 AIP payments.
Actual performance in 2013 resulted in AIP payments of 88.6 percent of target for the named executive officers, largely as a result of an operating income increase which contributed to comparable EPS that exceeded our outlook for Fiscal 2013.
|
Long-Term Incentive ("LTI") Compensation
| •
•
•
• | Awards granted annually based on competitive market grant levels.
Beginning with the December 2013 grant, the annual awards to our CEO, President, CFO and Executive Vice President, Merchandising, Marketing and Supply Chain, were in the form of time-based restricted stock units, or RSUs (50 percent of the award value), and performance-based stock appreciation rights, or SARs (50 percent of the award value). For our Senior Vice President, Business Development and Integration, two-thirds of the award value was granted in the form of time-based RSUs and one-third was granted in the form of performance-based SARs.
Time-based vesting: The time-based RSUs vest in three approximately equal annual installments commencing on the first anniversary date of the grant based on continuing service.
Performance-based vesting: The total number of performance-based SARs awarded to named executive officers can increase up to a maximum of an additional 100 percent if we achieve a level of operating income and comparable store sales growth that is significantly above the target level established by the Compensation Committee.
| •
•
•
• | Stock-based compensation links executive compensation directly to stockholder interests.
Multi-year vesting creates a strong retention mechanism and provides incentives for long-term creation of stockholder value.
Prior to December 2013, we used a comparison of our Economic Value Added ("EVA") (as described on page 28 of this Proxy Statement) compared with the EVA performance of the compensation peer group selected by our Compensation Committee as the performance metric for our annual LTI awards. The relative EVA metric provided a market-based indication of our relative EVA success; however, it was not easily understood by or readily accessible to LTI participants.
Beginning with the December 2013 annual grants, the Committee moved to cumulative operating income and comparable store sales growth--metrics intended to provide participants with a clearer line of sight to the Company's growth objectives and ultimately drive stockholder growth more consistently--as the key performance metrics for LTI. | •
•
•
• | During 2013, a market competitive target award level was established for the newly created position of President, and the 2013 target award to the Executive Vice President, Merchandising, Marketing & Supply Chain was increased consistent with his promotion and increase in responsibilities. The target level awards to the other named executive officers were unchanged from the 2012 levels.
During 2013, our named executive officers also received a special one-time grant of performance-based RSUs, approximately equal in value to one times their respective base salaries. The number of shares that will vest in March 2016 will ultimately depend on our cumulative operating income performance during the 2013-2015 performance period.
For the 2014-2016 performance period, the maximum vesting amount that can be earned for achievement of maximum performance goals for the performance-based SARs is 200 percent of the target number of performance-based SARs. (The maximum vesting amount for the prior years' awards was 200 percent of the target level of the entire award--both time-based and performance-based.)
Based on our relative EVA performance for the 2011 through 2013 performance period, our named executive officers received no payout for the performance-based portions of the annual grants awarded in December 2010. |
Compensation Governance Highlights
We believe good corporate governance practices that reflect our values and support our strong strategic and financial performance must include policies and procedures related to our compensation practices. Consistent with this belief, during Fiscal 2012 our Board adopted an Incentive Compensation Clawback Policy, which provides that the Incentive Compensation of a Covered Employee, as those terms are defined in the policy, may be required to be repaid if the Covered Employee's fraud or willful misconduct caused us to prepare an accounting restatement due to our material non-compliance with financial reporting requirements. The policy applies to our current and former executive officers and any other employee that the Committee or the Board may designate. As discussed in the "Employment Agreements" section of this CD&A, the employment agreements with Messrs. Jackson and Norona were amended effective during Fiscal 2013 to provide that their incentive compensation is subject to the clawback policy as well as to eliminate the provision for tax gross-up payments related to change in control payments. The employment agreements we entered into with Messrs. Sherman and Tyson during Fiscal 2013 are consistent with the amended agreements of Messrs. Jackson and Norona. As explained in the "Potential Payments Upon Termination of Employment or Change in Control Table" contained in this Proxy Statement, commencing in December 2012, the LTI awards granted to our named executive officers provide that in the event of a Change in Control, as defined in the Advance Auto Parts 2004 Long-Term Incentive Plan, as amended ("2004 LTIP"), immediate vesting of outstanding awards will not occur unless either the awards are not replaced or the executive's employment is terminated without Due Cause (as defined in the Executive's employment agreement) within 24 months following the change in control.
Our Board has established stock ownership guidelines, which require our directors and senior officers to achieve and maintain meaningful levels of stock ownership to ensure better alignment with the interests of our stockholders. In addition, LTI awards granted to our CEO during the three most recent fiscal years include a one-year holding period for shares acquired from the exercise of SARs or the vesting of restricted stock or RSUs. Our Insider Trading Policy prohibits directors and certain employees from transactions in our stock except during specified window periods and prohibits directors and all employees from engaging in hedging transactions with respect to our common stock. As discussed in the "Compensation Decision Roles" section of this CD&A, the Committee has exercised its authority to retain the services of an independent compensation consultant.
Compensation Decision Roles
The Committee has final approval on the determination of all compensation recommendations for our named executive officers and other executive officers, authorizes all awards under the 2004 LTIP, recommends or reports its decisions to the Board and oversees the administration of the compensation programs for executive officers, including the named executive officers. Decisions regarding non-equity compensation of other employees are made by management. The chief executive officer annually reviews the performance of each named executive officer and other senior executive officers and makes recommendations with respect to salary adjustments and incentive amounts to the Committee. The Committee’s annual review of the chief executive officer’s performance includes feedback from the Board and members of our senior management team. Management is responsible for developing and maintaining an effective compensation program throughout the Company. The Committee’s charter lists the specific responsibilities of the Committee and can be found under the Investor Relations section of our website at www.AdvanceAutoParts.com.
The Committee has engaged Frederic W. Cook & Co., Inc. ("Cook"), an independent consulting firm, to provide advice and assistance to the Committee when making compensation decisions for our named executive officers, as well as for other senior executives. Cook reports directly to the Committee, and all services provided by Cook are provided on behalf of the Committee. Cook provides information regarding market compensation levels and practices, assists the Committee in the review and evaluation of such compensation levels and practices and advises the Committee regarding compensation decisions, particularly with respect to the compensation of our chief executive officer. Cook also provides information and advice on non-employee director compensation. A principal of Cook attends meetings of the Committee, as requested, and communicates with the Chair of the Committee, as necessary or advisable, between meetings. Cook does not provide any non-executive compensation services to us directly or indirectly through affiliates. In 2013, Cook did not provide any services to us other than those requested by the Committee Chair and those related to Cook’s engagement as independent consultant to the Committee. The Committee has considered the independence factors in applicable SEC rules and NYSE Listing Standards and other facts and circumstances and concluded that the services performed by Cook did not raise any conflict of interest.
Compensation Philosophy and Objectives
Our executive compensation philosophy is straightforward – we pay for performance. Our executives are accountable for the performance of the business and are compensated based on that performance. Our executive compensation programs are designed to attract and retain top executive talent and motivate them to achieve outstanding operational and financial performance. This performance, in turn, builds value for our stockholders. Our programs aim to ensure that:
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• | compensation is linked to annual and long-term performance goals that are structured to align the interests of executive officers with those of our stockholders; |
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• | our executive officers are rewarded for achieving sustainable, profitable growth; |
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• | our executive officers are rewarded for growing and retaining customer relationships; |
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• | a significant portion of total compensation is stock-based, thereby further aligning the interests of executive officers and of our stockholders; and |
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• | compensation opportunities are competitively positioned with compensation opportunities for executive officers of our retail peers so we can attract, retain and motivate the superior management talent essential to our long-term success. |
Setting Executive Compensation
In determining appropriate compensation opportunities for our named executive officers, the Committee reviews competitive market data provided by Cook on compensation practices among a peer group of other specialty retailers. On behalf of the Committee, Cook conducts an annual review, which includes an annual competitive review of the compensation practices of our peer companies, including named executive officer pay levels and compensation mix. This review also includes the aggregate long-term incentive grant practices of our peer companies, potential share dilution from equity compensation grants, annual share usage and aggregate long-term incentive compensation costs.
The Committee considers information from the peer group regarding executive compensation levels and practices and our relative performance against peer companies. Peer group companies are selected based on their similarity to us with respect to several factors, including sales, store and employee count, market capitalization, customer profile, and business-to-business and direct-to-customer business models. The companies comprising the peer group used in competitive comparisons of executive compensation levels to help the Committee evaluate compensation opportunities for 2013 were:
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| | |
AutoZone | LKQ Corp. | Sherwin-Williams |
Bed Bath & Beyond | OfficeMax | Tractor Supply |
Dollar General | O’Reilly Automotive | Uni-Select |
Dollar Tree | Pep Boys Manny Moe & Jack | Wesco Intl. |
Family Dollar | PetSmart | Williams-Sonoma |
Fastenal | RadioShack | W.W. Grainger |
Genuine Parts | | |
The same peer companies are used for determination of our relative EVA performance for our annual performance-based long-term incentive awards granted prior to December 2013. In August 2013, Cook completed its annual review of our comparative peer group to ensure the companies remained appropriate and relevant for use in competitive compensation analyses as well as to measure our relative performance. No changes were made to the peer group at that time.
The Committee also utilized the 2013 National Retail Industry database provided by Hay Group, an independent consulting firm retained by management, as another reference point for executive compensation decisions in 2013. Hay Group collected data from a broad group of over 100 retail companies with which we compete for key management and executive talent. After adjusting the data using standard statistical methods based on revenue to make the information more comparable for a company of our size, Hay Group provided the retail compensation data to the Committee and Cook in a summary form. The Hay Group retail compensation data provides a frame of reference for the Committee to consider as it makes decisions each year about base salary, annual incentives and long-term incentives for our named executive officers as well as other employees. Due to the number of companies comprising the retail compensation data provided by Hay Group, the manner in which this data has been adjusted and the additional factors taken into consideration in determining the compensation for each executive, we believe that describing components of the retail compensation database in summary form better serves our investors’ understanding of our compensation policies than listing the more than 100 companies in the database.
Following the completion of our acquisition in early January 2014 of GPI, the Committee considered and adopted a revised peer group, based on further review and analysis presented by Cook, that includes several of our direct competitors as well as other specialty retailers with both retail and commercial distribution businesses more similar to our post-merger size. The companies comprising the peer group that was used in setting 2014 compensation opportunities are:
|
| | |
AutoZone | Genuine Parts | Sherwin-Williams |
Dollar General | LKQ Corp. | Staples |
Dollar Tree | Office Depot | Tractor Supply |
Family Dollar | O’Reilly Automotive | Wesco Intl. |
Fastenal | PetSmart | W.W. Grainger |
In addition, the Committee utilized retail compensation data from Hay Group that aligned with our post-merger size to determine 2014 compensation levels for our named executive officers.
Competitive Positioning of Executive Compensation Levels
For 2013, the Committee established base salary, annual incentive opportunities and long-term incentive target grants for our named executive officers primarily with reference to the peer group data provided by Cook. The Hay Group retail compensation data was used as a secondary reference point. In general, we try to position total compensation, as well as each component of compensation for the named executive officers, at the competitive median. Some of our named executives may have some components of total compensation below the competitive median, for example, in the case where the executive is new to his or her position. The target annual cash compensation of our chief executive officer was significantly below the 25th percentile in order to more strongly emphasize the long-term incentive component of his compensation. Executives have the potential to earn significantly higher compensation when our performance significantly exceeds performance goals or significantly lower compensation if our performance falls short of performance goals.
Executive Compensation Components
The principal components of compensation for our executive officers are:
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• | base salary, which is intended to compensate executives for their primary responsibilities and individual contributions; |
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• | performance-based cash incentives, which are intended to link annual incentive compensation with our annual performance achievements and operating results; |
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• | long-term equity incentives, which are intended to link long-term incentive compensation with our long-term value creation; and |
| |
• | retirement savings and other compensation. |
Although there is no pre-established policy or target for the allocation between specific compensation components, the majority of an executive officer’s annual total target compensation is determined by our performance as compared to performance goals established for our annual and long-term incentive plans. We believe this approach reflects our objective of aligning the interests of our executives and stockholders without encouraging excessive or unnecessary risk-taking.
The table below illustrates how total compensation for our named executive officers for Fiscal 2013 was allocated between performance-based and fixed components, how performance-based compensation is allocated between annual and long-term incentive components and how total compensation is allocated between cash and equity components. These percentages are based on annualized target total compensation values and do not necessarily correspond to, and are not a substitute for, the values disclosed in the “Summary Compensation Table” and supplemental tables provided later in this Proxy Statement.
2013 Total Compensation Mix Table (a)
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| | | | | | | | | | | | |
| | Percentage of Total Compensation that is: | | Percentage of Performance- Based Total that is: | | Percentage of Total Compensation that is: |
Name | | Performance- Based | | Fixed | | Annual | | Long-Term | | Cash | | Equity |
Darren R. Jackson | | 84% | | 16% | | 24% | | 76% | | 36% | | 64% |
Michael A. Norona | | 71% | | 29% | | 37% | | 63% | | 56% | | 44% |
George E. Sherman | | 83% | | 17% | | 23% | | 77% | | 36% | | 64% |
Charles E. Tyson | | 69% | | 31% | | 36% | | 64% | | 56% | | 44% |
William H. Carter | | 58% | | 42% | | 46% | | 54% | | 69% | | 31% |
Kevin P. Freeland | | 50% | | 50% | | 100% | | —% | | 100% | | —% |
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(a) | Only amounts for base salary, annual incentive compensation and long-term incentive compensation (SARs and RSUs) were included in calculating the percentages in this table. Other forms of compensation shown in the "Summary Compensation Table" are not included. |
Base Salary
The Committee reviews the information provided by Cook regarding executives’ base salary levels compared to the base salaries of executives of companies in our peer group as presented in their latest available proxy statements. The Committee also reviews the chief executive officer’s assessment of each executive’s individual performance and responsibilities to determine appropriate compensation for each executive. The Committee has determined that, in order to enable us to attract and retain the executive talent important to our long-term growth, the compensation strategy should generally aim to position base salaries at or slightly below the median of the Cook peer group data as described in the "Competitive Positioning of Executive Compensation Levels" section above.
In determining base salaries for executives, as well as in determining incentive compensation opportunities, the Committee evaluates each executive’s individual performance on both an objective and subjective basis. All executives have individual goals established near the beginning of the fiscal year. Each executive’s annual goals include specific goals related to our business strategy of focusing on improving financial and operational results. Individual goals for Fiscal 2013 included sales growth, profit growth, customer satisfaction and Team Member engagement. These measures, as well as professional development goals, are intended to drive our business growth during the fiscal year while increasing the long-term viability of the business. The executive’s individual goals and measurement of success vary with the individual executive’s area of responsibility. In addition to “what” the executive achieves with respect to his or her annual goals, all executives are also evaluated on "how" he or she demonstrates our values of inspiring, serving and growing our profitability with integrity with our Team Members and customers. For example, an executive may have a goal to improve customer satisfaction ratings by a certain percentage during the fiscal year as measured by a third party. The Committee considers the chief executive officer’s most recent evaluation of an executive’s performance with respect to the executive’s individual goals, along with the executive’s scope of responsibilities and our performance. Further, the Committee reviews the competitive compensation data and exercises its judgment regarding base salary decisions for each executive. Thus, if we have performed well as measured against our strategic goals, but an individual executive has fallen short of achieving his or her individual performance goals, the Committee may exercise its judgment in maintaining the executive’s base salary at a constant level from one year to the next, or the Committee may approve a smaller salary increase than would have been the case if the executive had achieved his or her individual performance goals. Conversely, if the executive’s individual performance has been outstanding, he or she may receive a salary increase even when our performance may have fallen short. Except for our chief executive officer and our former chief operating officer, the base salaries of all named executive officers were increased during Fiscal 2013 in recognition of their respective promotions and/or increased responsibilities. The Committee chose to continue the emphasis of annual and long-term incentives in the compensation package of our chief executive officer, rather than an increase in base salary, to further strengthen the connection of his compensation with stockholders' interests.
Annual Incentive Plan
Our compensation philosophy connects our executives’ potential annual earnings to the achievement of performance objectives designed to support execution of our business strategies. Our AIP provides for the payment of cash bonuses based upon our performance in relation to predetermined financial targets established during the first quarter of the fiscal year. For Fiscal 2013, we established incentive targets so that total annual cash compensation at the target level would achieve the Committee's desired positioning relative to market data, with the opportunity for higher total annual cash compensation for correspondingly higher performance. The overall AIP potential varies depending upon the executive’s position. For Fiscal 2013, Mr. Jackson's AIP target remained 125 percent of base salary. This target pay mix is intended to maintain the strong link of the CEO's compensation to longer-term performance and alignment with stockholders' interests through a higher proportion of equity compensation. As a result, Mr. Jackson's target total annual cash compensation is below the Cook peer group median. AIP targets as a percentage of base salary for other named executive officers were as follows: Mr. Sherman—100 percent; Mr. Norona—90 percent; Mr. Tyson—85 percent (an increase from 65 percent in 2012 in recognition of his promotion); and Mr. Carter—65 percent. The range of potential AIP payouts for 2013 ranged from zero to 200 percent of each executive officer’s incentive target, so that executives could earn above-target payouts when performance significantly exceeded our fiscal year financial plan, or would receive below-target or no payouts when performance fell short of our goals. All AIP target opportunities for our named executive officers are issued under the stockholder-approved 2007 Executive Incentive Plan.
The Committee approved our executives’ 2013 AIP design and financial targets in March 2013 as part of the annual financial and operating planning process established by the Board. Under the AIP approved by the Committee for Fiscal 2013, performance measures included achieving targeted operating income results and retention of key Commercial customers based on year-over-year Commercial sales performance. These performance measures were selected based on their alignment with our key strategies, and they were weighted to reflect the significance of the key performance indicators in driving stockholder value. Operating income comprised 80 percent and Commercial customer retention comprised the remaining 20 percent of the performance used to determine the executives’ annual incentive compensation opportunities. We needed to achieve a minimum of 97.6 percent of the target level of operating income in Fiscal 2013 for named executive officers to receive any 2013 AIP payments.
2013 Annual Incentive Plan Performance Results Table
The following table shows the actual performance results for Fiscal 2013, as well as the threshold and target performance levels for Fiscal 2013.
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| | | | 2013 Potential Payout Levels | | | | |
Measure | | Performance Weight | | 25% of Target | | 50% of Target | | 100% of Target | | 200% of Target (Maximum) | | Actual | | Payout Percentage |
Operating Income ($ in millions) | | 80 | % | | $ | 670.1 |
| | $ | 677.0 |
| | $ | 686.6 |
| | $ | 709.3 |
| | $ | 685.3 |
| | 93.0 | % |
Key Commercial Customer Retention | | 20 | % | | N/A |
| | 96.0 | % | | 100 | % | | 105 | % | | 97.7 | % | | 70.9 | % |
Excluding the impact of the GPI transaction expenses and BWP integration costs, our operating income accelerated in the second half of Fiscal 2013 primarily due to improving sales and more disciplined cost control. Because our performance in Fiscal 2013 exceeded the threshold levels established by the Committee, the named executive officers earned and received 2013 AIP bonus payments of 88.6% of their respective target level bonus amounts. For purposes of measuring our annual incentive plan performance, we excluded the $25.0 million of transaction-related expenses associated with the GPI acquisition from operating income because they were not contemplated in our 2013 budgeted results.
For additional information about our AIP, please refer to the "2013 Grants of Plan-Based Awards Table" contained in this Proxy Statement, which shows the threshold, target and maximum incentive amounts payable under the plan for our Fiscal 2013 performance. The 2013 AIP design provided that the incentive amounts that would otherwise be payable to an executive based on our achievement of the Fiscal 2013 performance measures could be decreased by as much as 50 percent in the case of trailing personal performance by that executive. None of the awards for our named executive officers were reduced for this reason.
Long-Term Incentive Compensation
Our executives receive long-term incentive compensation intended to link their compensation to our long-term financial success. We typically grant awards in December prior to the start of each three-year vesting and performance period.
December 2011 (2012-2014 Performance Period) and December 2012 (2013-2015 Performance Period) Awards
For the annual awards made in December 2011 and 2012, 50 percent of the target awards granted to Messrs. Jackson, Norona and Freeland and 25 percent of the target awards to Mr. Tyson and Mr. Carter were awarded in the form of performance-based SARs and RSUs (restricted stock in 2011), which may vest based on our three-year EVA performance relative to a defined peer group. In May 2013, Mr. Sherman received a pro-rated annual award consistent with the terms of the awards granted to Messrs. Jackson, Norona and Freeland in December 2012. The remaining portion of the target awards was awarded in the form of time-vesting SARs and RSUs (restricted stock in 2011), which vest in three approximately equal annual installments on the first three anniversaries of the date of grant, subject to the named executive officer’s continued employment. Commencing in December 2010, the terms of Mr. Jackson’s annual LTI awards require him to hold the shares realized upon the exercise of the SARs and the lapse of the restrictions on the restricted stock awards and RSUs, net of shares withheld to satisfy the applicable withholding tax requirements, for a period of one year.
The performance-based portion of each of the December 2011 and 2012 awards may vest in whole or in part as of March 1 of the calendar year following the end of the performance period after certification by the Committee of the EVA performance for the respective three-year performance period. EVA was adopted as the performance measure for these awards because it is a measure that is strongly aligned with the creation of long-term stockholder value. For purposes of this program, EVA is defined as net operating profit after taxes ("After-Tax Operating Earnings"), less a charge for cost of capital as calculated on our total debt and equity ("Total Invested Capital") during the three-year performance period. We utilize an independent consultant to prepare objective EVA performance calculations for us and our peer group companies for each performance period.
Grants of performance-based SARs and restricted stock (or RSUs commencing in December 2012) made in 2011 and 2012 will be earned based on our EVA performance as compared to the EVA performance of the companies in the compensation peer group described in the "Setting Executive Compensation" section of this Proxy Statement for the 2012-2014 and 2013-2015 performance periods, respectively. The use of a peer group for these grants serves as a measurement of alignment of long-term incentive compensation earned by executives with stockholder value created relative to that of the peer companies. For the 2010 grants, a minimum absolute level of EVA performance for the respective three-year performance period was required to be achieved in order for any performance-based award to be earned. The December 2011 and December 2012 grants do not include a required minimum absolute level of EVA for the performance period because the Committee decided the EVA performance relative to the defined peer group is an adequate performance requirement and the awards in the form of SARs, restricted stock or RSUs are already aligned with our absolute EVA performance.
The table below provides a summary of the performance vesting criteria of the December 2011 (performance period 2012-2014) and 2012 (performance period 2013-2015) long-term incentive grants to our named executive officers.
2012-2014 and 2013-2015 Performance Vesting Table
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Long-Term Incentive Shares Vested as Percent of Target -CEO, CFO, and Former COO (a) | Long-Term Incentive Shares Vested as Percent of Target -Senior Vice Presidents (a)(b) | Company EVA Performance Compared To Peer Companies (c) |
200% | 200% | 80th Percentile or more |
100% | 100% | 50th Percentile |
50% | 75% | 40th Percentile or lower |
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(a) | Represents the percent of SARs and RSUs issued compared to the executive's target grant, inclusive of the time-vesting portion. For example, 1,000 SARs at target can increase to 2,000 SARs at maximum vesting. Vesting levels are pro-rated on a graduated scale between the minimum (50%) and maximum (200%) vesting levels, or between the minimum (75%) and maximum (200%) vesting levels in the case of Senior Vice Presidents. |
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(b) | Mr. Tyson, who is currently an Executive Vice President, was a Senior Vice President at time of December 2011 and 2012 Grants. |
(c) Peer group companies are defined in the "Setting Executive Compensation" section of this Proxy Statement.
December 2013 Awards (2014-2016 Performance Period)
For the December 2013 annual award, the Committee modified both the composition of the award and the performance measures used to determine the amount of performance-based value that may be earned. In order to simplify the long-term incentive program and improve understanding of the program by all participants, the December 2013 award reduced the number of LTI vehicles from four (time and performance-based RSUs and time and performance-based SARs) to two (time-based RSUs and performance-based SARs). Fifty percent of target grant value for Messrs. Jackson, Sherman, Norona and Tyson was awarded in the form of stock-settled performance-based SARs, and 50 percent was granted in the form of time-based RSUs under the 2004 LTIP. Mr. Carter's December 2013 award was comprised of one-third performance-based SARs and two-thirds time-based RSUs, consistent with the LTI award structure for other senior vice presidents.
In order to focus the efforts of our Team Members on two critical factors that consistently drive stockholder value, the Committee chose cumulative operating income and comparable stores sales growth, weighted equally, as the performance measures for the 2014-2016 performance period. We believe the use of these performance measures will continue to focus management's efforts on generating business results that will grow stockholder value and provide long-term incentive plan participants with performance measures that are familiar, understandable and easily communicated. The use of operating income measures as a primary performance metric for our AIP and LTI programs provides for consistency and alignment between short-term and long-term decision-making.
2014-2016 Performance-Based SARs Vesting Table
The table below provides a summary of the performance vesting criteria for the December 2013 long-term incentive grants to our named executive officers.
One half of the performance-based SARs may vest according to our operating income results during the performance period, including results of GPI and related synergies, costs to obtain synergies and transaction costs, according to the following schedule:
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Potential Plan Payout Levels | Cumulative Operating Income Achieved During the Performance Period ($) | Potential Payout % of This Portion of LTI Award (a) |
Maximum | 109.9% of target level Operating Income | 200% |
Target | Target level Operating Income | 100% |
Threshold | 92.6% of target level Operating Income | 25% |
Below Threshold | Below 92.6% of target level Operating Income | 0% |
The remaining 50 percent of the performance-based SARs may vest based upon our average annual comparable store sales growth during the performance period, including results of GPI, calculated in a manner consistent with our current comparable store sales policy, according to the following schedule:
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Potential Plan Payout Levels | Average Annual Comparable Store Sales Growth During the Performance Period | % Payout of This Portion of LTI Award (a) |
Maximum | 233% of target level growth | 200% |
Target | Target level growth | 100% |
Threshold | Threshold level growth | 25% |
Below Threshold | Less than threshold level growth | 0% |
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(a) | Represents the portion of performance-based SARs that may be earned as compared to the target level of the performance-based SARs granted to each executive. For example, 1,000 SARs at target can increase to 2,000 SARs at maximum vesting. Vesting levels are pro-rated on graduated scales between the threshold (25%) and target (100%) vesting levels and between the target (100%) and maximum (200%) vesting levels. |
The Committee established long-term incentive guidelines for each executive level after considering competitive long-term incentive grant values provided to similarly-positioned executives of the Cook peer group companies. The Committee also considers the individual executive’s potential impact on our future performance and most recent performance evaluation when awarding individual grants. The "Base Salary" section of this Proxy Statement provides more information regarding the factors considered to determine whether each individual executive’s award should be adjusted as compared to the guideline level previously established for the executive.
All equity awards to executive officers are approved by the Committee. The Committee approved the guidelines for the December 2013 annual long-term incentive awards at the Committee’s meeting in October 2013. Because the Committee desired to include our anticipated performance following our acquisition of GPI, the Committee approved the final performance metrics and a grant date of December 12, 2013 by consent action in early December 2013. The approved grant values were converted into a number of SARs and RSUs based on the closing price of our common stock on the date of grant and for the SARs, the Black-Scholes value. Newly hired or promoted executives are generally eligible to receive prorated long-term incentive grants shortly after their hire or promotion date based on the long-term grant guidelines approved by the Committee for the fiscal year. Pro-ration is based on the time from promotion or hire through the end of the fiscal year. For newly hired executive officers, the Committee approves compensation arrangements containing equity awards as deemed appropriate. Grants for newly hired or promoted employees are generally granted on the third day our stock is traded on the NYSE following our earnings release for the quarter in which they were hired or promoted. The "2013 Grants of Plan-Based Awards" and "Outstanding Equity Awards at 2013 Fiscal Year-End" tables contained in this Proxy Statement provide additional information about named executive officers’ 2013 long-term incentive awards.
The SARs awarded by the Committee have a term of seven years. Upon exercise of the SARs, the amount of appreciation, representing the difference between the grant price and the price of our stock at the time of exercise, will be settled through issuance of shares of our stock, with any fractional shares to be paid in cash. Dividend rights were granted in conjunction with the time-based RSU awards.
Settlement of December 2010 Awards (2011-2013 Performance Period)
The long-term incentive grants awarded between December 1, 2010 and November 30, 2011 included an opportunity to earn additional SARs and shares based on our EVA performance as compared to the companies in our peer group for the 2011-2013 performance period, as outlined in the "2010-2012 Performance Vesting Table" on page 26 of our 2011 proxy statement. In addition, achievement of a minimum absolute EVA level, which was established as $782 million at the time of grant, was required to earn any of the performance-based portion of the award. Our relative EVA did not meet the required minimum threshold of performance; accordingly, this portion of the 2010 award did not vest for any of our named executive officers.
Special Performance-Based Long-Term Incentive Award
On March 1, 2013, the Committee granted a one-time special performance-based long-term incentive award to certain Team Members, including our named executive officers. The purpose of the grant is to support our long-term strategic plan that focuses on improvement in operating performance over the next several years. The special grant was made in the form of performance-based RSUs that will be settled in shares of common stock, to the extent earned, at the end of the three-year performance period, which is comprised of our Fiscal Years 2013 through 2015. Each executive was granted a number of performance-based RSUs approximately equal in value to one times his or her base salary, as measured by the fair market value of our common stock on the date of grant. A maximum of 100 percent of the performance-based RSUs may be earned based on achievement of the specified target level of cumulative operating income during Fiscal Years 2013 through 2015. We believe the use of operating income as the performance measure will continue to focus management's efforts on generating business results which are critical to growing stockholder value. If the specified threshold level of cumulative operating income is achieved during the performance period, 50% of the target level award will vest. If the threshold performance objective is not achieved, no RSUs will vest. If our performance exceeds the threshold level but falls below the target level, a portion of the RSUs will vest in a proportional amount between the 50% threshold and 100% target level awards. Prior to vesting of the award, award recipients will not be entitled to receive dividends or voting rights with respect to the performance-based RSUs.
Retirement Savings Programs
Executives are eligible to participate in our 401(k) plan, along with our other eligible employees, once they meet eligibility requirements. We provide the same match offered to all our employees. We match 75 percent of each dollar up to five percent of executives’ contributions or the maximum contributions permitted by Internal Revenue Service plan testing limitations, whichever is lower. Generally, executives’ ability to accumulate retirement savings through our 401(k) plan is limited due to Internal Revenue Service limitations with respect to highly compensated employees. Consequently, we have established a non-qualified deferred compensation plan for named executive officers and certain other eligible executives. Pursuant to the plan, eligible employees were able to defer up to 50 percent of their annual salary and up to 50 percent of their bonus earnings in 2013. Earnings on deferrals, if any, depend on the market-based investment funds selected by the executives. We do not match executives’ deferrals into the non-qualified deferred compensation plan. All compensation deferred under this plan is distributed in cash to the executive on a future date elected by the participating executive or upon termination of employment, whichever occurs first. Distribution of deferred compensation payments must occur at least six months following termination of employment.
Executive officers and senior vice presidents may also voluntarily defer up to 50 percent of their base salary into our Deferred Stock Unit Plan. Deferred earnings are converted into equivalent stock units of our stock at 100 percent of the market price based on the closing price of our stock on the deferral date. Prior to the beginning of the year in which the deferrals begin, eligible executives must make irrevocable participation elections and designate future distribution dates for both the deferred compensation and deferred stock unit plans. All deferred stock units, or DSUs, are settled in our stock.
Detailed information about deferrals made by named executive officers is presented in the "2013 Non-Qualified Deferred Compensation Table" contained in this Proxy Statement.
Other Compensation
Taxable perquisite allowances are provided to named executive officers and certain other executives under our Executive Choice Plan. The Committee believes the allowances are reasonable and consistent with the objectives of the overall compensation program and better enable us to attract and retain superior employees for key positions. The Committee periodically reviews the levels of allowances for named executive officers. For 2013, the perquisite allowance was $15,000 for our Chief Executive Officer, $8,000 for our Senior Vice Presidents, and $10,000 for our other named executive officers. Executives may apply their allowances toward personal development, legal and financial planning expenses, health club memberships, supplemental disability and life insurance policies or automobile expenses. Offering these allowances enables us to maintain a competitive total compensation package for our executives. Allowance amounts for named executive officers are included in the "Summary Compensation Table" contained in this Proxy Statement. Our named executive officers are also eligible for personal use of our aircraft on a limited basis subject to certain limitations set forth in the aircraft use policy approved by the Committee, which limits the maximum value to $100,000 for personal use by our Chief Executive Officer on an annual basis. Personal use of our aircraft by other named executive officers must be approved by the Chief Executive Officer. Executives do not receive tax gross-ups with respect to their perquisite allowances or personal use of our aircraft.
Employment Agreements
We compete for executive talent, and we believe that providing severance protection plays an important role in attracting and retaining key executives. Accordingly, we have entered into employment agreements with all named executive officers and other selected senior executives. The agreements for Messrs. Jackson, Sherman, Norona and Tyson automatically renew for an additional one-year term unless either party provides notice of non-renewal at least 90 days prior to the end of the then effective term. We entered into an employment agreement with Mr. Jackson on January 7, 2008, when he became our President and Chief Executive Officer. On October 8, 2012, his agreement was amended and renewed for a one-year term, effective January 7, 2013, and was automatically renewed on January 7, 2014 for an additional one-year term according to the terms of his agreement. We entered into an employment agreement with Mr. Norona on June 4, 2008. Effective June 4, 2013, the employment agreement with Mr. Norona was amended and renewed for a one-year term. We entered into employment agreements with Messrs. Sherman and Tyson effective April 29, 2013, for an initial one-year term. We entered into an agreement with Mr. Carter effective May 1, 2011, for an initial one-year term. His agreement provides that after the initial one-year term, the agreement is extended each day for an additional day until we provide at least 90 days' notice of our intention not to extend his agreement.
The respective agreements for Messrs. Jackson, Sherman, Norona and Tyson specify annual base salary and annual performance-based cash target bonus amounts for each executive, calculated as a specified percentage of the executive’s base salary. The performance measures are determined by the Committee annually and are consistent with the measures applied to other senior executives. Mr. Carter’s agreement does not specify his annual base salary or annual cash target bonus amount. All executives are eligible to participate in all of our applicable benefit plans and programs pursuant to the terms of such programs.
If the executive’s employment is terminated in the event of the executive’s death, we have agreed to pay to the executive’s designated beneficiary or estate an amount equal to one year of base salary at the rate then in effect, plus, in the case of Messrs. Jackson, Norona, Sherman and Tyson, an amount equal to the executive’s target level bonus in effect at the time of the executive's death. In the case of Mr. Carter, if the executive’s employment is terminated in the event of his death, we have agreed to pay to his designated beneficiary or estate an amount equal to one year of base salary at the rate then in effect, plus an amount equal to the pro rata portion of any bonus that would have been payable to the executive with respect to all fiscal quarters completed prior to termination of employment, provided the criteria for such bonus other than the executive's continued employment are satisfied.
In the event of termination of employment due to disability as defined in the agreement, the executive will receive a lump sum payment amount equal to 30 percent of base salary at the rate then in effect, plus an amount equal to the executive’s target level annual bonus then in effect (or, in the case of Mr. Carter, an amount equal to the pro rata portion of any bonus that would have been payable to the executive with respect to all fiscal quarters completed prior to termination of employment, provided the criteria for such bonus other than the executive's continued employment are satisfied) in addition to the benefits payable under our qualified group disability plan. Executives are also granted a right to continue their medical benefits for up to one year post-termination at the same cost as active employees.
In addition, under the terms of the long-term incentive awards, if the executive’s employment is terminated on account of death or disability, all time-vesting restricted stock, RSUs and SARs granted to the executive pursuant to our 2004 LTIP or any successor plan will vest and become exercisable if not then vested or exercisable. If the executive’s employment is terminated on account of death, disability or retirement prior to the vesting date of the executive’s performance-based SARs or restricted shares or RSUs, the performance-based SARs and restricted shares or RSUs will become eligible for exercise or issuance on the normal vesting date for performance-based awards on a pro-rata basis for the time that the executive was employed during the performance period. For grants awarded prior to December 3, 2012, the pro rata amount of performance SARs or restricted shares that will become eligible for exercise or issuance will be no fewer than the total number of shares at target level less the previously vested portion of the time-vested SARs and restricted shares. For grants awarded on or after December 3, 2012, the pro rata amount of performance SARs or RSUs that will become eligible for exercise or issuance will be based on our actual performance through the end of the performance period.
For Messrs. Jackson, Norona, Sherman and Tyson, if we terminate the executive’s employment without "Due Cause" or if the executive terminates his or her employment for "Good Reason," as defined in the agreements, other than following a Change in Control, as defined in the 2004 LTIP, the executive will be entitled to a lump sum severance payment in an amount equal to one year of base salary at the rate then in effect. Mr. Jackson is also entitled to the prorated value, if any, of the annual Executive Choice Plan. In addition, Messrs. Jackson, Sherman and Tyson will be entitled to receive an amount equal to an average of the past three years’ annual bonus payments, and Mr. Norona will be entitled to receive an amount equal to an average of the past five years' annual bonus payments. For Mr. Carter, if we terminate his employment without "Due Cause" as defined in the agreement, other than following a Change in Control, as defined in the 2004 LTIP, he will be entitled to a lump sum severance payment in an amount equal to one year of base salary at the rate then in effect and the prorated value, if any, of the annual Executive Choice Plan. In addition, Mr. Carter would be entitled to receive an amount equal to the pro rata portion of any bonus that would have been payable to the executive with respect to all fiscal quarters completed prior to termination of employment, provided the criteria for such bonus other than the executive's continued employment are satisfied. For grants awarded prior to December 3, 2012, any performance-based grants of SARs and restricted stock will vest immediately as of the date of the executive’s termination of employment at the target level and in the same ratio as the executive’s time-vested SARs and restricted shares. For grants awarded on or after December 3, 2012, any performance-based grants of SARs and RSUs will vest immediately based on our performance as of the date of termination of employment. Executives are also granted a right to continue their medical benefits for one year post-termination at the same cost as active employees and to receive outplacement services for a period of up to one year.
If within twelve months after a Change in Control we terminate the executive officer’s employment other than for Due Cause, death or disability, or the executive terminates the executive officer’s employment for Good Reason, Messrs. Jackson, Norona, Sherman and Tyson will be entitled to receive a lump sum severance payment in an amount equal to two times base salary at the rate then in effect, plus two times the target annual bonus amount then in effect. Mr. Jackson is also entitled to receive the prorated value, if any, of the annual Executive Choice Plan. Mr. Carter will be entitled to receive a lump sum severance payment in an amount equal to one year of base salary at the rate then in effect plus an amount equal to the pro rata portion of any bonus that would have been payable to the executive with respect to all fiscal quarters completed prior to termination of employment, provided the criteria for such bonus other than the executive's continued employment are satisfied, and the prorated value, if any, of the annual Executive Choice Plan. In addition, we will provide the executive certain outplacement services for a period of up to one year. In the event of a Change in Control, all time-vesting restricted stock, SARs and stock options granted to the executive prior to December 3, 2012, pursuant to our 2004 LTIP or any successor plan will vest and become exercisable if not then vested or exercisable. Performance-based SARs and restricted stock will vest immediately on a pro rata basis based on our actual performance over the completed portion of the performance period prior to the Change in Control event. However, the pro rata amount of performance SARs and restricted stock that will vest will be no fewer than the total shares at target level less the previously vested portion of the time-vested share awards. For grants made on or after December 3, 2012, all time-vesting SARs and RSUs will vest and become exercisable only if the acquiring entity does not exchange or replace the LTI grants or upon termination of employment within 24 months following the Change in Control event. Performance-based SARs and RSUs will vest at the same time on a pro rata basis based on the amount of time employed during the performance period and our performance as of the termination date. Executives are also granted a right to continue their medical benefits for up to one year post-termination at the same cost as active employees.
In the event of a Change in Control, the employment agreements with Messrs. Jackson, Norona, Sherman and Tyson provide that if payments upon termination of employment related to a Change in Control would be subjected to the excise tax imposed by Section 4999 of the Internal Revenue Code, and if reducing the amount of the payments would result in greater benefits to him (after taking into consideration the payment of all income and excise taxes that would be owed as a result of the Change in Control payments), we will reduce the Change in Control payments by the amount necessary to maximize the benefits received by him, determined on an after-tax basis. The Change in Control payments are not eligible for tax gross-up payments.
The executives are subject to standard confidentiality and non-disparagement agreements during and following their employment. Each executive has also agreed not to compete with us, not to recruit or employ our employees in other businesses and not to solicit our customers or suppliers for competitors during the term of the executive’s employment and for one year following termination of employment. Mr. Jackson has agreed that he will not compete with us for two years following his termination of employment. In order to receive any payments or benefits under the employment agreement after termination of employment, the executive or his legal representative must execute a release that is satisfactory to us. Information regarding applicable potential payments under such agreements for the named executive officers is provided under the heading "Potential Payments Upon Termination of Employment or Change in Control Table" contained in this Proxy Statement.
The employment agreements with Messrs. Jackson, Norona, Sherman and Tyson provide that any incentive compensation granted to the executive by us is subject to our Incentive Compensation Clawback Policy as adopted by our Board or the Compensation Committee from time to time. Our Board adopted an Incentive Compensation Clawback Policy in November 2012. The policy provides that the Incentive Compensation of a Covered Employee, as those terms are defined in the policy, may be required to be repaid if the Covered Employee's fraud or willful misconduct caused us to prepare an accounting restatement due to material non-compliance with financial reporting requirements.
Effective September 15, 2011, our Board appointed Mr. Jimmie L. Wade, who previously served as our President, to serve as a director and a member of the Board's Finance Committee. Effective January 1, 2012, Mr. Wade transitioned from his role as our President. He continues to be employed by us reporting to the Chief Executive Officer and continues to provide us with strategic leadership. Mr. Wade entered into a new employment agreement effective January 1, 2012, which replaced his prior employment agreement and provided for an annual base salary of $150,000 and a reduced lump sum severance payment equal to $300,000 if his employment with us ends as the result of death, disability, termination of employment by us without Due Cause or a Change in Control. Mr. Wade's employment agreement also provides for a reduction in Change in Control payments in the manner described above with regard to our named executive officers' employment agreements. Mr. Wade's agreement continues to contain standard confidentiality, non-disparagement agreements and non-compete provisions. Mr. Wade does not receive non-management director compensation, but he is eligible to receive an annual grant of restricted stock awards with a value of at least $100,000. On March 4, 2014, his agreement was amended, effective January 1, 2014, to increase his annual base salary to $250,000 and to provide that he is entitled to receive an annual grant of time-based restricted stock or RSU awards with a value of at least $250,000 in conjunction with his agreement to assume additional strategic and leadership responsibilities related to GPI integration and talent development for our senior leadership. The amended agreement also permits Mr. Wade to elect continued medical coverage following termination of employment until age 65 in the event that the medical coverage benefit provided by his agreement would otherwise expire before that time.
Effective immediately following the closing of the GPI acquisition on January 2, 2014, the Board appointed O. Temple Sloan, III to serve as a director and member of the Board's Finance Committee. We also entered into an employment agreement with Mr. Sloan, who will continue to be employed by us as the President of GPI. The agreement has an initial term of one year that automatically renews for an additional one-year term unless either party provides notice of non-renewal at least 60 days prior to the end of the then effective term. Mr. Sloan's agreement provides for an annual base salary of $550,000 and an annual performance-based cash target bonus of 90 percent of his base salary. The agreement provides benefits upon termination of employment consistent with the agreements of Messrs. Sherman and Tyson except that if Mr. Sloan's employment is terminated at the end of a then-current employment term following a notice of non-renewal, he is entitled to the equivalent benefits he would receive if his employment is terminated by us other than for Due Cause. We agreed to this term as part of his negotiated employment agreement because we believed it was important to retain Mr. Sloan post-closing to facilitate a successful and efficient integration of GPI due to his integral knowledge and understanding of GPI's history, business, customers and employees. Upon termination of employment, Mr. Sloan is bound by standard confidentiality, non-disparagement, and non-compete provisions for a period of 24 months. Mr. Sloan does not receive non-management director compensation, but he is eligible to receive LTI awards as a member of management.
Special Bonuses
Following the completion of our acquisition of GPI in January 2014, the Compensation Committee approved the payment of special bonuses in an aggregate amount of $1,520,000, to be allocated among certain executive officers and other Team Members, including Mr. Norona and Mr. Carter, for such officers’ and employees’ extraordinary efforts in connection with the acquisition.
Ownership Guidelines
We have had stock ownership guidelines in place since 2006 that prescribe required levels of stock ownership and the timeline for achieving the required levels of stock ownership by named executive officers and members of our Board. These guidelines are designed to further strengthen and align our leadership with stockholders’ interests and to enhance stockholder value over the long term. Details of the current guidelines are included in the "Stock Ownership Guidelines for Directors and Executive Officers" section of this Proxy Statement and are posted on our website. As of the end of our 2013 fiscal year, Messrs. Jackson and Norona have achieved their required ownership levels. All other executives are currently progressing toward meeting the required ownership guidelines.
The terms of Mr. Jackson’s awards commencing in December 2010 and continuing through December 2013 require him to hold the shares realized upon the exercise of the SARs and the lapse of the restrictions on the restricted stock awards, net of shares withheld to satisfy the applicable withholding tax requirements, for a period of one year.
Tax Deductibility of Pay
In designing our executive compensation programs, we consider the potential impact of Section 162(m) of the Internal Revenue Code, which disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1,000,000 in any taxable year paid to our named executive officers. Compensation paid in accordance with a stockholder approved performance-based incentive plan is exempt from Section 162(m) and is tax-deductible by us. Our 2007 Executive Incentive Plan was established and approved by our stockholders in 2007. All 2013 annual incentives available to our named executive officers and all performance-based long-term incentives awarded in 2013, were subject to performance measures established and certified by the Committee consistent with the provisions of the Executive Incentive Plan. The stockholder-approved 2004 LTIP enables us to exclude from the $1,000,000 limit any performance-based compensation resulting from long-term incentives or other qualifying awards granted under the plan to our named executive officers. SARs and the performance-based portion of our restricted shares and RSUs meet the tax-deductibility requirements of Section 162(m) of the Internal Revenue Code. We intend to structure compensation programs to meet the requirements of Section 162(m), other than time-vested restricted stock or RSUs, which are not considered performance-based under Section 162(m) of the Internal Revenue Code. Accordingly, awards of time-vested restricted stock or RSUs are generally not deductible by us to the extent that an individual's compensation exceeds the $1,000,000 limit of Section 162(m). However, the Committee retains the authority to award compensation which may not be fully deductible by us. At the 2012 Annual Meeting, our stockholders re-approved the performance objectives for the 2007 Executive Incentive Plan and the 2004 LTIP to maintain the Committee's ability to grant qualified "performance-based" compensation under Section162(m) of the Internal Revenue Code.
ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table provides the compensation earned by our chief executive officer, principal financial officer, other three most highly compensated executive officers and former chief operating officer as of the end of each of the last three completed fiscal years.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Bonus | | Stock Awards | | Option or SAR Awards | | Non-Equity Incentive Plan Compensation | | All Other Compensation (f) (g) (h) | | |
Name and Principal Position | | | | Salary | | (a) | | (b) (d) | | (c) (d) | | (e) | | (i) (j) | | Total |
| Year | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) |
| | | | | | | | | | | | | | | | |
Darren R. Jackson | | 2013 | | $ | 700,000 |
| | — |
| | $ | 1,375,028 |
| | $ | 1,375,018 |
| | $ | 774,962 |
| | $ | 57,926 |
| | $ | 4,282,934 |
|
Chief Executive Officer | | 2012 | | 700,000 |
| | — |
| | 687,505 |
| | 2,062,503 |
| | — |
| | 56,726 |
| | 3,506,734 |
|
| 2011 | | 700,000 |
| | — |
| | 687,500 |
| | 2,062,502 |
| | 601,650 |
| | 117,541 |
| | 4,169,193 |
|
| | | | | | | | | | | | | | | | |
Michael A. Norona (k) | | 2013 | | 528,847 |
| | — |
| | 400,097 |
| | 400,017 |
| | 425,120 |
| | 16,750 |
| | 1,770,831 |
|
EVP, Chief Financial Officer | | 2012 | | 494,242 |
| | — |
| | 199,974 |
| | 600,033 |
| | — |
| | 20,638 |
| | 1,314,887 |
|
| 2011 | | 469,240 |
| | — |
| | 212,506 |
| | 637,502 |
| | 241,987 |
| | 15,964 |
| | 1,577,199 |
|
| | | | | | | | | | | | | | | | |
George E. Sherman (l) | | 2013 | | 415,382 |
| | — |
| | 634,684 |
| | 903,877 |
| | 398,548 |
| | 190,725 |
| | 2,543,216 |
|
President | | 2012 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 2011 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | |
Charles E. Tyson (m) | | 2013 | | 436,779 |
| | — |
| | 280,348 |
| | 340,906 |
| | 312,658 |
| | 15,924 |
| | 1,386,615 |
|
EVP, Merchandising, Marketing & Supply Chain | | 2012 | | 398,475 |
| | — |
| | 87,511 |
| | 262,500 |
| | — |
| | 14,008 |
| | 762,494 |
|
| 2011 | | 365,394 |
| | — |
| | 87,519 |
| | 262,506 |
| | 133,003 |
| | 13,864 |
| | 862,286 |
|
| | | | | | | | | | | | | | | | |
William H. Carter | | 2013 | | 329,992 |
| | — |
| | 167,507 |
| | 82,506 |
| | 189,971 |
| | 13,769 |
| | 783,745 |
|
SVP, Business Development and Integration | | 2012 | | 327,688 |
| | — |
| | 62,487 |
| | 187,525 |
| | — |
| | 8,321 |
| | 586,021 |
|
| 2011 | | 240,006 |
| | 275,000 |
| | 228,787 |
| | 486,294 |
| | 89,602 |
| | 128,005 |
| | 1,447,694 |
|
| | | | | | | | | | | | | | | | |
Kevin P. Freeland (n) | | 2013 | | 232,698 |
| | — |
| | — |
| | — |
| | — |
| | 949,566 |
| | 1,182,264 |
|
Former Chief Operating Officer | | 2012 | | 550,014 |
| | — |
| | 250,022 |
| | 750,003 |
| | — |
| | 16,683 |
| | 1,566,722 |
|
| 2011 | | 526,936 |
| | — |
| | 275,000 |
| | 825,001 |
| | 301,934 |
| | 16,018 |
| | 1,944,889 |
|
| |
(a) | Represents signing bonus Mr. Carter received upon his employment as Senior Vice President, Commercial on April 1, 2011. |
| |
(b) | Represents the grant date fair value of RSUs or restricted stock granted for each year. The grant date fair value is calculated using the closing price of our common stock on the date of grant. For additional information regarding the valuation assumptions of this award, refer to Note 18 of our consolidated financial statements in the 2013 Form 10-K filed with the SEC on February 25, 2014. See the "2013 Grants of Plan-Based Awards Table" and "Outstanding Equity Awards at 2013 Fiscal Year-End Table" in this Proxy Statement for information on stock awards granted in 2013 and prior years. These amounts reflect the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board’s Accounting Statement of Codification Topic 718 ("ASC Topic 718"), and do not correspond to the actual value that may be realized by the named executive officers. Any performance awards included in these amounts have been valued based on the probable outcome of the performance conditions as of the grant date. |
| |
(c) | Represents the grant date fair value of SARs granted for each year. For additional information regarding the valuation assumptions of this award, refer to Note 18 of our consolidated financial statements in the 2013 Form 10-K filed with the SEC on February 25, 2014. See the "2013 Grants of Plan-Based Awards Table" and "Outstanding Equity Awards at 2013 Fiscal Year-End Table" in this Proxy Statement for information on SARs awards granted in 2013 and prior years. These amounts reflect the aggregate grant date fair value computed in accordance with ASC Topic 718, and do not correspond to the actual value that may be realized by the named executive officers. Any performance awards included in these amounts have been valued based on the probable outcome of the performance conditions as of the grant date. |
| |
(d) | The maximum value for awards, assuming the highest level of performance is achieved for performance awards granted, is provided for each executive in the table below. |
|
| | | | | | | | | | | | | | |
Name | | Year | | Restricted Stock or RSUs Maximum Value ($) | | SARs Maximum Value ($) | | Maximum Fair Value of Stock Awards and SARs ($) |
| | | | | | | | |
Mr. Jackson | | 2013 | | $ | 700,007 |
| | $ | 2,750,036 |
| | $ | 3,450,044 |
|
| | 2012 | | 1,375,011 |
| | 4,125,006 |
| | 5,500,017 |
|
| | 2011 | | 1,375,000 |
| | 4,125,004 |
| | 5,500,004 |
|
| | | | | | | | |
Mr. Norona | | 2013 | | 541,790 |
| | 800,034 |
| | 1,341,825 |
|
| | 2012 | | 399,874 |
| | 1,200,066 |
| | 1,599,940 |
|
| | 2011 | | 425,012 |
| | 1,275,004 |
| | 1,700,016 |
|
| | | | | | | | |
Mr. Sherman | | 2013 | | 802,680 |
| | 1,807,755 |
| | 2,610,435 |
|
| | 2012 | | — |
| | — |
| | — |
|
| | 2011 | | — |
| | — |
| | — |
|
| | | | | | | | |
Mr. Tyson | | 2013 | | 505,903 |
| | 681,811 |
| | 1,187,714 |
|
| | 2012 | | 175,023 |
| | 524,942 |
| | 699,965 |
|
| | 2011 | | 175,038 |
| | 525,012 |
| | 700,050 |
|
| | | | | | | | |
Mr. Carter | | 2013 | | 329,995 |
| | 165,013 |
| | 495,008 |
|
| | 2012 | | 124,974 |
| | 375,050 |
| | 500,024 |
|
| | 2011 | | 416,002 |
| | 897,893 |
| | 1,313,895 |
|
| | | | | | | | |
Mr. Freeland | | 2013 | | 74,340 |
| | — |
| | 74,340 |
|
| | 2012 | | 499,971 |
| | 1,499,986 |
| | 1,999,957 |
|
| | 2011 | | 550,000 |
| | 1,650,002 |
| | 2,200,002 |
|
For 2013, amounts for restricted stock or RSUs represent the maximum value of the special long-term incentive grants and any off-cycle grants that executives received. Beginning with the December 2013 grant, the target award for purposes of calculating performance vesting consists solely of the performance award granted. Therefore, the maximum value does not include RSUs granted to executives in December 2013 due to fact that they are 100 percent time-based. For Mr. Freeland, the 2013 amount represents the pro-rated maximum value of his special long-term incentive grant that he received in March based on number of days he was employed during the 2013-2015 performance period.
| |
(e) | For 2013 and 2011, amounts in this column were paid to the named executives in February 2014 and March 2012, respectively, for the preceding fiscal year’s performance according to the terms of the annual incentive plans in effect for each respective year. No annual incentive awards were earned for 2012 performance. |
| |
(f) | Includes Company matching contributions according to the terms of the Company's 401(k) plan. |
| |
(g) | Includes life insurance premiums paid by the Company for each executive. |
| |
(h) | Includes executive allowances for each executive. Information about these taxable perquisites is discussed under the heading "Other Compensation" in the Compensation Discussion and Analysis section of this Proxy Statement. |
| |
(i) | Includes moving expenses and related tax gross-up payments for Mr. Sherman and Mr. Carter following their joining the Company in 2013 and 2011, respectively, pursuant to the terms of our relocation policy applicable to all management-level employees. For 2013, reportable compensation for Mr. Sherman's itemized moving expenses is $124,560 and related tax reimbursement payments is $58,444. For 2011, reportable compensation for Mr. Carter's itemized moving expenses is $92,982 and related tax reimbursement payments is $28,804. |
| |
(j) | This column also includes the value of any personal use of the Company aircraft calculated at the incremental cost to the Company related to personal use of the Company aircraft. Individual expenses related to aircraft use for 2011, 2012 and 2013 are provided in accordance with the Company's aircraft use policy. For 2013, reportable compensation for Mr. Jackson is $35,843 related to Company aircraft use. The incremental cost to the Company for personal use of Company aircraft is calculated based on our primary variable operating costs, including fuel, maintenance and other miscellaneous variable costs. All personal use of the Company aircraft is reportable as taxable wages for executives and no tax reimbursements are provided by the Company. |
| |
(k) | Mr. Norona received an off-cycle grant of RSUs in August 2013 in recognition of his increased job responsibilities. The grant represents a pro-rated supplemental portion of the special long-term incentive grant that other executives received in March 2013. More information is provided in the "2013 Grants of Plan-Based Awards Table" in this Proxy Statement. |
| |
(l) | Mr. Sherman received three separate grants of RSUs and SARs in 2013. The first two grants were off-cycle grants that occurred in May 2013. The first grant represents a pro-rated annual grant that he received following his joining the Company in April 2013. The second grant represents a pro-rated portion of the special long-term incentive grant that other executives received in March 2013. The third grant was the regular annual grant made to all executives in December 2013. More information is provided in the "2013 Grants of Plan-Based Awards Table" of this Proxy Statement. |
| |
(m) | Mr. Tyson also received two off-cycle grants of RSUs and SARs in May 2013 in recognition of his promotion and increased job responsibilities. The first grant represents a pro-rated supplemental annual grant that he received following his promotion in April 2013. The second grant represents a pro-rated supplemental portion of the special long-term incentive grant that other executives received in March 2013. More information is provided in the "2013 Grants of Plan-Based Awards Table" on the next page. |
| |
(n) | Mr. Freeland is a former executive officer of the Company whose employment with us ended on May 28, 2013. Mr. Freeland received no grants of RSUs or SARs in December 2013. According to the terms of his employment and separation agreement, Mr. Freeland received cash payments in June 2013, totaling $940,922, which are included in the “All Other Compensation” column for 2013. This amount included payments made pursuant to the terms of his employment agreement of $550,014, an amount which equals one times his annual base salary, and $372,895, an amount which represents the value of the average annual incentive payments for the past three years (2010, 2011, and 2012), as well as payments for unused vacations of $16,273 and pro-rated quarterly executive allowance of $1,740. |
2013 Grants of Plan-Based Awards Table
The following table sets forth information concerning grants of cash and stock-based awards made under our annual and long-term incentive plans during 2013. The threshold, target and maximum non-equity incentive award amounts shown in the table represent the amounts to be paid if our performance had met the respective levels of the applicable performance measures. The performance measures are more fully described under the heading "Annual Incentive Plan" in the Compensation Discussion and Analysis section of this Proxy Statement. The threshold, target and maximum equity incentive award amounts shown in the table represent the amounts to be paid if our performance meets the respective level of applicable performance measures as more fully described under the heading "Long-Term Incentive Compensation" in the Compensation Discussion and Analysis section of this Proxy Statement. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | All Other Stock Awards: Number of Securities Underlying Options (#) | | Exercise Price of Option Awards ($/sh) (e) | | Grant Date Fair Value of Stock and Option Awards ($) (f) |
Name | | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | | | | |
Mr. Jackson | | 1/1/2013(a) | | $ | 262,500 |
| | $ | 875,000 |
| | $ | 1,750,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | $ | — |
| | $ | — |
|
| | 3/1/2013(b) | | — |
| | — |
| | — |
| | 4,583 |
| | 9,166 |
| | 9,166 |
| | — |
| | — |
| | — |
| | — |
|
| | 12/12/2013(c) | | — |
| | — |
| | — |
| | 14,228 |
| | 56,913 |
| | 113,826 |
| | — |
| | — |
| | 107.93 |
| | 1,375,018 |
|
| | 12/12/2013(c) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 12,740 |
| | — |
| | — |
| | 1,375,028 |
|
Mr. Norona | | 1/1/2013(a) | | 144,000 |
| | 480,000 |
| | 960,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 3/1/2013(b) | | — |
| | — |
| | — |
| | 3,274 |
| | 6,548 |
| | 6,548 |
| | — |
| | — |
| | — |
| | — |
|
| | 8/12/2013(b) | | — |
| | — |
| | — |
| | 253 |
| | 506 |
| | 506 |
| | — |
| | — |
| | — |
| | — |
|
| | 12/12/2013(c) | | — |
| | — |
| | — |
| | 4,139 |
| | 16,557 |
| | 33,114 |
| | — |
| | — |
| | 107.93 |
| | 400,017 |
|
| | 12/12/2013(c) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,707 |
| | — |
| | — |
| | 400,097 |
|
Mr. Sherman | | 4/21/2013(a) | | 134,999 |
| | 449,998 |
| | 899,996 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 5/28/2013(d) | | — |
| | — |
| | — |
| | 2,280 |
| | 10,856 |
| | 32,568 |
| | — |
| | 10,857 |
| | 83.63 |
| | 403,862 |
|
| | 5/28/2013(d) | | — |
| | — |
| | — |
| | 169 |
| | 805 |
| | 2,415 |
| | 805 |
| | — |
| | — |
| | 134,644 |
|
| | 5/28/2013(b) | | — |
| | — |
| | — |
| | 3,189 |
| | 6,378 |
| | 6,378 |
| | — |
| | — |
| | — |
| | — |
|
| | 12/12/2013(c) | | — |
| | — |
| | — |
| | 5,174 |
| | 20,696 |
| | 41,392 |
| | — |
| | — |
| | 107.93 |
| | 500,015 |
|
| | 12/12/2013(c) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,633 |
| | — |
| | — |
| | 500,040 |
|
Mr. Tyson | | 1/1/2013(a) | | 105,906 |
| | 353,020 |
| | 706,040 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 3/1/2013(b) | | — |
| | — |
| | — |
| | 2,665 |
| | 5,330 |
| | 5,330 |
| | — |
| | — |
| | — |
| | — |
|
| | 5/28/2013(d) | | — |
| | — |
| | — |
| | 256 |
| | 1,221 |
| | 6,105 |
| | — |
| | 3,666 |
| | 83.63 |
| | 90,898 |
|
| | 5/28/2013(d) | | — |
| | — |
| | — |
| | 19 |
| | 90 |
| | 450 |
| | 272 |
| | — |
| | — |
| | 30,274 |
|
| | 5/28/2013(b) | | — |
| | — |
| | — |
| | 229 |
| | 458 |
| | 458 |
| | — |
| | — |
| | — |
| | — |
|
| | 12/12/2013(c) | | — |
| | — |
| | — |
| | 2,587 |
| | 10,348 |
| | 20,696 |
| | — |
| | — |
| | 107.93 |
| | 250,008 |
|
| | 12/12/2013(c) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,317 |
| | — |
| | — |
| | 250,074 |
|
Mr. Carter | | 1/1/2013(a) | | 64,348 |
| | 214,495 |
| | 428,990 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 3/1/2013(b) | | — |
| | — |
| | — |
| | 2,161 |
| | 4,321 |
| | 4,321 |
| | — |
| | — |
| | — |
| | — |
|
| | 12/12/2013(c) | | — |
| | — |
| | — |
| | 854 |
| | 3,415 |
| | 6,830 |
| | — |
| | — |
| | 107.93 |
| | 82,506 |
|
| | 12/12/2013(c) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,552 |
| | — |
| | — |
| | 167,507 |
|
Mr. Freeland | | 1/1/2013(a) | | 69,810 |
| | 232,698 |
| | 465,396 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 3/1/2013(b) | | — |
| | — |
| | — |
| | 3,601 |
| | 7,202 |
| | 7,202 |
| | — |
| | — |
| | — |
| | — |
|
| |
(a) | The non-equity incentive plan information represents our 2013 annual incentive plan. For Messrs. Sherman and Freeland, the target amount represents the pro-rated value of their non-equity incentive plan awards based on the time they were employed during fiscal year 2013. |
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(b) | In March 2013, our executives received special long-term incentive grants which are 100 percent performance-based RSUs and may be earned on March 1, 2016, following certification by the Committee of the performance vesting achievement level during fiscal years 2013 through 2015. Our financial performance must meet the threshold level for executives to become eligible to receive any performance-based RSUs. At the threshold level of performance, executives receive 50 percent of performance-based RSUs. In order for the executive officers to earn the full performance-based RSUs, our financial performance must meet or exceed the target level. Mr. Norona received a pro-rated supplemental portion of the special long-term incentive grant in August 2013 in recognition of his increased job responsibilities. In May 2013, Mr. Sherman received a pro-rated portion of the special long-term incentive grant following his joining us in April 2013. Mr. Tyson received a pro-rated supplemental portion of the special long-term incentive grant in May 2013 in recognition of his promotion and increased responsibilities. The attainment of threshold level for performance RSUs granted to executives as special long-term incentive awards was not deemed probable at the date of grant. Therefore, the grant date fair value was zero for those grants. For Mr. Freeland, the pro-rated target amount of 974 performance-based RSUs, which is based on the number of days he was employed during the 2013-2015 performance period, will continue to vest and may vest on March 1, 2016, depending upon our performance. |
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(c) | For the December 2013 grants, Messrs. Jackson, Norona, Sherman and Tyson received 50 percent of their target annual award value granted in the form of performance-based SARs and the remaining 50 percent granted in the form of time-based RSUs, which are shown in separate rows, respectively. Mr. Carter received 67 percent of his target annual award value granted in the form of time-based RSUs and the remaining 33 percent granted in the form of performance-based SARs. The performance-based SARs may be earned on March 1, 2017, following certification by the Committee of the performance vesting achievement level during fiscal years 2014 through 2016. Our financial performance must meet the threshold level for executives to become eligible to receive any performance-based SARs. At the threshold level of performance, executives receive 25 percent of performance-based SARs. In order for the executive officers to earn the full performance-based SARs, our financial performance must equal the target level. If our financial performance exceeds the target level, executive officers may receive additional SARs up to a maximum of an additional 100 percent of the performance-based SARs. The time-based RSUs awarded to each executive for the 2013 grants will vest in three approximately equal annual installments commencing on the first anniversary date of the grant. |
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(d) | In May 2013, Mr. Sherman received a pro-rated off-cycle annual grant following his hire in April 2013. Mr. Tyson received a pro-rated off-cycle annual grant in May 2013 in recognition of his promotion and increased job responsibilities. These grants are structured in the same way as our December 2012 grants, where 75 percent of target award value was granted in the form of SARs and 25 percent granted in the form of RSUs. At target, the performance-based portion represents 50 percent of the target level long-term incentive grant value for Mr. Sherman and 25 percent of the target level long-term incentive grant value for Mr. Tyson. These shares may be earned on May 28, 2016 based on our relative EVA performance for the 2013-2015 performance period. At the threshold level of our EVA performance, Messrs. Sherman and Tyson receive 21 percent of the performance-based SARs and RSUs. Our EVA performance must exceed 40 percent of the peer group companies for Messrs. Sherman and Tyson to become eligible to receive any performance-based shares. In order for Messrs. Sherman and Tyson to earn the full performance-based portion of the target amount (which, when added to the time-based shares, is a total of 100 percent of target), our performance must approximate the peer group median. Messrs. Sherman and Tyson may receive additional SARs and RSUs to the extent our performance exceeds the peer group median up to a maximum of an additional 100 percent of the target level award if our EVA meets or exceeds 80 percent of the peer group companies. The time-based portion of the awards will vest in three approximately equal annual installments commencing on the first anniversary date of the grant. |
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(e) | Stock prices shown are the exercise price of any SAR grants based on the closing price of our common stock on the date of grant. |
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(f) | The aggregate grant date fair value of the awards was computed in accordance with ASC Topic 718. The attainment of threshold level for performance RSUs granted to executives as special long-term incentive awards was not deemed probable at the date of grant. Therefore, the grant date fair value was zero for those grants, as described in footnote (b). The attainment of target level for performance awards was deemed probable at the date of grant for the other awards. Accordingly, the grant date fair value was calculated at target level for these awards. |
The time-vested portions of the RSU awards granted in 2013 include rights to receive dividend payments in the same amount as paid to our stockholders, but do not include voting rights. Performance-based RSUs do not include dividend or voting rights. We paid quarterly cash dividends of $0.06 per share in 2013. All SAR grants have a term of seven years and must be settled in shares of our common stock.
Outstanding Equity Awards at 2013 Fiscal Year-End Table
The following table provides information concerning stock-based awards granted to our named executive officers that were outstanding at the end of our last fiscal year.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Option Awards (a) | | Stock Awards (b) |
| | | | | | | | | | Equity Incentive Plan Awards: |
Name | | Grant Date | | Number of Securities Underlying Unexercised Options Exercisable (#) | | Number of Securities Underlying Unexercised Options Unexercisable (#) | | Equity Incentive Plan Awards: Number of Shares Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | | Market Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) |
Mr. Jackson | | 5/21/2007(c) | | 7,500 |
| | — |
| | — |
| | $ | 41.64 |
| | 5/21/2014 | | — |
| | $ | — |
| | — |
| | $ | — |
|
| | 12/1/2009 | | 91,674 |
| | — |
| | — |
| | 40.38 |
| | 12/1/2016 | | — |
| | — |
| | — |
| | — |
|
| | 12/1/2010 | | 82,893 |
| | — |
| | — |
| | 66.15 |
| | 12/1/2017 | | — |
| | — |
| | — |
| | — |
|
| | 12/1/2011 | | 34,426 |
| | 17,214 |
| | 10,844 |
| | 68.75 |
| | 12/1/2018 | | — |
| | — |
| | — |
| | — |
|
| | 12/1/2011 | | — |
| | — |
| | — |
| | — |
| | | | 1,667 |
| | 183,237 |
| | 1,050 |
| | 115,416 |
|
| | 12/3/2012 | | 17,913 |
| | 35,826 |
| | 11,285 |
| | 73.17 |
| | 12/3/2019 | | — |
| | — |
| | — |
| | — |
|
| | 12/3/2012 | | — |
| | — |
| | — |
| | — |
| | | | 3,132 |
| | 344,269 |
| | 987 |
| | 108,491 |
|
| | 3/1/2013(d) | | — |
| | — |
| | — |
| | — |
| | | | — |
| | — |
| | 4,583 |
| | 503,763 |
|
| | 12/12/2013 | | — |
| | — |
| | 14,228 |
| | 107.93 |
| | 12/12/2020 | | — |
| | — |
| | — |
| | — |
|
| | 12/12/2013 | | — |
| | — |
| | — |
| | — |
| | | | 12,740 |
| | 1,400,381 |
| | — |
| | — |
|
Mr. Norona | | 12/1/2009 | | 38,200 |
| | — |
| | — |
| | 40.38 |
| | 12/1/2016 | | — |
| | — |
| | — |
| | — |
|
| | 12/1/2010 | | 23,270 |
| | — |
| | — |
| | 66.15 |
| | 12/1/2017 | | — |
| | — |
| | — |
| | — |
|
| | 12/1/2011 | | 10,641 |
| | 5,321 |
| | 3,352 |
| | 68.75 |
| | 12/1/2018 | | — |
| | — |
| | — |
| | — |
|
| | 12/1/2011 | | — |
| | — |
| | — |
| | — |
| | | | 516 |
| | 56,719 |
| | 324 |
| | 35,614 |
|
| | 12/3/2012 | | 5,211 |
| | 10,423 |
| | 3,283 |
| | 73.17 |
| | 12/3/2019 | | — |
| | — |
| | — |
| | — |
|
| | 12/3/2012 | | — |
| | — |
| | — |
| | — |
| | | | 912 |
| | 100,247 |
| | 287 |
| | 31,547 |
|
| | 3/1/2013(d) | |