UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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AVNET, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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AVNET, INC.
NOTICE OF 2013 ANNUAL MEETING OF SHAREHOLDERS
To Be Held Friday, November 8, 2013
TO ALL SHAREHOLDERS OF AVNET, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of AVNET, INC., a New York corporation (Avnet), will be held at the Avnet, Inc. Corporate Headquarters, 2211 South 47th Street, Phoenix, Arizona 85034, on Friday, November 8, 2013, at 7:30 a.m., local time, for the following purposes:
1. | To elect the nine (9) director nominees named in the attached proxy statement to serve until the next annual meeting and until their successors have been elected and qualified. |
2. | To conduct an advisory vote on executive compensation. |
3. | To approve the Avnet, Inc. 2013 Stock Compensation and Incentive Plan. |
4. | To ratify the appointment of KPMG LLP as the independent registered public accounting firm to audit the consolidated financial statements of Avnet for the fiscal year ending June 28, 2014. |
5. | To take action with respect to such other matters as may properly come before the Annual Meeting (including postponements and adjournments). |
The Board of Directors has fixed the close of business on September 10, 2013, as the record date for the Annual Meeting. Only holders of record of shares of Avnets Common Stock at the close of business on such date shall be entitled to notice of and to vote at the Annual Meeting or any adjournment thereof.
By Order of the Board of Directors
Michael R. McCoy
Secretary
September 26, 2013
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Beneficial Ownership of Common Stock by Management and Others |
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Proposal 2 Advisory Vote on Named Executive Officer Compensation |
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Proposal 3 Approval of the Avnet, Inc. 2013 Stock Compensation and Incentive Plan |
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Proposal 4 Ratification of Appointment of KPMG as Independent Registered Public Accounting Firm |
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Appendix B Avnet, Inc. 2013 Stock Compensation and Incentive Plan |
B-1 |
2211 South 47th Street
Phoenix, Arizona 85034
PROXY STATEMENT
Dated September 26, 2013
FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held November 8, 2013
This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors of Avnet, Inc. (Avnet or the Company) to be voted at the annual meeting of shareholders to be held at Avnets Corporate Headquarters, 2211 South 47th Street, Phoenix, Arizona 85034, on November 8, 2013, and at any and all postponements or adjournments thereof (the Annual Meeting), with respect to the matters referred to in the accompanying notice. The approximate date on which this Proxy Statement and the enclosed form of proxy are first being sent or given to shareholders is September 26, 2013. Only holders of record of outstanding shares of the Companys common stock, par value $1.00 per share (the Common Stock), at the close of business on September 10, 2013, the record date, are entitled to notice of and to vote at the Annual Meeting. Each shareholder is entitled to one vote per share held on the record date. The aggregate number of shares of Common Stock outstanding (net of treasury shares) at September 10, 2013, was 137,469,902 comprising all of Avnets capital stock outstanding as of that date.
At the meeting you will be asked to elect the nine director nominees named in the Proxy Statement, conduct an advisory vote on executive compensation, approve the Avnet, Inc. 2013 Stock Compensation and Incentive Plan and ratify the appointment of KPMG LLP as the independent registered public accounting firm to audit the consolidated financial statements of Avnet for the fiscal year ending June 28, 2014.
Proxies for shares of Common Stock may be submitted by completing and mailing the proxy card that accompanies this Proxy Statement or by submitting your proxy voting instructions by telephone or through the Internet. Shareholders who hold their shares through a broker, bank or other nominee should contact their nominee to determine whether they may submit their proxy by telephone or Internet. Shares of Common Stock represented by a proxy properly signed or submitted and received at or prior to the Annual Meeting will be voted in accordance with the shareholders instructions. If a proxy card is signed, dated and returned without indicating any voting instructions, shares of Common Stock represented by the proxy will be voted as the Board recommends. The Board of Directors is not currently aware of any business to be acted upon at the Annual Meeting other than as described in this Proxy Statement. If, however, other matters are properly brought before the Annual Meeting, the persons appointed as proxies will have discretion to vote according to their best judgment, unless otherwise indicated on any particular proxy. The persons appointed as proxies will have discretion to vote on adjournment of the Annual Meeting. Proxies will extend to, and be voted at, any adjournment or postponement of the Annual Meeting to the extent permitted under the Business Corporation Law of the State of New York and the Companys By-laws.
Any person who signs and returns the enclosed proxy or properly votes by telephone or Internet may revoke it by submitting a written notice of revocation or a later dated proxy that is received by Avnet prior to the Annual Meeting, or by voting in person at the Annual Meeting. However, a proxy will not be revoked by simply attending the Annual Meeting and not voting. All written notices of revocation and other communications with respect to revocation by Avnet shareholders should be addressed as follows: Michael McCoy, Secretary, Avnet, Inc., 2211 South 47th Street, Phoenix, Arizona 85034. To revoke a proxy previously submitted by telephone or Internet, a shareholder of record can simply vote again at a later date, using the same procedures, in which case the later submitted vote will be
recorded and the earlier vote will thereby be revoked. Please note that any shareholder whose shares are held of record by a broker, bank or other nominee, and who provides voting instructions on a form received from the nominee, may revoke or change his or her voting instructions only by contacting the nominee who holds his or her shares. Such shareholders may not vote in person at the Annual Meeting unless the shareholder obtains a legal proxy from the broker, bank or other nominee.
The presence at the Annual Meeting, in person or by proxy, of the shareholders of record entitled to cast at least a majority of the votes that all shareholders are entitled to cast is necessary to constitute a quorum. Each vote represented at the Annual Meeting in person or by proxy will be counted toward a quorum. If a quorum should not be present, the Annual Meeting may be adjourned from time to time until a quorum is obtained. Abstentions and broker non-votes, which are more fully discussed below, will not be counted as a vote cast and therefore will have no effect on the outcome of any proposal.
Brokers holding shares of record for a customer have the discretionary authority to vote on certain limited matters if they do not receive timely instructions from the customer regarding how the customer wants the shares voted. There are also some matters (non-routine matters) with respect to which brokers do not have discretionary authority to vote if they do not receive timely instructions from the customer. When a broker does not have discretion to vote on a particular matter and the customer has not given timely instructions on how the broker should vote, then what is referred to as a broker non-vote results. Any broker non-vote would be counted as present at the meeting for purposes of determining a quorum, but would be treated as not entitled to vote with respect to non-routine matters. Therefore, a broker non-vote would not count as a vote in favor of or against such matters and, accordingly, would not affect the outcome of the vote.
The election of directors (Proposal 1), the advisory vote on executive compensation (Proposal 2), and the proposal to adopt the Avnet, Inc. 2013 Stock Compensation and Incentive Plan (Proposal 3) are classified as non-routine matters. Accordingly, brokers, banks and other nominees will not be permitted to vote on any proposal other than the ratification of the appointment of the independent registered public accounting firm (Proposal 4) without instructions from the beneficial owners. As a result, the Company encourages all beneficial owners to provide voting instructions to your nominees to ensure that your shares are voted at the Annual Meeting.
Proposal 1
To be elected, each director nominee must receive the affirmative vote of a plurality of the votes of the Common Stock present or represented at the Annual Meeting and entitled to vote. Votes may be cast in favor of or withheld with respect to each nominee. Votes that are withheld will be counted toward a quorum, but will be excluded entirely from the tabulation of votes for the election of directors and, therefore, will not affect the outcome of the vote on such election. However, Avnets Corporate Governance Guidelines (the Guidelines) require that, in an uncontested election, any director nominee who receives a greater number of votes withheld than votes for in the election must promptly submit a letter of resignation to the Board following the certification of the shareholder election results. The Guidelines specify the procedures that the Board of Directors must follow in such event and the time frame within which the Board must determine and publicly announce the results of its deliberation.
Proposal 2
As required by Section 14A of the Securities Exchange Act of 1934 (the Exchange Act), the Board of Directors is requesting that the Companys shareholders approve, on a non-binding basis, the
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compensation of the Companys Named Executive Officers as disclosed in this Proxy Statement. Approval, on a non-binding basis, of this proposal requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting. Only votes cast for or against the proposal will be counted in determining whether the proposal has been adopted. Brokers who hold shares of Common Stock as nominees will not have discretionary authority to vote such shares on this proposal. Thus, a shareholder who does not vote on this proposal at the Annual Meeting (whether due to abstention or a broker non-vote) will not affect the outcome of the vote but will reduce the number of affirmative votes required to achieve a majority for this matter by reducing the total number of shares from which the majority is calculated. Although the vote is non-binding, the Compensation Committee and the Board of Directors will review the results of the vote, consider shareholder concerns and take them into account in future determinations concerning the executive compensation program.
Proposal 3
Approval of the Avnet, Inc. 2013 Stock Compensation and Incentive Plan requires the affirmative vote of a majority of the votes cast at the Annual Meeting. Only votes cast for or against the proposal will be counted in determining whether the proposal has been adopted. Brokers who hold shares of Common Stock as nominees will not have discretionary authority to vote such shares on this proposal. Thus, a shareholder who does not vote at the Annual Meeting (whether due to abstention or a broker non-vote) will not affect the outcome of the vote but will reduce the number of affirmative votes required to achieve a majority for this matter by reducing the total number of shares from which the majority is calculated.
Proposal 4
Ratification of the appointment of KPMG LLP as the Companys independent registered public accounting firm for fiscal 2014 requires the affirmative vote of the holders of a majority of the Common Stock present or represented at the meeting and entitled to vote. Abstentions are not counted in determining the votes cast in connection with the ratification of the appointment of KPMG LLP, but do have the effect of reducing the number of affirmative votes required to achieve a majority for this matter by reducing the total number of shares from which the majority is calculated. Brokers who hold shares of Common Stock as nominees will have discretionary authority to vote such shares on this proposal.
The Board of Directors recommends you vote FOR all of the directors named in Proposal 1 and FOR proposals 2, 3 and 4.
Avnet is committed to good corporate governance practices. This commitment is not new the Company has developed and evolved its corporate governance practices over many years. The Board of Directors believes that good corporate governance practices provide an important framework that promotes long-term value, strength and stability for shareholders.
Corporate Governance Guidelines
The Corporate Governance Guidelines (the Guidelines) collect in one document many of the corporate governance practices and procedures that have evolved at Avnet over the years. Among other things, the Guidelines address the duties of the Board of Directors, director qualifications and selection process, director compensation, Board operations, management succession, Board committee matters and director orientation and continuing education. The Guidelines also provide for annual self-evaluations by the Board and its committees. The Board reviews the Guidelines on an annual basis. The Guidelines are available on the Companys website at www.ir.avnet.com/documents.cfm.
As a general policy, as set forth in the Guidelines, the Board recommends certain limits as to the service of directors on other boards of public companies. These limits are as follows: (1) the
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Companys Chairman of the Board and its Chief Executive Officer may serve on up to two additional boards; (2) Directors who are actively employed on a full-time basis may serve on up to two additional boards; and (3) Directors who are retired from active full-time employment may serve on up to five additional boards.
The Board of Directors believes that a substantial majority of its members should be independent directors. The Board has determined that the following Directors are independent under the Guidelines: J. Veronica Biggins, Michael A. Bradley, R. Kerry Clark, James A. Lawrence, Frank R. Noonan, Ray M. Robinson, William H. Schumann, III and William P. Sullivan (the Independent Directors).
The Corporate Governance Committee is responsible for identifying, screening and recommending candidates for election to the Companys Board of Directors. The Committee reviews the business experience, education and skills of candidates as well as character and judgment. Although the Corporate Governance Committee does not have a formal policy concerning diversity, Avnet believes that valuing diversity makes good business sense and the charter of the Corporate Governance Committee includes a statement that it considers diversity as an important factor for service on the Board and reviews factors such as age, gender, race and culture. These factors, and others considered useful by the Board, are reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. Directors must also possess the highest personal and professional ethics, integrity and values and be committed to representing the long-term interests of all shareholders. Board members are expected to diligently prepare for, attend and participate in all Board and applicable Committee meetings. Each Board member is expected to ensure that other existing and future commitments do not materially interfere with the members service as a Director.
The Corporate Governance Committee reviews whether a potential candidate will meet the Boards independence standards and any other director or committee membership requirements imposed by law, regulation or stock exchange rules.
Director candidates recommended by the Corporate Governance Committee are subject to full Board approval and subsequent election by the shareholders. The Board of Directors is also responsible for electing directors to fill vacancies on the Board that occur due to retirement, resignation, expansion of the Board or other events occurring between the shareholders annual meetings. The Corporate Governance Committee may retain a search firm, from time to time, to assist in identifying and evaluating director candidates. When a search firm is used, the Committee provides specified criteria for director candidates, tailored to the needs of the Board at that time, and pays the firm a fee for these services. Recommendations for director candidates are also received from Board members and management and may be solicited from professional associations as well.
The Corporate Governance Committee will consider recommendations of director candidates received from shareholders on the same basis as recommendations of director candidates received from other sources. The director selection criteria discussed above will be used to evaluate all recommended director candidates. Shareholders who wish to suggest an individual for consideration for election to the Companys Board of Directors may submit a written recommendation to the Corporate Governance Committee by sending it to: Michael McCoy, Secretary, Avnet, Inc., 2211 South 47th Street, Phoenix, Arizona 85034. Shareholder recommendations must contain the following information:
| The shareholders name, address, number of shares of Avnet Common Stock beneficially owned and, if the shareholder is not a record shareholder, evidence of beneficial ownership; |
| A statement in support of the director candidates recommendation; |
| The director candidates detailed biographical information describing experience and qualifications, including current employment and a list of any other boards of directors on which the candidate serves; |
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| A description of all agreements, arrangements or understandings between the shareholder and the director candidate; |
| The candidates consent to be contacted by a representative of the Corporate Governance Committee for interviews and his or her agreement to provide further information, if needed; |
| The candidates consent for a background check; and |
| The candidates consent to serve as a director, if nominated and elected. |
Under the Companys By-laws, shareholders may also nominate a candidate for election at an annual meeting of shareholders. Details regarding this nomination procedure and the required notice and information are set forth elsewhere in this Proxy Statement under the heading 2014 Annual Meeting.
Shareholders and other interested parties may contact any or all of the Companys Directors by writing to the Board of Directors or to the Secretary, Avnet, Inc., 2211 South 47th Street, Phoenix, AZ 85034. They may also submit an email to the Chairman of the Board, the chair of the Audit Committee or the non-employee Directors as a group, by filling out the email form on the Companys website at www.ir.avnet.com/governance.cfm under the caption Committee Composition.
Communications received are distributed to the Board, or to any individual Director or group of Directors as appropriate, depending on the facts and circumstances outlined in the communication. The Avnet Board of Directors has requested that items that are unrelated to the duties and responsibilities of the Board be excluded, including spam, junk mail and mass mailings, product and services inquiries, product and services complaints, resumes and other forms of job inquiries, surveys and business solicitations or advertisements. Any product and services inquiries or complaints will be forwarded to the proper department for handling. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will be excluded. Any such communication will be made available to any non-employee Director upon request.
The Board of Directors is actively engaged and involved in talent management. The Board reviews the Companys human resources strategy at least annually. Additionally, the Board regularly reviews and discusses a management succession plan designed to provide for continuity in and development of senior management. This plan, on which Avnets Chief Executive Officer (CEO) and Chief Human Resources Officer reports at least annually, addresses (a) emergency CEO succession, (b) CEO succession in the ordinary course of business, and (c) succession for other members of senior management. This plan assesses senior management experience, performance, skills and planned career paths. Additionally, the Corporate Governance Committee periodically reviews the Companys succession plans with respect to the CEO.
The Company adopted a Code of Conduct that applies to Directors, officers and employees, including the CEO and all financial and accounting personnel. A copy of the Code of Conduct can be reviewed at www.ir.avnet.com/documents.cfm. Any future amendments to, or waivers for executive officers and Directors from certain provisions of the Code of Conduct, will be posted on the Companys website.
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The Audit Committee of the Board of Directors has established procedures for employees, shareholders, vendors and others to communicate concerns about the Companys ethical conduct or business practices including accounting, internal controls or financial reporting issues. Matters may be reported in the following ways:
Employees of the Company are encouraged to contact their manager, a Human Resources representative or a Code of Conduct Advisor and discuss matters of concern.
All persons, including employees, may contact:
| The Legal Department, by telephone at (480) 643-7106, or by mail at 2211 South 47th Street, Phoenix, Arizona 85034; or |
| The Ethics Alertline at 1-800-861-2899 (within the United States and Canada) or via the Internet at www.avnet.alertline.com. Reports via the Ethics Alertline will be treated confidentially within the limits of the law, and may be made on an anonymous basis. |
Pursuant to the Guidelines, the Board of Directors has the flexibility to decide whether it is best for the Company at a given point in time for the roles of the CEO and Chairman of the Board to be separate or combined and, if separate, whether the Chairman should be selected from the independent directors or be an employee of the Company. The Board believes that the Company and its shareholders are best served by maintaining this flexibility rather than mandating a particular leadership structure. In the event that the Chairman is an employee of the Company, the Guidelines provide for an active lead independent director.
To promote free and open discussion and communication, Independent Directors meet in executive session without management present at regularly scheduled Board meetings. Independent Directors may meet at other times at the discretion of an independent Chairman, the lead independent director or upon the request of any Independent Director.
Mr. Schumann, an Independent Director of the Company, serves as the Chairman and Mr. Hamada is the CEO. The Board of Directors has concluded that the current leadership structure provides an appropriate framework for the Directors to provide independent, objective and effective oversight of management at this point in time.
The Board has adopted stock ownership guidelines providing that Directors should own, within five years of joining the Board, shares of Avnet, Inc. common stock worth at least five times the directors annual cash retainer. Shares that are awarded to directors as part of director compensation, as well as phantom shares acquired by directors under a deferred compensation plan, count towards the guideline. The Board will evaluate whether exceptions should be made in the case of any director who, due to his or her unique financial circumstances, would incur a hardship by complying with this requirement. As of June 29, 2013, each Director was in compliance with these guidelines.
In addition to the information about Avnet and its subsidiaries contained in this Proxy Statement, extensive information about the Company can be found on its website located at www.avnet.com, including information about the Companys management team, products and services and its corporate governance practices. The corporate governance information on Avnets website includes the Guidelines, the Code of Conduct, the charters for each of the standing committees of the Board of Directors, how a shareholder can communicate with the Corporate Governance Committee to nominate a director candidate for election and how shareholders and other interested parties can
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communicate with the Chairman of the Board, the chair of the Audit Committee and the non-employee Directors as a group. In addition, amendments to the Code of Conduct and waivers granted to the Companys Directors and executive officers under the Code of Conduct, if any, will be posted in this area of the website. These documents can be accessed at www.ir.avnet.com/documents.cfm. Printed versions of the Guidelines, the Code of Conduct and the charters for the Board committees can be obtained, free of charge, by writing to the Company at: Michael McCoy, Secretary, Avnet, Inc., 2211 South 47th Street, Phoenix, AZ 85034.
In addition, the Companys Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those Reports, if any, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as Section 16 filings made by any of the Companys executive officers and Directors with respect to Avnet Common Stock, are available on the Companys website (www.avnet.com under the Investor Relations SEC Filings caption) as soon as reasonably practicable after the report is electronically filed with, or furnished to, the SEC.
This information about Avnets website and its content, together with other references to the website made in this Proxy Statement, is for information only. The content of the Companys website is not and should not be deemed to be incorporated by reference in this Proxy Statement or otherwise filed with the SEC.
Political Spending and Lobbying
The Company does not currently engage in any direct lobbying efforts and does not provide direct financial support to any political party or candidate for public office. Additionally, the Company does not currently have a Company administered political action committee and does not contribute directly to any other political action committee. While the Company does have a limited charitable contributions program and a charitable matching program for its employees, such programs prohibit contributions to political or lobbying organizations, candidates or campaigns.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
Avnets Board of Directors held six meetings during fiscal 2013 four regular quarterly meetings, one annual strategic planning meeting and one special telephonic meeting. The non-employee Directors met separately in executive session five times during fiscal 2013.
During fiscal 2013, each Director standing for reelection attended at least 75% of the combined number of meetings of the Board held during the period for which the Director served and of the committees on which such Director served.
All members of the Board of Directors are expected to attend the annual meeting of shareholders, unless unusual circumstances prevent such attendance. Board and committee meetings are scheduled in conjunction with the annual meeting of shareholders. All of the Directors standing for reelection attended Avnets 2012 annual meeting of shareholders.
The Board currently has, and appoints the members of, a standing Audit Committee, Compensation Committee and Corporate Governance Committee. Each of these committees is comprised solely of non-employee Directors, reports regularly to the full Board and annually evaluates its performance. The members of the committees as of the date of this Proxy Statement are identified in the following table.
Director |
Audit | Compensation | Corporate Governance | |||
J. Veronica Biggins |
ü | Chair | ||||
Michael A. Bradley |
ü | ü | ||||
R. Kerry Clark |
ü | ü | ||||
James A. Lawrence |
Chair | |||||
Frank R. Noonan |
ü | |||||
Ray M. Robinson |
ü | |||||
William H. Schumann, III |
ü | ü | ü | |||
William P. Sullivan |
Chair | ü |
The Audit Committee is charged with assisting and representing the Board of Directors in fulfilling its oversight responsibilities with respect to the integrity of the financial statements of the Company, the independence, qualifications and performance of the Companys independent external auditors, the performance of the Companys internal audit function and compliance with legal and regulatory requirements, as well as the Companys internal ethics and compliance program and enterprise risk management activities. Moreover, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm. Additionally, the Audit Committee reviews and approves transactions with any related person in which the Company is a participant and involves an amount that equals or exceeds $120,000 per year. All of the members of the Audit Committee are independent under the independence requirements of the NYSE listing standards, the independence standards adopted by the Board, and also meet the additional requirements for audit committee independence established by the SEC. The Board of Directors has determined that the four members of the Audit Committee (Messrs. Clark, Lawrence, Noonan and Schumann) qualify as audit committee financial experts, as defined in rules adopted by the SEC. Please see the Audit Committee Report set forth elsewhere in this Proxy Statement for more information about the Committee and its operations. The Committee operates under a written charter that outlines the Committees purpose, member qualifications, authority and responsibilities. The Committee reviews its charter and conducts an evaluation of its own effectiveness annually. The charter is available on the Companys website at www.ir.avnet.com/documents.cfm. During fiscal 2013, the Audit Committee held eight meetings.
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The Compensation Committee oversees the Companys overall compensation structure, policies and programs and assists the Board of Directors in fulfilling its responsibilities with respect to administering the Companys long-term incentive plan, reviews and approves compensation arrangements with executive officers of the Company, and evaluates the performance of and recommends the compensation for the CEO. The Committees objective is to establish and administer a total compensation program that fairly and competitively rewards long-term performance and enhances shareholder value. All members of the Committee meet the independence requirements of the NYSE listing standards and the independence standards adopted by the Board of Directors. The Committee operates under a written charter that outlines the purpose, member qualifications, authority and responsibilities of the Committee. The Committee reviews its charter and conducts an evaluation of its own effectiveness annually. A copy of the Committee charter is available on the Companys website at www.ir.avnet.com/documents.cfm. During fiscal 2013, the Compensation Committee held five meetings.
Corporate Governance Committee
The Corporate Governance Committee is charged with identifying, screening and recommending to the Board of Directors appropriate candidates to serve as directors of the Company and is responsible for overseeing the process for evaluating the Board of Directors and its Committees. This Committee also reviews the Companys succession plans and oversees and makes recommendations with respect to corporate governance issues affecting the Board of Directors and the Company. All of the members of the Corporate Governance Committee are independent under Avnets independence standards and the NYSE listing standards. The Committee operates under a written charter that outlines the Committees purpose, member qualifications, authority and responsibilities. The Committee reviews its charter and conducts an evaluation of its own effectiveness annually. The charter is available on the Companys website at www.ir.avnet.com/documents.cfm. During fiscal 2013, the Corporate Governance Committee held four meetings.
The Board of Directors has an Executive Committee which is charged with the authority of the full Board and, between meetings of the Board, is authorized to exercise the powers of the Board in the management of the business and affairs of Avnet to the extent permitted by law. The Executive Committee is comprised of the Chairman and four other Directors. The Executive Committee did not meet in fiscal 2013.
The Boards Role in Risk Oversight
One function of the Board is oversight of risk management at Avnet. Risk is present in every business, and the Board seeks to understand and advise on risk in conjunction with the activities of the Board and its committees. The Board considers risk for these purposes to be the possibility that an undesired event could occur that adversely affects the achievement of the Companys objectives. Examples of the types of risks that the Company faces include:
| operational risks, such as disruptions to the Companys information systems and logistics capabilities and risks relating to compliance with governmental regulations; |
| macroeconomic risks, such as global economic or financial disruption; |
| strategic risks, such as risks associated with emerging markets and the concentration of revenue; and |
| event risks, such as natural or pandemic disasters impacting the Companys operations. |
A business deals with risks in various ways. Some risks may be easily perceived and controlled, while others are unknown. Some risks can be avoided or mitigated by particular behavior, while some risks
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are unavoidable. Potential impacts and the severity of the potential impacts vary, and the appropriate range of response to a perceived risk can vary depending upon the potential severity of the adverse effects that might occur in connection with the risk. Some risk taking is engaged in voluntarily by Avnet and most businesses, particularly where risk may be acceptable because of the greater perceived potential for reward. Avnet engages in numerous activities seeking to align its voluntary risk-taking with Companys strategy, especially in the area of encouraging innovation.
Management is responsible for identifying risk and risk controls related to significant business activities, and developing programs and recommendations to determine the sufficiency of risk identification, the balance of potential risk to potential reward and the appropriate manner in which to control risk. The Company has implemented a formalized Enterprise Risk Management program and established an Enterprise Risk Council with executive-level sponsorship and active participation from all functional areas of the business. The Board implements its risk oversight responsibilities by having management provide periodic briefing and information sessions on its Enterprise Risk Management findings and activities. In some cases, risk oversight in specific areas is a responsibility of a Board committee, such as the Audit Committees oversight of issues related to internal control over financial reporting and the Compensation Committees oversight of risks related to compensation programs.
The Compensation Committee has assessed the Companys compensation programs and concluded that the Companys compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. The Compensation Committee and management assessed Avnets executive and broad-based compensation and benefits programs on a worldwide basis to determine if the programs provisions and operations create undesired or unintentional risk of a material nature. Management has evaluated all compensation programs and focused on the programs with variability of payout, with the ability of a participant to directly affect payout and the controls on participant action and payout.
Based on the foregoing, management believes that the Companys compensation policies and practices do not create inappropriate or unintended significant risk to the Company as a whole, and that the incentive compensation programs provide incentives that do not encourage risk-taking beyond the Companys ability to effectively identify and manage significant risks. Further, management believes that the incentive compensation programs are compatible with effective internal controls and the Companys risk management practices, and are supported by the oversight and administration of the Compensation Committee with regard to executive compensation programs.
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ELECTION OF DIRECTORS
Nine (9) directors are to be elected at the Annual Meeting to hold office until the next annual meeting of shareholders and until their successors have been elected and qualified. It is the intention of the persons named in the enclosed proxy card to vote each properly signed and returned proxy (unless otherwise directed by the shareholder executing such proxy) for the election of each of the nine director nominees listed below. Each nominee has consented to being named herein and to serving if elected. All of the nominees were elected Directors at the Annual Meeting of Shareholders held on November 2, 2012.
Directors will be elected by a plurality of the votes properly cast at the Annual Meeting. Only votes cast for the election of Directors will be counted in determining whether a nominee for Director has been elected. Thus, shareholders who do not vote, or who withhold their vote, will not affect the outcome of the election. Additionally, brokers do not have discretionary authority to vote on the election of directors if they do not receive timely instructions from the beneficial owners. As a result, the Company encourages all beneficial owners to provide voting instructions to your nominees to ensure that your shares are voted in the election of directors.
Under the Guidelines, however, any director nominee who receives a greater number of votes withheld than votes for in the election must promptly submit a letter of resignation to the Board following the certification of the election results. The Board must then determine whether to accept the directors resignation in accordance with the procedures set forth in the Guidelines and publicly announce the results of its deliberation.
In case any of the nominees below should become unavailable for election for any presently unforeseen reason, the persons named in the enclosed form of proxy will have the right to use their discretion to vote for a substitute or to vote for the remaining nominees and leave a vacancy on the Board of Directors. Under Avnets By-laws, any such vacancy may be filled by a majority vote of the Directors then in office or by the shareholders at any meeting thereof. Alternatively, the Board of Directors may reduce the size of the Board to eliminate the vacancy.
The information set forth below as to each nominee has been furnished by such nominee as of September 10, 2013.
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The Board recommends a vote FOR all of the nominees named below.
Name |
Age |
Year First Elected |
Principal Occupations During Last Five Years; Other Directorships and Activities | |||
J. Veronica Biggins |
66 | 1997 | Ms. Biggins is a Managing Director and a member of the executive committee of Diversified Search LLC, an executive and board search firm. She was Managing Partner of the Atlanta office of Hodge Partners from 2007 until 2011 when it became a part of Diversified Search. Ms. Biggins served as Assistant to the President of the United States and Director of Presidential Personnel under President William Clinton. Ms. Biggins has served on the board of Southwest Airlines Co. since 2011. Ms. Biggins background includes 20 years of experience with NationsBank (now Bank of America) and its predecessor. She previously served as a director of Zep Inc. (2007 2012) and AirTran Holdings, Inc. prior to its acquisition by Southwest Airlines (2001 2011). Ms. Biggins serves on a number of non-profit Boards. Ms. Biggins brings extensive experience related to identifying and recruiting executive talent, as well as extensive board experience and perspective resulting from past and present service on boards of public companies in various industries. | |||
Michael A. Bradley |
64 | 2012 | Mr. Bradley has served as Chief Executive Officer of Teradyne, Inc. since May 2004 and as a director since April 2004. He was President of Teradyne from May 2003 until January 2013, President of Teradynes Semiconductor Test Division from April 2001 until May 2003 and Teradynes Chief Financial Officer from July 1999 until April 2001. Mr. Bradley has also been a director of Entegris, Inc. and its predecessor company, Mykrolis Corporation, since 2001. The Board benefits from Mr. Bradleys extensive experience in the semiconductor industry and from his experience in running a global technology operation. The Board believes he provides additional perspective in the areas of corporate governance and financial reporting. | |||
R. Kerry Clark |
61 | 2012 | R. Kerry Clark served as Chairman and Chief Executive Officer of Cardinal Health, Inc., a provider of health care products and services, until his retirement in 2009. Mr. Clark joined Cardinal Health in April 2006 as President and Chief Executive Officer and became Chairman in November 2007. Prior to joining Cardinal Health, he held various positions at The Procter & Gamble Company, including President of P&G Asia; President, Global Market Development and Business Operations; and Vice Chairman of the Board. He is a director of General Mills (since 2009) and Textron, Inc. (since 2003). He is also a director of Hauser Capital Partners LLC and Hauser Private Equity LLC. Mr. Clark brings to the Board business leadership, corporate strategy and operating expertise. Mr. Clark also lends a global business perspective. Additionally, Mr. Clark provides additional insight and value in corporate governance, talent development, change management, marketing and business development. |
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Name |
Age |
Year First Elected |
Principal Occupations During Last Five Years; Other Directorships and Activities | |||
Richard P. Hamada |
55 | 2011 | Mr. Hamada has served as the Chief Executive Officer of Avnet since July 2011 and a director since February 2011. Prior to that, he served as the President (May 2010 July 2011) and as the Chief Operating Officer of Avnet (2006 2011). Mr. Hamada is also a member of the College of Business Administration Advisory Board for San Diego State University. As a result of his long tenure as an Avnet executive, Mr. Hamada provides the Board with extensive knowledge of the Company, its operations and the industry in which it operates. Mr. Hamada also has extensive executive management experience. | |||
James A. Lawrence |
60 | 2011 | Mr. Lawrence is currently the Chairman of Rothschild North America. He has served as the Chief Executive Officer of Rothschild North America and as co-head of global investment banking since June 2010. He previously served as Chief Financial Officer of Unilever PLC from September 2007 December 2009. Prior to that, Mr. Lawrence served as Vice Chairman and Chief Financial Officer of General Mills, Inc., a consumer foods company (October 1998 August 2007), Executive Vice President and Chief Financial Officer of Northwest Airlines (1996 1998) and Chief Executive Officer of Pepsi-Cola Asia Middle East Africa Group (1992 1996). The Board benefits from Mr. Lawrences nine years of prior experience serving on Avnets board (1999 2008) and his breadth of global business experience including strategy development and compliance. As a former chief financial officer for a public company, Mr. Lawrence has experience in finance and accounting, particularly as it applies to public companies such as Avnet. | |||
Frank R. Noonan |
71 | 2004 | Mr. Noonan is the retired Chairman and Chief Executive Officer of R. H. Donnelley Co. (1991 2002), publisher of yellow pages directories. Before that, Mr. Noonan served as Senior Vice President, Finance, with Dun & Bradstreet. Mr. Noonan is a director of NewStar Financial, Inc. and former director of RiskMetrics Group, Inc. (2008 2010). The Board benefits from Mr. Noonans financial services experience, including his extensive experience in the areas of financial reporting, compliance, corporate governance and risk management. | |||
Ray M. Robinson |
65 | 2000 | Since 2003, Mr. Robinson has served as Chairman of the Board of Citizens Bancshares Corporation, the largest African-American owned bank in the southeast United States. He also serves as the Vice Chairman of East Lake Community Foundation (since 2003). Previously, Mr. Robinson was the President of AT&Ts Southern Region Business Services Division (1995 2003). Mr. Robinson is also a director of Aaron Rents, Inc., Acuity Brands, Inc., and AMR Corp. Mr. Robinson previously served as a director of ChoicePoint, Inc. (2004 2008) and Rail America (2010 2012). The Board benefits from Mr. Robinsons extensive leadership and management skills, and his service on the boards and board committees of other public companies provides important insights into governance and board functions. |
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Name |
Age |
Year First Elected |
Principal Occupations During Last Five Years; Other Directorships and Activities | |||
William H. Schumann, III |
63 | 2010 | Mr. Schumann retired from FMC Technologies in August 2012 where he served as Executive Vice President since February 2007 and served as CFO from 2001 through 2011. He previously served on the board of UAP Holding Corp. (2005 2008) and Great Lakes Advisors, Inc. (1993 2011). Mr. Schumann has served on the board of directors of AMCOL International and McDermott International since 2012. The Board benefits from Mr. Schumanns financial and management expertise, including his extensive expertise in financial and strategic planning, financial reporting, compliance and risk management. | |||
William P. Sullivan |
63 | 2008 | Mr. Sullivan has served as the Chief Executive Officer of Agilent Technologies, Inc. and as a director since March 2005. Prior to that, he served as the Executive Vice President and Chief Operating Officer of Agilent (2002 2005) and Senior Vice President and General Manager of its Semiconductor Products Group (1998 2002). Mr. Sullivan is also a director of URS Corporation (since 2006) and the Childrens Discovery Museum of San Jose. As the chief executive officer of a public company, Mr. Sullivan brings significant executive and operational experience regarding issues facing large multinational companies with global operations, particularly as it relates to the technology industry. The Board also benefits from his knowledge of the most current issues in the conduct and governance of public companies. |
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A summary of each directors qualifications and experiences is set forth in the matrix below. This matrix allows the Corporate Governance Committee and the Board to identify areas of expertise and experience that may benefit the Board in the future, as well as gaps in those areas that may arise as directors retire. The Corporate Governance Committee and the Board use this information as part of its process for identifying and recommending new directors for the Board.
The Audit Committee represents and assists the Board in fulfilling its oversight responsibilities with respect to the integrity of the Companys financial statements, the independence, qualification and performance of the Companys corporate internal auditor and its independent registered public accounting firm, and compliance with legal and regulatory requirements. The Audit Committee operates under a written charter, which sets forth its purpose, member qualifications, authority and responsibilities. The Audit Committee reviews its charter on a regular basis and most recently reviewed it at the Committees regularly scheduled meeting on May 9, 2013. The charter is available on the Companys website at www.ir.avnet.com/governance.cfm.
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The Audit Committee monitors the activities and performance of the Companys internal audit function, including scope of reviews, department staffing levels and reporting and follow-up procedures. The Audit Committee also oversees policies with respect to risk assessment and risk management. In addition, the Audit Committee oversees the Companys internal ethics and compliance program and receives quarterly reports from the General Counsel or Chief Compliance Officer. The Audit Committee also meets regularly with KPMG LLP, the Companys independent registered public accounting firm (KPMG), in executive sessions. Management has responsibility for the preparation, presentation and integrity of the Companys financial statements and the reporting process, including the system of internal controls.
The Audit Committee meets with KPMG and management to review the Companys financial results before publication of the Companys quarterly earnings press releases and the filing of the Companys quarterly reports on Form 10-Q and annual report on Form 10-K. The Committee also monitors the activities and performance of KPMG, including audit scope, audit fees, auditor independence and non-audit services performed by KPMG. All services to be performed by the Companys independent registered public accounting firm are subject to pre-approval by the Audit Committee and management provides quarterly reports to the Committee on the status and fees for all such projects.
The Audit Committee has reviewed and discussed the audited financial statements for fiscal year 2013 with management and KPMG. This review included a discussion with KPMG and management of Avnets accounting principles, the reasonableness of significant estimates and judgments, including disclosure of critical accounting estimates, and the conduct of the audit. The Committee has discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. KPMG provided the Audit Committee with the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMGs communications with the Audit Committee concerning independence and the Committee discussed with KPMG its independence. The Audit Committee has concluded that KPMG is independent from the Company and its management. KPMG also discussed with the Committee its internal quality control procedures. In reliance on this review and these discussions, and the report of KPMG, the Audit Committee has recommended to the Board, and the Board has approved, the inclusion of the audited financial statements in the Companys Annual Report on Form 10-K for the year ended June 29, 2013, for filing with the Securities and Exchange Commission.
James A. Lawrence, Chair | Frank R. Noonan | |
R. Kerry Clark | William H. Schumann, III |
PRINCIPAL ACCOUNTING FIRM FEES
The table below provides information relating to fees charged for services performed by KPMG LLP, the Companys independent registered public accounting firm, in both fiscal 2013 and fiscal 2012. All of the services described in the table were approved in conformity with the Audit Committees pre-approval process.
Fiscal 2013 | Fiscal 2012 | |||||||
Audit Services |
$ | 6,372,000 | $ | 6,430,000 | ||||
Audit-Related Services |
| 235,000 | ||||||
Tax Services |
456,000 | 890,000 | ||||||
All Other Services |
2,000 | | ||||||
|
|
|
|
|||||
TOTAL |
$ | 6,829,702 | $ | 7,555,000 | ||||
|
|
|
|
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Audit Services. In both years, Audit Services consisted of work performed by the principal auditor associated with the audit of the Companys consolidated financial statements, including reviews performed on the Companys Form 10-Q filings, certain statutory audits required for the Companys subsidiaries, and fees incurred in connection with the audit of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Audit fees also included assistance with registration statements filed by the Company, including consents.
Audit-Related Services. In fiscal 2012, Audit-Related Services included certain compliance-related services, agreed-upon procedures and assistance with certain acquisition due diligence efforts.
Tax Services. In both years, Tax Services consisted primarily of assistance with respect to global tax compliance (federal, international, state and local), tax audits, tax advice associated with organizational structure and tax-related due diligence in connection with certain acquisitions.
All Other Services. In fiscal 2013, All Other Services comprised the subscription to certain KPMG LLP Proprietary accounting research databases.
All services to be provided by the Companys independent registered public accounting firm are subject to pre-approval by the Audit Committee. The Audit Committee has adopted an External Auditor Scope of Services Policy, which requires the Audit Committees pre-approval of all services to be performed by the Companys independent registered public accounting firm. In each case, pre-approval is required either by the Audit Committee or by the Chair of the Audit Committee, who is authorized to approve individual projects up to $250,000 with the total for such projects not to exceed $500,000, and must then report them to the full Committee by the next Committee meeting. Management provides quarterly reports to the Audit Committee on the fees for all projects requiring services by KPMG LLP.
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BENEFICIAL OWNERSHIP OF COMMON STOCK BY MANAGEMENT AND OTHERS
The following table sets forth information with respect to the Common Stock of Avnet beneficially owned at September 10, 2013, or, in respect of any 5% Holder, the date of such holders most recent Schedule 13D or Schedule 13G filed with the SEC, by (a) persons that, to Avnets knowledge, were the beneficial owners of more than 5% of Avnets outstanding Common Stock (5% Holders), (b) each Director and director nominee of Avnet, (c) each of the executive officers named in the Summary Compensation Table in this Proxy Statement and (d) all Directors and executive officers of Avnet as a group. Except where specifically noted in the table, all the shares listed for a person or the group are directly held by such person or group members, with sole voting and dispositive power.
Name |
Common Stock(a) |
Stock Options Exercisable Within 60 Days |
Total Common Stock Beneficially Owned |
Percent of Class |
||||||||||||
5% Holders |
||||||||||||||||
BlackRock, Inc.(1) |
11,511,317 | 11,511,317 | 8.39 | % | ||||||||||||
40 East 52nd Street New York, NY 10022 |
||||||||||||||||
Artisan Partners Holdings LP(2) |
10,700,452 | 10,700,452 | 7.80 | % | ||||||||||||
875 East Wisconsin Avenue, Suite 800 Milwaukee, WI 53202 |
||||||||||||||||
The Vanguard Group(3) |
7,014,616 | 7,014,616 | 5.11 | % | ||||||||||||
100 Vanguard Blvd. Malvern, PA 19355 |
||||||||||||||||
Directors and Named Executive Officers |
||||||||||||||||
J. Veronica Biggins |
37,539 | (4) | 0 | 37,539 | * | |||||||||||
David R. Birk |
108,018 | (5) | 48,979 | 156,997 | * | |||||||||||
Michael A. Bradley |
4,478 | 0 | 4,478 | * | ||||||||||||
R. Kerry Clark |
7,099 | (6) | 0 | 7,099 | * | |||||||||||
Harley Feldberg |
97,507 | (7) | 192,010 | 289,517 | * | |||||||||||
Philip Gallagher |
59,590 | (8) | 88,637 | 148,227 | * | |||||||||||
Richard Hamada |
177,466 | (9) | 235,087 | 412,553 | * | |||||||||||
James A. Lawrence |
41,324 | 0 | 41,324 | * | ||||||||||||
MaryAnn G. Miller |
25,613 | (10) | 35,073 | 60,686 | * | |||||||||||
Kevin Moriarty |
28,072 | (11) | 0 | 28,072 | * | |||||||||||
Frank R. Noonan |
33,583 | (12) | 0 | 33,583 | * | |||||||||||
Ray M. Robinson |
30,725 | (13) | 2,300 | 33,025 | * | |||||||||||
Raymond Sadowski |
240,734 | (14) | 174,460 | 415,194 | * | |||||||||||
William H. Schumann, III |
20,662 | (15) | 0 | 20,662 | * | |||||||||||
William P. Sullivan |
24,045 | 0 | 24,045 | * | ||||||||||||
All directors and executive officers as a group (18 persons) |
1,000,615 | 788,944 | 1,789,559 | 1.29 | % |
* | Less than 1%. |
(a) | This column includes Restricted Stock Units allocated but not yet delivered to each executive officer and Phantom Stock Units owned by non-employee Directors. |
(1) | This information is based solely on information provided in Amendment No. 3 to a Schedule 13G filed with the Securities and Exchange Commission on February 1, 2013, by BlackRock, Inc., which reports sole voting power and sole dispositive power with respect to 11,511,317 shares. |
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(2) | This information is based solely on information provided in Amendment No. 1 to a Schedule 13G filed with the Securities and Exchange Commission on February 7, 2013, by Artisan Partners Holdings LP which reports shared voting power with respect to 10,325,268 shares and shared dispositive power with respect to 10,700,452 shares. |
(3) | This information is based solely on information provided in a Schedule 13G filed with the Securities and Exchange Commission on February 13, 2013, by The Vanguard Group, which reports sole voting power with respect to 146,098 shares, sole dispositive power with respect to 6,882,118 shares and shared dispositive power with respect to 132,498 shares. |
(4) | Includes 20,728 Phantom Stock Units. |
(5) | Includes 21,176 Restricted Stock Units allocated but not yet delivered. |
(6) | Includes 7,099 Phantom Stock Units. |
(7) | Includes 28,726 Restricted Stock Units allocated but not yet delivered. Also includes 57,041 shares of Common Stock held by a family trust for which Mr. Feldberg is a trustee. |
(8) | Includes 19,397 Restricted Stock Units allocated but not yet delivered. Also includes 23,467 shares of Common Stock held by a family trust for which Mr. Gallagher is a trustee. |
(9) | Includes 56,286 Restricted Stock Units allocated but not yet delivered. Also includes 121,180 shares of Common Stock held by a family trust for which Mr. Hamada is a trustee. |
(10) | Includes 15,788 Restricted Stock Units allocated but not yet delivered. |
(11) | Includes 28,072 Restricted Stock Units allocated but not yet delivered. |
(12) | Includes 28,765 Phantom Stock Units and 4,818 shares of Common Stock held by a trust for which Mr. Noonan is a trustee. |
(13) | Includes 26,924 Phantom Stock Units. |
(14) | Includes 33,877 Restricted Stock Units allocated but not yet delivered. |
(15) | Includes 7,374 Phantom Stock Units. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Exchange Act, Avnets Directors, executive officers and beneficial owners of more than 10% of the outstanding Common Stock are required to file reports with the Securities and Exchange Commission concerning their ownership of and transactions in Avnet Common Stock and are also required to provide Avnet with copies of such reports. Based solely on such reports and related information furnished to Avnet, Avnet believes that in fiscal 2013 all such filing requirements were complied with in a timely manner by all Directors and executive officers.
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EXECUTIVE OFFICERS OF THE COMPANY
As of September 10, 2013, the executive officers of the Company were:
Name |
Age | Office | ||||
Gerard W. Fay |
54 | Senior Vice President and Chief Logistics and Operations Officer | ||||
Harley Feldberg |
60 | Senior Vice President and President, Avnet Electronics Marketing | ||||
Philip R. Gallagher |
52 | Senior Vice President and President, Avnet Technology Solutions | ||||
Richard P. Hamada |
55 | Chief Executive Officer | ||||
Erin Lewin |
43 | Senior Vice President and General Counsel | ||||
MaryAnn Miller |
56 | Senior Vice President and Chief Human Resources Officer | ||||
Kevin Moriarty |
48 | Senior Vice President, Chief Financial Officer and Controller | ||||
Steven R. Phillips |
50 | Senior Vice President and Chief Information Officer | ||||
Raymond Sadowski |
59 | Senior Vice President and Chief Administrative Officer |
Mr. Fay was appointed Senior Vice President in February 2013 and has been Chief Global Logistics and Operations Officer since July 2011. He previously served as Senior Vice President of Global Strategic Accounts for Avnet United from August 2005 to July 2011. Mr. Fay joined Avnet in 2005 with the Companys acquisition of electronic components distributor Memec, where he served as President of Memec Americas. Beginning October 1, 2013, Mr. Fay will succeed Mr. Feldberg as President, Avnet Electronics Marketing.
Mr. Feldberg has been Senior Vice President since November 2004. He became an executive officer in July 2004 when he was promoted to President, Avnet Electronics Marketing. Mr. Feldberg previously served as President of Avnet Electronics Marketing Americas from June 2002 until June 2004 and has served as a corporate Vice President since November 1996. Mr. Feldberg served as President of Avnet Electronics Marketing Asia from December 2000 to June 2002. While Mr. Feldberg will continue serving as Senior Vice President of the Company, effective October 1, 2013, he will cease serving as President, Avnet Electronics Marketing.
Mr. Gallagher was appointed as President, Avnet Technology Solutions, in March 2009, and has been Senior Vice President of Avnet since November 2007. Mr. Gallagher served as President of Avnet Electronics Marketing Americas from July 2004 until March 2009.
Mr. Hamada was appointed as a Director in February 2011 and Chief Executive Officer in July 2011. He previously served as President from May 2010 until July 2011 and served as the Chief Operating Officer from July 2006 until July 2011. He was Senior Vice President of Avnet from November 2002 until August 2010. Mr. Hamada served as the President of Technology Solutions from July 2003 until July 2006 and President of the Computer Marketing operating group from January 2002 until July 2003. He was appointed Vice President of Avnet in November 1999.
Ms. Lewin was appointed Senior Vice President and General Counsel in February 2013. Previously, she served as Vice President and General Counsel, Americas, from September 2009 to February 2013, and Vice President and Chief Ethics and Compliance Officer from November 2007 to September 2009. Before joining Avnet in 2007, Ms. Lewin was managing director and associate general counsel of US Airways.
Ms. Miller was appointed Senior Vice President in May 2011 and served as Vice President from November 2009 to May 2011. She has served as Chief Human Resources Officer since April 2009. She previously served as Senior Vice President Global Human Resources from July 2008 to March 2009 and Vice President of Talent and Organizational Effectiveness from July 2006 to June 2008.
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Mr. Moriarty joined the Company in January 2013 and is the Companys Chief Financial Officer and a Senior Vice President. Prior to joining the Company, Mr. Moriarty served in a variety of senior leadership positions at Honeywell International, Inc. from 2002 until December 2012. From 2009 until 2012 he served as Vice President and Chief Financial Officer for Honeywell Internationals Aerospace Business Group and served as Vice President and Chief Financial Officer for the companys Performance Materials and Technologies Group from 2008 until 2009.
Mr. Phillips was appointed Senior Vice President and Chief Information Officer of Avnet in 2011 having served as Vice President and Chief Information Officer since 2006. He joined Avnet with the 2005 acquisition of Memec where he served as Senior Vice President and Chief Information Officer since 2004.
Mr. Sadowski currently serves as the Senior Vice President and Chief Administrative Officer. He has been Senior Vice President of Avnet since November 1992 and was Chief Financial Officer from February 1993 until Mr. Moriartys appointment as Chief Financial Officer in January 2013. Prior to that, Mr. Sadowski held various management positions in Avnets finance organization including the position of Controller.
Officers of the Company are generally elected each year at the meeting of the Board of Directors following the annual meeting of shareholders and hold office until the next such annual meeting or until their earlier death, resignation or removal.
The Compensation Committee has reviewed the Compensation Discussion and Analysis (CD&A) and discussed it with management. Based on its review and discussion with management, the Committee recommended to the Board of Directors that the CD&A be included in the Companys 2013 Proxy Statement and incorporated by reference into the Companys annual report on Form 10-K. This Report is provided by the following independent directors, who comprise the Committee:
William P. Sullivan, Chair | R. Kerry Clark | |
J. Veronica Biggins | William H. Schumann III | |
Michael A. Bradley |
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COMPENSATION DISCUSSION AND ANALYSIS
This section explains how the Compensation Committee of Avnets Board of Directors made its compensation decisions for the fiscal year ended June 29, 2013 (fiscal 2013), for the Named Executive Officers (the NEOs). The compensation paid to the NEOs for fiscal 2013 is set forth in the Summary Compensation Table, which is included elsewhere in this Proxy Statement. These officers and their titles as of the end of fiscal 2013 are:
| Richard Hamada, Chief Executive Officer, Avnet, Inc. (the CEO); |
| Kevin Moriarty, Senior Vice President and Chief Financial Officer, Avnet, Inc. (the CFO); |
| Raymond Sadowski, Senior Vice President and Chief Administrative Officer, Avnet, Inc.; |
| Harley Feldberg, Senior Vice President, Avnet, Inc. and President, Avnet Electronics Marketing; |
| Philip Gallagher, Senior Vice President, Avnet, Inc. and President, Avnet Technology Solutions; |
| MaryAnn Miller, Senior Vice President and Chief Human Resources Officer, Avnet, Inc. (the CHRO); and |
| David R. Birk, former Senior Vice President and General Counsel, Avnet, Inc. |
Mr. Moriarty was appointed as the Companys CFO effective as of January 2, 2013. Mr. Sadowski served as the Companys Chief Financial Officer until Mr. Moriartys appointment, at which time Mr. Sadowski was appointed as the Companys Chief Administrative Officer. Mr. Birk ceased serving as Senior Vice President and General Counsel effective as of December 31, 2012.
The Companys fiscal 2013 results reflect the impact of slower global economic growth, particularly in the Companys higher margin western regions, and businesses cautious spending on technology. As a result of challenging market conditions early in the fiscal year, the Company responded by aligning both expenses and working capital to marketplace realities and focusing the portfolio on profitable growth opportunities. These ongoing activities helped to offset the impact of a decline in revenue and the associated margin pressure as the Company generated $626 million of operating income and cash flow from operations grew 32% to $696 million. The Company continued to invest in future growth opportunities as it deployed $262 million of this cash to acquire companies that are expected to strengthen its competitive position and enhance its margins, and used $207 million to repurchase shares of Common Stock. In addition, on August 12, 2013, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend of $0.15 per common share. The increase in Mr. Hamadas compensation reflects the fact that fiscal 2012 was his first year in the CEO position, and he was therefore targeted at 66% of the CEO comparator group median. In fiscal 2013, with his enhanced experience in the CEO position, he was targeted at 80% of the CEO comparator group median.
Fiscal 2012 | Fiscal 2013 | % Change | ||||||||||
$ in millions, except per share data | ||||||||||||
Sales |
$ | 25,707.5 | $ | 25,458.9 | (1.0 | )% | ||||||
Operating income |
$ | 884.2 | $ | 626.0 | (29.2 | )% | ||||||
Net income |
$ | 567.0 | $ | 450.1 | (20.6 | )% | ||||||
Diluted earnings per share |
$ | 3.79 | $ | 3.21 | (15.3 | )% | ||||||
Total CEO compensation(1) |
$ | 4.62 | $ | 4.98 | 7.5 | % |
(1) | The CEOs total compensation is based on the compensation reported in the Summary Compensation Table. |
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The graph below displays the Companys sales and the as-adjusted net income and as-adjusted operating income over the last five fiscal years.
* | In addition to presenting financial results that are determined in accordance with generally accepted accounting principles in the United States (GAAP), the Company also presents net income and operating income adjusted to exclude certain items in the table above. See Appendix A to this Proxy Statement for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. Non-GAAP measures should be viewed in addition to, and not as an alternative for, financial results prepared in accordance with GAAP. |
In March 2013, and for the fifth consecutive year, Avnet was named No. 1 in Fortune magazines annual Worlds Most Admired Companies list in the Wholesaler: Office Equipment and Electronics category. Avnet was recognized as a leader in people management, social responsibility, quality of management, and quality of products/services.
Executive Compensation Program Highlights
The Companys compensation program incorporates the following compensation governance practices:
ü | Pay-for-Performance Alignment. A significant portion of total compensation is dependent upon the achievement of short- and long-term goals that are designed to increase shareholder value over time and result in a superior total shareholder return (TSR). As executives gain responsibility and seniority at Avnet and exercise more direct influence over the Companys financial and operational performance, base salary as a percentage of total compensation will typically decrease and performance-based pay will increase. |
ü | Focus on Long-Term Incentive Compensation. Avnets compensation programs are designed to provide a meaningful portion of compensation in the form of equity-based awards to support the goal of having executives think and behave like owners and to consider the impact of their actions on TSR. Of these awards, restricted stock units (RSUs) typically vest in equal installments over approximately 4.5 years, stock options typically vest in equal installments over four years and performance share units (PSUs) vest, if at all, at the end of a three-year period. |
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ü | Performance Assessed in Overlapping Periods with Multiple Metrics. Incentive compensation is earned over several different and overlapping periods, ensuring that performance during any one period is not maximized to the detriment of other periods. The incentive programs employ multiple performance metrics to assure focus is on the entire business. |
ü | Award Caps. An award under the Companys annual cash incentive plan is capped at 225% of the target and performance share unit awards under the Companys Long-Term Incentive Plan (LTIP) are capped at 200% of the target. |
ü | Pay Competitively. The Company provides fair and competitive compensation to attract, engage and retain the executive talent that is critical to the long-term success of the Company. When determining an executives compensation, the Committee generally targets the median compensation for base salary, annual incentive and long-term incentive and therefore total compensation of executives in comparable positions at the companies in its peer group, taking into consideration the executives experience in the position and the long-term performance of the individual executive. In instances of exceptional performance, compensation received may exceed median levels of the market. Conversely, in instances where either Avnet and/or an individual executive did not achieve pre-established performance goals, actual compensation earned may be below median levels of the market. |
ü | Stock Ownership Guidelines. The Company has meaningful stock ownership guidelines for its directors and executive officers, and as of June 29, 2013, each of the directors and current executive officers was in compliance with these guidelines. |
ü | Recoupment. The Company has adopted an incentive compensation recoupment policy. |
ü | Minimal Perquisites. The Company provides a minimal level of perquisites. |
ü | Annual Risk Assessment. The Compensation Committee has assessed the Companys compensation programs and concluded that the Companys policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. |
ü | Independent Decisions. The Compensation Committee is made up entirely of independent directors and the Compensation Committees independent compensation consultants did not provide any services to management. |
The Companys compensation program does not include the following practices, as the Company believes such practices may not be in the best interest of its shareholders:
× | No Hedging or Pledging. The Companys insider trading policy prohibits directors and executive officers from hedging or pledging Avnet securities. |
× | No Tax Gross-Ups. The Company does not provide a tax gross-up on perquisites, and with respect to the CEO and CFO, on any payments made upon a change of control. The Company expects to eliminate all tax gross-ups as new employment agreements are executed. |
× | No Repricing of Awards. Repricing stock options is prohibited without shareholder approval. The Company does not have a history of repricing equity awards. |
× | No Above-Market Returns. The Company does not offer preferential or above-market returns on deferred compensation. |
× | No Discounted Stock Options. The Company does not grant stock options with an exercise price below the fair market value of the Companys Common Stock on the date of the grant. |
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2012 Advisory Vote on Executive Compensation
At the Companys annual meeting in 2012, the Company submitted its executive compensation program to an advisory vote of its shareholders (also known as the say on pay vote). This advisory vote received the support from over 97% of the total votes cast on this particular proposal at the annual meeting. The Company pays careful attention to any feedback received from its shareholders about the Companys executive compensation program, including the say on pay vote. After the annual meeting, the Company conducted a shareholder outreach program with a number of its largest shareholders to seek their feedback on the Companys corporate governance and executive compensation practices. While the Compensation Committee and the Board, as applicable, had already approved the executive compensation program for fiscal 2013 by the time the Company held its say on pay vote in November 2012, the Compensation Committee carefully considered and continues to consider the results of the say on pay vote and the feedback received from its shareholders in its subsequent executive compensation decision making.
Compensation Governance and Process
The Companys executive compensation program is designed to achieve the Companys short- and long-term business objectives and, to that end, to align executives interests with those of the Companys shareholders. In considering the elements of the executive compensation program, the Compensation Committee focuses on pay-for-performance on both an annual and long-term basis and consideration of marketplace best practices. Guided by this philosophy, discussions with respect to executive compensation generally start in conjunction with the review of the Companys budget for the new fiscal year at the Boards strategic planning session held in June. After substantive consideration, the Board approves the annual budget. This budget then serves as the basis for establishing the target performance levels for the annual cash incentive plan.
Role of the Compensation Committee
The Compensation Committee, which is composed entirely of independent directors, has primary responsibility for the approval and implementation of the compensation programs for executive officers, determines the target compensation, including the amount and related performance goals, for all executive officers except the CEO, and recommends the target compensation of the CEO to the independent directors of the Board for their consideration and approval. In addition to determining or recommending the target compensation to be received, the Compensation Committee reviews, at least annually, the Companys incentive compensation arrangements for the executive officers to ensure that such arrangements do not encourage excessive risk-taking.
At the Compensation Committees regularly scheduled meeting in August, the CEO, the CHRO and the Compensation Committees independent compensation consultant present marketplace data developed by the independent consultant, summaries of each executives performance and compensation recommendations for each executive officer. The CHRO and the Compensation Committees independent consultant assist the Compensation Committee in its deliberations with respect to these recommendations. The Compensation Committee uses the comparative data as a reference for determining whether the compensation plans and levels targeted for each executive appear to be near the median amount paid by peer companies, taking into consideration the NEOs experience in the position and the long-term performance of the individual NEO. In assessing the compensation plans for the CEO and the other executive officers, the Compensation Committee considers total compensation opportunities, both short- and long-term, while at the same time focusing attention on the competitiveness of each component of compensation. Actual cash incentive payouts, actual value received from long-term incentive awards and actual overall compensation levels with respect to any given year for any particular officer may vary from the targeted levels based on Avnets enterprise and business unit performance and relative performance to its industry. As part of the compensation setting process, the Compensation Committee reviews total compensation tally sheets for each executive officer.
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Following the end of each fiscal year, the Chairman leads the Board in conducting an annual evaluation of CEO performance relative to the performance goals and objectives established for the Company and the CEO for the fiscal year just ended. The CEO completes a self-assessment that is provided to each Director. This assessment covers topics such as enterprise performance based on the Company scorecard, economic profit dollar growth, profitable growth initiatives, capital allocation strategies, TSR optimization and succession planning. Each director reviews this self-assessment and discusses the CEOs performance during an executive session of the Board. Following this discussion, the Chairman of the Board provides the CEO with the Boards views as to CEO performance. The results of the Boards evaluation are then considered in establishing the goals and compensation plan for the CEO for the new fiscal year.
Role of Management
At the beginning of each fiscal year, the CEO evaluates the performance of the Companys executive officers against the strategic and financial operating plan for the prior fiscal year. The CEOs evaluation of individual performance also focuses on each executive officers performance relative to each persons performance goals.
The Company does not have a pre-defined framework that determines which objectives may be more or less important, and the emphasis placed on specific objectives may vary among the executive officers depending on the specific roles and responsibilities of each executive officer, as well as the particular challenges, both in terms of business and professional development, faced by the executive. Individual objectives typically include financial objectives, such as sales, net and gross profit, operating income and economic profit, as well as objectives relating to other major business initiatives, such as implementation of new enterprise resource planning software or integrating a significant acquisition.
As part of the performance management process, each executive officer is also evaluated on ten performance dimensions, which reference the manner in which the individual accomplishes his or her goals, including commitment to Avnets core values of integrity, customer service, accountability, teamwork and innovation. These core values form the foundation of Avnets performance and values-based culture of excellence and underpin Avnets overall profitable growth strategies focused on inspired and engaged people, unparalleled customer service and technology, services and solutions that matter. While this qualitative evaluation does not carry a specific weight, it does factor into the overall assessment of the executives performance when setting target compensation levels.
During fiscal 2013, the CEO, in consultation with the CHRO, developed base salary and short- and long-term target award recommendations for the other executive officers. Individual factors that were considered include the following:
| the value of the job in the marketplace as compared with similar jobs within Avnets peer group; |
| the relative importance of the job within the executive ranks of the Company as determined by scope of responsibility and performance expectations; |
| the number of years and breadth of experience the executive officer has within the particular job; |
| the individual performance of the executive relative to the specific financial targets or business objectives set forth for the job; and |
| the executive officers expected contribution to the future performance of the Company. |
Once an executive officers role and responsibilities are defined, value of the job in the marketplace and relative importance of the position within the executive ranks are the most determinative factors in setting compensation targets for that executive officer, adjusted to take into consideration the executive officers experience and past and expected future performance.
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Role of Independent Compensation Consultant
From 2008 until May 2013, the Compensation Committee engaged Steven Hall & Partners (SH&P) as the Compensation Committees independent compensation consultant. During fiscal 2013, representatives of SH&P attended, either in person or by telephonic conference call, four meetings of the Compensation Committee.
In May 2013, the Compensation Committee retained Meridian Compensation Partners, LLC (Meridian), as the Compensation Committees independent compensation consultant.
The compensation consultant provides the Compensation Committee with expertise relating to compensation philosophy, compensation levels, market trends and peer group analysis. In addition, the compensation consultant advises the Compensation Committee on best-practice ideas for governance of executive compensation as well as areas of potential risk and concern in the Companys executive compensation program, and undertakes special projects at the request of the Committee chair.
The Compensation Committee has sole authority with regard to retaining and approving fees for its independent consultant. The Compensation Committee assessed the independence of SH&P and Meridian pursuant to the SEC and New York Stock Exchange rules and concluded that no conflict of interest exists that prevented, or will prevent, them from being independent consultants to the Compensation Committee.
Competitive Marketplace Assessment
As part of its compensation setting process, the Compensation Committee regularly reviews the composition of the comparator group in consultation with its independent consultant. With respect to fiscal 2013 compensation, SH&P conducted a comprehensive review of the executive compensation program at the Company as compared to a 17-company comparator group. The group includes companies with a similar industry focus and/or of similar size and complexity with whom Avnet competes for talent.
For fiscal 2013, the comparator group was selected based on five metrics: (i) technology distributors, (ii) electronic manufacturing services (EMS) and/or electronic components manufacturing (ECM) companies, and (iii) S&P 500 information technology index members similar to the Company with respect to (a) revenue, (b) market capitalization or (c) operating income margin. With respect to operating income margin, the peer group included companies that had a similar operating income margin based on a three-year average.
For fiscal 2013, the comparator group consisted of:
Technology Distributors Arrow Electronics, Inc. Anixter International, Inc. Ingram Micro, Inc. SYNNEX Corporation Tech Data Corporation |
EMS/ECM Celestica, Inc. Flextronics International Ltd. Jabil Circuit, Inc. |
Revenues Intel Corporation Oracle Corp. Xerox Corp. |
Market Capitalization Advanced Micro Devices, Inc. Harris Corporation VeriSign, Inc. |
Operating Income Margins Dell, Inc. Micron Technology, Inc. Novellus Systems, Inc. |
The Compensation Committee continually monitors the make-up of the peer group used and evaluates the peer group against the Companys operations. The fiscal 2013 peer group was approved by the Compensation Committee in May 2012. A comparison of Avnets fiscal 2012 revenue, operating margin and market capitalization compared to the comparator groups then most recent annual information is included below:
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| Avnets revenues were at the 72nd percentile of the comparator group; |
| Avnets operating margin was at the 32nd percentile of the comparator group; and |
| Avnets market capitalization was at the 64th percentile of the comparator group. |
To benchmark Avnet compensation levels for the CEO, CFO and Group Presidents positions, data derived from the SEC filings of the comparator group have been supplemented with a variety of relevant, published surveys which provided data on compensation in the technology sector and general industry. For other positions for which SEC proxy data is generally not available, only survey data compiled by SH&P was utilized. All of the data sources have been weighted based on relevance, reliability and an assessment of the appropriateness of the match of responsibilities.
Following the completion of the benchmarking review by SH&P, the Compensation Committee and management reviewed the data in light of trends, past compensation levels and the percentage changes as part of the executive compensation decision-making process. As part of this process, each executives proposed individual target compensation was evaluated against the marketplace data, including a review of the individual compensation elements such as base pay, variable cash incentive and long-term incentives. This allowed for the determination of any gaps in compensation that may need to be addressed. While the target was the median marketplace compensation level for each pay element, an individual executives target compensation may have been above or below the median, based on other factors, such as the experience in the position and the long-term performance of the individual executive. For fiscal 2013, the compensation of Mr. Hamada was targeted at 80% of the CEO comparator group median. While benchmarking data is one consideration in this process, it is not the sole determinative factor. For further information on this process, please see Compensation Governance and Process above.
Elements of Executive Compensation
The primary components of the Companys compensation program and the objectives of each component are set forth in the table below.
Key Objective | ||||||||||||||||||||||
Component |
Philosophy |
Align with Market Trends |
Attract and Retain |
Reward Short-Term Performance |
Reward Long-Term Performance |
Align with Shareholders Interest |
||||||||||||||||
Base salary |
Fixed element reflecting the executives long-term performance and skill set | X | X | |||||||||||||||||||
Annual cash incentive |
Annual cash incentive compensation is based on the performance of the Company and business unit (where appropriate) for which the executive has direct responsibility | X | X | X | X | |||||||||||||||||
Long-term incentives |
LTIP awards are based generally on each executives individual contribution in a particular fiscal period and the executives potential to contribute to the long-term success of the Company | X | X | X | X |
In addition, each NEO is also eligible to receive certain other benefits as described in the Additional Compensation Elements section of this CD&A.
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In support of what the Compensation Committee feels is a strong pay-for-performance orientation, an executives potential compensation is heavily weighted toward incentive (variable) compensation and shareholder value creation, most of which is paid out based on the long-term performance of the Company, including its TSR. The compensation mix at target for the CEO and the other NEOs for fiscal 2013 is displayed below.
Base Salary
Executive salaries are reviewed on an annual basis, as well as at the time of a promotion or other material change in responsibilities. Annual reviews are generally conducted in the first quarter of each fiscal year. Base salaries of the executive officers are individually determined by the Compensation Committee based on the factors described above in the Compensation Governance and Process section of this CD&A. For fiscal 2013, the Compensation Committee approved the following annual salaries:
NEO |
2013 Base Salary | % Change from 2012 | ||||||
Mr. Hamada |
$ | 900,000 | 6 | % | ||||
Mr. Sadowski |
$ | 538,000 | 0 | % | ||||
Mr. Feldberg |
$ | 593,000 | 3 | % | ||||
Mr. Gallagher |
$ | 525,000 | 2 | % | ||||
Ms. Miller |
$ | 425,000 | 6 | % | ||||
Mr. Birk |
$ | 500,000 | 0 | % |
As Mr. Moriarty was not an employee in 2012, his salary is not included in the table above. For the second half of fiscal 2013, during which time he served as the Companys CFO, Mr. Moriarty received a base salary of $250,000.
Annual Cash Incentives
In addition to base salary, executive officers are eligible to receive annual incentive cash compensation based on the performance of the Company and, where appropriate, the business unit for which the executive has direct responsibility. Awards are made pursuant to the Executive Incentive Plan (the Incentive Plan).
The target cash incentive compensation for fiscal 2013 for the NEOs as a percentage of the NEOs base salary and the percent change in incentive compensation from fiscal 2012 is set forth in the following table:
NEO |
2013 Target Cash Incentive |
Percentage of 2013 Base Salary |
% Change from 2012 | |||||||||
Mr. Hamada |
$ | 1,000,000 | 111 | % | 18 | % | ||||||
Mr. Moriarty |
$ | 200,000 | 80 | % | N/A | |||||||
Mr. Sadowski |
$ | 437,000 | 81 | % | 6 | % | ||||||
Mr. Feldberg |
$ | 593,000 | 100 | % | 3 | % | ||||||
Mr. Gallagher |
$ | 525,000 | 100 | % | 12 | % | ||||||
Ms. Miller |
$ | 325,000 | 76 | % | 25 | % | ||||||
Mr. Birk |
$ | 375,000 | 75 | % | 0 | % |
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The increases in target cash incentive compensation take into account the NEOs experience in the position and the long-term performance of the individual NEO. Additionally, the increases for certain of the NEOs reflect the Companys practice of progressively moving NEOs to the comparator group median over a definitive time period. Mr. Moriarty joined the Company at the start of the second half of Avnets fiscal 2013 and had an initial target cash incentive of $200,000.
Performance Goals. As discussed above, the process for setting the annual cash incentive compensation begins in conjunction with the review of the Companys budget for the new fiscal year at the Boards strategic planning session held in June. When determining the budget, the Board seeks to ensure that it is fair, challenging and forward-looking, without encouraging excessive risk-taking. Additionally, when determining the fiscal 2013 budget, the Board considered the Companys results in fiscal 2012, the projected growth and the operating environment as projected by industry analysts. At the meeting in August, the Compensation Committee or the Board, as appropriate, finalizes the annual cash incentive performance goals, the target cash incentive compensation and payout ranges under the Incentive Plan.
The performance goals for all NEOs are, at least in part, based on Company-wide performance. Performance goals for operating group presidents (Messrs. Feldberg and Gallagher) are weighted more heavily on the performance of the applicable operating group (75% of target award) but contain a component based on the performance of the entire Company as well (25% of target award). Performance goals for the other NEOs are entirely based on Company-wide performance.
Company-Wide Performance Goals. Company-wide performance goals are based on the percentage achievement of Avnets 2013 net income after tax, excluding certain items (NIAT), as modified by the ratio of actual return on capital employed, excluding certain items (ROCE), to target ROCE. NIAT and ROCE were selected as the performance metrics because the Compensation Committee believes that those metrics are aligned with the creation of long-term shareholder value. The NIAT target for fiscal 2013 represented an 8% increase from the NIAT actually achieved in fiscal 2012.
Operating Group Performance Goals. Operating group performance goals are based upon the achievement of the applicable operating groups net income before tax, excluding certain items (NIBT), as modified by the ratio of the actual ROCE to target ROCE of the respective operating group. The NIBT target for fiscal 2013 for the Electronics Marketing operating group represented an 8% increase over the NIBT actually achieved by this group in fiscal 2012. The NIBT target for fiscal 2013 for the Technology Solutions operating group represented a 15% increase over the NIBT actually achieved by this group in fiscal 2012.
Target Payout. The table below outlines the payout range that applies to each performance level.
Performance Level |
Payout Range | |
(as percentage of target incentive opportunity) | ||
Below 50% of performance goal |
0% | |
At 50% of performance goal but less than 95% of performance goal |
25% - 90% | |
Between 95% and 105% of performance goal |
95% - 105% | |
Between 106% of performance goal and maximum |
110% - 225% |
The factor on the NIAT and/or NIBT portion of the incentive is linear for actual results between 95% and 105% of the performance goal. If actual NIAT were less than 95% or greater than 105% of the performance goal, the factor would be equal to the percentage of actual results to the performance goal squared. For example, if actual NIAT were 110% of the performance goal, a factor of 121% (110% times 110%) would be applied to the target incentive compensation and if actual NIAT were 90% of the performance goal, a factor of 81% (90% times 90%) would be applied to the target incentive compensation. Maximum cash incentive compensation is limited to 225% of the target cash incentive compensation. No cash incentive compensation will be earned if actual performance is less than 50% of the performance goal.
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Actual Payout. Based upon actual performance of the Company and the operating group, where applicable, the NEOs were paid the following cash incentive amounts:
NEO |
Target Cash Incentive |
Cash Incentive Paid for Fiscal 2013 |
Percentage of Target Achieved |
|||||||||
Mr. Hamada |
$ | 1,000,000 | 447,879 | 45 | % | |||||||
Mr. Moriarty |
$ | 200,000 | 81,820 | 41 | % | |||||||
Mr. Sadowski |
$ | 437,000 | 195,723 | 45 | % | |||||||
Mr. Feldberg(1) |
$ | 593,000 | 295,629 | 50 | % | |||||||
Mr. Gallagher(2) |
$ | 525,000 | 234,085 | 45 | % | |||||||
Ms. Miller |
$ | 325,000 | 145,561 | 45 | % | |||||||
Mr. Birk |
$ | 375,000 | 271,478 | 72 | % |
(1) | Mr. Feldberg earned 52% of his target cash incentive for the portion of his incentive tied to the results of Avnet Electronics Marketing, which represented 75% of his total target cash incentive, and earned 45% of his target cash incentive for the portion tied to Avnets consolidated results, which represented 25% of his total target cash incentive. Therefore, he earned 50% of his total target cash incentive as reflected in the total above (52% times 75% plus 45% times 25%). |
(2) | Mr. Gallagher earned 45% of his target cash incentive for the portion of his incentive tied to the results of Avnet Technology Solutions, which represented 75% of his total target cash incentive, and earned 45% of his target cash incentive for the portion tied to Avnets consolidated results, which represented 25% of his total target cash incentive. Therefore, he earned 45% of his total target cash incentive as reflected in the total above (45% times 75% plus 45% times 25%). |
The percentages of target cash incentive earned were calculated as follows:
Avnet | EM | TS | ||||||||||
Target incentive tied to income metric |
||||||||||||
NIAT/NIBT goal |
$ | 680.535 | $ | 774.145 | $ | 356.559 | ||||||
NIAT/NIBT actual |
$ | 507,764 | $ | 622,503 | $ | 271,024 | ||||||
% of goal achieved |
74.61 | % | 80.41 | % | 76.01 | % | ||||||
% of goal squared |
55.67 | % | 64.66 | % | 57.78 | % | ||||||
Incentive tied to return on capital metric |
||||||||||||
ROCE goal |
13.71 | % | 14.54 | % | 12.64 | % | ||||||
ROCE actual |
11.03 | % | 11.59 | % | 9.74 | % | ||||||
% of goal achieved |
80.45 | % | 79.71 | % | 77.06 | % | ||||||
Total incentive earned |
44.79 | % | 51.54 | % | 44.52 | % |
The actual annual cash incentive earned for fiscal 2013 was below target due to the fact that actual NIAT, NIBT and ROCE performance was below the budgeted amounts. As a result of such performance, except with respect to Mr. Birk, the annual cash incentive compensation awarded to each of the NEOs decreased from fiscal 2012, consistent with the Companys pay-for-performance philosophy. With respect to Mr. Birk, the Company agreed to fix a portion of his annual cash incentive upon Mr. Birk ceasing to serve as Senior Vice President and General Counsel. As a result of such arrangement, Mr. Birk received the target amount of annual cash incentive for the second half of fiscal 2013. For additional information regarding the fiscal 2013 performance of the Company and its operating groups, please refer to the Companys Annual Report on Form 10-K for the year ended June 29, 2013.
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Signing Bonus
In connection with his appointment as the Companys CFO, Mr. Moriarty received a signing bonus of $680,000, of which $400,000 was paid during fiscal 2013 and $280,000 will be paid after his one-year anniversary with the Company. The purpose of this bonus was to encourage Mr. Moriarty to join the Company and to offset certain future compensation payments from his previous employer.
Long-Term Incentives
The Board believes that long-term incentive compensation in the form of equity awards for all executive officers is a valuable compensation component. Equity awards under the LTIP provide a strong incentive to increase shareholder value over time and improve TSR, as well as aid in retention. When granting long-term incentive compensation awards, the Compensation Committee reviews the relevant comparator group and survey compensation data and generally targets the median marketplace compensation level for long-term incentives. Comparator group data is not the sole determinative factor and awards under the LTIP may be above or below the median, based on a variety of factors.
The Compensation Committee generally awards a mix of RSUs, stock options and PSUs to the Companys executive officers. The following is an overview of the long-term incentive program components.
Equity |
Target % of LTIP |
Purpose |
Award Terms | |||
Restricted Stock Units |
25% | Align with shareholders interest Aid in retention Value is tied to the performance of the Companys stock |
Paid out in shares of Common Stock Typically vest in equal installments over approximately 4.5 years | |||
Stock Options |
25% | Align with shareholders interest Aid in retention Value is tied to stock price appreciation |
Typically vest in equal installments over four years Exercise price equal to the closing price on the grant date Expire 10 years from grant date | |||
Performance Share Units |
50% | Further align with shareholders interest by providing incentive to increase shareholder value and TSR Aid in retention Value is tied to relative performance of the Company and its shares against its peer group |
Paid out in shares of Common Stock Cliff vest at end of three year performance period 75% of PSUs vest, if at all, based on relative economic profit performance during performance period 25% of PSUs vest, if at all, based on relative TSR performance at end of performance period |
RSUs typically vest in five installments, with the first installment vesting in January following the grant and the balance vesting in four equal annual installments thereafter. Stock options typically vest in four equal annual installments on the anniversaries of the grant date. Vesting of each of the awards granted under the LTIP is generally contingent upon continued employment, except in the case of death, disability, retirement of the employee or a change of control, as more fully discussed in Potential Payouts Upon Termination and Change of Control, below.
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Performance Share Units. The PSUs awarded in fiscal 2013 vest based upon a three-year performance cycle covering the Companys fiscal years 2013, 2014 and 2015. The vesting of the PSUs is subject to Avnet achieving relative economic profit performance (Relative EP) and relative total shareholder return performance (Relative TSR) equal to at least the respective threshold levels set forth below. The Compensation Committee or, where applicable, the Board uses Relative EP as a performance goal because the Board believes that economic profit growth and the creation of shareholder value ultimately leads to growth in TSR and executives are able to directly influence this metric.
For purposes of the PSU awards:
| Relative EP means Avnets economic profit per dollar of average capital compared to the economic profit per dollar of average capital of the companies in the S&P Supercomposite Technology Distributors Index Sub-Industry Index, excluding Avnet (the Index), during the performance period. |
| Economic profit for a business means operating income after tax (assuming an effective tax rate of 35%), less a capital charge of 10% on the amount of capital invested in the business. For purposes of the PSUs, operating income excludes certain items as determined by the Compensation Committee, such as restructuring charges, asset writedowns, impairments and financial impacts of accounting, tax, and regulatory changes, etc. |
| Relative TSR means the percentile rank (from 0%ile for the lowest to 100%ile for the highest) of Avnets Total Shareholder Return compared to the individual total shareholder return of each company in the Index. |
| Total Shareholder Return means the percent calculated using the following formula: |
Average stock price at the end of period average stock price at the start of period + dividends
Average stock price at the start of period
When calculating the average stock price at the beginning and end of the relevant period, the Company uses the 30-trading day average immediately before and including the start day and the 30-trading day average immediately before and including the end day of the applicable period.
As noted above, 75% of the PSUs vest depending upon Relative EP and 25% of the PSUs vest depending upon Relative TSR. Based upon the Companys actual Relative EP and Relative TSR during the three-year performance period, the recipient is eligible to receive a percentage of the target number of shares ranging from 0% to 200% of participants targeted number of shares as set forth below:
Relative EP Scale |
||||||||||||||||||||
Relative EP relative to the Index |
-10 | % | -5 | % | 0 | % | +5 | % | +10 | % | ||||||||||
Payout Percent of Target |
0 | % | 50 | % | 100 | % | 150 | % | 200 | % |
Relative TSR Scale |
||||||||||||||||||||
Percentile Rank |
0 | % | 25 | % | 50 | % | 75 | % | 100 | % | ||||||||||
Payout Percent of Target |
0 | % | 50 | % | 100 | % | 150 | % | 200 | % |
If Avnets actual Relative EP or Relative TSR is between two achievement levels set forth in the table above, the percentage vesting shall be determined by linear interpolation.
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Fiscal 2013 Awards. The 2013 LTIP awards to the NEOs are listed in the following table.
NEO |
RSUs (#) |
Stock Options (#) |
PSUs (#) |
Target Value of LTIP Awards |
||||||||||||
Mr. Hamada |
27,750 | 79,296 | 55,505 | $ | 3,600,000 | |||||||||||
Mr. Moriarty* |
25,000 | 68,000 | 8,500 | $ | 1,831,000 | |||||||||||
Mr. Sadowski |
11,565 | 33,040 | 23,125 | $ | 1,500,000 | |||||||||||
Mr. Feldberg |
10,020 | 28,636 | 20,045 | $ | 1,300,000 | |||||||||||
Mr. Gallagher |
8,095 | 23,128 | 16,190 | $ | 1,050,000 | |||||||||||
Ms. Miller |
6,165 | 17,620 | 12,335 | $ | 800,000 | |||||||||||
Mr. Birk |
7,710 | 22,028 | 15,420 | $ | 1,000,000 |
* | Mr. Moriartys award reflects equity granted to encourage Mr. Moriarty to join the Company and to offset certain future compensation payments from his previous employer. |
With respect to Mr. Moriartys award, the RSUs vest ratably over three years, beginning on January 2, 2014, the options vest ratably over four years beginning on January 2, 2014, and the PSUs vest, if at all, based upon a three-year performance cycle covering the Companys fiscal years 2013, 2014 and 2015.
Performance Stock Units Earned. The payout percentages for the PSU awards for the past 5 years are set forth in the following table:
Performance Period |
Payout % | |||
Fiscal Years 2011 2013 |
90 | % | ||
Fiscal Years 2010 2012 |
150 | % | ||
Fiscal Years 2009 2011 |
100 | % | ||
Fiscal Years 2008 2010 |
100 | % | ||
Fiscal Years 2007 2009 |
50 | % |
Additional Compensation Elements
Retirement Benefits
Avnet provides a retirement benefit to each NEO under a tax-qualified retirement plan and a retirement benefit under nonqualified retirement plans. The Avnet pension plan (the Pension Plan) is a type of tax-qualified defined benefit plan commonly referred to as a cash balance plan. The nonqualified retirement plans consist of the Avnet restoration pension plan (the Restoration Plan) and the supplemental executive officers retirement plan (the SERP). The plans are more fully described in the Pension Benefits discussion below. The SERP was closed to new participants effective December 31, 2011, and the Restoration Plan was adopted effective January 1, 2012. Pursuant to the terms of the Restoration Plan and the SERP, any benefit payable under the Restoration Plan reduces the benefit payable under the SERP. These plans are important retention tools in the Avnet compensation program because the receipt of benefits under these plans is contingent upon the satisfaction of certain age and service requirements. Additionally, as the benefits provided under the nonqualified retirement plans are based in part on a participants yearly cash compensation, including a participants annual cash incentive compensation, the plans include a performance based element. The Company balances the effectiveness of these plans as a compensation and retention tool with the cost of these plans.
Deferred Compensation
The Company maintains a Deferred Compensation Plan for highly compensated employees including all of the NEOs. The program permits these employees to set aside a portion of their income for retirement on a pre-tax basis, in addition to the amounts allowed under the Companys 401(k) Plan, at a minimal administrative cost to the Company. Under this unfunded program, amounts deferred by a
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participant are credited with earnings based upon the returns actually obtained through the deemed investment selected by the executive, as described in more detail following the Nonqualified Deferred Compensation Table. The Company does not offer preferential or above market returns on the compensation deferred.
Perquisites
The Company provides NEOs with a limited number of perquisites that the Company and the Compensation Committee believe are reasonable and consistent with Avnets overall compensation program, and necessary to remain competitive. Costs associated with perquisites provided by the Company are included in the All Other Compensation column in the Summary Compensation Table.
Change of Control Agreements
Each NEO has a change of control agreement with the Company. The change of control agreements are intended to encourage retention in the face of the disruptive impact of an actual or attempted change of control of the Company. The agreements are also intended to align executive and shareholder interests by enabling executives to consider corporate transactions that are in the best interests of the shareholders and other constituents of the Company without undue concern over whether the transactions may jeopardize the executives own employment. More detailed descriptions of these programs are included under the heading Potential Payouts Upon Termination and Change of Control.
Stock Ownership Guidelines
With a significant portion of each executive officers total compensation delivered in the form of equity-based incentives, executive officers have a substantial interest and incentive to ensure profitable growth of the Company and to drive long-term shareholder value. To further reinforce this focus, the Compensation Committee has established stock ownership guidelines for all executive officers. The guidelines provide that the executive officers should hold shares of the Companys Common Stock or RSUs, with a market value equal to a multiple of each officers base salary, as set forth below:
Chief Executive Officer |
Shares with market value equal to 5 times base salary | |
Chief Financial Officer, General Counsel and Operating Group Presidents |
Shares with market value equal to 3 times base salary | |
Other Executive Officers |
Shares with market value equal to 1 times base salary |
Holding Period for Common Stock
Until the ownership level under the Companys stock ownership guidelines is met, executives must hold at least 50% of any net shares he or she receives upon the exercise of options or upon the delivery of any RSU or PSU awards.
Insider Trading Policy
The Companys insider trading policy expressly prohibits ownership of financial instruments or participation in investment strategies that hedge the economic risk of owning the Companys securities. Additionally, executive officers and directors are prohibited from pledging Avnet securities as collateral for loans. The Companys insider trading policy prohibits executive officers and directors from trading in securities of Avnet or engaging in any other action to take advantage of, or pass on to others, material nonpublic information relating to Avnet or any other company with which Avnet has a relationship, including Avnets customers, suppliers or potential parties in a business transaction.
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Recoupment Policy
Pursuant to the Companys incentive compensation recoupment policy, in the event of a restatement of the Companys financial results due to the misconduct of any employee, the Independent Directors are authorized to take action to recoup all or part of any incentive compensation received by an executive officer. For purposes of this policy, incentive compensation includes any cash or stock-based award under the Companys Incentive Plan or LTIP, the amount of which is determined in whole or in part upon achievement of specific financial performance targets. The policy defines misconduct as the willful commission of an illegal act, fraud, intentional misconduct or gross recklessness in the performance of an employees duties and responsibilities. In determining whether to take action to recoup any incentive compensation received by an executive officer, the Independent Directors will take into consideration whether the executive officer engaged in the misconduct or was in a position, including in a supervisory role, to have been able to have reasonably prevented the misconduct that caused the restatement.
Equity Grant Practices
The Compensation Committee typically makes its compensation recommendations and decisions at its regularly scheduled meeting in August, which is generally scheduled at least one year in advance. Pursuant to the Companys equity incentive plans, the exercise price of each stock option awarded to the executive officers is the closing price of Avnets Common Stock on the date of grant. Options and other equity-based awards may be granted in connection with a new hire or a promotion, in which case awards may be granted at the Compensation Committee meeting at or about the time of hiring or promotion. Scheduling decisions are made without regard to anticipated earnings or the major announcements by the Company.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code), limits to $1 million the amount of remuneration that Avnet may deduct in any calendar year for its CEO and three other highest-paid named executive officers, other than the CFO. The limitation applies only to compensation that is not considered performance based as defined in the Section 162(m) regulations.
In designing the Companys compensation programs, the Compensation Committee considers the effect of Section 162(m) of the Code, as well as other factors relevant to the Companys business needs. The Company has historically taken, and intends to continue to take, reasonable and appropriate actions with respect to achieving deductibility of annual incentive and long-term compensation. To maintain flexibility, the Compensation Committee does not have a policy requiring all compensation to be deductible.
D&O Insurance
As permitted by Section 726 of the Business Corporation Law of New York, Avnet has in force directors and officers liability insurance and corporate reimbursement insurance. The policy insures Avnet against losses from claims against its directors and officers when they are entitled to indemnification by Avnet, and insures Avnets directors and officers against certain losses from claims against them in their official capacities. All duly elected directors and officers of Avnet and its subsidiaries are covered under this insurance. The primary insurer is Federal Insurance Company, a Chubb Group insurance company. Excess insurers include ACE American Insurance Company, Arch Insurance Company, Zurich American Insurance Company, National Union Fire Insurance Co. of Pittsburgh, PA, Allied World National Assurance Company, Federal Insurance Company, and Lloyds of London. The coverage was renewed effective August 1, 2013, for a one-year term. The total premium paid for both primary and excess insurance was $1,167,363.
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COMPENSATION OF AVNET EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation provided by Avnet for the years indicated to the Named Executive Officers.
SUMMARY COMPENSATION TABLE
Name and Principal Position |
Year | Salary ($) |
Bonus ($) |
Stock Awards ($)(1) |
Option Awards ($)(1) |
Non-Equity Incentive Plan Compensation ($) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(2) |
All
Other Compensation ($)(3) |
Total ($) |
|||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
Richard Hamada |
2013 | 900,000 | | 2,699,960 | 900,010 | 447,879 | | 29,183 | 4,977,032 | |||||||||||||||||||||||||||
Chief Executive Officer |
2012 | 850,000 | | 1,794,307 | 578,537 | 470,320 | 899,504 | 36,620 | 4,629,288 | |||||||||||||||||||||||||||
2011 | 700,000 | | 1,747,907 | 443,988 | 1,535,139 | 1,039,262 | 28,185 | 5,494,481 | ||||||||||||||||||||||||||||
Kevin Moriarty |
2013 | 250,000 | 400,000 | 1,068,315 | 762,960 | 81,820 | | 5,850 | 2,568,945 | |||||||||||||||||||||||||||
Senior Vice President and |
||||||||||||||||||||||||||||||||||||
Chief Financial Officer |
||||||||||||||||||||||||||||||||||||
Raymond Sadowski |
2013 | 538,000 | | 1,124,997 | 375,004 | 195,723 | 3,307 | 18,538 | 2,255,569 | |||||||||||||||||||||||||||
Senior Vice President and |
2012 | 538,000 | | 852,310 | 274,821 | 227,967 | 541,135 | 20,872 | 2,455,105 | |||||||||||||||||||||||||||
Chief Administrative Officer |
2011 | 538,000 | | 943,829 | 239,765 | 793,886 | 675,172 | 14,692 | 3,205,344 | |||||||||||||||||||||||||||
Harley Feldberg |
2013 | 593,000 | | 975,008 | 325,019 | 295,629 | 8,445 | 23,154 | 2,220,255 | |||||||||||||||||||||||||||
Senior Vice President and |
2012 | 575,000 | | 801,040 | 258,266 | 319,729 | 661,461 | 18,773 | 2,634,269 | |||||||||||||||||||||||||||
President, Avnet Electronics Marketing |
2011 | 550,000 | | 1,004,979 | 255,287 | 1,117,882 | 928,486 | 30,116 | 3,886,750 | |||||||||||||||||||||||||||
Philip Gallagher |
2013 | 525,000 | | 787,563 | 262,503 | 234,085 | | 19,951 | 1,829,102 | |||||||||||||||||||||||||||
Senior Vice President and |
2012 | 515,000 | | 634,518 | 204,540 | 313,557 | 559,340 | 20,489 | 2,247,444 | |||||||||||||||||||||||||||
President, Avnet Technology Solutions |
2011 | 500,000 | | 830,330 | 210,884 | 597,051 | 351,137 | 23,124 | 2,512,526 | |||||||||||||||||||||||||||
MaryAnn Miller |
2013 | 425,000 | | 599,955 | 199,987 | 145,561 | 118,404 | 21,942 | 1,510,849 | |||||||||||||||||||||||||||
Senior Vice President and Chief Human Resources Officer |
||||||||||||||||||||||||||||||||||||
David Birk |
2013 | 500,000 | | 750,106 | 250,018 | 271,478 | | 22,329 | 1,793,931 | |||||||||||||||||||||||||||
Former Senior Vice President and General Counsel |
(1) | Amounts shown under the heading Stock Awards reflect the grant date fair value of awards of RSUs and PSUs, computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The grant date fair value of RSUs awarded to each NEO in fiscal 2013 is as follows: Mr. Hamada $899,933; Mr. Moriarty $797,250; Mr. Sadowski $375,053; Mr. Feldberg $324,949; Mr. Gallagher $262,521; Ms. Miller $199,931; and Mr. Birk $250,035. With respect to PSUs, the grant date fair value was computed based upon the target outcome of the performance conditions as of the grant date, which was consistent with the estimates used by the Company to measure compensation cost determined as of the grant date. Assuming the target performance is achieved for PSUs awarded in fiscal 2013, the grant date fair value of the award to each NEO is as follows: Mr. Hamada $1,800,027; Mr. Moriarty $271,065; Mr. Sadowski $749,944; Mr. Feldberg $650,059; Mr. Gallagher $525,042; Ms. Miller $400,024; and Mr. Birk $500,071. Assuming the maximum payout of PSUs granted in fiscal 2013 is achieved, the grant date value of such awards would be $3,600,054, $542,130, $1,499,888, $1,300,119, $1,050,083, $800,048 and $1,000,141 for Messrs. Hamada, Moriarty, Sadowski, Feldberg, Gallagher, Ms. Miller, and Mr. Birk, respectively. Amounts shown under the heading Option Awards reflect the grant date fair values for stock option awards calculated using the Black-Scholes option pricing model. For information on the assumptions used to calculate the value of the awards, refer to Note 12 to the Companys Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended June 29, 2013. The amounts included in these columns relate to awards made in the fiscal year and reflect the aggregate grant date fair value |
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computed in accordance with FASB ASC Topic 718 and do not correspond to the actual amount that will be realized by the NEOs. |
(2) | The amount includes the net change in the actuarial present value of accumulated benefits under the Companys qualified and nonqualified retirement plans. The year-over-year decrease was primarily due to the change in the discount rate applied to the plans as interest rates at the end of fiscal 2013 were higher than at the end of fiscal 2012. For Messrs. Hamada, Gallagher and Birk, the impact of the change in the discount rate resulted in a net decrease in the total net change of the actuarial present value of accumulated benefits under the qualified and nonqualified retirement plans, and as such these net negative amounts are not reflected in the table above. For fiscal 2013 the increase in the actuarial present value of accumulated benefits under the Companys qualified plan was $24,163, $21,685 and $60,131 for Messrs. Hamada, Gallagher and Birk, respectively. For fiscal 2013, the decrease in the actuarial present value of accumulated benefits under the Companys nonqualified retirement plan was $116,935, $40,374 and $71,396 for Messrs. Hamada, Gallagher and Birk, respectively. Mr. Moriarty is not a participant in the SERP. He will become a participant in the Pension and Restoration Plans effective July 1, 2014. |
(3) | The amount includes (a) Company-paid expenses associated with a leased automobile for each of the NEOs and (b) the cost of annual physical exams. None of the perquisites and personal benefits exceeded the greater of $25,000 or 10% of the total amount of these benefits for the NEO. |
Grants of Plan-Based Awards
The following table provides information about equity and non-equity plan-based awards to the NEOs in fiscal 2013 relating to: (1) annual cash incentive awards; (2) PSUs; (3) RSUs; and (4) stock options. The actual payouts earned in fiscal 2013 under the Non-Equity Incentive Plan Awards are included in the Summary Compensation Table as are the grant date fair values associated with the awards under the Equity Incentive Plan, All Other Stock Awards and All Other Option Awards in the table below.
Estimated Future Payouts |
Estimated Future Payouts |
All Other Stock Awards: Number of Shares of Stock or Units (#)(3) |
All Other Option Awards: Number of Securities Underlying Options (#)(3) |
Exercise or Base Price of Option Awards ($/Sh) |
Grant Date Fair Value of Stock and Options Awards |
|||||||||||||||||||||||||||||||||||||||||||
Name |
Grant Date |
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | |||||||||||||||||||||||||||||||||||||
Richard Hamada |
8/09/2012 | 250,000 | 1,000,000 | 2,250,000 | | | | | 79,296 | 32.43 | 900,010 | |||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | 1 | 55,505 | 111,010 | | | | 1,800,027 | ||||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | | | | 27,750 | | | 899,933 | ||||||||||||||||||||||||||||||||||||||
Kevin Moriarty |
1/02/2013 | 50,000 | 200,000 | 450,000 | | | | | 68,000 | 31.89 | 762,960 | |||||||||||||||||||||||||||||||||||||
1/02/2013 | | | | 1 | 8,500 | 17,000 | | | | 271,065 | ||||||||||||||||||||||||||||||||||||||
1/02/2013 | | | | | | | 25,000 | | | 797,250 | ||||||||||||||||||||||||||||||||||||||
Raymond Sadowski |
8/09/2012 | 109,250 | 437,000 | 983,250 | | | | | 33,040 | 32.43 | 375,004 | |||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | 1 | 23,125 | 46,250 | | | | 749,944 | ||||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | | | | 11,565 | | | 375,053 | ||||||||||||||||||||||||||||||||||||||
Harley Feldberg |
8/09/2012 | 148,250 | 593,000 | 1,334,250 | | | | | 28,636 | 32.43 | 325,019 | |||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | 1 | 20,045 | 40,090 | | | | 650,059 | ||||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | | | | 10,020 | | | 324,949 | ||||||||||||||||||||||||||||||||||||||
Philip Gallagher |
8/09/2012 | 131,250 | 525,000 | 1,181,250 | | | | | 23,128 | 32.43 | 262,503 | |||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | 1 | 16,190 | 32,380 | | | | 525,042 | ||||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | | | | 8,095 | | | 262,521 | ||||||||||||||||||||||||||||||||||||||
MaryAnn Miller |
8/09/2012 | 81,250 | 325,000 | 731,250 | | | | | 17,620 | 32.43 | 199,987 | |||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | 1 | 12,335 | 24,670 | | | | 400,024 | ||||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | | | | 6,165 | | | 199,931 | ||||||||||||||||||||||||||||||||||||||
David Birk |
8/09/2012 | 93,750 | 375,000 | 843,750 | | | | | 22,028 | 32.43 | 250,018 | |||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | 1 | 15,420 | 30,840 | | | | 500,071 | ||||||||||||||||||||||||||||||||||||||
8/09/2012 | | | | | | | 7,710 | | | 250,035 |
(1) | As discussed in the CD&A, the possible payout at threshold level is pegged at 25% of target amount, at 100% of target amount if all of the pre-established financial goals are achieved, and up to a maximum of 225% of the target amount if the achievement of the pre-established financial goals reaches or exceeds the target maximum. Achievement below the threshold would yield a payout of $0. |
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(2) | This column represents grants of PSUs. As discussed in the CD&A, based upon the Companys actual Relative EP and Relative TSR during the three-year performance period, the executive is eligible to receive a percentage of the target number of shares ranging from 0% to 200% of his or her targeted number of shares. |
(3) | The vesting schedules for the PSUs, RSUs and the stock option grants made in fiscal 2013 are as follows: |
Type of Awards Made in Fiscal 2013 |
Vesting Schedule | |
Performance Share Units (PSUs) |
vest, if at all, at the end of fiscal 2015 (June 27, 2015) | |
Restricted Stock Units (RSUs) |
20% each on the first business day in January of 2013 through 2017, except for Mr. Moriarty, whose award will vest ratably over 3 years beginning on January 2, 2014 | |
Stock Options |
25% on each of the first through fourth anniversary of the grant date |
For additional description of the terms and awards of RSUs, stock options and PSUs made in fiscal 2013, see the description of long-term incentives in the CD&A and Note 12 to the Companys Consolidated Financial Statements included in Avnets Form 10-K for the fiscal year ended June 29, 2013.
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Outstanding Equity Awards at Fiscal Year-End
The following table provides information on the current holdings of stock options and stock awards by the NEOs as of June 29, 2013. This table includes unexercised and unvested option grants, unvested RSUs, and PSUs with performance conditions that have not yet been satisfied. Each equity grant is shown separately for each NEO. The vesting schedule for each grant is shown following this table, based on the option grant date or stock award date. The market value of the stock awards is based on the closing market price of Avnet Common Stock as of June 29, 2013, which was $33.60. The PSUs are subject to specified performance objectives over the performance period. The market values as of June 29, 2013, shown in columns (h) and (j) below, assume 100% achievement of these performance objectives. For additional information about the option grants and stock awards, see the description of long-term incentives in the CD&A and Note 12 to the Companys Consolidated Financial Statements included in Avnets Form 10-K for the fiscal year ended June 29, 2013.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||
Name |
Option Grant Date |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Option Exercise Price ($) |
Option Expiration Date |
Stock Award Grant Date |
Number of Shares or Units of Stock That Have Not Vested (RSUs)(#) |
Market Value of Shares or Units of Stock That Have Not Vested ($) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (PSUs)(#) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
||||||||||||||||||||||||||||||
(a) | (b) | (c) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||||||||||||||||||
Richard Hamada |
9/23/2005 | 16,215 | | 24.78 | 9/22/2015 | | | | | |||||||||||||||||||||||||||||||
8/10/2006 | 9,759 | | 16.96 | 8/09/2016 | | | | | ||||||||||||||||||||||||||||||||
8/09/2007 | 30,932 | | 34.34 | 8/08/2017 | | | | | ||||||||||||||||||||||||||||||||
8/07/2008 | 45,128 | | 28.80 | 8/06/2018 | | | | | ||||||||||||||||||||||||||||||||
8/13/2009 | 33,846 | 11,282 | 24.75 | 8/12/2019 | 8/13/2009 | 3,587 | 120,523 | | | |||||||||||||||||||||||||||||||
8/12/2010 | 25,458 | 25,458 | 24.41 | 8/11/2020 | 11/5/2010 | 7,412 | 249,043 | | | |||||||||||||||||||||||||||||||
8/11/2011 | 14,957 | 44,871 | 27.94 | 8/10/2021 | 8/11/2011 | 12,843 | 431,525 | 42,815 | 1,438,584 | |||||||||||||||||||||||||||||||
8/09/2012 | | 79,296 | 32.43 | 8/08/2022 | 8/09/2012 | 22,200 | 745,920 | 55,505 | 1,864,968 | |||||||||||||||||||||||||||||||
Kevin Moriarty |
1/02/2013 | | 68,000 | 31.89 | 1/01/2023 | 1/02/2013 | 25,200 | 840,000 | 8,500 | 285,600 | ||||||||||||||||||||||||||||||
Raymond Sadowski |
9/19/2003 | 50,000 | | 18.13 | 9/18/2013 | | | | | |||||||||||||||||||||||||||||||
9/23/2004 | 25,860 | | 17.47 | 9/22/2014 | | | | | ||||||||||||||||||||||||||||||||
9/23/2005 | 16,516 | | 24.78 | 9/22/2015 | | | | | ||||||||||||||||||||||||||||||||
8/10/2006 | 21,688 | | 16.96 | 8/09/2016 | | | | | ||||||||||||||||||||||||||||||||
8/09/2007 | 16,160 | | 34.34 | 8/08/2017 | | | | | ||||||||||||||||||||||||||||||||
8/07/2008 | 25,572 | | 28.80 | 8/06/2018 | | | | | ||||||||||||||||||||||||||||||||
8/13/2009 | 19,179 | 6,393 | 24.75 | 12/31/2018 | 8/13/2009 | 2,033 | 68,309 | | | |||||||||||||||||||||||||||||||
8/12/2010 | 13,748 | 13,748 | 24.41 | 12/31/2018 | 11/5/2010 | 4,002 | 134,467 | | | |||||||||||||||||||||||||||||||
8/11/2011 | 7,105 | 21,315 | 27.94 | 12/31/2018 | 8/11/2011 | 6,102 | 205,027 | 20,335 | 683,256 | |||||||||||||||||||||||||||||||
8/09/2012 | | 33,040 | 32.43 | 12/31/2018 | 8/09/2012 | 9,252 | 310,867 | 23,125 | 777,000 | |||||||||||||||||||||||||||||||
Harley Feldberg |
5/13/2004 | 50,000 | | 21.92 | 5/12/2014 | | | | | |||||||||||||||||||||||||||||||
9/23/2005 | 19,520 | | 24.78 | 9/22/2015 | | | | | ||||||||||||||||||||||||||||||||
8/09/2007 | 19,852 | | 34.34 | 8/08/2017 | | | | | ||||||||||||||||||||||||||||||||
8/07/2008 | 30,084 | | 28.80 | 8/06/2018 | | | | | ||||||||||||||||||||||||||||||||
8/13/2009 | 22,563 | 7,521 | 24.75 | 8/12/2019 | 8/13/2009 | 2,391 | 80,338 | | | |||||||||||||||||||||||||||||||
8/12/2010 | 14,638 | 14,638 | 24.41 | 8/11/2020 | 11/5/2010 | 4,262 | 143,203 | | | |||||||||||||||||||||||||||||||
8/11/2011 | 6,677 | 20,031 | 27.94 | 8/10/2021 | 8/11/2011 | 5,733 | 192,629 | 19,115 | 642,264 | |||||||||||||||||||||||||||||||
8/09/2012 | | 28,636 | 32.43 | 8/08/2022 | 8/09/2012 | 8,016 | 269,338 | 20,045 | 673,512 | |||||||||||||||||||||||||||||||
Philip Gallagher |
8/09/2007 | 10,156 | | 34.34 | 8/08/2017 | | | | | |||||||||||||||||||||||||||||||
8/07/2008 | 14,292 | | 28.80 | 8/06/2018 | | | | | ||||||||||||||||||||||||||||||||
3/02/2009 | 5,625 | | 16.15 | 3/01/2019 | | | | | ||||||||||||||||||||||||||||||||
8/13/2009 | 18,051 | 6,017 | 24.75 | 8/12/2019 | 8/13/2009 | 1,913 | 64,277 | | | |||||||||||||||||||||||||||||||
8/12/2010 | 12,092 | 12,092 | 24.41 | 8/11/2020 | 11/5/2010 | 3,522 | 118,339 | | | |||||||||||||||||||||||||||||||
8/11/2011 | 5,288 | 15,864 | 27.94 | 8/10/2021 | 8/11/2011 | 4,542 | 152,611 | 15,140 | 508,704 | |||||||||||||||||||||||||||||||
8/09/2012 | | 23,128 | 32.43 | 8/08/2022 | 8/09/2012 | 6,476 | 217,594 | 16,190 | 543,984 | |||||||||||||||||||||||||||||||
MaryAnn Miller |
5/08/2009 | 6,000 | | 22.08 | 5/07/2019 | | | | | |||||||||||||||||||||||||||||||
8/13/2009 | 6,768 | 2,256 | 24.75 | 8/12/2019 | 8/13/2009 | 717 | 24,091 | | | |||||||||||||||||||||||||||||||
8/12/2010 | 5,728 | 5,728 | 24.41 | 8/11/2020 | 11/5/2010 | 1,668 | 56,045 | | | |||||||||||||||||||||||||||||||
8/11/2011 | 3,526 | 10,578 | 27.94 | 8/10/2021 | 8/11/2011 | 3,027 | 101,707 | 10,090 | 339,024 | |||||||||||||||||||||||||||||||
8/09/2012 | | 17,620 | 32.43 | 8/08/2022 | 8/09/2012 | 4,932 | 165,715 | 12,335 | 414,456 | |||||||||||||||||||||||||||||||
David Birk |
9/23/2005 | 15,316 | | 24.78 | 9/22/2015 | | | | | |||||||||||||||||||||||||||||||
8/10/2006 | 16,964 | | 16.96 | 8/09/2016 | | | | | ||||||||||||||||||||||||||||||||
8/09/2007 | 12,764 | | 34.34 | 8/08/2017 | | | | | ||||||||||||||||||||||||||||||||
8/07/2008 | 21,360 | | 28.80 | 8/06/2018 | | | | | ||||||||||||||||||||||||||||||||
8/13/2009 | 16,020 | 5,340 | 24.75 | 12/31/2018 | 8/13/2009 | 1,698 | 57,053 | | | |||||||||||||||||||||||||||||||
8/12/2010 | 9,928 | 9,928 | 24.41 | 12/31/2018 | 11/5/2010 | 2,892 | 97,171 | | | |||||||||||||||||||||||||||||||
8/11/2011 | 4,674 | 14,022 | 27.94 | 12/31/2018 | 8/11/2011 | 4,014 | 134,870 | 13,380 | 449,568 | |||||||||||||||||||||||||||||||
8/09/2012 | | 22,028 | 32.43 | 12/31/2018 | 8/09/2012 | 6,168 | 207,245 | 15,420 | 518,112 |
40
Vesting schedules:
Stock Options All stock options vest in 25% annual increments commencing on the first anniversary of the grant date. Stock options typically expire the day before the tenth anniversary of the grant date. Pursuant to their award agreements and as a result of their retirement, the options granted to Messrs. Birk and Sadowski expire the earlier of the original stock option expiration date or five years from their respective retirement dates.
Restricted Stock Unit Awards (RSUs) All RSUs, except for the award dated January 2, 2013, to Mr. Moriarty, vest in 20% annual increments commencing in the January following the Grant Date. The award dated January 2, 2013, to Mr. Moriarty will vest ratably over 3 years beginning on January 2, 2014.
Performance Share Units (PSUs) All PSUs vest, if at all, depending on whether performance objectives are met, on the last day of the fiscal year coincident with the end of the three-year performance period.
Option Exercises and Stock Vested
The following table provides information as to each of the NEOs: (1) stock option exercises during fiscal 2013, including the number of shares acquired upon exercise and the value realized, and (2) the number of shares acquired upon the vesting of stock awards in the form of RSUs and PSUs, and the value realized, each before payment of any applicable withholding tax.
Option Awards | Stock Awards | |||||||||||||||
Name |
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($) |
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($) |
||||||||||||
(a) | (b) | (c) | (d) | (e) | ||||||||||||
Richard Hamada |
| | 54,218 | 1,951,909 | ||||||||||||
Kevin Moriarty |
| | | | ||||||||||||
Raymond Sadowski |
50,000 | 1,023,000 | 28,508 | 1,029,732 | ||||||||||||
Harley Feldberg |
| | 80,092 | 2,722,127 | ||||||||||||
Philip Gallagher |
| | 23,858 | 867,308 | ||||||||||||
MaryAnn Miller |
| | 11,870 | 428,790 | ||||||||||||
David Birk |
| | 20,789 | 750,000 |
The value realized on vesting of stock awards includes RSUs that vested on January 2, 2013, the 50,000 RSUs that vested on June 24, 2013, for Mr. Feldberg, and the vesting of PSUs on June 29, 2013, which covered the fiscal 2011-2013 performance period. The value realized with respect to the RSUs is as follows: Mr. Hamada 20,711 shares and $653,848; Mr. Sadowski 10,414 shares and $328,770; Mr. Feldberg 60,828 shares and $1,975,840; Mr. Gallagher 7,943 shares and $250,761; Ms. Miller 4,331 shares and $136,729; and Mr. Birk 7,722 shares and $243,784. The value realized with respect to the PSUs is as follows: Mr. Hamada 33,507 shares and $1,298,061; Mr. Sadowski 18,094 shares and $700,962; Mr. Feldberg 19,264 shares and $746,287; Mr. Gallagher 15,915 shares and $616,547; Ms. Miller 7,539 shares and $292,061; and Mr. Birk 13,067 shares and $506,216.
Pension Benefits
Further to the discussion of the retirement benefits discussed in the CD&A, Avnet provides a retirement benefit under a tax-qualified retirement plan and a retirement benefit under nonqualified retirement plans. The Pension Plan is a type of tax-qualified defined benefit plan commonly referred to as a cash balance
41
plan. A participants benefit under the Pension Plan is based on the value of the participants cash balance account, which is used for record keeping purposes and does not represent any assets of the Pension Plan segregated on behalf of a participant. In general, the Pension Plan defines annual earnings as a participants base salary, commissions, royalties, annual cash incentive compensation and amounts deferred pursuant to plans described in Sections 125 or 401(k) (i.e., the Avnet 401(k) Plan) of the Code. Currently, the maximum amount of earnings on which benefits can be accrued is $255,000, which is the 2013 annual maximum established by the IRS. The Pension Plan offers participants distributions in the form of various monthly annuity payments and, in most cases, a lump sum distribution option is also available to participants who have terminated employment with Avnet.
The nonqualified retirement plans consist of the Restoration Plan and the SERP. The Restoration Plan is an excess benefit plan that provides retirement income to eligible employees whose Pension Plan benefit is limited by Code limits on compensation. The Restoration Plan uses the same eligibility, vesting, formula and distribution criteria (except in cases where Code section 409A applies) found in the Pension Plan, but without considering the Code imposed limits on the Pension Plan. The excess benefit over the Code imposed limits in the Pension Plan is paid from the Restoration Plan.
The SERP provides for: (1) payment of a death benefit to the designated beneficiary of each participating officer who dies while he or she is an employee of the Company in an amount equal to twice the yearly earnings (including salary and cash incentive compensation) of such officer; (2) a supplemental retirement benefit payable at age 65 (if the officer has satisfied certain age and service requirements) payable monthly for two years and in a lump sum thereafter to such officer or his or her beneficiary with the total benefit equaling the present value of ten years of payments in an amount not to exceed 36% of the officers eligible compensation, which is defined as the average of the highest two of the last five years cash compensation prior to termination; or (3) a supplemental early retirement benefit equal to the benefit described in (2) above, except that such amount is reduced for each month prior to age 65 that the participant begins to receive the benefit.
As discussed in the CD&A, the SERP was closed to new participants effective December 31, 2011, and the Restoration Plan was adopted effective January 1, 2012. Pursuant to the terms of both plans, any benefit payable under the Restoration Plan will reduce the benefit payable under the SERP. Thus, the maximum benefit payable to vested participants in both nonqualified plans will equal the benefit payable under the SERP.
42
The table below shows the number of years of service credited to each such NEO, the actuarial present value of accumulated benefits payable to each of the NEOs as of the end of the fiscal year and the payments made during the last fiscal year under the Pension Plan and the nonqualified retirement plans. The present value of the accumulated benefit was determined using interest rate assumptions consistent with those used in the Companys financial statements.
Pension Benefits
Name |
Plan Name |
Number of Years Credited Service (#) |
Present Value of Accumulated Benefit ($) |
Payments During Last Fiscal Year ($) |
||||||||||
(a) | (b) | (c) | (d) | (e) | ||||||||||
Richard Hamada |
Avnet Pension Plan | 28.5 | 259,650 | | ||||||||||
Nonqualified Retirement Plans | 29.6 | 3,892,529 | | |||||||||||
Kevin Moriarty |
Avnet Pension Plan | 0.0 | | | ||||||||||
Restoration Plan(1) | 0.0 | | | |||||||||||
Raymond Sadowski |
Avnet Pension Plan | 33.5 | 358,560 | | ||||||||||
Nonqualified Retirement Plans | 34.9 | 2,702,905 | $ | 55,771 | (2) | |||||||||
Harley Feldberg |
Avnet Pension Plan | 30.0 | 374,994 | | ||||||||||
Nonqualified Retirement Plans | 31.7 | 3,528,027 | | |||||||||||
Philip Gallagher |
Avnet Pension Plan | 29.5 | 220,016 | | ||||||||||
Nonqualified Retirement Plans | 30.6 | 1,926,555 | | |||||||||||
MaryAnn Miller |
Avnet Pension Plan | 5.5 | 108,047 | | ||||||||||
Nonqualified Retirement Plans(3) | 3.7 | 1,093,214 | | |||||||||||
David Birk |
Avnet Pension Plan | 31.5 | 583,007 | | ||||||||||
Nonqualified Retirement Plans | 32.5 | 3,075,618 | $ | 57,039 | (2) |
(1) | Mr. Moriarty is not a participant in the SERP. He will become a participant in the Pension and Restoration Plans effective July 1, 2014. |
(2) | As both Messrs. Birk and Sadowski will be retiring effective December 31, 2013, and their SERP benefits were ascertainable at the time they provided their one-year notice of retirement, FICA tax on the present value of the nonqualified retirement benefits was due at the time of such notification. A portion of the first benefit payment was advanced in order to facilitate the required tax withholding and the associated taxability of such advance. |
(3) | As of the end of fiscal 2013, Ms. Millers benefit under the SERP has not yet vested. |
Nonqualified Deferred Compensation
Avnet offers the Avnet Deferred Compensation Plan (DCP) for highly compensated employees defined as those earning $255,000 or more in target income, including all of the NEOs. The DCP allows these employees to set aside a portion of their income for retirement on a pre-tax basis, in addition to the amounts allowed under the Avnet 401(k) Plan. A DCP participant may defer up to 50% of his or her salary and up to 100% of his or her incentive and bonus compensation earned during the plan year (regardless of when paid). Participants may choose from a selection of mutual funds and other investment vehicles in which the deferred amount is then deemed to be invested. Earnings on the amounts deferred are determined by the returns actually obtained through the deemed investment options and added to the account. As such, there are no above-market earnings. The deferred compensation and the amount earned are held under the Avnet Deferred Compensation
43
Rabbi Trust, but are subject to the claims of general creditors of the Company. Also, the obligation to distribute the amounts according to the participants designation is a general obligation of the Company. Of the NEOs, Messrs. Feldberg and Gallagher were participants in the DCP and deferred a portion of their cash compensation in fiscal 2013.
Name |
Executive Contributions in Last FY ($) |
Registrant Contributions in Last FY ($) |
Aggregate Earnings/ (Loss) in Last FY ($) |
Aggregate Withdrawals/ Distributions ($) |
Aggregate Balance at Last FYE ($) |
|||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||
Richard Hamada |
| | | | | |||||||||||||||
Kevin Moriarty |
| | | | | |||||||||||||||
Raymond Sadowski |
| | | | | |||||||||||||||
Harley Feldberg |
182,408 | | 335,236 | | 2,566,940 | |||||||||||||||
Philip Gallagher |
57,913 | | 92,880 | | 623,999 | |||||||||||||||
MaryAnn Miller |
| | | | | |||||||||||||||
David Birk |
| | | | |
Potential Payouts Upon Termination
Employment Agreements and Change of Control Agreements
Employment Agreements
Each of the NEOs, with the exception of Ms. Miller, has entered into an employment agreement with Avnet. These employment agreements are generally terminable by either the NEO or the Company upon one-year advance written notice to the other. Mr. Moriartys agreement is terminable by either party upon 90-days advance written notice. The employment agreements contain provisions dealing with termination for cause, and termination upon a death or disability. For purposes of these agreements, cause includes gross misconduct, breach of any material term of the agreement, willful breach, habitual neglect or wanton disregard of the executives duties, or conviction of any criminal act. Pursuant to Mr. Hamadas employment agreement, if Mr. Hamada should become disabled, the Company will pay an annual disability benefit of $300,000 until the earlier of his 65th birthday, the disability ceases or death. Additionally, Messrs. Hamadas and Moriartys agreements include provisions dealing with termination upon a change in office and duties. The amount of compensation (including base salary and incentive compensation) to be paid to each NEO is not fixed and is to be agreed upon by the NEO and the Company from time to time. The employment agreements contain restrictive covenants relating to non-competition, confidential information and non-solicitation of employees.
Change of Control Agreements
Each of the NEOs has entered into change of control agreements with the Company. With respect to Mr. Hamada and Mr. Moriarty, in the event of actual or constructive termination within 24 months of a change of control, the Company must pay to such executive all accrued base salary and pro-rata incentive payments, plus 2.99 times the sum of (i) the executives then current annual base salary, and (ii) the executives target incentive compensation for the year in which such termination occurred. Further, unvested stock options shall accelerate and vest in accordance with the early vesting provisions under the applicable stock compensation plans, and all equity incentive awards granted, but not yet delivered, will be accelerated and delivered. Pursuant to their change of control agreements, Mr. Hamada and Mr. Moriarty are not entitled to a tax gross-up for excise taxes related to payments made upon a change of control.
With respect to Messrs. Sadowski, Feldberg, Gallagher and Birk and Ms. Miller, the amount payable under these agreements are substantially the same as noted above, except that the incentive
44
component of the payment (in clause (ii), above) is 2.99 times the average of executives incentive payments for the highest two of the previous five fiscal years and each, other than Ms. Miller, is entitled to a tax gross-up for excise taxes related to payments made upon a change of control if such excise tax applies.
Pursuant to these agreements, a constructive termination includes a material diminution in the executives responsibilities, a material change in the geographic location at which the executive is primarily required to perform services for the Company, a material reduction in the executives base compensation or any other action or inaction that constitutes a material breach by the Company under its employment agreement with the executive. A change of control is defined as including the acquisition of voting or dispositive power with respect to 50% or more of the outstanding shares of Avnet Common Stock, a change in the individuals serving on the Board of Directors so that those serving on the effective date of the applicable agreement and those persons appointed by such individuals to the Board no longer constitute a majority of the Board, or the approval by shareholders of a liquidation, dissolution or sale of substantially all of the assets of the Company.
Potential Payouts upon Termination Table
The following table sets forth the estimated payments and value of benefits that each of the NEOs would be entitled to receive under their employment and change of control agreements, as applicable, in the event of the termination of their employment under various scenarios. The table assumes that the termination occurred on June 29, 2013, which is the Companys fiscal year end.
As used in this section:
| Death refers to the death of executive; |
| Disability refers to the executive becoming permanently and totally disabled during the term of the executives employment as certified by competent medical personnel; |
| Company Termination Without Cause means that the executive is fired without cause (as defined in the employment agreement); |
| Change of Control Termination means the occurrence of both a change of control and the constructive termination of the executive within 24 months of the change; and |
| Retirement for the purpose of determining benefit under the stock plans, means all of the following: (a) age 55, (b) five years of service, (c) age plus years of service is equal to at least 65, and (d) the executive must have signed a non-compete agreement. |
Death $ |
Disability $ |
Company Termination w/o Cause $ |
Change of Control $ |
Retirement $ |
||||||||||||||||
Richard Hamada: |
||||||||||||||||||||
Severance |
| | | 6,727,500 | | |||||||||||||||
Settlement of previously vested stock options |
1,140,173 | 1,140,173 | 1,140,173 | 1,140,173 | 1,140,173 | |||||||||||||||
Settlement of unvested stock options |
| 680,551 | 680,551 | 680,551 | 680,551 | |||||||||||||||
Settlement of RSUs |
1,547,011 | 1,547,011 | 1,547,011 | 1,547,011 | 1,547,011 | |||||||||||||||
Settlement of PSUs |
2,706,547 | 4,429,387 | 4,429,387 | 4,429,387 | 4,429,387 | |||||||||||||||
Accrued vacation pay out |
44,688 | 44,688 | 44,688 | 44,688 | 44,688 | |||||||||||||||
Welfare benefits |
| 2,335,754 | | 75,214 | | |||||||||||||||
Life insurance benefit |
500,000 | | | | | |||||||||||||||
Avnet pension |
136,203 | 272,406 | 272,406 | 272,406 | 272,406 | |||||||||||||||
Nonqualified retirement plans |
2,695,758 | 3,527,543 | 3,527,543 | 3,527,543 | 3,527,543 | |||||||||||||||
Excise taxes and gross up |
| | | | | |||||||||||||||
Kevin Moriarty |
||||||||||||||||||||
Severance |
| | 828,022 | 3,289,000 | | |||||||||||||||
Settlement of previously vested stock options |
| | | | |
45
Death $ |
Disability $ |
Company Termination w/o Cause $ |
Change of Control $ |
Retirement $ |
||||||||||||||||
Settlement of unvested stock options |
| | | 116,280 | | |||||||||||||||
Settlement of RSUs |
840,000 | | | 840,000 | | |||||||||||||||
Settlement of PSUs |
47,600 | 47,600 | | 285,600 | | |||||||||||||||
Accrued vacation pay out |
9,635 | 9,635 | 9,635 | 9,635 | 9,635 | |||||||||||||||
Welfare benefits |
| | | 39,564 | | |||||||||||||||
Life insurance benefit |
500,000 | | | | | |||||||||||||||
Avnet pension |
| | | | | |||||||||||||||
Restoration Plan |
| | | | | |||||||||||||||
Excise taxes and gross up |
| | | | | |||||||||||||||
Raymond Sadowski |
||||||||||||||||||||
Severance |
| | | 3,672,177 | | |||||||||||||||
Settlement of previously vested stock options |
2,156,219 | 2,156,219 | 2,156,219 | 2,156,219 | 2,156,219 | |||||||||||||||
Settlement of unvested stock options |
| 342,222 | 342,222 | 342,222 | 342,222 | |||||||||||||||
Settlement of RSU |
718,670 | 718,670 | 718,670 | 718,670 | 718,670 | |||||||||||||||
Settlement of PSUs |
1,322,462 | 2,068,214 | 2,068,214 | 2,068,214 | 2,068,214 | |||||||||||||||
Accrued vacation pay out |
41,386 | 41,386 | 41,386 | 41,386 | 41,386 | |||||||||||||||
Welfare benefits |
| | | 53,923 | 74,421 | |||||||||||||||
Life insurance benefit |
500,000 | | | | | |||||||||||||||
Avnet pension |
184,514 | 369,028 | 369,028 | 369,028 | 369,028 | |||||||||||||||
Nonqualified retirement plans |
1,467,446 | 2,789,687 | 2,789,687 | 2,789,687 | 2,789,687 | |||||||||||||||
Excise taxes and gross up |
| | | | | |||||||||||||||
Harley Feldberg |
||||||||||||||||||||
Severance |
| | | 4,741,624 | | |||||||||||||||
Settlement of previously vested stock options |
1,272,567 | 1,272,567 | 1,272,567 | 1,272,567 | 1,272,567 | |||||||||||||||
Settlement of unvested stock options |
| 347,963 | 347,963 | 347,963 | 347,963 | |||||||||||||||
Settlement of RSUs |
685,508 | 685,508 | 685,508 | 685,508 | 685,508 | |||||||||||||||
Settlement of PSUs |
1,299,950 | 1,963,046 | 1,963,046 | 1,963,046 | 1,963,046 | |||||||||||||||
Accrued vacation pay out |
45,615 | 45,615 | 45,615 | 45,615 | 45,615 | |||||||||||||||
Welfare benefits |
| | | 55,455 | | |||||||||||||||
Life insurance benefit |
500,000 | | | | | |||||||||||||||
Avnet pension |
192,048 | 384,095 | 384,095 | 384,095 | 384,095 | |||||||||||||||
Nonqualified retirement plans |
1,777,258 | 3,546,886 | 3,546,886 | 3,546,886 | 3,546,886 | |||||||||||||||
Excise taxes and gross up |
| | | | | |||||||||||||||
Philip Gallagher |
||||||||||||||||||||
Severance |
| | | 3,552,824 | | |||||||||||||||
Settlement of previously vested stock options |
467,564 | 467,564 | 467,564 | 467,564 | 467,564 | |||||||||||||||
Settlement of unvested stock options |
| | | 281,225 | | |||||||||||||||
Settlement of RSUs |
552,821 | | | 552,821 | | |||||||||||||||
Settlement of PSUs |
1,055,208 | 1,055,208 | | 1,587,432 | | |||||||||||||||
Accrued vacation pay out |
40,385 | 40,385 | 40,385 | 40,385 | 40,385 | |||||||||||||||
Welfare benefits |
| | | 63,614 | | |||||||||||||||
Life insurance benefit |
500,000 | | | | | |||||||||||||||
Avnet pension |
116,526 | 233,051 | 233,051 | 233,051 | 233,051 | |||||||||||||||
Nonqualified retirement plans |
1,518,170 | 1,292,410 | 1,292,410 | 1,292,410 | 1,292,410 | |||||||||||||||
Excise taxes and gross up |
| | | | | |||||||||||||||
MaryAnn Miller |
||||||||||||||||||||
Severance |
| | | 2,463,126 | | |||||||||||||||
Settlement of previously vested stock options |
201,614 | 201,614 | 201,614 | 201,614 | 201,614 | |||||||||||||||
Settlement of unvested stock options |
| | | 153,092 | | |||||||||||||||
Settlement of RSUs |
347,558 | | | 347,558 | | |||||||||||||||
Settlement of PSUs |
617,478 | 617,478 | | 1,006,790 | | |||||||||||||||
Accrued vacation pay out |
32,692 | 32,692 | 32,692 | 32,692 | 32,692 |
46
Death $ |
Disability $ |
Company Termination w/o Cause $ |
Change of Control $ |
Retirement $ |
||||||||||||||||
Welfare benefits |
| | | 66,194 | | |||||||||||||||
Life insurance benefit |
500,000 | | | | | |||||||||||||||
Avnet pension |
56,407 | 112,813 | 112,813 | 112,813 | 112,813 | |||||||||||||||
SERP |
1,141,122 | | | | | |||||||||||||||
Restoration Plan |
34,266 | 34,266 | 34,266 | 34,266 | 34,266 | |||||||||||||||
Excise taxes and gross up |
| | | | | |||||||||||||||
David Birk |
||||||||||||||||||||
Severance |
| | | 3,202,402 | | |||||||||||||||
Settlement of previously vested stock options |
779,366 | 779,366 | 779,366 | 779,366 | 779,366 | |||||||||||||||
Settlement of unvested stock options |
| 243,635 | 243,635 | 243,635 | 243,635 | |||||||||||||||
Settlement of RSUs |
496,339 | 496,339 | 496,339 | 496,339 | 496,339 | |||||||||||||||
Settlement of PSUs |
911,467 | 1,406,731 | 1,406,731 | 1,406,731 | 1,406,731 | |||||||||||||||
Accrued vacation pay out |
38,477 | 38,477 | 38,477 | 38,477 | 38,477 | |||||||||||||||
Welfare benefits |
| | | 61,218 | 1,082 | |||||||||||||||
Life insurance benefit |
500,000 | | | | | |||||||||||||||
Avnet pension |
291,504 | 583,007 | 583,007 | 583,007 | 583,007 | |||||||||||||||
Nonqualified retirement plans |
1,542,956 | 3,075,618 | 3,075,618 | 3,075,618 | 3,075,618 | |||||||||||||||
Excise taxes and gross up |
| | | | |
The employment agreements with the NEOs, except for Mr. Moriarty, do not provide for a severance payment in the event of a termination by the Company without cause. Pursuant to their employment agreement, each of the NEOs is entitled to receive a one-year advance notice from the Company prior to termination without cause (90-days for Mr. Moriarty). During the notice period, the executive shall continue to receive compensation and other benefits in accordance with his agreed-upon pay plan. Mr. Moriarty is entitled to receive his base salary and other compensation for a period of one year after Mr. Moriarty is provided with notice of his termination without cause. As noted above, Ms. Miller does not have an employment agreement with the Company. For the NEOs with an employment agreement, it is assumed for the table above that such notice period ended on June 29, 2013, which is the last business day of the Companys fiscal year 2013.
Except as noted immediately below, because Messrs. Hamada, Sadowski, Feldberg and Birk are retirement eligible under the applicable equity compensation plans, the amount of potential payouts to each of them in the event of a disability or termination by the Company without cause is the same as that under Retirement because the amount received upon retirement is greater than would be received upon a disability or termination without cause. Mr. Hamadas welfare benefit in the event of a disability equals the present value of the disability benefit provided under his employment agreement assuming he reaches age 65. The Company will provide Messrs. Birk and Sadowski with payments to help defray a portion of the costs of their medical and dental benefits until each of them and their respective spouses are eligible for Medicare. The present value attributable to this benefit is included in Welfare benefits, above. The amount included with respect to the SERP is calculated based on the present value of the benefit described above relating to Pension Benefits, discounted to reflect the earliest age at which the executive can begin receiving such benefit. While Mr. Gallaghers benefits under the SERP have vested, he is not eligible to receive a distribution until he has reached at least age 55. As Ms. Millers benefit under the SERP has not yet vested, she is only entitled to a benefit under such plan in the event of death. As the SERP was closed to new participants effective December 31, 2011, Mr. Moriarty is not a participant in the SERP.
Executives receiving PSUs, including each of the NEOs, would be entitled to receive a pro-rata number of performance shares in the case of death or disability and all of the performance shares in the case of retirement or a change of control earned for a three-year performance cycle. As noted above, because Messrs. Hamada, Sadowski, Feldberg and Birk are retirement eligible under the applicable equity compensation plans, the value shown in the table above for PSU awards equals the value
47
earned upon retirement. The value shown for the settlement of PSUs in the table above is calculated with the assumption that the triggering event has occurred on June 29, 2013. Furthermore, the value of the PSU awards for the fiscal 2011 2013 performance cycle is included in the table above because, while the actual PSU payouts were not made until September 2013, the PSU awards were fully vested on June 29, 2013. Additionally, the value of the PSU awards covering the fiscal 2012-2014 and fiscal 2013-2015 performance periods assumes that the target number of shares is awarded to Messrs. Hamada, Sadowski, Feldberg and Birk. The value of RSUs reflected in the table above in all cases, other than termination without cause, equals the value of all RSUs allocated to the NEOs but not yet delivered at June 29, 2013. In the case of termination without cause, the value of RSUs is only applicable for those who are retirement eligible at June 29, 2013 Messrs. Hamada, Sadowski, Feldberg and Birk.
Directors of Avnet who are also officers or employees of Avnet (currently Mr. Hamada) do not receive any special or additional remuneration for service on the Board of Directors or any of its committees. Upon the recommendation of the Corporate Governance Committee and approval of the Board of Directors, non-employee Directors receive compensation for their services on the Board as set out below.
Compensation Components (annual) |
||||||||
% Cash to Equity |
45/55 | |||||||
Cash Retainer |
$ | 100,000 | (1) | |||||
Equity |
$ | 120,000 | (2) | |||||
Total: |
$ | 220,000 | ||||||
Lead Independent Director(3) |
add: | $ | 25,000 | |||||
Audit Committee Retainer |
add: | $ | 7,500 | |||||
Committee Chair Retainers |
add: | $ | 10,000 | |||||
Independent Chairman Retainer |
add: | $ | 150,000 |
(1) | Paid quarterly unless election is made to defer under the Avnet Deferred Compensation Plan for Outside Directors, which is described in more detail under the caption Deferred Compensation Plan below. |
(2) | Prorated upon first election; delivered each January following reelection. Mr. Clark and Mr. Schumann have elected to defer their 2013 stock awards in the form of phantom stock units in their Deferred Compensation Accounts under the Avnet Deferred Compensation Plan for Outside Directors, which is described in more detail under the caption Deferred Compensation Plan below. |
(3) | Prior to November 2012, the Board had a lead independent director. Effective November 2, 2012, the Board appointed Mr. Schumann as its independent Chairman. |
48
The following table shows the total dollar value of all fees earned by and paid in cash to all non-employee directors in fiscal 2013 and the grant date fair value of stock awards to non-employee directors made in fiscal 2013.
Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
All Other Compensation ($) |
Total ($) |
||||||||||||
(a) | (b) | (c) | (g) | (h) | ||||||||||||
Eleanor Baum(2) |
71,250 | | 46,667 | 117,917 | ||||||||||||
J. Veronica Biggins |
105,000 | 120,000 | | 225,000 | ||||||||||||
Michael Bradley(1) |
66,667 | 140,000 | | 206,667 | ||||||||||||
R. Kerry Clark |
107,500 | 120,000 | | 227,500 | ||||||||||||
Ehud Houminer(2) |
58,750 | | 46,667 | 105,417 | ||||||||||||
James A. Lawrence |
108,750 | 120,000 | | 228,750 | ||||||||||||
Frank R. Noonan |
115,000 | 120,000 | | 235,000 | ||||||||||||
Ray M. Robinson |
100,000 | 120,000 | | 220,000 | ||||||||||||
William H. Schumann III |
185,625 | 120,000 | | 305,625 | ||||||||||||
William P. Sullivan |
105,000 | 120,000 | | 225,000 |
(1) | Mr. Bradley was appointed to the Board in November 2012, and as such, the above amounts reflect a pro-rata amount of fees and stock awards earned in respect to fiscal 2013. |
(2) | Dr. Baum and Mr. Houminer retired from the Board in November 2012, and as such the above retainer reflects six months of fees earned. The amounts included in All Other Compensation reflect payments made pursuant to the Retirement Plan for Outside Directors. Please refer to Retirement Plan Benefits and Phase-Out, below, for additional information. |
Deferred Compensation Plan
Under the Avnet Deferred Compensation Plan for Outside Directors, a non-employee Director may elect to receive phantom stock units in lieu of some or all of the shares of Avnet Common Stock that would otherwise be awarded as the Directors annual equity compensation. The number of shares or phantom stock units to be credited to the phantom stock unit portion of the Directors account (assuming the election is made to defer the entire amount) is determined by dividing $120,000 by the average of the high and low price of Avnet Common Stock on the NYSE on the first business day in January of each year. In addition, a non-employee Director may elect to defer all or a portion of his or her annual cash compensation in either a cash or phantom stock unit account under this plan. Compensation deferred as cash is credited at the beginning of each quarter with interest at a rate corresponding to the rate of interest on U.S. Treasury 10-year notes on the first day of that quarter. During fiscal 2013, there were no above market earnings. Compensation deferred under this plan, or interest credited thereon, will be payable to a Director (i) upon cessation of membership on the Board of Directors in ten annual installments or, at the Directors election (which must be made not less than 24 months prior to the date on which the Director ceases to be a member of the Board), in annual installments not exceeding ten or in a single lump sum or (ii) upon a change in control of Avnet (as defined in the plan), in a single lump sum. Phantom stock units are payable in Avnet Common Stock with cash payment made for fractional shares. In the event of the death of a Director before receipt of all payments, all remaining payments shall be made to the Directors designated beneficiary.
Retirement Plan Benefits and Phase-Out
In May 1996, the Board of Directors terminated the Retirement Plan for Outside Directors of Avnet, Inc. (the Retirement Plan) with respect to non-employee Directors elected for the first time after May 21, 1996. Dr. Baum and Mr. Houminer, both of whom served as members of the Board of Directors on May 21, 1996, are currently receiving their accrued benefits under the Retirement Plan, as they have
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both retired as noted above. The Retirement Plan provided retirement income for eligible Directors who were not officers, employees or affiliates (except by reason of being a Director) of Avnet (the Outside Directors). The Retirement Plan entitled any eligible Outside Director who completed six years or more of active service to an annual cash retirement benefit equal to the annual retainer fee (including committee fees) during the Outside Directors last year of active service, payable in equal monthly installments for a period of from two to ten years depending on length of service, with payments beginning on the date which is the later of such Outside Directors 65th birthday or his or her retirement date. The surviving spouse of any deceased Outside Director is entitled to 50% of any remaining unpaid retirement benefit. At its regularly scheduled meeting on November 8, 2007, the Board of Directors, acting upon the recommendation of the Governance Committee, unanimously agreed to freeze the benefits under the Retirement Plan at $80,000 per annum for current participants in the Retirement Plan.
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ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
The Board of Directors is requesting that the Companys shareholders approve, on a non-binding basis, the compensation of the Companys Named Executive Officers as disclosed in this Proxy Statement. This proposal, commonly known as a say on pay proposal, gives shareholders the opportunity to express their views on the compensation of the Companys Named Executive Officers for the Companys fiscal 2013.
The Companys executive compensation program is designed to achieve the following objectives:
| Pay for Performance A significant portion of total compensation is dependent upon the achievement of short- and long-term goals that are designed to increase shareholder value over time and result in a superior TSR. |
| Create an Ownership Culture The Companys compensation programs are designed to provide a meaningful portion of compensation in the form of equity-based awards to support the goal of having executives think and behave like owners and to consider the impact of their actions on TSR. |
| Pay Competitively Avnet desires to provide fair and competitive compensation to attract, engage and retain the executive talent that is critical to the long-term success of the Company. |
The Compensation Committee reviews, at least annually, the Companys incentive compensation arrangements for the Named Executive Officers to ensure that performance goals and objectives, while ambitious, do not encourage excessive risk taking.
Shareholders are urged to read the Compensation Discussion and Analysis and the tabular disclosure (together with the accompanying narrative disclosure) in this Proxy Statement, which discusses how Avnets compensation program is implemented with respect to the Named Executive Officers.
The Board of Directors believes that the compensation of the Named Executive Officers is appropriate and recommends a vote FOR the following non-binding resolution:
RESOLVED, that the compensation paid to the Companys Named Executive Officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.
Although the vote is non-binding, the Compensation Committee and the Board of Directors will review the results of the vote, consider shareholder concerns and take them into account in future determinations concerning the executive compensation program. The Company currently conducts annual advisory votes on named executive officer compensation and expects to conduct the next advisory vote at the 2014 annual meeting of shareholders.
The Board of Directors recommends a vote FOR the Advisory
Vote on Named Executive Officer Compensation
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AVNET, INC. 2013 STOCK COMPENSATION AND INCENTIVE PLAN
The Board of Directors is requesting that the Companys shareholders vote FOR approval of the Avnet, Inc. 2013 Stock Compensation and Incentive Plan (the 2013 Plan).
The purposes of the 2013 Plan are to: (a) promote the Companys long-term success and increase shareholder value by providing incentives to contribute to the Companys long-term growth and profitability; and (b) assist the Company in attracting, retaining and motivating highly qualified individuals. The 2013 Plan will accomplish these purposes by serving as the primary vehicle for the Companys equity and cash-based compensation programs. Therefore, the Company believes that approval of the 2013 Plan is important to the Companys future success. If the 2013 Plan is not approved by shareholders, the Companys ability to issue equity-based awards at levels consistent with past practice will be limited, which may impair its ability to pay for performance, create an ownership culture and provide competitive compensation.
The 2013 Plan provides for the issuance of equity-based awards covering up to 5,000,000 shares of Common Stock. In addition, the Avnet, Inc. 2010 Stock Compensation Plan (the 2010 Plan) will remain in effect until the 1,340,550 shares available for awards under the 2010 Plan are exhausted, which the Company believes will occur in August 2014. The Board currently believes that the shares available for grant under the 2013 Plan will provide sufficient shares to satisfy the equity-based compensation needs of the Company for approximately three to four years following the Effective Date. In recommending approval of the 2013 Plan, the Board and the Compensation Committee, with input from its independent compensation consultant, considered the Companys historical equity compensation practices, the future compensation needs of the Company, the potential dilution associated with future awards under the 2013 Plan and the Companys three-year average burn rate.
The potential dilution from the adoption of the 2013 Plan, as commonly calculated, would be approximately 9.0%. The dilution is calculated as follows, in each case as of September 10, 2013: (x) the sum of (a) 5,000,000 additional shares available under the 2013 Plan, (b) 6,054,179 shares underlying outstanding equity awards and (c) 1,340,550 shares remaining available under the 2010 Plan, divided by (y) 137,469,902 shares outstanding (net of treasury shares). The Companys three-year average burn rate was 2.68%. Burn rate is the number of equity awards granted divided by the weighted average number of shares of Common Stock outstanding during the applicable year. The Company calculated its burn rate by applying a multiplier of 2.5 to the number of RSUs and PSPs granted in the applicable year.
The closing price of Avnets Common Stock on the NYSE was $41.66 per share on September 10, 2013. For additional information with respect to the Companys outstanding equity-based awards, please refer to the CD&A included in this Proxy Statement and Note 12 in the Notes to Consolidated Financial Statements contained in the Companys Annual Report on Form 10-K.
A summary of important features and tax consequences of the 2013 Plan is set forth below, but this summary is qualified in its entirety by reference to the actual text of the 2013 Plan. Capitalized terms that are not defined in this summary have the meanings given to them in the 2013 Plan. A copy of the 2013 Plan is attached to this Proxy Statement as Appendix B.
Important Features of the 2013 Plan
Persons Eligible for Awards. Persons eligible to participate in the 2013 Plan include employees of the Company and its Subsidiaries, Non-Employee Directors of Avnet, consultants, independent contractors, and advisers to Avnet and its Subsidiaries. There are currently 8 Non-Employee Directors and approximately 18,500 employees who may be considered for the grant of equity-based awards under the 2013 Plan.
Types of Awards under 2013 Plan. The 2013 Plan provides for the grant of incentive stock options (ISOs), non-qualified stock options (NQSOs), stock appreciation rights (SARs), restricted stock,
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restricted stock units, performance share units, and other stock unit awards. Each of these awards is payable in, valued in whole or in part by reference to, or otherwise based on Avnets Common Stock. In addition, the 2013 Plan includes performance-based cash awards (EIP awards).
Shares Available Under the 2013 Plan. If approved by shareholders, the 2013 Plan will be applicable to awards granted on or after the Effective Date. A total of 5,000,000 shares of Avnets common stock will be available for the grant of awards under the 2013 Plan.
Limits on Awards. The following limitations apply for individual awards:
| The maximum number of shares that may be subject to stock options or SARs granted to any person in any calendar year is 500,000. |
| The maximum number of shares that may be subject to awards (in the aggregate, including options, SARs, and full-value awards) granted to an individual in any calendar year is 1,000,000 shares. |
| For Non-Employee Directors, the maximum number of shares that may be subject to awards granted to an individual in any calendar year is the lesser of 30,000 shares or shares with a value of $1,000,000; provided, however, that in the year in which a Non-Employee Director first joins the Board of Directors or is first designated Chairman of the Board of Directors (or Lead Director), the limit is increased to 60,000 shares or $2,000,000. |
| The maximum EIP award is $5,000,000 for a 12-month period, adjusted up or down if the performance period is more or less than 12 months. |
The shares awarded or issued upon exercise under the 2013 Plan may be authorized and previously unissued shares or treasury shares held by the Company. Both the aggregate number of shares covered by the 2013 Plan and the number of shares covered by individual options will be adjusted in the event of stock dividends, recapitalizations, splits or combinations of shares, and similar capital adjustments affecting Avnets Common Stock.
Share Counting Provisions. Shares that are not issued upon the net settlement or net exercise of options or SARs, shares that are delivered to or retained by the Company to pay the exercise price or withholding taxes related to awards, and shares repurchased on the open market with the proceeds of option exercises, will not be available for additional grants under the 2013 Plan. In general, shares subject to awards under the 2013 Plan that expire, terminate, or are canceled before issuance will again be available for issuance under the 2013 Plan.
Administration of the Plan. The 2013 Plan will be administered by the Administrator, which is defined as (a) the Compensation Committee of the Board of Directors (the Committee) for awards to employees, consultants, and advisers, and (b) Avnets independent directors for awards to Non-Employee Directors. The Administrator has the power and authority, among other things, to: (i) designate participants and determine the types of awards granted to each participant; (ii) determine the number of shares reserved under any award or grant, the exercise price, terms and conditions, duration and payment provisions, any schedule for lapse of forfeiture restrictions and restrictions on exercisability, and accelerations and waivers thereof; (iii) determine the amount of, and performance criteria and performance period for, performance-based awards; (iv) construe and interpret the 2013 Plan; (v) establish and amend rules and regulations for the administration of the 2013 Plan; and (vi) correct any defect, remedy any omission, and reconcile any inconsistency in the 2013 Plan and any award in the manner and to the extent that it deems appropriate to carry out the intent of the 2013 Plan and such award.
CEO Authority to Grant Awards. The 2013 Plan authorizes Avnets Chief Executive Officer (CEO) to make awards to employees who are not Executive Officers, and to employees promoted to Executive Officer positions, up to a maximum of $500,000 in the aggregate per fiscal year. (For this purpose, the value of an award is determined on the grant date.) The Committee can also delegate to the CEO
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authority to make additional awards to employees who are not Executive Officers. Subject to such delegation, all other awards to employees (and others who are not Non-Employee Directors) must be made by the Committee.
Stock Options. In general, stock option grants are subject to the following rules:
| The exercise price per share for each ISO and NQSO under the 2013 Plan will be no less than 100% of the fair market value per share of Avnets common stock on the grant date. The fair market value of stock on any date will be the closing sales price (as reported for New York Stock Exchange Composite Transactions) on that date. If no trading is reported on that date, the fair market value will be the closing price as of the last preceding day for which trading was reported. |
| The Administrator (or the CEO to the extent described above) will establish the vesting schedule for each option and the terms and conditions for exercising the option. |
| Upon exercise, the purchase price is to be paid in full in cash or another form permitted by the Administrator. Other forms may include net exercise, broker-assisted cashless exercise, or delivery of shares in lieu of cash. |
| No option granted under the 2013 Plan will be exercisable after the day before the tenth anniversary of the grant date. |
Stock Appreciation Rights (SARs). In general, SARs are subject to the following rules:
| SARs may be granted in tandem with an option or alone (freestanding). |
| The exercise price per share for each tandem SAR will be no less than the exercise price for the related option, and the exercise price per share for each freestanding SAR will be no less than 100% of the fair market value per share of Avnets common stock on the grant date; fair market value will be determined in the same manner as with respect to stock options (as described above). |
| The Administrator (or the CEO to the extent described above) will establish the vesting schedule for each SAR and the terms and conditions for exercising the SAR. |
| Upon exercise, the holder will receive payment in stock or cash (or a combination) in an amount equal to the excess of the fair market value of the shares with respect to which the SAR is exercised over the exercise price. No fractional shares will be issued. Any amount that would have been payable in fractional shares will be paid in cash. |
| Tandem SARs will be exercisable only to the extent that the related options are exercisable, and no SAR granted under the 2013 Plan will be exercisable after the day before the tenth anniversary of the grant date. |
Restricted Stock. In general, grants of restricted stock are subject to the following rules:
| The Administrator (or the CEO to the extent described above) will establish the terms, conditions, and restrictions of any grant of restricted stock. |
| Restricted stock that is subject only to time-based vesting generally may not become vested at a rate faster than pro-rata annually over three years from the grant date. However, the Administrator is authorized to grant up to 5% of the shares authorized under the 2013 Plan in restricted stock, restricted stock units, and other stock unit awards that are not subject to the minimum vesting period. In addition, as described below, the Administrator may accelerate vesting under certain circumstances. |
| Restricted stock holders have full voting rights and are entitled to receive any dividends paid on Avnets common stock. All dividends will be reinvested automatically in additional shares of restricted stock that are subject to the same terms and conditions as the initial award, but no fractional shares will be issued. If a dividend would result in a fractional share of common stock, the fractional amount will be payable in cash (subject to the same terms and conditions as the restricted stock). |
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Restricted Stock Units. In general, restricted stock units are subject to the following rules:
| The Administrator (or the CEO to the extent described above) will establish the vesting schedule and the terms and conditions for each restricted stock unit award. |
| Restricted stock units will be paid upon vesting in shares of Avnet Common Stock or cash. |
| Restricted stock units will be subject to the same minimum vesting period as applies for restricted stock (described above). In addition, the Administrator has discretion to accelerate vesting under the same circumstances as with respect to restricted stock. |
| Holders of restricted stock units have no voting or other shareholder rights with respect to the underlying shares, but the Administrator (and the CEO to the extent described above) is authorized to grant dividend equivalents with respect to restricted stock unit awards. |
Performance Share Units. In general, performance share units are subject to the following rules:
| The Administrator (or the CEO to the extent described above) will establish the vesting and other terms and conditions for each performance share unit award. |
| Performance share units will provide for payment of a specified number of shares or cash, if specified vesting conditions are achieved. The number of shares or amount of cash, if any, will be determined based on the extent to which Performance Objectives established by the Administrator (or the CEO to the extent described above) are achieved. |
| The Administrator has discretion to accelerate vesting under the same circumstances as with respect to restricted stock. |
| Holders of performance share units have no voting or other shareholder rights with respect to any underlying shares, but the Administrator (and the CEO to the extent described above) is authorized to grant dividend equivalents with respect to performance share unit awards. |
Other Stock Unit Awards. In addition to the other types of awards described above, the Administrator (or the CEO to the extent described above) may grant other stock unit awards under the 2013 Plan. In general, other stock unit awards are subject to the following rules:
| The Administrator (or the CEO to the extent described above) will establish the vesting schedule and the terms and conditions for each other stock unit award, including whether the award is payable in shares of Avnet common stock, other securities, cash, or a combination. |
| Other stock unit awards will be subject to the same minimum vesting period as applies for restricted stock and restricted stock units, as described above. In addition, the Administrator has discretion to accelerate vesting under the same circumstances as with respect to restricted stock. |
| Holders of other stock unit awards have no voting or other shareholder rights with respect to the underlying shares, but the Administrator (and the CEO to the extent described above) is authorized to grant dividend equivalents with respect to other stock unit awards. |
EIP Awards. The Administrator (or the CEO to the extent describe above) may grant performance-based cash awards (EIP Awards) to employees who are Executive Officers or members of senior management. The EIP Awards are contingent upon the achievement of performance objectives (described below) specified by the Committee.
Performance-Based Awards. Section 162(m) of the Internal Revenue Code limits Avnets federal income tax deduction for compensation paid to the CEO and the three highest-paid officers of the Company other than the Chief Financial Officer (the covered officers). The limit is $1,000,000 per covered officer per year, with certain exceptions. This deductibility cap does not apply to performance-based compensation, if approved in advance by the Companys shareholders and
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certain other conditions are satisfied. Each EIP award and Performance Share Unit, and all or part of each award of restricted stock, restricted stock units, and other stock that is subject to performance-based vesting, may be designed to qualify as deductible performance-based compensation. In addition, stock options and SARs granted under the 2013 Plan generally will qualify for the performance-based compensation exception.
The performance objectives for covered officers will be based on one or more of the following performance criteria: (i) economic profit; economic value added; price of Stock; total stockholder return; revenues; sales; sales productivity; sales growth; net income; operating income; earnings per share; return on equity; return on investment; return on capital employed; cash flow; operating margin; gross margin; operating unit contribution; achievement of annual operating profit plans; debt level; market share; net worth; or other similar financial performance measures as may be determined by the Committee; or (ii) strategic business criteria consisting of one or more objectives based on meeting specified market penetration or market share; geographic business expansion; objective customer satisfaction goals; objective goals relating to divestitures, joint ventures, mergers, acquisitions, and similar transactions; implementation or completion of specified projects or processes strategic or critical to the Companys business operations; individual business objectives; objective measures of brand recognition/acceptance; performance achievements on designated projects or objectives; objective measures of regulatory compliance; successful completion of internal or external audits; successful integration of business units; successful hiring, retention of talent, or other succession planning; or objective measures of employee engagement and satisfaction. In addition, the Committee may establish other performance objectives for awards to participants who are not covered officers.
Performance objectives may be based on individual performance or performance of Avnet as a whole, of a Subsidiary, or of a division or other area of Avnet, and may be measured annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, in each case as specified by the Committee. Performance-based awards will be based on performance during a performance period as set forth in the applicable award agreement.
The Committee may adjust performance results to take into account extraordinary, unusual, non-recurring, or non-comparable items. If an award is intended to satisfy the requirements for performance-based compensation under Section 162(m), the award will not be paid unless and until the Committee certifies in writing that the applicable performance objectives have been satisfied.
No Repricing Allowed. Except in connection with certain corporate transactions, the Company may not reprice, replace, or regrant an option or SAR through cancellation, or by lowering the exercise price of the option or SAR, and no option or SAR with an exercise price that exceeds the fair market value of a share of stock (i.e., an under-water option) can be cashed-out, without shareholder approval.
Acceleration upon Certain Events. The Administrator, in its sole discretion, may accelerate the vesting of any award and/or release restrictions in the event of a change in control of Avnet (as defined in the Plan), the participants death, retirement, layoff, termination in connection with a change in control or other termination if the Administrator determines it is appropriate and in the best interests of Avnet.
No Transfer of Awards. In general, no right or interest of a participant in any award made under the 2013 Plan may be sold, assigned or otherwise transferred other than by will, beneficiary designation, or the laws of descent and distribution. However, the Committee may allow the transfer of an option (other than an ISO) to specified family members of the participant, as well as to certain trusts and other entities controlled by the participant or the participants family.
Deferral of Awards. The Administrator is authorized to allow participants to defer receipt of any payment of cash or delivery of shares that would otherwise be due upon the exercise, earn-out, or settlement of any award made under the 2013 Plan, other than stock options or SARs. Before allowing any deferral, the Administrator will establish rules and procedures for deferrals of payments under awards. The terms and conditions of any deferral will be set forth in any award agreement that is intended to provide for a deferral.
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Termination of 2013 Plan. The 2013 Stock Compensation and Incentive Plan was adopted by the Board of Directors on August 8, 2013, and will become effective only if approved by shareholders at the Annual Meeting. If approved at the Annual Meeting, the 2013 Plan will terminate on November 30, 2023, but may be terminated earlier by the Board of Directors. All awards granted before the 2013 Plan terminates will continue in effect in accordance with the terms of the applicable award agreements and the 2013 Plan.
Amendment of Plan. The Board of Directors may amend the 2013 Plan at any time, except that shareholder approval is required for any amendment that (a) affects the composition and functioning of the Committee; (b) increases the aggregate number of shares available for awards under the 2013 Plan; (c) increases the aggregate number of shares with respect to which options or other awards may be granted to any participant during any calendar year; (d) decreases the minimum exercise price per share for options; or (e) extends the ten-year maximum period during which an award is exercisable or the termination date of the 2013 Plan.
New Plan Benefits. Because benefits under the 2013 Plan will depend on the Committees and/or independent directors actions and the fair market value of Avnets common stock at various future dates, it is not possible to determine the benefits that will be received by Directors, executive officers, and other employees if the 2013 Plan is approved by shareholders.
Recoupment. The 2013 Plan incorporates Avnets compensation recoupment policy by reference. All awards under the 2013 Plan will be subject to that policy including changes that are made to the policy in the future.
Federal Income Tax Consequences of the 2013 Plan
The following general summary describes the typical U.S. federal income tax consequences of awards granted under the 2013 Plan based upon the federal tax laws in effect as of August 1, 2013, which are subject to change (possibly with retroactive effect). This is not intended to be a complete analysis and discussion of the federal income tax treatment of awards, and does not discuss estate and gift taxes or the tax laws of any municipality, state, or foreign country. Avnet (or a designated payer) will generally withhold required taxes in connection with the exercise or payment of an award, and may require the participant to pay such taxes as a condition to exercise of an award.
Stock Options. ISOs and NQSOs are treated differently for federal income tax purposes. ISOs must satisfy the requirements of Section 422 of the Internal Revenue Code. NQSOs need not satisfy such requirements.
Incentive Stock Options. The recipient of an ISO will not realize any taxable income on the grant or the exercise of the ISO, except as described in the next sentence. The difference between the exercise price and the fair market value of the shares on the exercise date will be a preference item for purposes of the alternative minimum tax, and thus a participant could be subject to the alternative minimum tax as a result of exercising an ISO.
If a participant holds the shares acquired upon exercise of an ISO for at least two years after the grant date and at least one year after exercise, the participants gain, if any, upon a subsequent disposition of such shares will be long-term capital gain. (Conversely, a loss will be a long-term capital loss.) The measure of the gain (or loss) is the difference between the proceeds received on disposition and the participants basis in the shares; in general, the participants basis is equal to the exercise price.
If a participant disposes of shares acquired by exercising an ISO before satisfying the one and two-year holding periods described above (a disqualifying disposition), then
| If the proceeds received exceed the exercise price of the ISO, the participant will (a) realize ordinary income equal to the excess, if any, of the lesser of the proceeds received or the fair market value of the shares on the date of exercise over the exercise price of the ISO and |
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(b) realize capital gain equal to the excess, if any, of the proceeds received over the fair market value of the shares on the date of exercise; or |
| If the proceeds received are less than the exercise price of the ISO, the participant will realize a capital loss equal to the excess of the exercise price of the ISO over the proceeds received. |
Capital gains (or losses) realized upon a disqualifying disposition will be treated as long-term capital gains (or losses) if the participant held the shares for more than one year after the exercise of the ISO, or otherwise as short-term capital gains (or losses).
Avnet is not entitled to an income tax deduction on the grant or exercise of an ISO or on the participants disposition of the shares after satisfying the holding period requirements described above. However, if the participant does not satisfy the holding period, Avnet will be entitled to a deduction in the year the participant disposes of the shares. The amount of the deduction will be equal to the ordinary income realized by the participant.
Non-Qualified Stock Options. The recipient of a NQSO will not realize any taxable income on the grant of the option. Upon exercise of the NQSO, the participant will realize ordinary income in an amount equal to the excess, if any, of the fair market value of the shares on the date of exercise over the option exercise price. Avnet will generally be entitled to a deduction in the same amount as the ordinary income realized by the participant.
Upon the sale of shares acquired from exercising an option, the participant will realize a capital gain (or loss) equal to the difference between the proceeds received and the fair market value of the shares on the date of exercise. The capital gain (or loss) will be a long-term capital gain (or loss) if the participant held the shares for more than one year after the exercise of the NQSO, or otherwise a short-term capital gain (or loss).
Special rules will apply if the exercise price or applicable withholding tax obligations are paid by delivering shares or by reducing the number of shares otherwise issuable pursuant to the award. The surrender or withholding of such shares will in certain circumstances result in income with respect to such shares or a carryover basis in the shares acquired, and may constitute a disposition for purposes of applying the ISO holding periods discussed above.
Stock Appreciation Rights. The recipient of a SAR will not realize any taxable income on the grant of the SAR. Upon the exercise of the SAR, the participant will realize ordinary income in an amount equal to the fair market value of the shares and/or cash received on the date of exercise. Avnet will generally be entitled to a corresponding tax deduction.
Upon the sale of shares acquired from exercising a SAR, the participant will realize a capital gain (or loss) equal to the difference between the proceeds received and the fair market value of the shares on the date of exercise. The capital gain (or loss) will be a long-term capital gain (or loss) if the participant held the shares for more than one year after the exercise of the SAR, or otherwise a short-term capital gain (or loss).
Restricted Stock. The federal income tax consequences of a grant of restricted stock depend on whether a participant elects to be taxed at the time of the grant (an 83(b) election, named for Section 83(b) of the Internal Revenue Code). If the participant does not make an 83(b) election, the participant will not realize taxable income at the time of grant. When the restrictions on the shares lapse, the participant will realize ordinary income in an amount equal to the fair market value of the restricted stock at that time (less any amount that the Participant pays for the shares). If the participant makes an 83(b) election, the participant will realize ordinary income at the time of grant in an amount equal to the fair market value of the shares at that time (less any amount that the participant pays for the shares), determined without regard to any of the restrictions. If shares are forfeited before the restrictions lapse, the participant will not be entitled to a corresponding deduction.
The participants tax basis in restricted stock will be the income realized with respect to the shares (plus any amount that the participant paid for the shares). Upon a subsequent disposition of any
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shares, the participant will realize a capital gain or loss, equal to the amount received upon disposition minus the participants tax basis. The capital gain (or loss) will be a long-term capital gain (or loss) if the participant held the shares for more than one year after realizing income attributable to the shares, or otherwise a short-term capital gain (or loss).
Avnet will be entitled to a tax deduction in the taxable year in which the participant realizes income. The amount of the deduction will be the same as the amount of income realized by the participant.
Restricted Stock Units/Performance Share Units/Other Stock Unit Awards. Recipients of restricted stock units, performance share units, and other stock unit awards will not realize any taxable income at the time of grant. Income will be realized when the awards vest and are paid in cash or shares of stock. At that time, the participant will realize ordinary income equal to the then fair market value of the shares or cash paid to the participant. The value of shares included in income will be the participants tax basis in the shares.
The participants tax basis in any stock issued to settle a restricted stock unit, performance share unit, or other stock unit award will be the amount realized as income attributable to the shares. Upon a subsequent disposition of any shares, the participant will realize capital gain or loss. The capital gain (or loss) will be a long-term capital gain (or loss) if the participant held the shares for more than one year after realizing income attributable to the shares, or otherwise a short-term capital gain (or loss).
Avnet will be entitled to a tax deduction in the taxable year in which the participant realizes income. The amount of the deduction will be the same as the amount of income realized by the participant.
EIP Awards. The recipient of an EIP award will not realize any taxable income at the time of grant. Income will be realized after the performance objectives are achieved, when the awards are paid in cash. Avnet will generally be entitled to a tax deduction in the taxable year in which the participant realizes income.
Other Tax Issues. In general, the amount includible in income upon the exercise of NQSOs and SARs (but not income realized upon the exercise of an ISO), and upon the vesting of other awards will be treated as wages for purposes of employment taxes, including Social Security (up to the Social Security wage base) and Medicare taxes. Also, upon the sale of shares acquired from awards under the Plan, participants with income above a specified threshold will be subject to a new tax on passive income (in addition to capital gains taxes).
As noted above, Section 162(m) of the Internal Revenue Code limits Avnets federal income tax deduction for compensation paid to covered officers. Avnet may be denied a compensation deduction for any award granted to a covered officer if the Award does not qualify as performance-based compensation and the covered officers compensation exceeds $1,000,000 in a given year.
In addition, as noted above, the Administrator has discretion to accelerate the payment or vesting (including the release of restrictions) on any awards in the event of a change in control of Avnet. If this occurs, payments and transfers of shares to disqualified individuals under Section 280G of the Internal Revenue Code (generally officers, the 250 highest paid employees of Avnet and subsidiaries in which Avnets ownership interest is 80% or more, and shareholders who own 1% or more of Avnet) that are deemed to be contingent on the change in control may be subject to special tax consequences that apply to parachute payments.
In order to determine whether these special tax consequences are triggered, the sum of the payments and transfers under the 2013 Plan and all other compensation that is deemed to be contingent on the change in control (the potential parachute payments) must be compared to the disqualified individuals base amount. In general, the base amount is the individuals average annual taxable compensation from the Company during the five years (or the number of years the individual worked for the Company, if fewer) immediately before the change in control. If the amount of the potential parachute payments equals or exceeds 3 times the base amount, the excess of the potential parachute payments over the base amount will be considered excess parachute payments.
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If any amounts are determined to be excess parachute payments, the disqualified individual will have to pay an excise tax equal to 20% of the excess of the potential parachute payments over the individuals base amount. In addition, Avnet would not be allowed to deduct the amount that is subject to the excise tax.
The Board of Directors recommends a vote FOR approval of the
Avnet, Inc. 2013 Stock Compensation and Incentive Plan.
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RATIFICATION OF APPOINTMENT OF KPMG AS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
One of the purposes of the Annual Meeting is to consider and take action with respect to ratification of the appointment by the Audit Committee of KPMG LLP as the independent registered public accounting firm to audit the consolidated financial statements of Avnet for the fiscal year ending June 28, 2014.
The affirmative vote of the majority of the votes cast at the Annual Meeting by the holders of shares of Common Stock is required to ratify the appointment of KPMG LLP as Avnets independent registered public accounting firm. Abstentions are not counted in determining the votes cast in connection with the ratification of the appointment of KPMG LLP, but do have the effect of reducing the number of affirmative votes required to achieve a majority for this proposal by reducing the total number of shares from which the majority is calculated. Brokers who hold shares of Common Stock as nominees will h