REPORT OF THE COMPENSATION COMMITTEE
The substantive discussion of the material elements of all of the Company’s executive compensation programs and the determinations by the Compensation Committee with respect to compensation and executive performance for 2016 are contained in the Compensation Discussion and Analysis that follows below. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with the management representatives responsible for its preparation and the Compensation Committee’s advisors. In reliance on these reviews and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the definitive Proxy Statement on Schedule 14A for Arrow’s 2017 Annual Meeting for filing with the SEC and be incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
John N. Hanson, Chair
Philip K. Asherman
Richard S. Hill
Barry W. Perry
|
|
|
|
24
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS (“CD&A”)
EXECUTIVE COMPENSATION
This CD&A explains the executive compensation program for the Company’s NEOs listed below. The CD&A also describes the Compensation Committee’s process for making pay decisions, as well as its rationale for specific decisions related to fiscal 2016.
|
|
|
Name
|
|
Title
|
Michael J. Long
|
|
Chairman, President, and Chief Executive Officer
|
Christopher D. Stansbury*
|
|
Senior Vice President, Chief Financial Officer
|
Paul J. Reilly*
|
|
Former Executive Vice President, Finance & Operations & Chief Financial Officer
|
Andrew D. King
|
|
President, Global Components
|
Gretchen K. Zech
|
|
Senior Vice President, Global Human Resources
|
Sean J. Kerins
|
|
President, Global Enterprise Computing Solutions
|
*
Mr. Stansbury was named Senior Vice President, Chief Financial Officer effective May 11, 2016. Mr. Stansbury succeeds Mr. Reilly, who retired from the Company effective January 31, 2017.
EXECUTIVE SUMMARY
2016 Business Strategy and Highlights
It was a record-breaking year for the Company. Full-year sales, gross profit and earnings per share (“EPS”) reached all-time record levels. The Company delivered on its financial objectives to grow sales faster than the market, increase markets served, and grow profits faster than sales. Sales grew 2% and EPS on a diluted basis grew 8% compared to 2015. In terms of increasing the Company’s global presence, the number of countries served expanded to more than 90 in 2016 from approximately 85 in 2015.
The Company believes that a non-GAAP EPS calculation is appropriate in assessing and understanding the company’s operating performance and trends in the company’s business because it removes financial information outside the company’s core operating results. As a result, all references to EPS in this Proxy Statement are to non-GAAP EPS.
Financial Performance Achievements
The Company’s organic investments, acquisitions, and strong execution resulted in 32% three-year adjusted EPS growth. This growth was third highest among the nine companies in the Arrow defined Peer Group. Three-year average return on invested capital (“ROIC”) was 2.4% above the three-year weighted average cost of capital (“WACC”). Total shareholder return for the three-year period was 31% compared to 29% for the S&P 500 stock index.
|
|
|
|
|
25
|
Strategic Performance Achievements
O
ver the past three years, the Company completed 18 strategic acquisitions to broaden its product and service offerings, to further expand its geographic reach in the Asia Pacific region, and to increase its digital capabilities to meet the evolving needs of customers and suppliers. Aligned with the vision of guiding innovation forward, the Company is investing in emerging and adjacent markets. Further, d
uring 2016, the Company made significant progress in its effort to attain its goal of sustaining strong financial performance on a long-term basis. It entered into new distribution agreements intended to help the Company maintain its leadership position in the electronic component and information technology solutions markets. These agreements include relationships with semiconductor, passive electromechanical component, information technology hardware and software, and cloud-based solution providers. Arrow believes the semiconductor and information technology industries are rapidly converging, driven by the adoption of Internet of Things products and solutions. To be a leader amidst this rapid pace of change, the Company believes it needs to broaden its capabilities and offer more complete solutions than the competition. It is also fostering innovation with early stage companies by establishing an exclusive agreement with crowd-funding leader Indiegogo to help innovators and inventors scale faster and bring products more quickly to the market. The Company has globally expanded this initiative through such efforts as establishing a new Asia-region headquarters in the Hong Kong Science Park, the center of innovation for the region.
2016 Shareholder Engagement and Say-On-Pay
In 2016, the Company’s executive compensation program for 2015 was submitted to an advisory vote of the shareholders and it received the support of approximately 90% of the total votes cast at the Annual Meeting. Based on the high level of approval received from shareholders and the Compensation Committee's determination that the Company’s existing programs were operating properly, the Company made no significant changes to its executive compensation programs in 2016. The Compensation Committee continues to carefully consider any shareholder feedback in its executive compensation decisions.
Best Compensation Practices and Policies
|
|
|
|
What We Do
|
What We Don’t Do
|
√
|
Heavy emphasis on variable compensation
|
×
|
No guaranteed salary increases
|
√
|
All long-term incentives vest based on
performance
|
×
|
No “single trigger” change-in-control (“CIC”) cash payments
|
√
|
Rigorous stock ownership guidelines
|
×
|
No tax gross ups on compensation equity
|
√
|
Independent compensation consultant
|
×
|
No option backdating or repricing
|
√
|
Annual risk assessments
|
×
|
No hedging or pledging
|
√
|
Non-equity incentives are provided based on incentive plans and are not solely discretionary
|
×
|
No extensive perquisites
|
|
|
|
|
26
|
|
|
2016 Compensation Actions
The Compensation Committee took several actions in 2016 to ensure market-competitive NEO compensation, emphasizing performance-based compensation programs tied directly to value creation for the Company’s shareholders.
Base Salary
The
Committee targets a competitive positioning of NEO salaries relative to the defined Peer Group, the larger general industry, and individual professional development. As such, Ms. Zech and Mr. Kerins were both provided with salary increases to align them with a competitive market position based on their performance. Mr. Stansbury and Mr. King received base salary increases due to their promotions.
Annual Cash Incentives (“MICP”)
A
nnual cash incentives are based on the achievement of two key performance measures: EPS and strategic goals. For 2016, the Company’s EPS grew by 8%, accounting for the majority of the annual cash incentive payout. Achievement on strategic goals varied from 25% to 101%, depending on each individual NEO’s performance. This resulted in awards that were below target levels for some of the NEOs and above target levels for other NEOs.
Long-Term Incentive Plan (“LTIP”)
The majority of the compensation delivered to the NEOs continues to be in the form of equity under the LTIP. In 2016, the NEOs were awarded an LTIP grant with a mixture of 50% performance stock units (“PSUs”), 25% RSUs, and 25% stock options. The Committee believes the use of these equity vehicles creates strong alignment with the Company’s shareholders by linking NEO compensation closely to stock performance and the effective use of capital.
The performance period for the 2014 PSU awards concluded at the end of fiscal year 2016. The Company’s EPS growth relative to its peer companies and efficient use of capital resulted in a payout at 140% of target. Mr. King and Ms. Zech were also awarded one-time grants of RSUs in 2016 that vest in their entirety at the end of four years. The Company occasionally provides such grants as part of a promotion or for retention.
WHAT GUIDES THE COMPANY’S PROGRAM
As a large global provider of technology solutions operating in a highly competitive market, the Company views its people as critical assets and key drivers of its success. The Company’s executive compensation program is designed to motivate, attract, and retain talented executives who are capable of successfully leading the Company’s complex global operations and creating long-term shareholder value.
The program is structured to support Arrow’s strategic goals and reinforce high performance with a clear emphasis on accountability and performance-based pay for achievement of stated goals. As such, a significant portion of total direct compensation (“TDC”) is directly linked to the Company’s short- and long-term performance in the form of cash and equity-based incentive awards. This provides executives with an opportunity to earn above median compensation if the Company delivers superior results or below median when performance targets are not achieved. The portion of pay tied to performance is consistent with Arrow’s executive compensation philosophy and market practices.
|
|
|
|
|
27
|
The Principal Elements of Pay: Total Direct Compensation
The Company’s compensation philosophy is supported by the following principal elements of pay:
|
|
|
Pay Element
|
How Paid
|
What It Does
|
Base Salary
|
Cash
(Fixed)
|
Provides a competitive rate ― approximately the 50th percentile paid for comparable jobs at similar companies ― relative to similar positions in the market, and enables the Company to attract and retain critical executive talent.
|
Annual Cash Incentive Awards
|
Cash
(Variable)
|
Rewards individuals for performance if they attain pre-established financial and strategic targets that are set by the Compensation Committee at the beginning of the year.
|
Long-Term Incentive Awards
|
Equity
(Variable)
|
Promotes a balanced focus on driving performance, retaining talent, and aligning the interests of the Company’s executives with those of its shareholders.
|
|
|
|
|
28
|
|
|
Pay Mix
The charts below show the target TDC of the Company’s CEO and other NEOs for fiscal 2016 (rounded to the nearest whole percentages). Annual and long-term incentives play a significant role in the executives’ overall compensation at Arrow. They are essential to linking pay to performance, aligning compensation with organizational strategies and financial goals, and rewarding executives for the creation of shareholder value.
In fiscal 2016, in the aggregate, 80% of the NEOs’ target TDC was variable and tied to corporate performance, measured by EPS, ROIC, WACC, stock performance, and individual or team goals (86% for the Company’s CEO and an average of 75% for the other NEOs).
The following charts reflect the weighted average distribution of the elements of the CEO’s and remaining NEOs’ target compensation based on grant date values. The charts show that, excluding the value of the Supplemental Executive Retirement Plan (“SERP”), 86% of the Company’s CEO’s and 75% of the Company’s NEOs’ target compensation was performance-based, including 66% and 51% delivered in the form of Arrow equity to the CEO and NEOs, respectively. Tying pay to the Company’s performance reflects the Compensation Committee’s emphasis on “at-risk” compensation and accountability in support of the Company’s strategic goals. The Compensation Committee has weighted the pay components to establish a total compensation package that effectively motivates the Company’s leaders to drive superior performance in a manner that benefits the interests of shareholders but does not encourage excessive risk taking.
|
|
|
Why the Company Uses EPS in Both Short-Term and Long-Term Incentive Plans
EPS is an important financial performance metric in determining the outcomes of the Company’s annual and long-term incentive awards. The Compensation Committee believes that, even though the formulas and approach for determining annual and long-term incentive awards are different, having EPS as a common focus is in the best interest of shareholders. The Compensation Committee believes that it continues to result in shareholder value creation over time. It also allows Arrow to create greater line-of-sight for its NEOs, which facilitates an effective goal-setting process and makes discussions about performance against goals more meaningful for participants.
|
|
|
|
|
|
29
|
The Company’s Decision-Making Process
The Role of the Compensation Committee
The Compensation Committee is comprised of independent, non-management members of the Board. The Compensation Committee works very closely with its independent consultant and management to examine the effectiveness of the Company’s executive compensation program throughout the year. Details of the Compensation Committee’s authority and responsibilities are specified in its charter, a copy of which is available at the “Leadership & Governance” sublink of
investor.arrow.com
.
The Compensation Committee is responsible for developing and reviewing Arrow’s executive compensation philosophy. It implements that philosophy through compensation programs and plans designed to further Arrow’s strategy; drive long-term, profitable growth; and increase shareholder value. The Compensation Committee reviews and approves the corporate goals and objectives relevant to executive compensation and, subject to review and ratification by the other non-management members of the Board, reviews and approves the compensation and benefits for the CEO and the Company’s other NEOs. In making its decisions, the Compensation Committee also reviews the performance of each of the NEOs and the Company as a whole. It also considers the compensation of other Company executives, levels of responsibility, prior experience, breadth of knowledge, and job performance in reviewing target total compensation levels.
The Compensation Committee considers performance reviews prepared by the CEO for his direct reports and conducts its own performance review of the CEO. The Compensation Committee reviews the Company’s performance on the metrics relevant to the execution of its strategy and evaluates the CEO’s performance in light of that execution. For NEOs other than the CEO, the Compensation Committee’s review includes input provided by the CEO. The CEO’s compensation is evaluated in executive session without the CEO present. All decisions regarding NEO compensation are ultimately made by the Compensation Committee (subject to ratification by the Board in the case of the CEO’s compensation).
The Role of Management
Compensation Committee meetings are regularly attended by the Company’s CEO, the General Counsel, the Senior Vice President of Global Human Resources, and the CFO. Each of the management attendees provides the Compensation Committee with his or her specific expertise and the business and financial context necessary to understand and properly target financial and performance metrics. None of the members of management are present during the Compensation Committee’s deliberations regarding their own compensation, but the Company’s independent compensation consultant, Pearl Meyer & Partners, may participate in those discussions.
The Role of the Independent Compensation Consultant
The Compensation Committee has selected and engaged Pearl Meyer & Partners as its independent compensation consultant to provide the Compensation Committee with expertise on various compensation matters, including competitive practices, market trends, and specific program design. Additionally, Pearl Meyer & Partners provides the Compensation Committee with competitive data regarding market compensation levels at the 25th, 50th, and 75th percentiles for total compensation and for each major element of compensation.
Pearl Meyer & Partners reports directly to the Compensation Committee and does not provide any other services to the Company or its management. The Compensation Committee annually assesses the independence and any potential conflicts of interest of compensation advisors in accordance with applicable law and New York Stock Exchange listing standards. Pearl Meyer & Partners’ services to the Compensation Committee have not raised any conflicts of interests between the Compensation Committee, Arrow, and Arrow management.
|
|
|
|
30
|
|
|
The Role of Peer Companies
To ensure that executive compensation plans and levels are appropriate and competitive, the Compensation Committee reviews analyses on peer company practices at various times throughout the year. Information on total compensation levels is considered in the context of peer performance analyses in order to effectively link compensation to absolute and relative performance. Through this process, and with input from its independent compensation consultant and management, the Compensation Committee determines appropriate benchmarking targets each year.
The Compensation Committee believes targeting TDC at the market 50th percentile is appropriate. For the purpose of Arrow’s annual competitive benchmarking study, Pearl Meyer & Partners reviews compensation data of the Peer Group (as defined below), as well as general industry survey data published by third parties. General industry survey data serves as a broader reference point for specific business units where the breadth and relevance of Peer Group data is not as comprehensive as desired, and in cases where the NEO’s position and responsibilities are broader than the typical benchmarks.
The Compensation Committee evaluates the appropriateness of each NEO’s compensation as positioned against the market 50th percentile based on factors that include Company and business unit performance, job scope, individual performance, time in position, and other relevant factors. To the extent the Compensation Committee deems that the compensation level associated with an NEO’s position versus the market is not aligned with the relevant factors, the Compensation Committee may choose to modify one or more of the NEO’s compensation components.
The Compensation Committee, with input from its independent compensation consultant, annually reviews and approves the compensation Peer Group to ensure it continues to meet the Company’s objectives. At the Compensation Committee’s request, Pearl Meyer & Partners conducted a comprehensive review of the Peer Group used in 2015, and no changes were made for 2016. The Peer Group companies reflect a combination of direct and broader industry peers and are as follows:
|
|
|
Peer Group Companies
|
Anixter International Inc.
|
|
Ingram Micro Inc.
|
Avnet, Inc.
|
|
Jabil Circuit, Inc.
|
Celestica Inc.
|
|
Tech Data Corporation
|
Flextronics International Ltd.
|
|
WESCO International, Inc.
|
|
|
|
|
|
|
|
|
|
|
Overall Peer Group Data (Millions)
|
Percentile
|
|
Revenue*
|
|
Market Cap**
|
25th
|
|
7,551
|
|
2,907
|
50th
|
|
21,386
|
|
3,799
|
75th
|
|
26,259
|
|
5,886
|
Arrow
|
|
23,825
|
|
6,387
|
Percentile Rank
|
|
56th
|
|
88th
|
*Trailing Twelve Months
|
|
|
|
|
**As of 12/31/16 (or 12/5/16 for Ingram Micro - the company's last trading date)
|
|
|
|
|
|
|
|
|
|
31
|
The Compensation Committee also reviews other benchmarking data when deemed necessary and appropriate. This data can cover a variety of areas such as equity vesting practices, the prevalence of performance metrics among peer companies, types of equity vehicles used by peer companies, severance practices, equity burn rates, and any other market data the Compensation Committee believes it needs to consider when evaluating the Company’s executive compensation program.
THE 2016 EXECUTIVE COMPENSATION PROGRAM IN DETAIL
This section of the CD&A provides details about the three principal elements of pay ― base salary, annual cash incentive awards, and long-term incentive awards. Arrow’s pay-for-performance focus is evident in the substantially greater weight given to incentive-based compensation versus fixed compensation.
Base Salary
Base salary represents annual fixed compensation and is a standard element of compensation necessary to attract and retain talent. To attract the necessary executive talent and maintain a stable executive team, the Compensation Committee generally targets executive officer base salaries at approximately the 50th percentile for comparable jobs at similar companies. In making base salary decisions, the Committee considers the CEO’s recommendations, each NEO’s position and level of responsibility within the Company, as well as a number of other factors, including:
>
Individual performance;
>
Company or business unit performance;
>
Job responsibilities;
>
Relevant benchmarking data; and
>
Internal budget guidelines.
Subject to ratification by the Board, the CEO’s base salary is determined by the Compensation Committee in executive session based on its evaluation of his individual performance, the Company’s performance, and relevant benchmarking data. The Compensation Committee, in consultation with its independent compensation consultant, met in December 2015 to conduct its annual review of base salaries and determined the appropriate annual base salary rate for each then current NEO to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
2015
|
|
2016
|
Michael J. Long
|
|
$
|
1,150,000
|
|
$
|
1,150,000
|
Christopher D. Stansbury *
|
|
|
—
|
|
$
|
500,000
|
Paul J. Reilly
|
|
$
|
700,000
|
|
$
|
700,000
|
Andrew D. King *
|
|
|
—
|
|
$
|
500,000
|
Gretchen K. Zech
|
|
$
|
420,200
|
|
$
|
455,000
|
Sean J. Kerins
|
|
$
|
500,000
|
|
$
|
550,000
|
* Messrs. Stansbury and King were not NEOs during 2015. Therefore, their base salaries for 2015 are not reflected in this chart. Mr. Stansbury’s base salary for 2016 was effective May 11, 2016, the date of his promotion to Senior Vice President, Chief Financial Officer.
In 2016, Mr. Kerins and Ms. Zech received salary increases of 10% and 8%, respectively. These increases were intended to keep salaries competitive and consistent with the Company’s compensation philosophy and the performance of the incumbent. Messrs. Stansbury’s and King’s base salaries were each set at $500,000 as a result of their promotions and are representative of their increased responsibilities in each of their new roles.
|
|
|
|
32
|
|
|
Annual Cash Incentives: The Management Incentive Compensation Plan (“MICP”)
Arrow’s annual cash incentives are designed to reward individuals for performance against pre-established targets that are set by the Compensation Committee at the beginning of the year. Each of the Company’s NEOs is assigned an annual cash incentive target. Annual cash incentive targets are established based on market compensation analysis within the context of targeting TDC at the 50th percentile, provided that the actual incentive levels may be higher or lower than the 50th percentile based upon a number of factors, such as Company and individual performance. Actual award payouts depend on the achievement of pre-established performance objectives and can range from 0% to 200% of target award amounts. Target annual award opportunities were established by the NEO’s level of responsibility and his or her ability to impact overall results. The Compensation Committee also considers market data in setting target award amounts.
2016 MICP Performance Objectives and Results
The annual cash incentive for each of the NEOs follows the structure of the Company’s MICP, which is based on a combination of financial and strategic goals. The financial goals account for 70% and the strategic goals account for 30% of the total annual cash incentive award.
Strategic Goals
Each NEO can earn between 0% and 200% based on individual performance against his or her pre-established, strategic goals. The strategic goals are designed to be specific and measurable and to further the objectives of the Company. For 2016, the strategic component of the award was based on individual and/or team performance goals.
|
|
Financial Goals
Each NEO can earn between 0% and 200% based on the achievement of pre-established, financial goals. For 2016, the financial performance metric was EPS. The Compensation Committee selected EPS to reinforce the Company’s overall profit objectives, based on the rationale that EPS is a primary driver of shareholder value.
|
The 2016 annual cash incentive metrics and results against those metrics were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
Achievement
|
|
|
|
|
|
Weighted
|
|
Performance Metric
|
|
Range
|
|
|
Percentage
|
|
|
Weighting
|
|
|
Achievement %
|
|
Arrow EPS
|
|
$
|
4.63 - 7.71
|
**
|
|
103.90
|
%
|
|
70
|
%
|
|
72.73
|
%
|
Strategic Goals
|
|
|
0 - 200
|
%
|
|
24.75 - 100.70
|
%
|
|
30
|
%
|
|
7.43 - 30.21
|
%
|
Total
|
|
|
—
|
|
|
—
|
|
|
100
|
%
|
|
80.16 - 102.94
|
%
|
** Achievement of each performance metric at the midpoint of the performance range would result in a payout of 100% of the target opportunity for such metric and all other payments are interpolated based on the applicable performance range. For example, with respect to the EPS metric, if EPS equals $6.17, the resulting payout would be 100% of the target opportunity. Achievement below $4.63 or above $7.71 would result in payouts of 0% or 200% of the target opportunity, respectively, on that performance metric.
The Company attained an EPS performance of $6.23, resulting in an achievement percentage of 103.9% for each of the NEO’s financial goals, except for Mr. Stansbury, whose financial achievement percentage was 101.79%. The NEOs can also earn between 0% and 200% of the 30% strategic component of the MICP based on the Compensation Committee’s evaluation of each individual’s performance against his or her pre-established, strategic goals. The strategic goals are designed to be specific and measurable and to further the objectives of the Company. For 2016, the strategic component of the MICP was based on individual and/or team performance goals.
|
|
|
|
|
33
|
In regards to Mr. Long, the Compensation Committee applied the same basic methodology described above, including the same 70% financial component based on the above EPS performance range, and as stated in the table above he attained 103.9% achievement on his financial goal. The Compensation Committee tied the 30% strategic component for Mr. Long’s annual cash incentive to individual contributions made relative to the Company’s strategic business imperatives. Based on the Compensation Committee's assessment of Mr. Long’s successful performance on his strategic objectives, it awarded him 100.7% on his individual performance and team goals. This resulted in a total weighted achievement percentage of 102.9% for Mr. Long and an annual cash incentive of $1,750,000. The performance goal details under the requirements of Section 162(m) of the Internal Revenue Code are discussed under the heading “Tax and Accounting Considerations.”
The table below provides a summary of the awards earned for EPS and strategic goal performance by each NEO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic
|
|
|
|
|
|
|
|
|
|
|
|
|
Goal
|
|
|
|
|
Total
|
|
|
Target Award
|
|
EPS Payout
|
|
Payout
|
|
|
Total
|
|
Payout as %
|
Name
|
|
($)
|
|
(70% Weighting)
|
|
(30% Weighting)
|
|
|
Payout ($)
|
|
of Target
|
Michael J. Long
|
|
|
1,700,000
|
|
103.90%
|
|
100.70%
|
|
|
1,750,000
|
|
102.94%
|
Christopher D. Stansbury
|
|
|
446,315
|
|
101.79%
|
|
76.14%
|
|
|
428,273
|
|
95.96%
|
Paul J. Reilly
|
|
|
675,000
|
|
103.90%
|
|
100.00%
|
|
|
693,428
|
|
102.73%
|
Andrew D. King
|
|
|
400,000
|
|
103.90%
|
|
24.75%
|
|
|
320,640
|
|
80.16%
|
Gretchen K. Zech
|
|
|
455,000
|
|
103.90%
|
|
100.00%
|
|
|
467,422
|
|
102.73%
|
Sean J. Kerins
|
|
|
450,000
|
|
103.90%
|
|
41.50%
|
|
|
383,310
|
|
85.18%
|
*
Mr. Stansbury was promoted to Senior Vice President, Chief Financial Officer effective May 11, 2016. The amounts in the table above reflect a prorated payment of $98,458 from his prior role, and $329,815 as Senior Vice President, Chief Financial Officer.
|
|
|
|
34
|
|
|
Long-Term Incentive Awards
Long-term incentive awards are designed to promote a balanced focus on driving performance, retaining talent, and aligning the interests of the Company’s NEOs with those of its shareholders. Under the LTIP, awards are expressed in dollars and normally granted annually. The LTIP includes a mix of PSUs, stock options, and RSUs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs
|
|
Stock Options
|
|
RSUs
|
PSUs are rewards for three-year EPS growth relative to Arrow’s Peer Group Companies (weighted at 60%), as adjusted for Arrow’s three-year ROIC in excess of WACC (weighted at 40%).
>
The number of PSUs earned (from 0% to 185% of target number of PSUs granted) is based on the Company’s performance over a three-year period
>
Vesting is contingent upon the Company achieving a 2016 net income, as adjusted, greater than zero
>
PSUs are paid out in shares of Arrow stock at the end of the three-year vesting term
|
|
Stock Options reward price appreciation.
>
Stock options vest in four equal annual installments beginning on the first anniversary of the grant
>
Exercise price is determined by using the closing price on date of grant
>
Options expire ten years from grant date
|
|
RSUs support retention.
>
RSUs
generally vest in four equal annual installments beginning on the first anniversary of the grant
>
Vesting is contingent upon the Company achieving a net income, as adjusted, greater than zero in the fiscal year of the initial grant
>
RSUs are paid out in shares of Arrow stock when vested
|
|
|
|
|
|
35
|
2016 Target LTIP Award Opportunities
The Compensation Committee makes LTIP award decisions for executives based on input from the CEO (other than for himself), prior grant history, the Compensation Committee’s own assessment of each executive’s contribution, potential contribution, performance during the prior year, peer compensation benchmarking analysis, and the long-term incentive award practices of the Peer Group discussed above. The target LTIP award level is set at approximately the 50th percentile of the benchmark data gathered and adjusted by the Compensation Committee’s assessment of each executive based on the elements described above.
The Compensation Committee also evaluates the Chief Executive Officer’s performance in light of the factors discussed above to determine his annual long-term incentive award. That award and those for the other NEOs for 2016 are set forth below. For more detail, including the expense to the Company associated with each grant, see the Grants of Plan-Based Awards Table.
The Compensation Committee generally makes annual equity grants at the first regularly scheduled Board meeting of the calendar year. Hiring and promotion grants are made at the next regularly scheduled meeting of the Board that follows such an event, and in instances where retention awards or other ad-hoc awards are advisable, grants are made at the appropriate meeting. All stock option grants are made with exercise prices equal to the value of the Company stock on the grant date closing price to ensure participants derive value only as shareholders realize corresponding gains over an extended time period. None of the options granted by the Company, as discussed throughout this Proxy Statement, have been repriced, replaced, or modified in any way since the time of the original grant. The Company’s three-year average burn rate of 1.21%
of weighted average basic common shares outstanding reflects its prudent management of equity shares used under its LTIP. The 2016 LTIP awards were granted as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
PSUs
|
|
Stock Options
|
|
RSUs
|
Michael J. Long
|
|
48,733
|
|
81,840
|
|
24,366
|
Christopher D. Stansbury *
|
|
3,101
|
|
5,208
|
|
9,784
|
Paul J. Reilly
|
|
14,177
|
|
23,808
|
|
7,088
|
Andrew D. King *
|
|
8,861
|
|
14,880
|
|
13,290
|
Gretchen K. Zech *
|
|
6,114
|
|
10,267
|
|
11,916
|
Sean J. Kerins
|
|
8,861
|
|
14,880
|
|
4,430
|
* Includes special RSU grants for promotions for Messrs. Stansbury and King and a retention grant for Ms. Zech.
A Closer Look at PSUs: 2016 Grants
The 2016 PSU awards are tied to Arrow’s three-year (2016-2018) EPS growth as compared to the EPS growth of Arrow’s Peer Group and Arrow’s three-year average ROIC in excess of its three-year WACC. The Compensation Committee chose EPS and ROIC as performance metrics in order to reward participants for successfully balancing profit maximization and the efficient use of capital, both key drivers in creating shareholder value.
The EPS variable is weighted at 60%, and the ROIC/WACC variable at 40%. Provided the Company achieves a net income, as adjusted, of greater than zero, participants may earn up to 185% of their targeted PSUs based
|
|
|
|
36
|
|
|
on the matrix below, subject to the individual’s continued employment through the applicable vesting date and any rights provided under the Severance Policy and Participation Agreements.
Performance Payout for 2014 PSU Grants
The Table below applies to 2014 PSU grants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3-YEAR ROIC-WACC (40%)
|
|
PAYOUT AS PERCENT OF TARGET*
|
Maximum (200%)
|
|
3.0%+
|
|
80%
|
|
95%
|
|
116%
|
|
134%
|
|
140%
|
|
146%
|
|
155%
|
|
170%
|
|
185%
|
Target (100%)
|
|
1.5%
|
|
40%
|
|
55%
|
|
76%
|
|
94%
|
|
100%
|
|
106%
|
|
115%
|
|
130%
|
|
145%
|
Threshold (50%)
|
|
>
0%
|
|
20%
|
|
35%
|
|
56%
|
|
74%
|
|
80%
|
|
86%
|
|
95%
|
|
110%
|
|
125%
|
|
|
< 0%
|
|
0%
|
|
15%
|
|
36%
|
|
54%
|
|
60%
|
|
66%
|
|
75%
|
|
90%
|
|
105%
|
|
|
|
|
9
|
|
8
|
|
7
|
|
6
|
|
5
|
|
4
|
|
3
|
|
2
|
|
1
|
|
|
EPS RANKING VS. PEERS (60%)
|
* Payout interpolated between levels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the PSUs granted in 2014, the performance period was completed at the end of calendar year 2016, with the payout level approved by the Compensation Committee in February 2017 based on the three-year (2014-2016) results, which include three years of audited financial statements in accordance with GAAP. During 2016, Ingram Micro Inc., one of the companies in the Company’s Peer Group, was acquired. Financial data for 2016 is available from Q1 through Q3, but Q4 financial data is not available for Ingram Micro Inc. As a result, the Compensation Committee has supplemented actual Q4 results of Ingram Micro Inc. with analyst estimates for use in the determination of the 2014 PSU award payout. In so doing, the Company determined that its EPS growth ranked 3rd among the reporting peer companies. Ingram Micro Inc. will be removed from the Peer Group for the achievement calculation for future PSU award results and the Compensation Committee will consider whether to add one or more companies to its Peer Group for future grants.
The Company’s average ROIC exceeded its WACC by greater than 2.4% during the same period. Based on these results, in February 2017, the 2014-2016 PSUs vested at 140% of target levels.
Restricted Stock Units
Grants of RSUs represent 25% of the LTIP value for the NEOs and generally vest in 25% increments on each of the first four anniversaries of the date of grant contingent upon the Company achieving net income, as adjusted, greater than zero and subject to the individual’s continued employment through the applicable vesting date. RSUs are intended to provide the NEOs with the economic equivalent of a direct ownership interest in the Company during the vesting period and provide the Company with significant retention security regardless of post-grant share price volatility.
Stock Options
Stock option grants also represent 25% of the LTIP value and vest in 25% increments on each of the first four anniversaries of the date of grant, subject to the individual’s continued employment through the applicable vesting date. The Company grants stock options to provide the NEOs with a strong incentive to drive long-term stock appreciation for the benefit of the Company’s shareholders. Each stock option grant allows the holder to acquire shares of the Company at a fixed exercise price (Arrow’s closing share price on grant date) over a ten-year term, providing value only to the extent that the Company’s share price appreciates during that period.
|
|
|
|
|
37
|
OTHER PRACTICES, POLICIES, AND GUIDELINES
Stock Ownership Requirements
The Compensation Committee recognizes the importance of equity ownership by delivering a significant portion of the NEOs’ total compensation in the form of equity. To further align the interests of the Company’s executives with those of shareholders, the Company requires its NEOs to hold specified amounts of Arrow equity. The NEOs are required to hold Arrow equity valued at a multiple of three times their base salaries, except the CEO, who must hold five times his base salary. Until the specified levels of ownership are achieved, the NEOs are required to retain an amount equal to 50% of the acquired shares, net of taxes and withholdings, through vesting of RSUs, PSUs, and shares received as a result of the exercise of stock options. Shares that count toward satisfaction of the stock ownership requirements include:
>
Shares owned directly and indirectly;
>
Shares owned on behalf of the executive under the 401(k) Plan;
>
PSUs (after any performance conditions have been satisfied);
>
Unvested RSUs (after any performance conditions have been satisfied); and
>
The “in-the-money” value of vested stock options.
Anti-Hedging Policy
The Company’s anti-hedging policy provides that directors, executive officers, and certain other employees may not directly or indirectly engage in transactions that would have the effect of reducing the economic risk of holding the Company’s securities. The Company’s policy prohibits them from engaging in short-term trading, buying or selling put or call options, short sales, or entering into hedging transactions, on the open market with respect to their ownership of Company securities. The policy is reviewed and, if needed, updated by the Compensation Committee each year. The Company’s General Counsel, in certain limited circumstances, may approve in advance specific transactions which would otherwise be prohibited by the policy. To date, no such exception has arisen or been granted. A copy of the policy is available at the “Leadership & Governance” sublink of
investor.arrow.com
.
Severance Policy and Change of Control Agreements
The Company has a common policy for severance (the “Severance Policy”) and a change in control agreement (the “Change in Control Retention Agreement”) for its executives. The Severance Policy, corresponding Participant Agreements, and Change in Control Retention Agreements are described in detail in the section entitled “Agreements and Potential Payments upon Termination or Change in Control.”
Retirement Programs and Other Benefits
In keeping with its total compensation philosophy and in light of the need to provide a total compensation and benefit package that is competitive within the industry, the Compensation Committee believes that the retirement and other benefit programs discussed below are critical elements of the compensation package made available to the Company’s NEOs.
Qualified Plans
The NEOs participate in the 401(k) Plan, which is available to all of Arrow’s U.S. employees. Company contributions to the 401(k) Plan on behalf of the NEOs are included under the heading “All Other Compensation” in the Summary Compensation Table and specified under the heading “401(k) Company Contribution” on the All Other Compensation — Detail Table. Annually, the Company considers whether to provide a discretionary contribution to the 401(k) Plan for all of Arrow’s U.S. employees, subject to Compensation Committee approval.
|
|
|
|
38
|
|
|
Supplemental Executive Retirement Plan
The Company maintains the Arrow Electronics, Inc. SERP, a non-qualified, unfunded retirement plan in which, as of December 31, 2016, all then-current NEOs participated, the details of which are discussed under the heading “SERP” immediately preceding the Pension Benefits Table.
Management Insurance Program
All of the NEOs participate in Arrow’s Management Insurance Program. In the event of the death of an executive, the Company provides a death benefit (after tax) to the executive’s named beneficiary equal to four times the executive’s annual target cash compensation. The benefit generally ends upon separation from service, but is extended until the first day of the seventh month following separation from service in the event the participating executive’s actual commencement of benefit payments under the SERP will be delayed pursuant to Section 409A of the Internal Revenue Code.
Tax and Accounting Considerations
A variety of tax and accounting considerations influence the Compensation Committee’s development and implementation of the Company’s compensation and benefit plans. Among them are Section 162(m) of the Internal Revenue Code, which limits to $1 million the amount of non-performance-based compensation that Arrow may deduct in any calendar year for its CEO and NEOs other than the CFO. Compensation that meets the regulatory definition of “performance-based” is not subject to this limit.
The Company’s incentive awards are generally designed to meet these requirements so that Arrow can continue to deduct the related expenses. As required, shareholders have approved the basis for performance goals for awards made to NEOs, and such performance goals are subject to an advisory vote as part of Proposal 3 above.
>
The annual cash incentive plan included a maximum award based on a formula approved by the Compensation Committee to comply with the requirements of Section 162(m) of the Internal Revenue Code. The formula is based on a net income above a pre-established target level and sales divided by net working capital. Once this maximum annual cash incentive amount is determined, the Compensation Committee may exercise negative discretion to reduce the amounts to be paid to NEOs otherwise determined pursuant to the methodology described above.
>
PSUs awarded to the NEOs were subject to performance criteria that required that the Company achieve an annual net income, as adjusted, greater than zero, in which case an award of up to 185% may be approved by the Compensation Committee. The Committee may then exercise negative discretion to reduce the amount of the award. In so doing, the Committee considers the Company’s three-year EPS growth as compared to the EPS growth of Arrow’s Peer Group and Arrow’s three-year ROIC in excess of its three-year WACC determined pursuant to the methodology described above
>
RSUs awarded to the NEOs were subject to performance criteria that required that the Company achieve an annual net income, as adjusted, greater than zero (in the grant year) or the award would be canceled.
>
Stock options awarded to the NEOs were granted with an exercise price equal to the closing market price of the Company’s common stock on the grant date, such that all value realized by the NEOs upon exercise would be based on share appreciation following the date of grant.
The Compensation Committee’s policy, in general, is to maximize the tax deductibility of compensation paid to executive officers under Section 162(m) of the Internal Revenue Code. The Compensation Committee recognizes, however, that in order to effectively support corporate goals, not all amounts may qualify for deductibility. All compensation decisions for executive officers are made with full consideration of the implications of Section 162(m) of the Internal Revenue Code.
As discussed below in the section entitled “Agreements and Potential Payments upon Termination or Change in Control,” the Company's relevant agreements and policies contain provisions as appropriate in order to avoid
|
|
|
|
|
39
|
penalties to executives under Section 409A of the Internal Revenue Code. The Company provides no tax gross-ups in connection with Sections 280G and 4999 of the Internal Revenue Code in the event of a change in control of the Company.
Compensation Practices and Risk
At the Compensation Committee’s request, in 2016, Pearl Meyer & Partners conducted an assessment of risks associated with the Company’s annual cash incentives and long-term incentive programs, the results of which were discussed by the Compensation Committee in its meeting in May 2016. The Compensation Committee concluded that the overall design of the Company’s compensation programs maintained an appropriate level of risk. Pearl Meyer & Partners did not suggest any plan design changes to further mitigate risk exposure.
|
|
|
|
40
|
|
|
COMPENSATION OF THE
NAMED EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following Table provides certain summary information concerning the compensation of the NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Non-Equity
|
|
Value &
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive
|
|
NQDC
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
Name
|
|
Year
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
($)(4)
|
|
($)(5)
|
|
($)
|
Michael J. Long
|
|
2016
|
|
1,150,000
|
|
—
|
|
4,124,977
|
|
1,374,994
|
|
1,750,000
|
|
1,910,516
|
|
12,924
|
|
10,323,411
|
Chairman, President, and Chief
Executive Officer
|
|
2015
|
|
1,150,000
|
|
—
|
|
3,937,489
|
|
1,312,496
|
|
1,600,000
|
|
2,432,164
|
|
28,455
|
|
10,460,604
|
|
|
2014
|
|
1,150,000
|
|
—
|
|
3,749,949
|
|
1,250,014
|
|
1,830,900
|
|
3,377,635
|
|
48,764
|
|
11,407,262
|
Christopher D. Stansbury
|
|
2016
|
|
452,308
|
|
—
|
|
762,424
|
|
87,500
|
|
428,273
|
|
—
|
|
16,456
|
|
1,746,961
|
Senior Vice President,
Chief Financial Officer (6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul J. Reilly
|
|
2016
|
|
700,000
|
|
—
|
|
1,199,984
|
|
399,998
|
|
693,428
|
|
367,543
|
|
14,877
|
|
3,375,830
|
Former Executive Vice President, Finance & Operations & Chief
|
|
2015
|
|
700,000
|
|
—
|
|
1,199,979
|
|
400,008
|
|
629,640
|
|
800,183
|
|
15,141
|
|
3,744,951
|
Financial Officer
(7)
|
|
2014
|
|
700,000
|
|
—
|
|
1,199,984
|
|
400,001
|
|
726,975
|
|
1,585,427
|
|
33,122
|
|
4,645,509
|
Andrew D. King
|
|
2016
|
|
500,000
|
|
—
|
|
1,249,981
|
|
249,999
|
|
320,640
|
|
53,098
|
|
170,888
|
|
2,544,606
|
President,
Global Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gretchen K. Zech
|
|
2016
|
|
455,000
|
|
—
|
|
1,017,433
|
|
172,496
|
|
467,422
|
|
309,485
|
|
14,481
|
|
2,436,317
|
Senior Vice President,
Global Human Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sean J. Kerins
|
|
2016
|
|
550,000
|
|
—
|
|
750,011
|
|
249,999
|
|
383,310
|
|
349,523
|
|
14,316
|
|
2,297,159
|
President, Global Enterprise Computing Solutions
|
|
2015
|
|
500,000
|
|
—
|
|
674,980
|
|
225,000
|
|
373,120
|
|
113,039
|
|
14,760
|
|
1,900,899
|
|
|
2014
|
|
481,511
|
|
—
|
|
931,255
|
|
143,764
|
|
358,487
|
|
—
|
|
17,763
|
|
1,932,780
|
|
(1)
|
|
Amounts shown under the heading “Stock Awards” reflect the grant date fair values of such awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. For stock awards that are subject to performance conditions, such awards are computed based upon the probable outcome of the performance conditions as of the grant date. Assuming the maximum performance is achieved for stock awards that are subject to performance conditions, amounts shown under this heading for Messrs. Long, Stansbury, Reilly, King, Ms. Zech and Mr. Kerins would be $6,462,479, $911,165, $1,879,991, $1,675,003, $1,310,694, and $1,175,033, respectively, for 2016; for Messrs. Long, Reilly, and Kerins $6,168,732, $1,879,967, and $1,057,487, respectively, for 2015; and for Messrs. Long, Reilly, and Kerins $5,874,904, $1,879,942, and $1,156,354, respectively, for 2014. For 2016, Mr. Stansbury’s, Mr. King’s and Ms. Zech’s stock awards each include one-time grants of RSUs valued at $500,000 (8,234, 8,860 and 8,860 RSUs respectively) that vest in their entirety four years from the grant date and are forfeited if the executive resigns prior to such vesting date. For 2014, Mr. Kerins' stock award includes a one-time promotional grant of RSUs valued at $500,000 (8,478 RSUs) that vests in its entirety four years from the grant date and is forfeited if Mr. Kerins resigns prior to such vesting date.
|
|
(2)
|
|
Amounts shown under the heading “Stock Option Awards” reflect the grant date fair values for stock option awards calculated using the Black-Scholes option pricing model based on assumptions set forth in Note 12 to the Company’s Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2016.
|
|
(3)
|
|
The amounts shown under “Non-Equity Incentive Compensation” are the actual amounts paid for both the financial and strategic goals related to the NEO’s MICP awards.
|
|
(4)
|
|
The amounts shown under the heading “Change in Pension Value & NQDC Earnings” reflect the year-to-year change in the present value of each NEO’s accumulated pension plan benefit as discussed under the heading “Supplemental Executive Retirement Plan.”
|
|
|
|
|
|
41
|
|
(5)
|
|
See the All Other Compensation — Detail Table below.
|
|
(6)
|
|
Mr. Stansbury was promoted to Senior Vice President, Chief Financial Officer effective May 11, 2016. The 2016 compensation listed above includes amounts he received both prior to and after his promotion.
|
|
(7)
|
|
Mr. Reilly’s last day of employment with the Company was January 31, 2017.
|
ALL OTHER COMPENSATION — DETAIL
This Table sets forth each of the elements comprising each NEO’s 2016 “All Other Compensation” from the Summary Compensation Table above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
401(k) Company
|
|
Total
|
Name
|
|
($)(1)
|
|
Contribution ($)(2)
|
|
($)
|
Michael J. Long
|
|
999
|
|
11,925
|
|
12,924
|
Christopher D. Stansbury
|
|
8,506
|
|
7,950
|
|
16,456
|
Paul J. Reilly
|
|
2,952
|
|
11,925
|
|
14,877
|
Andrew D. King
|
|
162,938
|
|
7,950
|
|
170,888
|
Gretchen K. Zech
|
|
2,556
|
|
11,925
|
|
14,481
|
Sean J. Kerins
|
|
2,391
|
|
11,925
|
|
14,316
|
|
(1)
|
|
For Mr. King, “Other” includes $94,183 for temporary lodging, $29,978 as a tax equalization payment, $16,000 for relocation allowances, $11,692 for house hunting trips and storage, and $9,461 for house closing costs.
|
|
(2)
|
|
For Messrs. Long and Reilly, Ms. Zech, and Mr. Kerins, includes a discretionary contribution to the 401(k) Plan of $3,975 per executive.
|
Certain of the NEOs have been accompanied by family members during business travel on aircraft (of which the Company owns fractional shares) at no incremental cost to the Company.
|
|
|
|
42
|
|
|
GRANTS OF PLAN-BASED AWARDS
The following Table provides information regarding the annual cash incentives, PSUs, RSUs, and stock options awarded in 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants of Plan-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
All Other
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
Exercise
|
|
Fair Value
|
|
|
|
|
Estimated Possible Payouts Under
|
|
Estimated Future Payouts
|
|
Number
|
|
Number of
|
|
or Base
|
|
of Stock
|
|
|
|
|
Non-Equity Incentive Plan
|
|
Under Equity Incentive Plan
|
|
of Shares
|
|
Securities
|
|
Price of
|
|
and
|
|
|
|
|
Awards (1)
|
|
Awards (2)
|
|
of Stock
|
|
Underlying
|
|
Option
|
|
Option
|
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
or Units
|
|
Options
|
|
Awards
|
|
Awards
|
Name
|
|
Grant Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#)(3)
|
|
(#)(4)
|
|
($/Sh)
|
|
($)(5)
|
Michael J. Long
|
|
2016
|
|
425,000
|
|
1,700,000
|
|
3,400,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
7,310
|
|
48,733
|
|
90,156
|
|
—
|
|
—
|
|
56.43
|
|
2,750,003
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
24,366
|
|
—
|
|
56.43
|
|
1,374,973
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
81,840
|
|
56.43
|
|
1,374,994
|
Christopher D. Stansbury
|
|
2016
|
|
111,579
|
|
446,315
|
|
892,630
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
465
|
|
3,101
|
|
5,737
|
|
—
|
|
—
|
|
56.43
|
|
174,989
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,550
|
|
—
|
|
56.43
|
|
87,467
|
|
|
5/11/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
8,234
|
|
—
|
|
60.72
|
|
499,968
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,208
|
|
56.43
|
|
87,500
|
Paul J. Reilly
|
|
2016
|
|
168,750
|
|
675,000
|
|
1,350,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
2,127
|
|
14,177
|
|
26,227
|
|
—
|
|
—
|
|
56.43
|
|
800,008
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7,088
|
|
—
|
|
56.43
|
|
399,976
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
23,808
|
|
56.43
|
|
399,998
|
Andrew D. King
|
|
2016
|
|
100,000
|
|
400,000
|
|
800,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
1,329
|
|
8,861
|
|
16,393
|
|
—
|
|
—
|
|
56.43
|
|
500,026
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
13,290
|
|
—
|
|
56.43
|
|
749,955
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
14,880
|
|
56.43
|
|
249,999
|
Gretchen K. Zech
|
|
2016
|
|
113,750
|
|
455,000
|
|
910,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
917
|
|
6,114
|
|
11,311
|
|
—
|
|
—
|
|
56.43
|
|
345,013
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
11,916
|
|
—
|
|
56.43
|
|
672,420
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
10,267
|
|
56.43
|
|
172,496
|
Sean J. Kerins
|
|
2016
|
|
112,500
|
|
450,000
|
|
900,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
1,329
|
|
8,861
|
|
16,393
|
|
—
|
|
—
|
|
56.43
|
|
500,026
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4,430
|
|
—
|
|
56.43
|
|
249,985
|
|
|
2/23/2016
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
14,880
|
|
56.43
|
|
249,999
|
|
(1)
|
|
These columns indicate the potential payout for both the financial and strategic goals related to the NEO’s MICP awards. The threshold payment begins at the achievement of 25% of the targeted goal, the target amount at achievement of 100% of the goal, and payment carries forward to a maximum payout of 200% of the target amount. The actual amounts paid to each of the NEOs under this plan for each year are included under the heading “Non-Equity Incentive Compensation” on the Summary Compensation Table.
|
|
(2)
|
|
These columns indicate the potential number of units which will be earned based upon each of the NEO’s PSU awards granted in 2016. Assuming a payout of greater than zero units, the threshold unit payout begins at 15% of the target number of units up to a maximum payout of 185% of the target number of units. The grant amount is equal to the Target.
|
|
(3)
|
|
This column reflects the number of RSUs granted in 2016.
|
|
(4)
|
|
This column and the one that follows reflect the number of stock options granted in 2016 and their exercise price.
|
|
(5)
|
|
Grant date fair values for restricted stock and performance units reflect the number of shares awarded (at target for the performance units) multiplied by the grant date closing market price of Arrow common stock. Grant date fair values for stock option awards are calculated using the Black-Scholes option pricing model based on assumptions set forth in Note 12 to the Company’s Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2016.
|
|
|
|
|
|
43
|
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The Outstanding Equity Table shows: (i) the number of outstanding stock option awards that are vested and unvested as of December 31, 2016; (ii) the exercise price and expiration date of these options; (iii) the aggregate number and value as of December 31, 2016 of all unvested restricted stock or units; and (iv) the aggregate number and value as of December 31, 2016 of all performance shares or units granted under a performance plan whose performance period has not yet been completed.
The values ascribed to the awards in the Table below may or may not be realized by their recipients, depending on share prices at the time of vesting or exercise and the achievement of the metrics upon which the performance awards depend. Each amount in this Table is based on the closing market price of the Company’s common stock on December 30, 2016, which was $71.30. For each NEO, the fair value of stock awards and stock option awards at the date of grant, based upon the probable outcome of performance conditions, if applicable, is included in the Summary Compensation Table above. For additional information regarding the impact of a change in control of the Company on equity awards, see the section below entitled “Non-Qualified Stock Option, Restricted Stock Unit, and Performance Stock Unit Award Agreements.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Fiscal Year-End
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
Plan Awards;
|
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
Number of
|
|
|
|
Payout Value
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
Number of
|
|
Shares or
|
|
Unearned
|
|
|
|
of Unearned
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
Shares or
|
|
Units of
|
|
Shares, Units
|
|
|
|
Shares, Units
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
|
Units of
|
|
Stock Held
|
|
or Other
|
|
|
|
or Other
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Stock
|
|
Stock Held
|
|
That Have
|
|
Rights That
|
|
|
|
Rights That
|
|
|
Options –
|
|
Options –
|
|
Exercise
|
|
Expiration
|
|
Award
|
|
That Have
|
|
Not Yet
|
|
Have Not
|
|
Vesting
|
|
Have Not Yet
|
|
|
Exercisable
|
|
Unexercisable
|
|
Price
|
|
Date
|
|
Grant
|
|
Not Vested
|
|
Vested
|
|
Yet Vested
|
|
Dates
|
|
Vested
|
Name
|
|
(#)
|
|
(#)
|
|
($)(1)
|
|
(1)
|
|
Date
|
|
(#)(2)
|
|
($)(2)
|
|
(#)(3)
|
|
(4)
|
|
($)(3)
|
Michael J. Long
|
|
52,632
|
|
—
|
|
38.69
|
|
02/24/2021
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
62,424
|
|
—
|
|
40.15
|
|
02/19/2022
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
56,857
|
|
18,952
|
|
41.56
|
|
02/17/2023
|
|
02/19/2013
|
|
7,218
|
|
514,643
|
|
—
|
|
02/19/2017
|
|
—
|
|
|
30,620
|
|
30,618
|
|
56.71
|
|
02/17/2024
|
|
02/18/2014
|
|
11,020
|
|
785,726
|
|
—
|
|
(a)
|
|
—
|
|
|
17,184
|
|
51,550
|
|
62.13
|
|
02/16/2025
|
|
02/17/2015
|
|
15,843
|
|
1,129,606
|
|
—
|
|
(b)
|
|
—
|
|
|
—
|
|
81,840
|
|
56.43
|
|
02/22/2026
|
|
02/23/2016
|
|
24,366
|
|
1,737,296
|
|
—
|
|
(c)
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/18/2014
|
|
—
|
|
—
|
|
44,083
|
|
02/18/2017
|
|
3,143,118
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/17/2015
|
|
—
|
|
—
|
|
42,250
|
|
02/17/2018
|
|
3,012,425
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/23/2016
|
|
—
|
|
—
|
|
48,733
|
|
02/23/2019
|
|
3,474,663
|
Christopher D. Stansbury
|
|
13,019
|
|
13,018
|
|
60.97
|
|
09/15/2024
|
|
09/15/2014
|
|
8,200
|
|
584,660
|
|
—
|
|
(a)
|
|
—
|
|
|
1,146
|
|
3,436
|
|
62.13
|
|
02/16/2025
|
|
02/17/2015
|
|
1,056
|
|
75,293
|
|
—
|
|
(b)
|
|
—
|
|
|
—
|
|
5,208
|
|
56.43
|
|
02/22/2026
|
|
02/23/2016
|
|
1,550
|
|
110,515
|
|
—
|
|
(c)
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
05/11/2016
|
|
8,234
|
|
587,084
|
|
—
|
|
05/11/2020
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/17/2015
|
|
—
|
|
—
|
|
2,817
|
|
02/17/2018
|
|
200,852
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/23/2016
|
|
—
|
|
—
|
|
3,101
|
|
02/23/2019
|
|
221,101
|
Paul J. Reilly
|
|
10,000
|
|
—
|
|
38.69
|
|
02/24/2021
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
6,317
|
|
41.56
|
|
02/17/2023
|
|
02/19/2013
|
|
2,406
|
|
171,548
|
|
—
|
|
2/19/2017
|
|
—
|
|
|
9,798
|
|
9,798
|
|
56.71
|
|
02/17/2024
|
|
02/18/2014
|
|
3,526
|
|
251,404
|
|
—
|
|
(a)
|
|
—
|
|
|
5,237
|
|
15,711
|
|
62.13
|
|
02/16/2025
|
|
02/17/2015
|
|
4,828
|
|
344,236
|
|
—
|
|
(b)
|
|
—
|
|
|
—
|
|
23,808
|
|
56.43
|
|
02/22/2026
|
|
02/23/2016
|
|
7,088
|
|
505,374
|
|
—
|
|
(c)
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/18/2014
|
|
—
|
|
—
|
|
14,106
|
|
02/18/2017
|
|
1,005,758
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/17/2015
|
|
—
|
|
—
|
|
12,876
|
|
02/17/2018
|
|
918,059
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/23/2016
|
|
—
|
|
—
|
|
14,177
|
|
02/23/2019
|
|
1,010,820
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Fiscal Year-End
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
Plan Awards;
|
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
Number of
|
|
|
|
Payout Value
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
Number of
|
|
Shares or
|
|
Unearned
|
|
|
|
of Unearned
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
Shares or
|
|
Units of
|
|
Shares, Units
|
|
|
|
Shares, Units
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
|
Units of
|
|
Stock Held
|
|
or Other
|
|
|
|
or Other
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Stock
|
|
Stock Held
|
|
That Have
|
|
Rights That
|
|
|
|
Rights That
|
|
|
Options –
|
|
Options –
|
|
Exercise
|
|
Expiration
|
|
Award
|
|
That Have
|
|
Not Yet
|
|
Have Not
|
|
Vesting
|
|
Have Not Yet
|
|
|
Exercisable
|
|
Unexercisable
|
|
Price
|
|
Date
|
|
Grant
|
|
Not Vested
|
|
Vested
|
|
Yet Vested
|
|
Dates
|
|
Vested
|
Name
|
|
(#)
|
|
(#)
|
|
($)(1)
|
|
(1)
|
|
Date
|
|
(#)(2)
|
|
($)(2)
|
|
(#)(3)
|
|
(4)
|
|
($)(3)
|
Andrew D. King
|
|
2,377
|
|
—
|
|
38.69
|
|
02/24/2021
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2,875
|
|
—
|
|
40.15
|
|
02/19/2022
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2,073
|
|
691
|
|
41.56
|
|
02/17/2023
|
|
02/19/2013
|
|
263
|
|
18,752
|
|
—
|
|
2/19/2017
|
|
—
|
|
|
3,062
|
|
3,062
|
|
56.71
|
|
02/17/2024
|
|
02/18/2014
|
|
1,102
|
|
78,573
|
|
—
|
|
(a)
|
|
—
|
|
|
1,801
|
|
5,400
|
|
62.13
|
|
02/16/2025
|
|
02/17/2015
|
|
1,659
|
|
118,287
|
|
—
|
|
(b)
|
|
—
|
|
|
—
|
|
14,880
|
|
56.43
|
|
02/22/2026
|
|
02/23/2016
|
|
4,430
|
|
315,859
|
|
—
|
|
(c)
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/23/2016
|
|
8,860
|
|
631,718
|
|
—
|
|
02/23/2020
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/18/2014
|
|
—
|
|
—
|
|
4,408
|
|
02/18/2017
|
|
314,290
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/17/2015
|
|
—
|
|
—
|
|
4,426
|
|
02/17/2018
|
|
315,574
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/23/2016
|
|
—
|
|
—
|
|
8,861
|
|
02/23/2019
|
|
631,789
|
Gretchen K. Zech
|
|
7,393
|
|
—
|
|
40.15
|
|
02/19/2022
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
5,923
|
|
1,974
|
|
41.56
|
|
02/17/2023
|
|
02/19/2013
|
|
752
|
|
53,618
|
|
—
|
|
2/19/2017
|
|
—
|
|
|
3,675
|
|
3,674
|
|
56.71
|
|
02/17/2024
|
|
02/18/2014
|
|
1,322
|
|
94,259
|
|
—
|
|
(a)
|
|
—
|
|
|
2,128
|
|
6,382
|
|
62.13
|
|
02/16/2025
|
|
02/17/2015
|
|
1,961
|
|
139,819
|
|
—
|
|
(b)
|
|
—
|
|
|
—
|
|
10,267
|
|
56.43
|
|
02/22/2026
|
|
02/23/2016
|
|
3,056
|
|
217,893
|
|
—
|
|
(c)
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/23/2016
|
|
8,860
|
|
631,718
|
|
—
|
|
02/23/2020
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/18/2014
|
|
—
|
|
—
|
|
5,290
|
|
02/18/2017
|
|
377,177
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/17/2015
|
|
—
|
|
—
|
|
5,231
|
|
02/17/2018
|
|
372,970
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/23/2016
|
|
—
|
|
—
|
|
6,114
|
|
02/23/2019
|
|
435,928
|
Sean J. Kerins
|
|
3,500
|
|
—
|
|
37.63
|
|
11/29/2017
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
4,477
|
|
—
|
|
16.82
|
|
02/26/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
3,816
|
|
—
|
|
28.34
|
|
02/25/2020
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
5,094
|
|
—
|
|
38.69
|
|
02/24/2021
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
8,707
|
|
—
|
|
40.15
|
|
02/19/2022
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
6,516
|
|
2,171
|
|
41.56
|
|
02/17/2023
|
|
02/19/2013
|
|
827
|
|
58,965
|
|
—
|
|
2/19/2017
|
|
—
|
|
|
3,522
|
|
3,521
|
|
56.71
|
|
02/17/2024
|
|
02/18/2014
|
|
1,267
|
|
90,337
|
|
—
|
|
(a)
|
|
—
|
|
|
2,946
|
|
8,837
|
|
62.13
|
|
02/16/2025
|
|
02/17/2015
|
|
2,715
|
|
193,580
|
|
—
|
|
(b)
|
|
—
|
|
|
—
|
|
14,880
|
|
56.43
|
|
02/22/2026
|
|
02/23/2016
|
|
4,430
|
|
315,859
|
|
—
|
|
(c)
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
07/30/2014
|
|
8,478
|
|
604,481
|
|
—
|
|
07/30/2018
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/18/2014
|
|
—
|
|
—
|
|
5,069
|
|
02/18/2017
|
|
361,420
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/17/2015
|
|
—
|
|
—
|
|
7,243
|
|
02/17/2018
|
|
516,426
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
02/23/2016
|
|
—
|
|
—
|
|
8,861
|
|
02/23/2019
|
|
631,789
|
|
(1)
|
|
These columns reflect the exercise price and expiration date, respectively, for all of the stock options under each award. Each option was granted ten years prior to its expiration date. All of the awards were issued under the Company's LTIP. All of the awards vest in four equal amounts on the first, second, third, and fourth anniversaries of the grant date and have an exercise price equal to the closing market price of the Company's common stock on the grant date.
|
|
(2)
|
|
These columns reflect the number of unvested restricted shares or units held by each NEO under each award of restricted shares or units and the dollar value of those shares or units based on the closing market price of the Company’s common stock on December 30, 2016.
|
|
(3)
|
|
These columns show the number of shares or units of Arrow common stock each NEO would receive under each grant of performance shares or units, assuming that the financial targets associated with each award are achieved at 100%, and the dollar value of those shares or units based on the closing market price of the Company’s common stock on December 30, 2016.
|
|
|
|
|
|
45
|
|
(4)
|
|
With regard to the Stock Awards, the following describes the vesting dates: (i) those awards designated by “(a)” vest in two equal installments on the third and fourth anniversaries of the grant date; (ii) those awards designated by “(b)” vest in three equal installments on the second, third, and fourth anniversaries of the grant date; and (iii) those awards designated by “(c)” vest in four equal installments on the first, second, third, and fourth anniversaries of the grant date.
|
OPTIONS EXERCISED AND STOCK VESTED IN 2016
The following Table provides information concerning the value realized by each NEO upon the exercise of stock options and the vesting of restricted and performance units during 2016.
The value realized on the exercise of stock options shown below is based on the difference between the exercise price per share paid by the executive and the closing market price of the Company’s common stock on the exercise date. The value realized on the vesting of restricted and performance units is based on the number of shares vesting and the closing market price of the Company’s common stock on the vesting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercised and Stock Vested
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares Acquired
|
|
Value Realized
|
|
Shares Acquired
|
|
Value Realized
|
|
|
|
|
on Exercise
|
|
on Exercise
|
|
on Vesting
|
|
on Vesting
|
Name
|
|
Award Type
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
Michael J. Long
|
|
RSUs
|
|
—
|
|
—
|
|
35,958
|
|
2,045,051
|
|
|
2013 PSUs — 3 Yr
|
|
—
|
|
—
|
|
101,057
|
|
5,756,207
|
|
|
Stock Options
|
|
—
|
|
—
|
|
—
|
|
—
|
Christopher D.
|
|
RSUs
|
|
—
|
|
—
|
|
4,453
|
|
274,102
|
Stansbury
|
|
2013 PSUs — 3 Yr
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Stock Options
|
|
—
|
|
—
|
|
—
|
|
—
|
Paul J. Reilly
|
|
RSUs
|
|
—
|
|
—
|
|
8,271
|
|
470,186
|
|
|
2013 PSUs — 3 Yr
|
|
—
|
|
—
|
|
33,686
|
|
1,918,755
|
|
|
Stock Options
|
|
103,005
|
|
2,721,783
|
|
—
|
|
—
|
Andrew D. King
|
|
RSUs
|
|
—
|
|
—
|
|
1,641
|
|
93,138
|
|
|
2013 PSUs — 3 Yr
|
|
—
|
|
—
|
|
3,684
|
|
209,841
|
|
|
Stock Options
|
|
—
|
|
—
|
|
—
|
|
—
|
Gretchen K. Zech
|
|
RSUs
|
|
—
|
|
—
|
|
2,769
|
|
157,332
|
|
|
2013 PSUs — 3 Yr
|
|
—
|
|
—
|
|
10,526
|
|
599,561
|
|
|
Stock Options
|
|
—
|
|
—
|
|
—
|
|
—
|
Sean J. Kerins
|
|
RSUs
|
|
—
|
|
—
|
|
3,193
|
|
181,267
|
|
|
2013 PSUs — 3 Yr
|
|
—
|
|
—
|
|
11,578
|
|
659,483
|
|
|
Stock Options
|
|
4,000
|
|
97,480
|
|
—
|
|
—
|
|
|
|
|
46
|
|
|
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Arrow maintains a non-qualified Supplemental Executive Retirement Plan under which the Company will pay pension benefits to certain employees upon retirement or as result of certain other termination events. As of December 31, 2016, there were nine then-current executives participating in the SERP. The Board determines eligibility and all NEOs who participate. Each of the NEOs participates in the SERP.
The typical gross SERP benefit is calculated by multiplying 2.5% of final average compensation (salary plus targeted incentive compensation) by the participant’s years of credited service (SERP participation) up to a maximum of 18 years. Final average compensation is ordinarily the highest average of any three years during the participant’s final five years of service. The gross benefit is reduced by the value of hypothetical defined contribution plan contributions and 50% of Social Security.
Subject to an alternative election, the normal form of benefits provided under the SERP is a single life annuity with 60 monthly payments guaranteed. Assuming continued employment through normal retirement age (generally age 60) and pay continuing at 2016 levels, Messrs. Long, Stansbury, Reilly, King, Ms. Zech and Mr. Kerins would receive estimated annual SERP payments of $1,204,389, $208,098, $551,087, $148,826, $357,982, and $165,838, respectively. In addition, each NEO is eligible for early retirement in the event that such NEO reaches the age of 55 and the combined years of age and service equals at least 72. Mr. Long is eligible for early retirement. If he elected to retire early under the SERP as of December 31, 2016, he would receive estimated annual payments of $1,074,973.
The years of credited service for each of the NEOs and the present value of their respective accumulated benefits as of December 31, 2016 are set out on the following Table. None of the NEOs received any payments under the SERP in or with respect to 2016. The present value calculation assumes each recipient remains employed until normal retirement age (generally at age 60). The remainder of the assumptions underlying the calculation of the present value of the benefits are discussed in Note 13 to the Company’s Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Number of Years of
|
|
Present Value of
|
|
Payments During
|
|
|
Credited Service
|
|
Accumulated Benefit
|
|
Last Fiscal Year
|
Name
|
|
(#)
|
|
($)
|
|
($)
|
Michael J. Long
|
|
18.00
|
|
18,409,424
|
|
—
|
Christopher D. Stansbury
|
|
0.58
|
|
—
|
|
—
|
Paul J. Reilly
|
|
18.00
|
|
8,894,711
|
|
—
|
Andrew D. King
|
|
1.00
|
|
53,098
|
|
—
|
Gretchen K. Zech
|
|
5.08
|
|
911,032
|
|
—
|
Sean J. Kerins
|
|
2.58
|
|
462,562
|
|
—
|
The SERP provides that if a participant’s employment is terminated involuntarily without “cause” or voluntarily for “good reason,” in either case within two years after a “change in control” of the Company, the participant will receive an annual benefit under the SERP upon reaching age 60. The amount of the payment is based on the amount accrued up to the time of the termination. No payments will be made if the participant is not yet age 50 at the time of the “change in control” related termination.
|
|
|
|
|
47
|
Should a participant become disabled before retiring, his or her accrued SERP benefits will generally commence at age 60, subject to reduction for Company-paid disability benefits received for the same payment period.
Benefits under the SERP may terminate, with no further obligation to the recipient, if the participant becomes involved in any way with an entity which competes with Arrow (except for limited ownership of stock in a publicly-traded company).
The present values of the SERP benefits accrued through year-end by the NEOs in the event of termination, death, disability, or a change in control of the Company are set forth on the Potential Payouts Upon Termination Table.
DEFERRED COMPENSATION PLANS
The Company maintains an Executive Deferred Compensation Plan (“EDCP”) in which deferred income as well as investment gains on the deferred amounts are nontaxable to the executive until distributed.
A participating executive may defer up to 80% of salary and 100% of incentive compensation. The participant chooses from a selection of mutual funds and other investments in which the deferred amount is then deemed to be invested. Earnings on the amounts deferred are defined by the returns actually obtained by the “deemed investment” and added to the account. The “deemed investment” is used solely for this purpose and the participant has no ownership interest in it. The deferred compensation and the amount earned are general assets of the Company, and the obligation to distribute the amounts according to the participants’ designation is a general obligation of the Company. None of the NEOs participated in the EDCP in 2016.
|
|
|
|
48
|
|
|
AGREEMENTS AND POTENTIAL PAYOUTS
UPON TERMINATION OR CHANGE IN CONTROL
The Company historically entered into employment agreements and change of control agreements with senior management to establish key elements of employment. In 2013, however, the Company and Compensation Committee terminated all such agreements and implemented a common Severance Policy and a replacement “Executive Change in Control Retention Agreement” for its executives.
SEVERANCE POLICY
Under the current Severance Policy, upon an involuntary termination of employment of any of the NEOs without “cause,” the Company will pay such NEO a pro rata portion of his or her MICP with respect to the year of termination plus his or her base salary and MICP awards (prorated as applicable) for a period of 18 months (24 months for the Chief Executive Officer) (in each case, the “Severance Period”). Salary continuation payments would be made in accordance with the Company’s customary payroll practices. MICP amounts, if any, would be paid on the date they are normally paid to the Company’s then-current executives. Each NEO also would receive continuation of health care benefit coverage at the same level of coverage through the Severance Period or equivalent benefits, as determined in the sole reasonable discretion of the Compensation Committee. The Company will also reimburse the NEO for the cost of outplacement services up to a maximum of $50,000 ($75,000 for the Chief Executive Officer). The Severance Policy imposes an affirmative duty on each NEO to seek substitute employment that is reasonably comparable to such NEO’s employment with the Company in order to mitigate the severance payments and benefits provided under the Severance Policy. The Company can offset certain of those sums earned elsewhere. The Severance Policy is subject to change at the discretion of the Compensation Committee.
As a condition to receiving these benefits, the Severance Policy requires the NEO to execute a general release of claims and a restrictive covenants agreement in favor of the Company. Under the restrictive covenants agreement, the NEO must agree to covenants providing for the confidentiality of the Company’s information, non-competition and non-solicitation of the Company’s employees and customers for a period equal to the relevant Severance Period.
In the case of termination of the NEO’s employment without “cause,” his or her outstanding equity-based awards would continue to vest through the duration of the Severance Period. Equity-based awards that do not vest prior to the end of the Severance Period would be forfeited. Vested stock options would remain exercisable until the earlier of the expiration of the Severance Period or the expiration date as provided in the applicable award agreement.
In the event of death or disability of an NEO, all of his or her unvested equity-based awards would vest as of the date of death or disability. Vested stock options would remain exercisable until the expiration date of such stock option, as provided in the applicable award agreement. Also, any shares to which an NEO is entitled by reason of a vested PSU would be delivered within thirty days following the date of his or her death or disability.
|
|
|
|
|
49
|
PARTICIPATION AGREEMENTS
In connection with the Severance Policy, each NEO who consented to the early termination of his or her employment and change of control agreements in 2013 was eligible to enter into a Participation Agreement with the Company. Under the Participation Agreement, the Company: (i) is prohibited from modifying or amending certain terms of the Severance Policy as they relate to that NEO and (ii) will provide severance benefits upon termination for “good reason” at a benefit level equal to that provided under the Severance Policy upon an involuntary termination of employment without “cause” of such NEO. Mr. Long and Ms. Zech are the only current NEOs who signed Participation Agreements. The Company does not expect to enter into any such Participation Agreements in the future.
CHANGE IN CONTROL RETENTION AGREEMENTS
Each of the NEOs is a party to a Change in Control Retention Agreement. The purpose of the Change in Control Retention Agreements is to provide the NEOs with certain compensation and benefits in the event of an involuntary termination of employment without “cause” or resignation for “good reason,” in either case within 24 months following a “change in control.” If an NEO receives benefits under his or her Change in Control Retention Agreement, he or she will not receive severance payments under the Severance Policy or Participation Agreement (if applicable).
Under the Change in Control Retention Agreements, the NEOs are eligible for compensation and benefits if, within two years following a “change in control date,” the NEO’s employment is terminated without “cause” by the Company or for “good reason” by the executive, each as defined in the Change in Control Retention Agreement. In such event, the terminated NEO is entitled to receive a lump sum cash payment in the aggregate of the following amounts: (i) all unpaid base salary, earned vacation, and earned but unpaid benefits and awards through the date of termination; (ii) three times (for the Chief Executive Officer) or two times (for all other NEOs) the sum of (a) the greater of such NEO’s annual base salary in effect immediately prior to the change in control date or the date of termination and (b) the greater of such NEO’s target MICP award in effect immediately prior to the change in control date or the date of termination; (iii) a pro rata MICP payment for the calendar year of termination (determined on the basis of actual performance); and (iv) continuation of coverage under the Company’s health care plan for a period not to exceed 24 months (36 months for the Chief Executive Officer).
The estimated payments that the NEOs would receive under their respective Change in Control Retention Agreements are set forth in the Potential Payouts Upon Termination Table. However, the severance payments to the NEOs pursuant to Change in Control Retention Agreements may be limited in certain circumstances. Specifically, the Change in Control Retention Agreements provide that if an amount payable to an NEO would be treated as an “excess parachute payment,” and would therefore reduce the tax deductibility by the Company and result in an excise tax being imposed on the NEO, then the severance payment will be reduced to a level sufficient to avoid these adverse consequences. However, if the severance payment amount payable to the NEO, taking into account the effect of all of the applicable taxes, including the excise tax imposed, would be greater than the amount payable if the amount were reduced as described above, the NEO will receive this greater amount, without consideration for the impact this payment may have on the Company’s tax deductibility of such payment.
The Change in Control Retention Agreement does not affect the rights and benefits to which NEOs are entitled under any of the Company’s equity compensation plans, which such rights and benefits are governed by the terms and conditions of the relevant plans and award agreements.
|
|
|
|
50
|
|
|
IMPACT OF SECTION 409A OF THE INTERNAL REVENUE CODE
Each of the Change in Control Retention Agreements between the Company and the NEOs has provisions that ensure compliance with Section 409A of the Internal Revenue Code, by deferring any payment due upon termination of employment for up to six months to the extent required by Section 409A of the Internal Revenue Code and adding an interest component to the amount due for the period of deferral (at the then-current six-month Treasury rate).
POTENTIAL PAYOUTS UPON TERMINATION
The following Table sets forth the estimated payments and value of benefits that each of the NEOs would be entitled to receive under his or her Change in Control Retention Agreement and the Severance Policy, including the Participation Agreements, as applicable, in the event of the termination of employment under various scenarios, assuming that the termination occurred on December 31, 2016. The amounts represent the entire value of the estimated liability, even if some or all of that value has been disclosed elsewhere in this Proxy Statement. Actual amounts that the Company may pay out and the assumptions used in arriving at such amounts can only be determined at the time of such executive’s termination or the change in control and could differ materially from the amounts set forth below.
None of the NEOs is entitled to receive any payment at, following, or in connection with the termination of his employment for cause.
In both the Table below and the Share-Based Award Agreement Terms Related to Post-Employment Scenarios Table which follows it:
>
Death
refers to the death of the executive;
>
Disability
refers to the executive becoming permanently and totally disabled during the term of employment;
>
Termination Without Cause or Resignation for Good Reason
means that the executive is asked to leave the Company for some reason other than “cause” (as defined in the Severance Policy) or the executive voluntarily leaves the Company for “good reason” (as defined in the Participation Agreement, if applicable, which generally includes the Company failing to allow the executive to continue in a then-current or an improved position, or where the executive’s reporting relationship is changed so that he or she no longer reports to the Chief Executive Officer, and as further defined in each applicable Participation Agreement);
>
Change in Control Termination
means the occurrence of both a change in control of the Company and the termination of the executive’s employment without “cause” or resignation for “good reason” within two years following the change in control; and
>
Retirement
means the executive’s voluntary departure at or after retirement age as defined in one of the Company’s retirement plans (typically, age 60). Each executive is eligible for early retirement in the event that such executive reaches the age of 55 and the combined years of age and service equals at least 72. Messrs. Long and Reilly were eligible for early retirement as of December 31, 2016.
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Payouts Upon Termination
|
|
|
|
|
Termination Scenario
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
Without "Cause" or
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
Resignation
|
|
Control
|
|
|
|
|
|
|
Death
|
|
Disability
|
|
for "Good Reason"
|
|
Termination
|
|
Retirement
|
Name
|
|
Benefit
|
|
($)
|
|
($)
|
|
($) (1)
|
|
($)
|
|
($)
|
Michael J. Long
|
|
Severance Payment (2)
|
|
—
|
|
—
|
|
2,300,000
|
|
8,550,000
|
|
—
|
|
|
Settlement of MICP Bonus Award
|
|
—
|
|
—
|
|
2,380,000
|
|
—
|
|
—
|
|
|
Settlement of Pro Rata MICP Bonus Award
|
|
—
|
|
—
|
|
1,700,000
|
|
1,700,000
|
|
—
|
|
|
Settlement of Performance Awards
|
|
9,630,206
|
|
9,630,206
|
|
6,155,543
|
|
9,630,206
|
|
—
|
|
|
Settlement of Stock Options
|
|
2,700,023
|
|
2,700,023
|
|
1,933,975
|
|
2,700,023
|
|
—
|
|
|
Settlement of Restricted Awards (3)
|
|
4,167,271
|
|
4,167,271
|
|
2,922,088
|
|
4,167,271
|
|
—
|
|
|
Accrued Vacation Payout
|
|
88,462
|
|
88,462
|
|
88,462
|
|
88,462
|
|
88,462
|
|
|
Management Insurance Benefit
|
|
11,400,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Welfare Benefits Continuation
|
|
—
|
|
6,491
|
|
26,326
|
|
39,488
|
|
—
|
|
|
SERP
|
|
—
|
|
17,927,666
|
|
—
|
|
17,927,666
|
|
17,927,666
|
|
|
Other
|
|
—
|
|
—
|
|
75,000
|
|
—
|
|
—
|
|
|
Total
|
|
27,985,962
|
|
34,520,119
|
|
17,581,393
|
|
44,803,116
|
|
18,016,128
|
Christopher D. Stansbury
|
|
Severance Payment (2)
|
|
—
|
|
—
|
|
750,000
|
|
2,000,000
|
|
—
|
|
|
Settlement of MICP Bonus Award
|
|
—
|
|
—
|
|
525,000
|
|
—
|
|
—
|
|
|
Settlement of Pro Rata MICP Bonus Award
|
|
—
|
|
—
|
|
500,000
|
|
500,000
|
|
—
|
|
|
Settlement of Performance Awards
|
|
421,953
|
|
421,953
|
|
200,852
|
|
421,953
|
|
—
|
|
|
Settlement of Stock Options
|
|
243,427
|
|
243,427
|
|
126,968
|
|
243,427
|
|
—
|
|
|
Settlement of Restricted Awards (3)
|
|
1,357,552
|
|
1,357,552
|
|
397,783
|
|
1,357,552
|
|
—
|
|
|
Accrued Vacation Payout
|
|
38,462
|
|
38,462
|
|
38,462
|
|
38,462
|
|
—
|
|
|
Management Insurance Benefit
|
|
4,000,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Welfare Benefits Continuation
|
|
—
|
|
6,491
|
|
19,744
|
|
26,326
|
|
—
|
|
|
SERP
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Other
|
|
—
|
|
—
|
|
50,000
|
|
—
|
|
—
|
|
|
Total
|
|
6,061,394
|
|
2,067,885
|
|
2,608,808
|
|
4,587,720
|
|
—
|
Paul J. Reilly
|
|
Severance Payment (2)
|
|
—
|
|
—
|
|
1,050,000
|
|
2,750,000
|
|
—
|
|
|
Settlement of MICP Bonus Award
|
|
—
|
|
—
|
|
708,750
|
|
—
|
|
—
|
|
|
Settlement of Pro Rata MICP Bonus Award
|
|
—
|
|
—
|
|
675,000
|
|
675,000
|
|
—
|
|
|
Settlement of Performance Awards
|
|
2,934,637
|
|
2,934,637
|
|
1,923,817
|
|
2,934,637
|
|
—
|
|
|
Settlement of Stock Options
|
|
828,915
|
|
828,915
|
|
603,879
|
|
828,915
|
|
—
|
|
|
Settlement of Restricted Awards (3)
|
|
1,272,562
|
|
1,272,562
|
|
905,154
|
|
1,272,562
|
|
—
|
|
|
Accrued Vacation Payout
|
|
53,846
|
|
53,846
|
|
53,846
|
|
53,846
|
|
53,846
|
|
|
Management Insurance Benefit
|
|
5,500,040
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Welfare Benefits Continuation
|
|
—
|
|
4,410
|
|
13,415
|
|
17,887
|
|
—
|
|
|
SERP
|
|
—
|
|
8,882,372
|
|
—
|
|
8,882,372
|
|
8,882,372
|
|
|
Other
|
|
—
|
|
—
|
|
50,000
|
|
—
|
|
—
|
|
|
Total
|
|
10,590,000
|
|
13,976,743
|
|
5,983,861
|
|
17,415,219
|
|
8,936,218
|
Andrew D. King
|
|
Severance Payment (2)
|
|
—
|
|
—
|
|
750,000
|
|
1,800,000
|
|
—
|
|
|
Settlement of MICP Bonus Award
|
|
—
|
|
—
|
|
420,000
|
|
—
|
|
—
|
|
|
Settlement of Pro Rata MICP Bonus Award
|
|
—
|
|
—
|
|
400,000
|
|
400,000
|
|
—
|
|
|
Settlement of Performance Awards
|
|
1,261,654
|
|
1,261,654
|
|
629,864
|
|
1,261,654
|
|
—
|
|
|
Settlement of Stock Options
|
|
336,011
|
|
336,011
|
|
208,870
|
|
336,011
|
|
—
|
|
|
Settlement of Restricted Awards (3)
|
|
1,163,188
|
|
1,163,188
|
|
334,183
|
|
1,163,188
|
|
—
|
|
|
Accrued Vacation Payout
|
|
38,462
|
|
38,462
|
|
38,462
|
|
38,462
|
|
—
|
|
|
Management Insurance Benefit
|
|
3,600,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Welfare Benefits Continuation
|
|
—
|
|
4,408
|
|
13,408
|
|
17,877
|
|
—
|
|
|
SERP
|
|
—
|
|
—
|
|
—
|
|
52,284
|
|
—
|
|
|
Other
|
|
—
|
|
—
|
|
50,000
|
|
—
|
|
—
|
|
|
Total
|
|
6,399,315
|
|
2,803,723
|
|
2,844,786
|
|
5,069,476
|
|
—
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Payouts Upon Termination
|
|
|
|
|
Termination Scenario
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
Without "Cause" or
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
Resignation
|
|
Control
|
|
|
|
|
|
|
Death
|
|
Disability
|
|
for "Good Reason"
|
|
Termination
|
|
Retirement
|
Name
|
|
Benefit
|
|
($)
|
|
($)
|
|
($) (1)
|
|
($)
|
|
($)
|
Gretchen K. Zech
|
|
Severance Payment (2)
|
|
—
|
|
—
|
|
682,500
|
|
1,820,000
|
|
—
|
|
|
Settlement of MICP Bonus Award
|
|
—
|
|
—
|
|
477,750
|
|
—
|
|
—
|
|
|
Settlement of Pro Rata MICP Bonus Award
|
|
—
|
|
—
|
|
455,000
|
|
455,000
|
|
—
|
|
|
Settlement of Performance Awards
|
|
1,186,076
|
|
1,186,076
|
|
750,147
|
|
1,186,076
|
|
—
|
|
|
Settlement of Stock Options
|
|
323,504
|
|
323,504
|
|
227,664
|
|
323,504
|
|
—
|
|
|
Settlement of Restricted Awards (3)
|
|
1,137,306
|
|
1,137,306
|
|
350,083
|
|
1,137,306
|
|
—
|
|
|
Accrued Vacation Payout
|
|
35,000
|
|
35,000
|
|
35,000
|
|
35,000
|
|
—
|
|
|
Management Insurance Benefit
|
|
3,640,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Welfare Benefits Continuation
|
|
—
|
|
4,347
|
|
13,222
|
|
17,630
|
|
—
|
|
|
SERP
|
|
—
|
|
291,647
|
|
—
|
|
—
|
|
—
|
|
|
Other
|
|
—
|
|
—
|
|
50,000
|
|
—
|
|
—
|
|
|
Total
|
|
6,321,885
|
|
2,977,880
|
|
3,041,367
|
|
4,974,515
|
|
—
|
Sean J. Kerins
|
|
Severance Payment (2)
|
|
—
|
|
—
|
|
825,000
|
|
2,000,000
|
|
—
|
|
|
Settlement of MICP Bonus Award
|
|
—
|
|
—
|
|
472,500
|
|
—
|
|
—
|
|
|
Settlement of Pro Rata MICP Bonus Award
|
|
—
|
|
—
|
|
450,000
|
|
450,000
|
|
—
|
|
|
Settlement of Performance Awards
|
|
1,509,635
|
|
1,509,635
|
|
877,846
|
|
1,509,635
|
|
—
|
|
|
Settlement of Stock Options
|
|
418,238
|
|
418,238
|
|
280,599
|
|
418,238
|
|
—
|
|
|
Settlement of Restricted Awards (3)
|
|
1,263,222
|
|
1,263,222
|
|
436,356
|
|
1,263,222
|
|
—
|
|
|
Accrued Vacation Payout
|
|
42,308
|
|
42,308
|
|
42,308
|
|
42,308
|
|
—
|
|
|
Management Insurance Benefit
|
|
4,000,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Welfare Benefits Continuation
|
|
—
|
|
2,297
|
|
6,985
|
|
9,314
|
|
—
|
|
|
SERP
|
|
—
|
|
266,834
|
|
—
|
|
456,323
|
|
—
|
|
|
Other
|
|
—
|
|
—
|
|
50,000
|
|
—
|
|
—
|
|
|
Total
|
|
7,233,403
|
|
3,502,533
|
|
3,441,594
|
|
6,149,039
|
|
—
|
|
(1)
|
|
As of December 31, 2016, of the NEOs, only Messrs. Long and Reilly and Ms. Zech were eligible to receive payments if they resigned for “good reason.” The numbers reflected for Messrs. Stansbury, King and Kerins only apply in cases of termination without “cause.”
|
|
(2)
|
|
The Severance Payment amounts under the “Change in Control Termination” column reflect the anticipated payment that the NEOs would receive under their respective Change in Control Retention Agreements.
|
|
(3)
|
|
The category “Settlement of Restricted Awards” includes restricted award grants made to the NEOs that were subject to performance criteria that required the Company achieve a net income, as adjusted, greater than zero or they would be canceled.
|
|
|
|
|
|
53
|
NARRATIVE EXPLANATION OF THE CALCULATION OF AMOUNTS
Had the death, disability, retirement, or a change in control termination of any of the NEOs occurred, all restricted awards, options, and performance awards would have fully vested. The options would remain exercisable for the remainder of their original term.
During 2016, had a termination by the Company without “cause” or, in the cases of Messrs. Long and Reilly and Ms. Zech, resignation of the executive for “good reason” occurred, performance, restricted, and option awards would have vested immediately.
None of the NEOs would have received severance or MICP payments in the event of death, disability, or retirement. Had a termination of any of the NEOs by the Company without “cause” or, with respect to Messrs. Long and Reilly or Ms. Zech, resignation by the executive for “good reason” occurred, the executive would have received his or her base salary and MICP awards (prorated as applicable) for a period of 24 months (for the Chief Executive Officer) or 18 months (for all other NEOs).
Performance awards and restricted awards are valued at the closing market price on December 30, 2016. In-the-money stock options are valued based on the difference between the exercise price of the in-the-money options and the closing market price of the Company’s common stock on December 30, 2016.
|
|
|
|
54
|
|
|
NON-QUALIFIED STOCK OPTION, RESTRICTED STOCK UNIT, AND PERFORMANCE STOCK UNIT AWARD AGREEMENTS
The various share and share-based awards made to the NEOs are evidenced by written agreements each of which contains provisions addressing alternative termination scenarios. The provisions applicable to NEOs are summarized in the following Table for grants in 2016.
Share-based Award Agreement Terms Related to Post-Employment Scenarios
|
|
Termination Scenario
|
|
Award Type
|
|
|
Voluntary
Resignation
|
|
|
Death or Disability
|
|
|
Termination Without
Cause or Resignation for
Good Reason (1)
|
|
|
Involuntary
Termination
for Cause
|
|
|
Involuntary
Termination
Without Cause
Within
Two Years
Following a
Change in
Control
|
|
|
Retirement at
Normal Retirement
Age
|
|
Stock
Options
|
|
|
Unvested options are forfeited. Vested options remain exercisable for 90 days following termination.
|
|
|
All options vest immediately and remain exercisable until original expiration date (ten years from grant date).
|
|
|
Options with vesting dates falling within the severance period (as described in the Severance Policy) will vest, contingent upon satisfaction of performance criteria, if applicable, but subject to forfeiture in the event of non-compete violation. All vested options remain exercisable until the earlier of the expiration of the severance period or the applicable stock option award.
|
|
|
Vested and unvested options are forfeited.
|
|
|
All options vest immediately, entire award exercisable until original expiration date (ten years from grant date).
|
|
|
Unvested options continue to vest on schedule. Options remain exercisable for the lesser of 7 years from grant date or the remaining term of the option. All options are subject to forfeiture in the event of non-compete violation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Awards
|
|
|
Unvested awards are forfeited.
|
|
|
Unvested awards vest immediately.
|
|
|
Awards with vesting dates falling within the severance period (as described in the Severance Policy) will vest, contingent upon satisfaction of performance criteria, if applicable, but subject to forfeiture in the event of non-compete violation.
|
|
|
Unvested awards are forfeited.
|
|
|
Unvested awards vest immediately.
|
|
|
Vesting continues on schedule, subject to forfeiture in the event of non-compete violation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Awards
|
|
|
Unvested awards are forfeited.
|
|
|
If performance cycle has ended, any remaining unvested awards vest immediately. If performance cycle has not ended, the target number of awards vest immediately.
|
|
|
Awards with vesting dates falling within the severance period (as described in the Severance Policy) will vest, contingent upon satisfaction of performance criteria, if applicable, but subject to forfeiture in the event of non-compete violation.
|
|
|
Unvested awards are forfeited.
|
|
|
If performance cycle has ended, any remaining unvested awards vest immediately. If performance cycle has not ended, the target number of awards vest immediately.
|
|
|
Vesting continues on schedule (based on performance during performance cycle), subject to forfeiture in the event of non-compete violation.
|
|
|
(1)
|
|
Of the current NEOs, only Mr. Long and Ms. Zech are eligible for the rights described if they resign for “good reason.” The rights described in this column apply to Messrs. Stansbury, King, and Kerins only if terminated without “cause.”
|
|
|
|
|
|
55
|
RELATED PERSON TRANSACTIONS
The Company has a variety of policies and procedures for the identification and review of related person transactions.
Arrow’s Worldwide Code of Business Conduct and Ethics (the “Code”) prohibits employees, officers, and directors from entering into transactions that present a conflict of interest absent a specific waiver. A conflict of interest arises when an employee’s private interests either conflict or appear to conflict with Arrow’s interest. The Code also requires that any such transaction, which may become known to any employee, officer, or director, be properly reported to the Company. Any conflict of interest disclosed under the Code requires a waiver from senior management. If the conflict of interest involves senior management, a waiver from the Board is required. Any such waiver would be disclosed on the Company’s website.
A “related person transaction,” as defined under SEC rules, generally includes any transaction, arrangement, or relationship involving more than $120,000 in which the Company or any of its subsidiaries was, is, or will be a participant and in which a “related person” has a material direct or indirect interest. “Related persons” mean directors and executive officers and their immediate family members, director nominees, and shareholders owning more than five percent of the Company’s outstanding stock. “Immediate family member” means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, or any person (other than a tenant or employee) sharing a household with any such director, nominee, executive officer, or five percent shareholder.
As part of the process related to the financial close of each quarter, the Company distributes a disclosure checklist to management of each operating unit and financial function around the world, which seeks to ensure complete and accurate financial disclosure. One part of the checklist seeks to identify any related person transactions. Any previously undisclosed transaction is initially reviewed by: (i) the Company’s disclosure committee to determine whether the transaction should be disclosed in the Company’s SEC filings; and (ii) senior management of the Company, including the General Counsel and the Chief Financial Officer, for consideration of the appropriateness of the transaction. If such transaction involves members of senior management, it is elevated to the Board for review.
In addition, the Company’s corporate governance guidelines specify the standards for independence of directors. Any related person transaction involving a director requires the review and approval of the Board.
Transactions involving members of senior management or a director require the review and approval of the Board. Further, the Audit Committee reviews and approves all related person transactions required to be disclosed pursuant to SEC Regulation S-K. In the course of its review of related person transactions, the senior management of the Company or the independent directors of the Board will consider all of the relevant facts and circumstances that are available to them, including but not limited to: (i) the benefits to the Company; (ii) in a transaction involving a director, the impact on the director’s independence; (iii) the availability of comparable products or services; (iv) the terms of the transaction; and (v) whether the transaction is proposed to be on terms more favorable to the Company than terms that could have been reached with an unrelated third party. The manager or director involved in the transaction will not participate in the review or approval of such transaction.
The Company’s Law Department, together with the Corporate Controller’s Department, is responsible for monitoring compliance with these policies and procedures.
|
|
|
|
56
|
|
|
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Arrow’s directors, executive officers, and persons who own more than ten percent of a registered class of Arrow’s equity securities to file reports of ownership and changes in ownership with the SEC. To facilitate compliance with Section 16(a) by Arrow’s directors and executive officers, the Company’s employees generally prepare these reports on the basis of information obtained from each director and executive officer. To the Company’s knowledge, based solely on a review of the reports Arrow filed on behalf of its directors and executive officers, written representations from these persons that no other reports were required, and all Section 16(a) reports provided to the Company, the Company believes that during the fiscal year ended December 31, 2016, all Section 16(a) filings were timely filed with the exception of five amended Form 4 reports (one each for Messrs. Hanson, Kerin, Patrick, and Perry for incorrectly reporting the number of derivative securities beneficially owned, which in each case, the initial filings were one day late, and one for Ms. Zech for reporting certain RSUs that had previously been disclosed in a Form 3 report).
|
|
|
|
|
57
|
AVAILABILITY OF MORE INFORMATION
Arrow’s corporate governance guidelines, the Corporate Governance Committee charter, the Audit Committee charter, the Compensation Committee charter, the Company’s Worldwide Code of Business Conduct and Ethics, and the Finance Code of Ethics can be found at the “Leadership & Governance” sublink of
investor.arrow.com
.
Hard copies are available in print to any shareholder who requests them. The Company’s transfer agent and registrar is Wells Fargo Bank N.A. (Wells Fargo Shareowner Services), 1110 Centre Pointe Curve, Suite 101, Mendota Heights, MN 55120.
Shareholders and other interested parties who wish to communicate with the members of the Board may do so by submitting such communication to Arrow’s Secretary, Gregory Tarpinian, at Arrow Electronics, Inc., 9201 East Dry Creek Road, Centennial, CO 80112. Arrow’s Secretary will present any such communication to the directors.
|
|
|
|
58
|
|
|
MULTIPLE SHAREHOLDERS
WITH THE SAME ADDRESS
The Company will deliver promptly upon request a separate copy of the Notice and/or the Proxy Statement and Annual Report to any shareholder at a shared address to which a single copy of these materials were delivered. To receive a separate copy of these materials, you may contact the Company’s Investor Relations Department either by mail at 9201 East Dry Creek Road, Centennial, CO 80112, by telephone at 303-824-4544, or by email at
investor@arrow.com
.
The Company has adopted a procedure called “householding,” which has been approved by the SEC. Under this procedure, the Company is delivering only one copy of the Notice and/or the Proxy Statement and Annual Report to multiple shareholders who share the same address and have the same last name, unless the Company received instructions to the contrary from an affected shareholder. This procedure reduces printing costs, mailing costs, and fees.
If you are a holder of the Company’s common stock as of the Record Date and would like to revoke your householding consent and receive a separate copy of the Notice and/or the Proxy Statement and the Annual Report in the future, please contact Broadridge Financial Solutions, Inc. (“Broadridge”), either by calling toll free at (800) 542-1061 or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. You will be removed from the householding program within 30 days of receipt of the revocation of your consent.
Any shareholders of record sharing the same address and currently receiving multiple copies of the Notice, the Annual Report, and the Proxy Statement, who wish to receive only one copy of these materials per household in the future, may contact the Company’s Investor Relations Department at the address, telephone number, or e-mail listed above to participate in the householding program.
A number of brokerage firms have instituted householding. If you hold your shares in “street name,” please contact your bank, broker, or other holder of record to request information about householding.
|
|
|
|
|
59
|