|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Owner
|
|
Common
Stock(1)
|
|
Rights to
Acquire(2)
|
|
Restricted
Stock(3)
|
|
Percent of
Common
Stock(4)
|
|
Invesco Ltd.(5)
|
|
|
1,895,105
|
|
|
|
|
|
|
|
|
17.8
|
%
|
BGP Inc., China National Petroleum Corporation(6)
|
|
|
1,585,969
|
|
|
|
|
|
|
|
|
14.9
|
%
|
James M. Lapeyre, Jr.(7)
|
|
|
790,017
|
|
|
1,666
|
|
|
1,666
|
|
|
7.5
|
%
|
Laitram, L.L.C.(8)
|
|
|
581,309
|
|
|
|
|
|
|
|
|
5.5
|
%
|
David H. Barr
|
|
|
6,267
|
|
|
|
|
|
1,666
|
|
|
*
|
|
R. Brian Hanson(9)
|
|
|
27,789
|
|
|
41,811
|
|
|
13,059
|
|
|
*
|
|
Hao Huimin
|
|
|
4,340
|
|
|
|
|
|
1,666
|
|
|
*
|
|
Michael C. Jennings
|
|
|
6,267
|
|
|
|
|
|
1,666
|
|
|
*
|
|
Franklin Myers
|
|
|
21,467
|
|
|
1,666
|
|
|
1,666
|
|
|
*
|
|
S. James Nelson, Jr.
|
|
|
7,600
|
|
|
1,666
|
|
|
1,666
|
|
|
*
|
|
John N. Seitz
|
|
|
9,593
|
|
|
1,666
|
|
|
1,666
|
|
|
*
|
|
Steven A. Bate
|
|
|
17,156
|
|
|
11,973
|
|
|
6,263
|
|
|
*
|
|
Kenneth G. Williamson
|
|
|
6,396
|
|
|
31,779
|
|
|
5,999
|
|
|
*
|
|
Christopher T. Usher
|
|
|
3,174
|
|
|
7,207
|
|
|
3,218
|
|
|
*
|
|
Jamey S. Seely
|
|
|
9,095
|
|
|
1,805
|
|
|
3,033
|
|
|
*
|
|
All directors and executive officers as a group (14 Persons)
|
|
|
912,548
|
|
|
112,357
|
|
|
46,206
|
|
|
10.0
|
%
|
-
*
-
Less
than 1%
-
(1)
-
Represents
shares on a post-reverse stock split basis for which the named person (a) has sole voting and investment power or (b) has shared
voting and investment power. Excluded are shares that (i) are unvested restricted stock holdings or (ii) may be acquired through stock option exercises.
-
(2)
-
Represents
shares of Common Stock that may be acquired upon the exercise of stock options held by our officers and directors that are currently exercisable
or will be exercisable on or before April 29, 2016.
-
(3)
-
Represents
unvested shares subject to a vesting schedule, forfeiture risk and other restrictions. Although these shares are subject to risk of forfeiture,
the holder has the right to vote the unvested shares unless and until they are forfeited.
-
(4)
-
Assumes
shares subject to outstanding stock options that such person has rights to acquire upon exercise, presently and on or before April 29, 2016,
are outstanding.
-
(5)
-
The
address for Invesco Ltd. is 1555 Peachtree Street NE, Atlanta, Georgia 30309.
-
(6)
-
The
address for BGP Inc., China National Petroleum Corporation is No. 189 Fanyang Middle Road, ZhuoZhou City, HeBei Province 072750 P.R.
China.
-
(7)
-
The
shares of Common Stock held by Mr. Lapeyre include 99,402 shares that Mr. Lapeyre holds as a custodian or trustee for the benefit of his
children, 581,309 shares owned by Laitram, and 699 shares that Mr. Lapeyre holds as a co-trustee with his wife for the benefit of his children, in all of which Mr. Lapeyre disclaims any
beneficial interest. Please read note 8 below. Mr. Lapeyre has sole voting power over only 110,273 of these shares of Common Stock.
-
(8)
-
The
address for Laitram, L.L.C. is 220 Laitram Lane, Harahan, Louisiana 70123. Mr. Lapeyre is the President and Chief Executive Officer of Laitram.
Please read note 7 above. Mr. Lapeyre disclaims beneficial ownership of any shares held by Laitram.
-
(9)
-
The
shares of Common Stock held by Mr. Hanson include 666 shares owned by Mr. Hanson's wife, in which Mr. Hanson disclaims any
beneficial interest.
26
Table of Contents
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors and certain officers of ION, and persons who own more than 10% of ION's
Common Stock, to file with the SEC and the NYSE initial statements of beneficial ownership on Form 3 and changes in such ownership on Forms 4 and 5. Based on our review of the copies of
such reports, we believe that, with three exceptions, during 2015 our directors, executive officers and shareholders holding greater than 10% of our outstanding shares complied with all applicable
filing requirements under Section 16(a) of the Exchange Act, and that all of their filings were timely made. A Form 4 for Mr. Lapeyre was filed two days late when the Company was
not timely notified of the execution of a buy order. On two separate occasions, Form 4s were filed for Ms. Seely that each inadvertently failed to report all of the reporting person's
shares purchased and therefore required amendment to reflect the full holdings. In each case, the amendment was filed to correct the numbers reported on the original Form 4.
EXECUTIVE OFFICERS
Our executive officers are as follows:
|
|
|
|
|
|
Name
|
|
Age
|
|
Position with ION
|
R. Brian Hanson
|
|
|
51
|
|
President and Chief Executive Officer and Director
|
Steven A. Bate
|
|
|
53
|
|
Executive Vice President and Chief Financial Officer
|
Kenneth G. Williamson
|
|
|
51
|
|
Executive Vice President and Chief Operating Officer, E&P Technology & Services
|
Christopher T. Usher
|
|
|
55
|
|
Executive Vice President and Chief Operating Officer, E&P Operations Optimization
|
Jamey S. Seely
|
|
|
44
|
|
Executive Vice President, General Counsel and Corporate Secretary
|
Colin T. Hulme
|
|
|
64
|
|
Executive Vice President, Ocean Bottom Services
|
Scott P. Schwausch
|
|
|
41
|
|
Vice President and Corporate Controller
|
For
a description of the business background of Mr. Hanson, please see
"Item 1Election of DirectorsClass I Director
Nominees for Re-Election for Term Expiring in 2018"
above.
Mr. Bate
is currently our Executive Vice President and Chief Financial Officer. Mr. Bate rejoined ION in May 2013 as Senior Vice President, Systems Division, became the
Executive Vice President and Chief Operating Officer, Systems Division in February 2014 and became the Executive Vice President and Chief Financial Officer in November 2014. Mr. Bate originally
joined ION in 2005 as Chief Financial Officer of our GX Technology business unit. In 2007, he was appointed Senior Vice President, Sensor business unit and in 2009 his area of responsibility broadened
to our Land Imaging Systems Division. Following our formation in March 2010 of INOVA Geophysical, a land seismic equipment joint venture with BGP, Mr. Bate was appointed as INOVA Geophysical's
first President and Chief Executive Officer, and served in that role until October 2012. Prior to joining ION in 2005, Mr. Bate founded a consulting business and served as President of a
residential construction company. Mr. Bate holds a Bachelor of Business Administration degree from the University of Houston.
Mr. Williamson
is our Executive Vice President and Chief Operating Officer, E&P Technology & Services. Mr. Williamson originally joined ION as Vice President of our
GeoVentures business unit in September 2006, became a Senior Vice President in January 2007, and became Executive Vice President and Chief Operating Officer, GeoVentures Division, in November 2012 and
Executive Vice President and Chief Operating Officer in February of 2015. Between 1987 and 2006, Mr. Williamson was employed by Western Geophysical, which in 2000 became part of WesternGeco, a
seismic solutions and technology subsidiary of Schlumberger, Ltd., a global oilfield and information services company. While at WesternGeco, Mr. Williamson served as Vice President,
Marketing from 2001 to 2003, Vice President, Russia and Caspian Region, from 2003 to 2005 and Vice President, Marketing, Sales & Commercialization of WesternGeco's electromagnetic services and
technology division from 2005 to 2006. Mr. Williamson holds a Bachelor of Science degree in geophysics from Cardiff University in Wales.
27
Table of Contents
Mr. Usher
is our Executive Vice President and Chief Operating Officer, E&P Operations Optimization. Mr. Usher joined ION in November 2012 as the Executive Vice President
and Chief Operating Officer, GeoScience Division. Prior to joining our Company, Mr. Usher served as the Senior Vice President, Data Processing, Analysis and Interpretation and Chief Technology
Officer (including significant merger and acquisitions responsibility) of Global Geophysical Services, Inc., a NYSE-listed seismic products and services company, since January 2010. Prior to
joining Global, Mr. Usher served from October 2005 to January 2010 as Senior Director at Landmark Software and Services (including significant merger and acquisition responsibility), a division
of Halliburton Company, an oilfield services company. From 2004 to 2005, he was Senior Corporate Vice President, Integrated Services, at Paradigm Geotechnology, an E&P software company. From 2000 to
2003, Mr. Usher served as President of the global data processing division of Petroleum Geo-Services (PGS), a marine geophysical contracting company. He began his career at Western Geophysical
where he served in a number of roles over his 17 year tenure before
becoming the Worldwide VP Technology. Mr. Usher holds a Bachelor of Science degree in geology and geophysics from Yale University.
Ms. Seely
joined ION as Executive Vice President, General Counsel and Corporate Secretary in October 2014. Prior to joining ION, Ms. Seely served as Senior Vice President
of Alternative Energy for NRG Energy, Inc., with management and legal oversight of multiple new business and startup ventures related to enhanced oil recovery, solar power and nuclear project
development. She also recently served in executive and general counsel roles for Nuclear Innovation North America (NINA), a joint venture of NRG Energy with Toshiba Corporation. Prior to NRG Energy,
Ms. Seely served as Vice President and General Counsel at Direct Energy and as a partner in the corporate and securities law group of Thompson & Knight LLP. Ms. Seely holds
a Juris Doctor from Southern Methodist University's Dedman School of Law, and earned a Bachelor of Arts degree magna cum laude at Baylor University. She is licensed to practice in Texas and New York.
Mr. Hulme
is currently our Executive Vice President, Ocean Bottom Services. Mr. Hulme joined ION in April 2012 as Senior Vice President, Strategic Marketing and in November
2013 was promoted to Senior Vice President, Ocean Bottom Services, and appointed to serve as the chief executive officer of OceanGeo B.V., a joint venture controlled by ION and became our
Executive Vice President, Ocean Bottom Services in February 2015. Prior to joining ION, Mr. Hulme held a variety of senior management positions at Schlumberger, Ltd., a global oilfield
and information services company, from 1989 through 2011, including serving as Technical DirectorDeep Reading for Schlumberger Wireline from 2006 to 2011, Vice President and General
Manager of Seismic Data Processing for WesternGeco, a seismic solutions and technology subsidiary of Schlumberger, from 2002 to 2006, Vice President and General Manager for Reservoir Products,
Schlumberger Information Services, from 2000 to 2002, Vice President and Business Manager for Asia Region, Schlumberger Information Services, from 1998 to 2000, and Corporate Marketing and
Commercialization Manager for WesternGeco from 1994 to 1998. Prior to joining Schlumberger, Mr. Hulme began his career at Digicon Geophysical.
Mr. Schwausch
joined ION in 2006 as Assistant Controller and held that position until June 2010 when he became Director of Financial Reporting. In May 2012, he became Controller,
Solutions Business Unit, and in May 2013 became Vice President and Corporate Controller. Mr. Schwausch held a variety of positions at Deloitte & Touche, LLP, a public accounting
firm, from 2000 until he joined ION. Mr. Schwausch is a Certified Public Accountant and a Certified Management Accountant. He received a Bachelor of Science degree in accounting from Brigham
Young University.
EXECUTIVE COMPENSATION
Introductory note: The following discussion of executive compensation contains descriptions of various employee benefit plans and employment-related agreements. These
descriptions are qualified in their entirety by reference to the full text or detailed descriptions of the plans and agreements, which are filed or incorporated by reference as exhibits to our annual
report on Form 10-K for the year ended December 31,
28
Table of Contents
2015. In this discussion, the terms "ION," "we," "our" and "us" refer to ION Geophysical Corporation and its consolidated subsidiaries, except where the context otherwise requires or as otherwise
indicated.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides an overview of the Compensation Committee of our Board, a discussion of the
background and objectives of our compensation programs for our senior executives, and a discussion of all material elements of the compensation of each of the executive officers identified in the
following table, whom we refer to as our named executive officers:
|
|
|
Name
|
|
Title
|
R. Brian Hanson
|
|
President and Chief Executive Officer (our principal executive officer)
|
Steven A. Bate
|
|
Executive Vice President and Chief Financial Officer (our principal financial officer)
|
Kenneth G. Williamson
|
|
Executive Vice President and Chief Operating Officer, E&P Technology & Services
|
Christopher T. Usher
|
|
Executive Vice President and Chief Operating Officer, E&P Operations Optimization
|
Jamey S. Seely
|
|
Executive Vice President, General Counsel and Corporate Secretary
|
Executive Summary
General.
The objectives and major components of our executive compensation program remained consistent from 2015 to 2016. While we
regularly review
and fine-tune our compensation programs, we believe consistency in our compensation program and philosophy is important to effectively motivate and reward top-level management performance and for the
creation of shareholder value. We continue to provide our named executive officers with total annual compensation that includes three principal elements: base salary, performance-based annual
incentive cash compensation and long- term equity-based incentive awards. Elements of our compensation program continue to be performance-based, and a significant portion of each executive's total
annual compensation is at risk and dependent upon our Company's achievement of specific, measurable performance goals. Our performance-based pay is designed to align our executive officers' interests
with those of our shareholders and to promote the creation of shareholder value, without encouraging excessive risk-taking. In addition, our equity programs, combined with our executive share
ownership requirements, are designed to reward long-term stock performance.
Due
to the difficulties the Company, its customers and industry have experienced, base salaries for all of our named executive officers were decreased by 10% on May 1, 2015 and
the salary decreases were continued throughout the remainder of 2015. In addition, management recommended and the Compensation Committee has approved the continuation of the base salary reductions
through June 30, 2016. No base salary increases were approved for executive officers in 2016.
Payments
under our annual bonus incentive plan for 2015 reflected our performance and the level of achievement of our 2015 plan performance goals. In light of the unprecedented business
climate the Company faced in 2015, the Compensation Committee reduced the maximum award achievable by individual participants from 150% to 125%. This reduction is in addition to the reduction from
200% to 150% made by the Compensation Committee at the beginning of 2015.
In
2015, the Compensation Committee determined that the bonus available for awards paid to our named executive officers under the 2015 plan should be based on a combination of long-term
strategic
initiatives and cash preservation goals. In early 2016, the Compensation Committee reviewed the Company's progress towards the achievement of the strategic initiative and cash produced from operations
and approved a reduced bonus pool and bonus for each named executive based on individual and company performance. In approving the individual awards to our named executive officers in February 2016,
the Compensation Committee noted that our named executive officers' efforts had enabled us to drive our cash preservation objectives during a challenging economic period for the seismic industry
while, at the same time, positioning us to take advantage of the next upturn in
29
Table of Contents
the
energy cycle by pursuing the long term strategic initiatives. In addition, the Compensation Committee determined that each named executive officer had individually performed at or above the
expected level and was a significant contributor to our overall performance for the year.
The
annual grants made to our named executive officers under our long-term stock incentive plan on March 1, 2015 were similar to grants made to named executive officers in
previous years. However, a greater emphasis was placed on stock appreciation rights ("SARs") than in previous years with a substantial portion of each executive's compensation being in the form of
performance-based, cash settled SARs instead of restricted stock or stock options.
Consideration of Say-On-Pay Result.
At our 2015 Annual Meeting of Shareholders held on May 20, 2015, our shareholders approved all
of our
director nominees and proposals, including a non-binding advisory ("say-on-pay") vote to approve the compensation of our executive officers. In the advisory executive compensation vote, over 76% of
the votes cast on the proposal voted in favor of our executive compensation. Our general goal since our 2015 Annual Meeting has been to continue to act consistently with the established practices that
were overwhelmingly approved by our shareholders. We believe that we have accomplished that goal. In addition, because our shareholders voted in a non-binding advisory vote held at our 2011 Annual
Meeting in favor of our holding an advisory ("say-on-frequency") vote on executive compensation every year, we will continue to hold an annual advisory vote to approve the compensation of our named
executive officers. When and if our Board determines that it is in the best interest of our Company to hold our say-on-pay vote with a different frequency, we will propose such a change to our
shareholders at the next annual meeting of shareholders to be held following the Board's determination. Presently, under SEC rules, we are not required to hold another say-on-frequency vote again
until our 2017 Annual Meeting of Shareholders.
Corporate Governance
Compensation Committee
The Compensation Committee of our Board reviews and approves, or recommends to the Board for approval, all salary and other
remuneration for our executive officers and oversees matters relating to our employee compensation and benefit programs. No member of the Compensation Committee is an employee of ION. The Board has
determined that each member of the Compensation Committee satisfies the definition of "independent" as established in the NYSE corporate governance listing standards. In determining the independence
of each member of the Compensation Committee, the Board considered all factors specifically relevant to determining whether the director has a relationship to our Company that is material to the
director's ability to be independent from management in the execution of his duties as a Compensation Committee member, including, but not limited
to:
-
-
the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by us to the director;
and
-
-
whether the director is affiliated with our Company, a subsidiary or affiliate.
When
considering the director's affiliation with us for purposes of independence, the Board considered whether the affiliate relationship places the director under the direct or indirect
control of our Company or its senior management, or creates a direct relationship between the director and members of senior management, in each case, of a nature that would impair the director's
ability to make independent judgments about our executive compensation.
The
Compensation Committee operates pursuant to a written charter that sets forth its functions and responsibilities. A copy of the charter can be viewed on our website at
http://ir.iongeo.com/phoenix.zhtml?c=101545&p=irol-
govhighlights
. For a description of the responsibilities of the Compensation Committee, see
"Item 1.Election of DirectorsCommittees of the BoardCompensation Committee"
above.
30
Table of Contents
During
2015, the Compensation Committee met in person or by conference call four times. In addition, the Compensation Committee took action by unanimous written consent, as permitted
under Delaware law and our Bylaws, one time during 2015, primarily to approve individual non-executive employee grants of restricted stock and stock options. We believe that each of these individual
grants made by unanimous written consent of the Compensation Committee complied with the applicable grant date requirements under Financial Accounting Standards Board (FASB) Accounting Standards
Codification Topic (ASC) 718, "CompensationStock Compensation" ("ASC Topic 718").
Compensation Consultants
The Compensation Committee has the authority and necessary funding to engage, terminate and pay compensation consultants, independent
legal counsel and other advisors in its discretion. Prior to retaining any such compensation consultant or other advisor, the Compensation Committee evaluates the independence of such advisor and also
evaluates whether such advisor has a conflict of interest. During 2011, the Compensation Committee engaged Performensation Consulting, an equity compensation consulting firm, to provide advisory
services with regard to the preparation of our 2011 proxy statement and to provide the Compensation Committee with analysis on the number of shares to propose to shareholders to add to our stock plan
at our 2011 Annual Meeting for future grants to employees and directors. During 2011, the Compensation Committee also engaged Aon Hewitt as its consultant in connection with the promotion of
Mr. Hanson to Chief Executive Officer. From 2012-2014, at the recommendation of our management, the Compensation Committee has approved and engaged Performensation Consulting to provide
advisory services with regard to the preparation of our proxy statements. In 2015, the Compensation Committee engaged Aon Hewitt to provide advisory services with regard to the preparation of this
proxy statement.
From
2011 to date, neither of Performensation Consulting nor Aon Hewitt has received compensation, or advised our Company or our executive officers, on matters outside the scope of their
respective engagements by the Compensation Committee.
The
Compensation Committee has considered the independence of Aon Hewitt in light of SEC rules and NYSE listing standards. Among the factors considered by the Compensation Committee were
the following:
-
-
other services provided to our Company by Aon Hewitt;
-
-
the amount of fees paid by us as a percentage of Aon Hewitt's total revenues;
-
-
policies or procedures maintained by Aon Hewitt that are designed to prevent a conflict of interest;
-
-
any business or personal relationships between the individual consultants involved in the engagement and any member of the
Compensation Committee;
-
-
any of our Common Stock owned by the individual consultants involved in the engagement; and
-
-
any business or personal relationships between our executive officers and Aon Hewitt or the individual consultants involved in the
engagement.
The
Compensation Committee discussed these considerations and concluded that the work of Aon Hewitt did not raise any conflict of interest.
Role of Management in Establishing and Awarding Compensation
On an annual basis, our Chief Executive Officer, with the assistance of our Human Resources department, recommends to the Compensation
Committee any proposed increases in base salary, bonus payments and equity awards for our executive officers other than himself. No executive officer is
31
Table of Contents
involved
in determining his own salary increase, bonus payment or equity award. When making officer compensation recommendations, our Chief Executive Officer takes into consideration compensation
benchmarks, which include industry standards for similar sized organizations serving similar markets, as well as comparable positions, the level of inherent importance and risk associated with the
position and function, and the executive's job performance over the previous year. See "
Objectives of Our Executive Compensation
ProgramsBenchmarking
" and
"Elements of CompensationBase Salary"
below.
Our
Chief Executive Officer, with the assistance of our Human Resources department and input from our executive officers and other members of senior management, also formulates and
proposes to the Compensation Committee an employee bonus incentive plan for the ensuing year. For a description of our process for formulating the employee bonus incentive plan and the factors that we
consider, see "
Elements of CompensationBonus Incentive Plan
" below.
The
Compensation Committee reviews and approves all compensation and awards to executive officers and all bonus incentive plans. With respect to equity compensation awarded to employees
other than executive officers, the Compensation Committee reviews and approves all grants of restricted stock and stock options above 5,000 shares, generally based upon the recommendation of the Chief
Executive Officer, and has delegated option and restricted stock granting authority to the Chief Executive Officer as permitted under Delaware law for grants to non- executive officers of up to 5,000
shares.
On
its own initiative, at least once a year, the Compensation Committee reviews the performance and compensation of our Chief Executive Officer and, following discussions with the Chief
Executive Officer and other members of the Board, establishes his compensation level. Where it deems appropriate, the Compensation Committee will also consider market compensation information from
independent sources. See "
Objectives of Our Executive Compensation ProgramsBenchmarking
" below.
Certain
members of our senior management generally attend most meetings of the Compensation Committee, including our Chief Executive Officer, our Executive Vice President, Global Human
Resources, and our Executive Vice President, General Counsel & Corporate Secretary. However, no member of management votes on items being considered by the Compensation Committee. The
Compensation Committee and Board do solicit the views of our Chief Executive Officer on compensation matters, particularly as they relate to the compensation of the other named executive officers and
the other members of senior management reporting to the Chief Executive Officer. The Compensation Committee often conducts an executive session during each meeting, during which members of management
are not present.
Objectives of Our Executive Compensation Programs
General Compensation Philosophy and Policy
Through our compensation programs, we seek to achieve the following general goals:
-
-
attract and retain qualified and productive executive officers and key employees by providing total compensation competitive with that
of other executives and key employees employed by companies of similar size, complexity and industry of business;
-
-
encourage our executives and key employees to achieve strong financial and operational performance;
-
-
structure compensation to create meaningful links between corporate performance, individual performance and financial rewards;
32
Table of Contents
-
-
align the interests of our executives with those of our shareholders by providing a significant portion of total pay in the form of
stock-based incentives;
-
-
encourage long-term commitment to our Company; and
-
-
limit corporate perquisites to seek to avoid perceptions both within and outside of our Company of "soft" compensation.
Our
governing principles in establishing executive compensation have been:
Long-Term and At-Risk Focus.
Compensation opportunities should be composed of long-term, at-risk pay to focus our management on the
long-term
interests of our Company. Base salary, annual incentives and employee benefits should be close to competitive levels when compared to similarly-situated companies.
Equity Orientation.
Equity-based plans should comprise a major part of the at-risk portion of total compensation to instill ownership
thinking and to
link compensation to corporate performance and shareholder interests.
Competitive.
We emphasize total compensation opportunities consistent on average with our peer group of companies. Competitiveness of
annual base pay
and annual incentives is independent of stock performance. However, overall competitiveness of total compensation is generally contingent on long-term, stock-based compensation programs.
Focus on Total Compensation.
In making decisions with respect to any element of an executive officer's compensation, the Compensation
Committee
considers the total compensation that may be awarded to the executive officer, including salary, annual bonus and long-term incentive compensation. These total compensation reports are prepared by our
Human Resources department and present the dollar amount of each component of the named executive officers' compensation, including current cash compensation (base salary, past bonus and eligibility
for future bonus), equity awards and other compensation. The overall purpose of these total compensation reports is to bring together, in one place, all of the elements of actual and potential
compensation of our named executive officers so that the Compensation Committee may analyze both the individual elements of compensation (including the compensation mix) as well as the aggregate total
amount of actual and projected compensation. In its most recent review of total compensation reports, the Compensation Committee determined that annual compensation amounts for our Chief Executive
Officer and our other named executive officers remained generally consistent with the Compensation Committee's expectations. However, the Compensation Committee reserves the right to make changes that
it believes are warranted.
Internal Pay Equity.
Our core compensation philosophy is to pay our executive officers competitive levels of compensation that best
reflect their
individual responsibilities and contributions to our Company, while providing incentives to achieve our business and financial objectives. While comparisons to compensation levels at other companies
(discussed below) are helpful in assessing the overall competitiveness of our compensation program, we believe that our executive compensation program also must be internally consistent and equitable
in order for our Company to achieve our corporate objectives. Each year our Human Resources department reports to the Compensation Committee the total compensation paid to our Chief Executive Officer
and all other senior executives, which includes a comparison for internal pay equity purposes. Over time, there have been variations in the comparative levels of compensation of executive officers and
changes in the overall composition of the management team and the overall accountabilities of the individual executive officers; however, we and the Compensation Committee are satisfied that total
compensation received by executive officers reflects an appropriate differential for executive compensation.
These
principles apply to compensation policies for all of our executive officers and key employees. We do not follow the principles in a mechanistic fashion; rather, we apply experience
and judgment in
33
Table of Contents
determining
the appropriate mix of compensation for each individual. This judgment also involves periodic review of discernible measures to determine the progress each individual is making toward
agreed-upon goals and objectives.
Benchmarking
When making compensation decisions, we also look at the compensation of our Chief Executive Officer and other executive officers
relative to the compensation paid to similarly-situated executives at companies that we consider to be our industry and market peersa practice often referred to as "benchmarking." We
believe, however, that a benchmark should be just thata point of reference for measurementbut not the determinative factor for our executives' compensation. The purpose of
the comparison is not to supplant the analyses of internal pay equity, total wealth accumulation and the individual performance of the executive officers that we consider when making compensation
decisions. Because the comparative compensation information is just one of the several analytic tools that are used in setting executive compensation, the Compensation Committee has discretion in
determining the nature and extent of its use. Further, given the limitations associated with comparative pay information for setting individual executive compensation, including the difficulty of
assessing and comparing wealth accumulation through equity gains, the Compensation Committee may elect to not use the comparative compensation information at all in the course of making compensation
decisions.
In
most years, at least once each year, our Human Resources department, under the oversight of the Compensation Committee, reviews data from market surveys, independent consultants and
other sources to assess our competitive position with respect to base salary, annual incentives and long-term incentive compensation. When reviewing compensation data in November 2015, we utilized
data primarily from Radford salary surveys, the Mercer U.S. Compensation Planning Survey, TowersWatson executive salary survey and Frost's 2015 Oilfield Manufacturing and Services Industry Executive
Compensation Survey ("OFMS Survey"). The survey information from most of these resources covered a broad range of industries and companies. However, the 2015 OFMS Survey compiled proxy compensation
data from 53 oilfield services companies and survey results from the following 24 oilfield services companies:
|
|
|
Aker Solutions ASA
|
|
ION Geophysical Corporation
|
Baker Hughes, Inc.
|
|
Jet Specialty
|
Bristow Group, Inc.
|
|
National Oilwell Varco, Inc.
|
C&J Energy Services, Inc.
|
|
Newpark Resources, Inc.
|
Cameron International Corp.
|
|
Oil States International, Inc.
|
Core Laboratories NV
|
|
Saulsbury Industries
|
Ensco PLC
|
|
Shelf Drilling Offshore Holdings Ltd.
|
Exterran Holdings, Inc.
|
|
Siemens
|
Forum Energy Technologies
|
|
Superior Energy Services, Inc.
|
Frank's International N.V.
|
|
T.D. Williamson Inc.
|
Helmerich & Payne, Inc.
|
|
TETRA Technologies, Inc.
|
Hercules Offshore Services, Inc.
|
|
Vantage Drilling Company
|
Each
year, the administrators of the OFMS Survey in their discretion make adjustments to the list of companies included in the survey. As a result, the above list of companies included
in the 2015 OFMS Survey is slightly different from the list of companies included in the OFMS Survey for 2014 and previous years and will likely be different from the list of companies to be included
in future OFMS Surveys.
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The overall results of the compensation surveys provide the starting point for our compensation analysis. We believe that the surveys contain relevant
compensation information from companies that are representative of the sector in which we operate, have relative size as measured by market capitalization and experience relative complexity in the
business and the executives' roles and responsibilities. Beyond the survey numbers, we look extensively at a number of other factors, including our estimates of the compensation at our most comparable
competitors and other companies that were closest to our Company in size, profitability and complexity. We also consider an individual's current performance, the level of corporate responsibility, and
the employee's skills and experience, collectively, in making compensation decisions.
In
the case of our Chief Executive Officer and some of our other executive officers, we also consider our Company's performance during the person's tenure and the anticipated level of
compensation that would be required to replace the person with someone of comparable experience and skill.
In
addition to our periodic review of compensation, we also regularly monitor market conditions and will adjust compensation levels from time to time as necessary to remain competitive
and retain our most valuable employees. When we experience a significant level of competition for retaining current
employees or hiring new employees, we will typically reevaluate our compensation levels within that employee group in order to ensure our competitiveness.
Elements of Compensation
The primary components of our executive compensation program are as follows:
Below
is a summary of each component:
Base Salary
General.
The general purpose of base salary for our executive officers is to create a base of cash compensation for the officer that is
consistent on
average with the range of base salaries for executives in similar positions and with similar responsibilities at comparable companies. In addition to salary norms for persons in comparable positions
at comparable companies, base salary amounts may also reflect the nature and scope of responsibility of the position, the expertise of the individual employee and the competitiveness of the market for
the employee's services. Base salaries of executives other than our Chief Executive Officer may also reflect our Chief Executive Officer's evaluation of the individual executive officer's job
performance. As a result, the base salary level for each individual may
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be
above or below the target market value for the position. The Compensation Committee also recognizes that the Chief Executive Officer's compensation should reflect the greater policy- and
decision-making authority that he holds and the higher level of responsibility he has with respect to our strategic direction and our financial and operating results. At December 31, 2015, our
Chief Executive Officer's annual base salary was 55% higher than the annual base salary for the next highest-paid named executive officer and 61% higher than the average annual base salary for all of
our other named executive officers. The Compensation Committee does not intend for base salaries to be the vehicle for long-term capital and value accumulation for our executives.
2015 Actions.
In typical years, base salaries are reviewed at least annually and may also be adjusted from time to time to realign
salaries with
market levels after taking into account individual responsibilities and changes in responsibilities, performance and contribution to ION, experience, impact on total compensation, relationship of
compensation to other ION officers and employees, and changes in external market levels.
Base Salary Reduction Program.
Commencing in late 2014, our business has experienced a significant decline due in large part to the
historic decline
in oil and gas prices, which has negatively impacted demand for our products and services and thus adversely affected our financial results. We have taken a number of actions to reduce our costs in
our business and to improve our operating performance including substantial reductions in our work force. In mid-2015, we also implemented a base salary reduction program in a further effort to reduce
our operating costs. Under the salary reduction program, base salaries for all employees were reduced by 10% for all employees earning above the designated minimum income threshold. Management has
recommended and the Board has approved the continuation of the program until at least June 30, 2016.
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Under
the program, all of our named executive officers received a decrease in base salary on May 1, 2015, as described below:
|
|
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Named Executive Officer
|
|
Action
|
R. Brian Hanson
|
|
In recognition of the difficult financial times for the industry, Mr. Hanson's salary was reduced by 10% from $600,000 to $540,000. The 2015 OFMS Survey indicated that the median for CEO base salary for surveyed
companies having annual revenues of less than $1 billion was $705,926.
|
Steven A. Bate
|
|
In recognition of the difficult financial times for the industry, Mr. Bate's salary was reduced by 10% from $375,000 to $337,500. The 2015 OFMS Survey indicated that the median of Chief Financial Officer base
salary for surveyed companies having annual revenues of less than $1 billion was $400,000.
|
Kenneth G. Williamson
|
|
In recognition of the difficult financial times for the industry, Mr. Williamson's salary was reduced by 10% from $387,213 to $348,492. The 2015 OFMS Survey indicated that the median for Executive Vice President
base salary for surveyed companies having annual revenues of less than $1 billion was $418,500.
|
Christopher T. Usher
|
|
In recognition of the difficult financial times for the industry, Mr. Usher's salary was reduced by 10% from $378,560 to $340,704. The 2015 OFMS Survey indicated that the median for Executive Vice President base
salary for surveyed companies having annual revenues of less than $1 billion was $418,500.
|
Jamey S. Seely
|
|
In recognition of the difficult financial times for the industry, Ms. Seely's salary was reduced by 10% from $350,000 to $315,000. The 2015 OFMS Survey indicated that the median for General Counsel and Corporate
Secretary base salary for surveyed companies having annual revenues of less than $1 billion was $375,000.
|
Bonus Incentive Plan
Our employee annual bonus incentive plan is intended to promote the achievement each year of the Company's performance objectives, the
employee's particular business unit's performance objectives and to recognize those employees who contributed to the Company's achievements. The plan provides cash compensation that is at-risk on an
annual basis by establishing bonus pools for each business unit contingent on achievement of annual business and operating objectives. The plan also provides for individual awards designed to reward
company and individual performance. This provides all participating employees the opportunity to share in the Company's performance through the achievement of established financial and individual
objectives. The financial and individual objectives within the plan are intended to measure an increase in the value of our Company.
In
recent years, we have adopted a bonus incentive plan with regard to each year. Performance under the annual bonus incentive plan is measured with respect to the designated plan fiscal
year. Payments under the plan are paid in cash in an amount reviewed and approved by the Compensation Committee and are ordinarily made in the first quarter following the completion of a fiscal year,
after the financial results for that year have been determined.
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Our
annual bonus incentive plan is usually consistent with our operating plan for the same year. In early 2015, we prepared a consolidated company operating budget for 2015 and
individual operating budgets for each operating unit. The budgets took into consideration our views on market opportunities, customer and sale opportunities, technology enhancements for new products,
product manufacturing and delivery schedules and other operating factors known or foreseeable at the time. The Board analyzed the proposed budgets with management extensively and, after analysis and
consideration, the Board approved the consolidated 2015 operating plan. During early 2015, our Chief Executive Officer worked with our Human Resources department and members of senior management to
formulate our 2015 bonus incentive plan, consistent with the 2015 operating plans approved by the Board.
At
the beginning of 2015, the Compensation Committee approved our 2015 bonus incentive plan for executives and certain designated non-executive employees. The computation of awards
generated under the plan is required to be approved by the Compensation Committee. In February 2016, the Compensation Committee reviewed the Company's actual performance against each of the plan
performance goals established at the beginning of 2015 and evaluated the individual performance of each participating named executive officer during 2015. The results of operations of our Company for
2015 and individual performance evaluations determined the appropriate payouts under the annual bonus incentive plan.
The
Compensation Committee has discretion in circumstances it determines are appropriate to authorize discretionary bonus awards that might exceed amounts that would otherwise be payable
under the terms of the bonus incentive plan. These discretionary awards can be payable in cash, stock options, restricted stock, restricted stock units or a combination thereof. Any stock options,
restricted stock or restricted stock units awarded would be granted under one of our existing long-term equity compensation plans. The Compensation Committee also has the discretion, in appropriate
circumstances, to grant a lesser bonus award, or no bonus award at all, under the bonus incentive plan.
As
described above, our bonus incentive plans are designed for payouts that generally track the financial performance of our Company. The general intent of the plans is to reward key
employees based on the Company's and the employee's performance, in each case measured against internal targets and plans. In most years when our Company financial performance is strong, cash bonus
payments are generally higher. Likewise, when our financial performance is low as compared to our internal targets and plans, cash bonus payments are generally lower. There are occasionally exceptions
to this general trend. For example, in 2008 and 2011, we achieved improved financial performance over the previous year, but average cash bonus awards under our annual bonus incentive plans were
relatively lower because we did not achieve our internal financial and growth objectives for the relevant years. In 2012, we achieved improved financial performance over the previous year, but our
average bonus award paid to our named executive officers remained at approximately the same level as 2011 because our internal financial objectives for 2012 were higher than in 2011. This history
demonstrates a clear and consistent link between our executive officer bonus incentive compensation and our performance.
Below
are general descriptions of our 2015 bonus incentive plan and our Company performance criteria applicable to the plan.
2015 Bonus Incentive Plan.
The purpose of the 2015 bonus incentive plan was to provide an incentive for our participating employees to
achieve their
highest level of individual and business unit performance and to align the employees to accomplish and share in the achievement of our Company's 2015 strategic and financial goals.
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The
bonus program includes a three step process:
-
1.
-
The
total bonus pool is established in our annual operating plan based on approximate percentages of base salary and our expected headcount. As discussed
below, the total bonus pool consists of two variable components (i) the achievement of certain long-term strategic initiatives, and (ii) the satisfaction of cash preservation criteria.
-
2.
-
The
total bonus pool is allocated among our business units based on satisfaction of both the strategic initiatives and the cash preservation objectives.
-
3.
-
Once
the bonus pool for each business unit is funded, individual bonuses are determined by business unit managers by evaluating each eligible employee's
individual and team performance, and the computation of individual awards is approved by the Compensation Committee.
Although
achievement of our strategic initiatives and cash preservation target establishes a guideline funding level of the bonus pool available to our named executive officers, actual
amounts paid to our named executive officers are at the discretion of the Compensation Committee based on its overall assessment of other qualitative and quantitative corporate and individual
criteria, generally in accordance with the compensation philosophy and policy described above.
Designated
employees, including our named executive officers, were eligible to participate in our 2015 bonus incentive plan. Under the 2015 plan, approximately 35% of the funds allocated
for distribution were available for awards to eligible employees based on achievement of certain long term strategic initiatives in 2015 and approximately 65% of the funds allocated for distribution
were available for distribution to eligible employees only to the extent we satisfied the designated 2015 cash preservation criteria. In addition, the 2015 plan was structured so that the total amount
of funds available for distribution increased as our financial performance and cash preservation increased, up to a maximum funding level of 150% versus caps of 200% in prior years. As a result, the
amount of total dollars available for distribution under the bonus incentive plan was largely dependent on the Company's achievement of financial objectives.
Our
2015 bonus incentive plan established the achievement of long term strategic initiatives and cash preservation and cash from operations as the performance goals. The strategic
initiatives were selected to ensure that the Company's cash preservation and expense reduction efforts did not result in long-term harm to the company and appropriately balanced short term savings
against ensuring the long term viability of our Company. For 2015, the Compensation Committee selected strategic initiatives focused on the achievement of certain objectives in the WesternGeco
litigation, including but not limited to the successful reversal of damages related to lost profits at the Court of Appeals. The company also established certain objectives for maintaining Ocean
Bottom Services capabilities through a time of few market opportunities. Several milestones were established for critical R&D projects. The company's data process business established back log
objectives. Finally, the company established six cultural initiatives and objectives designed the streamline the internal efficiency of the organization, promote better information sharing and
consolidate certain activities. The company reported progress on all of the initiatives to the Board throughout the year. At the conclusion of 2015, the Compensation Committee determined that all
strategic initiatives had been met and recommended funding of the 35% of the bonus pool tied to such objectives in the amount of $5.4 million.
In
addition to the strategic initiatives, the Compensation Committee also established a critical emphasis on metrics for cash preservation based on the cash generated from operations.
Cash from operations is the net cash flow generation by ION excluding interest, severance expenses, cash from external funding arrangements, and other corporate expenses and is adjusted based on the
timing of collection of customer payments. Cash from operations is offset by the payment of vendors, employee payroll, taxes, utilities, and similar matters.
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Cash
preservation was selected as the most appropriate performance goals for our 2015 plan because the Compensation Committee believed that cash from operations and preservation of the
Company's existing cash were the best indicators of our Company's overall performance at that time and evidenced a direct correlation with the interests of our shareholders and the ability of our
Company to survive the downturn. As a result, 65% of the bonus pool is tied to the achievement of these objectives as well all opportunities to achieve goals in excess of the plan. When determining
whether financial targets have been achieved under the 2015 plan, the Compensation Committee has the discretion to modify or revise the targets as necessary to reflect any significant beneficial or
adverse change that results in a substantial positive or negative effect on our performance as a whole, such as sales of assets, mergers, acquisitions, divestitures, spin-offs or unanticipated matters
such as economic conditions, indicators of growth or recession in our business segments, nature of our operations or changes in or effect of applicable laws, regulations or accounting practices.
Under
the prior plan, every participating named executive officer other than our Chief Executive Officer had the opportunity to earn up to 200% of such executive officers' target
depending on performance of our Company against the designated performance goals and performance of such executive officer against personal criteria determined at the beginning of 2015 by our Chief
Executive Officer. However, when the 2015 bonus plan was adopted by the Compensation Committee, the maximum individual award for each participating named executive officer were reduced to 150% of such
participating executive officer's target. In addition, the Compensation Committee further reduced the maximum individual awards payable in February of 2016 to 125% in light of the difficult economic
market for the Company's products and services. The Compensation Committee has the discretion to determine the amounts of individual bonus awards. Under separate terms approved by the Compensation
Committee and contained in his employment agreement, Mr. Hanson, who served as our Chief Executive Officer during 2015, participated in the plan with potential to earn a target incentive
payment of 100% of his base salary, depending on achievement of the Company's target consolidated performance goals and pre-designated personal critical success factors, and a maximum of 150% of his
base salary upon achievement of the maximum consolidated performance goal and his personal goals. Our Chief Executive Officer typically carries a higher target and maximum bonus incentive plan
percentage as compared to our other named executive officers as a result of his leadership role in setting company policy and strategic planning.
Performance Criteria.
In 2015, the Compensation Committee approved a plan that emphasized the critical importance placed on cash
preservation as the
criteria for consideration of bonus awards to the named executive officers and other covered employees under our 2015 bonus incentive plan:
|
|
|
|
|
Threshold
Adjusted Cash from
Operations
|
|
Target
Adjusted Cash from
Operations
|
|
Maximum
Adjusted Cash from
Operations
|
$(50.0) million
|
|
$(25.0) million
|
|
$0.0 million
|
Where
an employee is primarily involved in a particular business unit, the financial performance criteria under the bonus incentive plan are weighted toward the operational performance
of the employee's business unit rather than consolidated company performance. The "
Non-Equity Incentive Plan Compensation
" column of the 2015 Summary
Compensation Table below reflects the payments that our named executive officers earned and received under our 2015 bonus incentive plan, and the
"
Bonus
" column of the same table reflects any discretionary cash bonus payments received by our named executive officers during 2015. Our 2015 cash from
operations exceeded the threshold target performance criteria under our 2015 bonus incentive plan by $8 million. As a result, the Compensation Committee authorized the funding of approximately
$0.8 million to bonus pool. When combined with the amounts approved in connection with the achievement of long-term strategic initiatives the total bonus pool available for distribution in 2015
was approximately $6.2 million.
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In
addition to overall company performance, when considering the 2015 bonus incentive plan awards paid to our named executive officers, the Compensation Committee also considered the
individual performances and accomplishments of each officer. For example, when considering the bonus award paid to Mr. Hanson, among the factors the Compensation Committee took into
consideration was Mr. Hanson's effective leadership in our achievement of several important strategic objectives during the year, including focusing the strategies of the Company on measures
needed to sustain the business through this historic downturn in demand for its services and other challenges associated with low oil prices, such as maintaining our key core capabilities. When
considering the bonus award paid to Mr. Bate, among the factors the Compensation Committee took into consideration were his leadership in reducing the company's operating costs, the
renegotiation of the credit agreement with PNC and his role in soliciting shareholders in connection with the reverse split and other votes required by the
company as Chief Financial Officer. When considering the bonus award paid to Mr. Williamson, among the factors the Compensation Committee took into consideration were the 2015 financial
performance of his GeoVentures Division, his efforts to reduce the costs associated with the division and the amount of risk associated with the business portfolio. When considering the bonus award
paid to Mr. Usher, among the factors the Compensation Committee took into consideration were the 2015 financial results of his GeoScience Division, his role in appropriately sizing the
organization, maintaining its key customers and managing the credit risk associated with the group. When considering the bonus award paid to Ms. Seely, among the factors the Compensation
Committee took into consideration was her leadership and participation in pursuing a number of important projects during 2015 including the PNC amendment, the reverse split and relates shareholder
initiatives, the WesternGeco litigation, and resolving NYSE non-compliance matters. The total compensation paid to each named executive officer is set forth in the graph titled
"
Summary Compensation Table
".
The
Compensation Committee reviews the annual bonus incentive plan each year to ensure that the key elements of the plan continue to meet the objectives described above.
Long-Term Stock-Based Incentive Compensation
We have structured our long-term incentive compensation to provide for an appropriate balance between rewarding performance and
encouraging employee retention and stock ownership. There is no pre-established policy or target for the allocation between either cash or non-cash or short-term and long-term incentive compensation;
however, at executive management levels, the Compensation Committee strives for compensation to increasingly focus on longer-term incentives. In conjunction with the Board, executive management is
responsible for setting and achieving long-term strategic goals. In support of this responsibility, compensation for executive management, and most particularly our Chief Executive Officer, tends to
be weighted towards rewarding long-term value creation for shareholders.
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The
below table illustrates the mix of total compensation received by Mr. Hanson, our CEO, and our other current named executive officers during 2015:
For
2015, there were four forms of long-term equity incentives utilized for executive officers and key employees: stock options, restricted stock, SARs and restricted stock units. Our
long-term incentive plans have provided the principal method for our executive officers to acquire equity or equity-linked interests in our Company. Of the total stock option or restricted stock
employee awards made by ION during 2015, 61% were in the form of stock options and 39% were in the form of restricted stock or restricted stock units. Our 2013 LTIP limits the number of awards we can
grant under the plan in the form of full-value awards, such as restricted stock and restricted stock units, to 86,667 shares, or less than 35% of the total shares authorized for grant under the plan,
in the aggregate. On December 4, 2015, the Board adopted resolutions setting forth and declaring advisable certain amendments to the 2013 LTIP, and, at a special meeting of the shareholders of
the Company held on February 1, 2016, the shareholders of the Company approved such amendments to the 2013 LTIP. The 2013 LTIP, as amended, became effective on February 4, 2016. The
Company's 2013 LTIP, as amended, increased (i) the total number of shares of our Common Stock we can grant under the plan to 1,248,667 and (ii) the number of awards we can grant under
the plan in the form of full-value awards to 412,060 shares, which is than 35% of the total shares authorized for grant under the plan, in the aggregate.
Reduction in Plan Participants.
In 2015, the Compensation Committee decided to significantly decrease the number of executives eligible
to
participate in the Company's long-term incentive plans. In 2014, approximately 147 employees participated in the Company's long-term equity programs and the Company granted approximately 164,263
shares of restricted stock and options. In 2015, the Company substantially reduced the number of participants in the long-term equity grants to only 16 participants, excluding non-executive directors.
In addition, the Compensation Committee dramatically reduced the equity grants available to only 98,980 grants of restrict stock and options. Currently, 100% of the restricted stock and options
granted in 2015 are more than 500% underwater.
Stock Options.
Under our equity plans, stock options may be granted having exercise prices equal to the closing price of our stock on
the date before
the date of grant. In any event, all awards of stock options are made at or above the market price at the time of the award. The Compensation Committee
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will
not grant stock options having exercise prices below the market price of our stock on the date of grant, and will not reduce the exercise price of stock options (except in connection with
adjustments to reflect recapitalizations, stock or extraordinary dividends, stock splits, mergers, spin-offs and similar events, as required by the relevant plan) without the consent of our
shareholders. Our stock options generally vest ratably over four years, based on continued employment, and the terms of our 2013 LTIP require stock options granted under that plan to follow that
vesting schedule unless the Compensation Committee approves a different schedule when approving the grant. Prior to the exercise of an option, the holder has no rights as a shareholder with respect to
the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents. New option grants normally have a term of ten years.
The
purpose of stock options is to provide equity compensation with value that has been traditionally treated as entirely at-risk, based on the increase in our stock price and the
creation of shareholder value. Stock options also allow our executive officers and key employees to have equity ownership and to share in the appreciation of the value of our stock, thereby aligning
their compensation directly with increases in shareholder value. Stock options only have value to their holder if the stock price appreciates in value from the date options are granted.
Stock
option award decisions are generally based on past business and individual performance. In determining the number of options to be awarded, we also consider the grant recipient's
qualitative and quantitative performance, the size of stock option and other stock based awards in the past, and expectations of the grant recipient's future performance. In 2015, a total of 16
employees received option awards, covering 53,328 shares of Common Stock. In 2015, the named executive officers received option awards for a total of 31,870 shares, or approximately 60% of the total
options awarded in 2015.
Restricted Stock and Restricted Stock Units.
We use restricted stock and restricted stock units to focus executives on our long-term
performance and
to help align their compensation more directly with shareholder value. Vesting of restricted stock and restricted stock units typically occurs ratably over three years, based solely on continued
employment of the recipient-employee, and the terms of our 2013 LTIP require restricted stock and restricted stock units granted under that plan to follow that vesting schedule unless the Compensation
Committee approves a different schedule when approving the grant. In 2015, 16 employees received restricted stock or restricted stock unit awards, covering an aggregate of 33,990 shares of restricted
stock and shares underlying restricted stock units. The named executive officers received awards totaling 21,245 shares of restricted stock in 2015, or approximately 63% of the total shares of
restricted stock awarded to employees in 2015.
Awards
of restricted stock units have been made to certain of our foreign employees in lieu of awards of restricted stock. Restricted stock units provide certain tax benefits to our
foreign employees as the
result of foreign law considerations, so we expect to continue to award restricted stock units to designated foreign employees for the foreseeable future.
Stock Appreciation Rights.
To enhance the performance-based focus of ION's compensation programs, the Compensation Committee elected to
have a
substantial portion of the stock-based compensation paid in SARs instead of restricted stock or stock options. The SARs grants approved by the Compensation Committee are 100% cash-settled and were
granted pursuant to our Stock Appreciation Rights Plan. The vesting of the SARs is achieved through both a market condition and a service condition. The market condition is achieved, in part or in
full, in the event that during the four-year period beginning on the date of grant the 20-day trailing volume-weighted average price per share of Common Stock is (i) greater than 120% of the
exercise price for the first 1/3 of the awards, (ii) greater than 125% of the exercise price for the second 1/3 of the awards and (iii) greater than 130% of the exercise price for the
final 1/3 of the awards. The exercise condition restricts the ability of the holders to exercise awards until certain service milestones have been reached such that (i) no more
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than
1/3 of the awards may be exercised, if vested, on and after the first anniversary of the date of grant, (ii) no more than 2/3 of the awards may be exercised, if vested, on and after the
second anniversary of the date of grant and (iii) all of the awards may be exercised, if vested, on and after the third anniversary of the date of grant.
The
Compensation Committee reviews the long-term incentive program each year to ensure that the key elements of this program continue to meet the objectives described above.
Approval and Granting Process.
As described above, the Compensation Committee reviews and approves all stock option, restricted stock
and restricted
stock unit awards made to executive officers, regardless of amount. With respect to equity compensation awarded to employees other than executive officers, the Compensation Committee reviews and
approves all grants of restricted stock, stock options and restricted stock units above 5,000 shares, generally based upon the recommendation of our Chief Executive Officer. Committee approval is
required for any grant to be made to an executive officer in any amount. The Compensation Committee has granted to our Chief Executive Officer the authority to approve grants to any employee other
than an executive officer of (i) up to 5,000 shares of restricted stock and (ii) stock options for not more than 5,000 shares. Our Chief Executive Officer is also required to provide a
report to the Compensation Committee of all awards of options and restricted stock made by him under this authority. We believe that this policy is beneficial because it enables smaller grants to be
made more efficiently. This flexibility is particularly important with respect to attracting and hiring
new employees, given the increasingly competitive market for talented and experienced technical and other personnel in locales in which our employees work.
All
grants of restricted stock, restricted stock units and stock options to employees or directors are granted on one of four designated quarterly grant dates during the year:
March 1, June 1, September 1 or December 1. The Compensation Committee approved these four dates because they are not close to any dates on which earnings announcements or
other announcements of material events would normally be made by us. For an award to a current employee, the grant date for the award is the first designated quarterly grant date that occurs after
approval of the award. For an award to a newly hired employee who is not yet employed by us at the time the award is approved, the grant date for the award is the first designated quarterly grant date
that occurs after the new employee commences work. We believe that this process of fixed quarterly grant dates is beneficial because it serves to remove any perception that the grant date for an award
could be capable of manipulation or change for the benefit of the recipient. In addition, having all grants occur on a maximum of four days during the year simplifies certain fair value accounting
calculations related to the grants, thereby minimizing the administrative burden associated with tracking and calculating the fair values, vesting schedules and tax-related events upon vesting of
restricted stock and also lessening the opportunity for inadvertent calculation errors.
Beginning
March 1, 2015, the Compensation Committee decided that all awards of restricted stock, stock options and SARs will be made in annual grants occurring on March 1
of each year. In 2015, the Company also awarded annual equity grants on March 1. Prior to 2015, annual equity awards were made on December 1 of each year. After review and careful
consideration by the Compensation Committee, the Company decided to continue the practice that began in 2015 of making annual awards on March 1 of each year. This date was selected because
(i) it enables the Board and Compensation Committee to consider individual performance after the full year has been completed, (ii) it simplifies the annual budgeting process by having
the expense resulting from the equity award incurred at the same time as incentive compensation and (iii) the date aligns with the time the Company normally pays annual incentive bonuses.
Awards made in connection with significant promotions, new hires, new directors joining the Board or unusual circumstances, including but not limited to its employees and directors, will be granted on
one of four designated dates during the year: March 1, June 1, September 1 or December 1.
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Beginning
in 2015, and due in part to the steep decline in energy company equity prices, the Compensation Committee authorized grants under the 2008 Stock Appreciation Rights Plan to key
employees with vesting based on a set of performance metrics. The grants were authorized after consulting with the Compensation Committee's compensation expert and upon the evaluation of market-based
metrics of compensation. In addition to the performance metrics, employees participating in the plan would also be required to have minimum tenure requirements to create an environment of employment
stability.
Clawback Policy
We have a Compensation Recoupment Policy (commonly referred to as a "clawback" policy), which provides that, in the event of a
restatement of our financial results due to material noncompliance with applicable financial reporting requirements, the Board will, if it determines appropriate and subject to applicable laws and the
terms and conditions of our applicable stock plans, programs or arrangements, seek reimbursement of the incremental portion of performance-based compensation, including performance-based bonuses and
long-term incentive awards, paid to current or former executive officers within three years of the restatement date, in excess of the compensation that would have been paid had the compensation amount
been based on the restated financial results.
Personal Benefits, Perquisites and Employee Benefits
Our Board and executives have concluded that we will not offer most perquisites traditionally offered to executives of similarly-sized
companies. As a result, perquisites and any other similar personal benefits offered to our executive officers are substantially the same as those offered to our general salaried employee population.
These offered benefits include medical and dental insurance, life insurance, disability insurance, a vision plan, charitable gift matching (up to designated limits), a 401(k) plan with a company match
of certain levels of contributions, flexible spending accounts for healthcare and dependent care and other customary employee benefits. Business-related relocation benefits may be reimbursed on a
case-by-case basis. We intend to continue applying our general policy of not providing specific personal benefits and perquisites to our executives; however, we may, in our discretion, revise or add
to any executive's personal benefits and perquisites if we deem it advisable.
Risk Management Considerations
The Compensation Committee believes that our Company's bonus and equity programs create incentives for employees to create long-term
shareholder value. The Compensation Committee has considered the concept of risk as it relates to our compensation programs and has concluded that our compensation programs do not encourage excessive
or inappropriate risk-taking. Several elements of the compensation programs are designed to promote the
creation of long-term value and thereby discourage behavior that leads to excessive risk:
-
-
The compensation programs consist of both fixed and variable compensation. The fixed (or salary) portion is designed to provide a
steady income regardless of the Company's stock price performance so that executives do not focus exclusively on stock price performance to the detriment of other important business metrics. The
variable (cash bonus and equity) portions of compensation are designed to reward both short- and long-term corporate performance. The Compensation Committee believes that the variable elements of
compensation are a sufficient percentage of overall compensation to motivate executives to produce positive short- and long-term corporate results, while the fixed element is also sufficiently high
such that the executives are not encouraged to take unnecessary or excessive risks in doing so.
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-
-
The financial metrics used to determine the amount of an executive's bonus are measures the Compensation Committee believes contribute
to long-term shareholder value and ensure the continued viability of the Company. Moreover, the Compensation Committee attempts to set ranges for these measures that encourage success without
encouraging excessive risk taking to achieve short-term results. In addition, the overall maximum bonus for each participating named executive officer other than our Chief Executive Officer is not
expected to exceed 100% of the executive's base salary under the bonus plan, and the overall bonus for our Chief Executive Officer under his employment agreement will not exceed 200% of his base
salary under the bonus plan, in each case no matter how much the Company's financial performance exceeds the ranges established at the beginning of the year.
-
-
We have strict internal controls over the measurement and calculation of the financial metrics that determine the amount of an
executive's bonus, designed to keep it from being susceptible to manipulation by an employee, including our executives.
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Stock options become exercisable over a four-year period and remain exercisable for up to ten years from the date of grant,
encouraging executives to look to long-term appreciation in equity values.
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Restricted stock becomes exercisable over a three-year period, again encouraging executives to look to long-term appreciation in
equity values.
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Senior executives, including our named executive officers, are required to acquire over time and hold shares of our Company's stock
having a value of between one and four times the executive's annual base salary, depending on the level of the executive. The Compensation Committee believes that the stock ownership guidelines
provide a considerable incentive for management to consider the Company's long-term interests, since a portion of their personal investment portfolio consists of our Common Stock.
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In addition, we do not permit any of our executive officers or directors to enter into any derivative or hedging transactions
involving our stock, including short sales, market options, equity swaps and similar instruments, thereby preventing executives from insulating themselves from the effects of poor company stock price
performance. Please refer to "
Stock Ownership Requirements; Hedging Policy
" below.
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-
We have a compensation recoupment (clawback) policy that provides, in the event of a restatement of our financial results due to
material noncompliance with financial reporting requirements, for reimbursement of the incremental portion of performance-based compensation, including performance- based bonuses and long-term
incentive awards, paid to current or former executive officers within three years of the restatement date, in excess of the compensation that would have been paid had such compensation amount been
based on the restated financial results. Please refer to "
Clawback Policy
" above.
Indemnification of Directors and Executive Officers
Our Bylaws provide certain rights of indemnification to our directors and employees (including our executive officers) in connection
with any legal action brought against them by reason of the fact that they are or were a director, officer, employee or agent of our Company, to the full extent permitted by law. Our Bylaws also
provide, however, that no such obligation to indemnify exists as to proceedings initiated by an employee or director against us or our directors unless (a) it is a proceeding (or part thereof)
initiated to enforce a right to indemnification or (b) was authorized or consented to by our Board.
As
discussed below, we have also entered into employment agreements with certain of our executive officers that provide for us to indemnify the executive to the fullest extent permitted
by our
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Restated
Certificate of Incorporation, as amended, and our Bylaws. The agreements also provide that we will provide the executive with coverage under our directors' and officers' liability insurance
policies to the same extent as provided to our other executives.
Stock Ownership Requirements; Hedging Policy
We believe that broad-based stock ownership by our employees (including our executive officers) enhances our ability to deliver
superior shareholder returns by increasing the alignment between the interests of our employees and our shareholders. Accordingly, the Board has adopted stock ownership requirements applicable to each
of our senior executives, including our named executive officers. The policy requires each executive to retain direct ownership of at least 50% of all shares of our Company's stock received upon
exercise of stock options and vesting of awards of restricted stock or restricted stock units until the executive owns shares having an aggregate value equal to the following multiples of the
executive's annual base salary:
President
and Chief Executive Officer4x
Executive
Vice President2x
Senior
Vice President1x
As
of the date of this Proxy Statement, all of our senior executives were in compliance with the stock ownership requirements. In addition, we do not permit any of our executive officers
or directors to enter into any derivative or hedging transactions with respect to our stock, including short sales, market options, equity swaps and similar instruments.
Impact of Regulatory Requirements and Accounting Principles on Compensation
The financial reporting and income tax consequences to our Company of individual compensation elements are important considerations for
the Compensation Committee when it is analyzing the overall level of compensation and the mix of compensation among individual elements. Under Section 162(m) of the Internal Revenue Code and
the related federal treasury regulations, we may not deduct annual compensation in excess of $1 million paid to certain employeesgenerally our Chief Executive Officer and our four
other most highly compensated executive officersunless that compensation qualifies as "performance-based" compensation. Overall, the Compensation Committee seeks to balance its objective
of ensuring an effective compensation package for the executive officers with the need to maximize the immediate deductibility of compensationwhile ensuring an appropriate (and
transparent) impact on reported earnings and other closely followed financial measures.
In
making its compensation decisions, the Compensation Committee has considered the limitations on deductibility within the requirements of Internal Revenue Code Section 162(m)
and its related Treasury regulations. As a result, the Compensation Committee has designed much of the total compensation packages for the executive officers to qualify for the exemption of
"performance-based" compensation from the deductibility limit. However, the Compensation Committee does have the discretion to design and use compensation elements that may not be deductible within
the limitations under Section 162(m), if the Compensation Committee considers the tax consequences and determines that those elements are in our best interests. To maintain flexibility in
compensating executive officers in a manner designed to promote varying corporate goals, we have not adopted a policy that all compensation must be deductible.
Certain
payments to our named executive officers under our 2015 annual incentive plan may not qualify as performance-based compensation under Section 162(m) because the awards
were calculated and paid in a manner that may not meet the requirements under Section 162(m) and the related Treasury regulations. Given the rapid changes in our business and industry that have
occurred during recent years and those that may occur in 2016 and subsequent years, we believe that we are better
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served
in implementing a plan that provides for adjustments and discretionary elements for our senior executives' incentive compensation, rather than ensuring that we implement all of the requirements
and limitations under Section 162(m) into these incentive plans.
Likewise,
the impact of Section 409A of the Internal Revenue Code is taken into account, and our executive compensation plans and programs are, in general, designed to comply with
the requirements of that section so as to avoid possible adverse tax consequences that may result from non-compliance.
For
accounting purposes, we apply the guidance in ASC Topic 718 to record compensation expense for our equity-based compensation grants. ASC Topic 718 is used to develop the assumptions
necessary and the model appropriate to value the awards as well as the timing of the expense recognition over the requisite service period, generally the vesting period, of the award.
Executive
officers will generally recognize ordinary taxable income from stock option awards when a vested option is exercised. We generally receive a corresponding tax deduction for
compensation expense in the year of exercise. The amount included in the executive officer's wages and the amount we may deduct is equal to the Common Stock price when the stock options are exercised
less the exercise price, multiplied by the number of shares under the stock options exercised. We do not pay or reimburse any executive officer for any taxes due upon exercise of a stock option. We
have not historically issued any tax-qualified incentive stock options under Section 422 of the Internal Revenue Code.
Executives
will generally recognize taxable ordinary income with respect to their shares of restricted stock at the time the restrictions lapse (unless the recipient elects to accelerate
recognition as of the date of grant). Restricted stock unit awards are generally subject to ordinary income tax at the time of payment or issuance of unrestricted shares of stock. We are generally
entitled to a corresponding federal income tax deduction at the same time the executive recognizes ordinary income.