UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


SCHEDULE 14A


PROXY STATEMENT  PURSUANT TO  SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934 (Amendment No.  )

Filed by the Registrant  

Filed by a Party other than the Registrant  

Check the appropriate box:

 

 

 

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Under Rule 14a‑12

 

O’REILLY AUTOMOTIVE, INC.


(Name of Registrant as Specified In Its Charter)


(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

No fee required.

 

 

Fee computed on table below per Exchange Act Rules 14a‑6(i)(1) and 0‑11.

 

 

 

1.

Title of each class of securities to which transaction applies:

 

 

 

 

2.

Aggregate number of securities to which transaction applies:

 

 

 

 

3.

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

4.

Proposed maximum aggregate value of transactions:

 

 

 

 

5.

Total fee paid:

 

 

 

 

 

 

Fee paid previously with preliminary materials.

 

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0‑11(a)(2) and identify the filing for which the offsetting fee was paid previously.   Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

 

 

 

1.

Amount previously paid:

 

 

 

 

2.

Form, Schedule or Registration Statement No.:

 

 

 

 

3.

Filing Party:

 

 

 

 

4.

Date Filed:

 

 

 

 

 

 

PICTURE 1

March 27, 2020

 

Dear Shareholder:

 

You are cordially invited to attend the 2020 Annual Meeting of Shareholders of O’Reilly Automotive, Inc. to be held at the DoubleTree Hotel Springfield, 2431 North Glenstone Avenue, Springfield, Missouri 65803, on Thursday, May 14, 2020, at 10:00 a.m. Central Time.

 

Details of the business to be conducted at the Annual Meeting are given in the attached Notice of Annual Meeting of Shareholders and Proxy Statement.

 

In addition to the specific matters to be acted upon, there will be a report on the progress of the Company and an opportunity for questions of general interest to the shareholders.

 

It is important that your shares be represented at the meeting.   Whether or not you plan to attend in person, please complete, sign, date and return the enclosed proxy card in the envelope provided at your earliest convenience or vote via telephone or Internet using the instructions on the proxy card.   If you attend the meeting, you may vote your shares in person even if you have previously signed and returned your proxy.

 

We intend to hold our Annual Meeting in person.  However, we are actively monitoring the coronavirus (COVID-19); we are sensitive to the public health and travel concerns our shareholders may have and the protocols that federal, state and local governments may impose.  In the event it is not possible or advisable to hold our Annual Meeting in person, we will announce alternative arrangements for the meeting in a press release and a filing with the Securities and Exchange Commission as promptly as practicable, which may include holding the meeting solely by means of remote communication.  Please also monitor our website at www.OReillyAuto.com for updated information.  If you are planning to attend our meeting in person, please check the website one week prior to the meeting date for final details.   We encourage you to vote your shares prior to the Annual Meeting by completing, signing, dating and returning the enclosed proxy card in the envelope provided at your earliest convenience or voting via telephone or Internet using the instructions on the proxy card.

 

In order to assist us in preparing for the Annual Meeting, please let us know if you plan to attend by contacting Tricia Headley, our Corporate Secretary, at 233 South Patterson Avenue, Springfield, Missouri 65802, (417) 874‑7161.

 

We look forward to seeing you at the Annual Meeting.

 

 

David O’Reilly

Chairman of the Board

 

 

 

 

 

O’REILLY AUTOMOTIVE, INC.

233 South Patterson Avenue

Springfield, Missouri 65802


NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON MAY 14, 2020


 

What:Annual Meeting of Shareholders (“Annual Meeting”)

When:Thursday, May 14, 2020, 10:00 a.m. Central Time

Where:DoubleTree Hotel Springfield

2431 North Glenstone Avenue

Springfield, Missouri 65803

We intend to hold our Annual Meeting in person.  However, we are actively monitoring the coronavirus (COVID-19); we are sensitive to the public health and travel concerns our shareholders may have and the protocols that federal, state and local governments may impose.  In the event it is not possible or advisable to hold our Annual Meeting in person, we will announce alternative arrangements for the meeting in a press release and a filing with the Securities and Exchange Commission as promptly as practicable, which may include holding the meeting solely by means of remote communication.  Please also monitor our website at www.OReillyAuto.com for updated information.  If you are planning to attend our meeting in person, please check the website one week prior to the meeting date for final details.   We encourage you to vote your shares prior to the Annual Meeting by completing, signing, dating and returning the enclosed proxy card in the envelope provided at your earliest convenience or voting via telephone or Internet using the instructions on the proxy card.

 

Why:The Annual Meeting is being held for the following purposes:

·

to elect as Directors the nine nominees named in the attached proxy statement;

·

to conduct an advisory (non-binding) vote on executive compensation;

·

to ratify the appointment of Ernst & Young LLP, as independent auditors for the fiscal year ending December 31, 2020;

·

to approve a proposal to amend the Articles of Incorporation to reduce stock ownership required for shareholders to call a special meeting;

·

to approve a proposal to amend the Articles of Incorporation to delete unnecessary and outdated language related to classification of Board and to reflect other non-substantive revisions;

·

to consider and act upon two shareholder proposals, if properly presented at the Annual Meeting; and

·

to transact such other business, as may properly come before the meeting or any adjournments thereof.

 

The Board of Directors has fixed the close of business on March 16, 2020, as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof.   A list of all shareholders entitled to vote at the Annual Meeting, arranged in alphabetical order and showing the address of and number of shares held by each shareholder, will be available during usual business hours at the office of the Corporate Secretary, Tricia Headley, at 2831 South Ingram Mill Road, Springfield, Missouri 65804, to be examined by any shareholder for any purpose reasonably related to the Annual Meeting for ten days prior to the date thereof.   The list will also be available for examination throughout the course of the meeting.

 

Your vote is important to ensure a quorum at the meeting.   Even if you own only a few shares, and whether or not you expect to be present at the meeting, we request you mark, date, sign and mail the enclosed proxy card in the postage-paid envelope provided or vote your shares by telephone or Internet as directed on the enclosed proxy card.   Telephone and Internet voting for shareholders of record will be available 24 hours a day and will close on Wednesday, May 13, 2020, at 11:59 p.m. Eastern Time.

 

A copy of the Company’s Annual Shareholders’ Report for fiscal year 2019 accompanies this notice.

 

By Order of the Board of Directors,

Tricia Headley

Secretary 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

Page

 

 

Proxy Statement 

3

General Information about the Annual Meeting and Voting 

3

Security Ownership of Certain Beneficial Owners 

8

Security Ownership of Directors and Management 

9

Proposal 1 – Election of Directors 

11

Information Concerning the Board of Directors 

14

Compensation of Executive Officers 

21

Compensation Committee Report 

27

Executive Compensation Tables 

28

Audit Committee Report 

35

Proposal 2 – Advisory Vote on Executive Compensation 

36

Proposal 3 – Ratification of Selection of Independent Auditors 

37

Proposal 4 – Amendment to Articles of Incorporation to Reduce Stock Ownership Required for Shareholders to Call Special Meeting 

39

Proposal 5 – Amendment to Articles of Incorporation to Delete Unnecessary and Outdated Language Related to Classification of Board and to Reflect Other Non-Substantive Revisions 

40

Proposal 6 – Shareholder Proposal Relating to Material Human Capital Risks and Opportunities 

41

Proposal 7 – Shareholder Proposal Entitled “Independent Board Chairman” 

44

Equity Compensation Plans 

47

Annual Report 

47

Future Proposals of Shareholders 

47

Other Business 

47

Miscellaneous 

47

Communication with the Board of Directors 

47

Householding of Materials 

48

Additional Information 

48

Annex A 

A-1

Annex B 

B-1

 

 

 

2

O’REILLY AUTOMOTIVE, INC.

233 South Patterson Avenue

Springfield, Missouri 65802


 

PROXY STATEMENT

 

The enclosed proxy is solicited by the Board of Directors (the “Board”) of O’Reilly Automotive, Inc. (the “Company” or “O’Reilly”), for use at the Annual Meeting of Shareholders (“Annual Meeting”) to be held at the DoubleTree Hotel Springfield, 2431 North Glenstone Avenue, Springfield, Missouri 65803, on Thursday, May 14, 2020, at 10:00 a.m., Central Time, and at any adjournments thereof.   Whether or not you expect to attend the meeting in person, please return your executed proxy card in the enclosed postage-paid envelope or vote via telephone or Internet, using the instructions discussed below and on the proxy card, and the shares represented thereby will be voted in accordance with your instructions.  References to the Company’s website and the contents thereof do not constitute incorporation by reference of the information contained on the Company’s website, and such information is not part of this proxy statement.  The proxy statement and the accompanying proxy card is expected to first begin mailing to shareholders on or about March 27, 2020.

 

GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

 

What is the purpose of the Annual Meeting?

At the Annual Meeting, shareholders will act upon the matters described in the accompanying notice of meeting.  In addition, management will report on the Company’s performance during fiscal 2019 and respond to questions from shareholders.

 

When and where will the 2020 Annual Meeting be held?

The Annual Meeting will be held at the DoubleTree Hotel Springfield, 2431 North Glenstone Avenue, Springfield, Missouri 65803, on Thursday, May 14, 2020, at 10:00 a.m. Central Time.

 

We intend to hold our Annual Meeting in person.  However, we are actively monitoring the coronavirus (COVID-19); we are sensitive to the public health and travel concerns our shareholders may have and the protocols that federal, state and local governments may impose.  In the event it is not possible or advisable to hold our Annual Meeting in person, we will announce alternative arrangements for the meeting in a press release and a filing with the Securities and Exchange Commission as promptly as practicable, which may include holding the meeting solely by means of remote communication.  Please also monitor our website at www.OReillyAuto.com for updated information.  If you are planning to attend our meeting in person, please check the website one week prior to the meeting date for final details.   We encourage you to vote your shares prior to the Annual Meeting by completing, signing, dating and returning the enclosed proxy card in the envelope provided at your earliest convenience or voting via telephone or Internet using the instructions on the proxy card.

 

Who may vote?

Any shareholder of record, as of the record date, is entitled to receive this notice and vote their shares at the Annual Meeting.

 

What is a “shareholder of record”?

A shareholder of record is a shareholder whose ownership of the Company’s common stock is reflected directly on the books and records of the transfer agent, Computershare Trust Company, N.A. (“Computershare”).

 

What is the record date for the Annual Meeting?

The record date is March 16, 2020.   Shareholders of record at the close of business on March 16, 2020, will be entitled to vote at the Annual Meeting.  Each share of common stock will have one vote on each matter to be voted upon.

 

Which O’Reilly shares are included in the proxy card I received?

The proxy card you received covers the number of common shares to be voted in your account as of the record date.

 

What is the difference between holding shares as a registered shareholder and as a beneficial owner?

A registered shareholder owns shares that are registered directly in their name with the Company’s transfer agent, Computershare.   A beneficial owner owns shares held in a stock brokerage account or by a bank.

 

3

Why would I receive more than one proxy card?

You may receive more than one proxy card if you owned shares in more than one account.   You should vote the shares on each of your proxy cards.

 

What matters will be voted on at the Annual Meeting?

At the Annual Meeting, shareholders will be asked to vote on three proposals that were solicited by the Board (Proposals 1 through 5), as well as two  shareholder proposals (Proposal 6 and Proposal 7), if properly presented at the Annual Meeting:

1)

To elect as Directors the nine nominees named in this proxy statement;

2)

To conduct an advisory (non-binding) vote on executive compensation;

3)

To ratify the appointment of Ernst & Young LLP, as independent auditors for the fiscal year ending December 31, 2020;

4)

To  approve a proposal to amend the Articles of Incorporation to reduce stock ownership required for shareholders to call a  special meeting;

5)

To  approve a proposal to amend the Articles of Incorporation to delete unnecessary and outdated language related to classification of Board and to reflect other non-substantive revisions;

6)

A shareholder proposal relating to material human capital risks and opportunities, if properly presented; and

7)

A shareholder proposal entitled “Independent Board Chairman,” if properly presented.

 

May I vote with my proxy card in person at the Annual Meeting?

If you wish to vote your shares in person at the Annual Meeting, you may bring a signed proxy card with your choices specified by marking the appropriate boxes on the card.

 

We intend to hold our Annual Meeting in person.  However, we are actively monitoring the coronavirus (COVID-19); we are sensitive to the public health and travel concerns our shareholders may have and the protocols that federal, state and local governments may impose.  In the event it is not possible or advisable to hold our Annual Meeting in person, we will announce alternative arrangements for the meeting in a press release and a filing with the Securities and Exchange Commission as promptly as practicable, which may include holding the meeting solely by means of remote communication.  Please also monitor our website at www.OReillyAuto.com for updated information.  If you are planning to attend our meeting in person, please check the website one week prior to the meeting date for final details.   We encourage you to vote your shares prior to the Annual Meeting by completing, signing, dating and returning the enclosed proxy card in the envelope provided at your earliest convenience or voting via telephone or Internet using the instructions on the proxy card.

 

May I vote without attending the Annual Meeting?

If you do not plan to attend the Annual Meeting, you have three options to vote your shares:

1)

Via Mail:  You may vote by properly completing and signing the enclosed proxy card and returning the card in the enclosed, postage-paid envelope.   Please specify your choices on the proxy card by marking the appropriate boxes.   Shares will be voted in accordance with your written instructions; however, it is not necessary to mark any boxes if you wish to vote in accordance with the Board’s recommendations, outlined further below.   Mark, sign and date your proxy card and return it in the postage-paid envelope provided or send it to O’Reilly Automotive, Inc. Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

2)

Via the Internet:  You may vote on the Internet by visiting www.proxyvote.com.   Have your proxy card in hand when you access the website and follow the instructions to obtain your records and create an electronic voting instruction form.

3)

Via Telephone:  Using any touch-tone telephone, you may vote your shares by dialing toll-free:  1‑800‑690‑6903.   Have your proxy card in hand when calling and follow the instructions.

 

If you choose to vote on the Internet or by telephone, please note voting will close at 11:59 p.m. Eastern Time, on Wednesday, May 13, 2020.

 

If you do not attend the Annual Meeting, your shares cannot be voted unless a signed proxy card is returned, shares are voted using the Internet or the telephone, or other specific arrangements have been made to have your shares represented.   Whether or not you attend the meeting, the Board encourages you to vote your shares promptly.

 

May I change my vote after I submit my proxy?

You may change your vote after submitting a proxy card.  If, after sending in your proxy, you decide to vote in person or desire to revoke your proxy for any other reason, you may do so by notifying the Secretary of the Company in writing at the principal office at

4

any time prior to the voting of the proxy.   The Company’s principal executive office is located at 233 South Patterson Avenue, Springfield, Missouri 65802.

 

Are my votes confidential?

All shareholder meeting proxies, ballots and tabulations that identify the vote of a particular shareholder will be kept confidential, except as necessary to allow the inspectors of election to certify the voting results or to meet legal requirements.  Representatives of Broadridge Financial Solutions (“Broadridge”) will act as the inspector of election and will count the votes.

 

How will my vote be counted?

All votes will be tabulated by Broadridge.   All properly executed proxies received by the Board pursuant to this solicitation will be voted in accordance with the shareholder’s directions specified in the proxy card.  If no such directions have been specified by marking the appropriate squares in the signed and returned proxy card, the shares will be voted by the persons named in the enclosed proxy card as follows:

1)

FOR the election as Directors the nine nominees named in this proxy statement;

2)

FOR the approval, by an advisory (non-binding) vote of the 2019 compensation of the Company’s Named Executive Officers;

3)

FOR the ratification of the selection of Ernst & Young LLP, as the Company’s independent auditors for the fiscal year ending December 31, 2020;  

4)

FOR the proposed amendment to the Articles of Incorporation to reduce the stock ownership required for shareholders to call a special meeting;  

5)

FOR the proposed amendment to the Articles of Incorporation to delete unnecessary and outdated language related to classification of Board and to reflect other non-substantive revisions;

6)

AGAINST the shareholder proposal relating to material human capital risks and opportunities, if properly presented; and

7)

AGAINST the shareholder proposal entitled “Independent Board Chairman,” if properly presented.

 

The Board is not aware of any matter to be presented for action at the Annual Meeting other than the matters set forth herein.   The Company’s shareholders have no dissenter’s or appraisal rights in connection with any of the proposals described herein.

 

No nominee has indicated that he or she would be unable or unwilling to serve as a Director, if elected.   However, should any nominee become unable or unwilling to serve for any reason, it is intended that the persons named in the proxy will vote for the election of such other persons in their stead as may be designated by the Board.  The Board is not aware of any reason that might cause any nominee to be unavailable to serve as a Director.

 

How does the Board recommend I vote?

The Board recommends a vote “FOR” each of the nominees for Director named in this proxy statement.   The Board recommends a vote “FOR” the approval, by an advisory (non-binding) vote, of the 2019 compensation of the Company’s Named Executive Officers.  The Board recommends a vote “FOR” the ratification of the selection of Ernst & Young LLP, as the Company’s independent auditors for the year ending December 31, 2020.    The Board recommends a vote “FOR” the proposed amendment to the Articles of Incorporation to reduce the stock ownership required for shareholders to call a special meeting.  The Board recommends a vote “FOR” the proposed amendment to the Articles of Incorporation to delete unnecessary and outdated language related to classification of Board and to reflect other non-substantive revisions.    The Board recommends a vote “AGAINST” the shareholder proposal relating to material human capital risks and opportunities, if properly presented.    The Board recommends a vote “AGAINST” the shareholder proposal entitled “Independent Board Chairman,” if properly presented.    

 

What constitutes a quorum?

On March 16, 2020, there were 74,251,563 shares of common stock outstanding, which constitutes all of the outstanding shares of the Company’s voting capital stock.  A majority of the outstanding shares entitled to vote at the Annual Meeting, represented in person or by proxy, will constitute a quorum at the meeting.

 

5

What are the standards for determining whether an item has been approved?

 

 

 

 

 

 

 

 

 

 

  

Quorum

  

 

  

Effect of

  

Effect of Broker Non-

Item of Business

 

Required

 

Voting Approval Standard

 

Abstention (1)

 

Votes (2)

Proposal 1:  Election of Directors (3)

 

Yes

 

Affirmative vote of majority of shares present and entitled to vote (4)

 

Vote against

 

Counted for quorum purposes; no effect on voting

Proposal 2:  Advisory vote on Executive Compensation

 

Yes

 

Affirmative vote of majority of shares present and entitled to vote (4)

 

Vote against

 

Counted for quorum purposes; no effect on voting

Proposal 3:  Ratification of Selection of Independent Auditors

 

Yes

 

Affirmative vote of majority of shares present and entitled to vote (4)

 

Vote against

 

Not applicable

Proposal 4:  Amendment to the Articles of Incorporation to Reduce Stock Ownership Required for Shareholders to Call Special Meeting

 

Yes

 

Affirmative vote of majority of shares outstanding and entitled to vote (4)

 

Vote against

 

Vote against

Proposal 5:  Amendment to the Articles of Incorporation to Delete Unnecessary and Outdated Language Related to Classification of Board and to Reflect Other Non-Substantive Revisions

 

Yes

 

Affirmative vote of majority of shares outstanding and entitled to vote (4)

 

Vote against

 

Vote against

Proposal 6:  Shareholder proposal relating to Material Human Capital Risks and Opportunities

 

Yes

 

Affirmative vote of majority of shares present and entitled to vote (4)

 

Vote against

 

Counted for quorum purposes; no effect on voting

Proposal 7:  Shareholder proposal entitled “Independent Board Chairman”

 

Yes

 

Affirmative vote of majority of shares present and entitled to vote (4)

 

Vote against

 

Counted for quorum purposes; no effect on voting

(1)

Proxies marked “ABSTAIN” will be deemed to be represented at the Annual Meeting and considered in determining whether the requisite number of affirmative votes are cast on such matter.

(2)

A broker non-vote occurs when a broker has not received voting instructions from the beneficial owner of shares, and the broker does not have, or declines to exercise, discretionary authority to vote those shares.

(3)

Cumulative voting is not allowed for Election of Directors.

(4)

“Shares present and entitled to vote” includes shares represented in person or by proxy at the Annual Meeting.

 

Are the Notice, proxy statement and Annual Report available on the Internet?

The Notice, proxy statement and Annual Report are available at www.proxyvote.com.  The required control number can be found on your proxy card in the box next to the arrow.

 

Where may I find the voting results of the Annual Meeting?

The Board plans to announce the preliminary voting results at the Annual Meeting.   The Company plans to publish the final results in a Current Report on Form 8‑K to be filed with the Securities and Exchange Commission (the “SEC”) within four business days following the Annual Meeting, if final voting results are available at that time.   If the final voting results are not available within that time, the Company will report preliminary results in a Current Report on Form 8‑K within four business days following the Annual Meeting and will report final voting results in an amended Current Report on Form 8‑K when available.

 

Will a proxy solicitor be used?

No, the Company has not engaged a third party to assist in the solicitation of proxies for the Annual Meeting.

 

What are the deadlines for consideration of shareholder proposals or director nominations for the 2021 Annual Meeting of Shareholders?

Shareholder proposals intended to be presented at the 2021 Annual Meeting of Shareholders and included in the Company’s proxy materials relating to that meeting pursuant to Rule 14a‑8 under the Exchange Act must be received by the Company at the Company’s principal executive offices by November 27, 2020.    The Company’s Amended and Restated Bylaws (the “Bylaws”) require that shareholder proposals made outside of Rule 14a‑8 be submitted not later than February 13, 2021, and not earlier than January 14, 2021.

 

6

What are the deadlines for submitting director nominations for inclusion in the Company’s proxy materials?

Under the Bylaws, a shareholder (or a group of up to 20 shareholders) owning three percent or more of the Company’s outstanding shares of common stock continuously for at least three years may nominate and include in the Company’s proxy materials candidates for up to 20% of the Board (rounded down, but not less than two).   Nominations must comply with the requirements and conditions of the Bylaws, including the delivery of proper notice to the Secretary of the Company at the Company’s address appearing on the first page of this proxy statement not later than November 27, 2020, and not earlier than October 28, 2020.

 

7

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

The following table summarizes information as of December 31, 2019, with respect to each person or other entity (other than management) known to the Company to be the beneficial owner of more than five percent (5%) of its outstanding shares of common stock.

 

 

 

 

 

 

 

 

 

 

    

Name and Address of Beneficial

    

Amount and Nature of

 

Percent of

Class of Stock

 

Owner

 

Beneficial Ownership

 

Class

Common Stock

 

BlackRock, Inc.
55 East 52nd Street
New York, New York 10055

 

5,908,522

(1)

 

7.8

%

Common Stock

 

The Vanguard Group
100 Vanguard Boulevard
Malvern, Pennsylvania 19355

 

5,828,499

(2)

 

7.7

%

(1)

As reflected on such beneficial owners Schedule 13G/A dated February 5, 2020, provided to the Company in accordance with the Exchange Act.  Of the 5,908,522 shares reported, BlackRock, Inc. claimed sole voting power over 5,232,066 shares, shared voting power over no shares, sole dispositive power over 5,908,522 shares and shared dispositive power over no shares.

(2)

As reflected on such beneficial owner’s Schedule 13G/A dated February 10, 2020, provided to the Company in accordance with the Exchange Act.  Of the 5,828,499 shares reported, The Vanguard Group claimed sole voting power over 117,452 shares, shared voting power over 25,523 shares, sole dispositive power over 5,692,959 shares and shared dispositive power over 135,540 shares.

 

 

8

SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT

 

The following table summarizes, as of March 16, 2020, the beneficial ownership of the Company’s outstanding shares of common stock for each current Director and Director nominee of the Board, each of the Company’s current Named Executive Officers and all Directors and executive officers as a group.   Unless otherwise indicated, the Company believes that the beneficial owners set forth in the following table have sole voting and dispositive power.

 

 

 

 

 

 

 

 

 

 

 

 

    

Direct

    

Indirect

    

Current Exercisable

    

Total

    

Percent of

Name

 

Ownership

 

Ownership

 

Options (a)

 

Ownership (a)

 

Class

David O’Reilly (b)

 

131,754

 

477,161

 

 —

 

608,915

 

*

Larry O’Reilly (c)

 

133,588

 

175,662

 

 —

 

309,250

 

*

Rosalie O’Reilly Wooten (d)

 

18,480

 

185,222

 

 —

 

203,702

 

*

Greg Henslee (e)

 

32,813

 

4,997

 

152,673

 

190,483

 

*

Jay D. Burchfield (f)

 

16,962

 

 —

 

 —

 

16,962

 

*

Thomas T. Hendrickson (f)

 

1,429

 

 —

 

 —

 

1,429

 

*

John R. Murphy (f)

 

2,245

 

 —

 

 —

 

2,245

 

*

Dana M. Perlman (g)

 

1,210

 

 —

 

 —

 

1,210

 

*

Maria A. Sastre

 

 —

 

 —

 

 —

 

 —

 

*

Andrea M. Weiss (h)

 

381

 

 —

 

 —

 

381

 

*

Gregory D. Johnson (i)

 

4,317

 

961

 

43,688

 

48,966

 

*

Jeff M. Shaw (j)

 

23,587

 

5,620

 

47,648

 

76,855

 

*

Tom McFall (k)

 

5,646

 

420

 

85,038

 

91,104

 

*

All Directors and executive officers as a group (25 persons)

 

386,520

 

859,388

 

571,682

 

1,817,590

 

2.43%

*denotes less than 1.0%

(a)

With respect to each person, assumes the exercise of all stock options held by such person that were exercisable within 60 days of March 16, 2020.

(b)

The stated number of directly owned shares includes 2,029 restricted shares awarded under the Company’s long-term incentive compensation plans.   The stated number of indirectly owned shares includes 2,830 shares owned by Mr. O’Reilly’s spouse, 466,671 shares controlled by Mr. O’Reilly as trustee of a trust for the benefit of his children and 7,660 shares held in the O’Reilly Employee Savings Plan with T. Rowe Price Investment Services, Inc. (“T. Rowe Price”) as trustee.

(c)

The stated number of indirectly owned shares includes 139,321 shares controlled by Mr. O’Reilly as trustee of a trust for the benefit of his child, 14,321 shares held in a Grantor Retained Annuity Trust (“GRAT”) and 22,020 shares controlled by Mr. O’Reilly in a family registered partnership.

(d)

The stated number of indirectly owned shares is held in a GRAT.

(e)

The stated number of directly owned shares includes 1,815 restricted shares awarded under the Company’s long-term incentive compensation plans and 1,186 shares held in the O’Reilly Employee Stock Purchase Plan.   The stated number of indirectly owned shares includes owned shares held in the O’Reilly Employee Savings Plan with T. Rowe Price as trustee.

(f)

The stated number of directly owned shares includes 895 restricted shares awarded under the Company’s  long-term incentive compensation plans.

(g)

The stated number of directly owned shares includes 933 restricted shares awarded under the Company’s  long-term incentive compensation plans.

(h)

The stated number of directly owned shares includes 381 restricted shares awarded under the Company’s long-term incentive compensation plans.

(i)

The stated number of directly owned shares includes 2,204 shares held in the O’Reilly Employee Stock Purchase Plan.  The stated number of indirectly owned shares is held in the O’Reilly Employee Savings Plan with T. Rowe Price as trustee.

(j)

The stated number of directly owned shares includes 3,373 shares held in the O’Reilly Employee Stock Purchase Plan.   The stated number of indirectly owned shares is held in the O’Reilly Employee Savings Plan with T. Rowe Price as trustee.

(k)

The stated number of directly owned shares includes 3,559 shares held in the O’Reilly Employee Stock Purchase Plan.  The stated number of indirectly owned shares is held in the O’Reilly Employee Savings Plan with T. Rowe Price as trustee.

 

Officer and Director Stock Ownership Guidelines

 

The Board adopted stock ownership requirements for the Company’s independent Directors, executive officers and executive and senior vice presidents to further align their interests with those of the Company’s shareholders.   The Compensation Committee reviews the stock ownership guidelines and reviews progress toward meeting ownership requirements quarterly.   The Compensation Committee has discretion to waive these guidelines; however, it has never done so.

 

The Company’s independent Directors are required to own shares of the Company’s common stock valued at a minimum of $150,000 within five years of the date they first become a Director.   For purposes of the guidelines, common stock ownership includes shares owned by the Director, directly or indirectly, and vested stock options granted to the Director, but excludes unvested restricted share awards.   As of December 31, 2019, the total stockholdings of each of the independent directors, who has been serving as a Director for at least five years, satisfied their respective stock ownership requirement.

9

 

The Company’s executive officers and executive and senior vice presidents are required to own shares of the Company’s common stock valued at the minimum of a specified multiple of their base salary within five years of first assuming their respective positions.   For purposes of the guidelines, common stock ownership includes shares owned by the officer directly, shares held by the officer in the Company’s Employee Stock Purchase Plan, shares held by the officer in the Company’s Profit Sharing and Savings Plan and the tax affected intrinsic value of the officer’s vested stock options granted under the Company’s incentive plans.  Individuals who do not achieve the required level of ownership within the prescribed period of time may, at the discretion of the Compensation Committee, be required to hold 50% of net after-tax shares issued upon the exercise of any of their stock options and may not be allowed to sell any other shares of the Company that they may own.   The stock ownership requirement does not apply after the executive officer or executive or senior vice president reaches age 62.   The Compensation Committee may waive these guidelines at its discretion; however, it has never done so.    As of December 31, 2019,  each of the Company’s executive officers and executive and senior vice presidents, who had been in their positions for at least five years, satisfied the stock ownership requirement applicable to each of them.

 

The following table identifies the executive officers’ and executive and senior vice presidents’ ownership requirement as of December 31, 2019:

 

 

 

Position

    

Minimum Ownership Requirement Multiple of Salary

Chief Executive Officer

 

5x

Chief Operating Officer

 

3x

Chief Financial Officer

 

3x

Executive Vice Presidents

 

3x

Senior Vice Presidents

 

2x

 

 

 

 

10

PROPOSAL 1 - ELECTION OF DIRECTORS

 

Information about the Director Nominees

 

The Company’s Bylaws and Amended and Restated Articles of Incorporation provide for the annual election of Directors.   The Board has nominated David O’Reilly,  Larry O’Reilly, Greg Henslee,  Jay D. Burchfield,  Thomas T. Hendrickson,  John R. Murphy,  Dana M. Perlman, Maria A. Sastre and Andrea M. Weiss as Directors for a one-year term expiring at the Company’s  2021 Annual Meeting of Shareholders.

 

The following identifies (i) the business experience and principal occupation for at least the last five years of each of the nominees; (ii) his or her present positions and offices with the Company, if applicable; (iii) the year in which he or she was first elected or appointed a Director (each serving continuously since first elected or appointed, unless otherwise stated); (iv) his or her age; (v) his or her directorships for at least the last five years in any company with a class of securities registered pursuant to Section 12 or subject to the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, or in any company registered as an investment company under the Investment Company Act of 1940 (as specifically noted), as applicable; and (vi) the qualifications and skills, which the Director possesses, that qualify him or her for service on the Company’s Board.

 

Each of the below nominees’ current term expires in 2020.

 

David O’Reilly, age 70,  Affiliated Director and Chairman of the Board, has been a director since 1972.

Experience:  Mr. O’Reilly has served as Chairman of the Board since February of 2005.   Mr. O’Reilly served as Co-Chairman of the Board from August 1999 to February 2005; Chief Executive Officer from March 1993 to February 2005; President of the Company from March 1993 to August 1999; and Vice President of the Company from 1975 to March 1993.

Qualifications and Skills:  Mr. O’Reilly is being re-nominated as a Director because, among his other qualifications, he possesses over 45 years of experience and expertise in the Company’s operations and strategic business development and has held leadership roles in numerous aftermarket industry organizations and associations, as well as having served on several bank boards and charitable organization boards.

 

Larry O’Reilly, age 73,  Affiliated Director and Vice Chairman of the Board, has been a director since 1969.

Experience:  Mr. O’Reilly has served as Vice-Chairman of the Board since February of 2005.   Mr. O’Reilly served as Co-Chairman of the Board from August 1999 to February 2005; Chief Operating Officer from March 1993 to February 2003; President from March 1993 to August 1999; and Vice President from 1975 to March 1993.   Mr. O’Reilly retired from active Company management in February of 2003.   Mr. O’Reilly currently serves as Chairman and Director of Mercy Hospital Springfield since January 2000; Board Member of the Missouri Sports Hall of Fame since January 2003; and Trustee of the Lance Armstrong Endowment Board since December 2005.

Qualifications and Skills:  Mr. O’Reilly is being re-nominated as a Director because, among his other qualifications, he possesses over 50 years of experience and expertise in the Company’s operations, in the automotive aftermarket industry and strategic business development.

 

Greg Henslee, age 59,  Affiliated Director and Executive Vice Chairman of the Board, has been a director since 2017.

Experience:  Mr. Henslee has served as a member of the Board since November 2017 and Executive Vice Chairman of the Board since May 2018.  Mr. Henslee served as Chief Executive Officer from February 2005 until May 2018.  Mr. Henslee served O’Reilly as President from December 2012 to February 2017; Co-President from 1999 to 2012; Senior Vice President of Information Systems, Inventory Control, Customer Service, Computer Operations, Pricing and Loss Prevention from 1998 to 1999; Vice President of Store Operations from 1995 to 1998; and Director of Computer Operations and Loss Prevention from 1993 to 1995.

Qualifications and Skills:  Mr. Henslee is being nominated as a Director because, among his other qualifications, he possesses over 35 years of experience in the automotive aftermarket industry and 35 years of experience and expertise in the Company’s operations, strategic planning and leadership development, as well as holds leadership positions on various automotive aftermarket organizations and associations.

 

Jay D. Burchfield, age 74,  Independent Director of the Board, has been a director since 1997.

Experience:  Mr. Burchfield serves as a Director, Chairman of the Compensation Committee, and Member of the Audit, Executive and Nominating and Wealth Committees of Simmons First National Corporation since May 2015; Chairman of the Board and Director of Trust Company of the Ozarks from April 1998 until his retirement in October 2015; Senior Principal of

11

SilverTree Companies, a real estate company, since January 2010.   Mr. Burchfield’s career has spanned more than 40 years in the banking and financial services industry.

Qualifications and Skills:  Mr. Burchfield is being re-nominated as a Director because, among his other qualifications, he possesses experience and expertise in the banking industry, strategic business development, executive compensation and leadership development.

 

Thomas T. Hendrickson, age 65,  Independent Director of the Board, has been a director since 2010.

Experience:  Mr. Hendrickson serves as a Director and Audit Committee Chairperson for Ollie’s Bargain Outlet Holdings, Inc. since 2015; Chief Administrative Officer, Chief Financial Officer and Treasurer for The Sports Authority, Inc., the parent of retailer “Sports Authority,” from 2003 until his retirement in February of 2014; Executive Vice President and Chief Financial Officer, and Treasurer of Gart Sports Company, from 1998 until its merger with Sports Authority in 2003; Vice President of Finance, Senior Vice President, and Executive Vice President and Chief Financial Officer of Sportmart, Inc., from 1993 to 1997; and Divisional Vice President and Controller of Miller’s Outpost Stores, a retailer specializing in apparel to young consumers, from 1987 to 1993. Mr. Hendrickson is a Certified Public Accountant and has over 32 years of retail business experience.

Qualifications and Skills:  Mr. Hendrickson is being re-nominated as a Director because, among his other qualifications, he possesses experience and expertise in the retail industry and the areas of risk assessment, accounting and finance, including experience as a chief financial officer.

 

John R. Murphy, age 69,  Independent Director of the Board, has been a director since 2003.

Experience:  Mr. Murphy serves as a director and the Audit Committee Chairman of Apria Healthcare since 2019.  Mr. Murphy also serves as a director and the Audit Committee Chairman of Summit Materials, Inc. (“Summit”) since 2012, he is also a member of the Governance and Nominating Committee.   In 2013, Mr. Murphy served as Summit’s Interim Chief Financial Officer.  In addition, Mr. Murphy serves as a director and the Audit Committee Chairman of Alight Solutions since 2019.   In 2012, Mr. Murphy was named a director and Audit Committee Chairman of DJO Global, Inc., he served in that capacity until 2019.   In 2011, Mr. Murphy served as a director, Audit Committee and Special Committee member of Graham Packaging, Inc. until September of that year.  Mr. Murphy served as Senior Vice President and Chief Financial Officer of Smurfit-Stone Container Corporation (“Smurfit-Stone”) from 2009 to 2010, where he led the financial restructuring of Smurfit-Stone during its Chapter 11 reorganization.   Mr. Murphy was President and Chief Executive Officer of Accuride Corporation, Inc. (“Accuride”) and a member of its board of directors until October 2008.   Mr. Murphy served as Accuride’s President and Chief Operating Officer from January 2007 to October 2007.   Accuride filed Chapter 11 bankruptcy in October 2009 and emerged in 2010.   He served as President and Chief Financial Officer from February 2006 to December 2006 and as Executive Vice President and Chief Financial Officer from March 1998 to January 2006.   Mr. Murphy holds a Bachelor of Science in Accounting from Pennsylvania State University and a Master of Business Administration from the University of Colorado and is a Certified Public Accountant.

Qualifications and Skills:  Mr. Murphy is being re-nominated as a Director because, among his other qualifications, he possesses experience and expertise in the automotive aftermarket industry, in the accounting and finance areas, including experience as a chief financial officer, and he possesses experience in restructuring and mergers and acquisitions.

 

Dana M. Perlman, age 39,  Independent Director of the Board, has been a director since 2017.

Experience:  Ms. Perlman serves as Senior Vice President, Treasurer, Business Development and Investor Relations of PVH Corp. (“PVH”) since 2011, where she oversees the management of accounts receivable, treasury and capital markets, corporate communications, investor relations and crisis communications.   Ms. Perlman is also responsible for business development at PVH, where she assists in corporate strategy, acquisitions and strategic projects.   Prior to joining PVH, Ms. Perlman served as Director of Retail Investment Banking at Barclays Capital.  Prior to her role at Barclays Capital, Ms. Perlman held positions with Lehman Brothers and Credit Suisse First Boston.   Ms. Perlman earned a Bachelor’s Degree in Business Administration from The University of Michigan Ross School of Business.

Qualifications and Skills:  Ms. Perlman is being re-nominated as a director because, among her other qualifications, she possesses over 15 years of experience and expertise in the global retail industry and the areas of finance, investment banking, business development, acquisitions, risk management, corporate and employer branding and investor communications.

 

Andrea M. Weiss, age 65,  Independent Director of the Board, has been a director since 2019.

Experience:    Ms. Weiss is the founder of and serves as President and Chief Executive Officer of Retail Consulting, Inc. since 2002.   Ms. Weiss is also the founder of The O Alliance, LLC, a global consulting practice focused on retail, e-commerce and consumer companies.   Prior to founding Retail Consulting, Inc.,  Ms. Weiss was President of dELiA*s, Inc., President of Guess?, Inc., Executive Vice President, Chief Stores Officer of L Brands, Inc., Senior Vice President of Ann Inc., and Director

12

of Merchandising of The Walt Disney Company.   Ms. Weiss is also a board member for Cracker Barrel Old Country Store, Inc. since 2003, RPT Realty since 2018 and Bed Bath & Beyond Inc. since 2019.  Ms. Weiss currently serves on several private advisory boards as well.   Ms. Weiss served on the board of directors of GSI Commerce from 2006 to 2011, Chico’s FAS, Inc. from 2009 to 2018, The Pepboys - Manny, Moe & Jack from 2013 to 2016 and Nutrisystem, Inc. from 2013 to 2019.   Ms. Weiss holds a Masters of Administrative Science from The Johns Hopkins University and a Bachelor of Fine Arts from Virginia Commonwealth University.  Ms. Weiss also completed post-graduate studies at Harvard Business School and The Kellogg School at Northwestern University.

Qualifications and Skills:    Ms. Weiss is being re-nominated as a director because, among her other qualifications, she possesses over 30 years of experience in the retail industry and the areas of marketing, consumer branding, proprietary brand development, consumer behavior, global retail and e-commerce operations and board governance.

 

The below director nominee is not currently serving as a director and was nominated for election by the Board in January of 2020:

 

Maria A. Sastre, age 64,  Independent Director Nominee.

Experience:    Ms. Sastre served as President and Chief Operating Officer of Signature Flight Support Corporation (“Signature”), the world’s largest network of fixed-based operations and support services for business, government and private aviation, from 2013 until her retirement in 2018. Ms. Sastre joined Signature in 2010 as its Chief Operating Officer.  Prior to joining Signature, Ms. Sastre was President and Chief Executive Officer of Take Stock in Children, Inc. from 2009 to 2010, a senior executive with Royal Caribbean Cruises LTD from 2000 to 2008, where she held the positions of Vice President, International, Asia, Latin America & Caribbean and Vice President of Hotel Operations, and, prior to 2000, she held numerous domestic and international executive and leadership positions with United Airlines, Inc., Continental Airlines, Inc. and Eastern Airlines, Inc.  Ms. Sastre is also a board member of General Mills, Inc. since 2018.  Ms. Sastre currently serves on several private and non-profit boards as well, including Guidewell Mutual Holding Corporation since 2016, where she serves as Chair of the Talent & Compensation Committee, and Miramar Services Corporation since 2019.  Ms. Sastre served on the board of directors of Darden Restaurants, Inc. from 1998 to 2014, where she also served as Chair of the Finance Committee for part of her tenure, and Laidlaw International, Inc. from 2003 to 2007.  Ms. Sastre holds a Bachelors of Arts in management and Masters of Business Administration from New York Institute of Technology, as well as an Associate degree in accounting from Miami Dade College.  Ms. Sastre also received an Honorary Doctorate Degree in business administration from Johnson & Wales University.

Qualifications and Skills:    Ms. Sastre is being nominated as a director because, among her other qualifications, she possesses experience in global operations, marketing, mergers and acquisitions and e-commerce and over 20 years of public company board experience, including audit, finance, corporate governance and compensation committees.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE ELECTED NOMINEES.

 

 

Current Board member, Rosalie O’Reilly Wooten,  has not been nominated for re-election, as she is expected to retire from the Board in May 2020 (at the end of the 2019 director term), consistent with the Board’s mandatory retirement age policy.

 

13

INFORMATION CONCERNING THE BOARD OF DIRECTORS

 

Director Independence

 

Rules of the Nasdaq Stock Market (the “Nasdaq”) require that a majority of the Board be “independent.”  Under the Nasdaq rules, a director or director nominee is independent if he or she is not an officer or employee of the Company and does not have any relationship with the Company which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.   The Board has reviewed the independence of its Directors and director nominee under the Nasdaq rules.   During this review, the Board considered transactions and relationships between each Director or any member of his or her family and the Company during 2019.   Please see discussions in “Affiliated Relationships” and “Certain Relationships and Related Transactions” sections for further descriptions, by specific category and type, of the transactions and relationships reviewed.  Consistent with these considerations, the Board has determined that Messrs. Burchfield, Hendrickson, and Murphy, and Mss. Perlman and Weiss (“independent Directors”), as well as Ms. Sastre, director nominee, are independent under the Nasdaq rules.

 

Affiliated Relationships

 

David O’Reilly, Larry O’Reilly and Rosalie O’Reilly Wooten, Directors of the Board, are siblings.  David O’Reilly also serves as Chairman of the Board of the Company.

 

Leadership Structure

 

The Company’s leadership structure, within its Board, consists of a Chairman of the Board, two Vice Chairmen of the Board, an Independent Lead Director, an Audit Committee, a Corporate Governance/Nominating Committee and a Compensation Committee.   The Independent Lead Director also serves on the Audit Committee and the Compensation Committee.  All Committee members satisfy the independence requirements under the Nasdaq rules.   The Company’s Bylaws permit the positions of Chairman of the Board and Chief Executive Officer to be held by the same person; however, the Board believes these roles and their attendant responsibilities should be separate and fulfilled by two separate individuals.   The Company believes having separate roles allows its Board to effectively provide guidance to and oversight of its management.   As a result, David O’Reilly serves in the role of Chairman of the Board and Gregory D. Johnson serves in the role of Chief Executive Officer

 

Independent Lead Director

 

From time to time, in the interest of sound corporate governance, the Board may appoint an Independent Lead Director.   The Board believes that the designation of an Independent Lead Director improves the functionality of the Board and its Committees and aids in the fiduciary obligations each Director has to the Company and its shareholders.   In May of 2018, the Corporate Governance/Nominating Committee nominated, and the Board approved, Jay D. Burchfield to serve as Independent Lead Director.   Mr. Burchfield has served as Independent Lead Director since that time.

 

The responsibilities of the Independent Lead Director include, but are not limited to, the following:

·

Serves as a liaison among other Directors, with the Company’s management, between Board committees and the Board;

·

Presides at Board meetings in the absence of the Chairman of the Board, or at the request of the Chairman of the Board;

·

Ensures Board leadership in the absence or incapacitation of the Chairman of the Board;

·

Chairs executive sessions involving only the independent Directors, develops the agenda for executive sessions to ensure that independent Directors have adequate opportunities for these meetings to be held and adequate time to discuss issues and communicates with the Company’s management, as appropriate, the results of the executive sessions;

·

Consults with the Chairman of the Board as to the appropriate schedules and agendas of Board meetings to ensure there is sufficient time available for serious discussion of appropriate topics proposed by the independent Directors;

·

Advises the Chairman of the Board on the conduct of Board meetings to facilitate teamwork and communication among independent and non-independent Directors;

·

Together with the Chairman of the Board, collaborates with the Company’s management to determine the information and materials provided to the Directors, so that the independent Directors have adequate resources, especially by way of full, timely and relevant information, to support their decision-making responsibilities;

·

Entitled to request materials from and receive notice of, and attend, all meetings of Board committees;

·

Collaborates with the Chairman of the Board and Corporate Governance/Nominating Committee on Board succession planning;

·

Is available to advise committee chairpersons in fulfilling their designated roles and responsibilities to the Board;

14

·

Acts as the focal point on the Board concerning issues such as corporate governance and suggestions from independent Directors and monitors and coordinates with the Company’s management on corporate governance issues and developments;

·

Collaborates with the Corporate Governance/Nominating Committee to ensure a succession plan is in place for the Company’s Chief Executive Officer;

·

Collaborates with the Board to guide the Company’s management on strategic issues and long-term planning;

·

Consults with the Chairman of the Board on such matters as are pertinent to the Board and the Company;

·

Is available for direct communication and consultation with shareholders, upon request through Board approved procedures; and

·

Performs such other duties as the Board or Chairman of the Board may delegate, from time to time.

 

Meeting Attendance

 

During 2019,  four regularly scheduled meetings of the Board were held.   During such year, each current Director attended 100% of the total number of meetings of the Board during his or her term of service.   During 2019, each independent Director attended 100% of the total number of meetings held by all committees of the Board for which he or she served, with the exception of Mr. Murphy who attended 96% and Ms. Weiss who attended 85% of the total number of meetings held by all committees of the Board for which each served.

 

Time is allotted at each Board meeting for an executive session involving only the independent Directors.   The Company’s independent Directors held four closed-session meetings during 2019, and each current independent director attended all meetings during his or her term of service.

 

The Company encourages, but does not require, the members of its Board to attend the Annual Meeting.   Each director then serving on the Board attended the Company’s  2019 Annual Meeting.

 

Committees of the Board

 

The Board has three standing committees, the Audit Committee, the Compensation Committee and the Corporate Governance/Nominating Committee.  Each committee is governed by a written charter and is comprised solely of independent Directors in accordance with the Nasdaq Listing Qualifications.   Charters for each committee are available on the Company’s website at www.OReillyAuto.com and can be obtained free of charge by written request to the attention of the Secretary at the Company’s address appearing on the first page of this proxy statement or by telephone at (417) 874‑7161.

 

Because David O’Reilly,  Larry O’Reilly, Rosalie O’Reilly Wooten and Greg Henslee do not qualify as independent Directors, they do not participate on any committees of the Board.

 

Audit Committee

Number of Members:Five

Members:Thomas T. Hendrickson (Chairperson), Jay D. Burchfield,  John R. Murphy,  Dana M. Perlman and Andrea M. Weiss

Number of Meetings during 2019:Eight

Purpose and Functions:

The purpose of the Audit Committee is to 

(i)

review reports of the Company’s financial results, audits and internal controls and communicate the results of those evaluations to management; 

(ii)

review the Company’s financial policies and procedures and direct changes as appropriate;

(iii)

direct and oversee the performance of the Company’s internal audit function;

(iv)

recommend the engagement of the Company’s independent auditors;

(v)

confer with the independent auditors regarding the adequacy of the Company’s financial controls and fiscal policy in accordance with generally accepted auditing standards; and

(vi)

review the independent auditor’s procedures for ensuring its independence with respect to the services performed for the Company.

 

15

The Board has determined that each member of the Audit Committee is “independent” pursuant to the Nasdaq rules, as well as the independence requirements for audit committee members under Rule 10A‑3 promulgated under the Exchange Act.   In addition, the Board has determined that Mr. Hendrickson, Chairperson of the Audit Committee, is qualified as an audit committee financial expert, as that term is defined in the rules of the SEC.   The Company’s Audit Committee Charter may be viewed on its website at www.OReillyAuto.com.

 

Compensation Committee

Number of Members:Three

Members:John R. Murphy (Chairperson), Jay D. Burchfield and Thomas T. Hendrickson

Number of Meetings during 2019:Four

Purpose and Functions:

The purpose of the Compensation Committee is to

(i)

act on behalf of the Board with respect to the establishment and administration of the policies governing the annual compensation of the Company’s executive officers; 

(ii)

define and articulate the Company’s overall executive compensation philosophy and to administer and approve all elements of compensation for the Company’s executive officers and senior management; 

(iii)

review and approve the corporate goals and objectives relevant to the Chairman of the Board and CEO’s compensation;

(iv)

evaluate the Chairman of the Board and CEO’s performance based on those goals and objectives;

(v)

work with, and receive recommendations from, the Company’s Human Resources Department regarding the Company’s executive officers total compensation; and

(vi)

oversee the awards and related actions under the Company’s various equity plans.

 

Because the Company’s executive leadership is of critical importance to the Company’s success, the succession planning process is led by the Compensation Committee.   This committee reviews the Company’s succession planning practices and procedures and makes recommendations to the Board concerning succession developments, while ensuring the appropriate succession plans are in place for key executive positions.

 

The Committee has the authority to retain consultants and advisors, as it may deem appropriate in its discretion.   The Committee has, from time to time, historically utilized third party compensation survey data and/or outside consultant advisors in order to achieve its goal of attracting and retaining executive officers who contribute to the long-term success of the Company.   During 2019, the Company did not engage an outside consultant advisor for compensation advisory services.   The Company’s Compensation Committee Charter may be viewed on its website at www.OReillyAuto.com.

 

Corporate Governance/Nominating Committee

Number of Members:Three

Members:Dana M. Perlman (Chairperson), John R. Murphy and Andrea M. Weiss

Number of Meetings during 2019:Four

Purpose and Functions:

The purpose of the Corporate Governance/Nominating Committee is to

(i)

establish criteria for the selection of Directors, identify any additional skills sets or attributes necessary to fill gaps on the current Board and to recommend to the Board the nominees for Director in connection with the Company’s Annual Meeting of the shareholders;

(ii)

take a leadership role in shaping the Company’s corporate governance policies and to issue and implement the Corporate Governance Principles of the Company;

(iii)

develop and coordinate annual evaluations of the Board, its committees and its members;

(iv)

advise the Board regarding long-term Board succession;

(v)

adhere to all legal standards required by the SEC and Nasdaq; and

(vi)

review and assess the Company’s environmental, sustainability, social and governance policies, goals and programs, and make recommendations to management based on their review and assessment.

 

16

The Company’s Corporate Governance Principles may be viewed along with the Corporate Governance/Nominating Committee Charter on its website at www.OReillyAuto.com.

 

The Corporate Governance/Nominating Committee does not have a written policy on the consideration of Director Candidates recommended by shareholders.   It is the view of the Board that all candidates, whether recommended by a shareholder or the Corporate Governance/Nominating Committee, shall be evaluated based on the same established criteria for persons to be nominated for election to the Board and its committees.   The established criteria for persons to be nominated for election to the Board and its committees, taking into account the composition of the Board as a whole, at a minimum, includes

·

a candidate’s qualification as “independent” under the federal securities laws and the rules and regulations of the SEC and Nasdaq applicable to the Board and each of its committees;

·

depth, breadth and diversity of experience within the Company’s industry and otherwise;

·

commitments outside of the Board and the ability to devote adequate time to Board and committee matters;

·

special areas of expertise;

·

accounting and financial knowledge;

·

willingness to apply sound and independent business judgment;

·

leadership ability;

·

experience in developing and assessing business strategies;

·

corporate governance expertise;

·

risk management skills; and

·

for incumbent members of the Board, the past performance of the incumbent director.

 

The Corporate Governance/Nominating Committee regularly engages and considers director succession for the members of its Board, committees and committee chairs to ensure a mix of knowledge and abilities, expertise and tenure that promote and support the Company’s long-term success, while giving consideration to evolving skills, perspective and experience needed on the Board to perform its corporate governance role.  In addition, when the Corporate Governance/Nominating Committee seeks a new candidate for directorship, it seeks qualifications from the individual that satisfy the established criteria for a person to be nominated and a candidate that will complement the attributes and perspective of the other members of the Board.   As the Company’s strategic priorities and the composition of the Board evolve, the priorities and emphasis of qualifications the Corporate Governance/Nominating Committee is seeking in a candidate will change from time to time.  Individuals identified by the Corporate Governance/Nominating Committee as qualified to become directors are then recommended to the Board for nomination, and the Board determines the nominees for election after considering the recommendation and report of the Corporate Governance/Nomination Committee.

 

Finding qualified candidates interested in serving as director is of the highest level of importance to the Corporate Governance/Nominating Committee.   As such, the Corporate Governance/Nominating Committee may use any and all appropriate methods at its disposal for identifying candidates for election.   The Corporate Governance/Nominating Committee’s methods for identifying candidates for election to the Company’s Board include the solicitation of possible candidates from a number of sources, including engaging with outside search firms, from members of its Board, its executives, individuals personally known to the members of its Board and other research.  Shareholders wishing to recommend a candidate for nomination as a director are requested to send the recommendation in writing to O’Reilly Automotive, Inc. Corporate Governance/Nomination Committee, attention to Tricia Headley, at 233 South Patterson Avenue, Springfield, Missouri 65802.   The Board believes it is best qualified to evaluate candidates based on its knowledge of the Company’s business structure, and the Corporate Governance/Nominating Committee may retain one or more third-party search firms to identify suitable candidates.   The Corporate Governance/Nominating Committee retained The Stewart Group, Inc. to assist with the search for a suitable candidate to fill the vacancy due to Mrs. Rosalie O’Reilly Wooten’s expected retirement from the Board at the end of the 2019 director term, resulting in the nomination of Ms. Maria A. Sastre.

 

Shareholder Nominations

 

A shareholder who desires to nominate one or more persons for election as director(s) shall deliver “timely notice” (as defined in Section 12, Article II of the Company’s Bylaws) of the shareholder’s intent to make such nomination or nominations, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company at the Company’s address appearing on the first page of this proxy statement.  In accordance with Section 13, Article II of the Bylaws, such notice shall set forth

(i)

the name and address of record of the shareholder who intends to make the nomination;

(ii)

the class and number of shares of the capital stock that are beneficially owned by the shareholder on the date of such notice;

(iii)

the name, age, business and residential addresses, and principal occupation or employment of each proposed nominee;

17

(iv)

a description of all arrangements or understandings between the shareholder and each nominee, and other arrangements or understandings known to the shareholder, pursuant to which the nomination or nominations are to be made by the shareholder; any other information regarding each proposed nominee that would be required to be included in a proxy statement filed with the SEC; and

(v)

the written consent of each proposed nominee being so named to serve as a Director of the Company.

 

The presiding officer of a meeting may, if the facts warrant, determine at the meeting that a nomination was not made in accordance with the foregoing procedure, and if he or she should make that determination, he or she shall so declare at the Annual Meeting, and the defective nomination shall be disregarded.

 

Risk Oversight

 

It is management’s responsibility to assess and manage the Company’s exposure to various risks and bring the Company’s most material risks to the Board’s attention.  The Board has oversight responsibility of the processes established to report and monitor systems for material risks applicable to the Company.  In its oversight role, the Board annually reviews the Company’s strategic plan, which addresses, among other things, the risks and opportunities facing the Company.

 

A quarterly risk overview is provided to the Board by the Company’s General Counsel, the Company’s Senior Vice President of Information Technology and the Company’s Vice President of Treasury and Government Affairs, which details the Company’s current and potential risk exposure to litigation, information technology, cybersecurity and self-insurance.  In addition, quarterly operational updates and risk assessments are provided by Vice Presidents of selected operational areas, including acquisitions, store operations, distribution operations, finance and real estate.

 

The Board has delegated certain risk management oversight responsibility to the Board committees, as detailed below.  Each committee regularly reports to the full Board.

 

Audit Committee Risk Oversight

The Audit Committee provides risk management oversight for areas including economic, financial (such as accounting, credit, liquidity and tax), legal, compliance and regulatory risks.  As part of its responsibilities as set forth in its charter, the Audit Committee is responsible for discussing with management the Company’s major financial risk exposures and the steps management has taken to monitor and control those exposures, including the Company’s risk assessment and risk management policies.  Specific risk assessment areas include reviews of the Company’s Corporate Risk Assessment and Management Status Report (which identifies the material strategic and operational Company business risks and the controls that respond to and mitigate those risks), the Company’s Code of Conduct and Ethics program compliance, related party transactions, insider trading policy compliance, the Company’s TIPS Hotline activity, the appropriate interpretation and application of new accounting standards, the internal auditor’s comprehensive audit plan and the external auditor’s independence and audit effectiveness.  The Audit Committee also reviews, with management, the Company’s financial performance and financing arrangements and meets with the Company’s internal and external auditors to review the Company’s compliance with all applicable financial reporting and Sarbanes-Oxley requirements.

 

Compensation Committee Risk Oversight

The Compensation Committee provides risk management oversight for areas including compensation, retention, human capital management, diversity and inclusion risks.  Specific risk assessment areas include reviews of executive officer succession planning, senior management development plans and approval of promotions, total compensation for the Company’s executives and senior management, including base salary, incentive compensation, benefits, and perquisites to ensure they are market competitive and consistent with the Company’s performance goals and ensures that these compensation plans and arrangements do not create inappropriate risks.

 

Corporate Governance/Nominating Committee Risk Oversight

The Corporate Governance/Nominating Committee provides risk management oversight for areas including director succession planning and skills assessment, operations, business, competitive and reputation risks.  Specific risk assessment areas include reviews of the Company’s corporate governance guidelines and their implementation, the Company’s Code of Conduct and Ethics program compliance, the Board committee charters, the Company’s Corporate Governance Principles, updates on shareholder activism and the Company’s environmental, social and governance policies and disclosures. 

 

Under the oversight and direction of the Corporate Governance/Nominating Committee, the Company issued its inaugural 2018 Sustainability, Social, & Governance Report in 2019, which illustrates the Company’s approach to human capital management, workforce diversity and inclusion, labor practices, environmental consciousness and governance initiatives.  The Report is available on the Company’s website at www.OReillyAuto.com.

 

18

Board Diversity

 

In selecting a Director nominee, the Corporate Governance/Nominating Committee focuses on skills, viewpoints, expertise and background that would complement the existing Board.  While the Board does not have a formal policy on Board diversity as it relates to the selection of nominees for the Board, the Corporate Governance/Nominating Committee will consider diversity in market knowledge, experience, employment, ethnicity, gender and geography among other factors.   Decisions by the Board regarding continued service of Directors are made based on expected contributions to the Board in furtherance of the interests of shareholders.

 

Compensation of Directors

 

Independent Directors

Independent Directors are paid an annual fee and meeting fees for attendance at each Board and Committee meeting, with the Independent Lead Director receiving an additional annual fee for service on the Board.   Each Committee Chairperson is paid an additional fee for service as chairperson of each respective Committee.

 

To assist the Company in recruiting and retaining qualified Directors, the Company also awards each independent Director an annual restricted share award that vests annually in equal installments over a three-year period.   Upon resignation from the Board for any reason other than retirement, death or disability, all outstanding, unrested equity awards are immediately forfeited.   The Board makes an annual determination of the number of restricted shares to be awarded to every independent Director.

 

The following table summarizes the compensation paid to the independent Directors, including stock awards, for the year ended December 31, 2019:

 

 

 

 

 

Annual fee

    

$

80,000

 

Annual Independent Lead Director fee

 

$

10,000

 

Committee Chairperson fees

 

$

10,000

Audit Committee

 

 

$

7,500

Compensation Committee

 

 

$

5,500

Corporate Governance/Nominating Committee

Board of Director meeting fees

 

$

2,500

for attendance at each quarterly meeting of the Board

Special meeting fees

 

$

1,000

for attendance at each special meeting of the Board

Restricted stock

 

In May of 2019, each independent Director was awarded a number of restricted shares valued at approximately $140,000.  The restricted shares vest in equal annual installments over a three-year period commencing on the first anniversary of the award.  In May of 2019, each independent Director received 381 restricted shares awarded at a price of $367.77 per share. 

Non-qualified stock options

 

No stock option awards were granted during 2019.

 

Independent Director fees in the aggregate amount of $493,750 were paid during 2019 and independent Director restricted stock awards with an aggregate fair value of $700,602 were granted in 2019.

 

Affiliated Directors

The Affiliated Director compensation plan provides for an annual cash retainer of $230,000 and quarterly meeting fees of $2,500 for attendance at each Board meeting to affiliated Directors  (including, for the 2019 term, Larry O’Reilly and Rosalie O’Reilly Wooten).  Affiliated Directors are not paid any other fee amounts and are not granted equity awards in their capacity as directors.

 

David O’Reilly and Greg Henslee do not receive any additional compensation for services they provide as Directors and are compensated solely for the services they provide as executive officers.

 

19

The following table summarizes the compensation paid to all Directors for the year ended December 31, 2019, other than David O’Reilly and Greg Henslee whose compensation is fully reflected in the “Summary Compensation Table” portion of this proxy statement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIRECTOR COMPENSATION

 

    

 

    

 

    

 

    

 

    

Change in

    

 

    

 

 

 

 

 

 

 

 

 

 

 

Pension Value

 

 

 

 

 

 

Fees

 

 

 

 

 

 

 

and

 

 

 

 

 

 

Earned or

 

 

 

 

 

Non-Equity

 

Nonqualified

 

 

 

 

 

 

Paid In

 

Stock

 

Option

 

Incentive Plan

 

Deferred

 

All Other

 

 

 

 

Cash

 

Awards

 

Awards

 

Compensation

 

Compensation

 

Compensation

 

Total

Name

 

($)

 

($) (a)

 

($)

 

($)

 

Earnings

 

($) (b)

 

($)

Larry O’Reilly

 

236,539

 

 —

 

 —

 

 —

 

 —

 

352

 

236,891

Rosalie O’Reilly Wooten (c)

 

236,539

 

 —

 

 —

 

 —

 

 —

 

 —

 

236,539

Jay D. Burchfield

 

102,750

 

140,120

 

 —

 

 —

 

 —

 

 —

 

242,870

Thomas T. Hendrickson

 

102,750

 

140,120

 

 —

 

 —

 

 —

 

 —

 

242,870

John R. Murphy

 

99,250

 

140,120

 

 —

 

 —

 

 —

 

 —

 

239,370

Dana M. Perlman

 

96,875

 

140,120

 

 —

 

 —

 

 —

 

 —

 

236,995

Ronald Rashkow (d)

 

24,625

 

 —

 

 —

 

 —

 

 —

 

 —

 

24,625

Andrea M. Weiss

 

67,500

 

140,120

 

 —

 

 —

 

 —

 

 —

 

207,620

(a)

Stock awards granted to Directors represent restricted shares, which vest in equal annual installments over a three-year period commencing on the first anniversary of the award.   The dollar value of stock awards represents the grant-date fair value of the awards based on the closing market price of the Company’s common stock on the date of the award.   Please see Note 11 “Share-Based Compensation and Benefit Plans” to the Company’s Consolidated Financial Statements included on its Annual Report on Form 10‑K for the fiscal year ended December 31, 2019, for further discussion of the accounting used in calculating share-based compensation expenses in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”).   The table below summarizes the Directors’ outstanding restricted share awards as of December 31, 2019:

 

 

 

 

 

 

 

 

Stock Awards

 

 

Number of Shares or Units of Stock That Have

 

Market Value of Shares or Units of Stock That

 

 

Not Vested

 

Have Not Vested

Name

    

(#)

 

($)

Jay D. Burchfield

 

895

(i)

 

392,243

Thomas T. Hendrickson

 

895

(i)

 

392,243

John R. Murphy

 

895

(i)

 

392,243

Dana M. Perlman

 

826

(ii)

 

362,003

Andrea M. Weiss

 

381

(iii)

 

166,977

(i)

Represents restricted shares granted on May 10, 2017,  May 9, 2018, and May 8, 2019.   The restricted shares granted on May 10, 2017, vest in one installment of 175 shares on May 10, 2020.  The restricted shares granted on May 9, 2018, vest in two installments of 170 shares on May 9, 2020, and 169 shares on May 9, 2021.   The restricted shares granted on May 8, 2019, vest in three installments of 127 shares each on May 8, 2020, May 8, 2021, and May 8, 2022.

(ii)

Represents restricted shares granted on November 9, 2017, May 9, 2018, and May 8, 2019.  The restricted shares granted on November 9, 2017,  vest in one installment of 106 shares on November 9, 2020.   The restricted shares granted on May 9, 2018, vest in two installments of 170 shares on May 9, 2020, and 169 shares on May 9, 2021.  The restricted shares granted on May 8, 2019, vest in three equal installments of 127 shares each on May 8, 2020,  May 8, 2021, and May 8, 2022.

(iii)

Represents restricted shares granted on May 8, 2019.  The restricted shares granted on May 8, 2019, vest in three installments of 127 shares each on May 8, 2020, and May 8, 2021, and May 8, 2022.

(b)

The “All Other Compensation” column includes personal benefits valued at less than $10,000 and consisted of personal use of the Company plane.

(c)

Expected to retire from the Board in May 2020 (at the end of the 2019 director term), consistent with the Board’s mandatory retirement age policy.

(d)

Retired from the Board in May 2019 (at the end of the 2018 director term), consistent with the Board’s mandatory retirement age policy.

 

In addition, all Directors are reimbursed for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at Board meetings.

 

Compensation Committee Interlocks and Insider Participation

 

No member of the Compensation Committee is now, nor has ever been, an officer or an employee of the Company or any of its subsidiaries.   None of the Company’s executive officers served as a director or as a member of a compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director of the Company or a member of the Compensation Committee during 2019.

     

20

COMPENSATION OF EXECUTIVE OFFICERS

 

Compensation Discussion and Analysis

 

This section describes the compensation packages of the Company’s principal executive officer, principal financial officer, and three other most highly compensated officers who were employed by the Company on December 31, 2019 (such individuals are referred to as the “Named Executive Officers” or “NEOs” in this proxy statement).   The NEOs and their positions are identified below:

·

David O’Reilly - Chairman of the Board

·

Greg Henslee - Executive Vice Chairman of the Board

·

Gregory D. Johnson - Chief Executive Officer and Co-President

·

Jeff M. Shaw - Chief Operating Officer and Co-President

·

Tom McFall - Chief Financial Officer and Executive Vice President

 

Executive summary

The Compensation Committee of the Board is responsible for reviewing the performance of the Company’s NEOs, Executive Vice Presidents and Senior Vice Presidents (together, its “executive officers”), recommending to the Board compensation packages and specific compensation levels for its executive officers and other management team members, establishing policies and guidelines for other benefit programs and administering the award of stock options and other stock-based incentives under the Company’s incentive plans.

 

At the 2019 Annual Meeting, over 95% of the votes cast in the advisory vote on executive compensation, which were present and entitled to vote on the matter, were in favor of the compensation of the Company’s NEOs as disclosed in the 2019 proxy statement.   The Board believes that the outcome of this proposal evidences the commitment of the Compensation Committee to open dialogue with the Company’s shareholders regarding the Company’s executive compensation program, and the Compensation Committee has and will continue to consider these voting results and shareholder sentiments generally as it formulates and implements an executive compensation program designed to align the long-term interests of the Company’s executive officers with the interests of its shareholders.

 

The policies and procedures of the Compensation Committee are designed to assist the Board in its oversight of the implementation and effectiveness of its policies and strategies regarding the investment in the Company’s most important asset, its employees (whom the Company refers to as “Team Members”).   These strategies and policies include, but are not limited to,

·

recruiting and retaining qualified Team Members;

·

supporting the career development and progression of Team Members;

·

management succession, in conjunction with the Company’s Corporate Governance/Nominating Committee; and

·

other employment practices.

 

Compensation objectives and philosophy

The main objective of the Company’s compensation philosophy is to provide its executive officers and management with a total compensation package that is competitive and equitable, and which encourages and rewards performance based in part upon the Company’s performance in terms of increases in shareholder value.   The Company’s compensation objectives include both long-term, share-based incentives and short-term, cash incentives.   The Company believes that aligning the interests of its executives and management with those of its shareholders further promotes the success of not only the Company, but also its Team Members.

 

Risk assessment of compensation programs

The Compensation Committee has reviewed the potential effects of the various components of the Company’s executive officers’ compensation and benefits programs on individual and collective behavior and, ultimately, on its risk profile and overall approach to risk management.   During its review, the Compensation Committee focused on the Company’s short-term incentives, long-term incentives, and change in control benefits as having the greatest potential to create incentives for individual or collective risk taking.  Following a thorough review of these and the other components of the Company’s compensation and benefits programs, the Compensation Committee has determined that the programs do not create any incentives with respect to individual or collective behavior that are likely to have a material adverse effect upon either its risk profile or overall approach to risk management.

 

21

Additionally, the Company’s non-executive officer and management compensation policies and practices do not excessively incentivize or create need for inappropriate risk-taking by its Team Members, and therefore, it is not reasonably likely that current compensation policies and practices would have a material adverse effect on the Company.

 

Overview of compensation programs

The key elements of the compensation packages for the Company’s executive officers, including the NEOs, are base salary, annual cash incentive compensation and long-term, share-based incentives.   In determining the composition of elements in each compensation package, the Compensation Committee aims to create a balanced set of rewards, utilizing market-driven influences and external compensation benchmarks, as well as the Company’s current cash considerations.   To ensure that the Company thrives in the competitive talent market, the Compensation Committee reviews industry resources, references and other benchmark reports to determine competitive market ranges and reasonable levels of compensation.

 

In reviewing the compensation packages of each of the Company’s executive officers and management, the Compensation Committee tallies the corresponding dollar value of each element of an individual’s compensation, including salary, incentive compensation, accumulated realized and unrealized share-based compensation gains, the dollar value to such individual and cost to the Company of all perquisites and other personal benefits, the earnings and accumulated benefits under the Company’s non-qualified deferred compensation program and the potential impact of several potential severance and change-in-control scenarios.  For new appointments to senior executive management, the Company’s management presents compensation recommendations to the Compensation Committee for consideration.

 

Competitive assessments

The Company’s Human Resources Department provides the Compensation Committee with industry benchmark information and compensation survey data from the companies in its peer group, including peer salary, bonus, incentive compensation, share-based compensation and other compensation.   The Compensation Committee considers the Company’s relative performance compared with an established group of peer companies in the automotive aftermarket industry, other specialty retailers.

 

The group of peer companies is reviewed annually by the Compensation Committee to ensure that the comparisons are meaningful.  The Compensation Committee evaluates peers that conduct business outside of the automotive aftermarket industry based on criteria such as revenue, operating margin, net income, market capitalization, team member count and one and three year total shareholder returns, as applicable.    In addition to these key financial and operational metrics, the Compensation Committee also evaluates potential peers based on competition for team member recruitment and companies whose general customer demographics are similar to those of O’Reilly’s.

 

Based on its annual review using the previously described criteria, the Compensation Committee removed seven companies from the prior year’s peer group and added seven companies to the Company’s 2019 peer group.  The companies added and removed from the peer group are identified in the following table:

 

 

 

Peer Group Changes

Removal from Peer Group

 

Addition to Peer Group

Asbury Automotive Group, Inc.

 

Darden Restaurants, Inc.

Group 1 Automotive, Inc.

 

Foot Locker, Inc.

Lithia Motors, Inc.

 

Kohl’s Corporation

The Michaels Companies, Inc.

 

L Brands, Inc.

Monro Muffler Brake, Inc.

 

Ross Stores, Inc.

Penske Automotive Group, Inc.

 

The Sherwin-Williams Company

Sonic Automotive, Inc.

 

W.W. Grainger, Inc.

 

22

The Company’s 2019 peer group members are identified in the following table:

 

 

 

 

 

 

 

2019 Peer Group

Peer Name

 

Peer Ticker Symbol

 

Peer Name

 

Peer Ticker Symbol

Advance Auto Parts, Inc.

 

AAP

 

Foot Locker, Inc.

 

FL

AutoNation, Inc.

 

AN

 

GameStop Corp.

 

GME

AutoZone, Inc.

 

AZO

 

Genuine Parts Company

 

GPC

Bed Bath & Beyond, Inc.

 

BBBY

 

Kohl’s Corporation

 

KSS

CarMax, Inc.

 

KMX

 

L Brands, Inc.

 

LB

Darden Restaurants, Inc.

 

DRI

 

Ross Stores, Inc.

 

ROST

Dick’s Sporting Goods, Inc.

 

DKS

 

The Sherwin-Williams Company

 

SHW

Dollar General Corporation

 

DG

 

Tractor Supply Company

 

TSCO

Dollar Tree, Inc.

 

DLTR

 

W.W. Grainger, Inc.

 

GWW

 

The range, mean and median revenue and market capitalization of the Company’s 2019 peer group, as well as those metrics for O’Reilly, as of December 31, 2019, are identified in the following table (in billions):

 

 

 

 

 

December 31, 2019

 

Revenue

 

Market Capitalization

Peer Group :

 

 

 

Range

$6.89 - $27.25

 

$0.40 - $53.77

Mean

$
14.55

 

$
16.49

Median

$
12.54

 

$
12.17

 

 

 

 

O’Reilly Automotive, Inc.

$
10.15

 

$
33.14

 

The Compensation Committee also considers broad-based survey data, compiled by Equilar, Inc., of total compensation for top management at companies with total revenues comparable to the total revenues of the Company.  The Compensation Committee uses the industry and market survey data for context in reviewing the overall compensation levels and maintaining a reasonable and competitive compensation program.  The Compensation Committee does not use this data or peer group data to set specific compensation benchmarks for a position or for any element of compensation.  Rather, the Compensation Committee evaluates the overall performance of the Company and the individual performance of management to set compensation at reasonable and competitive levels.

 

Base salary

The Company provides competitive annual base salaries to its executive officers and management in recognition of their job responsibilities.   In determining annual base salary, it is the Compensation Committee’s goal to bring the salaries of the Company’s executive officers and management in line with base compensation being paid by its peer group.  The Compensation Committee specifically reviews compensation information from the publicly traded automotive aftermarket companies in its peer group and compensation surveys and data from the other specialty retailers in its peer group.   The Compensation Committee believes that the Company’s principal competitors for its executive officers are not necessarily the same companies that would be included in a peer group compiled for purposes of comparing shareholder returns.   Consequently, the companies that are reviewed for such compensation purposes may not be the same as the companies comprising the indices included in the Annual Report of the Company for 2019 that accompanies this proxy statement.   The Compensation Committee increased base salary levels in 2019 for the Company’s NEOs to maintain compensation at competitive levels and to reflect Company performance and the individual performance of each of its NEOs.

 

Incentive compensation plan

The Company provides competitive annual incentive compensation as a percent of base salary based on achievement of certain objective performance goals established by the Compensation Committee each year in order to motivate attainment of short-term goals, link annual cash compensation to achievement of annual priorities and reward individual performance and contributions.

 

At the beginning of each year, a comprehensive operating plan is developed, which contains estimates for the Company’s projected performance for the year, by reviewing the Company’s historical performance, trends in the automotive aftermarket and retail industry and the performance of industry peers and other comparable companies.   The targets for the incentive compensation plans set by the Compensation Committee generally correspond to this operating plan.   The comprehensive operating plan for the 2019 fiscal year was approved by the Board in January of 2019 and reflects the projected results for the 2019 fiscal year.  The Company’s actual performance in each of the target areas is compared to the individual targets predetermined by the Compensation Committee to determine the incentive amount, if any, earned by each executive officer.  Upon achievement of such performance goals, executive officers receive incentive compensation based upon a percentage of their respective base salaries for the attainment of a defined performance goal.

 

23

The overall potential value varies depending upon the executive’s position; however, under the Company’s 2017 Incentive Award Plan, the maximum aggregate amount of cash compensation that may be paid to any one participant in any year is $10,000,000.   For 2019, the Company’s Chief Executive Officer, Mr. Johnson, and Chief Operating Officer, Mr. Shaw, had cumulative targets of 100% of their individual base salaries, and its Chief Financial Officer, Mr. McFall, had a cumulative target of 80% of his individual base salary, which were, in each case, the same position level salary targets applicable in 2018.   The Board sets performance target achievement levels for its executives that are challenging enough to require strong and consistent effort by the executives to be achieved and such that the Company’s actual performance above projections would result in payouts above target levels and would likely also result in an increase in total shareholder value.  Over the last five years, annual incentive payouts under the executive incentive compensation plan have been below target one time and exceeded target four times, ranging from 15% to 245% of target during this period of time, and over that same period, the value of the Company’s stock, and associated shareholder value, increased 128%.

 

The performance metrics, weighting, targets, actual results and achievement levels utilized by the Compensation Committee for calculating the incentive compensation payable to each of the NEOs for the year ended December 31, 2019, are identified in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Weight

    

 

 

    

 

 

 

    

 

 

 

    

 

Achievement 

Performance Metric

 

(%)

 

Threshold

 

Target

 

Actual

 

(%)

Comparable store sales (a)

 

30

 

 

2.5

%  

 

 

4.0

%  

 

 

4.0

%  

 

29.6

Operating income (in thousands)

 

30

 

$

1,855,000

 

$

1,925,000

 

$

1,920,726

 

28.5

Return on invested capital (b)

 

20

 

 

35.65

%  

 

 

37.65

%  

 

 

38.74

%  

 

27.5

Free cash flow (in thousands) (c)

 

20

 

$

858,000

 

$

1,065,000

 

$

1,020,649

 

18.5

 

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

104.1

(a)

Calculated based on the change in sales for U.S. stores open at least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members.

(b)

Calculated as net income plus interest expense, divided by the sum of average debt and average equity, less average cash.

(c)

Calculated as net cash provided by operating activities less capital expenditures, excess tax benefit from share-based compensation payments and investment in tax credit equity investments for the period.

 

The following table summarizes the 2019 performance incentive compensation plan salary targets and the resulting payouts for each of the Company’s NEOs who participated in the plan:

 

 

 

 

 

 

 

 

 

 

 

 

    

Base Salary

    

Target

    

Target

    

Achievement

    

Incentive Achieved

Named Executive Officer

 

($)

 

(%)

 

($)

 

(%)

 

($)

Gregory D. Johnson, Chief Executive Officer

 

1,000,000

 

100

 

1,000,000

 

104.1

 

1,041,229

Jeff M. Shaw, Chief Operating Officer

 

750,000

 

100

 

750,000

 

104.1

 

780,921

Tom McFall, Chief Financial Officer

 

800,000

 

80

 

640,000

 

104.1

 

666,386

 

David O’Reilly and Greg Henslee, in consultation with the Compensation Committee, have elected to exclude themselves from participation in the annual cash incentive compensation plan pursuant to their responsibilities of providing strategic direction and guidance to the Company and their more limited role in the Company’s day-to-day operational activities.

 

Long-term, stock-based incentives

The Company offers long-term incentives for executive officers and management in the form of stock option and restricted stock awards.  Stock options and restricted stock may be awarded to the Company’s NEOs, upper- and middle-managers and other key personnel.

 

The Company believes that its stock-based incentive award programs are an important component of compensation as an incentive for long-term corporate performance.   The Compensation Committee has determined that the annual award of restricted stock or grant of stock options to the Company’s executive officers is a key component of each executive officer’s total compensation package based on his duties.   The amounts of such restricted stock awards and/or stock option grants are determined by the Compensation Committee annually in conjunction with performance reviews and salary adjustments during the January Compensation Committee meeting.  In determining whether and how many restricted stock awards and/or stock options should be granted, the Compensation Committee considers the responsibilities and seniority of each of the executive officers, as well as the Company’s financial performance and other factors as it deems appropriate, consistent with its compensation philosophy and policies.   The restricted stock awards and stock options awarded by the Compensation Committee in 2019, as reflected in the “Grants of Plan Based Awards” table, include an annual award of restricted stock or grant of stock options, as the case may be, determined by the Compensation Committee in consideration of the factors described above.

 

In the past, the Compensation Committee has reviewed and considered using other equity-based incentives for the long-term compensation component.   After a thorough analysis, including an analysis of the equity grant practices of our peer group companies, 

24

stock options and restricted stock awards were determined to be the most effective methods of aligning management interests with those of the Company’s shareholders.

 

The Compensation Committee has also established specific stock option awards to be granted upon the achievement of certain defined positions of employment.  These are automatic grants that occur on the date of promotion or appointment to such positions with an option price equal to the closing market value of the common stock underlying the option on such date.   It is the Company’s belief that these position-related grants provide an additional incentive to its executives, management and other Team Members to set personal long-term employment goals.   In furtherance of this belief, the Company also has a Team Member stock purchase plan that enables Team Members to purchase its common stock at a discount through payroll deductions, and Team Members are also able to invest in the Company’s common stock through its 401(k) plan.   In addition, the Compensation Committee may grant stock option awards in connection with a material business event, such as a large acquisition.   The Compensation Committee believes that these special stock option awards provide an additional incentive to the Company’s executive officers, management and other Team Members to ensure these material acquisitions are integrated effectively and efficiently.

 

Other

The Company sponsors a 401(k) Profit Sharing and Savings Plan (the “401(k) Plan”) that allows Team Members to make plan contributions on a pre-tax basis.   The Company matches 100% of the first 2% of the Team Member’s compensation, and 25% of the next 4% of the Team Member’s compensation.

 

Although executives are eligible to participate in the 401(k) Plan, the application of the annual limitations on contributions under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the “Code”) prevents highly compensated employees, as defined by the Code, from participating at the same levels as non-highly compensated employees.   The Company has established the O’Reilly Automotive Deferred Compensation Plan (the “Deferred Compensation Plan”), which is intended to restore contributions lost because of the application of the annual limitations under the Code that are applicable to the 401(k) Plan.   The Deferred Compensation Plan provides executives who participate in the 401(k) Plan with the opportunity to defer the full 6% of covered compensation by making contributions to the Deferred Compensation Plan that are then matched by the Company as if they had been made under the 401(k) Plan.   This benefit, which assists executives in accumulating funds for retirement, is consistent with observed competitive practices of similarly situated companies.

 

Section 162(m) (“Section 162(m)”) of the Code generally disallows a tax deduction to publicly held companies for compensation paid to certain executive officers, to the extent that compensation exceeds $1 million per officer in any year.  The Compensation Committee believes that in establishing the cash and equity incentive compensation programs for the Company’s executive officers, the potential deductibility of the compensation payable under those programs should be only one of a number of relevant factors taken into consideration, and not the sole governing factor.  Accordingly, the Compensation Committee may provide one or more executive officers with the opportunity to earn base and incentive compensation, whether through base salary, cash incentive based compensation programs tied to the Company’s financial performance or share-based awards in the form of restricted stock or stock options, which may be in excess of the amount deductible by reason of Section 162(m) or other provisions of the Code.   The Company believes it is important to maintain incentive compensation at the requisite level to attract and retain the executive officers essential to the Company’s financial success, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limitation.

 

In addition, the Company provides its executive officers with certain perquisites, which the Compensation Committee believes are reasonable and consistent with the objectives of attracting and retaining superior Team Members, as well as maintaining a competitive total compensation package for the executive officers.   Perquisites can include personal use of a Company automobile, personal use of the Company plane, reimbursement for health and country club memberships and reimbursements under the Company’s executive management medical reimbursement benefit plan.   Perquisite amounts for the Company’s NEOs are included in the “Summary Compensation Table” in the column “All Other Compensation.”

 

The Company has entered into change in control severance agreements with its NEOs.   These are described in the “Potential Payments on Termination or Change in Control” and “Employment Arrangements with Executive Officers” sections of the narrative disclosure to the “Summary Compensation Table.”

 

25

Compensation mix

The following table summarizes the Company’s actual compensation mix that resulted in 2019 from the compensation programs and practices described above, which includes base salary, restricted stock awards or stock options, non-equity incentive compensation and/or other benefits, for each of its NEOs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

Restricted

 

 

 

Non-Equity

 

 

 

 

 

 

Base

 

Stock

 

Stock

 

Incentive

 

Other

 

Total

Named Executive Officer

 

Salary

 

Awards

 

Options

 

Compensation

 

Benefits

 

Compensation

David O’Reilly, Chairman of the Board

 

64

%  

 

32

%  

 

 —

%  

 

 —

%  

 

 4

%  

 

100

%

Greg Henslee, Executive Vice Chairman of the Board

 

63

%  

 

32

%  

 

 —

%  

 

 —

%  

 

 5

%  

 

100

%

Gregory D. Johnson, Chief Executive Officer

 

32

%  

 

 —

%  

 

32

%  

 

34

%  

 

 2

%  

 

100

%

Jeff M. Shaw, Chief Operating Officer

 

32

%  

 

 —

%  

 

32

%  

 

33

%  

 

 3

%  

 

100

%

Tom McFall, Chief Financial Officer

 

34

%  

 

 —

%  

 

34

%  

 

29

%  

 

 3

%  

 

100

%

 

Clawback policy

The Board is dedicated to maintaining and enhancing a culture that is focused on integrity and accountability while tying compensation to the Company’s performance.   The Board, following a recommendation by the Compensation Committee, adopted an incentive compensation clawback policy (the “Policy”) in 2014.   Each of the Company’s NEOs has signed an acknowledgement agreeing to comply with the provisions of the Policy.   The Policy is intended to provide an appropriate and effective incentive compensation recoupment program and to offer a balanced approach to aligning the interests of the Company’s NEOs and shareholders.

 

The adopted Policy specifically provides that if the Board or the Compensation Committee determines that incentive compensation of a current or former NEO was overpaid as a result of a restatement of the reported financial results of the Company due to material non-compliance with financial reporting requirements that resulted from the fraud or willful misconduct of the covered employee, then the Board or the Compensation Committee will review the incentive compensation paid, granted, vested or accrued based on the prior inaccurate results.  The Policy also provides that, to the extent practicable and as permitted by applicable law, the Board or Compensation Committee will determine whether to seek to recover or cancel the difference between any incentive compensation that was based on having met or exceeded performance targets that would not otherwise have been met based upon accurate financial data and the incentive compensation that would have been paid or granted or that would have vested had the actual payment, granting or vesting been calculated based on the accurate data or restated results, as applicable.

 

The Policy applies to all incentive compensation granted, paid or credited after the Policy’s adoption by the Board, except to the extent prohibited by applicable law or any other legal obligation of the Company.  “Incentive compensation” means performance bonuses and incentive awards (including stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares or other stock-based awards) paid, granted, vested or accrued under any Company plan or agreement in the form of cash or Company common stock.

 

Prohibition on Pledging and Hedging Company Securities

During 2019, the Board amended the Company’s Insider Trading Policy to specifically prohibit Directors and Named Executive Officers from hedging or pledging Company securities.  These covered persons may not enter into hedging or monetization transactions with respect to Company securities and they cannot hold Company securities in a margin account or pledge Company securities as collateral for a loan.  This policy change was instituted to further ensure that the interests of these covered persons remain aligned with those of the Company’s security holders and so these individuals continue to be incentivized to execute the Company’s long-term plans and achieve the performance for which their equity awards are intended.

 

 

 

26

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management.  Based on its review and discussion with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in O’Reilly Automotive, Inc.’s Annual Report on Form 10‑K for the year ended December 31, 2019.

 

Respectfully submitted,

 

THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF O’REILLY AUTOMOTIVE, INC.

 

John R. Murphy

Chairperson of the Compensation Committee

 

Jay D. Burchfield

Member of the Compensation Committee

 

Thomas T. Hendrickson

Member of the Compensation Committee

 

 

 

27

EXECUTIVE COMPENSATION TABLES

 

The following table summarizes the annual compensation paid to or earned by the Company’s NEOs for the fiscal years ended December 31, 2019,  2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUMMARY COMPENSATION TABLE

 

    

 

    

 

    

 

    

 

    

 

    

 

    

Change in

    

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonqualified

 

 

 

 

Name

 

 

 

 

 

 

 

 

 

 

 

Non-Equity

 

Deferred

 

 

 

 

And

 

 

 

 

 

 

 

Stock

 

Option

 

Incentive Plan

 

Compensation

 

All Other

 

 

Principal

 

 

 

Salary

 

Bonus

 

Awards

 

Awards

 

Compensation

 

Earnings

 

Compensation

 

Total

Position

    

Year

    

($)(a)

    

($)

    

($)(b)

    

($)(c)

    

($)(d)

    

($)

    

($)(e)

    

 ($)

David O’Reilly

 

2019

 

729,615

 

 —

 

367,408

 

 —

 

 —

 

 —

 

49,639

 

1,146,662

Chairman of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the Board

 

2018

 

698,308

 

 —

 

350,015

 

 —

 

 —

 

 —

 

44,518

 

1,092,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

683,000

 

 —

 

344,735

 

 —

 

 —

 

 —

 

43,429

 

1,071,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Greg Henslee (f)

 

2019

 

650,000

 

 —

 

325,014

 

 —

 

 —

 

 —

 

51,664

 

1,026,678

Executive Vice

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chairman of the

 

2018

 

753,846

 

 —

 

325,089

 

 —

 

 —

 

 —

 

47,157

 

1,126,092

Board