ITEM 11.
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EXECUTIVE COMPENSATION
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COMPENSATION DISCUSSION AND ANALYSIS
The purpose of this section is to provide material information about the compensation objectives and policies for our named executive officers and to explain how the Compensation Committee of our Board of Directors made its compensation decisions for 2019. For 2019, our named executive officers, which we refer to as our “named executive officers” or “NEOs”, are listed below.
Named Executive Officer
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2019 Position
|
John W. Robinson III
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President and Chief Executive Officer
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Steven A. Michaels
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Chief Financial Officer and President of Strategic Operations
|
Ryan K. Woodley
|
|
Chief Executive Officer, Progressive Leasing
|
Douglas A. Lindsay
|
|
President, Aaron’s Business
|
Curtis L. Doman
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|
Chief Innovation Officer, Progressive Leasing
|
Executive Summary
Our compensation programs are designed to attract, motivate, and retain key executives by offering market-competitive pay opportunities with an emphasis on incentive compensation to create a strong linkage between pay and performance. This linkage between pay and performance is demonstrated by the following pay and performance results for 2019:
2019 Company Performance Results
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|
2019 Executive Pay Results
|
●Consolidated Revenues were $3,948 million, which was an increase of 3% from 2018
●Consolidated EBIT was $93 million, which was a decrease of 63% from 2018
●Consolidated Adjusted EBITDA1 was $435 million, which was an increase of 13% from 2018
●Consolidated Return on Capital2 of 11.9%, which was an increase of 50 bps from 2018
●All compliance goals, established in the first quarter of 2019, for the Company and each of its Aaron’s Business and Progressive segments were fully achieved
●Returned approximately $79 million to shareholders through stock repurchases and dividends
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●Short-term incentive awards were earned at a level between 91% and 98% of Target
●Performance Share Units (PSUs) were earned at a level between 78% and 89% of Target
●RSAs and PSUs granted in 2019 decreased in value below their grant date value given the decline in the stock price as of the date of this Form 10-K/A.
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Table of Contents
1 Adjusted EBITDA is a measurement of our performance not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”). For a reconciliation of Adjusted EBITDA to the closest GAAP measurement, refer to the reconciliation set forth in Appendix A.
2 We define Consolidated Return on Capital as net operating profit (which we define as operating profit adjusted for certain non-recurring items) after tax divided by the sum of average net debt (which we define as debt less cash and cash equivalents) and average total shareholders’ equity, with the final result being an average of quarterly calculations. For a reconciliation of Return on Capital to the closest GAAP measurement, refer to the reconciliation set forth in Appendix A.
We believe these performance and pay results are indicative of a strong linkage between pay and performance created by our executive compensation structure and incentive plan designs.
In addition to this linkage between pay and performance, we employ sound compensation and governance principles and policies, while avoiding problematic or disfavored practices, as noted below:
What We Do
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What We Don’t Do
|
✓
|
Independent Compensation Committee assisted by an independent consultant
|
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✕
|
No repricing or cash buyouts of stock options without shareholder approval
|
|
|
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✓
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We annually assess the Company's compensation policies to ensure that the features of our program do not encourage undue risk
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✕
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No excise or other tax gross-ups on change-in-control payments
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✓
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All executives are “at will” employees, with the elimination of employment agreements for all NEOs except for the CEO
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✕
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No hedging or pledging of Company stock
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|
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✓
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Pay mix that emphasizes performance-based compensation over fixed compensation (approximately 89% performance-based for CEO and approximately 77% for all other NEOs)
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✕
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No excessive perquisites or other benefits
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✓
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Pay mix that emphasizes long-term, equity-based incentives over short-term cash incentives
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✕
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No single-trigger severance benefits upon a change-in-control
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✓
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Incentive plans that utilize multiple measures, including growth, profitability, and returns
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✕
|
No payment of dividends on unearned or unvested shares
|
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✓
|
Reasonable incentive plan targets and ranges, with capped incentive payouts
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✕
|
No guaranteed bonus payments
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|
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|
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✓
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Double-trigger equity vesting acceleration upon a change of control (awards granted in 2015 and later)
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|
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|
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✓
|
Meaningful stock ownership requirements
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|
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|
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✓
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Formal clawback policy to recoup performance-based compensation from our senior executives, including NEOs, under certain prescribed acts of misconduct
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Table of Contents
Say on Pay Vote. Last year, our shareholders cast an advisory vote on our executive compensation practices as described in our 2019 proxy statement, with the result that over 81% of the total votes cast approved the compensation of our NEOs. The Compensation Committee regularly evaluates and revises the executive compensation program as it considers necessary to better reflect our evolving business circumstances. During 2019, the Compensation Committee conducted an in-depth review of its executive compensation programs and beginning in 2020, has adopted several meaningful plan design changes intended to further strengthen the relationship between pay and performance. These changes eliminate overlapping incentive metrics in the short-and long-term incentive plans. A detailed description of these changes can be found at “Annual Cash Incentive Awards—Changes for 2020” and “Long-Term Equity Incentive Awards—Changes for 2020.”
Objectives of Executive Compensation
The primary objectives and priorities of our executive compensation program are to:
●
|
attract, motivate, and retain quality executive leadership;
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|
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●
|
align the incentive goals of our executive officers with the interests of our shareholders;
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●
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enhance the individual performance of each executive officer;
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|
|
●
|
improve our overall performance; and
|
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●
|
support achievement of our business plans and long-term goals.
|
To accomplish these objectives, the Compensation Committee considers a variety of factors when approving compensation programs, including (i) changes in our business strategy, (ii) performance expectations for the Company and, with respect to the compensation programs for certain NEOs, the performance expectations for Progressive or Aaron's Business, (iii) external market data, (iv) actual performance of the Company and, with respect to the compensation programs for certain NEOs, the actual performance of Progressive or Aaron's Business, (v) individual executive performance, and (vi) internal compensation equity with the NEOs. A more complete description of the annual process for establishing our executive compensation programs is described below and throughout this Compensation Discussion and Analysis.
Compensation Process Summary for 2019
Role of the Compensation Committee. The Compensation Committee is comprised solely of directors that our board has determined to be independent under applicable SEC and NYSE listing standards. Its role is to oversee (i) executive and outside director compensation, (ii) benefit plans and policies, including equity compensation plans and other forms of compensation, and (iii) other significant human resources matters.
More specifically, the Compensation Committee reviews and discusses proposed compensation for NEOs, evaluates their performance, and sets their compensation. In addition, the Compensation Committee approves all equity awards for NEOs and other executive officers.
Role of Management. The Compensation Committee considered the input and recommendations of Mr. Robinson with respect to our executive compensation programs and decisions that impact other NEOs. Mr. Michaels also provided input with respect to financial goals and recommendations and overall program design. Although management and other invitees at Compensation Committee meetings may participate in discussions and provide input, all votes and final decision-making on NEO compensation are solely the responsibility of the Compensation Committee, and those final deliberations and votes are conducted in executive sessions in which no executive officer participates.
Role of Independent Compensation Consultants. The Compensation Committee has the authority to retain independent consultants and other advisors. During 2019, the Compensation Committee retained the services of Exequity which reported directly to the Compensation Committee but worked with management at the direction of the Compensation Committee. The Compensation Committee assessed the independence of the advisors, including the potential for conflicts of interest as required by the SEC and NYSE listing standards, and concluded that Exequity was appropriately independent and free from potential conflicts of interest.
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Table of Contents
Although the specific services of the independent consultant vary from year to year, the following are the services generally provided by the independent consultant:
●
|
providing information on trends and related legislative, regulatory, and governance developments;
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●
|
reviewing and recommending any changes to the benchmarking peer group for the consideration and approval of the Compensation Committee;
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●
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conducting competitive assessments of executive compensation levels and incentive program designs;
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|
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●
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consulting on compensation for outside directors;
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●
|
conducting a review of our compensation programs from a risk assessment perspective;
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|
|
●
|
reviewing compensation tally sheets on our executive officers;
|
|
|
●
|
assisting with review and disclosures regarding the executive compensation programs; and
|
|
|
●
|
reviewing the Compensation Committee’s annual calendar and related governance matters.
|
Representatives from the advisory firm attended all of the Compensation Committee meetings pertaining to 2019 executive compensation decisions, and also participated in executive sessions as requested by the Compensation Committee.
Benchmarking
Role of Benchmark Data. We use compensation market data as a reference for understanding the competitive positioning of each element of our compensation program and of total compensation. The Compensation Committee generally requests these market studies from its independent consultant from time to time as the Compensation Committee deems appropriate. Market data informed compensation-related decisions for our NEOs in 2019. On a go forward basis, the Committee will review market data on an annual basis to better understand current labor market trends.
In referencing these market studies, the Compensation Committee does not manage total compensation for our NEOs within a prescribed competitive position or percentile of the compensation market. Rather, the Compensation Committee reviews compensation for each NEO relative to market data and considers other internal and external factors when exercising its business judgment as to compensation decisions. Other factors material to the Compensation Committee’s deliberations include (i) objective measurements of business performance, (ii) the accomplishment of compliance, strategic, and financial objectives, (iii) the development and retention of management talent, (iv) enhancement of shareholder value, and (v) other matters the Compensation Committee deems relevant to our short-term and long-term success.
Peer Groups. With respect to 2019 compensation decisions, the Compensation Committee referenced the market study that was conducted by the independent consultant for 2018. The peer group used in that study was proposed by the independent consultant and approved by the Compensation Committee, and included discrete peer groups for each of the major operating segments in addition to a corporate peer group. The peers were selected based on similarity in terms of size, complexity, and business focus at that time. The following are the specific peer companies that were used in that study:
Corporate Peers
|
|
Aaron's Business Unit Peers
|
|
Progressive Leasing Unit Peers
|
Big Lots, Inc.
|
|
Big Lots, Inc.
|
|
Credit Acceptance Corporation
|
Conn's, Inc.
|
|
Conn's, Inc.
|
|
Enova International, Inc.
|
Credit Acceptance Corporation
|
|
Dick's Sporting Goods, Inc.
|
|
ePlus inc.
|
Dick's Sporting Goods, Inc.
|
|
DSW Inc.
|
|
EZCORP, Inc.
|
ePlus inc.
|
|
FirstCash, Inc.
|
|
Fair Isaac Corporation
|
Green Dot Corporation
|
|
Herc Holdings Inc.
|
|
Green Dot Corporation
|
OneMain Holdings, Inc.
|
|
HSN, Inc.
|
|
LendingClub Corporation
|
Rent-A-Center, Inc.
|
|
Rent-A-Center, Inc.
|
|
OneMain Holdings, Inc.
|
Santander Consumer USA Holdings Inc.
|
|
Tractor Supply Company
|
|
Santander Consumer USA Holdings Inc.
|
Tractor Supply Company
|
|
Wayfair, Inc.
|
|
World Acceptance Corporation
|
9
Table of Contents
Survey Data. If data from the proxy peer group is not available for all NEO positions, the Compensation Committee may also review broader survey benchmarking data from time to time, as necessary.
In 2019, at the request of the Compensation Committee, Exequity conducted a comprehensive review of potential peers taking into account revenue size, industry, and labor market. The Compensation Committee approved the peer group, which is comprised of the 25 companies listed below. The peer group was used for the 2019 benchmarking and to inform 2020 pay levels. The peer group is comprised of both retail and consumer finance companies that approximate Aaron’s, Inc. in terms of key size metrics. The composition of the group considers the major operating segments of Aaron’s, Inc. as represented by Aaron’s Business which operates in the retail space, and Progressive Leasing which operates in the consumer finance space. In addition to the peer group shown below, general industry pay survey data was also provided and considered to ensure a fulsome evaluation of the competitive pay landscape.
Company Name
|
|
Primary Industry
|
Ally Financial Inc.
|
|
Consumer Finance
|
Big Lots, Inc.
|
|
Multiline Retail
|
Burlington Stores, Inc.
|
|
Specialty Retail
|
Conn’s, Inc.
|
|
Specialty Retail
|
Credit Acceptance Corporation
|
|
Consumer Finance
|
CURO Group Holdings Corp.
|
|
Consumer Finance
|
Designer Brands Inc.
|
|
Specialty Retail
|
DICK’S Sporting Goods, Inc.
|
|
Specialty Retail
|
Discover Financial Services
|
|
Consumer Finance
|
Encore Capital Group, Inc.
|
|
Consumer Finance
|
Enova International, Inc.
|
|
Consumer Finance
|
FirstCash, Inc.
|
|
Consumer Finance
|
Foot Locker, Inc.
|
|
Specialty Retail
|
Green Dot Corporation
|
|
Consumer Finance
|
OneMain Holdings, Inc.
|
|
Consumer Finance
|
Rent-A-Center, Inc.
|
|
Specialty Retail
|
RH
|
|
Specialty Retail
|
Sally Beauty Holdings, Inc.
|
|
Specialty Retail
|
Santander Consumer USA Holdings Inc.
|
|
Consumer Finance
|
Sleep Number Corporation
|
|
Specialty Retail
|
SLM Corporation
|
|
Consumer Finance
|
Synchrony Financial
|
|
Consumer Finance
|
Tractor Supply Company
|
|
Specialty Retail
|
Wayfair Inc.
|
|
Internet and Direct Marketing Retail
|
Williams-Sonoma, Inc.
|
|
Specialty Retail
|
10
Table of Contents
Components of the Executive Compensation Program
The three primary components of each NEO's total direct compensation for 2019 were as follows:
Component
|
|
Terms and Objectives
|
Base Salary
|
|
●Fixed amount of compensation for performing day-to-day job responsibilities intended to reflect the scope of an executive’s role.
●Reviewed annually for potential adjustment based on factors such as market levels, individual performance, and scope of responsibility.
|
Annual Cash
Incentive Award
|
|
●Variable performance-based award opportunity based on achievements with respect to the Company’s or Progressive or Aaron's Business financial and operational performance goals (Adjusted EBITDA, Revenue, and Compliance).
|
Long-Term Equity
Incentive Award
|
|
●To balance long-term performance and retention, 2019 equity awards were made in the form of 50% performance share units, 25% stock options, and 25% time-based restricted stock awards.
●Aligns executive interests with shareholders.
|
These components are designed to be competitive with employers with whom we compete for executive talent and to support our compensation program objectives. The Compensation Committee has not set a prescribed mix or allocation for each component, but rather focuses on total direct compensation when making compensation decisions for our executives. In making these decisions, the Compensation Committee also considers the following related factors: (i) performance against corporate and individual objectives for the fiscal year; (ii) performance of general management responsibilities; (iii) the value of any unique skills and capabilities; (iv) contributions as a member of the executive management team; and (v) competitive market considerations.
Total direct compensation for our executive officers emphasizes variable and performance-based compensation more so than for our other employees. This reflects our philosophy that performance-based compensation opportunities—linked to financial, operating, and stock price performance—should increase as overall responsibility increases.
The following graphs demonstrate this philosophy by showing the mix of target pay for 2019 for our CEO and for our other NEOs as a group:
Chief Executive Officer
|
|
Other Named Executive Officers
|
|
|
|
Base Salary
The Compensation Committee views base salary as fixed compensation intended to reflect the scope of an executive’s role. It reviews base salaries annually and adjusts them as necessary to ensure that salary levels remain appropriate and competitive. Salary increases are periodic rather than annual and are made after the Compensation Committee considers relevant factors, including:
●
|
breadth and scope of an executive’s role, including any significant change in duties;
|
|
|
●
|
competitive market pay levels;
|
11
Table of Contents
●
|
internal comparisons to similar roles;
|
|
|
●
|
individual performance throughout the year; and
|
|
|
●
|
overall economic climate, Company performance and, with respect to certain NEOs, the performance of Progressive or Aaron's Business.
|
There were no changes to base salary made for the NEOs in 2019. The levels shown below were last adjusted in 2018:
Named Executive Officer
|
|
2019
Base Salary
|
John W. Robinson III
|
|
$
|
800,000
|
Steven A. Michaels
|
|
$
|
625,000
|
Ryan K. Woodley
|
|
$
|
600,000
|
Douglas A. Lindsay
|
|
$
|
600,000
|
Curtis L. Doman
|
|
$
|
475,000
|
Annual Cash Incentive Awards
Annual cash incentive awards provide the opportunity to earn cash rewards for meeting Company, Progressive, or Aaron's Business financial and operational performance goals. Under the 2019 program, our NEOs had the potential to earn cash incentive awards based on performance against pre-determined performance goals, with amounts that vary based on the degree to which the related goals are achieved.
Target Awards. At the beginning of the year, the Compensation Committee approves the target award opportunity for each NEO. For 2019, these target award opportunities remained unchanged from 2018.
|
|
2019
|
Named Executive Officer
|
|
Target % of Salary
|
John W. Robinson III
|
|
125%
|
Steven A. Michaels
|
|
100%
|
Ryan K. Woodley
|
|
100%
|
Douglas A. Lindsay
|
|
100%
|
Curtis L. Doman
|
|
100%
|
Performance Measures and Weights. The following were the performance measures and weights in the 2019 annual cash incentive program for each NEO:
Aaron's, Inc.
Robinson and Michaels
|
|
Progressive Leasing
Woodley and Doman
|
|
Aaron's Business
Lindsay
|
|
50% Adjusted EBITDA
|
|
|
|
50% Adjusted EBITDA
|
|
|
|
50% Adjusted EBITDA
|
|
|
30% Revenue
|
|
|
|
30% Revenue
|
|
|
|
30% Revenue
|
|
|
20% Compliance
|
|
|
|
20% Compliance
|
|
|
|
20% Compliance
|
|
In each case, the measures are specific to each entity, and calculated as follows:
●
|
Revenues are measured on a GAAP basis.
|
|
|
●
|
Adjusted EBITDA is based on GAAP earnings before interest expense, taxes, depreciation, and amortization, with overall Company, Aaron's Business and Progressive Adjusted EBITDA results (which, for purposes of determining Messrs. Woodley and Doman’s annual cash incentive award, is a combination of Progressive Leasing and DAMI. Adjusted EBITDA), subject to the non-GAAP adjustments described in the Company's Form 8-K filed with the SEC on February 20, 2020 and subject to further adjustments described below.
|
12
Table of Contents
●
|
Performance results for each measure also exclude the effects of certain nonrecurring items of gains and expenses or losses. For 2019, this included adjustments, as applicable, to remove the insurance recovery for the 2017 Hurricanes Harvey and Irma from Adjusted EBITDA metrics of Aaron’s Business and the overall Company results, to remove certain legal and due diligence costs from the Adjusted EBITDA metric for the Aaron's Business and the overall Company results, to adjust Progressive Leasing's Adjusted EBITDA metric for certain regulatory legal expenses incurred by Progressive Leasing and to remove the effect of the change in allowance for loan losses for Vive. Refer to Appendix A for additional information regarding these adjustments and the reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure.
|
|
|
●
|
Compliance-related goals established in the first quarter of 2019 for the overall Company, Progressive Leasing and our Aaron’s Business focused on several areas, including information security and related compliance training, the development and implementation of various processes to further improve compliance monitoring, and improving compliance procedures related to our Progressive business.
|
Performance Goals and Results. The Compensation Committee established annual goals for each of the performance measures in the annual incentive program, including a Threshold, Target, and Maximum performance goal that corresponded to a Threshold, Target, and Maximum incentive payout level. For the financial measures (Adjusted EBITDA and revenue), the payout range was from 25% to 200% of Target and for Compliance the payout range was from 0% to 125% of Target (based on the number of compliance goals achieved).
The following tables summarize the performance goals, performance results, and related incentive payout levels as a percent of target for each NEO:
Aaron’s, Inc.: Robinson and Michaels
|
($ Million)
|
|
|
|
Plan Performance Range
|
|
Actual Performance and Payout
|
|
|
|
|
|
|
|
|
|
|
Year Ending
|
|
|
|
Payout
|
Metric
|
|
Weight
|
|
Threshold
|
|
Target Zone1
|
|
Maximum
|
|
12/31/2019
|
|
% of Target
|
|
Calculation
|
Consolidated Revenue
|
|
30%
|
|
$3,851
|
|
$4,033 - $4,073
|
|
$4,256
|
|
$3,948
|
|
97.4%
|
|
79.5%
|
Consolidated Adj. EBITDA2
|
|
50%
|
|
$405
|
|
$438 - $443
|
|
$476
|
|
$435
|
|
98.9%
|
|
95.9%
|
Compliance3
|
|
20%
|
|
|
|
4 Projects
|
|
5 Projects
|
|
5 Projects
|
|
125.0%
|
|
125.0%
|
Payout
|
|
|
|
25%
|
|
100%
|
|
200%
|
|
|
|
|
|
96.8%
|
|
Progressive Leasing: Woodley and Doman
|
($ Million)
|
|
|
|
Plan Performance Range
|
|
Actual Performance and Payout
|
|
|
|
|
|
|
|
|
|
|
Year Ending
|
|
|
|
Payout
|
Metric
|
|
Weight
|
|
Threshold
|
|
Target Zone1
|
|
Maximum
|
|
12/31/2019
|
|
% of Target
|
|
Calculation
|
Progressive Revenues4
|
|
30%
|
|
$2,044
|
|
$2,187 - $2,209
|
|
$2,341
|
|
$2,163
|
|
98.4%
|
|
90.4%
|
Progressive Adj. EBITDA5
|
|
50%
|
|
$248
|
|
$270 - $273
|
|
$293
|
|
$266
|
|
98.2%
|
|
90.9%
|
Compliance3
|
|
20%
|
|
|
|
4 Projects
|
|
5 Projects
|
|
5 Projects
|
|
125.0%
|
|
125.0%
|
Payout
|
|
|
|
25%
|
|
100%
|
|
200%
|
|
|
|
|
|
97.5%
|
|
Aaron’s Business: Lindsay
|
($ Million)
|
|
|
|
Plan Performance Range
|
|
Actual Performance and Payout
|
|
|
|
|
|
|
|
|
|
|
Year Ending
|
|
|
|
Payout
|
Metric
|
|
Weight
|
|
Threshold
|
|
Target Zone1
|
|
Maximum
|
|
12/31/2019
|
|
% of Target
|
|
Calculation
|
Aaron’s Business Revenue
|
|
30%
|
|
$1,716
|
|
$1,846 - $1,865
|
|
$1,995
|
|
$1,784
|
|
96.2%
|
|
72.0%
|
Aaron’s Business Adj. EBITDA6
|
|
50%
|
|
$150
|
|
$168 - $170
|
|
$186
|
|
$165
|
|
97.5%
|
|
87.8%
|
Compliance3
|
|
20%
|
|
|
|
4 Projects
|
|
5 Projects
|
|
5 Projects
|
|
125.0%
|
|
125.0%
|
Payout
|
|
|
|
25%
|
|
100%
|
|
200%
|
|
|
|
|
|
90.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 If actual performance falls anywhere within this dollar range then payout is at 100% of target.
2 Further adjusted to remove insurance recoveries for the 2017 Hurricanes Harvey and Irma at the Aaron’s Business, to remove certain legal and due diligence costs at the Aaron’s Business and to remove the effect of the change in allowance for loan losses at Vive.
3 Maximum payout on Compliance is 125%.
4 Consolidation of Progressive and Vive.
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Table of Contents
5 Consolidation of Progressive and Vive, further adjusted to remove the effect of the change in allowance for loan losses at Vive and to adjust for certain regulatory legal expenses at Progressive Leasing.
6 Further adjusted to remove insurance recoveries for the 2017 Hurricanes Harvey and Irma and to remove certain legal and due diligence costs.
Based on the above performance results and incentive calculations, the chart below shows the final annual cash incentive awards paid to our NEOs for 2019 performance as compared to what those payments would have been at the target level:
Named Executive Officer
|
|
Target Annual Incentive1
|
|
Award Earned under
Annual Incentive Plan
|
John W. Robinson III
|
|
$
|
1,000,000
|
|
$
|
967,900
|
Steven A. Michaels
|
|
$
|
625,000
|
|
$
|
604,900
|
Ryan K. Woodley
|
|
$
|
600,000
|
|
$
|
585,300
|
Douglas A. Lindsay
|
|
$
|
600,000
|
|
$
|
542,800
|
Curtis L. Doman
|
|
$
|
475,000
|
|
$
|
463,300
|
|
|
|
|
|
|
|
1 Calculated on annual base salary paid for 2019.
Changes for 2020. As previously described, the Compensation Committee adopted changes to the 2020 annual cash incentive plan. These changes include eliminating the overlap with metrics in the performance share plan and a heightened focus on unit level profitability as measured through EBITDA. Beginning in 2020, officers with corporate responsibility including Messrs. Robinson and Michaels will be measured 80% on performance relative to corporate EBITDA goals and 20% relative to strategic objectives. Likewise, business unit leaders will be measured on EBITDA goals for the operating unit over which they have responsibility. Mr. Woodley and Mr. Doman will be measured on Progressive EBITDA goals, which will constitute 80% of their respective incentive opportunities and will have 20% of their respective annual incentive opportunities tied to strategic objectives. Mr. Lindsay will be measured on Aaron’s Business EBITDA goals, which will constitute 80% of his incentive opportunity and will have 20% of his incentive opportunity tied to strategic objectives.
Long-Term Equity Incentive Awards
Aaron’s long-term equity incentive awards are intended to:
●
|
reward the achievement of business objectives that the Compensation Committee believes will benefit our shareholders;
|
|
|
●
|
align the interests of our senior management with those of our shareholders; and
|
|
|
●
|
assist with retaining our senior management to ensure continuity of leadership.
|
Beyond these objectives, the Compensation Committee also considers market design practices, equity dilution, accounting expense, and other internal considerations when deciding on the structure and size of equity awards.
Award Type and Mix. Each year the Compensation Committee grants equity awards to our NEOs; however, the award type and mix may change from time to time. In order to balance performance and retention incentives, the 2019 equity awards were made in the form of performance share units, stock options, and time-based restricted stock awards.
14
Table of Contents
The graphic below depicts our 2019 equity award mix for all executives:
Equity Award
|
|
Objective
|
|
Provisions
|
Performance Shares
|
|
■Focus participants on the fundamentals of growing our business and increasing the level of our earnings over the long term.
|
|
■Number of performance shares earned based on one-year Company performance.
|
|
|
|
|
|
|
|
■One-year performance period ensures greater validity in our forecasts.
|
|
■Earned awards are subject to additional time-based vesting, with vesting occurring in three equal increments following the first, second, and third anniversaries of the grant.
|
|
|
|
|
|
Stock Options
|
|
■Aligns executives with shareholders, with the value of an award realized only if the stock price appreciates following the date of grant.
|
|
■Pro rata annual three-year vesting, with vesting occurring in three equal increments following the first, second, and third anniversaries of the grant.
|
|
|
|
|
|
Restricted Stock
|
|
■Addresses competitive concerns with a focus on retaining our key executives needed to realize our long-term performance objectives.
|
|
■Pro rata annual three-year vesting, with vesting occurring in three equal increments following the first, second, and third anniversaries of the grant.
|
Target Awards. Mr. Robinson’s target award is expressed as a dollar amount, with an annual grant date value that was established for 2015 at $5.2 million as per the employment agreement we entered into with him when he was promoted to serve as our Chief Executive Officer. Target awards for 2019 for our other NEOs are expressed as a percentage of base salary, and are unchanged from 2018 levels shown below:
Named Executive Officer
|
|
LTIP Target % of Salary
|
Steven A. Michaels
|
|
225%
|
Ryan K. Woodley
|
|
400%
|
Douglas A. Lindsay
|
|
225%
|
Curtis L. Doman
|
|
300%
|
These award target percentages were set by the Compensation Committee after reviewing the general award levels across our peer group and considering the responsibilities of each NEO.
Awards generally are converted to a target number of performance shares and time-based RSAs by dividing the allocable portion of the grant date award value by our closing stock price on the date of grant. To determine the number of options to grant, the allocable portion of the grant date award value was divided by the estimated fair value of an option, as determined for benchmarking purposes using the Black-Scholes valuation methodology.
15
Table of Contents
The LTI target awards that were granted to our NEOs pursuant to the 2019 program structure are set forth in the table below:
2019 Equity Awards
LTI Target Value
|
|
Stock Options
|
|
|
|
Restricted Stock
|
|
|
|
Performance
|
|
|
|
2019 LTI Value
|
Named Executive Officer
|
|
25%
|
|
+
|
|
25%
|
|
+
|
|
Shares 50%
|
|
=
|
|
Target
|
John W. Robinson III
|
|
$
|
1,300,000
|
|
|
|
$
|
1,300,000
|
|
|
|
$
|
2,600,000
|
|
|
|
$
|
5,200,000
|
Steven A. Michaels
|
|
$
|
351,563
|
|
|
|
$
|
351,563
|
|
|
|
$
|
703,125
|
|
|
|
$
|
1,406,250
|
Ryan K. Woodley
|
|
$
|
600,000
|
|
|
|
$
|
600,000
|
|
|
|
$
|
1,200,000
|
|
|
|
$
|
2,400,000
|
Douglas A. Lindsay
|
|
$
|
337,500
|
|
|
|
$
|
337,500
|
|
|
|
$
|
675,000
|
|
|
|
$
|
1,350,000
|
Curtis L. Doman
|
|
$
|
356,250
|
|
|
|
$
|
356,250
|
|
|
|
$
|
712,500
|
|
|
|
$
|
1,425,000
|
Shares Awarded (at target)
|
|
Stock Options
|
|
|
|
Restricted Stock
|
|
|
|
Performance
|
|
|
|
2019 LTI Shares
|
Named Executive Officer
|
|
25%
|
|
+
|
|
25%
|
|
+
|
|
Shares 50%
|
|
=
|
|
at Target
|
John W. Robinson III
|
|
66,930
|
|
|
|
24,000
|
|
|
|
48,000
|
|
|
|
138,930
|
Steven A. Michaels
|
|
18,120
|
|
|
|
6,510
|
|
|
|
12,990
|
|
|
|
37,620
|
Ryan K. Woodley
|
|
30,900
|
|
|
|
11,100
|
|
|
|
22,170
|
|
|
|
64,170
|
Douglas A. Lindsay
|
|
17,400
|
|
|
|
6,240
|
|
|
|
12,480
|
|
|
|
36,120
|
Curtis L. Doman
|
|
18,360
|
|
|
|
6,600
|
|
|
|
13,170
|
|
|
|
38,130
|
Performance Shares Performance Measures and Weights. The following were the performance measures and weights for the performance shares granted in 2019:
Aaron’s, Inc.
|
|
Progressive Leasing
|
|
Aaron’s Business
|
Robinson and Michaels
|
|
Woodley and Doman
|
|
Lindsay
|
50% Adjusted Revenue
|
|
50% Adjusted Revenue
|
|
50% Revenue
|
25% Adjusted EBITDA
|
|
30% Adjusted EBITDA
|
|
30% Adjusted EBITDA
|
25% Return on Capital
|
|
20% Adjusted Revenue (Consolidated)
|
|
20% Adjusted Revenue (Consolidated)
|
The Compensation Committee selected these measures to focus participants on growing our business and on sustaining and improving the quality of our earnings.
In each case, the measures are specific to each entity, except where noted as “consolidated,” which is referring to Aaron’s, Inc., and are calculated as follows:
●
|
Revenue is based on consolidated Aaron’s, Inc., Progressive, or Aaron’s Business results for 2019, as described above in “Components of the Executive Compensation Program-Annual Cash Incentive Awards” for the Aaron’s Business. Consolidated Aaron’s, Inc. Adjusted Revenue and Progressive Adjusted Revenue include the consolidation with Vive and are reduced for the amount of provision expense at Vive;
|
|
|
●
|
Adjusted EBITDA is based on consolidated Aaron’s, Inc., Progressive, or Aaron’s Business results for 2019, calculated as described above in “Components of the Executive Compensation Program-Annual Cash Incentive Awards”; and
|
|
|
●
|
Return on capital was measured by dividing adjusted net operating profit (which we define as operating profit adjusted for certain non-recurring items as shown in Appendix A) after tax by the sum of average net debt (which we define as debt less cash and cash equivalents) and average total shareholders’ equity, with the final result being an average of quarterly calculations.
|
16
Table of Contents
Refer to Appendix A for the reconciliation of these non-GAAP measures to the closest GAAP measurement.
Performance Goals and Results. The Compensation Committee established goals for each of the performance measures in the performance share program, including a Threshold, Target, and Maximum performance goal that corresponded to a Threshold, Target, and Maximum number of shares that could be earned. The number of shares that could be earned ranged from 25% to 200% of Target. Payouts for results between these levels are interpolated, with scales that vary by business segment. If the results are less than threshold, then no shares would be earned.
The following tables summarize the performance goals, performance results, and related earning levels as a percent of target for each NEO:
Aaron's, Inc.: Robinson and Michaels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ Million)
|
|
|
|
Plan Performance Range
|
|
Actual Performance and Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
Payout
|
Metric
|
|
Weight
|
|
Threshold
|
|
Target Zone1
|
|
Maximum
|
|
Actual
|
|
Target
|
|
Calculation
|
Consolidated Adjusted Revenue2
|
|
50%
|
|
$3,831
|
|
$4,012 - $4,053
|
|
$4,234
|
|
$3,926
|
|
97.4%
|
|
78.7%
|
Consolidated Adj. EBITDA3
|
|
25%
|
|
$405
|
|
$438 - $443
|
|
$476
|
|
$435
|
|
98.9%
|
|
95.9%
|
Consolidated ROC4
|
|
25%
|
|
9.9%
|
|
11.6% - 11.8%
|
|
14%
|
|
11.9%
|
|
101.6%
|
|
103.0%
|
Payout
|
|
|
|
25%
|
|
100%
|
|
200%
|
|
|
|
|
|
89.1%
|
|
Progressive: Woodley and Doman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ Million)
|
|
|
|
Plan Performance Range
|
|
Actual Performance and Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
Payout
|
Metric
|
|
Weight
|
|
Threshold
|
|
Target Zone1
|
|
Maximum
|
|
Actual
|
|
Target
|
|
Calculation
|
Progressive Adjusted Revenue5
|
|
50%
|
|
$2,025
|
|
$2,166 - $2,188
|
|
$2,318
|
|
$2,142
|
|
98.4%
|
|
89.9%
|
Progressive Adj. EBITDA6
|
|
30%
|
|
$248
|
|
$270 - $273
|
|
$293
|
|
$266
|
|
98.2%
|
|
90.9%
|
Consolidated Adjusted Revenue2
|
|
20%
|
|
$3,831
|
|
$4,012 - $4,053
|
|
$4,234
|
|
$3,926
|
|
97.4%
|
|
78.7%
|
Payout
|
|
|
|
25%
|
|
100%
|
|
200%
|
|
|
|
|
|
87.9%
|
|
Aaron's Business: Lindsay
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ Million)
|
|
|
|
Plan Performance Range
|
|
Actual Performance and Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
Payout
|
Metric
|
|
Weight
|
|
Threshold
|
|
Target Zone1
|
|
Maximum
|
|
Actual
|
|
Target
|
|
Calculation
|
Aaron's Business Revenue
|
|
50%
|
|
$1,716
|
|
$1,846 - $1,865
|
|
$1,995
|
|
$1,784
|
|
96.2%
|
|
72.0%
|
Aaron's Business Adj. EBITDA7
|
|
30%
|
|
$150
|
|
$168 - $170
|
|
$186
|
|
$165
|
|
97.5%
|
|
87.8%
|
Consolidated Adjusted Revenue2
|
|
20%
|
|
$3,831
|
|
$4,012 - $4,053
|
|
$4,234
|
|
$3,926
|
|
97.4%
|
|
78.7%
|
Payout
|
|
|
|
25%
|
|
100%
|
|
200%
|
|
|
|
|
|
78.1%
|
1 If actual performance falls anywhere within this dollar range then payout is at 100% of target.
2 Further adjusted to remove the effect of provision expense at Vive.
3 Further adjusted to remove insurance recoveries for Hurricanes Harvey and Irma at the Aaron's Business, to remove certain due diligence costs at the Aaron's Business and to remove the effect of the change in allowance for loan losses at Vive.
4 Return on Capital: Adjusted Net Operating Profit after Tax divided by the Sum of Average Net Debt and Average Equity. Net debt is equal to total debt less cash and cash equivalents.
5 Consolidation of Progressive and Vive, further adjusted to remove the effect of provision expense at Vive.
6 Consolidation of Progressive and Vive, further adjusted to remove the effect of the change in allowance for loan losses at Vive and to adjust for certain legal expenses at Progressive Leasing.
7 Further adjusted to remove insurance recoveries for Hurricanes Harvey and Irma and to remove certain due diligence costs.
The performance shares earned by the NEOs based on 2019 performance will vest in three annual increments on March 7, 2020, 2021, and 2022.
17
Table of Contents
Changes for 2020. As discussed above, the Compensation Committee made changes to the design of the 2020 performance share program. In order to eliminate overlap between the annual cash incentive plan and the performance share plan, the metrics for long-term incentive have been changed to focus largely on revenue creation. Line-of-sight profitability continues to be emphasized and measured via adjusted pre-tax income, and metrics for corporate participants will contain a balance sheet component to encourage a holistic and balanced approach to sustained growth and value creation. The weightings of the metrics will vary by operating segment as shown in the table below:
Aaron's, Inc.
|
|
Progressive Leasing
|
|
Aaron's Business
|
Robinson and Michaels
|
|
Woodley and Doman
|
|
Lindsay
|
60% Adjusted Revenue
|
|
70% Adjusted Revenue
|
|
70% Revenue
|
20% Adjusted Pre-tax Income
|
|
30% Adjusted Pre-tax Income
|
|
30% Adjusted Pre-tax Income
|
20% Return on Capital
|
|
|
|
|
Executive Compensation Policies
Stock Ownership Guidelines. The Compensation Committee has adopted stock ownership guidelines to further align the interests of senior executives with our shareholders. The table below summarizes the current guidelines that apply to our NEOs. As of December 31, 2019, all of our executive officers satisfied these guidelines.
Feature
|
|
Provision
|
Required levels
|
|
5x base salary: Chief Executive Officer
|
|
|
|
|
|
3x base salary:
|
|
|
|
|
|
■CFO and President, Strategic Operations;
■Chief Executive Officer, Progressive; and
■Chief Innovation Officer, Progressive
|
|
|
|
|
|
2x base salary: President, Aaron's Business
|
|
|
|
Shares counted toward guidelines
|
|
Stock owned outright
|
|
|
|
|
|
Shares held in retirement accounts
|
|
|
|
|
|
Unvested time-based RSUs and RSAs
|
|
|
|
|
|
Earned but unvested performance shares
|
|
|
|
|
|
“In the money” value of vested but unexercised stock options
|
Clawback Policy. The Compensation Committee has adopted a policy that provides that annual incentive and equity awards to our executive officers may be recouped if we restate our consolidated financial statements. Under this policy, covered employees including our NEOs may be required to repay to the Company the difference between the amount of incentives and awards received and the amount that would have been payable under the restated financial statements.
Securities Trading Policy. As part of our Insider Trading Policy, all of our officers and directors are prohibited from trading any interest or position relating to the future price of our securities. These prohibited transactions include trading in puts, calls, short sales, or hedging transactions, but do not generally prohibit other purchases and sales of our common stock made in compliance with the limitations contained in our Insider Trading Policy. Pledging of Company securities is prohibited under our Insider Trading Policy.
Tally Sheets. The Compensation Committee reviews tally sheets for select executives. These tally sheets provide a comprehensive view of target, actual, and contingent executive compensation payouts under a variety of termination and performance scenarios. The tally sheets allow the Compensation Committee to understand the cumulative effect of prior pay decisions and stock performance, as well as the retentive ability of existing LTIs, severance, and change-in-control arrangements. The tally sheets are intended to facilitate the Compensation Committee’s understanding of the nature and amounts of total compensation under our executive compensation program and to assist the Compensation Committee in its overall evaluation of our program.
18
Table of Contents
Executive Benefits and Perquisites
Our executive compensation program also provides certain benefits and perquisites to our NEOs. The value of these benefits and perquisites represents a small portion of an NEO’s overall total compensation opportunity and does not materially influence the Compensation Committee’s decisions with respect to the salary and incentive elements of the compensation of our NEOs. The Compensation Committee periodically reviews the perquisites and other personal benefits that we provide to senior management to ensure they remain in the best interests of the Company and its shareholders.
Healthcare Benefits. Our NEOs receive a full range of standard benefits, including the medical, dental, vision, life and voluntary disability coverage available to our employees generally.
Retirement Plans. Our NEOs participate on the same basis as other employees in the 401(k) Retirement Savings Plan, which we refer to as the 401(k) Plan, for all full-time employees. Employees with at least one year of service who meet certain eligibility requirements are eligible for a Company match.
Our 401(k) Plan uses a safe harbor formula that allows employees to contribute up to 75% of their annual compensation with 100% matching by the Company on the first 3% of compensation and an additional 50% match on the next 2% of compensation. All matching by the Company is immediately vested under the new plan formula and any prior contributions will continue to vest under the preceding vesting schedule.
Under the Company’s Nonqualified Deferred Compensation Plan, which we refer to as the “Deferred Compensation Plan,” a select group of management or highly compensated employees are eligible to elect to defer up to 75% of their base salary and up to 75% of their annual bonus on a pre-tax basis. Should they so elect, the Company will make discretionary matching contributions under the same formula that applies for our 401(k) Plan, with the benefit not exceeding the 401(k) Plan statutory limit.
Perquisites. Our NEOs may use the Company’s aircraft from time to time for non-business use. Incremental operating costs associated with such personal use is paid by the Company. The amount of income attributed to each NEO for income tax purposes from personal aircraft use is determined by the Standard Industry Fare Level method, and the executives are responsible for paying the tax on this income. The aggregate incremental cost to the Company of such use by each NEO, if any, is included under the “All Other Compensation” column of “Executive Compensation-Summary Compensation Table.”
Employment Agreements and Other Post-Termination Protections
To attract and retain talented executives, we recognize the need to provide protection to our executives in the event of certain termination situations. The highly competitive nature of the relevant market for key leadership positions means we may be at a competitive disadvantage in trying to retain our current leaders, or hire executives from outside the Company, if we are not able to offer them the type of protections typically found in the market.
Accordingly, we have entered into an employment agreement with Mr. Robinson that details the duties and related compensation for his service as our Chief Executive Officer, as well as the benefits he would receive in the event his employment is terminated under various scenarios. The employment agreement, dating from the Progressive acquisition, with Mr. Woodley expired and the Company elected to replace it with a severance and change-in-control agreement. Each of Messrs. Michaels, Woodley and Lindsay are covered by severance and change-in-control agreements we entered into with them in February 2019 and Mr. Doman is covered by the severance plan, all of which are intended to provide certain benefits in the event employment is terminated other than for cause, disability or death, or in the event termination of employment occurs by the executive officer for good reason following a change of control, with respect to Mr. Doman, and at any time with respect to Messrs. Michaels, Woodley and Lindsay. Mr. John Robinson’s employment agreement, the severance and change-in-control agreements and the severance plan aid us in retaining key leaders who are critical to the ongoing stability of our business, foster objectivity across the participants should they be asked to evaluate proposals that may result in the loss of their employment, and provide important protections to us in terms of confidential information and competitive matters that could arise after their employment is terminated.
The specific details of Mr. John Robinson’s employment agreement and our severance plan are described later in the sections titled “Executive Compensation-Employment Agreements with Named Executive Officers” and “Executive Compensation-Potential Payments Upon Termination or Change in Control-Severance Plan.”
19
Table of Contents
Policy on Compensation Tax Deductibility
Effective for tax years beginning after December 31, 2017, U.S. tax law changes expanded the definition of covered employees under Section 162(m) to include, among others, the Chief Financial Officer, and eliminate the performance-based compensation exception. The Tax Act of 2017 includes a transition or “grandfathering” rule under which the changes to Section 162(m) described above will not apply to compensation payable pursuant to a written binding contract that was in effect on November 2, 2017, and is not materially modified after that date. To the extent applicable to our existing contracts and awards, the Compensation Committee may avail itself of this transition rule. However, because of uncertainties as to the application and interpretation of this “grandfathering” rule, no assurances can be given at this time that our existing contracts and awards, even if in place on November 2, 2017, will meet the requirements of the “grandfathering” rule.
The Compensation Committee views the tax deductibility of executive compensation as one factor to be considered in the context of its overall compensation philosophy. The Committee expects in the future to authorize compensation in excess of $1,000,000 to named executive officers that will not be deductible under Section 162(m) when it believes doing so is in the best interests of the Company and its shareholders.
EXECUTIVE COMPENSATION
The following Summary Compensation Table summarizes the total compensation earned by, or awarded to, our named executive officers in 2019, 2018 and 2017, as applicable.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Stock
|
|
Option
|
|
Compensation(3)
|
|
Compensation(4)
|
|
Total
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
Awards(1)($)
|
|
Awards(2)($)
|
|
($)
|
|
($)
|
|
($)
|
John W. Robinson III
Chief Executive Officer
|
|
2019
|
|
800,000
|
|
3,900,960
|
|
1,311,159
|
|
967,900
|
|
1,171
|
|
6,981,190
|
|
2018
|
|
784,615
|
|
3,900,368
|
|
1,444,438
|
|
1,016,300
|
|
6,317
|
|
7,152,038
|
|
2017
|
|
700,000
|
|
3,900,874
|
|
1,258,389
|
|
1,156,100
|
|
3,846
|
|
7,019,209
|
Steven A. Michaels
Chief Financial Officer & President of Strategic Operations
|
|
2019
|
|
625,000
|
|
1,056,510
|
|
354,971
|
|
604,900
|
|
26,031(5)(6)
|
|
2,667,412
|
|
2018
|
|
613,462
|
|
1,054,843
|
|
391,006
|
|
635,700
|
|
34,784
|
|
2,729,795
|
|
2017
|
|
550,000
|
|
826,000
|
|
266,247
|
|
789,900
|
|
19,452
|
|
2,451,599
|
Ryan K. Woodley
Chief Executive Officer Progressive
|
|
2019
|
|
600,000
|
|
1,802,569
|
|
605,331
|
|
585,300
|
|
11,740(5)
|
|
3,604,940
|
|
2018
|
|
574,616
|
|
1,802,024
|
|
666,893
|
|
602,900
|
|
11,540
|
|
3,657,973
|
|
2017
|
|
435,000
|
|
1,305,455
|
|
421,173
|
|
603,200
|
|
11,340
|
|
2,776,168
|
Douglas A. Lindsay
President, Aaron's Business
|
|
2019
|
|
600,000
|
|
1,014,250
|
|
340,866
|
|
542,800
|
|
12,010(5)
|
|
2,509,926
|
|
2018
|
|
584,615
|
|
1,015,145
|
|
375,127
|
|
610,100
|
|
25,418
|
|
2,610,405
|
|
2017
|
|
500,000
|
|
375,899
|
|
121,068
|
|
744,600
|
|
17,480
|
|
1,759,047
|
Curtis L. Doman
Chief Innovation Officer Progressive
|
|
2019
|
|
475,000
|
|
1,071,139
|
|
359,672
|
|
463,300
|
|
12,010(5)
|
|
2,381,121
|
|
2018
|
|
463,462
|
|
1,070,439
|
|
395,968
|
|
486,200
|
|
11,810
|
|
2,427,879
|
|
2017
|
|
400,000
|
|
900,202
|
|
290,615
|
|
554,600
|
|
11,610
|
|
2,157,027
|
|
|
(1)
|
Represents the aggregate grant date fair value of awards of time-based RSUs, RSAs, and performance shares recognized by the Company as required by Financial Accounting Standards Board Codification Topic 718. See Note 13 to the Company’s consolidated financial statements in the Original Form 10-K for a discussion of the assumptions used in calculating these amounts. For the time-based RSUs and RSAs, the fair value is calculated using the closing stock price on the date of grant. For the performance shares, the fair value is also the closing stock price on the date of grant, multiplied by a number of shares that is based on the targeted attainment level, which represents the probable outcome of the performance condition on the date of grant. The amounts do not reflect the value actually realized or that may ultimately be realized by our named executive officers. Assuming the highest performance conditions for the performance share awards granted in 2019, the grant date fair value would be: Mr. Robinson $5,201,280; Mr. Michaels $1,407,596; Mr. Woodley $2,402,341; Mr. Doman $1,427,101; and Mr. Lindsay $1,352,333.
|
|
|
(2)
|
Represents the grant date fair value of awards of stock options recognized by the Company as required by the Financial Accounting Standards Board Codification Topic 718. The Company determines the fair value of stock options on the grant date using a Black-Scholes-Merton option pricing model that incorporates expected volatility, expected option life, risk-free interest rates, and expected dividend yields. See Note 13 to the Company’s consolidated financial statements in the Original Form 10-K for a discussion of the assumptions used in calculating these amounts.
|
|
|
(3)
|
Reflects the value of the cash bonus earned under our annual cash incentive award program.
|
20
Table of Contents
(4)
|
We provide a limited number of perquisites to our named executive officers and value those perquisites based on their aggregate incremental cost to the Company. We calculated the incremental cost of Company aircraft use based on the average variable operating costs to the Company. Variable operating costs include fuel costs, maintenance fees, positioning costs, catering costs, landing/ramp fees, and the amount, if any, of disallowed tax deductions associated with the personal use of Company aircraft. The total annual variable operating costs are divided by the annual number of flight hours flown by the aircraft to derive an average variable cost per flight hour. This average variable cost per flight hour is then multiplied by the flight hours flown for personal use to derive the incremental cost to the Company. This method excludes fixed costs that do not change based on usage, such as pilots’ and other employees’ salaries and benefits and hangar expenses. Aggregate incremental cost, if any, of travel by the executive’s family or other guests when accompanying the executive is also included.
|
|
|
(5)
|
Includes matching contributions in the amount of $11,200 made by the Company to Messrs. Michaels’, Woodley’s, Doman’s, or Lindsay’s account, as applicable, in the Company’s 401(k) plan.
|
|
|
(6)
|
Includes matching contributions in the amount of $11,200 made by the Company to Messrs. Michaels' account as part of the Nonqualified Deferred Compensation plan. These amounts are also included in the Nonqualified Deferred Compensation section below.
|
Grants of Plan-Based Awards in Fiscal Year 2019
Our Compensation Committee granted restricted stock, stock options and performance shares to our named executive officers during 2019. Set forth below is information regarding awards granted in 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
|
|
All
|
|
|
|
|
|
|
|
|
Potential Payouts Under Non-
|
|
Estimated Future
|
|
Other
|
|
Other
|
|
|
|
Grant
|
|
|
|
|
Equity Incentive Plan
Awards(1)
|
|
Payouts Under Equity
Incentive Plan Awards(2)
|
|
Stock
|
|
Option
|
|
|
|
Date
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Number
|
|
Exercise
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
|
|
of
|
|
or Base
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Securities
|
|
Price of
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
Stock or
Units(3)
|
|
Under-
lying
Options(4)
|
|
Option
Awards
($/Sh)
|
|
Option
Awards(5)
($)
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
|
|
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
|
|
|
John W. Robinson III
|
|
|
|
250,000
|
|
1,000,000
|
|
1,850,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
12,000
|
|
48,000
|
|
96,000
|
|
|
|
|
|
|
|
2,600,640
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000
|
|
|
|
|
|
1,300,320
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,930
|
|
54.18
|
|
1,311,159
|
Steven A. Michaels
|
|
|
|
156,250
|
|
625,000
|
|
1,156,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
3,248
|
|
12,990
|
|
25,980
|
|
|
|
|
|
|
|
703,798
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,510
|
|
|
|
|
|
352,712
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,120
|
|
54.18
|
|
354,971
|
Ryan K. Woodley
|
|
|
|
150,000
|
|
600,000
|
|
1,110,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
5,543
|
|
22,170
|
|
44,340
|
|
|
|
|
|
|
|
1,201,171
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,100
|
|
|
|
|
|
601,398
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,900
|
|
54.18
|
|
605,331
|
Douglas A. Lindsay
|
|
|
|
150,000
|
|
600,000
|
|
1,110,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
3,120
|
|
12,480
|
|
24,960
|
|
|
|
|
|
|
|
676,166
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,240
|
|
|
|
|
|
338,083
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,400
|
|
54.18
|
|
340,866
|
Curtis L. Doman
|
|
|
|
118,750
|
|
475,000
|
|
878,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
3,293
|
|
13,170
|
|
26,340
|
|
|
|
|
|
|
|
713,551
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,600
|
|
|
|
|
|
357,588
|
|
|
2/21/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,360
|
|
54.18
|
|
359,672
|
|
|
(1)
|
For the named executive officers, represents the amounts that could be earned under the annual cash incentive award program based on performance against pre-determined goals for revenue and Adjusted EBITDA, measured on a Company-wide basis or for Aaron's Business or Progressive, based on each executive’s organizational level. The amounts actually earned are included in the non-equity incentive plan compensation column of the Summary Compensation Table.
|
|
|
(2)
|
Represents the performance shares granted under our 2019 long-term equity incentive award program. Performance metrics for Messrs. Robinson and Michaels included consolidated Company revenues, consolidated Company Adjusted EBITDA and consolidated adjusted return on capital. Performance metrics for Messrs. Woodley and Doman included Progressive Adjusted EBITDA, Progressive revenues and consolidated Company total revenues. Performance metrics for Mr. Lindsay included consolidated Company revenues, revenues for the Aaron's Business and Adjusted EBITDA for the Aaron's Business. For all named executive officers who received awards, the threshold number of shares represents 25% of target, and the maximum number of shares represents 200% of target. Any awards earned vest in three approximately equal increments over a three-year period on March 7, 2020, 2021 and 2022. Based on our performance for the year, performance shares were earned under the 2019 program at 89.1% of target for Messrs. Robinson and Michaels, at 87.9% of target for Messrs. Woodley and Doman, and at 78.1% of target for Mr. Lindsay.
|
21
Table of Contents
(3)
|
Includes the time-based RSAs granted to each of our named executive officers under our 2019 long-term equity incentive award program, that are expected to vest in three approximately equal increments over a three-year period on each of March 7, 2020, 2021 and 2022.
|
|
|
(4)
|
Includes stock options granted under our 2019 long-term equity incentive award program that are expected to vest in three approximately equal increments over a three-year period on each of March 7, 2020, 2021 and 2022.
|
|
|
(5)
|
Represents the aggregate grant date fair value of awards recognized by the Company as required by Financial Accounting Standards Board Codification Topic 718. See Note 13 to the Company’s consolidated financial statements in the Original Form 10-K for a discussion of the assumptions used in calculating these amounts.
|
Employment Agreements with Named Executive Officers
Employment Agreement with Mr. Robinson. In connection with his appointment as Chief Executive Officer, effective November 10, 2014, we entered into a new employment agreement with Mr. Robinson that superseded our prior agreement with him that was entered into when we acquired the Progressive segment.
Mr. Robinson’s compensation as Chief Executive Officer was established by the Compensation Committee after considering the following: his compensation as Chief Executive Officer of Progressive, the significant increase in his responsibilities as a result of his appointment as Chief Executive Officer of the Company, market compensation levels generally for chief executive officers across the Company’s historical retail-oriented peer group, and the need to provide compensation opportunities to Mr. Robinson commensurate with his experience in and knowledge of the industry.
Mr. Robinson’s current agreement contains a rolling, three-year term although the Company may, upon proper notice, cease the automatic extension. The agreement provides for an initial annual base salary of $700,000, which was increased to $800,000 in 2019, for Mr. Robinson, a target annual cash incentive award of 100% of base salary, and for 2015 an annual target long-term incentive award with a value of $5,200,000. The agreement also provided for an initial equity grant of 5,000 time-based RSUs that vest on the first anniversary of the grant date.
Pursuant to this agreement, Mr. Robinson is entitled to participate in any of the Company’s present and future stock or cash bonus plans that are generally available to the Company’s executive officers. Mr. Robinson is also entitled to paid vacation, life insurance, health insurance, fringe benefits and such other employee benefits generally made available by the Company to its executive officers. Specific benefits will be provided in the event Mr. Robinson’s employment is terminated without cause by the Company or by him for good reason which are discussed in greater detail in “—Potential Payments Upon Termination or Change in Control.” Mr. Robinson’s employment agreement also contains customary confidentiality, non-competition, non-solicitation and release provisions in favor of the Company.
Employment Arrangement with Mr. Woodley. In connection with our acquisition of Progressive in 2014, we entered into an employment agreement with Mr. Woodley to serve as the Chief Operating Officer / Chief Financial Officer of Progressive at an initial annual base salary of $350,000 and a four-year term. Under the terms of his employment agreement, Mr. Woodley was eligible to participate in the Company’s annual cash and long-term incentive programs. Mr. Woodley would have received benefits under his agreement in the event of death or disability. Mr. Woodley also agreed to customary confidentiality, non-competition, non-solicitation and release provisions in favor of the Company. The Company subsequently appointed Mr. Woodley as Chief Executive Officer of Progressive in January 2015. The Company did not enter into an amended or new employment agreement with Mr. Woodley upon his appointment as CEO of Progressive. Mr. Woodley's employment agreement expired in April 2018 and no new employment agreement is in place.
Employment Arrangement with Mr. Doman. In connection with our acquisition of Progressive in 2014, we entered into an employment agreement with Mr. Doman to serve as the Chief Technology Officer of Progressive at an initial annual base salary of $350,000 and a four-year term. Under the terms of his employment agreement, Mr. Doman was eligible to participate in the Company’s annual cash and long-term incentive programs. Mr. Doman would have received benefits under his agreement in the event of death or disability. Under his employment agreement, Mr. Doman also agreed to customary confidentiality, non-competition, non-solicitation and release provisions in favor of the Company. Mr. Doman's employment agreement expired in April 2018 and no new employment agreement is in place.
22
Table of Contents
Aaron’s, Inc. Amended and Restated 2015 Equity and Incentive Plan
General. The purpose of the Aaron’s, Inc. Amended and Restated 2015 Equity and Incentive Plan, which was approved by our shareholders at an annual meeting on May 8, 2019, is to promote the long-term growth and profitability of Aaron’s and our subsidiaries by providing employees, directors, consultants, advisors and other persons who work for us and our subsidiaries with incentives to maximize shareholder value and otherwise contribute to our continued success. In addition, we believe the A&R 2015 Plan is a critical component to help us attract, retain and reward the best talent and align their interests with our shareholders. The A&R 2015 Plan amended our previous 2015 Equity and Incentive Plan to among other things:
●
|
Increase the remaining number of shares of common stock available for issuance by 3,000,000 shares; and
|
|
|
●
|
Revise the 2015 Equity and Incentive Plan in light of amendments to Internal Revenue Code Section 162(m) in the Tax Act to remove references to and provisions implemented in order to comply with Internal Revenue Code Section 162(m), including the individual limits on the number of awards that may be granted in any one fiscal year to any participant (other than the limitation on the number of options and SARs (as defined below) that can be granted in any one fiscal year).
|
Administration of the A&R 2015 Plan. The Board of Directors may appoint the Compensation Committee or such other committee consisting of two or more members (in each case, the “Committee”) to administer the A&R 2015 Plan, and the Board of Directors has currently designated the Compensation Committee to serve this function. The Committee has the right to select the persons who receive awards under the A&R 2015 Plan, to set the terms and conditions of such awards (including the term, exercise price, vesting conditions, and the consequences of termination of employment), and to interpret and administer the A&R 2015 Plan. Subject to the express provisions of the A&R 2015 Plan, the Committee is authorized and empowered to do all things that the Committee in its discretion determines to be necessary or appropriate in connection with the administration and operation of the A&R 2015 Plan.
Types of Awards. The A&R 2015 Plan provides for the grant of non-qualified stock options (“NQSOs”), incentive stock options (“ISOs”), stock appreciation rights (“SARs”), restricted stock, RSUs, performance shares, performance units, annual incentive awards and other stock-based awards to eligible participants. ISOs may only be granted to employees of the Company or its subsidiaries.
Shares Available for Issuance. The aggregate number of shares that will be available for issuance pursuant to awards granted under the A&R 2015 Plan is 8,566,816 shares (the “Share Pool”), subject to adjustment as described in the A&R 2015 Plan, of which 2,872,419 shares remain available for issuance as of April 20, 2020. The shares issued by the Company under the A&R 2015 Plan will be authorized but unissued shares or shares currently held (or subsequently acquired) as treasury shares, including shares purchased on the open market or in private transactions.
If shares awarded under the A&R 2015 Plan are not issued, or are reacquired by the Company, as a result of a forfeiture of restricted stock or an RSU, or the termination, expiration or cancellation of an NQSO, ISO, SAR, performance share or performance unit, or the settlement of an award in cash in lieu of shares, that number of shares will be added back to the Share Pool. If the exercise price of an option, or the purchase price and/or tax withholding obligation under any award is satisfied by the Company retaining shares or by the participant tendering shares (either by actual delivery or attestation), the number of shares so retained or tendered shall be deemed delivered for purposes of determining the Share Pool and shall not be available for further awards under the A&R 2015 Plan. To the extent a SAR is settled in shares of common stock, the gross number of shares subject to such SAR shall be deemed delivered for purposes of determining the Share Pool and shall not be available for further awards under the A&R 2015 Plan. Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of options shall not be added back to the Share Pool.
Amendment and Termination. The Board of Directors or the Committee may amend or terminate the A&R 2015 Plan in whole or in part at any time, but the amendment or termination cannot adversely affect any rights or obligations with respect to an award previously granted without the affected participant's written consent. The Company must obtain the approval of the shareholders before amending the A&R 2015 Plan to the extent required by Section 422 of the Code or the rules of the NYSE or other applicable law.
The Committee may amend an outstanding award agreement in a manner not inconsistent with the terms of the A&R 2015 Plan, but the amendment will not be effective without the participant's written consent if the amendment is materially adverse to the participant. The Committee cannot amend outstanding awards, without shareholder approval, to reduce the exercise price of outstanding awards, or cancel outstanding options or SARs in exchange for cash, another award or stock option or SAR with an option exercise price or SAR price that is less than the option exercise price or SAR price of the original stock option or SAR.
23
Table of Contents
Amended and Restated 2001 Stock Option and Incentive Award Plan
The Aaron Rents, Inc. 2001 Stock Option and Incentive Award Plan, as amended, or the “2001 Incentive Plan,” was terminated and replaced by the 2015 Equity and Incentive Plan which was subsequently amended by the A&R 2015 Plan. The 2001 Incentive Plan is no longer open to participation by any of our employees, officers or directors, and no further awards may be granted under the 2001 Incentive Plan. While the plan remained in effect, the Compensation Committee administered the 2001 Incentive Plan and had the exclusive right to set the terms and conditions of grants and awards, including the term, exercise price, vesting conditions (including vesting based on the Company’s performance or upon share price performance), and consequences of termination of employment. The Compensation Committee also selected the persons who receive such grants and awards and interpreted and administered the 2001 Incentive Plan. The last awards granted under the 2001 Incentive Plan vested in 2018, and the last stock options granted under that plan will expire in 2025.
Aaron’s, Inc. Employee Stock Purchase Plan
General. The purpose of the Aaron’s, Inc. Employee Stock Purchase Plan, which we refer to as the “ESPP”, which was approved by our shareholders at an annual meeting on May 9, 2018, is to encourage ownership of our common stock by eligible employees of Aaron’s and certain Aaron’s subsidiaries which have been designated as eligible to participate in the ESPP. Specifically, the ESPP provides eligible employees of Aaron’s and certain Aaron’s subsidiaries an opportunity to use payroll deductions to purchase shares of our common stock on periodic purchase dates at a discount. The Compensation Committee believes that the ESPP is a valued benefit for our eligible employee base. We believe that allowing employees to purchase shares of our common stock through the ESPP motivates high levels of performance and provides an effective means of encouraging employee commitment to our success and recruiting new employees. We expect that employee participation in the ownership of the business through the ESPP will be to the mutual benefit of both our employees and Aaron’s. Our Board of Directors or the Compensation Committee may amend, suspend or terminate the ESPP at any time. However, no amendment may increase the number of shares of common stock available under the ESPP, change the employees eligible to participate, or cause the ESPP to cease to be an “employee stock purchase plan” within the meaning of Section 423 of the Code, without obtaining shareholder approval within 12 months before or after such amendment.
Administration. The ESPP is administered by the Compensation Committee, although the Compensation Committee may, where permitted by the terms of the ESPP and applicable law, delegate administrative tasks under the ESPP to the services of an agent and/or Aaron’s employees to assist with the administration of the ESPP. Subject to the provisions of the ESPP and applicable law, the Compensation Committee or its delegate will have full and exclusive authority to interpret the terms of the ESPP and determine eligibility to participate in the ESPP. In all cases, the ESPP is required to be administered in such a manner so as to comply with applicable requirements of Section 423 of the Code. All determinations of the Compensation Committee are final and binding on all persons having an interest in the ESPP.
Offering Period, Purchase of Shares. Under the ESPP, participants have the ability to purchase shares of our common stock at a discount during a series of successive offering periods, which will commence and end on such dates as determined by the Compensation Committee or its delegate. Unless otherwise determined by the Compensation Committee or its delegate, each offering period will be six months in length. However, in no event may an offering period be longer than 27 months in length.
Shares Available for Issuance. The maximum number of shares of our common stock authorized for sale under the ESPP is 200,000. The shares made available for sale under the ESPP may be authorized but unissued shares, treasury shares, reacquired shares reserved for issuance under the ESPP, or shares acquired on the open market. As of December 31, 2019, the aggregate number of shares of common stock that may be issued under the ESPP was 128,134.
Outstanding Equity Awards at 2019 Fiscal Year-End
The following table provides information on outstanding stock option and stock awards held by the named executive officers, including both unexercised and unvested awards, as of December 31, 2019. The market value of the stock awards is based upon the closing market price for the Company’s common stock as of December 31, 2019, which was $57.11.
24
Table of Contents
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Equity Incentive
|
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Equity Incentive
|
|
Plan Awards:
|
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Market Value
|
|
Plan Awards:
|
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Market or
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
of Shares
|
|
Number of
|
|
Payout Value of
|
|
|
Securities
|
|
Securities
|
|
|
|
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|
Number of
|
|
or Units
|
|
Unearned Shares,
|
|
Unearned Shares, Units or
|
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
Shares of
|
|
of Stock
|
|
Units or
|
|
Other Rights
|
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
Stock That
|
|
That Have
|
|
Other Rights
|
|
That Have Not
|
|
|
Options
|
|
Options
|
|
Price
|
|
Expiration
|
|
Have Not
|
|
Not Vested
|
|
That Have Not
|
|
Vested
|
Name of Executive
|
|
Exercisable
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
Vested
|
|
($)(1)
|
|
Vested
|
|
($)(1)
|
John W. Robinson III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,919
|
|
|
—
|
|
|
27.80
|
|
12/5/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
182,250
|
|
|
—
|
|
|
22.64
|
|
2/26/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
98,120
|
(2)
|
|
49,060
|
(2)
|
|
27.18
|
|
2/24/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
29,110
|
(3)
|
|
58,220
|
(3)
|
|
47.26
|
|
3/2/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,930
|
(4)
|
|
54.18
|
|
2/21/2029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,950
|
(5)
|
|
910,905
|
|
44,774
|
|
|
2,557,043
|
|
|
|
|
|
|
|
|
|
|
|
|
18,340
|
(6)
|
|
1,047,397
|
|
36,314
|
|
|
2,073,893
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000
|
(7)
|
|
1,370,640
|
|
48,000
|
(8)
|
|
2,741,280
|
Steven A. Michaels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,735
|
|
|
—
|
|
|
29.77
|
|
2/18/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
7,597
|
|
|
—
|
|
|
29.25
|
|
4/15/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
25,200
|
|
|
—
|
|
|
28.04
|
|
3/10/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
38,550
|
|
|
—
|
|
|
22.64
|
|
2/26/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
20,760
|
(2)
|
|
10,380
|
(2)
|
|
27.18
|
|
2/24/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
7,880
|
(3)
|
|
15,760
|
(3)
|
|
47.26
|
|
3/2/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,120
|
(4)
|
|
54.18
|
|
2/21/2029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,380
|
(5)
|
|
193,032
|
|
9,477
|
|
|
541,231
|
|
|
|
|
|
|
|
|
|
|
|
|
4,960
|
(6)
|
|
283,266
|
|
9,820
|
|
|
560,820
|
|
|
|
|
|
|
|
|
|
|
|
|
6,510
|
(7)
|
|
371,786
|
|
12,990
|
(8)
|
|
741,859
|
Ryan K. Woodley
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,600
|
|
|
—
|
|
|
32.20
|
|
2/6/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
61,050
|
|
|
—
|
|
|
22.64
|
|
2/26/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
32,840
|
(2)
|
|
16,420
|
(2)
|
|
27.18
|
|
2/24/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
13,440
|
(3)
|
|
26,880
|
(3)
|
|
47.26
|
|
3/2/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,900
|
(4)
|
|
54.18
|
|
2/21/2029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,340
|
(5)
|
|
304,967
|
|
17,691
|
|
|
1,010,333
|
|
|
|
|
|
|
|
|
|
|
|
|
8,480
|
(6)
|
|
484,293
|
|
16,924
|
|
|
966,530
|
|
|
|
|
|
|
|
|
|
|
|
|
11,100
|
(7)
|
|
633,921
|
|
22,170
|
(8)
|
|
1,266,129
|
Douglas A. Lindsay
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,390
|
|
|
—
|
|
|
22.65
|
|
2/1/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
9,440
|
(2)
|
|
4,720
|
(2)
|
|
27.18
|
|
2/24/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
7,560
|
(3)
|
|
15,120
|
(3)
|
|
47.26
|
|
3/2/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,400
|
(4)
|
|
54.18
|
|
2/21/2029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,540
|
(5)
|
|
87,949
|
|
4,516
|
|
|
257,909
|
|
|
|
|
|
|
|
|
|
|
|
|
4,780
|
(6)
|
|
272,986
|
|
9,636
|
|
|
550,312
|
|
|
|
|
|
|
|
|
|
|
|
|
6,240
|
(7)
|
|
356,366
|
|
12,480
|
(8)
|
|
712,733
|
Curtis L. Doman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
—
|
|
|
32.20
|
|
2/6/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
42,000
|
|
|
—
|
|
|
22.64
|
|
2/26/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
22,660
|
(2)
|
|
11,330
|
(2)
|
|
27.18
|
|
2/24/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
7,980
|
(3)
|
|
15,960
|
(3)
|
|
47.26
|
|
3/2/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,360
|
(4)
|
|
54.18
|
|
2/21/2029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,680
|
(5)
|
|
210,165
|
|
12,203
|
|
|
696,913
|
|
|
|
|
|
|
|
|
|
|
|
|
5,040
|
(6)
|
|
287,834
|
|
10,050
|
|
|
573,956
|
|
|
|
|
|
|
|
|
|
|
|
|
6,600
|
(7)
|
|
376,926
|
|
13,170
|
(8)
|
|
752,139
|
|
|
(1)
|
Reflects award value based on a share price of $57.11, the closing price of our common stock on December 31, 2019.
|
|
|
(2)
|
These options vest in three equal increments on each of March 15, 2018, 2019 and 2020.
|
|
|
(3)
|
These options vest in three equal increments on each of March 7, 2019, 2020 and 2021.
|
|
|
(4)
|
These options vest in three equal increments on each of March 7, 2020, 2021 and 2022.
|
|
|
(5)
|
These RSAs vested on March 15, 2020.
|
|
|
(6)
|
One half of these RSAs vested on March 7, 2020 and the remaining one-half are expected to vest on March 7, 2021.
|
|
|
(7)
|
These RSAs vest in three equal increments on each of March 7, 2020, 2021 and 2022.
|
|
|
(8)
|
Amounts shown reflect performance shares subject to meeting specific performance goals and service periods, which, based on Company performance, are reflected at the target award level. Performance shares earned vest in three equal increments on each of March 7, 2020, 2021 and 2022.
|
25
Table of Contents
Options Exercised and Stock Vested in Fiscal Year 2019
The following table provides information for the named executive officers on (i) stock option exercises during 2019, including the number of shares acquired upon exercise and the value realized and (ii) the number of shares acquired upon the vesting of stock awards, each before payment of any applicable withholding tax and broker commissions.
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Shares
|
|
Value Realized on
|
|
Number of Shares
|
|
Value Realized
|
|
|
Acquired on Exercise
|
|
Exercise(1)
|
|
Acquired on Vesting
|
|
on Vesting(2)
|
Name
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
John W. Robinson III
|
|
—
|
|
—
|
|
144,735
|
|
7,535,298
|
Steven A. Michaels
|
|
11,250
|
|
350,205
|
|
32,235
|
|
1,680,954
|
Ryan K. Woodley
|
|
—
|
|
—
|
|
58,696
|
|
3,059,242
|
Douglas A. Lindsay
|
|
—
|
|
—
|
|
36,614
|
|
1,871,747
|
Curtis L. Doman
|
|
—
|
|
—
|
|
39,280
|
|
2,045,291
|
|
|
(1)
|
Reflects the value of options exercised based on the difference between the closing price of our common stock on the day of exercise and the applicable exercise price.
|
|
|
(2)
|
Reflects the value of shares that vested based on the closing price of our common stock on the applicable vesting date.
|
Pension Benefits
We do not provide defined benefit pension plans for our named executive officers.
Nonqualified Deferred Compensation as of December 31, 2019
Effective July 1, 2009, the Company implemented the Deferred Compensation Plan, an unfunded, nonqualified deferred compensation plan open to a select group of management, highly compensated employees and non-employee directors. On a pre-tax basis, eligible employees can defer receipt of up to 75% of their base salary and up to 75% of their incentive pay compensation, and eligible non-employee directors can defer receipt of up to 100% of their cash director fees. In addition, the Company elected to make restoration matching contributions on behalf of eligible employees to compensate for certain limitations on the amount of matching contributions an employee can receive under the Company’s tax-qualified 401(k) plan.
Compensation deferred under the plan is recorded as a deferred compensation liability, which is recorded in accounts payable and accrued expenses in the consolidated balance sheets. The deferred compensation plan liability was $11.2 million and $10.4 million as of December 31, 2019 and 2018, respectively. Liabilities under the plan are recorded at amounts due to participants, based on the fair value of participants’ selected investments, which consist of equity and debt “mirror” funds. The obligations are unsecured general obligations of the Company and the participants have no right, interest or claim in the assets of the Company, except as unsecured general creditors. The Company has established a rabbi trust to fund obligations under the plan primarily with Company-owned life insurance policies. The value of the assets within the rabbi trust, which is primarily the cash surrender value of the Company-owned life insurance, was $14.4 million and $13.5 million as of December 31, 2019 and 2018, respectively, and is included in prepaid expenses and other assets in the consolidated balance sheets. The Company recorded gains related primarily to changes in the cash surrender value of the Company-owned life insurance plans of $2.1 million and $1.5 million during the years ended December 31, 2019 and 2017, respectively, and recorded losses of $1.2 million during the year ended December 31, 2018, which were recorded within other non-operating income (expense), net in the consolidated statements of earnings.
Benefits of $3.0 million, $2.7 million and $2.3 million were paid during the years ended December 31, 2019, 2018 and 2017, respectively. Effective January 1, 2018 the Company implemented a discretionary match within the nonqualified Deferred Compensation Plan. The match allows eligible employees to receive 100% matching by the Company on the first 3% of contributions and 50% on the next 2% of contributions for a total of a 4% match. The annual match is not to exceed $11,000 for an individual employee and is subject to a three-year cliff vesting schedule. Deferred compensation expense charged to operations for the Company’s matching contributions was $0.4 million during the year ended December 31, 2019 and was not significant during the year ended December 31, 2018.
26
Table of Contents
The following table provides information on accounts of and compensation deferred by our named executive officers pursuant to the Deferred Compensation Plan.
|
|
Named Executive
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Officer
|
|
Company
|
|
Earnings (Loss)
|
|
Aggregate
|
|
Aggregate
|
|
|
Contributions
|
|
Contributions
|
|
in Last
|
|
Withdrawals /
|
|
Balance at
|
Name of Executive
|
|
in 2019
|
|
in 2019(2)
|
|
Fiscal Year
|
|
Distributions
|
|
December 31, 2019
|
John W. Robinson III(1)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Steven A. Michaels
|
|
|
44,285
|
|
|
11,200
|
|
|
156,879
|
|
|
—
|
|
|
747,339
|
Ryan K. Woodley(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Douglas A. Lindsay(2)
|
|
|
30,505
|
|
|
—
|
|
|
13,100
|
|
|
—
|
|
|
81,366
|
Curtis L. Doman(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
Messrs. Robinson, Woodley, and Doman do not participate in the Deferred Compensation Plan.
|
|
|
(2)
|
Messr. Lindsay was a participant in the Deferred Compensation Plan in prior periods but did not participate in 2019. Mr. Lindsay had contributions from 2018 bonus earnings paid into the plan during the first quarter of 2019.
|
|
|
(3)
|
Company discretionary match is calculated and allocated in Q1 of 2020 based on contributions made in 2019. Also included in the Other Compensation column of the Summary Compensation Table.
|
Potential Payments Upon Termination or Change in Control
Severance Plan. The Compensation Committee has adopted an Executive Severance Pay Plan, which we refer to as the “Severance Plan,” intended to provide senior managers certain benefits in the event their employment is terminated by us without cause or after a change in control. Mr. Doman is eligible for benefits under this plan which was adopted to assist us in hiring executives, in retaining key leaders who are critical to the ongoing stability of our business, and to foster objectivity across the participants should they be asked to evaluate proposals that may result in the loss of their employment. The Severance Plan also provides important protections to us in terms of confidential information and competitive matters that could arise after their employment is terminated.
In February 2019, we entered into severance and change-in-control agreements with each of Messrs. Michaels, Woodley and Lindsay. Each of those agreements will continue for a term of three years, automatically renewing for one-year periods after the initial term unless either party gives notice not to extend the term. Under each of these agreements, if the executive's employment is terminated by the Company during the two-year period from the commencement of a change in control (as defined in the agreement) other than for cause (as defined in the agreement), disability or death, or if employment is terminated by the executive for good reason (as defined in the agreement), the executive shall receive (i) severance payments in a lump sum amount equal to two times the sum of (x) the executive's annual salary plus (y) the executive's target bonus; (ii) a lump sum cash bonus payment based on the average annual bonus earned by the executive over the two years prior to the year in which the termination occurs, pro-rated based on the number of days in the year in which termination occurs that lapse prior to termination; (iii) a lump sum cash payment equal to the executive's accrued, unused vacation time; and (iv) a lump sum payment in an amount equal to two years' worth of the executive's monthly COBRA premiums for continued coverage under the Company's group health insurance plan, in each case, payable on the sixtieth day following termination. In the event of termination by the Company other than for cause, disability or death, or termination by the executive for good reason, in the absence of a change in control, or more than two years following a change in control, the executive would be entitled to (i) continued salary for twenty-four months following termination plus bonus payments in an amount equal to one-twelfth of the executive's target bonus in each of the twenty-four months following termination, payable no less frequently than on a monthly basis beginning on the sixtieth day following termination; and (ii) a lump sum cash payment in an amount equal to the executive's accrued, unused vacation time, payable on the sixtieth day following termination.
John W. Robinson III. The employment agreement with Mr. Robinson specifies the payments to be provided if Mr. Robinson’s employment is terminated under various scenarios described in the agreement, including death, disability, termination with or without cause, and termination by him with or without good reason.
Other than during the two years following a change in control, if Mr. Robinson is (i) involuntarily terminated by the Company without cause (and other than due to death or disability) or (ii) he voluntarily terminates his employment for good reason, Mr. Robinson would be entitled to receive (v) continued payment of salary for a period of twenty-four months and additional cash payments during each of the twenty-four months equal to one-twelfth of his target annual incentive for the year in which his termination occurs, (w) cash in an amount equal to the pro rata portion (based on the number of days in the year occurring prior to his termination) of the average of his bonuses earned during each of the two calendar years immediately preceding the year in which his termination occurs, or, if termination occurs prior to two full years of employment, the average of the earned bonus for any completed year and his target bonus for the year of termination, (x) cash in an amount after taxes equal to twenty-four multiplied by the difference between the monthly cost of participating in the Company’s medical programs under COBRA and the monthly premium that an active employee would pay for the same coverage, as of the date of termination, (y) vesting of all outstanding equity awards that have been granted to him to the extent provided under the terms of such awards and (z) payment for all accrued paid time off through his date of termination.
27
Table of Contents
During the two years following any change in control, if Mr. Robinson is (i) involuntarily terminated by the Company without cause (and other than due to death or disability) or (ii) voluntarily terminates his employment for good reason, Mr. Robinson would be entitled to receive (v) cash in an amount equal to two times his base salary plus two times his target annual incentive for the year in which his termination occurs, (w) cash in an amount equal to the pro rata portion (based on the number of days in the year occurring prior to his termination) of the average of his bonuses earned during each of the two calendar years immediately preceding the year in which his termination occurs, or, if termination occurs prior to two full years of employment, the average of the earned bonus for any completed year and his target bonus for the year of termination, (x) cash in an amount after taxes equal to twenty-four times the applicable COBRA premium to participate in the Company’s medical programs, as of the date of termination, (y) full vesting of all outstanding equity awards that have been granted to him and (z) payment for all accrued paid time off through his date of termination.
If Mr. Robinson voluntarily terminates his employment (other than for good reason or due to death or disability) or is involuntarily terminated by the Company for cause, Mr. Robinson would be entitled only to accrued but unpaid salary and earned bonus through the last day of his employment.
In the event of Mr. Robinson’s termination due to death or disability, Mr. Robinson (or his estate or beneficiary, as the case may be) would be entitled to receive any amounts accrued through his termination, including base salary and earned bonus. In addition, he would also be entitled to receive a pro rata bonus for the fiscal year in which the termination occurs equal to the bonus that would be payable under any annual bonus plan based on the Company’s performance at the end of the last completed fiscal quarter, prorated based on the number of days he worked in such year.
If any payments to be made or benefits to be provided under our employment agreement with Mr. Robinson would result in a “parachute payment” as defined in Section 280G of the Internal Revenue Code, then such payments or benefits will be reduced to the minimum extent necessary so that no such payment or benefit, as so reduced, would constitute a parachute payment, unless the net after-tax amount Mr. Robinson would receive without this reduction exceeds by at least 10% the net after-tax amount he would receive with this reduction.
Assuming Mr. Robinson’s employment terminated or there was a change in control on December 31, 2019, such payments and benefits have an estimated value of:
John W. Robinson III
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Termination Event
|
|
Cash Severance
|
|
Acceleration
|
|
Cash Bonus
|
|
Total Value
|
Voluntary Resignation by Executive
|
|
$
|
—
|
|
$
|
—
|
|
$
|
967,900
|
|
$
|
967,900
|
Termination by Company for Cause
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Termination due to Death
|
|
$
|
—
|
|
$
|
12,656,744
|
|
$
|
967,900
|
|
$
|
13,624,644
|
Termination due to Disability
|
|
$
|
—
|
|
$
|
12,656,744
|
|
$
|
967,900
|
|
$
|
13,624,644
|
Termination by Company without Cause
|
|
$
|
3,640,039
|
|
$
|
—
|
|
$
|
1,086,200
|
|
$
|
4,726,239
|
Termination by Executive for Good Reason
|
|
$
|
3,640,039
|
|
$
|
—
|
|
$
|
1,086,200
|
|
$
|
4,726,239
|
Termination by Company without Cause (following CIC)
|
|
$
|
3,660,116
|
|
$
|
12,640,296
|
|
$
|
1,086,200
|
|
$
|
17,386,612
|
Termination by Executive for Good Reason (following CIC)
|
|
$
|
3,660,116
|
|
$
|
12,939,096
|
|
$
|
1,086,200
|
|
$
|
17,685,412
|
Change in Control (CIC)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Steven A. Michaels, Ryan K. Woodley, Douglas A. Lindsay and Curtis L. Doman. Each of Messrs. Michaels, Woodley and Lindsay would receive awards under our severance and change-in-control agreements upon termination of employment during the two-year period from the commencement of a change in control, other than for cause, death or disability or if employment is terminated for good reason. Mr. Doman would receive awards under our Severance Plan upon termination of employment without cause or following a change in control. Under the terms of our Executive Severance Pay Plan that applied to Mr. Doman in 2019, non-equity awards would also be granted in certain instances upon termination of employment or in the event of a change in control. Under the 2015 A&R Plan, vesting is accelerated with respect to outstanding equity awards in certain instances but only upon termination of employment.
28
Table of Contents
Assuming Mr. Michaels’ employment terminated or there was a change in control on December 31, 2019, such payments and benefits have an estimated value of:
Steven A. Michaels
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Termination Event
|
|
Cash Severance
|
|
Acceleration
|
|
Cash Bonus
|
|
Total Value
|
Voluntary Resignation by Executive
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Termination by Company for Cause
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Termination due to Death
|
|
$
|
—
|
|
$
|
3,134,582
|
|
$
|
604,900
|
|
$
|
3,739,482
|
Termination due to Disability
|
|
$
|
—
|
|
$
|
3,134,582
|
|
$
|
604,900
|
|
$
|
3,739,482
|
Termination by Company without Cause
|
|
$
|
2,520,744
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,520,744
|
Termination by Executive for Good Reason
|
|
$
|
2,500,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,500,000
|
Termination by Company without Cause (following CIC)
|
|
$
|
2,541,489
|
|
$
|
3,130,127
|
|
$
|
712,800
|
|
$
|
6,384,416
|
Termination by Executive for Good Reason (following CIC)
|
|
$
|
2,541,489
|
|
$
|
3,130,127
|
|
$
|
712,800
|
|
$
|
6,384,416
|
Change in Control (CIC)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Assuming Mr. Woodley’s employment terminated or there was a change in control on December 31, 2019, such payments and benefits have an estimated value of:
Ryan K. Woodley
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Termination Event
|
|
Cash Severance
|
|
Acceleration
|
|
Cash Bonus
|
|
Total Value
|
Voluntary Resignation by Executive
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Termination by Company for Cause
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Termination due to Death
|
|
$
|
—
|
|
$
|
5,311,616
|
|
$
|
585,300
|
|
$
|
5,896,916
|
Termination due to Disability
|
|
$
|
—
|
|
$
|
5,311,616
|
|
$
|
585,300
|
|
$
|
5,896,916
|
Termination by Company without Cause
|
|
$
|
2,425,392
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,425,392
|
Termination by Executive for Good Reason
|
|
$
|
2,400,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,400,000
|
Termination by Company without Cause (following CIC)
|
|
$
|
2,450,785
|
|
$
|
5,359,759
|
|
$
|
603,050
|
|
$
|
8,413,594
|
Termination by Executive for Good Reason (following CIC)
|
|
$
|
2,450,785
|
|
$
|
5,359,759
|
|
$
|
603,050
|
|
$
|
8,413,594
|
Change in Control (CIC)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Assuming Mr. Lindsay’s employment terminated or there was a change in control on December 31, 2019, such payments and benefits have an estimated value of:
29
Table of Contents
Douglas A. Lindsay
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Termination Event
|
|
Cash Severance
|
|
Acceleration
|
|
Cash Bonus
|
|
Total Value
|
Voluntary Resignation by Executive
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Termination by Company for Cause
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Termination due to Death
|
|
$
|
—
|
|
$
|
2,431,239
|
|
$
|
542,800
|
|
$
|
2,974,039
|
Termination due to Disability
|
|
$
|
—
|
|
$
|
2,431,239
|
|
$
|
542,800
|
|
$
|
2,974,039
|
Termination by Company without Cause
|
|
$
|
2,420,837
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,420,837
|
Termination by Executive for Good Reason
|
|
$
|
2,400,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,400,000
|
Termination by Company without Cause (following CIC)
|
|
$
|
2,441,673
|
|
$
|
2,465,031
|
|
$
|
677,350
|
|
$
|
5,584,054
|
Termination by Executive for Good Reason (following CIC)
|
|
$
|
2,441,673
|
|
$
|
2,465,031
|
|
$
|
677,350
|
|
$
|
5,584,054
|
Change in Control (CIC)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Assuming Mr. Doman’s employment terminated or there was a change in control on December 31, 2019, such payments and benefits have an estimated value of:
Curtis H. Doman
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Termination Event
|
|
Cash Severance
|
|
Acceleration
|
|
Cash Bonus
|
|
Total Value
|
Voluntary Resignation by Executive
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Termination by Company for Cause
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Termination due to Death
|
|
$
|
—
|
|
$
|
3,328,452
|
|
$
|
—
|
|
$
|
3,328,452
|
Termination due to Disability
|
|
$
|
—
|
|
$
|
3,328,452
|
|
$
|
—
|
|
$
|
3,328,452
|
Termination by Company without Cause
|
|
$
|
497,879
|
|
$
|
—
|
|
$
|
—
|
|
$
|
497,879
|
Termination by Executive for Good Reason
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Termination by Company without Cause (following CIC)
|
|
$
|
1,459,319
|
|
$
|
3,391,383
|
|
$
|
485,800
|
|
$
|
5,336,502
|
Termination by Executive for Good Reason (following CIC)
|
|
$
|
1,459,319
|
|
$
|
3,391,383
|
|
$
|
485,800
|
|
$
|
5,336,502
|
Change in Control (CIC)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Employment Agreement Definitions. For purposes of our employment agreement with Mr. Robinson, “Cause” generally means such person’s (i) material fraud, malfeasance, gross negligence, or willful misconduct with respect to business affairs of the Company which is, or is reasonably likely to be if such action were to become known by others, directly or materially harmful to the business or reputation of the Company or any subsidiary of the Company; (ii) conviction of or failure to contest prosecution for a felony or a crime involving moral turpitude; or (iii) material breach of his employment agreement. A termination of Mr. Robinson for Cause based on clause (i) or (iii) of the preceding sentence would take effect 30 days after Mr. Robinson receives from the Company written notice of intent to terminate and the Company’s description of the alleged Cause, unless Mr. Robinson shall, during such 30-day period, remedy the events or circumstances constituting Cause; provided, however, that such termination shall take effect immediately upon the giving of written notice of termination of Cause under any clause if the Company shall have determined in good faith that such events or circumstances are not remediable (which determination shall be stated in such notice).
For purposes of our employment agreement with Mr. Robinson, “Change in Control” generally means: (i) the acquisition (other than from the Company) by any person of beneficial ownership, of thirty-five percent (35%) or more of the combined voting power of then outstanding securities of the Company entitled to vote generally in the election of directors, which we refer to as the Outstanding Company Voting Securities, excluding, however, (1) any acquisition by the Company or (2) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; (ii) a majority of the members of our Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of our Board of Directors before the date of the appointment or election; or (iii) consummation by the Company of a reorganization, merger, or consolidation or sale of all or substantially all of the assets of the Company; excluding, however, a transaction pursuant to which all or substantially all of the individuals or entities who are the beneficial owners, respectively, of the Outstanding Company Voting Securities immediately prior to such transaction will beneficially own, directly or indirectly, more than 50 percent of the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors of the corporation resulting from such transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such transaction, of the Outstanding Company Voting Securities.
30
Table of Contents
For purposes of the employment agreement with Mr. Robinson described herein, “Good Reason” generally means: (i) any material reduction in the named executive officer’s base salary; (ii) any material reduction in the named executive officer’s authority, duties or responsibilities; (iii) any significant change in the geographic location at which the named executive officer must perform his duties; or (iv) any material breach of the named executive officer’s employment agreement by the Company.
For purposes of the employment agreement with Mr. Robinson described herein, “Disability” shall mean the named executive officer’s inability, due to physical or mental injury or illness, to perform the essential functions of his position with or without reasonable accommodation for a period of 180 days, whether or not consecutive, occurring within any period of 12 consecutive months.
Severance Plan Definitions. Our Severance Plan contains definitions for the terms “Cause,” “Change in Control,” “Good Reason” and “Disability” which are substantially similar to those contained in “—Potential Payments Upon Termination or Change in Control—Employment Agreement Definitions” above.
Severance and Change-In-Control Agreement Definitions. For purposes of the Severance and Change-In-Control Agreement, "Cause" generally means (i) the commission by the executive of fraud, embezzlement, theft or proven dishonesty, or any other illegal act or practice; (ii) the willful engaging by the executive in misconduct which is deemed by the Board, in good faith, to be materially injurious to the Company or an affiliate of the Company; or (iii) the willful and continued failure or habitual neglect by the executive to perform the executive's duties with the Company or an affiliate of the Company substantially in accordance with the operating and personnel policies and procedures of the Company or an affiliate of the Company generally applicable to all of their employees.
Our Severance and Change-In-Control Agreement contains definitions for the terms “Change in Control,” “Good Reason” and “Disability” which are substantially similar to those contained in “—Potential Payments Upon Termination or Change in Control—Employment Agreement Definitions” above.
Incentive Plans. Generally, under the terms of our Executive Severance Pay Plan, in the event of a change in control, the named executive officer would receive an automatic payment of target-level cash bonuses, prorated to the extent the change in control occurs during the annual performance period. The Executive Severance Pay Plan does not contain a provision accelerating or awarding payments in the event of termination.
Under the terms of the A&R 2015 Plan and the related award agreements that apply to our executive officers, all outstanding unvested stock options, RSUs and earned performance shares immediately vest in the event of termination of employment due to death or disability. With respect to performance shares that have not been earned at the time of a termination of employment due to death or disability, those performance shares will not vest immediately, but rather, will vest at the earned amount that is determined at the end of the performance period applicable to those performance shares. In the event of termination for any other reason not in connection with a change in control, all unvested equity awards are forfeited. In the event of a change in control, all outstanding unvested stock options, RSUs and performance shares would vest upon a termination by the employer without Cause or by the executive officer for Good Reason during the following two years.
NON-MANAGEMENT DIRECTOR COMPENSATION IN 2019
The compensation program for our non-employee directors is designed to fairly compensate them for the effort and responsibility required to serve on the board of a company of our size and scope as well as to align our directors’ interests with those of our shareholders more generally.
Effective in January 2016, as amended in May 2018 to increase the annual award of restricted stock units (“RSUs”), and based upon the recommendation of the Compensation Committee's independent third-party compensation consultant, the compensation program for our non-employee directors was revised to better align with the interests of our shareholders as well as with current market practices. Under the re-designed program, non-employee directors receive an annual cash retainer of $75,000 and an annual award of restricted stock units having a value of $125,000, which generally vests one year following the grant date. In 2019, the grant date moved from January 1 to the Annual Meeting each year. As a result, an additional grant, valued at $35,000, was made January 1, 2019 to complete the transition of grant date and grant value. Our Chairman, Mr. Ray Robinson, also received a cash retainer of $100,000, paid quarterly in $25,000 installments, in recognition of the additional duties he performs by serving as our Chairman. Non-employee directors serving as the chairperson of the Audit, Compensation, and Nominating and Corporate Governance Committees also received an additional annual retainer of $20,000, $15,000 and $10,000, respectively, for their service in these roles and the additional time commitments required. Effective April 1, 2020, and in response to the impact of COVID-19 on the Company, our non-employee directors agreed to take a 20% reduction in their annual cash retainer for the 2020 fiscal year.
31
Table of Contents
Directors who are employees of the Company receive no compensation for their service on our Board of Directors.
The following table shows compensation earned by non-employee directors during 2019.
|
|
Fees Earned or
|
|
Stock
|
|
Total
|
Name
|
|
Paid in Cash ($)
|
|
Awards(1)($)
|
|
($)
|
Kelly H. Barrett(2), (3)
|
|
48,420
|
|
125,000
|
|
173,420
|
Kathy T. Betty(2), (4)
|
|
85,000
|
|
160,000
|
|
245,000
|
Douglas C. Curling(2), (5)
|
|
90,000
|
|
160,000
|
|
250,000
|
Cynthia N. Day(2), (6)
|
|
95,000
|
|
160,000
|
|
255,000
|
Walter G. Ehmer(2), (7)
|
|
75,000
|
|
160,000
|
|
235,000
|
Hubert L. Harris, Jr.(2), (8)
|
|
75,000
|
|
160,000
|
|
235,000
|
Ray M. Robinson(2), (9)
|
|
175,000
|
|
160,000
|
|
335,000
|
Robert H. Yanker(2), (10)
|
|
26,580
|
|
35,000
|
|
61,580
|
|
|
(1)
|
Represents the grant date fair value of stock awards pursuant to Financial Accounting Standards Board Codification Topic 718.
|
|
|
(2)
|
As of December 31, 2019, each of the non-executive directors, other than Mr. Yanker, held 2,144 units of restricted stock subject to vesting, which was the number of units of restricted stock granted to them in May 2019.
|
|
|
(3)
|
Includes $18,750 in fees earned for services in the fourth quarter of 2019 which will be paid in 2020.
|
|
|
(4)
|
Includes $21,250 in fees earned for services in the fourth quarter of 2019 which will be paid in 2020.
|
|
|
(5)
|
Includes $22,500 in fees earned for services in the fourth quarter of 2019 which will be paid in 2020.
|
|
|
(6)
|
Includes $23,750 in fees earned for services in the fourth quarter of 2019 which will be paid in 2020.
|
|
|
(7)
|
Includes $18,750 in fees earned for services in the fourth quarter of 2019 which will be paid in 2020 that Mr. Ehmer deferred under the Company's Nonqualified Deferred Compensation Plan and $56,250 in compensation Mr. Ehmer deferred under the Company's Nonqualified Deferred Compensation Plan.
|
|
|
(8)
|
Includes $18,750 in fees earned for services in the fourth quarter of 2019 which will be paid in 2020.
|
|
|
(9)
|
Includes $43,750 in fees earned for services in the fourth quarter of 2019 which will be paid in 2020.
|
|
|
(10)
|
The amount of fees earned for Mr. Yanker reflect that he no longer serves on our board of directors effective May 8, 2019. Mr. Yanker deferred his fees under the Company's Nonqualified Deferred Compensation Plan.
|
Stock Ownership Guidelines
Under the current stock ownership guidelines adopted by our Board of Directors in November 2015, each director is expected to own or acquire shares of our common stock and common stock equivalents (including restricted stock and restricted stock units) having a value of at least $400,000 prior to the later of January 31, 2020 or four years from when the director first joined our Board of Directors. As of December 31, 2019, each of our directors is currently in compliance with the requirements established in these guidelines.
32
Table of Contents
CEO Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of the individual identified as our “median” paid employee and the annual total compensation of John W. Robinson, III, our President and Chief Executive Officer (“CEO”).
For 2019, our last completed fiscal year:
●
|
the annual total compensation of the employee identified as the median paid employee of our company (other than our CEO), was $31,325;
|
|
|
●
|
the annual total compensation of our CEO was $6,981,190; and
|
|
|
●
|
the ratio between the annual total compensation of our CEO to the annual total compensation of the individual identified at median was estimated to be 223 to 1.
|
The methodology and material assumptions, adjustments, and estimates used to identify our median employee for this purpose were as follows:
2019 Median Employee:
In 2017, we used the methodology outlined below to identify our median employee.
In 2018, there was no significant change in our employee population or compensation arrangements since 2017 that we believed would have significantly impacted the pay ratio disclosure. Under SEC rules, we were therefore permitted to use the same employee identified in 2017. However, since this employee had since left the company, the SEC rules permitted us to use as our 2018 median employee someone who had substantially similar compensation to the employee identified as our median employee in 2017 based on our analysis conducted in 2017.
In 2019, there was no significant change in our employee population or compensation arrangements since 2018 that we believed would have significantly impacted the pay ratio disclosure. Therefore, we are now using the same median employee that was used in 2018.
Methodology to Identify Median Employee:
Population Included
●
|
We determined that, as of December 31, 2017, our employee population consisted of approximately 12,208 individuals globally.
|
|
|
●
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Pursuant to SEC rules, we employed the 5% “De Minimis Exemption” adjustment. The De Minimis Exemption allowed us to exclude our Canadian population of 294 employees as this population was less than 5% of our total population. After applying this exemption, the employee population used for purposes of identifying the median employee consisted of 11,914 employees, of whom all were located in the United States.
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Sampling Methodology
Given the availability of payroll data we employed statistical sampling to identify the “median employee.” To identify the sample population, we used the annual rate of pay for 2017, with salaries annualized for those permanent employees who did not work for the full year. We combined each of Aaron’s, Inc.’s operating subsidiaries (Aaron’s, Progressive Finance Holdings, LLC and Vive) into a singular population given the similarity of operating subsidiary population median pay. From this combined population we took the natural log of the annual rate of pay and calculated the median, standard deviation and variance of this population to determine the December 31, 2017 sample size of 400 employees. A computer-generated random sampling method was employed to determine the individuals in the 400 person sample. We then obtained 2017 W-2 earnings for each of the 400 employees in the sample. From this sample, we identified the median employee in 2017. As this individual is no longer with the company, we selected the employee closest to this employee’s W-2 compensation in 2017, and then calculated this new median’s annual total compensation for 2018 and 2019 as reported above.
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This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above.
Compensation Committee Interlocks and Insider Participation
For the year ended December 31, 2019, the Compensation Committee consisted of Mses. Betty and Day and Messrs. Curling and Ray Robinson, each of whom our Board of Directors determined was independent in accordance with NYSE listing requirements.
No member of the Compensation Committee during 2019 is or was formerly an officer or employee of the Company or any of its subsidiaries or was a related person in a related person transaction with the Company required to be disclosed under applicable SEC rules.
Compensation Committee Report
The Compensation Committee operates pursuant to a written charter adopted by the Board of Directors and available through the Company’s website, http://www.aarons.com. The Compensation Committee is composed of four independent members of the board as defined under the listing standards of the New York Stock Exchange and under the committee’s charter. The Compensation Committee is responsible for assisting the Board of Directors in fulfilling its oversight responsibilities with respect to executive and director compensation.
In keeping with its responsibilities, the Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis section contained in this Form 10-K/A. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis section be included in the proxy statement for the 2020 Annual Meeting of Shareholders and incorporated into the Annual Report on Form 10-K.
This report is respectfully submitted by the Compensation Committee of the Board of Directors.
Douglas C. Curling (Chair)
Kathy T. Betty
Cynthia N. Day
Ray M. Robinson