|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Owner
|
|
Common
Stock(1)
|
|
Rights to
Acquire(2)
|
|
Restricted
Stock(3)
|
|
Percent of
Common
Stock(4)
|
|
BGP Inc., China National Petroleum Corporation(5)
|
|
|
1,585,969
|
|
|
|
|
|
|
|
|
10.6
|
%
|
James M. Lapeyre, Jr.(6)
|
|
|
1,310,190
|
|
|
|
|
|
2,500
|
|
|
8.8
|
%
|
Gates Capital Management, L.P.(7)
|
|
|
1,212,408
|
|
|
|
|
|
|
|
|
8.1
|
%
|
Renaissance Technologies Holding Company(8)
|
|
|
1,026,523
|
|
|
|
|
|
|
|
|
6.9
|
%
|
Laitram, L.L.C.(9)
|
|
|
979,816
|
|
|
|
|
|
|
|
|
6.5
|
%
|
Empery Asset Management, LP(10)
|
|
|
832,314
|
|
|
|
|
|
|
|
|
5.6
|
%
|
R. Brian Hanson
|
|
|
20,299
|
|
|
72,921
|
|
|
203,332
|
|
|
2.0
|
%
|
Steven A. Bate
|
|
|
102,369
|
|
|
61,397
|
|
|
101,095
|
|
|
1.8
|
%
|
Kenneth G. Williamson
|
|
|
71,674
|
|
|
60,048
|
|
|
95,263
|
|
|
1.5
|
%
|
Christopher T. Usher
|
|
|
49,085
|
|
|
32,913
|
|
|
94,029
|
|
|
1.1
|
%
|
David H. Barr
|
|
|
22,933
|
|
|
|
|
|
2,500
|
|
|
*
|
|
Franklin Myers
|
|
|
20,000
|
|
|
|
|
|
2,500
|
|
|
*
|
|
S. James Nelson, Jr.
|
|
|
14,266
|
|
|
|
|
|
2,500
|
|
|
*
|
|
Matthew R. Powers
|
|
|
6,804
|
|
|
13,916
|
|
|
47,109
|
|
|
*
|
|
John N. Seitz
|
|
|
16,259
|
|
|
|
|
|
2,500
|
|
|
*
|
|
HuaSheng Zheng
|
|
|
373
|
|
|
|
|
|
1,875
|
|
|
*
|
|
All directors and executive officers as a group (12 Persons)
|
|
|
1,637,875
|
|
|
249,051
|
|
|
565,480
|
|
|
16.1
|
%
|
-
*
-
Less
than 1%
-
(1)
-
Represents
shares for which the named person (a) has sole voting and investment power or (b) has shared voting and investment power. Excluded are
shares that (i) are unvested restricted stock holdings or (ii) may be acquired through stock option exercises.
-
(2)
-
Represents
shares of Common Stock that may be acquired upon the exercise of stock options held by our officers and directors that are currently exercisable or will
be exercisable on or before April 29, 2019.
-
(3)
-
Represents
unvested shares subject to a vesting schedule, forfeiture risk and other restrictions. Although these shares are subject to risk of forfeiture, the holder
has the right to vote the unvested shares unless and until they are forfeited.
-
(4)
-
Assumes
shares subject to outstanding stock options that such person has rights to acquire upon exercise, presently and on or before April 29, 2019, are
outstanding.
-
(5)
-
The
address for BGP Inc., China National Petroleum Corporation is No. 189 Fanyang Middle Road, ZhuoZhou City, HeBei Province 072750 P.R. China.
-
(6)
-
The
shares of Common Stock held by Mr. Lapeyre include 129,402 shares that Mr. Lapeyre holds as a custodian or trustee for the benefit of his children,
979,816 shares owned by Laitram, L.L.C.
26
Table of Contents
(which
are set forth in the table under Laitram, L.L.C.), and 699 shares that Mr. Lapeyre holds as a co-trustee with his wife for the benefit of his children, in all of which Mr. Lapeyre
disclaims any beneficial interest. Please read note 9 below. Mr. Lapeyre has sole voting power over only 202,773 of these shares of Common Stock.
-
(7)
-
The
address for Gates Capital Management, L.P. is 1177 Avenue of the Americas, 46th Floor, New York, New York 10036. Gates Capital Management reports
that it has shared voting power with Gates Capital Management GP, LLC, Gates Capital Management, Inc. and Jeffrey L. Gates.
-
(8)
-
The
address for Renaissance Technologies Holdings Corporation is 800 Third Avenue, New York, New York 10022. Renaissance Technologies reported that it has sole
voting power with respect to 853,349 shares, sole dispositive powers with respect to 853,423 shares and shared dispositive power with respect to 173,100 shares.
-
(9)
-
The
address for Laitram, L.L.C. is 220 Laitram Lane, Harahan, Louisiana 70123. Mr. Lapeyre is the President and Manager of Laitram. Please read note 6
above. Mr. Lapeyre disclaims beneficial ownership of any shares held by Laitram.
-
(10)
-
The
address for Empery Asset Management, LP is 1 Rockefeller Plaza, Suite 1205, New York, New York 10020.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors and certain officers of ION, and persons who own more than 10% of ION's Common
Stock, to file with the SEC and the NYSE initial statements of beneficial ownership on Form 3 and changes in such ownership on Forms 4 and 5. Based on our review of the copies of such
reports, we believe that during 2018 our directors, executive officers and shareholders holding greater than 10% of our outstanding shares complied with all
applicable filing requirements under Section 16(a) of the Exchange Act, and that all of their filings were timely made.
27
Table of Contents
EXECUTIVE OFFICERS
Our executive officers are as follows:
|
|
|
|
|
Name
|
|
Age
|
|
Position with ION
|
R. Brian Hanson
|
|
54
|
|
President, Chief Executive Officer and Director
|
Steven A. Bate
|
|
56
|
|
Executive Vice President and Chief Financial Officer
|
Matthew R. Powers
|
|
43
|
|
Executive Vice President, General Counsel and Corporate Secretary
|
Scott P. Schwausch
|
|
44
|
|
Vice President and Corporate Controller
|
Christopher T. Usher
|
|
58
|
|
Executive Vice President and Chief Operating Officer, Operations Optimization
|
Kenneth G. Williamson
|
|
54
|
|
Executive Vice President and Chief Operating Officer, E&P Technology & Services
|
For
a description of the business background of Mr. Hanson, please see
"Class I
Term
Expiring in 2021"
above.
Mr. Bate
is currently our Executive Vice President and Chief Financial Officer. Mr. Bate rejoined ION in May 2013 as Senior Vice President, Systems Division, became the
Executive Vice President and Chief Operating Officer, Systems Division in February 2014 and became the Executive Vice President and Chief Financial Officer in November 2014. Mr. Bate originally
joined ION in 2005 as Chief Financial Officer of our GX Technology business unit. In 2007, he was appointed Senior Vice President, Sensor business unit and in 2009, his area of responsibility
broadened to our Land Imaging Systems Division. Following our formation in March 2010 of INOVA Geophysical, a land seismic equipment joint venture with BGP, Mr. Bate was appointed as INOVA
Geophysical's first President and Chief Executive Officer, and served in that role until October 2012. Prior to joining ION in 2005, Mr. Bate founded a consulting business and served as
President of a residential construction company. Mr. Bate holds a Bachelor of Business Administration degree from the University of Houston.
Mr. Powers
joined ION in 2013 as Senior Legal Counsel and held that position until February 2016 when he was promoted to Deputy General Counsel. In September 2017, he was promoted
to General Counsel and Corporate Secretary, and was further promoted to Executive Vice President in October 2017. Prior to joining ION, Mr. Powers held a variety of positions in the Houston
offices of Mayer Brown LLP (beginning in 2005 and ending in 2012) and Sidley Austin LLP (beginning in 2012 and ending in 2013). Mr. Powers holds a Juris Doctor from the University
of Chicago Law School and a
Bachelor's degree in Economics, summa cum laude, from the University of Colorado-Denver. He is licensed to practice in Texas.
Mr. Schwausch
joined ION in 2006 as Assistant Controller and held that position until June 2010 when he became Director of Financial Reporting. In May 2012, he became Controller,
Solutions Business Unit, and in May 2013 became Vice President and Corporate Controller. Mr. Schwausch held a variety of positions at Deloitte & Touche, LLP, a public accounting
firm, from 2000 until he joined ION. Mr. Schwausch is a Certified Public Accountant and a Certified Management Accountant. He received a Bachelor of Science degree in accounting from Brigham
Young University.
Mr. Usher
is our Executive Vice President and Chief Operating Officer, Operations Optimization. Mr. Usher joined ION in November 2012 as the Executive Vice President and
Chief Operating Officer, GeoScience Division. Prior to joining our Company, Mr. Usher served as the Senior Vice President, Data Processing, Analysis and Interpretation and Chief Technology
Officer (including significant merger and acquisitions responsibility) of Global Geophysical Services, Inc., a NYSE-listed seismic products and services company, since January 2010. Prior to
joining Global, Mr. Usher served from October 2005 to January 2010 as Senior Director at Landmark Software and Services (including significant merger and acquisition responsibility), a division
of Halliburton Company, an oilfield services company.
28
Table of Contents
From
2004 to 2005, he was Senior Corporate Vice President, Integrated Services, at Paradigm Geotechnology, an E&P software company. From 2000 to 2003, Mr. Usher served as President of the
global data processing division of Petroleum Geo-Services (PGS), a marine geophysical contracting company. He began his career at Western Geophysical where he served in a number of roles over his
17-year tenure before becoming the Worldwide VP Technology. Mr. Usher holds a Bachelor of Science degree in geology and geophysics from Yale University.
Mr. Williamson
is our Executive Vice President and Chief Operating Officer, E&P Technology & Services. Mr. Williamson originally joined ION as Vice President of our
GeoVentures business unit in September 2006, became a Senior Vice President in January 2007, and became Executive Vice President and Chief Operating Officer, GeoVentures Division, in November 2012 and
Executive Vice President and Chief Operating Officer of E&P Technology & Services in February of 2015. Between 1987 and 2006, Mr. Williamson was employed by Western Geophysical, which in
2000 became part of WesternGeco, a seismic solutions and technology subsidiary of Schlumberger, Ltd., a global oilfield and information services company. While at WesternGeco,
Mr. Williamson served as Vice President, Marketing from 2001 to 2003, Vice President, Russia and Caspian Region, from 2003 to 2005 and Vice President, Marketing, Sales &
Commercialization of WesternGeco's electromagnetic services and technology division from 2005 to 2006. Mr. Williamson holds a Bachelor of Science degree in geophysics from Cardiff University in
Wales.
29
Table of Contents
EXECUTIVE COMPENSATION
Introductory note: The following discussion of executive compensation contains descriptions of various employee benefit
plans and employment-related agreements. These descriptions are qualified in their entirety by reference to the full text or detailed descriptions of the plans and agreements, which are filed or
incorporated by reference as exhibits to our annual report on Form 10-K for the year ended December 31, 2018. In this discussion, the terms "ION," "we," "our" and "us" refer to ION
Geophysical Corporation and its consolidated subsidiaries, except where the context otherwise requires or as otherwise indicated.
30
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides an overview of the Compensation Committee of the Company's Board of Directors, a discussion
of the background and objectives of our compensation programs for our senior executives, and a discussion of all material elements of the compensation of each of the executive officers identified in
the following table, whom we refer to as our named executive officers ("NEOs"):
|
|
|
Name
|
|
Title
|
R. Brian Hanson
|
|
President, Chief Executive Officer and Director
|
Steven A. Bate
|
|
Executive Vice President and Chief Financial Officer
|
Matthew R. Powers
|
|
Executive Vice President, General Counsel and Corporate Secretary
|
Christopher T. Usher
|
|
Executive Vice President and Chief Operating Officer, Operations Optimization
|
Kenneth G. Williamson
|
|
Executive Vice President and Chief Operating Officer, E&P Technology & Services
|
Executive Summary
General.
Our executive compensation program provides our NEOs with total annual compensation that includes three principal elements:
base salary,
performance-based annual non-equity incentive plan compensation (annual cash bonuses), and long-term equity-based incentive awards. (For the purposes of this Compensation Discussion and Analysis, our
stock appreciation rights awards ("SARs") are categorized as long-term equity-based incentive awards because, while they are cash-settled, their value is determined by the spread between the price of
the Company's common stock on the date they are granted and the price of the Company's common stock on date they are exercised). A significant portion of each NEOs' total annual compensation is
performance based and is at risk and dependent upon our Company's achievement of specific, measurable performance goals. Our performance-based pay closely aligns our NEOs' interests with those of our
shareholders and promotes the creation of shareholder value, without encouraging excessive risk-taking. In addition, our equity programs, combined with our executive share ownership requirements are
designed to reward long-term stock performance and encourage investment in the Company.
Annual Bonus Incentive Plan.
Payments under our annual cash bonus incentive plan for 2018 (which were made in February 2019) reflected
the Company's
performance and the level of achievement of our 2018 plan performance goals. NEOs' bonus targets range from 60% to 100% of their annual base
salaries. The total dollars that could have been achieved under the bonus plan pool (by all participating employees of the Company, including the NEOs) were increased from $14 million in 2017
to a maximum of $14.5 million in 2018.
The
Compensation Committee determined that the bonus available for awards paid to our NEOs under the 2018 plan should be based on a combination of long-term strategic initiatives and
cash generation goals. In early 2019, the Compensation Committee reviewed the Company's progress towards the achievement of the strategic initiatives and cash generation goals, and approved a bonus
for each NEO based on each individual's achievement of key objectives and company performance. In approving the individual awards to our NEOs in February 2019, the Compensation Committee noted that,
although the Company fell short of its cash generation goals, our NEOs' efforts had helped the Company execute on several of its long-term strategic initiatives. It was also noted that the Company's
strategic vision helped to stimulate investor interest that culminated in a successful equity raise, and that the NEOs' efforts to execute that vision had contributed to that success.
Base Salaries.
No NEO received an increase in base pay in 2018.
31
Table of Contents
Long-Term Stock-Based Incentive Compensation.
The Compensation Committee approved significant grants of equity-based compensation in
2018, including
to our NEOs, in the form of restricted stock and SARs. However, these awards were structured differently than the Company's awards in the past. As described below, in addition to containing
traditional time-based vesting restrictions (the shares vest equally on the first, second and third anniversary of the grant, subject to continued employment), they also contain very aggressive
performance-based vesting restrictions tied to the performance of our Company's stock price. The Compensation Committee believes that these performance-based vesting triggers allow a more efficient
use of available equity from our long-term incentive plan, and more closely align our NEOs' interests with those of our shareholders by instilling ownership thinking.
Corporate Governance
Compensation Committee
The Compensation Committee of our Board reviews and approves, or recommends to the Board for approval, all salary and other remuneration for our
NEOs and oversees matters relating to our employee compensation and benefit programs. No member of the Compensation Committee is an employee of ION. The Board has determined that each member of the
Compensation Committee satisfies the definition of "independent" as established in the NYSE corporate governance listing standards. In determining the independence of each member of the Compensation
Committee, the Board considered all factors specifically relevant to determining whether the director has a relationship to our Company that is material to the director's ability to be independent
from management in the execution of his duties as a Compensation Committee member, including, but not limited to:
-
-
the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by us to the director; and
-
-
whether the director is affiliated with our Company, a subsidiary or affiliate.
When
considering the director's affiliation with us for purposes of independence, the Board considered whether the affiliate relationship places the director under the direct or indirect
control of our Company or its senior management, or creates a direct relationship between the director and members of senior management, in each case, of a nature that would impair the director's
ability to make independent judgments about our executive compensation.
The
Compensation Committee operates pursuant to a written charter that sets forth its functions and responsibilities. A copy of the charter can be viewed on our website
at
http://ir.iongeo.com/phoenix.zhtml?c=101545&p=irol-govhighlights
. For a description of the responsibilities of the Compensation Committee, see
"Item 1.Election of DirectorsCommittees of the BoardCompensation Committee"
above.
During
2018, the Compensation Committee met five times and took action by unanimous written consent one time.
Compensation Consultants
The Compensation Committee has the authority and necessary funding to engage, terminate and pay compensation consultants, independent legal
counsel and other advisors in its discretion. Prior to retaining any such compensation consultant or other advisor, the Compensation Committee evaluates the independence of such advisor and evaluates
whether such advisor has a conflict of interest.
32
Table of Contents
Role of Management in Establishing and Awarding Compensation
On an annual basis, our Chief Executive Officer, with the assistance of our Human Resources department, recommends to the Compensation Committee
any proposed increases in base salary, bonus payments and equity awards for our NEOs other than himself. No NEO is involved in determining his own salary increase, bonus payment or equity award. When
making officer compensation recommendations, our Chief Executive Officer takes into consideration compensation benchmarks, which include data relating to the compensation of employees at comparable
companies, the level of inherent importance and risk associated with the position and function, and the executive's job performance over the previous year. See
"
Objectives of Our Executive Compensation ProgramsBenchmarking
" and
"Elements of
CompensationBase Salary"
below.
Our
Chief Executive Officer, with assistance and input from our senior management, also formulates and proposes to the Compensation Committee an employee bonus incentive plan for the
ensuing year. For a description of our process for formulating the employee bonus incentive plan and the factors that we consider, see "
Elements of
CompensationBonus Incentive Plan
" below.
The
Compensation Committee reviews and approves all compensation and awards to NEOs and all bonus incentive plans. With respect to equity compensation awarded to employees other than
NEOs, the Compensation Committee reviews and approves all grants of restricted stock and stock options
above 5,000 shares, generally based upon the recommendation of the Chief Executive Officer, and has delegated option and restricted stock granting authority to the Chief Executive Officer as permitted
under Delaware law for grants to non-NEOs of up to 5,000 shares.
Of
its own initiative, at least once a year, the Compensation Committee reviews the performance and compensation of our Chief Executive Officer and, following discussions with the Chief
Executive Officer and other members of the Board, establishes his compensation level. Where it deems appropriate, the Compensation Committee will also consider market compensation information from
independent sources. See "
Objectives of Our Executive Compensation ProgramsBenchmarking
" below.
Certain
members of our senior management generally attend most meetings of the Compensation Committee, including our Chief Executive Officer and our Executive Vice President, General
Counsel & Corporate Secretary. However, no member of management votes on items being considered by the Compensation Committee. The Compensation Committee and Board do solicit the views of our
Chief Executive Officer on compensation matters, particularly as they relate to the compensation of the other NEOs and the other members of senior management reporting to the Chief Executive Officer.
The Compensation Committee often conducts an executive session during meetings, during which members of management are not present.
Objectives of Our Executive Compensation Programs
General Compensation Philosophy and Policy
Through our compensation programs, we seek to:
-
-
attract and retain qualified and productive executive officers and key employees by providing total compensation competitive with that of other
executives and key employees employed by companies of similar size, complexity and industrial sector;
-
-
encourage our executives and key employees to drive the Company's financial and operational performance;
-
-
structure compensation to create meaningful links between corporate performance, individual performance and financial rewards;
33
Table of Contents
-
-
align the interests of our executives with those of our shareholders by providing a significant portion of total pay in the form of
equity-based incentives;
-
-
encourage long-term commitment to our Company; and
-
-
limit corporate perquisites to seek to avoid perceptions both within and outside of our Company of "soft" compensation.
Our
governing principles in establishing executive compensation have been:
Long-Term and At-Risk Focus.
Compensation opportunities should be composed of long-term, at-risk pay to focus our management on the
long-term
interests of our Company.
Equity Orientation.
Equity-based plans should comprise a major part of the at-risk portion of total compensation to instill ownership
thinking and to
link compensation to corporate performance and shareholder interests.
Competitive.
We emphasize total compensation opportunities consistent on average with our peer group of companies. Competitiveness of
annual base pay
and annual bonuses is independent of stock performance. However, overall competitiveness of total compensation is generally contingent on long-term, equity-based compensation programs. Base salary,
annual bonuses and employee benefits should be close to competitive levels when compared to similarly situated companies.
Focus on Total Compensation.
In making decisions with respect to any element of an NEO's compensation, the Compensation Committee
considers the total
compensation that may be awarded to the NEO, including salary, annual cash bonus and long-term equity-based incentive compensation. The Compensation Committee analyzes all of these elements of
compensation (including the compensation mix) as well as the aggregate total amount of actual and projected compensation. In its most recent review of total compensation, the Compensation Committee
determined that annual compensation amounts for our Chief Executive Officer and our other NEOs remained generally consistent with the Compensation Committee's expectations. However, the Compensation
Committee reserves the right to make changes that it believes are warranted.
Internal Pay Equity.
Our core compensation philosophy is to pay our NEOs competitive levels of compensation that best reflect their
individual
responsibilities and contributions to our Company, while providing incentives to achieve our business and financial objectives. While comparisons to compensation levels at other companies are helpful
in assessing the overall competitiveness of our compensation program, we believe that our executive compensation program also must be internally consistent and equitable in order for our Company to
achieve our corporate objectives. Over time, there have been variations in the comparative levels of compensation of NEOs and changes in the overall composition of the management team and the overall
accountabilities of the individual NEOs; however, we and the Compensation Committee are satisfied that total compensation received by NEOs reflects an appropriate differential for executive
compensation.
These
principles apply to compensation policies for all of our NEOs and key employees. We do not follow the principles in a mechanistic fashion; rather, we apply experience and judgment
in determining the appropriate mix of compensation for each individual. This judgment also involves periodic review of discernible measures to determine the progress each individual is making toward
agreed-upon goals and objectives.
34
Table of Contents
Benchmarking
When making compensation decisions, we also look at the compensation of our Chief Executive Officer and other NEOs relative to the compensation
paid to similarly situated executives at companies that we consider to be our industry and market peersa practice often referred to as "benchmarking." We believe, however, that a
benchmark should be just thata point of reference for measurementbut not the determinative factor for our executives' compensation. The purpose of the comparison is not to
supplant the analyses of internal pay equity, shareholder interests and the individual performance of the NEOs that we consider when making compensation decisions. Because the comparative compensation
information is just one of the several analytic tools that are used in setting executive compensation, the Compensation Committee has discretion in determining the nature and extent of its use.
Further, given the limitations associated with comparative pay information for setting individual executive compensation, including the difficulty of assessing and comparing wealth accumulation
through equity gains, the Compensation Committee may elect not to use the comparative compensation information at all in the course of making compensation decisions.
In
most years, at least once each year, our Human Resources department, under the oversight of the Compensation Committee, reviews data from market surveys, independent consultants and
other sources to assess our competitive position with respect to base salary, annual bonuses and long-term incentive compensation. When reviewing compensation data in the fall of 2018, we utilized
data primarily from Gartner Inc. At that same time, the Company also engaged the services of Aon Hewitt a leading compensation consultant, to analyze our compensation program relative to
industry practice (see "
Long-Term Stock-Based Incentive Compensation"
, below).
Reviewing
compensation data provides a starting point for our compensation analysis. We believe that the data contain relevant compensation information from companies that are
representative of the sector in which we operate, have relative size as measured by market capitalization and experience relative complexity in the business and the executives' roles and
responsibilities. We look extensively at a number of other factors beyond the data, including our estimates of the compensation at our most comparable competitors and other companies that were closest
to our Company in size, profitability and complexity. We also consider an individual's current performance, the level of responsibility, risk of attrition, and the employee's skills and experience,
collectively, in making compensation decisions.
In
the case of our Chief Executive Officer and some of our other NEOs, we also consider our Company's performance during the person's tenure and the anticipated level of compensation
that would be required to replace the person with someone of comparable experience and skill.
In
addition to our periodic review of compensation, we also regularly monitor market conditions and will adjust compensation levels from time to time as necessary to remain competitive
and retain our most valuable employees. When we experience a significant level of competition for retaining current employees or hiring new employees, as was the case in 2018, we will typically
reevaluate our compensation levels within that employee group in order to ensure our competitiveness.
35
Table of Contents
Elements of Compensation
The primary components of our executive compensation program are as follows:
Below
is a summary of each component:
Base Salary
General.
The general purpose of base salary for our NEOs is to create a base of cash compensation for the officer that is consistent on
average with
the range of base salaries for executives in similar positions and with similar responsibilities at comparable companies. In addition to salary norms for persons in comparable positions at comparable
companies, base salary amounts may also reflect the nature and scope of responsibility of the position, the expertise and experience of the individual employee and the competitiveness of the market
for the employee's services. Base salaries of executives other than our Chief Executive Officer may also reflect our Chief Executive Officer's evaluation of the individual NEO's job performance. As a
result, the base salary level for each individual may be above or below the target market value for the position. The Compensation Committee also recognizes that the Chief Executive Officer's
compensation should reflect the greater policy-and decision-making authority that he holds and the higher level of responsibility he has with respect to our strategic direction and our financial and
operating results. As of December 31, 2018, our Chief Executive Officer's annual base salary was 55% higher than the annual base salary for the next highest-paid NEO and 70% higher than the
average annual base salary for all of our other NEOs. The Compensation Committee does not intend for base salaries to be the vehicle for long-term capital and value accumulation for our executives.
2018 Actions.
In typical years, base salaries are reviewed at least annually and may also be adjusted from time to time to realign
salaries with
market levels after taking into account individual responsibilities and changes in responsibilities, performance and contribution to ION, experience, impact on total compensation, relationship of
compensation to other ION officers and employees, and changes in external market levels. No NEO received an increase in base salary in 2018. The chart
36
Table of Contents
below
depicts the base salaries of our NEOs, together with information on their base salaries vis-à-vis the median salaries of comparable NEOs based on survey data.
|
|
|
Named Executive Officer
|
|
Salary Information
|
R. Brian Hanson
|
|
Mr. Hanson's salary throughout 2018 was $600,000. The 2018 MTCS Survey indicated that the mean CEO base salary for surveyed companies in the Services and Drilling sector was $641,000.
|
Steven A. Bate
|
|
Mr. Bate's salary throughout 2018 was $375,000. The 2018 MTCS Survey indicated that the mean CFO base salary for surveyed companies in the Services and Drilling sector was $448,000.
|
Matthew R. Powers
|
|
Mr. Powers' salary throughout 2018 was $275,000. The 2018 MTCS Survey indicated that the mean Top Legal Executive base salary for surveyed companies in the Services and Drilling sector was
$397,000.
|
Christopher T. Usher
|
|
Mr. Usher's salary throughout 2018 was $378,560. The 2018 MTCS Survey indicated that the mean Chief Operating OfficerSubsidiary/Group/Division base salary for surveyed companies in the
Services and Drilling sectors was $412,000.
|
Kenneth G. Williamson
|
|
Mr. Williamson's salary throughout 2018 was $387,213. The 2018 MTCS Survey indicated that the mean Chief Operating OfficerSubsidiary/Group/Division base salary for surveyed companies in the
Services and Drilling sectors was $412,000.
|
Annual Bonus Incentive Plan
(1)
For several consecutive years, the Compensation Committee has approved an annual employee bonus incentive plan. Our annual bonus incentive plan
is intended to promote the achievement, each year, of the Company's performance objectives as set forth in the annual operating plan. These objectives are defined early in the year, along with a
target bonus pool, and these are communicated to eligible employees. The Compensation Committee believes that placing a portion of our employees' cash compensation at-risk, and tying it to the
Company's achieving important objectives
under our operating plan, incentivizes our employees in a way that aligns their interests with the interests of our shareholders.
Early
in the year, management prepares an operating budget for that year and individual operating budgets for each operating unit. The budgets take into consideration our views on market
opportunities, customer and sale opportunities, technology enhancements for new products, product manufacturing and delivery schedules and other operating factors known or foreseeable at the time. The
Board analyzes the proposed budgets with management extensively and, after analysis and consideration, the Board approves a consolidated operating plan for the year. During this same time, our Chief
Executive Officer works with various members of senior management to formulate our bonus incentive plan for the year, consistent with the operating plan approved by the Board. The annual bonus
incentive plan is subject to approval by the Compensation Committee. Bonuses attributable to a
-
(1)
-
The
Compensation Committee has discretion in circumstances it determines are appropriate to authorize discretionary bonus awards apart from awards that
would otherwise be payable under the terms of the annual bonus incentive plan. (An example would be signing bonuses for new hires.) These discretionary awards can be payable in cash, stock options,
restricted stock, restricted stock units, SARs, or a combination thereof. Any stock options, restricted stock, restricted stock units or SARs awarded would be granted under one of our existing
long-term equity compensation plans or stock appreciation rights plans. Discretionary bonuses of this sort are not discussed in this section.
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given
year are generally paid in February of the next year. (For instance, 2018 bonuses were paid in February of 2019.)
The
Company's bonus program thus includes a three-step process:
-
1.
-
At
the first quarterly meeting of the Board of Directors (generally in early February), the Compensation Committee approves a target total bonus pool (the "Target
Pool") for that calendar year. The Target Pool is based in part on approximate percentages of base salary and our expected headcount. The Target Pool consists of two variable components: the Company's
execution of defined long-term strategic initiatives ("Key Initiatives"), and the Company's reaching a defined cash-generation target ("Cash Generation Target"). The Key Initiatives and Cash
Generation Target are derived from our annual operating plan, which is approved by the Board at that same quarterly meeting. The Target Pool, Key Initiatives, and Cash Generation Target are forward
looking; that is, they are based on the Compensation Committee's goals and expectations for the Company's performance that year.
-
2.
-
The
determination of the actual amount of the bonus pool (the "Actual Pool") is largely backward looking. At the February meeting of the Board of Directors, in
addition to approving the Target Pool for that calendar year, the Compensation Committee determines what the Actual Pool for the prior year should be. The Compensation Committee does this with
reference to the Target Pool for the prior year, and the Company's success in achieving the Key Initiatives and the Cash Generation Target for the prior year. However, the Compensation Committee has
the authority to fund the Actual Pool in an amount over the Target Pool, an amount under the Target Pool, or not at all. In determining whether to deviate from the Target Pool, the Compensation
Committee may consider events that unfolded during the prior year that impacted our performance as a whole that year (such as extraordinary cash generating events (e.g. sales of assets, equity
raises), unanticipated governmental actions or economic conditions, indicators of growth or recession in our business segments, and other factors).
-
3.
-
Once
the Actual Pool is funded, individual bonuses are determined by business unit managers by evaluating each eligible employee's individual and team performance
during the prior year (except that no manager participates in determining his or her own bonus). The computation of individual awards for NEOs is approved by the Compensation Committee in accordance
with the compensation philosophy and policy described above.
Our
bonus incentive plans are designed for payouts that generally track the financial performance of our Company and, to a lesser extent, achievement of the Company's strategic
objectives. The general intent of the plans is to reward key employees based on the Company's and the employee's performance, in each case measured against internal targets and plans. In most years
when our Company's financial performance is strong, cash bonus payments under the annual incentive plan are generally higher. Likewise, when our financial performance is low as compared to our
internal targets and plans, cash bonus payments are generally lower. There are occasionally exceptions to this general trend. (For instance in 2017, the Company exceeded the Cash Generation Target and
executed all Key Initiatives, but, in view of the difficult business climate that had prevailed for the past several years, the Compensation Committee elected to fund the Actual Pool at
$7.2 millionnearly $3 million less than the amount calculated under the approved terms of the 2017 bonus incentive plan.)
2018 Bonus Incentive Plan.
The purpose of the 2018 bonus incentive plan was to provide an incentive for our participating employees to
achieve their
highest level of individual and business unit performance, to align the employees to accomplish and share in the achievement of our Company's 2018 strategic and financial goals, and to prevent
attrition of our high-performing employees to competitors. Designated employees, including our NEOs, were eligible to participate in our 2018 bonus incentive plan.
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The
Target Pool under the 2018 plan was set at $8.8 million in February 2018. Approximately 35% of this amount ($3.1 million) was tied to the Key Initiatives for 2018, and
65% ($5.7 million) was tied to the Cash Generation Target for 2018.
The
Key Initiatives for 2018 were (1) achieving a $10 million year-over-year increase in year-end cash balance, (2) developing a strategic framework to enable
successful diversification of certain of our product lines into adjacent markets, (3) fostering the long-term integrity of our multi-client business by growing our data library,
(4) capitalizing on the refocusing going on in our industry by establishing collaborative projects with multiple industry partners, and (5) implementing several cultural initiatives and
objectives designed to foster a company-wide QHSE (quality, health, safety, environment) culture. The Compensation Committee found that the Company met, or exceeded, its goals as to all of the Key
Initiatives except for Item 1 (achieving a $10 million year-over-year increase in year-end cash balance).
The
Cash Generation Target for 2018 required that the Company generate $37 million in cash in 2018 excluding cash from external funding arrangements, interest payments and any
other special items or modifications as approved by the Compensation Committee from time to time. As in prior years, if the Company exceeded the Cash Generation Target, the Target Pool could increase
by a factor of 65%
(from $8.8 million, if 100% funded, up to a maximum of $14.5 million, or 165% funded).
(2)
The table below illustrates the level to which the Target Pool would be funded,
based on achievement of the Key Initiatives and the Cash Generation Target.
Cash
generation was selected as the most important goal for our 2018 plan because the Compensation Committee believes that generating cash is of paramount importance to our shareholders.
Additionally, the Compensation Committee believed that strong cash flow would indicate that our Company was capitalizing on the improving business climate that appeared to be taking shape for 2018.
Accordingly, in addition to tying 65% of the Target Pool to the Cash Generation Target, the Compensation Committee also selected one Key Initiative (achieving a $10 million year-over-year
increase in year-end cash balance) that was directly tied to cash generation. The other four Key Initiatives were not directly related to cash generation in 2018 and were selected to ensure that the
Company's cash generation efforts did not result in long-term harm to the Company, and to encourage an appropriate balance between short-term cash generation and the long-term viability of our
Company.
-
(2)
-
This
same upside cap (165% achievement) was in the 2017 plan. In contrast, there was no upside for over performance in 2016 (that is, the maximum
funding opportunity was 100%), and the upside cap was 150% in 2015.
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In
February 2019, the Compensation Committee reviewed the Company's actual performance against each of the plan performance goals established at the beginning of 2018 and evaluated the
individual performance of each NEO during 2018.
The
Company did not meet its Cash Generation Target or the "Cash Threshold" set forth in the above table in 2018. Due to this fact, and to the Company's not achieving a year-over-year
increase in cash balance (our year end cash balance for 2018 was $33.6 million, compared with $42.1 million
(3)
for 2017), the bonus pool, based on Target Pool criteria,
would have been $2.5 million. However, the Compensation Committee elected to fund the Actual Pool at $4.25 million. In setting the actual pool at $4.25 million, the Compensation
Committee took into account several factors. There were a number of unforeseen events in 2018 that caused cash generation to be lower than anticipated (notable among these were a delay in licensing
rounds in Panama, the accession of Andres Manuel Lopez Obrador to the presidency of Mexico, and the collapse in oil prices in the last half of the year). The Compensation Committee believed that
increasing the Actual Pool was warranted given the Company's strong performance in executing our strategic initiatives, and the risk of attrition of our key employees.
NEOs'
bonus targets range from 60% to 100% of their respective annual base salaries. In years prior to 2015, every participating NEO other than our Chief Executive Officer could earn up
to 200% of their bonus targets in a given year, depending on their individual performance and the performance of the Company. Commencing in 2015, in view of the extremely challenging business climate
that the Company faced, the Compensation Committee reduced the maximum amount earnable by these NEOs to 125% of their respective targets. This cap was continued through 2016 but lifted in 2017 in view
of the improved performance of the Company and improved business climate. In 2017, and again in 2018, the Compensation Committee determined that each NEO, including our Chief Executive Officer, was
eligible to receive up to 200% of his bonus target. (The Compensation Committee has the discretion to determine the amounts of individual bonus awards.)
Where
an employee is primarily involved in a particular business unit, the financial performance criteria under the bonus incentive plan are weighted toward the operational performance
of the employee's business unit rather than consolidated company performance. The "
Non-Equity Incentive Plan Compensation
" column of the 2018 Summary
Compensation Table below reflects the payments that our NEOs earned and received under our 2018 bonus incentive plan. (The "
Bonus
" column of the same
table would reflect any discretionary cash bonus payments received by our NEOs during 2018; there were none in 2018.)
In
addition to overall company performance, and, where applicable, business unit performance, when considering the 2018 bonus incentive plan awards paid to our NEOs, the Compensation
Committee also considered the individual performances and accomplishments of each officer. In considering the bonus award paid to Mr. Hanson, the Compensation Committee considered
Mr. Hanson's achievement of four of the five Key Initiatives for the Company, as well as his leadership in executing a successful equity raise. As previously stated, the five Key Initiatives
were (1) achieving a $10 million year-over-year increase in year-end cash balance, (2) developing a strategic framework to enable successful diversification of certain of our
product lines into adjacent markets, (3) fostering the long-term integrity of our multi-client business by growing our data library, (4) capitalizing on the refocusing going on in our
industry by establishing collaborative projects with multiple industry partners, and (5) implementing several cultural initiatives and objectives designed to foster a company-wide QHSE
(quality, health, safety, environment) culture.
When
considering the bonus award paid to Mr. Bate, the Compensation Committee took into consideration his performance against the objectives set for Mr. Bate.
Mr. Bate's objectives included
-
(3)
-
The
$42.1 million excludes $10 million in cash that the Company had on hand on Decemeber 31, 2017, because there was $10 million outstanding under our
revolving credit facility on that date (compared with $0 outstanding on December 31, 2018).
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(1) achieving
a $10 million year-over-year increase in year-end cash balance, (2) successfully retiring the Company's $28.5 million Third Lien Notes prior to their May 2018
maturity date, (3) implementing a comprehensive Investor Relation Program (including roadshows and adding coverage of the Company's stock by at least one additional analyst), and
(4) improving the Company's year-end liquidity through a combination of incremental operating cash flow, enhancing or replacing the Company's revolver with PNC, current short term borrowing
facility, or other financing transactions. In the bonus awarded to Mr. Bate, the Compensation Committee determined that Mr. Bate achieved three of his four objectives.
When
considering the bonus award paid to Mr. Powers, the Compensation Committee took into consideration his performance against the objectives set for Mr. Powers.
Mr. Powers' objectives included (1) successfully executing all legal tasks necessary to complete an equity raise and retirement of the Company's $28.5 million Third Lien Notes by
their target dates, (2) recapturing momentum in the Company's legal proceedings against WesternGeco, (3) reinvigorating the legal department with two new lawyer hires in the legal
department, and (4) successfully executing all legal tasks with respect to two significant collaboration agreements with industry partners. In the bonus awarded to Mr. Powers, the
Compensation Committee determined that Mr. Powers had achieved three of his four objectives and partially achieved one of his four objectives.
When
considering the bonus award paid to Mr. Usher, the Compensation Committee took into consideration his performance against the objectives set for Mr. Usher.
Mr. Usher's objectives included (1) contributing to the Company's achieving a $10 million year-over-year increase in year-end cash balance through execution of the Operations
Optimization operating Plan, (2) developing a framework for enabling successful diversification of certain of the Company product lines into adjacent markets, (3) developing partnerships
and alliances in adjacent markets that accelerate our market penetration and commercial success, (4) successfully commercializing the Company's SailWing system, and (5) securing pilot
programs for non-seismic uses of our Marlin program. In the bonus awarded to Mr. Usher, the Compensation Committee determined that Mr. Usher had achieved three of his five objectives and
partially achieved an additional one of his other five.
When
considering the bonus award paid to Mr. Williamson, the Compensation Committee took into consideration his performance against the objectives set for Mr. Williamson.
Mr. Williamson's objectives included (1) ensuring the long-term integrity of the Company's multi-client business through continued investment in the data library, (2) expanding
the Company's offerings to License Round Management for host governments, (3) developing the Company's capability to deliver a significant uplift in multi-client and proprietary data using FWI
based technology, and (4) establishing one significant collaboration arrangement with an industry partner.
In
the bonus awarded to Mr. Williamson, the Compensation Committee determined that Mr. Williamson achieved three of his four objectives and partially achieved one of his
four objectives.
The
total compensation paid to each NEO is set forth in the graph titled "
Summary Compensation Table
".
The
Compensation Committee reviews the annual bonus incentive plan each year to ensure that the key elements of the plan continue to meet the objectives described above.
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Long-Term Stock-Based Incentive Compensation
We have structured our long-term incentive compensation to provide for an appropriate balance between rewarding performance and encouraging
employee retention and stock ownership. There is no pre-established policy or target for the allocation between either cash or non-cash or short-term and long-term incentive compensation; however, at
executive management levels, the Compensation Committee strives for compensation to focus increasingly on longer-term incentives. In conjunction with the Board, executive management is responsible for
setting and achieving long-term strategic goals. In support of this responsibility, compensation for executive management, and most particularly our Chief Executive Officer, tends to be weighted
towards rewarding long-term value creation for shareholders.
The
below table illustrates the mix of total compensation received by Mr. Hanson, our CEO, and our other current NEOs during 2018:
The Compensation Committee approved significant grants of equity-based compensation in 2018, including to our NEOs, in the form of restricted
stock and SARs. However, these awards were structured differently than the Company's awards in the past.
This
was made possible by amendments to our Second Amended and Restated 2013 Long-Term Incentive Plan (the "2013 LTIP") that our shareholders approved in November of 2018. (The 2013
LTIP, as amended in 2018, is sometimes referred to as the "2018 LTIP"). Additionally, in that same month, the Company put into place our 2018 SAR Plan to replace the 2008 SAR Plan which expired that
month.
During
the recent protracted industry downturn, the Company had taken several steps to streamline the business and reduce costs. As part of this effort, as of late 2018, the Company
hadn't issued equity under our LTIP for almost three years except in limited cases involving new hires or promotions that would reduce our cash outlay.
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As
the industry continued to pick up in 2018, some of the Company's key employees received attractive offers from other companies, and the Compensation Committee determined that
equity-based awards, primarily in the form of restricted stock and SARS, were the best means to stem attrition in our upper and middle management. Equity-based awards provide value to our shareholders
by allowing us to
attract and retain first rate talent, while tying our employees' financial compensation to the performance of the Company.
In
the fall of 2018, the Company engaged Aon Hewitt, a leading compensation consultant, to analyze our compensation program relative to industry practice, and Aon Hewitt concluded that,
given the metrics (dollar value) of the compensation that the Company would need to adequately retain and attract talent for our key positions, the pool of available equity under the Company's 2013
LTIP was insufficient. Their analysis showed that to attract and retain top talent under a plan that would be approved by ISS (a leading proxy advisory firm), the Company would need to make an annual
grant of approximately 800,000 shares compromised of stock options and restricted stock awards, which, over three years, would have required an additional 2.4 million shares for the LTIP.
Aon
Hewitt recommended a more creative, non-ISS-compliant option that would require half as many shares to achieve the same result: granting all awards under the LTIP as
performance-based restricted stock, rather than having to make
2
/
3
of the grants as stock options. (This ratio of stock options was required by the 2013 LTIP; ISS and other independent
proxy advisory firms tend to mandate that a certain amount of shares be dedicated to stock options so that the recipients don't benefit unless the stock price increases.)
Standard
practice, and the historical practice of the Company, is to award restricted stock that vests over time, regardless of the stock's performance, and to couple that with stock
options that are worthless if the stock doesn't appreciate. However, each share of restricted stock is intrinsically more valuable to an employee than each single stock option, because, in the case of
a stock option, even if the stock appreciates, such that the option is not worthless, the employee only receives the benefit of the spread between the exercise price of the option and the value of the
stock.
Accordingly,
at the Compensation Committees recommendation, the Board sought, from the shareholders, amendments to our 2013 LTIP that would add 1.2 million shares to the 2013
LTIP, and eliminate the restriction on the number of shares in the 2013 LTIP that could be issued as full value awards. These amendments were approved by shareholders in a special meeting held on
November 30, 2018.
After
the special meeting, the Compensation Committee approved awards of restricted stock and SARS to several employees, including all of our NEOs; but the form of these awards were
different than in prior years.
All
of the restricted stock and SARs awards granted to our NEOs on December 1, 2018, contain not only our traditional time-based vesting restrictions (the shares vest equally on
the first, second and third anniversary of the grant, subject to continued employment), but also contain very aggressive performance-based vesting restrictions: one-third of any such award will vest
only if ION's common stock attains, and maintains, a share price of $17.50 on or before the third anniversary of the grant date; two-thirds of any such award will vest only if ION's common stock
attains, and maintains, a share
price of $22.50 on or before the third anniversary of the grant date; and full vesting as to any such award will occur only if ION's common stock attains, and maintains, a share price of $27.50 on or
before the third anniversary of the grant date (December 1, 2021). The foregoing performance-based vesting restriction will be satisfied if and only if the volume weighted average price per
share, at the close of 20 consecutive trading days, meets or exceeds the target price, and are in addition to the time-based vesting restrictions.
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Our
long-term incentive plans have provided the principal method for our NEOs to acquire equity or equity-linked interests in our Company.
Restricted Stock and Restricted Stock Units.
We use restricted stock and restricted stock units to focus executives on our long-term
performance and
to help align their compensation more directly with shareholder value. Historically, vesting of restricted stock and restricted stock units typically occurred ratably over three years, based solely on
continued employment of the recipient-employee, and the terms of our LTIP (both prior to and after the 2018 amendments) require restricted stock and restricted stock units granted under that plan to
follow that vesting schedule unless the Compensation Committee approves a different schedule when approving the grant. As noted above, the grants of restricted stock and restricted stock units that
were awarded on December 1, 2018, in addition to being subject to the traditional three-year time vesting restriction, also are subject to performance-based vesting restrictions that require
our stock price to attain, and maintain, a certain price within the next three years.
The
only restricted stock awards granted to our NEOs in 2018 that were not subject to the time-based and performance-based vesting restrictions noted in the immediately preceding section
were certain shares of restricted stock which were issued on March 1, 2018, as part of our 2017 Equity Investment Program. These shares were subject to a ninety-day time-based vesting
restriction, but no performance-based restriction. (To encourage the Company's executive officers and other key employees to purchase common stock of the Company and further align their interests with
those of the Company's stockholders, in 2017, the Board authorized and approved an equity investment program (the "EIP"), pursuant to which all of the NEOs, and certain other key employees of the
Company, were permitted, but not obligated, to purchase unregistered shares of common stock of the Company directly from the Company at market prices. In connection with any such purchases, the
Compensation Committee authorized and approved a grant, by the Company, to such purchasing NEOs and other key employees, of a certain number of shares of restricted stock. The Compensation Committee
also authorized and approved to grant the EIP participants a certain number of shares of restricted stock in connection with certain purchases of shares of the Company's common stock in the open
market. Specifically, for each five (5) shares directly purchased from the Company or in the open market between December 13, 2017 and December 31, 2017, the Company agreed to
issue one (1) share of
restricted stock, subject to certain limitations as to the total number of restricted shares to be issued by the Company.)
Awards
of restricted stock units have been made to certain of our foreign employees in lieu of awards of restricted stock. Restricted stock units provide certain tax benefits to our
foreign employees as the result of foreign law considerations, so we expect to continue to award restricted stock units to designated foreign employees for the foreseeable future.
Stock Options.
Under our equity plans, stock options may be granted having exercise prices equal to the closing price of our stock on
the date before
the date of grant. In any event, all awards of stock options are made at or above the market price at the time of the award. The Compensation Committee will not grant stock options having exercise
prices below the market price of our stock on the date of grant, and will not reduce the exercise price of stock options (except in connection with adjustments to reflect recapitalizations, stock or
extraordinary dividends, stock splits, mergers, spin-offs and similar events, as required by the relevant plan) without the consent of our shareholders. Our stock options generally vest ratably over
four years, based on continued employment, and the terms of our LTIP (prior to and after the 2018 amendments) require stock options granted under that plan to follow that vesting schedule unless the
Compensation Committee approves a different schedule when approving the grant. Prior to the exercise of an option, the holder has no rights as a shareholder with respect to the shares subject to such
option, including voting rights and the right to receive dividends or dividend equivalents. New option grants normally have a term of ten years.
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The
purpose of stock options is to provide equity compensation with value that has been traditionally treated as entirely at-risk, based on the increase in our stock price and the
creation of shareholder value. (However, as described above, the vast majority of our grants of restricted stock and restricted stock units that were granted in 2018 are also entirely at-risk, due to
the aggressive performance-based vesting restrictions). Stock options also allow our NEOs and key employees to have equity ownership and to share in the appreciation of the value of our stock, thereby
aligning their compensation directly with increases in shareholder value. Stock options only have value to their holder if the stock price appreciates in value from the date options are granted.
Stock
option award decisions are generally based on past business and individual performance. In determining the number of options to be awarded, we also consider the grant recipient's
qualitative and quantitative performance, the size of stock option and other stock based awards in the past, and expectations of the grant recipient's future performance. No NEOs received option
awards in 2018.
Stock Appreciation Rights.
In order to achieve market-based compensation for our key employees in line with the recommendations of Aon
Hewitt, the
Compensation Committee elected to have a substantial portion of the equity-based compensation paid in SARs in 2018. The SARs grants approved by the Compensation Committee are 100% cash-settled and
were granted pursuant to our 2018 SAR Plan. The vesting of the SARs issued in 2018 are achieved through both a market condition and a service condition, which are identical to the time-based vesting
restriction and the performance-based vesting restriction on the restricted stock that was issued in December 2018, and which is described above. As with our stock options, exercise prices for our
SARs awards are equal to the closing price of our stock on the date before the date of grant. New SARs grants normally have a term of ten years.
Approval and Granting Process.
As described above, the Compensation Committee reviews and approves all stock appreciation rights, stock
option,
restricted stock and restricted stock unit awards made to NEOs, regardless of amount. With respect to equity compensation awarded to employees other than NEOs, the Compensation Committee reviews and
approves all grants of stock appreciation rights, restricted stock, stock options and restricted stock units above 5,000 shares, generally based upon the recommendation of our Chief Executive Officer.
The Compensation Committee has granted to our Chief Executive Officer the authority to approve grants to any employee other than an NEO of (i) up to 5,000 shares of restricted stock and
(ii) stock options for not more than 5,000 shares. Our Chief Executive Officer is also required to provide a report to the Compensation Committee of all awards of options and restricted stock
made by him under this authority. We believe that this policy is beneficial because it enables smaller grants to be made more efficiently. This flexibility is particularly important with respect to
attracting and hiring new employees, given the increasingly competitive market for talented and experienced technical and other personnel in locales in which our employees work.
All
grants of stock appreciation rights, restricted stock, restricted stock units and stock options to employees or directors are granted on one of four designated quarterly grant dates
during the year: March 1, June 1, September 1 or December 1. The Compensation Committee approved these four dates because they are not close to any dates on which earnings
announcements or other announcements of material events would normally be made by us. For an award to a current employee, the grant date for the award is the first designated quarterly grant date that
occurs after approval of the award. For an award to a newly hired employee who is not yet employed by us at the time the award is approved, the grant date for the award is the first designated
quarterly grant date that occurs after the new employee commences work. We believe that this process of fixed quarterly grant dates is beneficial because it serves to remove any perception that the
grant date for an award could be capable of manipulation or change for the benefit of the recipient. In addition, having all grants occur on a maximum of four days during the year simplifies certain
fair value accounting calculations related to the grants, thereby minimizing the administrative burden associated with tracking and calculating the fair values, vesting schedules and tax-related
events upon vesting of restricted stock and also lessening the opportunity for inadvertent calculation errors.
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Clawback Policy
We have a Compensation Recoupment Policy (commonly referred to as a "clawback" policy), which provides that, in the event of a restatement of
our financial results due to material noncompliance with applicable financial reporting requirements, the Board will, if it determines appropriate and subject to applicable laws and the terms and
conditions of our applicable stock plans, programs or arrangements, seek reimbursement of the incremental portion of performance-based compensation, including performance-based bonuses and long-term
equity-based incentive awards, paid to current or former NEOs within three years of the restatement date, in excess of the compensation that would have been paid had the compensation amount been based
on the restated financial results.
Personal Benefits, Perquisites and Employee Benefits
Our Board and executives have concluded that we will not offer most perquisites traditionally offered to executives of similarly sized
companies. As a result, perquisites and any other similar personal benefits offered to our NEOs are substantially the same as those offered to our general salaried employee population. These offered
benefits include medical and dental insurance, life insurance, disability insurance, a vision plan, charitable gift matching (up to designated limits), a 401(k) plan with a company match of certain
levels of contributions, flexible spending accounts for healthcare and dependent care and other customary employee benefits. Business-related relocation benefits may be reimbursed on a case-by-case
basis. We intend to continue applying our general policy of not providing specific personal benefits and perquisites to our executives; however, we may, in our discretion, revise or add to any
executive's personal benefits and perquisites if we deem it advisable.
Risk Management Considerations
The Compensation Committee believes that our Company's bonus and equity programs create incentives for employees to create long-term shareholder
value. The Compensation Committee has considered the concept of risk as it relates to our compensation programs and has concluded that our compensation programs do not encourage excessive or
inappropriate risk-taking. Several elements of the compensation programs are designed to promote the creation of long-term value and thereby discourage behavior that leads to excessive
risk:
-
-
The compensation programs consist of both fixed and variable compensation. The fixed (or salary) portion is designed to provide a steady income
regardless of the Company's stock price performance so that executives do not focus exclusively on stock price performance to the detriment of other important business metrics. The variable (cash
bonus and equity) portions of compensation are designed to reward both short- and long-term corporate performance. The Compensation Committee believes that the variable elements of compensation are a
sufficient percentage of overall compensation to motivate executives to produce positive short- and long-term corporate results, while the fixed element is also sufficiently high such that the
executives are not encouraged to take unnecessary or excessive risks in doing so.
-
-
The financial metrics used to determine the amount of an executive's bonus are measures the Compensation Committee believes contribute to
long-term shareholder value and ensure the continued viability of the Company. Moreover, the Compensation Committee attempts to set ranges for these measures that encourage success without encouraging
excessive risk taking to achieve short-term results. In addition, the overall maximum bonus for each participating NEO other than our Chief Executive Officer is not expected to exceed 150% of the
executive's base salary under the bonus plan, and the overall bonus for our Chief Executive Officer under his employment agreement will not exceed 200% of his base salary under the bonus plan, in each
case no matter how much the Company's financial performance exceeds the ranges established at the beginning of the year.
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-
-
We have strict internal controls over the measurement and calculation of the financial metrics that determine the amount of an executive's
bonus, designed to keep it from being susceptible to manipulation by an employee, including our executives.
-
-
Stock options become exercisable over a four-year period, and SARs become exercisable over a three-year period, generally conditioned on
continuing employment with the Company, and remain exercisable for up to ten years from the date of grant, encouraging executives to look to long-term appreciation in equity values.
-
-
Restricted stock and SARs vest over a three-year period, generally conditioned on continuing employment with the Company, which, again,
encourages executives to look to long-term appreciation in equity values. Additionally, as noted above, the majority of this year's restricted stock grants and all of this year's SARs grants also
require significant appreciation in our stock price for vesting to occur.
-
-
Senior executives, including our NEOs, are required to acquire over time and hold shares of our Company's stock having a value of between one
and four times the executive's annual base salary, depending on the level of the executive. The Compensation Committee believes that the stock ownership guidelines provide a considerable incentive for
management to consider the Company's long-term interests, since a portion of their personal investment portfolio consists of our Common Stock.
-
-
In addition, we do not permit any of our NEOs or directors to enter into any derivative or hedging transactions involving our stock, including
short sales, market options, equity swaps and similar instruments, thereby preventing executives from insulating themselves from the effects of poor company stock price performance. Please refer to
"
Stock Ownership Requirements; Hedging Policy
" below.
-
-
We have a compensation recoupment (clawback) policy that provides, in the event of a restatement of our financial results due to material
noncompliance with financial reporting requirements, for reimbursement of the incremental portion of performance-based compensation, including performance-based cash bonuses and long-term equity-based
incentive awards, paid to current or former NEOs within three years of the restatement date, in excess of the compensation that would have been paid had such compensation amount been based on the
restated financial results. Please refer to "
Clawback Policy
" above.
Consideration of Say-On-Pay Result.
At our 2018 Annual Meeting of Shareholders held on May 16, 2018, our shareholders approved all
of our
director nominees and proposals, including a non-binding advisory vote to approve the compensation of our NEOs ("say-on-pay"). In the advisory executive compensation vote, over 99% of the votes cast
on the proposal voted in favor of our executive compensation. Our general goal since our 2016 Annual Meeting has been to continue to act consistently with the established practices that were approved
by our shareholders. We believe that we have accomplished that goal. At our 2017 Annual Meeting, our shareholders also voted on a non-binding advisory vote on the frequency of advisory votes on
executive compensation ("say-on-frequency") and approved "every year". The Board intends to hold advisory votes on executive compensation within the time frame approved by the shareholders. When and
if our Board determines that it is in the best interest of our Company to hold our say-on-pay vote with a different frequency, we will propose such a change to our shareholders at the next annual
meeting of shareholders to be held following the Board's determination. Presently, under SEC rules, we are not required to hold another say-on-frequency vote again until our 2023 Annual Meeting of
Shareholders.
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Indemnification of Directors and Executive Officers
Our Bylaws provide certain rights of indemnification to our directors and employees (including our NEOs) in connection with any legal action
brought against them by reason of the fact that they are or were a director, officer, employee or agent of our Company, to the full extent permitted by law. Our Bylaws also provide, however, that no
such obligation to indemnify exists as to proceedings initiated by an employee or director against us or our directors unless (a) it is a proceeding (or part thereof) initiated to enforce a
right to indemnification or (b) was authorized or consented to by our Board.
As
discussed below, we have also entered into employment agreements with certain of our NEOs that provide for us to indemnify the executive to the fullest extent permitted by our
Restated Certificate of Incorporation, as amended, and our Bylaws. The agreements also provide that we will provide the executive with coverage under our directors' and officers' liability insurance
policies to the same extent as provided to our other executives.
Stock Ownership Requirements; Hedging Policy
We believe that broad-based stock ownership by our employees (including our NEOs) enhances our ability to deliver superior shareholder returns
by increasing the alignment between the interests of our employees and our shareholders. Accordingly, the Board has adopted stock ownership guidelines applicable to each of our senior executives,
including our NEOs. The policy requires each executive to retain direct ownership of at least 50% of all shares of our Company's stock received upon exercise of stock options and vesting of awards of
restricted stock or restricted stock units until the executive owns shares having an aggregate value equal to the following multiples of the executive's annual base salary:
President
and Chief Executive Officer4x
Executive Vice President2x
Senior Vice President1x
The
Compensation Committee and our Chief Executive Officer may, in their discretion, grant temporary exemptions from the guidelines to prevent severe hardships to senior executives. As
of the date of this Proxy Statement, all of our NEOs were in compliance with the stock ownership requirements. In addition, we do not permit any of our NEOs or directors to enter into any derivative
or hedging transactions with respect to our stock, including short sales, market options, equity swaps and similar instruments.
Impact of Regulatory Requirements and Accounting Principles on Compensation
The financial reporting and income tax consequences to our Company of individual compensation elements are important considerations for the
Compensation Committee when it is analyzing the overall level of compensation and the mix of compensation among individual
elements. The Compensation Committee seeks to balance its objective of ensuring an effective compensation package for the NEOs with the need to maximize the immediate deductibility of
compensationwhile ensuring an appropriate (and transparent) impact on reported earnings and other closely followed financial measures.
Under
Section 162(m) of the Internal Revenue Code and the related federal treasury regulations, we may not deduct annual compensation in excess of $1 million paid to
certain employees-generally our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated NEOs. Prior to January 1, 2018, compensation in excess of
$1 million was deductible if it qualified as "performance based" compensation but this exemption to the deductibility limit was eliminated by the 2017 Tax Cuts and Jobs Act.
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In
making its compensation decisions, the Compensation Committee has considered the limitations on deductibility within the requirements of Section 162(m) and its related Treasury
regulations. As a result, for periods prior to January 1, 2018, the Compensation Committee has designed much of the total compensation packages for the NEOs to qualify for the exemption of
"performance-based" compensation from the deductibility limit. However, the Compensation Committee does have the discretion to design and use compensation elements that may not be deductible within
the limitations under Section 162(m), if the Compensation Committee considers the tax consequences and determines that those elements are in our best interests.
The
Compensation Committee believes that the potential deductibility of the compensation payable under the annual bonus plan and the Company's other incentive compensation plans and
arrangements should be only one of a number of relevant factors taken into consideration in establishing those plans and arrangements for our executive officers and not the sole governing factor. For
that reason, for the 2019 fiscal year, the Compensation Committee intends to structure our annual bonus plan and the Company's other incentive compensation plans and arrangements in a manner similar
to the 2018 fiscal year, acknowledging that a portion of those compensation payments may not be deductible under Section 162(m), in order to assure appropriate levels of total compensation for
our executive officers based on the Company's performance.
Likewise,
the impact of Section 409A of the Internal Revenue Code is taken into account, and our executive compensation plans and programs are, in general, designed to comply with
the requirements of that section so as to avoid possible adverse tax consequences that may result from non-compliance.
For
accounting purposes, we apply the guidance in ASC Topic 718 to record compensation expense for our equity-based compensation grants. ASC Topic 718 is used to develop the assumptions
necessary and
the model appropriate to value the awards as well as the timing of the expense recognition over the requisite service period, generally the vesting period, of the award.
Executive
officers will generally recognize ordinary taxable income from stock option awards when a vested option is exercised. We generally receive a corresponding tax deduction for
compensation expense in the year of exercise. The amount included in an NEO's wages and the amount we may deduct is equal to the Common Stock price when the stock options are exercised less the
exercise price, multiplied by the number of shares under the stock options exercised. We do not pay or reimburse any NEO for any taxes due upon exercise of a stock option. We have not historically
issued any tax-qualified incentive stock options under Section 422 of the Internal Revenue Code.
Executives
will generally recognize taxable ordinary income with respect to their shares of restricted stock at the time the restrictions lapse (unless the recipient elects to accelerate
recognition as of the date of grant). Restricted stock unit awards are generally subject to ordinary income tax at the time of payment or issuance of unrestricted shares of stock. We are generally
entitled to a corresponding federal income tax deduction at the same time the executive recognizes ordinary income.
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