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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

 

 

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LSC Communications, Inc.

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                  LOGO

 

 

2019

ANNUAL MEETING OF

STOCKHOLDERS

 

MEETING NOTICE AND

PROXY STATEMENT

 

LSC COMMUNICATIONS, INC.

 

 

 

 

Thursday, October 17, 2019 • 10 a.m. Central Time

10th Floor Conference Center, 191 N. Wacker Drive, Chicago, Illinois 60606

 


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LETTER FROM OUR LEAD DIRECTOR

DEAR FELLOW STOCKHOLDERS,

On behalf of the Board and management of LSC Communications, I want to thank you for your continued support of our Company. It has been my privilege to serve as LSC’s Lead Director this year, working with a group of highly-engaged and knowledgeable directors who are strongly attuned to their roles as your fiduciaries. I would like to reflect on 2018 and the year to date in 2019, and the many ways in which our Board worked together to provide independent oversight of management and represent your interests throughout this time.

In October of 2018 the Board approved the acquisition of the Company by Quad/Graphics, Inc. in an all-stock transaction. While we firmly believed that the transaction was in the best interest of our stockholders, the U.S. Department of Justice filed a lawsuit to enjoin the transaction. In light of the significant time and resources that would have been required to defend the lawsuit coupled with the uncertainty of the outcome, we determined that continuing to litigate against the Department of Justice was not in the best interests of our Company or our stockholders and so, in July 2019, we mutually made the difficult decision to terminate the transaction.

Independent Board Oversight

Our Board is composed of fully independent directors, with the exception of Tom Quinlan, our Chairman and Chief Executive Officer. The skills each of our directors bring to the Board reflect the deep expertise essential to effective oversight of our business, including operational leadership, governance, strategy and extensive experience in finance, sales, marketing and information technology. Our directors utilize their deep knowledge and diverse backgrounds to work with management in our oversight of the Company’s corporate strategy.

In 2018, we kicked off an operational restructuring program and reviewed capital allocation priorities and business development opportunities and we continued our efforts to take the pulse of our Company by inviting our business leaders to participate in Board meetings throughout the year. In addition, our Board and its committees were involved in overseeing enterprise risk management, including risk priorities and developments that could impact our business, and we also looked to the future by our ongoing discussion of director and management succession planning.

In 2019, in light of lower expectations for earnings and cash flows, the Board suspended dividend payments in order to allocate greater capital to LSC’s debt reduction and ongoing operational restructuring programs.

On top of our focus on the financial and operational performance of the Company, our Board also oversees other important Company initiatives and functions, including our safety, sustainability and ethics programs, in order to ensure that our Company’s culture aligns with our strategy and operates in the best interest of our stockholders.

Independent Board Leadership

As Lead Director, I work closely with our Chairman and Chief Executive Officer and other members of management to ensure that an active dialogue exists between our independent directors and management. In addition, in my role as Lead Director, I contribute to the development and approval of, Board meeting schedules, agendas, and materials. I attend each Board and Board committee meeting and also preside over the executive sessions of the Board held with our independent directors. Further, I am responsible, along with the Chairman of our Human Resources Committee, for leading the independent directors’ annual evaluation of the effectiveness of our Chief Executive Officer.

Good Governance Practices

As directors, we are vocal advocates for the adoption of sound governance practices that are informed by our ongoing engagement with our stockholders. The Corporate Responsibility & Governance Committee of the Board, consisting of independent directors, oversees the Board’s annual multi-step self-evaluation process which provides directors an opportunity to assess the Board, the Board committees and each individual director. This process also includes input from the management team on the effectiveness of the Board and the Board committees. Our independent directors serving on the Human Resources Committee establish and monitor the Company’s overall executive compensation strategy to ensure that executive officer compensation supports the Company’s business objectives. The Audit Committee of the Board, also consisting of independent directors, oversees the Company’s enterprise risk management program. Please see the Company Information and Compensation Discussion & Analysis sections of this proxy statement for more details on these and other governance highlights.

In closing, I want to acknowledge Richard Palmer who, because of time and travel constraints, will not be standing for reelection to our Board. Richard’s wise counsel and skillful leadership of the Audit Committee will be missed by all. On behalf of the entire Board, I thank him for his service to LSC and our stockholders and wish him all the best in his endeavors.

Our Board remains committed to serving your interests and thanks you for your continued commitment to our Company.

 

Sincerely,

Judith H. Hamilton

Lead Director

September 17, 2019


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LSC COMMUNICATIONS, INC.

NOTICE OF 2019 ANNUAL MEETING OF STOCKHOLDERS

 

Date:   Thursday, October 17, 2019
Time:   10:00 a.m. Central time
Place:  

10th Floor Conference Center

191 N. Wacker Drive

Chicago, Illinois 60606

Items of Business:  

+ To elect eight director nominees identified in this proxy statement for one-year terms

 

+ To approve, on an advisory basis, the Company’s executive compensation

 

+ To approve an amendment to the Company’s Amended and Restated 2016 Performance Incentive Plan

 

+ To ratify the appointment by the Audit Committee of Deloitte & Touche LLP as the Company’s independent registered public accounting firm

 

+ To conduct any other business if properly raised

Record Date:   The close of business on September 6, 2019

The proxy materials for the 2019 Annual Meeting of Stockholders of LSC Communications, Inc. (“LSC” or the “Company”) include this Notice of 2019 Annual Meeting of Stockholders, the proxy statement, our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “Form 10-K”) and a proxy card or voting instruction form.

Your vote is important! We strongly encourage you to exercise your right to vote as a stockholder. You will find instructions on how to vote in the Questions and Answers About How To Vote section of this proxy statement. Please vote by signing, dating and returning the enclosed proxy card or voting instruction card in the envelope provided, calling the toll-free number or logging on to the Internet — even if you plan to attend the annual meeting. You may revoke your proxy at any time before it is exercised.

Most stockholders vote by proxy over the Internet, by telephone or by mailing the proxy card or voting instruction form and therefore, do not attend the annual meeting in person. However, as long as you were a stockholder at the close of business on September 6, 2019, the record date set by our Board of Directors, you are invited to attend the annual meeting, or to send a representative. In order to be admitted to the meeting, you must present your admission ticket (attached to your proxy card) or other evidence of stock ownership or be an invited guest of the Company.

By Order of the Board of Directors

Suzanne S. Bettman

Secretary

September 17, 2019

 

Important Notice Regarding the Availability of Proxy Materials for the

2019 Annual Meeting of Stockholders To Be Held on October 17, 2019

This proxy statement and our annual report to stockholders are available on the Investors portion of our website at www.lsccom.com. On that site, you will also be able to access our Form 10-K for the fiscal year ended December 31, 2018, and all amendments or supplements thereto that are required to be furnished to stockholders.


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TABLE OF CONTENTS

 

TABLE OF CONTENTS

 

PROXY SUMMARY      1  

2019 Annual Meeting Information

     1  

Matters to be Voted on at Our 2019 Annual Meeting of Stockholders

     1  

Company Background

     1  
PROPOSALS      2  

Proposal 1: Election of Directors

     2  

Proposal 2: Advisory Vote to Approve Executive Compensation

     5  

Proposal 3: Approval of Amendment to Amended and Restated 2016 Performance Incentive Plan

     6  

Proposal 4: Ratification of Independent Registered Public Accounting Firm

     12  
QUESTIONS AND ANSWERS ABOUT HOW TO VOTE      13  
COMPANY INFORMATION      15  

The Board’s Committees and Their Functions

     15  

Policy on Attendance at Stockholder Meetings

     16  

Corporate Governance

     16  

Governance Highlights

     16  

Principles of Corporate Governance

     17  

Principles of Ethical Business Conduct and Code of Ethics

     17  

Director Independence

     18  

Executive Sessions

     18  

Board Leadership

     18  

Board’s Role in Risk Oversight

     19  

Nomination of Directors

     19  

Communications With the Board of Directors

     20  
STOCK OWNERSHIP      21  

Beneficial Stock Ownership of Directors, Executives and Large Stockholders

     21  
COMPENSATION DISCUSSION & ANALYSIS      23  

Executive Summary

     23  

2018 Company Highlights

     23  

2018 Executive Compensation Program Highlights

     23  

LSC Compensation Philosophy

     24  

Compensation Overview

     26  

Annual Incentive Plan

     27  

Long-Term Incentive Program

     28  

Executive Compensation Decision-Making Process

     28  

Stakeholders and Say on Pay Vote Feedback

     29  

Review of Tally Sheet Information

     30  

Internal Pay Equity

     30  

Risk Assessment

     30  

Peer Group Data/Market for Talent

     31  

Role of the Compensation Consultant

     31  

Role of Management

     31  

2018 Compensation Decisions

     32  

Base Salary

     33  

Annual Incentive Plan

     33  

Long-Term Incentive Program

     33  

Perquisites

     34  

Other Policies and Practices

     34  

Benefit Programs

     34  

Post-Termination Benefits

     35  

Stock Ownership Guidelines

     35  

Tax Deductibility Policy

     35  

Clawback Policy

     36  

No Hedging, No Pledging, No Short Sales

     36  

Human Resources Committee Report

     36  
EXECUTIVE COMPENSATION      37  

2018 Summary Compensation Table

     37  

Grants of Plan-Based Awards

     39  

Grants of Plan-Based Awards Table

     39  

Outstanding Equity Awards at Fiscal Year-End

     40  

Outstanding Equity Awards at Fiscal Year-End Table

     40  

Option Exercises and Stock Vested

     41  

Option Exercises and Stock Vested Table

     41  

Pension Benefits

     42  

Pension Benefits Table

     42  

Nonqualified Deferred Compensation

     43  

Nonqualified Deferred Compensation Table

     43  
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL      44  

Termination Other Than After a Change in Control

     44  

Termination After a Change in Control

     44  

Potential Payment Obligations Under Agreements Upon Termination or Change in Control

     44  

Disability or Death

     45  

Equity Acceleration

     46  

Health Care Benefits

     46  

Termination Tables

     47  
2018 CEO PAY RATIO      53  
 

 

2019 Proxy Statement | LSC COMMUNICATIONS, INC.      


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      LSC COMMUNICATIONS, INC. | 2019 Proxy Statement


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PROXY SUMMARY

 

PROXY SUMMARY

This summary highlights certain information about the 2019 Annual Meeting of Stockholders. This proxy statement is being furnished to the holders of the Company’s common stock in connection with the solicitation of proxies by the Company. This summary does not include all the information you should consider in deciding how to vote. We encourage you to read the entire proxy statement carefully before voting.

2019 ANNUAL MEETING INFORMATION

 

 

Date:

 

 

Thursday, October 17, 2019

 

Time:

 

 

10:00 a.m. Central time

 

Place:

 

 

10th Floor Conference Center

191 N. Wacker Drive

Chicago, Illinois 60606

 

Record Date:

 

 

The close of business on September 6, 2019

For additional information about voting, see Questions and Answers About How to Vote.

MATTERS TO BE VOTED ON AT OUR 2019 ANNUAL MEETING OF STOCKHOLDERS

 

          

 

Board
Recommendation  

 

  

  Page

 

 

 

Proposal 1: Election of eight directors identified in this proxy statement for one-year terms

      

 

FOR each nominee

     2       

 

Proposal 2: Advisory vote to approve executive compensation

      

 

FOR

     5       

 

Proposal 3: Approval of amendment to Amended and Restated 2016 Performance Incentive Plan

      

 

FOR

     6       

 

Proposal 4: Ratification of independent registered public accounting firm

      

 

FOR

     12       

Company Background

On October 1, 2016, R. R. Donnelley & Sons Company (“RR Donnelley” or “RRD”) effected its separation into three independent public companies: Donnelley Financial Solutions, Inc., LSC and RR Donnelley. The separation (the “Separation”) was effected when RRD distributed on a pro rata basis to holders of its common stock at least 80% of the outstanding shares of LSC common stock.

On October 30, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Quad/Graphics, Inc. (“Quad”), QLC Merger Sub, Inc. and LSC to combine in an all-stock transaction with Quad (the “Merger”). The U.S. Department of Justice filed a lawsuit to enjoin the transaction in June 2019. In light of the significant time and resources that would have been required to defend the lawsuit coupled with the uncertainty of the outcome, it was determined that continuing to litigate against the Department of Justice was not in the best interests of the Company or our stockholders. On July 22, 2019, Quad and LSC entered into a letter agreement, pursuant to which the parties agreed to terminate the Merger Agreement.

 

2019 Proxy Statement | LSC COMMUNICATIONS, INC.      1


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PROPOSALS

 

PROPOSALS

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

 PROPOSAL SUMMARY 

 

  
          
   
   

Proposal 1: The election of each director nominee identified in this proxy statement for a one-year term

 

Board Recommendation: The Board recommends that stockholders vote FOR each of our nominees

 

In connection with the Separation, it was determined that our Certificate of Incorporation would provide for a classified board consisting of three classes of directors. Therefore, our Class I directors served until our 2017 Annual Meeting of Stockholders and our Class II directors served until our 2018 Annual Meeting of Stockholders. This 2019 Annual Meeting of Stockholders marks the third annual meeting following the Separation, consequently, pursuant to the terms of our Certificate of Incorporation, our Board of Directors (the “Board”) is fully declassified and from this annual meeting forward our stockholders will elect successor directors to serve until the next annual meeting of stockholders and until a successor is elected and qualified, or until such director’s earlier resignation, removal or death.

Our By-laws provide that directors are elected to the Board by a majority of the votes cast, except in contested elections, wherein directors are elected to the Board by a plurality of the votes cast. Only directors that receive a majority of the votes cast FOR their election will be elected.

If an incumbent director is not reelected, the Company’s Principles of Corporate Governance require that director to promptly tender their resignation. The Board will accept this resignation unless it determines that the best interests of the Company and its stockholders would not be best served by doing so.

If any nominee does not stand for election, proxies voting for that nominee may be voted for a substitute nominee selected by the Board. The Board may also choose to reduce the number of directors to be elected at the annual meeting.

In 2018, the Board met 18 times. Each director of the Company during 2018 attended at least 75% of the total number of meetings of the Board and those committees of which the director was a member during the period he or she served as a director.

The names of the nominees, along with their present positions, their career highlights, current directorships held with other public companies, as well as public directorships held during the past five years, other affiliations, their ages and the year first elected as a director, are set forth below. Certain individual experiences and expertise of our directors that contribute to the Board’s effectiveness as a whole are also described below.

 

   

Thomas J. Quinlan III, 56

 

Chairman, Chief Executive Officer and President

 

Director since: 2016

 

Current Public Directorships: None

 

Former Public Directorships:

RR Donnelley

 

 

Key Experience and Expertise

 

 

 

Mr. Quinlan’s extensive experience in the printing and office products industries provides the Board with valuable expertise, especially with respect to business integration strategies needed to achieve our Company’s business plan. He also brings to the Board his familiarity with finance and a broad range of operational issues, including sales, manufacturing and corporate staff functions.

 

 

 

Career Highlights

+  Chairman of the Board, Chief Executive Officer and President of the Company since October 2016

+  Chief Executive Officer and President of RR Donnelley from April 2007 to October 2016

+  Other positions at RR Donnelley from 2004 to April 2007 including Group President, Global Services, Chief Financial Officer and Executive Vice President, Operations

 

 

2      LSC COMMUNICATIONS, INC. | 2019 Proxy Statement


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PROPOSALS

 

   

M. Shân Atkins, 62

 

Director since: 2016

 

Current Public Directorships:

Darden Restaurants, Inc.

SpartanNash Company

Aurora Cannabis Inc.

 

Former Public Directorships:

Chapters, Inc.

The Pep Boys—Manny, Moe & Jack

Tim Hortons Inc.

Shoppers DrugMart Corporation

SunOpta Inc.

 

Key Experience and Expertise

 

 

 

Ms. Atkins has extensive experience in finance and accounting and in developing and executing strategic and operating plans for major consumer and retail organizations. She also has considerable corporate governance experience through years of service on the boards of other companies.

 

 

Career Highlights

+  Full time independent director

+  Co-founder and Managing Director of Chetrum Capital LLC, a private investment firm from 2001 to 2017

+  Various executive positions with Sears, Roebuck & Company, a North American retailer, from 1996 to 2001

+  Leader in the consumer and retail practice at Bain & Company, an international management consultancy, from 1982 to 1996

+  Began career as a public accountant at what is now PricewaterhouseCoopers LLP, an accounting firm

 

 

 
   

Margaret A. Breya, 58

 

Director since: 2016

 

Current Public Directorships: None

 

Former Public Directorships:

Jive Software, Inc.

MicroStrategy Incorporated

 

Other Affiliations:

InCorta, Inc.

NSONE, Inc.

 

Key Experience and Expertise

 

 

 

Ms. Breya’s extensive experience brings marketing, operations and enterprise software expertise to the Board.

 

 

 

Career Highlights

+  Chief Marketing Officer of MicroStrategy Incorporated since July 2018

+  Chief Operating Officer of Ionic Security Inc. from January 2016 to June 2018

+  Chief Marketing Officer and Executive Vice President of Market Development at Informatica Corporation, a leading independent provider of enterprise data integration and data quality software and services, from December 2012 to August 2015

+  Various positions of increasing responsibility in operations and marketing at Hewlett-Packard Company, a global provider of products, technologies, software, solutions and services, from 2010 to 2012

+  Various positions of increasing responsibility at SAP AG, an enterprise software company, from 2006 to 2010

 
   

Judith H. Hamilton, 75

 

Director since: 2016

 

Current Public Directorships:

None

 

Former Public Directorships:

RR Donnelley

 

Other Affiliations:

Novell, Inc.

Software.com

Lante Corporation

Giga Information Group, Inc.

 

Key Experience and Expertise

 

 

 

Ms. Hamilton’s experience as a chief executive officer of various software and technology companies helps the Board address the challenges faced due to rapid changes in communications strategies. Her involvement in early stage companies also brings to the Board entrepreneurial experience. She also has considerable corporate governance experience through years of service on the boards of other companies.

 

 

Career Highlights

+  Lead Director of the Company’s Board since October 2016

+  Former President and Chief Executive Officer of Classroom Connect Inc., a provider of materials integrating the Internet into the education process

+  Former President and Chief Executive Officer of FirstFloor Software, an Internet software publisher

+  Former Chief Executive Officer of Dataquest, a market research firm for technology

 

 

2019 Proxy Statement | LSC COMMUNICATIONS, INC.      3


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PROPOSALS

 

   

Francis J. Jules, 62

 

Director since: 2016

 

Current Public Directorships: None

 

Former Public Directorships:

ModusLink Global Solutions, Inc.

 

Key Experience and Expertise

 

 

 

Mr. Jules has a proven track record in leading large, complex teams around the globe in sales, marketing, product and technical solutions to serve enterprise, medium, and small customers around the world. He has both operational and strategic leadership skills.

 

 

Career Highlights

+  President of Global Business for AT&T Corporation since 2012

+  AT&T Corporation’s Executive Vice President, Global Enterprise Solutions sales team from 2010 to 2012, President and Chief Executive Officer, Advertising Solutions from 2007 to 2010 and Senior Vice President, Network Integration from 2005 to 2007

+  President, Global Markets (East) for SBC Communications from 2003 to 2005

 
   

Thomas F. O’Toole, 62

 

Director since: 2016

 

Current Pubic Directorships:

Alliant Energy Corporation (and its wholly owned subsidiaries Wisconsin Power and Light Company and Interstate Power and Light Company)

Extended Stay America, Inc.

 

Former Public Directorships:

Pegasus Solutions, Inc.

 

Other Affiliations:

Corporation for Travel Promotion

 

Key Experience and Expertise

 

 

 

Mr. O’Toole has extensive experience in leadership, customer perspectives and information systems, and provides the Board with a combination of abilities and unique insights into its strategy and operations.

 

 

 

Career Highlights

+  Executive Director, Program for Data Analytics and Clinical Professor of Marketing at the Kellogg School of Management at Northwestern University since September 2018; Senior Fellow and Clinical Professor of Marketing at Kellogg from September 2016 to September 2018

+  Senior Advisor at McKinsey and Company since January 2017

+  Senior Vice President, Chief Marketing Officer of United Airlines and President of MileagePlus for United Continental Holdings, Inc., a global air carrier, from 2015 to December 2016; Senior Vice President, Marketing and Loyalty and President, MileagePlus from 2012 to 2015; Chief Operating Officer, Mileage Plus Holdings, LLC from 2010 to 2012; and Senior Vice President and Chief Marketing Officer in 2010

+  Advisor with Diamond Management & Technology Consultants, a management and technology consulting firm, from 2009 to 2010

+  Various positions of increasing responsibility at Hyatt Hotels Corporation from 1995 to 2008, including Chief Marketing Officer and Chief Information Officer

 
   

Douglas W. Stotlar, 59

 

Director since: 2016

 

Current Public Directorships:

AECOM

Reliance Steel & Aluminum Co.

 

Former Public Directorships:

URS Corporation

Con-way Inc.

 

Other Affiliations:

Stone Canyon Packaging, LLC

 

Key Experience and Expertise

 

 

 

Mr. Stotlar has substantial knowledge of the transportation and logistics sector, which is relevant to our business activities. In addition, due to his prior experience as the former chief executive officer and as a director of public companies, he contributes valuable leadership experience as well as knowledge of legal and regulatory requirements and trends.

 

 

Career Highlights

+  Former President and Chief Executive Officer of Con-way, Inc., a transportation and logistics company, from April 2005 to October 2015

+  Various positions of increasing responsibility at Con-way, Inc. from 1985 to 2005

 

 

 

 

 

4      LSC COMMUNICATIONS, INC. | 2019 Proxy Statement


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PROPOSALS

 

   

Shivan S. Subramaniam, 70

 

Director since: 2016

 

Current Pubic Directorships:

Citizens Financial Group, Inc.

 

Former Public Directorships:

None

 

Other Affiliations:

FM Global Inc.

Lifespan Corporation

 

Key Experience and Expertise

 

 

 

Mr. Subramaniam has significant experience as a chairman and chief executive officer and provides the Board with financial, strategic and operational leadership. He also has considerable corporate governance experience as the chair of a governance committee.

 

 

Career Highlights

+  Former Chairman of FM Global Inc., a property and casualty insurance company, from 2002 to 2017

+  Chief Executive Officer of FM Global Inc. from 1999 to 2014 and President and Chief Executive Officer from 1999 to 2002

+  Various finance positions of increasing responsibility at Allendale Insurance Company from 1974 to 1999, including as Chairman and Chief Executive Officer from 1992 to 1999

 

 

PROPOSAL 2: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

 

 

 PROPOSAL SUMMARY 

 

  
          
   
   

Proposal 2: An advisory vote to approve the Company’s executive compensation as described in this proxy statement

 

Board Recommendation: The Board recommends that the stockholders vote FOR Proposal 2

 

The Company is asking its shareholders to approve, on an advisory (non-binding) basis as required by Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), the compensation of our named executive officers for 2018, as described in this proxy statement. The advisory vote on executive compensation described in this proposal is commonly referred to as a “Say on Pay” vote.

As disclosed in the Compensation Discussion & Analysis section of this proxy statement (the “CD&A”), which was originally filed with an amendment to our Form 10-K on April 12, 2019 (the “Form 10-K/A”), we believe our 2018 executive compensation program was designed to strike an appropriate balance between aligning stockholder interests, rewarding executives for strong performance, ensuring the Company’s long-term success and retaining key executive talent. The information presented in the compensation tables in the Executive Compensation section of this proxy statement relates to the Company’s 2018 fiscal year, which ended on December 31, 2018.

2018 Executive Compensation Program Highlights

 

  +  

Robust and Informed Decision-Making Process. The HR Committee, which met 10 times in 2018, has a robust and informed decision-making process which is guided by the LSC Compensation Philosophy. The HR Committee also considers input from its independent compensation consultant, Willis Towers Watson.

 

  +  

Revised LSC Compensation Philosophy. The HR Committee reviewed the LSC Compensation Philosophy with its independent compensation consultant and made various revisions to better state the HR Committee’s vision for LSC’s compensation program.

 

  +  

Benchmarked Compensation Decisions. In general, total compensation levels for the NEOs are targeted at the 50th percentile of peer group data, when available for a position, and by market survey data. This 50th percentile target level provides a total competitive anchor point for LSC’s executive compensation program. Actual compensation levels vary up or down from targeted levels based on the Company’s performance and the individual’s role, responsibilities, experience and performance.

 

  +  

Stockholder Engagement. LSC’s 2018 compensation decisions and planning were impacted by our solicitation of stockholder feedback and stockholder engagement regarding compensation and other governance matters. Our stockholder engagement plan was put on hold following the announcement of the Merger so as to remain compliant with the relevant securities law restrictions on solicitations of proxies.

 

  +  

Pay for Performance.

 

  -  

Consistent with our pay for performance philosophy, no bonus payments were paid under the Annual Incentive Plan (“AIP”) for 2018 to any employee, including the CEO and the other NEOs, as 2018 performance did not meet the EBITDA corporate financial target under the AIP.

 

  -  

No changes were made to the NEOs’ target bonus opportunities under the AIP.

 

2019 Proxy Statement | LSC COMMUNICATIONS, INC.      5


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PROPOSALS

 

  +  

Expansion of the Key Employee Severance Plan in Lieu of Employment Agreements. The HR Committee determined that each of the NEOs, other than Mr. Quinlan, would be eligible to participate in the Company’s Key Employee Severance Plan in order to standardize and streamline the NEOs’ existing entitlements under their legacy and inconsistent employment agreements. Each of Ms. Bettman and Messrs. Coxhead, Lane and Hansen agreed to waive their existing legacy employment agreements and entered into a participation agreement under the Key Employee Severance Plan.

Say on Pay Vote

Proposal 2 gives our stockholders the opportunity to express their views on the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement. For the reasons discussed above, we are asking our stockholders to indicate their support for our named executive officer compensation by voting FOR the following resolution at the 2019 Annual Meeting of Stockholders:

RESOLVED: that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s proxy statement for its 2019 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion & Analysis, the 2018 Summary Compensation Table and the other related tables and disclosures in the Company’s 2019 proxy statement.”

The Say on Pay vote is an advisory vote only, and therefore it will not bind the Company or our Board (including the HR Committee). However, the Board and the HR Committee will consider the voting results when making future decisions regarding executive compensation, as appropriate.

The affirmative vote of the holders of a majority of the shares of the Company’s common stock present in person or by proxy at the 2019 Annual Meeting of Stockholders and entitled to vote on the advisory vote on executive compensation is required to approve the proposal.

PROPOSAL 3: APPROVAL OF AMENDMENT TO AMENDED AND RESTATED 2016 PERFORMANCE INCENTIVE PLAN

 

 

 

 PROPOSAL SUMMARY 

 

  
          
   
   

Proposal 3: A vote to approve the proposed amendment to the Amended and Restated 2016 Performance Incentive Plan to make an additional 3,100,000 shares available for grant

 

Board Recommendation: The Board recommends that the stockholders vote FOR Proposal 3

 

On September 3, the Board approved, and proposes that our stockholders approve, an amendment (the “Amendment”) to our LSC Communications, Inc. Amended and Restated 2016 Performance Incentive Plan (which was approved by our stockholders on May 18, 2017) (the “Amended and Restated 2016 PIP”) to make an additional 3,100,000 shares of our common stock, par value $0.01 per share, available for grants under the Amended and Restated 2016 PIP. If approved, the Amendment will become effective as of October 17, 2019 (the “Effective Date”) and apply to all awards made on or after the Effective Date. We believe approval of the Amendment is advisable and in the best interests of our stockholders to ensure the Company may continue to grant equity-based awards as part of its compensation programs. Increasing the number of shares available for grant as described above is the only change being made under the Amendment, and the Amended and Restated 2016 PIP would otherwise remain unchanged.

A total of 3,500,000 shares of our common stock, par value $0.01 per share, were previously reserved for awards under the Amended and Restated 2016 PIP. As of the record date, approximately 283,882 shares of common stock remained available for the future grant of awards under the Amended and Restated 2016 PIP, which will remain available for grants under the Amended and Restated 2016 PIP if the Amendment is approved by stockholders.

If stockholders do not approve the Amendment, then the Amended and Restated 2016 PIP will remain outstanding and continue as currently in effect, including with respect to the ability to grant the number of remaining shares described above. However, the Company only will be able to make further equity grants under the Amended and Restated 2016 PIP to the extent of the remaining 283,882 shares. Failure to approve the Amendment will not affect the rights of existing awards or award holders under the Amended and Restated 2016 PIP.

 

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Background and Purposes of the Amendment and the Amended and Restated 2016 PIP

The Board believes that approving the Amendment to make additional shares available for grant will allow us to attract, motivate, reward and retain the broad-based talent critical to achieving our business goals. Stock ownership by employees and directors provides performance incentives and fosters a long-term commitment to our benefit and to the benefit of our stockholders, offers additional incentives to put forth maximum effort for the success of our business, and affords them an opportunity to acquire a proprietary interest in the Company.

The Amended and Restated 2016 PIP is intended to provide incentives:

 

(i)

to officers, other employees and other persons who provide services to the Company through rewards based upon the ownership or performance of Company common stock as well as other performance-based compensation; and

 

(ii)

to non-employee directors of the Company through the grant of equity-based awards.

Key Data

The following table includes information regarding outstanding equity awards and shares available for future awards under the Amended and Restated 2016 PIP (and without giving effect to approval of this proposed Amendment) as of August 21, 2019.

 

Shares Subject to

Outstanding Stock

Options(1)

   Shares Subject to
Outstanding Full-Value
Awards
  

Shares Available For

Future Awards

   Shares of Common Stock
Outstanding

157,963

   1,984,095    283,882    33,551,195

 

1

The weighted average remaining term of outstanding options is 1.75 years, and the weighted average exercise price of outstanding options is $32.27. On August 21, 2019, the closing price of our common stock on the NYSE was $1.42 per share.

Dilution. Subject to stockholder approval of the Amendment, an estimated 3,383,882 shares of Company common stock will be available for issuance. The following summarizes current and proposed share reserves and resulting dilution levels as of August 21, 2019:

 

Description    # of Shares      Dilution  

Shares available for grant under the Amended and Restated 2016 PIP

     283,882        0.85

New shares available for grant under the Amendment

     3,100,000        9.24

Shares subject to outstanding stock options and full-value awards

     2,142,058        6.38

Total

     5,525,940        16.47

Share Usage. In determining the number of shares to propose under the Amendment, we evaluated the dilution and historic share usage, run rate and the existing terms of outstanding awards under our equity plans. The annual share usage under our equity plans for the last three fiscal years is:

 

Description    2018      2017      2016      Average  

Total shares granted(1)

     800,643        279,922        453,785        510,117  

Basic weighted average common stock outstanding

     33,800,000        33,800,000        32,500,000        33,366,667  

Run Rate

     2.4      0.8      1.4      1.5

 

1

Includes the number of full-value awards granted for such year and performance share units. Also includes the annual equity retainer paid to the Company’s directors under the LSC Non-Employee Director Compensation Plan.

Key Features of the Amended and Restated 2016 PIP

The Amended and Restated 2016 PIP has a number of special terms and limitations that are supportive of sound corporate governance practices, including:

 

  +  

Minimum Vesting. No awards, other than awards granted to non-employee directors and awards that are subject to performance-based vesting conditions over a performance period of at least one year, granted under the Amended and Restated 2016 PIP may vest until the third anniversary of the applicable grant date (or ratably over such period). Awards granted to non-employee directors must have a minimum vesting period of at least one year.

 

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  +  

Stock Options and Stock Appreciation Rights (“SARs”) Granted with Exercise Price No Less Than Fair Market Value. The exercise price for stock options and SARs granted under the Amended and Restated 2016 PIP must equal or exceed the underlying stock’s fair market value as of the grant date, subject to a limited exception for awards that are assumed or substituted in corporate transactions.

 

  +  

Prohibition on Repricing. The Amended and Restated 2016 PIP prohibits the “repricing” of options and SARs without stockholder approval.

 

  +  

Prohibition on Liberal Recycling of Awards. Shares tendered by a participant or withheld by the Company in payment of the purchase price of a stock option or to satisfy any tax withholding obligation with respect to awards do not become available for issuance as future awards under the Amended and Restated 2016 PIP.

 

  +  

Prohibition on Paying Dividends or Dividend Equivalents on Unvested Awards. Dividends or dividend equivalents credited or payable in connection with an award under the Amended and Restated 2016 PIP that are not yet vested will be subject to the same restrictions and risk of forfeiture as the underlying award and will not be paid until the underlying award vests.

 

  +  

Limit on Non-Employee Director Compensation. The aggregate grant date fair value of all awards granted to any non-employee directors during any single calendar year, plus the total cash compensation paid to such director for services rendered for such calendar year, shall not exceed $900,000.

 

  +  

No Automatic Single Trigger Equity Acceleration. Upon a change in control of the Company, there is no automatic acceleration of equity awards (no “single trigger”); instead, the Amended and Restated 2016 PIP provides for a “double trigger” where awards would only vest upon a qualifying termination that follows a change in control unless otherwise determined by the administrator.

 

  +  

No Change in Control/280G Tax Gross-Ups. The Company does not provide its employees with tax gross-ups on change in control benefits.

 

  +  

Clawback/Recoupment Provision. The Amended and Restated 2016 PIP includes a “clawback” or recoupment provision, which provides that awards and any cash payment or securities delivered pursuant to an award are subject to forfeiture, recovery by the Company or other action pursuant to the applicable award agreement or the Company’s clawback policy.

Summary Description of the Amended and Restated 2016 PIP

Under the Amended and Restated 2016 PIP, the Company may grant stock options, including incentive stock options, stock appreciation rights (“SARs”), restricted stock, stock units and cash awards, as discussed in greater detail below. The following description of the Amended and Restated 2016 PIP is a summary and is qualified in its entirety by reference to the complete text of the Amended and Restated 2016 PIP, which is attached as Appendix B to this proxy statement and to the Amendment, which is attached as Appendix A to this proxy statement.

Participants.  Non-employee directors (who are expected to number seven following the 2019 Annual Meeting of Stockholders) and employees (approximately 21,000 as of September 6, 2019) and other individuals who provide services to the Company are eligible to participate in the Amended and Restated 2016 PIP.

Administration. The Amended and Restated 2016 PIP will be generally administered by a committee designated by the Board (the “Plan Committee”), but the Board may, in its discretion, administer the Amended and Restated 2016 PIP or grant awards. Each member of the Plan Committee (which is currently the HR Committee) is a director that the Board has determined to be (i) a “non-employee director” under Section 16 of the Exchange Act and (ii) “independent” for purposes of the NYSE listing rules.

The Plan Committee may select eligible participants and determine the terms and conditions of each grant and award. All awards, other than awards granted to non-employee directors and awards that are subject to performance-based vesting conditions over a performance period of at least one year, shall have a minimum vesting period of at least three years (such vesting may, in the discretion of the Plan Committee, occur in full at the end of such period or may occur in specified installments over such period, provided that no more than 40% of any particular award may vest by the end of the first year following the date of grant and no more than 80% of any particular award may vest by the end of the second year following the date of grant). Awards granted to non-employee directors shall have a minimum vesting period of at least one year. Up to 5% of the shares available for grant may be granted with a minimum vesting period of less than one year, and the Plan Committee may provide for early vesting upon the death, permanent or total disability, retirement or termination of service of the award recipient. “Double trigger” vesting shall occur with acceleration upon a Change in Control (as defined in the Amended and Restated 2016 PIP) and the grantee’s termination without Cause or for Good Reason (each as defined in the applicable award agreement).

 

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Each grant and award will be evidenced by an award agreement approved by the Plan Committee. The Plan Committee generally cannot reprice any stock option or other award granted under the Amended and Restated 2016 PIP. Except with respect to grants to (i) officers of the Company who are subject to Section 16 of the Exchange Act, (ii) a person whose compensation is likely to be subject to the $1 million deduction limit under Section 162(m) of the Internal Revenue Code (the “Code”) or (iii) persons who are not employees of the Company, the Plan Committee may delegate some or all of its power and authority to administer the Amended and Restated 2016 PIP to the chief executive officer or other executive officer of the Company.

Available Shares. Subject to approval of the Amendment by the Company’s stockholders, 3,100,000 shares of Company common stock (including the approximately 283,882 shares that are available as of the record date under, and will be carried over from, the Amended and Restated 2016 PIP) will be available under the Amended and Restated 2016 PIP following the approval of the Amendment for grants and awards to eligible participants, subject to adjustment in the event of certain corporate transactions that affect the capitalization of the Company. Prior to approval of the Amendment, 3,500,000 shares of common stock had been authorized for grant under the Amended and Restated 2016 PIP. In general, shares subject to a grant or award under the Amended and Restated 2016 PIP which are not issued or delivered would again be available for grant. However, shares tendered or withheld upon exercise, vesting, settlement of an award or upon any other event to pay exercise price or tax withholding and shares purchased by the Company using the proceeds from the exercise of a stock option will not be available for future issuance. Upon exercise of an SAR, the total number of shares remaining available for issuance under the Amended and Restated 2016 PIP will be reduced by the gross number of shares for which the SAR is exercised.

Award Limits. The maximum number of shares of common stock with respect to which options, SARs or a combination thereof may be granted during any calendar year to any person is 1,500,000. No non-employee director may be granted (in any calendar year) compensation with a value in excess of $900,000, with the value of any equity-based awards based on such award’s accounting grant date value.

Termination and Amendment. Unless previously terminated by the Board, the Amended and Restated 2016 PIP will terminate on the date on which no shares remain available for grants or awards. Termination will not affect the rights of any participant under grants or awards made prior to termination. The Board may amend the Amended and Restated 2016 PIP at any time, but no amendment may be made without stockholder approval if required by any applicable law, rule or regulation, or if it would increase the number of shares of Company common stock available under the Amended and Restated 2016 PIP or permit repricing of awards.

Stock Options and Stock Appreciation Rights. The period for the exercise of a non-qualified stock option (other than options granted to non-employee directors) or an SAR, and the option exercise price and base price of an SAR, will be determined by the Plan Committee. The option exercise price and the base price of an SAR will not be less than 100% of the fair market value of a share of Company common stock on the date of grant, and the minimum vesting period must be at least three years. The exercise of an SAR entitles the holder to receive (subject to withholding taxes) shares of Company common stock, cash or both with a value equal to the excess of the fair market value of a stated number of shares of Company common stock over the SAR base price. Subject to the terms of the Amended and Restated 2016 PIP, the option exercise price can generally be paid by the option recipient in cash, in previously owned whole shares of Company common stock having a fair market value as of the date of exercise equal to the aggregate exercise price payable, by authorizing the Company to withhold whole shares of common stock that would otherwise be delivered having a fair market value as of the date of exercise equal to the aggregate exercise price payable, in cash by a broker-dealer acceptable to the Company, via a cashless exercise (to the extent expressly authorized by the Plan Committee), or any other method described under the Amended and Restated 2016 PIP.

Stock options and SARs must be exercised within ten years of the date of grant, or five years after the date of grant for incentive stock options granted to 10% stockholders. If the recipient of an incentive stock option is a 10% stockholder, the option exercise price will be not less than the price required by the Code, currently 110% of fair market value on the date of grant.

Performance Awards and Fixed Awards. Under the Amended and Restated 2016 PIP, bonus awards, whether performance awards or fixed awards, can be made in (i) cash, (ii) stock units, (iii) restricted shares of Company common stock that are forfeitable and have restrictions on transfer or (iv) any combination of the foregoing.

The performance goals of performance awards must be tied to one or more of the following: net sales; cost of sales; gross profit; earnings from operations; earnings before interest, taxes, depreciation and amortization; earnings before income taxes; earnings before interest and taxes; cash flow measures; return on equity; return on assets; return on net assets employed; return on capital; working capital; leverage ratio; stock price measures; enterprise value; safety measures; net income per common share (basic or diluted); EVA (economic value added); cost reduction goals or, in the case of awards

 

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PROPOSALS

 

not intended to be “qualified performance-based compensation” within the meaning of Section 162(m) of the Code, any other similar criteria established by the Plan Committee. The Plan Committee may provide in any award agreement that the Plan Committee (i) will amend or adjust the performance goals or other terms or conditions of an outstanding award in recognition of unusual or nonrecurring events and (ii) has the right to reduce the amount payable pursuant to any performance award.

Restricted stock recipients will have the rights of a shareholder, including voting and dividend rights, subject to any restrictions and conditions specified in the award agreement. No dividends, however, will be paid at a time when any performance-based goals that apply to an award of restricted shares have not been satisfied. Upon termination of any applicable restriction period, including the satisfaction or achievement of required performance goals, a certificate evidencing ownership of the shares of the common stock will be delivered to the grantee, subject to the Company’s right to require payment of any taxes.

Recipients of stock units may be credited dividends and other distributions otherwise payable and held until the award is paid out. Interest may also be credited. The grantee will have only the rights of a general unsecured creditor and no rights as a stockholder of the Company until delivery of the shares, cash or other property underlying the award.

At the time of vesting of a bonus award, the award: (i) if in units, will be paid to the participant in shares of Company common stock, in cash or in a combination thereof and (ii) if a cash bonus award, will be paid to the participant in cash, in shares of Company common stock or in a combination thereof. In addition, shares of restricted common stock issued pursuant to an award will be released from the restrictions.

Awards to Non-Employee Directors. On the date of each annual meeting, the Company will make an award under the Amended and Restated 2016 PIP to each individual who is, immediately following such annual meeting, a non-employee director. Any such awards will be in the form of stock options, restricted stock, stock units or SARs with a minimum vesting period of one year from the date of grant. Note however, that under the terms of the Merger Agreement, in 2019 our directors did not receive equity retainers and instead received an additional cash retainer equal to the value of the equity retainer such directors otherwise would have been entitled to.

Transferability. Awards granted under the Amended and Restated 2016 PIP may be assigned or transferred in the event of death, subject to certain conditions.

U.S. Federal Income Tax Consequences

The following is a brief summary of some of the U.S. federal income tax consequences generally arising with respect to grants and awards under the Amended and Restated 2016 PIP. This summary is not intended to constitute tax advice, is not intended to be exhaustive and, among other things, does not describe state, local or foreign tax consequences. This section is based on the Code, its legislative history, existing and proposed regulations under the Code and published rulings and court decisions, all as in effect as of the date of this document. These laws are subject to change, possibly on a retroactive basis.

Stock Options. A participant will not recognize any income upon the grant of a non-qualified or incentive stock option. A participant will recognize compensation taxable as ordinary income upon exercise of a non-qualified stock option in an amount equal to the excess of the fair market value of the shares purchased on the date of exercise over their exercise price, and the Company (or one of its subsidiaries) generally will be entitled to a corresponding deduction, except to the extent limited by Section 162(m) of the Code. A participant will not recognize any income (except for purposes of the alternative minimum tax) upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted and one year from the date it was exercised, any gain or loss arising from a subsequent disposition of such shares will be treated as long-term capital gain or loss, and neither the Company nor its subsidiaries will be entitled to any deduction. If, however, such shares are disposed of within such one or two year periods, then in the year of such disposition the participant will recognize compensation taxable as ordinary income equal to the excess of (A) the lesser of either (i) the amount realized upon such disposition or (ii) the fair market value of such shares on the date of exercise, over (B) the exercise price, and the Company or one of its subsidiaries will be entitled to a corresponding deduction. The participant will also be subject to capital gain tax on the excess, if any, of the amount realized on such disposition over the fair market value of the shares on the date of exercise.

SARs. A participant will not recognize any income upon the grant of SARs. A participant will recognize compensation taxable as ordinary income upon exercise of an SAR in an amount equal to the fair market value of any shares delivered and the amount of cash paid by the Company upon such exercise, and the Company or one of its subsidiaries generally will be entitled to a corresponding deduction.

 

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Restricted Stock. A participant will not recognize any income at the time of the grant of shares of restricted stock (unless the participant makes an election to be taxed at the time of grant), and neither the Company nor its subsidiaries will be entitled to a tax deduction at such time. If the participant elects to be taxed at the time the restricted stock is granted, the participant will recognize compensation taxable as ordinary income at the time of the grant equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. If such election is made, a participant will recognize compensation taxable as ordinary income at the time the forfeiture conditions on the restricted stock lapse in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. The Company or one of its subsidiaries generally will be entitled to a corresponding deduction at the time the ordinary income is recognized by a participant, except to the extent limited by Section 162(m) of the Code. In addition, a participant receiving dividends with respect to restricted stock for which the above-described election has not been made and prior to the time the forfeiture conditions lapse will recognize compensation taxable as ordinary income, rather than dividend income, in an amount equal to the dividends paid, and the Company or one of its subsidiaries generally will be entitled to a corresponding deduction, except to the extent limited by Section 162(m) of the Code.

Stock Units. A participant will not recognize any income at the time of the grant of stock units, and neither the Company nor its subsidiaries will be entitled to a tax deduction at such time. A participant will recognize compensation taxable as ordinary income at the time the Company common stock is delivered under the stock units in an amount equal to the fair market value of such shares. The Company or one of its subsidiaries generally will be entitled to a corresponding deduction at the time the ordinary income is recognized by a participant, except to the extent the limit of Section 162(m) of the Code applies. In addition, a participant will recognize compensation taxable as ordinary income when amounts equal to dividend equivalents and any other distributions attributable to stock units are paid, and the Company or one of its subsidiaries generally will be entitled to a corresponding deduction, except to the extent limited by Section 162(m) of the Code.

Cash Bonus Awards. A participant will not recognize any income upon the grant of a bonus award payable in cash, and neither the Company nor its subsidiaries will be entitled to a tax deduction at such time. At the time such award is paid, the participant will recognize compensation taxable as ordinary income in an amount equal to any cash paid by the Company, and the Company or one of its subsidiaries generally will be entitled to a corresponding deduction, except to the extent limited by Section 162(m) of the Code.

Section 409A. Awards made under the Amended and Restated 2016 PIP that are considered to include deferred compensation for purposes of Section 409A of the Code will be interpreted, administered and construed to comply with the requirements of Section 409A to avoid adverse tax consequences to recipients. The Company intends to structure any awards under the Amended and Restated 2016 PIP so that the requirements under Section 409A are either satisfied or are not applicable.

New Plan Benefits Table

The table below reflects awards granted in 2018, our last completed fiscal year. Due to the pendency of the Merger, the Company did not grant awards to all of the named executive officers in 2019. Because the Amendment will not alter the substantive provisions of the Amended and Restated 2016 PIP (except for the increase in the number of shares of Company common stock described therein), for purposes of this table, the Company has assumed that the same awards would have been made in 2018 under the Amended and Restated 2016 PIP had the Amendment been in place.

 

Name and Position    Dollar Value ($)(1)      Number of Units  

Thomas J. Quinlan III, Chairman, Chief Executive Officer and President

     2,874,399                 229,860           

Suzanne S. Bettman, Chief Administrative Officer and General Counsel

     556,222                 44,480           

Andrew B. Coxhead, Chief Financial Officer

     672,144                 53,750           

Kent A. Hansen, Chief Accounting Officer and Controller

     139,056                 11,120           

Richard T. Lane, Chief Strategy and Supply Chain Officer

     370,773                 29,650           

Executive Group

     4,612,594                 368,860           

Non-Executive Director Group

     1,137,810                 92,205           

Non-Executive Officer Employee Group

     4,140,383                 333,960           

 

1

The amounts shown in this column constitute the aggregate grant date fair value of shares of restricted stock units and performance stock units granted on February 26, 2018. On February 26, 2018, the closing price of our common stock on the NYSE was $15.39 per share. The amounts are valued in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“ASC Topic 718”). See Note 17 to the Consolidated Financial Statements included in our Form 10-K, as filed with the SEC on February 19, 2019, for a discussion of the relevant assumptions used in calculating the fair value pursuant to ASC Topic 718.

 

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PROPOSALS

 

Closing Price on September 6, 2019

On September 6, 2019, the closing price of our common stock on the NYSE was $1.42 per share.

Vote Required to Approve the Amendment

The affirmative vote of the holders of a majority of the shares of the Company’s common stock present in person or by proxy at the 2019 Annual Meeting of Stockholders and entitled to vote on the proposal is required to approve the Amendment.

PROPOSAL 4: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

 PROPOSAL SUMMARY 

 

  
          
   
   

Proposal 4: A vote to ratify the appointment by the Audit Committee of Deloitte & Touche LLP as the Company’s independent registered public accounting firm

 

Board Recommendation: The Board and the Audit Committee recommend that the stockholders vote FOR Proposal 4

 

Proposal 4 is the ratification of the Audit Committee’s appointment of Deloitte & Touche LLP as the independent registered public accounting firm to audit the financial statements of the Company for fiscal year 2019. In the event the stockholders fail to ratify the appointment, the Audit Committee will reconsider this appointment. The Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the Company’s and its stockholders’ best interests. Representatives of Deloitte & Touche LLP will be present at the annual meeting. They will be available to respond to your questions and may make a statement if they desire. Deloitte & Touche LLP has served as our independent auditor since the Separation in October 2016.

The affirmative vote of the holders of a majority of the shares of the Company’s common stock present in person or by proxy at the 2019 Annual Meeting of Stockholders and entitled to vote on the proposal is required to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2019.

 

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QUESTIONS AND ANSWERS ABOUT HOW TO VOTE

 

QUESTIONS AND ANSWERS ABOUT HOW TO VOTE

Below are instructions on how to vote, as well as information on your rights as a stockholder as they relate to voting. Some of the instructions vary depending on how your stock is held. It’s important to follow the instructions that apply to your situation.

 

Q.

Who can vote?

 

A.

Stockholders are entitled to one vote on each proposal for each share of the Company’s common stock that they own as of the close of business on the record date, September 6, 2019.

 

Q.

What is the difference between holding shares as a “shareholder of record” and a “street name” holder?

 

A.

If your shares are registered directly in your name through Computershare, the Company’s transfer agent, you are considered a “shareholder of record” with respect to those shares If your shares are held in a brokerage account or bank, you are considered a “street name” holder of those shares.

 

Q.

How do I vote if shares are registered in my name (as shareholder of record)?

 

A.

By Mail: Sign, date and return the enclosed proxy card in the postage paid envelope provided. Your voting instructions must be received by October 16, 2019.

 

    

By Telephone or Internet: You may either call the toll-free number listed on your proxy card, log on to the website listed on your proxy card, or scan the QR code on your proxy card and follow the simple instructions provided.

 

    

The telephone and Internet voting procedures are designed to allow you to vote your shares and to confirm that your instructions have been properly recorded consistent with applicable law. Please see your proxy card for specific instructions. Stockholders who wish to vote via telephone or the Internet should be aware that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, and that there may be some risk a stockholder’s vote might not be properly recorded or counted because of an unanticipated electronic malfunction.

 

    

Voting by telephone and the Internet will be closed at 1:00 a.m. Central time on the date of the 2019 Annual Meeting of Stockholders.

 

Q.

How do I vote if my shares are held in “street name?”

 

A.

You should give instructions to your broker on how to vote your shares. If you do not provide voting instructions to your broker, your broker has discretion to vote those shares on matters that are routine. However, a broker cannot vote shares on non-routine matters without your instructions. This is referred to as a “broker non-vote.”

 

    

All of the proposals other than the ratification of appointment of the independent registered public accounting firm (Proposal 4) are considered non-routine matters. Accordingly, your broker will not have the discretion to vote shares as to which you have not provided voting instructions with respect to any of these matters. Ratification of the appointment of the independent registered public accounting firm is considered a routine matter, so there will not be any broker non-votes with respect to Proposal 4.

 

Q.

Can I vote my shares in person at the annual meeting?

 

A.

If you plan to attend the annual meeting and vote in person, your instructions depend on how your shares are held:

 

  +  

Shares registered in your name — check the appropriate box on your proxy card and bring either the admission ticket attached to the proxy card or evidence of your stock ownership with you to the annual meeting.

 

  +  

Shares registered in the name of your broker or other nominee — ask your broker to provide you with a broker’s proxy card (also known as a “Legal Proxy”) in your name (which will allow you to vote your shares in person at the meeting) and bring evidence of your stock ownership from your broker with you to the annual meeting.

 

    

Attendance at the annual meeting will be limited to stockholders as of the record date (September 6, 2019) with an admission ticket or evidence of their share ownership and guests of the Company.

 

Q.

Can I revoke my proxy or change my vote after I have voted?

 

A.

If your shares are registered in your name, you may revoke your proxy at any time before it is exercised. There are several ways you can do this:

 

  +  

By delivering a written notice of revocation to the Secretary of the Company;

 

  +  

By executing and delivering another proxy that bears a later date;

 

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QUESTIONS AND ANSWERS ABOUT HOW TO VOTE

 

  +  

By voting by telephone at a later time;

 

  +  

By voting over the Internet at a later time; or

 

  +  

By voting in person at the annual meeting.

 

    

If your shares are held in street name, you must contact your broker to revoke your proxy.

 

Q.

How are votes counted?

 

A.

In tallying the results of the voting, the Company will count all properly executed and unrevoked proxies that have been received in time for the annual meeting. To hold a meeting of stockholders, a quorum of the shares (which is a majority of the shares outstanding and entitled to vote) is required to be represented either in person or by proxy at the meeting. Abstentions and broker non-votes are counted in determining whether a quorum is present for the meeting.

 

Q.

What are my options when voting for directors (Proposal 1)?

 

A.

When voting on Proposal 1, you have three options:

 

  +  

Vote FOR a nominee;

 

  +  

Vote AGAINST a nominee; or

 

  +  

ABSTAIN from voting on a nominee.

 

    

In the election of directors, each nominee will be elected by the vote of the majority of votes cast. A majority of votes cast means that the number of votes cast “FOR” a nominee’s election must exceed the number of shares voted “AGAINST” such nominee’s election. Each nominee receiving a majority of votes cast “FOR” his or her election will be elected. If you choose to “ABSTAIN” with respect to a nominee for director, the abstention will not impact the election of such nominee.

 

    

Election of directors is considered a non-routine matter. Accordingly, broker non-votes will not count as a vote “FOR” or “AGAINST” a nominee’s election and will not impact the election of such nominee. In tabulating the voting results for the election of directors, only “FOR” and “AGAINST” votes are counted.

 

Q.

What are my options when voting on any other proposals (Proposals 2, 3 and 4)?

 

A.

When voting on any other proposal, you have three options:

 

  +  

Vote FOR a given proposal;

 

  +  

Vote AGAINST a given proposal; or

 

  +  

ABSTAIN from voting on a given proposal.

 

    

Proposals 2, 3 and 4 require the affirmative vote of a majority of the shares present at the meeting and entitled to vote on the proposal. If you indicate on your proxy card that you wish to “ABSTAIN” from voting on any of Proposals 2, 3 or 4, your shares will not be voted on that proposal. Abstentions are not counted in determining the number of shares voted “FOR” or “AGAINST” any proposal, but will be counted as present and entitled to vote on the proposal. Accordingly, an abstention will have the effect of a vote against the proposal.

 

    

Broker non-votes are not counted in determining the number of shares voted for or against any proposal and will not be counted as present and entitled to vote on any of Proposals 2, 3 and 4.

 

Q.

How will my shares be voted if I sign and return my proxy card with no votes marked?

 

A.

If you sign and return your proxy card with no votes marked, your shares will be voted as follows:

 

  +  

Proposal 1: FOR the election of each director nominee identified in this proxy statement for a one-year term;

 

  +  

Proposal 2: FOR the advisory vote on the Company’s executive compensation;

 

  +  

Proposal 3: FOR the proposed amendment to the Company’s Amended and Restated 2016 Performance Incentive Plan; and

 

  +  

Proposal 4: FOR the ratification of the appointment of the Company’s independent registered public accounting firm.

 

Q.

How are proxies solicited and what is the cost?

 

A.

The Company actively solicits proxy participation. In addition to this notice by mail, the Company encourages banks, brokers and other custodian nominees and fiduciaries to supply proxy materials to our stockholders, and reimburses them for their expenses. However, the Company does not reimburse its own employees for soliciting proxies. The Company has hired Morrow Sodali LLC, 470 West Ave., Suite 3000, Stamford, CT 06902, to help solicit proxies, and has agreed to pay it $8,000 plus out-of-pocket expenses for this service. All costs of this solicitation will be borne by the Company.

 

Q.

How many shares of stock were outstanding on the record date?

 

A.

As of the record date, there were 33,551,195 shares of common stock outstanding. Each outstanding share is entitled to one vote on each proposal.

 

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COMPANY INFORMATION

 

COMPANY INFORMATION

THE BOARD’S COMMITTEES AND THEIR FUNCTIONS

The Board has three standing committees. The members of those committees and the committees’ responsibilities are described below. Each committee operates under a written charter that is reviewed annually and is posted on the Investors section of the Company’s website at the following address: www.lsccom.com. References to the Company’s website address do not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this proxy statement.

 

 

Audit Committee

 

       

 

2018 Meetings: 9

 

 

Richard K. Palmer (Chair)*

Margaret A. Breya

Douglas W. Stotlar

Shivan S. Subramaniam

 

* Mr. Palmer served as Chair of the Audit Committee during 2018. As of July 2019, Mr. Palmer stepped down as Chair and was replaced by Mr. Subramaniam.

 

 

Responsibilities

 

Assists the Board in its oversight of:

 

+ The integrity of the Company’s financial statements and the Company’s accounting and financial reporting processes and financial statement audits

 

+ The qualifications and independence of the Company’s independent registered public accounting firm

 

+ The performance of the Company’s internal auditing department and its independent registered public accounting firm

  

 

The Company’s Audit Committee selects, sets compensation, evaluates and, when appropriate, replaces the Company’s independent registered public accounting firm.

 

Pursuant to its charter, the Audit Committee is authorized to obtain advice and assistance from internal or external legal, accounting or other advisors and to retain third-party consultants, and has the authority to engage independent auditors for special audits, reviews and other procedures.

 

As required by its charter, each member of the Audit Committee is independent and financially literate, as such terms are defined for purposes of the NYSE listing rules and the federal securities laws. The Board has determined that each of Richard K. Palmer, Douglas W. Stotlar and Shivan S. Subramaniam is an “audit committee financial expert” as such term is defined under the federal securities laws.

 

 

Corporate Responsibility & Governance Committee

 

  

 

2018 Meetings: 4

 

 

Judith H. Hamilton (Chair)

M. Shân Atkins

Margaret A. Breya

Thomas F. O’Toole

Shivan S. Subramaniam

 

 

Responsibilities

 

+ Makes recommendations to the Board regarding nominees for election to the Board and recommends policies governing matters affecting the Board

 

+ Develops and implements governance principles for the Company and the Board

 

+ Conducts the regular review of the performance of the Board, its committees and its members

 

+ Oversees the Company’s responsibilities to its employees and to the environment

 

+ Recommends director compensation to the Board

  

 

As required by its charter, each member of the Company’s Corporate Responsibility & Governance Committee is independent as such term is defined for purposes of the NYSE listing rules and the federal securities laws.

 

Pursuant to its charter, the Corporate Responsibility & Governance Committee is authorized to obtain advice and assistance from outside advisors and to retain third-party consultants and has the sole authority to approve the terms and conditions under which it engages director search firms.

 

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COMPANY INFORMATION

 

 

Human Resources Committee

 

 

 

2018 Meetings: 10

 

 

Francis J. Jules (Chair)

M. Shân Atkins

Thomas F. O’Toole

Douglas W. Stotlar

 

 

Responsibilities

 

+ Establishes the Company’s overall compensation strategy

 

+ Establishes the compensation of the Company’s Chief Executive Officer, other senior officers and key management employees

 

+ Adopts amendments to, and approves terminations of, the Company’s employee benefit plans

 

 

As required by its charter, each member of the Company’s Human Resources Committee (the “HR Committee”) is independent, as such term is defined for purposes of the NYSE listing rules and the federal securities laws. In addition, in accordance with the NYSE listing rules requiring the Board to affirmatively determine that each member of the HR Committee is independent, the Board considered all factors specifically relevant to determining whether a director has a relationship to the Company which is material to that director’s ability to be independent and affirmatively determined that each member of the HR Committee is independent.

 

Pursuant to its charter, the HR Committee is authorized to obtain advice and assistance from internal or external legal or other advisors and has the sole authority to engage counsel, experts or consultants in matters related to the compensation of the Chief Executive Officer and other executive officers of the Company (with sole authority to approve any related fees and other retention terms).

 

Pursuant to its charter, prior to selecting or receiving any advice from any committee advisor (other than in-house legal counsel) and on an annual basis thereafter, the HR Committee must assess the independence of such committee advisor in compliance with any applicable NYSE listing rules and the federal securities laws.

 

The HR Committee must also review and approve, in advance, any engagement of any committee compensation consultant by the Company for any services other than providing advice to the Committee regarding executive officer compensation.

POLICY ON ATTENDANCE AT STOCKHOLDER MEETINGS

Directors are expected to attend meetings of stockholders in person, except when circumstances prevent such attendance. When such circumstances exist, or in the case of special stockholder meetings, directors may participate by telephone or other electronic means and will be deemed present at such meetings if they can both hear and be heard. All but one member of the Board attended the Company’s 2018 Annual Meeting of Stockholders.

CORPORATE GOVERNANCE

Governance Highlights

The Company’s corporate governance practices and policies have been developed in accordance with the highest standards of integrity and include the adoption of a number of governance best practices including:

 

  +  

Board oversight of enterprise risk management

 

  +  

Annual election of directors

 

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COMPANY INFORMATION

 

  +  

An independent, experienced Lead Director

 

  +  

Majority voting standard for the election of directors

 

  +  

A robust annual, multi-step self-evaluation process which provides directors an opportunity annually to assess the Board, each Board committee and each individual director

 

  +  

No super-majority voting

 

  +  

The right of stockholders representing at least 25% of outstanding shares to call special meetings

 

  +  

The engagement of independent compensation consultants

 

  +  

Annual advisory vote on executive compensation

 

  +  

Clawback Policy

 

  +  

Term limits for committee chairs

 

  +  

Public disclosure of corporate political contributions

 

  +  

Independent board members with the exception of the Chief Executive Officer

 

  +  

Board committees comprised solely of independent board members

 

  +  

No shareholder rights plan (poison pill)

 

  +  

A limitation on directors standing for re-election after reaching age 75

 

  +  

Executive sessions of independent directors scheduled for each regular Board and committee meeting

 

  +  

Stock ownership guidelines for senior officers and directors

As described in Compensation Discussion & Analysis, the Company engages with stockholders about various corporate governance topics, including executive compensation.

Principles of Corporate Governance

The Board has adopted a set of Principles of Corporate Governance to provide guidelines for the Company and the Board to ensure effective corporate governance. The Principles of Corporate Governance cover topics including, but not limited to, director qualification standards, Board and committee composition, director access to management and independent advisors, director orientation and continuing education, director retirement age, succession planning and the annual evaluations of the Board and its committees. Such evaluations determine whether the Board and each committee are functioning effectively, and the Corporate Responsibility & Governance Committee considers the mix of skills and experience that directors bring to the Board to assess whether the Board has the necessary tools to form its oversight function effectively.

The Corporate Responsibility & Governance Committee is responsible for overseeing and reviewing the Company’s Principles of Corporate Governance and recommending to the Board any changes to those principles. The full text of the Principles of Corporate Governance is available on the Investors section of our website at www.lsccom.com, and a print copy is available upon request. References to the Company’s website address do not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this proxy statement.

In light of the recent termination of the Merger and her role as Lead Director, the Board decided to nominate Ms. Hamilton for another term and waive the provision of the Principles of Corporate Governance that provide directors should not stand for election after reaching age 75.

Principles of Ethical Business Conduct and Code of Ethics

In accordance with the NYSE listing requirements and Securities and Exchange Commission (“SEC”) rules, the Company has adopted and maintains a set of Principles of Ethical Business Conduct. The policies referred to therein apply to all directors, officers and employees of the Company. In addition, the Company has adopted and maintains a Code of Ethics for the Chief Executive Officer and Senior Financial Officers that applies to its chief executive officer and senior financial officers. The Principles of Ethical Business Conduct and the Code of Ethics for the Chief Executive Officer and Senior Financial Officers cover areas of professional conduct, including, but not limited to, conflicts of interest, disclosure obligations, insider trading and confidential information, as well as compliance with all laws, rules and regulations applicable to our business. The Company encourages all employees, officers and directors to promptly report any violations of any of the Company’s policies. In the event that an amendment to, or a waiver from, a provision of the Code of Ethics for the Chief Executive Officer and Senior Financial Officers is necessary, the Company will post such information on its website. The full text of each of the Principles of Ethical Business Conduct and our Code of Ethics is available on the

 

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COMPANY INFORMATION

 

Corporate Governance section of the Investors portion of our website at www.lsccom.com, and print copies are available upon request. References to the Company’s website address do not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this proxy statement.

Director Independence

The Company’s Principles of Corporate Governance provide that the Board must be composed of a majority of independent directors. No director qualifies as independent unless the Board affirmatively determines that the director has no relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has determined that all non-employee directors of our Board are also independent in accordance with the NYSE requirements. Mr. Quinlan, who as an employee of the Company, is not independent.

Executive Sessions

The Company’s independent directors are expected to meet regularly in executive sessions without management. Executive sessions are led by the Lead Director of the Board. An executive session is expected to be held in conjunction with each regularly scheduled Board meeting. Each committee of the Board also is expected to meet in executive session without management in conjunction with each regularly scheduled committee meeting and such sessions are led by the chair of such committee.

Board Leadership

Our Board has the discretion to combine or separate the roles of chairman and chief executive officer as the Board deems appropriate based on the needs of the Company at any given time. To facilitate this decision-making, the Corporate Responsibility & Governance Committee discusses our Board leadership structure, providing its recommendation on the appropriate structure to our independent directors. The Board has determined that having a combined chairman and chief executive officer with an independent Lead Director is the most appropriate Board leadership structure for LSC. This structure puts one person in the best position to be aware of major issues facing the Company on a day-to-day and long-term basis, and to identify and bring key risks and developments facing the Company to the Board’s attention (in coordination with the Lead Director as part of the agenda-setting process). As set forth in our Principles of Corporate Governance, our Lead Director:

 

  +  

reviews and approves, in coordination with the chairman/chief executive officer, Board meeting schedules and agendas for Board meetings together with all materials and information sent or presented to the Board;

 

  +  

has the authority to add items to the agenda for any Board meeting;

 

  +  

presides at executive sessions of independent directors, which are scheduled at each regular Board meeting;

 

  +  

serves as a non-exclusive liaison between the other independent directors and the chairman/chief executive officer;

 

  +  

may call meetings of the independent directors in his or her discretion and chair any meeting of the Board or stockholders at which the chairman is absent;

 

  +  

is available to meet with major stockholders and regulators under appropriate circumstances; and

 

  +  

in conjunction with the chair of the HR Committee, discusses with the chairman/chief executive officer the Board’s annual evaluation of his or her performance as chief executive officer.

In addition, the powers of the chairman under our By-laws are limited to chairing meetings of the Board and meetings of stockholders as well as certain other powers conferred on the chairman such as the ability to call special meetings of stockholders or the Board. These powers can also be exercised by the Board, by a specified number of directors or, in some cases, the Lead Director. Some of the chairman’s powers are administrative in nature (such as the authority to execute documents on behalf of the Company).

 

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COMPANY INFORMATION

 

Board’s Role in Risk Oversight

The Board and each of its committees is actively involved in oversight of risks inherent in the operation of the Company’s business and the implementation of its strategic plan. In performing this function, each committee has full access to management, as well as the ability to engage advisors, and each committee reports back to the Board.

 

 

LOGO

Nomination of Directors

It is the policy of the Corporate Responsibility & Governance Committee to consider those candidates for director recommended by stockholders. In order to recommend a candidate, stockholders must submit the individual’s name and qualifications in writing to the Corporate Responsibility & Governance Committee (in care of the Secretary at the Company’s principal executive offices at 191 N. Wacker Drive, Suite 1400, Chicago, Illinois 60606) and otherwise in accordance with the procedures outlined under Submitting Stockholder Proposals and Nominations for 2020 Annual Meeting of Stockholders. The Corporate Responsibility & Governance Committee evaluates candidates recommended for director by stockholders in the same way that it evaluates any other candidate.

The Corporate Responsibility & Governance Committee also considers candidates recommended by management and members of the Board as well as nominees recommended by stockholders.

In identifying and evaluating nominees for director, the Corporate Responsibility & Governance Committee takes into account the applicable requirements for directors under the listing rules of the NYSE. In addition, the Corporate Responsibility & Governance Committee considers other criteria as it deems appropriate and which may vary over time depending on the Board’s needs, including certain core competencies and other criteria such as the personal and professional qualities, experience and education of the nominees, as well as the mix of skills and experience on the Board

 

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COMPANY INFORMATION

 

prior to and after the addition of the nominees. Although not part of any formal policy, the goal of the Corporate Responsibility & Governance Committee is a balanced and diverse Board, with members whose skills, viewpoints, backgrounds and experiences complement each other and, together, contribute to the Board’s effectiveness as a whole. The Corporate Responsibility & Governance Committee may engage third-party search firms to identify candidates for director and to do preliminary interviews and background and reference reviews of prospective candidates.

Communications with the Board of Directors

Interested persons wishing to communicate directly with the Board may do so by writing to the Chair of the Corporate Responsibility & Governance Committee or the other non-management members of the Board to their attention at 191 N. Wacker Drive, Suite 1400, Chicago, IL 60606; Attention: Secretary. A stockholder must include the number of shares of the Company’s common stock he or she holds, and any interested party must detail his or her relationship with the Company in any communication to the Board. Communications received in writing will be distributed to the Chair of the Corporate Responsibility & Governance Committee or non-management directors of the Board as a group, as appropriate, unless such communications are considered, in the reasonable judgment of the Company’s Secretary, improper for submission to the intended recipient(s). Examples of communications that would be considered inappropriate for submission include, without limitation, customer complaints, solicitations, communications that do not relate directly or indirectly to the Company or the Company’s business or communications that relate to improper or irrelevant topics.

 

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STOCK OWNERSHIP

 

STOCK OWNERSHIP

The table below lists the beneficial ownership of common stock as of September 6, 2019 by all current directors, each of the persons named in the tables under Executive Compensation, and the directors and executive officers as a group. The table includes all stock awards subject to vesting conditions that vest within 60 days of September 6, 2019. The table also lists all institutions and individuals known to hold more than 5% of the Company’s common stock, which has been obtained from filings made pursuant to Sections 13(d) and (g) of the Exchange Act. Except as otherwise indicated below, each of the entities or persons named in the table has sole voting and investment power with respect to all common stock beneficially owned set forth opposite their name. The percentages shown are based on outstanding shares of common stock as of September 6, 2019. Unless otherwise indicated, the business address of each stockholder listed below is LSC Communications, 191 N. Wacker Drive, Suite 1400, Chicago, IL 60606.

BENEFICIAL STOCK OWNERSHIP OF DIRECTORS, EXECUTIVES AND LARGE STOCKHOLDERS

 

Name Number

% of Total

Outstanding

Thomas J. Quinlan III(1)

 

639,567

 

1.91

Suzanne S. Bettman(2)

 

101,909

 

*

Andrew B. Coxhead(3)

 

62,480

 

*

Kent A. Hansen(4)

 

11,723

 

*

Richard T. Lane(5)

 

36,145

 

*

Judith H. Hamilton(6)

 

109,566

 

*

M. Shân Atkins(7)

 

20,323

 

*

Margaret A. Breya(8)

 

70,323

 

*

Francis J. Jules(9)

 

45,323

 

*

Thomas F. O’Toole(7)

 

20,323

 

*

Richard K. Palmer(10)

 

44,061

 

*

Douglas W. Stotlar(11)

 

103,723

 

*

Shivan S. Subramaniam(12)

 

33,823

 

*

All directors and executive officers as a group

 

1,299,289

 

3.87

%

BlackRock, Inc.(13)

 

1,040,889

 

3.10

%

The Vanguard Group(14)

 

4,995,745

 

14.89

%

Dimensional Fund Advisors LP(15)

 

1,841,059

 

5.49

%

 

*

Less than one percent.

 

1

Reflects ownership of 471,862 shares of common stock held directly, 988 shares held in Mr. Quinlan’s 401(k) plan account, 59,717 RSAs that are subject to vesting and 107,000 options over common stock. Does not include 114,930 RSUs that are subject to vesting or 114,930 PSUs that are subject to performance based vesting conditions.

 

2

Reflects ownership of 74,575 shares of common stock held directly, 47 shares held in Ms. Bettman’s 401(k) plan account and 27,287 RSAs that are subject to vesting. Does not include 34,930 RSUs that are subject to vesting or 22,240 PSUs subject to performance based vesting conditions.

 

3

Reflects ownership of 36,115 shares of common stock held directly and 26,365 RSAs that are subject to vesting. Does not include 41,985 RSUs that are subject to vesting or 26,875 PSUs subject to performance based vesting conditions.

 

4

Reflects ownership of 5,005 shares of common stock held directly and 6,718 RSAs subject to vesting. Does not include 31,610 RSUs that are subject to vesting or 5,560 PSUs subject to performance based vesting conditions.

 

5

Reflects ownership of 22,778 shares of common stock held directly and 13,367 RSAs that are subject to vesting. Does not include 21,735 RSUs that are subject to vesting or 14,825 PSUs subject to performance based vesting conditions.

 

6

Reflects ownership of 99,203 shares of common stock held directly and 10,363 RSUs that will vest when such director ceases to be a director. Does not include 7,651 shares of phantom stock that are settleable only in cash.

 

7

Reflects ownership of 9,428 shares of common stock held directly, and 10,895 RSUs that will vest when such director ceases to be a director.

 

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STOCK OWNERSHIP

 

8

Reflects ownership of 59,428 shares of common stock held directly, and 10,895 RSUs that will vest when such director ceases to be a director.

 

9

Reflects ownership of 45,323 shares of common stock held directly.

 

10

Reflects ownership of 20,087 shares of common stock held directly, and 23,974 RSUs that will vest when such director ceases to be a director.

 

11

Reflects ownership of 92,828 shares of common stock held directly, and 10,895 RSUs that will vest when such director ceases to be a director.

 

12

Reflects ownership of 22,928 shares of common stock held directly, and 10,895 RSUs that will vest when such director ceases to be a director.

 

13

BlackRock, Inc. (“BlackRock”) is an investment advisor with a principal business office at 55 East 52nd Street, New York, New York 10055. This amount reflects the total shares held by BlackRock clients. BlackRock has sole investment authority over all shares, sole voting authority over 4,873,869 shares and no voting authority over 121,876 shares.

 

14

The Vanguard Group, Inc. (“Vanguard”) is an investment advisor with a principal business office at 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. This amount reflects the total shares held by Vanguard clients. Vanguard has sole investment authority over 2,136,911 shares and shared investment authority over 31,182 shares, sole voting authority over 30,941 shares, shared voting authority over 2,620 shares and no voting authority over 2,134,532 shares.

 

15

Dimensional Fund Advisors LP (“Dimensional”) is an investment advisor with a principal business office at Building One, 6300 Bee Cave Road, Austin, Texas 78746. This amount reflects the total shares held by Dimensional in its capacity as an investment adviser to four investment companies and as investment manager or sub-adviser to certain other commingled funds, group trusts and separate accounts. Dimensional has sole investment authority over all shares, sole voting authority over 1,752,579 shares, and no voting authority over 88,480 shares.

 

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COMPENSATION DISCUSSION & ANALYSIS

 

COMPENSATION DISCUSSION & ANALYSIS

This Compensation Discussion & Analysis (“CD&A”) discussing 2018 executive compensation was originally filed with our Form 10-K/A on April 12, 2019, during the pendency of our proposed merger with Quad (the “Merger”). We have updated the following CD&A to reflect the fact that the Merger was mutually terminated by the parties on July 23, 2019 (see Proxy Summary – Company Background) by removing certain references to the Merger, the Merger Agreement and the potential effects of the Merger on LSC’s compensation programs (such as the treatment of outstanding equity awards in the Merger Agreement), as those items are no longer relevant. Other than as noted above, this CD&A does not otherwise update information in the Form 10-K/A to reflect facts or events occurring subsequent to the filing date of the Form 10-K/A.

EXECUTIVE SUMMARY

In this CD&A, we will describe the material components of our executive compensation program applicable to our named executive officers (our “NEOs”). While the discussion in this CD&A is focused on our NEOs, many components of our executive compensation program apply broadly across our executive ranks.

Our NEOs include:

 

  +  

Thomas J. Quinlan III, our Chairman, Chief Executive Officer (“CEO”) and President;

 

  +  

Suzanne S. Bettman, our Chief Administrative Officer and General Counsel;

 

  +  

Andrew B. Coxhead, our Chief Financial Officer;

 

  +  

Kent A. Hansen, our Chief Accounting Officer and Controller; and

 

  +  

Richard T. Lane, our Chief Strategy and Supply Chain Officer.

LSC’s executive compensation program is designed to strike an appropriate balance among rewarding our executives for strong performance, ensuring long-term LSC success, considering stockholder interest and encouraging our executive talent to remain with the Company.

This CD&A describes LSC’s Compensation Philosophy, the components of our executive compensation program, our decision-making process, our 2018 compensation decisions and other relevant policies and practices. Highlights of the Company’s performance as well as our 2018 executive compensation program are described below.

2018 Company Highlights

In 2018, LSC successfully:

 

  +  

Generated free cash flow of $99 million;

 

  +  

Returned $35 million to stockholders in the form of quarterly dividends of $0.26 per quarter;

 

  +  

Successfully integrated the 2016-2017 acquisitions realizing significant synergies;

 

  +  

Pursued strategic opportunities to strengthen our strategic focus, as described below:

 

  -  

Successfully acquired and integrated the acquisition of the Print Logistics business of RR Donnelley;

  -  

Completed the sale of our European printing business;

  -  

Rolled out enhanced service offerings driven by technology and innovation to support book publishers such as order-to-cash, unique identifiers and warehousing and distribution services; and

 

  +  

Announced entry into the Merger Agreement, though, as described above, the Merger Agreement was mutually terminated on July 23, 2019, following the end of our 2018 fiscal year.

2018 Executive Compensation Program Highlights

 

  +  

Robust and Informed Decision-Making Process. The HR Committee, which met 10 times in 2018, has a robust and informed decision-making process which is guided by the LSC Compensation Philosophy. The HR Committee also considers input from its independent compensation consultant.

 

  +  

Revised LSC Compensation Philosophy. The HR Committee reviewed the LSC Compensation Philosophy with its independent compensation consultant, Willis Towers Watson, and made various revisions to better state the HR Committee’s vision for LSC’s compensation program.

 

  +  

Benchmarked Compensation Decisions. In general, total compensation levels for the NEOs are targeted at the 50th percentile of peer group data, when available for a position, and by market survey data. This 50th percentile target

 

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COMPENSATION DISCUSSION & ANALYSIS

 

 

level provides a total competitive anchor point for LSC’s executive compensation program. Actual compensation levels vary up or down from targeted levels based on the Company’s performance and the individual’s role, responsibilities, experience and performance.

 

  +  

Stockholder Engagement. LSC’s 2018 compensation decisions and planning were impacted by our solicitation of stockholder feedback and stockholder engagement regarding compensation and other governance matters. Our stockholder engagement plan was put on hold following the announcement of the Merger so as to remain compliant with the relevant securities law restrictions on solicitations of proxies.

 

  +  

Pay for Performance.

 

  -  

Consistent with our pay for performance philosophy, no bonus payments were paid under the Annual Incentive Plan (“AIP”) for 2018 to any employee, including the CEO and the other NEOs, as 2018 performance did not meet the EBITDA corporate financial target under the AIP.

  -  

No changes were made to the NEOs’ target bonus opportunities under the AIP.

 

  +  

Expansion of the Key Employee Severance Plan in Lieu of Employment Agreements. The HR Committee determined that each of the NEOs, other than Mr. Quinlan, would be eligible to participate in the Company’s Key Employee Severance Plan in order to standardize and streamline the NEOs’ existing entitlements under their legacy and inconsistent employment agreements. Each of Ms. Bettman and Messrs. Coxhead, Lane and Hansen agreed to waive their existing legacy employment agreements and entered into a participation agreement under the Key Employee Severance Plan.

LSC COMPENSATION PHILOSOPHY

The HR Committee adopted the LSC Compensation Philosophy at the time of the Separation to guide its compensation decisions, and in 2018 reviewed and revised the philosophy as follows:

 

 

LOGO

 

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COMPENSATION GOVERNANCE     
   
What We Do

 

   What We Don’t Do

 

    
     

+  Pay for Performance Philosophy. NEO compensation is heavily weighted towards variable pay, and vesting of equity awards is predominantly performance-based

 

+  Reasonable Compensation Levels Aligned with Our Pay for Performance Philosophy. Overall compensation levels are targeted at market median and, where available, peer group target medians, with a range of opportunity to reward strong performance and withhold rewards when Company performance objectives are not achieved

 

+  Double Trigger Equity Acceleration Upon a Change-in-Control. All long-term incentive award grants made under our equity plan provide for accelerated vesting upon a change in control only if the NEO is involuntarily terminated without cause or resigns for good reason

 

+  Executive Stock Ownership Guidelines. The NEOs and certain other executives are expected to hold LSC stock worth one to five times their base salary (depending on their position) within three years of the date of hire or promotion; in the event an executive does not achieve or make progress toward the required stock ownership level, the HR Committee has the discretion to take appropriate action

 

+  Independent Executive Compensation Consultant. The HR Committee regularly consults with an independent executive compensation consultant on matters surrounding executive officer pay and governance

 

+  Clawback Policy. The NEOs and all other current or former executive officers are subject to a Clawback Policy that allows the HR Committee to recoup incentive compensation under certain circumstances

 

+  Risk Review. The HR Committee regularly reviews and evaluates LSC’s executive and employee compensation practices to ensure that any risks associated with such practices are not likely to have a material adverse effect on LSC

 

+  Investor Outreach and Engagement. We engage proactively with institutional investors on a number of topics, including our executive compensation program

 

+  Prudent Equity Award Practices. Management and the HR Committee evaluate share utilization levels by reviewing the dilutive impact of stock compensation

 

+  Use of Tally Sheets. Comprehensive historical and comparative compensation information is presented to the HR Committee on tally sheets

 

+  Review of Internal Pay Equity. The HR Committee considers internal pay and gender equity, among other factors, when making compensation decisions, but does not use a fixed ratio or formula when comparing compensation among executive officers

 

  

+  No Excise Tax Gross-Ups Upon a Change-in-Control. The NEOs’ employment arrangements do not include any gross-ups for excise taxes, and the HR Committee has determined that any future executive officer arrangements will not include any gross-ups for excise taxes

 

+  No Payment of Dividends on PSUs or RSUs. Our equity award agreements do not permit the payment or accrual of dividends or dividend equivalents on performance share units or restricted share units held by employees

 

+  No Excessive Perquisites. We provide limited benefits and perquisites to our executive officers

 

+  No Tax Gross-Ups on Perquisites or Any Other Compensation or Benefits. We do not provide tax gross-ups on supplemental benefits or perquisites

 

+  No Pledging/No Hedging/No Short Sales. We have a policy that prohibits (and does not provide for exceptions or waivers) employees, directors and certain of their family members from pledging, short sales, trading in publicly traded options, puts or calls, hedging or similar transactions with respect to LSC stock

 

+  No Repricings or Cash Buyouts. Our equity plan prohibits repricing (including cash buyouts) of out-of-the- money options or stock appreciation rights without stockholder approval

 

+  No Below Market Grants. Our equity plan does not permit option grants below fair market value

 

+  No Liberal Share Counting. Our equity plan explicitly prohibits the regranting of shares withheld or tendered to pay option exercise prices to satisfy tax obligations, repurchased by LSC with option exercise proceeds, and shares of stock subject to SARs not issued upon settlement

 

+  No Guaranteed Bonus Arrangements. In keeping with our pay for performance philosophy, annual bonuses are only paid upon the achievement of pre-defined metrics and goals; they are never guaranteed

   

 

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COMPENSATION OVERVIEW

The HR Committee determined the 2018 compensation for the NEOs, which was comprised of three major components: base salary, annual incentive compensation and long-term incentive compensation. In addition, the NEOs were eligible to receive certain benefits and to participate in benefit programs generally available to other employees of LSC.

In general, total compensation levels for the NEOs were targeted at the 50th percentile of peer group data, when available for a position, and by market survey data from the Willis Towers Watson 2017 CDB Executive Compensation Survey Report — U.S. This 50th percentile target level provided a total competitive anchor point for LSC’s executive compensation program. Actual compensation levels varied up or down from targeted levels based on the Company’s performance and the individual’s role, responsibilities, experience and performance.

The table below describes the elements of the executive compensation program for our NEOs.

 

     

Component

 

 

Description/Rationale

 

  

Determining Factors

 

   

 

Base    

Salary    

 

+ Fixed component of pay

 

+ Compensate for roles and responsibilities

 

+ Stable compensation element

 

+ Intended to be the smallest component of the overall compensation package, assuming that LSC is achieving or exceeding targeted performance levels for its incentive programs

 

  

+ Level of responsibility

 

+ Individual skills, experience, role and performance

 

+ Median of market and peer group data

   

 

Annual    

Incentive Plan    

(AIP)    

 

+ Variable component of pay

 

+ Annual cash bonus plan

 

+ Target amount of bonus is determined as a percentage of base salary

 

+ Reward achievement against specific, pre-set annual threshold target (net sales), corporate financial target (EBITDA) and individual performance goals

 

+ No payout made unless the annual threshold target is achieved

 

+ Award payout ranges from 0% to 128% of target, with no payout for performance at or below 93% of the corporate financial target

 

+ Awards may be adjusted downward by achievement levels of individual performance goals

 

+ Annual incentive opportunities determined during the first quarter of each year

 

  

+ Annual threshold target and corporate financial target set at the beginning of the year

 

+ Individual performance goals set for participants

   

 

Long-Term    

Incentive Plan    

(LTIP)    

 

+ Variable component of pay

 

+ Links awards to long-term LSC performance to increase alignment with stockholders

 

+ Key component to attract and retain executives

 

+ A mix of performance-based and time-based awards with three-year cliff vesting granted in 2018

 

+ Annual value intended to be a substantial component of overall compensation package

 

  

+ Level of responsibility

 

+ Individual skills, experience and performance

 

+ Future potential

 

+ Median of peer group and market survey data

   

 

Other    

Benefits    

 

+ Basic benefits including medical, a 401(k) plan, a frozen pension plan and other broad-based plans

 

+ Minimal perquisites with no tax gross-ups

 

+ Limited executive-level supplemental benefits including supplemental retirement, supplemental insurance and deferred compensation plan (which is now closed to additional deferrals)

 

  

+ Level of the employee in the organization

 

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Annual Incentive Plan

The threshold and corporate financial targets under the 2018 AIP were set by the HR Committee at the beginning of the year following the presentation of the annual operating budget to the Board. The targets were designed to be challenging. The table below sets forth a description of such targets and the individual performance goals under the AIP.

 

   

Target/Goals    

 

  

Metric

 

   

 

Threshold    

Target    

  

+ $3.2 billion in consolidated net sales for 2018

   

 

Corporate    

Financial    

Target    

  

+ Non-GAAP reported EBITDA of $355 million for 2018 (as compared Non-GAAP reported EBITDA achieved for 2017 of $328 million); see Financial Review – Non-GAAP Measures in the Form 10-K for a reconciliation of net (loss) income to Non-GAAP EBITDA

 

+ Defined as net income adjusted for income taxes, interest expense, investment and other income, depreciation and amortization, restructurings and impairments, acquisition-related expenses and certain other charges or credits

   

 

Individual    

Performance    

Goals    

  

+ Varies by individual

 

+ Varies year to year, depending upon the individual’s key business objectives and areas of emphasis

The 2018 performance payout curve under the AIP was structured as follows:

 

 

LOGO

Payouts are modified (downward only) by achievement levels on individual performance goals.

Given marketplace dynamics and the possibility of unforeseen developments, the HR Committee retains discretion to increase or decrease the amount of participants’ AIP awards if it determines prior to the end of the plan year that an adjustment was appropriate to better reflect the actual performance of the Company and/or the participant. The HR Committee also has discretionary authority to reduce the amount of an AIP award payable to any participant at any time, including after the end of the plan year whether for misconduct or for any other reason.

 

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Long-Term Incentive Program

Our Amended and Restated 2016 PIP, which was approved by stockholders at our 2017 Annual Meeting of Stockholders, allows the HR Committee to grant long-term incentive awards (including performance share units (“PSUs”), restricted share units (“RSUs”), restricted stock awards (“RSAs”), stock options, stock appreciation rights (“SARs”) and long-term incentive cash awards) to any eligible employee. Long-term incentive awards are granted to directly align the interests of our NEOs with those of our stockholders. In 2018, the HR Committee granted PSUs and RSUs to our NEOs; no RSAs, stock options, SARs or long-term incentive cash awards were granted.

EXECUTIVE COMPENSATION DECISION-MAKING PROCESS

The HR Committee establishes and monitors LSC’s overall compensation strategy to ensure that our executive compensation supports the Company’s business objectives, and oversees and establishes the compensation of the CEO, other senior officers and key management employees. While the HR Committee does not administer or have direct jurisdiction over our employee benefit plans, it reviews such plans so as to have a better understanding of the Company’s overall compensation structure.

In carrying out its responsibilities, the HR Committee is guided by the LSC Compensation Philosophy and also considers the following:

 

  +  

Stakeholder and Say on Pay vote feedback;

 

  +  

Review of tally sheet information;

 

  +  

Internal pay equity;

 

  +  

Risk assessment;

 

  +  

Peer group data/market for talent;

 

  +  

The business judgment and experience of the members of the HR Committee;

 

  +  

Guidance and counsel from its independent compensation consultant, Willis Towers Watson; and

 

  +  

Recommendations from management.

Note that during the pendency of the Merger, our HR Committee was restricted from making certain compensation changes, including with respect to our NEOs, without first obtaining the approval of Quad.

 

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Stakeholders and Say on Pay Vote Feedback

In connection with its determinations regarding 2017 NEO compensation and its 2018 compensation planning and decisions, our HR Committee directed a proactive and robust process described in the below table to garner stockholder feedback in response to the results of our 2017 Say on Pay vote and on other governance topics annually. At meetings held with our stakeholders, we discussed various governance issues and received feedback on our executive compensation program. This process culminated in important changes to the compensation entitlements of certain of our NEOs, most notably, the removal of the legacy Section 280G excise tax gross-ups in Mr. Quinlan’s and Ms. Bettman’s legacy employment agreements with RRD that were assigned to the Company in the Separation and certain other enhanced disclosures as described below. Because of the pendency of the Merger we were not able to hold discussions with stakeholders in 2018.

 

   

Say on Pay    

Feedback    

 

+ The Company’s 2018 Say on Pay vote received the support of approximately 95.54% of our stockholders

   

Stockholder    

Engagement    

 

+ During our engagement process throughout Fall 2017, the Company contacted and offered governance meetings to various constituencies as well as to 12 of our significant institutional investors, representing approximately 38% of our outstanding shares; five of those investors (or approximately 20% of our shares outstanding) met with us

 

+ At these meetings, members of management discussed various governance issues and received feedback on our executive compensation program

 

+ Our stockholder engagement plan was put on hold following the announcement of the Merger so as to remain compliant with the relevant securities law restrictions on solicitations of proxies

 

   

HR Committee    

Assessment    

 

+ These engagement efforts informed the HR Committee’s discussions and allowed the HR Committee to better assess stakeholder views

 

+ Stockholders gave us positive feedback concerning the structure of our executive compensation program, especially around the thoughtful use of performance-based compensation components

 

+ As a result of its evaluation, the HR Committee received some feedback that highlighted two areas of focus that were addressed prior to the 2017 proxy statement:

 

-  Excise tax gross-ups: Various stakeholders expressed concern regarding the legacy Section 280G excise tax gross-ups that had carried over when Mr. Quinlan’s and Ms. Bettman’s employment agreements with RRD were assigned to the Company in the Separation

 

-  Enhanced disclosure: Certain stakeholders sought additional clarity pertaining to several elements of our 2017 CD&A disclosures, especially as they related to the Company’s Clawback Policy and certain issues related to equity grants

 

   

HR Committee    

Actions    

 

+ After considering the feedback from stakeholders, and receiving input from Willis Towers Watson, the HR Committee determined to:

 

-  Remove excise tax gross-ups: Amend the employment agreements with each of Mr. Quinlan and Ms. Bettman to remove the legacy Section 280G excise tax gross-ups in their employment agreements, which were replaced with a “net-better” cutback

 

-  Enhanced disclosure: Revise the structure of and disclosures in the CD&A to better highlight the Company’s best practices and policies

 

+ In addition to the actions implemented prior to the 2017 proxy statement, other feedback given by the stakeholders informed the 2018 decisions made by the HR Committee

 

 

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Review of Tally Sheet Information

Along with performance and the other relevant factors discussed in this CD&A, the HR Committee generally considers the following information, which is presented on a “tally sheet” for each NEO when setting compensation:

 

  +  

The targeted values of base salary, annual cash incentive (at various levels of goal attainment) and equity grants (at grant date value and market value on the date of review) as compared to survey data and, where available, peer group proxy data;

 

  +  

Total and realized compensation for the current and prior years;

 

  +  

Annual incentive targets and amounts achieved for the current and prior years; and

 

  +  

The grant date and current market value of unvested equity awards.

In general, total compensation levels for the NEOs are targeted at the 50th percentile of peer group data, when available for a position, and by market survey data. This 50th percentile target level provides a total competitive anchor point for LSC’s executive compensation program. Actual compensation levels vary up or down from targeted levels based on the Company’s performance and the individual’s role, responsibilities, experience and performance.

Reviewing the information presented on the tally sheets assists the HR Committee in understanding the total compensation being delivered to and the long-term retentive elements in place for NEOs.

Internal Pay Equity

The HR Committee considers internal pay equity, among other factors, when making compensation decisions, but does not use a fixed ratio or formula when comparing compensation among executive officers.    

Mr. Quinlan, our CEO, is compensated at a higher level than other executive officers due to his higher level of responsibility, authority, accountability and experience. The HR Committee believes that Mr. Quinlan’s 2018 target total direct compensation was reasonable and appropriate in relation to the compensation targeted for the other NEOs and to one another.    

Risk Assessment

With assistance from Willis Towers Watson, the HR Committee reviewed and evaluated LSC’s executive and employee compensation practices and concluded, based on this review, that any risks associated with such practices are not likely to have a material adverse effect on LSC. The determination primarily took into account the balance of cash and equity payouts, the balance of annual and long-term incentives, the type of performance metrics used, incentive plan payout leverage, possibility that the plan designs could be structured in ways that might encourage gamesmanship, avoidance of uncapped rewards, multi-year vesting for equity awards, use of stock ownership requirements for senior management and the HR Committee’s oversight of our executive compensation program.

 

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Peer Group Data/Market for Talent

The HR Committee reviews the competitive market for talent as part of its review of our compensation program’s effectiveness in attracting and retaining talent, and to help determine our NEOs’ compensation.

Willis Towers Watson assisted the HR Committee in the creation of a peer group for LSC in 2016. The primary focus of this process was on industrial companies of generally similar or larger size, complexity and scope rather than companies only in LSC’s industry, since the Company is significantly larger than many of its direct competitors and our markets for talent are necessarily broader. Willis Towers Watson’s analysis looked at companies in comparable industries and of a size of revenue between one-half to two times the size of our revenue. The HR Committee, with input from management, suggested changes to the broad group before finalization. The peer group is reviewed annually by the HR Committee with assistance from Willis Towers Watson. In 2018, four companies were removed from the peer group as they were acquired, announced a transaction to be acquired or filed for bankruptcy (Essendant Inc., KapStone Paper and Packaging Corporation, Time Inc. and Cenveo, Inc.) and two additional companies were added (R. R. Donnelley & Sons Company and Deluxe Corporation). The resulting peer group is comprised of the following 20 companies:

 

  ACCO Brands Corporation

 

Albemarle Corporation

  

Ashland Global Holdings, Inc.

  Avery Dennison Corporation

 

Bemis Company, Inc.

  

Deluxe Corporation

  Domtar Corporation

 

Gannett & Co.

  

Graphic Packaging Holding Company

  Owens-Illinois, Inc.

 

Packaging Corporation of America

  

Pitney Bowes, Inc.

  PolyOne Corporation

 

Quad/Graphics, Inc.

  

R. R. Donnelley & Sons Company

  Sealed Air Corporation

 

Silgan Holdings, Inc.

  

Sonoco Products Co.

  Transcontinental, Inc.

 

W. R. Grace & Co.

    

 

Role of the Compensation Consultant

The HR Committee again retained Willis Towers Watson in 2018 as its outside executive compensation consultant to provide objective analysis, advice and recommendations on executive officer pay in connection with the HR Committee’s decision-making process. Willis Towers Watson was also hired to assist in the calculation of the CEO pay ratio and to assist the HR Committee in reviewing this CD&A. Willis Towers Watson regularly attends HR Committee meetings and reports directly to the HR Committee, not to management, on matters relating to compensation for the executive officers and for directors.

While Willis Towers Watson provides additional services to the Company other than those under the direction of the HR Committee, all services have all been approved by the HR Committee. The HR Committee has reviewed the non-HR Committee work and services provided by Willis Towers Watson and determined that (1) those services were provided on an independent basis and (2) no conflicts of interest exist. Factors considered by the HR Committee in its assessment included: (i) other services provided to LSC by Willis Towers Watson; (ii) fees paid by LSC as a percentage of Willis Towers Watson’s total revenue; (iii) Willis Towers Watson’s policies and procedures that are designed to prevent a conflict of interest and maintain independence between the personnel who provide HR Committee services and those who provide these other non-HR Committee services; (iv) any business or personal relationships between individual consultants involved in the engagement and HR Committee members; (v) whether any LSC stock is owned by individual consultants involved in the engagement; and (vi) any business or personal relationships between LSC’s executive officers and Willis Towers Watson or the individual consultants involved in the engagement.

Role of Management

The Company’s management, including the CEO, develops preliminary recommendations regarding compensation matters with respect to the executive officers other than the CEO, and provides these recommendations to the HR Committee for its review. Management’s recommendations focus on, among other things, experience, performance, job responsibilities, future potential and accomplishments. With respect to the AIP, the CEO has a discussion with the HR Committee on the payouts for the other NEOs, including a discussion on performance against individual performance goals.

The HR Committee reviews management’s recommendations but makes all final compensation decisions for LSC’s executive officers. Management is responsible for the administration of the compensation programs once the HR Committee’s decisions are finalized.

 

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2018 COMPENSATION DECISIONS

The LSC Compensation Philosophy and structure of the executive compensation program were applied consistently to all NEOs. Total compensation was targeted at the 50th percentile of peer group data, when available for a position, and by market survey data. Any differences in compensation levels and mix that exist among the NEOs are primarily due to differences in market practices for similar positions and the responsibility, scope, future potential and complexity of the NEO’s role at LSC.

 

   

Thomas J. Quinlan III

 

Chairman, Chief Executive Officer and President

  Key Responsibilities
 

 

Our Chief Executive Officer and President is responsible for managing our business operations and overseeing our senior leaders. He leads the implementation of corporate policy and strategy and is the primary liaison between our Board and the management of the Company. In addition to his role as the leader of our organization and people, he also serves as the primary public face of the Company.

 

 

2018 Target Annual Compensation Mix

   

 

LOGO

 

 
   

Suzanne S. Bettman

 

Chief Administrative

Officer and General

Counsel

  Key Responsibilities
 

 

Our Chief Administrative Officer and General Counsel is responsible for managing the Company’s administrative functions and overseeing the Company’s legal department. She also has responsibility for one of the Company’s business units and serves as the Chief Compliance Officer and as the Company’s Corporate Secretary.

 

 

2018 Target Annual Compensation Mix

   

 

LOGO

 

 
   

Andrew B. Coxhead

 

Chief Financial Officer

  Key Responsibilities
 

 

Our Chief Financial Officer is responsible for managing the Company’s overall financial condition, including our capitalization and our funding and liquidity profile. He is also responsible for financial analysis and reporting. He is the primary liaison to our investors.

 

 

2018 Target Annual Compensation Mix

   

 

LOGO

 

 

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Kent A. Hansen

 

Chief Accounting Officer

and Controller

  Key Responsibilities
 

 

Our Chief Accounting Officer and Controller is responsible for managing the Company’s shared services centers, SEC reporting and compliance with US GAAP, our credit and collections departments and is also extensively involved in M&A due diligence, accounting and integration.

 

 

2018 Target Annual Compensation Mix

   

 

LOGO

 

 
   

Richard T. Lane

 

Chief Strategy and

Supply Chain Officer

  Key Responsibilities
 

 

Our Chief Strategy and Supply Chain Officer is responsible for implementing the Company’s strategy, manages the M&A function, leads the Company’s strategic sourcing efforts and has operational responsibility for the Company’s book segment.

 

 

2018 Target Annual Compensation Mix

   

 

LOGO

 

Base Salary

The HR Committee did not increase the base salaries of any of our NEOs in 2018 other than Messrs. Lane and Hansen. Mr. Lane was awarded an increase of $50,000 to his base salary in consideration of his expanded operational role with responsibility for the Company’s book segment. Mr. Hansen was awarded an increase of $40,000 to his base salary to position his compensation closer to the median compensation of the survey data. For 2018, after such increases, the NEOs’ base salaries were as follows: for Mr. Quinlan, $1,200,000; for Ms. Bettman, $540,000; for Mr. Coxhead, $540,000; for Mr. Hansen, $325,000 and for Mr. Lane, $450,000.

Annual Incentive Plan

The HR Committee did not make any changes to the NEOs’ AIP targets as a percentage of base salary. The AIP targets are 150% for Mr. Quinlan and Ms. Bettman, 100% for Messrs. Coxhead and Lane and 75% for Mr. Hansen.

The HR Committee reviewed the 2018 results and the Company’s performance against the net sales and non-GAAP EBITDA goals established and required to be met for the AIP to be funded. For 2018, the net sales goal was met. The target reported EBITDA goal was $355 million (with the minimum goal of $330 million and a maximum goal of $369 million), with actual results of $276 million (see Financial Review – Non-GAAP Measures in the Form 10-K for a reconciliation of net (loss) income to Non-GAAP EBITDA). Consistent with our pay for performance philosophy, given that 2018 performance did not meet the EBITDA corporate financial target under the AIP, no annual bonus payments were paid under the AIP for 2018 to any employee, including the CEO and the other NEOs. Accordingly, the HR Committee did not need to adjudicate individual performance goals for the NEOs.

Long-Term Incentive Program

With respect to 2018 compensation decisions, the HR Committee had a series of discussions regarding the most appropriate way to motivate and retain its executives while still maintaining a continued focus on producing strong operating results. The HR Committee believes it is important to use equity incentives to provide alignment with stockholders, to emphasize long-term performance and to ensure continuity of senior leadership.

Consistent with the LSC Compensation Philosophy, the HR Committee determined that the value of the 2018 long-term incentive plan grants for Messrs. Lane and Hansen would be equal to the value of their 2017 grants, the value of Mr. Coxhead’s 2018 grant was reduced by $150,000 from his 2017 grant and the value of Ms. Bettman’s 2018 grant was

 

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reduced by $135,000 from her 2017 grant, in each case to align such NEOs’ compensation more closely with the median long-term incentive compensation of the peer group and survey data. In consideration of Mr. Quinlan’s 2016 Founder’s Award, the HR Committee, in 2017, chose not to grant to Mr. Quinlan a long-term incentive plan equity award in 2017. However, Mr. Quinlan did receive a long-term incentive grant in 2018 consistent with the peer group data and market practice.

See Executive Compensation – Grants of Plan-Based Awards for details concerning grants made to each NEO in 2018.

The 2018 long-term incentive grants for the NEOs consisted of:

 

   
Performance Share Units

 

   Restricted Share Units

 

+  Granted at a weighting of 50% of total long-term equity awards (assuming performance at 100% of the performance-based financial target)

 

+  Cliff vest at the end of three years if performance metrics achieved, unless employment terminated for other than death or disability

 

-   Upon a change in control, performance would be deemed earned at the greater of target and actual performance and would continue to be subject to time-based vesting

 

-   Following a change in control, PSUs would vest upon a termination without cause or for good reason

 

+  Based on the achievement of a three-year pre-set performance-based financial target of cumulative free cash flow

 

-   Payout started at 75% of target (equating to a 50% payout) and scaled to 100% for 100% achievement of target

 

-   Maximum opportunity for a 120% payout for 110% achievement of target

 

+  Do not accrue dividends

 

  

+  Granted at a weighting of 50% of the total 2018 long-term equity awards (assuming performance at 100% of the PSU performance-based financial target)

 

+  Cliff vest at the end of three years, unless employment terminated for other than death or disability

 

-   Following a change in control, RSUs would vest upon termination without cause or for good reason

 

+  Equivalent in value to one share of the Company’s common stock and settled in stock

 

+  Do not accrue dividends

See Executive Compensation – Grants of Plan-Based Awards for further details concerning grants made to each NEO in 2018.

Perquisites

In 2017, the HR Committee determined to extend the benefit of Company-paid supplemental long-term disability and life insurance effective 2018 to each of Messrs. Coxhead, Hansen and Lane to align with the benefits already afforded to Mr. Quinlan and Ms. Bettman. The premium cost for these supplemental benefits is included as taxable income for the NEOs and there is no tax gross-up on these benefits.

OTHER POLICIES AND PRACTICES

Benefit Programs

LSC’s benefit programs are established based upon an assessment of competitive market factors and a determination of what is needed to retain high-caliber executives. Primary benefits for executive officers include participation in LSC’s broad-based plans at the same benefit levels as other employees, including: retirement plans, savings plans, health and dental plans and various insurance plans, including disability and life insurance.

LSC also provides certain executives, including certain of the NEOs, with the following benefits:

 

  +  

Supplemental Retirement Plan. Because RRD froze its qualified retirement plans as of December 31, 2011, generally no additional benefits accrue under such plans or the related supplemental retirement plan as each were transferred to LSC in the Separation. LSC maintains the “frozen” supplemental retirement plan for eligible employees (which includes approximately 589 (active and inactive) employees including certain of the NEOs).

 

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  +  

Supplemental Insurance. Supplemental life and long-term disability insurance is provided to all NEOs to enhance the value of LSC’s overall compensation program. The premium cost for these supplemental benefits is included as taxable income for the NEOs and there is no tax gross-up on these benefits.

 

  +  

Deferred Compensation Plan. LSC’s deferred compensation plan is not accepting additional deferrals. However, the Company maintains the plan, including existing balances, investment options and previous deferral elections, for eligible participants, including certain of the NEOs.

 

  +  

Limited Perquisites. Our NEOs receive limited perquisites. Taxes on all perquisites are the sole responsibility of the NEO. The HR Committee believes that these perquisites are important for retention and recruitment purposes. LSC reimburses expenses for financial counseling services to provide certain NEOs access to an independent financial advisor of their choice. The cost of these services, if utilized, is included as taxable income for the NEOs. A monthly automobile allowance provides eligible executives with an opportunity to use their car for both business and personal use in an efficient manner. If utilized, this allowance is included as taxable income for the NEOs. Mr. Lane receives reimbursement for monthly dues and business entertainment expenses for a country club membership utilized to entertain customers and suppliers. The reimbursement for monthly dues is not included as taxable income to him. LSC had a fractional ownership interest in a private plane until February 2018. In 2018, there was no personal use of the plane. Specific executive officer perquisites are listed in the footnotes to the 2018 Summary Compensation Table.

Post-Termination Benefits

The HR Committee reviewed the post-termination benefits available to the NEOs and other executives in 2018. The HR Committee believes that severance benefits and change in control benefits are necessary in order to attract and retain the caliber and quality of executives that the Company needs in its most senior positions. These benefits are particularly important in our consolidating industry, as they provide for continuity of senior management and help our executives focus on results and strategic initiatives.

In early 2018, the HR Committee determined that Ms. Bettman and Messrs. Coxhead, Hansen and Lane would be eligible to participate in the Company’s Key Employee Severance Plan (which was originally adopted by the HR Committee in October 2017) if they each agreed to waive any existing legacy employment agreements and severance entitlements, which each subsequently did. Consequently, each of our NEOs, other than Mr. Quinlan, is party to a participation agreement under and is a participant in the Key Employee Severance Plan rather than to an individual employment agreement with the Company. Mr. Quinlan remains a party to his employment agreement with the Company, as amended in 2017 to remove his legacy Section 280G excise tax gross-up.

Each of the NEOs’ agreements provide for severance payments and benefits if termination occurs without “cause” or for “good reason.” Each of our NEOs is also eligible to receive additional compensation if he or she is terminated in connection with or following a “change in control.” However, all such payments are “double trigger” (requiring both a change in control and a qualifying termination).

Additional information regarding severance and change in control payments, including definitions of the key terms and a quantification of benefits that would have been received by our NEOs had a termination occurred on December 31, 2018, is found under Potential Payments upon Termination or Change in Control.

Stock Ownership Guidelines

The HR Committee has established stock ownership guidelines for the NEOs and certain other executives. These guidelines are designed to encourage LSC’s executives to have a meaningful equity ownership in LSC, thereby linking their interests with those of our stockholders. These stock ownership guidelines provide that, within three years of becoming an executive, each executive must own (by a combination of shares owned outright, shares owned through LSC’s 401(k) plan and shares of unvested RSAs and unvested RSUs, but excluding unexercised stock options or PSUs) shares of LSC common stock with a value of 5x base salary for the CEO, 3x base salary for the NEOs other than the CEO and 1x base salary for all other executives covered by the guidelines. Failure to achieve or make progress toward the guidelines shall be cause for review of such executive’s right to future participation in stock grants and/or affect future long-term incentive award payouts. As of April 3, 2019 (the date of the annual review of progress under the stock ownership guidelines), all of our NEOs had met, exceeded or made appropriate progress toward their applicable stock ownership guidelines.

Tax Deductibility Policy

The HR Committee considers the deductibility of compensation for federal income tax purposes in the design of LSC’s compensation programs. While LSC generally seeks to maintain the deductibility of the incentive compensation paid to its executive officers to the maximum extent permitted under applicable law, the HR Committee believes it is important to

 

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COMPENSATION DISCUSSION & ANALYSIS

 

preserve and retain the flexibility necessary to provide cash and equity compensation in line with competitive practices, the LSC Compensation Philosophy, and the best interests of LSC stockholders even if amounts are not fully tax deductible. Section 162(m) of the Internal Revenue Code generally imposes a $1 million limit on the amount a public company may deduct for compensation paid to the company’s “covered employees,” which include our NEOs. The HR Committee is cognizant of and continually considers the impact of the Tax Cuts and Jobs Act of 2017, which expanded the number of individuals covered by Section 162(m) and eliminated the exception for performance-based compensation (generally effective beginning with our 2018 tax year) on the Company’s compensation programs and design. As a result of the changes to Section 162(m), the HR Committee anticipates that the portion of future compensation paid to our NEOs in excess of $1 million will not be deductible, unless it qualifies for transition relief applicable to the “grandfathered” arrangement in place as of November 2, 2017.

Clawback Policy

The Company’s Clawback Policy, which is reviewed annually by the HR Committee, allows the Company to seek reimbursement of incentive compensation paid or awarded to current or former executive officers of the Company where:

 

  +  

The individual from whom disgorgement is sought was an executive officer at the time of the incentive compensation payment or award or the vesting of such award;

 

  +  

The payment of a bonus or equity award (or the vesting of such award) was predicated upon the achievement of financial results that were subsequently the subject of a restatement due to material noncompliance (other than as a result of a change in applicable accounting principles) of the Company with any financial reporting requirement under the federal securities laws as a result of misconduct on the part of the executive officer from whom the reimbursement is sought;

 

  +  

A lower payment or award would have been made to such executive officer based upon the restated financial results; and

 

  +  

The incentive compensation payment or award or the vesting of such award occurred during the three-year period preceding the date on which the Company first disclosed that it is or will be required to prepare an accounting restatement.

The amount subject to clawback is the portion of the incentive compensation paid for or during the three-year period that is greater than the amount that would have been paid or received had the financial results been properly reported. In addition, outstanding equity awards where the HR Committee considered the financial performance in granting such awards which performance was subsequently reduced due to a restatement may be cancelled in whole or in part at the HR Committee’s discretion. Incentive compensation subject to the Clawback Policy includes bonuses, stock option grants and performance shares or other performance-based awards under the Company’s equity incentive program, but does not include restricted stock or similar awards subject to only time-based vesting.

No Hedging, No Pledging and No Short Sales

LSC’s Insider Trading and Window Period Policy prohibits all employees, directors and certain of their family members from engaging in any of the following transactions: pledging securities whether as collateral for a loan or otherwise, holding securities in a margin account, short sales, trading in publicly traded options, puts or calls, hedging or any similar transactions or arrangements with respect to LSC securities. The policy does not provide for any exceptions or waivers.

HUMAN RESOURCES COMMITTEE REPORT

The Human Resources Committee, on behalf of the Board, establishes and monitors LSC’s overall compensation strategy to ensure that executive officer compensation supports the Company’s business objectives. In fulfilling its oversight responsibilities, the Human Resources Committee reviewed and discussed with management the Compensation Discussion & Analysis section set forth above.

In reliance on the review and discussions referred to above, the Human Resources Committee recommended to the Board that the Compensation Discussion & Analysis be incorporated in LSC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Human Resources Committee

Francis J. Jules, Chair

M. Shân Atkins

Thomas F. O’Toole

Douglas W. Stotlar

 

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EXECUTIVE COMPENSATION

 

EXECUTIVE COMPENSATION

2018 SUMMARY COMPENSATION TABLE

The 2018 Summary Compensation Table provides compensation information about our principal executive officer, principal financial officer and the three most highly compensated executive officers (other than the principal executive officer and principal financial officer) (the “Named Executive Officers” or “NEOs”) as of December 31, 2018. The information set forth below with respect to the year ended December 31, 2016 for all NEOs includes compensation received from RRD prior to the Separation combined with compensation received from LSC following the Separation.

 

Name and

Principal Position
(a)

Year
(b)

Salary

($) (c)

Bonus

($)
(d)(1)

Stock

Awards

($) (e)(2)

Option

Awards

($) (f)

Non-Equity

Incentive

Plan

Compensation
($) (g)(3)

Change in

Pension

Value and

Nonqualified

Deferred

Compensation

Earnings

($) (h)(4)

All Other

Compensation

($) (i)(5)

Total

($) (j)

 

Thomas J. Quinlan III

Chairman, Chief Executive

Officer and President(6)

 

 

 

2018

 

 

 

 

1,200,000

 

 

 

 

0

 

 

 

 

3,099,961

 

 

 

 

 

 

 

 

0

 

 

 

 

0

 

 

 

 

37,709

 

 

 

 

4,337,670

 

 

2017

 

1,200,000

 

0

 

 

 

0

 

115,374

 

35,109

 

1,350,483

 

2016

 

1,200,000

 

0

 

11,149,766

 

 

162,000

 

64,820

 

32,763

 

12,609,349

 

Suzanne S. Bettman

Chief Administrative Officer

and General Counsel(7)

 

2018

 

540,000

 

0

 

599,871

 

 

0

 

0

 

22,858

 

1,162,728

 

2017

 

540,000

 

900,000

 

779,833

 

 

0

 

62,101

 

22,858

 

2,304,792

 

2016

 

509,999

 

725,000

 

1,850,252

 

 

72,900

 

30,449

 

31,498

 

3,220,098

 

Andrew B. Coxhead

Chief Financial Officer(8)

 

2018

 

540,000

 

0

 

724,889

 

 

0

 

0

 

12,479

 

1,277,368

 

2017

 

540,000

 

533,334

 

928,711

 

 

0

 

42,051

 

 

2,044,096

 

2016

 

378,750

 

458,333

 

1,003,351

 

 

48,600

 

8,522

 

 

1,897,556

 

Kent A. Hansen

Chief Accounting Officer

and Controller(9)

 

2018

 

325,000

 

0

 

149,968

 

0

 

 

11,124

 

486,092

 

2017

 

285,000

 

0

 

158,919

 

 

0

 

 

443,919

 

2016

 

91,761

 

100,000

 

284,982

 

 

6,348

 

 

 

483,091

 

Richard T. Lane

Chief Strategy and Supply

Chain Officer(10)

 

2018

 

450,000

 

0

 

399,869

 

 

0

 

0

 

34,909

 

884,777

 

2017

 

400,000

 

364,363

 

424,548

 

 

0

 

53,153

 

13,085

 

1,255,149

 

2016

 

385,000

 

146,643

 

684,379

 

 

36,000

 

30,213

 

12,293

 

1,294,528

 

1

The Company did not award any bonuses in 2018.

 

2

The amounts shown in this column constitute the aggregate grant date fair value of restricted share units (“RSUs”) and performance stock units (“PSUs”) granted during the 2018 fiscal year under the Amended and Restated 2016 PIP (also referred to in this CD&A as the “LSC PIP”). The amounts are valued in accordance with ASC Topic 718, Compensation — Stock Compensation. See Note 17 to the Consolidated and Combined Financial Statements included in the Form 10-K for a discussion of the relevant assumptions used in calculating the fair value pursuant to ASC Topic 718. The amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. See also Outstanding Equity Awards at Fiscal Year-End. The values in the table below and included above in the 2018 Summary Compensation Table are included at 100% of target, but any unearned shares will be forfeited.

 

Type of Award

 

 

Thomas
Quinlan

 

 

Suzanne
Bettman

 

 

Andrew
Coxhead

 

 

Kent
Hansen

 

 

Richard
Lane

 

           

LSC RSUs

$1,549,980 $299,935 $362,444 $74,984 $199,934
           

LSC PSUs

$1,549,980 $299,935 $362,444 $74,984 $199,934

 

3

The HR Committee reviewed the 2018 results and the Company’s performance against the adjusted EBITDA goal established for the AIP and determined that performance did not meet the minimum corporate financial target required for a payout and therefore no payouts were made under the AIP for 2018. See Compensation Discussion & Analysis for further information.

 

4

The amounts shown in this column include the aggregate of the increase, if any, in actuarial values of each of the NEO’s benefits under our pension plans and supplemental pension plans. RRD did not have a pension plan open to new participants when Mr. Hansen was hired by RRD, so he is not a participant in our pension plan or supplemental pension plan and has no benefits under either plan. Each of the other NEOs had a decrease in actuarial value in 2018 in the following amounts: Mr. Quinlan, $77,740; Ms. Bettman, $40,417; Mr. Coxhead, $20,923 and Mr. Lane, $25,352.

 

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EXECUTIVE COMPENSATION

 

5

This amount includes the value of the following: (a) interest of $14,078 (calculated at the prime interest rate) in the aggregate that was contributed by LSC in 2018 to Mr. Quinlan’s Supplemental Executive Retirement Plan-B account and (b) the following perquisites and insurance premiums paid by the Company for group term life and supplemental disability shown in the table below. LSC does not provide a tax gross-up on these benefits.

 

         

Named Executive Officer

 

  

Corporate Auto
Allowance

 

    

Club Membership
Dues

 

    

Supplemental Life
Insurance Premium

 

    

Supplemental
Disability Insurance
Premium

 

 
         

Thomas J. Quinlan III

  

 

16,800         

 

  

 

N/A           

 

  

 

2,290             

 

  

 

4,540             

 

         

Suzanne S. Bettman

  

 

16,800         

 

  

 

N/A           

 

  

 

1,690             

 

  

 

4,368             

 

         

Andrew B. Coxhead

  

 

N/A         

 

  

 

N/A           

 

  

 

3,875             

 

  

 

8,604             

 

         

Kent A. Hansen

  

 

N/A         

 

  

 

N/A           

 

  

 

3,575             

 

  

 

7,549             

 

         

Richard T. Lane

  

 

N/A         

 

  

 

13,085           

 

  

 

12,355             

 

  

 

9,469             

 

 

6

Mr. Quinlan served as Chief Executive Officer of RRD until September 30, 2016 and assumed the responsibilities of Chairman, Chief Executive Officer and President of LSC at the time of the Separation.

 

7

Ms. Bettman served as Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer of RRD until September 30, 2016 and assumed the responsibilities of Chief Administrative Officer and General Counsel of LSC at the time of the Separation.

 

8

Mr. Coxhead served as Senior Vice President, Chief Accounting Officer of RRD until September 30, 2016 and assumed the responsibilities of Chief Financial Officer of LSC at the time of the Separation.

 

9

Mr. Hansen was hired by RRD on September 6, 2016 and assumed the responsibilities of Chief Accounting Officer and Controller of LSC at the time of the Separation.

 

10

Mr. Lane served as Executive Vice President — Global Business Solutions of RRD until September 30, 2016 and assumed the responsibilities of Chief Strategy and Supply Chain Officer of LSC at the time of the Separation.

 

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EXECUTIVE COMPENSATION

 

GRANTS OF PLAN-BASED AWARDS

The table below shows additional information regarding awards granted during the year ended December 31, 2018 under LSC’s performance incentive plans, including (i) the threshold, target and maximum level of annual cash incentive awards for the NEOs for performance during 2018, as established by the HR Committee in February 2018, (ii) the PSUs granted in February 2018 under the LSC PIP and (iii) the RSUs granted in February 2018 under the LSC PIP. See Compensation Discussion & Analysis — Long Term Incentive Program for a more detailed discussion of certain of the awards discussed in the following table.

Grants of Plan-Based Awards Table

 

           
   

 

Estimated Future

Payouts Under Non-Equity

Incentive Plan Awards(1)

 

Estimated Future
Payouts Under Equity

Incentive Plan Awards(2)

All Other
Stock Awards:
Number of
Shares of
Stock or
Units (#)(i)(3)

 

Grant Date
Fair Value
of Stock
and Option
Awards

($)(l)(4)

 

Name

(a)

 

Grant

Date(b)

 

Threshold(5)

($)(c)

 

Target

($)(d)

 

Maximum

($)(e)

 

Threshold
(#)(f)

 

Target
(#)(g)

 

Maximum

(#)(h)

 

Thomas J. Quinlan III

 

 

 

1,800,000

 

2,700,000

 

 

 

 

 

 

2/26/18

 

 

 

 

 

 

 

114,930

 

$1,549,980

 

2/26/18

 

 

 

 

57,465

 

114,930

 

137,916

 

$1,549,980

Suzanne S. Bettman

 

 

 

810,000

 

1,215,000

 

 

 

 

 

 

2/26/18

 

 

 

 

 

 

 

22,240

 

299,935

 

2/26/18

 

 

 

 

11,120

 

22,240

 

26,688

 

 

299,935

Andrew B. Coxhead

 

 

 

540,000

 

810,000

 

 

 

 

 

 

2/26/18

 

 

 

 

 

 

 

26,875

 

362,444

 

2/26/18

 

 

 

 

13,438

 

26,875

 

32,250

 

 

362,444

Kent A. Hansen

 

 

 

243,750

 

365,625

 

 

 

 

 

 

2/26/18

 

 

 

 

 

 

 

5,560

 

74,984

 

2/26/18

 

 

 

 

2,780

 

5,560

 

6,672

 

 

74,984

Richard T. Lane

 

 

 

450,000

 

675,000

 

 

 

 

 

 

2/26/18

 

 

 

 

 

 

 

14,825

 

199,934

 

2/26/18

 

 

 

 

7,413

 

14,825

 

17,790

 

 

199,934

 

1

In each case, the amount actually earned by each NEO is reported as Non-Equity Incentive Plan Compensation in the 2018 Summary Compensation Table. In 2018, the year to date performance did not merit the receipt of any non-equity incentive plan compensation under the AIP. Thus, no payouts were made under the AIP to any of our NEOs for 2018. See Compensation Discussion & Analysis for further information.

 

2

Consists of PSUs awarded under the LSC PIP, which may be earned upon the achievement of a specified three-year free cash flow target beginning on January 1, 2018 and ending on December 31, 2020. Each PSU is equivalent to one share of the Company’s common stock on the date of grant. The minimum target must be reached in order for the holder to be entitled to receive any PSUs. Between 50% to 120% of the number of PSUs granted may be earned, depending on actual performance against specified target levels. The PSUs have no dividend or voting rights. See Compensation Discussion & Analysis for further information on the equity grants and Potential Payments Upon Termination or Change in Control.

 

3

Consists of RSUs awarded under the LSC PIP. Each RSU is equivalent to one share of Company common stock and the awards vest in full on March 2, 2021. The RSUs have no dividend or voting rights and are payable on a 1:1 ratio in shares of common stock of the Company upon vesting. See Potential Payments Upon Termination or Change in Control.

 

4

Grant date fair value with respect to the PSUs and the RSUs is determined in accordance with ASC Topic 718. See Note 17 to the Consolidated and Combined Financial Statements included in the Form 10-K for a discussion of the relevant assumptions used in calculating the fair value pursuant to ASC Topic 718. The amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. See Outstanding Equity Awards at Fiscal Year-End for further information on these awards.

 

5

The AIP begins to fund above the threshold, which is set at 93% of target. See Compensation Discussion & Analysis for more information.

 

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EXECUTIVE COMPENSATION

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The table below shows (i) each grant of stock options that are unexercised and outstanding and (ii) the aggregate number of unvested RSUs, PSUs, and restricted stock awards (“RSAs”) outstanding for the NEOs as of December 31, 2018.

Outstanding Equity Awards at Fiscal Year-End Table

 

Name(a) Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)(b)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(c)
Option
Exercise
Price
($)(e)
Option
Expiration
Date(f)

Number of
Shares or
Units of
Stock

That Have
Not Vested
(#)(g)(1)

Market
Value of
Shares or
Units of
Stock
That Have
Not Vested
($)(h)(2)
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)(i)(3)

Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares,

Units or
Other Rights
That Have
Not Vested
($)(j)(4)

 

Thomas J. Quinlan III

 

 

 

44,500

 

 

 

 

—  

 

 

 

 

26.29

 

 

 

 

3/1/2022

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

25,000

 

 

 

 

—  

 

 

 

 

36.99

 

 

 

 

2/27/2021

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

37,500

 

 

 

 

—  

 

 

 

 

39.52

 

 

 

 

2/25/2020

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

118,750

 

 

 

 

—  

 

 

 

 

14.09

 

 

 

 

3/1/2019

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

366,806

 

 

 

 

2,567,642

 

 

 

 

174,647

 

 

 

 

1,222,529

 

 

Suzanne S. Bettman

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

70,116

 

 

 

 

490,812

 

 

 

 

49,527

 

 

 

 

346,689

 

 

Andrew B. Coxhead

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

55,873

 

 

 

 

391,111

 

 

 

 

53,240

 

 

 

 

372,680

 

 

Kent A. Hansen

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

8,150

 

 

 

 

57,050

 

 

 

 

12,278

 

 

 

 

85,946

 

 

Richard T. Lane

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

32,849

 

 

 

 

229,943

 

 

 

 

28,192

 

 

 

 

197,344

 

 

Note:

Multiple awards have been aggregated where the expiration date and the exercise price of the instruments are identical. See Compensation Discussion & Analysis contained in the Company’s 2017 proxy statement for information concerning the treatment of RRD equity in connection with the Separation.

 

1

The following table provides information with respect to the vesting schedule of each NEO’s outstanding unvested RSUs over shares of common stock that are set forth in the above table.

 

 

Vesting Date

 

Thomas Quinlan

 

Suzanne Bettman

 

Andrew Coxhead

 

Kent Hansen

 

Richard Lane

 

3/2/2019

 

 

 

251,876

 

 

 

 

35,186

 

 

 

 

13,888

 

 

 

 

0

 

 

 

 

11,114

 

 

3/2/2020

 

 

 

0

 

 

 

 

12,690

 

 

 

 

15,110

 

 

 

 

2,590

 

 

 

 

6,910

 

 

3/2/2021

 

 

 

114,930

 

 

 

 

22,240

 

 

 

 

26,875

 

 

 

 

5,560

 

 

 

 

14,825

 

 

2

Assumes a closing price per share of LSC of $7.00 on December 31, 2018 (the last trading day of the year).

 

3

For Mr. Quinlan, represents (i) 59,717 RSAs remaining from his 2016 Founder’s Award, which will vest on October 1, 2019 subject to continued employment and (ii) 114,930 PSUs from a grant on February 26, 2018, which are earned for achieving a specified non-GAAP Free Cash Flow target over a three-year period ending December 31, 2020 (the “2018 PSUs”), subject to continued employment.

 

    

For Ms. Bettman, represents (i) 12,057 RSAs remaining from her 2016 Founder’s Award, which will vest on October 1, 2019 subject to continued employment, (ii) 15,230 RSAs from a grant on February 27, 2017 (for which performance through December 31, 2017 was certified by the HR Committee, with performance achievement certified at 120% of target), which will cliff vest on March 2, 2020 (the “2017 RSAs”), subject to continued employment and (iii) 22,240 PSUs remaining from her grant of 2018 PSUs, which will vest on March 2, 2021, subject to continued employment.

 

    

For Mr. Coxhead, represents (i) 8,225 RSAs remaining from his 2016 Founder’s Award, which will vest on October 1, 2019 subject to continued employment, (ii) 18,140 RSAs remaining from his grant of 2017 RSAs, which will vest on March 2, 2020 subject to continued employment and (iii) 26,875 PSUs remaining from his grant of 2018 PSUs, which will vest on March 2, 2021 subject to continued employment.

 

    

For Mr. Hansen, represents (i) 3,618 RSAs remaining from his Founder’s Award, which will vest on October 1, 2019 subject to continued employment, (ii) 3,100 RSAs remaining from his grant of 2017 RSAs, which will vest on March 2, 2020 subject to continued employment and (iii) 5,560 PSUs remaining from his grant of 2018 PSUs, which will vest on March 2, 2021 subject to continued employment.

 

    

For Mr. Lane, represents (i) 5,077 RSAs remaining from his 2016 Founder’s Award, which will vest on October 1, 2019 subject to continued employment, (ii) 8,290 RSAs remaining from his grant of 2017 RSAs, which will vest on March 2, 2020 subject to continued employment and (iii) 14,825 PSUs remaining from his grant of 2018 PSUs, which will vest on March 2, 2021 subject to continued employment.

 

4

Assumes performance achievement of 100% payout of the PSUs and a closing price per share of $7.00 on December 31, 2018 (the last trading day of the year).

 

40      LSC COMMUNICATIONS, INC. | 2019 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

OPTION EXERCISES AND STOCK VESTED

The following table shows information regarding the value of options exercised and RSAs, RSUs and PSUs vested during the year ended December  31, 2018.

Option Exercises and Stock Vested Table

 

  OPTION AWARDS STOCK AWARDS
Name
(a)
Number of Shares
Acquired on Exercise
(#)(b)
Value Realized
on Exercise
($)(c)
Number of Shares
Acquired on Vesting
(#)(d)(1)

Value Realized
on Vesting
($)(e)(2)

 

Thomas J. Quinlan III

 

N/A

 

N/A

 

 

 

161,927

 

 

 

 

 

2,167,429

 

 

Suzanne S. Bettman

 

N/A

 

N/A

 

 

 

26,733

 

 

 

 

348,023