OPERATIONAL OBJECTIVES - PERFORMANCE PERCENTAGE
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Diluted Earnings Per Share (EPS)*
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Total Revenue*
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New Business Wins*
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Net Cash Provided by Operating Activities*
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Days Sales Outstanding (DSO)*
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|
thres-hold
|
target
|
maxi-mum
|
thres-hold
|
target
|
maxi-mum
|
thres-hold
|
target
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maxi-mum
|
thres-hold
|
target
|
maxi-mum
|
thres-hold
|
target
|
maxi-mum
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Performance Percentage of Target
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85%
|
100%
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150%
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90%
|
100%
|
130%
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50%
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100%
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150%
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80%
|
100%
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180%
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93%
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100%
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109%
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Payout Percentage of Target
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50%
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100%
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200%
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50%
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100%
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200%
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37%
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100%
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200%
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50%
|
100%
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200%
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50%
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100%
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200%
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(*) For performance results between the minimum and maximum thresholds, the performance percentage achieved for that metric is calculated on a non-linear slope pre-approved by the Compensation Committee for the performance year. Actual results may range from zero to 200% of target.
2018 AIP AWARDS PAID IN 2019
–
The approved 2018 AIP provided for the Compensation Committee's authority to apply an individual positive or negative 10% adjustment for contributions to the achievement of goals and objectives and a positive or negative 10% adjustment for recompetes. On March 2, 2019, the 2018 AIP awards for the NEOs were approved by the Compensation Committee for payment on or about March 14, 2019. The Compensation Committee, upon the recommendation of Mr. Prow, approved the awards for the other NEOs who received bonuses. The approved 2018 AIP awards for NEOs are included in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column.
The performance and payout percentages for each component of the AIP were as follows:
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Metric (all $ amounts in millions, except per share data)
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Performance Target at 100.0% Payment and Weighting (1)
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2018 Performance
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Performance Percentage of Target
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Payout Percentage of Target (1)
|
Weighted Attainment
|
Diluted Earnings Per Share
|
$2.83
|
40.0%
|
$3.10
|
109.5%
|
113.9%
|
45.6%
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Total Revenue
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$1,242.9
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10.0%
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$1,279.3
|
102.9%
|
106.8%
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10.7%
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New Business Wins
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$140.0
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20.0%
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$273.1
|
195.1%
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200.0%
|
40.0%
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Net Cash Provided by Operating Activities
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$35.2
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10.0%
|
$40.1
|
113.9%
|
100.0%
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10.0%
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Days Sales Outstanding
|
55.0
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20.0%
|
58.8
|
93.1%
|
50.7%
|
10.1%
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(1) Attainment of all of the 2018 AIP performance goals would result in a payout of 100.0% of target.
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|
|
|
|
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Year Ended December 31, 2018
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(in millions, except per share data)
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Diluted Earnings Per Share
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Reported GAAP Net Income
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$
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35.3
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Reported GAAP Diluted Earnings Per Share
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$
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3.1
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Weighted average common shares outstanding - diluted
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11.4
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|
The following table illustrates the calculation of the 2018 AIP awards paid to the NEOs in 2019. (Sum of components may differ from actual award amounts due to rounding.)
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Named Executive Officer
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Base Salary
(a) ($)
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Annual Incentive Target as a Percent of Base Salary
(b) (1)
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Total Revenue Percent Achieved
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New Business Wins Percent Achieved
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Diluted Earnings Per Share Percent Achieved
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Net Cash Provided by Operating Activities Percent Achieved
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Days Sales Outstanding Percent Achieved
|
Total Performance Percent Achieved
(c)
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Approved Total Performance Percent Payout
(d)
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Actual 2018 AIP Awards (a)x(b)x
(d)($)(2)
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Charles L. Prow
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700,003
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100
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102.9
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195.1
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109.5
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113.9
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93.1
|
116.40
|
116.4
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814,800
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Matthew M. Klein
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375,003
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65
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102.9
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195.1
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109.5
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113.9
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93.1
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116.40
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116.4
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283,700
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Michele L. Tyler
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335,005
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55
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102.9
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195.1
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109.5
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113.9
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93.1
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116.40
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116.4
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214,500
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David A. Hathaway
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365,019
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55
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102.9
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195.1
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109.5
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113.9
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93.1
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116.40
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116.4
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233,700
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Susan L. Deagle
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330,013
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55
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102.9
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195.1
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109.5
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113.9
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93.1
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116.40
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116.4
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211,300
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(1) This column reflects the target percent of base salary approved for each NEO for his or her 2018 annual incentive award. The approved annual incentive plan formula for 2018 was based on performance measures and goals that would pay 100% of target for 100% achievement of the approved goals.
(2) The Compensation Committee did not use any discretion in determining the actual 2018 AIP awards.
LONG-TERM INCENTIVE PROGRAM
2018 LONG-TERM INCENTIVE AWARDS
Long-term incentive awards are intended to directly tie long-term compensation to long-term value creation and shareholder return. The 2018 long-term incentive program provided for a combination of TSR awards and RSUs to comprise the total long-term incentive award for each NEO. These components are incentives for absolute stock price performance and appreciation as well as TSR performance relative to the specific group of companies referenced below. The Compensation Committee set vesting terms for RSUs based on the Compensation Consultant's review and guidance regarding current competitive practice and its assessment of appropriate vesting terms and conditions for Vectrus. In determining the total long-term incentive award for each NEO, the Committee also considered individual performance.
The Compensation Committee weighted the 2018 long-term incentive awards as follows:
The 2018 long-term incentive awards for all NEOs were granted on March 5, 2018. A valuation based on the grant date was used to determine the number of RSUs granted pursuant to this allocation. The number of RSUs granted on March 5, 2018 was based on $33.62, the closing price of Vectrus common stock on the grant date.
The following table sets forth the value of 2018 long-term incentive award amounts for the NEOs granted during 2018, as determined by the Compensation Committee.
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Named Executive Officer
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Restricted Stock Unit
Award Value
($)
|
Restricted Stock Unit Awards
(# of Units)
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Relative Total Shareholder Return Award
($)
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Represents 50% of total award value
|
Represents 50% of total award value
|
Charles L. Prow
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800,000
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23,795
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800,000
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Matthew M. Klein
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212,500
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6,321
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212,500
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Michele L. Tyler
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125,000
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3,718
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125,000
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David A. Hathaway
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125,000
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3,718
|
125,000
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Susan L. Deagle
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125,000
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3,718
|
125,000
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RESTRICTED STOCK UNIT COMPONENT
The Compensation Committee reviewed all proposed grants of RSUs to NEOs prior to their award, including awards based on performance, retention-based awards and awards contemplated for new employees as part of employment offers. Grants of RSUs provide executives with stock ownership of unrestricted shares after the restrictions lapse. NEOs were granted RSU awards because, in the judgment of the Compensation Committee and based on management’s recommendations, these individuals were in positions most likely to assist in the achievement of the Company’s long-term value creation goals and to create increased shareholder value over time. RSUs granted in 2018 vest in one-third annual installments on the first, second and third anniversaries of the grant date.
RELATIVE TOTAL SHAREHOLDER RETURN (TSR) AWARD COMPONENT
The TSR performance design for 2018 - 2020 compares the Company’s TSR performance relative to the TSR performance of the Aerospace and Defense companies in the S&P 1500 Index. In designing the program, the Compensation Committee determined that this would be an appropriate index for Vectrus to be measured against for relative total shareholder return performance. The Compensation Committee also determined that, consistent with awards beginning in 2015, performance could be measured in a more balanced manner with the following four performance periods weighted equally at 25%:
January 1, 2018 through December 31, 2018;
January 1, 2019 through December 31, 2019;
January 1, 2020 through December 31, 2020; and
January 1, 2018 through December 31, 2020.
The actual award payout factor will be determined based on the average of the payout factors for each of the four performance periods, determined as follows:
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If the Company’s TSR performance relative to that of the Aerospace and Defense companies in the S&P 1500 Index is:
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The Payout Factor is:
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Less than the 35th percentile
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0%
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At the 35th percentile
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50%
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At the 50th percentile
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100%
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At the 80th percentile
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200%
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Actual results between the 35th percentile and the 80th percentile will be interpolated.
The potential award payout is capped at 200% of the target award as the Compensation Committee believes that having a cap helps mitigate excessive or inappropriate risk-taking.
VECTRUS TOTAL SHAREHOLDER RETURN AWARDS GRANTED IN 2016
The Compensation Committee approved and granted the 2016 TSR awards in March 2016. The awards were subject to a three-year Performance Period beginning January 1, 2016 through December 31, 2018 and measured in four individual periods, weighted equally, as follows: January 1, 2016 - December 31, 2016; January 1, 2017 - December 31, 2017; January 1, 2018 - December 31, 2018; and January 1, 2016 - December 31, 2018.
Following the end of the three-year Performance Period, Vectrus TSR performance was calculated for each of the four individual periods, relative to the Aerospace and Defense companies in the S&P 1500. Results are indicated below:
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Individual Performance Period
|
Vectrus Percentile Rank Performance vs. Aerospace & Defense Companies in the S&P 1500 *
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Payout Factor
|
January 1, 2016 - December 31, 2016
|
26.9
|
0%
|
January 1, 2017 - December 31, 2017
|
68.0
|
160%
|
January 1, 2018 - December 31, 2018
|
4.5
|
0%
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January 1, 2016 - December 31, 2018
|
9.0
|
0%
|
Average Payout Factor:
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|
40%
|
(*) Performance below the 35th percentile rank versus the Aerospace and Defense companies in the S&P 1500 Index results in a 0% Payout Factor for the applicable Performance Period. Payout percentages for performance between the 35th and 80th percentile rank are interpolated.
Following certification of Vectrus performance for the 2016 TSR awards, the Compensation Committee approved payouts in January 2019 at 40% of the target award. Payments to the NEOs were as follows:
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Named Executive Officer
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2016 Target Award
|
Payout at 40%
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Matthew M. Klein
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$205,000
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$82,500
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Michele L. Tyler
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$110,000
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$44,000
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Messrs. Prow and Hathaway and Ms. Deagle did not receive 2016 TSR awards because Mr. Prow joined the Company in December 2016 and Mr. Hathaway and Ms. Deagle joined the Company in October and May 2017, respectively. TSR awards are discussed in more detail above at "Relative Total Shareholder Return (TSR) Award Component."
POST-EMPLOYMENT COMPENSATION
The Vectrus employer match contribution is 50% up to 8% of employee-elected deferrals based upon annual base compensation. All contributions are 100% vested.
Vectrus also established and maintains a non-qualified, unfunded Vectrus Systems Corporation Excess Savings Plan to provide key employees an opportunity to earn benefits in excess of the benefits that may be earned under the Vectrus 401(k) Plan. This plan is discussed in more detail in “Non-qualified Deferred Compensation for 2018” below.
SEVERANCE PLAN ARRANGEMENTS
The plans discussed below are described in more detail in "Payments Upon a Termination or Change in Control." The severance plans apply to key Vectrus employees as defined by Section 409A. The Vectrus severance plan arrangements are not considered in determining other elements of compensation. All of the Vectrus NEOs were covered under the Senior Executive Severance Play Plan and the Special Senior Executive Severance Pay Plan.
SENIOR EXECUTIVE SEVERANCE PAY PLAN
The purpose of this plan is to provide a period of transition for senior executives. Senior executives who are U.S. citizens or who are employed in the United States are covered by this plan. The plan generally provides for severance payments if the Company terminates a senior executive’s employment without cause.
The exceptions to severance payments are:
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l
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the executive terminates his or her own employment;
|
l
|
the executive’s employment is terminated for cause; or
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l
|
if the executive accepts employment or refuses comparable employment with a purchaser in a divestiture situation.
|
No severance is provided for termination for cause because the Company believes employees terminated for cause should not receive additional compensation. No severance is provided where an executive accepts or refuses comparable employment in a divestiture situation because the executive had the opportunity to receive employment income from another party under comparable circumstances.
SPECIAL SENIOR EXECUTIVE SEVERANCE PAY PLAN
The purpose of this plan is to provide compensation in the case of termination of employment in connection with an Acceleration Event (defined in "Payments Upon Termination or Change in Control"). The provisions of this plan are specifically designed to address the inability of senior executives to influence the Company's future performance after certain change in control events. The plan is structured to encourage executives to act in the best interests of shareholders by providing for certain compensation and retention benefits and payments, including change in control provisions, in the case of an Acceleration Event.
The purposes of these provisions are to:
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|
|
l
|
provide for continuing cohesive operations as executives evaluate a transaction, which, without change in control protection, could be personally adverse to the executive;
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l
|
keep executives focused on preserving value for shareholders;
|
l
|
retain key talent in the face of potential transactions; and
|
l
|
attract talented employees in the competitive marketplace.
|
As discussed above, this plan provides severance benefits for covered executives, including any NEO whose employment was terminated by the Company without cause, or where the covered executive terminated his or her employment for good reason within two years after the occurrence of an acceleration event as described below (including a termination due to death or disability) or if during the two-year period following an Acceleration Event, the covered executive had grounds to resign with good reason or the covered executive’s employment was terminated in contemplation of an Acceleration Event that ultimately occurred.
The plan is designed to put the executive in the same position, from a compensation and benefits standpoint, as he or she would have been in without the Acceleration Event. With respect to incentive plan awards, since the executive would no longer have the ability to influence the corporate objectives upon which the awards were based, the plan provides that any AIP awards be paid out at target.
CHANGE IN CONTROL ARRANGEMENTS
As described more fully in "Payments Upon Termination or Change in Control," the Compensation Committee has provided for treatment of short-term and long-term incentive plans, severance arrangements and the excess savings plan upon a change in control.
EMPLOYEE BENEFITS AND PERQUISITES
Vectrus executives are eligible to participate in Vectrus’ broad-based employee benefits programs, including medical, dental, vision coverage, group life insurance, and other specified benefit plans according to the plan documents.
PERQUISITES FOR THE NEOs
Vectrus provides only those perquisites that it considers to be reasonable and consistent with competitive practice. Physical exams are generally available on a biennial basis and were not provided to NEOs in 2018. During 2018, Mr. Prow received a housing allowance. No perquisites were provided to any other NEOs. (See the "All Other Compensation Table.") The Compensation Committee continues to review benefits and perquisites to assure they are reasonable and consistent with competitive practice.
OTHER CONSIDERATIONS AND POLICIES
CLAWBACK POLICY
The Board of Directors has adopted a clawback policy to provide for recoupment of performance-based compensation if the Board of Directors determines that a senior executive has engaged in fraud or willful misconduct. This would include annual cash incentive and bonus awards and all forms of equity-based compensation to the extent such awards are performance-based. If, in the Board of Directors’ view, the compensation related to Vectrus’ financial performance would have been lower if it had been based on the restated results, the Board of Directors will, to the extent permitted by applicable law, seek recoupment from that senior executive of any portion of such compensation as it deems appropriate after a review of all relevant facts and circumstances. The NEOs, Senior Vice Presidents, Corporate Vice Presidents, executives who are direct reports to the President and CEO and their direct reports are covered by this policy.
EQUITY GRANT POLICY - CONSIDERATION OF MATERIAL NON-PUBLIC INFORMATION
Vectrus equity-based awards granted to NEOs, senior and other executives, and equity-based awards granted to Directors, are awarded and priced on the same date as the approval date or a subsequent date approved by the Compensation Committee for administrative reasons. Vectrus may also make equity-based grants in the case of the promotion of an existing employee or hiring of a new employee. These grants may be made at a time Vectrus is in possession of material non-public information related to the promotion or the hiring of a new employee or other matters. Vectrus does not time its release of material non-public information for the purpose of affecting the value of executive compensation, and executive compensation decisions are not timed to the release of material non-public information. No stock options were granted in 2018.
CONSIDERATION OF TAX AND ACCOUNTING IMPACTS
Section 162(m)-
Section 162(m) of the Internal Revenue Code (the "Code") as in effect prior to the enactment of tax reform legislation in December 2017 placed a limit of $1,000,000 on the amount of compensation that Vectrus could deduct in any one year with respect to its "covered employees," which consisted of its Chief Executive Officer and the three other highest-paid named executive officers, other than the Chief Financial Officer. There was an exception to the $1,000,000
limitation for performance-based compensation meeting certain requirements.
Recent tax reform legislation enacted in December 2017 retained the $1,000,000 deduction limit, but repealed the performance-based compensation exemption from the deduction limit and expanded the definition of “covered employees,” effective for taxable years beginning after December 31, 2017. Consequently, compensation paid in 2018 and later years to NEOs in excess of $1,000,000 will not be deductible unless it qualifies for transitional relief applicable to certain binding, written performance-based compensation arrangements that were in place as of November 2, 2017.
The Compensation Committee generally intends to continue to comply with the requirements of Section 162(m) as it existed prior to the tax reform legislation with respect to performance-based compensation in excess of $1,000,000 payable under outstanding awards granted before November 2, 2017 under our Amended 2014 Plan in order to qualify them for the transitional relief. However, no assurance can be given that the compensation associated with these awards will qualify for the transitional relief, due to ambiguities and uncertainties as to the application and interpretation of the revised Section 162(m) and the related requirements for transitional relief.
Section 409A -
Vectrus plans are intended to comply with Section 409A of the Code, to the extent applicable. While Vectrus endeavors to comply with other applicable sections of the Code with respect to compensation, the Compensation Committee did not consider other tax implications when designing Vectrus’ compensation programs.
Excise Taxes -
Vectrus provides “best-net” provisions with respect to any excise tax triggered by a change-in-control. Under these provisions, if payments triggered by a change-in-control would be subject to an excise tax, then either payments would be reduced by the amount needed to avoid triggering the tax, or no reduction of payments would occur, depending on which alternative left the executive in the better after-tax position.
POLICY AGAINST HEDGING, PLEDGING, SPECULATION IN COMPANY STOCK AND INSIDER TRADING
Vectrus has a policy that prohibits employees and Directors from taking advantage of, disclosing, or using any confidential information for the purpose of personal gain, including buying, selling, or trading in any Vectrus security. The policy includes prohibitions for Corporate Vice Presidents and above against hedging or pledging Vectrus securities, speculation or other investments where the shareowner’s economic interest is disassociated from share ownership. These prohibited transactions encompass the purchase of financial instruments, including short sales, forward contracts, equity swaps, collars, puts, calls or other derivative securities that are speculative in nature or designed to hedge or offset a decrease in market value of any Vectrus security (other than exercises of Company granted stock options). The Board of Directors has adopted a parallel policy that applies to Directors. In addition, Directors
must receive specific written approval prior to entering into any transaction involving Vectrus securities. Directors and Corporate Vice Presidents and above also annually receive specific instructions with respect to trading in equity securities of Vectrus to ensure compliance with the Company's hedging, pledging, speculation and insider trading policies.
BUSINESS RISK AND COMPENSATION
Compensation across the enterprise is structured so that unnecessary or excessive risk-taking behavior is discouraged. Total compensation for senior officers is heavily weighted toward long-term compensation consistent with the Vectrus compensation philosophy, which is focused on long-term value creation. This focus on long-term compensation discourages behaviors that encourage short-term risks. The President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer attend those portions of the Compensation Committee meetings at which plan features and design configurations of annual and long-term incentive plans are considered and approved. Overall enterprise risk is reviewed and considered at the Committee and Board meetings, providing additional important information to the Compensation Committee.
Vectrus management recently conducted a risk assessment of our compensation policies and programs, including our executive compensation programs. Vectrus management reviewed and discussed the findings of the assessment with the Compensation Committee and the full Board of Directors which concluded that our compensation programs are designed with an appropriate balance of risk and reward in relation to our overall business strategy and do not encourage excessive risk-taking behavior. As a result, we do not believe that risks relating to our compensation programs are reasonably likely to have a material adverse effect on the Company. The Compensation Committee reviewed management’s summary on the review and assessment of such compensation programs and approved these conclusions.
The Compensation Committee considered risk implications of our compensation programs during its deliberations on the design of our 2018 executive compensation programs, with the goal of appropriately balancing short-term and long-term performance.
The following table summarizes representative Vectrus compensation components or policies and relevant risk mitigation factors:
RISK ASSESSMENT ACROSS THE ENTERPRISE
|
|
|
|
VECTRUS COMPENSATION COMPONENT OR POLICY
|
RISK MITIGATION FACTOR
|
Base Salary
|
Based on market rates. Provides stability and minimizes risk-taking incentives.
|
Annual Incentive Plan
|
l
|
AIP design emphasizes overall performance and collaboration across the enterprise.
|
l
|
AIP components focus on metrics that encourage operating performance and that differ from those used for long-term incentive awards.
|
l
|
Individual AIP components and total AIP awards are capped.
|
l
|
Payments are made only after external audit review and Compensation Committee certification of performance to metrics and approval.
|
Long-Term Incentive Awards - RSUs
|
RSUs vest annually in one-third increments over a three-year period.
|
Total Shareholder Return Awards
|
TSR awards are based on relative share price performance over four separate periods (e.g., 2018, 2019, 2020 and 2018-2020) during a three-year cycle and encourage behaviors focused on long-term goals, while discouraging behaviors focused on short-term risks. Relative TSR is a different metric from those used for AIP awards.
|
Perquisites
|
Limited perquisites are based on competitive market data. (See "Employee Benefits and Perquisites - Perquisites for the NEOs.")
|
Severance
|
Severance plans are maintained by the Company in the event of termination without cause or in certain circumstances following a change in control of the Company.
|
Clawback Policy
|
Provides mechanism for senior executive compensation recapture in certain situations involving fraud or willful misconduct.
|
Officer Share Ownership Guidelines
|
Vectrus officers are required to own Vectrus shares or share equivalents up to 5 X base salary, depending on the level of the officer. In addition, the officers are required to hold shares until their guidelines are met. Share ownership guidelines align executive and shareholder interests and discourage executives from focusing on short-term results without regard for longer-term consequences.
|
Prohibition Against Pledging or Hedging or Speculation in Vectrus Securities
|
Vectrus policy prohibits Directors and Corporate Vice Presidents and above from pledging or hedging or speculative trading in and out of Vectrus securities, including short sales, forward contracts, equity swaps, collars, puts, calls or other derivative securities that are speculative in nature or designed to hedge or offset a decrease in market value of any Vectrus security (other than exercises of Company granted stock options).
|
Change in Control
|
Under the Amended 2014 Plan and award agreements, a double trigger requires both consummation of the transaction and a qualifying termination for accelerated vesting of outstanding long-term incentive grants.
|
Pension Plans
|
Vectrus does not provide a traditional pension plan or supplemental executive retirement plan.
|
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation of our NEOs for 2016, 2017 and 2018.
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus ($) (a)
|
Stock Awards ($) (b)
|
Option Awards ($) (c)
|
Non-equity Incentive Plan Compen-sation ($) (d)
|
Change in Pension Value and Non-Qualified Deferred Compen-sation Earnings
($) (e)
|
All Other Compen-sation ($) (f)
|
Total
($)
|
Charles L. Prow
President and Chief Executive Officer
|
2018
|
680,775
|
—
|
1,599,988
|
—
|
814,800
|
—
|
61,733
|
3,157,296
|
2017
|
600,018
|
—
|
720,002
|
180,002
|
619,800
|
—
|
55,701
|
2,175,523
|
2016
|
32,309
|
—
|
600,005
|
—
|
—
|
—
|
219
|
632,533
|
Matthew M. Klein
Senior Vice President and Chief Financial Officer
|
2018
|
367,323
|
—
|
425,012
|
—
|
283,700
|
—
|
11,718
|
1,087,753
|
2017
|
333,131
|
—
|
328,000
|
82,003
|
225,000
|
—
|
10,248
|
978,382
|
2016
|
325,000
|
—
|
328,008
|
82,002
|
174,300
|
—
|
11,645
|
920,955
|
Michele L. Tyler
Former Senior Vice President, Chief Legal Officer and Corporate Secretary
|
2018
|
329,721
|
—
|
249,999
|
—
|
214,500
|
—
|
557,831
|
1,352,051
|
2017
|
306,084
|
—
|
176,006
|
44,002
|
174,700
|
—
|
10,902
|
711,694
|
2016
|
300,019
|
—
|
175,997
|
43,998
|
136,100
|
—
|
12,353
|
668,467
|
David A. Hathaway Senior Vice President, Programs
|
2018
|
365,019
|
25,000
|
249,999
|
—
|
233,700
|
—
|
13,598
|
887,316
|
Susan L. Deagle
Senior Vice President, Chief Growth Officer
|
2018
|
324,245
|
—
|
249,999
|
—
|
211,300
|
—
|
2,728
|
788,272
|
2017
|
196,166
|
75,000
|
199,998
|
50,000
|
103,300
|
—
|
264
|
624,728
|
|
|
(a)
|
The amount in this column for 2018 represents a cash payment for Mr. Hathaway in connection with his offer of employment. The amount for 2017 represents a cash payment for Ms. Deagle in connection with her offer of employment.
|
|
|
(b)
|
Amounts in this column include the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for target TSR awards and RSUs. The assumptions used in calculating these amounts are incorporated herein by reference to Note 14 to the consolidated financial statements in the Vectrus Form 10-K for the year ended December 31, 2018. For the maximum value of TSR awards, see the table in "Grants of Plan-Based Awards in 2018."
|
|
|
(c)
|
Amounts in this column represent the aggregate grant date fair values of the option grants. The assumptions used by Vectrus in calculating these amounts are incorporated herein by reference to Note 14 to the consolidated financial statements in the Vectrus Form 10-K for the year ended December 31, 2018.
|
|
|
(d)
|
Amounts in this column reflect the AIP awards that were earned for the applicable performance year.
|
|
|
(e)
|
Vectrus does not have a traditional pension plan; therefore, no values are reported.
|
|
|
(f)
|
Amounts in this column represent items specified in the All Other Compensation table below.
|
ALL OTHER COMPENSATION TABLE
|
|
|
|
|
|
|
|
Name
|
Year
|
Perquisites
(a) ($)
|
Excess Savings Plan Contributions
(b) ($)
|
401(k) Matching Contributions (c) ($)
|
Other
(d) ($)
|
Total All Other Compensation ($)
|
Charles L. Prow
|
2018
|
33,000
|
16,231
|
9,250
|
3,252
|
61,733
|
Matthew M. Klein
|
2018
|
—
|
3,693
|
7,453
|
572
|
11,718
|
Michele L. Tyler
|
2018
|
—
|
2,189
|
9,251
|
546,391
|
557,831
|
David A. Hathaway
|
2018
|
—
|
3,601
|
9,125
|
872
|
13,598
|
Susan L. Deagle
|
2018
|
—
|
1,970
|
—
|
758
|
2,728
|
|
|
(a)
|
The amount in this column represents a housing allowance in the amount of $33,000 paid in 2018 for Mr. Prow.
|
|
|
(b)
|
Contributions to the Vectrus Systems Corporation Excess Savings Plan are unfunded and earnings are credited at the same rate as the Stable Value Fund available to participants in the Vectrus 401(k) Plan.
|
|
|
(c)
|
Amounts represent matching contributions during 2018 in the Vectrus 401(k) Plan, as follows: Mr. Prow (Company match $9,250, met IRS limit on employee deferral); Mr. Klein (Company match $7,453, met IRS limit on employee deferral); Ms. Tyler (Company match $9,251, met IRS limit on employee deferral); and Mr. Hathaway (Company match $9,125, did not meet IRS limit on employee deferral). Ms. Deagle did not participate in the 401(k) Plan in 2018.
|
|
|
(d)
|
Amounts represent taxable group term life insurance premiums paid for Messrs. Prow, Klein and Hathaway and Ms. Deagle. The amount for Ms. Tyler represents (i) taxable group term life insurance premiums of $773 for 2018, (ii) taxable group term life insurance premiums of $789 to be paid in 2019 and $460 to be paid in 2020, (iii) cash termination pay of $324,696 to be paid in 2019 and $177,811 in 2020, (iv) payment for unused paid time off of $40,587 in 2019, and (v) Company-paid dental and life coverage benefits of $805 to be paid in 2019 and $470 to be paid in 2020.
|
CEO PAY RATIO
In accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are required to calculate and report an estimate of the ratio of the total compensation of our CEO to the total compensation of our median employee. The intended purpose of the disclosure is to provide a reasonable measure of the relationship of pay between the CEO and the median paid employee. In 2018 the Compensation Committee of the Board approved an annual salary increase of 16.7% based on his performance as CEO and his compensation level relative to the competitive market. This is the first salary increase Mr. Prow received since joining the Company in December 2016. His compensation and the rationale for his increase are discussed in "Individual Executive Positions - 2018 Compensation Information" earlier in this Proxy Statement. The Company believes its compensation philosophy and process represent a responsible approach toward CEO pay. The required disclosure is presented as follows:
|
|
|
Median Employee Total Annual Compensation:
|
$54,287
|
CEO Total Annual Compensation:
|
$3,157,296
|
Ratio of CEO Pay to Median Employee Compensation:
|
58.2 to 1.0
|
In determining the median employee, the Company prepared a listing of all employees as of October 31, 2018. This includes U.S. and non-U.S.employees who were full-time, part-time or temporary employees and those on an approved leave of absence, except for 700 employees from the January 2018 acquisition of SENTEL. Over 6,500 subcontract employees were excluded from the analysis because their compensation is determined by unaffiliated third parties. The data examined were W-2 wages or foreign equivalent compensation paid from November 1, 2017 through October 31, 2018. The median was calculated directly from the arrayed data using taxable wages as the chosen consistently applied compensation measure ("CACM"). Once the median employee was determined, annual total compensation was calculated for that individual using the Summary Compensation Table rules for both the CEO and the median employee. As of October 31, 2018 the Company employed approximately 5,700 persons, excluding the CEO and the recently acquired SENTEL.
GRANTS OF PLAN-BASED AWARDS IN 2018
The following table summarizes awards made to our NEOs during the year ended December 31, 2018. Grants made to NEOs during 2018 were made under the Amended 2014 Plan. The table includes the grant date for equity-based awards, the estimated future payouts under non-equity incentive plan awards (which consist of potential payouts for 2018 under the AIP), and estimated future payouts under the long-term incentive awards, which consist of potential payouts related to the TSR awards granted in 2018 for the 2018 - 2020 performance period. The table also provides the number of shares underlying all other stock awards, which consist of RSU awards, and the grant date fair value of each equity award computed under FASB ASC Topic 718.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Grant Date
|
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 (#) (3)
|
All Other Option Awards: Number of Securities Underlying Options (#) (4)
|
Exercise or Base Price of Option Awards ($/Sh) (4)
|
Grant Date Fair Value of Stock and Option Awards ($) (5)
|
Threshold ($)
|
Target ($)
|
Maximum ($)
|
Threshold ($)
|
Target ($)
|
Maximum ($)
|
Charles L. Prow
|
|
350,000
|
700,000
|
1,400,000
|
|
|
|
|
|
|
|
1/1/2018
|
|
|
|
400,000
|
800,000
|
1,600,000
|
|
|
|
|
3/5/2018
|
|
|
|
|
|
|
23,795
|
|
|
799,988
|
Matthew M. Klein
|
|
121,900
|
243,800
|
487,600
|
|
|
|
|
|
|
|
1/1/2018
|
|
|
|
106,250
|
212,500
|
425,000
|
|
|
|
|
3/5/2018
|
|
|
|
|
|
|
6,321
|
|
|
212,512
|
Michele L. Tyler
|
|
92,150
|
184,300
|
368,600
|
|
|
|
|
|
|
|
1/1/2018
|
|
|
|
62,500
|
125,000
|
250,000
|
|
|
|
|
3/5/2018
|
|
|
|
|
|
|
3,718
|
|
|
124,999
|
David A. Hathaway
|
|
100,400
|
200,800
|
401,600
|
|
|
|
|
|
|
|
1/1/2018
|
|
|
|
62,500
|
125,000
|
250,000
|
|
|
|
|
3/5/2018
|
|
|
|
|
|
|
3,718
|
|
|
124,999
|
Susan L. Deagle
|
|
90,750
|
181,500
|
363,000
|
|
|
|
|
|
|
|
1/1/2018
|
|
|
|
62,500
|
125,000
|
250,000
|
|
|
|
|
3/5/2018
|
|
|
|
|
|
|
3,718
|
|
|
124,999
|
|
|
(1)
|
Amounts reflect the threshold, target, and maximum payment levels for commensurate performance under the AIP described above in “Compensation Discussion and Analysis - Compensation Program Objectives” if certain performance metrics are met. These potential payments are based on achievement of specific performance metrics and are completely at risk. The target award is computed based upon the applicable range of net estimated payments denominated in dollars where the target award is equal to 100% of the award potential, the threshold is equal to 50% of target and the maximum is equal to 200% of target. The approved AIP formula for 2018 was based on performance measures and totals that would pay 100% of target for 100% achievement of the approved goals. Actual AIP awards for 2018 are shown in the Summary Compensation Table.
|
|
|
(2)
|
Amounts reflect the threshold, target, and maximum payment levels, respectively, which are denominated in dollars, if an award payout is achieved under the Company's 2018 TSR awards. The 2018 TSR awards are subject to a three-year performance period from January 1, 2018 to December 31, 2020. The potential payments are based on achievement of specific approved performance as further described above in "Compensation Discussion and Analysis - Long-Term Incentive Program - Relative Total Shareholder Return (TSR) Award Component." TSR awards are completely at-risk compensation and payments, if any, are made in cash after the end of the performance period. The target amount shown is the grant date fair value.
|
|
|
(3)
|
Amounts reflect the number of RSUs granted in 2018 to the NEOs. RSUs granted to NEOs vest in one-third annual installments on the first, second and third anniversaries of the grant. The numbers of shares underlying the RSU awards granted on March 5, 2018 were determined based on $33.62, the closing price of Vectrus common stock on March 5, 2018. During the restriction period, holders of RSUs do not have voting rights.
|
|
|
(4)
|
Stock options were not granted in 2018.
|
|
|
(5)
|
Amounts in this column represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for equity awards granted to the NEOs in 2018.
|
SPECIAL COMPENSATION ARRANGEMENTS
CHARLES L. PROW EMPLOYMENT LETTER AND OTHER MATTERS
On November 30, 2016, Vectrus and Charles L. Prow entered into an employment letter (the "Prow Employment Letter") setting forth the terms and conditions of his employment as President and Chief Executive Officer of the Company. The material terms of the Prow Employment Letter are set forth below.
|
|
1.
|
Compensation and Benefits.
|
|
|
a.
|
Annual Base Salary.
Mr. Prow’s initial base salary was $600,000.
|
|
|
b.
|
2017 Target Annual Incentive.
Mr. Prow is eligible to participate in the Company’s Annual Incentive Plan with a target award of 100% of his annual base salary, starting in 2017.
|
|
|
c.
|
Long-Term Incentives.
Mr. Prow is eligible for annual long-term incentive awards with an aggregate long-term incentive target for 2017 of $900,000 under the Company’s Long-Term Incentive Program, subject to approval by the Compensation Committee. It was anticipated that fifty percent (50%) of his 2017 long-term incentive award would be in the form of a cash incentive opportunity tied to relative total shareholder return; thirty percent (30%) would be in the form of time-vesting RSUs; and twenty percent (20%) would be in the form of time-vesting non-qualified stock options. In addition, as a one-time incentive, on December 8, 2016, he received a special RSU grant valued at $600,000 with annual vesting over three years.
|
|
|
d.
|
Other Benefit Programs.
Mr. Prow is eligible to participate in the Company’s compensation and benefit plans, policies and arrangements that are applicable to other executives, including the Company’s Senior Executive Severance Pay Plan and Special Senior Executive Severance Pay Plan. Mr. Prow is an at-will employee.
|
Housing Costs.
On February 24, 2017, the Compensation Committee approved a housing allowance for Mr. Prow in the amount of $3,000 per month. Mr. Prow, who was hired in December 2016 and worked primarily at the Company’s Reston, Virginia office until his recent relocation to Colorado Springs in January 2019, was expected to spend a substantial amount of time in Colorado Springs, Colorado (the location of the Company’s headquarters). The Committee approved the housing allowance, which was not grossed up for taxes, following the Company’s cost analysis that indicated that the allowance would be less expensive than estimated hotel costs for his visits to Colorado Springs. The Company previously paid a total of $2,827 in 2017 for short-term apartment rental costs in Colorado Springs.
SUSAN L. DEAGLE EMPLOYMENT LETTER
On March 13, 2017, Vectrus and Ms. Deagle entered into an employment letter (the "Deagle Employment Letter") setting forth the terms and conditions of her employment as Senior
Vice President and Chief Growth Officer of the Company. Ms. Deagle joined the Company on May 1, 2017. The material terms of the Deagle Employment Letter are set forth below.
|
|
1.
|
Compensation and Benefits.
|
|
|
a.
|
Annual Base Salary.
Ms. Deagle’s initial base salary was $300,019.
|
|
|
b.
|
Cash Sign-on Payment
. Ms. Deagle received a cash sign-on payment (for equity that she forfeited at her then-current employer) of $75,000, subject to repayment (net of taxes) if Ms. Deagle voluntarily terminated her employment within one year of her start date.
|
|
|
c.
|
2017 Target Annual Incentive.
Ms. Deagle is eligible to participate in the Company’s Annual Incentive Plan. She was eligible for a target award of 50% of her annual base salary in 2017, and the award was prorated based on the number of months worked in 2017.
|
|
|
d.
|
Long-Term Incentives.
Ms. Deagle is eligible to participate in the Company's Long-Term Incentive Program, subject to approval of her awards by the Compensation Committee. For 2017, she was recommended for a total target award of $250,000, comprised of 50% in the form of a cash target related to relative total shareholder return (subject to a three-year performance period beginning January 1, 2017 through December 31, 2019), 20% in non-qualified stock options and 30% in RSUs. The options and RSUs will vest in one-third installments on the first, second and third anniversaries of the grant date.
|
|
|
e.
|
Other Benefit Programs
. Ms. Deagle is eligible to participate in the Company’s benefit plans that are applicable to other employees.
|
DAVID A. Hathaway EMPLOYMENT LETTER AND OTHER MATTERS
On September 4, 2017, Vectrus and Mr. Hathaway (currently our Senior Vice President, Programs) entered into an employment letter (the "Hathaway Employment Letter") setting forth the terms and conditions of his employment as Senior Vice President, Information Technology & Network Communications Services of the Company. Mr. Hathaway joined the Company on October 10, 2017. The material terms of the Hathaway Employment Letter are set forth below.
|
|
1.
|
Compensation and Benefits.
|
|
|
a.
|
Annual Base Salary.
Mr. Hathaway's initial base salary was $365,019.20.
|
|
|
b.
|
Cash Sign-on Payment
. Mr. Hathaway was eligible for and paid a cash sign-on payment of $130,000 as recognition of the annual bonus forfeited from his previous employer, subject to repayment (net of taxes) if Mr. Hathaway voluntarily terminated his employment within one year of his start date.
|
|
|
c.
|
Restricted Stock Units.
Mr. Hathaway received an award of RSUs valued at $60,000, which was intended to replace equity at his then-current employer, which was scheduled to vest in 2018. The RSUs were granted five business days following his date of hire and will
|
vest in one-third annual installments on the first, second and third anniversaries of the grant date.
|
|
d.
|
2017 Target Annual Incentive.
Mr. Hathaway is eligible to participate in the Company’s Annual Incentive Plan. He was eligible for a target award of 55% of his annual base salary for 2017 and the award was prorated based on the number of months worked in 2017.
|
|
|
e.
|
Additional Cash Payment.
Mr. Hathaway received a lump sum payment of $50,000 structured over a two-year period. $25,000 was paid within one month of his date of hire and the remaining $25,000 was paid on or about his one year anniversary with the Company. The payment was subject to repayment (net of taxes) if Mr. Hathaway voluntarily terminated his employment within one year of his start date.
|
|
|
f.
|
Long-Term Incentives.
Mr. Hathaway is eligible to participate in the Company's Long-Term Incentive Program, subject to approval of his awards by the Compensation Committee. For 2017, he was recommended for a total target award of $250,000, comprised of 50% in the form of a cash target related to relative total shareholder return (subject to a three-year performance period beginning January 1, 2017 through December 31, 2019), 20% in non-qualified stock options and 30% in RSUs. The options and RSUs will vest in one third-installments on the first, second and third anniversaries of the grant date.
|
|
|
g.
|
Benefit Programs
. Mr. Hathaway is eligible to participate in the Company’s benefit plans that are applicable to other employees.
|
Michele l. Tyler separation agreement
Vectrus and Michele L. Tyler entered into a Separation Agreement and Complete Release of Liability dated November 5, 2018 (the "Separation Agreement"). Pursuant to the Separation Agreement, the Company and Ms. Tyler agreed that (i) her last day of active, full-time employment as Senior Vice President with the Company would be January 2, 2019 (the "Separation Date"), (ii) during the period October 15, 2018 through the Separation Date, she would continue employment in support of the realignment of roles and responsibilities within the legal function, ensuring a smooth transition, (iii) the Company would continue to pay Ms. Tyler her present salary at the rate of $335,000 per year, payable in normal bi-weekly payments for the period from January 3, 2019 through July 2, 2020 (the "Severance Pay Period"), (iv) she would be paid for any accrued, unused paid time off ("PTO"), (v) she would be eligible for full bonus consideration for twelve months of active service during 2018, (vi) she would be eligible to continue participation in the Company's medical, dental and vision plans through the Severance Pay Period with the Company and Ms. Tyler continuing to share the monthly premium expense for such policies, programs and arrangements following the Separation Date (subject to the Company's Senior Executive Severance Pay Plan), and the COBRA continuation period will run concurrently from the Separation Date, (vii) she would not be eligible to participate in any other Company benefit plans, policies, programs and arrangements following the Separation Date, and her
remaining rights in such plans, policies, programs and arrangements following the Separation Date shall be governed by the terms thereof, (viii) her outstanding equity awards would be treated in accordance with the terms of the applicable plan and award agreements, (ix) she would be eligible for Company-paid outplacement services for up to six months, and (x) she would be available upon reasonable notice to assist the Company in defense of certain legal or administrative actions or proceedings, at the Company's request, at the rate of $161 per hour.
In addition, the Separation Agreement generally provides that the obligations of the Company described above are subject to certain conditions, which, if not complied with by Ms. Tyler, could require her to return any severance payments and any bonus payment made to her and pay any legal fees incurred by the Company to recover such payments. The Separation Agreement also provides for a mutual release of liabilities.
OUTSTANDING EQUITY AWARDS AT 2018 FISCAL YEAR END
The following table sets forth summary information regarding the outstanding equity awards held by our NEOs at December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
Stock Awards
|
Name
|
Grant Date (1)
|
Number of Securities Underlying Unexercised Options
(#) Exercisable
|
Number of Securities Underlying Unexercised Options
(#) Unexercisable (2)
|
Option Exercise Price
($)
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not Vested
(#) (2)
|
Market Value of Shares or Units of Stock That Have Not Vested
($) (3)
|
Charles L. Prow
|
8-Dec-2016
|
—
|
—
|
—
|
|
8,217
|
177,323
|
3-Mar-2017
|
7,300
|
14,598
|
21.98
|
3/3/2027
|
8,189
|
176,719
|
5-Mar-2018
|
—
|
—
|
—
|
|
23,795
|
513,496
|
Matthew M. Klein
|
6-Mar-2014
|
6,611
|
—
|
24.61
|
3/6/2024
|
—
|
—
|
10-Oct-2014
|
14,927
|
—
|
20.62
|
10/10/2024
|
—
|
—
|
4-Mar-2015
|
6,482
|
—
|
32.04
|
3/4/2025
|
—
|
—
|
4-Mar-2016
|
7,744
|
3,871
|
20.06
|
3/4/2026
|
2,044
|
44,110
|
3-Mar-2017
|
3,326
|
6,650
|
21.98
|
3/3/2027
|
3,730
|
80,493
|
5-Mar-2018
|
—
|
—
|
—
|
|
6,321
|
136,407
|
Michele L. Tyler
|
8-Mar-2013
|
15,785
|
—
|
13.13
|
3/8/2023
|
—
|
—
|
6-Mar-2014
|
4,132
|
—
|
24.61
|
3/6/2024
|
—
|
—
|
10-Oct-2014
|
7,282
|
—
|
20.62
|
10/10/2024
|
—
|
—
|
4-Mar-2015
|
3,478
|
—
|
32.04
|
3/4/2025
|
—
|
—
|
4-Mar-2016
|
4,155
|
2,077
|
20.06
|
3/4/2026
|
1,096
|
23,652
|
3-Mar-2017
|
1,785
|
3,568
|
21.98
|
3/3/2027
|
2,002
|
43,203
|
5-Mar-2018
|
—
|
—
|
—
|
|
3,718
|
80,234
|
David A. Hathaway
|
17-Oct-2017
|
1,342
|
2,684
|
32.49
|
10/17/2027
|
2,769
|
59,755
|
5-Mar-2018
|
—
|
—
|
—
|
|
3,718
|
80,234
|
Susan L. Deagle
|
8-May-2017
|
1,873
|
3,745
|
26.05
|
5/8/2027
|
1,919
|
41,412
|
5-Mar-2018
|
—
|
—
|
—
|
|
3,718
|
80,234
|
|
|
(1)
|
The dates presented in this column represent the date the awards were granted (a) by Exelis for awards prior to the Spin-off and (b) by us for all other awards. The same vesting dates were retained by Vectrus after the Spin-off.
|
|
|
(2)
|
These awards vest in one-third annual installments on the applicable anniversaries of the grant date.
|
|
|
(3)
|
Reflects the Company's closing stock price of $21.58 on December 31, 2018.
|
OPTION VESTING SCHEDULE
Generally, stock options vest on the applicable anniversary of the grant date. Options vest in one-third cumulative annual installments on the first, second and third anniversaries of the grant date. Stock options were not granted in 2018.
|
|
|
|
|
|
|
Name
|
Grant Date
|
Vesting Schedule (#s)
|
2019
|
2020
|
Charles L. Prow
|
3-Mar-2017
|
7,299
|
|
7,299
|
|
Matthew M. Klein
|
4-Mar-2016
|
3,871
|
|
|
3-Mar-2017
|
3,325
|
|
3,325
|
|
Michele L. Tyler
|
4-Mar-2016
|
2,077
|
|
|
3-Mar-2017
|
1,784
|
|
1,784
|
|
David A. Hathaway
|
17-Oct-2017
|
1,342
|
|
1,342
|
|
Susan L. Deagle
|
8-May-2017
|
1,873
|
|
1,872
|
|
RESTRICTED STOCK uNIT VESTING SCHEDULE
Generally, RSUs vest on the applicable anniversary of the grant date. Except as otherwise noted, RSUs vest in one-third annual installments on the first, second and third anniversaries of the grant date.
|
|
|
|
|
|
|
|
|
Name
|
Grant Date
|
Vesting Schedule (#s)
|
2019
|
2020
|
2021
|
Charles L. Prow
|
8-Dec-2016
|
8,217
|
|
|
|
3-Mar-2017
|
4,095
|
|
4,094
|
|
|
5-Mar-2018
|
7,932
|
|
7,932
|
|
7,931
|
|
Matthew M. Klein
|
4-Mar-2016
|
2,044
|
|
|
|
3-Mar-2017
|
1,865
|
|
1,865
|
|
|
5-Mar-2018
|
2,107
|
|
2,107
|
|
2,107
|
|
Michele L. Tyler
|
4-Mar-2016
|
1,096
|
|
|
|
3-Mar-2017
|
1,001
|
|
1,001
|
|
|
5-Mar-2018
|
1,240
|
|
1,239
|
|
1,239
|
|
David A. Hathaway
|
17-Oct-2017
|
1,385
|
|
1,384
|
|
|
5-Mar-2018
|
1,240
|
|
1,239
|
|
1,239
|
|
Susan L. Deagle
|
8-May-2017
|
960
|
|
959
|
|
|
5-Mar-2018
|
1,240
|
|
1,239
|
|
1,239
|
|
OPTION EXERCISES AND STOCK VESTED
The following table summarizes the option exercises and vesting of RSUs for each of our NEOs in 2018.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
Stock Awards
|
Name
|
Number of Shares Acquired on Exercise(#)
|
Value Realized on Exercise ($) (1)
|
Number of Shares Acquired on Vesting (#)
|
Value Realized on Vesting ($) (2)
|
Charles L. Prow
|
—
|
|
—
|
|
12,312
|
|
323,364
|
|
Matthew M. Klein
|
—
|
|
—
|
|
5,189
|
|
180,058
|
|
Michele L. Tyler
|
—
|
|
—
|
|
2,784
|
|
96,605
|
|
David A. Hathaway
|
—
|
|
—
|
|
1,386
|
|
40,679
|
|
Susan L. Deagle
|
—
|
|
—
|
|
960
|
|
33,773
|
|
|
|
(1)
|
Represents the difference between the market price of a share of Vectrus common stock on the date of exercise, and the exercise price per share, multiplied by the number of shares acquired upon exercise.
|
|
|
(2)
|
The aggregate value realized on the date of vesting of the RSUs is based on the average of high and low prices of Vectrus common stock on the date of vesting, multiplied by the number of shares acquired upon vesting. The value realized for these NEOs is based on $34.70 per share on the vesting dates of March 3, 2018, March 4, 2018 and March 5, 2018, $35.18 per share on the vesting date of May 8, 2018, $29.35 per share on the vesting date of October 17, 2018 and $22.06 per share on the vesting date of December 8, 2018, as calculated below. As March 3 and 4, 2018 and December 8, 2018 fell on a weekend, $34.70 and $21.83, respectively, represents the average of the high and low prices of Vectrus common stock on the next business day on March 5, 2018 and December 10, 2018, respectively.
|
PENSION BENEFITS
Prior to the Spin-off, the NEOs participated in pension plans provided by Exelis. Vectrus has not adopted a pension plan, and does not provide pension benefits to the NEOs.
NON-QUALIFIED DEFERRED COMPENSATION FOR 2018
EXCESS SAVINGS PLAN
The Vectrus Systems Corporation Excess Savings Plan provides our key employees with an opportunity to earn retirement savings benefits in excess of the retirement benefits they may contribute under our 401(k) Plan. Section 415 of the Code limits the amount of compensation that can be used to determine employee and employer contribution amounts ($275,000 in 2018) to the 401(k) Plan. The benefit that is provided to an employee under an excess benefit plan generally amounts to the difference between what the employee would have received under the employer's qualified retirement plan without applying the Section 415 limitations and what the employee actually receives under the qualified retirement plan.
The Vectrus Systems Corporation Excess Savings Plan is a non-qualified unfunded savings plan. All balances under this plan are maintained on the books of Vectrus. Vectrus contributes to the participant's excess savings account at 4% of eligible base compensation. Participant investment earnings are based on the Guaranteed Income Fund - Stable Value Fund in the Vectrus 401(k) Plan. Benefits will be paid to the NEO in a lump sum in the seventh month following the last day worked by such NEO.
DEFERRED COMPENSATION
All NEOs participate in the Vectrus Excess Savings Plan. The following table shows the activity within the Excess Savings Plan for the NEOs for 2018.
NON-QUALIFIED DEFERRED COMPENSATION
|
|
|
|
|
|
|
Name
|
Executive Contributions in Last FY ($)(a)
|
Registrant Contributions in Last FY ($)(b)(1)
|
Aggregate Earnings in Last FY ($)(c)
|
Aggregate Withdrawals/ Distributions ($)(d)
|
Aggregate Balance at Last FYE ($)(e)(2)
|
Charles L. Prow
|
—
|
16,231
|
331
|
—
|
27,966
|
Matthew M. Klein
|
—
|
3,693
|
664
|
—
|
36,316
|
Michele L. Tyler
|
—
|
2,189
|
327
|
—
|
18,285
|
David A. Hathaway
|
—
|
3,601
|
9
|
—
|
3,610
|
Susan L. Deagle
|
—
|
1,970
|
3
|
—
|
1,973
|
|
|
(1)
|
The amounts in this column are also included in the Summary Compensation Table and in the All Other Compensation Table as Excess Saving Plan Contributions.
|
|
|
(2)
|
The following amounts of the aggregate balance from the table were reported in previous summary compensation tables: Mr. Prow -- $11,404, Mr. Klein -- $31,959, Ms. Tyler -- $15,770, and Ms. Deagle -- $0.
|
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
In this section, we discuss the compensation payable (including accelerated vesting of equity awards) in the event of a change in control and employment termination under several different circumstances, including voluntary termination, termination for cause, death, disability, termination without cause and termination in connection with a change in control.
Except with respect to Ms. Tyler, the amounts shown in the Potential Post-Employment Compensation table are estimates, assuming the triggering event occurred on December 31, 2018. The amounts shown for Ms. Tyler reflect the actual amounts to which Ms. Tyler became entitled in connection with her termination of employment on January 2, 2019. Values attributed to accelerated vesting of equity-based awards are based on Vectrus’ closing stock price on Monday, December 31, 2018, which was $21.58. Except with respect to Ms. Tyler, the actual amounts that would be earned upon the actual occurrence of the events described in the table can only be determined at the time of such executive’s separation from Vectrus.
PAYMENTS AND BENEFITS PROVIDED GENERALLY TO SALARIED EMPLOYEES
The amounts shown in the table below do not include payments and benefits to the extent these payments and benefits are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include:
|
|
|
l
|
Accrued salary and paid time off; and
|
l
|
Amounts currently vested under the Vectrus Excess Savings Plan.
|
No perquisites are provided to the NEOs upon a change in control or in any of the post-employment circumstances shown in the table below.
SEVERANCE AND CHANGE IN CONTROL
SENIOR EXECUTIVE SEVERANCE PAY PLAN
The purpose of this plan is to provide a period of transition for senior executives. Senior executives who are U.S. citizens or who are employed in the United States are covered by this plan. The plan generally provides for severance payments if Vectrus terminates a senior executive’s employment without cause. The amount of severance pay under this plan depends on the executive’s base pay and years of service. In October 2015, the plan was amended to, among other things, reduce the maximum severance benefit from 24 months of base pay to 18 months of base pay. The severance benefit begins at 12 months of base pay for less than four years of service and increases to 18 months of base pay for service of nine years or more. Senior executives who had earned severance of greater than 18 months as of the October 2015 plan amendment were grandfathered at the higher level. In November 2016, the plan was further amended to provide severance benefits to eligible covered executives regardless of age. The amendments made with respect to this plan were the result of a study of competitive practice undertaken in concert with the Compensation Consultant retained by the Compensation Committee. The executives are also eligible to continue receiving subsidized health and welfare benefits during the severance payment period. Vectrus considers these severance pay provisions appropriate given the job responsibilities and competitive market in which senior executives function. Vectrus’ obligation to continue severance payments stops if the executive does not comply with the Vectrus Code of Conduct or applicable Vectrus Corporate Policies. Vectrus considers this cessation provision to be critical to Vectrus’ emphasis on ethical behavior. Vectrus’
obligation to continue severance payments also ends if the executive engages in any activity inimical to the best interests of Vectrus, disparages Vectrus, induces employees to leave Vectrus without our consent or does not comply with non-competition provisions of this plan. These provisions protect the integrity of our business and are consistent with typical business arrangements. If a covered executive receives or is entitled to receive other severance or similar compensation under another Vectrus plan or agreement or under applicable law, the amount of that other compensation will reduce amounts otherwise payable under this plan, to the extent such offsetting would not violate Code Section 409A. The severance is paid in equal installments over the applicable severance period.
The exceptions to severance payments are:
|
|
|
l
|
the executive terminates his or her own employment;
|
l
|
the executive’s employment is terminated for cause, death or disability; or
|
l
|
the executive accepts employment or refuses comparable employment with a purchaser in a divestiture situation.
|
Assuming a termination by Vectrus without cause on December 31, 2018, Messrs. Prow and Hathaway and Ms. Deagle would have been entitled to 12 months of severance, and Ms. Tyler would have been entitled to 18 months of severance. Mr. Klein is grandfathered at 24 months of severance payments based on his years of service prior to the 2015 plan amendment.
SPECIAL SENIOR EXECUTIVE SEVERANCE PAY PLAN
The purpose of this plan is to provide compensation in the case of termination of employment in connection with an Acceleration Event (as defined below). The provisions of this plan are specifically designed to address the inability of senior executives to influence the Company's future performance after certain change in control events. The plan is structured to encourage executives to act in the best interests of shareholders without regard to the potential impact a change in control transaction might have with respect to his or her employment by providing severance protections for terminations that arise in connection with a change in control transaction.
The purposes of these provisions are to:
|
|
|
l
|
provide for continuing cohesive operations as executives evaluate a transaction, which, without change in control protection, could be personally adverse to the executive;
|
l
|
keep executives focused on preserving value for shareholders;
|
l
|
retain key talent in the face of potential transactions; and
|
l
|
attract talented employees in the competitive marketplace.
|
As discussed above, this plan provides severance benefits for covered executives, including the NEOs, if their employment
is terminated (i) by the Company without cause within two years after a change in control transaction or prior to a change in control transaction if the termination occurs after public announcement of the transaction (provided the transaction is consummated) or the termination is at the request of a party to the transaction, or (ii) where the covered executive terminates his or her employment for good reason (including a termination due to death or disability if at the time of such termination the executive could have resigned for good reason) within two years after a change in control transaction.
This plan provides four tiers of benefits for covered executives, based on their position within the Company and the criticality of their role in a change in control transaction. The Compensation Committee, working in concert with the independent Compensation Consultant, considered four tiers of benefits appropriate based on the relative ability of each tier of employee to influence future Company performance. In the event of a covered termination under this plan, the executive would be entitled to:
|
|
|
l
|
any accrued but unpaid base salary and paid time off, any earned but unpaid bonus (AIP payment) relating to the preceding year, unreimbursed expenses and any amounts to which the executive is entitled under applicable employee benefit plans;
|
l
|
two and a half (2.5), two (2.0), one and a half (1.5) or one (1.0) times the executive’s annual base salary and target AIP at the time of the termination, paid in equal installments; and
|
l
|
continuation of health (medical/dental) and life insurance benefits at the same levels for the length of the individual's severance.
|
If payments triggered by a change in control transaction would constitute excess parachute payments for purposes of Code Section 280G, then either: (1) payments would be reduced by the amount needed to avoid triggering Code Section 280G, or (2) no reduction of payments would occur, depending on which alternative leaves the executive in a better after-tax position.
Mr. Prow is covered at the Tier 1 level of benefits of 2.5 times, Mr. Klein is covered at the Tier 2 level of benefits of 2.0 times and Mr. Hathaway and Ms. Deagle are covered at the Tier 3 level of benefits of 1.5 times.
EFFECT OF A CHANGE IN CONTROL AND TERMINATION OF EMPLOYMENT ON ANNUAL INCENTIVE AWARDS, EQUITY AWARDS AND THE EXCESS SAVINGS PLAN
Annual Incentive Awards.
Under the AIP, upon a change in control, the AIP awards for the year of the change in control would be paid at the greater of “target” or actual achievement as of the date of the change in control event. Since the AIP awards would have been earned as of December 31, 2018 based on continued employment through such date, and actual performance exceeded target, we have not reflected the 2018 AIP awards in the table below. The NEO’s AIP awards for
2018, including the target opportunities and the actual amounts earned, are discussed in the Compensation Discussion and Analysis section of this Proxy Statement.
Equity-Based Awards.
No outstanding equity-based awards accelerate solely upon a change in control transaction; however, vesting is accelerated in the event of certain termination of employment scenarios. Following is a description of how the awards are treated upon different termination events.
|
|
•
|
Stock Options. The stock options become fully vested upon termination due to death or disability. Upon termination due to retirement (termination at or after age 60 with at least 5 years of service, other than termination by the Company for cause or due to death or disability), a prorated portion of the option will continue to vest on the applicable vesting dates based on the number of full months of employment during the vesting period, and any remaining unvested portion will expire unless the option holder agrees to comply with the non-competition covenants contained in the stock option agreement, in which case the option will vest without proration on each subsequent vesting date as if employment had continued. If the option holder is not retirement eligible upon voluntary resignation or termination by the Company without cause, the unvested portions of the option expire immediately, except that if employment is terminated by the Company without cause or by the option holder for good reason within 24 months following a change in control transaction, the options become fully vested.
|
|
|
•
|
RSUs. The RSUs become fully vested upon termination due to death or disability. Upon termination due to retirement (termination at or after age 60 with at least 5 years of service, other than termination by the Company for cause or due to death or disability) or termination by the Company without cause, a prorated portion of the RSUs will continue to vest on the applicable vesting dates based on the number of full months of employment during the vesting period, and any remaining unvested portion will be forfeited unless the RSU holder agrees to comply with the non-competition covenants contained in the RSU agreement, in which case the RSUs will vest without proration on each subsequent vesting date as if employment had continued. If the RSU holder is not retirement eligible upon voluntary resignation, the unvested portions of the RSUs will be forfeited. If employment is terminated by the Company without cause or by the option holder for good reason within 24 months following a change in control transaction, the RSUs become fully vested.
|
|
|
•
|
TSR Awards. Upon termination due to death or disability, the TSR awards remain eligible to vest based on actual performance over the performance period (or as determined upon a change in control event as described below if such an event occurs during the
|
performance period) as if the award holder had remained employed. Upon termination due to retirement (termination at or after age 60 with at least 5 years of service, other than termination by the Company for cause or due to death or disability) or termination by the Company without cause, a prorated portion of the TSR award will remain eligible to vest based on actual performance over the performance period (or as determined upon a change in control event as described below if such an event occurs during the performance period) as if employment had continued, and any remaining unvested portion will expire unless the award holder agrees to comply with the non-competition covenants contained in the TSR award agreement, in which case the portion of the award that vests will not be prorated. If the award holder is not retirement eligible upon voluntary resignation, the unvested portions of the award will be forfeited. If employment is terminated by the Company without cause or by the award holder for good reason within 24 months following a change in control transaction, the award becomes fully vested, with a prorated portion of the award determined by calculating the average performance over any completed and open performance periods (based on actual performance through the date of the change in control event) and the remainder based on assumed target performance.
Each of the NEOs has accepted the terms and conditions with respect to their awards, including restrictive covenants. None of the NEOs was retirement eligible (age 60 with 5 years of service) for purposes of their equity-based awards on December 31, 2018.
Vectrus Systems Corporation Excess Savings Plan
. Payment of the NEOs’ accounts under this plan would be triggered by a change in control or a termination of employment or death of the NEO. The definition of change in control under this plan is consistent with the corresponding definition under Code Section 409A. Since there is no accelerated vesting or other enhancement of benefits under the plan, we have not disclosed the NEOs’ accounts in the table below. For information regarding this plan and the NEOs’ aggregate balances as of December 31, 2018, see the “Non-Qualified Deferred Compensation” table above.
Additional Information.
The change in control and employment termination provisions in these plans and agreements are intended to provide protections in the context of change in control transaction and certain termination events so that the executives can focus on preserving value for shareholders when evaluating situations that, without these provisions, could be personally adverse to the executive. Except for the Vectrus Systems Corporation Excess Savings Plan, which defines a change in control by reference to the corresponding definition under Code Section 409A, change in control is defined as one of the following acceleration events ("Acceleration Events") for purposes of these plans and agreements:
|
|
1.
|
A report on Schedule 13D was filed with the SEC disclosing that any person, other than Vectrus or one of its subsidiaries or any employee benefit plan that is sponsored by Vectrus or a subsidiary, had become the beneficial owner of 30% or more of Vectrus’ outstanding stock;
|
|
|
2.
|
A person other than Vectrus or one of its subsidiaries or any employee benefit plan that is sponsored by Vectrus or a subsidiary purchased Vectrus shares in connection with a tender or exchange offer, if after consummation of the offer the person purchasing the shares is the beneficial owner of 30% or more of Vectrus outstanding stock;
|
|
|
(a)
|
any consolidation, business combination or merger of Vectrus other than a consolidation, business combination or merger in which the shareholders of Vectrus immediately prior to the merger would hold 50% or more of the combined voting power of Vectrus or the surviving corporation of the merger and would have the same proportionate ownership of common stock of the surviving corporation that they held in Vectrus immediately prior to the merger; or
|
|
|
(b)
|
any sale, lease, exchange or other transfer of all or substantially all of the assets of Vectrus;
|
|
|
4.
|
A majority of the members of the Board of Directors of Vectrus changed within a 12-month period, unless the election or nomination for election of each of the new Directors by Vectrus’ shareholders had been approved by two-thirds of the Directors still in office who had been Directors at the beginning of the 12-month period or whose nomination for election or election was recommended or approved by a majority of Directors who were Directors at the beginning of the 12-month period; or
|
|
|
5.
|
Any person other than Vectrus or one of its subsidiaries or any employee benefit plan sponsored by Vectrus or a subsidiary became the beneficial owner of 30% or more of Vectrus outstanding stock.
|
The Potential Post-Employment Compensation table on the following page provides additional information.
POTENTIAL POST-EMPLOYMENT COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
Resignation (a)($)
|
Termination for Cause
(b)($)
|
Death
(c)($)
|
Disability (d)($)
|
Termination Not For Cause
(e)($)
|
Change in Control and Termination Not For Cause or With Good Reason
(f)($)
|
Charles L. Prow
|
|
|
|
|
|
|
Severance (1)
|
0
|
|
0
|
|
0
|
|
0
|
|
709,197
|
|
3,524,237
|
|
2017 - 2019 TSR Award (2)
|
0
|
|
0
|
|
413,663
|
|
413,663
|
|
275,789
|
|
317,693
|
|
2018 - 2020 TSR Award (2)
|
0
|
|
0
|
|
600,000
|
|
600,000
|
|
199,980
|
|
533,360
|
|
Unvested RSUs and Options (3)
|
0
|
|
0
|
|
867,538
|
|
867,538
|
|
194,652
|
|
867,538
|
|
Total
|
0
|
|
0
|
|
1,881,201
|
|
1,881,201
|
|
1,379,618
|
|
5,242,828
|
|
Matthew M. Klein
|
|
|
|
|
|
|
Severance (1)
|
0
|
|
0
|
|
0
|
|
0
|
|
779,495
|
|
1,266,999
|
|
2017 - 2019 TSR Award (2)
|
0
|
|
0
|
|
188,446
|
|
188,446
|
|
125,637
|
|
144,727
|
|
2018 - 2020 TSR Award (2)
|
0
|
|
0
|
|
159,375
|
|
159,375
|
|
53,120
|
|
141,674
|
|
Unvested RSUs and Options (3)
|
0
|
|
0
|
|
266,894
|
|
266,894
|
|
97,347
|
|
266,894
|
|
Total
|
0
|
|
0
|
|
614,715
|
|
614,715
|
|
1,055,599
|
|
1,820,294
|
|
Michele L. Tyler*
|
|
|
|
|
|
|
Severance (1)
|
0
|
|
0
|
|
0
|
|
0
|
|
503,761
|
|
0
|
|
2017 - 2019 TSR Award (2)
|
0
|
|
0
|
|
0
|
|
0
|
|
67,415
|
|
0
|
|
2018 - 2020 TSR Award (2)
|
0
|
|
0
|
|
0
|
|
0
|
|
31,247
|
|
0
|
|
Unvested RSUs and Options (3)
|
0
|
|
0
|
|
0
|
|
0
|
|
53,993
|
|
0
|
|
Total
|
0
|
|
0
|
|
0
|
|
0
|
|
656,416
|
|
0
|
|
David A. Hathaway
|
|
|
|
|
|
|
Severance (1)
|
0
|
|
0
|
|
0
|
|
0
|
|
378,294
|
|
869,026
|
|
2017 - 2019 TSR Award (2)
|
0
|
|
0
|
|
114,906
|
|
114,906
|
|
76,608
|
|
88,248
|
|
2018 - 2020 TSR Award (2)
|
0
|
|
0
|
|
93,750
|
|
93,750
|
|
31,247
|
|
83,338
|
|
Unvested RSUs and Options (3)
|
0
|
|
0
|
|
139,989
|
|
139,989
|
|
25,011
|
|
139,989
|
|
Total
|
0
|
|
0
|
|
348,645
|
|
348,645
|
|
511,160
|
|
1,180,601
|
|
Susan L. Deagle
|
|
|
|
|
|
|
Severance (1)
|
0
|
|
0
|
|
0
|
|
0
|
|
337,501
|
|
778,772
|
|
2017 - 2019 TSR Award (2)
|
0
|
|
0
|
|
114,906
|
|
114,906
|
|
76,608
|
|
88,248
|
|
2018 - 2020 TSR Award (2)
|
0
|
|
0
|
|
93,750
|
|
93,750
|
|
31,247
|
|
83,338
|
|
Unvested RSUs and Options (3)
|
0
|
|
0
|
|
139,989
|
|
139,989
|
|
32,111
|
|
139,989
|
|
Total
|
0
|
|
0
|
|
348,645
|
|
348,645
|
|
477,467
|
|
1,090,347
|
|
* Ms. Tyler’s employment terminated without cause on January 2, 2019. For information regarding the severance arrangements for Ms. Tyler, please refer to "Special Compensation Arrangements" and the Summary Compensation Table. The amounts shown in column (e) of the table above for Ms. Tyler reflect the actual severance amounts payable under the Senior Executive Severance Pay Plan and the actual vesting of Ms. Tyler’s equity awards pursuant to the applicable award agreements due to her termination on January 2, 2019.
|
|
(1)
|
Amounts shown in column (e) reflect the cash severance and estimated cost to Vectrus of the continuation of benefits under the Senior Executive Severance Pay Plan, which would have been as follows: Mr. Prow ($700,003 and $9,194); Mr. Klein ($750,006 and $29,489); Ms. Tyler ($502,508 and $1,253); Mr. Hathaway ($365,019 and $13,275); and Ms. Deagle ($330,013 and $7,488). Amounts shown in column (f) reflect the cash severance and estimated cost to Vectrus of the continuation of benefits and life insurance under the Special Senior Executive Severance Pay Plan, would have been as follows: Mr. Prow ($3,500,015 and $24,222); Mr. Klein ($1,237,510 and $29,489); Mr. Hathaway ($848,669 and $20,357); and Ms. Deagle ($767,280 and $11,492).
|
|
|
(2)
|
Amounts shown in columns (c), (d) and (e) for the 2017-2019 TSR awards are based on actual performance for the periods ended December 31, 2017 and December 31, 2018 and target performance (100%) for the remaining two measurement periods. Amounts in columns (c), (d) and (e) for the 2018-2020 TSR awards are based on actual performance for the period ended December 31, 2018 and target performance (100%) for the remaining three measurement periods. None of the NEOs were retirement eligible (age 60 with 5 years of service) for purposes of their TSR awards on December 31, 2018. Amounts shown in column (f) for the 2017-2019 TSR awards were calculated in accordance with the award agreements by multiplying a prorated portion of the award (2/3) by an average payout factor based on actual performance results through December 31, 2018, and multiplying the remainder of the award (1/3) by a payout factor of 100%, reflecting target performance. Amounts shown in column (f) for the 2018-2020 TSR awards were calculated in accordance with the award agreements by multiplying a prorated portion of the award (1/3) by an average payout factor based on actual performance results through December 31, 2018, and multiplying the remainder of the award (2/3) by a payout factor of 100%, reflecting target performance.
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(3)
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Amounts shown in columns (c), (d) and (f) reflect the market value of unvested RSUs and in-the-money value of stock options that would vest, based on a $21.58 per share value, the closing price of Vectrus common stock on December 31, 2018. Amounts shown in column (e) reflect the prorated portion of the unvested RSUs and in-the-money stock options that would vest, based on the number of full months of employment between the grant date and December 31, 2018. None of the NEOs were retirement eligible (age 60 with 5 years of service) for purposes of their RSUs or stock options on December 31, 2018.
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DIRECTIONS TO THE VECTRUS 2019 ANNUAL MEETING OF SHAREHOLDERS
Hyatt Regency Tysons Corner Center, 7901 Tysons One Place, Tysons Corner, VA 22102
Washington Dulles International Airport (IAD) - 15.3 miles
From the airport take Dulles Access Road East toward Washington, D.C. Take the exit toward I-495S/VA-123/Chain Bridge Road and then merge onto VA-267E. Take exit 18A to merge onto 495S. Take the Westpark Drive exit and turn left on to Westpark Drive. Turn right onto Tysons Place to Hyatt Regency Tysons Corner Center.
Ronald Reagan Washington National Airport / Washington, DC (DCA) - 16.6 miles
Head north toward I-495N / Dulles Airport (Portions toll). Merge onto I-495S and then use the left two lanes to take the Westpark Drive exit. Turn left on Westpark Drive and then turn right onto Tysons Place to Hyatt Regency Tysons Corner Center.
APPENDIX A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
of VECTRUS, INC.
(text to be added is underlined)
ARTICLE FIRST
The name of the corporation is Vectrus, Inc. (the “Corporation”).
ARTICLE SECOND
The address of the registered office of the Corporation in the State of Indiana is 150 West Market Street, Suite 800, Indianapolis, Indiana 46204. The name of the registered agent of the Corporation at such address is CT Corporation System.
ARTICLE THIRD
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Indiana Business Corporation Law (“IBCL”).
ARTICLE FOURTH
(a)
The aggregate number of shares of stock that the Corporation shall have authority to issue is 110,000,000 shares, consisting of 100,000,000 shares designated “Common Stock” and 10,000,000 shares designated “Preferred Stock”. The shares of Common Stock shall have a par value of $0.01 per share, and the shares of Preferred Stock shall not have any par or stated value, except that, solely for the purpose of any statute or regulation imposing any fee or tax based upon the capitalization of the Corporation, the shares of Preferred Stock shall be deemed to have a par value of $.01 per share.
(b)
The Board of Directors of the Corporation shall have the full authority permitted by law, at any time and from time to time, to divide the authorized and unissued shares of Preferred Stock into classes or series, or both, and to determine the preferences, limitations and relative voting and other rights of any such class or series of Preferred Stock, with such divisions and determinations to be accomplished by an amendment to these Amended and Restated Articles of Incorporation (“Articles of Incorporation”) which amendment may, except as otherwise provided by law, be made solely by action of the Board of Directors, which shall have the full authority permitted by law to make such divisions and determinations.
(c)
Each holder of shares of Common Stock shall be entitled to one vote for each share of Common Stock held of record on all matters on which the holders of shares of Common Stock are entitled to vote. No holder of shares of Common Stock will be permitted to cumulate votes at any election of directors.
(d)
Subject to all the rights of the holders of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment thereof, dividends payable in cash, stock or otherwise. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, and subject to the rights of the holders of the Preferred Stock, the remaining assets of the Corporation available for distribution shall be distributed to the holders of the Common Stock ratably according to the number of shares of Common Stock held by such holder.
ARTICLE FIFTH
(a)
The number of directors constituting the Board of Directors of the Corporation shall be not less than three nor more than twenty-five, with the exact number to be fixed from time to time solely by resolution of the Board of Directors acting by not less than a majority of the directors in office. The Board of Directors shall be divided into three (3) classes, as nearly equal in number as possible, with the term of office of one class expiring each year. Directors of the first class are to be elected for a term expiring at the annual meeting of shareholders to be held in 2015, directors of the second class are to be elected for a term expiring at the annual meeting of shareholders to be held in 2016, and directors of the third class are to be elected for a term expiring at the annual meeting of shareholders to be held in 2017, with each director to hold office until his or her successor is elected and qualified. Commencing with the annual meeting of shareholders in 2015, each class of directors whose term shall then expire shall be elected to hold office for a
three-year term.
(b)
In the case of any vacancy on the Board of Directors, including a vacancy created by an increase in the number of directors, the vacancy shall be filled by the Board of Directors with the director so elected to serve for the remainder of the term of the director being replaced or, in the case of an additional director, for the remainder of the term of the class to which the director has been assigned. When the number of directors is changed, any newly created directorships or any decrease in directorships shall be so assigned among the classes by a majority of the directors then in office, though less than a quorum, as to make all classes as nearly equal in number as possible. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director.
(c)
In a contested election of directors (i.e. any election where the number of nominees exceeds the number of directors to be elected), directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. In an uncontested election of directors, directors shall be elected by a majority of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. Any director or directors may be removed from office at any time, but only for cause and only upon the affirmative vote of at least a majority of the shares then entitled to vote at a meeting called, and notice provided, in accordance with the IBCL, these Articles of Incorporation and the By-Laws of the Corporation.
(d)
Special meetings of shareholders of the Corporation may be called only by the Chairman of the Board of Directors or by a majority vote of the entire Board of Directors.
(e)
Holders of the Common Stock of the Corporation shall not have any preemptive rights to subscribe for additional issues of shares of Common Stock of the Corporation except as may be agreed from time to time by the Corporation and any such shareholder.
(f)
Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation, if any, shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of such class or series of Preferred Stock.
ARTICLE SIXTH
To the fullest extent permitted by applicable law as then in effect, no director or officer shall be personally liable to the Corporation or any of its shareholders for damages for any action taken as a director or officer, or any failure or omission to take any action, regardless of the nature of the breach or alleged breach, including any breach or alleged breach of the duty of care, the duty of loyalty or the duty of good faith. Any repeal or modification of this ARTICLE SIXTH shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
ARTICLE SEVENTH
The holders of the capital stock of the Corporation shall not be personally liable for the payment of the Corporation’s debts and the private property of the holders of the capital stock of the Corporation shall not be subject to the payment of debts of the Corporation to any extent whatsoever.
ARTICLE EIGHTH
Subject to any express provision of the laws of the State of Indiana, these Articles of Incorporation or the By-laws of the Corporation, the By-laws of the Corporation may from time to time be supplemented, amended or repealed, or new By-laws may be adopted, by
either (i)
the Board of Directors at any regular or special meeting of the Board of Directors, if such supplement, amendment, repeal or adoption is approved by a majority of the entire Board of Directors
; or (ii) the affirmative vote, at a meeting of the shareholders of the Corporation, of at least a majority of the votes entitled to be cast by the holders of the outstanding shares of all classes of stock of the Corporation entitled to vote generally in the election of directors, considered for purposes of this Article Eighth as a single voting group.
ARTICLE NINTH
The Corporation reserves the right to supplement, amend or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Indiana, and all rights conferred on shareholders herein are granted subject to this reservation.
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