As of the date of this Proxy Statement, the Board does not intend to present, and has not been informed that any other person intends to present, any matter for action at the Annual Meeting other than those matters specifically referred to herein. If, however, any other matters are properly presented to the Annual Meeting for action, the proxy holders will vote the proxies, which confer authority on such holders to vote on such matters, in accordance with their best judgment. The persons named as attorneys-in-fact in the proxies are the Chairman of the Board and VSE'sVSE’s Corporate Secretary.
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Director | |
Audit Committee | |
Compensation Committee | | Nominating and Corporate Governance Committee |
Ralph E. Eberhart | | Chair | | Chairman | | X |
Mark E. Ferguson III | | X | | | | X |
Maurice A. Gauthier | | | |
John C. Harvey | | | X |
Clifford M. Kendall | X | X | X |
Calvin S. Koonce | | | | X | Chair | Chairman |
James F. Lafond | Chair | Chairman | | | | X |
Jack E. Potter | | | | X | | X |
Jack C. Stultz | | X | | | | X |
Bonnie K. Wachtel | | X | | | | X |
Changes in Committee Membership from 2014-2015 Term:
Effective July 31, 2014, John C. Harvey became a Board member and a member of the Board's Nominating and Corporate Governance Committee.
Audit Committee
The primary purpose of the Audit Committee is to oversee our accounting and financial reporting processes and the audits of our financial statements. The Audit Committee is directly responsible for, among other things, the appointment, compensation, retention and oversight of our independent registered public accounting firm. The Audit Committee also reviews our guidelines and policies with respect to risk assessment and risk management, specifically our risk exposures in the areas of independent audit, financial reporting, internal controls and disclosure controls, and internal audit, and evaluatingevaluates the action management has taken to identify, monitor and control such exposures.
All of the Audit Committee members during the past fiscal year were independent in accordance with applicable rules of the Securities and Exchange Commission (the "SEC"“SEC”) and NASDAQ. Each committeeAudit Committee member is able to read and understand fundamental financial statements, including our consolidated balance sheet and consolidated statements of income, stockholders'comprehensive income, stockholders’ equity and cash flow.
flows. The Board has determined that the Audit Committee's Chairman, Mr. Lafond, is an "audit“audit committee financial expert"expert” as defined in SEC Regulation S-K Item 407(d) (5). The Audit Committee met eightsix times during 2014.2017.
Compensation Committee
The primary purpose of the Compensation Committee is to oversee VSE'sVSE’s compensation structure, to review and provide guidance to the Board regarding the compensation of VSE'sVSE’s directors and officers, and directors, including the compensation of VSE'sVSE’s chief executive officer and other executive officers, to review and provide guidance regarding employment agreements, to administer certain compensation plans, including restricted stock and deferred compensation plans, and to perform such other duties and responsibilities as are consistent with the committee'scommittee’s charter. The Compensation Committee reviews our guidelines and policies with respect to risk assessment and risk management, specifically our risk exposures related to compensation of directors, executives and management and the administration of our performance incentive and employee benefit plans, and evaluates the actions management has taken to identify, monitor and control such exposures. Each of the committee members is independent in accordance with applicable NASDAQ rules. The Compensation Committee met fourfive times during 2014.2017.
Matters recommended by the Compensation Committee, and any delegation of its authority, are subject to Board approval. If such approval is not received, the Compensation Committee will reconsider the recommendation or proposed delegation. The Compensation Committee has the authority to retain outside counsel or other experts or consultants as needed. Additional information on the role and responsibilities of the Compensation Committee is provided below in the Compensation“Compensation Discussion and AnalysisAnalysis” section.
Nominating and Corporate Governance Committee
The primary purpose of the Nominating and Corporate Governance Committee is to make recommendations to the Board with respect to nominees to be proposed for election as directors and withto corporate policies regarding, among other things, business conduct, securities trading, indemnification of VSE officersdirectors and directors,officers, and conflicts of interest involving VSE directors, officers directors and employees. The committee also reviews our guidelines and policies with respect to risk assessment and risk management, specifically our risk exposures in the areas of corporate
governance, compliance and ethics, as well as succession planning for the directors and senior management, and the actions management has taken to identify, monitor and control such exposures.
Each of the committee members is independent in accordance with applicable NASDAQ rules. The Nominating and Corporate Governance Committee met twothree times during 2014.2017.
Committee Structure and Risk
The Board has overall responsibility for oversight of our risk management plans, policies and practices. Each Board committee has been assigned oversight of certain risks associated with its respective activities as discussed in this document, and each committee'scommittee’s charter has been revised to reflect these risk oversight responsibilities. The Board has approved a risk management policy that delineates the risk oversight responsibilities of management, the Board and its committees.
Director Nominations and Qualifications
Stockholders may recommend persons to be nominated for election as directors of VSE at the annual meeting of stockholders. To be considered, such recommendation must be submitted in accordance with VSE'sVSE’s by-laws and must be received in writing by VSE'sVSE’s Corporate Secretary no later than 90 days before the date in the current year of the annual meeting that corresponds to the date on which the annual meeting was held during the immediate prior year. (Nominations for the year 2016-20172019-2020 should be received by the Corporate Secretary no later than February 5, 2016.January 30, 2019.) Such recommendation shall be accompanied by the proposing stockholder'sstockholder’s name, evidence that such stockholder is a beneficial owner of VSE Stock, and the candidate'scandidate’s name, biographical data and qualifications.
The policy of the Nominating and Corporate Governance Committee is to consider properly submitted stockholder nominations for candidates for Board membership as described below. In evaluating such nominations, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the directorship criteria discussed below. On July 31, 2014, the Board appointed John C. Harvey, as a director and a member of the Nominating and Corporate Governance Committee.
Under these criteria for Board nominations, Board members should have the highest professional and personal ethics and values, consistent with longstanding VSE values and standards. As a group, the Board should have diverse and broad experience at the policy-making level in business, government, education, technology or public interest. Board members should be committed to enhancing stockholder value and have sufficient time to satisfy their duties and provide insight and practical wisdom based on experience. A Board member'smember’s service as a member of other boards of directors of publicly traded companies should be limited so that the director is able, given his or her individual circumstances, to perform responsibly all duties as a Board member. Each VSE director must represent the interests of all stockholders. While we do not have a formal policy regarding diversity of Board nominees or a formal definition of "diversity,"“diversity,” the Nominating and Corporate Governance Committee has recently discussed diversity considerations of potential Board nominees within the context of Board succession planning. Factors discussed as relevant to the selection of Board nominees may include nature and length of business experience, including experience in business areas related to our potential growth areas, race, gender, age and factors that promote alignment of the Board with the interests of stockholders. The Nominating and Corporate Governance Committee recently discussed potential retirement timeframes,time frames, transition planning with regard to succession, and optimal Board size.
The Nominating and Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. Such committee periodically assesses the appropriate size of the Board, and whether any Board vacancies are expected due to retirement or otherwise. If vacancies are anticipated or otherwise arise, the Nominating and Corporate Governance Committee will consider various potential candidates for director. Candidates may come to the attention of the Nominating and Corporate Governance Committee through Board members, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee and may be considered at any point during the year. As described above, the Nominating and Corporate Governance Committee will consider properly submitted stockholder nominations for candidates for Board membership. Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by the Nominating and Corporate Governance Committee at a regularly scheduled meeting. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials will be forwarded to the Nominating and Corporate Governance Committee. Such committee also will review materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a stockholder. The committee has not in the past retained any third party to assist in identifying nominees for Board membership.
The traits identified with respect to the current director nominees as qualifications to serve on the Board include:
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Ralph E. Eberhart | .
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| Experience as Chairman and President of the Armed Forces Benefit Association provides insight into challenges associated with managing complex organizations and holding management accountable for company performance.
Expertise in the defense industry due to 36 years of experience in the U.S. Air Force and senior positions in the U.S. military, including assignment as Commander-in-Chief North American Aerospace Defense Command and U.S. Northern Command. | |
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Mark E. Ferguson III
| Expertise in the defense industry due to 38 years of experience in the U.S. Navy and senior positions in the U.S. military, including service as Commander, U.S. Naval Forces Europe and Africa, and as Commander, NATO Joint Force Command, Naples, Italy. He also served as the Vice Chief of Naval Operations from 2011 to 2014.
Holds a Master’s Degree in Computer Science from the Naval Postgraduate School and has expertise in cyber defense, congressional and regulatory affairs, strategic planning, and personnel and operations management.
Graduate of the National Association of Corporate Directors (NACD) Cyber Risk Oversight Program; Holds a certificate in Cyber Security Oversight from Carnegie Mellon University.
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Maurice A. Gauthier | .
.
| Chief Executive Officer and President of VSE; experience as Vice President and General Manager of Computer Sciences Corporation provides insight into challenges associated with managing complex organizations and with holding management accountable for performance.organizations.
Familiarity with a core VSE customer due to 28 years of service as an officer in the United States Navy.a U.S. Naval officer.
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John C. Harvey | .
.
| Expertise in the defense industry due to 38 years of experience in the U.S. Navy and senior positions in the U.S. military, including serving as Commander, U.S. Fleet Forces Command from 2009 to 2012 and as the Chief of Naval Personnel from 2005 to 2009.
Holds a Master's Degree in Public Administration from the John F. Kennedy School of Government, Harvard University.
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Clifford M. Kendall | .
.
| Expertise in public company accounting, disclosure and financial system management due to roles as Chairman and Chief Executive Officer of Computer Data Systems from 1970 to 1991 and Chairman until 1997.
Experience as a private investor provides insight into the enhancement of stockholder value.
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Calvin S. Koonce | .
.
| Experience as sole member of Koonce Securities, LLC, a registered securities broker-dealer, and President and Managing Director of Montgomery Investment Management, Inc., a registered investment advisor, provides insight into the enhancement of stockholder value.
Familiarity with theVSE’s core strategy and operations of VSE due to over 22 yearsresulting from service as a Board member.VSE director for more than 25 years. | |
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James F. Lafond | .
.
| ExperiencedExperience in business management, public company accounting, financial disclosure and financial systems oversight gained from his experience as Area Managing Partner for Greater Washington at PricewaterhouseCoopers LLP (PwC).
Expertise in risk management processes given his experience as Area Managing Partner for PwC and serving as an engagement partner for entities involved in many businesses, including manufacturing companies and financial institutions. | |
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John E. 'Jack'‘Jack’ Potter | .Extensive management experience, leadership ability and record of accomplishment having served as United States Postmaster General for 10 years, and held various management positions within the United States Postal Service prior to such appointment.
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| Demonstrated leadership capabilities in guidingMore than six years of experience as President and Chief Executive Officer of the Metropolitan Washington Airport Authority, managing large, complex organizations through challenging business environments.and multifaceted transportation infrastructure projects.
Possesses vast knowledge
Provides insight into manufacturing, supply and distribution practices of large supply chain dynamics in areas of interest to VSE.management organizations.
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Jack C.Stultz | .C.
.
.Stultz
| Experience as the Commanding General for the U.S. Army Reserve commandCommand provides insight into the needs and requirement of our customers, as well as the trends that will shape and influence our customers into the future.
More than 38 years of experience in the U.S. Army provides keen insight on the past, presentcurrent and future status of the U.S. Defense Industry.
More than 29 years of private industry experience provides a balanced background of significant government and industry leadership positions. | |
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Bonnie K. Wachtel | .
.
| Experience as Supervisory Control Principal and Director of Wachtel & Co., Inc. provides management experience in financial systems, people and processes.
Service on the Listing Qualifications Panel of NASDAQ and holding of Chartered Financial Analyst certification provides expertise in the functioning of capital markets and insight into the enhancement of stockholder value. | |
Concluding a 47-year term on the VSE Board, David M. Osnos is retiring effective May 5, 2015 and therefore will not be listed as a nominee.
Leadership Structure of the Board
The positions of Chairman of the Board and VSE'sVSE’s chief executive officer ("CEO"(“CEO”) are separated at VSE. The Board believes that this structureseparation of positions best serves the Company'sCompany’s current needs. The Board believes that its existing structureneeds and effectively maintains independent oversight of management. The Board periodically reviews and considers if the positions of Chairman and CEO should be combined as part of its regular review of the effectiveness of our governance structure.
Communications with the Board
Individuals may communicate with the Board by submitting an email to the Board at board@vsecorp.com. All directors have access to this email address. Communications that are intended specifically for non-employee directors should be sent to the email address above to the attention of the Corporate Secretary. Communications to the Board by mail can be addressed to The Board of Directors or a particular Board member c/o VSE Corporation, 6348 Walker Lane, Alexandria, Virginia 22310-3226.
Code of Business Conduct and Ethics
The Board has adopted a Code of Business Conduct and Ethics that applies to all of itsVSE's directors, officers, including itsVSE’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and employees. The Code is posted on VSE'sVSE’s internet website at www.vsecorp.com. VSE intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), regarding any waiver or amendment of the Code with respect to VSE'sVSE’s principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions, by posting such required information on VSE'sVSE’s Internet website.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines, which together with the Company'sCompany’s certificate of incorporation, by-laws, committee charters and other key governance practices and policies, provide the framework for the Corporation'sCorporation’s corporate governance. VSE'sVSE’s by-laws and charters for the Nominating and Corporate Governance Committee and the Compensation Committee were reviewed, amended and adopted by the Board on July 31, 2013. Additionally, the Corporate Governance Guidelines were reviewed, amended and adopted by the Board on December 13, 2016. The AuditNominating and Corporate Governance Committee charter was reviewed, amended and adopted by the Board on October 31, 2013.25, 2017. The charters of the Audit Committee and the Compensation Committee were reviewed, amended and adopted by the Board on December 11, 2017.
The guidelines, by-laws and committee charters are posted on VSE'sVSE’s website at www.vsecorp.com. The Board recognizes that ensuring that the Corporation observes good corporate governance practices is an ongoing endeavor. As a result, the guidelines are subject to annual review by the Board to determine if they continue to promote the best interests of the Company and its stockholders and comply with all applicable laws, regulations and NASDAQ requirements.
Compensation of Non-Employee Directors for 20142017
In 2014,2017, the Company paid each non-employee director a cash retainer of $40,000$70,000 as a director'sdirector’s fee for the year. In addition, eachEach non-employee director was paid $1,000also received for each Board meeting attended, and each Board committee member was paid $1,000 for each committee meeting attended. Additionally, each non-employee director received in respect of 20142017 an annual award under our 2006 Restricted Stock Plan offor such number of shares of VSEour Stock equal to $60,000$80,000 divided by the per share closing price of VSE Stock on the first trading day of 2014,in 2017, rounded to the nearest 100 shares. On January 8, 2014,Pursuant to the awards under our restricted stock plan, each non-employee director was granted 1,3002,000 shares of restricted Stock pursuant to the above-referenced annual award under our 2006 Restricted Stock Plan. Onon January 2, 2014, the4, 2017. The closing price of our Stock was $46.75$39.80 per share.share on January 2, 2017. Non-employee directors do not receive fees for attending Board or committee meetings.
The Chairmen of the Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee were each paid an additional annual fee of $12,000,$15,000, $10,000 and $5,000,$7,500, respectively.
The Chairman of the Board was also paid $60,000$75,000 for serving as Chairman.Chairman.
Pursuant to our 2004 Non-Employee Directors Stock Plan approved by stockholders in 2004,2014, each non-employee director couldcan elect that all or a portion of his or her annual cash compensation for services as a VSE director be paid in Stock at fair market value determined in accordance with the plan. NoMr. Eberhart and Mr. Ferguson made such elections were madean election in 2013. The 2004 Non-Employee Stock Plan expired on December 31, 2013, and stockholders approved the term extension to December 31, 2018, as proposed at the May 6, 2014 stockholders meeting.2017.
Stock issued to non-employee directors pursuant to our 2006 Restricted Stock Plan is fully vested when issued, but the certificates for such Stock bear a restrictive legend prohibiting the sale, transfer, pledge and assignment of such Stock for two years commencing on the issue date. When all restrictions on a certificate bearing a restrictive legend have lapsed, VSE issues a non-restrictive certificate to the directors (subject to any applicable securities law restrictions). Directors appointed duringIn December 2016, the yearCompensation Committee approved a resolution to permit non-employee directors to designate, on a share per share basis, tradable VSE shares they own as the shares that will be eligible for a pro rata annual award.subject to the two-year transfer restriction under the 2006 Restricted Stock Plan in lieu of holding restrictive Stock that would otherwise be subject to the two-year transfer restriction, provided that the designating directors remain in compliance with the Board’s stock retention guidelines.
No compensation is paid to any non-employee director for personal services rendered to VSE pursuant to a consulting or similar agreement between the director and VSE, or any of VSE'sVSE’s subsidiaries, unless authorized as a special assignment by the Board. No such authorization was requested for or on behalf of any director in 2014.2017. The foregoing procedures do not restrict reimbursement for expenses incurred by a director for attending meetings of the Board or Board committees.
The following table provides information related to the compensation of each of the Company'sCompany’s non-employee directors for fiscal year 20142017.
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Director Compensation for Fiscal Year 20142017 Table
Name (a) | Fees earned or paid in cash ($) (1) (2) (b) | Stock awards ($) (3) (c) | Option awards ($) (d) | Non-equity incentive plan compensation ($) (e) | Change in pension value and non-qualified deferred compensation earnings ($) (f) | All other compensation ($) (g) | Total ($) (h) |
Ralph E. Eberhart | 39,043 | 85,732 | -- | -- | -- | -- | 124,775 | |
John C. Harvey | 22,667 | 23,828 | -- | -- | -- | -- | 46,495 | |
Clifford M. Kendall | 21,000 | 160,775 | -- | -- | -- | -- | 181,775 | |
Calvin. S. Koonce | 59,000 | 60,775 | -- | -- | -- | -- | 119,775 | |
James F. Lafond | 69,000 | 60,775 | -- | -- | -- | -- | 129,775 | |
David M. Osnos | 47,000 | 60,775 | -- | -- | -- | -- | 107,775 | |
John E. Potter | 53,000 | 60,775 | -- | -- | -- | -- | 113,775 | |
Jack C. Stultz | 57,000 | 60,775 | -- | -- | -- | -- | 117,775 | |
Bonnie K. Wachtel | 57,000 | 60,775 | -- | -- | -- | -- | 117,775 | |
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| | | | | | | | | | | |
Name _______ |
Fees earned or paid in cash ($) (1) _______ |
Stock awards ($) (2) ________ |
Option awards ($) ________ |
Non-equity incentive plan compensation ($) ________ | Change in pension value and non-qualified deferred compensation earnings ($) _________ |
All other compensation ($) ________ |
Total ($) ________ |
Ralph E. Eberhart | 70,038 |
| 89,562 |
| — | — | — | — | 159,600 | |
Mark E. Ferguson III (3) | 5,288 |
| 5,282 |
| — | — | — | — | 10,570 | |
John C. Harvey, Jr. (4) | 52,500 |
| 79,600 |
| — | — | — | — | 132,100 | |
Clifford M. Kendall | 145,000 |
| 79,600 |
| — | — | — | — | 224,600 | |
Calvin. S. Koonce | 77,500 |
| 79,600 |
| — | — | — | — | 157,100 | |
James F. Lafond | 85,000 |
| 79,600 |
| — | — | — | — | 164,600 | |
John E. Potter | 70,000 |
| 79,600 |
| — | — | — | — | 149,600 | |
Jack C. Stultz | 70,000 |
| 79,600 |
| — | — | — | — | 149,600 | |
Bonnie K. Wachtel | 70,000 |
| 79,600 |
| — | — | — | — | 149,600 | |
Notes to Director Compensation Table
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1. | The amount reported in column (b) combines amounts paid as director fees and meeting fees, as described above. |
2. | Mr. Kendall'sKendall’s fees include a Chairman fee of $60,000.$75,000. Mr. Kendall passed away on March 28, 2018. |
3. | |
2. | Pursuant to the 2006 Restricted Stock Plan, each non-employee director was granted an award of 1,3002,000 shares of Restricted Stock on January 2, 2014.4, 2017. The dollar amount recognized for financial statement reporting purposes, in accordance with FAS 123RASC 718 (Compensation-Stock Compensation,) is based on the closing price of our Stock on January 2, 20142017 ($46.7539.80 per share). Admiral Harvey received 400 shares on August 5, 2014 ($59.57 per share). |
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3. | Admiral Mark E. Ferguson III was appointed to the Board effective December 1, 2017. |
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4. | Admiral John C. Harvey, Jr. resigned from the Board on October 1, 2017. |
Narrative to Director Compensation Table
Please see the section above entitled "Compensation“Compensation of Non-Employee Directors for 2014."2017.”
Compensation of Non-Employee Directors for 2018
In December 2017, the Compensation Committee recommended and the Board approved the following compensation for non-employee directors for 2018: (a) an annual cash retainer of $70,000 as a director’s fee for the year, (b) an annual award of VSE Stock under our 2006 Restricted Stock Plan to such number of shares of our common stock equal to $80,000 divided by the closing price of VSE common stock on the first trading day in 2018, rounded to the nearest 100 shares, and (c) a fee of $75,000 to the Board Chairman for serving as Chairman.
Compensation Committee Interlocks and Insider Participation
During 2014,2017, the Compensation Committee members were Mr. Kendall, Mr. Koonce, General Eberhart, and Mr. Potter. No committee member was at any time during 20142017 or at any other time an officer or employee of VSE. No executive officer of VSE serves or has served as a member of the compensation committee of another entity that has an executive officer who serves on VSE'sVSE’s Compensation Committee. No executive officer of VSE served on the board of directors or compensation committee of any entity that has one or more executive officers serving as members of the Board or Compensation Committee.
Mr. Koonce is a majorsignificant stockholder of VSE. See table below titled "Security“Security Ownership of Certain Beneficial Owners and Management."Management” below.
Certain Relationships and Related Transactions
There is no family relationship between any director or executive officer of VSE and any other director or executive officer of VSE.
Please refer to "CompensationSee “Compensation Discussion and Analysis—NarrativeAnalysis-Narrative to Summary Compensation Table"Table” below for information on VSE'sregarding VSE’s employment agreement with Mr. Gauthier and to the section above entitled "Compensation“Compensation Committee Interlocks and Insider Participation"Participation” above for additional information about directors and nominees for director.
Pursuant to the Company'sCompany’s policies, including Code of Business Conduct and Ethics for VSE'sVSE’s directors, officers and employees, each of theany above-referenced related transactions waswould be subject to the prior consideration and approval of the Board, including a majority vote of the disinterested directors.directors.
Mr. Osnos is of counsel at the law firm of Arent Fox LLP, which has represented and is expected to continue to represent VSE on various legal matters.
The Board unanimously recommends that stockholders vote "for"“FOR” the election of each of the nineeight persons nominated to serve as a director of VSE for the ensuing year.
Proposal No. 2
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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AUDIT SERVICES
Based on the recommendation of its Audit Committee, the Board has appointed the firm of Ernst & Young LLPelected to beconduct a competitive process to determine VSE's independent registered public accounting firm for the fiscal year ending December 31, 2015, and recommends to stockholders that they vote2018. Ernst & Young LLP has served as VSE’s independent registered public accounting firm since 2002. While Ernst & Young LLP will remain among the potential independent auditors for ratification of that appointment. Although not required to do so,consideration, the Board has determined thatbelieves it wouldis in the best interest of the stockholders to consider other firms for these services. The proposal review and selection process will not be desirable to request stockholders' approval of this appointment. Thecompleted in time for a stockholder vote at the Annual Meeting, therefore no stockholder vote will be held on the ratification of the appointment of VSE's independent auditors will require the affirmative vote by the holders of a majority of the outstanding Stock present in person or represented by proxy at the Annual Meeting. If such approval is not received, the Board will reconsider the appointment.registered public accounting firm for 2018.
In 20142017 and 2013,2016, Ernst & Young LLP services included an audit of VSE'sVSE’s consolidated financial statements and reviews of the consolidated interim financial statements included in VSE'sVSE’s Forms 10-Q filed with the SEC for each of the quarters ended March 31, June 30, and September 30.30, 2017 and 2016. Ernst & Young LLP services also included an audit of the effectiveness of ourVSE’s internal controls over financial reporting as of December 31, 20142017 and December 31, 2013.
2016.Audit Fees
Ernst & Young LLP's fees for professional services rendered for the years ended December 31, 20142017 and December 31, 2013,2016, were as follows:
| 2014 | 2013 |
Audit fees (1) | $1,283,500 | $1,133,325 |
Audit fees (2) | $113,469 | $- |
Tax fees (3) | $190,257 | $156,804 |
Other (4) | $1,995 | $1,945 |
Audit Fees Table |
| | | | | | | |
| 2017 | | 2016 |
Audit fees (1) | $ | 1,901,005 |
| | $ | 1,924,846 |
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Tax fees (2) | $ | 170,502 |
| | $ | 194,403 |
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Other (3) | $ | 1,995 |
| | $ | 1,995 |
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Notes to Audit Fees Table
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1. | Includes fees and expenses related to the annual audits,, interim reviews and accounting consultations, notwithstanding when the fees and expenses were billed. |
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2. | Represents fees related to due diligence services associated with VSE's acquisition of four business units from Killick Aerospace Group, consisting of Prime Turbines, CT Aerospace, Kansas Aviation of Independence and Air Parts & Supply Co on January 28, 2015. |
3. | Includes fees and expenses for tax compliance and advisory services, including fees associated with employment tax issues and tax issues related to due diligence services associated with the acquisition of four business units from Killick Aerospace Group (see Note 2) and other tax related services. matters. |
4. | Represents |
3. | Includes fees related to management'smanagement’s use of the EYErnst & Young LLP Online accounting research tool. |
Policy on Audit Committee Approval of Audit and non-Audit Services
The Audit Committee approves in advance all audit and non-audit services provided by the independent auditors prior to their engagement with respect to such services. The Audit Committee has delegated to its chairman the authority to pre-approve additional audit-related and non-audit services not prohibited by law to be performed by VSE'sVSE’s independent auditors and associated fees up to a maximum for any one non-audit service equal to the lesser of $30,000 or 25% of the audit fees for VSE'sVSE’s most recent completed fiscal year, provided that the committee'sAudit Committee’s chairman shall report any decisions to pre-approve such audit-related or non-audit services and fees to the full Audit Committeecommittee at its next regular meeting. The Audit Committee approved in advance all of the audit and non-audit services provided by the independent auditors in 20142017 and 20132016.
A representative of Ernst & Young LLP is expected to attend the Annual Meeting, will have an opportunity to make a statement, if he or she desires to do so, and will be available to respond to appropriate questions.
The Board unanimously recommends that stockholders vote "for" the proposal to ratify the appointment of Ernst & Young LLP to serve as VSE's independent registered public accounting firm for the year ending December 31, 2015.
AUDIT COMMITTEE REPORT
The Audit Committee consistsconsisted of fourfive non-employee directors (Mr. Lafond, Mr. Ferguson, Mr. Kendall, Mr. Stultz and Ms. Wachtel), for 2017, each of whom is considered an "independent"“independent” director for the purposes of the applicable rules of the SEC and NASDAQ. The Audit Committee'sCommittee’s responsibilities are set forth in its charter, a copy of which is available on VSE'sVSE’s website, www.vsecorp.com. The Board and the Audit Committee believe that the Audit Committee members are and were at the time of the actions described in this report "independent"“independent” directors as independence is defined by NASDAQ Rule 4200(a) (15).
The Audit Committee has implemented the requirements of the Sarbanes-Oxley Act of 2002 and the Marketplace Rules of The NASDAQ Stock Market, Inc. with respect to the responsibilities of audit committees of public companies. Among other matters, the Audit Committee reviews procedures on internal control over financial reporting with management and with Ernst & Young LLP, the Company'sCompany’s independent registered public accounting firm.firm for 2017. The Audit Committee also discussed with EYErnst & Young LLP the Company'sCompany’s internal controls and the overall scope and specific plans for their audit.
The Audit Committee has reviewed and discussed with management VSE'sVSE’s audited consolidated financial statements as of and for the year ended December 31, 2014,2017 and the results of management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 and the independent registered public accounting firm’s audit of internal control over financial reporting, and has discussed with VSE'sVSE’s independent registered accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by theunder Public Company Accounting Oversight Board in Rule 3200T.(PCAOB) Auditing Standard 1301,Communications with Audit Committees.
The Audit Committee has received and reviewed the written disclosures and the letter from the independent registered accounting firm required by applicable requirements of the Public Company Accounting Oversight BoardPCAOB Rule 3526, Communication with Audit Committees Concerning Independence, regarding the independent auditor'sregistered public accounting firm’s communications with the audit committeeAudit Committee concerning independence, and has discussed with the auditors the auditors'auditors’ independence and considered whether the provision of non-audit services by the auditors is compatible with maintaining their independence.
Based on the foregoing reviews and discussions, the Audit Committee recommended to the Board that the above referenced consolidated financial statements and management’s assessment of the effectiveness of the Company’s internal control over financial reporting be included in VSE'sVSE’s Annual Report on Form 10-K for the year ended December 31, 2014,2017 for filing with the SEC.
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Audit Committee: | | James F. Lafond, Chairman |
| Mark E. Ferguson III |
| Clifford M. Kendall |
| | Jack C. Stultz |
| | Bonnie K. Wachtel |
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COMPENSATION DISCUSSION AND ANALYSIS
OVERVIEW
Introduction
Founded in 1959, VSE Corporation ("VSE"(“VSE” or the "Company"“Company”) isserves as a centralized managing and consolidating company for our diversified sustainment and services company with experience in solving issues of global significance with integrity, agility, and value.business operations. VSE is dedicated to making our federal government and commercial clients successful by delivering innovative solutions for vehicle, ship, and aircraft sustainment, supply chain management, logistics, platform modernization, mission enhancement, program management, energy, IT, and consulting services ("(“government and commercial services"services”).) The Company has historically generated strong stockholder returns over the long-term and is committed to continued long-term value creation for its stockholders. The government and commercial services markets are highly competitive. The Company'sCompany’s continued ability to create long-term stockholder value is dependent on, among other things, our ability to attract and retain highly qualified executives in the government and commercial services markets, including the named executive officers in this Proxy Statement. As discussed in the following Compensation Discussion and Analysis, VSE'sVSE’s compensation program has been designed to align its management closely with the Company'sCompany’s commitment to long-term success.success and enhanced stockholder value.
Compensation Committee Philosophy
The principal objectives of our Board'sBoard’s Compensation Committee (the "Committee"“Committee”) are to (a) develop an executive compensation program that will attract and retain executive officers capable of leading and growing the Company in complex, competitive and changing industries; (b) promote from within when warranted,warranted; (c) maintain a compensation structure that is competitive and performance based,based; and (d) link total compensation to corporate goals and performance.
Compensation Program Components
The fourthree key elements of our executive compensation program are:
1. | Base salary to compensate executives for services performed during the fiscal year; |
2. | Annual performance-based monetary incentive to promote achievement of the Company'sAnnual performance-based monetary incentive to promote achievement of the Company’s profitability and return on stockholders’ equity targets as calculated by dividing the Company’s net income for the year by its total stockholders’ equity at the beginning of the year (“ROE”); and return on stockholders' equity targets as calculated by dividing the Company's net income for the year by its total stockholders' equity at the beginning of the year ("ROE"); |
3. | Long-term incentives, including deferred supplemental compensation and awards of restricted stock to reward executives for their contributions to the Company's profitability and ROE; and |
4. | A 401(k) employee contribution matching program to maintain market competitiveness. |
Long-term incentives, including deferred supplemental compensation and restricted stock awards to compensate executives for their contributions to the Company’s profitability and ROE.
Basis for Compensation Decisions
For our executives as a group, we generally target total compensation, including long-term incentives, on numerous factors, including level of responsibility, individual performance, Company performance, market competitive data, and prior experience.
Leadership Structure
During 2014,2017, the Company was led and managed by Maurice A. Gauthier, in his capacities as chief executive officer ("CEO"(“CEO”), president and chief operating officer. Officers reporting directly to Mr. Gauthier during 20142017 included Thomas R. Loftus, as the Company'sCompany’s chief financial officer, Thomas M. Kiernan as the Company'svice president and general counsel, and corporate secretary, John T. HarrisChad M. Wheeler, as the president and chief operating officer of our subsidiary Akimeka, LLC,Wheeler Bros., Inc., which conducts our Supply Chain Management Group operations, and Chad M. WheelerJoseph “JR” Brown, as president of our subsidiary Wheeler Bros., Inc.Federal Services Group.
The following compensation discussion and analysis outlines the processes, elements and decisions regarding 2014 compensation for VSE's following "named2017 of VSE’s “named executive officers" -officers” being VSE’s principal executive officer, principal financial officer, and three most highly compensated executive officers, other than the principal executive officer and principal financial officer, who are serving as executive officers at the end of 2017. The five named executive officers are Messrs. Gauthier, Loftus, Kiernan, Harris,Wheeler and WheelerBrown (the "NEOs"“NEOs”).
OVERSIGHT AND AUTHORITY OVER EXECUTIVE COMPENSATION
Compensation Committee Composition and Duties
The Committee is composed of four independent directors as defined by the NASDAQ listing standards and described above in the "Board,“Board, Committees and Corporate Governance" section above in this Proxy Statement.Governance” section.
The Committee is responsible for reviewing and recommending for Board approval the compensation of our CEO (principal executive officer), chief financial officer (principal financial officer), and other executive officers, including all of the three other NEOs. The Committee is governed by a written charter adopted by the Board. The full text of the charter is available on VSE'sVSE’s corporate website at www.vsecorp.com in the "Investor Information"“Investor Information” section under Corporate"Corporate Governance."
The following is a summary of the Committee'sCommittee’s key responsibilities relating toregarding executive compensation:
1. | To review compensation programs for the Company's executive officers, including the NEOs, and to provide recommendations to the Board regarding such compensation programs; |
To review and provide the Board with recommendations regarding compensation programs for the Company’s executive officers, including the NEOs;2. | To review and approve corporate goals and objectives relevant to the compensation of the NEOs and make recommendations to the Board for approval of total compensation for NEOs; and |
3. | To provide recommendations to the Board regarding director compensation. |
To provide recommendations to the Board regarding compensation of VSE’s non-employee directors.
Annual Compensation Review
In December of each year, the Committee meets to review the performance and compensation of our CEO and other NEOs.
In consultation with the CEO, the Committee reviews and approves the compensation of all other NEOs based on recommendations submitted by the CEO. In submitting these recommendations, the CEO evaluates the performance and recommends salary adjustments, bonuses, benefit plan participation, and all other elements of compensation affectingof the NEOs. The Committee also reviews the prior year'syear’s stockholder advisory vote on executive compensation. At the 20142017 annual stockholders meeting, the stockholders fully endorsed the Committee'sCommittee’s compensation policies with a 97.4%97.1% approval vote with no suggested changes. The Committee has discretion in approving, disapproving or modifying any of the CEO's recommended salary adjustments or proposed awards to the other NEOs, subject to final Board approval.approval.
Compensation Committee Philosophy and Pay-Setting Process
Total executive compensation is structured to attract and retain a superior management team consistent with our corporate strategic goal of recruiting and retaining top level executives. This is an essential element of our "promotestrategy to “promote from within"within” when warranted strategy.warranted. Our approach emphasizes investing in high performing internal candidates for career development and advancement. The strategic intent is to produce a stronger management team over time rather than incurring market driven attrition resolved through external recruitment.
The Committee believes it is important to maintain a compensation structure that is sufficiently competitive which allows us to attract and retain the executives, we require to perform well, while maintaining labor ratescompensation levels that permit us to compete effectively in the markets we serve. We measure our competitiveness by comparing our prices for services against competitor prices and by monitoring our ability to recruit and retain highly qualified executives available in our chosen markets.
Because our chosen markets have compelled us to routinely compete against much larger companies for both new work and the executive talent required to prevail and succeed in those markets, it is important to consider the total compensation offered by those companies as one factor in setting total compensation at VSE. However, the executives at larger peer competitor companies are compensated for leading larger organizations of similar complexity with larger staffs. The compensation of executives at larger peer companies is, however, only one of numerous factors considered in establishing the compensation of our equivalent executives. In considering such comparisons, we take into account other factors such as revenue, headcount and net income at equivalent divisions.
The Committee also believes it is important to maintain a compensation structure that is performance-based, such that approximately two-thirds of the total compensation target for each of our NEOs is performance driven based on achieving defined short-term and long-term performance-based goals and exceeding pre-establishedpreestablished targets for profitability and return on beginning stockholdersstockholders’ equity (ROE).
The Committee considers multiple factors, including those described above under Basis“Basis for Compensation Decisions,” when determining compensation levels for NEOs. These considerations compel the Committee to consider other relevant factors such as industry conditions, client satisfaction and operational performance. The next step is to factor our competitive short-term and long-term performance incentives into the total compensation equation. VSE'sVSE’s targeted short-term and long-term incentive compensation constitutes about two-thirds of total targeted compensation, with base salaries constituting approximately one-third of potential total compensation.
For the three-year period endedending December 31, 2014,2017, the percentages of total actual compensation of each component of our NEO compensation were approximately as follows (see the Summary“Summary Compensation TableTable” below for actual amounts):
Actual NEO Compensation Components as Percentage of Total Compensation 2012-20142015-2017 Table
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Compensation Components | | Percentage of Actual Total Compensation 2012 – 20142015 - 2017 (1)
|
Base salariesSalaries | 52% | 39% |
Performance-based monetary incentives (bonus) | 17% | 24% |
Long-term incentives-- | | |
Deferred Supplemental Compensation and Restricted Stock | 29% | 36% |
Other compensation-- 401(k) Match | 2% | 1% |
Note to Percentage of Actual Total Compensation Table
1.
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1. | While our target for total potential compensation is approximately two-thirds incentive based, the table reflects the percentage of actual compensation earned during the three-year period. |
Role of Compensation Consultant
The Committee has the authority to engage independent compensation consultants to assist in evaluating the compensation of NEOs, as well as to provide periodic reviews of the effectiveness and competitiveness of VSE'sVSE’s executive compensation structure. During 2014,2015, 2016 and 2017, the Committee selected and retained Semler Brossy, which subsequently advised the Committee on a variety of compensation-related issues,matters, including:
· | The appropriateness of potential modifications to the Company's long-term incentive plan, taking into account market trends and competitive practices; |
· | Pay levels and compensation mix for NEOs; |
Recommendations to establish and modify the Company’s peer group;· | Compensation and compensation mix for Directors; and |
The appropriateness of potential modifications to the Company’s bonus and long-term incentive plans, taking into account market trends and competitive practices;· | Emerging compensation trends. |
Pay levels and compensation mix for NEOs;
Compensation level and mix for non-employee directors; and
Emerging compensation trends.
In 2014,2017, Semler Brossy received approximately $46,601$93,293 in fees from the Company for the services described above.above, and provided an analysis of both our NEO and non-employee director compensation. Other than providing the services described above as a consultant to the Compensation Committee, Semler Brossy provided no other services to the Committee or otherwise to the Company in 2014. The Committee did not believe it was necessary to hire a compensation consultant for 2013. In 2012,2017. Semler Brossy received approximately $62,225$70,919 in fees from the Company for similar services as 2014.
in 2016, and $22,965 in fees from the Company in 2015.
Peer Companies and Survey Data
The government and commercial products and services markets are complex and competitive. The Committee believes that a competitive compensation package is an important tool in our efforts to attract and retain qualified executives with government and commercial products and services contracting experience. In determining total compensation for our NEOs, we consider competitive market data for a peer group of publicly traded companies. The Committee does not apply a formulaic approach to setting individual elements of the NEOs'NEOs’ compensation or their total compensation amounts and does not set compensation levels at any specific level or percentile against the peer group data described below. However, the Committee periodically reviews market compensation levels to determine whether the total compensation opportunity for the NEOs is appropriate in view of factors such as the compensation arrangements for similarly situated executives in the market and may make adjustmentsrecommendations to the Board as the Committee determines appropriate.
The peer group has historically been selected on the basis of comparable service offerings, market capitalization, revenues, net income and profit margins.return on equity. The nature of our highly decentralized and diverse lines of business presents challenges incomplicates identifying similar organizations for comparison purposes and a changecomparison. Because of our business diversity relative to our size, we have difficulty identifying peer group was made in 2012.competitors within our markets with substantially similar financial performance metrics. We include some peer companies that may not be an ideal competitive fit relative to our markets because their financial results are comparable. The Committee has elected to use a larger peer group that was determined by the Institutional Shareholder Services, Inc. (ISS) beginning in 2012. In 2012, ISS useduses a methodology that identified 14identifies several publicly traded companies in the services industry that are more comparable to our current market capitalization, revenues and profit margins than our previous peer group. The larger group of similarly sized peers provides a wider set of financial data, and to attract and retain qualified executives, totalmargins. Total compensation levels for our NEOs should beare established at a competitive level relative to this group of companies. AsDuring 2018, the company continues toCompensation Committee and management will review the potential peers that are more consistent with our pivot from government markets to more commercial work,markets, with emphasis towardon supply chain management and maintenance, repair and overhaul services, weservices. We will monitor and evaluate potential peer companies that reflect our markets as well as the financial considerations mentioned above.
2017 Peer Group
For 2013 and 2014,2017, the Committee primarily used the same ISS identified peer groupgroup. Taking into consideration recommendations made by our independent compensation consultant, we included AAR Corporation and Wesco Aircraft Holdings, Inc. as shown below. Additionally, Semler Brossy usedaerospace services peers, though their market capitalization and revenue are larger than VSE’s market capitalization and revenue. In total, we identified and evaluated the following 12 companies for our 2017 peer group identified below for peer compensation research, and also included West Marine and Superior Industries.companies.
Institutional Shareholder Services, Inc. (ISS) Peer Group |
| |
AAR Corporation | Huron Consulting Group, Inc. |
CBIZ, Inc. | KforceICF International, Inc. |
CDI Corp. | Metalico, Inc. |
Heidrick & StrugglesCRA International, Inc. | Navigant Consulting, Inc. |
Hill International, Inc. | On Assignment, Inc. |
Hudson Highland Group,FTI Consulting, Inc. | Resources Connection, Inc. |
Huron Consulting GroupGP Strategies Corporation | US Ecology, Inc. | The Standard Register Company |
ICF International,Heritage-Crystal Clean, Inc. | TrueBlue,Wesco Aircraft Holdings, Inc. |
Taking into consideration recommendations made by our independent compensation consultant, in 2016, Ennis, Inc., Exponent, Inc., Franklin Covey Co., Hedrick & Struggles International, Inc., Hill International, Inc., RPX Corporation, Superior Industries International, Inc., and West Marine, Inc. were included as ISS designated peers, but were removed in 2017 due to changes at the selected company’s operations (e.g., acquisitions, mergers) or other changes in comparability to VSE. For 2017, AAR Corporation, CBIZ, Inc., FTI Consulting, Inc., Heritage-Crystal Clean, Inc., US Ecology, Inc., and Wesco Aircraft Holdings, Inc. were added to our disclosed peer group.
In preparing analyses of pay levels and compensation mix, we also refer to other commercially available survey sources such as the World@Work 2012/20132016/2017 Salary Budget Survey.
Consideration of Risk
Our compensation programs are discretionary, balanced and significantly focused on the long term. Under this structure, the highest amount of compensation can be achieved only through consistent superior performance over sustained periods of time. In addition, some compensation is deferred or only realizable upon retirement. This provides strong incentives to manage the Company for the long-term, while avoiding excessive risk-taking in the short-term. Likewise, the elements of our targeted compensation are balanced among current cash payments, deferred cash paymentpayments and equity awards.
Additionally, to further align the interests of our executive officers with those of our stockholders in pursuit of long-term value creation,enhancement, the Committee recommended and the Board approved Stock retention guidelines for directors, executive officers and other participants in VSE'sVSE’s 2006 Restricted Stock Plan to be phased in over time as described below in the "Stock“Stock Retention Guidelines" section in this Proxy Statement.Guidelines” section.
The Committee reviews the relationship between our risk management policies and practices and the incentive compensation we provide to our NEOs to confirm that our incentive compensation encourages taking prudent and avoiding unnecessary and excessive risks. The Committee also reviews the relationship between risk management policies and practices, corporate strategy and senior executive compensation.
EXECUTIVE COMPENSATION COMPONENTS
The fourthree key elements of our executive compensation program are (a) base salary, (b) annual performance-based monetary incentives (bonus)(Performance Bonus Plan and Executive Officer Incentive Compensation Plan), and (c) long-term incentives (Deferred Supplemental Compensation and Restricted Stock), and 401(k) matching program.
Base Salary.
Base Salary
The Committee believes that one of the most effective ways to compete in the government and commercial products and services markets is to offer our executive officers a competitive base salary. The Committee analyzes each executive officer'sofficer’s compensation using the following process:
1. | Review the key executive positions within the Company in terms of scope and responsibility, job complexity, knowledge, required experience, required, and other relevant factors; |
2. | Rank the executive positions on the basis of these factors to establish a logical relationship among them; and |
3. | For other executive positions, establish salary ranges by utilizing applicable industry surveys. |
The Committee considers benchmarks for each executive against similarly situated positions within our selected peer group companies. To clarify, the Committee does not set compensation levels as specific target levels of our peer group, but rather compares (or benchmarks) compensation with our peer group companies. In addition to such external market considerations, the Committee also considers internal pay equity among our executives, including the NEOs, for base salary planning. TheWhile the foregoing discussion of how the Committee determines base salaries is not intended to be exhaustive, but does summarizesummarizes the material factors considered by the Committee.Committee, it is not intended to be exhaustive. The Committee did not find it useful to, and did not attempt to, quantify, rank or otherwise assign relative weights to these factors. The Committee conducted an overall analysis of the factors described above and considered the totality of the information presented to it, including discussions with our senior management.
In December 2014,Largely based on the independent compensation consultant analysis of the peer groups relative to current market practice, the Committee recommended and the Board approved 20152018 base salary increases for Messrs. Gauthier, Loftus, Kiernan, and Wheeler. Mr. Harris' salary will remain the same.NEOs. The decision to increase salaries for Messrs. Gauthier, Loftus, Kiernan, Wheeler and WheelerBrown was based, in part, on their demonstrated strong leadership in a challenging market,markets, as well as a combination of peer group adjustments and merit-based increases, with total compensation serving as the basis for peer comparisons.
The base salary increases for 2018 are as follows: Mr. Gauthier in his capacity as CEO, president and chief operating officer, received an increase in base salary from $670,000$780,000 to $700,000.
$810,000; Mr. Loftus received an increase in base salary from $302,534$337,006 to $311,610.$401,037; Mr. Kiernan received an increase from $241,917$282,314 to $249,174. Mr. Harris will receive the same base salary of $296,546 for 2015, as he did in 2014.$316,191; Mr. Wheeler received an increase in base salaryfrom $301,125 to $337,260; and Mr. Brown from $220,000 to $250,000.$246,400.
Base Salaries of Named Executive Officers 2013 – 20152016 - 2018 Table
Named Executive Officer | 2013 | 2014 | 2015 |
Maurice A. Gauthier | 600,000 | 670,000 | 700,000 |
Thomas R. Loftus | 294,580 | 302,534 | 311,610 |
Thomas M. Kiernan | 235,557 | 241,917 | 249,174 |
John T. Harris | 288,750 | 296,546 | 296,546 |
Chad M. Wheeler | 180,024 | 220,000 | 250,000 |
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| | | | | | |
Named Executive Officer | | 2016 | | 2017 | | 2018 |
Maurice A. Gauthier | | $730,000 | | $780,000 | | $810,000 |
Thomas R. Loftus | | $320,958 | | $337,006 | | $401,037 |
Thomas M. Kiernan | | $256,649 | | $282,314 | | $316,191 |
Chad M. Wheeler | | $275,000 | | $301,125 | | $337,260 |
Joseph R. Brown | | $200,000 | | $220,000 | | $246,400 |
Subsequent Committee Actions for 2018:
In December 2014,2017, the Committee also approved the CEO'sCEO’s recommendation to increase the non-NEO officers' 2015officers’ 2018 base salary compensation by 3.03%.%.
Performance-Based Monetary
Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017. As a result of the reduction of our deferred tax liabilities under the Tax Act, our net income increased in 2017 by approximately $10.6M. In January 2018, the Committee recommended and the Board approved an allocation of $1.5M of this increase in net income for 2017 with respect to the Bonus incentive plans and Restricted Stock Plan.
For purposes of determining the ROE for the 2017 incentive plans, the ROE was calculated prior to the impact of the Tax Act plus $1.5M of the $10.6M increased net income (“Incentive ROE”). The result is an Incentive ROE used to determine the allocation of bonus and Restricted Stock Plan amounts. The Incentive ROE is lower than the computed ROE of 15.3% from the 2017 financial statements (“Actual ROE”) that takes into effect the full tax benefits of the Tax Act. This decision results in an Incentive ROE calculation of approximately 12.8%. Had the Tax Act not been implemented and therefore, the Company had not received the $10.6M increase in net income, the ROE for 2017 would have been approximately 11.6%. This additional incentive payment benefited approximately 140 employees.
The Committee and Board also considered the impact of the Tax Act on incentive targets for 2018. The statutory federal income tax rate for 2018 and beyond will be 21% versus the prior rate of 35%. As a result, the Committee recommended and the Board approved an increase in the incentive target ROE for the Bonus plans and Restricted Stock Plan from what the Board had approved in December of 2017 for 2018 incentive targets. The adjusted targets are reflected below.
PERFORMANCE-BASED MONETARY INCENTIVE COMPENSATION
The actual incentive compensation payable under our Performance Bonus Plan and Executive Officer Incentive Compensation Plan, Deferred Supplemental Compensation Plan and Restricted Stock Plan described below reduces the Company’s consolidated net income that is used to calculate the aggregate incentive compensation amounts that are payable under each of such incentive plans.
Bonus Incentives
Performance based incentive compensation is awarded to VSE’s officers participating in either (but not both plans in respect of any one fiscal year) the Company’s performance bonus plan or executive officer incentive compensation plan (the “Executive Incentive Plan”). The Committee recommended and the Board adopted a performance bonus plan based on achieving annual financial results in excess of financial thresholds established by the Committee and approved by the Board at the beginning of each year (the "Bonus Plan"“Bonus Plan”). After having been recommended by the Committee, the Executive Incentive Plan was approved by the Board in March 2017 and by the stockholders in May 2017. The Executive Incentive Plan is intended to provide specified executive officers with incentive compensation based on the Company’s financial performance to enhance stockholder value in a manner substantially similar to the Bonus Plan and to utilize the deductibility for VSE’s federal income tax purposes of any bonuses paid by the Company under such plan. Our bonus pool for corporate executives (except for Groupgroup or Subsidiary Presidents)subsidiary presidents), officers and corporate staff is determined by achieving a certain return on beginning stockholdersstockholders’ equity ("ROE"calculated by dividing VSE’s net income for the year by the stockholders’ equity as of the beginning of the year (“ROE”). Each year the Committee recommends, and the Board approves, a ROE maximum target.target range, including minimum and maximum thresholds.
In December 2014,2017, the Committee recommended and the Board approved, the awarding of performance bonuses forto the NEOs under the BonusExecutive Incentive Plan for VSE'sVSE’s fiscal year ending December 31, 2014 ("2014")2017. These bonus amounts ranged from 9% of the NEO's base salary for achieving a ROE of 11% to a maximum 100%20% of base salary for achieving a ROE of 16%10% to a maximum 125% of base salary for Messrs. Gauthier, Loftus and Kiernan for achieving a ROE of 17% or more. Mr. Wheeler and Mr. Brown’s bonuses, also up to a maximum of 125% of base salary, are determined by operating income thresholds established for their respective groups. The maximum eligible bonus potential for the Executive Incentive Plan year 2017 is set forth below.
Name | | Maximum Bonus Potential | |
Maurice A. Gauthier | | $ | 670,000 | |
Thomas R. Loftus | | $ | 302,534 | |
Thomas M. Kiernan | | $ | 241,917 | |
John T. Harris | | $ | 296,546 | |
Chad M. Wheeler | | $ | 220,000 | |
For 2014,
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| | |
Name | | Maximum Bonus Potential |
Maurice A. Gauthier | | $975,000 |
Thomas R. Loftus | | $421,258 |
Thomas M. Kiernan | | $352,893 |
Chad M. Wheeler | | $376,406 |
Joseph R. Brown | | $275,000 |
In determining performance based incentive compensation for 2017, the Committee and the Board approved VSE's actual12.8% as VSE’s Incentive ROE of 10.4%,for 2017, as compared to the maximum ROE corporate target of 16%17%, in determining performance based incentive compensation.and Actual ROE of 15.3%. The aggregate annual performance bonuses under the Bonus Plan and Executive Incentive Plan were approximately $3.5$5.3 million. Specific amounts paid to NEOs under the BonusExecutive Incentive Plan are reported in the Summary“Summary Compensation TableTable” below under the heading "Non-equity“Non-equity Incentive Plan Compensation."
”
The goals consist principally of operating income targets for operating group executives, and ROE targets for corporate staff, corporate officers and corporate executives, includingexecutives. The CEO, chief financial officer and three other NEOs participate in the CEO, Chief Financial Officer and other NEOs.Executive Incentive Plan. To participate in the bonus program,Bonus Plan or Executive Incentive Plan, an executive must be an employee during the fiscal year that the bonus payment is earned and subsequently when the bonus payment is payable. During 20142017 the pool thresholds were established as follows:
· | The bonus pool for operating group executives, including Group Presidents, is determined by a percentage of pretax income formula based on a ROE at a 9% minimum threshold. Individual operating group executives' bonuses are capped at 100%The bonus pool for operating group executives, including group presidents, is determined by each group's cumulative operating income thresholds. The groups’ cumulative operating income thresholds are based on a minimum ROE of 10%. Individual operating group executives’ bonuses are capped at 125% of salary. |
· | The bonus pool for corporate staff, corporate officers, and corporate executives is determined as a percentage of salary based on a ROE at a 9% minimum threshold. Individual administrative bonuses are capped at 15% of salary for corporate staff, 65% of salary for a majority of the non NEO corporate officers and 100% of salary for NEOs, including the CEO and Chief Financial Officer, and certain corporate officers. |
The bonus pool for corporate staff, corporate officers, and corporate executives is determined as a percentage of salary based on a ROE at a 10% minimum threshold. Individual administrative bonuses are capped at 22% of salary for corporate staff, 85% of salary for a majority of the non NEO corporate officers and 125% of salary for NEOs, including the CEO and chief financial officer.
As ROE equals or increases above the 9%10% minimum threshold, the bonus pool is created and will continue to increase as ROE (net of all compensation costs) increases up to the maximum target of 16%17%. At year end, the Committee exercises its discretion in determining how much of the pool to allocate to both operations personnel and corporate staff based, in part, upon executive management'smanagement’s recommendation and the Company'sCompany’s overall performance. Because the actualIncentive ROE for 20142017 was approximately 10.4%12.8% compared to the maximum bonus pool target based on a 16%17% ROE and Actual ROE of 15.3%, the NEOs, other corporate officers and corporate staff received bonus amounts that were substantially less than their maximum bonus targets.
Subsequent Committee Actions for 2018:
In December 2014,March 2018, the Board approved aminimum and maximum ROE targettargets of 22%10.5% and 17.5%, respectively, for the 20152018 bonus pool.pool under the Bonus Plan and Executive Incentive Plan. For 2015,2018, a ROE of less than 12% would10.5% will result in no performance bonus for operations personnel or the corporate staff, and non-operational officers or executives,executive officers, including NEOs.non-operational NEOs (Messrs. Gauthier, Loftus and Kiernan). For 20152018 the pool thresholds were established as followsfollows:
· | The bonus pool for operating group executives, including Group Presidents, is determined by a percentage of pretax income formula based on a ROE at a 12% minimum threshold. Individual operating group executives' bonuses are capped at 125% of salary. |
The bonus pool for corporate staff, corporate officers, and corporate executives is determined as a percentage of salary based on a minimum threshold of a 10.5% ROE for the performance year. Individual administrative bonuses are capped at 22% of salary for corporate staff, 85% of salary for a majority of the non NEO corporate officers, 125% of salary for group presidents and NEOs.· | The bonus pool for corporate staff, corporate officers, and corporate executives is determined as a percentage of salary based on a ROE at a 12% minimum threshold. Individual administrative bonuses are capped at 20% of salary for corporate staff, 80% of salary for a majority of the non NEO corporate officers and 125% of salary for NEOs, including the CEO and Chief Financial Officer, and certain corporate officers. |
In consultation with the group presidents and the chief financial officer, the CEO will determine the threshold for establishing the annual bonus pool for each operating group based on their respective actual financial results from the prior year as well as other factors. Beginning in 2016, the individual operating group bonus pool is no longer correlated to the corporate ROE performance.
The CEO maintains discretion on annual performance bonus allocation (except for the CEO), which is principally based on ROE for all NEO's, group executivesadministrative NEOs and staff. Once the bonus pool is determined using the ROE methodology, the CEO will determine the amount distributed to each operating group executive based on the individual group operating income,administrative NEO, taking into consideration performance
execution and market factors. VSE does not maintain specificThe CEO will determine operating income targets that impactthresholds for each operating group which determines the bonus pool amount distributedavailable for distribution to eachsuch operating group.
Long-Term Incentive Compensation
VSE provides long-term incentive compensation to its NEOs to compensate them forin consideration of their contributions to the Company'sCompany’s profitability and ROE. The two components of the Company'sCompany’s long-term incentive program are the Deferred Supplemental Compensation Plan and the 2006 Restricted Stock Plan.
Deferred Supplemental Compensation
VSE has a nonqualified, non-contributorynon-qualified Deferred Supplemental Compensation Plan ("(“DSC Plan"Plan”) for certain VSE corporate officers, including NEOs and other key management representatives. The objective of the DSC Plan is to compensate executives for their contribution to VSE'sVSE’s profitability. The DSC Plan provides, at the Board'sBoard’s discretion, for an incentive pool to be created through an annual contribution to the plan not to exceed 12% of VSE'sVSE’s consolidated net income for the year. Each participant'sparticipant’s potential allocation from the annual contribution bears the same percentage of the annual contribution as that participant'sparticipant’s salary bears to total annual participant salaries.
Benefits are payable to participants on retirement or resignation, subject to a vesting schedule, two-year non-competition agreement and other plan provisions, or on a change of control of VSE as described in the "Employment“Employment Contracts and Severance Agreements"Agreements” section below. The Board believes the vesting schedule and completion of the non-competition agreement prior to receiving a distribution create an additional benefit of promoting executive retention.
In December 2014,2017, the Committee recommended and the Board approved an annual contribution of 8% of VSE'sVSE’s consolidated net income for 20142017 to constitute the DSC Plan pool for 2014.2017. Eight percent of VSE's 2014VSE’s 2017 net income as adjusted below, is approximately $1.4million,$1.9 million, which was the amount authorized in December 20142017 and allocated to 3230 participant accounts, including a total of approximately $431,000$615 thousand allocated to NEOs. The Committee recommended and the Board approved that the DSC awards may not exceed 32% of the participant’s annual salary.
Subsequent Committee Actions:Actions for 2018:
In December 2014,January 2018, the Committee recommended and the Board approved an annual contribution of 8% of VSE'sVSE’s consolidated net income for VSE'sVSE’s fiscal year ending December 31, 2015 (2015)2018 to constitute the DSC Plan pool for 2015.39 selected participants for 2018.The Committee recommended and the Board approved that the DSC awards may not exceed 32% of the participant’s annual salary.
Restricted Stock
The Committee believes that compensating executives with restricted VSE Stock pursuant to VSE'sVSE’s 2006 Restricted Stock Plan fosterspromotes a long-term focus on the Company'sCompany’s operational and financial performance and provides our executives with a means to establish an equity stake in the Company that will further align their interests with those of our stockholders.stockholders’ interests. In addition, the vesting provisions and other restrictions on sale of the equity awards encourage executive retention. The Restricted Stock Plan for executives includes a three-year vesting schedule and two-year stock sales restriction period.
Similar to the DSC Plan, underUnder the Restricted Stock Plan, a dollar-denominated award equal to a percentage of a participant'sparticipant’s base salary can be earned based on the Company'sCompany’s level of achievement of ROE targets. For 20142017 the awards could rangehave ranged from 11%20% of base salary for a 9%10% ROE to 90% of the base salary for an ROE of 13.5% and higher for NEOs other than the CEO. For the CEO, andthe Restricted Stock Plan award could have ranged from 25% of base salary for a 10% ROE to 135% of base salary for the CEO for a ROE of 16%13.5% or higher.
For 2014, VSE's actual2017, VSE’s ROE for incentive purposes was approximately 10.4%12.8% compared to the maximum target of 16%13.5%. The actual ROE for 2017 was 15.3%. The CEO was awarded restricted Stock equal to 40.8%103% of his base salary compared to the maximum target of 135% of his base salary for the year2017 subject to vesting and other restrictions, as reported in the "Compensation“Compensation of Chief Executive Officer"Officer” section below. NEOs other than the CEO were awarded restricted Stock under the Restricted Stock Plan equal to 27.4%61% of their base salary for 20142017 compared to the maximum target of 90%, subject to vesting and other restrictions. Specific amounts paidawarded to the NEOs for 20142017 under the Restricted Stock Plan are reported in the Summary Compensation Table below under the heading "Stock Awards."“Stock awards.” The following table displays potential restricted Stock Awards based on ROE performance for 2014.
2017.
20142017 Restricted Stock –- Compensation Table:
Return on Equity | % of Base Salary NEOs other than CEO | % Base Salary-CEO |
16% & higher | 90% | 135% |
15% | 79% | 118% |
14% | 68% | 101% |
13% | 56% | 84% |
12% | 45% | 68% |
11% | 34% | 51% |
10% | 23% | 34% |
9% | 11% | 17% |
Below 9% | 0% | 0% |
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ROE | | % of Base Salary NEOs other than CEO | | % Base Salary-CEO |
13.5% & higher | | 90% | | 135% |
13% | | 65% | | 110% |
12% | | 45% | | 75% |
11% | | 30% | | 40% |
10% | | 20% | | 25% |
Below 10% | | 0% | | 0% |
Subsequent Committee Actions for 2018:
In December 2014,January 2018, the Committee recommended and the Board approved targets for 2018 that range from 45% of base salary for a 12% ROE to 90% for the base salary for 17% ROE for NEOs, other than the CEO, and a rangefrom 20% of 68% to 135% oftheir base salary for the CEOa 10% ROE to 90% of their base salary for a ROE of 12%13.5% or higher up to 17% ROEand for the fiscal year ending December 31, 2015 (2015).CEO from 25% of his base salary for a 10% ROE to 135% of his base salary for a ROE of 13.5% or higher.
2018 Restricted Stock - Compensation Table:
The following table displays potential restricted Stock awards based for 2018 on ROE performance for the NEOs other than the CEO and for the CEO for 2015.
2015 Restricted Stock – Compensation Table:
Return on Equity | % of Base Salary NEOs other than CEO | % Base Salary-CEO |
17% & higher | 90% | 135% |
16% | 81% | 122% |
15% | 72% | 108% |
14% | 63% | 95% |
13% | 54% | 81% |
12% | 45% | 68% |
Below 12% | 0% | 0% |
In 2011, the Board and stockholders approved an amendment to the Restricted Stock Plan, extending its term from May 2011 to May 2016. The extension of the Restricted Stock Plan was approved to replace the equity-based compensation provided under VSE's 2004 Option Plan. VSE has not granted any stock options since December 31, 2005. All stock options had been exercised or expired on or before December 31, 2009. At the May 6, 2014 Annual Meeting, the stockholders approved amendments to the 2006 Restricted Stock Plan (a) extending its term from May 3, 2016 to May 6, 2021 and (b) authorizing an additional 250,000 shares of VSE Stock for issuance under the plan. |
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ROE | | % of Base Salary NEOs other than CEO | | % Base Salary-CEO |
13.5% & higher | | 90% | | 135% |
13% | | 65% | | 100% |
12.5% | | 45% | | 70% |
11% | | 30% | | 40% |
10% | | 20% | | 25% |
Below 10% | | 0% | | 0% |
Awards made under the Restricted Stock Plan are subject to Committee authorization based on audited financial results, including total compensation costs, competitiveness of total executive compensation and other factors determined by the Committee and Board. The Committee may, in its sole discretion, reduce or totally eliminate an award to the extent it determines that such reduction or elimination is appropriate under facts and circumstances the Committee deems relevant.
Other Compensation
Other Compensation
VSE executive officers, including NEOs, are eligible to participate in the VSE Employee 401(k) Plan, which is an Internal Revenue Service qualified plan available to all eligible employees.
During 2014,2017, VSE paid a 401(k) matching contribution equal to 100% of the employee deferral on the first 3% of the employee pay deferred and 50% of the employee deferral on the next 2% of the employee pay deferred, with all such contributions fully vested when made.
Specific amounts contributed to the VSE 401(k) Plan on behalf of the NEOs are included in the Summary“Summary Compensation TableTable” under the heading "All Other Compensation."“All other compensation.”
VSE does not provide any of its executives, including the NEOs, with perquisites or other personal benefits having a total annual value in excess of $10,000. The Committee periodically reviews the levels of perquisites and other personal benefits provided to the NEOs.
COMPENSATION OF CEO
Mr. Gauthier our CEO, assumed the responsibilities ofhas served as VSE’s CEO, president, and chief operating officer insince April 2008, and becameas a Board member insince April 2009. His activities include leadership in developing and managing the Company'sCompany’s strategies, overseeing all of the Company'sCompany’s major business and staff units, and guiding and developing VSE'sVSE’s senior management.
PayCompensation Awarded for 20142017
In December 2013, based on Mr. Gauthier's management of the Company and the compensation decision making processes and policies described above, the Committee and the Board approved an increase in Mr. Gauthier's base salary from $600,000 for 2013 to $670,000 in 2014, and an annual incentive bonus for 2014 of up to $670,000 for Mr. Gauthier, which would be approximately 100% target of his base salary. Based on VSE's actual ROE for 2014, the amount paid as an incentive bonus was $201,000. In December 2014, the Committee recommended and the Board approved a grant to Mr. Gauthier of restricted Stock in an amount of up to 135% of his base salary. Based on VSE's approximate ROE of 10.4% for 2014, the awarded amount of restricted Stock under the Restricted Stock Plan was 40.8% of Mr. Gauthier's salary. Specific amounts awarded to Mr. Gauthier are set forth in the Summary Compensation under the Executive Compensation section.
Pay Approved for 2015
In December 2014,2016, the Committee recommended and the Board approved the following compensation for 20152017 for Mr. Gauthier: (a) $700,000$780,000 in base salary, (b) participation in the DSC Plan (subject to an aggregate annual contribution not to exceed 12%8% of its consolidated net income for the 20142017 fiscal year and for all participants in the plan), and limiting awards so as not to exceed 32% of base salary, (c) a participation in the BonusExecutive Incentive Plan of up to 125% of Mr. Gauthier'sGauthier’s base salary for 20152017 (or a maximum bonus of $875,000)$975,000), and (d) an award under the Restricted Stock Plan of restricted VSE Stock in an amount of up to 135% of his base salary for 20152017 (or a maximum of $945,000)$1,053,000). Mr. Gauthier participated in the Executive Incentive Plan (but not in the Bonus Plan), as approved by the stockholders in May 2017.
Compensation Approved for 2018
In December 2017, the Committee recommended and the Board approved the following compensation for 2018 for Mr. Gauthier: (a) $810,000 in base salary, (b) participation in the DSC Plan (subject to an aggregate annual contribution not to exceed 8% of its consolidated net income for the 2018 fiscal year and for all participants in the plan) and limiting awards so as not to exceed 32% of base salary, (c) a participation in the Executive Incentive Plan of up to 125% of Mr. Gauthier’s base salary for 2018 (or a maximum bonus of $1,012,500), and (d) an award under the Restricted Stock Plan of restricted VSE Stock in an amount of up to 135% of his base salary for 2018 (or a maximum of $1,093,500).
Pay Ratio Disclosure Rule
Pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Securities and Exchange Commission adopted a rule requiring annual disclosure of the ratio of the median employee’s annual total compensation to the total annual compensation of the principal executive officer ("PEO”). The Company’s PEO is Mr. Gauthier. Registrants must comply with the pay ratio rule for the first fiscal year beginning on or after January 1, 2017. The purpose of the new required disclosure is to provide a measure of the equitability of pay within the organization. The Company believes its compensation philosophy and process yield an equitable result and is presenting such information in accordance with the required disclosure as follows:
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Median Employee total annual compensation | $46,800 |
Mr. Gauthier ("PEO”) 2017 total annual compensation | $2,436,600 |
Ratio of PEO to Median Employee Compensation | 52:1 |
In determining the median employee, a listing was prepared of all employees as of December 31, 2017. Employees on leave of absence were excluded from the list and wages and salaries were annualized for those employees that were not employed for the full year of 2017. The median amount was determined based on the annualized list. For simplicity, the value of the Company’s 401(k) plan and medical benefits provided were excluded as all employees, including the PEO, are offered the exact same benefits and the Company utilizes the Internal Revenue Service safe harbor provision for 401(k) plan discrimination testing. As of December 31, 2017 the Company employed 2,306 persons of which 949 have wages negotiated through a Collective Bargaining Agreement and 103 have wages determined by the Service Contract Act. Additionally, we employ a diverse range of employees, many of whom live and work in lower cost of living areas other than the Washington, D.C. Metropolitan area.
OTHER COMPENSATION POLICIES
Employment Contracts and Severance Agreements
CEO
On December 6, 2013,14, 2016, VSE and Mr. Gauthier entered into an amended and restatedtheir employment agreement, pursuantdated December 6, 2013, to whichprovide that Mr. Gauthier will continue to serve as the VSE's chief executive officer,VSE’s CEO, president and chief operating officer.
officer until March 31, 2019, unless the amended agreement is terminated earlier. The amended and restated employment agreement provides for an initial three and one-quarter year term commencing as of January 1, 2014. At the end of the initial term, the agreement will automatically be extended for a one year period, unless either the Company or Mr. Gauthier has provided the other party with at least 120 days prior written notice of its or his intention to allow the agreement to expire. The agreement may be terminated earlier terminated by Mr. Gauthier or the Company, with or without cause, upon prior notice.
Mr. Gauthier's annual base salary will be $700,000, subject to annual review by the Committee and the Board.
If Mr. Gauthier's employment terminates by reason of his death or disability, he wouldwill be entitled to payment of (a) his base salary then in effect for 365 days following the date of his death or disability and (b) a lump sum equal to his annual bonus amount for the year in which termination occurs, based on an estimate of the Company's performance for the period before termination, as determined by the Committee and the terms and conditions of the Company's annual bonus or incentive plan, prorated to reflect the number of days out of 365 during which Mr. Gauthier was employed during the year of termination, subject to subsequent reconciliation with the Company's actual performance for the entire year in which termination occurs (the "Annualized Performance Bonus").
If Mr. Gauthier's employment is terminated without cause or if he resigns for good reason (other than during a change in control period), he wouldwill be entitled to receive a lump sum equal to (a) two times his base salary and (b) the Annualized Performance Bonus. If Mr. Gauthier's employment is terminated without cause or if he resigns for good reason during a change in control period, he wouldwill be entitled to receive a lump sum equal to (a) the lesser of three times his base salary or such lesser amount as would not trigger the application of Section 280G of the Internal Revenue Code and (b) the Annualized Performance Bonus. In either event, heMr. Gauthier would also be entitled to medical and hospitalization benefits for 18 months after termination, all compensation and other benefits accrued as of the termination date, the vesting of all outstanding restricted Stock restricted Stock units or similar rights to acquire capital Stock and the vesting of all unvested rights under the Company's DSC Plan. Nonrenewal of the initial term by the CompanyIf Mr. Gauthier’s employment agreement expires, such expiration would not be considered to betreated as a termination without cause.cause for severance purposes.
Other NEOs
The Company has also entered into an employment agreement with Mr. Loftus and transition agreementsa severance agreement with each of the other NEOs.Mr. Kiernan. These agreements are designed to promote stability and continuity of senior management. Information regarding applicable payments under these agreements for the NEOs is also summarized in the Executive Compensation“Executive Compensation” section below under the caption "Potential“Potential Payments on Termination or Change of Control."”
Payments Made On Termination
On termination of Mr. Loftus’ or Mr. Kiernan’s employment with VSE, or any of our subsidiaries, a NEO isthey will be entitled to receive amounts earned during his term of employment, including salary through date of termination, unused vacation pay and reimbursement for company business and travel expenses. If VSE terminates Mr. Loftus’ employment without "Cause" before expiration of the term thereof under his employment agreement, Mr. Loftus will be entitled to a lump sum severance payment equal to his then annual base salary. If VSE terminates Mr. Kiernan’s employment without "Cause" or he resigns for “Good Reason” (as such terms are defined in his severance agreement), Mr. Kiernan will be entitled to a severance benefit equal to continuation of his base salary for 12 months.
The NEOMr. Loftus and Mr. Kiernan also retainswill retain a vested interest in and iswill be entitled to receive payment in accordance with respective plan documents and other applicable procedures, restrictions (such as termination-for-cause), and expiration dates in respect of his 401(k) plan account, DSC Plan account and restricted Stock.
The NEO isMr. Loftus and Mr. Kiernan are also entitled to continue participation in our group health plans for a period of 18 months (COBRA continuation coverage) following termination on payment of 102% of the monthly premium charged to us for such coverage. We have no executive-only health benefit plans.
Payments Made On Death or Disability
Pursuant to employment agreements with each NEO, in the event of the NEO's death or disability for any period of six consecutive months inIn addition to the benefits listed under the headings "Payments“Payments Made On Termination"Termination” and "Payments“Payments Made On Retirement"Retirement” above, in the NEO'sevent of Mr. Loftus’ death or disability, his designated beneficiary or the NEO,he, as the case may be, will be paid the NEO'shis base salary then in effect for one full year following the date of death or disability.
Payments Made On Change of Control
In addition to VSE'sVSE’s employment agreement with the CEO, VSE has entered into an employment agreements with Messrs.Mr. Loftus Kiernan and Harris. Mr. Loftus' and Mr. Harris' agreements provide thatprovides if a change of control of VSE occurs, the NEOMr. Loftus may terminate the employment agreement on 30 days'days’ notice. If a NEO'sMr. Loftus’ employment is terminated following a change of control, in addition to the benefits listed above under "Payments“Payments Made on Termination," the NEO” Mr. Loftus will receive:receive a lump sum payment equal to his base salary; full vesting and payment of his DSC Plan account and Restricted Stock Plan benefits.
· | a lump sum payment equal to the NEO's base salary |
· | full vesting and payment of the NEO's DSC Plan account |
· | full vesting and payment of the NEO's Restricted Stock Plan benefits |
The employment agreements and change of control provisions for each of the NEOs with employment agreements, other than the CEO, are substantially similar. Generally, pursuantPursuant to the agreements,Mr. Loftus’ agreement, a change of control is deemed to have occurred on the occurrence of any of the following events:
· | 30% or more of the outstanding VSE Stock is acquired beneficially by one or more persons acting together in concert or otherwise; |
· | A cash tender or exchange offer is completed for an aggregate of 40% or more of the outstanding VSE Stock; |
· | Our stockholders approve an agreement to merge, consolidate, liquidate, or sell all or substantially all of our assets, unless after the merger or consolidation, VSE is the surviving corporation and more than 50% of the outstanding VSE Stock is beneficially owned by existing VSE stockholders immediately before the merger, consolidation or asset sale; or |
· | Two or more directors are elected to the Board without having previously been nominated and approved by the Board members immediately prior to such election. |
Executive Compensation Recovery
OnIn March 5, 2014, the Board approved a new provision, sometimes referred to as a clawback provision, where in the event of a material misstatement of the Company'sCompany’s financial statements, as determined by the Company and confirmed by the Company'sCompany’s independent auditors, the Board, in its sole discretion, may direct the Company to recover all or a portion of incentive based compensation (including bonus payments, restricted Stock awards, and deferred supplemental compensation awarded to a current or former participant in the Plan). Notwithstanding the foregoing, this statement shall only apply to (a) a current or former participant who, as determined by the Board, was an "officer"“officer” (as defined in Section 16 of the Securities Exchange Act)Act of 1934, as amended) of the Company at the time of the award or anytime thereafter, and (b) a material misstatement of the Company'sCompany’s financial statements that occurred within three years preceding the date on which the Company is required to prepare a restatement.
STOCK RETENTION GUIDELINES
To ensure alignment of the interests of our Directorsdirectors and executive officers with those of our stockholders, the Committee recommended and the Board approved Stock Retention Guidelines for directors and Restricted Stock Plan participants. Beyond the normal vesting schedule and two-year Stock sales restriction period, it is the Board'sBoard’s sense that the guidelines for restricted stock retention be phased in over time. It is also the Board'sBoard’s intent that these guidelines be subject to annual Board review and, under certain circumstances, be subject to Board waiver. The recommended guidelines for the retention of restricted Stock are as follows:
Directors: each current director will be expected to retain VSE Stock of market value equivalent to five years of the director'sdirector’s cash portion of his or her annual retainer. Any director appointed after the date of these guidelines will be expected to retain at least as much VSE Stock as the director'sdirector’s earned cumulative cash retainer until such time the market value of his or her VSE Stock is equal to at least five years of the director'sdirector’s cash portion of the retainer.
New directors and officers will be expected to retain their allocated stock to achieve over time the suggested holding thresholds referenced above, but they will not be required to purchase VSE Stock on the open market to achieve such thresholds.
If non-employee directors remain in compliance with the Stock Retention Guidelines, they are permitted to designate, on a share by share basis, tradable VSE shares they own that will be subject to the two-year restriction period under the Restricted Stock Plan in lieu of holding restrictive Stock that would otherwise be subject to the two-year transfer restrictive period.
Management Team:
By the end of 2016:
CEO: the CEO is expected to retain VSE Stock of market value equal to five years of the CEO'sCEO’s current base salary.
Other NEOs: Each of the other NEOs is expected to retain VSE Stock with a market value equal to three years of the NEO'sNEO’s current base salary.
Corporate Officers other than NEOs: Each of these officers is expected to retain VSE Stock with a market value equal to two years of his or her current base salary.
Other Restricted Stock Plan participants: Each of these officers is expected to retain VSE Stock with a market value equal to one year of his or her current base salary.
While both directors and officers are expected to maintain their VSE Stock positions as outlined above, these guidelines are not intended for directors or officers to be obligated to purchase stock on the open market to rebalance their holdings that may fall below the suggested guidelines referenced above as a result of unusual swings in the market value of VSE Stock during any particular period.
New directors and officers will be expected to retain their allocated stock to achieve over time the suggested holding thresholds referenced above, but they will not be required to purchase stock on the open market to achieve such thresholds.
Tax Deductibility
The Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, which provides that companies may not deduct compensation of more than $1,000,000 that is paid to certain individuals. We believe that compensation paid under our incentive plans is generally fully deductible for federal income tax purposes.purposes. However, in certain situations, the Committee may approve compensation that will not meet these requirements to ensure competitive levels of total compensation for its executive officers. For 2012, 2013,2015, 2016 and 20142017, we believe that all compensation paid to the NEOs iswas deductible for federal income tax purposes, except for DSC contributions that may not be deducted until distributed in accordance with Internal Revenue Service regulations.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed the preceding Compensation Discussion and Analysis and the Chairman of the Committee has discussed its contents with VSE management. Based on the review and discussions, the Committee has recommended to the Board that this Compensation Discussion and Analysis be included in the Proxy Statement.
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Compensation Committee: | | Ralph E. Eberhart, Chairman |
| | Clifford M. Kendall |
| | Calvin S. Koonce |
| | John E. Potter |