UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Amendment No. )
Filed by the registrant xRegistrant [x]
Filed by a party other than the registrant ¨Registrant [ ]
Check the appropriate box:
| [ ] | Preliminary Proxy Statement | |||
| (as permitted by Rule | ||||
| Definitive | ||||
| Definitive Additional Materials | ||||
| [ ] | Soliciting Material Pursuant to §240.14a-12 | |||
VSE Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
| [x] | No fee required. | ||
| [ ] | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and | ||
| (1) | Title of each class of securities to which transaction applies: | |||
| (2) | Aggregate number of securities to which transaction applies: | |||
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
| (4) | Proposed maximum aggregate value of transaction: | |||
| (5) | Total fee paid: | |||
| [ ] | Fee paid previously with preliminary materials. | ||
| [ ] | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. | ||
| (1) | Amount previously paid: |
| (2) | Form Schedule or Registration Statement No.: | |||
| (3) | Filing Party: |
| (4) | Date Filed: | |||
6348 Walker Lane, Alexandria, Virginia 22310-3226
Notice of 20152018 Annual Meeting of
Stockholders and Proxy Statement
Fellow Stockholders:
You are cordially invited to attend the annual meeting of stockholders of VSE Corporation ("VSE"(“VSE” or the "Company"“Company”) to be held on Tuesday, May 5, 2015,Monday, April 30, 2018, commencing at 10:00 a.m., Eastern Daylight Time, at the VSE Building, 6348 Walker Lane, Alexandria, Virginia 22310-3226 (the "Annual Meeting"“Annual Meeting”).
We are furnishing proxy materials to our stockholders by mail and over the Internet. You may read, print and download our 20142017 Annual Report to Stockholders, 20152018 Proxy Statement and Proxy Card at http://www.cstproxy.com/vsecorp/20152018. You may vote your VSE common stock by Internet, by telephone, by regular mail, or in person or represented by proxy at the Annual Meeting. Instructions regarding the various methods of voting are contained on the notice of the Annual Meeting and on the Proxy Card.
The proxy materials describe the formal business to be transacted at the Annual Meeting. VSE directors and officers will be present to answer any questions that you and other stockholders may have. Included in the materials is our Annual Report on Form 10-K for the fiscal year ended December 31, 20142017 that contains detailed information concerning the Company'sCompany’s activities, financial condition and operating performance.
The business to be conducted at the Annual Meeting consists of (1) the election of nineeight directors, (2) the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2015, (3) a non-binding advisory vote on our executive compensation, and (4)(3) a non-binding advisory vote on the frequency of the advisory vote on our executive compensation.compensation, and (4) to transact any other business that may properly come before the Annual Meeting.
On behalf of VSE'sVSE’s Board of Directors, please vote your VSE common stock now, even if you plan to attend the Annual Meeting. This will not prevent you from voting in person at the Annual Meeting, but it will ensure that your vote is counted. Your vote is important.
Please note the location for the Annual Meeting. The VSE Building is located in Metro Park office park at 6348 Walker Lane, Alexandria, Virginia 22310-3226. Take Franconia-Springfield Parkway to Beulah Street. Turn left onto Walker Lane and proceed to the end. VSE is across from Inova Healthplex.
I hope you will be able to join us.
| Sincerely, | ||
| VSE CORPORATION | ||
 | ||
| Calvin S. Koonce | ||
| Chairman of the Nominating and Corporate Governance Committee of the VSE Board of Directors | ||
April 3, 2018
(This page intentionally left blank)
VSE CORPORATION
6348 Walker Lane, Alexandria, Virginia 22310-3226
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 2015APRIL 30, 2018
To the Stockholders of VSE Corporation:
Notice is hereby given that the annual meeting of stockholders of VSE Corporation, a Delaware corporation ("VSE"(“VSE” or the "Company"“Company”), will be held on Tuesday, May 5, 2015,Monday, April 30, 2018, commencing at 10:00 a.m., Eastern Daylight Time, at VSE'sVSE’s corporate headquarters, 6348 Walker Lane, Alexandria, Virginia 22310-3226, for the following purposes (the "Annual Meeting"“Annual Meeting”):
| 1. | To elect |
| 2. |
| To provide a non-binding advisory vote on our executive compensation; |
| To provide a non-binding advisory vote on the frequency of the advisory vote on our executive compensation; and |
| To transact such other business as may properly come before the Annual Meeting or any adjournment thereof. |
Only record holders of VSE common stock as of the close of business on March 23, 201519, 2018 will be entitled to notice of, and to vote at, the Annual Meeting, and at any adjournments thereof. The list of stockholders entitled to vote at the Annual Meeting and at any adjournments thereof will be open to the examination of any stockholder during the 10 days prior to the Annual Meeting at VSE'sVSE’s offices located at 6348 Walker Lane, Alexandria, Virginia 22310-3226, during ordinary business hours.
The VSE Corporation 20142017 Form 10-K and Annual Report to Stockholders, which contains the Company'sCompany’s consolidated financial statements and other information of interest to stockholders, accompanies this proxy material.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE ANNUAL MEETING. STOCKHOLDERS HAVE A CHOICE OF VOTING BY PROXY CARD TELEPHONE OR THE INTERNET, AS DESCRIBED ON YOUR PROXY CARD. CHECK YOUR PROXY CARD OR THE INFORMATION FORWARDED BY YOUR BROKER, BANK OR OTHER HOLDER OF RECORD TO SEE THE OPTIONS AVAILABLE TO YOU. ANY STOCKHOLDER PRESENT AT THE ANNUAL MEETING MAY WITHDRAW HIS OR HER PROXY AND VOTE PERSONALLY ON ANY MATTER PROPERLY BROUGHT BEFORE THE ANNUAL MEETING.
 | ||
| By Order of the Board of Directors | ||
| Thomas M. Kiernan, Secretary | ||
April 6, 2015
3, 2018
(This page intentionally left blank)
VSE CORPORATION
PROXY STATEMENT
Annual Meeting of Stockholders
to be held on May 5, 2015
April 30, 2018
ABOUT THE 20152018 ANNUAL MEETING AND VOTING AT THE MEETING
This Proxy Statement is being furnished to the stockholders of VSE Corporation, a Delaware corporation ("VSE"(“VSE” or the "Company"“Company”), in connection with the solicitation of proxies by VSE'sVSE’s Board of Directors (the "Board"“Board”) for use at the annual meeting of VSE'sVSE’s stockholders to be held on Tuesday, May 5, 2015,Monday, April 30, 2018, commencing at 10:00 a.m., Eastern Daylight Time, at the VSE Building, 6348 Walker Lane, Alexandria, Virginia 22310-3226, and at any adjournments thereof for the purposes specified in the accompanying noticeNotice of meetingMeeting (the "Annual Meeting"“Annual Meeting”).
The mailing address of VSE'sVSE’s principal executive office is 6348 Walker Lane, Alexandria, Virginia 22310-3226. VSE'sVSE’s telephone number is (703) 960-4600. Your Annual Meeting materials, including the Notice of Annual Meeting, Proxy Statement, and proxy card from our Board, are enclosed. The Notice of Annual Meeting, this Proxy Statement and the accompanying proxy card are first being sent or given to stockholders entitled to notice of, and to vote at, the Annual Meeting on or about April 6, 2015.3, 2018. If you received your Annual Meeting materials via e-mail, the e-mail contained voting instructions and links to theour 2017 Annual Report to Stockholders and thethis Proxy Statement on the Internet, which are both available at http://www.cstproxy.com/vsecorp/20152018.
The close of business on March 23, 201519, 2018 is the record date for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting. Holders of a majority of VSE'sVSE’s outstanding common stock, par value $.05 per share ("Stock"(“Stock” or "VSE Stock"“VSE Stock”), as of the close of business on March 23, 2015,19, 2018, must be present at the Annual Meeting, either in person or represented by properly executed proxy, to constitute a quorum for the transaction of business at the Annual Meeting. Abstentions and broker non-votes will be counted solely for the purpose of determining whether a quorum is present.present, but broker non-votes will not be treated as present for quorum purposes. A proxy submitted by a broker that is not voted is sometimes referred herein to as a broker non-vote.
As of the close of business on March 23, 2015,19, 2018, there were 5,367,26110,881,106 shares of Stock outstanding and approximately 262250 stockholders of record. Each stockholder is entitled to one vote for each share of Stock held of record as of the close of business on March 23, 2015,19, 2018, on all matters that may be submitted to the stockholders at the Annual Meeting. All Stock represented by valid proxies will be voted at the Annual Meeting in accordance with the directions on the proxies. If you are a stockholder whose Stock is not registered in your own name, you will need appropriate documentation from the stockholder of record to vote in person at the Annual Meeting. If you want to vote your Stock that is held in street name in person at the Annual Meeting, you will need a written proxy card in your name from the broker, bank or other nominee who holds your Stock.
Matters for stockholder to consider:
As discussed in more detail in this Proxy Statement, the purpose of the Annual Meeting is (1) to vote for the election of nineeight directors to the Board; (2) to ratify the appointment of Ernst & Young LLP as VSE's independent registered public accounting firm for the year ending December 31, 2015; (3) to provide a non-binding advisory vote on our executive compensation; (4)(3) to provide a non-binding advisory vote on the frequency of the advisory vote on our executive compensation; and (5)(4) to transact any other business that may properly come before the Annual Meeting.
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.
Recommendations of the Board
The Board recommends a vote:
Vote Required
Directors are elected by a plurality of votes cast, without regard to either broker non-votes or proxies as to which authority to vote for the nominees being proposed is withheld.
The ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm will be determined by a majority of the votes cast, without regard to broker non-votes or abstentions.
The advisory vote on the frequency of advisory votes on the Company'sCompany’s executive compensation will be determined based on a plurality of the votes cast. This means that the option that receives the most votes will be recommended by the stockholders to the Board. Abstentions and broker non-votes are not counted for the advisory vote on frequency of advisory votes on the Company'sCompany’s executive compensation and, therefore, will have no effect on the outcome of the proposal. The results of this advisory vote are not binding on the Board.
How to Vote
We make our proxy materials available to stockholders by mail and on the Internet. You may read, print and download our 20142017 Annual Report to Stockholders 2015(which includes our Form 10-K for 2017), 2018 Proxy Statement and proxy card at http://www.cstproxy.com/vsecorp/20152018. On an ongoing basis, stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail. You may vote your Stock by Internet, by telephone, by regular mail or in person at the Annual Meeting. Each of these voting options is described in the notice and the proxy card.
You should complete and return your proxy card, or vote using the Internet or telephone voting options,option, to ensure that your vote is counted at the Annual Meeting, regardless of whether you plan to attend. If you return an executed Proxy Card without marking your instructions, your executed Proxy Card will be voted in accordance with the recommendations of the Board. In connection therewith, the Board has designated the Chairman of the Board Clifford M. KendallNominating and VSE'sCorporate Governance Committee, Calvin S. Koonce and VSE’s Corporate Secretary, Thomas M. Kiernan as proxies. If you indicate a choice with respect to any matter to be acted upon on your proxy card or voting instruction card, your Stock will be voted in accordance with your instructions.
If you are a beneficial owner and hold Stock in street name through a broker or other nominee and do not return the voting instruction card, the broker or other nominee will vote your Stock on each matter at the Annual Meeting for which he or she has the requisite discretionary authority. Under applicable rules, brokers have the discretion to vote on routine matters such as the ratification of the selection of independent registered public accounting firms, and do not have the discretion to vote on non-routine matters. Because the uncontested election of directors and any advisory vote regarding the Company'sCompany’s executive compensation are considered non-routine matters, brokers will not have the discretion to vote on such matters at the Annual Meeting.
Revocation of Proxies
A stockholder returning a proxy to VSE may revoke it at any time before it is exercised by granting a later proxy with respect to the same Stock or by communicating such revocation in writing to our Corporate Secretary. In addition, any stockholder who has executed a proxy but attends the Annual Meeting in person may cancel a previously given proxy by voting in person whether or not the proxy has been revoked in writing.
Proposal No. 1
Nominees
At the Annual Meeting, stockholders will elect, by a plurality of the votes cast, in person or by proxy, nineeight VSE directors who will constitute the entire Board. Each nominee listed below is currently serving as a VSE director and was elected by the stockholders at their previous year'syear’s meeting, with the exception of Admiral John C. Harvey,Mark E. Ferguson III, who was appointed as a director by the Board on July 31, 2014.November 8, 2017 with an effective date of December 1, 2017. Clifford M. Kendall, our Chairman of the Board, passed away on March 28, 2018. The Board will elect a new Chairman prior to the Annual Meeting. Each nominee elected as a director will serve until the next annual meeting of stockholders and until his or her successor is elected and qualified. If any nominee should become unable to serve for any reason, the proxies will be voted for such substitute nominee as shall be designated by the Board. With the exception of Adm. Harvey, who was not a Board member for the full calendar year, all of the Board members were overwhelmingly approved for election by the stockholders at their annual meeting held on May 6, 2014. The nineeight nominees for election as VSE directors and certain information regarding them are as follows:
| Name and Principal Occupation | Age | Director since | ||
| Ralph E. Eberhart | 71 | 2007 | ||
| General, U.S. Air Force (Ret.), formerly Commander-in-Chief, North American Aerospace Defense Command (NORAD) and U.S. Northern Command. General Eberhart retired from the Air Force in 2005 after 36 years of military service. He was then appointed and continues to serve as President of the Armed Forces Benefit Association (AFBA) and as Chairman of its related enterprises. General Eberhart is also a director of the following publicly traded companies: Rockwell Collins, Inc., since 2007, Triumph Group, Inc., since 2010 and Jacobs Engineering Group Inc., since 2012. | ||||
| Mark E. Ferguson III | 61 | 2017 | ||
Admiral, U.S. Navy (Ret.), formerly Commander of the U.S. Naval Forces Europe and U.S. Naval Forces Africa, as well as Commander of NATO’s Allied Joint Force Command, Naples, Italy. Admiral Ferguson also served as the Vice Chief of Naval Operations from 2011 to 2014. Admiral Ferguson retired from the Navy in 2016, after 38 years of military service. Admiral Ferguson is the Chief Executive Officer of MK3 Global LLC, a private consulting firm. He serves on the board of trustees of the Center for Naval Analyses. | ||||
| Maurice A. Gauthier | 70 | 2009 | ||
| VSE Chief Executive Officer, President and Chief Operating Officer since April 2008. Mr. Gauthier retired in 1997 as a Navy Captain after 28 years of military service. Mr. Gauthier worked for VSE from October 1997 through February 1999 as Vice President and Director of Strategic Planning and Business Development, before joining the Nichols Research Corporation as President of its Navy Group. With the acquisition of Nichols Research Corporation by Computer Sciences Corporation (CSC) in 1999, Mr. Gauthier served as a CSC Vice President and General Manager until rejoining VSE in 2008. | ||||
| Calvin S. Koonce | 80 | 1992 | ||
| President and Director of Montgomery Investment Management, Inc. (a securities investment firm), and has been the sole member of Koonce Securities, LLC, a securities broker/dealer firm, for more than the past five years. | ||||
| James F. Lafond | 75 | 2003 | ||
| Retired certified public accountant and executive. From 1998 to 2002 Mr. Lafond was the Washington Area Managing Partner, PWC LLP. From 1964 to 1998 he served in various leadership positions at Coopers & Lybrand. He continues to serve as a director of WGL Holdings, Inc. and WGL Energy (formerly Washington Gas and Light) and has since 2003, as well as for various nonprofit entities. | ||||
| Name and Principal Occupation | Age | Director since |
| Ralph E. Eberhart | 68 | 2007 |
| General, U.S. Air Force (Ret.), formerly Commander-in-Chief, North American Aerospace Defense Command (NORAD) and U.S. Northern Command. General Eberhart retired from the Air Force in 2005 after 36 years of service. He was then appointed and continues to serve as President of the Armed Forces Benefit Association (AFBA) and as Chairman of its related enterprises. He is also a director of the following publicly traded companies: Rockwell Collins, Inc., since 2007, Triumph Group, Inc., since 2010 and Jacobs Engineering Group Inc., since 2012. | ||
| Maurice A. Gauthier | 67 | 2009 |
| VSE Chief Executive Officer, President and Chief Operating Officer since April 2008. VP General Manager, Computer Science Corporation (1999-2008). Mr. Gauthier retired in 1997 as a Navy Captain after a 28-year military career. Mr. Gauthier worked for VSE from October 1997 through February 1999 as Vice President and Director of Strategic Planning and Business Development, before joining the Nichols Research Corporation as President of its Navy Group. With the acquisition of Nichols Research Corporation by Computer Sciences Corporation (CSC) in 1999, Mr. Gauthier served as a CSC Vice President and General Manager until rejoining VSE in 2008. | ||
| John C. Harvey | 63 | 2014 |
| Admiral, U.S. Navy (Ret.), formerly Commander of the U.S. Fleet Forces Command. Admiral Harvey retired from the Navy in 2013, after 39 years of service. In 2013, he was appointed and continues to serve as the State of Virginia's Secretary for Veteran and Defense Affairs. Admiral Harvey serves as the Chairman of the Navy Memorial Foundation, and serves as a director of the Armed Services YMCA. | ||
| Clifford M. Kendall | 83 | 2001 |
| VSE Chairman of the Board Mr. Kendall was previously Chairman of the Board of Regents of the University System of Maryland until June 30, 2011. Mr. Kendall was a co-founder of Computer Data Systems, Inc., in 1968, and he served as its Chairman and Chief Executive Officer from 1970 to 1991 and as Chairman until December 1997. Mr. Kendall has been a private investor (for more than the past five years). | ||
| Calvin S. Koonce | 77 | 1992 |
| President and director of Montgomery Investment Management (a securities investment firm), and is sole member of Koonce Securities, LLC, a securities broker/dealer firm (for more than the past five years). | ||
| James F. Lafond | 72 | 2003 |
| Retired certified public accountant and executive. From 1998 to 2002 Mr. Lafond was the Washington Area Managing Partner, Pricewaterhouse-Coopers LLP. From 1964 to 1998 he served in various leadership positions at Coopers & Lybrand. He is also a director of WGL Holdings, Inc., Washington Gas Light Co., and various nonprofit entities. | ||
| John E. "Jack" Potter | 59 | 2014 |
| President and Chief Executive Officer of the Metropolitan Washington Airports Authority (MWAA) since July 2011. He served as the United States Postmaster General and Chief Executive Officer of the United States Postal Service (USPS) from 2001 to 2010. | ||
| Lt. Gen Jack Stultz, USA Ret. | 62 | 2012 |
| Consultant to the Defense Industry and former Chief Army Reserve/ Commanding General, US Army Reserve Command from 2002 to 2012, retiring September 15, 2012. He was an operations manager for The Procter & Gamble Company from 1979 to 2007. General Stultz entered active duty in 1974 after receiving his officer's commission from the Army Reserve Officer Training Corps (ROTC) at Davidson College. | ||
| Bonnie K. Wachtel | 59 | 1991 |
| Principal and Director, Wachtel & Co., Inc., brokers and underwriters (for more than the past five years). She is also a director of The ExOne Company and Information Analysis Incorporated. She served as a director of Integral Systems Inc. from January 2010 until it was acquired in August 2011. |
| John E. "Jack" Potter | 62 | 2014 | ||
| President and Chief Executive Officer of the Metropolitan Washington Airports Authority since July 2011. He served as the United States Postmaster General and Chief Executive Officer of the United States Postal Service from 2001 to 2010. | ||||
| Lt. Gen Jack Stultz, USA (Ret.) | 65 | 2012 | ||
| Consultant to the Defense Industry and former Chief Army Reserve/ Commanding General, U.S. Army Reserve Command from 2006 to 2012. He was an operations manager for The Procter & Gamble Company from 1979 to 2007. General Stultz entered active duty in 1974 after receiving his officer’s commission from the Army Reserve Officer Training Corps at Davidson College. General Stultz has served as the Vice Chairman of Reserve Affairs for the Association of the U.S. Army (AUSA) Council of Trustees since 2016. | ||||
| Bonnie K. Wachtel | 62 | 1991 | ||
| Principal and Director, Wachtel & Co., Inc., investments, for more than the past five years. She is also a director of The ExOne Company and Information Analysis Incorporated. She has served as a Director for six Nasdaq listed companies, and served on the hearing panel for Nasdaq Listing Qualifications from 2006 to 2016. | ||||
Board, Committees and Corporate Governance
The Board had nine members elected by the stockholders in 2014.2017. On July 31, 2014October 1, 2017, Admiral John C. Harvey, Jr. resigned from the Board. On November 8, 2017 the Board appointed John C. HarveyAdmiral Mark E. Ferguson III to the Board, effective July 31, 2014, and as a result,December 1, 2017. Clifford M. Kendall, our Chairman of the Board, passed away on March 28, 2018. The Board will elect a new Chairman prior to the Annual Meeting. The Board currently has 10consists of eight members. All current Board members, other than Admiral Ferguson, were elected by the stockholders in 2017. Except for Mr. Gauthier who serves as our Chief Executive Officerchief executive officer, president and President,chief operating officer, all of our nominees for directors are "independent"“independent” as defined by the applicable rules of The NASDAQ Stock Market, Inc. ("NASDAQ"(“NASDAQ”). Because our Board Chairman of the Board has no affiliation with the Company other than serving as Chairman, of the Board, we do not have a senior non-executive director. Concluding a 47-year term on the VSE Board, David M. Osnos is retiring from the Board effective May 5, 2015. Our nineseven independent directors regularly have the opportunity to meet without any management members present. During 2014,2017, there were five regular Board meetings and two additional Board meetings regarding the acquisition of four business units from Killick Aerospace Group in January 2015.meetings. Of the elected directors who were Board members for the full calendar year of 2014,2017, each directorof our directors attended at least 75% of the total number of Board meetings (in person or by telephone) and at least 75% of the meetings of Board committees on which he or she served (during the period that he or she served). We do not have a specific policy regarding attendance at the annual stockholders meeting. All directors, however, are encouraged to attend if available, and we try to ensure that at least one independent director attends the annual stockholderstockholders meeting and is available to answer stockholder questions. NineAll nine directors including our then eight independent directors,who were serving as director at the time of the meeting attended our annual stockholders meeting in 2014.2017.
The Board has an Audit Committee, a Nominating and Corporate Governance Committee, and a Compensation Committee. The current charters for each of the Board committees are available on our Internet website, www.vsecorp.com. The Board committee members, as of the date of this Proxy Statement, are identified in the following table.
Remainder of page intentionally left blank.
Board Committees and Membership
| Director | Audit Committee | Compensation Committee | Nominating and Corporate Governance Committee | |||
| Ralph E. Eberhart | Chairman | X | ||||
| Mark E. Ferguson III | X | X | ||||
| Maurice A. Gauthier | ||||||
| Calvin S. Koonce | X | Chairman | ||||
| James F. Lafond | Chairman | X | ||||
| Jack E. Potter | X | X | ||||
| Jack C. Stultz | X | X | ||||
| Bonnie K. Wachtel | X | X | ||||
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:
| Ralph E. Eberhart | 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. | ||
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. | ||
| 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 Familiarity with a core VSE customer due to 28 years of service as | ||
| 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 | ||
| James F. Lafond | 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. | ||
| John E. | Provides insight into manufacturing, supply and distribution practices of large supply chain | ||
Jack | Experience as the Commanding General for the U.S. Army Reserve More than 38 years of experience in the U.S. Army provides keen insight on the past, More than 29 years of private industry experience provides a balanced background of significant government and industry leadership positions. | ||
| 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. | ||
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.
(Remainder of page intentionally left blank)
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 | |
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
| 1. |
| Mr. |
| 2. | Pursuant to the 2006 Restricted Stock Plan, each non-employee director was granted an award of |
| 3. | Admiral Mark E. Ferguson III was appointed to the Board effective December 1, 2017. |
| 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.
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.
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.
(Remainder of page intentionally left blank)
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 |
| 2017 | 2016 | ||||||
| Audit fees (1) | $ | 1,901,005 | $ | 1,924,846 | |||
| Tax fees (2) | $ | 170,502 | $ | 194,403 | |||
| Other (3) | $ | 1,995 | $ | 1,995 | |||
Notes to Audit Fees Table
| 1. | Includes fees and expenses related to the annual audits, |
| 2. |
Includes fees and expenses for tax compliance and advisory services, including fees associated with employment tax matters. |
| 3. | Includes fees related to |
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.
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.
| Audit Committee: | James F. Lafond, Chairman | |
| Mark E. Ferguson III | ||
| Clifford M. Kendall | ||
| Jack C. Stultz | ||
| Bonnie K. Wachtel | ||
(Remainder of page intentionally left blank)
(This page is intentionally left blank)
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:
| Base salary to compensate executives for services performed during the fiscal year; |
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:
| 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 |
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.
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
| Compensation Components | Percentage of Actual Total Compensation | |
| Base | 39% | |
| Performance-based monetary incentives (bonus) | 24% | |
Long-term incentives-- | ||
| Deferred Supplemental Compensation and Restricted Stock | 36% | |
Other compensation-- 401(k) Match | 1% | |
Note to Percentage of Actual Total Compensation Table
| 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:
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.
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.
| AAR Corporation | Huron Consulting Group, Inc. | |
| CBIZ, Inc. | ||
| Navigant Consulting, Inc. | ||
| Resources Connection, Inc. | ||
| US Ecology, 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:
| Review the key executive positions within the Company in terms of scope and responsibility, job complexity, knowledge, required experience, |
| Rank the executive positions on the basis of these factors to establish a logical relationship among them; and |
| 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.
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 |
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%.%.
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 | ||
| 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:
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 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.
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.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% |
| 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.
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% |
| 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.
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.
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:
| 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.
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.
Payments Made On Death or Disability
Payments Made On Change of Control
| 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
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:
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.
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 $1,000,000 that is paid to certain individuals. We believe that compensation paid under our incentive plans is generally fully deductible for federal income tax purposes.purposes. However, in certain situations, the Committee may approve compensation that will not meet these requirements to ensure competitive levels of total compensation for its executive officers. For 2012, 2013,2015, 2016 and 20142017, we believe that all compensation paid to the NEOs iswas deductible for federal income tax purposes, except for DSC contributions that may not be deducted until distributed in accordance with Internal Revenue Service regulations.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed the preceding Compensation Discussion and Analysis and the Chairman of the Committee has discussed its contents with VSE management. Based on the review and discussions, the Committee has recommended to the Board that this Compensation Discussion and Analysis be included in the Proxy Statement.
| Compensation Committee: | Ralph E. Eberhart, Chairman | |
| Clifford M. Kendall | ||
| Calvin S. Koonce | ||
| John E. Potter | ||
(This page is intentionally left blank)
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below summarizes the total compensation paid or earned by each of the NEOs in each of the last three fiscal years.
Name and principal position (a) | Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock awards ($) (1) (e) | Option awards ($) (f) | Non-equity incentive plan compensation ($) (2) (g) | Change in pension value and non- qualified deferred compensation earnings ($) (h) | All other compensation ($) (3) (i) | Total ($) (j) |
Maurice A. Gauthier CEO, President and Chief Operating Officer | 2014 | 670,000 | -- | 273,360 | -- | 201,000 | -- | 177,938 | 1,322,298 |
| 2013 | 600,000 | -- | 354,000 | -- | 294,000 | -- | 188,248 | 1,436,248 | |
| 2012 | 515,008 | -- | 42,746 | -- | 66,951 | -- | 157,939 | 782,644 | |
Thomas R. Loftus Executive Vice President and Chief Financial Officer | 2014 | 302,534 | -- | 82,894 | -- | 90,760 | -- | 84,305 | 560,493 |
| 2013 | 294,580 | -- | 132,561 | -- | 144,344 | -- | 93,429 | 664,914 | |
| 2012 | 267,800 | -- | 22,227 | -- | 34,814 | -- | 86,927 | 411,768 | |
Thomas M. Kiernan Vice President, General Counsel and Corporate Secretary | 2014 | 241,917 | -- | 66,285 | -- | 72,575 | -- | 69,578 | 450,355 |
| 2013 | 235,557 | -- | 106,001 | -- | 115,423 | -- | 77,542 | 534,523 | |
| 2012 | 235,557 | -- | 19,551 | -- | 30,622 | -- | 76,421 | 362,151 | |
John T. Harris President and COO, Akimeka | 2014 | 296,546 | -- | 81,254 | -- | 120,518 | -- | 84,274 | 582,592 |
| 2013 | 288,750 | -- | 129,938 | -- | 97,762 | -- | 93,301 | 609,751 | |
| 2012 | 237,500 | -- | 19,713 | -- | 30,000 | -- | 100,140 | 387,353 | |
Chad M. Wheeler President, Wheeler Bros., Inc. | 2014 | 220,000 | -- | 60,280 | -- | 220,000 | -- | 63,543 | 563,823 |
| 2013 | 180,024 | -- | -- | -- | 50,000 | -- | 58,632 | 288,656 | |
| 2012 | 174,071 | -- | -- | -- | -- | -- | 6,946 | 181,017 |
Name and principal position ___________ (a) | Year ____ (b) | Salary ($) ______ (c) | Bonus ($) ______ (d) | Stock awards ($) (1) _________ (e) | Option awards ($) ______ (f) | Non-equity incentive plan compensation ($) (2) _______ (g) | Change in pension value and non-qualified deferred compensation earnings ($) _______ (h) | All other compensation ($) (3) _______ (i) | Total ($) ______ (j) | ||||||||
Maurice A. Gauthier CEO, President and Chief Operating Officer | 2017 | 780,000 | — | 803,400 | — | 592,800 | — | 260,400 | 2,436,600 | ||||||||
| 2016 | 730,000 | — | 441,650 | — | 270,100 | — | 244,200 | 1,685,950 | |||||||||
| 2015 | 700,000 | — | 476,000 | — | 350,000 | — | 243,416 | 1,769,416 | |||||||||
Thomas R. Loftus Executive Vice President and Chief Financial Officer | 2017 | 337,006 | — | 205,574 | — | 256,125 | — | 118,642 | 917,347 | ||||||||
| 2016 | 320,958 | — | 150,850 | — | 118,754 | — | 113,307 | 703,869 | |||||||||
| 2015 | 311,610 | — | 140,225 | — | 155,805 | — | 113,493 | 721,133 | |||||||||
Thomas M. Kiernan Vice President, General Counsel and Corporate Secretary | 2017 | 282,314 | — | 172,212 | — | 214,559 | — | 101,140 | 770,225 | ||||||||
| 2016 | 256,649 | — | 120,625 | — | 94,960 | — | 91,911 | 564,145 | |||||||||
| 2015 | 249,174 | — | 112,128 | — | 124,587 | — | 93,474 | 579,363 | |||||||||
Chad M. Wheeler President, Wheeler Bros., Inc. | 2017 | 301,126 | — | 183,687 | — | 250,000 | — | 107,160 | 841,973 | ||||||||
| 2016 | 275,000 | — | 129,250 | — | 100,000 | — | 95,183 | 599,433 | |||||||||
| 2015 | 250,000 | — | 112,500 | — | 250,000 | — | 93,694 | 706,194 | |||||||||
Joseph R. Brown President, Federal Services Group | 2017 | 220,000 | — | 134,200 | — | 220,000 | — | 81,200 | 655,400 | ||||||||
| 2016 | 200,000 | — | 94,000 | — | 130,000 | — | 71,950 | 495,950 | |||||||||
| 2015 | 170,110 | — | 30,620 | — | — | — | 64,758 | 265,488 | |||||||||
Notes to Summary Compensation Table
| 1. | The amounts reported in column (e) represent annual performance-based awards under the Restricted Stock Plan. The amounts in this column reflect the aggregate grant date fair values of Restricted Stock Plan awards computed in accordance with applicable accounting guidance. The Restricted Stock Plan awards were based on |
| 2. | The amounts reported in column (g) represent cash paid to the NEOs under |
| 3. | The amounts reported in column (i) represent 401(k) plan matching contributions allocated to each of the |
Narrative to Summary Compensation Table
See "Compensation“Compensation Discussion and Analysis"Analysis” above for a description of the compensation plans pursuant to which the amounts listed in the "Summary“Summary Compensation Table"Table” were paid or awarded and the criteria for such payments and awards.
Grants of Plan-Based Awards in Fiscal Year 20142017 Table
The table below reports all grants of plan-based awards to each of the NEOs for the year ended December 31, 2014.2017.
Estimated future payouts under non-equity incentive plan awards | Estimated future payouts under equity incentive plan awards (1) | ||||||||||
Name (a) | Grant Date (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | All other stock awards: number of shares or units (#) (i) | All other option awards: number of securities under-lying options (#) (j) | Exercise or base price of option awards ($) (k) | Grant date fair value of stock and option awards ($) (l) |
Maurice A. Gauthier (2) | 03/19/14 | -- | -- | -- | 113,900 | 904,500 | 904,500 | -- | -- | -- | 273,360 |
Thomas R. Loftus | 03/19/14 | -- | -- | -- | 33,279 | 272,281 | 272,281 | -- | -- | -- | 82,894 |
Thomas M. Kiernan | 03/19/14 | -- | -- | -- | 26,611 | 217,725 | 217,725 | -- | -- | -- | 66,285 |
John T.Harris | 03/19/14 | -- | -- | -- | 32,620 | 266,891 | 266,891 | -- | -- | -- | 81,254 |
Chad M. Wheeler | 03/19/14 | -- | -- | -- | 24,200 | 198,000 | 198,000 | -- | -- | -- | 60,280 |
Name ______ (a) | Grant Date ______ (b) | Estimated future payouts under non-equity incentive plan awards | Estimated future payouts under equity incentive plan awards (1) | All other stock awards: number of shares or units (#) _______ (i) | All other option awards: number of securities under-lying options (#) _______ (j) | Exercise or base price of option awards ($) ______ (k) | Grant date fair value of stock and option awards ($) ________ (l) | |||||
Threshold ($) _____ (c) | Target ($) _____ (d) | Maximum ($) _____ (e) | Threshold ($) _________ (f) | Target ($) ______ (g) | Maximum ($) _______ (h) | |||||||
| Maurice A. Gauthier (2) | 3/14/17 | -- | -- | -- | 803,400 | 1,053,000 | 1,053,000 | -- | -- | -- | 803,400 | |
| Thomas R. Loftus | 3/14/17 | -- | -- | -- | 205,574 | 303,305 | 303,305 | -- | -- | -- | 205,574 | |
| Thomas M. Kiernan | 3/14/17 | -- | -- | -- | 172,212 | 254,083 | 254,083 | -- | -- | -- | 172,212 | |
Chad M. Wheeler | 3/14/17 | -- | -- | -- | 183,687 | 271,013 | 271,013 | -- | -- | -- | 183,687 | |
| Joseph R. Brown | 3/14/17 | -- | -- | -- | 134,200 | 198,000 | 198,000 | -- | -- | -- | 134,200 | |
Notes to Grants of Plan-Based Awards Table
| 1. | The amounts reported above represent potential payments to the NEOs under the Restricted Stock Plan, which is discussed above under |
| 2. | The amount reported above represents potential payments to Mr. Gauthier under the Restricted Stock Plan. |
| 3. | The amounts in column (h) represent a maximum payout equivalent to 90% of the annual base salary of each NEO, except for Mr. Gauthier whose maximum payout is equivalent to 135% of his annual base salary. |
Narrative to Grants of Plan-Based Awards Table
See "Compensation“Compensation Discussion and Analysis"Analysis” above for a description of the Restricted Stock Plan pursuant to which the amounts listed in the "Grants“Grants of Plan-Based Awards in Fiscal Year 2014 Table"2017 Table” were paid or awarded and the criteria for such payments and awards.
Outstanding Equity Awards at Fiscal Year End Table
The table below reports all outstanding equity awards for each of the NEOs for fiscal year ended December 31, 2014.2017.
| Option awards (1) | Stock awards (2) | ||||||||||||||
Name _______ (a) | Number of securities underlying unexercised options (#) exercisable ________ (b) | Number of securities underlying unexercised options (#) unexercis-able (c) | Equity incentive plan awards: number of securities underling unexercised unearned options (#) ________ (d) | Option exercise price ($) ______ (e) | Option expiration date _______ (f) | Number of shares or units of stock that have not vested (#) _______ (g) | Market value of shares or units of stock that have not vested ($) ______ (h) | Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) ________ (i) | Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($) _________ (j) | ||||||
Maurice A. Gauthier | -- | -- | -- | -- | -- | -- | -- | -- | 1,256,499 | ||||||
Thomas. R. Loftus | -- | -- | -- | -- | -- | -- | -- | -- | 352,882 | ||||||
Thomas M. Kiernan | -- | -- | -- | -- | -- | -- | -- | -- | 290,005 | ||||||
| -- | -- | -- | -- | -- | -- | -- | -- | 307,354 | |||||||
| -- | -- | -- | -- | -- | -- | -- | -- | ||||||||
Notes to Outstanding Equity Awards Table
| 1. | All options that were granted to the NEOs under |
| 2. | As discussed above, the Restricted Stock Plan provides for dollar-denominated awards that are subject to a three-year vesting schedule: one-third of the award vests after completion of |
Narrative to Outstanding Equity Awards Table
On December 30, 2005, the Board discontinued awarding options to purchase VSE Stock. Options outstanding as of December 30, 2005, were not affected by this Board action.action and, as of December 31, 2009, all of such options had been exercised or had expired. See discussion above under "Executive“Executive Compensation Components—Long-TermComponents-Long-Term Incentive Compensation."”
Option Exercises and Stock Vested During Fiscal Year 20142017 Table
The following table reports stock options exercised and stock awards vested by the NEOs during the fiscal year ended December 31, 2014.2017.
Name (a) | Option Awards | Stock Awards | |||
Number of shares acquired on exercise (#) (b) | Value realized on exercise ($) (1) (c) | Number of shares acquired on vesting (#) (2) (d) | Value realized on vesting ($) (e) | ||
| Maurice A. Gauthier | -- | -- | 2,368 | 111,445 | |
| Thomas R. Loftus | -- | -- | 986 | 46,462 | |
| Thomas M. Kiernan | -- | -- | 826 | 38,839 | |
| John T. Harris | -- | -- | 1,011 | 47,505 | |
| Chad M. Wheeler | -- | -- | -- | -- | |
| Option Awards | Stock Awards | ||||
Name __________ (a) | Number of shares acquired on exercise (#) __________ (b) | Value realized on exercise ($) (1) __________ (c) | Number of shares acquired on vesting (#) (2) ____________ (d) | Value realized on vesting ($) _________ (e) | |
| Maurice A. Gauthier | -- | -- | 6,616 | 265,596 | |
| Thomas R. Loftus | -- | -- | 2,081 | 83,497 | |
| Thomas M. Kiernan | -- | -- | 1,672 | 67,125 | |
| Chad M. Wheeler | -- | -- | 1,755 | 70,439 | |
| Joseph R. Brown | -- | -- | 800 | 32,121 | |
Notes to Options Exercises and Stock Vested Table
| 1. | No stock options were exercised by the NEOs during |
| 2. | The number of shares acquired pursuant to the Restricted Stock Plan on vesting reported in column (d) excludes the shares withheld for the minimum amount of taxes required to be withheld by the Company under applicable law, as follows: Mr. |
Pension Benefits
VSE does not provide pension arrangements or post-retirement health coverage for executives and employees. VSE and each of its wholly owned subsidiaries sponsor participation in the VSE Employee 401(k) Plan and each of VSE subsidiaries, Energetics Incorporated and Akimeka, LLC, sponsors a profit sharing plan.plan, but no money was contributed to either plan for 2017. Each of the plans are IRS-qualified, defined contribution, money-purchase plans. VSE also has a nonqualified deferred compensation plan as discussed below.
(Remainder of page intentionally left blank)
Nonqualified Deferred Compensation Table
The following table provides information related to potential benefits payable to each NEO under VSE'sVSE’s Deferred Supplemental Compensation Plan as of and for the year ended December 31, 2014.2017.
Name (1) (a) | Executive contributions in last FY (2) ($) (b) | VSE contributions in last FY (3) ($) (c) | Aggregate earnings in last FY ($) (d) | Aggregate withdrawals/ distributions ($) (e) | Aggregate balance at last FYE (4) ($) (f) |
| Maurice A. Gauthier | -- | 166,907 | 87,006 | -- | 1,401,449 |
| Thomas R. Loftus | -- | 75,366 | 86,867 | -- | 1,110,975 |
| Thomas M. Kiernan | -- | 60,265 | 16,851 | -- | 486,830 |
John T. Harris | -- | 73,874 | 14,123 | -- | 309,566 |
| Chad M. Wheeler | -- | 54,805 | 746 | -- | 107,000 |
Name (1) ____________ (a) | Executive contributions in last FY (2) ($) ____________ (b) | VSE contributions in last FY (3) ($) ___________ (c) | Aggregate earnings in last FY ($) ____________ (d) | Aggregate withdrawals/ distributions ($) ___________ (e) | Aggregate balance at last FYE (4) ($) ____________ (f) | |||
| Maurice A. Gauthier | -- | 249,600 | 347,399 | -- | 2,597,270 | |||
| Thomas R. Loftus | -- | 107,842 | 270,721 | -- | 1,812,894 | |||
| Thomas M. Kiernan | -- | 90,340 | 120,638 | -- | 872,843 | |||
| Chad M. Wheeler | -- | 96,360 | 40,486 | -- | 426,732 | |||
| Joseph R. Brown | -- | 70,400 | 986 | -- | 317,448 | |||
Notes to Nonqualified Deferred Compensation Table
| 1. | Mr. Loftus has been a participant in the plan or predecessor plans for more than 20 years, |
Mr. Gauthier, Mr. Kiernan, Mr. Wheeler and Mr. Brown have been participants for ten years, nine years, seven years, and five years, respectively.
| 2. | Amounts reported in column (c) are reported in the Summary Compensation Table, column (i). Aggregate earnings (losses) reported in column (d) are not reported in the Summary Compensation Table. |
| 3. | Amounts reported in column (f) include aggregate contributions that were reported as compensation to the NEOs in the Summary Compensation Table for previous years and aggregate earnings that were not reported as compensation. Aggregate contributions previously reported in the Summary Compensation Tables for the years 2000 through |
Aggregate Company Contributions and Earnings, 2000-20142000-2017
Name | Aggregate Company Contributions (S) | Aggregate Earnings ($) |
| Maurice A. Gauthier | 1,012,646 | 388,803 |
| Thomas R. Loftus | 708,984 | 401,991 |
| Thomas M. Kiernan | 413,127 | 73,703 |
| John T. Harris | 287,033 | 22,533 |
| Chad M. Wheeler | 106,254 | 746 |
| Name | Aggregate Company Contributions (S) | Aggregate Earnings ($) | ||||
| Maurice A. Gauthier | 1,728,662 | 868,608 | ||||
| Thomas R. Loftus | 1,023,173 | 789,721 | ||||
| Thomas M. Kiernan | 668,469 | 204,374 | ||||
| Chad M. Wheeler | 373,762 | 52,970 | ||||
| Joseph R. Brown | 316,360 | 1,088 | ||||
Narrative to Nonqualified Deferred Compensation Table
We have a non-qualified, non-contributorynonqualified, noncontributory Deferred Supplemental Compensation Plan ("(“DSC Plan"Plan”) for all of our officers, which was adopted by the Board in 1994. The DSC Plan provides, at the Board'sBoard’s discretion, for an annual contribution to the plan not to exceed 12% of our consolidated net income for the year. Each officer'sofficer’s allocation from the annual contribution bears the same percentage to the annual contribution as that officer'sofficer’s salary bears to total annual officer salaries. For 20142017 an annual contribution of 8% of our consolidated net income (approximately $1.4 million)$1.9 million, as adjusted) was authorized and allocated to 3230 participant accounts, including a total of approximately $431,000$614,500 allocated to the NEOs'NEOs’ accounts. For 2017, awards may not exceed 32% of any participants annual salary.
Benefits under the plan are payable to the participant on retirement or resignation, subject to a vesting schedule, non-competition agreement, and other plan provisions, or if a change of control of VSE occurs. Our contributions to the DSC Plan are irrevocable and shall be used to pay benefits under the plan, subject to the claims of our general creditors.
Our annual contribution to the DSC Plan is deposited in a plan trust. The aggregate annual contribution is allocated for the benefit of each of the participants and credited to each of their respective Employer Contribution Accounts. Participants make investment elections for their respective account balances and annual contributions from a group of life insurance (COLI) investment funds managed by Lincoln Financial Group.
Potential Payments on Termination or Change of Control Table
The following table sets forth potential payments to our NEOs on termination of employment or a change of control of VSE. The amounts shown assume that such termination or termination on change of control was effective as of December 31, 2014,2017, and are estimates of the amounts that would be paid to the NEOs on their termination. The actual amounts to be paid can only be determined at the time of such NEO'sNEOs separation from VSE or any of our subsidiaries.
Potential Payments on Termination or Change of Control Table (1)
Name | Benefit | Termination Without Cause ($) | Termination on Change of Control ($) |
| Maurice A. Gauthier (2) | Salary | 1,340,000 | 2,010,000 |
| DSC Plan | 1,401,449 | 1,401,449 | |
| Restricted Stock | 523,608 | 523,608 | |
| Thomas R. Loftus | Salary | 302,534 | 302,534 |
| DSC Plan | 1,110,976 | 1,110,976 | |
| Restricted Stock | 178,677 | 178,677 | |
| Thomas M. Kiernan | Salary | 241,917 | 241,917 |
| DSC Plan | 486,830 | 486,830 | |
| Restricted Stock | 143,469 | 143,469 | |
| John T. Harris | Salary | 296,546 | 296,546 |
| DSC Plan | 309,566 | 309,566 | |
| Restricted Stock | 174,450 | 174,450 | |
| Chad M. Wheeler | Salary | 220,000 | 220,000 |
| DSC Plan | 107,000 | 107,000 | |
| Restricted Stock | 60,280 | 60,280 |
| Name | Benefit | Termination Without Cause ($) | Termination on Change of Control ($) | |||||
| Maurice A. Gauthier (2) | Salary | 1,560,000 | 2,340,000 | |||||
| DSC Plan | 2,597,270 | 2,597,270 | ||||||
| Restricted Stock | 1,256,499 | 1,256,499 | ||||||
| Thomas R. Loftus | Salary | 337,006 | 337,006 | |||||
| DSC Plan | 1,812,894 | 1,812,894 | ||||||
| Restricted Stock | 352,882 | 352,882 | ||||||
| Thomas M. Kiernan | Salary | 282,314 | 282,314 | |||||
| DSC Plan | 872,843 | 872,843 | ||||||
| Restricted Stock | 290,005 | 290,005 | ||||||
| Chad M. Wheeler | Salary | 115,818 | 115,818 | |||||
| DSC Plan | 426,732 | 426,732 | ||||||
| Restricted Stock | 307,354 | 307,354 | ||||||
| Joseph R. Brown | Salary | 84,615 | 84,615 | |||||
| DSC Plan | 317,448 | 317,448 | ||||||
| Restricted Stock | 207,073 | 207,073 | ||||||
Notes to Potential Payments on Termination or Change of Control Table
| 1. | The table excludes information with respect to contracts, agreements, plans, or arrangements to the extent they do not discriminate in scope, terms, or operation in favor of executive officers and that are available generally to all salaried |
| 2. | The information regarding Mr. Gauthier |
Narrative to Potential Payments on Termination or Change of Control Table.
See "Compensation“Compensation Discussion and Analysis"Analysis” above for a description of the potential payments awarded upon termination or change of control and the criteria for such payments.payment.
Proposal No. 32
ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires that we include in this Proxy Statement a non-binding advisory stockholders vote on our executive compensation as described in this Proxy Statement (commonly referred to as "Say-on-Pay") and a non-binding stockholders vote to advise on whether the Say-on-Pay vote should occur every one, two or three years (commonly referred to as "Say When on Pay"“Say-on-Pay”).
We encourage stockholders to review the "Compensation“Compensation Discussion and Analysis"Analysis” and the "Executive Compensation"“Executive Compensation” sections of this Proxy Statement. VSE'sVSE’s consistent stockholders’ value creation over the long term is reinforced by and aligned with the executive compensation program. We believe the program strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our executives to dedicate themselves fully to value creation for our stockholders. This balance is evidenced by the following:
| We respond to economic conditions appropriately, such as holding base salaries and bonuses of the NEOs in 2012, reflecting lower year-over-year results; and |
| We do not provide tax gross-ups to our NEOs. |
The Board strongly endorses the Company'sCompany’s executive compensation program and recommends that the stockholders vote in favor of the following resolution:
RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the NEOs as described in this Proxy Statement under "Compensation“Compensation Discussion and Analysis"Analysis” and "Executive“Executive Compensation,"” including the related tabular and narrative disclosure contained in this Proxy Statement.
Because the vote is advisory, it will not be binding upon the Board or the Compensation Committee and neither the Board nor the Compensation Committee will be required to take any action as a result of the outcome of the vote on this proposal. The Compensation Committee will, however, carefully consider the outcome of the vote when considering future executive compensation arrangements.
The approval of the advisory resolution on the Company'sCompany’s compensation of executive officers requires the affirmative vote of a majority of the Stock present, in person or by proxy, and entitled to vote at the Annual Meeting.
The Board unanimously recommends that stockholders vote "for"“FOR” the approval of the Company'sCompany’s executive compensation.
(Remainder of page intentionally left blank)
(This page is intentionally left blank)
Proposal No. 43
VOTE ON FREQUENCY OF ADVISORY VOTES ON EXECUTIVE COMPENSATION
As mentioned above, the Exchange Act requires that we include, in this Proxy Statementat least every third year, a separate non-binding stockholder vote to advise on whether the Say-on-Pay vote should occur every one, two or three years. You have the option to vote for any one of the three options, or to abstain on the matter.
After careful consideration of this proposal, our Board has determined that an advisory stockholders vote on executive compensation that occurs once every year is the most appropriate alternative for our Company at this time, and therefore our Board recommends an annual stockholders vote for the advisory vote on executive compensation. Also, we welcome communications with our stockholders as frequently as possible to be advised on matters that concern them.
In formulating its recommendation, our Board considered that an annual advisory stockholders vote on executive compensation provides the highest level of communication with our stockholders by allowing them to provide us with their direct input on our NEOs, as disclosed in VSE'sVSE’s proxy statement, every year. Additionally, an annual advisory vote on executive compensation is consistent with our belief that engagement with our stockholders is a component of our corporate governance and our practice of seeking input from, and engaging in discussions with, our stockholders on corporate governance matters.
In the future we may determine that a less frequent advisory vote is appropriate, either in response to the vote of our stockholders on this proposal or for other reasons.
Stockholders may cast their vote on the preferred voting frequency by choosing the option of one year, two years, three years or abstain from voting when voting on this proposal. The option of one year, two years or three years that receives a majority of votes cast by stockholders will be the frequency for the advisory vote on executive compensation that has been recommended by stockholders. However, because this vote is advisory and not binding on our Board in any way, our Board may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders.
The Board unanimously recommends that stockholders vote to conduct an advisory stockholders vote the Company’s on executive compensation every year.
(The remainderRemainder of this page was intentionally left blank)
(This page is intentionally left blank)
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the record date, March 23, 2015,19, 2018, there were 5,367,26110,881,106 shares of VSE Stock outstanding. The following table sets forth certain information regarding beneficial ownership of VSE Stock as of March 23, 2015,19, 2018, for beneficial owners of more than 5% of VSE Stock, each director, executive officer each director, and for all directors and executive officers and directors of the Company as a group.
| Name of Beneficial Owner | Shares beneficially owned | Percent of Class (a) | ||||
| Certain Beneficial Owners (at least 5%) | ||||||
| FMR LLC (1) | 1,625,765 | 14.9 | % | |||
| BlackRock, Inc. | 579,198 | 5.3 | % | |||
| Non-Employee Directors | ||||||
| Ralph E. Eberhart | 27,842 | * | ||||
| Mark E. Ferguson III | 1,611 | * | ||||
| Clifford M. Kendall | 39,266 | * | ||||
| Calvin S. Koonce (2) | 1,827,698 | 16.8 | % | |||
| James F. Lafond | 24,400 | * | ||||
| John E. Potter | 10,400 | * | ||||
| Jack C. Stultz | 15,000 | * | ||||
| Bonnie K. Wachtel (3) | 124,952 | * | ||||
| Named Executive Officers and Other Directors | ||||||
| Joseph R. Brown | 3,451 | * | ||||
| Maurice A. Gauthier | 84,143 | * | ||||
| Paul W. Goffredi | 1,883 | * | ||||
| Thomas M. Kiernan | 29,346 | * | ||||
| Thomas R. Loftus | 75,270 | * | ||||
| Chad Wheeler | 5,532 | * | ||||
| Directors and Executive Officers as a Group | ||||||
| (14 persons) | 2,270,794 | 20.9 | % | |||
| Name of Beneficial Owner | Shares beneficially owned | Percent of class(a) |
| Certain Beneficial Owners (at least 5%) | ||
| FMR LLC (a) | 719,752 | 13.4% |
| Non-Employee Directors | ||
| Ralph E. Eberhart | 10,632 | * |
| John C. Harvey | 1,400 | * |
| Clifford M. Kendall (b) | 26,473 | * |
| Calvin S. Koonce (c) | 911,749 | 16.9% |
| James F. Lafond | 12,301 | * |
| David M. Osnos | 26,300 | * |
| John E. Potter | 2,300 | * |
| Jack C. Stultz | 4,600 | * |
| Bonnie K. Wachtel (d) | 63,176 | 1.2% |
| Executive Officers and Other Director | ||
| Maurice A. Gauthier | 30,651 | * |
| John T. Harris | 2,852 | * |
| Thomas M. Kiernan | 11,362 | * |
Thomas R. Loftus | 34,123 | * |
| Nancy Margolis | 1,913 | * |
| Chad Wheeler | 169 | * |
| Directors and Executive Officers as a Group | ||
| (15 persons) | 1,139,601 | 21.2% |
* Represents less than one percent.
| (1) | FMR |
| Mr. |
| (3) | The share amount reported for Ms. Wachtel does not include 1,000 shares held in a retirement account. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires VSE officers and directors and persons who own more than 10% of the VSE Stock to file reports of ownership and changes in ownership with the SEC.Securities and Exchange Commission (the “SEC”). Such officers, directors and stockholders are required by SEC regulations to furnish us with copies of all such reports that they file. Based solely on a review of copies of reports filed with the SEC and written representations by certain officers and directors, we believe that all of our officers, directors and stockholders subject to the reporting requirements of Section 16(a) filed their reports on a timely basis during 2014.2017.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, some stockholder proposals may be eligible to be presented at our 20162018 annual meeting of stockholders if submitted to our principal executive offices by no later than the close of business on December 7, 2015.3, 2018. These stockholder proposals must be submitted, along with proof of ownership of our stock in accordance with Exchange Act Rule 14a-8(b) (2), to our principal executive offices at, 6348 Walker Lane, Alexandria, Virginia 22310-3226 in care of our Corporate Secretary by no later than the close of business on December 7, 20153, 2018 to be considered for inclusion in VSE'sVSE’s proxy material relating to such meeting.
In addition, under our By-Laws stockholders may recommend persons to be nominated for election as our directors at the annual meeting of stockholders. To be considered for nomination, such recommendation must be received in writing by our Secretary no later than 90 days before the date which corresponds to the date on which the annual meeting of stockholders was held during the immediate prior year, i.e., February 5, 20161, 2019 in respect of the annual stockholders meeting in 2016.2019. Such recommendation shall be accompanied by the name of the stockholder proposing the candidate, evidence that stockholder is a beneficial owner of our Stock as of the record date established for the determination of stockholders entitled to notice of, and to vote at, the annual meeting of stockholders, the name of candidate being proposed for nomination, and the candidate'scandidate’s biographical data and qualifications.
OTHER MATTERS
We will bear the costs of the solicitation of proxies for use at the Annual Meeting. In addition to the use of the mails, proxies may be solicited by personal interview, telephone and telegram by our directors, officers and employees. Arrangements will also be made with brokerage houses and other custodians, nominees, and fiduciaries, who are record holders of Stock, for forwarding solicitation material to the beneficial owners of the Stock. We will, on the request of such record holders, pay the reasonable expenses for completing the mailing of such materials to the beneficial owners.
A copy of the VSE'sVSE’s Annual Report on Form 10-K (without exhibits) for the year ended December 31, 2014,2017, will be furnished without charge on written or telephonic request to Thomas M. Kiernan, Vice President and Corporate Secretary, 6348 Walker Lane, Alexandria, VA 22310-3226 or call (703) 329-4721. The Form 10-K is also available at www.vsecorp.comwww.vsecorp.com.
By Order of the Board of Directors
Thomas M. Kiernan, Secretary
__________________________
