Cumulative voting applies only to the election of directors. For all other matters, each share of common stock outstanding as of the close of business on March 17, 2010,15, 2011, the record date for the Annual Meeting of Shareholders, is entitled to one vote. If you vote by proxy card and sign your card with no further instructions, Richard H. SharpeMaxim C.W. Webb and Damian C. Georgino,James F. Mosier, as proxy holders, may cumulate and cast your votes in favor of the election of some or all of the applicable nominees in their sole discretion, except that none of your votes will be cast for any nominee as to whom you vote against or abstain from voting.
Revoking Your Proxy. Shareholders may revoke their proxy at any time before we close polling for each matter to be voted on at the Annual Meeting by submitting a later-dated vote electronically at the Annual Meeting of Shareholders, via the Internet, by telephone, by mail, or by delivering instructions to our Corporate Secretary before the Annual Meeting of Shareholders. If you hold shares through a bank or brokerage firm, you may revoke any prior voting instructions by contacting that firm in advance of the close of polling for each matter to be voted on at the Annual Meeting of Shareholders.
Vote Required, Abstentions and Broker Non-Votes. The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote, which shall include all shares voted electronically via the Internet, is required to constitute a quorum for the transaction of business at the Annual Meeting. Abstentions and “broker non-votes” (shares held by a broker or nominee that does not have the authority, either express or discretionary, to vote on a particular matter) are counted for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting of Shareholders. A broker non-vote occurs when shares are held in “street name” by a broker and the beneficial owner of such shares does not instruct the broker as to how to vote the shares. In this case, the broker will not have the discretion to vote the shares and they will be considered “broker non-votes”, except in the case of the proposal to ratify Deloitte & Touche LLP as our independent registered public accounting for 2011, in which case the broker will have discretion as to how to vote the shares.
If a quorum is present, the threetwo nominees for election as directors receiving the highest number of votes will be elected. Approval of all other matters, including the non-binding and advisory approval of proposals number two and three, requires that the votes cast for such actions exceed the votes cast against such actions.
The following will not be considered votes cast and will have no effect on any of the election of any director nominee:matters: (1) a share whose ballot is marked as withhold; (2) a share otherwise present at the meeting but for which there is an abstention; and (3) a share otherwise present at the meeting as to which a shareholder gives no authority or direction.
Proxies and ballots will be received and tabulated by Computershare Investor Services, LLC, our transfer agent and the inspector of elections for the Annual Meeting. Except for contested proxy solicitations or as required by law, proxy cards and voting tabulations that identify shareholders are kept confidential.
Expenses of Solicitation. We will bear the expense of assembling, preparing, printing, mailing and distributing the notices and these proxy materials and soliciting votes. Proxies will be solicited by mail, telephone, personal contact, and electronic means and may also be solicited by directors, officers or employees (who will receive no additional compensation for their services in such solicitation) in person, by the Internet, by telephone or by facsimile transmission, without additional remuneration. We will compensate only independent third-party agents that are not affiliated with us but who solicit proxies. At this time, we do not anticipate that we will be retaining a third-party solicitation firm, but should we determine, in the future, that it is in our best interests to do so, we will retain a solicitation firm and pay all costs and expenses associated with retaining this solicitation firm. We may request banks, brokers and other custodians, nominees and fiduciaries to forward copies of the proxy materials to their principals and to request authority for the execution of proxies and we may reimburse those persons for their expenses incurred in connection with these activities. Your cooperation in promptly voting your shares and submitting your proxy by the Internet or telephone, or by completing and returning the proxy card (if you received your proxy materials in the mail), will help to avoid additional expense.
Voting Results. We will announce preliminary results at the Annual Meeting of Shareholders and also on a Form 8-K to be filed with the United States Securities and Exchange Commission within four business days after the meeting.
ELECTION OF DIRECTORS
We have a classified board of directors. Our directors are divided into three classes, with each class serving a three-year term. The terms of office of each class end in successive years. Pursuant to Section 3.2 of our bylaws, our total number of directors has been established at nine, which was increased from seven members in August 2009 by unanimous vote of our board of directors. ThreeTwo of our directors are to be elected at our 20102011 Annual Meeting for terms ending at the Annual Meeting of Shareholders in the year 20132014 or until their respective successors have been duly elected and qualified.
Unless otherwise instructed, Richard H. SharpeMaxim C.W. Webb and Damian C. Georgino,James F. Mosier, as proxy holders, intend to distribute the votes represented by proxies in such proportions as they deem desirable to elect the three nominees named below or their substitutes. Although it is not contemplated that any nominee will decline or be unable to serve, if either occurs prior to the meeting, a substitute nominee will be recommended to the board by the Corporate Governance and Nominating Committee. See “Security Ownership of Certain Beneficial Owners and Management” for the number of shares of our common stock beneficially owned by these nominees.
The board of directors, at the recommendation of our Corporate Governance and Nominating Committee, has nominated Carlos C. Campbell, Kristina M. LeslieJohn Hart and Kenneth J. SlepickaRonald Langley for election as directors at our Annual Meeting on May 14, 201013, 2011 for terms ending in 2013. A majority of the2014. The independent directors unanimously approved the nomination for election to the board of Mr. Campbell, Ms. Leslie,John R. Hart and Mr. SlepickaRonald Langley and each of the nominees has consented to be nominated and to serve if elected.
The following table and biographical descriptions set forth certain information with respect to the threetwo nominees and our other six directors, each of whom are currently serving and, unless otherwise specified, have served continuously since she or he was previously elected. This information is based on information furnished to us by each such director. The ages listed below are as of February 1, 2010.2011.
Name | Age | Term Expires | Director Since | Positions Held with the Company (other than Director) |
| Carlos C. Campbell* | 72 | 2010 | 1998 | |
| Kristina M. Leslie* | 45 | 2010 | 2009 | |
| Kenneth J. Slepicka* | 53 | 2010 | 2005 | |
| John R. Hart | 50 | 2011 | 1996 | President and Chief Executive Officer |
| Ronald Langley | 65 | 2011 | 1996 | |
| John D. Weil | 69 | 2011 | 1996 | |
| S. Walter Foulkrod | 68 | 2012 | 1996 | |
| Richard D. Ruppert | 78 | 2012 | 1996 | |
| Julie H. Sullivan | 52 | 2012 | 2009 |
Name | Age | Term Expires | Director Since | Positions Held with the Company (other than Director) |
| John R. Hart* | 51 | 2011 | 1996 | President and Chief Executive Officer |
| Ronald Langley* | 66 | 2011 | 1996 | Non-Executive Chairman |
| Robert G. Deuster | 60 | 2012 | 2011 | |
| Richard D. Ruppert, MD | 79 | 2012 | 1996 | |
| Julie H. Sullivan, Ph.D. | 53 | 2012 | 2009 | |
| Carlos C. Campbell | 73 | 2013 | 1998 | |
| Kristina M. Leslie | 46 | 2013 | 2009 | Non-Executive Vice Chair |
| Kenneth J. Slepicka | 54 | 2013 | 2005 |
__________________
* Nominees for terms ending in 20132014
Each of our directors and nominees has an established record of professional accomplishment in his or her chosen field, the ability to contribute positively to the collaborative culture among board members, andas well as professional and personal experiences including membership on the National Association of Corporate Directors and expertise relevant to our objective of generating superior long-term growth in our book value per share. Further,Additionally, each of our independent directors is a majoritymember of the boardNational Association of Corporate Directors. All of our directors has served in such capacity for more than a decade. These directors helped develop and continue to oversee the long-term strategy, management structure, and corporate governance programs that are in place today and they have provided a strong measure of stability and continuity to our company. In light of our corporate structure and unique business, we believe that this stability positively impacts the company’s performance and the addition of two directors in 2009 enhances the skill set of our board and builds upon the foundation developed by our directors. The following provides further qualifications, attributes and other biographical information with respect to the threetwo nominees and the other continuing directors.
Nominees for Directors to be Elected in 20102011 With Terms Ending in 2013
John R. Hart has served as our President and Chief Executive Officer and as a member of our board of directors since 1996. Mr. Hart also serves as an officer and/or director of ourthe following subsidiaries:subsidiaries of ours: Physicians Insurance Company of Ohio (President and Chief Executive Officer since 1995 and director since 1993), Vidler Water Company, Inc. (Director since 1995, Chairman since 1997, and Chief Executive Officer since 1998), Citation Insurance Company (Director and Chairman since 1996), and Nevada Land and Resource Company, LLC (Director, Chairman, and Chief Executive Officer since 1997), UCP, LLC (Director and Chairman since 2007), and PICO Northstar, LLC (Director and Chief Executive Officer since 2010). From 1997 to 2006, Mr. Hart was a director of HyperFeed Technologies, Inc., formerly an 80% owned subsidiary that dissolved in 2009 following bankruptcy proceedings, where he served as chairman of the nominating committee and as a member of the compensation committee.
Mr. Hart has been our President and Chief Executive Officer and a member of our board for almost fifteen years and his leadership and strategic guidance over these years have been critical to our success. Mr. Hart also brings the knowledge of the operations of our companyCompany to the board, which provides invaluable insight to the board as it reviews the company’sCompany’s strategic and financial plans.
Ronald Langley has served as a member of our board of directors since 1993 and1996; he served as our Chairman from August 2010 to present, a position he previously held from 1995 to 2007. Mr. Langley also served as the Chairman of the Governance and Nominating Committee from 1995-2007.is currently a private investor. Mr. Langley has also previously served as an officer and/or a director of our following subsidiaries: Physicians Insurance Company of Ohio from 1993 to 2007 (as Chairman from 1995 to 2007), Vidler Water Company, Inc. from 1993 to 2007 (as Chairman from 1995 to 2007), Vidler Water Company, Inc. from 1995 to 2007, Citation Insurance Company from 1996 to 2007, and Nevada Land and Resource Company, LLC from 1997 to 2007. Mr. Langley has served on the board of directors of Guinness Peat Group Plc since 2009, where he is a member of the audit and compensation committees. Since 2009, Mr. Langley has served on the compensation and audit committees as a member of the Redflex Holdings Limited board of directors. In addition, Mr. Langley was a director from 1997 to 2006 of HyperFeed Technologies, Inc., ourformerly an 80% owned subsidiary that dissolved in 2009 following bankruptcy proceedings. In the last five years, Mr. Langley is currently a private investor. Mr. Langley washas served as a director withof the following public companies: Jungfraubahn Holding AG, from 2000 to 2008. Guinness Peat Group Plc, Redflex Holdings Limited and Greenbox Limited. Mr. Langley has been a director of over 30 entities, including companies, universities, foundations, credit unions, political organizations, and charities, in eight countries around the world. Mr. Langley has been analyzing SEC-filed financial statements since 1978 and has extensive forensic accounting analysis experience.
Richard D. Ruppert, MD has served as a member of our board of directors since 1996. Dr. Ruppert is a physician and has served as a director of our subsidiary, Physicians Insurance Company of Ohio, since 1998. Since 2002, Dr. Ruppert has servedcurrently serves as a trustee of the Ohio Historical Society and previously served as its president from 2006 to 2008. Also, Dr. Ruppert has served as a trustee of the Fort Meigs Historical Society since 2002 and has served on the board since 2009. Dr. Ruppert has served as an Emeritus President and an Emeritus Professor of Internal Medicine at Medical College of Ohio since 2003.Ohio. Dr. Ruppert was President of the American Society of Internal Medicine from 1992 to 1993 and President of the Medical College of Ohio from 1977 to 1993. He served as Vice Chancellor of the Ohio Board of Regents from 1970 to 1976. Dr. Ruppert was namedelected a Master Fellow of the American College of Physicians in 2008 and received the Jefferson Award from Toledo, Ohio in 2009. Dr. Ruppert is a member of the National Association of Corporate Directors.
As President of the Medical College of Ohio, Dr. Ruppert was directly responsible for the finances of the school and its two hundred$200 million dollar budget. He also supervised all reviews and audits of the school’s financial records. Dr. Ruppert’s experience in managing the finances of the Medical College of Ohio and in positions of leadership with businesses, community organizations, and not for profit entities provides invaluable experience and knowledge to our board of directors. In addition, his almost fifteen years of service on our board of directors provides stability and insight that are critical to the working success of our board and make him an important contributor to our Audit Committee and Compensation Committee.
Julie H. Sullivan, Ph.D. has served as a member of our board of directors since 2009. Dr. Sullivan is Executive Vice President and Provost of the University of San Diego. Previously, Dr. Sullivan was a Full Professor of the University of California, San Diego, Rady School of Management and the Graduate School of International Relations and Pacific Studies. Dr. Sullivan currently serves on the board of directors of Applied Micro Circuits Corporation, an electronics company. Dr. Sullivan is also an Advisory Director of Schenectady International, Inc., a global chemical company. Dr. Sullivan is a member of the National Association of Corporate Directors.
Dr. Sullivan has a Ph.D. in business and accounting and a masters of arts in accounting and taxation. Dr. Sullivan is also a certified public accountant (non-practicing). Based on Dr. Sullivan’s extensive experience on the boards of diverse entities and her academic research, we believe that she is extremely knowledgeable and a renowned expert with regard to financial issues and corporate governance matters and provides an invaluable perspective to our board of directors.
Directors Whose Terms Continue Through 2013
Carlos C. Campbell has served as a member of our board of directors since 1998. Since June 1985, Mr. Campbell has been President of C.C. Campbell & Co., a strategic advisory company. Mr. Campbell has served as a director and as a member of the audit committee of Resource America, Inc. since 1990. In addition, Mr. Campbell was a director of HyperFeed Technologies, Inc., formerly an 80% owned subsidiary that dissolved in 2009 after bankruptcy proceedings. Mr. Campbell has also served as a director of eight other public corporations.
Mr. Campbell has completed over two dozen seminars on director training. He has a Certificate of Director Education from the National Association of Corporate Directors and is a graduate of the Director's Institute, University of California Los Angeles, where he was designated a Corporate Director. He has completed seminars in corporate governance, auditing and compensation at the Harvard Business School. Mr. Campbell is a member of the National Association of Corporate Directors. Mr. Campbell has participated in numerous professional forums with the NACD on governance, compensation and mergers &acquisitions. Mr. Campbell served as the Assistant Secretary of Commerce for Economic Development, U.S. Department of Commerce (1981-1984) where is was the final authority for an annual program budget of $300 million and a loan portfolio in excess on $1 billion. We believe that Mr. Campbell’s extensive directorship training, strategic advisory and government experience, two areas of expertise that are important to certain of our operating segments, enriches the makeup of the board of directors and provide keen insight into or businesses. Mr. Campbell has a B.S.in Construction Management from Michigan State University, a Certificate in Engineering Science from the U.S. Naval Post Graduate School, and a Master of City & Regional Planning from the School of Engineering & Architecture, Catholic University of America.
Kristina M. Leslie has served on our board of directors since 2009 and as our Non-Executive Vice Chair and lead independent director since August 2010. Ms. Leslie is the former Chief Financial Officer of DreamWorks Animation SKG, Inc. where she served in that capacity from 2004 through 2007. Prior to becoming Chief Financial Officer, Ms. Leslie oversaw the corporate finance and strategic planning functions at DreamWorks, LLC since 1996. Currently, Ms. Leslie serves on the Board of Directors of Orbitz Worldwide, Inc. where she is a member of the Audit and Compensation Committees as well as the Board of Directors of Methodist Hospital of Southern California where she is Treasurer and Chair of the Finance, Audit and Compliance Committee. Ms. Leslie is also a Trustee and Vice Chair of the Board at Flintridge Preparatory School. Ms. Leslie is a member of the National Association of Corporate Directors.
Ms. Leslie has a masters of business administration with a concentration in finance. Ms. Leslie has substantial management experience from her years of service at DreamWorks LLC and later as CFO of DreamWorks Animation SKG, a publicly-held company, which gives her keen insight on matters relating to strategic planning, financial reporting, financial management, corporate governance, risk oversight, and management succession. Her years of service as a director on public and not-for-profit companies also gives her substantial experience on governance and risk oversight matters.
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Kenneth J. Slepicka has served as a member of our board of directors since 2005. Mr. Slepicka is currently the Chairman, Chief Executive Officer and acting Chief Financial Officer of Synthonics Inc., an early stage biotechnology company, and has served in such capacity since 2005. In addition, Mr. Slepicka served as President and Treasurer of SBC Warburg Futures Inc. from 1994 to 1998 and as Executive Director of Fixed Income Trading for O’Connor & Associates from 1985 to 1994. He has also held risk advisor and portfolio manager positions in the financial services industry. Mr. Slepicka has served as a member of the FIA Steering Committee and the Federal Reserve FCM Working Group and as a Governor of the Board of Trade Clearing Corporation. In addition, Mr. Slepicka currently serves and has served on the boards of directors of several not-for-profit entities. He is also a former member of the Chicago Board of Trade, Chicago Mercantile Exchange, Chicago Board of Options Exchange, and Pacific Options Exchange. Mr. Slepicka was also a director of HyperFeed Technologies, Inc., formerly an 80% owned subsidiary that dissolved in 2009 following bankruptcy proceedings. Mr. Slepicka has a masters of business administration. Mr. Slepicka has also received a Master Director Certification from the National Association of Corporate Directors. Mr. Slepicka is a member of the National Association of Corporate Directors and has earned certificates of director education in 2007, 2008, and 2009 from this organization.
We believe that Mr. Slepicka’s training and broad finance and management experience combine to make him an invaluable asset to our board of directors relating to financial and risk oversight and other matters. His experience in the financial services industry also provides needed insight for a company like us that has significant assets and investments under management. We also believe Mr. Slepicka’s management experience as well as experience with the financial services industry makes him a valuable Chairman of our Audit Committee and member of our Compensation Committee.
The threetwo nominees for election as directors receiving the highest number of votes will be elected.
OUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES TO THE BOARD OF DIRECTORS.
ADVISORY (NON-BINDING) VOTE
ON EXECUTIVE COMPENSATION (SAY-ON-PAY)
The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, requires that our stockholders have the opportunity to cast an advisory (non-binding) vote on executive compensation, commonly referred to as a “Say-on-Pay” vote, commencing with our 2011 annual meeting, as well as an advisory vote with respect to whether future Say-on-Pay votes will be held every one, two or three years, which is the subject of Proposal No. 3 in this proxy statement.
The advisory vote on executive compensation is a non-binding vote on the compensation of our “named executive officers,” as identified in the Compensation Discussion and Analysis, or CD&A section, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure, set forth in this proxy statement. Please read the CD&A section of this proxy statement for a detailed discussion about our executive compensation programs, including information about the fiscal 2010 compensation of our named executive officers.
The advisory vote on executive compensation is not a vote on our general compensation policies, the compensation of our board of directors, or our compensation policies and practices as they relate to risk management. The Dodd-Frank Act requires that we hold the advisory vote on executive compensation at least once every three years.
Our compensation philosophy centers around the principle of aligning pay and performance. The primary objectives of our compensation program are to pay for performance, recruit, retain and motivate the highest quality executive officers who are critical to our success, align the interests of our named executive officers and other employees with those of our shareholders and promote excellent corporate governance. The CD&A section of this proxy statement provides a more detailed discussion of our executive compensation program and compensation philosophy.
We have many compensation practices that ensure consistent leadership, decision-making and actions, without taking unnecessary risks. The practices are discussed in detail in the CD&A and include:
| ● | We adhere to the highest ethical standards in our corporate governance practice, such as our long-standing insider trading policy. |
| ● | We do not provide tax reimbursements or gross-ups in connection with any of the components of our executive compensation. |
| ● | All of our employees are employed on an at-will basis, other than our CEO who is the only employee with an employment agreement. |
| ● | We do not provide our named executive officers with any perquisites or other benefits that are not available to all employees. |
| ● | Our overall compensation programs include a mix of different components for the short-term (base salary) and the long-term (bonuses based on growth in book value per share and stock-based awards). |
The vote solicited by this Proposal No. 2 is advisory, and therefore is not binding on the Company, our board of directors or our Compensation Committee, nor will its outcome require the Company, our board of directors or our Compensation Committee to take any action. Moreover, the outcome of the vote will not be construed as overruling any decision by the company or our board of directors.
Furthermore, because this non-binding, advisory resolution primarily relates to the compensation of our named executive officers that has already been paid or contractually committed, there is generally no opportunity for us to revisit these decisions. However, our board of directors, including our Compensation Committee, values the opinions of our shareholders and, to the extent there is any significant vote against our named executive officers’ compensation as disclosed in this proxy statement, we will consider our shareholders’ concerns and evaluate what actions, if any, may be appropriate to address those concerns.
Shareholders will be asked at the Annual Meeting to approve the following resolution pursuant to this Proposal No. 2:
RESOLVED, that the shareholders of PICO Holdings, Inc. approve, on an advisory basis, the compensation of the Company’s named executive officers, disclosed pursuant to Item 402 of Regulation S-K in the Company’s definitive proxy statement for the 2011 Annual Meeting of Stockholders.
The Board unanimously recommends a vote “FOR” approval of the foregoing resolution.
Unless otherwise instructed, it is the intention of the persons named in the accompanying proxy card to vote shares represented by properly executed proxy cards for the approval of the foregoing resolution.
6
ADVISORY (NON-BINDING) VOTE ON THE FREQUENCY OF
AN ADVISORY VOTE ON EXECUTIVE COMPENSATION
In connection with Proposal 2 above seeking advisory approval of our executive compensation program, the Dodd-Frank Act also requires that we include in this proxy statement a separate advisory (non-binding) vote to advise on whether the vote on executive compensation 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. For the reasons described below, our board of directors unanimously recommends that our stockholders select a frequency of every three years, or a “triennial vote.” We are required to solicit shareholder approval on the frequency of future executive compensation proposals at least once every six years, although we may seek shareholder input more frequently.
Our board of directors believes that our current executive compensation program directly links executive compensation to our financial performance and aligns the interests of our executive officers with those of our shareholders. Our board of directors also believes that, of the three choices, submitting an advisory (non-binding) executive compensation resolution to shareholders every three years is the most appropriate choice.
Our executive compensation program does not typically change significantly from year to year and is designed to motivate, monitor, and when appropriate, reward performance over a multi-year period. A vote held every three years would be more consistent with, and provide better input on, our long-term compensation, which constitutes a significant portion of the compensation of our named executive officers. Our board of directors believes that shareholder feedback every three years will be more meaningful as it will provide shareholders with a sufficient period of time to evaluate the overall compensation paid to our named executive officers, the components of that compensation and the effectiveness of that compensation. The amount of compensation and mix of components of such compensation in any one year may differ from year to year, and the three year period will provide shareholders with a more complete view of the amount and mix of that compensation. A triennial executive compensation vote will also provide shareholders with the benefit of assessing over a period of years whether the components of the compensation paid to our named executive officers have achieved positive results for the Company. A three-year vote cycle also gives our board of directors and Compensation Committee sufficient time to thoughtfully consider the results of the advisory vote, to engage with shareholders to understand and respond to the vote results and effectively implement any appropriate changes to our executive compensation policies and practices. Finally, many large shareholders rely on proxy advisory firms for vote recommendations. We believe that a triennial vote on executive compensation, rather than an annual or biennial vote, will help proxy advisory firms provide more detailed and thorough analyses and recommendations. Less frequent Say-on-Pay votes will improve the ability of institutional shareholders to exercise their voting rights in a more deliberate, thoughtful and informed way that is in the best interests of shareholders.
Our shareholders also have the opportunity to provide additional feedback on important matters involving executive compensation even in the years when Say-on-Pay votes do not occur. For example, the rules of NASDAQ require that we seek shareholder approval for new employee equity compensation plans and material revisions thereto. Further, as discussed under the section “Process for Shareholders to Communicate with Board of Directors” of this proxy statement, we provide shareholders with an opportunity to communicate directly with our board of directors, including on issues of executive compensation.
We have in the past been, and will in the future continue to be, proactively engaged with our shareholders on a number of topics and in a number of forums. Thus, we view the advisory vote on executive compensation as an additional, but not exclusive, opportunity for our shareholders to communicate with us regarding their views on the Company’s executive compensation program. In addition, because our executive compensation program has typically not changed materially from year to year and is designed to operate over the long-term and to enhance long-term performance, we are concerned that an annual advisory vote on executive compensation could lead to a short-term perspective inappropriately bearing on our executive compensation programs. Finally, although we believe that holding an advisory vote on executive compensation every three years will reflect the right balance of considerations in the normal course, we will periodically reassess that view and can provide for an advisory vote on executive compensation on a more frequent basis if changes in our executive compensation program or other circumstances suggest that a more frequent vote would be appropriate.
We understand that our shareholders may have different views as to what is the best approach for the Company, and we look forward to hearing from our shareholders on this proposal. Our board of directors will continue to engage with shareholders on executive compensation between shareholder votes. You may cast your vote on your preferred voting frequency by choosing the option of three years, two years, one year, or abstain from voting when you vote in response to the resolution set forth below.
“RESOLVED, that the shareholders of PICO Holdings, Inc. determine, on an advisory basis, that the frequency with which the shareholders of the Company shall have an advisory vote on executive compensation, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, is:
| Choice 1—every year; |
| Choice 2—every two years; |
| Choice 3—every three years; or |
| Choice 4—abstain from voting. |
This vote may not be construed (1) as overruling a decision by the Company or our board of directors or (2) to create or imply any change or addition to the fiduciary duties of the Company or our board of directors.
The Board unanimously recommends that you vote “For” the option of once every three years as the frequency with which shareholders are provided an advisory vote on executive compensation, as disclosed pursuant to Item 402 of Regulation S-K in the Company’s definitive proxy statement.
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RATIFICATION OF
DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed Deloitte & Touche LLP as our independent registered public accounting firm to audit our financial statements for the year ending December 31, 2010.2011.
Although ratification by shareholders is not required by law, the board of directors has determined that it is desirable to request approval of this appointment by the shareholders. If the shareholders do not ratify the appointment, the Audit Committee will reconsider whether or not to retain Deloitte & Touche LLP and may decide to retain them notwithstanding the vote. Even if the appointment is ratified, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that such a change would be in the best interests of our companyCompany and our shareholders. In addition, if Deloitte & Touche LLP should decline to act or otherwise become incapable of acting, or if the engagement should be discontinued, the Audit Committee will appoint a substitute independent public registered public accounting firm. A representative of Deloitte & Touche LLP will be present at the Annual Meeting, will be given the opportunity to make a statement if he or she so desires and will be available to respond to appropriate questions.
The following table sets forth the aggregate fees billed by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates for the fiscal years ended December 31, 20092010 and December 31, 2008:2009:
2009 | 2008 | 2010 | 2009 | |||||||
| Audit Fees | $ | 970,000 | $ | 998,875 | $855,000 | $970,000 | ||||
| Tax Fees | 550,053 | 868,950 | 288,038 | 550,053 | ||||||
| Audit-Related Fees | 122,000 | 27,675 | 45,000 | 122,000 | ||||||
| All Other Fees | -0- | -0- | -0- | |||||||
| Total | $ | 1,642,053 | $ | 1,895,500 | $1,188,038 | $1,642,053 | ||||
Audit Fees consist of fees we paid for (i) the audit of our annual financial statements included in our Annual Reports on Forms 10-K and reviews of our quarterly financial statements included in our Quarterly Reports on Forms 10-Q; (ii) services that are normally provided by Deloitte & Touche LLP in connection with statutory and regulatory audits or consents; and (iii) the audit of our internal control over financial reporting with the objective of obtaining reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Tax Fees consist of fees for professional services for tax compliance, which totaled $219,913 and $286,510 in 2010 and $494,250 in 2009, and 2008, respectively, and tax planning and advice services, which totaled $68,125 and $263,543 in 2010 and $374,700 in 2009, and 2008, respectively. These services included assistance regarding United States federal, state, local and international tax return preparation, tax audits and appeals, and advice on structuring potential mergers, acquisitions and disposals, altering employee benefit plans, and intra-group restructuring.
Audit-Related Fees consist of fees we paid for the audit of PICO Holdings, Inc. Employees 401(k) Retirement Plan and Trust and services related to proposed or consummated transactions and attestation services not required by statute or regulation and the related accounting or disclosure treatment for such transactions or events.
The Audit Committee has determined that the provision of non-audit services listed above is compatible with the independence of Deloitte & Touche LLP.
Consistent with SEC policies regarding independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has recommended, and the board of directors has approved, pre-approval guidelines for all audit and non-audit services to be provided by the independent registered public accounting firm. These pre-approval guidelines are:
| (1) | At the earliest possible date, management shall inform the Audit Committee of each audit or non-audit service which management desires our independent registered public accounting firm to perform; |
| (2) | Management shall promptly provide to the Audit Committee detailed information about the particular services to be provided by our independent registered public accounting firm; |
| (3) | The supporting documentation provided to the Audit Committee by management shall be sufficiently detailed so that the Audit Committee knows precisely what services it is being asked to pre-approve; and |
| (4) | The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee. All such pre-approvals shall be presented to the full Audit Committee at the Audit Committee’s next scheduled meeting. |
Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm requires the affirmative vote of a majority of all the votes cast on the matter at the Annual Meeting.
OUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2010.2011.
The board of directors has determined that Carlos C. Campbell, S. Walter Foulkrod, III, Esq.,Robert G. Deuster, Kristina M. Leslie, Richard D. Ruppert, MD, Kenneth J. Slepicka,and Julie H. Sullivan, Ph.D., and John D. Weil are “independent directors” as defined by listing standards for the Nasdaq Global Market. The independent directors have regularly scheduled executive session meetings at which only the independent directors are present. ExecutiveIn 2010, executive sessions arewere led by ourMr. Weil as Chairman Mr. Weil.and independent director until he retired from the Board in August 2010, at which time Ms. Leslie fulfilled this duty as the lead independent director. An executive session is held in conjunction with each regularly scheduled quarterly board meeting and other sessions may be called by the Chairman in his own discretion or at the request of the board of directors.
The Corporate Governance and Nominating Committee has been responsible for reviewing and making recommendations to the board of directors regarding the board’s leadership structure, including whether the board of directors should have an independent Chairman.structure. Prior to February 2008, the Chairman has generally been one of our officers. The role of the Chairman is to manage the affairs of the board of directors, including ensuring that the board is organized properly, functions effectively and meets its obligations and responsibilities. The Chairman also develops and approves agendas and presides at all meetings of the board of directors and the shareholders. From November 1996 until May 2007, the position was held by Mr. Langley, one of our executive officers at the time. After Mr. Langley informed the board of directors of his decision to voluntarily retire, the Corporate Governance and Nominating Committee and the board of directors considered whether the Chairman should be an independent director. In the course of their evaluation, this Committee and the board of directors considered factors that included:
| · | the challenges and opportunities of our |
| · | the policies and practices in place to provide effective and independent oversight of management; |
| · | applicable regulatory requirements; and |
| · | corporate governance trends and practices of other large public corporations. |
After considering these and other factors, in February 2008, the Corporate Governance and Nominating Committee recommended, and the board of directors approved, the election of an independent chairman. As a result, Mr. Weil, who served as Lead Director from May 2007 until such time, was elected Chairman. Mr. Weil served as Chairman until he retired from the Board in August 2010, at which point the board appointed Mr. Langley as Non-Executive Chairman and Ms. Leslie as Non-Executive Vice Chair.
Our board of directors believes that the current board leadership structure is best for our companyCompany and our shareholders at this time because it:
| · | |
| · | Provides for Succession Planning. We have appointed Kristina M. Leslie as a non-executive Vice Chair in order to |
| · | Requires substantial time. The Chairman role has evolved to include significant duties and responsibilities, such as more interaction with executive management on strategic opportunities, capital formation, and other important matters, which may be difficult to reconcile with the full-time demands of managing the day-to-day affairs of the |
| · | Enhances the independent oversight of management and reduces any conflicts of interest. Because the board of directors serves to oversee and monitor the actions of management, the board believes |
The Company's leadership structure compliments our board of directors’ risk oversight function. The separation of the offices of the Chief Executive Officer and the Chairman promotes effective consideration of matters presenting significant risks by management and directors. Our board of directors’ role of risk oversight has not specifically affected its leadership structure. Our board of directors regularly reviews its leadership structure and evaluates whether it is functioning effectively.
The board of directors has an Audit Committee, a Compensation Committee, and a Corporate Governance and Nominating Committee. Our Audit and Compensation Committees are composed solely of independent directors. Our Corporate Governance and Nominating Committee is not composed entirely of independent directors. As a result, any nominations for our board of directors must be approved by a majority of our independent directors. The committees operate pursuant to written charters, which are available on our website under “Corporate Governance” at http://investors.picoholdings.com.investors.picoholdings.com. The following table sets forth the three standing committees of the board, the current members of each committee during the last fiscal year and the number of meetings held by each committee.committee in 2010.
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Audit Committee. The Audit Committee consists of Messrs. Slepicka (Chairman)Ms. Leslie (Chair), Mr. Campbell, and Foulkrod and Dr. Ruppert, Dr. Sullivan, and Mr. Deuster, none of whom has been or is an officer or employee of our company.Company. Each member of the Audit Committee, in the judgment of the board of directors, is independent as that term is defined in the listing standards for the Nasdaq Global Market. In 2009,2010, this committee met fivesix times. The functions of the Audit Committee include: (a) meeting with the independent registered public accounting firm to review their reports on their audits of our financial statements, their comments on our internal control over financial reporting and the action taken by management with regard to such comments; (b) reviewing and approving all related persons transactions; (c) reviewing auditor independence; and (d) issuing an Audit Committee report to the shareholders; (d)and (e) the appointment of our independent registered public accounting firm and pre-approving all auditing and non-auditing services to be performed by such firm. The Audit Committee has the authority, in its discretion, to order interim and unscheduled audits to investigate any matter brought to its attention and to perform such other duties as may be assigned to it from time to time by the board of directors. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2010, its accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.
Compensation Committee. The Compensation Committee consists of Messrs. WeilMr. Campbell (Chairman), CampbellMs. Leslie, Dr. Ruppert and Slepicka and Dr. Ruppert.Mr. Deuster. None of its members is or has been an officer or employee of our company,Company, and theour board of directors has determined that each member of the Compensation Committee is independent as that term is defined in the listing standards for the Nasdaq Global Market. The Compensation Committee met one timethree times in 2009.2010. The functions of the Compensation Committee include: (a) evaluating the performance of, and set compensation for, our Chief Executive Officer and other senior management; (b) reviewing and approving the overall executive compensation program for our officersexecutives and the officersexecutives of our subsidiaries; (c) considering and reviewing compensation levels for services as a member of theour board of directors and its committees; (d) making recommendations to theour board of directors with respect to new cash-based incentive compensation plans and equity-based compensation plans; and (e) administering and granting awards under the PICO Holdings, Inc. 2005 Long-Term Incentive Plan. The Compensation Committee’s goals are to attract and retain qualified directors and key executives critical to our long-term success, to reward executives for our long-term success and the enhancement of shareholder value, and to integrate executive compensation with both annual and long-term financial results. Additional information on the Compensation Committee’s processes and procedures for consideration of executive compensation are addressed in the Compensation Discussion and Analysis below.
Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee met two times in 2009.2010. Its members consist of Messrs. Langley (Chairman)Dr. Sullivan (Chair), Campbell, Foulkrod, and Weil. Messrs. Campbell, Foulkrod and WeilSlepicka. Dr. Sullivan and Mr. Campbell are not and have not been an officer or employee of our company.Company. In the judgment of the board of directors, Messrs.Dr. Sullivan and Mr. Campbell Foulkrod and Weil are independent as that term is defined in the listing standards for the Nasdaq Global Market. Mr. Langley served as an officer of the company until he resigned effective December 31, 2007. The functions of the Corporate Governance and Nominating Committee include: (a) identifying, reviewing, evaluating and selecting candidates to be nominated for election to the board of directors; (b) identifying and recommending members of the board of directors to committees; (c) overseeing and implementing the system of the corporate governance of the company;Company; and (d) overseeing the plans and process to monitor, control and minimize our risks and exposures.
Director nominees. The Corporate Governance and Nominating Committee works with the board of directors to determine the appropriate characteristics, skills, and experience for the board as a whole and its individual members. In evaluating the suitability of individual board members, the Governance and Nominating Committee and the board take into account many factors, including:
| · | leadership skills; |
| · | business experience; |
| · | academic credentials; |
| · | inter-personal skills; |
| · | the ability to understand our business; |
| · | the understanding of the responsibilities of being a director of a publicly held company; |
| · | corporate experience; |
| · | prior experience on other boards of directors; and |
| · | the potential for contributing to our success. |
Although we do not currently have a policy with regard to the consideration of diversity in identifying candidates for election to the board, the Corporate Governance and Nominating Committee recognizes the benefits associated with a diverse board, and takes diversity considerations into account when identifying candidates. The Corporate Governance and Nominating Committee utilizes a broad conception of diversity, including diversity of professional experience, employment history, prior experience on other boards of directors, and more familiar diversity concepts such as race, gender and national origin. These factors, and others considered useful by the Corporate Governance and Nominating Committee, will be reviewed in the context of an assessment of the perceived needs of the board at a particular point in time. After assessing the perceived needs of the board, the Corporate Governance and Nominating Committee identifies specific individuals as a potential source of director candidates with relevant experience. The priorities and emphasis of the Corporate Governance and Nominating Committee and of the board may change from time to time to take into account changes in business and other trends and the portfolio of skills and experience of current and prospective board members. The Corporate Governance and Nominating Committee establishes procedures for the nomination process and recommends candidates for election to the board. Consideration of new board nominee candidates involves a series of internal discussions, review of information concerning candidates, and interviews with selected candidates. Board members or employees typically suggest candidates for nomination to the board. In 2009,2010, we did not employ a search firm or pay fees to other third parties in connection with seeking or evaluating board nominee candidates.
The Corporate Governance and Nominating Committee will consider nominees recommended by shareholders; however, such recommendations must be submitted in writing to our Corporate Secretary along with the candidate’s resume and any other relevant information. See “Shareholder Nomination of Directors” below. Because our Governance and Nominating Committee is not composed entirely of independent directors, any nominations for our board of directors must be approved by a majority of our independent directors.
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Pursuant to Section 407 of the Sarbanes-Oxley Act of 2002, the board of directors has determined that Kristina M. Leslie, Richard D. Ruppert, M.D. and Kenneth J. SlepickaJulie H. Sullivan, Ph.D, are “independent” and are each qualified as an audit committee financial expert as defined in Regulation S-K, Item 407 of the United States Securities Exchange Act of 1934, as amended, or Exchange Act.
In 2009,2010, there were sixfive meetings of the board of directors. All of the directors attended 75% or more of the aggregate of their respective board and committee meetings.
It is the policy of the board that each director, in the absence of extenuating circumstances, should attend our Annual Meeting in person. All of our directors, except Dr. Sullivan attended our 20092010 Annual Meeting.
Any shareholder of the companyCompany may nominate one or more persons for election as a director at an Annual Meeting of Shareholders if the shareholder complies with the notice, information and consent provisions contained in our bylaws. We have an advance notice bylaw provision. In order for the director nomination to be timely for the 20112012 Annual Meeting, a shareholder’s notice to our secretary must be delivered to our principal executive offices not less than 90 days nor more than 120 days before the anniversary of the date of the 20102011 Annual Meeting. As a result, any notice for a director nomination given by a shareholder pursuant to the provisions of our bylaws (other than notice pursuant to SEC Rule 14a-8) must be received no earlier than January 14, 201113, 2012 and no later than the close of business on February 13, 2011.12, 2012.
If the date of our 20112012 Annual Meeting is a date that is not within 30 days before or 60 days after May 14, 2011,13, 2012, the anniversary date of our 20102011 Annual Meeting, notice by the shareholder of a proposal must be received no earlier than the close of business on the 120th day before the Annual Meeting and not later than the close of business of (i) the 90th day prior to such Annual Meeting or (ii) the 10th day following the day on which public announcement of the date of such Annual Meeting is first made by us.
Shareholder nominations must include the information regarding each nominee required by our bylaws. A copy of our bylaws is posted on our website under “Corporate Governance” at http://investors.picoholdings.com. Nominations not made according to these procedures will be disregarded. The Corporate Governance and Nominating Committee will consider candidates recommended by shareholders, when submitted in writing along with the candidate’s resume and any other relevant information. All candidates (whether identified internally or by a qualified shareholder) who, after evaluation, are then recommended by the Governance and Nominating Committee and approved by the board, will be included in our recommended slate of director nominees in our proxy statement. A copy of the Corporate Governance and Nominating Committee’s Charter is posted on our website under “Corporate Governance” at http://investors.picoholdings.com.investors.picoholdings.com.
For information about shareholder proposals (other than nominations of directors), please see “Shareholder Proposals to be Presented at Next Annual Meeting” on page 4238 of this proxy statement.
The Compensation Committee determines our compensation objectives, philosophy and forms of compensation and benefits for our executive officers. This Compensation Discussion and Analysis discusses and analyzes our executive compensation program and information shown in the executive compensation tables for our fiscal year 20092010 that follow.
Our executive compensation programs areprogram is designed to supportretain our business goalsexecutive officers and, promote economically sustainable growth.when warranted, reward them for achieving superior growth in book value per share with moderate risk. This section of the proxy statementCompensation Discussion and Analysis discusses the principles underlying our compensation policies and the practices and decisions of the Compensation Committee with respect to our named executive officers. For the year ended December 31, 2009,2010, our named executive officers were our were:
| · | John R. Hart | President and Chief Executive |
| · | Maxim C.W. Webb | Executive Vice President and Chief Financial Officer |
| · | John T. Perri | Vice President and Chief Accounting Officer |
| · | James F. Mosier | General Counsel and Secretary |
| · | W. Raymond Webb | Vice President of Investments |
Executive Summary
In this Executive Summary, we highlight (1) our compensation philosophy, (2) the key practices in our executive compensation program as they relate to corporate governance, risk mitigation and best practices, and (3) the relationship between executive compensation, including incentive compensation of our CEO and our three other most highly compensated executive officers: Richard H. Sharpe, Damian C. Georgino, and W. Raymond Webb.
Our Executive Compensation Philosophy and Programs
We have designeda simple compensation philosophy, which is to hire good people and pay them fairly. We define “good people” as individuals who are smart, experienced, hardworking, and honest. Recognizing how disruptive and costly it is to replace good people and how difficult it is to find them, we want our compensation programskey executive officers, if they perform, to achievebe compensated at a level that exceeds what they could earn at any other similar company. Given our historical performance and the following primary objectives:relatively small number of people who are responsible for these results, we see little reason to change our approach. In the case of our CEO, we recognize that he was instrumental in restructuring the Company and developing and implementing our business model. Following this business model has resulted in outstanding historical performance. Over the past 10 years, shareholders’ equity has grown by over 180% and our stock price has risen by over 150%. This compares to 14.7% growth in the Standard & Poor’s 500 over the same period. Our CEO has been with the Company for over 15 years and our other named executives have all been with the Company for over 12 years.
Our small management team provides for more efficient decision making and greater accountability. It also allows us to pay those individuals more because our total compensation across the Company is less than our peers. Incentive compensation is a key component of our executive compensation program, which allows our executive officers to earn above-average compensation if they achieve superior growth in book value per share. We tie these awards to a benchmark of the five-year average of the Standard & Poor’s 500 index in order to emphasize long-term performance. We do not have a short-term focus on earnings. Although incentive compensation may be awarded in a particular year, this compensation is a result of years of efforts that are recognized when there is a monetization event. This more closely aligns the compensation of our executive officers with our corporate objectives and risk tolerance. We made no incentive compensation awards in 2010.
Our executive compensation program is subject to a thorough process that includes Compensation Committee review and approval of program design and practices; the advice of a third-party compensation consultant engaged by the Compensation Committee; and long-standing, consistently applied practices with respect to incentive compensation.
Company’s Performance in 2010.
We measure our success by the long-term growth in our book value per share with moderate risk. In 2010, our book value per share decreased by 3% from 2009, primarily because, due to a continuation of modest economic activity in our markets, we had few asset monetizations and therefore had no significant realized gains in the year.
Additionally, we use changes in our stock price as a metric for measuring our long-term performance. Our CEO and other named executive officers have been awarded stock based compensation in the form of Stock Appreciation Rights and Restricted Stock Units, or RSUs. Their compensation is, therefore, closely aligned to the long-term growth in our stock price. In 2010, our stock price reached a high of $39.47 per share during the second fiscal quarter and a low of $27.39 per share during the third fiscal quarter. In 2009, our stock price reached a high of $35.34 and a low of $19.75.
Executive Compensation Actions 2010.
In summary, we took the following actions regarding executive compensation in 2010:
| · | As a result of changes in personnel and the growth and complexity of the company we increased the base salary for our Chief Financial Officer and Chief Accounting Officer; |
| · | As a result of the Company’s performance in 2010 and the decline in book value per share, none of our executive officers earned an annual incentive award; and |
| · | As a result of our retention objectives and recognition of our CEO’s critical value to the Company, our CEO was granted an RSU award covering 400,000 shares of our common stock, while our Chief Financial Officer and Chief Accounting Officer were granted RSU awards covering 40,000 and 14,000 shares of our common stock, respectively. These RSU awards do not vest until October 2014. |
Base Salary Increases
Mr. M. Webb assumed additional responsibilities, resulting in a decision by the Compensation Committee to increase his annual base salary from $358,290 to $500,000 in 2010. Further, we revised the employment terms for Mr. Webb to eliminate certain post-termination severance payments, as well as any associated tax gross-ups. Additionally, Mr. Perri also assumed greater responsibilities in 2010, resulting in a decision by the Compensation Committee to promote him to Chief Accounting Officer and to increase his annual base salary from $197,224 to $275,000.
Equity Awards
Historically, the Company has not made annual stock-based awards. This results in the appearance, as of the date of grant, that the equity incentive compensation of our executive officers is greater than that of our peers. Our equity awards are intended to be multi-year awards, however, our executive officers cannot realize the value of these awards until after four years. Thus, when viewed on a multi-year basis, the equity incentive compensation of our executive officers is consistent with the practices of our peers. We believe that this approach more closely aligns the interests of our executive officers with the interests of our shareholders, is consistent with achieving superior long-term growth in book value per share and provides attractive incentive to remain employed by the Company.
Our Executive Compensation Components
The following table lists the principal components of our executive compensation program and the primary purpose of each.
Component | Objectives and Basis | Form |
| Base salary | Provide base compensation that is competitive for each role. Reviewed on an annual basis. | Cash |
| Annual incentive awards | Annual incentive for superior performance and to | Cash |
| Long-term incentives | Long-term | |
| Retirement benefits | 401(k) plan | |
| Deferred Compensation Opportunity | Non-qualified deferred compensation plan | |
| Insurance and other benefits | Provide for the safety and wellness of our | Various |
| Termination and severance benefits | Various, including cash and accelerated vesting of long-term incentives |
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Our Business and How it Relates to Our Executive Compensation Philosophy
As described under “Item 1. Business” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009,2010, we are a diversified holding company. To maximize long-term shareholder value, our strategic mission is to manage operations to achieve a superior return on net assets by:
| · | Building and operating businesses with unique assets that we believe have the potential to create significant value; and |
| · | Acquiring businesses that we identify as undervalued and where our management participation in operations can aid in the recognition of the businesses’ fair value as well as create additional value. |
This business strategy requires a management team with demonstrated expertise in asset and business acquisitions, investments of all types of securities (public and private), and financial management and business operations of acquired entities in local as well as international markets. This team must review, operate and manage a broad and diversified range of businesses, investments, assets, and operations that currently include water resources and storage, real estate, and insurance, but may include related or unrelated businesses in the future. In addition, this team must assist in setting strategic direction for each business and the company as a whole. This team is also responsible for seeking out and investigating new investment and acquisition opportunities as well as coordinating and maintaining good investor relations.
The Role of the Compensation Committee in Determining Executive Compensation
Our Compensation Committee is a standing committee. The Compensation Committee is composed of independent, outside directors“outside directors” within the meaning of Section 162(m) of the United States Internal Revenue Code and independent, non-employee directors“non-employee directors” within the meaning of Exchange Act Rule 16b-3, of the Exchange Act, who also meet the independence requirements of the Nasdaq Global Market. John D. WeilCarlos C. Campbell is Chairman of our Compensation Committee. The other Compensation Committee members are Carlos C. Campbell,Kristina M. Leslie, Richard D. Ruppert, MD,M.D. and Kenneth J. Slepicka.Robert G. Deuster.
The Compensation Committee is responsible for assuring that all of our executive compensation decisions are developed, implemented and administered in a way that supports our fundamental philosophy that a significant portion of executive compensation is linked to our performance. To this end, the committeeCompensation Committee oversees and administers all of our executive compensation plans and policies, administers the PICO Holdings, Inc. 2005 Long-Term Incentive Plan (including reviewing and approving grants of awards under the 2005 Long-Term Incentive Plan), and annually reviews and approves the individual elements of the named executive officers’ total compensation package.
The Compensation Committee reviews and, if appropriate, updates its charter on an annual basis to ensure that it reflects its goals and objectives. In 2010, in order to enhance our corporate governance and oversight of the compensation process, the Compensation Committee revised its charter to include the following sentence: “All decisions by the Compensation Committee which affect employment agreements, salaries, incentive awards/bonuses, or any awards granted under the Company’s 2005 Long Term Incentive Plan, shall only be effective when memorialized in a written resolution or consent and signed by all members of the Compensation Committee.” A copy of the Compensation Committee’s Charter is posted on our website under “Corporate Governance” at http://investors.picoholdings.com.
In early 2010, the Compensation Committee is authorized to engage a compensation consultant to assist it in the evaluation of the compensation of the company’s elected officers, including the named executive officers. The Compensation Committee engaged the Consulting Services Division of Silverton BankMatthews, Young in connection with its review of the compensation arrangements of our named executive officers in effect for 2009. Our independent consultant compiled2010. In addition, Matthews, Young assisted us in evaluating whether our compensation policies and practices for all employees create risks that are reasonably likely to have a surveymaterial adverse effect on the Company. As a result of changes in personnel and responsibilities, in the latter half of 2010, the Compensation Committee reviewed and reassessed the compensation packages offered to our named executive officers. As part of that was intendedprocess, the Compensation Committee engaged Compensia, Inc., a national compensation consulting firm, to comparereview our 2008 pay levels forcompensation structure. Compensia completed their report in late 2010.
Though each of our named executive officers withis directly responsible for the pay levels in place at our peer group companies, and to analyze our equity based compensation practices for alleffective management of a discrete aspect of our operations and administration, the named executive officers. Theofficers are jointly responsible for the execution of our plans and strategies. Accordingly, the Compensation Committee requested that the consultantCompensia provide a variety of comparative metrics by which the committee would assess compensation:the compensation of our named executive officers:
| (1) | a comparison of the average salaries, average cash compensation, and average equity awards of our named executive officers as a group over the last four years against the executive officers of our peer group |
| (2) | a comparison of the average salaries, average cash compensation, and average equity awards of our named executive officers, excluding our |
| (3) | a comparison of the individual base salary, other cash compensation and equity awards of our |
| (4) | a comparison of the individual base salary, other cash compensation and equity awards of each of Messrs. |
In addition to engaging an independenta compensation consultant, the Compensation Committee often seeks input from our management. For example, some of our named executive officers and other executive officers have from time to time assisted the Compensation Committee in gathering compensation data. Our human resources department also gathers and reviews major compensation studies and salary surveys and monitors the consumer price index. Based on the human resources department’s summary of these studies, surveys and reports, the Chief Operating Officermanagement will recommend a cost of livingpayroll adjustment for the upcoming year to the Compensation Committee. The cost of living adjustment is the same for all of our directors, officers and employees. In accordance with NASDAQ rules, however, (i) our named executive officers did not vote on executive compensation matters, and (ii) none of our named executive officers was present when his own compensation was being discussed or approved.
The following is the Company’s peer group. As in prior years, the peer group companies were selected from industry categories that were comparable to our businesses, operations and strategies, with a particular emphasis on companies (i) where management teams must have asset acquisition, investment, operational and financial management skills similar to those required to implement our business strategy and (ii) in the industries in which we have made acquisitions and conduct operations.
| 2010 Peer Group Companies | ||
| American Capital Ltd | Harris & Harris Group, Inc. | MCG Capital Corporation |
| Ampal-American Israel Corporation | Hercules Technology Growth Capital Inc. | Redwood Trust, Inc. |
| Capital Southwest Corporation | Internet Capital Group, Inc. | Safegaurd Scientifics, Inc. |
| Capital Trust, Inc. | Kohlberg Capital Corporation | |
The employment agreements entitled Messrs. Sharpe, M. Webbpeer group includes holding and Georginofinance companies that have principal businesses similar to receive 80,000 restricted stock units underours. In order to develop competitive market compensation data on similarly-sized organizations in comparable industry categories, our 2005 Long-Term Incentive Plan. At the same time, Mr. R. Webb was also granted 30,000 restricted stock units. Thepeer group generally includes only companies that are similar in size to us, measured by total shareholders’ equity, total assets or market capitalization.
General Determination of 2010 Compensation Committee determined to grant this amount of equity awards to these named executive officers because it determined that the overall 2008 compensation of these named executive officers was below market and our targeted levels. The Compensation Committee also wanted to increase the equity holdings of these named executive officers and further align their interests with those of our shareholders, which was why the primary increase in the total 2009 compensation amounts for these executives was in the form of additional equity awards. Our Chief Executive Officer, Mr. Hart, did not receive any restricted stock unit awards during 2009 because we determined that his overall 2008 and 2009 compensation was generally consistent with our targeted levels.
Elements of Executive Officer Compensation
1. Annual Cash Compensation
Annual cash compensation comprises two parts: (1) base salary and (2) annual incentive awards and discretionary bonus opportunities.awards.
Base Salary
As a result of approximately 5.5%. This cost of living adjustment waschanges in personnel and growth in both the same for allsize and complexity of our directors,Company, which resulted in Mr. M. Webb assuming additional responsibilities, we increased his annual base salary from $358,290 to $500,000. Further, we revised his employment terms to eliminate post-termination severance and the associated tax gross-up which could have been due upon the payment of any post-termination severance. As a result of changes in personnel and growth in both the size and complexity of our Company, which resulted in Mr. Perri assuming greater responsibility, he was promoted to Chief Accounting Officer and his base salary was increased from $197, 224 to $275,000. As a result of the changes to base salaries of Mr. M. Webb and Mr. Perri, the Compensation Committee’s 2010 executive compensation review found that, as compared with the aggregate base salary of other similarly positioned executive officers in our peer group, the base salaries of Messrs. Hart and employees.Webb exceeded the 75th percentile and the base salary of Mr. Perri approximates the market median.
See “—Summary Compensation Table” below for the base salaries paid to our named executive officers during 2009.2010.
Annual Incentive Awards and Discretionary Bonus Opportunities
We provide annual incentive awards that are based on the company’sCompany’s long-term performance, to motivate our named executive officers to increase our book value per share. Theserather than short-term focus on earnings. Accordingly, these awards motivate our executivesexecutive officers and align their interests with those of our shareholders by increasing the executives’their annual compensation as our book value per share increases. We believe increasesif superior growth in book value per share increases shareholder value by increasing the trading value of our stock. In determining the incentive award mechanism, the Compensation Committee decided to use our book value per share as a measure for growth because such measure is not as sensitive to short-term market fluctuations and external events beyond our control that may affect the price of our common stock. Ouroccurs. We tie these annual incentive awards if any, are paidto a benchmark of the five-year average of the Standard & Poor’s 500 index in cash, less applicable tax withholdings.order to emphasize long-term performance. Although an incentive award may be earned in a particular year, the award is a result of years of effort that is recognized when there is a monetization event. We believe that this approach more closely aligns our executive officers’ pay with our corporate objectives and risk tolerance.
In addition, our practice is to provide Messrs. Sharpe, M. Webb, Perri and Georgino provide that each executive’sR. Webb with an annual incentive compensation amount isaward equal to his base salary multiplied by the ratio of the annual incentive compensation payments (including any discretionary payments) paid to Mr. Hartour CEO to Mr. Hart’sour CEO’s base salary. For example, if Mr. Hart’sour CEO’s total incentive compensation payments equal 50% of his base salary, each of these executives willnamed executive officers is eligible to receive an incentive compensation paymentaward equal to 50% of his base salary. As a result, the incentive compensation opportunity for each of these executivesthree named executive officers is indirectly based on the same growth in book value per share metric that is applicable to Mr. Hart.our CEO.
2. Long-Term Incentives
Under the 2005 Long-Term Incentive Plan, which was approved by our shareholders on December 8, 2005, the Compensation Committee may award to participants various forms of equity-based incentives, including stock appreciation rights, or SARS, stock options, restricted stock, restricted stock units, or RSUs, performance awards, deferred compensation awards and other stock-based awards.
Prior to 2009, the equity award grantsincentive compensation awarded to our named executive officers under the 2005 Long-Term Incentive Plan had been made solely in the form of stock-settled stock appreciation rights. Stock-settled stock appreciation rights have been our preferred equity award because named executive officers will only realize value in these awards if our shareholders realize value on their shares followingSARs. During 2010, the grant date. In this way, the value realized by the named executive officers will be commensurate with the value realized by shareholders from appreciation in our stock price.
| · | full value RSU awards are less dilutive than stock-settled SAR because we can provide the same aggregate grant date award value while using fewer shares; |
| · | full value RSU awards continue to have retentive value and help to align the interests of our executive officers with those of our shareholders even in periods of minimal stock price appreciation or stock price decline; |
| · | full value RSU awards are less likely to encourage short-term risk-taking at the expense of long-term results; and |
| · | granting a combination of stock-settled SARs and full value awards such as RSUs is currently the prevalent practice among our peer group companies. |
During 2010, we have not granted equitythe following RSU awards to our named executive officers on an annual basis. For example, priorofficers:
| Name | 2010 RSU Grant |
| John R. Hart | 400,000 |
| Maxim C. W. Webb | 40,000 |
| John T. Perri | 14,000 |
The Compensation Committee decided to grant our CEO a significant equity award in 2010 in recognition of his critical value to the 2009 grants of restricted stock units, none of our named executive officerscompany. In particular, the Compensation Committee noted that he had received equity awards since 2007 (and our Chief Executive Officer has not previously received any equity awards since 2007). Recent changes2007. To achieve its retention objectives and to provide further incentive for him, the Compensation Committee determined, after reviewing the equity practices of the peer group and the equity holdings of the chief executive officers at the companies in the peer group, to grant our CEO an RSU award covering 400,000 shares of our common stock with a grant date fair value of $12,276,000.
In making this award, the Compensation Committee took into consideration that as a multi-year award, our CEO cannot realize any value from the award until the completion of its four-year vesting schedule. Consequently, he will have to remain with the Company for the full four-year period to obtain any benefit from the award. The Compensation Committee also noted that, under the SEC’s executive compensation disclosure rules, now require usthe Company is required to report the total value restricted stock unit and stock-settled stock appreciation right awardsof the entire RSU award in our Summary Compensation Table usingin the grant date fair valueyear of these awards, rather than using the amount recognizedgrant. However, for financial statement reporting purposes, we will record compensation expense ratably for the award over its four-year vesting schedule.
In addition, in recognition of the changes in personnel and the increased size and complexity of the Company and in line with our goal of retaining our key executives, in 2010, the Compensation Committee awarded 40,000 RSUs to valueMr. M. Webb and 14,000 RSUs to Mr. Perri. In making these awards. For companies like usawards, the Compensation Committee took into consideration that, have not granted equity awards to our named executive officers on an annual basis, this change will cause significant year-to-year fluctuations in equity compensation amounts (and as a result, total compensation amounts) reportedmulti-year award, they cannot realize any value from their awards until the completion of the RSUs’ four-year vesting schedule. Consequently, they will both have to remain with the Company for our named executive officers. We will now be requiredthe full four-year period to report much higher equity compensation amounts in years such as 2007 and 2009 when we grant equity awards, while we will no longer be required to reportobtain any equity compensation amounts in years like 2008 when we did not grant any equitybenefit from their awards. Readers should be aware of this change in the disclosure rules, and particularly its potential to cause significant year-to-year fluctuations in the compensation amounts reported by companies like us that have not historically granted equity awards on an annual basis.
See “—Summary Compensation Table” below for the aggregate grant date fair value of the restricted stock unitsRSU awards granted to Messrs. Sharpe, M. Webb, Georgino, and R. Webbour named executive officers during 2009.2010.
3. Retirement and Deferred Compensation Plans
We maintain the PICO Holdings, Inc. 401(k) Employees Retirement Plan and Trust to provide a tax-deferred means to save for retirement. The named executive officers have the opportunity to participate in this Section 401(k) plan on the same basis as all of our other employees.
We also maintain a nonqualified deferred compensation plan, which allows our executivesexecutive officers to elect to defer compensation they earn and receive the tax benefits associated with delaying the income tax on the compensation deferred. We do not make any matching or other contributions to the nonqualified deferred compensation plan. The amounts deferred under the plan are credited with interest, earnings, appreciation, losses and depreciation based on the performance of notional investment fundsequities, bonds or benchmarkscash selected by the participants, and are held in a grantor trust, the assets of which are subject to the claims of our creditors. We provide the non-qualified deferred compensation plan to be competitive with other employers because we believe most of our peer group companies provide these types of plans.
See “—Nonqualified Deferred Compensation” below for a description of our nonqualified deferred compensation plan and the amounts deferred by our named executive officers thereunder.
4. Insurance and Other Benefits
We generally provide insurance and other benefits to provide for the safety and wellness of our employees. These benefits include health insurance, life insurance, dental insurance, vision insurance, and disability insurance, which are available to all employees, including our named executive officers, on a nondiscriminatory basis. We also provide paid parking for employees in our La Jolla, California office. We provide these benefits to be competitive with other employers, because we believe most of our peer group companies provide these types of benefits.
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5. Termination and Change in Control
We provide certain termination of employment and change in control payments and benefits to our named executive officers. We provide these payments and benefits to help recruitretain and retainrecruit our named executive officers, which is one of the primary objectives of our executive compensation program.
Termination Benefits
Mr. Hart. Mr. Hart is entitledPursuant to termination benefits pursuant tothe operation of the terms of his employment agreement, which was entered into on May 7, 2007 and amended effective January 1, 2009 solely to comply with the requirements of Section 409A of the Internal Revenue Code (no benefits were increased pursuant to the amendment). Under Mr. Hart’s employment agreement, if Mr. Hart is terminated by the company for any reason other than cause, including death or disability, after January 1, 2009, but prior toat December 31, 2012, he2010, our CEO was not eligible to receive any severance payments or benefits as a result of a termination of employment. This result is under review and the Company may decide to revise our CEO’s severance arrangements in the future. Our CEO (or his beneficiary, as appropriate) will be paid a lump sum equalis also eligible to $3,686,400 minus the amount of base salary paid to Mr. Hart after January 1, 2009 to the date of termination. The lump sum amount of $3,686,400 was equal to three times Mr. Hart’s base salary as of the beginning of his May 7, 2007 employment agreement, and was determined based on our negotiations with Mr. Hart in connection with Mr. Hart’s assumption of additional responsibilities upon the retirement of our former Chairman, Mr. Langley. We continue to believe Mr. Hart’s termination benefits are reasonable, particularly because as a result of the offset for the amount of base salary paid after January 1, 2009, Mr. Hart’s severance amount pursuant to this provision at the end of 2009 would have been less than one times his current base salary (and will continue to decrease in future years). Mr. Hart (or his beneficiary, as appropriate) will also receive the pro rata portion of any annual incentive award with respect to the year in which his employment is terminated. Additionally, the RSU awards that the Company granted to our CEO will fully vest upon his termination of employment without cause, excluding death or disability, and on a change in control transaction.
Messrs. Sharpe, M.Perri, R. Webb and GeorginoMosier.. As described above, the Compensation Committee determined it was in the company’s best interests for retention purposes to enter into employment agreements with each None of Messrs. Sharpe, M.Perri, R. Webb and Georgino during 2009. Each executive’s employment agreement provides for severance benefits in connection with certain terminations of the executive’s employment with us. Severance benefits payable for a termination by the company without cause or by the executive for good reasonMosier are generally equal to one times the executive’s base salary and average annual bonus, if any, and also include full vesting for any outstanding and unvested equity awards and continued health benefits for 18 months. If the executive’s termination without cause or for good reason is in connection with a change of control, or if the executive’s employment terminates as a result of the executive’s death or disability, the severance benefits will be increased and will be based on a “2x” multiple (e.g., two times the executive’s base salary and average bonus, if any, and continued health benefits for 24 months). These severance benefits are in addition to any severance benefits payable under our generally applicable severance benefit plan. In addition, if any benefit the executive becomes entitled to receive in connection with a change of control is subject to an excise tax applicable to “excess parachute payments” under Section 280G of the Internal Revenue Code and the aggregate excise tax is more than a de minimis amount, the executive will receive a tax gross-up payment to cover such excise taxes. We determined that it was appropriate to provide these severance benefits in order to retain these executives, which was one of our primary executive compensation objectives during 2009. We were also advised by our independent compensation consultant, Silverton Bank, that the severance provisions in the new employment agreements were consistent with employment contracts in place at our peer group companies, and therefore Silverton Bank recommended that the new employment agreements include change in control provisions.
Equity Acceleration Upon a Change in Control
Our 2005 Long-Term Incentive Plan was approved by our shareholders on December 8, 2005, and it has not been materially amended since this date. UnderAll stock-settled SAR granted and outstanding under our 2005 Long-Term Incentive Plan the default rule is that all outstanding options and stock-settled stock appreciation rights will vest immediately and becomeare fully exercisable upon a change in control. Further, thevested at this time. The vesting conditions, restriction periods or performance goals applicable to any outstanding shares subject to a restricted stock unit award, restricted stockan RSU award or other award under our 2005 Long-Term Incentive Plan will be accelerated and/or waived.waived upon a change in control of the Company or termination of employment without cause. We provided for this single trigger“single trigger” accelerated vesting arrangement under our 2005 Long-Term Incentive Plan in order that participants might appropriately share in the value they created for our shareholders to the full extent of our prior equity award grants.awards. While a change in control transaction may accelerate the creation of value for shareholders, it may also eliminate any potential for the executivesexecutive officers to realize additional value with respect to their equity awards over the intended vesting period. We also believe this acceleration feature remains consistent withLikewise, a termination of employment for other than cause would eliminate the practices of our peer group.executive officer’s ability to realize the additional value they created in the Company.
See “—Potential Payments upon Termination or Change in Control” for a more detailed description of our termination and change in control benefits for the named executive officers.
Aligning Shareholder and Executive Interests
We employ a multi-faceted compensation strategy to encourage and reward executives for focusing their efforts on achieving a superior return on net assets over the long term. Our annual cash incentive plan rewards management for growing book value per share greater than a competitive threshold growth rate compared to the five-year total shareholder return of S&P 500 companies. We also employ equity-based compensation plans to more specifically align our executive management’s compensationterm with shareholders.
moderate risk. In 2010, the Compensation Committee engaged itsCompensia as an independent compensation advisor to assist in reviewing prevailing market practices for incentive cash compensation, stock ownership and retention guidelines and use of equity as long term incentives. The Compensation Committee discussed the effectiveness of stock ownership and stock retention guidelines as a means of complimentingcomplementing our current compensation strategy for aligning shareholder and executive interests. During 2010, the Committee will continue this assessment of effective stock ownership and retention guidelines for executive officers and outside directors.
Tax Deductibility of Executive Compensation
Under Section 162(m) of the Internal Revenue Code, annual compensation in excess of $1,000,000$1 million to each of a company’s Chief Executive Officer and fourthree other most highly compensated executive officers (not including the Chief Financial Officer) is not deductible as compensation expense for United States federal income tax purposes unless it satisfies the performance-based compensation“performance-based compensation” exception of Section 162(m). Stock-settled stock appreciation rights have historically been the preferred type of award under the 2005 Long-Term Incentive Plan in part because they should qualify as performance-based compensation. However, inIn structuring the base salaries and annual- and long-term incentive awards for our named executive officers, the companyCompany determined that shareholder interests would best be served by not restricting the company’sCompany’s discretion and flexibility by trying to qualify the named executive officers’ compensationthese components as “performance-based.” Therefore, the amount of base salary, annual incentive awards, and discretionary bonuses and restricted stock unitRSU awards in excess of $1,000,000$1 million to any one of our named executive officers subject to the Section 162(m) limitations will not qualify for a corporate tax deduction for the amount over $1,000,000.in excess of $1 million.
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The following report of the Compensation Committee shall not be deemed to be “soliciting material” or to otherwise be considered “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Exchange Act except to the extent that we specifically incorporate it by reference into such filing.
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on that review and discussion, the committeeCompensation Committee has recommended to the board of directors, and the board has approved, that the foregoing Compensation Discussion and Analysis be included in the company’sCompany’s annual report on Form 10-K for the fiscal year ended December 31, 20092010 and our 20102011 proxy statement on Schedule 14A.
Compensation Committee: | |
Carlos C. Campbell, Chairman Kristina M. Leslie Richard D. Ruppert, M.D. |
The SEC’s disclosure rules require us to analyze our compensation policies and practices for our named executive officers as well as those policies and practices in effect for our business segments and all employees, and to provide specific disclosure if the risks arising from these compensation policies and practices are reasonably likely to have a material adverse effect on the company. We engaged Matthews, Young to assist the company and the board of directors in reviewing our compensation policies and practices to determine whether they encourage unnecessary or excessive risk-taking. Together, we reviewed each element of our compensation program, the purpose of each compensation plan, participation level, assignment of plan administration authority, performance measurement, and incentive award potential. We also jointly reviewed the competiveness and mix of compensation elements comprising our total executive compensation package. Matthews, Young prepared a written report and presented this report to senior management who were able to provide valuable insight into our risk profile. In addition, Matthews, Young reviewed its findings directly with the Compensation Committee.
As a result of our review, we find the following with respect to our risk profile:
| ● | Our focus is on long-term growth with minimal leverage and this philosophy is conducive to minimizing compensation related risks; |
| ● | Incentive plans are well designed, effectively administered, focused on relevant performance measures; |
| ● | Our plans are reasonable with respect to potential compensation levels; |
| ● | The elements of our compensation plan are appropriately weighted in our overall mix that achieves a balance of focus between operating results and strategic results; |
| ● | Base salaries for executive officers are sufficiently competitive to eliminate the need for them to take unnecessary risk in order to earn large incentives necessary to provide adequate cash compensation; and |
| ● | Equity-based compensation levels are competitive and sufficient to provide a balanced focus between short- and long-term priorities and results and does not encourage the taking of short-term risks at the expense of long-term results. |
We have concluded that our compensation policies, plans, and practices do not encourage unnecessary or unreasonable risk-taking and do not encourage executives or employees to take risks that are reasonably likely to have a material adverse effect on the company
The following table presents information concerning the compensation of the named executive officers for services during 2010, 2009 2008 and 2007. Recent changes to the2008. The SEC’s current executive compensation disclosure rules now require us to value stock awards and option awards reported in the following table using the grant date fair value of the awards, rather than using the amount recognized for financial statement reporting purposes to value these awards. Because of these changes torules differ from the original disclosure rules, the amounts reported below for stock option awards in 2008 and 2007 differ from the amounts previously reported in our Summary Compensation Table for 2008, and, 2007, respectively, and, as a result, each named executive officer’s total compensation amounts for 2008 and 2007 are also different than the amounts previously reported.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($)(2) | All Other Compensation ($)(3) | Total Compensation ($) | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($)(3) | Total Compensation ($) | |||||||||||||||||||
| John R. Hart | 2009 | $ | 1,888,703 | $ | 508,690 | $ | -0- | $ | -0- | $ | -0- | $ | 32,250 | $ | 2,429,643 | 2010 | 1,964.251 | 12,276,000 | 38,150 | 14,278,401 | |||||||||||||||
| President & Chief Executive | 2008 | 1,790,239 | -0- | -0- | -0- | -0- | 30,500 | 1,820,739 | 2009 | 1,888,703 | 508,691(2) | 32,250 | 2,429,644 | ||||||||||||||||||||||
| Officer | 2007 | 1,228,800 | 1,500,000 | (4) | -0- | 7,489,575 | -0- | 29,500 | 10,247,875 | 2008 | 1,790,239 | 30,500 | 1,820,739 | ||||||||||||||||||||||
| Richard H. Sharpe | 2009 | 362,323 | $ | 97,586 | 1,580,000 | -0- | -0- | 32,250 | 2,072,159 | ||||||||||||||||||||||||||
| Executive Vice President & Chief | 2008 | 343,434 | -0- | -0- | -0- | -0- | 30,500 | 373,934 | |||||||||||||||||||||||||||
| Operating Officer | 2007 | 327,080 | -0- | -0- | -0- | -0- | 29,500 | 356,580 | |||||||||||||||||||||||||||
| Maxim C. W. Webb | 2009 | 344,510 | $ | 92,788 | 1,580,000 | -0- | -0- | 32,250 | 2,049,548 | 2010 | 405,626 | 1,227,600 | 38,150 | 1,671,376 | |||||||||||||||||||||
| Executive Vice President, Chief | 2008 | 326,550 | -0- | -0- | -0- | -0- | 30,500 | 357,050 | 2009 | 344,510 | 92,788(2) | 1,580,000 | 32,250 | 2,049,548 | |||||||||||||||||||||
| Financial Officer & Treasurer | 2007 | 268,250 | -0- | -0- | 308,961 | -0- | 29,500 | 606,711 | 2008 | 326,550 | 30,500 | 357,050 | |||||||||||||||||||||||
| Damian Georgino | 2009 | 329,002 | $ | 88,611 | 1,580,000 | -0- | -0- | 32,250 | 2,029,863 | ||||||||||||||||||||||||||
| Executive Vice President - Corporate Development & | 2008 | 311,850 | -0- | -0- | -0- | -0- | 309,149 | 620,999 | |||||||||||||||||||||||||||
Chief Legal Officer(5) | 2007 | 96,905 | -0- | -0- | 3,273,887 | -0- | -0- | 3,370,792 | |||||||||||||||||||||||||||
John T. Perri (5) | 2010 | 223,149 | 429,660 | 33,542 | 686,351 | ||||||||||||||||||||||||||||||
| Vice President and | |||||||||||||||||||||||||||||||||||
| Chief Accounting Officer | |||||||||||||||||||||||||||||||||||
| W. Raymond Webb | 2009 | 232,628 | $ | 62,654 | (6) | 592,500 | -0- | -0- | 30,384 | 918,166 | 2010 | 241,932 | 34,053 | 275,985 | |||||||||||||||||||||
| Vice President, Investments | 2008 | 220,500 | -0- | -0- | -0- | -0- | 29,240 | 249,740 | 2009 | 232,628 | 62,654(4) | 592,500 | 30,384 | 918,166 | |||||||||||||||||||||
| 2007 | 210,000 | -0- | -0- | 357,346 | -0- | 27,533 | 594,879 | 2008 | 220,500 | 29,240 | 249,740 | ||||||||||||||||||||||||
James F. Mosier (5) | 2010 | 120,692 | 6,035 | 42,415 | 169,142 | ||||||||||||||||||||||||||||||
| General Counsel and Secretary | |||||||||||||||||||||||||||||||||||
_____________________________
| (1) | Represents the aggregate grant date fair value of awards of |
| (2) | As described in more detail in the narrative discussion |
| (3) | Amounts in this column include contributions made by |
| The amount in 2009 represents a discretionary annual incentive award paid to Mr. R. Webb for 2009. Although Mr. R. Webb’s annual incentive award is discretionary, it was calculated using the same formula applicable to the annual incentive awards for the other named executive officers. | |
| (5) | Messrs. Perri and Mosier became named executive officers during 2010. |
The following table presents information regarding the equity-based and non-equity incentive plan awards granted in to the named executive officers during 2009.2010.
| Name | Grant Date | Date of Committee Action | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock and Option Awards | Grant Date and Date of Committee Action | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock and Option Awards | |||||||||||
Threshold ($) | Target ($)(1) | Maximum ($) | (#)(2) | ($)(2) | (#)(1) | ($)(1) | |||||||||||||
| John R. Hart | |||||||||||||||||||
| Annual Bonus Opportunity | 508,690 | $ | -0- | ||||||||||||||||
| Richard H. Sharpe | |||||||||||||||||||
| Restricted Stock Units | 3/3/2009 | 2/26/2009 | 80,000 | 1,580,000 | 10/28/2010 | 400,000 | 12,276,000 | ||||||||||||
| Annual Bonus Opportunity | 97,586 | ||||||||||||||||||
| Maxim C.W. Webb | |||||||||||||||||||
| Restricted Stock Units | 3/3/2009 | 2/26/2009 | 80,000 | 1,580,000 | 10/28/2010 | 40,000 | 1,227,600 | ||||||||||||
| Annual Bonus Opportunity | 92,788 | ||||||||||||||||||
| Damian C. Georgino | |||||||||||||||||||
| John T. Perri | |||||||||||||||||||
| Restricted Stock Units | 3/3/2009 | 2/26/2009 | 80,000 | 1,580,000 | 10/28/2010 | 14,000 | $429,660 | ||||||||||||
| Annual Bonus Opportunity | 88,611 | ||||||||||||||||||
| W. Raymond Webb | |||||||||||||||||||
| Restricted Stock Units | 3/3/2009 | 2/26/2009 | 62,654 | 30,000 | 592,500 | ||||||||||||||
_____________________________
| (1) | |
| Represents restricted stock units granted under the 2005 Long-Term Incentive Plan. The aggregate grant date fair value of these awards was computed |
Annual Bonus Opportunity. Pursuant to the terms of Mr. Hart’sour CEO’s employment agreement, Mr. Harthe is entitled to receive an annual incentive compensation when our growth in book value per share exceeds a pre-determined threshold.threshold level. The threshold level for each year is calculated as 80% of the S&PStandard & Poor’s 500’s annualized total return for the previous five calendar years (but no less than zero).years. If our growth in book value per share in a fiscal year exceeds the threshold amount, Mr. Hart is entitled tolevel, he will receive an amount equal to 7.5% of the increase in book value per share over such threshold multiplied by the number of shares of our common stock outstanding at the beginning of the fiscal year.
Any annual incentive compensation amountsaward payable to thesethe named executive officers will be paid within 2½ months after the end of the fiscal year in which earned. For our 2010 incentive compensation calculation, we determined that book value per share decreased by three percent (3%). As a result, none of our named executive officers received an incentive compensation award for 2010.
Restricted Stock Units. Pursuant to the terms of the employment agreements for each of Messrs. Sharpe, M. Webb and Georgino, each executive officer was granted 80,000 restricted stock units under the 2005 Long-Term Incentive Plan on March 3, 2009. R. Webb was also granted 30,000 restricted stock units pursuant to the 2005 Long-Term Incentive Plan on the same date. Each restricted stock unitRSU represents the right to receive one share of our common stock once the restricted stock units completely vest.award vests in full.
Subject to each executive’sexecutive officer’s continued employment or service with us, these restricted stock unit grantsRSU awards will vest in their entirety on March 3, 2012October 28, 2014 (i.e.i.e., a three yearfour-year “cliff” vest)vesting schedule). Pursuant to the terms of the employment agreements for each of Messrs. Sharpe, M. Webb and Georgino, each ofRestricted Stock Purchase Agreement these executive’s restricted stock unit grantsawards will vest earlier upon a termination of the executive’sexecutive officer’s employment by us without cause, or by the executive officer for good reason, or upon the executive’s death or disability (each as defined in the applicable employment agreement).reason. All of these restricted stock unit grantsawards will also generally become vested upon a change in control of the Company as defined in the 2005 Long-Term Incentive Plan. Please see “Potential Payments upon Termination or Change in Control” for additional information.
None of thesethe named executive officers is entitled to receive dividends or equivalent payments with respect to his restricted stock unit grants. Each executive’s restricted stock units will generally be paid in shares of our common stock on the date they become vested. However, R. Webb’s restricted stock unit grant was amended on April 2, 2009 to permit him to elect to defer his receipt of payment in respect of his restricted stock units until a future payment date that complies with the requirements of Section 409A of the Internal Revenue Code. Such deferral opportunity was not available under Section 409A of the Internal Revenue Code to Messrs. Sharpe, M. Webb and Georgino.RSU awards.
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We do not maintain any qualified or non-qualified defined benefit pension plans. ExecutiveOur executive officers, however, may make voluntary deferrals of salary, bonus and other cash compensation through our nonqualified deferred compensation plan. We do not make any matching or other contributions to the nonqualified deferred compensation plan. Amounts deferred under the plan therefore have already been earned, but participating executivesexecutive officers have chosen to defer receipt of the cash payment under the terms of the plan.
Each named executive officer who chooses to defer compensation under theour nonqualified deferred compensation plan may elect, in accordance with Section 409A of the Internal Revenue Code, to receive payment in the form of a lump sum on a date certain or on separation from service, or in the form of up to ten10 substantially equal annual installments beginning on a certain date or separation from service. Payment will automatically be made in a lump sum upon the executive’san executive officer’s death. Payment under the plan may also be made in connection with an unforeseeable emergency or certain terminations of the plan.
Amounts deferred under the nonqualified deferred compensation plan are credited with interest, earnings, appreciation, losses and depreciation based on the performance of notional investment funds or benchmarks. We select the menu ofinvestments held in the notional investment vehicles that are available under the plan; however, theplan. The individual executivesexecutive officers select the specific investment options, being equities, bonds or cash for their deferrals under the plan. ExecutivesAs such, each individual participant bears their own market risk and reward for their own deferrals under the plan. Executive officers may generally change their investment elections at any time, subject to the administrative procedures established under the plan from time to time. During 2009, the returns for the investment options under the plan selected by the named executive officers ranged from 21% to 29%.time
The following table presents information regarding the contributions to and earnings on the named executive officers’ deferred compensation balances during 2009,2010, and also shows the total deferred amounts for the named executive officers at the end of 2009.2010.
Name | Executive Contributions In 2010 ($)(1) | Registrant Contributions In 2010 ($) | Aggregate Earnings In 2010 ($)(1) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at December 31, 2010 ($)(1) |
| John R. Hart | -0- | -0- | 2,406,759 | -0- | 28,403,046 |
| Maxim C.W. Webb | -0- | 89,423 | 218,399 | -0- | 2,409,586 |
| W. Raymond Webb | -0- | 62,654 | 535,760 | 698,305 | 1,770,455 |
| John T. Perri | -0- | 46,719 | 49,660 | -0- | 1,035,519 |
| James F. Mosier | -0- | -0- | 9,997 | -0- | 833,337 |
_____________________________
Name | Executive Contributions In 2009 ($)(1) | Registrant Contributions In 2009 ($) | Aggregate Earnings In 2009 ($)(1) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at December 31, 2009 ($)(1) | |||||||||||||||
| John R. Hart | $ | -0- | $ | -0- | $ | 4,136,021 | $ | 1,890,073 | $ | 22,713,612 | ||||||||||
| Richard H. Sharpe | -0- | -0- | 314,731 | 202,044 | 2,428,340 | |||||||||||||||
| Maxim C.W. Webb | -0- | -0- | 443,220 | -0- | 1,835,922 | |||||||||||||||
| Damian C. Georgino | -0- | -0- | -0- | -0- | -0- | |||||||||||||||
| W. Raymond Webb | -0- | -0- | 332,952 | -0- | 1,869,586 | |||||||||||||||
| (1) | The balances shown in this table represent compensation |
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The following table providestables provide information on the outstanding equity awards for ourthe named executive officers as of December 31, 2009.2010.
| Option Awards | Stock Awards | |||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) |
| John R. Hart | 838,356 | -0- | 33.76 | 12/12/2015 | -0- | |
| 419,178 | -0- | 42.71 | 8/2/2017 | -0- | ||
400,000(1) | $12,720,000(1) | |||||
| Maxim. C.W. Webb | 163,799 | -0- | 33.76 | 12/12/2015 | -0- | |
| 17,292 | -0- | 42.71 | 8/2/2017 | -0- | ||
120,000(2) | 3,816,000(2) | |||||
| W. Raymond Webb | 48,000 | -0- | 33.76 | 12/12/2015 | -0- | |
| 20,000 | -0- | 42.71 | 8/2/2017 | -0- | ||
30,000(3) | 954,000(3) | |||||
| John T. Perri | 30,000 | -0- | 33.76 | 12/12/2015 | -0- | |
| 30,000 | -0- | 42.71 | 8/2/2017 | -0- | ||
44,000(4) | 1,399,200(4) | |||||
| James F. Mosier | 20,000 | -0- | 33.76 | 12/12/2015 | -0- | |
| Option Awards | Stock Awards | ||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | |||||||||||||||
| John R. Hart | 838,356 | (1) | -0- | $ | 33.76 | (1) | 12/12/2015 | $ | |||||||||||||
| 419,178 | (2) | -0- | 42.71 | (2) | 8/2/2017 | ||||||||||||||||
| Richard H. Sharpe | 190,454 | (1) | -0- | 33.76 | (1) | 12/12/2015 | 80,000 | (3) | 2,618,400 | (3) | |||||||||||
| Maxim. C.W. Webb | 163,799 | (1) | -0- | 33.76 | (1) | 12/12/2015 | 80,000 | (3) | 2,618,400 | (3) | |||||||||||
| 17,292 | (2) | -0- | 42.71 | (2) | 8/2/2017 | ||||||||||||||||
| Damian C. Georgino | 115,293 | (4) | 57,646 | (4) | 44.69 | (4) | 9/4/2017 | 80,000 | (3) | 2,618,400 | (3) | ||||||||||
| W. Raymond Webb | 48,000 | (1) | -0- | 33.76 | (1) | 12/12/2015 | 30,000 | (3) | 981,900 | (3) | |||||||||||
| 20,000 | (2) | -0- | 42.71 | (2) | 8/2/2017 | ||||||||||||||||
_____________________________
| (1) | Represents |
| (2) | Represents 80,000 and 40,000 restricted stock units granted to Mr. M. Webb on March 3, 2009 and October 28, 2010, respectively pursuant to our 2005 Long-Term Incentive Plan. These |
| (3) | Represents restricted stock units granted to |
| (4) | Represents |
The following section describes the payments and benefits that may become payable to the named executive officers may receive in connection with their termination of employment with the company,Company, or in connection with a change in control of the company.Company. All of the severance and other payments and benefits described in this section will be paid or provided by the company.Company. In addition to the amounts presented below, the named executive officers may be entitled to the benefits quantified and described above under “Nonqualified Deferred Compensation.Compensation.” The named executive officers may also be entitled to additional severance payments and benefits under our severance benefit plan, which is generally available to all salaried employees and provides for two weeks of base salary for each full year of employment with us upon a termination of employment by us for any reason other than cause. Please see our “—Compensation Discussion and Analysis” for a discussion of how the payments and benefits presented below were determined.
2005 Long-Term Incentive Plan— The 2005 Long-Term Incentive Plan contains change in control provisions that generally apply to awards that have been granted under the plan, including awards granted to the named executive officers. Upon a change in control of the Company, all outstanding stock options and stock-settled stock appreciation rights, or SARs, will generally vest immediately and become fully exercisable. Further, the vesting conditions, restriction periods or performance goals applicable to any shares subject to an outstanding restricted stock award, restricted stock unit award or other award will be accelerated and/or waived upon a change in control.control of the Company. Generally, a change in control under the 2005 Long-Term Incentive Plan occurs if: (1) the members of the board of directors serving as of December 8, 2005 (including any director serving thereafter whose election by the shareholders was approved by at least a majority of the then serving directors) cease to constitute at least a majority of the members of the board; (2) certain entities, directly or indirectly, become beneficial owners of more than 50% of the voting power of our outstanding common stock; (3) we merge or combine with or into another entity in which our shareholders will own less than 50% of the voting power of the surviving business entity after the merger or combination; (4) we sell or dispose of substantially all of our assets to another entity in which our shareholders will own less than 50% of the voting power after the sale or disposition; or (5) we liquidate or dissolve.
As indicated in the Outstanding Equity Awards at Fiscal Year-End table above, the only awards held by our named executive officers at the end of 20092010 were SARs and restricted stock units.RSU awards. Using the “in-the-money” value model, the value of the SARs awarded to our named executive officers (assuming a change in control of the Company had occurred as of December 31, 2009)2010) would be $0 because the exercise price of all SARs granted before December 31, 20092010 was greater than $32.73,$31.80 the closing market price of our common stock on the Nasdaq Global Market on December 31, 2009. The value of the restricted stock units awarded during 2009 to Messrs. Sharpe, M. Webb, Georgino and R. Webb (assuming a change in control had occurred as of December 31, 2009 and based on the $32.73 closing price of our stock on this date) is quantified in the table below.2010.
Mr. Hart. Under Mr. Hart’sPursuant to the operation of the terms of his employment agreement, if Mr. Hart’s employmentat December 31, 2010, our CEO was not eligible to receive any severance payments or benefits as a result of a termination of employment. This result is terminated byunder review and the company for any reason other than cause (as definedCompany may decide to revise our CEO’s severance arrangements in the employment agreement), including death or disability, after January 1, 2009, but prior to December 31, 2012, hefuture. Our CEO (or his beneficiary, as appropriate) will be paid a lump sum equalis also eligible to $3,686,400 minus the amount of base salary paid to Mr. Hart after January 1, 2009 to the date of termination. In addition, upon such a termination of employment, Mr. Hart (or his beneficiary, as appropriate) would receive the pro rataportion of any annual incentive award with respect to the year in which his employment is terminated. If we had terminated Mr. Hart’sAdditionally, the RSU awards that the Company granted to our CEO will fully vest upon his termination of employment for any reason other thanwithout cause, includingexcluding death or disability on December 31, 2009, we would have been required to pay him $1,797,697 (which includes the pro rata annual incentive award component).
Messrs. M. Webb, Perri, Mosier and R. Webb. Pursuant to our Employee Benefit Plan, Messrs. M. Webb, Perri, Mosier and R. Webb are entitled to receive: (a) a lump sum payment equal to 24 monthsreceive two-weeks of base salary plus an amount equal to two times the target amount, if any, for the year in which the termination occurs; (b) immediate and full vesting for any outstanding and unvested equity awards; and (c) reimbursement for any premiums paid for continued health benefits for the executive officer and his eligible dependents (if covered under such plans) until the earlier of (i) 24 months or (ii) the date upon which such executive officer and his eligible dependents become covered under similar plans. In addition, if any payment or benefit to which the executive officer becomes entitled is subject to an excise tax applicable to “excess parachute payments” under Section 280G of the Internal Revenue Code upon a change of control, and the aggregate amount of such excise taxes is more than a de minimis amount, the executive officer will receive a tax gross-up payment with respect to such excise taxes.
Estimated Potential Payments for Messrs. Sharpe, M. Webb, Georgino and R. Webbour Named Executive Officer. . The following table lists the estimated amounts that would have become payable to each of Messrs. Sharpe, M. Webb and Georgino pursuant to their employment agreements under the circumstances described above assuming that the applicable triggering event occurred on December 31, 2009. The following table also lists the estimated value of the restricted stock units awarded during 2009 to Messrs. Sharpe,Hart, M. Webb, GeorginoPerri, Mosier and R. Webb assuming a change in control of the Company occurred on December 31, 2009. For purposes2010. The amount of presentingseverance listed below for Mr. Hart is pursuant to his employment agreement; the estimated valueamount of the excise tax gross-up payments, we have assumed that the employment agreementsseverance listed below for Messrs. Sharpe, M. Webb, Perri, Mosier and Georgino were not entered into contingent on the occurrence of a change of control. The tax gross-up payments listed belowR. Webb is post-termination compensation that would only become payable in connection with a change of control.be due pursuant to our Employee Benefit Plan.
Name & Triggering Event | Estimated Value of Cash Severance Payments ($) | Estimated Value of Equity Award Acceleration ($) | Estimated Value of Continued Health Benefits ($) | Estimated Value of Excise Tax “Gross Up” ($) | Total ($) | |||||||||||||||
| Richard H. Sharpe | ||||||||||||||||||||
| Without Cause or Good Reason (No Change of Control) | $ | 572,398 | $ | 2,618,400 | $ | 22,500 | $ | -0- | $ | 3,213,298 | ||||||||||
| Death, Disability or Without Cause or Good Reason in Connection with a Change of Control | 1,144,796 | 2,618,400 | 30,000 | 687,240 | 4,480,436 | |||||||||||||||
| Change in Control (No Termination) | -0- | 2,618,400 | -0- | -0- | 2,618,400 | |||||||||||||||
| Maxim C.W. Webb | ||||||||||||||||||||
| Without Cause or Good Reason (No Change of Control) | 476,671 | 2,618,400 | 22,500 | -0- | 3,117,571 | |||||||||||||||
| Death, Disability or Without Cause or Good Reason in Connection with a Change of Control | 953,342 | 2,618,400 | 30,000 | 707,689 | 4,309,431 | |||||||||||||||
| Change in Control (No Termination) | -0- | 2,618,400 | -0- | -0- | 2,618,400 | |||||||||||||||
| Damian C. Georgino | ||||||||||||||||||||
| Without Cause or Good Reason (No Change of Control) | 329,002 | 2,618,400 | 45,000 | -0- | 2,992,402 | |||||||||||||||
| Death, Disability or Without Cause or Good Reason in Connection with a Change of Control | 658,004 | 2,618,400 | 60,000 | 616,190 | 3,952,594 | |||||||||||||||
| Change in Control (No Termination) | -0- | 2,618,400 | -0- | -0- | 2,618,400 | |||||||||||||||
| W. Raymond Webb | ||||||||||||||||||||
| Change in Control (No Termination) | -0- | 981,900 | -0- | -0- | 981,900 | |||||||||||||||
Severance Benefits on Termination | ||||||||
| Name & Triggering Event | Cash Payments | Cash Payments for Standard Severance | Restricted Stock Units that will vest in March 2012 | Restricted Stock Units that will vest in October 2014 | Total | |||
| John R. Hart | ||||||||
| Termination without cause | $ - | $ - | $ - | $12,720,000 | $12,720,000 | |||
| Change in control | $ - | $ - | $12,720,000 | $12,720,000 | ||||
| Maxim C. W. Webb | ||||||||
| Termination without cause | $ - | $326,923 | $2,544,000 | $1,272,000 | $4,142,923 | |||
| Change in control | $ - | $2,544,000 | $1,272,000 | $3,816,000 | ||||
| John T. Perri | ||||||||
| Termination without cause | $ - | $126,923 | $954,000 | $445,200 | $1,526,123 | |||
| Change in control | $ - | $954,000 | $445,200 | $1,399,200 | ||||
| W. Raymond Webb | ||||||||
| Termination without cause | $ - | $102,356 | $954,000 | $ - | $1,056,356 | |||
| Change in control | $ - | $954,000 | $ - | $954,000 | ||||
| James F. Mosier | ||||||||
| Termination without cause | $ - | $91,556 | $ - | $ - | $91,556 | |||
| Change in control | $ - | $ - | $ - | $ - | ||||
Note that no post-termination payments would be due upon termination with cause, or death or disability.
23
During 2009,2010, our non-employee directors received the following annual cash compensation for their services: (1) an annual retainer of $36,925$38,402 (the Chairman of the Audit Committee and the other members of the Audit Committee each received an additional annual retainer of $10,550$10,972 and $5,275,$5,486, respectively) and (2) a fee of $2,110$2,194 for each board of directors or committee meeting attended by the director in person or by telephone. In addition, any non-employee director attending an educational activity or seminar on our behalf received a fee of $1,055$1,097 per day plus expenses. The Chairman of the board of directors received an additional $42,200. $86,598 for serving in that position.
During 2009,2010, non-employee directors serving on the date of our Annual Meeting also received annual restricted stock awards under the 2005 Long-Term Incentive Plan with respect to 700 shares of our common stock, with vesting to occur one year later if the individual is still serving as a director on that date. Pro-ratedAs of December 31, 2010, six of our directors, Carlos C. Campbell, Ronald Langley, Kristina M. Leslie, Richard D. Ruppert, MD, Kenneth J. Slepicka and Julie H. Sullivan Ph.D. each held an outstanding restricted stock awards were granted during 2009 to directors joining the board after the dateaward covering 700 shares of our Annual Meeting, with such pro-rated awards vesting one year after the grant date if the individual is still serving as a director oncommon stock that date.will not vest until May 2011.
For our non-employee directors, cash retainers and fees increase by the same percentage applicable to the company’sCompany’s employees in an amount determined to approximate a cost of living adjustment, as determined by the Compensation Committee. For 2010, the Compensation Committee determined that the cost of living adjustment would be an increase of 4% over 2009..
Our non-employee directors do not currently participate in any of our deferred compensation plans. However, in prior years, some of our directors did have the option, but were not required, to defer all or a portion of their board of directors or committee fees under a deferred compensation plan. The assets of this director deferred compensation plan are held in a grantor trust subject to the claims of our creditors. If a director opted to defer his fees in the deferred compensation plan, the trustee used such amounts to make open market purchases of our common stock within two weeks of the deposit of such amounts. The only asset permitted in the directors’ deferred compensation grantor trust is our common stock. For the year ended December 31, 2009,2010, we did not maintain a defined benefit pension plan for directors.
The following table sets forth compensation earned during the last fiscal year by each non-employee director who served during 2009:2010:
Name | Fees Earned Or Paid In Cash ($) | Stock Awards ($)(2)(3) | Total ($) | |||||||||
| Carlos C. Campbell | $ | 72,795 | $ | 20,209 | $ | 93,004 | ||||||
| S. Walter Foulkrod, III, Esq. | 70,685 | 20,209 | 90,894 | |||||||||
| Ronald Langley | 53,805 | 20,209 | 74,014 | |||||||||
Kristina M. Leslie(1) | 33,817 | 15,964 | 49,781 | |||||||||
| Richard D. Ruppert, MD | 74,776 | 20,209 | 94,985 | |||||||||
| Kenneth J. Slepicka | 75,037 | 20,209 | 95,246 | |||||||||
Julie H. Sullivan, Ph.D.(1) | 35,927 | 15,964 | 51,891 | |||||||||
| John D. Weil | 96,005 | 20,209 | 116,214 | |||||||||
Name | Fees Earned Or Paid In Cash ($) | Stock Awards ($)(3) | All Other Compensation ($)(4) | Total ($) |
| Carlos C. Campbell | 81,187 | 24,010 | 13,141 | 118,338 |
| Robert G. Deuster (1) | -0- | -0- | -0- | -0- |
| S. Walter Foulkrod, III, Esq.(2) | 61,441 | 24,010 | 10,841 | 96,292 |
| Ronald Langley(5) | 88,617 | 24,010 | 41,707 | 154,334 |
| Kristina M. Leslie (6) | 85,944 | 24,010 | -0- | 109,954 |
| Richard D. Ruppert, MD | 76,799 | 24,010 | 10,536 | 111,345 |
| Kenneth J. Slepicka | 79,482 | 24,010 | 9,794 | 113,286 |
| Julie H. Sullivan, Ph.D. | 71,332 | 24,010 | -0- | 95,342 |
| John D. Weil (2) | 74,883 | 24,010 | 1,770 | 100,663 |
_____________________________
| (1) | |
| (2) | Mr. Foulkrod resigned from the board of directors in October 2010. Mr. Weil retired from the board of directors in August 2010. |
| (3) | Represents the aggregate grant date fair value of the restricted stock awards granted to each of the non-employee directors in |
| (4) | Includes reimbursements for travel expenses and seminar fees. The amount reported for Mr. Langley consisted entirely of |
(5) | On August 5, 2010, the Board elected Mr. Langley as non-executive chairman of the |
Ms. Leslie |
The following table sets forth information, as of March 15, 2010,2011, with respect to the beneficial ownership of our common stock by (i) each person who we know to be the beneficial owner of more than 5% of our common stock based upon Schedule 13G and Schedule 13D reports filed with the Securities and Exchange Commission, (ii) each of our directors and director nominees, (iii) each “named executive officer” listed in our Summary Compensation Table, and (iv) all of our current executive officers and directors as a group.
Unless otherwise indicated, the business address for each person is 875 Prospect Street, Suite 301, La Jolla, CA 92037. The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he has no economic interest. Except as otherwise noted, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock reflected as beneficially owned, subject to applicable community property laws. As of March 15, 2010, 22,595,6782011, 22,700,004 shares of our common stock were outstanding.
Name and Address of Beneficial Owner | Number of Shares and Nature of Beneficial Ownership | Percentage Ownership of Shares |
| Directors and Named Executive Officers | ||
John R. Hart(1) | 25,092 | * |
Carlos C. Campbell(2) | 2,400 | * |
S. Walter Foulkrod, III, Esq.(3) | 4,303 | * |
Ronald Langley(4) | 22,070 | * |
Kristina M. Leslie(5) | 543 | * |
Richard D. Ruppert, MD(6) | 7,698 | * |
Kenneth J. Slepicka(7) | 1,400 | * |
Julie H. Sullivan, Ph.D.(8) | 543 | * |
John D. Weil(9) | 982,183 | 4.3% |
Richard H. Sharpe(10) | 8,625 | * |
Maxim C. W. Webb(11) | 1,731 | * |
Damian C. Georgino(12) | 1,464 | * |
W. Raymond Webb(13) | 60 | * |
Executive Officers and Directors as a Group (13 persons) (14) | 1,058,112 | 4.7% |
| 5% Shareholders | ||
FMR LLC (15) 82 Devonshire Street, Boston, MA 02109 | 2,307,820 | 10.2 % |
Royce & Associates, LLC(16) 745 Fifth Avenue, New York, NY 10151 | 1,601,744 | 7.1% |
Artisan Partners Holdings LP(17) 875 East Wisconsin Avenue, Suite 800, Milwaukee, WI 53202 | 1,201,731 | 5.3% |
Name and Address of Beneficial Owner | Number of Shares and Nature of Beneficial Ownership | Percentage Ownership of Shares |
| Directors and Named Executive Officers | ||
John R. Hart(1) | 26,785 | * |
Carlos C. Campbell(2) | 3,100 | * |
Robert G. Deuster(3) | 146 | * |
Ronald Langley(4) | 22,770 | * |
| Kristina M. Leslie | 1,243 | * |
James F. Mosier(5) | 5,399 | * |
John T. Perri(6) | 303 | * |
Richard D. Ruppert, MD(7) | 8,398 | * |
| Kenneth J. Slepicka | 2,100 | * |
| Julie H. Sullivan, Ph.D. | 1,243 | * |
Maxim C. W. Webb(8) | 1,641 | * |
W. Raymond Webb(9) | 60 | * |
Executive Officers and Directors as a Group (11 persons) (10) | 73,188 | 0.3% |
| 5% Shareholders | ||
FMR LLC (11) 82 Devonshire Street, Boston, MA 02109 | 1,815,308 | 8.0% |
Royce & Associates, LLC(12) 745 Fifth Avenue, New York, NY 10151 | 1,841,849 | 8.1% |
Artisan Partners Holdings LP(13) 875 East Wisconsin Avenue, Suite 800, Milwaukee, WI 53202 | 1,674,621 | 7.4% |
BlackRock, Inc. (14) 40 East 52nd Street New York, NY 10022 | 1,251,467 | 5.5% |
Neuberger Berman Group LLC(15) 605 Third Avenue New York, NY 10158 | 1,144,298 | 5.0% |
_____________________
* Represents less than 1% of the issued and outstanding shares of common stock as of the date of this table.
| (1) | Represents |
(2) | The number of shares shown above does not include 2,644 shares held in a deferred compensation plan grantor trust for Mr. Campbell. Union Bank, N.A., as trustee of the grantor trust, has sole voting power over such shares. |
| (3) | |
| (4) | |
| (5) | Includes |
| (6) | Represents 263.38 shares held in |
| Dr. Ruppert shares voting and investment power with his wife. | |
| (8) | Includes |
| Does not include 30,000 restricted stock units that were granted on March 3, 2009, but will not vest until March 3, 2012 and only if such person remains employed by us on such vesting date. | |
Includes | |
| Beneficial ownership of shares as reported on Schedule 13G filed with the SEC on February | |
| Beneficial ownership of shares as reported on Schedule 13G filed with the SEC on January | |
| Beneficial ownership of shares as reported on Schedule 13G filed with the SEC on February 11, | |
| (14) | Beneficial ownership of shares as reported on Schedule 13G filed with the SEC on February 8, 2011. The Schedule 13G reports that BlackRock, Inc. beneficially owns and has sole voting power and sole dispositive power for 1,251,467 of our shares. |
| (15) | Beneficial ownership of shares as reported on Schedule 13G filed with the SEC on February 14, 2011. The Schedule 13G reports that Neuberger Berman Group LLC and Neuberger Berman LLC beneficially own and have shared voting power of 988,959 of our shares of common stock and shared dispositive power for 1,144,298 of our shares of common stock. Neuberger Berman Group LLC may be deemed to be a beneficial owner of our shares of common stock because certain of its affiliated persons have shared power to retain or dispose of the securities of many unrelated clients. |
We currently maintain only one equity compensation plan, the 2005 Long-Term Incentive Plan, which was approved by our shareholders on December 8, 2005. The following table sets forth information with respect to the number of shares of common stock subject to outstanding awards and remaining available for issuance under the 2005 Long-Term Incentive Plan as of December 31, 2009.2010. For more details regarding our 2005 Long-Term Incentive Plan, see “Executive Compensation—Elements of Executive Officer Compensation—2. Long-Term Incentives.”
(a) | (b) | (c) | (a) | (b) | (c) | |
Plan Category | Number of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | Number of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
Equity Compensation Plans approved by security holders(1) | 2,295,018 | $36.89 | 202,232 | 2,406,079 | $34.17 | 535 |
Equity Compensation Plans not approved by security holders(2) | -0- | -0- | [-0-] | [-0-] | ||
