Our Compensation Committee performs an annual evaluation of our Chief Executive Officer’s performance. As part of our annual evaluations and long-term planning, our Corporate Governance Committee is charged with evaluating the succession of our Chief Executive Officer. Mr. Payne has publicly stated that he has no plans for retirement and that he intends to be involved with the Company as long as his health is good and he is adding value with his energy, passion and vision for Carriage and commitment to mentoring 4E Leaders for the future.future; nevertheless, the Corporate Governance Committee annually considers and discusses CEO succession planning. The Board also periodically reviews our leadership structure to determine if it is still appropriate in light of current corporate governance standards, market practices, the Company’s specific circumstances and needs and any other relevant factors for discussion.
review, evaluate and approve our officer compensation plans, policies and programs;
produce the Compensation Committee Report on executive compensation for inclusion in our proxy statement for our annual meetingAnnual Meeting of stockholders;Stockholders;
perform such other functions as our Board may assign from time to time.
Generally, our Board has charged our Compensation Committee with the overall responsibility for establishing, implementing and monitoring the compensation for our Executive Officersexecutive officers and Senior Leadership.senior leadership team. Executive compensation matters are presented to the Compensation Committee in a variety of ways, including: (1) at the request of our Compensation Committee Chairman or two or more members of the Compensation Committee or two members of our Board, (2) in accordance with our Compensation Committee’s agenda, which is reviewed by our Compensation Committee members and other directors on an annual basis, (3) by our Chief Executive Officer or (4) by our Compensation Committee’s outside compensation consultant, if a consultant is engaged by our Compensation Committee.
To the extent permitted by applicable law, our Compensation Committee may delegate some or all of its authority under its charter to its chairman, any one of its members or any subcommittees it may form when it deems such action appropriate. Mr. Payne, as our Chairman of the Board and Chief Executive Officer, makes recommendations on compensation decisions for those other than himself based on the individual performance of each Executive Officerexecutive officer or Senior Leadersenior leader and the Company'sCompany’s overall performance. Management’s role in determining executive compensation includes:
developing, summarizing and presenting compensation information and analysis to enable our Compensation Committee to execute its responsibilities; responsibilities, as well as addressing specific requests for information from our Compensation Committee;
attending our Compensation Committee’s meetings as requested in order to provide additional information, respond to questions and otherwise assist our Compensation Committee.
Our Compensation Committee makes all final decisions regarding executive officer compensation.
perform such other functions as our Board may assign to our Audit Committee from time to time.
In connection with these purposes, our Audit Committee annually selects, engages and evaluates the performance and ongoing qualifications of, and determines the compensation for, our independent registered public accounting firm and confirms theirits independence. The Audit Committee also reviews our annual and quarterly financial statements and meets with our management and independent registered public accounting firm regarding the adequacy of our financial controls and our compliance with legal, tax and regulatory matters and significant internal policies.
assist our Board by identifying individuals qualified to become Board members, and to recommend to our Board the director nominees for the next annual meetingAnnual Meeting of stockholders;Stockholders;
perform such other functions as our Board may assign to our Corporate Governance Committee from time to time.
Attendance at Annual Stockholder Meetings
Director Independence
Our Board of Directors affirmatively determined that Messrs. Fingerhut, Leibman, Patteson, Schenck and Meehan do not have a material relationship with Carriage (either directly or as a partner, stockholder or officer of an organization that has a relationship with Carriage) and are “independent” as defined under the annual meeting onNYSE’s listing standards and the same daySEC under Item 407(a) of Regulation S-K.
Mr. Payne is not independent because he is an employee of Carriage and currently serves as our Board and Committee meetings such that all directors may attendChief Executive Officer. He also serves as Chairman of the annual meeting. All of our then current directors, except one, attended the 2015 Annual Meeting of Stockholders.Board.
Board’s Interaction with Stockholders
Our Chief Executive Officer and senior leadership team are responsible for establishing effective communication with our stockholders. Independent directors are not precluded from meeting with stockholders, but where appropriate, our executive and senior leadership team should be present at such meetings.
Stockholders and other interested parties may contact any member of our Board or any of its committees by addressing any correspondence in care of Carriage Services, Inc., 3040 Post Oak Boulevard, Suite 300, Houston, Texas 77056; Attn: Corporate Secretary. In the case of communications addressed to the independent directors, our Corporate Secretary will send appropriate stockholder communications to the Lead Director. In the case of communications addressed to a committee of our Board, our Corporate Secretary will send appropriate stockholder communications to the Chairman of such committee.
ELECTION OF CLASS II DIRECTORS
We currently have six directors on our Board who each serve staggered three-year terms. At our Annual EvaluationsMeeting, the stockholders will re-elect two individuals to serve as our Class II Directors for a new three-year term expiring on the date of the 2022 Annual Meeting and until his successor is duly elected and qualified.
Our Corporate Governance Committee has recommended that we nominate Barry K. Fingerhut and Bryan D. Leibman for re-election at our Annual Meeting to serve as our Class II Directors for a new three-year term. Proxies may be voted for each of the Class II Directors. The biographical description for Mr. Fingerhut and Mr. Leibman are included below.
The following table sets forth the name, age and title of the person who has been nominated for election as Class II Directors and our other current directors.
|
| | | | |
Name | | Age | | Positions and Offices with Carriage, Director Since |
Class II Directors | | | | |
(If re-elected, term expires at 2022 Annual Meeting) | | | | |
Barry K. Fingerhut | | 73 | | Director, 2012 |
Bryan D. Leibman | | 50 | | Director, 2015 |
| | | | |
Class I Directors | | | | |
(Term expires at 2021 Annual Meeting) | | | | |
Melvin C. Payne | | 76 | | Chairman of the Board and Chief Executive Officer, 1991 |
James R. Schenck | | 52 | | Director, 2016 |
| | | | |
Class III Directors | | | | |
(Term expires at 2020 Annual Meeting) | | | | |
Donald D. Patteson, Jr. | | 73 | | Director, 2011 |
Douglas B. Meehan | | 47 | | Director, 2018 |
Our Board andbelieves that each committee perform annual self-evaluations. These self-evaluations are conducted through written questionnaires circulated prior to the last regularly scheduled meeting of the Board before the Annual Meeting of Stockholders and compiled on a confidential basis by the Assistant Corporate Secretary. At their last regularly scheduled meeting before the Annual Meeting of Stockholders, detailed results of the self-evaluations are provided to the Corporate Governance Committee with summary results presented to our full Board.
Corporate Governance Guidelines, Business Conduct and Ethics
We are committed to integrity, reliability and transparency in our disclosures to the public, all characteristics consistent with our First Guiding Principle, “Honesty, Integrity and Quality in All That We Do”. To evidence this commitment, our Board has adopted charters for its committees, Corporate Governance Guidelines and a Code of Business Conduct and Ethics. These documents provide the framework for our corporate governance. Our Code of Business Conduct and Ethics requires all of our directors officersis highly qualified to serve as a member of our Board. In particular, our Board seeks individuals who demonstrate:
A deep, genuine belief, understanding and employees must be alignment withcommitment to ourBeing The Best Mission Statement and Five Guiding Principles;
Business and investment savvy, including an owner-oriented attitude and conviction that Carriage has evolved into a high value, superior investment platform; and
An ability to achievemake a meaningful contribution and engagement to our Board’s oversight of all elements and linkages of our High Performance Culture Framework.
Our Board unanimously recommends that you vote “FOR” the election of the Class II Director nominees.
You may not cumulate your votes in the election of the Class II Director nominees. You may withhold authority to vote for the nominee for director. If a nominee becomes unable to serve as a director before our Annual Meeting (or decides not to serve), the individuals named as proxies will vote, in accordance with instructions provided, for such other nominee as we may designate as a replacement or substitute, or our Board may reduce the size of the Board to eliminate the vacancy.
Described below are the principal occupations, positions and directorships for at least the past five years of our directors and director nominees, as well as certain information regarding their individual experience, qualifications, attributes and skills that led our Board to conclude that they should serve on our Board. There are no family relationships among any of our directors or executive officers.
Barry K. Fingerhut has been the Chief Executive Officer and majority equity owner of Certification Partners, LLC, a developer and global distributor of vendor neutral IT content and certifications, since the fall of 2010. Prior to 2010, he focused much of his career investing in small capitalization companies in the for-profit education and training industry and financial services industry, as well as many other industries. Currently, he serves on a number of private company and non-profit Boards. Mr. Fingerhut also served on our Board for the period from 1995 through 1999.
Additional Qualifications: Mr. Fingerhut was selected to serve on our Board due to his past experience with Carriage and his extensive investment knowledge.
Bryan D. Leibman has been the President and Chief Executive Officer of Frosch Travel (“FROSCH”), a privately held global travel management company, since 2000. He is a certified physician who opted to pursue his passion for business and entrepreneurship by joining and leading his family’s successful travel business in 1998.
Additional Qualifications: Mr. Leibman brings experience in entrepreneurial growth and with mergers and acquisitions to our Board. We believe his vision and leadership at FROSCH brings to our Board development of an innovative and forward driving management style and commitment to core values in the services sector.
Melvin C. Payne, co-founder of Carriage, has been our Chief Executive Officer and a director since our inception in 1991, and our Chairman of the Board since December 1996.
Additional Qualifications: Mr. Payne brings to the Board his 28 years of experience as our Chief Executive Officer and proven management skills. Mr. Payne also has prior diverse industry and financial experience coupled with his personal leadership and founder’s vision for Carriage.
James R. Schenck has been the President and Chief Executive Officer of Pentagon Federal Credit Union (“PenFed”), one of the largest credit unions in the country, since 2014. Prior to that, he was the Executive Vice President at PenFed and President of its wholly owned subsidiary, PenFed Realty, since 2011. He also currently serves as Chief Executive Officer of the PenFed Foundation which provides support to military, veterans and their families.
Additional Qualifications: Mr. Schenck brings a passion for entrepreneurial growth and merger and acquisition experience to our Board.
Donald D. Patteson, Jr. was the founder and, prior to its sale in June 2014, the Chairman of the Board of Directors of Sovereign Business Forms, Inc. (“Sovereign”), a consolidator in a segment of the printing industry. He also served as Chief Executive Officer of Sovereign from August 1996 until his retirement in August 2008. Prior to founding Sovereign, he served as Managing Director of Sovereign Capital Partners, an investment firm specializing in leveraged buyouts.
Additional Qualifications: Mr. Patteson brings to the Board his extensive experience as Chief Executive Officer and Chief Financial Officer in various industries, enabling him to provide the Board with executive and financial management expertise, as well as experience with major financial transactions. He also served on the Board of Directors of Rosetta Resources Inc. and Cal Dive International, Inc. until mid-year 2015.
Douglas B. Meehan has served as the Deputy Chief Investment Officer for van Biema Value Partners, LLC, an investment management firm, since 2012. Prior to joining van Biema Value Partners, Mr. Meehan worked as a research analyst at a proprietary securities fund within Sentinel Real Estate Corp., a privately held real estate investment advisor in New York. He also worked with Duma Capital Partners, a multi-strategy hedge fund, as a research analyst.
Additional Qualifications: Mr. Meehan brings to the Board his extensive financial markets and real estate experience, as well as experience with sophisticated transactions.
Failure of a Nominee to Receive a Majority of Votes
On March 6, 2019, we amended our bylaws to provide for “majority voting” in the election of directors in uncontested elections. Our bylaws now provide that in an uncontested election of an incumbent director if the nominee does not receive a majority of the votes cast, the nominee must promptly deliver a written resignation to our Board of Directors and will continue to serve as a holdover director until the effective date of the director’s resignation, which may be no later than 120 days after the date of the election. The remaining directors, by a majority vote, are then required to promptly determine whether to decline to accept the director’s resignation or to accept the resignation of the director. If the remaining directors decline to accept the resignation, the director may continue to serve as long as the director received a plurality of the votes cast. If our Board of Directors accepts the resignation, the directorship will become vacant and the Board of Directors may then fill the vacancy by a majority vote.
In the event of a contested election of directors, our bylaws provide that directors will be elected by the vote of a plurality of the votes of the shares present in person or represented by proxy and entitled to vote in the election of directors.
CORPORATE GOVERNANCE
Board Leadership Structure
Carriage was founded with the Mission Statement of being to be the most professional, ethical and highest quality funeral and cemetery service organization in our industry, which we have shortened for communication purposes to Being The Best, which is achieved by alignment with our Five Guiding Principles:
Honesty, Integrity and Quality in All That We Do
Hard work, Pride of Accomplishment, and Shared Success Through Employee Ownership
Belief in the Power of People Through Individual Initiative and Teamwork
Outstanding Service and Profitability Go Hand-in-Hand
Growth of the Company Is Driven by Decentralization and Partnership
All of our directors, officers and employees must be aligned with these Five Guiding Principles to ensure outstanding execution of our three core models and all other elements and linkages of Carriage’s High Performance Culture Framework. While our commitment is to all Five Guiding Principles equally, there is a reason why the First Guiding Principle is the First “most equal” of the Five; because it is the foundation and cornerstone Guiding Principle upon which our Mission of Being The Best and other Four Guiding Principles are built upon.
At a high level, commitment to our Mission Statement and alignment with our Five Guiding Principles, together with a relentless focus to execute our Good To GreatConcepts such as “First Who, Then What” and “Right People in the Right Seats”, is what drives our high performance operating results. Our Board understands the importance and uniqueness of these qualitative drivers of Carriage’s High Performance Culture as being critical towards our ability to execute sustainable, high performance quantitative results consistently over time through outstanding execution of our three core models. Our Board also fundamentally understands that the biggest continuing risk for the Company is that executive and senior leadership will not continue the evolution of our unique High Performance Culture ideas and concepts. Our continued success and effective risk management emanates from being highly selective about leadership of the Company and finding leaders who are aligned with our Five Guiding Principles and the idea of Carriage as a High Performance CultureCompany. We utilize a 4E Leadership Model, initially developed by Jack Welch at General Electric and then tailored and evolved in our unique culture, to select and assess our leaders at all levels of the Company. 4E Leaders have a winning, entrepreneurial, competitive spirit and want to make a difference in Carriage’s sustainable high performance and reputation over time.
Melvin C. Payne, our co-founder and largest individual stockholder, is our Chief Executive Officer and Chairman of our Board. Our Board believes that it is in the best interest of Carriage and its stockholders for Mr. Payne to serve as both our Chief Executive Officer and Chairman of our Board, based upon Mr. Payne’s specific expertise, knowledge, passion and long-term vision for the Company. This arrangement provides a clear, unified strategic vision and 4E Leadership for Carriage, ensures partnership and alignment between senior leadership and our Board, and enables the Company to continue its evolution as a High Performance CultureCompany that just happens to be in the funeral and cemetery industryservice business. Mr. Payne is also best positioned to lead our Board through reviews of key business and strategic issues and, most importantly, to lead the Board’s understanding of the linkage of Carriage’s unique High Performance Culture to the Company becoming recognized as a superior Consolidation, Operating and Value Creation investment platform.
Our Compensation Committee performs an annual evaluation of our Chief Executive Officer’s performance. As part of our annual evaluations and long-term planning, our Corporate Governance Committee is charged with evaluating the succession of our Chief Executive Officer. Mr. Payne has publicly stated that he has no plans for retirement and that he intends to be involved with the Company as long as his health is good and he is adding value with his energy, passion and vision for Carriage and commitment to mentoring 4E Leaders for the future; nevertheless, the Corporate Governance Committee annually considers and discusses CEO succession planning. The Board also periodically reviews our leadership structure to determine if it is still appropriate in light of current corporate governance standards, market practices, the Company’s specific circumstances and needs and any other relevant factors for discussion.
We also have the position of Lead Director, who is required to be qualified as independent and appointed by a majority of the independent directors. The Lead Director’s role is to lead and facilitate the function of our Board independently and to enhance the quality of our Board by facilitating their deeper understanding of Carriage’s High Performance Culture Framework. The Lead Director presides at the executive sessions of the independent directors during quarterly Board meetings. Bryan D. Liebman currently serves as our Lead Director.
Risk Oversight of the Board
We believe that the oversight function of our Board and its committees combined with active dialogue with senior leadership about effective risk management relative to continuously assessing for the “Right Who” leaders and the Right Quality of Staff at all levels, provides our Company with the appropriate framework to help ensure effective risk oversight. There is a fundamental Board understanding that the continuing biggest risk area for the Company is not having or not hiring the “Right Who” senior leadership in the future, and that hiring the “Wrong Who” senior leadership, including and especially the CEO in case Mr. Payne was for some reason unable to fulfill his CEO responsibilities, could have a major negative impact on the nature of Carriage’s High Performance Culture. In executing this responsibility, independent directors provide independent oversight, including risk oversight and a significant amount of time is spent by our Board and committees, in conjunction with senior leadership, discussing how we identify, assess and manage our most significant risk exposures with respect to our leadership and people. Our Board also relies on each of its committees to help administer its oversight duties.
Director Qualification, Experience and Tenure
Our Corporate Governance Committee is responsible for reviewing the requisite skills and characteristics of new Board members as well as the composition of our Board with significant input from our senior leadership team.
It is the position of our Corporate Governance Committee that, as a company of our size in the specialized field of death care, it is important for our directors to understand, support and align with our culture. Thus, we strive to seek individuals who demonstrate the following characteristics or attributes:
A deep, genuine belief, understanding and commitment to our Being The Best Mission Statement and Five Guiding Principles;
Business and investment savvy, including an owner-oriented attitude and conviction that we have evolved into a superior stockholder value creation investment platform and therefore represents a superior long-term investment opportunity; and
An ability to make a meaningful contribution and engagement to our Board’s oversight of all elements and linkages of our High Performance Culture Framework.
As a result, it is difficult to define what the perfect director candidate looks like. For Carriage, diversity of all kinds, including (but not limited to) experience, age, gender, ethnic background, skills, perspective and background are important contributing factors to effective decision making. Thus, the Corporate Governance Committee believes it is in the best interest of Carriage to identify the best candidates for its board, cognizant of diversity in all forms and will continue to find ways to ensure that it is doing so.
While no director may serve on more than five other public company boards or on the audit committee for more than two other public companies, we much prefer candidates that are singularly focused on Carriage’s uniqueness and not on being a “Professional Board Member.” We currently have no established term limits or age restrictions, as we do not wish to risk losing the contribution of directors who have been able to develop an increasing insight and deep understanding into our unique High Performance Culture Framework.
We currently have six directors on our Board who each serve staggered three-year terms. Five directors are independent. The average age of all directors currently serving on our Board is 62 years. The average age of all independent directors is 59 years. The average tenure of all independent directors is 4.6 years.
Director Nomination Process
Our Corporate Governance Committee, with assistance from internal and external resources as the Committee desires, identifies potential candidates for our Board based upon the criteria set forth above. Once a potential candidate is identified and the individual expresses a willingness to be considered for election to our Board, our Corporate Governance Committee and Mr. Payne will request information from the candidate, review the individual’s qualifications, and conduct one or more interviews with the candidate. When this process is complete, our Corporate Governance Committee tenders its recommendation to our full Board for consideration.
Our Corporate Governance Committee also will consider candidates recommended by stockholders in the same manner. A completestockholder may recommend nominees for director by giving our Corporate Secretary a written notice not less than 90 days prior to the anniversary date of the immediately preceding Annual Meeting. For our 2020 Annual Meeting of Stockholders, the deadline will be February 14, 2020, based upon this year’s meeting occurring on May 15, 2019. The notice must include the name and address of the stockholder giving notice and the number of shares of Common Stock beneficially owned by the stockholder. The notice must also include the nominee’s full name, age, business address, principal occupation or employment, the number of shares of Common Stock that the nominee beneficially owns, any other information about the nominee that must be disclosed in proxy solicitations under Regulation 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the nominee’s written consent to the nomination and to serve, if elected.
Organization and Committees of Our Board
During 2018, our Board met five times and acted by unanimous written consent thirteen additional times. Each of the directors attended all of the meetings of our Board except for Mr. Payne, who was unable to attend one board meeting. Each year we hold the Annual Meeting on the same day as our Board and Committee meetings such that all directors may attend the Annual Meeting. All of our then current directors attended the 2018 Annual Meeting of Stockholders, excluding Mr. Payne. Our director attendance policy for the Annual Meeting states that a quorum must be present in order for directors to be elected.
Our Board has a Compensation, Audit and Corporate Governance Committee. The current members of each committee as of the Record Date are identified in the table below. Each of these committees has its own charter, and a copy of the current version of each of these documents is accessible throughavailable on our website at www.carriageservices.com. The functions of each committee and the number of meetings held during 2018 are described below.
|
| | | | | | |
Director | | Compensation | | Audit | | Corporate Governance |
Melvin C. Payne(*) | | | | | | |
Barry K. Fingerhut(I) | | Chairman | | X | | X |
Bryan D. Leibman(I)(L) | | X | | X | | X |
Donald D. Patteson, Jr.(I) | | X | | Chairman | | X |
James R. Schenck(I) | | X | | X | | Chairman |
Douglas B. Meehan(I) | | X | | X | | X |
|
| |
(*) | Chairman of the Board and Chief Executive Officer. |
(I) | Independent Director. |
(L) | Lead Director. |
Compensation Committee. The purposes of our Compensation Committee are to:
review, evaluate and approve our officer compensation plans, policies and programs;
recommend to our Board non-employee director compensation plans, policies and programs;
produce the Compensation Committee Report on executive compensation for inclusion in our proxy statement for our Annual Meeting of Stockholders;
administer, review and approve grants under our stock incentive plans; and
perform such other functions as our Board may assign from time to time.
Generally, our Board has charged our Compensation Committee with the overall responsibility for establishing, implementing and monitoring the compensation for our executive officers and senior leadership team. Executive compensation matters are presented to the Compensation Committee in a variety of ways, including: (1) at the request of our Compensation Committee Chairman or youtwo or more members of the Compensation Committee or two members of our Board, (2) in accordance with our Compensation Committee’s agenda, which is reviewed by our Compensation Committee members and other directors on an annual basis, (3) by our Chief Executive Officer or (4) by our Compensation Committee’s outside compensation consultant, if a consultant is engaged by our Compensation Committee.
To the extent permitted by applicable law, our Compensation Committee may receive copies freedelegate some or all of chargeits authority under its charter to its chairman, any one of its members or any subcommittees it may form when it deems such action appropriate. Mr. Payne, as our Chairman of the Board and Chief Executive Officer, makes recommendations on compensation decisions for those other than himself based on the individual performance of each executive officer or senior leader and the Company’s overall performance. Management’s role in determining executive compensation includes:
developing, summarizing and presenting compensation information and analysis to enable our Compensation Committee to execute its responsibilities, as well as addressing specific requests for information from our Compensation Committee;
developing recommendations for individual Executive Officer and Senior Leadership bonus plans for consideration by writingour Compensation Committee and reporting to usour Compensation Committee regarding achievement against the bonus plans;
preparing long-term incentive award recommendations for our Compensation Committee’s approval; and
attending our Compensation Committee’s meetings as requested in order to provide additional information, respond to questions and otherwise assist our Compensation Committee.
Our Compensation Committee makes all final decisions regarding executive officer compensation.
Our Compensation Committee met two times during 2018 and acted by unanimous written consent seven additional times. Each member of our Compensation Committee was present at all meetings. Our Board has determined that all of the members of the committee are independent under the listing standards of the NYSE and the rules of the SEC. Each of the members of the committee is considered to be a “non-employee director” under Rule 16b-3 of the Exchange Act, and an “outside director” under Section 162(m) of the Internal Revenue Code of 1986, as amended.
Audit Committee. The purposes of our Audit Committee are to:
assist our Board in fulfilling its oversight responsibilities regarding the:
| |
◦ | integrity of our financial statements and financial reporting process, and our systems of internal accounting and financial controls; |
| |
◦ | qualifications and independence of the independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other review or attestation services for Carriage; |
| |
◦ | performance of our internal audit function and independent auditors; |
| |
◦ | whistleblower hotline and associated reporting procedures; and |
| |
◦ | compliance by Carriage with legal and regulatory requirements. |
perform such other functions as our Board may assign to our Audit Committee from time to time.
In connection with these purposes, our Audit Committee annually selects, engages and evaluates the performance and ongoing qualifications of, and determines the compensation for, our independent registered public accounting firm and confirms its independence. The Audit Committee also reviews our annual and quarterly financial statements and meets with our management and independent registered public accounting firm regarding the adequacy of our financial controls and our compliance with legal, tax and regulatory matters and significant internal policies.
Our Audit Committee met five times during 2018 and acted by unanimous written consent three additional times. All committee members were present at such meetings. All members of our Audit Committee are independent as that term is defined in the NYSE’s listing standards and by Rule 10A-3 promulgated under the Exchange Act. Our Board has determined that each member of our Audit Committee is financially literate and that Mr. Patteson has the necessary accounting and financial expertise to serve as Chairman. Our Board has also determined that Mr. Patteson is an “audit committee financial expert” following a determination that he met the criteria for such designation under the SEC’s rules and regulations. See “Audit Committee Report” below for additional information regarding our Audit Committee.
Corporate Governance Committee. The purposes of our Corporate Governance Committee are to:
assist our Board by identifying individuals qualified to become Board members, and to recommend to our Board the director nominees for the next Annual Meeting of Stockholders;
assist our Board with succession planning for our Chief Executive Officer and other members of the senior leadership team;
lead our Board in its annual review of the performance of our Board and its committees; and
perform such other functions as our Board may assign to our Corporate Governance Committee from time to time.
Our Corporate Governance Committee met one time during 2018 and acted by unanimous written consent three additional times. All committee members were present at such meetings.
Director Independence
Our Board of Directors affirmatively determined that Messrs. Fingerhut, Leibman, Patteson, Schenck and Meehan do not have a material relationship with Carriage (either directly or as a partner, stockholder or officer of an organization that has a relationship with Carriage) and are “independent” as defined under the NYSE’s listing standards and the SEC under Item 407(a) of Regulation S-K.
Mr. Payne is not independent because he is an employee of Carriage and currently serves as our Chief Executive Officer. He also serves as Chairman of the Board.
Board’s Interaction with Stockholders
Our Chief Executive Officer and senior leadership team are responsible for establishing effective communication with our stockholders. Independent directors are not precluded from meeting with stockholders, but where appropriate, our executive and senior leadership team should be present at such meetings.
Stockholders and other interested parties may contact any member of our Board or any of its committees by addressing any correspondence in care of Carriage Services, Inc., 3040 Post Oak Boulevard, Suite 300, Houston, Texas 77056,77056; Attn: Investor Relations.
DIRECTOR COMPENSATION
General
We compensateCorporate Secretary. In the case of communications addressed to the independent directors, our directors through cash payments, including retainers and meeting attendance fees, and through stock-based awards. Our Director Compensation Policy provides forCorporate Secretary will send appropriate stockholder communications to the following cash payments, including retainers and meeting attendance fees:
|
| | | | | | | | | |
| | | Annual Cash Retainer | | | Per Meeting Cash Fee(2) |
Board - Independent Director | | $ | 40,000 |
| (1) | | $ | 2,000 |
|
Board - Lead Director | | $ | 115,000 |
| (1) (3) | | $ | 2,000 |
|
Audit Committee | | | | | | |
Chair | | $ | 17,500 |
| (4) | | $ | 2,000 |
|
Member | | $ | — |
| | | $ | 2,000 |
|
Compensation Committee | | | | | | |
Chair | | $ | 15,000 |
| (4) | | $ | 1,600 |
|
Member | | $ | — |
| | | $ | 1,600 |
|
Corporate Governance Committee | | | | | | |
Chair | | $ | 15,000 |
| (4) | | $ | 1,600 |
|
Member | | $ | — |
| | | $ | 1,600 |
|
| |
(1) | Paid on a quarterly basis. No cash retainers are paid to employee directors. |
| |
(2) | Paid for attendance at any special or regular meeting of the Board or Committee, whether attended in person or by phone. No Per Meeting Cash Fees are paid to employee directors. |
| |
(3) | The Lead Director receives this annual retainer in addition to the retainer paid to other Independent Directors. |
| |
(4) | Paid on the date of our Annual Meeting of Stockholders. |
Our Director Compensation Policy provides that any new independent director will receive, upon appointment or electionLead Director. In the case of communications addressed to our Board, a grant of $100,000 in shares of our Common Stock. Following their initial appointment or election to our Board, each independent directorcommittee of our Board, is entitledour Corporate Secretary will send appropriate stockholder communications to an annual equity retainerthe Chairman of $75,000 payable in shares of Common Stock, paid on the date of our Annual Meeting of Stockholders. Common Stock grants to our independent directors are issued under our Second Amended and Restated 2006 Long-Term Incentive Plan (the “2006 LTIP”).such committee.
2015 Director Compensation Table
|
| | | | | | | | | | | |
Name | | Fees Earned in Cash | | | Stock Awards | | Total |
Barry K. Fingerhut | | $ | 81,400 |
| | $ | 75,000(1) | | $ | 156,400 |
|
Donald D. Patteson, Jr. | | $ | 83,900 |
| | $ | 75,000(1) | | $ | 158,900 |
|
Richard W. Scott | | $ | 196,400 |
| | $ | 75,000(1) | | $ | 271,400 |
|
Bryan D. Leibman | | $ | 14,000 |
| | $ | 100,000(2) | | $ | 114,000 |
|
| |
(1) | On May 19, 2015, Messrs. Fingerhut, Patteson and Scott each received an annual equity grant of $75,000 in shares of fully-vested Common Stock, resulting in 2,953 shares granted to each individual, based upon a closing price of $25.39 on such date. Amounts reported with respect to these awards reflect the grant date fair value, calculated in accordance with FASB ASC Topic 718. As of December 31, 2015, Messrs. Fingerhut, Patteson and Scott had no shares of unvested restricted stock outstanding. |
| |
(2) | On September 28, 2015, our Board elected Bryan D. Leibman to serve as a Class II director until our 2016 Annual Meeting of Stockholders. Mr. Leibman was appointed to serve on our Audit, Compensation and Corporate Governance Committees. He received 4,837 shares of Common Stock in new director compensation awards valued at $100,000 based upon a closing price of $20.67 on the date of the grant. Half of these shares were fully vested on the date of grant and the remaining half vest in equal installments on each of the first two anniversaries of the date of grant. For Mr. Leibman, 2,418 shares were vested upon grant on September 28, 2015, 1,209 shares will vest on September 28, 2016 and 1,210 shares will vest on September 28, 2017. Amounts reported with respect to these awards reflect the grant date fair value, calculated in accordance with FASB ASC Topic 718.
|
PROPOSAL NO. 1:
ELECTION OF CLASS II DIRECTORS
We currently have six directors on our Board who each serve staggered three-year terms. At our Annual Meeting, the stockholders will electre-elect two individuals to serve as our Class II directorsDirectors for a new three-year termsterm expiring on the date of the 2019 annual meeting2022 Annual Meeting and until their successors arehis successor is duly elected and qualified.
Our Corporate Governance Committee has recommended that we nominate Barry K. Fingerhut for re-election and Bryan D. Leibman for electionre-election at our Annual Meeting to serve as our Class II directorsDirectors for a new three-year terms.term. Proxies may be voted for each of the Class II directors.Directors. The biography descriptionsbiographical description for Messrs.Mr. Fingerhut and Mr. Leibman are included below.
The following table sets forth the name, age and title of the personsperson who havehas been nominated for election as Class II directorsDirectors and our other current directors.
|
| | | | |
Name | | Age | | Positions and Offices with Carriage, Director Since |
Continuing Class II Directors | | | | |
(If re-elected, term expires at 20192022 Annual Meeting) | | | | |
Barry K. Fingerhut | | 7073 | | Director, 2012 |
Bryan D. Leibman(1) | | 4750 | | Director, 2015 |
| | | | |
Class I Directors | | | | |
(Term expires at 2021 Annual Meeting) | | | | |
Melvin C. Payne | | 76 | | Chairman of the Board and Chief Executive Officer, 1991 |
James R. Schenck | | 52 | | Director, 2016 |
| | | | |
Class III Directors | | | | |
(Term expires at 20172020 Annual Meeting) | | | | |
David J. DeCarlo | | 70 | | Director, 2011; President and Vice Chairman of the Board, 2014 |
Donald D. Patteson, Jr. | | 7073 | | Director, 2011 |
Douglas B. Meehan | | | | |
Class I Directors | | | | |
(Term expires at 2018 Annual Meeting) | | | | |
Melvin C. Payne | | 73 | | Chairman of the Board and Chief Executive Officer, 1991 |
Richard W. Scott | | 6247 | | Director, 20092018 |
| |
(1) | On September 28, 2015, our Board elected Bryan D. Leibman to serve as a Class II director until our 2016 Annual Meeting of Stockholders. Mr. Leibman was appointed to serve on our Audit, Compensation and Corporate Governance Committees. Upon electing Mr. Leibman to the Board, the Corporate Governance Committee approved to increase the Board membership from five to six members.
|
Our Board believes that each of our directors is highly qualified to serve as a member of our Board. In particular, our Board seeks individuals who demonstrate:
A deep, genuine belief, understanding and commitment to our Being The Best Mission Statement and Five Guiding Principles,;
Business and investment savvy, including an owner-oriented attitude and conviction that Carriage Services has evolved into a high value, superior investment platform,platform; and
An ability to make a meaningful contribution and engagement to our Board’s oversight of all elements and linkages of our High Performance Culture Framework.Framework.
Our Board unanimously recommends that you vote “FOR” the election of each of the Class II directorDirector nominees.
You may not cumulate your votes in the election of the Class II directors.Director nominees. You may withhold authority to vote for any of the nomineesnominee for director. If a nominee becomes unable to serve as a director before our Annual Meeting (or decides not to serve), the individuals named as proxies will vote, in accordance with instructions provided, for such other nominee as we may designate as a replacement or substitute, or our Board may reduce the size of the Board to eliminate the vacancy.
Described below are the principal occupations, positions and directorships for at least the past five years of our directors and director nominees, as well as certain information regarding their individual experience, qualifications, attributes and skills that led our Board to conclude that they should serve on our Board. There are no family relationships among any of our directors or executive officers.
Barry K. Fingerhut has been the Chief Executive Officer and majority equity owner of Certification Partners, LLC, a developer and global distributor of vendor neutral IT content and certifications, since the fall of 2010. Prior to 2010, he focused much of his career investing in small capitalization companies in the for-profit education and training industry and financial services industry, as well as many other industries. Currently, he serves on a number of private company and non-profit Boards. Mr. Fingerhut also served on our Board for the period from 1995 through 1999.
Additional Qualifications: Mr. Fingerhut was selected to serve on our Board due to his past experience with Carriage and his extensive investment knowledge.
Bryan D. Leibman has been the President and Chief Executive Officer of Frosch Travel (FROSCH)(“FROSCH”), a privately held global travel management company, since 2000. He is a certified physician who opted to pursue his passion for business and entrepreneurship by joining and leading his family’s successful travel business sincein 1998.
Additional Qualifications: Mr. Leibman brings experience in entrepreneurial growth merger and acquisition experiencewith mergers and acquisitions to our Board. We believe his vision and leadership at FROSCH brings to our Board development of an innovative and forward driving management style and commitment to core values in the services sector.
David J. DeCarloMelvin C. Payne, co-founder of Carriage, has been Presidentour Chief Executive Officer and Vicea director since our inception in 1991, and our Chairman of the Board of Directors since March 3, 2014. From May 2011 to March 3, 2014, Mr. DeCarlo was an independent director of Carriage. He served as an executive officer in various roles for Matthews International (“Matthews”), and also served as a director of Matthews for 22 years. He retired from Matthews as Vice Chairman of the Board of Directors in 2008.December 1996.
Additional Qualifications: Mr. DeCarlo was selectedPayne brings to serve onthe Board his 28 years of experience as our Board as a resultChief Executive Officer and proven management skills. Mr. Payne also has prior diverse industry and financial experience coupled with his personal leadership and founder’s vision for Carriage.
James R. Schenck has been the President and Chief Executive Officer of his long historyPentagon Federal Credit Union (“PenFed”), one of the largest credit unions in the deathcare industrycountry, since 2014. Prior to that, he was the Executive Vice President at PenFed and President of its wholly owned subsidiary, PenFed Realty, since 2011. He also currently serves as Chief Executive Officer of the PenFed Foundation which provides support to military, veterans and their families.
Additional Qualifications: Mr. Schenck brings a passion for entrepreneurial growth and merger and acquisition experience in a multitude of executive roles in other industries.to our Board.
Donald D. Patteson, Jr. was the founder and, prior to its sale in June 2014, the Chairman of the Board of Directors of Sovereign Business Forms, Inc. (“Sovereign”), a consolidator in a segment of the printing industry. He also served as Chief Executive Officer of Sovereign from August 1996 until his retirement in August 2008. Mr. PattesonPrior to founding Sovereign, he served on the Boardas Managing Director of Directors of Rosetta Resources Inc. and Cal Dive International, Inc. until mid-year 2015.Sovereign Capital Partners, an investment firm specializing in leveraged buyouts.
Additional Qualifications: Mr. Patteson brings to the Board his extensive experience as Chief Executive Officer and Chief Financial Officer in various industries, enabling him to provide the Board with executive and financial management expertise, as well as experience with major financial transactions. He also served on the Board of Directors of Rosetta Resources Inc. and Cal Dive International, Inc. until mid-year 2015.
Douglas B. Meehan has served as the Deputy Chief Investment Officer for van Biema Value Partners, LLC, an investment management firm, since 2012. Prior to joining van Biema Value Partners, Mr. Meehan worked as a research analyst at a proprietary securities fund within Sentinel Real Estate Corp., a privately held real estate investment advisor in New York. He also worked with Duma Capital Partners, a multi-strategy hedge fund, as a research analyst.
Additional Qualifications: Mr. Meehan brings to the Board his extensive financial markets and real estate experience, as well as experience with sophisticated transactions.
Failure of a Nominee to Receive a Majority of Votes
On March 6, 2019, we amended our bylaws to provide for “majority voting” in the election of directors in uncontested elections. Our bylaws now provide that in an uncontested election of an incumbent director if the nominee does not receive a majority of the votes cast, the nominee must promptly deliver a written resignation to our Board of Directors and will continue to serve as a holdover director until the effective date of the director’s resignation, which may be no later than 120 days after the date of the election. The remaining directors, by a majority vote, are then required to promptly determine whether to decline to accept the director’s resignation or to accept the resignation of the director. If the remaining directors decline to accept the resignation, the director may continue to serve as long as the director received a plurality of the votes cast. If our Board of Directors accepts the resignation, the directorship will become vacant and the Board of Directors may then fill the vacancy by a majority vote.
In the event of a contested election of directors, our bylaws provide that directors will be elected by the vote of a plurality of the votes of the shares present in person or represented by proxy and entitled to vote in the election of directors.
CORPORATE GOVERNANCE
Board Leadership Structure
Carriage was founded with the Mission Statement to be the most professional, ethical and highest quality funeral and cemetery service organization in our industry, which we have shortened for communication purposes to Being The Best, which is achieved by alignment with our Five Guiding Principles:
Honesty, Integrity and Quality in All That We Do
Hard work, Pride of Accomplishment, and Shared Success Through Employee Ownership
Belief in the Power of People Through Individual Initiative and Teamwork
Outstanding Service and Profitability Go Hand-in-Hand
Growth of the Company Is Driven by Decentralization and Partnership
All of our directors, officers and employees must be aligned with these Five Guiding Principles to ensure outstanding execution of our three core models and all other elements and linkages of Carriage’s High Performance Culture Framework. While our commitment is to all Five Guiding Principles equally, there is a reason why the First Guiding Principle is the First “most equal” of the Five; because it is the foundation and cornerstone Guiding Principle upon which our Mission of Being The Best and other Four Guiding Principles are built upon.
At a high level, commitment to our Mission Statement and alignment with our Five Guiding Principles, together with a relentless focus to execute our Good To GreatConcepts such as “First Who, Then What” and “Right People in the Right Seats”, is what drives our high performance operating results. Our Board understands the importance and uniqueness of these qualitative drivers of Carriage’s High Performance Culture as being critical towards our ability to execute sustainable, high performance quantitative results consistently over time through outstanding execution of our three core models. Our Board also fundamentally understands that the biggest continuing risk for the Company is that executive and senior leadership will not continue the evolution of our unique High Performance Culture ideas and concepts. Our continued success and effective risk management emanates from being highly selective about leadership of the Company and finding leaders who are aligned with our Five Guiding Principles and the idea of Carriage as a High Performance CultureCompany. We utilize a 4E Leadership Model, initially developed by Jack Welch at General Electric and then tailored and evolved in our unique culture, to select and assess our leaders at all levels of the Company. 4E Leaders have a winning, entrepreneurial, competitive spirit and want to make a difference in Carriage’s sustainable high performance and reputation over time.
Melvin C. Payne,, our co-founder of Carriage, has beenand largest individual stockholder, is our Chief Executive Officer and Chairman of our Board. Our Board believes that it is in the best interest of Carriage and its stockholders for Mr. Payne to serve as both our Chief Executive Officer and Chairman of our Board, based upon Mr. Payne’s specific expertise, knowledge, passion and long-term vision for the Company. This arrangement provides a clear, unified strategic vision and 4E Leadership for Carriage, ensures partnership and alignment between senior leadership and our Board, and enables the Company to continue its evolution as a High Performance CultureCompany that just happens to be in the funeral and cemetery service business. Mr. Payne is also best positioned to lead our Board through reviews of key business and strategic issues and, most importantly, to lead the Board’s understanding of the linkage of Carriage’s unique High Performance Culture to the Company becoming recognized as a superior Consolidation, Operating and Value Creation investment platform.
Our Compensation Committee performs an annual evaluation of our Chief Executive Officer’s performance. As part of our annual evaluations and long-term planning, our Corporate Governance Committee is charged with evaluating the succession of our Chief Executive Officer. Mr. Payne has publicly stated that he has no plans for retirement and that he intends to be involved with the Company as long as his health is good and he is adding value with his energy, passion and vision for Carriage and commitment to mentoring 4E Leaders for the future; nevertheless, the Corporate Governance Committee annually considers and discusses CEO succession planning. The Board also periodically reviews our leadership structure to determine if it is still appropriate in light of current corporate governance standards, market practices, the Company’s specific circumstances and needs and any other relevant factors for discussion.
We also have the position of Lead Director, who is required to be qualified as independent and appointed by a majority of the independent directors. The Lead Director’s role is to lead and facilitate the function of our Board independently and to enhance the quality of our Board by facilitating their deeper understanding of Carriage’s High Performance Culture Framework. The Lead Director presides at the executive sessions of the independent directors during quarterly Board meetings. Bryan D. Liebman currently serves as our Lead Director.
Risk Oversight of the Board
We believe that the oversight function of our Board and its committees combined with active dialogue with senior leadership about effective risk management relative to continuously assessing for the “Right Who” leaders and the Right Quality of Staff at all levels, provides our Company with the appropriate framework to help ensure effective risk oversight. There is a fundamental Board understanding that the continuing biggest risk area for the Company is not having or not hiring the “Right Who” senior leadership in the future, and that hiring the “Wrong Who” senior leadership, including and especially the CEO in case Mr. Payne was for some reason unable to fulfill his CEO responsibilities, could have a major negative impact on the nature of Carriage’s High Performance Culture. In executing this responsibility, independent directors provide independent oversight, including risk oversight and a significant amount of time is spent by our Board and committees, in conjunction with senior leadership, discussing how we identify, assess and manage our most significant risk exposures with respect to our leadership and people. Our Board also relies on each of its committees to help administer its oversight duties.
Director Qualification, Experience and Tenure
Our Corporate Governance Committee is responsible for reviewing the requisite skills and characteristics of new Board members as well as the composition of our Board with significant input from our senior leadership team.
It is the position of our Corporate Governance Committee that, as a company of our size in the specialized field of death care, it is important for our directors to understand, support and align with our culture. Thus, we strive to seek individuals who demonstrate the following characteristics or attributes:
A deep, genuine belief, understanding and commitment to our Being The Best Mission Statement and Five Guiding Principles;
Business and investment savvy, including an owner-oriented attitude and conviction that we have evolved into a superior stockholder value creation investment platform and therefore represents a superior long-term investment opportunity; and
An ability to make a meaningful contribution and engagement to our Board’s oversight of all elements and linkages of our High Performance Culture Framework.
As a result, it is difficult to define what the perfect director sincecandidate looks like. For Carriage, diversity of all kinds, including (but not limited to) experience, age, gender, ethnic background, skills, perspective and background are important contributing factors to effective decision making. Thus, the Corporate Governance Committee believes it is in the best interest of Carriage to identify the best candidates for its board, cognizant of diversity in all forms and will continue to find ways to ensure that it is doing so.
While no director may serve on more than five other public company boards or on the audit committee for more than two other public companies, we much prefer candidates that are singularly focused on Carriage’s uniqueness and not on being a “Professional Board Member.” We currently have no established term limits or age restrictions, as we do not wish to risk losing the contribution of directors who have been able to develop an increasing insight and deep understanding into our inceptionunique High Performance Culture Framework.
We currently have six directors on our Board who each serve staggered three-year terms. Five directors are independent. The average age of all directors currently serving on our Board is 62 years. The average age of all independent directors is 59 years. The average tenure of all independent directors is 4.6 years.
Director Nomination Process
Our Corporate Governance Committee, with assistance from internal and external resources as the Committee desires, identifies potential candidates for our Board based upon the criteria set forth above. Once a potential candidate is identified and the individual expresses a willingness to be considered for election to our Board, our Corporate Governance Committee and Mr. Payne will request information from the candidate, review the individual’s qualifications, and conduct one or more interviews with the candidate. When this process is complete, our Corporate Governance Committee tenders its recommendation to our full Board for consideration.
Our Corporate Governance Committee also will consider candidates recommended by stockholders in 1991,the same manner. A stockholder may recommend nominees for director by giving our Corporate Secretary a written notice not less than 90 days prior to the anniversary date of the immediately preceding Annual Meeting. For our 2020 Annual Meeting of Stockholders, the deadline will be February 14, 2020, based upon this year’s meeting occurring on May 15, 2019. The notice must include the name and address of the stockholder giving notice and the number of shares of Common Stock beneficially owned by the stockholder. The notice must also include the nominee’s full name, age, business address, principal occupation or employment, the number of shares of Common Stock that the nominee beneficially owns, any other information about the nominee that must be disclosed in proxy solicitations under Regulation 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the nominee’s written consent to the nomination and to serve, if elected.
Organization and Committees of Our Board
During 2018, our Board met five times and acted by unanimous written consent thirteen additional times. Each of the directors attended all of the meetings of our Board except for Mr. Payne, who was unable to attend one board meeting. Each year we hold the Annual Meeting on the same day as our Board and Committee meetings such that all directors may attend the Annual Meeting. All of our then current directors attended the 2018 Annual Meeting of Stockholders, excluding Mr. Payne. Our director attendance policy for the Annual Meeting states that a quorum must be present in order for directors to be elected.
Our Board has a Compensation, Audit and Corporate Governance Committee. The current members of each committee as of the Record Date are identified in the table below. Each of these committees has its own charter, and a copy of the current version is available on our website at www.carriageservices.com. The functions of each committee and the number of meetings held during 2018 are described below.
|
| | | | | | |
Director | | Compensation | | Audit | | Corporate Governance |
Melvin C. Payne(*) | | | | | | |
Barry K. Fingerhut(I) | | Chairman | | X | | X |
Bryan D. Leibman(I)(L) | | X | | X | | X |
Donald D. Patteson, Jr.(I) | | X | | Chairman | | X |
James R. Schenck(I) | | X | | X | | Chairman |
Douglas B. Meehan(I) | | X | | X | | X |
|
| |
(*) | Chairman of the Board and Chief Executive Officer. |
(I) | Independent Director. |
(L) | Lead Director. |
Compensation Committee. The purposes of our Compensation Committee are to:
review, evaluate and approve our officer compensation plans, policies and programs;
recommend to our Board non-employee director compensation plans, policies and programs;
produce the Compensation Committee Report on executive compensation for inclusion in our proxy statement for our Annual Meeting of Stockholders;
administer, review and approve grants under our stock incentive plans; and
perform such other functions as our Board may assign from time to time.
Generally, our Board has charged our Compensation Committee with the overall responsibility for establishing, implementing and monitoring the compensation for our executive officers and senior leadership team. Executive compensation matters are presented to the Compensation Committee in a variety of ways, including: (1) at the request of our Compensation Committee Chairman or two or more members of the Compensation Committee or two members of our Board, (2) in accordance with our Compensation Committee’s agenda, which is reviewed by our Compensation Committee members and other directors on an annual basis, (3) by our Chief Executive Officer or (4) by our Compensation Committee’s outside compensation consultant, if a consultant is engaged by our Compensation Committee.
To the extent permitted by applicable law, our Compensation Committee may delegate some or all of its authority under its charter to its chairman, any one of its members or any subcommittees it may form when it deems such action appropriate. Mr. Payne, as our Chairman of the Board since December 1996.and Chief Executive Officer, makes recommendations on compensation decisions for those other than himself based on the individual performance of each executive officer or senior leader and the Company’s overall performance. Management’s role in determining executive compensation includes:
developing, summarizing and presenting compensation information and analysis to enable our Compensation Committee to execute its responsibilities, as well as addressing specific requests for information from our Compensation Committee;
developing recommendations for individual Executive Officer and Senior Leadership bonus plans for consideration by our Compensation Committee and reporting to our Compensation Committee regarding achievement against the bonus plans;
preparing long-term incentive award recommendations for our Compensation Committee’s approval; and
attending our Compensation Committee’s meetings as requested in order to provide additional information, respond to questions and otherwise assist our Compensation Committee.
Our Compensation Committee makes all final decisions regarding executive officer compensation.
Our Compensation Committee met two times during 2018 and acted by unanimous written consent seven additional times. Each member of our Compensation Committee was present at all meetings. Our Board has determined that all of the members of the committee are independent under the listing standards of the NYSE and the rules of the SEC. Each of the members of the committee is considered to be a “non-employee director” under Rule 16b-3 of the Exchange Act, and an “outside director” under Section 162(m) of the Internal Revenue Code of 1986, as amended.
Audit Committee. The purposes of our Audit Committee are to:
Additional Qualifications:assist our Board in fulfilling its oversight responsibilities regarding the:
| |
◦ | integrity of our financial statements and financial reporting process, and our systems of internal accounting and financial controls; |
| |
◦ | qualifications and independence of the independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other review or attestation services for Carriage; |
| |
◦ | performance of our internal audit function and independent auditors; |
| |
◦ | whistleblower hotline and associated reporting procedures; and |
| |
◦ | compliance by Carriage with legal and regulatory requirements. |
perform such other functions as our Board may assign to our Audit Committee from time to time.
In connection with these purposes, our Audit Committee annually selects, engages and evaluates the performance and ongoing qualifications of, and determines the compensation for, our independent registered public accounting firm and confirms its independence. The Audit Committee also reviews our annual and quarterly financial statements and meets with our management and independent registered public accounting firm regarding the adequacy of our financial controls and our compliance with legal, tax and regulatory matters and significant internal policies.
Our Audit Committee met five times during 2018 and acted by unanimous written consent three additional times. All committee members were present at such meetings. All members of our Audit Committee are independent as that term is defined in the NYSE’s listing standards and by Rule 10A-3 promulgated under the Exchange Act. Our Board has determined that each member of our Audit Committee is financially literate and that Mr. Payne bringsPatteson has the necessary accounting and financial expertise to serve as Chairman. Our Board has also determined that Mr. Patteson is an “audit committee financial expert” following a determination that he met the criteria for such designation under the SEC’s rules and regulations. See “Audit Committee Report” below for additional information regarding our Audit Committee.
Corporate Governance Committee. The purposes of our Corporate Governance Committee are to:
assist our Board his 25 yearsby identifying individuals qualified to become Board members, and to recommend to our Board the director nominees for the next Annual Meeting of experience asStockholders;
assist our Board with succession planning for our Chief Executive Officer and proven management skills. other members of the senior leadership team;
lead our Board in its annual review of the performance of our Board and its committees; and
perform such other functions as our Board may assign to our Corporate Governance Committee from time to time.
Our Corporate Governance Committee met one time during 2018 and acted by unanimous written consent three additional times. All committee members were present at such meetings.
Director Independence
Our Board of Directors affirmatively determined that Messrs. Fingerhut, Leibman, Patteson, Schenck and Meehan do not have a material relationship with Carriage (either directly or as a partner, stockholder or officer of an organization that has a relationship with Carriage) and are “independent” as defined under the NYSE’s listing standards and the SEC under Item 407(a) of Regulation S-K.
Mr. Payne’sPayne is not independent because he is an employee of Carriage and currently serves as our Chief Executive Officer. He also serves as Chairman of the Board.
Board’s Interaction with Stockholders
Our Chief Executive Officer and senior leadership team are responsible for establishing effective communication with our stockholders. Independent directors are not precluded from meeting with stockholders, but where appropriate, our executive and senior leadership team should be present at such meetings.
Stockholders and other interested parties may contact any member of our Board or any of its committees by addressing any correspondence in care of Carriage Services, Inc., 3040 Post Oak Boulevard, Suite 300, Houston, Texas 77056; Attn: Corporate Secretary. In the case of communications addressed to the independent directors, our Corporate Secretary will send appropriate stockholder communications to the Lead Director. In the case of communications addressed to a committee of our Board, our Corporate Secretary will send appropriate stockholder communications to the Chairman of such committee.
Annual Evaluations
Our Board performs annual self-evaluations. These self-evaluations are conducted through written questionnaires circulated typically in January prior to the first regularly scheduled meeting of the Board. At the first regularly scheduled Board meeting before the Annual Meeting of Stockholders, detailed results of the self-evaluations are provided to the Corporate Governance Committee Chairman and discussed at the Board meeting.
Corporate Governance Guidelines, Business Conduct and Ethics
We are committed to integrity, reliability and transparency in our disclosures to the public, all characteristics consistent with our First Guiding Principle, “Honesty, Integrity and Quality in All That We Do”. To evidence this commitment, our Board has prior diverseadopted charters for its committees, Corporate Governance Guidelines and a Code of Business Conduct and Ethics. These documents provide the framework for our corporate governance. Our Code of Business Conduct and Ethics requires that all of our directors, officers and employees must be in alignment with our Five Guiding Principles to achieve our Mission Statement of being the most professional, ethical and highest quality service organization in the funeral and cemetery industry.
A complete copy of the current version of each of these documents is accessible through our website at www.carriageservices.com or you may receive copies free of charge by writing to us at Carriage Services, Inc., 3040 Post Oak Boulevard, Suite 300, Houston, Texas 77056, Attn: Investor Relations.
Corporate Social Responsibility
One of our key guiding principles is “Belief in the Power of People Through Individual Initiative and financial experience coupledTeamwork.” This translates to a decentralized and collaborative decision-making style rather than a top-down approach. Employees across the country are encouraged and empowered to engage in a meaningful way with their communities, whether that be through volunteer activities, awareness seminars, veteran outreach or other opportunities. Moreover, we provide health and safety training to a number of our employees in key roles who have the potential to meaningfully impact the health and safety of our employees and others. We also provide educational assistance to our employees in an effort to support ongoing growth and contributions, both professionally and personally.
DIRECTOR COMPENSATION
General
We compensate our non-employee directors through cash payments or unrestricted shares of Common Stock, as elected by the Board member, including retainers. Our Director Compensation Policy provides for the following:
|
| | | | |
| | | Annual Retainer(1) |
Board - Independent Director | | $ | 75,000 |
|
Board - Lead Director | | $ | 10,000(2) |
|
Audit Committee | | | |
Chair | | $ | 10,000 |
|
Member | | $ | — |
Compensation Committee | | | |
Chair | | $ | 5,000 |
|
Member | | $ | — |
Corporate Governance Committee | | | |
Chair | | $ | 5,000 |
|
Member | | $ | — |
| |
(1) | Paid on a quarterly basis in either cash or Common Stock. Retainers are not paid to employee directors. |
| |
(2) | The Lead Director receives this annual retainer in addition to the retainer paid to other Independent Directors. |
Effective May 16, 2018, our Board revised the Director Compensation Policy such that any director may elect to receive their annual retainer, which is paid in quarterly installments, in unrestricted shares of our Common Stock by providing written notice as set forth in the Director Compensation Policy. The number of shares of such Common Stock shall be determined by dividing the cash amount of the retainer by the closing price of our Common Stock on the date of grant, which shall be the last business day of each quarter. Such Common Stock shall vest immediately upon grant. Any written notice to receive the retainer in Common Stock shall remain in effect until notice otherwise is made in writing.
Our Director Compensation Policy provides that any new independent director will receive a grant of $25,000 (in addition to the independent director annual retainer prorated at the time the new director is admitted to the Board) upon admission to the Board, which can be taken in cash or restricted shares of our Common Stock. The number of shares of such Common Stock will be determined by dividing the cash amount by the closing price of our Common Stock on the date of grant, which will be the date of admission to the Board. On May 16, 2018, our Board also revised the Director Compensation Policy such that the new director grant shall vest immediately. Prior to this change, the stock grant vested 50% immediately and 25% on each of the first and second anniversaries of admission.
On May 16, 2018, our Board elected Douglas B. Meehan to serve as a Class III Director until the 2020 Annual Meeting of shareholders. Mr. Meehan was appointed to serve as a member of the Audit, Compensation and Corporate Governance Committees. Concurrently with his personal leadershipappointment, the Board granted Mr. Meehan 978 shares of our Common Stock under our Director Compensation Policy, which were valued at approximately $25,000 based on the closing price on the grant date and founder’s vision for Carriage.vested immediately. Common stock grants to our independent directors currently are issued under our 2017 Omnibus Incentive Plan (the “2017 Plan”).
2018 Director Compensation Table
The following table sets forth a summary of the compensation we paid to our non-employee directors in 2018:
|
| | | | | | | | | | | | | | | | |
Name | | Fees Paid in Cash | | Fee Paid in Stock(1) | | Stock Awards | | Total |
Barry K. Fingerhut | | $ | 20,023 |
| | $ | 59,977 |
| | $ | — |
| | $ | 80,000 |
|
Bryan D. Leibman | | $ | 85,000 |
| | $ | — |
| | $ | — |
| | $ | 85,000 |
|
Donald D. Patteson, Jr. | | $ | 85,000 |
| | $ | — |
| | $ | — |
| | $ | 85,000 |
|
James R. Schenck | | $ | 60,002 |
| | $ | 19,998 |
| | $ | — |
| | $ | 80,000 |
|
Douglas B. Meehan | | $ | 26 |
| | $ | 46,964 |
| | $ | 24,988 |
| (2) | $ | 71,978 |
|
| |
(1) | Reflects the aggregate fair value of the unrestricted shares of Common Stock issued as payment for the quarterly retainers. The fair value is based on the closing stock price on the last trading day of the respective period as follows: |
|
| | | | | | | | | | | | |
| | Barry K. Fingerhut | | James R. Schenck | | Douglas B. Meehan |
June 30, 2018 | | | | | | |
Number of shares | | 814 |
| | — |
| | 386 |
|
Stock price | | $ | 24.55 |
| | $ | — |
| | $ | 24.55 |
|
| | | | | | |
September 30, 2018 | | | | | | |
Number of shares | | 928 |
| | 928 |
| | 870 |
|
Stock price | | $ | 21.55 |
| | $ | 21.55 |
| | $ | 21.55 |
|
| | | | | | |
December 31, 2018 | | | | | | |
Number of shares | | 1,290 |
| | — |
| | 1,209 |
|
Stock price | | $ | 15.50 |
| | $ | — |
| | $ | 15.50 |
|
| |
(2) | On May 16, 2018, our Board elected Douglas B. Meehan to serve as a Class III Director until the 2020 Annual Meeting of Shareholders. Our Director Compensation Policy provides that any new independent director will receive a grant of $25,000 payable in cash or unrestricted shares of our Common Stock as elected by the Board member. Concurrently with his appointment, the Board issued Mr. Meehan 978 shares of our Common Stock at the closing price on the grant date of $25.55, which vested immediately. |
PROPOSAL NO. 2:
ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
Section 14A of the Exchange Act, as amended, requires that we provide our stockholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers, as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC.
Richard W. Scott has servedWe urge our stockholders to read the “Compensation Discussion and Analysis” section of this Proxy Statement, which describes in more detail how our Named Executive Officer compensation policies and programs operate and are designed to achieve our compensation objectives, as well as the Senior Vice PresidentSummary Compensation Table and Chief Investmentother related compensation tables and narrative appearing under the “Executive Compensation” section of this Proxy Statement, which provide detailed information on the compensation of our Named Executive Officers. Our Compensation Committee believes that the policies and programs articulated in the “Compensation Discussion and Analysis” section are effective in achieving our goals and that the compensation of our Named Executive Officers reported in this Proxy Statement has contributed to our High Performance Culture and Being The Best Mission.
Accordingly, we are asking our stockholders to indicate their support for our Named Executive Officer compensation as described in this Proxy Statement by voting “FOR” the following resolution:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation of Loews Corporation, a diversified holdings company, since 2009Carriage’s Named Executive Officers, as disclosed in the Proxy Statement for the 2019 Annual Meeting of Stockholders of Carriage pursuant to the compensation disclosure rules of the Securities and from 2001Exchange Commission (including, but not limited to, 2008 he was a senior executivethe Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables, notes and narrative).”
This vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the philosophy, policies and practices described in Insurance Portfolio Management with AIG Investments, a global company engaged in asset management, including service as the Chief Investment Officer-Insurance Operations.
Additional Qualifications: Mr. Scottthis Proxy Statement. This vote is a seasoned financial services executive with over 30 years of capital markets experience. He was selected to serveadvisory and, therefore, not binding on us, our Board, becauseor our Compensation Committee. Although the vote is non-binding, our Board and our Compensation Committee value the opinions of his extensive experienceour stockholders and will carefully consider the outcome of the advisory vote on Named Executive Officer compensation when making future compensation decisions.
Our Board unanimously recommends that you vote “FOR” the advisory approval of our Named Executive Officer compensation, as disclosed in merger and acquisition transaction analysis, investment management, capital markets strategy and financial performance measurement.this Proxy Statement.
EXECUTIVE MANAGEMENT
The following table sets forth the name, age and title of our named executive officersNamed Executive Officers as of the date of this Proxy Statement. Our named executive officersNamed Executive Officers serve at the discretion of our Board. There are no family relationships between any of our directors and named executive officers.Named Executive Officers. In addition, there are no arrangements or understandings between any of our named executive officersNamed Executive Officers and any other person pursuant to which any person was selected as an executive officer.
The following individuals were our Named Executive Officers for the fiscal year ended December 31, 2015:2018:
|
| | | | |
Name | | Age | | Title |
Melvin C. Payne | | 7376 | | Chief Executive Officer and Chairman of the Board and Director |
David J. DeCarlo | | 70 | | President and Vice Chairman of the Board |
L. William Heiligbrodt(1)
| | 74 | | Executive Vice President and Secretary |
Mark R. Bruce
| | 49 | | Regional Partner - East |
Paul D. Elliott | | 5458 | | Senior Vice President and Regional Partner - West |
Shawn R. Phillips
| | 5256 | | Regional Partner - CentralSenior Vice President and Head of Strategic and Corporate Development |
Viki K. Blinderman | | 4750 | | Co-ChiefSenior Vice President, Principal Financial Officer, Chief Accounting Officer and Secretary
|
Carl B. Brink | | 3437 | | Co-ChiefSenior Vice President, Chief Financial Officer and Treasurer
|
Mark R. Bruce(1)
| | 52 | | Former Executive Vice President and Chief Operating Officer
|
| |
(1) | On May 21, 2015, L. William Heiligbrodt, as a result ofNovember 1, 2018, Mark R. Bruce resigned from his announced retirement as of March 4, 2016 from the Company, resignedposition as Executive Vice President Principal Financialand Chief Operating Officer and Secretary. Effective May 21, 2015, Carl B. Brink becameof the Company’s Principal Financial Officer and Viki K. Blinderman became the Company's Secretary. On August 4, 2015, the Board appointed Viki K. Blinderman and Carl B. Brink as Co-Chief Financial Officers. Ms. Blinderman also currently serves as the Company's Chief Accounting Officer and Principal Accounting Officer and Mr. Brink currently serves as the Company's Treasurer.Company. |
The biographical information for Messrs.Mr. Payne and DeCarlo is located under “Proposal No. 1: Election of Class II Directors.”
L. William Heiligbrodt was our Executive Vice President and Secretary from September 2011 until May 2015. From September 2011 to March 3, 2014, Mr. Heiligbrodt was also our Vice Chairman of the Board. Mr. Heiligbrodt was an independent director of Carriage from February 2009 to September 2011. From February 2003 until his appointment to our Board, Mr. Heiligbrodt was a private investor and managing partner in a family business.
Mark R. Bruce has been with Carriage since May 2005 and has served as our Regional Partner-East since November 2010. Prior to his appointment as Regional Partner-East, Mr. Bruce served as our Director of Sales Support, Director of Support, Director of Training and Development and Regional Partner-Central. Prior to joining Carriage, Mr. Bruce served for 12 years in various sales and operational leadership roles with other public funeral and cemetery service companies. Mr. Bruce has a BA in International Studies from The American University and an MBA from Northern Illinois University.
Paul D. Elliott joined Carriage in September 2012 as our Regional Partner-West.Partner – West and was promoted to Senior Vice President in February 2017. Prior to joining Carriage, Mr. Elliott was Managing Director for Service Corporation International (SCI)(“SCI”). From February 1995 to August 2012, Mr. Elliott held various management roles in sales, corporate and operations with SCI. From September 1984 to December 1994, Mr. Elliott was a partner in his family’s funeral home in Kansas. Mr. Elliott is a graduate of the University of Kansas and the Dallas Institute of Funeral Service.
Shawn R. Phillips has been with Carriage since September 2007 and haswas promoted to Senior Vice President, Head of Strategic and Corporate Development in February 2017. He had served as our Regional Partner-CentralPartner – Central since June 2011 and our Regional Partner-WestPartner – West from 2007 to 2011. Prior to joining Carriage, Mr. Phillips served from 1983 to 2007 in various leadership and operational roles with other public funeral and cemetery service companies. From 1979 to 1983, Mr. Phillips worked for an independent funeral operator. Mr. Phillips is a licensed Funeral Director and Embalmer.Embalmer and a graduate of the Mortuary Science Program at Cypress College.
Viki K. Blinderman joined Carriage in May 2002 and was promoted to Senior Vice President and Principal Financial Officer in February 2017. She was appointed as the Secretary of the Company onin May 21, 2015 and Co-Chief Financial Officer onin August 4, 2015. Ms. Blinderman has served as our Chief Accounting Officer since September 2012. Ms. Blinderman also served as our Corporate Controller and held several other positions in the Company. Prior to joining Carriage, Ms. Blinderman served as the Chief Financial Officer of a privately-held litigation support company and practiced in public accounting. Ms. Blinderman is a CPA and possesses a BBA and a MPA in Accounting from the University of Texas at Austin.
Carl B. Brink joined Carriage in January 2009 and was promoted to Senior Vice President and Chief Financial Officer in February 2017. He was appointed Principal Financial Officer onin May 21, 2015 and Co-Chief Financial Officer onin August 4, 2015. Mr. Brink has served as our Treasurer since January 2012. Mr. Brink also served as our Cash Supervisor from January 2009 through January 2012. Prior to joining Carriage, Mr. Brink served as the Cash Manager for International Paper in their Corporate Treasury group from 2006 to 2009. Mr. Brink has a BS in Finance from the University of Tennessee.
Mark R. Bruce served as our Executive Vice President and Chief Operating Officer from February 2017 until his resignation on November 1, 2018. Prior to that he served as our Regional Partner – East since November 2010. Prior to his appointment as Regional Partner – East, Mr. Bruce served as our Director of Sales Support, Director of Support, Director of Training and Development and Regional Partner – Central. Prior to joining Carriage, Mr. Bruce served for 12 years in various sales and operational leadership roles with other public funeral and cemetery service companies. Mr. Bruce has a BA in International Studies from The American University and an MBA from Northern Illinois University.
COMPENSATION DISCUSSION AND ANALYSIS
Carriage Services’Our compensation program for its executive officersour Named Executive Officers is more intrinsically unique to the Company’sour identity as it is driven by our high and trending higher over time sustainable performance. Therefore, the following discussion and analysis section on compensation will read differently from most publicly traded companies.High Performance Culture. In order to better understand the decisions regarding our executive compensation program, this requires a very brief look back into Carriage Services’ history.Carriage’s history and our High Performance Culture.
Our Mission Statement states that we are committed to being the most professional, ethical, and highest quality funeral and cemetery service organization in our industry, or simply stated as Being The Best, and has not changed since its inception in 1991, and neither have our Five Guiding Principles:
Honesty, Integrity and Quality in All That We Do
Hard work, Pride of Accomplishment, and Shared Success Through Employee Ownership
Belief in the Power of People Through Individual Initiative and Teamwork
Outstanding Service and Profitability Go hand-in-HandHand-in-Hand
Growth of the Company Is Driven by Decentralization and Partnership
Carriage Services isWe are on a Good To Great Journey that will never end. What is not explicitly stated is that in order to be great, the journey must be one of learning, adapting to change, and continuous improvement. What we have learned is that from 1991 to 2003, we were not aligned with our own Guiding Principles when we employed a “budget and control”, top-down management model for operating and consolidating the highly fragmented funeral and cemetery industry under a top-down management structure.industry. Even after implementing a High Performance Standards Operating Model in 2004, our learning journey continued on how to even first become good at operating with High Performance Standards that do not change from year-to-year and are governed by a Standards Council comprised of our best Managing Partners and former owners.year-to-year.
Since Carriage’s “New Beginning” in 2012, ourOur Good To Great Journey of learning and improvingimprovement continues. Properly aligned, we always find ourselves returning to the Good To Great concepts of “First Who, Then What,” “Right People on the bus in the Right Seats (and the wrong people off the bus),” and the “Flywheel Effect,” as they remind us and reaffirm for us each and every time that the achieved quantitative results are not sustainable without the bedrock establishment of these qualitative Good To Great ideas that are deeply rooted into our High Performance Culture.
Therefore, the Company’sOur compensation program should also beis aligned – beginning with how we think, the unique language we use internally, and leading directly into the actions we take – with our Mission Statement, Five Guiding Principles and Good To Great concepts driving our High Performance Culture. Carriage Services recognizes that it represents a “square peg” in a world of public company “round holes,” but, beginning with how we take pride in our edges. We primarily lookedthink, the unique language we use internally, to our own historical, trend compensation data versusand leading directly into the corresponding performance in the evolution of the “Right Who’s” in executive and senior leadership from 2012 through 2015, and therefore elected not to utilize an independent, third-party compensation consultant this year.
actions we take. The key is first accepting and understanding that our High Performance Standards Operating modelModel is leadership-based (as opposed to the management focus required in a top-down, budget and control model). Identifying the “Right Who’s” with 4E Leadership characteristics that fit into Carriage Services’ culture is what drives high and sustainable operating and financial performance. A corresponding compensation plan is then tailored to the “Right Who” and commensurate with the performance proven over time.
Carriage Services has always kept an open door and has openly invited the general investor, investment firms, investment analysts and anyone who wishes to learn more about the Company, both in general and as a long-term value creation investment platform, and to observe the unique and complete transparency of our High Performance Culture.
Context for Compensation Decision-making within Carriage Services
As aforementioned, our compensation program is best understood within the context of our business and leadership strategy and the exceptional return to shareholders achieved in recent years. Over the course of our continuing Good To GreatJourney, Carriage has evolved into a “High Performance Culture Company” that just happens to be in the deathcare sector. Our evolution is apparent in the significant improvement in our financial and operating performance since 2012 which has led to a total shareholder return (“TSR”) of 342% over the past four years vs. a 141% TSR among our peer companies. Peer selection is discussed more fully on page 19 of this report. Carriage TSR is also favorable to a broader group of companies as represented by the Russell 3000 index, which Carriage joined in June 2012. The Carriage Services TSR of 342% over the past four years far exceeds the Russell 3000 index TSR of 76% for the comparable period.
Much of our success emanates from being highly selective about leadership of the Company at all levels. We cannot stress enough that high performance quantitative results are not sustainable without establishing the qualitative foundation of the High Performance Culture first. We utilize a 4E Leadership Model (Energy, Energizes Others, Edge, Execute), initially developed by Jack Welch at General Electric, but tailored and evolved specifically to Carriage Services’Carriage’s needs and culture, to select and continuously assess our leaders. Our compensation practices support and reinforce our ability to attract, retain and motivate these leaders.
4E Leaders have an entrepreneurial, winning, competitive spirit and want to make a difference in Carriage Services’ high performanceour High Performance Culture and enrich our reputation within the funeral and cemetery industry. 4E Leaders are motivated by the recognition and rewards related to achievement of our Being The Best High Performance Standards. We expect our leaders to produce superior results and maximize long-term returns to our stockholders. Their compensation can vary based on the Company’s results and their contributions.
2015 Performance Highlights
Our fiscal year 2015 financialWe are transparent and operational results were outstanding, as we achieved record performance in terms of revenue growth, Adjusted Consolidated EBITDA, Adjusted Diluted Earnings per Shareopenly invite investors, analysts and Adjusted Free Cash Flow. For further discussion, see our see our Earnings release discussing 2015 annual results reported on February 16, 2016 as filed on Form 8-K. Highlights of our fiscal year are as follows:
Acquisitions. During 2015, we acquired two funeral home businesses. We acquired a funeral home business in Clarksville, Tennessee in February 2015 and another funeral home business in Wake Forest, North Carolina in November 2015.
Construction of New Funeral Homes. During the year ended December 31, 2015, we completed the construction of and began operating three new funeral homes, two funeral homes in Texas and one funeral home in Florida. The funeral home constructed in Florida previously leased its facility and upon completion, moved operations to the newly constructed facility.
Credit Facility. On May 20, 2015, we entered into a sixth amendment (the “Sixth Amendment”) to our secured bank credit facility with Bank of America, N.A. as administrative agent (the “Credit Agreement”), comprised of a $200 million revolving credit facility and a $125 million term loan (collectively, the “Credit Facility”). The Sixth Amendment provides that, among other things, we may repurchase our common stock so long as at the time of such repurchase there have been no defaults under the Credit Agreement, we have at least $15.0 million of unrestricted cash and undrawn borrowing capacity under the Credit Agreement and the senior leverage ratios is less than 3.25 to 1.00.
On February 9, 2016, we entered into a seventh amendment (the “Seventh Amendment”) to our Credit Facility. The Seventh Amendment resulted in, among other things, (i) reducing our LIBOR based variable interest rate 37.5 basis points, (ii) extending the maturity so that the Credit Agreement will mature at the earlier of (a) any date that is 91 days prior to the maturity of any subordinated debt (including the $143.75 million in principal amount of 2.75% Convertible Subordinated Notes issued on or about March 19, 2014 and due March 15, 2021 or (b) February 9, 2021, (iii) increasing and funding the term loan so that $150 million was outstanding upon the effectiveness of the Seventh Amendment, (iv) reducing the size of the revolver to $150 million, (v) increasing the accordion to $75 million and (vi) updating the amortization payments for the term loan facility with payments beginning with the fiscal quarter ending March 31, 2016 through the fiscal quarter ending December 31, 2020.
Share Repurchase Program. On May 19, 2015, our Board approved a share repurchase program authorizing us to purchase up to an aggregate of $25.0 million of our common stock in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended. On September 28, 2015, our Board authorized additional repurchases of $20.0 million of our common stock bringing the total authorized repurchase amount to $45.0 million. During 2015, we purchased 1,927,665 shares of our common stock for a total cost of $45.0 million, representing the entire authorized repurchase amount, at an average cost of $23.34 per share. Our shares were purchased in the open market or in privately negotiated transactions. Purchases were at times and in amounts as management determined appropriate based on factors such as market conditions, legal requirements and other business considerations. Shares purchased pursuant to the repurchase program are currently held as treasury shares.
Executive Leadership Changes. On May 21, 2015, L. William Heiligbrodt, as a result of his announced retirement as of March 4, 2016 from the Company, resigned as Executive Vice President, Principal Financial Officer and Secretary. Effective May 21, 2015, Carl B. Brink became the Company’s Principal Financial Officer and Viki K. Blinderman became the Company's Secretary. On August 4, 2015, the Board appointed Viki K. Blinderman and Carl B. Brink as Co-Chief Financial Officers.
The following table reflects our 2015 financial performance:
|
| | | | |
Measure | | 2015 Result | | Change Versus FY 2014 |
| | | | |
Total Revenue | | $242.5 million | | 7.2% increase |
| | | | |
Adjusted Consolidated EBITDA(1)
| | $71.1 million | | 15.4% increase |
| | | | |
Adjusted Consolidated EBITDA Margin(1)
| | 29.3% | | 200 basis point increase |
| | | | |
Adjusted Diluted EPS(1) (2)
| | $1.48/share | | 10.4% increase |
| | | | |
Adjusted Free Cash Flow(1)
| | $43.7 million | | 13.0% increase |
| |
(1) | Adjusted Consolidated EBITDA, Adjusted Consolidated EBITDA Margin, Adjusted Diluted EPS and Adjusted Free Cash Flow are non-GAAP financial measures that management believes are important measures for understanding the Company's overall operational and financial results. For a reconciliation of Adjusted Consolidated EBITDA, Adjusted Consolidated EBITDA Margin, Adjusted Diluted EPS and Adjusted Free Cash Flow, see our Earnings Release discussing 2015 annual results reported on February 16, 2016 as filed on Form 8-K. |
Since we launched the Carriage Good To Great Journey at the end of 2011, our performance has been extraordinary and produced market beating shareholder returns as summarized below:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Carriage Good To Great Journey |
| | Years Ending December 31 | | |
| | (in Millions Except Per Share and Percentage Amounts) | | CAGR |
| | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | % | |
| | | | | | | | | | | | |
Total Revenue | | $ | 182.3 |
| | $ | 198.2 |
| | $ | 213.1 |
| | $ | 226.1 |
| | $ | 242.5 |
| | 7.4 | % |
| | | | | | | | | | | | |
Adjusted Consolidated EBITDA | | $ | 48.6 |
| | $ | 52.6 |
| | $ | 56.0 |
| | $ | 61.7 |
| | $ | 71.1 |
| | 10.0 | % |
| | | | | | | | | | | | |
Adjusted Consolidated EBITDA Margin | | 26.6 | % | | 26.5 | % | | 26.3 | % | | 27.3 | % | | 29.3 | % | |
| |
| | | | | | | | | | | | |
Adjusted Diluted Earnings Per Share | | $ | 0.64 |
| | $ | 0.80 |
| | $ | 0.98 |
| | $ 1.24(1) | | $ | 1.48 |
| | 23.3 | % |
| | | | | | | | | | | | |
Adjusted Free Cash Flow | | $ | 29.1 |
| | $ | 22.9 |
| | $ | 36.2 |
| | $ | 38.6 |
| | $ | 43.7 |
| | 10.7 | % |
| | | | | | | | | | | | |
Share Price at December 31 | | $ | 5.60 |
| | $ | 11.87 |
| | $ | 19.53 |
| | $ | 20.95 |
| | $ | 24.10 |
| | 44.0 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1) Adjusted for one time tax benefit of 10 cents per share | | |
Consideration of Previous Shareholder Advisory Vote
At our 2015 Annual Meeting of Stockholders, held on May 19, 2015, management’s proposal to ratify our Named Executive Officer compensation programs for 2014 narrowly failed to pass, with 49% of all votes cast supporting it.
In 2015, we have taken a number of steps to resolve stockholder concerns, including:
| |
1. | We added to our Ten Year Vision this past year a third element related to long-term shareholder value creation to become recognized by institutional investors and those in our industry as a superior Consolidation, Operating and Value Creation Investment Platform by consistently allocating our precious capital, especially our growing Free Cash Flow, with disciplined savviness and flexibility among various investment options so as to maximize the intrinsic value of Carriage per share over the next ten years.
|
| |
2. | Our Chairman and CEO and our Co-CFOs continue to conduct stockholder outreach efforts with stockholders in several private meetings and conferences. |
| |
3. | We adopted executive stock ownership guidelines that further align the interests of our leadership with shareholder interests. |
| |
4. | We adopted a clawback policy, designed to recoup any compensation improperly paid prior to an accounting restatement. |
| |
5. | We learned that our stockholders did not favorably view the acceleration of the Good to Great Payout in early 2014 and adjusted our compensation practices in an effort to avoid those types of situations in the future.
|
| |
6. | We drafted this Compensation Discussion and Analysis to better explain the quantitative measures included in our Incentive Plan as it relates to the uniqueness of our Company culture.
|
| |
7. | We have not requested additional shares for use in our long-term incentive plans. |
While the stockholder vote to ratify our executive compensation is non-binding and advisory, we will continue to strive to understand and respond to stockholder feedback. However, we also invite and encourage our stockholdersanyone who wishes to learn more about what makes Carriage, Servicesboth in general and itsas a long-term value creation investment platform, and to observe the unique and complete transparency of our High Performance Culture so unique and transparent in its culture, practices and operations..
Compensation Philosophy and Practices
Our executive compensation program is designed to attract, motivate and retain talented executives so that we can produce superior total shareholder returns over the long-term. Overall, we believe ourCarriage’s executive compensation programs align our executive pay with Company operational and financial performance, andas well as support our shortshort-term and long-term business objectives. The Compensation Committee consists entirely of independent Board members and is responsible for the approval and oversight of compensation, and benefit plans and employment agreements affecting Carriage Services’ executive officers.
The Committee reviews its compensation philosophy annually, including determining whether this philosophy supports our business objectives and is consistent with the Committee’s charter.Carriage’s Named Executive Officers.
In 2015,During 2018, the Compensation Committee continued to implement ourthe executive compensation philosophy (the “Philosophy”), which was developed to formalize the strategy behind our executive compensation practices and to serve as an on-goingongoing reference point for executive compensation decisions. The Philosophy has been developed based on our Being The Best Mission Statement and Five Guiding Principles and may be summarized in this manner:
to attract, motivate, and retain exceptional 4E Leadership talent that are also a cultural fitleaders within our High Performance Culture senior leadership team (“First Who”) in order. These leaders are expected to leadimprove on the already industry leading operating performance through attracting and motivating individual business Managing Partners with 4E Leadership characteristics, enhance our best-in-class corporate support functions, and make sound decisions regarding long-term stockholder value creation, strategies such as sustainably increasing revenue, growth and profitability that leads to total shareholder returnsparticularly involving capital allocation (“Then What”);
to outline theprovide transparency between pay, commensurate with individual and team contribution, and our annual and long-term Company performance;
to motivate, reward, retain and reinvest in 4E Leadership that has established a proven record of success over time; and
to align senior leadership interests with what is best for the Company and thus, what is best for our stockholders over time.
stockholders.
In addition, the Philosophy outlines compensation practices (See “What We Do”that provide competitive overall compensation if performance objectives are achieved. Encouraging senior leadership to act as owners in Carriage is a critical concept of the compensation philosophy and “What We Do Not Do” below), specifies compensation elements, definesas such, we have established stock ownership guidelines for our management. The individual’s base salary is multiplied by the purposeappropriate multiple as follows:
5x for Chairman of each elementthe Board/Chief Executive Officer
3x for President
2x for Regional Partners
1x for all other officers
Individual guidelines are based upon the base salary of the participant at the time the individual becomes subject to the guidelines and, expressesas long as the target positioningcovered individual remains in his or her position, the ownership guideline for such individual does not change as a result of compensation levelschanges in his or her base salary or normal fluctuations in the Company’s Common Stock price. However, these Guidelines may be amended at any time, with notification to the participants of changes that we desire to achieve over time.impact their individual ownership guideline.
What We Do
Pay for Performance
A significant portion of 2018 executive compensation, 66% of the compensation paid to our NEOs, is performance-based and is tied to our financial performance and/or the performance of our stock price over the intermediate to long-term period.
Our CEO’s 2018 annual cash incentive was made at the discretion of the Compensation Committee because the CEO sets the long-term 10-year Vision and 5-year Strategy for Carriage and should be judged on the annual progress towards those goals versus short-term performance metrics.
Our 2018 long-term incentive program is discretionary, but takes into consideration long-term operating and financial metrics that we believe will lead to significant stockholder value creation, if achieved.
Mitigate Risk
Carriage Services is principle-based in its unwavering beliefs and every day practices as reflected in our Five Guiding Principles. Our first Guiding Principle of “Honesty, Integrity and Quality in all that we do” requires that we hire and hold all employees, at all levels, accountable to this first Guiding Principle (as well as the other four Guiding Principles) at all times.
We have share ownership and trading guidelines for officers.
We have anti-hedging provisions as part of our insider trading policy, prohibiting our officers from hedging the risk of stock ownership by purchasing, selling or writing options on Company stock.
We have clawback provisions that permit the Board to pursue recovery of incentive payments if the payment would have been lower based on restated financial results.
We have double-trigger vesting of equity awards upon change in control.
We have very limited executive perquisites.18
We primarily began utilizing internal, historical trend compensation data over four full years as compared to individual and Company performance measures when making compensation decisions which are grounded in our belief of continued investment in the “Right Who’s” over time. We consider peer group market data merely as a benchmark.
17
Manage Dilution
We regularly evaluate share utilization levels within our long-term incentive plans. By reviewing overhang levelsplans and run rates, we manage the dilutive impact of stock-based compensation to appropriate levels. We estimate that the long-term incentive equity that was granted for fiscal year 2018 was approximately equal to 1.1% of our shares outstanding on a pre-tax, post option exercise basis.
During 2018, we repurchased 1,101,969 shares of our Common Stock with an aggregate cost of $17.7 million.
What We Do Not Do
No supplemental retirement plans.
No repricing of underwater stock options.
No grantsoption exercise prices below 100% of fair market value.value on the date of grant.
No inclusion of long-term incentive awards in cash severance calculations.
No excise tax gross-ups upon change in control.
Consideration of Previous Stockholder Advisory Vote
At our 2018 Annual Meeting of Stockholders, held on May 16, 2018, management’s proposal to ratify our Named Executive Officer compensation programs for 2017 passed, with approximately 96% of all votes cast supporting it. The strong stockholder support has reaffirmed our Compensation Committee’s approach to executive compensation philosophy and programs. Accordingly, for 2018 our Compensation Committee has continued to administer similar reward programs and to demonstrate the same pay philosophies that have been put in place over the last few years.
Although our stockholders support our executive compensation program, we continue to conduct outreach efforts with current and prospective stockholders. Ms. Blinderman and Mr. Brink lead our investor relations function engaging in various investor meetings throughout the year. These meetings are open and transparent to our corporate governance, executive compensation and general investor concerns and issues. Prior to the Annual Meeting, we also contact our top ten shareholders for immediate and pertinent feedback regarding the proposals in the current Proxy, as well as provide clarification to questions on any topics of concern.
While the stockholder vote to ratify our executive compensation is non-binding and advisory, we will continue to strive to understand and respond to stockholder feedback. We also invite and encourage our stockholders to learn more about what makes Carriage and its High Performance Culture so unique and transparent in its culture, practices and operations.
Elements of Compensation
Each element of our executive compensation program for Named Executive Officers has been designed to align with our Philosophy and desire to attract, retain, motivateour goal of growing the intrinsic value of Carriage per share for our long-term stockholders through disciplined and reward leaders consistently withconsistent high level execution of our three core models (Standards Operating, Strategic Acquisition and 4E Leadership Model.Leadership).
In ourThe Philosophy, which first begins with our belief in the Good To Great concept of “First Who, Then What,” we definedefines the “Right Who” to be someone who inherently “alreadyalready possesses 4E Leadership characteristics as a starting point and that believes in and is completely aligned with our Mission Statement and Five Guiding Principles. In this 4E leader’s continued learning journey with Carriage Services, these beliefs
The Compensation Committee uses internal data to determine the compensation for positions that are then translated into a consistent high performance way of thinkingunique or difficult to benchmark against market data. Internal data is also considered in establishing compensation for positions considered to be equivalent in responsibilities and ultimately, consistent high performance way of executing thatimportance, especially where precise external data is then assessednot available.
The allocation between cash and measured throughequity compensation and between short-term and long-term incentives, was determined based on the individual and team contribution to the shared success and continuously improving and consistent performancediscretion of the Company over time.
A significant portionCompensation Committee. The ultimate allocation will depend on our future performance and future changes in our share price. If vesting targets are achieved, it is likely that a substantial percentage of the 2015 compensationamount realized will be from long-term, equity-based incentives, which is consistent with our philosophy and our commitment to long-term value creation to our stockholders. We believe the elements of our Named Executive Officers is considered at-riskcompensation structure create incentives for the executives to take actions and was directly affected by our financial results and stock price, both in the amount of total cash compensation earned and the value of outstandingmake decisions that will benefit Carriage over a long-term equity awards. For 2015, compensationtime period.
Compensation designed for our executive officers consisted of:
|
| | | | |
Pay Element | | Description | | Purpose |
| | | | |
Base Salary | | Fixed compensation, subject to annual review and changed due to responsibility, performance, and strategic performance.
| | Provide competitive base pay to hire and retain key talent, the “Right Who’s,” with the desired 4E Leadership qualities.
Reflect roles, responsibilities, experience and performance.
|
Short-Term Incentives | | Annual cash performance payment. For Mr. Payne, this award is made at the discretion of the Compensation Committee. For all other Named Executive Officers, this award varies to the degree we achieve our annual financial, operational and strategic performance and to the extent to which the executive officer contributes to the achievement.
| | Provide market competitive cash incentive opportunities that will motivate our executives to achieve and exceed corporate financial goals that support our Being The BestHigh PerformanceStandards. For Mr. Payne
Align management and Mr. DeCarlo, these awards are conditioned upon achieving objective performance targets.stockholder interests by linking pay and performance.
|
Long-Term Incentives | | Restricted Stock: Time-based awards vesting over a minimum of three years.
Stock Options: The executive only realizes the potential appreciation in our stock price above the exercise price for stock options.
Performance Shares: The number of performance shares earned by an executive officer, if any, is based on performance over a multi-year period against specific financial and performance goals.
| | Provide market competitive equity award opportunities that will align executive interests with our stockholders, allow executives to buildstockholders.
Encourage executive share ownership and encourageownership.
Encourage retention of executives who enhance our High Performance Cultureconsistent with our Good To Great Journey.
Motivate executives to deliver long-term sustained growth and strong total stockholder return.
|
Retirement and Other Benefits
| | Group health and welfare benefit programs and tax-qualified retirement plans, except that our Named Executive Officers cannot participate in our Employee Stock Purchase Program. Mr. Payne, our Chief Executive Officer is reimbursed annually for life insurance premiums of up to $25,000. Named Executive Officers are reimbursed for executive physical and club dues.
| | Provide for current and future needs of the executives and their families.
Enhance recruitment and retention.
|
Post-Termination Compensation
| | Certain of our Named Executive Officers are party to an employment agreement to which they will be entitled to severance payments upon termination without cause during the term of the agreement or resignation for “good reason” during the twenty-four month period following a “corporate change.”
| | Enhance retention and attraction of management by providing employment protection. |
In addition, we offer the same group healthCarriage maintains compensation programs in full alignment with our High Performance Culture. We regularly review how our levels of compensation align with performance and welfare benefit programshow our mix of pay (base salary versus annual cash incentives and tax-qualified retirement plans that are available to all of our employees, except that our Named Executive Officers cannot participate in our Employee Stock Purchase Program.
In orderlong-term incentives) will allow us to attract motivate,and retain and reward our entrepreneurial 4E Leaders, while motivating these leaders to execute upon both annual and long-term goals.
Employment Agreements
During 2018, Mr. Payne was a party to an employment agreement (the “Employment Agreement”) with us that generally governed the terms of his employment. The Employment Agreement establishes, among other things, (a) a minimum base salary, (b) target bonus payouts (expressed as a percentage of base salary), and (c) post-termination payments in certain scenarios.
Messrs. Elliot and Phillips are each party to an employment agreement which establishes, among other things, (a) a minimum base salary for each individual and (b) post-termination payments in certain scenarios. For a description of the post-termination benefits provided for under all employment agreements see “Executive Compensation-Potential Payments Upon Termination or Change-in-Control,” further discussed herein.
Ms. Blinderman and Mr. Brink are not party to an employment agreement.
On November 1, 2018, Mark R. Bruce resigned from his position as Executive Vice President and Chief Operating Officer of the Company. In connection with his resignation, Mr. Bruce and the Company aligns compensationentered into a separation and release agreement (the “Separation Agreement”) which provides for (i) continuation of Mr. Bruce’s base salary for 18 months; and (ii) payment by the Company of continued coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for up to 18 months, to the extent Mr. Bruce makes such an election. The Separation Agreement, which terminates Mr. Bruce’s employment agreement with actualthe Company, contains customary release, confidentiality, non-competition, non-solicitation and team performance contributions while utilizing market competitive levels only as a guideline for each element of compensation.non-disparagement provisions.
Management’s Role in Determining Executive Compensation
Our Compensation Committee has final approval regarding recommendations of executive officer compensation. Mr. Payne’s role as our Chairman of the Board and Chief Executive Officer in determining executive compensation is to make compensation recommendations for those other than himself based on his assessment of the individual performance of each executive officer in relation to our overall Company performance. Management’s role in determining executive compensation includes:
developing, summarizing and presenting information and analyses to enable our Compensation Committee to execute its responsibilities, as well as addressing specific requests for information from our Compensation Committee;
attending our Compensation Committee’s meetings as requested in order to provide information, respond to questions and otherwise assist our Compensation Committee;
developing recommendations for individual executive officer bonus plans for consideration by our Compensation Committee and reporting to our Compensation Committee regarding achievement against the cash incentive bonus plans; and
preparing long-term incentive award recommendations for our Compensation Committee’s approval.
Compensation Evaluation Process
Our Compensation Committee has final approval regarding recommendations of executive officer compensation. Mr. Payne’s role as our Chairman of the Board and Chief Executive Officer in determining executive compensation is to make compensation recommendations to the Board for those other than himself based on his assessment of the individual performance of each executive officer in relation to our overall Company performance. Management’s role in determining executive compensation includes:
developing, summarizing and presenting compensation information and analysis to enable our Compensation Committee to execute its responsibilities, as well as addressing specific requests for information from our Compensation Committee;
developing recommendations for individual Executive Officer and Senior Leadership bonus plans for consideration by our Compensation Committee and reporting to our Compensation Committee regarding achievement against the bonus plans;
preparing long-term incentive award recommendations for our Compensation Committee’s approval; and
attending our Compensation Committee’s meetings as requested in order to provide additional information, respond to questions and otherwise assist our Compensation Committee.
Given our unique organizational culture and the particular sector in which we belong, there are few direct, public company peers or few highly correlated job matches among any potential proxy peers. In the past, it had been our practice toIf necessary, we will review market compensation and direct peer group data annually and to combine the results of the market analysis with our internal review of the roles and responsibilities of each of our executive positions in order to determine competitive pay levels for each Named Executive Officer of the Company.
In the first half of 2015, senior leadership actively restructured itself along with functional Houston Support reporting responsibilities. These events allowed for management to further learn and approach the Company’s corresponding compensation program with a fresh perspective.
In 2015,During 2018, the Compensation Committee did not engage an independent, third party compensation consultant.consultant or use peer group data. Instead, our senior leadership worked with the Committee on a compensation program that is aligned with and tailored to the uniqueness of Carriage’s High Performance Culture. However, the Committee retains the right to hire a compensation consultant, approve its compensation, determine the nature and scope of its services, evaluate its performance, and terminate its engagement. Instead, we augmented our 4E talent internally by hiring an experienced and seasoned Director of Compensation & Benefits to work with senior leadership and the Committee on a compensation program that is aligned with and tailored to the uniqueness of Carriage Services’ High Performance Culture.
We began with a re-examination into the same market analysis and peer group data that had been provided by Paradox Compensation Advisors (“Paradox”) from the prior year. Details about Paradox’s findings, peer group determinations, and analyses may be referenced in our 2014 Proxy Statement. In our consideration of this market data however, we believe that this market data provided only some roughly right guidelines and was not primarily utilized to achieve our targets due to our culture’s uniqueness in the deathcare sector or industry.
To further our own learning and understanding of how to better approach a simple and transparent compensation plan that was appropriate and commensurate with our own identity of high performance, we reviewed internal, historical compensation trend data for executive and senior leadership over four full years, from 2012 through 2015, as compared to the performance of the Company in each of these correspondinglast five years. This introspective analysis confirmed that our beliefs in Good To Great concepts such as “First Who, Then What,” “Right People in the Right Seats on the bus,” and the “Flywheel Effect” were being fully and consistently practiced and were evolutionary from 2012 through 2015. The results were that our executive and senior leadership team, known as the Operational Strategic Growth & Leadership Team (OSGLT), became smaller during this time, but improved in its leadership and qualitative effectiveness which we believe had a direct correlation with the Company’s continuously improving quantitative performance results over this same time period.
Our internal analysis and recommendations, along with published executive compensation data from some of our sector peers such as SCI and Matthews International Corporation,recommendation was then presented to the Compensation Committee for review and approval.
Performance-basedCEO Compensation
Carriage maintainsThe Compensation Committee believes that the average annual total compensation programsfor the Chief Executive Officer of $3.1 million over the past five years and any additional realized compensation from the increase in full alignmentequity value is commensurate with our High Performance Culture. We regularly review how our levelsthe high level of compensation align withoperating and financial performance and how our mix of pay (base salary versus annual cash incentives and long-term incentives) will allow us to attract and retain 4E Leaders, while motivating these leaders to execute upon both annual and long-term goals.by Carriage.
The chartcharts below showsdepict the four-year trend between our CEO’s compensation and TSR:
As the graph displays, $100 invested in our Common Stock on December 31, 2011 grew to $430 by the end of fiscal year 2015, which constitutes a 342% total return.
The table below depicts 20152018 mix of total direct compensation (base salary, cash incentive bonus and long-term equity-based incentives) for our CEO and Chairman and other Named Executive Officers as a whole. A significant portion of the 2018 compensation of our Named Executive Officers is considered at-risk and is directly affected by our financial results and stock price, both in the amount of total cash compensation earned and the value of outstanding long-term equity awards. As such, 70% of the CEO’s total direct compensation and, on average, 64% of our other NEO’s total direct compensation, is variable and directly affected by both the Company’s and each NEO’s performance.
Total Direct Compensation
CEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform Consumer Protection Act, and Item 402(u) of Regulation S-K, the following items are discussed below: (i) the median of the annual total compensation of all employees, excluding Mr. Payne, our CEO; (ii) the annual total compensation of our CEO; and (iii) the ratio of the median of the annual total compensation of all employees to the annual total compensation of our CEO. This information is intended to provide shareholders with a company-specific metric that can assist in their evaluation of our Company’s executive compensation practices.
To identify the median of the total annual compensation of all our employees, as well as to determine the annual total compensation of our median employee and our CEO, we took the following steps:
We determined that as of December 31, 2018, our employee population consisted of approximately 2,617 individuals with all of these individuals located in the United States. This population consisted of 1,069 full-time and 1,548 part- time employees. Our part-time employees are an integral part of our business and due to our industry, are dedicated members of our community, but may only work on a very limited, as requested basis. We selected December 31, 2018, which is in the last three months of our most recent fiscal year, as the date upon which we would identify the “median employee” because it enabled us to make such identification in a reasonably efficient and economical manner.
To determine the “median employee” from our employee population, we examined the amount of salary, bonus, wages and other taxable income items of our employees as reported by us to the Internal Revenue Service on Form W-2 for 2018. The “median employee’s” annual total compensation included the Company matching amount provided in our Section 401(k) employee savings plan. In making the determination, we annualized the compensation of approximately 408 employees who were hired in 2018, but did not work for us the entire fiscal year. This population consisted of 176 full-time and 232 part-time employees.
We determined our median employee using this compensation measure, which was consistently applied to all of our employees included in the calculation. Since all of our employees are located in the United States, as is our CEO, we did not make any cost of living adjustments when identifying the “median employee.”
Once we determined our median employee, we combined all of the elements of such employee’s compensation for 2018 in accordance with Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of approximately $12,257.
With respect to the annual compensation of our CEO, we used the amount reported in the “Total $” column of our Summary Compensation Table included in this Proxy Statement.
There has been no major change in our employee population or our employee compensation arrangements since that median employee was identified that we believe would significantly impact our pay ratio disclosure.
For the fiscal year ended December 31, 2018:
The median employee is an Ambassador in the community, working on an as needed or by request basis, proactively participating in civic and community events that create a lasting heritage;
The median annual total compensation of all employees of our Company (other than our CEO) was approximately $12,257; and
The annual total compensation of our CEO, as reported in the Summary Compensation Table included elsewhere in this Proxy Statement was $2,379,270.
Based on this information, for 2018, the ratio of the annual total compensation of Mr. Payne to the annual total median compensation of all other employees was 194 to 1.
2018 Base Salaries
The base salary for each of our executive officersNamed Executive Officers is determined on an individual basis, taking into account such factors as the duties, experience and levels of responsibility of the executive. Base salaries for our Named Executive Officers, are evaluated annually and adjustments are approved by our Compensation Committee based on its evaluation of individual performance.
Our Compensation Committee madeapproved the following changes to the annual base salaries of our Named Executive Officers during 2015:Officers:
| | Named Executive Officers | | 2014 | | 2015 | | 2017 | | 2018 |
Melvin C. Payne | | $ | 625,000 |
| | $ | 645,000 |
| | $ | 700,000 |
| | $ | 700,000 |
|
David J. DeCarlo | | $ | 545,000 |
| | $ | 560,000 |
| |
L. William Heiligbrodt | | $ | 545,000 |
| | $ | 560,000 |
| |
Mark R. Bruce | | $ | 280,000 |
| | $ | 290,000 |
| |
Paul D. Elliott | | $ | 260,000 |
| | $ | 275,000 |
| | $ | 310,000 |
| | $ | 310,000 |
|
Shawn R. Phillips | | $ | 250,000 |
| | $ | 270,000 |
| | $ | 310,000 |
| | $ | 310,000 |
|
Viki K. Blinderman | | $ | 230,000 |
| | $ | 240,000 |
| | $ | 280,000 |
| | $ | 280,000 |
|
Carl B. Brink | | $ | 150,000 |
| | $ | 170,000 |
| | $ | 280,000 |
| | $ | 280,000 |
|
Mark R. Bruce(1) | | | $ | 400,000 |
| | $ | 400,000 |
|
Executive Compensation Policies and Practices as they relate to our Risk Management
Our Compensation Committee reviews annually the principal components of executive compensation. Our Compensation Committee believes that these cash incentive plans appropriately balance risk, payment for performance and the desire to focus executives on specific financial and leadership measures that promote long-term value creation per share. As a result, our Compensation Committee has made a determination that the risks arising from the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.