Use these links to rapidly review the documentPROXY STATEMENT TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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SPIRIT AEROSYSTEMS HOLDINGS, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Table of ContentsDEAR FELLOW
STOCKHOLDERS
Thomas C. Gentile III PRESIDENT AND CHIEF EXECUTIVE OFFICER Robert D. Johnson CHAIRMAN | March 11, 2019 On behalf of the Board of Directors, we are delighted to invite you to attend the 2019 Annual Meeting of Stockholders (the “Annual Meeting”) of Spirit AeroSystems Holdings, Inc. (the “Company” or “Spirit”). Details of the business to be conducted at the Annual Meeting are included in the attached Notice of Annual Meeting of Stockholders and accompanying Proxy Statement. While 2018 was a challenging year for Spirit, it was also a time of great learning and adaptation that has prepared us well for success in 2019 and beyond. The majority of issues impacted the Boeing 737 program, driven by rate increases, supplier limitations, and a learning curve transitioning to the 737 MAX. Likewise, on the A350 XWB program, we experienced weather delays and technology complications at our plant in Kinston, N.C. However, thanks to tremendous efforts on all programs by our employees and suppliers, we ended the year back on our master delivery schedule and met our financial targets. Highlights of 2018 include: • Reported revenue of $7.222 billion, up 3% from 2017 • Delivered on our 2018 capital deployment plan, returning significant value to investors through share repurchases and dividends (including a 20% increase in the quarterly cash dividend amount) • Received multiple innovation and supplier awards from our customers • Pursued commercial, defense, and fabrication growth opportunities • Increased research and development efforts and our use of digital technologies • Signed a new long-term contract with Boeing covering pricing on a range of programs into the next decade • Engaged with our stockholders and other constituents on various items including strategy, capital deployment, corporate governance, and operational performance In 2019, we will be challenged to continue to meet rate increases and deliver on time and with high quality on all our programs, all while being relentless in safety and cost control. Yet, we remain confident in our ability to have a successful year. We thank you for your continued support of Spirit and look forward to seeing you at the Annual Meeting. | |
3801 S. Oliver St.
Wichita, KS 67210-2112
March 11, 2019
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON APRIL 24, 20172019
Dear Fellow Stockholder:
On behalf of the Board of Directors, I am delighted to invite you to attend the 2017The Proxy Statement and Annual Report are available at http://www.proxyvote.com
The 2019 Annual Meeting of Stockholders (the "Annual Meeting"“Annual Meeting”) of Spirit AeroSystems Holdings, Inc. (the "Company"(“Spirit” or the “Company”). Details will be held:
WEDNESDAY, APRIL 24, 2019
11:00 a.m. Eastern Time
Fairmont Hotel, Dumbarton Room
2401 M St. NW
Washington, DC 20037
Items of business include:
Election of nine nominees as directors;
Advisory vote to approve the compensation of the Company’s named executive officers;
Ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2019;
The stockholder proposal regarding enhancing proxy access described in this Proxy Statement, if properly presented at the meeting; and
The transaction of any other business that properly comes before the meeting.
Stockholders of record of our Class A Common Stock (the “Common Stock”) as of February 25, 2019, are entitled to be conductedreceive notice of, and may vote at, the Annual Meeting. We are furnishing proxy materials to our stockholders primarily over the internet rather than mailing paper copies. On March 11, 2019, we commenced distributing to our stockholders a Notice Regarding the Availability of Proxy Materials (the “Notice”) or a paper copy of the proxy materials and our Annual Report, along with a proxy card or voting information form. The Notice contains instructions on how to access and review the proxy materials, including this Proxy Statement and our Annual Report, on the internet and instructions on how to vote. Stockholders may vote in person at the Annual Meeting are includedor by internet pursuant to the instructions set forth in the attached Notice of Annual Meeting of Stockholders and accompanying Proxy Statement. We will meet Wednesday, April 26, 2017, atIn addition, if you received a paper copy of the Fairmont Washington, D.C., located at 2401 M Street NW, Washington, D.C. 20037proxy materials, you may vote by completing and returning a proxy card or voting information form, as applicable, pursuant to the instructions set forth in the Dumbarton Room at 11 a.m. Eastern Time.Proxy Statement.
Since I joined the Company in April 2016 and became the Chief Executive Officer in August, the technologies and capabilities that make Spirit unique in the industry have continued to impress me. I have also found that the expertise and dedication of our people is second to none. Our primary focus in 2016 was on meeting our key financial targets and delivering on the quality and competitive cost commitments that make us a trusted partner to our customers, employees, stockholders and communities.
In 2016, we also made key changes to our compensation plans to better align with our values of transparency, collaboration and inspiration across the Company. By aligning targets with a greater emphasis on Company level revenue growth in both our short- and long-term plans, we are tying the growth strategy to the compensation plan to increase accountability. I am pleased to highlight some of the specific enhancements to our corporate governance and compensation plans covered in this Proxy Statement, including program changes that will be implemented beginning in 2017:
Your vote is important.Whether or not you plan to attend the Annual Meeting, we hope you will vote as soon as possible.
By order of the Board of Directors.
Sincerely,
StacyCozad
SeniorVicePresident,GeneralCounsel,ChiefComplianceOfficer,andCorporateSecretary
This summary highlights certain information contained elsewhere in the accompanying Proxy Statement. This summary does not contain all the information you should consider before voting your shares. For more complete information regarding the proposals to be voted upon at the Annual Meeting and our 2018 performance, please review the entire Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
We use the terms “Spirit,” the “Company,” “we,” “us,” and “our” in this Proxy Statement to refer to Spirit AeroSystems Holdings, Inc. and its consolidated subsidiaries.
Matters to Be Voted On at the Annual Meeting
Stockholders of record of our Common Stock as of February 25, 2019, may vote their shares using any of the following methods:
BYINTERNET VIACOMPUTER | BYINTERNET VIATABLETORSMARTPHONE | BYMAIL If you received a paper copy | INPERSON Vote in person at the |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 7
HEADQUARTERS | Wichita, Kansas |
PRODUCTS | Fuselages, wing structures, and propulsion systems for commercial and defense aircraft |
WORLDWIDEEMPLOYEES | Approximately 17,500 |
LOCATIONS | Kansas, Oklahoma, North Carolina, Scotland, France, Malaysia |
MAJORCUSTOMERS | Airbus, Boeing, Bell Helicopter, Lockheed Martin (Sikorsky), Mitsubishi Aircraft Corporation, Northrop Grumman, Rolls-Royce |
Spirit is a leading tier-one global aerostructures provider. We manufacture large aerostructures, including fuselages, wing structures, engine nacelles, pylons, fan cowls, thrust reversers, and systems integration for the world’s premier aircraft. Spirit’s capabilities include metal manufacturing and assembly, precision assembly, and composites manufacturing.
Our engineering capabilities, combined with our capacity for high-volume production, have positioned Spirit as a leading aerostructures supplier to both Airbus and Boeing. For Boeing, we manufacture the 737 fuselage, the front section of the 787 fuselage, and otherwise manufacture parts for every Boeing commercial aircraft currently in production. Further, for Airbus, we supply fuselage and wing aerostructures content on the A350 XWB and wing aerostructures content on the A320, A330, and A380. Spirit also supplies aerostructures for various regional and business jet programs, including pylons on the A220 and in-development Mitsubishi Regional Jet, as well as nacelles for Rolls-Royce engines used on Gulfstream aircraft.
In addition to producing aerostructures for commercial aircraft, Spirit designs, engineers, and manufactures structural components for military programs. We have been awarded a significant amount of work for Boeing’s P-8, C-40, and KC-46 tanker, all of which are commercial aircraft modified for military use. We are also involved in the development and production of various parts for the Sikorsky CH-53K heavy-lift helicopter and Bell V-280 tiltrotor aircraft. In addition, Spirit is proud to be a member of the Northrop Grumman B-21 Raider industry team. Spirit has invested heavily in research and development labs that enable us to deliver innovation and value on defense programs.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 8
Spirit Values and Fundamental Behaviors
At Spirit, we believe that culture and values play a determining role in the success of corporate strategy. Values are demonstrated in the way we think, act, and ultimately achieve results.
Transparency I am open, honest, and respectful with my communication. I speak up to share my ideas and build trust by making my intentions clear. | |
Collaboration I align my actions with others, so we work together to achieve the best outcome in everything we do. | |
Inspiration I encourage the best from others, and I lead by example to ensure innovation is a component of our success. |
Safety | Our employees are our greatest asset. We are committed to conducting our operations in a manner that prioritizes the safety and continued health of our employees and other workers. We are committed to continual assessment, training, and investment to execute our safety goals and reduce injuries and incidents. | ||
Quality | We are committed to continually improving our quality and delivering on or exceeding our customers’ quality expectations. | ||
On-Time Delivery | Aside from safety and quality, successful on-time delivery is our goal. The success of our customers depends on our ability to meet their delivery expectations consistently. | ||
Customer Focused | Being a trusted partner to our customers is essential to our ability to win profitable new business. We focus on our customers by meeting our operational commitments and working alongside our customers to develop innovative solutions to their challenges. We are committed to continually investing in new technologies to improve quality, lower costs, and increase production capabilities, in a mutually beneficial way. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 9
Spirit’s corporate values are demonstrated through commitments to key community initiatives, from volunteer activities to corporate- and employee-funded grants. Our values are demonstrated through the way we conduct our business and our commitments, which include the following:
CharitableGiving We believe the opportunity to do business in a community comes with a responsibility to give back. In 2018, more than $2.9 million was donated by Spirit and $2.7 million by Spirit employees to nonprofit organizations supporting education, arts and culture, civic engagement, and health and human services. | |
CommunityInvolvement Whether it is serving on the board of a nonprofit or serving meals to the hungry, Spirit leaders and employees give generously of their time and talents. Recent Company-sponsored activities include: • Mentoring students interested in science, technology, engineering, or mathematics careers • Providing school supplies for thousands of U.S. children • Building homes for low-income families • Supporting an orphanage in Malaysia • Refurbishing a children’s respite facility in the U.K. • Creating memorial and recreational areas in local veterans’ centers | |
GlobalDiversity We are committed to promoting diversity — not only because it is the right thing to do, but because it drives innovation and growth. | |
Environment,Health,andSafety We conduct our business in a manner that protects the environment and promotes the health, safety, and well-being of our employees and our surrounding communities. | |
EthicsandCompliance We uphold the highest ethical standards, and we are committed to complying with all laws and regulations applicable to our business and our Code of Business Conduct. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 10
About Spirit’s Director Nominees and Governance Practices
Name | Age | Director Since |
| Principal Occupation | Independent | Committee Memberships |
Charles L. Chadwell | 78 | 2008 |
| Retired VP/GM of Commercial Engine Operations, GE Aircraft Engines | Yes | Governance (Chair) Compensation |
Irene M. Esteves | 60 | 2015 |
| Retired CFO, Time Warner Cable Inc. | Yes | Audit (Chair) Risk |
Paul E. Fulchino | 72 | 2006 |
| Retired Chairman, President and CEO, Aviall, Inc. | Yes | Compensation (Chair) Governance |
Thomas C. Gentile III | 54 | 2016 |
| President and CEO, Spirit AeroSystems Holdings, Inc. | No |
|
Richard A. Gephardt | 78 | 2006 |
| President and CEO, Gephardt Consulting Group | No |
|
Robert D. Johnson, Chairman | 71 | 2006 |
| Retired CEO, Dubai Aerospace Enterprise Ltd. | Yes | Compensation Governance |
Ronald T. Kadish | 70 | 2006 |
| Retired EVP, Booz Allen Hamilton | Yes | Risk (Chair) Governance |
John L. Plueger | 64 | 2014 |
| President and CEO, Air Lease Corporation | Yes | Audit Risk |
Laura H. Wright | 59 | 2018 |
| Retired SVP and CFO, Southwest Airlines | Yes | Audit Risk |
Independent | Public Company CEO Experience | Public Company CFO Experience | Commercial Aviation Operations Management Experience | Defense Aviation Operations Management Experience | Public Company Board Experience | Executive Compensation Experience | Risk Management Experience | M&A Experience | Senior Government Experience | |
Chadwell | • | • | • | • | • | |||||
Esteves | • | • | • | • | • | |||||
Fulchino | • | • | • | • | • | • | • | |||
Gentile | • | • | • | • | • | • | ||||
Gephardt | • | • | ||||||||
Johnson | • | • | • | • | • | • | ||||
Kadish | • | • | • | • | • | • | ||||
Plueger | • | • | • | • | • | |||||
Wright | • | • | • | • | • | • | • |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 11
Corporate Governance Highlights
Board Practices | Stockholder Protections | |
Independent Chairman of the Board | Proxy access right | |
7 out of 9 director nominees are independent | Right to call special meetings | |
Overboarding policy | Right to act by written consent | |
Ongoing director education program | Active stockholder engagement program | |
Regular executive sessions of non-management directors | Annual say-on-pay vote | |
Annual board and committee evaluations | Annual election of all directors | |
Robust stock ownership requirements for directors | Majority voting standard in uncontested director elections | |
Anti-hedging and pledging policy | No poison pill or similar plan | |
Robust risk oversight process with Board and committee roles |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 12
About Spirit’s Executive Compensation Program and Practices
Overview of Spirit’s Executive Compensation Program
We provide highlights of our executive compensation program below. For a full understanding of the compensation paid to our named executive officers, please review our Compensation Discussion and Analysis and the related compensation tables in this Proxy Statement.
Our compensation objectives are to (i) attract, retain, and motivate highly qualified executive officers, (ii) pay for performance using short-term and long-term incentives, (iii) align interests of the Company’s executive officers with the Company’s stockholders by using compensation performance measures that are meaningful to our stockholders, and (iv) ensure compensation does not encourage inappropriate risk-taking by diversifying performance measures, using payment caps, and maintaining a clawback policy, among other things. The 2018 compensation structure (excluding perquisite or “other” compensation) for our CEO and the other named executive officers (“NEOs”) is below. As the charts below demonstrate, 87% of our CEO’s direct compensation was variable based on performance, while 77% of the other NEOs’ direct compensation was variable based on performance.
Compensation Practices Checklist
Best Practices | What the Company Doesn’t Do |
Align pay and performance — substantial portion of pay is delivered through variable, at-risk compensation | No ongoing new defined-benefit Supplemental Executive Retirement Plan accruals |
Clawback policy | No share recycling (other than in the context of forfeited shares) |
Robust stock ownership requirements | No tax gross-ups related to a change-in-control |
Performance goals are relevant and tied to creation of stockholder value | No enhanced health and welfare benefit plans for executives |
Double-trigger change-in-control provisions | No guaranteed payouts on performance-based compensation (except for upon death, disability, or retirement after the age of 62, beginning with equity awards granted in 2018) |
Offer market-competitive benefits | No dividend payments on time-based restricted stock awards until they vest |
Pay long-term incentives entirely in stock | No accumulation of dividends on unvested performance-based restricted stock awards |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 13
ELECTION OF DIRECTORS
The Board of Directors is elected each year at the Company’s annual meeting of stockholders. Spirit currently has nine directors. Each director elected at the Annual Meeting will serve until the 2020 annual meeting of stockholders and until the election and qualification of his or her respective successor, subject to such director’s earlier death or disability.
Based on the recommendations of the Company’s Corporate Governance and Nominating Committee (the “Governance Committee”), the Board has nominated each of the persons listed below for election as directors. All nominees have served as directors of the Company since the 2018 annual meeting of stockholders.
Each of the nominees has agreed to serve if elected and, as of the date of this Proxy Statement, the Company has no reason to believe that any nominee will be unavailable to serve. If any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxy holders’ intention is to vote the proxies for such other person as may be designated by the present Board to fill such vacancy.
The following information with respect to the nine nominees is based on information furnished to the Company by each nominee and highlights the specific experience, qualifications, attributes, and skills of the individual nominees that have led the Board to conclude that each should continue to serve on the Board.
Charles L. Chadwell | ||
Age 78 Director Since 2008 Independent Director | ||
Professional Experience: | Former Public Company Directorships Held in the Past 7 Years: | |
• Vice President and General Manager of Commercial Engine Operations, General Electric Aircraft Engines (“GE Aviation”)(1994-2002) • Vice President, Operations, GE Aviation (1990-1994) | • B/E Aerospace (2007-2012) | |
Committee Assignments: | ||
• Governance (Chair) • Compensation | ||
Qualifications,Experience,KeyAttributes,andSkills: Mr. Chadwell brings to the Board critical supply chain and manufacturing operations expertise, and executive leadership expertise, within the commercial and defense aviation industry. Mr. Chadwell provides the Board with compensation, governance, and human resources expertise, and valuable insight and perspective into aviation industry trends, developments, and challenges. Mr. Chadwell also brings to the Board experience as a public company director. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 14
Irene M. Esteves | ||
Age 60 Director Since 2015 Independent Director | ||
Professional Experience: | Current Public Company Directorships: | |
• Chief Financial Officer, Time Warner Cable Inc. (2011-2013) • Executive Vice President and Chief Financial Officer, • Senior Vice President and Chief Financial Officer, Regions Financial Corporation (2008-2010) | • RR Donnelley (2017-present), Aramark (2014-present), KKR Real Estate Finance Trust Inc. (2018-present) | |
Former Public Company Directorships Held in Past 5 Years: | ||
• Level 3 Communications (2014-2017), TW Telecom Inc. (2014) | ||
Committee Assignments: | ||
• Audit (Chair) • Risk | ||
Qualifications,Experience,KeyAttributes,andSkills: Ms. Esteves has experience in global finance, corporate strategy, human resources, treasury, accounting, tax, risk management, mergers and acquisitions, and investor relations across multiple industries. Ms. Esteves also brings to the Board experience as a public company director. In addition, Ms. Esteves qualifies as an audit committee financial expert under the rules of the Securities and Exchange Commission (the “SEC”). |
Paul E. Fulchino | ||
Age 72 Director Since 2006 Independent Director | ||
Professional Experience: | Current Public Company Directorships: | |
• Operating Partner, AE Industrial Partners (2015-present) • Senior Advisor, The Boeing Company (“Boeing”) (2010-2014) • Chairman, President and Chief Executive Officer, Aviall, Inc. (2000-2010) (Aviall became a wholly owned subsidiary of Boeing in September 2006.) • President and Chief Operating Officer, B/E Aerospace, Inc. (1996-1999) • President and Vice Chairman, Mercer Management Consulting (1990-1996) | • Wesco Aircraft Holdings, Inc. (2008-present) | |
Committee Assignments: | ||
• Compensation (Chair) • Governance | ||
Qualifications,Experience,KeyAttributes,andSkills: Mr. Fulchino provides the Board with executive leadership experience, and extensive knowledge and expertise regarding the commercial aviation industry, the Company’s customers and supply base, compensation and human resource matters, and mergers and acquisitions. Mr. Fulchino also brings to the Board experience as a public company director. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 15
Thomas C. Gentile III | ||
Age 54 Director Since 2016 | ||
Professional Experience: | Former Public Company Directorships Held in Past 5 Years: | |
• President and Chief Executive Officer, Spirit AeroSystems Holdings, Inc. (2016-present) • Executive Vice President and Chief Operating • President and Chief Operating Officer, General Electric Capital Corporation (2014-2016) • President and Chief Executive Officer, General Electric Healthcare Systems (2011-2014) • President and Chief Executive Officer, General Electric Aviation Services (2008-2011) | • Synchrony Financial Bank (2015) | |
Qualifications,Experience,KeyAttributes,andSkills: Mr. Gentile has demonstrated success in managing large, complex global technology businesses across multiple industries. He brings to the Board a deep understanding of aviation program management, product development, strategy, and business development. Mr. Gentile also brings to the Board experience as a public company director. |
Richard A. Gephardt | ||
Age 78 Director Since 2006 | ||
Professional Experience: | Current Public Company Directorships: | |
• President and Chief Executive Officer, Gephardt Consulting Group (2007-present) • President and Chief Executive Officer, Gephardt Governmental Affairs (2005-present) • Member, U.S. House of Representatives | • Centene Corporation (2006-present) | |
Former Public Company Directorships Held in Past 5 Years: | ||
• Century Link, Inc. (2007-2016), Ford Motor Company (2009-2015), U.S. Steel Corporation (2005-2015) | ||
Qualifications,Experience,KeyAttributes,andSkills:Mr. Gephardt brings governmental affairs and public relations expertise to the Board, along with labor management and union expertise. He provides the Board with a diverse perspective on public policy, political affairs, and the regulatory environment. Mr. Gephardt also brings to the Board experience as a public company director. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 16
Robert D. Johnson, Chairman | ||
Age 71 Director Since 2006 Independent Director | ||
Professional Experience: | Current Public Company Directorships: | |
• Chief Executive Officer, Dubai Aerospace • Chairman, Honeywell Aerospace • President and Chief Executive Officer, Honeywell Aerospace (2000-2005) | • Roper Technologies, Inc. (2005-present), Spirit Airlines, Inc. (2010-present) | |
Former Public Company Directorships Held in Past 7 Years: | ||
• Ariba, Inc. (2003-2012) | ||
Committee Assignments: | ||
• Compensation • Governance | ||
Qualifications,Experience,KeyAttributes,andSkills: Mr. Johnson, Chairman of the Board, has aviation industry executive leadership experience, experience in executive compensation and human resource matters, and provides the Board with valuable insight and perspective resulting from his expertise in marketing, sales, supply chain, and production operations. Mr. Johnson also brings to the Board experience as a public company director. |
Ronald T. Kadish | ||
Age 70 Director Since 2006 Independent Director | ||
Professional Experience: | Former Public Company Directorships Held in Past 5 Years: | |
• Consultant, Raytheon (2018-Present) • Senior Executive Advisor, Booz Allen Hamilton (“Booz”) (2015-2018) • Executive Vice President, Booz (2005-2015) • Director, U.S. Missile Defense Agency (2002-2004) • Director, Ballistic Missile Defense Organization, Department of Defense (1999-2001) • Commander, Electronic Systems Center, Hanscom Air Force Base (1996-1999) | • Orbital ATK (2015-2018), Orbital Sciences Corp. (2005-2015) | |
Committee Assignments: | ||
• Risk (Chair) • Governance | ||
Qualifications,Experience,KeyAttributes,andSkills: Mr. Kadish provides the Board with unique expertise in military, program management, security, international, and governmental matters, including having served three decades in the U.S. Air Force, rising to the rank of Lieutenant General. He delivers critical insight to the Board with respect to enterprise risk management, cybersecurity, global security, and our defense customers’ needs and expectations. Mr. Kadish also brings to the Board experience as a public company director. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 17
John L. Plueger | ||
Age 64 Director Since 2014 Independent Director | ||
Professional Experience: | Current Public Company Directorships: | |
• Chief Executive Officer and President, • President and Chief Operating Officer, ALC (2010-2016) • Chief Executive Officer, International Lease • President and Chief Operating Officer, ILFC (2002-2010) | • ALC (2010-present) | |
Committee Assignments: | ||
• Audit • Risk | ||
Qualifications,Experience,KeyAttributes,andSkills:Mr. Plueger provides the Board with valuable insight into the aviation industry and aviation operations management stemming from his executive leadership roles at ILFC and ALC. In addition, Mr. Plueger has significant experience in finance and accounting matters as a certified public accountant, having received his training as an auditor from PricewaterhouseCoopers. Mr. Plueger qualifies as an audit committee financial expert under the rules of the SEC. Mr. Plueger also brings to the Board experience as a public company director. |
Laura H. Wright | ||
Age 59 Director Since 2018 Independent Director | ||
Professional Experience: | Current Public Company Directorships: | |
• Sole Member and Founder, GSB Advisory, LLC (2013-present) • Senior Vice President and Chief Financial Officer, Southwest Airlines Co. (“SWA”) (2004-2012) • Vice President, Finance, and Treasurer, SWA (2001-2004) • Treasurer, SWA (1998-2001) | • TE Connectivity (2014-present), CMS Energy Corp. (and its wholly owned subsidiary, Consumers Energy Company) (2013-present) | |
Former Public Company Directorships Held in Past 5 Years: | ||
• Pebblebrook Hotel Trust (2009-2019) | ||
Committee Assignments: | ||
• Audit • Risk | ||
Qualifications,Experience,KeyAttributes,andSkills: Ms. Wright has corporate finance and accounting experience, commercial aviation operations experience, risk management experience, and mergers and acquisitions experience, as a result of her position as Senior Vice President and Chief Financial Officer of SWA, and various other financial positions held during her 25-year career at SWA. Ms. Wright worked for Arthur Young & Co. in Dallas from 1982-1988 prior to joining SWA. Ms. Wright is a certified public accountant and qualifies as an audit committee financial expert under the rules of the SEC. Ms. Wright also brings to the Board experience as a public company director. |
The Company’s bylaws provide for simple majority voting in an uncontested election of directors. In order for a director nominee to be elected, the votes that stockholders cast “FOR” the director nominee must exceed the votes that stockholders cast “AGAINST” the director nominee. In the event that an incumbent nominee does not receive the requisite majority of votes cast in this election, the Company will follow the procedure described under “General Information Regarding the Meeting — What Happens if an Incumbent Director Nominee is Not Elected at the Annual Meeting?” Any shares not voted (whether by abstention, broker non-vote, or otherwise) will have no impact on the election of directors. Your broker may not vote your shares on this proposal unless you give voting instructions.
The Board recommends that you vote FOR each of the director nominees.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 18
The Company is governed by its Board of Directors. Other than with respect to matters reserved to stockholders, the Board is the ultimate decision-making body of the Company. The Board is responsible for overseeing the Company’s strategy and performance, and protecting stockholder interests and value. Further, the Board is responsible for selecting and overseeing the Company’s executive officers, who set and execute the Company’s business strategy and handle the Company’s day-to-day operations.
In carrying out its responsibilities, the Board has created and delegated certain responsibilities to four standing committees: the Audit Committee, the Compensation Committee, the Governance Committee, and the Risk Committee. Additional information about these committees and their responsibilities is described under “Committees.”
Corporate Governance Guidelines
The Board is committed to maintaining corporate governance practices that maximize stockholder value. To further its commitment, the Board has adopted the Company’s Corporate Governance Guidelines (the “Governance Guidelines”) to ensure that the Board has the necessary authority and practices in place to effectively review and evaluate the Company’s strategy and operations, to make decisions that are independent of the Company’s management, to oversee management, and to monitor adherence to the Company’s standards and policies. The Governance Guidelines are available at http://investor.spiritaero.com/govdocs.
Pursuant to our bylaws, the Board of Directors is required to consist of three or more directors and may be increased or decreased at any time by the Board of Directors. Currently, the Board of Directors consists of nine directors. Pursuant to its charter, the Governance Committee is responsible for reviewing the size of the Board and recommending to the Board any changes it deems appropriate with respect to Board size.
The Company separates the roles of Chief Executive Officer (“CEO”) and Chairman of the Board in recognition of the differences between the two roles and the value of independent leadership oversight. The Board believes that separation of the roles maximizes the ability of the CEO to focus on Company strategy and operations without distraction, while benefiting from the Chairman’s perspective and insight. Because Mr. Johnson, the Chairman of the Board, is an independent director, the Board has not deemed it necessary to appoint a lead independent director.
While the CEO is responsible for setting the strategic direction of the Company and managing the day-to-day operations and performance of the Company, the Chairman of the Board performs the following duties:
Sets the agenda for Board meetings;
Presides over meetings of the full Board and executive sessions of independent directors;
Presides over stockholder meetings;
Serves as a liaison between the CEO and the independent directors;
Provides feedback to the CEO on behalf of the independent directors regarding business issues and Board management; and
Regularly speaks with the CEO between Board meetings to discuss Company performance and matters of significance.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 19
Selecting qualified individuals to serve as directors is key to the Board’s performance. The Governance Committee is responsible for evaluating qualified potential candidates to serve on the Board, and recommending to the Board for its selection nominees to stand for election as directors at the Company’s annual meeting of stockholders. This responsibility is further described in the Governance Committee’s charter, which is available at: http://investor.spiritaero.com/govdocs. In evaluating candidates, the Governance Committee and Board consider the qualifications and expertise of director candidates individually and in the broader context of the Board’s overall composition, taking into account any particular needs that the Company may have based on its strategic initiatives, risks, and opportunities. The Company has engaged a third-party international executive search firm to assist the Governance Committee in identifying and evaluating potential director candidates.
In evaluating individual candidates, the Governance Committee considers the personal ethics and values, experience, judgment, and diversity of the candidates, among other things. It is the policy of the Board that the Board reflect diversity of viewpoint, professional experience, education, skill, expertise, industry knowledge, and such other factors as the Governance Committee and Board believe would enhance the effectiveness of the Board. Nominees must have high standards of integrity and ethics, and convey a commitment to act in the best interest of the Company and its stockholders.
In addition, the Governance Committee considers the candidates’ employment and other commitments, and evaluates whether the candidates have sufficient time available to efficiently and effectively carry out the duties of directors. For example, the Governance Guidelines limit the number of boards that any director may serve on to five (including the Company’s Board), or three boards (including the Company’s Board) in the case of a director who is an active chief executive officer at another public company.
It is the Governance Committee’s policy to consider candidates nominated by stockholders in compliance with applicable laws, regulations, and the procedures described in the Company’s bylaws and Proxy Statement. If a stockholder desires to recommend a director candidate for nomination by the Governance Committee, the stockholder should follow the procedures described under “Stockholder Proposals and Director Nominations for the 2020 Annual Meeting.” Director candidates recommended by stockholders will be considered and evaluated in the same manner as candidates discovered through other sources.
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Director Tenure and Refreshment
While the Company has added four new directors to its Board in the past five years, five of the nominees have served on the Board for more than ten years. Through its annual evaluation process, the Board has determined that each of these five nominees provides diversity of experience and perspective, and plays an integral and necessary role in the boardroom. The Board has periodically evaluated age and term limits along with retirement policies, and has determined that such limits and policies may arbitrarily restrict valuable Board members from service and, thus, reduce stockholder value. Instead, the Board has determined to continue evaluating its members on their merits based on the contributions they make in the boardroom and their ability to enhance overall Board effectiveness. The Board is committed to routine Board and director refreshment as needed to enhance Board effectiveness, and primarily uses rigorous board and committee evaluations and composition discussions as its refreshment mechanisms.
Board and Committee Evaluations
Each year, the Governance Committee oversees an evaluation of the Board and each committee. The 2018 evaluation covered the following topics, among other things:
Composition of the Board and committees and whether the composition is appropriate in light of the Company’s strategic priorities;
Effectiveness of Board and committee leadership;
Strengths of the Board and committees and opportunities for improvement;
Quality of information provided to the Board;
Effectiveness of structures and practices;
Quality of the directors’ relationships with each other; and
Quality of the Board’s relationship with management.
A summary of the evaluation process is below:
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Our director education program is multifaceted and includes site visits and tours, in-depth education seminars on topics of interest by senior management and external advisors, background material on the Company’s operations and strategy, and the regular provision of resources from various educational institutions to directors. Each new Board member receives onboarding programming that involves meetings with senior management, business overviews, and presentations on the Code of Business Conduct, insider trading, and various other policies and procedures. We encourage our directors to attend reputable director education programs sponsored by external advisors and educational institutions.
The Company’s Common Stock is listed on the New York Stock Exchange (the “NYSE”), and the Company uses the NYSE’s listing standards to determine director independence. Under the NYSE’s listing standards and the Governance Guidelines, the Board must consist of a majority of independent directors. For a director to qualify as independent, the Board must determine that the director has no material relationship with the Company (either directly, or as a partner, stockholder, or officer of an organization that has a relationship with the Company). The Board performs an independence assessment of each director annually and as circumstances may otherwise require.
In assessing the existence of a material relationship with the Company, the Board considers all relevant transactions, relationships, and arrangements required by the NYSE’s independence standards. The Board examined each director’s involvement through directorships, employment, consulting relationships, or otherwise, with entities the Company does business with. In particular, the Board evaluated the following:
Topic | Transaction Evaluated | Outcome |
PaulE.Fulchino | When considering the independence of Mr. Fulchino, the Board considered his role as an operating partner of AE Industrial Partners (“AEI”), a private equity firm that has ownership interests in four of the Company’s suppliers. For three of such suppliers, all work with the Company was won as a result of the suppliers submitting the most competitive proposal in competitive bidding situations. With respect to the fourth supplier, AEI is a minority owner and the percentage of the supplier’s revenue that is attributable to the Company is insignificant. In his role at AEI, Mr. Fulchino assists with the acquisition, development, and value creation of portfolio companies. Mr. Fulchino receives a retainer from AEI and does not own any equity in AEI. Mr. Fulchino has no agreements with AEI, is not covered under AEI’s benefit plans or programs, receives a Form 1099 from AEI, and is free to be employed by other companies. | The Board affirmatively determined, based on available facts and circumstances, that Mr. Fulchino was not an employee of AEI (for purposes of the independence determination). Further, with respect to the Company’s transactions with three of the suppliers, each transaction arose as a result of the respective entity submitting the most competitive bid out of all bidding suppliers, and, thus, the transactions were not reportable under Item 404 of Regulation S-K. Finally, with respect to the fourth supplier, the Board determined that Mr. Fulchino’s relationship with AEI did not give rise to a material interest. For these and other reasons, the Board determined that Mr. Fulchino’s relationship with AEI does not give rise to a material relationship that impacts his independence or creates a related person transaction. |
RichardA.Gephardt | When considering Mr. Gephardt’s independence, the Board considered his role as President and Chief Executive Officer of the Gephardt Consulting Group, a consulting firm that provides services to the Company in connection with labor matters (the “Gephardt Group”). Mr. Gephardt holds a 40% equity interest in the Gephardt Group, and Mr. Gephardt’s son, Chief Operating Officer of the Gephardt Group, holds a 10% equity interest. The Company’s transactions with the Gephardt Group in 2018 amounted to $275,604. | The Board affirmatively determined that, in light of Mr. Gephardt’s significant ownership and involvement in the Gephardt Group, Mr. Gephardt has a material relationship with the Company and is, therefore, not independent. |
Based on this analysis, the Board has determined that all the director nominees are independent under the NYSE’s criteria, with the exclusion of Messrs. Gentile and Gephardt. All the committees of the Board are comprised solely of independent directors.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 22
The Board has four committees: the Audit Committee, Compensation Committee, Governance Committee, and Risk Committee. The Board has adopted written charters for each committee, which are available at http://investor.spiritaero.com/govdocs. Information on each committee is set forth in the table below.
Committee | Members | Primary Responsibilities | No. of Meetings in 2018 |
AuditCommittee* | Irene M. Esteves (Chair) John L. Plueger Laura H. Wright | (1) Oversee the quality and integrity of the Company’s financial reporting. (2) Oversee the Company’s compliance with legal and regulatory requirements. (3) Engage, compensate, and oversee the independent auditor’s performance. (4) Oversee performance of the Company’s internal audit function. (5) Review and discuss with management and the independent auditors the Company’s earnings releases and quarterly and annual reports on Forms 10-Q and 10-K. (6) Consider the effectiveness of the Company’s internal controls over financial reporting. (7) Collaborate with the Risk Committee and oversee financial-related risk exposures, and related policies and processes attempting to mitigate such risks. (8) Oversee the Company’s Code of Business Conduct and the Company’s ethics and compliance program. | 9 |
CompensationCommittee | Paul E. Fulchino (Chair) Robert D. Johnson Charles L. Chadwell | (1) Review and approve the compensation of the Company’s executive officers. (2) Oversee the administration of the Company’s compensation plans, policies, and programs. (3) Prepare the Compensation Committee Report in this Proxy Statement. (4) Collaborate with the Risk Committee and oversee compensation-related risk exposures, and related policies and processes attempting to mitigate such risks. (5) Review and make recommendations to the Board with respect to non-employee director compensation. | 5 |
GovernanceCommittee | Charles L. Chadwell (Chair) Robert D. Johnson Paul E. Fulchino Ronald T. Kadish | (1) Assist the Board in identifying qualified individuals to become Board members. (2) Determine the composition of the Board and its committees. (3) Lead the Board in its annual review of the Board’s performance. (4) Develop and implement the Governance Guidelines and recommend to the Board any changes thereto. (5) Review and approve, deny, or ratify transactions under the Company’s Related Person Transaction Policy. (6) Collaborate with the Risk Committee and oversee risks related to the Company’s governance structure. | 5 |
RiskCommittee | Ronald T. Kadish (Chair) John L. Plueger Irene M. Esteves Laura H. Wright | (1) Provide oversight of management’s guidelines, policies, and processes for assessing, monitoring, and mitigating the Company’s critical enterprise risks, including the major strategic, operational, financial, and compliance risks inherent in the Company’s business and core strategies, and collaborate with other committees regarding the same. (2) Oversee the effectiveness of the Company’s cybersecurity programs and its practices for identifying, assessing, and mitigating cybersecurity risks. (3) Oversee management’s review and assessment of key risks that have the potential to significantly affect the Company’s ability to execute its strategy, and determine which risks should be included on the Board’s agenda for discussion. | 4 |
* The Board has determined that Ms. Esteves, Mr. Plueger, and Ms. Wright are “audit committee financial experts,” as such term is defined in Item 407(d)(5) of Regulation S-K. |
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The Board’s Role in Risk Oversight
Management’s Role in Risk Management
The Company’s management is responsible for the identification, assessment, mitigation, and management of risks relating to the Company’s strategy and operations. Apart from reporting to the Board, management engages in a robust enterprise risk management process that involves: (i) semi-annual risk-assessment surveys and interviews; (ii) reviewing, repositioning, and prioritizing identified risks by a risk council composed of executive leadership (the “Risk Council”); (iii) assigning risks to risk owners based on responsibilities with respect to the Company’s strategic objectives; (iv) developing and reporting mitigation plans by the risk owners and risk management team to the Risk Council; and (v) oversight by the Company’s internal audit function. On a quarterly basis, the status of the top risks identified in management’s enterprise risk management process, along with their associated mitigation plans, are presented to the Risk Committee.
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The Risk Committee of the Board is charged with oversight of the Company’s cybersecurity matters. The Company hired a Chief Information Security Officer (“CISO”) in early 2018 to oversee the Company’s cybersecurity practices and procedures. The CISO reports to the Risk Committee quarterly regarding such practices and procedures. The Company took several steps in 2018 to mitigate cybersecurity risks, such as upgrading operating and monitoring systems, hiring specialized personnel, and reviewing and improving applicable policies and procedures. The Company requires cybersecurity education at all levels of the organization.
Stockholders and other interested persons may communicate with the Board, the Chairman of the Board, individual members of the Board, members of any committee of the Board, or one or more non-employee directors through the following:
BYEMAIL to CorporateSecretary@spiritaero.com | BYMAIL to Corporate Secretary Spirit AeroSystems Holdings, Inc. 3801 S. Oliver St. Wichita, KS 67210-2112 | INPERSON at the Annual Meeting (we expect all of our directors to attend) |
The Corporate Secretary will forward communications received to the appropriate party. Receipt of communications clearly not appropriate for consideration by members of the Board, such as unsolicited advertisements, inquiries concerning the Company’s products and services, and harassing communications, are not forwarded to members of the Board.
Commitment to Stockholder Engagement and Responsiveness
The Company’s management and subject-matter experts frequently meet with investors to discuss Company performance, governance practices, strategy, operations, and other matters of importance to our stockholders. In 2018, members of the Company’s management held more than 560 in-person and telephonic meetings with investors and analysts, and traveled through the continental U.S. and to the U.K. to attend the meetings. The Company is committed to maintaining a robust stockholder outreach program in addition to regular participation at investor and community events and meeting with analysts. The Company welcomes feedback from all stockholders. Stockholders can contact the Company’s Investor Relations team by calling 316-523-7040 or emailing investorrelations@spiritaero.com.
At the 2018 annual meeting, two proposals were put forth regarding the stockholders’ right to call special meetings. Proposal 4 was a proposal from the Company’s Board to reduce the threshold required to call a special meeting from a majority of stockholders to 25%. Proposal 5 was a stockholder proposal to reduce the threshold required to call a special meeting from a majority of stockholders to 10%. At the 2018 annual meeting, stockholders voted overwhelmingly in favor of Proposal 5. After the 2018 annual meeting, the Company’s management engaged with several stockholders on the matter and reported the conclusions from the engagement efforts to the Board. On July 23, 2018, after careful consideration of the matter, the Board amended the Company’s bylaws to lower the threshold required to call a special meeting from a majority of stockholders to 10%, consistent with Proposal 5. The Board also adopted a number of customary protections around the right to protect against misuse. The bylaws, as amended, are available on the Company’s website at http://investor.spiritaero.com/govdocs.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 25
2018 Board and Committee Meetings and Attendance
During 2018, there were four in-person meetings and seven telephonic meetings of the Board. All the Company’s directors attended 75% or more of the aggregate of all meetings of the Board and of committees on which they served in 2018. The Company’s Governance Guidelines provide that director attendance is expected at annual meetings of stockholders, and all the Company’s directors attended the 2018 annual meeting of stockholders.
In addition to scheduled Board meetings, the Board receives monthly reports from Mr. Gentile detailing financial results, operational highlights and challenges, and updates on strategic initiatives.
As part of each quarterly in-person Board meeting in 2018, the Company’s non-employee directors met without management present in an executive session. During executive sessions, the non-employee directors reviewed management’s performance, compensation, talent development and succession planning, strategic considerations, corporate governance matters, and other matters of importance.
The Company is committed to the highest ethical standards and to complying with all laws and regulations applicable to the Company’s business. To support and articulate its commitment and personal responsibility in this regard, the Company has adopted the Code of Business Conduct (the “Code”). The Code addresses a number of topics, including the Foreign Corrupt Practices Act, conflicts of interest, safeguarding assets, insider trading, and general adherence to laws and regulations. All directors and employees, including executive officers, must comply with the Code. The Code is available on the Company’s website at http://investor.spiritaero.com/govdocs.
The Board is responsible for overseeing management succession planning. At least annually, the Board reviews candidates for succession with respect to the CEO role and other senior management roles. Succession plans have been developed for both ordinary course succession and contingency planning due to an unforeseen event. The Board receives updates on the development of the succession candidates regularly. Directors engage with potential succession candidates during formal presentations at Board and committee meetings, and informal events with directors and candidates present.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 26
Compensation of Non-Employee Directors
Non-employee directors receive annual cash and equity compensation as described below. Equity compensation is granted under the Director Stock Program adopted under the 2014 Omnibus Incentive Plan, as amended (the “OIP”). The Compensation Committee reviews and approves non-employee director compensation amounts and practices annually. As part of their review, the Compensation Committee evaluates non-employee director compensation data from the companies in Spirit’s proxy peer group, including data regarding the size of equity awards. In addition, the Compensation Committee confers with its independent compensation consultant on the magnitude and type of non-employee director compensation, and reviews market data and benchmarking surveys provided by the consultant. Based upon that information, the Compensation Committee makes a recommendation to the Board. The Board approves the form and amount of compensation after considering the Compensation Committee’s recommendation.
In developing its recommendations, the Compensation Committee is guided by the following goals with respect to non-employee director compensation:
Compensation should be market-competitive in relation to comparably-situated companies, including the Company’s proxy peer group;
Compensation should align directors’ interests with the long-term interests of the Company’s stockholders; and
The compensation structure should be simple, transparent, and easy for stockholders to understand.
The following table describes the elements of the 2018 non-employee director compensation program:
Element | Amount |
Annual Board Cash Retainer | $105,000 |
Annual Board Equity Retainer | $125,000 |
Additional Retainer for Chairman of the Board | $100,000 |
Additional Retainer for Chairman of the Audit Committee | $25,000 |
Additional Retainer for Chairman of the Compensation Committee | $18,000 |
Additional Retainer for Chairmen of Other Committees | $12,000 |
Each Board member receives an annual cash retainer, which is paid quarterly. Further, the Chairman of the Board and each committee chairman receives an additional cash retainer. Directors may elect to have their retainers received in shares of restricted stock or restricted stock units (“RSUs”) in lieu of cash.
Each Board member receives an annual equity retainer, which may be paid annually in the form of restricted stock or RSUs. Both types of awards vest if the non-employee director remains continuously in service for the entire term to which the grant relates. If the non-employee director incurs a termination for any reason before the end of the term (before the annual meeting of stockholders following the grant), the awards are forfeited without any payment. The Board may, in its discretion, waive this one-year service condition (in whole or in part) if it deems it to be appropriate and in the best interests of the Company to do so. Upon vesting, shares of restricted stock are delivered to the directors; however, vested RSUs are not paid to the director until the date that the director leaves the Board. Restricted stock confers voting and dividend rights; dividends accrue during the restricted period and are paid out upon vesting. RSUs confer dividend equivalent rights; dividend equivalents accrue during the restricted period and thereafter, and are paid out upon settlement. If the awards are forfeited, dividends or dividend equivalents, as applicable, are also forfeited.
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Board and Committee Meeting Fees
Until April 25, 2018, Board and committee meeting fees of $1,000 per meeting were paid for attendance at formal meetings where notice was duly given, a quorum was present, a matter was presented for consideration, the Board or committee took action on the matter, and minutes were taken. Meeting fees were paid in cash in arrears at the end of the quarter for which the fees were earned. Directors could choose to receive fees in the form of cash, restricted stock, or RSUs. A director was required to attend a majority of his or her required Board and committee meetings to receive any meeting fees. On April 25, 2018, the Board of Directors terminated the practice of paying meeting fees and changed the annual board equity retainer from $105,000 to $125,000.
Directors are reimbursed for out-of-pocket expenses incurred in connection with their Board services. The Company does not provide perquisite allowances to non-employee directors.
Non-Employee Director Stock Ownership Requirements
Non-employee directors are required to own stock equal to five times the annual Board cash retainer, which currently amounts to $525,000. Non-employee directors have four years of Board service to meet the minimum stockholder requirements. RSUs held by directors are counted in determining whether the minimum stockholding requirements are satisfied. Information regarding the current stock ownership of the Company’s non-employee directors can be found below under “Stock Ownership — Beneficial Ownership of Directors and Executive Officers.”
As of February 25, 2019, all non-employee directors other than Ms. Wright were in compliance with the stock ownership requirements. Ms. Wright, who joined our Board on February 20, 2018, has until February 20, 2022, to meet the requirements.
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2018 Director Compensation Table
The following table sets forth non-employee director compensation for the fiscal year ended December 31, 2018.
Name | Fees Earned or Paid in Cash ($) | (1)
| Stock Awards ($) | (2)
| All Other Compensation ($) | (3)
| Total ($) |
Charles L. Chadwell | 125,000 |
| 125,039 |
|
|
| 250,039 |
Irene M. Esteves |
|
| 271,099 | (4) |
|
| 271,099 |
Paul E. Fulchino |
|
| 262,054 | (5) |
|
| 262,054 |
Richard A. Gephardt | 108,000 |
| 125,039 |
| 275,604 |
| 508,643 |
Robert D. Johnson | 205,000 |
| 125,039 |
|
|
| 330,039 |
Ronald T. Kadish | 124,000 |
| 125,039 |
|
|
| 249,039 |
John L. Plueger |
|
| 245,053 | (6) |
|
| 245,053 |
Francis Raborn(7) | 61,500 |
|
|
|
|
| 61,500 |
Laura H. Wright | 72,148 |
| 168,205 | (8) |
|
| 240,353 |
(1) Includes cash retainer, additional Committee chairmen retainers, and meeting fees paid until April 25, 2018. Please refer to “Compensation of Non-Employee Directors — Compensation Elements — Board and Committee Meeting Fees.” (2) Except for Ms. Wright (see footnote (8) below): Represents the aggregate grant date fair value of the stock awards computed in accordance with authoritative guidance on stock-based compensation accounting issued by the Financial Accounting Standards Board (the “FASB”). On May 7, 2018, each non-employee director received an annual grant of 1,493 shares of restricted stock or RSUs with an aggregate value of $125,000 based on $83.75 per share, the average of the opening and closing prices of Common Stock on the grant date. As a result of rounding up fractional share amounts, the grants were valued at $125,039. In addition, certain directors elected to defer a portion or all of their annual cash retainer. Please see footnotes (4), (5), and (6), for more information. As of February 25, 2019, the balance of each non-employee director’s unvested restricted stock or unvested RSUs was as follows: Mr. Chadwell: 1,493 shares of restricted stock; Ms. Esteves: 3,237 RSUs (includes 1,744 RSUs for deferred retainer, committee chair, and meeting fees); Mr. Fulchino: 3,129 shares of restricted stock (includes 1,636 shares of restricted stock for deferred retainer, committee chair, and meeting fees); Mr. Gephardt: 1,493 shares of restricted stock; Mr. Johnson: 1,493 shares of restricted stock; Mr. Kadish: 1,493 shares of restricted stock; and Mr. Plueger: 2,926 shares of restricted stock (includes 1,493 shares of restricted stock for deferred retainer and meeting fees). (3) The amount of perquisites and other personal benefits has been excluded for all non-employee directors other than Mr. Gephardt, as the total value of each director’s perquisites and other personal benefits was less than $10,000. For Mr. Gephardt, this amount reflects consulting fees paid to the Gephardt Group for labor consulting services rendered in 2018, as further described under “Director Independence.” (4) Includes $105,000 in deferred cash retainer, $25,000 in deferred Committee chair cash retainer, and $16,000 in deferred meeting fees per Ms. Esteves’ election to receive her cash retainers and meeting fees in RSUs. (5) Includes $105,000 in deferred cash retainer, $18,000 in deferred Committee chair cash retainer, and $14,000 in deferred meeting fees per Mr. Fulchino’s election to receive his cash retainers and meeting fees in restricted stock. (6) Includes $105,000 in deferred cash retainer and $15,000 in deferred meeting fees per Mr. Plueger’s election to receive his cash retainer and meeting fees in restricted stock. (7) Mr. Raborn was a non-employee director of the Company until April 25, 2018, when he retired. Mr. Raborn’s fees were prorated to reflect his service in 2018. (8) Represents the aggregate grant date fair value of two stock awards computed in accordance with authoritative guidance on stock-based compensation accounting issued by the FASB: (a) The first stock award was issued on February 20, 2018, the date Ms. Wright joined the Board. On this date, Ms. Wright received a pro rata grant of 243 shares of restricted stock with an aggregate value of $22,094 based on $91.13, the average of the opening and closing prices of Common Stock on February 20, 2018. As a result of rounding up fractional share amounts, the grant was valued at $22,145. The amount of Ms. Wright’s stock award included $3,683 in deferred cash retainer. (b) The second stock award was issued on May 7, 2018, when the annual Board equity awards were granted. On this date, Ms. Wright received a grant of 1,493 shares of restricted stock with an aggregate value of $125,000 based on $83.75 per share, the average of the opening and closing prices of Common Stock on the grant date. As a result of rounding up fractional share amounts, the grant was valued at $125,039. Ms. Wright also elected to defer $21,000 representing an additional 251 shares of restricted stock per Ms. Wright’s election to receive a portion of her cash retainer in restricted stock. As of February 25, 2019, the balance of Ms. Wright’s unvested restricted stock is 1,744 shares of restricted stock (including 251 shares of restricted stock for deferred cash retainer). |
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Related Person Transaction Policy and Process
The Board has adopted a written Related Person Transaction Policy (the “RPT Policy”) that can be found on the Company’s website at http://www.investor.spiritaero.com/govdocs. The purpose of the RPT Policy is to ensure the proper evaluation, approval or ratification, and reporting of related person transactions. Such transactions are only appropriate if they are fair to, and in the best interests of, the Company.
Under the RPT Policy, a related person transaction is any transaction in which the Company was, is, or will be a participant, where the amount involved exceeds $120,000, and in which a Related Person has, had, or will have a direct or indirect material interest. A Related Person is a director, director nominee, officer, or 5% stockholder, or any of their immediate family members. The existence of a direct or indirect material interest depends upon individual facts and circumstances and is determined by our General Counsel or Governance Committee.
The Governance Committee is responsible for reviewing these transactions and determining whether they are fair to, and in the best interests of, the Company. After review of the relevant facts and circumstances, if the Governance Committee concludes the related person transaction is fair to, and in the best interests of, the Company, it may approve or ratify the transaction.
If the Governance Committee declines to approve or ratify any related person transaction, the Company’s General Counsel will review the transaction, determine whether it should be terminated or amended in a manner that is acceptable to the Governance Committee, and advise the Governance Committee of their recommendation. The Governance Committee will then consider the recommendation at its next meeting. If the General Counsel does not ultimately recommend the transaction to the Governance Committee or if the Governance Committee does not approve the transaction, the proposed transaction will not be pursued; or, if the transaction has already been entered into, the Governance Committee will determine an appropriate course of action with respect to the transaction.
Certain Related Person Transactions
Below are the transactions that occurred between January 1, 2018, and February 25, 2019, and fall within the definition of related person transaction in the RPT Policy or under Item 404 of Regulation S-K. With respect to each transaction, the Governance Committee reviewed the transaction in accordance with the RPT Policy and approved it on the basis that it was fair to, and in the best interests of, the Company.
Related Person | Facts |
RichardA.Gephardt | As described under “Board and Governance Matters — Director Independence,” above, the Company entered into an agreement with the Gephardt Group for labor consulting services in 2018 and paid $275,604 pursuant to this agreement during 2018. |
JohnA.Pilla | John Pilla, Senior Vice President and Chief Technology and Quality Officer, has two sons employed by the Company, Anthony Pilla, Cyber Protection Specialist (employed with the Company since June 3, 2016), and Nicolas Pilla, Systems Engineer (employed with the Company since May 31, 2013). Combined, Mr. Pilla’s sons received $204,171 in compensation from the Company in 2018 (this number includes a stock award with a grant date fair value of $45,553); such compensation was established in accordance with the Company’s compensation practices applicable to employees with equivalent responsibilities, experience, and qualifications. Mr. Pilla’s sons are also eligible to participate in employee benefit programs in the same manner as other eligible employees. |
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Beneficial Ownership of Directors and Executive Officers
The following table sets forth, as of February 25, 2019, the shares of Common Stock beneficially owned by each director and named executive officer, individually, and by all the Company’s directors and executive officers as a group. Individually and together, they own less than 1% of our Common Stock. The table also includes information about RSUs credited to the accounts of certain non-employee directors. For purposes of the table, shares are considered to be beneficially owned if the person, directly or indirectly, has sole or shared voting or investment power with respect to the shares. In addition, a person is deemed to beneficially own shares if that person has the right to acquire such shares within 60 days after February 25, 2019.
Name | Common Stock Beneficially Owned |
| Shares Vesting in 60 Days of Record Date | Time-Based and Performance- Based Restricted Stock | (1) | Total Common Stock Beneficially Owned | RSUs | (2) | Total Common Stock Beneficially Owned Including RSUs |
DIRECTORS Charles L. Chadwell |
12,328 |
|
|
1,493 |
|
13,821 |
4,884 |
|
18,705 |
Irene M. Esteves |
|
|
|
|
|
| 15,465 |
| 15,465 |
Paul E. Fulchino | 9,105 |
|
| 3,129 |
| 12,234 |
|
| 12,234 |
Richard A. Gephardt | 1,251 |
|
| 1,493 |
| 2,744 | 5,790 |
| 8,534 |
Robert D. Johnson | 12,742 |
|
| 1,493 |
| 14,235 |
|
| 14,235 |
Ronald T. Kadish | 17,180 |
|
| 1,493 |
| 18,673 |
|
| 18,673 |
John L. Plueger | 6,358 |
|
| 2,926 |
| 9,284 | 13,026 |
| 22,310 |
Laura H. Wright | 1,443 |
|
| 1,744 |
| 3,187 |
|
| 3,187 |
EXECUTIVE OFFICERS Thomas C. Gentile III |
65,645 |
|
|
182,921 |
|
248,566 |
|
|
248,566 |
Sanjay Kapoor(3) | 87,488 |
|
| 36,240 |
| 123,728 |
|
| 123,728 |
Samantha J. Marnick | 43,739 |
|
| 31,122 |
| 74,861 |
|
| 74,861 |
Duane F. Hawkins | 30,125 |
|
| 35,536 |
| 65,661 |
|
| 65,661 |
John A. Pilla(4) | 80,950 |
|
| 31,126 |
| 112,076 |
|
| 112,076 |
All directors and executive officers as a group (18 persons) | 430,551 |
|
| 421,417 |
| 851,968 | 39,165 |
| 891,133 |
(1) With respect to executive officers, includes unvested time-based and performance-based restricted stock awards that are forfeitable until the vesting date or performance certification date, as applicable. Performance-based restricted stock awards are included in the table at target amounts. With respect to directors, includes unvested restricted stock awards that are forfeitable until the vesting date. Such awards are included herein as they confer voting rights and, therefore, are deemed to be beneficially owned under Rule 13d-3(a)(1) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). (2) RSUs vest after one year of service as a director. However, RSUs are not payable until the director’s termination of service. At such time, the RSUs will be paid, at the Board’s option, in cash or shares of Common Stock based on the market value of Common Stock upon termination of service. All RSUs reflected are currently vested except for 3,237 RSUs held by Ms. Esteves. (3) Mr. Kapoor retired from the position of Executive Vice President and Chief Financial Officer on February 9, 2019. The values shown in the table assume no transactions have taken place since February 9, 2019, when Mr. Kapoor ceased to be an executive officer of the Company. (4) Excludes 16,023 phantom stock units Mr. Pilla is entitled to receive upon his retirement from the Company under the frozen Supplement Executive Retirement Plan. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 31
Beneficial Ownership of Major Stockholders
The following table sets forth information with respect to beneficial owners of more than 5% of our outstanding securities as of February 25, 2019. The information set forth below is based on ownership statements filed with the SEC pursuant to Section 15(d) or 13(g) of the Exchange Act.
Name | Amount of Shares Beneficially Owned | Percentage of Common Stock | Sole Voting Shares | Shared Voting Shares | Sole Investment Shares | Shared Investment Shares |
5% STOCKHOLDERS The Vanguard Group(1) 100 Vanguard Blvd. Malvern, PA 19355 |
10,560,087 |
9.91% |
82,406 |
21,149 |
10,462,132 |
97,955 |
Blackrock, Inc.(2) 55 E. 52nd St. New York, NY 10005 | 7,376,265 | 7.0% | 6,606,277 |
| 7,376,265 |
|
Darsana Capital Partners LP(3) Darsana Capital Partners GP LLC Darsana Master Fund LP Darsana Capital GP LLC Anand Desai 40 West 57th Street, 15th Floor New York, NY 10019 | 6,750,104 | 6.4% |
| 6,750,104 |
| 6,750,104 |
(1) Information is based on an amended Schedule 13G filed with the SEC on February 11, 2019. (2) Information is based on an amended Schedule 13G filed with the SEC on February 6, 2019. (3) Information is based on an amended Schedule 13G filed with the SEC on February 14, 2019.
|
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors, executive officers, and persons who own more than 10% of any registered class of a company’s equity securities to file beneficial ownership reports with the SEC. Such reports are filed on Form 3, Form 4, and Form 5 under the Exchange Act, as appropriate. To the Company’s knowledge, based solely on a review of these reports and the reporting persons’ written representations, the Company believes that all filings required to be made by reporting persons holding the Company’s stock were timely filed in accordance with Section 16(a) in 2018, except for one Form 4 for Mr. Johnson (the “Late Form”). The Late Form regarded a sale of 500 shares on March 1, 2018, and was filed on May 9, 2018. The Late Form was not filed on a timely basis because the appropriate staff of the Company did not receive information about the sale until several weeks after it occurred.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 32
ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS
Stockholders are being asked to approve, on an advisory basis, the compensation of the named executive officers, or NEOs, as set forth under the heading “Compensation Discussion and Analysis.” This vote, which is referred to as the “say-on-pay” vote, is not intended to address any specific item of compensation, but rather the overall compensation of the Company’s NEOs and the objectives, policies, and practices described in this Proxy Statement. We conduct a say-on-pay vote annually. The Board believes that executive compensation, as disclosed in this Proxy Statement, aligns with the Company’s peer group pay practices and furthers the Company’s compensation objectives.
Accordingly, the Board asks the Company’s stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed by the Company pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table, and other related tables and disclosures.”
The Board will review the voting results of Proposal 2 and take them into consideration when making future decisions regarding executive compensation.
The affirmative vote of a majority of stockholders present, in person or by proxy, will constitute the stockholders’ non-binding approval with respect to Proposal 2.
With respect to Proposal 2, a stockholder may vote “FOR,” “AGAINST,” or “ABSTAIN.” Abstentions and broker non-votes will not be counted as votes “FOR” or “AGAINST” Proposal 2. However, because abstentions and broker non-votes will be counted as present at the Annual Meeting, they will have the effect of votes “AGAINST” Proposal 2.
Under the rules of the NYSE, brokers are prohibited from giving proxies to vote on executive compensation matters unless the beneficial owner of such shares has given voting instructions on the matter. This means that, if your broker is the record holder of your shares, you must give voting instructions to your broker with respect to Proposal 2 if you want your broker to vote your shares on the matter.
TheBoardrecommendsyouvoteFORtheresolutionapprovingthecompensationofournamedexecutiveofficers.
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COMPENSATION DISCUSSION AND ANALYSIS
TABLE OF CONTENTS | ||
Our 2018 Named Executive Officers
The following Compensation Discussion and Analysis describes the 2018 compensation of our NEOs. Our 2018 NEOs were:
THOMASC. President and Chief Executive Officer | SANJAYKAPOOR Executive Vice President | SAMANTHAJ.MARNICK Executive Vice President, | DUANEF.HAWKINS Senior Vice President; President, Defense and Fabrication Division | JOHNA.PILLA Senior Vice President, Chief Technology and Quality Officer |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 34
Our executive compensation program is designed to enable us to attract, retain, and incentivize executive officers who can deliver short-term performance results and longer-term stockholder value. The following highlights the key items the Compensation Committee considers in the development, review, and approval of the NEOs’ compensation.
The Company’s executive compensation program is designed to:
Attract,retain,andmotivatehighlyqualifiedexecutiveofficers. The Company aims to deliver compensation that is market-competitive and designed to retain qualified, experienced, and motivated executives in the competitive aerospace and defense industry.
Reward/pay-for-performance. A substantial portion of total compensation for executive officers should be variable and deliver rewards based on Company and individual performance. Variable compensation motivates executives to perform. Company performance is measured against established metrics. Individual performance is measured against pre-established objectives and contributions to Company successes.
AligninterestsofexecutiveofficerswiththoseoftheCompany’sstockholders. In order to align such interests, metrics for determining Company performance should be aligned to the Company’s financial results and the creation of stockholder value. Variable compensation should focus on the achievement of financial targets such as revenue, free cash flow, and total shareholder return.
Ensurecompensationdoesnotencourageinappropriaterisk-taking. We mitigate risk-taking by balancing short- and long-term incentives, placing caps on potential payments, incorporating challenging performance goals, diversifying the metrics we use to measure performance, enforcing our stock ownership requirements, and maintaining our clawback policy.
The Compensation Committee reviews and approves the target pay levels for our NEOs with respect to salary, our annual cash incentive, and our long-term incentives. In setting these levels, the Compensation Committee reviews peer group compensation levels and broad survey samples provided by the Compensation Committee’s independent compensation consultant. In addition, the Compensation Committee reviews the individual responsibilities, goals, and challenges with respect to the position in question, along with the experience, prior performance, and potential of the individual in question. The Company generally sets total annual direct compensation of the NEOs (consisting of base salary, the annual cash incentive, and long-term incentives) at a target level that is at or around the market median, subject to individual circumstances and exceptions. Additional information about the Company’s peer group and compensation-setting process can be found under “The Compensation Decision-Making Process,” and “Benchmarking” sections.
The Company’s success depends largely on the efforts and contributions of its executives and their teams to deliver strong business results and increase stockholder value. The Company uses a balance of short- and long-term incentives as well as cash and non-cash compensation to reward NEOs for their roles in meeting Company objectives. For either short- or long-term incentives, executive officers have the opportunity to earn in excess of market median levels when performance exceeds expectations. Conversely, if performance falls below expectations, the incentives pay below target levels, if at all.
In 2018, we linked pay with performance through the following variable pay:
AnnualCashIncentive(the“ACI”): a short-term incentive, which is paid in cash annually based on Company and individual performance. Company performance goals include revenue, earnings before interest and taxes, adjusted for certain items (“Adjusted EBIT”), and annual free cash flow, adjusted for certain items (“Adjusted FCF”), each over a one-year period.
Time-BasedRestrictedStock: a long-term incentive consisting of an award of restricted Common Stock vesting ratably over three years. While vesting is not tied to performance, the increase or decrease in value that the executive receives between the award’s grant date and vesting date is tied to stock performance.
Performance-BasedRestrictedStock: a long-term incentive consisting of an award of restricted Common Stock that will be earned at the end of a three-year performance period based on the Company’s total shareholder return relative to its peer group (“TSR”) and on free cash flow as a percentage of revenue (“FCF Percentage”) over such period.
Additional information on our incentives can be found under “2018 Compensation Program Elements.”
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 35
The table below explains the metrics we used to measure performance with respect to the Company’s compensation.
Program | Metric | Percentage of Component / Opportunity | How Performance is Calculated | Reason for Using Metric |
ACI(CompanyPerformanceComponent) | Revenue | 20% | Top-line revenue in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), measured over a one-year period | Aligns with the Company’s strategy to grow the top line through winning new business with existing and new customers and the Company provides guidance on this metric |
Adjusted EBIT* | 30% | Adjusted EBIT* consists of earnings before interest and taxes, adjusted for non-core earnings impact, measured over a one-year period | Adjusted EBIT* is a common short-term measure of earnings, demonstrating growth in revenue and ability to control costs | |
Adjusted FCF* | 50% | Adjusted FCF* is calculated by subtracting capital expenditures from GAAP cash from operating activities, measured over a one-year period and adjusted for certain items | Adjusted FCF* is used to align management incentives with the current-year guidance provided to stockholders | |
Long-TermIncentiveProgram(TotalAwardOpportunity) | Stock Price | 60% | This portion of the long-term incentive is calculated using a dollar amount, which results in a number of shares based on the price of Common Stock on the third trading day following the earnings call immediately after the grant is approved. Accordingly, the value received upon vesting is directly related to the change in the stock price between the grant date and the vesting date | This metric ties performance of executives’ restricted stock awards directly to stock price performance, thus aligning the interests of executives and stockholders |
TSR | 20% | Performance is measured based on the ranking of the Company’s TSR, expressed as a percentile, relative to the TSR of the Company’s peer group over a three-year performance period as compared to threshold, target, and maximum performance goals | This metric ties executive interests to stockholder interests and aligns with proxy advisory policies and market trends | |
FCF Percentage* | 20% | Performance is measured based on the Company’s free cash flow* as a percentage of revenue over a three-year performance period as compared to threshold, target, and maximum performance goals | This metric is used to align long-term incentives with a key valuation driver of our business, which is free cash flow.* Since the Company does not provide multi-year free cash flow* guidance, a percentage of sales is used to drive sustained free cash flow* performance consistent with our established long-term goal of 7-9% of sales; hence, the measurement is over a three-year period |
* Please see AppendixA for an explanation and reconciliation of these non-GAAP metrics.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 36
The Company’s one- and three-year total shareholder return compared to its peer group, the Russell 3000 index, and S&P 500 index, is set forth below.
Note: TSR is calculated in the chart above using adjusted close prices. Peer TSR is market-cap weighted at the beginning of each period. Three-year TSR is cumulative. The chart above includes data from all members of the Company’s 2016–18 proxy peer group, excluding companies that were acquired during such period (Orbital ATK, B/E Aerospace, Rockwell Collins). For additional information on the companies within our peer group, see “2018 Proxy Peer Group.” Source: S&P’s Capital IQ.
CEO Target Pay Compared to Peers
The target pay of our CEO as compared to the target pay of other CEOs in our peer group is set forth below:
Note: Represents 2017 target CEO pay for companies within our peer group and 2018 target CEO pay for the Company.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 37
Significant Program-Wide Compensation Decisions in 2018
The Compensation Committee met in January 2018 to discuss and implement changes to the Company’s compensation program for the year. In large part, from a programmatic standpoint, the 2018 executive compensation program remained the same as the 2017 program except for the following:
What Changed | Why |
UpdatedvestingtermsforTime-BasedRestrictedStockawardsonretirement,death,anddisability: On retirement, death, or disability, the grantee will fully vest in his or her outstanding restricted stock. Retirement means termination on or after the date when the grantee reaches age 62 | To be competitive with market practices |
UpdatedvestingtermsforPerformance-BasedRestrictedStockawardsonretirement,death,anddisability: On retirement, the grantee will vest in a prorated portion of his or her award based on the number of days continuously employed during the performance period, as calculated and certified by the Compensation Committee at the end of the applicable performance period. Retirement means termination on or after the date when the grantee reaches age 62. On death or disability, the grantee will vest in a prorated portion of his or her target award based on the number of days continuously employed during the performance period | To be competitive with market practices |
Increasedthreshold,target,andmaximumgoalsonPerformance-BasedRestrictedStockawardstiedtoFCFPercentage:* In 2017, the threshold, target, and maximum goals with respect to FCF Percentage* were 6.0%, 6.7%, and 7.4%, respectively. In 2018, the threshold, target, and maximum goals with respect to FCF Percentage* were 7.0%, 7.75%, and 9.0%, respectively | Incentivize higher levels of performance; better align with market expectations; better align with Company performance targets |
* Please see AppendixA for an explanation and reconciliation of these non-GAAP metrics. |
2018 Compensation Program Elements
There are three major components to the Company’s compensation program for NEOs:
Compensation Element | Description | Purpose | |
FIXEDCOMPENSATION | Base Salary | Cash compensation based on day-to-day responsibilities | • Attracts and retains executive officers • Recognizes responsibilities, experience, and performance |
VARIABLE,AT-RISKCOMPENSATION | Short-Term ACI | Annual cash incentive paid upon the achievement of Company performance goals relating to revenue, Adjusted EBIT,* and Adjusted FCF,* and individual objectives, each over a one-year period; no guaranteed payout | • Motivates and rewards executives with respect to short-term performance • Aligns executive interests with stockholder interests |
Long-Term Incentives | |||
• Time-Based Restricted Stock Award (60%) | Time-based award vesting over three years | • Aids in retention • Aligns executive interests with long-term stockholder value creation • Promotes stock ownership | |
• Performance-Based Restricted Stock Awards (40%) | Awards vest on achievement of two equally represented goals: relative TSR and FCF Percentage,* each over a three-year period; no guaranteed payout | • Motivates and rewards executives with respect to long-term performance • Aligns executive interests with long-term stockholder value creation • Aids in retention | |
* Please see AppendixA for an explanation and reconciliation of these non-GAAP metrics. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 38
Base salary is a fixed cash amount designed to attract, retain, and motivate executive officers. In determining base salary, the Compensation Committee considers market data for comparable roles, experience, skill set, prior positions held, performance, and responsibility level. The Company reviews each NEO’s base salary annually in January (and as circumstances or changes in responsibilities may require) and makes appropriate adjustments to account for performance, additional responsibilities, and market movement. We set base salary amounts as set forth under “Setting Target Pay.”
The ACI is an annual cash award granted under the Company’s Short-Term Incentive Plan (the “STIP”) under the 2014 Omnibus Incentive Plan, as amended (the “OIP”). Each individual receives a total target ACI that is equal to a percentage of his or her total base salary. For 2018, this target amount was equal to 140% of our CEO’s base salary, and 100% of the other NEOs’ (the “Other NEOs”) base salaries. We set ACI target amounts as set forth under “Setting Target Pay.”
Payout of the ACI depends on the attainment of individual and Company performance goals. Depending on the level of performance achieved, payout can be between 0 — 200% of target. The objectives of the ACI are to support our pay-for-performance philosophy, align the awards with stockholder interests, and motivate executives to achieve the Company’s near-term focus on safety, quality, delivery, and customer focus that drives the Company’s long-term performance.
The performance weighting for the NEOs’ ACIs are as follows:
CEO: 80% Company performance; 20% individual performance
Other NEOs: 75% Company performance; 25% individual performance
With respect to the measurement of the performance components, the Compensation Committee used a scoring scale of 0.0 to 2.0, with 0.0 for unacceptable performance and 2.0 for exceptional performance. Individual scores are calibrated to the Company’s performance score as further described below.
The Company Performance component of each NEO’s 2018 ACI is scored based on the performance of the Company with respect to three quantitative metrics, each over a one-year period:
Revenue, representing 20% of total Company performance
Adjusted EBIT, representing 30% of total Company performance
Adjusted FCF, representing 50% of total Company performance
The manner in which Adjusted EBIT and Adjusted FCF are calculated is described in AppendixA.
In 2018, the Company exceeded its target performance goal with respect to revenue and Adjusted FCF, but did not reach its threshold goal with respect to Adjusted EBIT. As a result, the Compensation Committee determined a 0.89 score had been achieved with respect to Company performance, representing a weighted score of 0.712 for the CEO (representing 80% of his total ACI score), and 0.6675 for each of the Other NEOs (representing 75% of their total ACI scores). The following table summarizes the Company’s actual performance relative to the Company’s threshold, target, and maximum performance goals for 2018:
2018 ACI Company Metrics Performance | ||||||
Measure | Weighting | Threshold | Target | Maximum | Actual Result | Assessment |
Revenue | 20% | $7.10 billion | $7.20 billion | $7.30 billion | $7.22 billion | Exceeded Target |
AdjustedEBIT* | 30% | $975 million | $1.025 billion | $1.075 billion | $880 million | Below Threshold |
AdjustedFCF* | 50% | $535 million | $550 million | $600 million | $565 million | Exceeded Target |
* The manner in which Adjusted EBIT and Adjusted FCF are calculated is described in AppendixA.
The Individual Performance component of the ACI is intended to further align executive compensation with performance in the Company’s focus areas in any given year by establishing relevant individual performance metrics that relate to each NEO’s assignments. This component was scored based on the achievement of such individual performance goals. Individual scores were calibrated to reflect the Company’s score, which was under the established target of 1.0 for 2018. For example, Mr. Gentile met expectations; however, because the Company score was a 0.89, his individual score was also a 0.89.
To determine the score for the CEO, the Compensation Committee reviewed his annual performance and personal contributions to the Company’s financial and operational results. With respect to the Other NEOs, the Compensation Committee first considered the report and recommendation of the CEO with respect to each person’s performance and score and, subsequently, the Compensation Committee conducted a subjective review of each NEO’s
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 39
contributions to the Company during the fiscal year. With respect to 2018 performance, the NEOs received the following individual performance scores: Gentile: 0.89, Kapoor: 0.89, Marnick: 1.09, Hawkins: 0.75, and Pilla: 1.04.
For additional payout information, please see “2018 ACI Payouts.” Descriptions of the NEOs’ 2018 individual performance contributions are set forth in “2018 NEO Performance and Compensation Decisions.”
The formula for determining the 2018 ACIs and the resulting payouts are reflected in the table below:
NEO | Base Salary ($) | (1) | × | Target (Percentage of Base Salary) (%) | = | Target Award ($) | × | Company Performance (80% weighting for CEO; 75% weighting for Other NEOs) |
(2) | + | Individual Performance (20% weighting for CEO; 25% weighting for Other NEOs) | (3) | = | 2018 Total Payout ($) |
Mr. Gentile | 1,241,233 |
|
| 140 |
| 1,737,726 |
| 0.7120 |
|
| 0.1780 |
|
| 1,546,576 |
Mr. Kapoor | 650,000 |
|
| 100 |
| 650,000 |
| 0.6675 |
|
| 0.2225 |
|
| 578,500 |
Ms. Marnick | 522,877 |
|
| 100 |
| 522,877 |
| 0.6675 |
|
| 0.2725 |
|
| 491,504 |
Mr. Hawkins | 533,685 |
|
| 100 |
| 533,685 |
| 0.6675 |
|
| 0.1875 |
|
| 456,301 |
Mr. Pilla | 456,041 |
|
| 100 |
| 456,041 |
| 0.6675 |
|
| 0.2600 |
|
| 422,978 |
(1) With respect to all NEOs other than Mr. Kapoor (his salary did not change in 2018), the ACI payout was calculated using a weighted-average base salary that takes into account their salary changes in 2018. (2) Reflects a Company score of 0.89 multiplied by the weighting percentage. (3) Reflects individual performance scores multiplied by the weighting percentage. |
Based on Company and individual performance results, the Compensation Committee believes the 2018 NEO ACIs were appropriate and achieved the objectives of the executive compensation program. While the ACIs were earned based on performance in 2018, they were paid out in January 2019. The ACIs are reported as 2018 compensation in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.”
Long-term incentives are an important component of compensation, as they provide long-term, equity-based variable incentive compensation in keeping with the Company’s pay-for-performance philosophy for the entire executive group. Long-term incentives are delivered under the Company’s Long-Term Incentive Plan (the “LTIP”) under the OIP. Under the OIP, the Compensation Committee selects eligible persons to receive such awards and determines the nature and amount of each such award. For 2018, each NEO received an annual target LTIP award equal to the percentage of his or her total base salary, at the time of the award, as provided in the table below:
NEO | Base Salary ($) | x | Target (Percentage of Base Salary) (%) | = | Target Award ($) |
Mr. Gentile | 1,250,000 |
| 500 |
| 6,250,000 |
Mr. Kapoor | 650,000 |
| 300 |
| 1,950,000 |
Ms. Marnick | 520,000 |
| 200 |
| 1,040,000 |
Mr. Hawkins | 535,000 |
| 230 |
| 1,230,500 |
Mr. Pilla | 455,000 |
| 190 |
| 864,500 |
The total annual target LTIP award consists of three components:
Time-Based Restricted Stock, representing 60% of the total target award amount;
Performance-Based Restricted Stock tied to relative TSR over a three-year performance period, representing 20% of the total target award amount; and
Performance-Based Restricted Stock tied to FCF Percentage over a three-year performance period, representing 20% of the total target award amount.
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In 2018, 60% of the target award amount was delivered in the form of a Time-Based Restricted Stock award vesting in three equal installments on each of the first, second, and third anniversaries of the grant date, subject to the recipient being employed by the Company on the vesting date. The Compensation Committee grants Time-Based Restricted Stock awards to assist in retaining NEOs and increase their stock ownership, which further aligns our NEOs’ interests with those of stockholders. Awards are approved by the Compensation Committee in January and granted in February of each year. The number of shares granted is determined based on the average of the opening and closing Common Stock prices on the third trading day after the Company’s earnings release immediately following the date the award is approved by the Compensation Committee.
Dividends on Time-Based Restricted Stock awards accrue from the grant date and are paid out on vesting. If the underlying award is forfeited, the accrued dividends are forfeited as well.
Performance-Based Restricted Stock Tied to Total Shareholder Return
In 2018, 20% of the target award amount was delivered in the form of a Performance-Based Restricted Stock award tied to TSR. Payout of the award is based on the ranking of the Company’s TSR, expressed as a percentile, relative to the TSR of a group of the Company’s peers over a three-year tracking period as compared to threshold, target, and maximum performance goals. Participants are initially granted a number of unvested shares equal to the number of vested shares to which the participant would be entitled upon achievement of the target performance goal. The table below sets forth these performance goals and vesting percentages:
|
| Threshold* | Target | Maximum |
Performance Goal | (Percentile Ranking in Peer Group) | 25th | 50th | 90th |
Vesting Percentage | (% of Target Award) | 25% | 100% | 200% |
* If performance is below threshold, payout is zero. |
For grants made in 2018, the performance period runs from January 1, 2018, to December 31, 2020, and the vesting of the awards is dependent upon the Compensation Committee’s certification of the performance goal being achieved. An individual must be continuously performing services (or deemed to be continuously performing services) throughout the entire performance period, or none of the award will be earned.
For grants made in 2018, the TSR for the Company and each member of its peer group for the tracking period will be determined by calculating the percentage increase in the dividend-adjusted average closing share price for the 20 trading days ending December 31, 2017, and the 20 trading days ending December 31, 2020. If the Company’s TSR percentile ranking falls between the threshold and the target performance goals or the target and the maximum performance goals, the percentage of the award that a participant will receive is interpolated on a straight-line basis. If the Company’s TSR percentile ranking is below the threshold performance goal, the participant will not be entitled to any vested shares, and if the Company’s TSR percentile ranking is equal to or higher than the maximum performance goal, the participant will be entitled to a number of vested shares equal to 200% of the target award. The Compensation Committee may apply negative discretion to the award payout. Dividends on Performance-Based Restricted Stock awards tied to TSR do not accrue until the award vests.
Performance-Based Restricted Stock Tied to FCF Percentage
In 2018, 20% of the target award amount was delivered in the form of a Performance-Based Restricted Stock award tied to FCF Percentage. Payout of the award is based on the Company’s free cash flow as a percentage of revenue over a three-year tracking period as compared to threshold, target, and maximum performance goals. FCF Percentage is a measure of long-term cash generation driven by increasing revenue, reducing costs, improving productivity, and efficiently using capital. Participants are initially granted a number of unvested shares equal to the number of vested shares to which the participant would be entitled on achievement of the target performance goal. The table below sets forth these performance goals and vesting percentages:
|
| Threshold* | Target | Maximum |
Performance Goal | FCF Percentage | 7.0% | 7.75% | 9.0% |
Vesting Percentage | (% of Target Award) | 25% | 100% | 200% |
* If performance is below threshold, payout is zero. |
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For grants made in 2018, the performance period runs from January 1, 2018, to December 31, 2020, and the vesting of the awards is dependent on the Compensation Committee’s certification of the performance goal being achieved. An individual must be continuously performing services through the entire performance period, or none of the award will be earned.
FCF Percentage will be calculated on a cumulative basis over a three-year period (total free cash flow over three years divided by total revenue over three years). If the calculated percentage falls between the threshold and the target performance goals or the target and the maximum performance goals, the percentage of the award that a participant will receive is interpolated on a straight-line basis. If the Company’s percentage is below the threshold performance goal, the participant will not be entitled to any vested shares, and if the Company’s percentage is equal to or greater than the maximum performance goal, the participant will be entitled to a number of vested shares equal to 200% of the target award. The Compensation Committee may apply negative discretion to the award payout. Dividends on Performance-Based Restricted Stock awards tied to FCF Percentage do not accrue until the award vests.
For an explanation and reconciliation of FCF Percentage, please see AppendixA.
2018 NEO Performance and Compensation Decisions
Mr. Gentile, President and Chief Executive Officer
2018 Performance: Mr. Gentile’s 2018 individual performance met expectations. He led the Company to overcome multiple supply chain challenges and achieve financial and operational results that aligned with our original plans. He reduced Company risk and strengthened our partnership with Boeing by securing a long-term contract that extends into the next decade, executed a new growth strategy by securing newly contracted work content on several programs, and continued to drive significant improvement in supply chain costs.
2018 Compensation Decisions:
Salary: In January 2018, the Compensation Committee approved an increase from $1,150,000 to $1,250,000, effective February 2, 2018. The increase was based on an evaluation of Mr. Gentile’s performance and target compensation as compared to the Company’s peer group.
Annual Cash Incentive: No changes were made to Mr. Gentile’s target during 2018. Mr. Gentile’s target was 140% of salary. In January 2019, based on a review of Mr. Gentile’s and the Company’s performance during 2018, the Compensation Committee approved an ACI of $1,546,576.
Long-Term Incentives: The Compensation Committee approved an increase of Mr. Gentile’s target amount from 450% to 500% effective February 2, 2018. The increase was based on an evaluation of Mr. Gentile’s performance and target compensation as compared to the Company’s peer group. In February 2018, Mr. Gentile was granted awards with an aggregate grant date fair value of $6,250,140. Aggregate grant date fair values were determined as set forth in footnote (6) to the “Summary Compensation Table.”
Mr. Kapoor, Executive Vice President and Chief Financial Officer
2018 Performance: Mr. Kapoor’s 2018 individual performance met expectations. Mr. Kapoor delivered significant improvements in working capital, refinanced our debt, and drove stockholder value by executing an accelerated share repurchase plan. Mr. Kapoor retired from the position of Executive Vice President and Chief Financial Officer on January 9, 2019.
2018 Compensation Decisions:
Salary: Mr. Kapoor’s salary remained at $650,000.
Annual Cash Incentive: No changes were made to Mr. Kapoor’s target during 2018. Mr. Kapoor’s target was 100% of salary. In January 2019, based on a review of Mr. Kapoor’s and the Company’s performance during 2018, the Compensation Committee approved an ACI of $578,500.
Long-Term Incentives: The Compensation Committee approved an increase of Mr. Kapoor’s target amount from 280% to 300% effective February 2, 2018. The increase was based on an evaluation of Mr. Kapoor’s performance and target compensation as compared to the Company’s peer group. In February 2018, Mr. Kapoor was granted awards with an aggregate grant date fair value of $1,950,174. Aggregate grant date fair values were determined as set forth in footnote (6) to the “Summary Compensation Table.”
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 42
Ms. Marnick, Executive Vice President and Chief Administration Officer
2018 Performance: Ms. Marnick’s 2018 individual performance exceeded expectations. She successfully executed the Company’s growth strategy and delivered substantial new business wins, realigned and developed senior talent, significantly improved fringe costs, secured critical government incentives for growth, executed significant union contract extensions, led Company culture change, and improved key stakeholder relationships.
2018 Compensation Decisions:
Salary: In January 2018, the Compensation Committee approved an increase from $490,000 to $520,000, effective February 2, 2018. The increase was based on an evaluation of Ms. Marnick’s performance, level of responsibility, and target compensation as compared to the Company’s peer group. In October 2018, the Compensation Committee approved an increase from $520,000 to $550,000, effective October 23, 2018. The increase was based on the addition of responsibilities to Ms. Marnick’s role, including strategy and business and regional jets.
Annual Cash Incentive: No changes were made to Ms. Marnick’s target during 2018. Ms. Marnick’s target was 100% of salary. In January 2019, based on a review of Ms. Marnick’s and the Company’s performance during 2018, the Compensation Committee approved an ACI of $491,504.
Long-Term Incentives: The Compensation Committee approved an increase of Ms. Marnick’s target amount from 190% to 200% effective February 2, 2018. The increase was based on an evaluation of Ms. Marnick’s performance, level of responsibility, and target compensation as compared to the Company’s peer group. In February 2018, Ms. Marnick was granted awards with an aggregate grant date fair value of $1,040,241. Aggregate grant date fair values were determined as set forth in footnote (6) to the “Summary Compensation Table.” In October 2018, the Compensation Committee approved an increase of Ms. Marnick’s target amount from 200% to 215% effective October 23, 2018 (to affect the long-term incentives to be granted in future years). The increase was based on the addition of responsibilities to Ms. Marnick’s role, including strategy and business and regional jets.
Mr. Hawkins, Senior Vice President; President, Defense and Fabrication Division
2018 Performance: Mr. Hawkins’ 2018 individual performance met expectations overall. Despite multiple challenges in the Boeing 737 production line in 2018, he helped the line recover and ended the year strong on deliveries. He successfully exceeded expectations on defense programs, resulting in growth to the Company’s defense business.
2018 Compensation Decisions:
Salary: In January 2018, the Compensation Committee approved an increase from $520,000 to $535,000, effective February 2, 2018. The increase was based on an evaluation of Mr. Hawkins’ performance, level of responsibility, and target compensation as compared to the Company’s peer group.
Annual Cash Incentive: No changes were made to Mr. Hawkins’ target during 2018. Mr. Hawkins’ target was 100% of salary. In January 2019, based on a review of Mr. Hawkins’ and the Company’s performance during 2018, the Compensation Committee approved an ACI of $456,301.
Long-Term Incentives: The Compensation Committee approved an increase of Mr. Hawkins’ target amount from 220% to 230% effective February 2, 2018. The increase was based on an evaluation of Mr. Hawkins’ performance, level of responsibility, and target compensation as compared to the Company’s peer group. In February 2018, Mr. Hawkins was granted awards with an aggregate grant date fair value of $1,230,603. Aggregate grant date fair values were determined as set forth in footnote (6) to the “Summary Compensation Table.”
Mr. Pilla, Senior Vice President, Chief Technology and Quality Officer
2018 Performance: Mr. Pilla’s 2018 individual performance exceeded expectations. He established new research and technology strategies positioning Spirit to take on new commercial and defense packages. Mr. Pilla also led Spirit engineering and quality teams in factory automation efforts and initiatives that increased the factories’ ability to manage rate growth in the future.
2018 Compensation Decisions:
Salary: In January 2018, the Compensation Committee approved an increase from $425,000 to $455,000, effective February 2, 2018. The increase was based on an evaluation of Mr. Pilla’s performance, level of responsibility, and target compensation as compared to the Company’s peer group. In October 2018, the Compensation Committee approved an increase from $455,000 to $475,000, effective October 23, 2018. The increase was based on an evaluation of Mr. Pilla’s performance, additional level of responsibility, and target compensation as compared to the Company’s peer group.
Annual Cash Incentive: No changes were made to Mr. Pilla’s target during 2018. Mr. Pilla’s target was 100% of salary. In January 2019, based on a review of Mr. Pilla’s and the Company’s performance during 2018, the Compensation Committee approved an ACI of $422,978.
Long-Term Incentives: No changes were made to Mr. Pilla’s target during 2018. Mr. Pilla’s target amount was 190%. In February 2018, Mr. Pilla was granted awards with an aggregate grant date fair value of $864,680. In October 2018, Mr. Pilla was granted a Time-Based Restricted Stock award with an aggregate grant date fair value of $500,064. Aggregate grant date fair values were determined as set forth in footnote (6) to the “Summary Compensation Table.”
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 43
The Compensation Decision-Making Process
The Compensation Committee is responsible for establishing, implementing, and monitoring compliance with the Company’s compensation objectives. Further, the Compensation Committee is responsible for setting compensation for, and reviewing performance of, the Company’s executive officers. Pursuant to its charter, the Compensation Committee has the authority to delegate its responsibilities to such subcommittees as it deems appropriate, so long as the subcommittee is solely comprised of one or more members of the Compensation Committee. In setting executive officer compensation, the Compensation Committee takes into consideration the following:
The CEO’s self-assessment and performance review of the Other NEOs;
The Compensation Committee’s and Board’s views of the NEOs’ performance;
The counsel and recommendations of the Company’s CEO and Chief Administration Officer;
Recommendations of other members of the Compensation Committee;
Results from benchmarking against the Company’s peer group and survey data; and
The analysis and consulting advice of its independent compensation consultant.
Generally, the Compensation Committee strives for internal equity among the Company’s NEOs and accordingly, the types of compensation and benefits offered to the Company’s NEOs are consistent among the group. The Compensation Committee continues to examine existing and new compensation programs and practices to ensure that the Company’s compensation programs remain appropriate and consistent with the Company’s overall objectives and market practice.
The chart below reflects the annual compensation-setting process by regularly scheduled meeting of the Compensation Committee. In addition to the following, the CEO’s performance, along with all Company performance metrics used in the ACI or long-term incentives, are monitored and discussed quarterly.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 44
Each year, the Compensation Committee, with the assistance of management and the independent compensation consultant, reviews external market data in order to determine the competitiveness of our compensation packages, highlight trends and regulatory implications, and develop incentive plan design alternatives. The market data reviewed is from the Company’s peer group and nationally recognized published survey data.
The Company uses its peer group as a reference point for compensation design and award decisions. The Company’s peer group consists of companies similar to Spirit in size and operations (emphasizing aerospace and defense and auto-component manufacturers) and/or companies that compete with Spirit for executive talent. For 2018, the Company’s peer group was as follows (the companies are ranked by revenue and all ticker symbols are for the NYSE):
Company Name | 2017 Revenue ($ in billions) | Market Cap as of 12/31/2017 ($ in billions) |
Textron (TXT) | 14.2 | 14.9 |
Ingersoll-Rand (IR) | 14.2 | 22.3 |
Arconic (ARNC) | 13.0 | 13.1 |
Parker-Hannifin Corporation (PH) | 12.0 | 26.6 |
Borg Warner (BWA) | 9.8 | 10.8 |
L3 Technologies (LLL) | 9.6 | 15.5 |
Tenneco (TEN) | 9.3 | 3.0 |
Huntington Ingalls (HII) | 7.4 | 10.7 |
Spirit AeroSystems Holdings (SPR) | 7.0 | 10.1 |
Harris Corp (HRS) | 5.9 | 16.9 |
Terex (TEX) | 4.4 | 4.1 |
Triumph Group (TGI) | 3.5 | 1.4 |
Teledyne Technologies (TDY) | 2.6 | 6.4 |
Moog (MOG-A) | 2.5 | 3.1 |
Curtiss-Wright (CW) | 2.3 | 5.4 |
Esterline Technologies Corporation (ESL) | 2.0 | 2.2 |
Changes to Proxy Peer Group for 2019
In January 2019, the Compensation Committee evaluated the Company’s peer group and added Hexcel (HXL) to the peer group, effective with the Performance-Based Restricted Stock awards tied to TSR that were granted in February 2019.
In addition to benchmarking using the peer group, the Company also uses a broad survey sample from the independent compensation consultant’s executive compensation survey. The survey analysis considers companies in relevant industries (aerospace and defense, machinery, auto-component, and electrical equipment) as well as companies in other industries, when necessary, to complement data limitations. Survey data was size-adjusted to approximate the Company’s revenue either through regression or by limiting the survey sample to comparably sized companies. This information was used by the Compensation Committee in establishing the compensation packages and target goals for the NEOs.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 45
Independent Compensation Consultant
The Compensation Committee’s Charter allows the committee to engage an independent compensation consultant to advise on executive compensation matters. For 2018, the Compensation Committee engaged Willis Towers Watson directly for the purpose of providing analysis and advice with respect to compensation matters. The Compensation Committee has determined, after considering criteria from the SEC and NYSE, that Willis Towers Watson does not have any conflicts of interest that would prevent objectivity.
Consideration of Advisory Stockholder Vote on Executive Compensation
The Company believes it is appropriate to seek and reflect the views of its stockholders on the design and effectiveness of the Company’s executive compensation program. Accordingly, consistent with the Company’s most recent say-on-pay frequency vote in April 2017, the Company holds an annual say-on-pay vote. At the Company’s 2018 annual meeting of stockholders, approximately 90% of stockholders present in person or by proxy voted in favor of the Company’s executive compensation programs. The Compensation Committee takes the annual say-on-pay proposal voting results into consideration when making future decisions regarding executive compensation.
In October each year, and as otherwise deemed necessary, the Compensation Committee assesses risks presented by our compensation program and award structures. This assessment is used to determine whether any of our compensation components incentivize executives to take risks that are not in the Company’s or stockholders’ best interests. In 2018, our Compensation Committee reviewed the following risk factors relative to our current compensation programs:
Senior talent acquisition and the ability to recruit and retain talent at market-based compensation levels.
Senior talent loss due to misalignment of strategic decisions and incentives, including balancing long-term incentives with the investment requirement for long-term objectives.
Matching compensation to Company performance in relation to meeting stockholder expectations to balance short- and long-term incentives to achieve growth strategies.
Potential for material restatement of earnings to impact incentive plan calculations.
Clawback policy requirements aligned with market in regard to talent recruitment and retention.
Potential for unforeseen one-time events beyond management’s control that affect incentive plan calculations.
Potential for management decisions based on short-term objectives unbalanced with long-term Company performance.
Potential for unrealized talent investment due to underperforming individuals.
After reviewing our current compensation program and award structures, the Compensation Committee determined that our program does not incentivize executives to take such risks in light of the following features:
We diversify the compensation delivered to executives — the individual components and performance goals each incentivize different behaviors (short-term focus, long-term focus, etc.) in an attempt to balance our executives’ interests;
We have maximum payouts, or caps, on our performance-based compensation — the highest amount that can be paid with respect to our ACIs or performance-based long-term incentives is 200%;
The Compensation Committee reserves the right to exercise negative discretion over performance-based awards;
We deliver compensation using several vehicles, including cash, stock, and perquisites;
We maintain a clawback policy that allows us to recover compensation awarded based on certain improper conduct by executives;
Our NEOs and other executives must comply with stringent stock ownership requirements; and
We have engaged an independent compensation consultant to advise us on compensation practices.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 46
Other Compensation Elements and Information
In addition to the four basic compensation elements, we provide our NEOs with the additional benefits and perquisites described below. Benefits and perquisites received by NEOs are included in the “All Other Compensation” column of the “Summary Compensation Table.” These benefits are based on an assessment of benefits offered by our peers and competitors and are important for retaining the Company’s executive officers.
Benefit/Perquisite | Explanation |
Retirement and Savings Plan (the “RSP”) | • The RSP is a tax-qualified defined contribution plan for certain eligible salaried employees. The Company makes both matching and non-matching contributions under the RSP. • Matching: The Company matches 75% of the employee’s contributions up to a maximum of 6% of the employee’s base pay (provided the employee contributes 8%). The matching contributions are immediately 100% vested. • Non-Matching: The Company makes an additional, non-matching contribution following the end of each calendar year based on an employee’s age and vesting service, provided that the employee is employed by the Company on December 31 of the applicable year and has earned a year of vesting service. If age plus vesting service totals less than 60, employees receive a contribution equal to 1.5% of base salary; if age plus vesting service totals at least 60 but less than 80, employees receive a contribution equal to 3% of base salary; and if age plus vesting service totals 80 or more, employees receive a contribution equal to 4.5% of base salary. These contributions are 25% vested at two years, 50% vested at three years, 75% vested at four years, and 100% vested at five years of vesting service. • Transition Contribution: An additional contribution is available to employees who were previously Boeing employees and meet certain other requirements. Other than Mr. Pilla, none of the NEOs is eligible for this additional contribution. Mr. Pilla receives an annual transition contribution amount of 3.5% of base salary. All such contributions are vested immediately as Mr. Pilla has met the five-year service requirement. The transition contribution will cease after 2020, with final payment for the first six months of 2020 made in 2021. |
Deferred Compensation Plan (the “DCP”) | This nonqualified plan allows eligible Spirit employees, including each of our NEOs, to defer receipt of a portion of their base salary or ACI. In addition, the DCP allows for discretionary contributions by the Company into a separate account in the DCP. Deferred amounts and discretionary Company contributions are credited with a rate of return equal to 120% of the applicable federal long-term rate for October of the prior fiscal year. For 2019, the interest crediting rate is 3.59%. |
Perquisite Allowance Plan | Under the Company’s Perquisite Allowance Plan, the CEO receives an annual allowance of $25,000, while the Other NEOs receive an annual allowance of $13,000. Participants may select the perquisite items to be funded from their allowances subject to certain limitations set forth in the Perquisite Allowance Plan. Any portion of a participant’s annual allowance not used by the end of the applicable calendar year is forfeited except upon a qualifying termination in a change-in-control. See “Potential Payments Upon Termination or Change-in-Control.” |
Executive Security | Some of our NEOs receive personal or home security provisions. These provisions are based on business-related security concerns and have been assessed by an independent security consulting firm and deemed necessary and appropriate for the protection of the Company’s NEOs. |
Personal Corporate Aircraft Use | For security reasons, the Company’s CEO and certain executives are authorized to use the corporate aircraft for a limited amount of personal travel. Other NEOs do not use the corporate aircraft for personal travel unless approved by the CEO. No tax gross-ups are provided for this benefit. |
Relocation Benefits | We provide relocation assistance to employees including our NEOs. In 2018, the Company provided Mr. Gentile relocation assistance for certain qualified relocation expenses. Where appropriate, the Company provides a gross-up to cover tax liabilities associated with relocation assistance. |
Post-Retirement Medical Coverage | The Company has two programs for post-retirement medical coverage. Under the first program, benefits are available to employees who were previously Boeing employees and who retire from the Company between the ages of 62 and 65 (and who meet certain other requirements). Under the second program, benefits are available to (i) employees who retire from the Company at age 55 or later with ten years of service to the Company, and (ii) employees who retire from the Company at age 60 or later with five years of service to the Company. Under either program, benefits cease at age 65. Other than Mr. Pilla, none of our NEOs is currently eligible for this coverage. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 47
Discontinued and Frozen Benefit Plans and Arrangements
The Company pays certain benefits through discontinued and frozen benefit plans and arrangements, which include the Supplemental Executive Retirement Plan (the “SERP”) and the Pension Value Plan (the “PVP”). A significant portion of Spirit’s operations related to Boeing aerostructures was owned and controlled by Boeing until 2005. In connection with the acquisition of these assets from Boeing, the Company adopted the SERP in order to attract certain employees from Boeing. The SERP provides supplemental, nonqualified retirement benefits to executives who (1) had their benefits transferred from a Boeing nonqualified plan to the SERP, and (2) did not elect to convert their SERP benefit into phantom stock units as of June 17, 2005. Benefits under this plan were frozen as of the date of the Boeing acquisition. There are no SERP annuity benefits presently payable to any of the NEOs. Mr. Pilla elected to convert his SERP benefit as of June 17, 2005, into 16,023 phantom stock units.
Also in connection with the Boeing acquisition, the Company adopted the PVP for certain eligible employees of Boeing, and allowed for the transfer of pension values from Boeing pension plans. The PVP is a frozen plan and no additional employees are becoming participants in the PVP and no current participants are accruing any additional benefits (other than interest credits). The PVP is fully paid for by the Company, and the Company’s employees are vested after reaching five years of service. Other than Mr. Pilla, none of the NEOs received benefits under the PVP or SERP in 2018 or is eligible to participate in such plans. Mr. Pilla’s participation in the PVP is detailed under “Pension Benefits.” Mr. Pilla’s phantom stock units under the SERP are described under “Nonqualified Deferred Compensation.”
Post-Termination Payments and Change-in-Control Compensation
The Company believes competitive severance protection is an appropriate incentive in attracting and retaining executive talent. The Company has provided for post-termination severance compensation through certain individual employment agreements and has also agreed to individual severance arrangements at the time of termination of employment, taking into account the specific facts and circumstances of termination. Certain of our employment agreements provide benefits upon a change-in-control.
Further, certain of the Company’s benefit plans provide for compensation upon termination or in connection with a change-in-control. Beginning in 2018, the ACI, long-term incentives, and Perquisite Allowance Plan are subject to a double trigger change-in-control provision.
You can find additional information regarding the Company’s practices in providing compensation in connection with termination of employment under the heading “Potential Payments Upon Termination or Change-in-Control.”
The Company maintains stock ownership requirements for its NEOs and other senior executives to further promote alignment of management and stockholder interests. The ownership requirements (measured by the value of the Company’s stock required to be held) are based on a multiple of base salary tied to pay grade. The stock ownership requirements establish the following target levels for Company stock ownership:
Officer Level | Target Level (Multiple of Annual Base Salary) |
ChiefExecutiveOfficer | 5x |
ExecutiveVicePresidents/SeniorVicePresidents | 3x |
VicePresidents | 1x |
The stock ownership requirements mandate that the CEO and other senior officers accumulate their required positions within the later of: (i) five years after the adoption of the guidelines, or (ii) five years after being hired or promoted into the officer position. The Company believes that five years provides a reasonable goal for executives to accumulate shares through earned incentive awards.
During the five-year accumulation period, all NEOs are expected to continuously accumulate qualifying equity until they meet the minimum stock ownership guideline.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 48
The Company reviews ownership positions on an annual basis. Based on the review conducted in 2018, the Company determined that the NEOs own appropriate amounts of Company stock in light of the minimum stock ownership requirements and the portions of their respective accumulation periods that have passed. The Company may restrict any officer from liquidating any of his or her then-current holdings in Company stock, except for those shares that are sold to meet Company tax-withholding requirements. The Company may modify or waive the requirements of the guidelines at its discretion if it determines that compliance would result in severe hardship for an officer. Note that the Company’s insider trading policy prohibits Company employees from engaging in short sales of the Company’s securities and entering into short-term trades involving the Company’s securities. Further, the Company’s insider trading policy also prohibits employees from pledging the Company’s securities as collateral for a loan.
Accounting and Tax Treatment of Compensation
When evaluating the Company’s compensation programs, the Company takes into account the various accounting, tax, and disclosure rules associated with such matters, including Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and Section 409A of the Code. Section 162(m) generally imposes a $1 million limit on the amount that a public company may deduct for compensation paid to “covered employees” each year. The Compensation Committee generally seeks to award compensation that would allow it to preserve tax deductions; however, the Compensation Committee reserves the right to set compensation at the levels and in the manner (tax-deductible or not) that it determines to be in the best interests of the Company and its stockholders.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 49
The following table summarizes the compensation of the NEOs for the last three fiscal years.
Name and Principal Position | Year | Salary ($) | (4) | Bonus ($) | (5) | Stock Awards ($) | (6) | Non-Equity Incentive Plan Compensation ($) | (7) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | (8) | All Other Compensation ($) | (9) | Total ($) |
Thomas C. Gentile III President and CEO(1) | 2018 | 1,241,233 |
|
|
| 6,250,140 |
| 1,546,576 |
|
|
| 861,744 |
| 9,899,693 |
2017 | 1,144,223 |
|
|
| 5,175,087 |
| 2,578,703 |
|
|
| 1,009,385 |
| 9,907,398 | |
2016 | 770,773 |
|
|
| 3,000,045 |
| 2,234,460 |
|
|
| 169,476 |
| 6,174,754 | |
Sanjay Kapoor EVP and CFO | 2018 | 650,000 |
|
|
| 1,950,174 |
| 578,500 |
|
|
| 81,541 |
| 3,260,215 |
2017 | 650,000 |
|
|
| 1,820,067 |
| 1,046,500 |
|
|
| 39,148 |
| 3,555,715 | |
2016 | 624,229 |
|
|
| 2,696,650 |
| 973,882 |
|
|
| 127,208 |
| 4,421,969 | |
Samantha J. Marnick EVP, CAO and Strategy | 2018 | 522,877 |
|
|
| 1,040,241 |
| 491,504 |
|
|
| 149,309 |
| 2,203,930 |
2017 | 490,006 |
|
|
| 931,048 |
| 788,410 |
|
|
| 141,475 |
| 2,350,939 | |
2016 | 460,465 |
|
|
| 1,405,583 |
| 719,204 |
|
|
| 213,332 |
| 2,798,584 | |
Duane F. Hawkins SVP; President, Defense and Fabrication Division(2) | 2018 | 533,685 |
|
|
| 1,230,603 |
| 456,301 |
|
|
| 45,630 |
| 2,266,218 |
2017 | 517,691 |
|
|
| 1,144,036 |
| 831,827 |
|
|
| 33,657 |
| 2,527,211 | |
2016 | 497,684 |
|
|
| 1,000,076 |
| 756,097 |
|
|
| 57,905 |
| 2,311,762 | |
John A. Pilla SVP, Chief Technology and Quality Officer(3) | 2018 | 456,041 |
|
|
| 1,364,744 |
| 422,978 |
|
|
| 61,064 |
| 2,304,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) Mr. Gentile was appointed Executive Vice President and Chief Operating Officer of the Company effective April 1, 2016. (2) Mr. Hawkins served as the Company’s SVP and GM, Boeing, Defense, Regional/Jet Programs, and Global Customer Support until October 1, 2018. Effective October 1, 2018, Mr. Hawkins was given responsibility for defense and fabrication operations. (3) Mr. Pilla was not an NEO in the fiscal years ended December 31, 2017 and 2016. Accordingly, no information is displayed for those years. (4) For NEOs who received salary increases during the fiscal year, these numbers reflect a weighted amount based on the portions of the years for which their new compensation arrangements applied. (5) Because the Annual Cash Incentive (“ACI”) has mandatory performance measures that must be achieved for any payout, the ACI is shown in the “Non-Equity Incentive Plan Compensation” column of the table. (6) Amounts shown represent the aggregate grant date fair value of awards granted to NEOs during the applicable year, as determined in accordance with FASB ASC Topic 718. These grant date fair values represent the accounting expense to be recorded for the award and are not reflective of the actual value that may be recognized by an NEO with respect to the award. In 2018, each NEO received a Time-Based Restricted Stock award (“RS”), a Performance-Based Restricted Stock award tied to TSR (“PB-TSR”), and a Performance-Based Restricted Stock award tied to FCF Percentage (“PB-FCF”). The assumptions made by the Company in calculating these amounts are incorporated herein by reference to Note 18 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for 2018. The grant date fair value of the RSs is equal to the number of shares granted multiplied by $89.32, the average of the opening and closing prices of Common Stock on February 7, 2018, the grant date. The grant date fair value of the PB-TSRs is equal to the number of shares granted at target multiplied by $112.55, which was determined using a Monte Carlo simulation model based on the probable ranking of the Company’s TSR relative to the TSR of a group of the Company’s peers. If it is assumed that the maximum level of performance is achieved with respect to the PB-TSRs (and thus the maximum number of shares are awarded to the NEOs), using the average of the opening and closing prices of Common Stock on the grant date, the value of the PB-TSRs would be as follows: Mr. Gentile: $1,984,154; Mr. Kapoor: $619,166; Ms. Marnick: $330,305; Mr. Hawkins: $390,686; and Mr. Pilla: $274,570. The grant date fair value of the PB-FCFs is equal to the number of shares granted at target multiplied by $89.18, the average of the opening and closing prices of Common Stock on the grant date, adjusted for dividends (as dividends do not accrue on PB-FCFs until vesting). If it is assumed that the maximum level of performance is achieved with respect to the PB-FCFs (and thus the maximum number of shares are awarded to the NEOs), using the average of the opening and closing prices of Common Stock on the grant date, the value of the PB-FCFs would be as follows: Mr. Gentile: $2,503,997; Mr. Kapoor: $781,371; Ms. Marnick: $416,767; Mr. Hawkins: $493,046; and Mr. Pilla: $346,383. For additional information on the awards, see “2018 Compensation Program Elements.” In addition, Mr. Pilla’s amount includes the grant date fair value of an RS of 6,135 shares of Common Stock received on October 23, 2018. The same assumptions set forth above apply. The grant date fair value of this RS is equal to the number of shares granted multiplied by $81.51, the average of the opening and closing prices of Common Stock on October 23, 2018, the grant date. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 50
(7) Represents ACIs earned by the NEOs. (8) With respect to change in pension value, no amount is shown for Mr. Pilla as there was an aggregate decrease of $28,983 in the actuarial present value of Mr. Pilla’s accumulated benefits under the Pension Value Plan during the year. This amount was determined using interest rate and mortality rate assumptions consistent with those used in our audited financial statements. For 2018, Mr. Pilla’s decrease is due largely to the increase in the applicable discount rate from December 31, 2017, to December 31, 2018. Additional information regarding our Pension Value Plan is set forth in “Pension Benefits.” With respect to nonqualified deferred compensation earnings, none of the NEOs received any earnings on their deferred compensation based on above-market or preferential rates. (9) The following table shows “All Other Compensation” amounts for our NEOs in 2018: |
Name | Life Insurance ($) | (a)
| Financial and Tax Services ($) | (b)
| Personal Aircraft Usage ($) | (c)
| Personal Travel Expenses ($) | (d)
| Personal Security ($) | (e)
| Relocation Expenses and Gross-Ups ($) | (f)
| Deferred Compensation Plan Contributions ($) | (g)
| Company Contributions Under Tax- Qualified Contribution Plan ($) | (h)
| Other(i) ($) |
| Total ($) |
Thomas C. Gentile III | 816 |
| 16,600 |
| 56,376 |
|
|
|
|
| 124,843 |
| 600,000 |
| 30,375 |
| 32,734 |
| 861,744 |
Sanjay Kapoor | 816 |
|
|
| 32,257 |
| 13,000 |
| 1,091 |
|
|
|
|
| 33,375 |
| 1,002 |
| 81,541 |
Samantha J. Marnick | 816 |
| 975 |
| 4,068 |
| 12,025 |
| 10,200 |
|
|
| 100,000 |
| 21,224 |
|
| 149,309 | |
Duane F. Hawkins | 816 |
| 13,000 |
| 4,068 |
|
|
| 1,091 |
|
|
|
|
| 26,654 |
|
|
| 45,630 |
John A. Pilla | 743 |
|
|
|
|
| 9,463 |
|
|
|
|
|
|
| 47,322 |
| 3,537 |
| 61,064 |
(a) Amounts shown reflect Company contributions toward group life insurance. (b) Amounts shown reflect financial, tax-preparation, and other related services paid for by the Company. (c) Amounts shown reflect the incremental cost to the Company of personal usage of its corporate aircraft. The incremental cost to the Company for personal aircraft usage is determined by dividing direct operating costs per aircraft by the total number of flight hours per aircraft, resulting in a cost per hour, and multiplying the cost per hour by the hours of personal usage. Direct operating costs include variable costs less revenue derived from charter flights. Variable costs include fuel, maintenance expenses, parts and supplies, landing fees, ground services, catering, and crew expenses associated with such use, including those associated with “deadhead” flights related to such use. Because corporate aircraft is used primarily for business travel, the methodology excludes fixed costs that do not change based on usage. Fixed costs include pilot salaries, the purchase or lease costs of the aircraft, and the cost of maintenance not related to personal travel. Executives, their families, and invited guests occasionally fly on the corporate aircraft as additional passengers on business flights. In those cases, the aggregate incremental cost to the Company is a de minimis amount, and as a result, no amount is reflected in the Summary Compensation Table. Executives, directors, their families, and invited guests also occasionally fly on the corporate aircraft as additional passengers on personal flights that are attributed to another executive, in which case the entire incremental cost is allocated to the executive who arranged for the personal flight. The Company does not grant bonuses to cover, reimburse, or “gross-up” any income tax owed for personal travel on corporate aircraft. (d) Amounts shown reflect the NEOs’ personal travel expenses (or travel expenses of their spouses) and personal commercial flights paid for by the Company. (e) Amounts shown reflect the incremental cost of personal or home security services for the NEOs that were deemed to be necessary and appropriate based on risk assessments performed by an independent security firm. (f) Amounts shown reflect relocation expenses reimbursed by the Company and associated tax gross-ups. (g) Amounts shown reflect Company contributions to the accounts of its eligible NEOs under the DCP. See “Other Compensation Elements and Information — Benefits and Perquisites.” (h) Amounts shown reflect matching and non-matching contributions made by the Company under the RSP. See “Other Compensation Elements and Information — Benefits and Perquisites.” (i) For Mr. Gentile, amounts shown reflect executive physical costs of $2,750, costs relating to personal use of country club memberships of $5,036, personal driving fees of $16,548, and $8,400 for the value of forfeited shares in connection with Mr. Gentile’s resignation from a private company’s board of directors (such value was claimed by Mr. Gentile through the Company’s Perquisite Allowance Plan). For Messrs. Kapoor and Pilla, amounts shown reflect costs relating to personal use of a country club membership. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 51
Spirit has employment agreements with all of its NEOs except for Mr. Pilla. A brief description of certain material terms is below.
Mr. Gentile’s Employment Agreement
On February 13, 2016, we entered into an employment agreement, effective April 1, 2016, with Mr. Gentile with respect to his position as Executive Vice President and Chief Operating Officer. Pursuant to the employment agreement, Mr. Gentile received a base salary of $1,000,000 per year, which could be changed based on performance. In addition, Mr. Gentile was eligible for an ACI equal to 140% of his base salary and an annual target LTIP award equal to 300% of his base salary. Mr. Gentile was also entitled to participate in the executive relocation program and receive an annual DCP Company contribution of $600,000.
The Company granted Mr. Gentile a sign-on award of $3,000,000 in shares of restricted stock. Half of the award vested on April 1, 2017, and the other half vested on April 1, 2018.
Effective August 1, 2016 (in recognition of Mr. Gentile’s appointment as President and CEO), Mr. Gentile’s base salary was increased to $1,100,000 and his annual target LTIP award was increased to 400% of his annual base salary. Effective February 3, 2017, Mr. Gentile’s base salary was increased to $1,150,000, and his annual target LTIP award was increased to 450% of his base salary. In January 2018, Mr. Gentile’s salary was increased to $1,250,000, and his annual target LTIP award was increased to 500%. In January 2019, Mr. Gentile’s salary was increased to $1,300,000, his annual target ACI award was increased to 145% of his annual base salary, and his annual target LTIP award was increased to 550% of his annual base salary.
Potential payments and termination events under Mr. Gentile’s employment agreement are described under “Potential Payments Upon Termination or Change-in-Control — Employment Agreements.”
Mr. Kapoor’s Employment Agreement
On August 23, 2013, we entered into an employment agreement, effective September 23, 2013, with Mr. Kapoor with respect to his position as Senior Vice President and Chief Financial Officer. The agreement provided for a three-year initial term and would be automatically extended for successive one-year periods thereafter. Pursuant to the employment agreement, Mr. Kapoor was entitled to a base salary of $525,000, which could be changed based on performance. In addition, Mr. Kapoor was eligible for an ACI equal to 100% of his base salary, an annual target LTIP award of 200% of his base salary, and, from time to time, a target discretionary bonus in the form of cash or equity of 10% of earned base salary. Mr. Kapoor was also entitled to participate in the executive relocation program.
The Company granted Mr. Kapoor $2,000,000 in restricted stock as a sign-on award, which fully vested in 2017. In addition, Mr. Kapoor received a cash signing bonus of $150,000 to be paid within 30 days of the effective date, and an additional cash signing bonus of $100,000 to be paid on the first pay period following the first anniversary of the effective date.
Effective January 30, 2015, Mr. Kapoor’s base salary was increased to $565,000. Effective February 5, 2016, Mr. Kapoor’s base salary was increased to $600,000, and his annual target LTIP award was increased to 220% of his base salary. In May 2016, the Board increased Mr. Kapoor’s base salary to $650,000 and his annual target LTIP award to 280% of his base salary. On July 26, 2016, Mr. Kapoor’s title was changed to Executive Vice President and Chief Financial Officer. In January 2018, Mr. Kapoor’s annual target LTIP award was increased to 300% of his base salary.
Potential payments and termination events under Mr. Kapoor’s employment agreement are described under “Potential Payments Upon Termination or Change-in-Control — Employment Agreements.” Mr. Kapoor retired from the position of Executive Vice President and Chief Financial Officer on January 9, 2019.
Both Ms. Marnick and Mr. Hawkins have employment agreements with the Company. However, both of their roles have changed significantly since the employment agreements were entered into, and all termination benefits expressly provided by the agreements have expired. Accordingly, the Company does not believe a description of the terms of such agreements is necessary to understand the information disclosed in the “Summary Compensation Table.”
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 52
Grants of Plan-Based Awards in 2018
The following table presents information regarding grants of plan-based awards to the NEOs during the fiscal year ended December 31, 2018. For more information on the terms applicable to the awards reflected below, please see “2018 Compensation Program Elements.”
|
|
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
| Estimated Future Payouts Under Equity Incentive Plan Awards |
| All Other Stock Awards | |||||
Name | Grant Date | Date Award Approved by Board | Threshold ($) | Target ($) | Maximum ($) |
| Threshold (#) | Target (#) | Maximum (#) |
| Number of Shares of Stock (#) | Grant Date Fair Value of Stock Awards ($) |
Thomas C. Gentile III | ||||||||||||
ACI(1) |
|
| 434,432 | 1,737,726 | 3,475,452 |
|
|
|
|
|
|
|
RS(2) | 2/7/2018 | 1/23/2018 |
|
|
|
|
|
|
|
| 41,984 | 3,750,011 |
PB-TSR(3) | 2/7/2018 | 1/23/2018 |
|
|
|
| 2,777 | 11,107 | 22,214 |
|
| 1,250,093 |
PB-FCF(4) | 2/7/2018 | 1/23/2018 |
|
|
|
| 3,505 | 14,017 | 28,034 |
|
| 1,250,036 |
Sanjay Kapoor |
|
|
|
|
|
|
|
|
|
|
| |
ACI(1) |
|
| 162,500 | 650,000 | 1,300,000 |
|
|
|
|
|
|
|
RS(2) | 2/7/2018 | 1/23/2018 |
|
|
|
|
|
|
|
| 13,099 | 1,170,003 |
PB-TSR(3) | 2/7/2018 | 1/23/2018 |
|
|
|
| 867 | 3,466 | 6,932 |
|
| 390,098 |
PB-FCF(4) | 2/7/2018 | 1/23/2018 |
|
|
|
| 1,094 | 4,374 | 8,748 |
|
| 390,073 |
Samantha J. Marnick |
|
|
|
|
|
|
|
|
|
|
| |
ACI(1) |
|
| 130,719 | 522,877 | 1,045,753 |
|
|
|
|
|
|
|
RS(2) | 2/7/2018 | 1/23/2018 |
|
|
|
|
|
|
|
| 6,987 | 624,079 |
PB-TSR(3) | 2/7/2018 | 1/23/2018 |
|
|
|
| 463 | 1,849 | 3,698 |
|
| 208,105 |
PB-FCF(4) | 2/7/2018 | 1/23/2018 |
|
|
|
| 584 | 2,333 | 4,666 |
|
| 208,057 |
Duane F. Hawkins |
|
|
|
|
|
|
|
|
|
|
| |
ACI(1) |
|
| 133,421 | 533,685 | 1,067,370 |
|
|
|
|
|
|
|
RS(2) | 2/7/2018 | 1/23/2018 |
|
|
|
|
|
|
|
| 8,266 | 738,319 |
PB-TSR(3) | 2/7/2018 | 1/23/2018 |
|
|
|
| 547 | 2,187 | 4,374 |
|
| 246,147 |
PB-FCF(4) | 2/7/2018 | 1/23/2018 |
|
|
|
| 690 | 2,760 | 5,520 |
|
| 246,137 |
John A. Pilla |
|
|
|
|
|
|
|
|
|
|
| |
ACI(1) |
|
| 114,010 | 456,041 | 912,083 |
|
|
|
|
|
|
|
RS(2) | 2/7/2018 | 1/23/2018 |
|
|
|
|
|
|
|
| 5,808 | 518,771 |
PB-TSR(3) | 2/7/2018 | 1/23/2018 |
|
|
|
| 385 | 1,537 | 3,074 |
|
| 172,989 |
PB-FCF(4) | 2/7/2018 | 1/23/2018 |
|
|
|
| 485 | 1,939 | 3,878 |
|
| 172,920 |
RS(5) | 10/23/2018 | 10/23/2018 |
|
|
|
|
|
|
|
| 6,135 | 500,064 |
(1) Represents ACIs that were paid in February 2019 but granted and earned in 2018. The actual ACI amounts are reported in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.” The threshold, target, and maximum figures were calculated on a weighted-average basis, giving effect to any changes made to the applicable NEO’s base salary or ACI target during 2018. (2) Represents RSs that vest annually over three years, beginning February 7, 2019, if such NEO remains employed by the Company on each annual vesting date. The grant date fair value of the award, which is reported in the “Stock Awards” column of the “Summary Compensation Table,” is equal to the number of shares multiplied by $89.32, the average of the opening and closing prices of Common Stock on the grant date. (3) Represents PB-TSRs that vest at the end of the three-year performance period based on the ranking of the Company’s TSR relative to the TSR of each of the companies in the Company’s peer group. The grant date fair value of the award, which is reported in the “Stock Awards” column of the “Summary Compensation Table,” is equal to the number of shares granted at target multiplied by $112.55, which was determined using a Monte Carlo simulation based on the probable ranking of the Company’s TSR relative to a group of the Company’s peers. Actual payout may be zero or range from 25% to 200% of the target shares granted. (4) Represents PB-FCFs that vest at the end of the three-year performance period based upon the achievement of a certain percentage of free cash flow as a percentage of revenue on a cumulative basis over the period. The grant date fair value of the award, which is reported in the “Stock Awards” column of the “Summary Compensation Table,” is equal to the number of shares granted at target multiplied by $89.18, the average of the opening and closing prices of Common Stock on the grant date, adjusted for dividends. Actual payout may be zero or range from 25% to 200% of the target shares granted. (5) Represents a one-time RS that vests annually over three years, beginning October 23, 2019, if Mr. Pilla remains employed by the Company on each annual vesting date. The grant date fair value of the award, which is reported in the “Stock Awards” column of the “Summary Compensation Table,” is equal to the number of shares multiplied by $81.51, the average of the opening and closing prices of Common Stock on the grant date. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 53
Outstanding Equity Awards at 2018 Fiscal Year End
The following table presents the outstanding equity awards held by the NEOs as of December 31, 2018. The Company has not granted any options or option-like awards. The market value of the awards is determined by multiplying the number of shares shown in the applicable columns below by $72.09, the closing price of Common Stock on December 31, 2018.
Name | Stock Awards | |||||
Grant Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) |
| Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) | |
Thomas C. Gentile III |
|
|
|
|
|
|
RS(1) | 2/7/2018 | 41,984 | 3,026,627 |
|
|
|
PB-TSR(2) | 2/7/2018 |
|
|
| 22,214 | 1,601,407 |
PB-FCF(3) | 2/7/2018 |
|
|
| 3,505 | 252,675 |
RS(4) | 2/7/2017 | 36,915 | 2,661,202 |
|
|
|
PB-TSR(5) | 2/7/2017 |
|
|
| 37,264 | 2,686,362 |
PB-FCF(6) | 2/7/2017 |
|
|
| 4,709 | 339,472 |
Sanjay Kapoor |
|
|
|
|
|
|
RS(1) | 2/7/2018 | 13,099 | 944,307 |
|
|
|
PB-TSR(2) | 2/7/2018 |
|
|
| 6,932 | 499,728 |
PB-FCF(3) | 2/7/2018 |
|
|
| 1,094 | 78,866 |
RS(4) | 2/7/2017 | 12,982 | 935,872 |
|
| |
PB-TSR(5) | 2/7/2017 |
|
|
| 13,106 | 944,812 |
PB-FCF(6) | 2/7/2017 |
|
|
| 1,657 | 119,453 |
RS(7) | 2/9/2016 | 7,607 | 548,389 |
|
|
|
PB-TSR(8) | 2/9/2016 | 6,076 | 438,018 |
|
|
|
Samantha J. Marnick |
|
|
|
|
|
|
RS(1) | 2/7/2018 | 6,987 | 503,693 |
|
|
|
PB-TSR(2) | 2/7/2018 |
|
|
| 3,698 | 266,589 |
PB-FCF(3) | 2/7/2018 |
|
|
| 584 | 42,101 |
RS(4) | 2/7/2017 | 6,641 | 478,750 |
|
|
|
PB-TSR(5) | 2/7/2017 |
|
|
| 6,704 | 483,291 |
PB-FCF(6) | 2/7/2017 |
|
|
| 848 | 61,132 |
RS(7) | 2/9/2016 | 3,965 | 285,837 |
|
|
|
PB-TSR(8) | 2/9/2016 | 3,167 | 228,309 |
|
|
|
Duane F. Hawkins |
|
|
|
|
|
|
RS(1) | 2/7/2018 | 8,266 | 595,896 |
|
|
|
PB-TSR(2) | 2/7/2018 |
|
|
| 4,374 | 315,322 |
PB-FCF(3) | 2/7/2018 |
|
|
| 690 | 49,742 |
RS(4) | 2/7/2017 | 8,160 | 588,254 |
|
|
|
PB-TSR(5) | 2/7/2017 |
|
|
| 8,238 | 593,877 |
PB-FCF(6) | 2/7/2017 |
|
|
| 1,041 | 75,046 |
RS(7) | 2/9/2016 | 5,764 | 415,527 |
|
|
|
PB-TSR(8) | 2/9/2016 | 4,603 | 331,830 |
|
|
|
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 54
Name | Stock Awards | |||||
Grant Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) |
| Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) | |
John A. Pilla |
|
|
|
|
|
|
RS(9) | 10/23/2018 | 6,135 | 442,272 |
|
|
|
RS(1) | 2/7/2018 | 5,808 | 418,699 |
|
|
|
PB-TSR(2) | 2/7/2018 |
|
|
| 3,074 | 221,607 |
PB-FCF(3) | 2/7/2018 |
|
|
| 485 | 34,964 |
RS(4) | 2/7/2017 | 5,489 | 395,702 |
|
| |
PB-TSR(5) | 2/7/2017 |
|
|
| 5,542 | 399,523 |
PB-FCF(6) | 2/7/2017 |
|
|
| 701 | 50,535 |
RS(7) | 2/9/2016 | 4,434 | 319,647 |
|
|
|
PB-TSR(8) | 2/9/2016 | 3,542 | 255,343 |
|
|
|
(1) Represents 2018 annual RSs. The first tranche of the award vested on February 7, 2019, and the second and third tranches will vest on February 7, 2020, and February 7, 2021, respectively, if the NEO continues to be employed by the Company on each vesting date. (2) Represents PB-TSRs granted in 2018 with a performance tracking period running from January 1, 2018, to December 31, 2020. PB-TSRs are earned and paid out in shares of Common Stock at the end of the three-year tracking period based upon the ranking of the Company’s TSR relative to the TSR of a group of the Company’s peers over such period. The number of shares and market value shown is based upon the achievement of a maximum performance goal based on the Company’s achievement of the target performance goal with respect to the PB-TSRs that were granted in 2016 and vested in 2019. The award vesting date is December 31, 2020, subject to performance certification by the Compensation Committee. (3) Represents PB-FCFs granted in 2018 with a performance tracking period running from January 1, 2018, to December 31, 2020. PB-FCFs are earned and paid out in shares of Common Stock at the end of the three-year tracking period based upon the achievement of the Company’s goals relating to free cash flow as a percentage of revenue. The number of shares and market value shown is based upon the achievement of a threshold performance goal. The award vesting date is December 31, 2020, subject to performance certification by the Compensation Committee. (4) Represents 2017 annual RSs. The first tranche of the award vested on February 7, 2018, the second tranche of the award vested on February 7, 2019, and the third tranche will vest on February 7, 2020, if the NEO continues to be employed by the Company on such vesting date. (5) Represents PB-TSRs granted in 2017 with a performance tracking period running from January 1, 2017, to December 31, 2019. PB-TSRs are earned and paid out in shares of Common Stock at the end of the three-year tracking period based upon the ranking of the Company’s TSR relative to the TSR of a group of the Company’s peers over such period. The number of shares and market value shown is based upon the achievement of a maximum performance goal based on the Company’s achievement of the target performance goal with respect to the PB-TSRs that were granted in 2016 and vested in 2019. The award vesting date is February 7, 2020. (6) Represents PB-FCFs granted in 2017 with a performance tracking period running from January 1, 2017, to December 31, 2019. PB-FCFs are earned and paid out in shares of Common Stock at the end of the three-year tracking period based upon the achievement of the Company’s goals relating to free cash flow as a percentage of revenue. The number of shares and market value shown is based upon the achievement of a threshold performance goal. The award vesting date is February 7, 2020. (7) Represents 2016 annual RSs. The first tranche of the award vested on February 9, 2017, the second tranche of the award vested on February 9, 2018, and the third tranche of the award vested on February 9, 2019. (8) Represents PB-TSRs granted in 2016 with a performance tracking period running from January 1, 2016, to December 31, 2018. PB-TSRs are earned and paid out in shares of Common Stock at the end of the three-year tracking period based upon the ranking of the Company’s TSR relative to the TSR of a group of the Company’s peers over such period. The number of shares and market value shown is based upon actual award performance through December 31, 2018, at 100% (percentile rank of 50th), as certified by the Compensation Committee on January 23, 2019. The award vested on February 9, 2019. (9) Represents a one-time RS that vests annually over three years, beginning October 23, 2019, if Mr. Pilla remains employed by the Company on each annual vesting date. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 55
Option Exercises and Stock Vested for Fiscal Year 2018
The following table presents information regarding NEO stock awards that vested in 2018. Values reflected below are gross amounts that do not include any reductions for tax withholding. The Company has not granted any options or option-like awards.
Name | Grant Date | Vesting Date | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) |
Thomas C. Gentile III |
|
|
|
|
Sign-on(1) | 4/1/2016 | 4/1/2018 | 32,666 | 2,918,054 |
RS(2) | 2/7/2017 | 2/7/2018 | 18,458 | 1,657,344 |
TOTAL |
|
| 51,124 | 4,575,398 |
Sanjay Kapoor |
|
|
|
|
PB One-Time(3) | 6/4/2016 | 6/4/2018 | 14,137 | 1,227,798 |
PB-TSR(4) | 2/7/2015 | 2/7/2018 | 8,433 | 757,199 |
RS(2) | 2/7/2017 | 2/7/2018 | 6,492 | 582,917 |
RS(5) | 2/9/2016 | 2/9/2018 | 7,609 | 653,994 |
RS(6) | 2/7/2015 | 2/7/2018 | 5,790 | 519,884 |
TOTAL |
|
| 42,461 | 3,741,792 |
Samantha J. Marnick |
|
|
|
|
PB One-Time(3) | 6/4/2016 | 6/4/2018 | 7,369 | 639,998 |
PB-TSR(4) | 2/7/2015 | 2/7/2018 | 4,478 | 402,080 |
RS(2) | 2/7/2017 | 2/7/2018 | 3,321 | 298,193 |
RS(5) | 2/9/2016 | 2/9/2018 | 3,966 | 340,878 |
RS(6) | 2/7/2015 | 2/7/2018 | 3,074 | 276,014 |
TOTAL |
|
| 22,208 | 1,957,162 |
Duane F. Hawkins |
|
|
|
|
PB-TSR(4) | 2/7/2015 | 2/7/2018 | 4,703 | 422,282 |
RS(2) | 2/7/2017 | 2/7/2018 | 4,081 | 366,423 |
RS(5) | 2/9/2016 | 2/9/2018 | 5,764 | 495,416 |
RS(6) | 2/7/2015 | 2/7/2018 | 3,229 | 289,932 |
TOTAL |
|
| 17,777 | 1,574,063 |
John A. Pilla |
|
|
|
|
PB-TSR(4) | 2/7/2015 | 2/7/2018 | 5,531 | 496,628 |
RS(2) | 2/7/2017 | 2/7/2018 | 2,745 | 246,474 |
RS(5) | 2/9/2016 | 2/9/2018 | 4,436 | 381,274 |
RS(6) | 2/7/2015 | 2/7/2018 | 3,796 | 340,843 |
TOTAL |
|
| 16,508 | 1,465,219 |
(1) Represents shares received as a sign-on award under Mr. Gentile’s employment agreement. The value realized on vesting represents the number of shares multiplied by $83.99, the average of the high and low prices of Common Stock on March 29, 2018, the business day prior to the vesting date. (2) Represents shares vesting under the 2017 annual RS. The value realized on vesting represents the number of shares multiplied by $89.79, the average of the high and low prices of Common Stock on February 7, 2018, the vesting date. (3) Represents PB One-Time awards granted to each of Mr. Kapoor and Ms. Marnick in 2016. The value realized on vesting represents the number of shares multiplied by $86.85, the average of the high and low prices of Common Stock on June 4, 2018, the vesting date. (4) Represents shares under the 2015 PB-TSR with a performance tracking period from January 1, 2015, to December 31, 2017. Performance was certified by the Compensation Committee on January 23, 2018, at a percentile rank of 87th and a resulting payout of 192.5%. The value realized on vesting represents the number of shares multiplied by $89.79, the average of the high and low prices of Common Stock on February 7, 2018, the vesting date. (5) Represents shares vesting under the 2016 annual RS. The value realized on vesting represents the number of shares multiplied by $85.95, the average of the high and low prices of Common Stock on February 9, 2018, the vesting date. (6) Represents shares vesting under the 2015 annual RS. The value realized on vesting represents the number of shares multiplied by $89.79, the average of the high and low prices of Common Stock on February 7, 2018, the vesting date. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 56
The following table presents information concerning benefits received under the Company’s Pension Value Plan (the “PVP”) by Mr. Pilla during the fiscal year ended December 31, 2018. No other NEOs received any benefits under the PVP.
Name | Plan Name | Number of Years of Credited Service | (1) | Present Value of Accumulated Benefit ($) | (2) |
John A. Pilla | PVP | 24.0875 |
| 703,267 |
|
(1) Please note credited service was frozen in the PVP as of June 16, 2005. There is no policy that provides for granting extra years of credited service. (2) Present value was calculated based on the assumption that Mr. Pilla’s benefit commences at age 60. Key assumptions reflected in present value include a 4.21% discount rate, a cash balance interest crediting rate of 5.25%, and the life annuity form of payment. In order to determine changes in the present value reported in the Summary Compensation Table, the value was also calculated as of December 31, 2017. For values as of December 31, 2017, the discount rate was 3.59%. The present value was calculated assuming Mr. Pilla retires and commences receipt of benefits at age 60. The mortality assumption for the fiscal year ending December 31, 2017, is Mercer’s MILES-2010 generational mortality table for the Auto, Industrial Goods, and Transportation group with MMP-2016 improvement scale, and the mortality assumption for fiscal year ending December 31, 2018, is Mercer’s MILES-2010 generational mortality table for the Auto, Industrial Goods, and Transportation group with MMP-2018 improvement scale. |
A significant portion of Spirit’s operations related to Boeing aerostructures was owned and controlled by Boeing until 2005. Boeing’s pension assets and liabilities were spun-off from Boeing’s qualified plans (each, a “Prior Plan”) into Spirit qualified plans for certain eligible Boeing employees who joined the Company. Credited service and benefit amounts under the Prior Plans were frozen as of June 16, 2005. Effective December 31, 2005, all Prior Plans were merged together into the PVP. The PVP is a frozen plan, so no additional employees are becoming participants in the PVP, and no current participants are accruing any additional benefits (except for the interest credits described below). The PVP is fully paid for by the Company, and the Company’s employees are vested after reaching five years of service.
Mr. Pilla is the only NEO who participates in the PVP. Mr. Pilla is fully vested in his benefits. Benefits under the PVP for Mr. Pilla are based upon heritage benefits transferred into the Prior Plan and a cash balance benefit. Heritage benefits were indexed (increased) for base pay increases from the date the heritage benefit transferred to the Prior Plan until June 16, 2005. Under the cash balance benefit formula, employees received benefit credits based on their age at the end of each plan year through June 16, 2005. The annual benefit credit was a specified percentage of eligible pay, ranging from 3% at ages younger than 30 to 11% upon reaching age 50. Eligible pay included base pay and executive incentive pay, limited to Internal Revenue Code Section 401(a)(17) limits. The benefit credits ceased upon freezing the Prior Plan; however, employees continue to receive interest credits each year. Interest credits are calculated by applying simple interest to the Prior Plan balance at the beginning of the year and are accrued until the pension benefit begins. Interest credits are based on the 30-year Treasury Rate as of November of the prior year, with a minimum of 5.25% and a maximum of 10%.
The PVP benefits are payable as a life annuity (other annuity options are also available). To determine a participant’s pension benefit, the participant’s accumulated benefits are divided by 11 and further divided by a factor of 12 to produce a monthly benefit.
The normal retirement age under the PVP is age 65. Participants who have at least ten years of service and are at least age 55, or at least one year of service and are at least age 62, are eligible for early retirement. Mr. Pilla is currently 59 years of age and is eligible for early retirement. A portion of the Prior Plan benefit is reduced by 2% for each year that benefits commence prior to age 60. Projected annual benefits payable upon retirement at age 60 are $47,154 for Mr. Pilla. If he retires at age 65, the annual benefit amount is $51,633.
We also maintain the Supplemental Executive Retirement Plan (the “SERP”), which provides supplemental, nonqualified retirement benefits to executives who (1) had their benefits transferred from a Boeing nonqualified plan to the SERP, and (2) did not elect to convert their SERP benefit into phantom stock units as of June 17, 2005. Benefits under this plan were also frozen as of the date of the Boeing acquisition. There are no SERP annuity benefits presently payable to the NEOs. Mr. Pilla was a participant in the SERP, but elected to convert his SERP benefit as of June 17, 2005, into 16,023 phantom stock units.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 57
Nonqualified Deferred Compensation
The following table presents information concerning each of the Company’s defined contribution or other plans that provide for the deferral of compensation of the NEOs on a basis that is not tax-qualified. In addition, and as discussed above under “Pension Benefits,” Mr. Pilla was a participant in the SERP, but elected to convert his SERP benefit as of June 17, 2005, into 16,023 phantom stock units. Mr. Pilla’s vested and undelivered phantom stock units and accrued dividend equivalents are reflected below and may be settled in cash or shares on the earlier of his separation from service or a change-in-control.
Name | Plan | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | (1) | Aggregate Earnings in Last FY ($) | (2) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) |
|
Thomas C. Gentile III | DCP |
| 600,000 |
| 27,143 |
|
| 1,234,122 | (3) |
Sanjay Kapoor | DCP |
|
|
|
|
|
|
|
|
Samantha J. Marnick | DCP |
| 100,000 |
| 7,653 |
|
| 313,122 | (4) |
Duane F. Hawkins | DCP |
|
|
|
|
|
|
|
|
John A. Pilla | DCP | 26,000 |
|
| 2,450 |
|
| 97,442 |
|
| SERP |
|
|
|
|
|
| 1,168,557 | (5) |
(1) These amounts represent Company contributions to the DCP and are included in the “All Other Compensation” column of the “Summary Compensation Table.” (2) Under the DCP, these amounts represent earnings on DCP balances from January 1 to December 31, 2018, and are not included in the “Summary Compensation Table.” For Mr. Pilla’s balance under the SERP, represents a decrease om value of $237,942, representing the change in market value of 16,023 phantom stock units and accrued dividend equivalents under the SERP from January 1 to December 31, 2018. The change in market value of the phantom stock units for Mr. Pilla was calculated using the closing prices of Common Stock on January 2, 2018, and December 31, 2018, respectively. (3) This amount includes $606,979 consisting of Company contributions and earnings on balances prior to 2018 (and as reported in our 2017 proxy statement). (4) This amount includes $205,469 consisting of Company contributions and earnings on balances prior to 2018 (and as reported in our 2017 proxy statement). (5) Represents the sum of (i) $1,155,098, which represents the 16,023 phantom stock units under the SERP multiplied by $72.09, the closing price of Common Stock on December 31, 2018, and (ii) $13,459 in accrued dividend equivalents on the phantom stock units under the SERP through December 31, 2018. |
More information on the DCP and SERP can be found under “Other Compensation Elements and Information” and “Potential Payments Upon Termination or Change-in-Control.” There were no “above-market” earnings (defined by SEC rule as that portion of interest that exceeds 120% of the applicable federal long-term rate) under the DCP during fiscal year 2018, as the Company used 120% of the applicable federal long-term rate to determine the amounts to be contributed.
Potential Payments Upon Termination or Change-in-Control
The Company believes competitive severance protection is an appropriate incentive in attracting and retaining talent and, accordingly, has provided for certain termination compensation through individual employment agreements. In addition, when appropriate, the Company has also agreed to individual severance arrangements at the time of termination of employment, taking into account the specific facts and circumstances of termination. The Company does not maintain any change-in-control agreements or other similar plans or arrangements intended specifically to provide income protection for executive officers upon a change-in-control.
In addition, the Company maintains several programs — the STIP, LTIP, Perquisite Allowance Program, and DCP — that deliver benefits upon certain types of termination or a change-in-control.
Information about these severance benefits is contained below, followed by a table summarizing the monetary benefits upon triggering events.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 58
Only the employment agreements of Messrs. Gentile and Kapoor provide for any payments to be made, or benefits provided, beyond the date of termination as of December 31, 2018. These benefits are paid only in the circumstances described below. Receipt of these benefits is conditioned upon the execution of a release of claims against the Company and satisfaction of a covenant not to compete and a covenant not to solicit customers or employees of Spirit.
Termination Without Cause or For Good Reason
Upon a termination without cause or for good reason, Messrs. Gentile and Kapoor will be entitled to their base salary in effect prior to termination and the costs of providing COBRA medical and dental benefits coverage over a period of 12 months. In addition, if such a termination occurs before April 1, 2019, the following long-term incentives will vest:
66-2/3% of the RS granted to Mr. Gentile in 2017 (such vested shares to include any shares that have previously vested under such award), which, as of December 31, 2018, reflects an additional vesting amount of 18,457 shares of Common Stock (18,457 shares under such award already vested in February 2018); and
33-1/3% of the RS granted to Mr. Gentile in 2018, which, as of December 31, 2018, reflects 13,994 shares of Common Stock.
Termination of Mr. Kapoor due to expiration of his employment agreement without renewal constitutes a termination without cause.
A termination for “good reason” is a voluntary termination of employment by the executive within 90 days after one of the following conditions:
For Mr. Gentile: If he is assigned to a diminished position prior to April 1, 2019.
For Mr. Kapoor: Upon a change-in-control or within 12 months thereafter, the executive is not offered continued employment in a position other than a diminished position.
A position is a “diminished position” if it reflects: (1) a material diminution in base compensation; (2) a material diminution in authority, duties, or responsibilities; (3) a change in reporting requirements; (4) relocation of the executive’s principal office to a location greater than 50 miles from Wichita, Kansas; or (5) any action or inaction on Spirit’s part that constitutes a material breach by Spirit of the employment agreement.
For Mr. Kapoor, a “change-in-control” means (a) a transaction where any person acquires more than 50% of the Company’s total voting power, or (b) a transaction where the Company sells or transfers all or substantially all of its assets to a person, if all or substantially all the proceeds are distributed to the Company’s stockholders.
For context, a “for cause” termination is defined as a termination resulting from the following:
Commission of a material breach or acts involving moral turpitude, fraud, dishonesty, unauthorized disclosure of confidential information, the commission of a felony, or material violations of the Company’s policies;
Direct and deliberate acts constituting a material breach of the duty of loyalty;
Refusal or material failure (other than by reason of disability) to perform job duties and responsibilities if not remedied within 30 days after receiving written notice thereof;
Material underperformance, as reflected in two consecutive performance reviews provided no less than six months apart; or
Inability to obtain and maintain the appropriate level of U.S. security clearance.
Voluntary Termination without Good Reason
In the event Mr. Gentile had voluntarily terminated his employment with the Company before April 1, 2018, any unvested shares of restricted stock that were awarded as a signing bonus under his employment agreement will immediately vest. This provision no longer applies.
Awards under the Omnibus Incentive Plan: ACI and Long-Term Incentives
In the event of a “qualifying retirement” that occurs 90 days or more after the beginning of the plan year, the participant will be entitled to receive a prorated ACI based on full-year performance metrics actually achieved for such year. Other than Mr. Pilla, none of the NEOs qualify for this benefit as of December 31, 2018.
In the event of a change-in-control of the Company, each participant who incurs a qualifying termination, either in anticipation of the change-in-control or during the period beginning 30 days before the date of the change-in-control and ending two years after the change-in-control, will be entitled to receive a cash award equal to the full-year ACI that the participant would have been entitled to receive for the year during which such termination occurs had the target performance metrics established for that year been met.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 59
2018Long-TermIncentives
In addition to the change-in-control treatment described below, each participant who is terminated due to death, disability, or retirement (termination after the employee has attained age 62) will (i) fully vest in his or her outstanding time-based restricted stock award and (ii) vest in a prorated portion of his or her performance-based restricted stock award, based on target performance in the case of death or disability, and actual performance measured at the end of the applicable performance period in the case of retirement. None of our NEOs are currently entitled to the retirement benefits.
2017and2018Long-TermIncentives
Each participant who incurs a qualifying termination, either in anticipation of the change-in-control or during the period beginning 30 days before the date of the change-in-control and ending two years after the change-in-control, will become fully vested upon termination of employment. If an award is subject to performance conditions, the portion that vests will, at the discretion of the Compensation Committee, be determined based upon actual performance through the date of the change-in-control (or, if later, the date of the qualifying termination) or, if the Compensation Committee determines that measurement of actual performance cannot be reasonably assessed, the assumed achievement of target performance.
In addition, each such participant who qualifies for accelerated vesting above will also receive a cash award equal to the dollar value of the long-term incentive that would have been made to the participant in the ordinary course of business within the 12-month period following the date of qualifying termination, based on the participant’s annual base pay in effect on the date of qualifying termination.
2016Long-TermIncentives
The unvested long-term incentives of a participant who is employed by Spirit on the date of a change-in-control, or whose employment was involuntarily terminated by Spirit (other than for cause) within the ninety (90) days preceding a change-in-control, become fully vested upon a change-in-control. If an award is subject to performance conditions, the portion that vests will, at the discretion of the Compensation Committee, be determined based upon actual performance through the date of the change-in-control or, if the Compensation Committee determines that measurement of actual performance cannot be reasonably assessed, the assumed achievement of target performance.
In addition, each such participant who qualifies for accelerated vesting above will also receive a cash award equal to the dollar value of the long-term incentive that would have been made to the participant in the ordinary course of business within the 12-month period following the date of the change-in-control, based on the participant’s annual base pay in effect on the date of the change-in-control or termination, if earlier.
“Qualifying termination” means a participant’s termination either (i) by the Company without cause, or (ii) by the participant for good reason.
“Cause” means that the Company has “cause” to terminate the employee, as defined in any applicable employment or consulting agreement, or any of the following has occurred:
Gross negligence or willful misconduct in the exercise of responsibilities;
Breach of fiduciary duty;
Material breach of any provision of an employment contract or consulting agreement;
The commission of a felony crime or crime involving moral turpitude;
Theft, fraud, misappropriation, or embezzlement (or reasonable suspicion of the same);
Willful violation of any federal, state, or local law (except traffic violations and other similar matters not involving moral turpitude); or
Refusal to obey any resolution or direction of the participant’s supervisor or the Board.
“Good reason” means a voluntary termination within ninety (90) days after the participant is assigned to a diminished position, so long as the participant has, within thirty (30) days after being assigned to such diminished position, notified the Company of the participant’s intent to terminate as a result of such assignment, and within thirty (30) days after receipt of that notice the Company has not reassigned the participant to a position that is not a diminished position.
“Diminished position” means a position that reflects any of the following changes or actions, unless the participant has consented to the change or action in writing: (1) a material diminution in the participant’s base compensation; (2) a material diminution in the participant’s authority, duties, or responsibilities or associated job title; (3) relocation of the participant’s principal office to a location that is greater than 50 miles from the location of the participant’s principal office immediately before such relocation; or (4) any action or inaction with respect to the terms and conditions of the participant’s service that constitutes a material breach by the
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 60
Company of any written agreement between the participant and the Company.
“Retirement” is defined, for purposes of 2018 Long-Term Incentives, as termination on or after the date when the grantee has attained age 62.
“Qualifying retirement” is defined, for purposes of the ACI, as a voluntary termination of employment on or after attaining the age of 55 with at least 10 years of service with the Company and its affiliates or the age of 60 with at least five years of such service.
A “change-in-control” is (1) a transaction pursuant to which a person, or more than one person acting as a group, acquires more than 50% of the total voting power of the stock of the Company, (2) a merger or consolidation involving the Company in which the Company is not the surviving entity, or (3) a transaction that is a sale of all or substantially all the assets of the Company if all or substantially all the proceeds from such transaction are distributed to the stockholders of the Company.
Upon the occurrence of a change-in-control of the Company, an NEO who incurs a qualifying termination (as defined under the OIP above) either in anticipation of the change-in-control or during the period beginning 30 days before the change-in-control and ending two years after the closing of the change-in-control, is entitled to receive a cash award equal to (1) any remaining unused portion of the NEO’s allowance for the calendar year in which the qualifying termination occurs, plus (2) an amount equal to 100% of the NEO’s allowance for the calendar year in which the qualifying termination occurs.
Individuals participating in the DCP are entitled to receive payment of amounts credited to their deferred compensation accounts under the DCP upon a separation from service. However, in the event of a termination for cause, no amounts credited to the employer-match account or employer discretionary contribution amount shall be payable to the participant. Payment to a participant of any employer -matching or discretionary contributions made under the DCP is subject to compliance by the participant with non-competition, non-solicitation, and confidentiality requirements during the term of the participant’s employment and for so long as the participant receives payments under the DCP.
For purposes of the DCP, a “termination for cause” means a separation from service involving (1) gross negligence or willful misconduct in the exercise of responsibilities; (2) breach of fiduciary duty; (3) material breach of any provision of an employment contract; (4) the commission of a felony crime or crime involving moral turpitude; (5) theft, fraud, misappropriation, or embezzlement (or suspicion of the same); (6) willful violation of any federal, state, or local law (except traffic violations and other similar matters not involving moral turpitude); or (7) refusal to obey any resolution or direction of the participant’s supervisor or the Board.
Pursuant to the SERP, Mr. Pilla holds 16,023 phantom stock units. Upon a “Change-in-Control’’ or “Separation from Service’’ following a “Liquidity Event’’ (each as defined in the SERP), Mr. Pilla is entitled to receive payment with respect to each of those phantom stock units in an amount equal to (i) the market value of one share of Class A Common stock in the Company (determined as of the business day immediately preceding the date of payment), plus (ii) the amount of all dividends (other than stock dividends), if any, actually paid on one share of Class A Common stock in the Company during the period from June 16, 2005, through the date payment is made. A “Change-in-Control’’ under the SERP is a transaction pursuant to which a person acquires (i) more than 50% of the total voting power of the stock of the Company, or (ii) all or substantially all the assets of the Company or Spirit AeroSystems, Inc., the Company’s wholly owned subsidiary, and all or substantially all the proceeds from such transaction are distributed to the stockholders of the Company. A “Separation from Service’’ under the SERP is the termination of employment, including, without limitation, terminations of employment arise from a person’s death, disability, retirement, discharge (with or without cause), or voluntary termination. A “Liquidity Event’’ under the SERP includes the initial public offering consummated by the Company on November 27, 2006. Thus, Mr. Pilla will be entitled to payment under the SERP with respect to his phantom stock units upon any future “Change-in-Control’’ or “Separation from Service.’’ Payment under the SERP will be made in a single lump sum in cash or Common Stock following the change-in-control or separation from service.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 61
Summary Table-Potential Payments Upon Termination or Change-in-Control
The following table summarizes the value of compensation and benefits payable to each NEO upon termination that would exceed the compensation or benefits generally available to salaried employees. Benefits and payments are calculated using a termination date of December 31, 2018. For equity valuation purposes, the table below uses $72.09, the closing price of Common Stock on December 31, 2018. For purposes of presenting amounts payable over a period of time (e.g. salary continuation), the amounts are shown as a single total but not as a present value (i.e., the single sum does not reflect any discount).
Name | Severance ($) | (1)
| ACI ($) | (2)
| RS ($) |
| PB One-Time, PB-TSR and PB-FCF ($) |
| Cash Award in Respect of LTIP Awards ($) | (10)
| Perquisite Allowance Plan ($) | (11)
| Other Benefits ($) | (12)
| Total(13) ($) |
Thomas C. Gentile III |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary Termination without Cause/ Termination by Executive for Good Reason | 1,250,000 |
|
|
| 2,339,465 | (3) |
|
|
|
|
|
| 20,713 |
| 3,589,465 |
Change-in-Control and Qualifying Termination |
|
| 1,737,726 |
| 5,687,829 | (4) | 5,810,523 | (7) | 6,250,000 |
| 50,000 |
|
|
| 19,536,078 |
Death or Disability(14) |
|
|
|
| 3,026,627 |
| 603,793 |
|
|
|
|
|
|
| 3,630,356 |
Sanjay Kapoor(15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary Termination without Cause/ Termination by Executive for Good Reason | 650,000 |
|
|
|
|
|
|
|
|
|
|
| 10,699 |
| 660,699 |
Termination Upon Expiration of Employment Agreement | 650,000
|
|
|
|
|
|
|
|
|
|
|
| 10,699
|
| 660,699 |
Change-in-Control |
|
|
|
| 548,389 | (5) | 438,019 | (8) | 1,950,000 |
|
|
|
|
| 2,936,407 |
Change-in-Control and Qualifying Termination | 650,000 |
| 650,000 |
| 2,428,568 | (6) | 2,449,903 | (9) | 1,950,000 |
| 26,000 |
| 10,699 |
| 8,165,170 |
Death or Disability(14) |
|
|
|
| 944,307 |
| 188,395 |
|
|
|
|
|
|
| 1,132,702 |
Samantha J. Marnick |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change-in-Control |
|
|
|
| 285,837 | (5) | 228,309 | (8) | 1,182,500 |
|
|
|
|
| 1,696,646 |
Change-in-Control and Qualifying Termination |
|
| 522,877 |
| 1,268,279 | (6) | 1,262,937 | (9) | 1,182,500 |
| 26,000 |
|
|
| 4,262,593 |
Death or Disability(14) |
|
|
|
| 503,693 |
| 100,493 |
|
|
|
|
|
|
| 604,186 |
Duane F. Hawkins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change-in-Control |
|
|
| �� | 415,527 | (5) | 331,830 | (8) | 1,230,500 |
|
|
|
|
| 1,977,857 |
Change-in-Control and Qualifying Termination |
|
| 533,685 |
| 1,599,677 | (6) | 1,597,005 | (9) | 1,230,500 |
| 26,000 |
|
|
| 4,986,867 |
Death or Disability(14) |
|
|
|
| 595,896 |
| 118,876 |
|
|
|
|
|
|
| 714,772 |
John A. Pilla |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change-in-Control |
|
|
|
| 319,647 | (5) | 255,343 | (8) | 902,500 |
|
|
| 1,168,557 |
| 2,646,047 |
Change-in-Control and Qualifying Termination |
|
| 456,041 |
| 1,576,320 | (6) | 1,111,174 | (9) | 902,500 |
| 26,000 |
| 1,168,557 |
| 5,240,593 |
Death or Disability(14) |
|
|
|
| 860,971 |
| 83,528 |
|
|
|
|
| 1,168,557 |
| 2,113,057 |
Qualifying Retirement |
|
| 422,978 |
|
|
|
|
|
|
|
|
| 1,168,557 |
| 1,591,535 |
Any Other Termination (including for cause) |
|
|
|
|
|
|
|
|
|
|
|
| 1,168,557 |
| 1,168,557 |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 62
(1) Represents annual base salary for 12 months pursuant to each recipient’s employment agreement. For Mr. Kapoor, with respect to the row titled “Change-in-Control and Qualifying Termination,” represents payment of severance to Mr. Kapoor provided he is not offered continued employment in a position other than a diminished position. (2) Under the “Change-in-Control and Qualifying Termination” row, represents a cash amount equal to the value of the full-year ACI that such NEO would have been entitled to receive for 2018 had the target performance metrics for 2018 been met. With respect to Mr. Pilla’s “Qualifying Retirement” row, represents an amount equal to the ACI based on full-year performance metrics actually achieved for the year. (3) Represents the sum of the following: (i) a cash amount equal to the remaining portion of 66-2/3% of the RS granted to Mr. Gentile in 2017 (18,457 shares of Common Stock) multiplied by $72.09, and (ii) a cash amount equal to 33-1/3% of the RS granted to Mr. Gentile in 2018 (13,994 shares of Common Stock) multiplied by $72.09. (4) Represents a cash amount equal to the unvested shares under Mr. Gentile’s 2017 and 2018 RSs multiplied by $72.09. (5) Represents a cash amount equal to the unvested shares under the 2016 RS (awards granted prior to 2017 were subject to a single-trigger vesting) multiplied by $72.09. (6) Represents a cash amount equal to the unvested shares under the 2016, 2017, and 2018 RSs multiplied by $72.09. (7) Represents the sum of the following: (i) a cash amount equal to the number of target shares in the 2017 PB-TSR multiplied by 190%, the projected payout percentage of the award as of December 31, 2018, multiplied by $72.09, (ii) a cash amount equal to the number of target shares in the 2017 PB-FCF multiplied by 181%, the projected payout percentage of the award as of December 31, 2018, multiplied by $72.09, (iii) a cash amount equal to the number of target shares in the 2018 PB-TSR multiplied by 100%, the projected payout percentage of the award as of December 31, 2018, multiplied by $72.09, (iv) a cash amount equal to the number of target shares in the 2018 PB-FCF multiplied by 0.0%, the projected payout percentage of the award as of December 31, 2018, multiplied by $72.09. (8) Represents a cash amount equal to the number of target shares in the 2016 PB-TSR multiplied by 100%, the projected payout percentage of the award as of December 31, 2018, multiplied by $72.09. (9) Represents the sum of the amount included in each person’s “Change-in-Control” row plus (i) a cash amount equal to the number of target shares in the 2017 PB-TSR multiplied by 190%, the projected payout percentage of the award as of December 31, 2018, multiplied by $72.09, (ii) a cash amount equal to the number of target shares in the 2017 PB-FCF multiplied by 181%, the projected payout percentage of the award as of December 31, 2018 multiplied by $72.09, (iii) a cash amount equal to the number of target shares in the 2018 PB-TSR multiplied by 100%, the projected payout percentage of the award as of December 31, 2018, multiplied by $72.09, (iv) a cash amount equal to the number of target shares in the 2018 PB-FCF multiplied by 0.0%, the projected payout percentage of the award as of December 31, 2018, multiplied by $72.09. (10) Represents a cash amount equal to the value of the full-year long-term incentive that would have been made to such NEO in the ordinary course of business within the 12-month period following the date of the change-in-control or change-in-control and qualifying termination, as applicable, based on the participant’s annual base pay in effect on such date. (11) Assumes that each NEO’s allowance for 2018 was entirely unused upon the occurrence of the qualifying termination. Represents a cash award of (i) the remaining 2018 annual allowance, plus (ii) the allowance the NEO would receive for 2019. (12) For Messrs. Gentile and Kapoor, represents average monthly contribution toward COBRA medical and dental benefits coverage for 12 months pursuant to each recipient’s employment agreement. For Mr. Pilla, represents a cash amount equal to the 16,023 phantom stock units in the SERP multiplied by $72.09 and accrued dividends on such shares as of December 31, 2018 of $13,459. (13) For Messrs. Pilla and Gentile and Ms. Marnick, excludes the balance of the amounts deferred under the DCP, the value of which is reported at “---Nonqualified Deferred Compensation.” For Mr. Pilla, excludes the fully vested payments under the PVP, the present value of which is reported at “---Pension Benefits.” (14) In the RS column, represents a cash amount equal to the unvested shares under the 2018 RS multiplied by $72.09. In the PB One-Time, PB-TSR, and PB-FCF column, represents the sum of the following (i) a prorated cash amount equal to the number of target shares in the 2018 PB-TSR multiplied by $72.09, (ii) a prorated cash amount equal to the number of target shares in the 2018 PB-FCF, multiplied by $72.09. (15) Mr. Kapoor retired from the position of Executive Vice President and Chief Financial Officer on January 9, 2019. |
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 63
The 2018 annual total compensation of the Company’s CEO was $9,899,693. The 2018 annual total compensation of the median employee (excluding the CEO) was $78,740. The ratio between the two amounts is 126:1.
Determining the Median Employee
The Company believes that the ratio of pay included above is a reasonable estimate calculated in a manner consistent with applicable SEC rules.
Due to a change in individual compensation circumstances, it is no longer appropriate for the Company to use the median employee identified in 2017, and, therefore, the Company has identified a new median employee for 2018.
To identify the median employee in 2018, we reviewed base pay paid to all of our employees as of October 1, 2017 (the “Pay Ratio Employee Population”). We used base pay as our compensation measure to avoid variations in pay due to overtime worked or other items that may yield one-time pay increases. As a result of such review, we identified 901 employees with similar median base pay. Subsequently, we reviewed total compensation paid to each of those 901 employees as of October 12, 2017, as reflected in the Company’s payroll records, and estimated total compensation for each of those employees through December 31, 2017. Comparing total and expected earnings of each of the 901 employees, we identified 10 employees with similar median pay. In 2018, we studied each of the ten employees’ specific pay and employment circumstances and eliminated nine employees from the group, including the median employee from 2017, who had significant variations in their pay due to one-time events occurring in 2018. The remaining employee from that analysis is our median employee.
The Pay Ratio Employee Population was the same as the population identified in 2017, and included all U.S. and non-U.S. persons employed by the Company on a full-time, part-time, seasonal, or temporary basis. Further, the Pay Ratio Employee Population excluded independent contractors and leased workers who provide services to the Company but are employed, and whose compensation is determined, by an unaffiliated third party. In calculating base pay for the Pay Ratio Employee Population, we did not make any assumptions, adjustments (including cost of living adjustments), or estimates with respect to base pay, and we did not annualize base pay. In calculating the total compensation of each person in the group of 901 employees, we did not make any assumptions or adjustments (including cost of living adjustments), and we did not estimate annualized compensation for any full-time employees who were not employed by us for the full 2017-year through October 12, 2017.
As required by SEC rules, after identifying our median employee, we calculated annual total compensation for both our median employee and our CEO using the same methodology that we used to determine our NEOs’ annual total compensation for the “Summary Compensation Table.”
Given the different methodologies that companies use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies.
The Compensation Committee establishes and oversees the design and functioning of the Company’s executive compensation program. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section in this Proxy Statement with the Company’s management. Based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for the 2019 Annual Meeting of Stockholders and also be incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year 2018.
CompensationCommittee
Paul E. Fulchino, Chairman
Charles L. Chadwell
Robert D. Johnson
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 64
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP (“E&Y”) conducted the audit of the Company’s accounts for fiscal year 2018. The Audit Committee has selected E&Y as the Company’s independent registered public accounting firm for fiscal year 2019, and the Board is asking the Company’s stockholders to ratify that selection. The Company expects that representatives of E&Y will be present at the Annual Meeting and they may make a statement if they desire to do so. Further, the Company expects that such representatives will be available to respond to appropriate questions.
The affirmative vote of a majority of stockholders present, in person or by proxy, will constitute the stockholders’ non-binding approval with respect to Proposal 3. With respect to Proposal 3, a stockholder may vote “FOR,” “AGAINST,” or “ABSTAIN.” Abstentions will not be counted as votes “FOR” or “AGAINST” Proposal 3; however, because abstentions will be counted as present at the Annual Meeting, they will have the effect of votes “AGAINST” Proposal 3. Proposal 3 is considered a routine matter under NYSE rules. As a result, brokers who do not receive voting instructions generally may vote on Proposal 3 in their discretion. Unless otherwise instructed, the proxy holders will vote proxies received by them “FOR” the proposal.
If a majority of votes cast on this matter are not cast in favor of the selection of E&Y, the Audit Committee will reconsider the selection of such firm as the Company’s independent registered public accounting firm. Even if the Company’s stockholders vote on an advisory (non-binding) basis in favor of the selection, the Audit Committee may, in its discretion, direct the selection of a different independent auditor at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.
The Board recommends you vote “FOR” the ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm.
The Audit Committee has adopted a policy governing the pre-approval of all audit and permissible non-audit services provided by the independent registered public accounting firm. Under this policy, the Audit Committee has delegated approval authority to the Chair of the Audit Committee provided the Chair reports all pre-approval decisions in writing to the Audit Committee and the decisions are discussed at the Audit Committee’s next scheduled meeting. In 2018, all audit and permissible non-audit services provided by E&Y were pre-approved by the Audit Committee.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 65
The fees incurred by the Company, including its majority-owned subsidiaries, for services provided by E&Y in 2017 and 2018 are set forth below. All the fees set forth below and associated services were pre-approved by the Audit Committee. The Audit Committee concluded that the provision of the non-audit services listed below was compatible with E&Y’s independence.
| December 31, | |
(Dollars in thousands) | 2017 ($) | 2018 ($) |
Audit Fees(1) | 3,724.9 | 3,822.1 |
Audit-Related Fees(2) | 960.1 | 1,639.2 |
Tax Fees(3) | 259.5 | 206.4 |
All Other Fees(4) | 2.0 | 2.0 |
TOTAL | 4,946.5 | 5,669.7 |
(1) Represents fees and expenses for professional services provided in connection with the audit of the Company’s annual financial statements and review of the Company’s quarterly financial statements, statutory audits, and advice on accounting matters directly related to the audit. (2) For 2018, represents $188.0 in fees related to the implementation of FASB’s new revenue recognition standard, $43.5 in fees related to the implementation of FASB’s new leasing standard, $1,333.1 in fees related to merger and acquisition analysis, and $74.6 in fees related to comfort letters. For 2017, represents $575.3 in fees related to implementation of FASB’s new revenue recognition standard, $367.0 related to merger and acquisition analysis, and $17.8 in fees related to Exchange Act filings, comfort letters, and related matters. 2017 fees related to merger and acquisition analysis were reclassified from All Other Fees to Audit-Related Fees to be consistent with 2018 presentation. (3) Represents fees and expenses for tax consultations and advice related to compliance with tax laws and tax-planning strategies. (4) For 2018 and 2017, represents fees related to research tools. 2017 fees related to merger and acquisition analysis were reclassified from All Other Fees to Audit-Related Fees to be consistent with 2018 presentation. |
The Audit Committee currently consists of three non-employee directors. Each of the Audit Committee members satisfies the NYSE’s requirements with respect to independence and financial literacy and qualifies as an audit committee financial expert as defined by the SEC. The responsibilities of the Audit Committee are set forth in its charter, which is available on our website at http://investor.spiritaero.com/govdocs. The Audit Committee’s responsibilities include the appointment, compensation, and oversight of the independent registered public accounting firm. The Audit Committee met nine times in 2018.
The Company’s management is responsible for preparing and presenting the Company’s consolidated financial statements, and developing and maintaining the Company’s system of internal control over financial reporting. The Company’s internal auditors are responsible for conducting internal audits intended to evaluate the adequacy and effectiveness of this system. Ernst & Young LLP (“E&Y”), the Company’s independent registered public accounting firm for 2018, is responsible for auditing the Company’s consolidated financial statements and issuing an opinion as to whether the financial statements fairly present the Company’s financial position in conformity with U.S. generally accepted accounting principles. E&Y is also responsible for auditing the Company’s internal control over financial reporting.
In fulfilling its oversight responsibilities, the Audit Committee has:
Reviewed and discussed with management and E&Y the Company’s audited financial statements as of and for the year ended December 31, 2018, as well as the representations of management regarding the Company’s internal control over financial reporting;
Reviewed and discussed with E&Y all items required by the standards of the Public Company Accounting Oversight Board (“PCAOB”), including the Statement on Auditing Standards, No. 61, as amended by the American Institute of Certified Public Accountants, Professional Standards, Vol. 1, AU section 380, as adopted by the PCAOB in Rule 3200T, CommunicationwithAuditCommittees; and
Received and reviewed the written disclosures and the letter from E&Y required by applicable requirements of the PCAOB regarding E&Y’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with E&Y its independence from the Company and its management.
Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, for filing with the SEC, and the Board approved the Audit Committee’s recommendation. The Audit Committee selected E&Y as the Company’s independent registered public accounting firm for fiscal year 2019.
AuditCommittee
Irene M. Esteves, Chair
John L. Plueger
Laura H. Wright
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 66
STOCKHOLDER PROPOSAL: ENHANCE SHAREHOLDER PROXY ACCESS
Resolved: Stockholders ask the board of directors to amend its proxy access bylaw provisions and any associated documents, to include the following change:
A shareholder proxy access director candidate shall not need to obtain a specific percentage vote in order to qualify as a shareholder proxy access director candidate at any future shareholder meeting.
This proposal is important because a shareholder proxy access candidate might not get a 25%-vote even if he or she is the most qualified candidate to join our Board of Directors. Currently, a proxy access director candidate must obtain a 25% vote or that candidate is disqualified to be a candidate in the following year.
Shareholders may simply believe that at the time of the annual meeting that the company is not ripe for a proxy access candidate and hence may not vote in favor of the candidate simply because the timing is not right. A year later a majority of shareholders might determine that the timing is right and hence they should not be deprived of voting for the most qualified candidate.
The following are just a few of the companies that do not require a proxy access director candidate to obtain a specific percentage vote:
Citigroup (C)
eBay (EBAY)
FedEx (FDX)
Goodyear (GT)
Home Depot (HD)
Please vote yes: Enhance Shareholder Proxy Access — Proposal 4.
The Board of Directors’ Statement in Opposition
The Company is committed to robust corporate governance practices and stockholder rights with appropriate safeguards against abuse. In November 2016, after careful consideration, the Board adopted its proxy access bylaw. The bylaw permits a stockholder, or a group of up to 20 stockholders, owning 3% or more of the Company’s outstanding Common Stock continuously for at least three years, to nominate and include in the Company’s proxy materials directors constituting up to the greater of 2 individuals or 20% of the Company’s Board of Directors, provided that the stockholder(s) and nominee(s) satisfy certain requirements. The Board believes that the Company’s current proxy access bylaw, including the minimum level of support for renomination that Proposal 4 seeks to eliminate, provides meaningful and robust proxy access rights to our stockholders with appropriate safeguards against abuse by stockholders with special interests that are not shared by a significant percentage of our stockholders. Further, a majority of our peer group and S&P 500 index companies that have adopted proxy access bylaws also require a minimum level of support for renomination. Implementation of the change sought by Proposal 4 would make the Company an outlier among public companies that have adopted proxy access.
The Board believes this proposal is not in the best interest of stockholders because it will effectively eliminate one of the safeguards against abuse of the proxy access process by small groups of stockholders. The provision that Proposal 4 seeks to eliminate states that a proxy access nominee who does not receive at least 25% of the votes cast in favor of the nominee’s election at an annual meeting cannot be renominated for the next 2 years. The Board believes this provision is reasonable because each time a stockholder nominates a director nominee using proxy access, it will require a commitment of time and resources by the Board and Governance Committee in order to effectively evaluate the candidate. As described under “Board and Governance Matters — Board Composition” in this Proxy Statement, the Governance Committee and Board engage in a thorough evaluation process with respect to each nominee, including those nominated by stockholders. Once that evaluation is completed, the Company would expend further time and resources putting together appropriate proxy materials with respect to the nominee. The safeguard Proposal 4 seeks to eliminate ensures that the Company’s time and money will not be devoted to nominees who only represent narrow, unpopular interests that appeal to less than 25% of our stockholder base. Generally, as was the case in 2018, our director nominees are elected by a significant margin above 90%. A nominee vote of less than 25% of our stockholders would represent a clear departure from that trend, and continuing to put such candidate up for election in subsequent years would put the Company and stockholders through the unnecessary expense and effort of responding consecutively to proxy access for a particular candidate whom stockholders did not elect or meaningfully support. Further, this provision does not prevent any such director nominee from being renominated in the third year following his or her original nomination.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 67
The Board believes that the Company’s current proxy access bylaw reflects an appropriate balance between stockholder rights and misuse of the proxy access right that is fair to both the Company and its stockholders. For the reasons noted above, the Board requests that you vote “AGAINST” the foregoing stockholder proposal, Proposal 4.
The affirmative vote of a majority of stockholders present, in person or by proxy, will constitute the stockholders’ non-binding approval with respect to Proposal 4.
With respect to Proposal 4, a stockholder may vote “FOR,” “AGAINST,” or “ABSTAIN.” Abstentions and broker non-votes will not be counted as votes “FOR” or “AGAINST” Proposal 4. However, because abstentions and broker non-votes will be counted as present at the Annual Meeting, they will have the effect of votes “AGAINST” Proposal 4.
Under the rules of the NYSE, brokers are prohibited from giving proxies to vote on non-routine matters unless the beneficial owner of such shares has given voting instructions on the matter. This means that if your broker is the record holder of your shares, you must give voting instructions to your broker with respect to Proposal 4 if you want your broker to vote your shares on the matter.
The Board recommends that you vote “AGAINST” the foregoing stockholder proposal.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 68
GENERAL INFORMATION REGARDING THE ANNUAL MEETING
Questions and Answers About the Annual Meeting and Voting
Why am I urgebeing asked to vote?
The Company’s Board of Directors is asking you to complete, sign and datevote with respect to proposals being presented at the enclosedCompany’s Annual Meeting. You may either vote in person at the Annual Meeting, via the internet, or, if you received a paper copy of the materials, by returning a proxy card or voting information form. If you want to vote in person by attending the Annual Meeting, please read “How do I attend the Annual Meeting?”
Who can vote at the Annual Meeting?
You are entitled to vote if our records show that you were a stockholder of record as of the record date, February 25, 2019 (the “Record Date”). On the Record Date, there were 105,671,395 shares of Common Stock outstanding. Each outstanding share of Common Stock is entitled to one vote.
Why did I receive a Notice and return it promptlynot a full set of materials?
We primarily deliver our proxy materials to stockholders over the internet by using “notice and access” delivery, rather than mailing paper copies to each stockholder. Using this method has reduced our printing and mailing costs and the impact of our Proxy Statement on the environment. If you received a Notice by mail or email, you will not receive a paper copy of the proxy materials or Annual Report unless you request one. Instead, the Notice will tell you how to access these materials over the internet. If you received a Notice and would like to request a full set of printed materials, you may do so by following the instructions provided under “How do I request a printed set of proxy materials?”
If you are a beneficial owner, the Notice has been forwarded to you by your broker or bank, who is considered, with respect to your shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank, or other holder of record as to how to vote your shares.
How do I view the Proxy Statement online?
Go to http://www.proxyvote.com and follow the instructions to view the materials.
How do I request a printed set of proxy materials?
You can easily request a paper copy of the proxy materials at no cost to you using one of the following methods:
BYINTERNET Visit www.proxyvote.com | BYEMAIL To sendmaterial@proxyvote.com | BYTELEPHONE Toll-free at 1-800-579-1639 |
You will need to provide the 16-digit control number printed in the enclosed envelope. box marked by the arrow located on the Notice. When sending your request by email, send a blank email with the 16-digit control number in the subject line.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 69
BYINTERNET VIACOMPUTER | BYINTERNET VIATABLETORSMARTPHONE | BYMAIL If you received a paper copy | INPERSON Vote in person at the |
How many shares must be present to hold the meeting?
A quorum is necessary for us to hold the Annual Meeting. A quorum is the presence, in person or by proxy, of stockholders entitled to cast a majority of the votes that all stockholders are entitled to vote. Your shares will be counted as being present for purposes of determining a quorum if you decide to attend the Annual Meeting and vote in person or properly return proxy instructions. Abstentions (where you abstain from voting) will be ablecounted for purposes of establishing a quorum. Further, the Company will also count broker non-votes for the purpose of determining the presence or absence of a quorum. Broker non-votes occur when a person holding shares through a bank or brokerage account does not provide instructions as to how his or her shares should be voted and the broker does not exercise discretion to vote those shares on a particular matter.
What vote is required to approve each item?
For Proposal 1 — the Election of Directors — a director nominee will be elected if the votes “FOR” that nominee exceed the votes “AGAINST” that nominee. Abstentions and broker non-votes will have no effect on the proposal.
Proposals 2 through 4 require the affirmative “FOR” vote of a majority of shares present, in person or by proxy. With respect to Proposals 2 and 4, abstentions and broker non-votes will have the effect of a vote against the proposal. With respect to Proposal 3, abstentions will have the effect of a vote against the proposal. No broker non-votes are expected in connection with Proposal 3 since, due to its routine nature, brokers may vote in their discretion.
How do I vote as a beneficial owner?
If you hold your stock as a beneficial owner, you may vote as provided under “How can I vote my shares?” If you want to vote in person even ifat the Annual Meeting, you must obtain a legal proxy from your broker, bank, or other nominee and bring it to the meeting, and submit it with your vote. If you do not submit voting instructions to your broker, bank, or other nominee, your broker, bank, or other nominee will not be permitted to vote your shares in their discretion on Proposal 1, 2, or 4, but may still be permitted to vote your shares in their discretion on Proposal 3.
Why did I receive more than one proxy card, voting information form, or Notice?
If you received more than one proxy card, voting information form, or Notice, you own shares in more than one account. To ensure that all of your shares are voted, please vote each account separately as set forth under “How can I vote my shares?”
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 70
If I vote by proxy, what voting options do I have?
The Board-designated proxies are Robert D. Johnson and Stacy Cozad. With respect to all proposals, you may instruct the proxies to vote “FOR” or “AGAINST” each proposal, or you may instruct the proxies to “ABSTAIN” from voting. The shares will be voted in accordance with the instructions specified on the proxy card or voting information form. If no instructions are provided, your shares will be voted as recommended by the Board of Directors: “FOR” each director nominee, “FOR” the advisory vote to approve NEO compensation, “FOR” ratification of the appointment of the independent registered public accounting firm, and “AGAINST” the stockholder proposal.
Before the Annual Meeting, you have previously submittedthe power to revoke your proxy card.
Thankand change your vote. If you forhold your continued supportshares in street name, you must follow the instructions of your broker, bank, or other nominee to revoke your proxy. If you are a holder of record and wish to revoke your proxy, you must provide instructions by internet, in writing to the Company’s Corporate Secretary at Spirit AeroSystems Holdings, Inc. I look forward to greeting as many of our stockholders as possible, 3801 S. Oliver St., Wichita, KS 67210-2112, or by voting in person at the Annual Meeting.
Sincerely,Who counts the votes?
Votes will be received and tabulated by Broadridge, the Company’s inspector of elections for the Annual Meeting.
How do I attend the Annual Meeting?
Thomas C. Gentile, IIIPresident and Chief Executive Officer
To attend the meeting, you must be a stockholder as of the Record Date. For stockholders of record who received a paper copy of the proxy materials, the top half of your proxy card is your admission ticket. For stockholders of record who received a Notice, please request an admission ticket by writing to the Corporate Secretary, Spirit AeroSystems Holdings, Inc., 3801 S. Oliver St., Wichita, KS 67210-2112 or email CorporateSecretary@spiritaero.com. Your request must be received by the close of business on April 23, 2019. At the meeting, we will request a government-issued photo identification and confirm your Common Stock ownership against our list of registered stockholders.
TheIf you hold your shares in street name, you will need to request an admission ticket in writing as set forth above and will need to bring proof of Common Stock ownership to be admitted to the meeting. A recent brokerage statement or a letter from your bank or broker are examples of proof of ownership. If you want to vote your shares held in street name in person, you must get a legal proxy in your name from the broker, bank, or other nominee that holds your shares, and submit it with your vote.
Please note that the use of cameras at the Annual Meeting is prohibited, and theycameras will not be allowed into the meeting or any other related areas, except by credentialed media. We realize that many cellular phones and other wireless mobile devices have built-in digital cameras, and while these devices may be brought into the venue, the camera function may not be used at any time.
TableSEC rules permit us to deliver a single copy of Contents
SPIRIT AEROSYSTEMS HOLDINGS, INC.3801 South OliverWichita, Kansas 67210
|
Wednesday, April 26, 201711 a.m. Eastern TimeRegistration will beginproxy materials to stockholders residing at 9 a.m.The 2017 Annual Meeting of Stockholders (the "AnnualMeeting") will begin at 11 a.m.
PlaceDumbarton Room, Fairmont Washington, D.C.2401 M Street NWWashington, D.C. 20037
Registered stockholders who wish to receive a separate set of the Company's Named Executive Officers as disclosedproxy materials in the enclosed Proxy Statement in accordance with the compensation disclosure rulesfuture should contact Broadridge Financial Solutions, Inc. by calling 1-866-540-7095 or writing to Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, New York 11717, Attention: Householding Department.
Beneficial shareholders who wish to receive a separate set of the Securities and Exchange Commission (the "SEC") (the "Say-On-Pay Proposal")
You can vote if you were a stockholder at the close of business on March 3, 2017.
Registered Stockholders. An admission ticket is attached to your proxy card.Please bring the admission ticket with you to the meeting.
Beneficial Stockholders. Stockholders whose stock is held by a broker or bank (often referred to as "holding in street name") should come to the beneficial stockholders table.In order to be admitted, beneficial stockholders must bring account statements or letters from their brokers or banks showing that they owned the Company's Common stock as of March 3, 2017. In order to vote at the meeting, beneficial stockholders must bring legal proxies, which they can obtain only from their brokers or banks.
In all cases, stockholders must bring photo identification to the meeting for admission.
Registered Stockholders. Please vote by mail by completing, signing, dating and promptly mailing the proxy cardmaterials in the enclosed addressed envelope for which no postage is required if mailed in the United States. Any proxy may be revoked at any time prior to its exercise at the meeting.
Beneficial Stockholders. If your shares are held in the name of afuture should contact their broker, bank, or other holder of record, follow the voting instructions you receive from the holder of record to vote your shares.record.
SPIRIT AEROSYSTEMS
The enclosed - 2019 Proxy Statement 71
Who is issued in connection withpaying for this proxy solicitation?
The Company is soliciting the solicitation of a proxy on the enclosed formproxies accompanying this Proxy Statement. Proxies may be solicited by the Board of Directorsofficers, directors, and regular supervisory and executive employees of Spirit, AeroSystems Holdings,none of whom will receive any additional compensation for their services. We have retained D.F. King & Co., Inc. for use at the Annual Meeting. The Proxy Statement not only describes the items that stockholders are being asked to consider and vote on at the Annual Meeting, but also provides you with important information about the Company. Financial and other important information concerning the Company is also containedassist in the Company's 2016 Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
Pursuant to rules promulgated by the SEC, the Company has elected to provide access to the Company's proxy materials by sending you this full set of proxy materials, including a proxy card, and notifying you of the availability of the Company's proxy materials on the internet. This Proxy Statement and the Company's 2016 Annual Report are available athttp://www.edocumentview.com/spr. The Company began distributing this Proxy Statement, a form of proxy and the 2016 Annual Report on or about March 24, 2017.
By order of the Board of Directors.
Sincerely,
Stacy CozadSenior Vice President, General Counsel, Chief Compliance Officer and SecretarySpirit AeroSystems Holdings, Inc.
March 24, 2017
Whether or not you expect to attend the Annual Meeting in person, the Company urges you to vote your shares at your earliest convenience. Promptly voting your shares by completing, signing, dating and returning the enclosed proxy card will save the Company the expense and extra work of additional solicitation. An addressed envelope for which no postage is required if mailed in the United States is enclosed if you wish to vote by mail. Submitting your proxy now will not prevent you from voting your shares at the meeting if you desire to do so, as your proxy is revocable at your option.
Important Notice Regarding the Availability of Proxy Materials for Spirit AeroSystems Holdings, Inc.'s 2017 Annual Meeting of Stockholders to be Held on April 26, 2017
This Proxy Statement and the Company's 2016 Annual Report are available athttp://www.edocumentview.com/spr. In accordance with SEC rules, this website does not use "cookies," track the identity of anyone accessing the website to view the proxy materials or gather any personal information.
PROXY STATEMENTTABLE OF CONTENTS
SPIRIT AEROSYSTEMS HOLDINGS, INC.3801 South OliverWichita, Kansas 67210
Proxy Statement for the 2017Annual Meeting of Stockholders
Unless the context otherwise requires, in this Proxy Statement (1) the "Company" means Spirit AeroSystems Holdings, Inc. and (2) "Spirit" means Spirit AeroSystems, Inc., our primary operating company and a direct wholly owned subsidiary of the Company.
General Information Regarding the Annual Meeting
This Proxy Statement, which was first mailed to stockholders on or about March 24, 2017 (the "Mailing Date"), is furnished in connection with the solicitation of proxies byfor a fee of $15,000 plus reimbursement of out-of-pocket expenses. The Company will pay persons holding shares of Common Stock in their names or in the Boardnames of Directors (the "Board")nominees, but not owning such shares beneficially, such as brokerage houses, banks, and other fiduciaries, for the expense of forwarding solicitation materials to their principals. All the Company to be voted at the Company's 2017 Annual Meetingcosts of Stockholders (the "Annual Meeting"), whichsolicitation of proxies will be held at 11 a.m. Eastern Time Wednesday, April 26, 2017 in the Dumbarton Room at the Fairmont Washington, D.C., located at 2401 M Street NW, Washington, D.C. 20037, for the purposes set forth in the accompanying Notice of 2017 Annual Meeting of Stockholders.
Any stockholder signing and returning the enclosed proxy has the power to revoke it by (1) giving written notice of revocation of such proxy to the Company's Corporate Secretary at the address set forth in the last sentence of this paragraph, (2) completing, signing and submitting a new proxy card relating to the same shares and bearing a later date, or (3) attending the Annual Meeting and voting in person, although attendance at the meeting will not, by itself, revoke a proxy. The shares represented by the enclosed proxy will be voted as specified therein if said proxy is properly signed and received by the Company prior to the time of the Annual Meeting and is not properly revoked. The expense of this proxy solicitation will be bornepaid by the Company. The Company's principal executive offices are located at 3801 South Oliver, Wichita, KS 67210.
The Board has fixed the close of business on March 3, 2017 as the record date (the "Record Date") for determining the holders of Common stock entitled to notice of and to voteWhat happens if an incumbent director nominee is not elected at the Annual Meeting. On the Record Date, there were 119,126,352 shares of Class A Common stock outstanding, held of record by approximately 872 stockholders. Each outstanding share of Class A Common stockMeeting?
If an incumbent director nominee is entitled tonot elected and no one vote. On the Record Date, there were no shares of Class B Common stock outstanding.
The presence,is elected in person or by proxy, of stockholders entitled to cast a majority of the votes which all stockholders are entitled to cast at the Annual Meeting is necessary to constitute a quorum for the transaction of business. The Company will count abstentions and "broker non-votes" only for the purpose of determining the presence or absence of a quorum. "Broker non-votes" occur when a person holding shares through a bank or brokerage account does not provide instructions as to how his or her shares should be voted andplace, then, under Delaware General Corporation Law, the broker does not exercise discretion to vote those shares on a particular matter.
Under the rules of the New York Stock Exchange ("NYSE"), brokers may exercise discretion to vote shares as to which instructions are not given only with respect to certain "routine" matters. Under the NYSE rules, Proposal 6 (ratification of the selection of our independent registered public accounting firm) is considered to be a routine matter. As a result, a stockholder's broker is permitted to vote the stockholder's shares on Proposal 6 at its discretion without instructions from the stockholder.
Proposal 1 (election of the nine members of the Board), Proposal 2 (approval of the Third Amended and Restated Certificate of Incorporation of the Company), Proposal 3 (approval of the Company's Employee Stock Purchase Plan), Proposal 4 (the Say-On-Pay Proposal) and Proposal 5 (the Say-When-On-Pay Proposal) are not considered to be routine matters. Accordingly, brokerage firms are not permitted to vote shares for which they have not received voting instructions on these proposals.
2017 Proxy Statement 1
With respect to Proposal 1 (election of the nine members of the Board), each director will be elected by a vote of the majority of votes cast. A majority of votes cast for any director means that the number of shares cast "FOR" a director's election exceeds the number of votes cast "AGAINST" that director. In the event that an incumbent nominee does not receive the requisite majority of votes cast in this election, the Company will follow the post-election resignation procedure described under the section entitled "Corporate Governance and the Board of Directors — Majority Voting Policy for Director Elections." Any shares not voted (whether by abstention, "broker non-vote" or otherwise) will have no impact on the election of the members of the Board.
Proposal 2 (approval of the Third Amended and Restated Certificate of Incorporation of the Company) and Proposal 3 (approval of the Company's Employee Stock Purchase Plan) will be approved if stockholders entitled to cast a majority of the votes which all stockholders present in person or by proxy are entitled to vote on such matter vote "FOR" the proposal. With respect to Proposals 2 and 3, a stockholder may vote "FOR," "AGAINST" or "ABSTAIN." Abstentions and "broker non-votes" will not be counted as votes "FOR" or "AGAINST" Proposals 2 and 3. However, because abstentions and "broker non-votes" will be counted as present at the Annual Meeting, they will have the effect of votes "AGAINST" Proposals 2 and 3.
Proposal 4 (the Say-On-Pay Proposal) represents an advisory vote and the results will not be binding on the Board or the Company. A vote "FOR" Proposal 4 by stockholders entitled to cast a majority of the votes which all stockholders present, in person or by proxy, are entitled to vote on such matter will constitute the stockholders' non-binding approval with respect to the Company's executive compensation programs. The Board will review the voting results and take them into consideration when making future decisions regarding executive compensation. With respect to Proposal 4, a stockholder may vote "FOR", "AGAINST" or "ABSTAIN." Abstentions and "broker non-votes" will not be counted as votes "FOR" or "AGAINST" Proposal 4. However, because abstentions and "broker non-votes" will be counted as present at the Annual Meeting, they will have the effect of votes "AGAINST" Proposal 4.
Proposal 5 (the Say-When-On-Pay Proposal) represents an advisory vote and the results will not be binding on the Board or the Company. The affirmative vote of a plurality of the votes cast in person or by proxy at the Annual Meeting and entitled to vote on such matter will constitute the stockholders' non-binding approval with respect to the frequency of submission to stockholders of say-on-pay proposals. The Board will review the voting results and take them into consideration when making future decisions regarding the frequency of the advisory vote on executive compensation. With respect to Proposal 5, a stockholder may vote "FOR Every Year," "FOR Every 2 Years," "FOR Every 3 Years" or "ABSTAIN."Please select one choice only. Any shares not voted (whether by abstention, "broker non-vote" or otherwise) will have no impact on the outcome of the vote.
Proposal 6 (ratification of the selection of the Company's independent registered public accounting firm) will be approved if stockholders entitled to cast a majority of the votes which all stockholders present, in person or by proxy, are entitled to vote on the matter, vote "FOR" the proposal. With respect to Proposal 6, a stockholder may vote "FOR," "AGAINST" or "ABSTAIN." Abstentions and "broker non-votes" will not be counted as votes "FOR" or "AGAINST" Proposal 6. However, because abstentions and "broker non-votes" will be counted as present at the Annual Meeting, they will have the effect of votes "AGAINST" Proposal 6.
Votes submitted by mail will be voted by the individuals named on the card (or the individuals properly authorized) in the manner indicated. If a stockholder submits a duly executed proxy and does not specify how shares should be voted, they will be voted in accordance with the Board's recommendations. Stockholders who hold shares in more than one account must vote each proxy and/or voting instruction card received to ensure all shares owned are voted.
Votes cast by proxy or in person at the Annual Meeting will be received and tabulated by Computershare Shareowners Services, the Company's transfer agent and the inspector of elections for the Annual Meeting.
Householding of Annual Meeting Materials
Some brokers and other nominee record holders may be participating in the practice of "householding" proxy statements. This means only one copy of the Proxy Statement may have been sent to multiple stockholders in a stockholder's household. The Company will promptly deliver a separate copy of the Proxy Statement to any stockholder who contacts the Company's Investor Relations Department by writing to Spirit AeroSystems Holdings, Inc., Investor Relations, P.O. Box 780008, Wichita, KS 67278-0008, by calling (316) 523-7040 or by sending an email request toinvestorrelations@spiritaero.com. If a stockholder is receiving multiple copies of the Proxy Statement at the stockholder's household and would like to receive a single copy of the Proxy Statement for a stockholder's household in the future, the stockholder should contact his or her broker, other nominee record holder or the Company's Investor Relations Department to request mailing of a single copy of the Proxy Statement.
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Corporate Governance and the Board of Directors
Corporate Governance Information
The Company's Corporate Governance Guidelines and the charters of the four standing committees of the Board describe the governance practices followed by the Company. The Corporate Governance Guidelines and committee charters are intended to ensure that the Board has the necessary authority and practices in place to review and evaluate the Company's business operations, to make decisions that are independent of the Company's management and to monitor adherence to the Company's standards and policies. The Corporate Governance Guidelines are also intended to align the interests of the Company's directors and management with those of the Company's stockholders. The Corporate Governance Guidelines establish the practices the Board follows with respect to the obligations of the Board and each director; Board composition and selection; Board meetings and involvement of senior management; CEO performance evaluation and elected officer succession planning; Board committee composition, responsibilities and meetings; director compensation; director orientation and education; stockholders' advisory vote for say-on-pay; and director access to members of management, employees and independent advisors. The Board annually conducts a self-evaluation to identify opportunities to improve Board performance.
The Corporate Governance Guidelines and committee charters are reviewed periodically and updated as necessary to reflect changes in regulatory requirements and evolving oversight practices. The Corporate Governance Guidelines comply with corporate governance requirements contained in the listing standards of the NYSE and make enhancements to the Company's corporate governance policies.
In 2016, the Corporate Governance and Nominating Committee reviewed and assessed the adequacy of the Corporate Governance Guidelines and considered various corporate governance principles that merit consideration by the Board. As a result of its review, the Corporate Governance and Nominating Committee recommended certain improvements to the Corporate Governance Guidelines, which it amended in July 2016.
Current copies of the Corporate Governance Guidelines and Code of Ethics and Business Conduct are available under the "Investor Relations" portion of the Company's website,www.spiritaero.com.
NYSE corporate governance requirements require that a majority of the Board of Directors consists of independent directors. The NYSE rules also require that each of the Compensation Committee and Corporate Governance and Nominating Committee be composed solely of "independent directors," as defined under the rules of the NYSE.
In addition, the rules under the Securities Exchange Act of 1934 and NYSE rules require that the Company's Audit Committee be composed exclusively of independent directors.
The Board annually examines and makes a determination of each director's and each nominee's independence based on criteria set forth in the NYSE rules. The Board considers all relevant circumstances when examining director independence. For directors employed by, or serving as directors of, companies with which the Company does business in the ordinary course, the Board examined the amount paid by the Company to those companies and by those companies to the Company. The Board also examined the directors' memberships on other public and private company boards, civic and not-for-profit boards, as well as any executive positions the directors may hold and any consulting and other services they may provide.
Based on this analysis, the Board has determined the following directors and nominees meet the standards of independence under the Company's Corporate Governance Guidelines and applicable NYSE listing standards, including that each such director and nominee is free of any relationship that would interfere with his or her individual exercise of independent judgment: Mr. Chadwell, Ms. Esteves, Mr. Fulchino, Mr. Gephardt, Mr. Johnson, Mr. Kadish, Mr. Plueger and Mr. Raborn. Independent directors currently comprise a majority of the Board and will continue to comprise a majority following the Annual Meeting if all of the nominees for directors are elected. Following the Annual Meeting, if all of the nominees for directors are elected, the Company's Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee and Risk Committee will each be comprised solely of independent directors.
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CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
Certain Relationships and Related Person Transactions
Related person transactions have the potential to create actual or perceived conflicts of interest between the Company and its directors, executive officers, beneficial holders of more than 5% of any class of the Company's Common stock or their respective immediate family members. The Board, as advised by the Corporate Governance and Nominating Committee, reviews such matters as they pertain to transactions with related persons as described by Item 404(a) of the SEC's Regulation S-K.
The Board determined the related person transactions disclosed herein are fair to, and in the best interests of, the Company.
The Board has adopted a written Related Person Transaction Policy that is communicated to the appropriate level of management and can be found under the "Investor Relations" portion of the Company's website,www.spiritaero.com. Under the policy, a related person transaction is any transaction or series of related transactions, including financial transactions or relationships (including any indebtedness or guarantee of indebtedness) and any transactions involving employment, consulting or similar relationships, in which the Company or any of its subsidiaries was, is or will be a participant, where the amount involved exceeds $120,000 and in which a Related Person (as defined in the policy) had, has or will have a direct or indirect "material interest" as determined by the Corporate Governance and Nominating Committee and/or the Company's General Counsel (or other members of the Company's legal department).
The Corporate Governance and Nominating Committee and the Company's General Counsel (or other members of the Company's legal department), are responsible for reviewing these transactions and may take into consideration, among other things, (1) the materiality of the transaction to either the Company or the Related Person; (2) the actual or perceived conflict of interest between the Company and the Related Person; (3) the impact on the transaction of applicable corporation and fiduciary duty laws and rules; (4) whether and to what extent the transaction is on terms and conditions that would be obtained on an arm's-length basis in a transaction with unrelated third persons; (5) whether any products or services provided by the Related Person or other aspects of the transaction that benefit the Company are of a nature, quantity or quality, or on other terms, that are not readily available from alternative sources, or if there are other compelling business reasons for the Company to enter into the transaction; (6) disclosure considerations; (7) the potential impact of the transaction on the Company's relations with its customers, suppliers, stockholders and securities markets; (8) the Company's Corporate Governance Guidelines and Code of Ethics and Business Conduct; (9) the potential impact of the transaction on the objectivity of the Related Person; and (10) the fairness to and best interests of the Company and its stockholders.
After review of the relevant facts and circumstances, if the Corporate Governance and Nominating Committee concludes the related person transaction is fair to, and in the best interests of, the Company and its stockholders, it may approve or ratify the transaction. If the Corporate Governance and Nominating Committee declines to approve or ratify any related person transaction, the Company's General Counsel, in coordination with the affected business unit or corporate function, will review the transaction, determine whether it should be terminated or amended in a manner that is acceptable to the Corporate Governance and Nominating Committee, and advise the Corporate Governance and Nominating Committee of his or her recommendation. The Corporate Governance and Nominating Committee will then consider the recommendation at its next meeting. If the General Counsel does not ultimately recommend the transaction to the Corporate Governance and Nominating Committee or if the Corporate Governance and Nominating Committee does not approve the transaction, the proposed transaction will not be pursued or, if the transaction has already been entered into, the Corporate Governance and Nominating Committee will determine an appropriate course of action with respect to the transaction.
Below are the transactions that occurred or have continued since the beginning of the fiscal year 2016 or any currently proposed transactions in which, to the Company's knowledge, the Company or any of its subsidiaries was or is a party and the amount involved exceeded $120,000, and in which any director, director nominee, executive officer, holder of more than 5% of any class of the Company's Common stock, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.
Anthony Kondrotis, husband of Krisstie Kondrotis, Senior Vice President, Business Development and Business & Regional Jet Programs, is employed by Spirit as Vice President, Unclassified Defense Programs. In 2016, Anthony Kondrotis received $708,339 in compensation from Spirit, which included salary and 5,420 shares of restricted stock, comprising (1) a time-based LTI award of 4,280 shares of restricted stock with a grant date fair value of $185,645 and (2) a performance-based LTI award of 1,140 shares of restricted stock with a grant date fair value of $61,925. As
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CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
of the Record Date, Anthony Kondrotis had received $499,452 in compensation from Spirit in 2017, consisting of salary, a performance bonus and grants of 4,442 shares of restricted stock, comprising (1) a time-based LTI award of 2,649 shares of restricted stock with a grant date fair value of $162,172 and (2) a performance-based LTI award of 1,793 shares of restricted stock with a grant date fair value of $109,767. The grant date fair values of the aforementioned grants are calculated in accordance with FASB's authoritative guidance on stock-based compensation accounting.
The Corporate Governance and Nominating Committee is responsible for identifying and evaluating qualified potential candidates to serve on the Board and recommending to the Board for its selection those nominees to stand for election as directors at the Company's Annual Meeting of Stockholders. While the Corporate Governance and Nominating Committee has established no minimum eligibility requirements for candidates to serve on the Board, in performing its duties, the Corporate Governance and Nominating Committee considers any criteria approved by the Board or that the Corporate Governance and Nominating Committee deems appropriate, including but not limited to the candidate's judgment, skill, education, diversity, age, relationships and experience with businesses and other organizations; whether the candidate meets the independence requirements of applicable legal and listing standards; the organization, structure, size and composition of the Board and the interplay of the candidate's experience with the experience of other Board members; the qualifications and areas of expertise needed to further enhance the deliberations of the Board; whether the candidate maintains a security clearance with the Department of Defense ("DoD"); and the extent to which the candidate would be a desirable addition to the Board and any committees of the Board.
Each potential candidate to serve on the Board must satisfy the requirements of the Company's certificate of incorporation and bylaws, conform to high standards of integrity and ethics and have a commitment to act in the best interest of the Company and its stockholders.
The Corporate Governance and Nominating Committee will consider stockholder recommendations for candidates to the Board on the same basis that it considers all other candidates recommended to it. To formally nominate a director candidate to the Corporate Governance and Nominating Committee, a stockholder must follow the procedures described in the Company's bylaws, including to provide the Company with a written notice that includes: (1) the name, age, business address and residence address of the nominating stockholder and the person to be nominated; (2) the principal occupation of the person to be nominated; (3) a representation that the nominating stockholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person to be nominated; (4) the total number of all shares of Class A Common stock and other securities of the Company that are owned beneficially and of record by the person to be nominated and by the nominating stockholder and, if such securities are not owned solely and directly by the nominating stockholder or the proposed nominee, the manner of beneficial ownership (beneficial ownership has the same meaning as provided in Regulation 13D under the Securities Exchange Act of 1934, as amended (the "Exchange Act")); (5) a description of all arrangements or understandings between the nominating stockholder or any of its affiliates or associates, and any others acting in concert with any of the foregoing, each person to be nominated, and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by the nominating stockholder; (6) such other information regarding such nominating stockholder and each person to be nominated by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC had the nominee been nominated, or been intended to be nominated, by the Board; (7) any additional information as necessary to permit the Company to determine if each person to be nominated is independent under applicable listing standards, any applicable rules of the SEC and any publicly disclosed standards used by the Company in determining and disclosing the independence of its directors; (8) the consent of the person to be nominated to serve as a director of“hold-over director.” Under our bylaws, the Company, if so elected; (9) a written representation and agreement, in the form provided by the Company's Corporate Secretary upon written request, relating to the nominee's compliance, in his or her individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, if elected as a director with the Company's corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines, any other Company code of conduct, policies and guidelines or any rules, regulations and listing standards, in each case as applicable to Company's directors; and (10) a written representation and agreement that the person to be nominated (A) is not and will not become a party to any agreement or understanding with, and has not given any commitment or assurance to, any person or entity as to how the proposed nominee, if elected as a director of the Company, will act or vote on any issue or question, and (B) is
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CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Company with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director unless the terms of such agreement, arrangement or understanding have been provided to the Company. The Company may request any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the qualifications of the proposed nominee to serve as a director of the Company.
All director candidate recommendations and formal nominations for membership to the Board for the 2018 Annual Meeting of Stockholders must be sent to the Company at the address set forth below and received by November 24, 2017 (120 days preceding the one-year anniversary of the Mailing Date). The Company's presiding officer at the Annual Meeting of Stockholders may refuse to acknowledge the nomination of any person not made in compliance with the procedures required by the Company's bylaws.
Effective November 29, 2016, the Board amended the Company's bylaws primarily to implement a proxy access provision, which provides eligible stockholders with an additional avenue for director nominations. Pursuant to the proxy access provision, a stockholder (or a group of up to 20 stockholders) owning 3% or more of the Company's outstanding common stock continuously for at least three years (an "Eligible Stockholder") may nominate, and shall have the right to include in the Company's proxy materials, directors constituting up to the greater of two individuals or 20% of the Company's Board, provided that the Eligible Stockholder and the nominee(s) satisfy the requirements specified in the Company's bylaws. An Eligible Stockholder's nominee(s) for the Board shall be included in the Company's Proxy Statement for presentation at the Company's 2018 Annual Meeting of Stockholders if the nomination is received by the Company at its offices no later than November 24, 2017 (120 days preceding the one-year anniversary of the Mailing Date) and such nomination satisfies the other requirements as specified in the Company's bylaws.
Stockholder recommendations and nominations for candidates to the Board as described above should be sent to the Company's Corporate Secretary at 3801 South Oliver St., Wichita, KS 67210.
Experience, Qualifications, Attributes and Skills of the Members of the Board of Directors
The Board believes that the Board, as a whole, should possess a combination of skills, professional experience and diversity of backgrounds necessary to oversee the Company's business. In addition, the Board believes there are certain attributes that every director should possess, as reflected in the Board's membership criteria. Accordingly, the Board and the Corporate Governance and Nominating Committee consider the qualifications of directors and director candidates individually and in the broader context of the Board's overall composition and the Company's current and future needs.
The Corporate Governance and Nominating Committee is responsible for developing and recommending criteria for director nominees to the Board for approval. As discussed above, while the Corporate Governance and Nominating Committee has established no minimum eligibility requirements for candidates to serve on the Board, in performing its duties, the Corporate Governance and Nominating Committee considers any criteria approved by the Board or that the Corporate Governance and Nominating Committee deems to be appropriate. All of the Company's Board members share certain qualifications and attributes consistent with the general criteria set forth in the Company's Corporate Governance Guidelines. For example, each of them possesses specific skills and experience aligned with the Company's strategic direction and operating challenges and that complement the overall composition of the Board. In addition, each Board member has demonstrated certain core business competencies, including high achievement and a record of success, financial literacy, a history of making good business decisions and exposure to best practices. All of the Company's Board members also possess interpersonal skills that maximize group dynamics, including respect for others, strong communication skills and confidence to ask thought-provoking questions. The Board members are enthusiastic about the Company and devote sufficient time to be fully engaged in their roles as Board members. Finally, all of the Company's non-employee directors satisfy the independence requirements of the NYSE and the SEC rules.
The Corporate Governance and Nominating Committee annually reviews the Board's requirements for Board members and the appropriate criteria for membership to the Board.
The Board recognizes that the Company is more effectively governed when a diversity of viewpoints, backgrounds, opinions, skills, expertise, experiences and industry knowledge are represented on the Board. Accordingly, in October 2011, the Corporate Governance and Nominating Committee adopted the Board of Directors Diversity Policy for
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considering diversity in identifying nominees for director. The Board of Directors Diversity Policy provides that, in nominating candidates for election to the Board at each Annual Meeting of Stockholders, the Corporate Governance and Nominating Committee and the Board shall select individuals who represent a diversity of viewpoint, professional experience, education, skill, expertise, industry knowledge and such other factors as the Corporate Governance and Nominating Committee and the Board believe would enhance the diversity of the Board and the effective governance of the Company. Accordingly, diversity of thought, experience, gender, race and ethnic background are considered in the director evaluation process. As discussed below under the heading "Proposal 1: Election of Directors — Information Regarding Nominees for Election as Directors," the Company's directors have experience with businesses that operate in industries in which the Company and its subsidiaries operate, including commercial aviation, aviation supply and maintenance, and defense industries, or that involve important skills necessary to advise the Company in strategic areas including finance, general management, labor negotiations, governmental affairs and business strategy. The Corporate Governance and Nominating Committee has taken the specific experience, qualifications, attributes and skills of the individual Board members into account in concluding that each nominee should continue to serve on the Board.
Majority Voting Policy for Director Elections
The Company's bylaws provide for simple majority voting in the election of directors in uncontested elections. Pursuant to the Company's bylaws, in an uncontested election of directors, any incumbent director who does not receive more votes "FOR" than votes "AGAINST" is required to promptly tender his or her resignation to the Board for the Board's consideration.
Board. Upon receipt of athe resignation, of a director tendered as a result of a failed stockholder vote, the Corporate Governance and Nominating Committee will make a recommendation to the Board as to whether to accept or reject the resignation. In considering the tendered resignation, the Board will consider the Corporate Governance and Nominating Committee'sCommittee’s recommendation as well as any other factors it deems relevant, which may include:
The qualifications of the director whose resignation has been tendered;
The director'sdirector’s past and expected future contributions to the Company;
The overall composition of the Board and its committees;
Whether accepting the tendered resignation would cause the Company to fail to meet any applicable rule or regulation (including the NYSE listing standards and the federal securities laws); and
The percentage of outstanding shares represented by the votes cast at the Annual Meeting.
Any director who has tendered his or her resignation may not participate in the deliberations of the Corporate Governance and Nominating Committee or in the Board's consideration of the Corporate Governance and Nominating Committee's recommendation with respect to such director. The Board will act on a tendered resignation within 90 days following certification of the stockholder vote for the Annual Meeting, and will promptly disclose its decision and rationale as to whether to accept the resignation (or the reasons for rejecting the resignation, if applicable) in a press release, in a filing with the SEC, or by other public announcement, which may include a posting on the Company'sCompany’s website.
If a director'sdirector’s resignation is accepted by the Board, or if a nominee for director who is not an incumbent director is not elected, the Board may fill the resulting vacancy or may decrease the size of the Board pursuant to the Company'sCompany’s bylaws.
Communications withWhere can I find the Board
voting results after the Annual Meeting?
Stockholders and other interested persons may send communicationsPrior to the Board, the chairmanconclusion of the Board, individual members of the Board, members of any committee of the Board, or one or more non-employee directors by letter addressed to Investor Relations at Spirit AeroSystems Holdings, Inc., 3801 South Oliver, Wichita, KS 67210, or by contacting Investor Relations at (316) 523-7040. These communications will be received and reviewed by the Company's Investor Relations office. The receipt of concerns about the Company's accounting, internal controls, auditing matters or business practices will be reported to the Company's Audit Committee. The receipt of other concerns will be reported to the appropriate committee(s) of the Board. Our employees also can raise questions or concerns confidentially or anonymously using the Company's Ethics Hotline. This hotline provides our employees,
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suppliers and other stakeholders with a mechanism for reporting unethical activities and/or financial irregularities to the Board anonymously. Such persons are able to file reports via a web-based process or a toll free telephone number. Data reported to the Ethics Hotline is reviewed quarterly with the Audit Committee and with the Company's independent registered public accounting firm to help ensure that the Company's ethics and compliance programs remain effective. The Ethics Hotline is operated by a third-party service provider and is available 24 hours a day, 7 days a week and 365 days a year. Receipt of communications clearly not appropriate for consideration by members of the Board, such as unsolicited advertisements, inquiries concerning the products and services of the Company and harassing communications, are not forwarded to members of the Board.
The Company separates the roles of chief executive officer of the Company and chairman of the Board in recognition of the differences between the two roles. The chief executive officer is responsible for setting the strategic direction for the Company and the day-to-day leadership and performance of the Company, while the chairman of the Board provides guidance to the chief executive officer, sets the agenda for Board meetings and presides over meetings of the full Board. Because Mr. Johnson, the chairman of the Board, is not an employee of the Company and has been determined to be an "independent director," as defined under the rules of the NYSE, the Board has not deemed it necessary to appoint a lead independent director. The chairman of the Board also presides at all executive sessions of non-employee directors and serves as the focal point for directors regarding resolving conflicts with the chief executive officer or other directors and coordinating feedback to the chief executive officer on behalf of directors regarding business issues and Board management. The Board generally holds executive sessions four times a year without the chief executive officer or other employees present, unless the presence of the chief executive officer and/or any other employees is requested by the Board.
The Board of Directors' Role in Risk Oversight
The Board oversees an enterprise-wide approach to risk management designed to support the achievement of organizational objectives, including strategic objectives, to achieve planned long-term organizational performance and enhance stockholder value. A fundamental part of risk management is not only understanding the risks of a company and what steps are required to manage those risks, but also understanding what level of risk is appropriate for that company. The involvement of the full Board in setting the Company's business strategy is a key part of its assessment of management's appetite for risk and also a determination of what constitutes an appropriate level of risk for the Company.
The Board's role in the Company's risk oversight process includes receiving regular reports from members of the Company's senior management on areas of material risk to the Company. The Board (or the appropriate committee in the case of risks that are under the purview of a particular committee) receives these reports from the appropriate "risk owner" within the organization to enable it to understand the Company's risk identification, risk management and risk mitigation strategies.
While the Board has the ultimate oversight responsibility for the risk management process, various committees of the Board also have responsibility for risk management. In particular, the Board has delegated to the Risk Committee and the Audit Committee primary oversight of the risk management process. The Risk Committee provides oversight of management's guidelines, policies and processes for assessing, monitoring and mitigating the Company's critical enterprise risks, including the major strategic, operational, financial and compliance risks inherent in the Company's business and core strategies, determines which risks need to be included on the Board's agenda for discussion and assists the Board in its oversight of the Company's management of key risks that have the potential to significantly affect the Company's ability to execute its strategy and achieve its strategic business objectives and performance goals.
The Audit Committee, in collaboration with the Risk Committee, focuses on a broad range of legal, financial and operational risks, including internal controls, disclosure issues, contract accounting, Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") compliance, Ethics Hotline reports and legal and regulatory issues, including compliance with SEC rules and regulations. The Audit Committee annually reviews a comprehensive annual risk assessment report from the Company's internal auditors. The internal audit report surveys risks throughout the business, focusing on primary areas of risk, including operational, financial, contractual, legal and regulatory, strategic and reputational risks. The Audit Committee, in collaboration with the Risk Committee, looks at the relative magnitude of these risks
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and management's mitigation plan and provides strategic advice to the Company about ways to reduce and contain risk.
In addition, in setting compensation, the Compensation Committee strives to create incentives that encourage a level of risk-taking behavior consistent with the Company's business strategy. Such incentives are also designed to align the Company's executives' interests with those of the Company's stockholders by tying executive compensation to stockholder return and value.
Finally, the Board's Corporate Governance and Nominating Committee, in collaboration with the Risk Committee, assists with risk mitigation by ensuring the Board and its committees are composed of individuals with the appropriate credentials and backgrounds to assist the Company with its risk mitigation efforts, while ensuring the Company complies with all applicable NYSE, SEC and other public company governance requirements.
The Board has four standing committees: the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee and the Risk Committee. At the April 20, 2016 Board meeting, Ms. Esteves and Messrs. Plueger and Raborn were reappointed to the Audit Committee; Messrs. Chadwell, Fulchino, Gephardt and Johnson were reappointed to the Compensation Committee; Messrs. Chadwell, Fulchino, Gephardt, Johnson and Kadish were reappointed to the Corporate Governance and Nominating Committee; and Ms. Esteves and Messrs. Kadish, Plueger and Raborn were reappointed to the Risk Committee. Nine formal meetings of the Audit Committee, six formal meetings of the Compensation Committee, four formal meetings of the Corporate Governance and Nominating Committee and four formal meetings of the Risk Committee were held in 2016.
Below is a description of the duties and composition of each standing committee of the Board. Each committee has authority to engage legal counsel or other advisors or consultants as it deems appropriate to carry out its responsibilities. Directors hold committee memberships for a term of one year until the next Annual Meeting, of Stockholders or, if later, until their successors are elected and qualified, or until their death, retirement, resignation or removal.
Audit Committee. In accordance with the Company's Audit Committee Charter, the Audit Committee is responsible for, among other things, (1) selecting and overseeing the independent registered public accounting firm; (2) pre-approving the overall scope of the audit and quarterly financial review; (3) reviewing the independent registered public accounting firm's report describing the auditing firm's internal quality-control procedures and any material issues raised by the most recent internal quality-control review or peer review of the auditing firm; (4) in collaboration with the Risk Committee, reviewing and discussing with management the Company's risk assessment and risk management practices; (5) in collaboration with the Risk Committee, overseeing the Company's risk policies and processes relating to financial statements, financial systems, financial reporting processes, compliance and auditing; (6) reviewing and discussing with management and the independent registered public accounting firm the Company's financial reporting and accounting processes, the Company's financial statements and the independent registered public accounting firm's annual audit report; (7) overseeing the Company's financial reporting activities; (8) reviewing and discussing with management, the independent registered public accounting firm and the internal auditor, the Company's transactions with related parties and its identification of accounting for and disclosure of such transactions; (9) reviewing with the chief financial officer and chief audit executive the Company's internal audit system of audit and financial controls and thewe will announce preliminary voting results of internal audits; (10) meeting periodically and separately with management, internal auditors and the independent registered public accounting firm; (11) reviewing procedures for the receipt, retention and treatment of complaints, including anonymous complaints from employees, concerning accounting, accounting controls, audit matters and regulatory compliance; (12) overseeing and reviewing the Company's Code of Ethics and Business Conduct and Insider Trading Policy and overseeing and reviewing the oversight and effectiveness of the Company's ethics and compliance program; (13) preparing the report of the Audit Committee to be included in the Company's proxy statement; (14) conducting a self-evaluation of the performance of the Audit Committee and reassessing its charter; and (15) reporting to the full Board.
In 2016, the Audit Committee reviewed and reassessed the adequacy of the Audit Committee Charter. As a result of its review, the Audit Committee recommended certain improvements to the Audit Committee Charter, which it amended in July 2016. A current copy of the written Audit Committee Charter is available under the "Investor Relations" portion of the Company's website,www.spiritaero.com.
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CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
The Company's Audit Committee consists of Ms. Esteves and Messrs. Plueger and Raborn, with Mr. Raborn serving as chairman. All of the Audit Committee members have been determined to be independent within the meaning of the NYSE listing standards, and each of Ms. Esteves and Mr. Raborn has been determined to be an "audit committee financial expert," as such term is defined in Item 407(d)(5) of SEC Regulation S-K.
Compensation Committee. In accordance with the Company's Compensation Committee Charter, the Compensation Committee is responsible for, among other things, (1) developing and modifying, as appropriate, a competitive compensation philosophy and strategy for the Company's directors and executive officers that promotes the recruitment and retention of talented individuals; (2) reviewing and approving goals and objectives with respect to compensation for the Company's chief executive officer; (3) reviewing and approving the evaluation process and compensation structure for the Company's officers; (4) establishing and reviewing policies concerning perquisite benefits, including adopting a perquisite allowance policy for senior executives and other officers; (5) reviewing the Company's equity and other stock-based incentive plans and recommending any changes to those plans; (6) reviewing the Company's incentive compensation arrangements to confirm that incentive pay does not expose the Company to unnecessary or excessive risk, and reviewing the relationship among the Company's risk management policies and practices, corporate strategy and senior executive compensation; (7) reviewing the results of periodic say-on-pay advisory votes by the Company's stockholders and determining the weight to be given to those results in making compensation decisions; (8) reviewing and discussing with management the Compensation Discussion and Analysis section in the Company's annual proxy statement; (9) determining whether employment contracts and severance arrangements should be established with senior executive officers and approving the terms of those agreements and arrangements; (10) discussing the relationship between the Company's executive compensation and financial and share performance; (11) discussing the ratio between the total annual compensation for the Company's chief executive officer and the median annual compensation of the Company's other employees; (12) adopting a policy or providing in executive employment agreements for the clawback of unearned incentive compensation if the Company is required to restate its financials due to material noncompliance with financial reporting requirements; (13) preparing the Compensation Committee's report for inclusion in the Company's proxy statement; (14) reviewing director compensation; (15) conducting a self-evaluation of the performance of the Compensation Committee and reassessing its charter; and (16) reporting to the full Board. In addition, the Compensation Committee has the authority to elect any officer whom the Board has authority to elect, other than the chief executive officer.
In 2016, the Compensation Committee reviewed and reassessed the adequacy of the Compensation Committee Charter. No changes were made to the Compensation Committee Charter in 2016. A current copy of the written Compensation Committee Charter is available under the "Investor Relations" portion of the Company's website,www.spiritaero.com.
The Company's Compensation Committee consists of Messrs. Chadwell, Fulchino, Gephardt and Johnson, with Mr. Fulchino serving as chairman. All of the members of the Compensation Committee are independent within the meaning of the NYSE listing standards.
Corporate Governance and Nominating Committee. In accordance with the Company's Corporate Governance and Nominating Committee Charter, the Company's Corporate Governance and Nominating Committee's purposes are to assist the Board in identifying individuals qualified to become members of the Board consistent with the criteria established by the Board, to determine the composition of the Board and its committees, to develop and implement the Company's corporate governance principles and to oversee risks related to the Company's governance structure or from related person transactions and collaborate with the Risk Committee with respect to the same. The Corporate Governance and Nominating Committee is responsible for, among other things, (1) leading the search for and selecting nominees for election as directors; (2) developing qualifications for director candidates; (3) evaluating the composition and size of the Board and its committees and overseeing the function of the Board's committees; (4) formulating a policy for the consideration of diversity in the identification, evaluation and nomination of director candidates; (5) developing and recommending to the Board a set of corporate governance guidelines, reviewing and recommending any changes to the guidelines and considering other corporate governance principles that may merit consideration by the Board; (6) evaluating and recommending ways to enhance communications and relations with the Company's stockholders; (7) developing and recommending to the Board procedures for the self-evaluation of the Board and its committees; (8) periodically evaluating and proposing to the Board for its review, and monitoring, a plan of succession for the chief executive officer and other senior executive officers of the Company, and recommending to the Board candidates for appointment to such positions; (9) assisting the Board in determining the most appropriate organizational format and structure for the Company; (10) reviewing and ratifying or prohibiting
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CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
any related person transactions or relationships in accordance with the Company's Related Person Transaction Policy, and overseeing the disclosure of related person transactions; (11) conducting a self-evaluation of the performance of the Corporate Governance and Nominating Committee and reassessing its charter; and (12) reporting to the full Board.
In 2016, the Corporate Governance and Nominating Committee reviewed and reassessed the adequacy of the Corporate Governance and Nominating Committee Charter. As a result of its review, the Corporate Governance and Nominating Committee recommended certain improvements to the Corporate Governance and Nominating Committee Charter, which it amended in July 2016. A current copy of the written Corporate Governance and Nominating Committee Charter is available under the "Investor Relations" portion of the Company's website,www.spiritaero.com.
The Company's Corporate Governance and Nominating Committee consists of Messrs. Chadwell, Fulchino, Gephardt, Johnson and Kadish, with Mr. Chadwell serving as chairman. All of the members of the Corporate Governance and Nominating Committee are independent within the meaning of NYSE listing standards.
Risk Committee. In accordance with the Company's Risk Committee Charter, the Company's Risk Committee's purposes are to (1) provide oversight of management's guidelines, policies and processes for assessing, monitoring and mitigating the Company's critical enterprise risks, including the major strategic, operational, financial and compliance risks inherent in the Company's business and core strategies; (2) determine which risks should be included on the Board's agenda for discussion; and (3) assist the Board in its oversight of the Company's management of key risks that have the potential to significantly affect the Company's ability to execute its strategy and achieve its strategic business objectives and performance goals.
In 2016, the Risk Committee reviewed and reassessed the adequacy of the Risk Committee Charter. As a result of its review, the Risk Committee recommended certain improvements to the Risk Committee Charter, which it amended in July 2016. A current copy of the written Risk Committee Charter is available under the "Investor Relations" portion of the Company's website,www.spiritaero.com.
The Risk Committee consists of Ms. Esteves and Messrs. Kadish, Plueger and Raborn, with Mr. Kadish serving as chairman. All of the members of the Risk Committee have been determined to be independent within the meaning of NYSE listing standards.
Other Committees. The Board may establish other committees as it deems necessary or appropriate from time to time, including special committees.
Board Meetings and Attendance; Attendance at Annual Meeting of Stockholders
During fiscal year 2016, there were fifteen formal meetings of the Board and additional actions by unanimous written consent. Other than Christopher E. Kubasik, who served as director until the end of his term on April 20, 2016, all of the then-current directors attended at least 75% of the aggregate of (1) the total number of meetings (whether regular or special meetings) of the Board (held during the period for which such person was a director), and (2) the total number of meetings held by all committees of the Board on which the director served (during the period that such director served) and a majority of the then-current directors attended 100% of such meetings. Recognizing that director attendance at the Annual Meeting of Stockholders can provide the Company's stockholders with an opportunity to communicate with Board members about issues affecting the Company, the Company actively encourages the members of the Board to attend its Annual Meeting of Stockholders. The Company held its 2016 Annual Meeting of Stockholders on April 20, 2016 and it was attended by all then-current members of the Board other than Christopher E. Kubasik, whose term as a director ended on the day of the 2016 Annual Meeting of Shareholders.
Executive Sessions of Non-Employee Directors
The non-employee directors meet in executive session at least four times a year and generally at every regularly scheduled Board meeting to consider such matters as they deem appropriate, without the Company's chief executive officer or other management present unless the presence of the Company's chief executive officer or other management is requested by the Board. In accordance with NYSE listed company rules, "non-employee" directors are those directors who are not executive officers of the Company. Among the items the non-employee directors meet privately in executive sessions to review is the performance of the Company's chief executive officer and
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CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
recommendations of the Compensation Committee concerning compensation for employee directors and other senior executive officers. Mr. Johnson, who serves as the chairman of the Board, acts as the chair of the executive sessions of the non-employee directors.
Compensation Committee Interlocks and Insider Participation
None of the Company's executive officers served during fiscal year 2016 or currently serves, and the Company anticipates that noneMeeting. Final voting results will serve, as a member of the board of directors or compensation committee of any entity (other than the Company) that has one or more executive officers that serves on the Company's Board or Compensation Committee.
There are no family relationships among executive officers and directors of the Company.
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Compensation of Non-Employee Directors
Non-employee directors' compensation is set by the Board at the recommendation of the Compensation Committee. In developing its recommendations, the Compensation Committee is guided by the following goals: compensation should fairly pay directors for work required in companies similar in size and scope to the Company; compensation should align directors' interests with the long-term interests of the Company's stockholders; and the structure of the compensation should be simple, transparent and easy for stockholders to understand.
The Compensation Committee reviews and recommends to the Board for its approval all compensation of the Company's non-employee directors, but no member of the Compensation Committee may act to fix his or her own compensation except as uniformly applied to all of the Company's non-employee directors for their service on the Board.
Following the approval of the 2014 Omnibus Incentive Plan (the "OIP") at the Company's 2014 Annual Meeting of Stockholders, the Board established a Director Stock Program under the OIP (to replace the then-existing Director Stock Plan), pursuant to which grants to directors of restricted stock or restricted stock units have been made beginning in 2014. In January 2016, the Board modified the Director Stock Program to provide that, beginning with the director term commencing at the 2015 Annual Meeting of Stockholders, restricted stock grants awarded to non-employee directors under the Director Stock Programdisclosed in a given term will vest upon the completion by such director of such term.
In 2016, following a review of benchmark board compensation data for Fortune 500 companies prepared by Willis Towers Watson, the Compensation Committee changed director compensation for purposes of aligning director compensation with the market median (using a peer group established by revenue level and the Company's peer group of listed aerospace and defense companies (see Proxy Peer Group Table, page 32)). Non-employee directors receive an annual board retainer fee of $195,000 for their service as Board members. Annual board retainer fees are paid in accordance with the terms of the Director Stock Program under the OIP. At least $100,000 of the annual board retainer fee is paid in either shares of restricted Common stock or restricted stock units of the Company, which are subject to vesting upon the completion by the applicable director of his or her then current term. Directors have the option to receive the remaining $95,000 of their compensation in cash, restricted stock or restricted stock units. Non-employee directors who serveCurrent Report on any of the Board's committees receive additional individual retainer fees. The chairman of the Board receives an additional annual retainer fee of $85,000, the chairman of the Audit Committee receives an additional annual retainer fee of $25,000, the chairman of the Compensation Committee receives an additional annual retainer fee of $18,000 and the chairman of each of the Board's other committees receives an additional annual retainer fee of $12,000. In addition to the foregoing committee fees, a fee of $1,000 per committee meeting attended is paid to each non-employee director who serves on a committee of the Board. Beginning in 2016, directors are given the option to receive the individual board retainer fees for serving on Board committees in either all cash or all restricted stock or restricted stock units. The annual board retainer fees and additional individual retainer fees are payable quarterly in arrears to all directors who have served the full quarter ended prior to the date of payment. No additional or other compensation is paid to the Company's executive officers who are also members of the Board. All directors are reimbursed for their out-of-pocket expenses incurred in connection with their director services. The Company does not provide perquisite allowances to non-employee directors; however, perquisites and personal benefits have been provided to Messrs. Lawson and Gentile in their capacity as employees under the standards described in the Company's Perquisite Allowance Plan, which is discussed below in the Compensation Discussion and Analysis section. Fees earned or paid to non-employee directors in 2016 are listed in the "Director Compensation for Fiscal Year 2016" table below.
The Company maintains a minimum stockholding requirement for non-employee directors. In May 2012, the minimum stockholding requirement was set at the greater of (1) the number of shares of the Company's Common stock with an aggregate market value of $250,000 and (2) 12,500 shares. Effective July 2015, the minimum stockholding requirement was increased to the greater of (1) the number of shares of the Company's Common stock with an aggregate market value of $400,000 and (2) 12,500 shares. Non-employee directors have four years after the adoption of the most recent increased minimum stockholding requirement to accumulate the increased amount of shares. Restricted stock units held by directors are counted in determining whether the minimum stockholding requirements are satisfied. Newly appointed members of the Board are permitted four full years of service on the Board during which to attain the minimum stockholding requirement. Information regarding the current stock
2017 Proxy Statement 13
COMPENSATION OF NON-EMPLOYEE DIRECTORS
ownership of the Company's directors can be found below under "Stock Ownership — Information Regarding Beneficial Ownership of Principal Stockholders, Directors and Management."
Director Compensation for Fiscal Year 2016
The following table presents information concerning compensation attributable to the Company's non-employee directors for the fiscal year ended December 31, 2016.
Name | Fees Earned or Paid in Cash ($) | Stock Awards(2) ($) | All Other Compensation(3) ($) | Total ($) | |||||||||||||||
Charles L. Chadwell | | | 110,125 | | | | 123,800 | | | | — | | | 233,925 | | ||||
Irene M. Esteves | | | 3,000 | | | | 201,038 | | | | — | | | 204,038 | | ||||
Paul Fulchino | | | 14,000 | | | | 195,022 | | | | — | | | 209,022 | | ||||
Richard Gephardt | | | 61,500 | | | | 195,022 | | | | — | | | 256,522 | | ||||
Robert Johnson | | | 180,000 | | | | 100,014 | | | | — | | | 280,014 | | ||||
Ronald T. Kadish | | | 119,000 | | | | 100,014 | | | | — | | | 219,014 | | ||||
Christopher E. Kubasik(1) | | | 50,500 | | | | — | | | | — | | | 50,500 | | ||||
John L. Plueger | | | 3,000 | | | | 201,038 | | | | — | | | 204,038 | | ||||
Francis Raborn | | | 137,000 | | | | 100,014 | | | | — | | | 237,014 | | ||||
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Information Regarding Beneficial Ownership of Principal Stockholders, Directors and Management
The following table sets forth, as of the Record Date (unless otherwise stated below), information regarding the beneficial ownership of the Company's Class A Common stock by all directors, nominees for director, each person who has served as the Company's chief executive officer during a portion of fiscal year 2016, the Company's chief financial officer and the three other most highly compensated executive officers serving as executive officers at the end of the last fiscal year (collectively, the "Named Executive Officers" or "NEOs"), and the Company's directors and all executive officers as a group. It also sets forth the ownership of any person or group who is known by the Company to be the beneficial owner of more than five percent of the Company's Common stock together with such beneficial owner's address.
Name | Amount and Nature of Beneficial Ownership | Percentage of Class A Common Stock(+) | |||||
Five Percent Stockholders | | | | | |||
The Vanguard Group | | | 10,933,232 | (1) | | 9.18% | |
100 Vanguard Blvd. | | | | | |||
Hound Partners, LLC | | | 9,121,770 | (2) | | 7.66% | |
Hound Performance, LLC | | | | | |||
Jonathan Auerbach | | | | | |||
Darsana Capital Partners LP | | | 9,000,000 | (3) | | 7.56% | |
Darsana Capital Partners GP LLC Darsana Master Fund LP Darsana Capital GP LLC | | | | | |||
Anand Desai | | | | | |||
Barrow, Hanley, Mewhinney & Strauss, LLC | | | 6,561,041 | (4) | | 5.51% | |
2200 Ross Avenue, 31st Floor | | | | | |||
Scopia Capital Management LP | | | 6,554,159 | (5) | | 5.50% | |
Scopia Management, Inc. Matthew Sirovich | | | | | |||
Jeremy Mindich | | | | | |||
Directors, Director Nominees and NEOs | | | | | |||
Charles L. Chadwell | | | 28,464 | (6) | | * | |
Irene M. Esteves | | | — | (7) | | — | |
Paul Fulchino | | | 54,504 | | | * | |
Richard Gephardt | | | 11,534 | (8) | | * | |
Robert Johnson | | | 13,778 | (9) | | * | |
Ronald T. Kadish | | | 26,170 | (10) | | * | |
John L. Plueger | | | 2,000 | (11) | | * | |
Francis Raborn | | | 29,644 | (12) | | * | |
Thomas C. Gentile | | | 32,666 | | | * | |
Larry A. Lawson | | | — | (13) | | * | |
Sanjay Kapoor | | | 25,930 | | | * | |
Samantha Marnick | | | 4,398 | | | * | |
Duane F. Hawkins | | | 9,319 | | | * | |
Michelle J. Lohmeier | | | 11,655 | | | * | |
All directors and executive officers as a group (18 persons) | | | 336,655 | (14) | | * | |
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STOCK OWNERSHIP
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STOCK OWNERSHIP
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, or "Section 16(a)," requires directors, executive officers and persons who own more than 10 percent of any registered class of a company's equity securities, or "reporting persons," to file with the SEC initial reports of beneficial ownership and report changes in beneficial ownership of common stock and other equity securities. Such reports are filed on Form 3, Form 4 and Form 5 under the Exchange Act, as appropriate. Reporting persons holding the Company's stock are required by the Exchange Act to furnish the Company with copies of all Section 16(a) reports they file.
To the Company's knowledge, based solely on the Company's review of copies of these reports and written representations from such reporting persons, the Company believes that all filings required to be made by reporting persons holding the Company's stock were timely filed for the year ended December 31, 2016 in accordance with Section 16(a).
Mark J. Suchinski, the Company's Vice President and Corporate Controller, inadvertently failed to timely report a grant by the Company on February 9, 2016 of 1,500 shares of Class A Common stock under its long-term incentive program under the OIP. The grant of such shares was subsequently reported on a Form 4 that was filed on May 16, 2016.
2017 Proxy Statement 17
Proposal 1: Election of Directors
The Board is currently comprised of nine directors. On July 25, 2016, Larry A. Lawson resigned from the Board concurrent with his retirement from the position of President and Chief Executive Officer of the Company and Spirit. The Board appointed Thomas C. Gentile, III, to fill the vacancy created by Mr. Lawson's resignation. The Board will consist of nine directorswithin four business days following the Annual Meeting.
The Company's Corporate Governance and Nominating Committee has nominated each of the nine persons listed below for election as directors. If elected at the Annual Meeting, each of the nine nominees will hold office until the next Annual Meeting of Stockholders and until their successors are elected and qualified, or until their death, retirement, resignation or removal. The Company does not have a mandatory retirement age for its directors. All of the nominees, except for Mr. Gentile, have served as directors of the Company since the 2016 Annual Meeting of Stockholders, and Mr. Gentile has served as a director since July 25, 2016.
Each nominee for election has agreed to serve, if elected, and the Company has no reason to believe that any nominee will be unavailable to serve. If any nominee is unable or declines to serve as a director at the time of the Annual Meeting, it is the intention of the proxy holders to vote such proxy for such other person or persons as designated by the present Board to fill such vacancy. Unless otherwise instructed, the proxy holders will vote the proxies received by themSPIRIT AEROSYSTEMS"FOR" the nominees named below. For each director nominee, the votes that stockholders cast "FOR" a director nominee must exceed the votes that stockholders cast "AGAINST" such director nominee in order for such director nominee to be elected.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES.
Information Regarding Nominees for Election as Directors
The following sets forth certain information with respect to the nine nominees for election as directors of the Company at the Annual Meeting based on information furnished to the Company by each nominee and highlights the specific experience, qualifications, attributes and skills of the individual nominees that have led the Corporate Governance and Nominating Committee to conclude that each should continue to serve on the Board:
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PROPOSAL 1: ELECTION OF DIRECTORS
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PROPOSAL 1: ELECTION OF DIRECTORS
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PROPOSAL 1: ELECTION OF DIRECTORS
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Compensation Discussion and Analysis
This Compensation Discussion and Analysis contains statements regarding the Company's performance targets and goals. These targets and goals are discussed in the limited context of the Company's compensation program and should not be considered statements of the Company's management's expectations or estimates of the Company's results or other guidance. The Company specifically cautions investors not to apply these statements to other contexts.
In 2016, the Company was focused on ensuring the quality and competitive costs that make us a trusted partner. We had strong operational and financial performance as demonstrated by a record number of aircraft deliveries on key Airbus and Boeing programs while meeting targets for revenue, operating income and cash flow, as reflected in the share price performance.
The Company achieved a number of milestones in 2016. One of the most significant was finalizing our agreement with Airbus on the A350 XWB. By reaching a comprehensive long-term agreement with Airbus, we have eliminated significant uncertainty and strengthened our relationship with an important partner.
We delivered significant milestones to Boeing in 2016, such as the delivery of the 500th B787 and the first B737 MAX thrust reverser with a composite inner wall.
Our supply chain also saw great progress in 2016. We have hundreds of suppliers, some of which are critical to our success. To help ensure that these partnerships continue to be strong, we implemented a process that gives us a platform to sit down with our suppliers and talk about how to work together to achieve targets for world-class cost, quality and delivery.
Some of the other milestones achieved in 2016 include:
Adjusted EBIT and Adjusted Free Cash Flow are non-GAAP financial measures. Please refer to Appendix A for an explanation of these measures and reconciliations to GAAP financial measures.
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EXECUTIVE COMPENSATION
The charts in this Executive Summary help summarize the Company's performance in 2016Stockholder Proposals and include certain measures that are tied to compensation through the Company's short-term incentive program (STI Program) and long-term incentive program (LTI Program), each under the OIP.
The Company's three-year annualized total stockholder return of approximately 20% demonstrates the Company is creating long-term value for its stockholders. The Company's stock delivered a one-year total stockholder return of approximately 17% in 2016, increasing stockholder wealth by $1.2 billion, reflecting that stock performance continued to improve in 2016 under the Company's leadership and clear strategic focus on performance. Over the last three years, the Company's total stockholder return was second highest among the Company's peers (see Proxy Peer Group Table, page 32).
To ensure the Company continues its commitment to and alignment with stockholder value in the Company's pay programs, the Company annually grants to qualifying employees restricted shares with a value that is directly tied to its share price. In addition, to strengthen this tie to pay-for-performance, the Company's annual grants to qualifying employees under the OIP include performance-based, long-term incentive grants tied to the Company's total stockholder return compared to that of its peer group.
2017 Proxy Statement 23
EXECUTIVE COMPENSATION
This Compensation Discussion and Analysis describes the philosophy, objectives and features of the Company's executive compensation program, which is generally applicable to each of the Company's senior officers.
The Company's compensation programs are designed to reward the Company's executives for delivering both shorter-term performance results and longer-term stockholder value. Through the Company's programs, the Company is able to provide a competitive total compensation package while aligning executives' interests with those of the Company's stockholders. The following highlights the key considerations the Company's Compensation Committee considers in the development, review and approval of the NEOs' compensation:
Compensation Program Decisions
The Company's decisions on executive compensation reflect the Company's commitment to pay for performance and to increase alignment between the interests of executives and stockholders. Decisions made by the Company's Compensation Committee with respect to 2016, as well as material changes to executive compensation set to become effective in 2017, are described below.
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EXECUTIVE COMPENSATION
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| NEO | | Salary as of January 1, 2016 | Salary as of February 5, 2016 (% increase) | New June 1, 2016 salary (% increase) | ||||||||||||||
| Mr. Lawson | | | $ | 1,225,000 | | | $ | 1,274,000 | | (4%) | | — | | | ||||
| | Mr. Kapoor | | | $ | 565,000 | | | $ | 600,000 | | (6%) | | $ | 650,000 | | (8%) | | |
| | Ms. Marnick | | | $ | 400,000 | | | $ | 430,000 | | (8%) | | $ | 490,000 | | (14%) | | |
| | Mr. Hawkins | | | $ | 480,000 | | | $ | 500,000 | | (4%) | | — | | | |||
| | Ms. Lohmeier | | | $ | 450,000 | | | $ | 475,000 | | (6%) | | — | | |
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EXECUTIVE COMPENSATION
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EXECUTIVE COMPENSATION
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EXECUTIVE COMPENSATION
Executive Compensation Governance and Practices
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EXECUTIVE COMPENSATION
The Company's incentive compensation components for NEOs are intended to link compensation performance with the full spectrum of the Company's business goals, some of which are short-term, while others take several years to achieve.
The table below summarizes the average historical short-term incentive award payouts to all NEOs for 2016, 2015 and 2014.
Over time, the Company's incentive compensation programs have demonstrated the Company's commitment to pay for performance. The Company's STI award payouts have historically been below the Company's targets when the Company does not meet its performance goals.
In addition, the Company's stock ownership guidelines require all senior executives to meet specific ownership targets based on position. This requirement, together with our LTI awards under the LTI Program, subject these executives to the same long-term stock price volatility the Company's stockholders experience and further align the Company's executives' interests with those of its stockholders. See "Stock Ownership Guidelines" on page 41 for details.
Effective August 1, 2016, following a change in Mr. Gentile's position from Executive Vice President and Chief Operating Officer to President and Chief Executive Officer, the Company adjusted his annual compensation to reflect his new role within the Company. Effective August 1, 2016, Mr. Gentile's annual base salary was increased by 10% from $1,000,000 to $1,100,000, his target LTI award was increased from 300% to 400% of his annual base salary and his annual deferred compensation was increased from $500,000 to $600,000. Effective February 3, 2017, in recognition of Mr. Gentile's strong performance, his annual base salary was increased by approximately 4.5% to
2017 Proxy Statement 29
EXECUTIVE COMPENSATION
$1,150,000, and his target LTI award was increased to 450% of his annual base salary. Mr. Gentile's target STI award for both 2016 and 2017 is equal to 140% of his annual base salary.
The Compensation Committee continues to examine existing and new compensation programs and objectives to ensure that those of the Company remain appropriate and consistent with the Company's overall philosophy and objectives.
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EXECUTIVE COMPENSATION
Role of the CEO
Each year, the Company's NEOs prepare and discuss their self-evaluations of their performance with the Company's CEO, who presents a compensation recommendation for each other NEO to the Compensation Committee. These recommendations are based on the CEO's review of their performance, job responsibilities and importance to the Company's overall business strategy, as well as the Company's compensation philosophy. Although these recommendations are given significant weight, the Compensation Committee retains full discretion when determining compensation for the Company's executive officers.
The CEO also prepares a self-evaluation and presents it to the Compensation Committee.
Role of the Compensation Consultant
The Compensation Committee retains the authority to approve and monitor all compensation and benefit programs (other than broad-based welfare benefit programs). To add rigor in the review process and to inform the Compensation Committee of market trends, the Compensation Committee utilized the services of Willis Towers Watson in 2016. Willis Towers Watson assisted the Compensation Committee in benchmarking the Company's executive compensation and reviewing trends and regulatory implications for executive pay and developing incentive plan design alternatives. This information was also used by the Compensation Committee in establishing the Company's NEOs' base salaries and target goals for compensation plan awards.
Willis Towers Watson is engaged by the Company's management with the prior and ongoing approval of the Compensation Committee and provides executive compensation consulting services that support the Compensation Committee's goal to align the interests of the Company's executive officers with those of the Company's stockholders. Willis Towers Watson and its affiliates did not provide any other services to the Company in 2016. The Compensation Committee has considered the factors specified by the SEC in determining that Willis Towers Watson provides independent advice.
Mercer Human Resources Consulting is also engaged by the Company's management to provide non-executive compensation consulting services to the Company.
Consideration of Advisory Stockholder Vote on Executive Compensation
The Company believes it is appropriate to seek the views of its stockholders on the design and effectiveness of the Company's executive compensation program. At the Company's 20142020 Annual Meeting of Stockholders, the Company held its second non-binding, advisory stockholder vote on executive compensation (the Say-On-Pay vote) under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and received greater than 96% support from the votes of the Company's stockholders present, in person or by proxy, and entitled to vote on the matter. As an advisory vote, the results of this stockholder vote are not binding upon the Company; however, the Compensation Committee, which is responsible for designing and administering the Company's executive compensation program, values the opinions expressed by the Company's stockholders in their vote and considered the outcome of this vote when it made compensation decisions for the NEOs.
In addition, at the 2011 Annual Meeting of Stockholders, the Company's stockholders approved holding the advisory vote every three years (the Say-When-On-Pay vote). In accordance with the advisory vote of the Company's stockholders at the 2011 Annual Meeting of Stockholders, and as determined by the Compensation Committee and the Board, the Company has included an advisory vote on executive compensation in this Proxy Statement. Furthermore, as required by the Dodd-Frank Act, we are again seeking the Say-When-On-Pay vote from our stockholders (see "Proposal 5" on page 64 of this Proxy Statement). After careful consideration of the different options for advisory vote frequency, the Board determined that conducting an advisory vote on the compensation of the Company's NEOs every year is in the best interests of the Company. Accordingly, the Board is recommending to the Company's stockholders that they vote for a one-year interval for such advisory vote.
Benchmarking the Company's 2016 Executive Compensation Program
The Company's executive compensation program — total direct compensation consisting of base salary, STI awards and LTI awards — is compared to that of the Company's peers in order to determine competitive levels to support the attraction and retention of the Company's executive officers.
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EXECUTIVE COMPENSATION
The Company benchmarks executive compensation against a peer group of comparably sized (in terms of revenue) U.S.-based companies (emphasizing aerospace, defense and auto component manufacturers). The companies specified below were included in the Willis Towers Watson peer group analyses for 2016. The graph below demonstrates that the peers represent a reasonable range of smaller and larger companies (based on revenues). Note that Precision Castparts Corp. was removed from the 2016 peer group as a result of its acquisition by Berkshire Hathaway, as a result of which it ceased to be a public company.
In addition to using such peer group to benchmark executive compensation, the Company also measures its TSR relative to this peer group to determine the degree to which the LTI performance-based stock grants it made in 2016 vest.
For 2017, the Company anticipates B/E Aerospace being removed from the Company's peer group as a result of the expected acquisition of B/E Aerospace by Rockwell Collins, which was announced in October 2016 and is expected to close in 2017, following which B/E Aerospace will cease to be a publicly traded company.
The Company also uses a broad survey sample for benchmarking executive compensation. In 2015, in connection with setting 2016 pay, the Compensation Committee reviewed compensation benchmarking based on national proprietary compensation surveys. Specifically, data was prepared principally using a custom cut of Willis Towers Watson's Executive Compensation survey. Comparable benchmarking was also conducted in 2016 in connection with establishing 2017 pay.
The composition of the survey group may vary somewhat from year to year based on survey participation. The survey analysis considers companies in relevant industries (aerospace and defense, machinery, auto components and electrical equipment) as well as companies in a broad array of industries, when necessary, to complement data limitations. Survey data was size-adjusted to approximate the Company's revenue either through regression or by limiting the survey sample to comparably sized companies.
The Compensation Committee believes overall executive compensation should be designed to be competitive with comparable companies, to reward effective execution of the Company's goals and the individual objectives set for its executive officers and to recognize exceptional performance and results.
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Elements of the Executive Compensation Program
The following table describes how elements of executive compensation are intended to satisfy the Company's compensation objectives.
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CEO Employment Agreement
Mr. Gentile was hired as the Company's and Spirit's Executive Vice President and Chief Operating Officer April 1, 2016, and effective August 1, 2016, he was appointed as the Company's and Spirit's President and Chief Executive Officer. Mr. Gentile's Employment Agreement, which was entered into in connection with his initial hiring and not his subsequent appointment as President and Chief Executive Officer, provides for compensation as follows:
Base Salaries
Effective August 1, 2016, following a change in Mr. Gentile's position from Executive Vice President and Chief Operating Officer of the Company and Spirit to President and Chief Executive Officer, the Company adjusted his annual compensation to reflect his new position with the Company and Spirit, with the intention of aligning his target pay at the market median, resulting in an increase of 10% to his base salary, from $1,000,000 to $1,100,000.
In connection with the Company's annual performance reviews and after consideration of competitive pay practices and Spirit's pay philosophy, effective February 5, 2016, our Named Executive Officers (other than Mr. Gentile) earned salary increases of 4% - 8%, as reflected in the table below. In addition, effective June 1, 2016, in order to
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aid retention and reflect their evolving roles within the Company, Mr. Kapoor and Ms. Marnick received additional salary increases of 8% and 14%, respectively.
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Following Mr. Lawson's retirement on July 31, 2016, he began providing consulting and transition services to Spirit, for which he is entitled to receive annual compensation of $150,000, subject to, among other things, compliance with a covenant not to compete.
For 2017 base salary changes, please refer to "2017 Program Updates" on page 27.
Short-Term Incentive Awards
The Company generally targets annual incentive awards at a level that, when combined with base salaries, results in total annual compensation that, subject to individual exceptions based on performance or prior positions held, is at or around the market median when target performance is met, above the market median when the Company performs well and below market median when the Company misses its goals.
Each year the Board establishes performance objectives, targeted achievement levels and weighting to be used for the annual STI award determination based on a recommendation from the Compensation Committee. For 2016, the Compensation Committee continued to refine the design of the STI Program in order to better align with market practice. The Compensation Committee adjusted STI Program weightings applicable to the CEO (including removing the Program/Functional Performance component) and also separately adjusted STI Program weightings applicable to the other NEOs. Beginning in 2016, STI awards for the CEO are determined based on two components: (1) Company Performance (80% weighting) and (2) Individual Performance (20% weighting). With respect to fiscal year 2016, pursuant to the terms of his employment agreement, Mr. Gentile is guaranteed a short-term incentive award of no less than 57.5%. For all other NEOs, in 2016, STI awards were determined based on three components: (1) Company Performance (40% weighting), (2) Program/Functional Performance (40% weighting) and (3) Individual Performance (20% weighting). For 2017 STI Program changes please refer to "2017 Program Updates" on page 27.
The Company Performance component of each NEO's 2016 STI award is scored based on the performance of the Company as measured against three quantitative metrics adopted by the Compensation Committee: (1) EBIT, (2) Revenue and (3) Free Cash Flow. The Program/Functional component of each NEO's (other than the CEO's) STI award is scored based on specified performance criteria applicable to the program or functional group for which such NEO is responsible. These criteria consist of various financial, operational and strategic elements. The Individual Performance component of each NEO's 2016 STI award was evaluated based on the achievement of individual performance goals.
As summarized in the table below, the 2016 STI Program design uses a two-step approach to determine the amount of STI award payouts.
Step 1: Applying the formula
For the CEO:
For all other NEOs
Step 2 for all NEOs: Applying the final score
2017 Proxy Statement 35
EXECUTIVE COMPENSATION
STI Program Performance Results
Company Performance (80% weighting for the CEO and 40% weighting for all other NEOs):
In 2016, the Company exceeded its target performance goal with respect to the Revenue and Free Cash Flow (cash provided by operating activities, less capital expenditures) metrics and fell slightly short of achieving its target performance goal with respect to the EBIT (earnings before interest and taxes) metric of the Company Performance component. As a result, the Compensation Committee determined a 1.49 score had been achieved with respect to Company Performance, representing a weighted score of 1.19 for the CEO (representing 80% of his total STI score) and 0.60 for all other NEOs (representing 40% of their total STI scores). The table below summarizes the Company's performance relative to the Company Performance goals for 2016.
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Program/Functional Performance (40% weighting for all NEOs except the CEO):
With respect to the Program/Functional Performance component of the 2016 STI awards, each program or functional group was assigned a score based on its performance measured against the performance criteria assigned to such program or functional group. The performance of each program or functional group was measured based on strategic, financial and operational metrics. The scores assigned to members of the Company's executive leadership team, including all NEOs, were different depending on the program or function they led. For Messrs. Kapoor and Hawkins and Mmes. Marnick and Lohmeier, program and function scores ranged from 1.37 to 1.55 due to the extent to which their respective programs or functions met or exceeded certain target goals.
Individual Performance (20% weighting for all NEOs):
The Individual Performance component is intended to further align executive compensation with performance in the Company's focus areas in any given year by establishing relevant individual performance metrics that relate to each NEO's assignments. With respect to the measurement of the Individual Performance component for 2016 STI awards, the Compensation Committee used a scoring scale of 0.0 to 2.0, with 0.0 being for unacceptable performance and 2.0 being for exceptional performance. All of our NEOs other than Mr. Lawson, who did not receive an individual performance score for 2016, received individual scores ranging from 1.2 to 1.7.
Individual performance factors reflect the following:
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Based on Company, Program/Functional and individual performance results (as detailed above), the Compensation Committee believes the annual incentive compensation awarded to the NEOs for 2016 was appropriate and achieved the objectives of the executive compensation program. Mr. Lawson, our former President and Chief Executive Officer, is not included in the table below because pursuant to the terms of his Retirement and Consulting Agreement with the Company and Spirit, subject to, among other things, compliance with a covenant not to compete, Mr. Lawson was entitled to an STI award of $1,115,000 in respect of 2016, representing 58.33% of his target 2016 STI award.
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NEO | Base Salary* ($) | × | Target (% of Base Salary) | = | Target Award ($) | × | | | Company Performance (80% weighting for CEO, 40% weighting for other NEOs) | + | Program/ Functional Performance (40% weighting for NEOs other than CEO) | + | Individual Performance (20% weighting for all NEOs) | | | = | 2016 Total Payout ($) | |||||||||||||||||||||||||||||||
Mr. Gentile | | 1,041,803 | | | | 140 | | | | 1,458,525 | | | | | 1.192 | | | | | N/A | | | | | 0.340 | | | | | | 2,234,460 | | | |||||||||||||||
Mr. Kapoor | | 625,888 | | | | | 100 | | | | | 625,888 | | | | | | | 0.596 | | | | 0.620 | | | | 0.340 | | | | | | 973,882 | | | |||||||||||||
Ms. Marnick | | 462,213 | | | | 100 | | | | 462,213 | | | | | 0.596 | | | | | 0.620 | | | | | 0.340 | | | | | | 719,204 | | | |||||||||||||||
Mr. Hawkins | | 498,087 | | | | | 100 | | | | | 498,087 | | | | | | | 0.596 | | | | 0.596 | | | | 0.326 | | | | | | 756,097 | | | |||||||||||||
Ms. Lohmeier | | 472,610 | | | | 100 | | | | 472,610 | | | | | 0.596 | | | | | 0.548 | | | | | 0.256 | | | | | | 661,653 | | | |||||||||||||||
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The STI awards paid in 2017, in respect of 2016 performance, were paid fully in cash and are considered to have been earned in 2016. These cash awards for the NEOs are reported as 2016 compensation in the "Non-Equity Incentive Plan Compensation" column of the "Summary Compensation Table."
For 2017, the Company will eliminate the Program/Functional Performance component of STI awards. For additional details of 2017 STI Program changes, please refer to "2017 Program Updates" on page 27.
Long-Term Incentive Awards
LTI awards under the LTI Program are an important component of compensation, as they provide long-term, equity-based variable incentive compensation in keeping with the Company's executive compensation philosophy for the entire executive group. LTI awards consist of a time-based stock award that comprises 75% of a participant's annual LTI award, and a performance-based stock award tied to the Company's TSR relative to the TSR of a group of the Company's peers (see Proxy Peer Group Table, page 32) that comprises 25% of a participant's annual LTI award, assuming target performance goals are achieved. Time-based LTI awards vest in three equal installments on each of the first, second and third anniversaries of the grant date.
With respect to performance-based awards under the LTI Program, the number of shares that vest with respect to a grant is determined based on the ranking of the Company's TSR, expressed as a percentile, relative to the TSR of a group of the Company's peers over a three-year tracking period as compared to threshold, target and maximum performance goals. Participants are initially granted a number of unvested shares equal to the number of vested shares to which the participant would be entitled upon achievement of the target performance goal. For grants made in 2016, the tracking period runs from January 1, 2016, to December 31, 2018, with the vesting date being the three-year anniversary of the grant. For grants made in 2016, the TSR for the Company and each member of its peer group for the tracking period will be determined by calculating the percentage increase in the dividend adjusted, weighted-average closing share price for the 20 trading days ending December 31, 2018, over such weighted-average share price for the 20 trading days ending December 31, 2015. The Company's TSR percentile ranking with respect to its peer group will then be measured against threshold, target and maximum performance goals, which correspond to threshold, target and maximum vesting percentages. The table below sets forth these performance goals and vesting percentages:
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Performance Goal | | (Percentile Ranking) | | 25th | | 50th | | 90th |
Vesting Percentage | | (% of Target Performance-Based Award) | | 25.00% | | 100.00% | | 200.00% |
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EXECUTIVE COMPENSATION
If the Company's TSR percentile ranking falls between the threshold and the target performance goals or the target and the maximum performance goals, the percentage of the performance-based award that a participant will receive is interpolated on a straight-line basis. If the Company's TSR percentile ranking is below the threshold performance goal, the participant will not be entitled to any vested performance-based shares, and if the Company's TSR percentile ranking is equal to or higher than the maximum performance goal, the participant will be entitled to a number of vested performance-based shares equal to 200% of the target performance-based share award. The number of vested shares to which a participant is entitled increases at a higher rate as the Company's TSR moves from the threshold goal to the target goal compared to the rate of increase as the Company's TSR moves from target goal to maximum goal. That is, the straight-line interpolation used to determine the percentage of the performance-based award to which a participant is entitled has a steeper incline from the threshold goal to the target goal than from the target goal to the maximum goal. This asymmetry reflects the importance the Company places on incentivizing executives to meet the Company's performance goals.
The following NEOs received target LTI award increases in 2016:
The table below outlines the Company's NEOs' annual LTI stock awards made in February 2016 (reflecting fair value as calculated in accordance with applicable accounting rules).
NEO | 2016 Time-Based LTI Award ($) | 2016 Performance-Based LTI Award ($) | |||||||||
Mr. Gentile* | | | N/A | | | | N/A | | | ||
Mr. Lawson | | | 5,111,961 | | | | 1,704,018 | | | ||
Mr. Kapoor | | | 990,034 | | | | 330,048 | | | ||
Ms. Marnick | | | 516,032 | | | | 172,031 | | | ||
Mr. Hawkins | | | 750,041 | | | | 250,035 | | | ||
Ms. Lohmeier | | | 605,645 | | | | 201,907 | | | ||
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In addition, in May 2016, the Board granted Mr. Kapoor and Ms. Marnick special one-time awards under the LTI Program of restricted shares of the Company's Class A Common stock with fair values, as calculated in accordance with applicable accounting rules, of $1,376,568 and $717,520, respectively. Fifty percent of the shares granted to each of Mr. Kapoor and Ms. Marnick under this special grant will vest in each of June 2017 and June 2018 if the Board determines prior to each vesting date, in each case, that Mr. Kapoor or Ms. Marnick, as applicable, has achieved satisfactory performance.
For 2017, in order to align with market trends, the Company will increase the weighting of performance-based LTI awards to 40%, which will be tied to two equally-weighted measures: the Company's TSR relative to the TSR of a group of the Company's peers and the Company's Free Cash Flow as a percentage of revenue. For additional details of 2017 LTI Program changes, please refer to "2017 Program Updates" on page 27.
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Executive Recruitment
Factors Guiding the Company's Decisions to Support Attraction, Motivation and Retention of Top Talent
The Company has structured a variety of compensation arrangements and approved various payments to recruit executive talent. The Compensation Committee has approved long-term incentive stock awards and cash payments designed to compensate individual executive officers for compensation they would forgo by leaving their prior employers. More specifically, Mr. Gentile's employment agreement provided for a signing bonus consisting of restricted shares of Class A Common stock valued at $3,000,000 to compensate for forgone compensation benefits from Mr. Gentile's previous employer. This award is included in the "Stock Award" column of the "Summary Compensation Table." The Compensation Committee believes its decision to approve this stock grant was reasonable and necessary to achieve our overall goals and was consistent with our compensation philosophy.
Perquisites
Perquisites and other benefits represent a small part of the overall compensation package for the Company's executive officers. Beginning with fiscal year 2012, all individual perquisites for the participants were eliminated and replaced with an annual allowance of $25,000 for the Company's CEO and up to $13,000 for each other participant, including each of the Company's other NEOs. Any portion of a participant's annual allowance that is not used by him or her by the end of the applicable calendar year lapses and does not carry over to the following calendar year, nor is any remaining balance paid out to the participants, unless a change-in-control occurs (see "Potential Payments Upon Termination or Change-in-Control" on page 50). The Board and the Compensation Committee may also increase or decrease allowance amounts at any time.
The Company's executive security procedures prescribe the level of personal security to be provided to the CEO. These security procedures are based on business-related security concerns and have been assessed by an independent security consulting firm and deemed necessary and appropriate for the protection of the Company's CEO. These security procedures provide for the Company's CEO to use Company aircraft for personal travel for security reasons, and as a result, Messrs. Lawson's and Gentile's use of the Company's aircraft during their respective terms as CEO represented a significant perquisite provided to them in addition to those perquisites provided to them under the Company's Perquisite Allowance Plan.
The Compensation Committee periodically reviews competitive market data to ensure that the Perquisite Allowance Plan is reasonable and within market practice.
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EXECUTIVE COMPENSATION
Health Benefits/Retirement Plans
The Company provides its executive officers, including the Company's NEOs, benefits provided to all of Spirit's other salaried, non-union employees, including medical and dental insurance and tax-qualified defined contribution plan participation under the Spirit AeroSystems Holdings, Inc. Retirement & Savings Plan ("RSP"). These benefits are important for retaining the Company's executive officers and enhancing their compensation through tax-excluded or tax-deferred vehicles. The Company's contributions to the RSP on behalf of the NEOs are included in the "All Other Compensation" column of the "Summary Compensation Table." This plan furthers the Company's and Spirit's objectives of attracting and retaining well-qualified employees and executive officers as it is the Company's only active retirement plan.
In connection with the formation of the Company as a stand-alone company and the acquisition of the assets of the Company from Boeing, the Company adopted a supplemental executive retirement plan (SERP) in order to attract certain employees from Boeing. The SERP provides deferred compensation benefits to those of the Company's executive officers and certain other members of management who previously participated in Boeing's Supplemental Executive Retirement Plan for Employees of Boeing prior to the acquisition of Boeing's operations in Wichita, Kansas; Tulsa, Oklahoma; and McAlester, Oklahoma; by an investor group led by Onex Partners LP and Onex Corporation resulting in the incorporation and commencement of operations of the Company (the "Boeing Acquisition"). Also in connection with the Boeing Acquisition, the Company adopted the Pension Value Plan (PVP) for those former employees of Boeing who did not retire from Boeing by August 1, 2005. Both the SERP and the PVP are frozen plans, so no additional employees are becoming participants in the plans and no current participants are accruing any additional benefits. The PVP allowed the transfer of pension values from Boeing pension plans. The PVP is fully paid for by the Company, and the Company's employees are vested after reaching five years of service. None of the NEOs received benefits under the SERP or PVP in 2016.
The Company sponsors the RSP, a qualified plan covering certain eligible employees. Under the RSP, the Company makes a matching contribution of 75% of the employee's contributions to a maximum 6% of compensation match based on employee contributions of 8% of compensation. Compensation for this plan is base pay, subject to compensation limits prescribed by the IRS. The matching contributions are immediately 100% vested.
Non-matching contributions, based on an employee's age and vesting service, are made at the end of each calendar year for certain employee groups. Each NEO is eligible for these contributions for each year that he or she (1) is employed by Spirit as of December 31 and (2) receives a year of vesting service. If age plus vesting service totals less than 60, employees receive 1.5% of base salary as a non-matching Company contribution; if age plus vesting service totals at least 60 but less than 80, employees receive 3% of base salary; and if age plus vesting service totals at least 80, employees receive 4.5% of base salary contribution. These contributions are 25% vested at two years, 50% vested at three years, 75% vested at four years, and 100% vested at five years of vesting service, which includes prior service with Boeing.
The Company makes post-retirement medical and dental coverage available to all employees who retire from the Company at age 55 or later, provided they have at least 10 years of service and participated in the Company's medical and dental plans prior to retirement. Employees pay the full cost of coverage for this benefit; the Company does not pay any subsidy. For employees previously employed by Boeing whom Spirit hired as of June 17, 2005, the Company provides subsidized post-retirement medical coverage upon early retirement after attaining age 62 with 10 years of service. Subject to paying the same employee premiums as an active employee, early retirees may maintain their medical coverage until attainment of age 65 or Medicare eligibility due to disability prior to age 65.
In addition, prior to December 16, 2016, the Company provided all employees with an accrued time off benefit. Under the accrued time off benefit, employees received between 16 and 25 days (based on tenure and/or individual contracts) of earned time off per year. In December 2016, the CEO approved the elimination of the accrued time off benefit for all U.S. senior managers and executives, including the NEOs, effective December 15, 2016. In connection with the elimination of the benefit, in December 2016, Spirit provided each eligible employee with a lump sum payout equivalent to his or her accrued but unused earned time off balance as of December 15, 2016. The lump sum payouts for the NEOs are reported as 2016 compensation in the "All Other Compensation" column of the "Summary Compensation Table."
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The Company maintains stock ownership guidelines for its NEOs and other senior executives to further promote alignment of management and stockholder interests. The ownership requirements (measured by the value of the Company's stock required to be held) are based on a multiple of base salary tied to pay grade.
The stock ownership guidelines establish the following target levels for Company stock ownership:
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Non-employee directors are expected to own the greater of $400,000 worth of stock by market value or 12,500 shares or RSUs. Shares that satisfy the stock ownership guidelines include:
The stock ownership guidelines require that the CEO and other senior officers accumulate their required positions within five years of the adoption of the guidelines, or for new officers, within five years of being hired or promoted into the officer position. In addition, increases in an officer's target level resulting from salary increases or promotions are required to be achieved within five years of the event requiring the increase. The Company believes that five years provides a reasonable goal for executives to accumulate shares through earned incentive awards.
During the five-year accumulation period, the CEO and other senior elected officers are expected to continuously accumulate qualifying equity until they meet the minimum stock ownership guideline. The Company reviews on an annual basis the ownership position of the CEO and each of the other senior elected officers who is required to adhere to these guidelines. Based on the review conducted in 2016, the Company determined that the CEO and each of the other senior elected officers own appropriate amounts of Company stock in light of the minimum stock ownership guidelines and the portions of their respective accumulation periods that have passed. The Company may restrict any officer from liquidating any of his or her then-current holdings in Company stock, except for those shares which are sold to meet Company tax withholding requirements. The Company may modify or waive the requirements of the guidelines, at its discretion, if it determines that compliance would result in severe hardship for an officer.
Compensation in Connection with Termination of Employment
The Company believes competitive severance protection is an appropriate incentive in attracting and retaining talent. The Company has provided for termination compensation through certain individual employment agreements in the form of salary and benefit continuation for a moderate period of time following involuntary termination of an executive officer's employment. The Company has also agreed to individual severance arrangements at the time of termination of employment, taking into account the specific facts and circumstances surrounding termination, including other compensation available at such time. The Company also considers the need to protect the Company's business and confidential and proprietary information through non-competition, non-solicitation and similar agreements, and the desire to provide for effective transitions between departing executives and continuing or new management.
You can find additional information regarding the Company's practices in providing compensation in connection with termination of employment under the heading "Potential Payments Upon Termination or Change-in-Control" on page 50.
Compensation in Connection with Change-in-Control
The Company maintains several programs of broad application designed to provide compensation in connection with a change-in-control of the Company. Specifically, the Company's STI awards, LTIP awards (made prior to the adoption of the OIP), LTI awards and Perquisite Allowance Plan provide for certain compensation in connection with a change-in-control of the Company as discussed under "Potential Payments Upon Termination or
2017 Proxy Statement 41
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Change-in-Control" on page 50. Beginning in 2017, as described below, benefits under the STI Program, LTI Program and Perquisite Allowance Plan are subject to a "double-trigger."
Short-Term Incentive Awards
Beginning in 2017, in the event of a change-in-control of the Company, each STI award participant whose employment is terminated without cause (as defined in the OIP) or who terminates his or her employment for good reason (as defined in the OIP), either in anticipation of the change-in-control or during the period beginning 30 days before the date of the change-in-control and ending two years after the change-in-control, will be entitled to receive an award of cash in an amount equal to the full-year STI award that the participant would have been entitled to receive for the year during which such termination occurs had the target performance metrics established for that year been met. Prior to 2017, all participants in the STI award program employed on the date of a change-in-control or terminated without cause within 90 days prior to the change-in-control would have been entitled to receive the benefits described in the immediately preceding sentence upon the occurrence of the change-in-control.
Long-Term Incentive Awards
With respect to long-term incentive awards made prior to the adoption of the OIP, upon the occurrence of a change-in-control of the Company (1) each long-term incentive award participant who is employed by Spirit on the date of the change-in-control or who was terminated without cause within 90 days prior to the change-in-control will be entitled to receive an award of cash in an amount equal to the value of the full-year long-term incentive award that would have been made to such participant within the 12-month period following the change-in-control if not for the occurrence of the change-in-control and (2) any outstanding unvested long-term incentive award shares previously granted to each such participant will vest immediately.
With respect to LTI awards made to LTI Program participants through 2016, except as otherwise provided in a participant's award agreement, the unvested LTI awards of a participant who is employed by Spirit on the date of a change-in-control, or whose employment was involuntarily terminated by Spirit (other than for cause) within the ninety (90) days preceding a change-in-control, become fully vested upon a change-in-control. The foregoing notwithstanding, if the vesting of an unvested LTI award is subject to performance conditions, the portion that vests will, at the discretion of the Compensation Committee, be determined based upon actual performance through the date of the change-in-control or, if the Compensation Committee determines that measurement of actual performance cannot be reasonably assessed, the assumed achievement of target performance.
With respect to LTI awards made to LTI Program participants beginning in 2017, except as otherwise provided in a participant's award agreement, if a change-in-control of the Company occurs, unvested LTI awards of a participant whose employment is terminated without cause (as defined in the OIP) or who terminates his or her employment for good reason (as defined in the OIP), either in anticipation of the change-in-control or during the period beginning 30 days before the date of the change-in-control and ending two years after the change-in-control, become fully vested upon termination of employment. Each such participant will also receive a cash award equal to the dollar value of the LTI award that would have been made to the participant in the ordinary course of business within the 12-month period following the date of termination based on the participant's annual base pay in effect on the date of termination. Prior to 2017, all participants in the LTI Program employed on the date of a change-in-control or terminated without cause within 90 days prior to the change-in-control would have been entitled to receive the benefits described in the immediately preceding sentence upon the occurrence of the change-in-control. The foregoing notwithstanding, if the vesting of an unvested LTI award is subject to performance conditions, the portion that vests will, at the discretion of the Compensation Committee, be determined based upon actual performance through the later of the date of the change-in-control or the date of termination, or, if the Compensation Committee determines that measurement of actual performance cannot be reasonably assessed, the assumed achievement of target performance.
Perquisite Allowance Plan
Beginning in 2017, the Perquisite Allowance Plan provides that, upon the occurrence of a change-in-control of the Company, each participant whose employment is terminated without cause (as defined in the OIP) or who terminates his or her employment for good reason (as defined in the OIP) either in anticipation of the change-in-control or during the period beginning 30 days before the date of the change-in-control and ending two years after the change-in-control, will be entitled to receive a cash award equal to any remaining unused portion of his or her
42 2017 Proxy Statement
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allowance for the year in which the termination occurs, plus an amount equal to the participant's full allowance for the calendar year in which the termination occurs, which is intended to enable the participant to transition to self-funding. Prior to 2017, all participants in the Perquisite Allowance Plan would have been entitled to receive the benefits described in the immediately preceding sentence upon the occurrence of the change-in-control, whether or not their employment was terminated in connection with the change-in-control.
Accounting and Tax Treatment of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), imposes a $1 million limit on the amount that a public company may deduct for compensation paid to a company's chief executive officer or any of a company's three other most highly compensated executive officers (other than its chief financial officer) who are employed as of the end of the year. This limitation does not apply to compensation that meets the requirements under Section 162(m) for "qualifying performance-based" compensation (i.e., compensation paid only if the individual's performance meets pre-established objective goals based on performance criteria approved by stockholders).
The Company believes it is important to preserve flexibility in administering compensation programs in a manner designed to promote varying corporate goals. Accordingly, the Company has not adopted a policy that all compensation must qualify as deductible under Section 162(m), and not all amounts currently paid under the Company's compensation programs qualify as performance-based compensation excluded from the limit on deductibility. The OIP permits the Company to make short-term and long-term incentive awards that meet the performance-based criteria to allow such awards to be deductible.
The Company has adopted FASB's authoritative guidance on stock-based compensation accounting, which generally requires companies to measure the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value and to recognize this cost over the requisite service period or immediately if there is no service period and there are no other vesting requirements. The notes to the Company's consolidated financial statements, included in the Company's Annual Report on Form 10-K for fiscal year 2016 filed with the SEC, contain further information concerning the Company's policies with respect to FASB's authoritative guidance on stock-based compensation accounting.
The Compensation Committee establishes and oversees the design and functioning of the Company's executive compensation program. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section in this Proxy Statement with the Company's management. Based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for the 2017 Annual Meeting of Stockholders and also be incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year 2016.
Compensation Committee
Paul Fulchino, ChairmanCharles L. ChadwellRichard GephardtRobert Johnson
2017 Proxy Statement 43
EXECUTIVE COMPENSATION
The following table summarizes compensation information for the fiscal year ended December 31, 2016, for (1) Mr. Gentile, our Chief Executive Officer, (2) Mr. Lawson, our former Chief Executive Officer, (3) Mr. Kapoor, our Chief Financial Officer and (4) our three other NEOs. The following table also summarizes compensation information for the fiscal years ended December 31, 2014 and 2015 for those of the foregoing officers who were listed as NEOs in the Company's Proxy Statements for its 2015 and 2016 Annual Meetings of Stockholders.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards(16) ($) | Non-Equity Incentive Plan Compensation(18) ($) | All Other Compensation(20) ($) | Total ($) | |||||||||||||||||||||
Thomas C. Gentile, III, | | 2016 | | 770,773 | (7) | — | | | 3,000,045 | | | | 2,234,460 | (7) | | | 169,476 | (21) | | 6,174,754 | | |||||||
President & CEO(1) | | | | | | | | | | | | | | | ||||||||||||||
Larry A. Lawson, | | 2016 | | 758,746 | (8) | — | | | 25,283,088 | (17) | | | 1,115,000 | (19) | | | 3,922,034 | (22) | | 31,078,868 | | |||||||
Former President & | | 2015 | | 1,255,284 | (9) | — | | | 6,125,004 | | | | 1,955,465 | (9) | | | 1,077,379 | (23) | | 10,413,132 | | |||||||
CEO(2) | | 2014 | | 1,123,082 | (9) | — | | | 4,567,550 | | | | 2,114,941 | (9) | | | 1,127,139 | (24) | | 8,932,712 | | |||||||
Sanjay Kapoor, | | 2016 | | 624,229 | (10) | — | | | 2,696,650 | | | | 973,882 | (10) | | | 127,208 | (25) | | 4,421,969 | | |||||||
EVP & | | 2015 | | 561,144 | (10) | — | | | 1,130,068 | | | | 592,160 | (10) | | | 28,701 | (26) | | 2,312,073 | | |||||||
CFO(3) | | 2014 | | 545,184 | | 100,000 | (14) | | 1,050,046 | | | | 908,250 | | | | 502,170 | (27) | | 3,101,596 | | |||||||
Samantha Marnick, | | 2016 | | 460,465 | (11) | — | | | 1,405,583 | | | | 719,204 | (11) | | | 213,332 | (28) | | 2,798,584 | | |||||||
EVP and Chief | | | | | | | | | | | | | | | ||||||||||||||
Administration Officer(4) | | | | | | | | | | | | | | | ||||||||||||||
Duane F. Hawkins, | | 2016 | | 497,684 | (12) | — | | | 1,000,076 | | | | 756,097 | (12) | | | 57,905 | (29) | | 2,311,762 | | |||||||
SVP and General | | 2015 | | 450,384 | (12) | — | | | 630,079 | | | | 462,396 | (12) | | | 22,899 | (30) | | 1,565,758 | | |||||||
Manager, Boeing & | | | | | | | | | | | | | | | ||||||||||||||
Defense Programs(5) | | | | | | | | | | | | | | | ||||||||||||||
Michelle J. Lohmeier, | | 2016 | | 472,125 | (13) | — | | | 807,552 | | | | 661,653 | (13) | | | 135,198 | (31) | | 2,076,528 | | |||||||
SVP and General | | 2015 | | 245,774 | | 250,000 | (15) | | 1,165,055 | | | | 450,000 | | | | 222,820 | (32) | | 2,333,649 | | |||||||
Manager, Airbus Programs(6) | | | | | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | | | | | | |
44 2017 Proxy Statement
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Name | Grant Date Fair Value of 2016 Time-Based Awards ($) | Grant Date Fair Value of 2016 Performance-Based Awards ($) | Maximum Value at Grant Date of Performance Based Share Grants ($) | | ||||||||||||
Thomas C. Gentile, III, | | | 3,000,045 | ** | | | — | | | | — | | | |||
Larry A. Lawson* | | | 5,111,961 | | | | 1,704,018 | | | | 3,408,036 | | | |||
Sanjay Kapoor | | | 990,034 | | | | 330,048 | | | | 660,096 | | | |||
Samantha Marnick | | | 516,032 | | | | 172,031 | | | | 344,062 | | | |||
Duane F. Hawkins | | | 750,041 | | | | 250,035 | | | | 500,070 | | | |||
Michelle J. Lohmeier | | | 605,645 | | | | 201,907 | | | | 403,814 | | |
| ||||||
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46 2017 Proxy Statement
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Grants of Plan-Based Awards for Fiscal Year 2016
The following table presents information regarding grants of plan-based awards to the NEOs during the fiscal year ended December 31, 2016.
| | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(2) | Estimated Future Payouts Under Equity Incentive Plan Awards(3) | All Other Stock Awards: Number of Shares of Stock(4) or | Grant Date Fair Value of Stock and Option | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($)0 | Threshold (#) | Target (#) | Maximum (#) | Units (#) | Awards(8) ($) | |||||||||||||||||||||||||||||||||
Thomas C. Gentile, III, | | | N/A | | | | 364,631 | | | 1,458,525 | | | 2,917,049 | | | | — | | | — | | | — | | | | — | | | | N/A | | | |||||||||
President & CEO | | | — | | | | — | | | — | | | — | | | | — | | | — | | | — | | | | — | | | | — | | | |||||||||
| | 5/8/16 | | | | — | | | — | | | — | | | | — | | | — | | | — | | | | 65,332 | (5) | | | 3,000,045 | | | ||||||||||
Larry A. Lawson, | | | N/A | | | | 477,884 | | | 1,911,538 | | | 3,823,076 | | | | — | | | — | | | — | | | | — | | | | N/A | | | |||||||||
Former President & | | | 2/9/16 | | | | — | | | — | | | — | | | | 7,843 | | | 31,370 | | | 62,740 | | | | — | | | | 1,704,018 | | | |||||||||
CEO(1) | | | 2/9/16 | | | | — | | | — | | | — | | | | — | | | — | | | — | | | | 117,855 | | | | 5,111,961 | | | |||||||||
Sanjay Kapoor, | | | N/A | | | | 156,472 | | | 625,888 | | | 1,251,776 | | | | — | | | — | | | — | | | | — | | | | N/A | | | |||||||||
EVP & | | | 2/9/16 | | | | — | | | — | | | — | | | | 1,519 | | | 6,076 | | | 12,152 | | | | — | | | | 330,048 | | | |||||||||
CFO | | | 2/9/16 | | | | — | | | — | | | — | | | | — | | | — | | | — | | | | 22,825 | | | | 990,034 | | | |||||||||
| | 5/4/16 | | | | — | | | — | | | — | | | | — | | | — | | | — | | | | 28,275 | (6) | | | 1,376,568 | | | ||||||||||
Samantha Marnick, | | | N/A | | | | 115,553 | | | 462,213 | | | 924,426 | | | | — | | | — | | | — | | | | — | | | | N/A | | | |||||||||
EVP and Chief | | | 2/9/16 | | | | — | | | — | | | — | | | | 792 | | | 3,167 | | | 6,334 | | | | — | | | | 172,031 | | | |||||||||
Administration | | | 2/9/16 | | | | — | | | — | | | — | | | | — | | | — | | | — | | | | 11,897 | | | | 516,032 | | | |||||||||
Officer | | | 5/4/16 | | | | — | | | — | | | — | | | | — | | | — | | | — | | | | 14,738 | (7) | | | 717,520 | | | |||||||||
Duane F. Hawkins, | | | N/A | | | | 124,522 | | | 498,087 | | | 996,175 | | | | — | | | — | | | — | | | | — | | | | N/A | | | |||||||||
SVP and General | | | 2/9/16 | | | | — | | | — | | | — | | | | 1,151 | | | 4,603 | | | 9,206 | | | | — | | | | 250,035 | | | |||||||||
Manager, Boeing & | | | 2/9/16 | | | | — | | | — | | | — | | | | — | | | — | | | — | | | | 17,292 | | | | 750,041 | | | |||||||||
Defense Programs | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Michelle J. Lohmeier, | | | N/A | | | | 118,152 | | | 472,609 | | | 945,219 | | | | — | | | — | | | — | | | | — | | | | N/A | | | |||||||||
SVP and General Manager, | | | 2/9/16 | | | | — | | | — | | | — | | | | 929 | | | 3,717 | | | 7,434 | | | | — | | | | 201,907 | | | |||||||||
Airbus Programs | | | 2/9/16 | | | | — | | | — | | | — | | | | — | | | — | | | — | | | | 13,963 | | | | 605,645 | | | |||||||||
| | | | | | | | | | | | | | | | | | | |
2017 Proxy Statement 47
EXECUTIVE COMPENSATION
Outstanding Equity Awards at End of Fiscal Year 2016
The following table presents information concerning the number and value of unvested restricted stock grants to the NEOs under its LTIP and OIP outstanding as of December 31, 2016. The Company has not granted any options or option-like awards.
| Stock Awards | ||||||||||||||||||||
| | | | | | | | | | ||||||||||||
Name | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested(7) ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(8) (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(7) ($) | |||||||||||||||||
Thomas C. Gentile, III, | | | 65,332 | (1) | | | 3,812,122 | | | | — | | | | — | | | ||||
President & CEO | | | | | | | | | | | | | | ||||||||
Larry A. Lawson, | | | 279,032 | (2) | | | 16,281,517 | | | | 20,117 | (9) | | | 1,173,827 | | | ||||
Former President & CEO | | | | | | | | | | | | | | ||||||||
Sanjay Kapoor, | | | 50,778 | (3) | | | 2,962,896 | | | | 32,346 | (10) | | | 1,887,389 | | | ||||
EVP & CFO | | | | | | | | | | | | | | ||||||||
Samantha Marnick, | | | 38,125 | (4) | | | 2,224,594 | | | | 16,893 | (11) | | | 985,707 | | | ||||
EVP and Chief Administration Officer | | | | | | | | | | | | | | ||||||||
Duane F. Hawkins, | | | 33,468 | (5) | | | 1,952,858 | | | | 2,428 | (12) | | | 141,674 | | | ||||
SVP and General Manager, Boeing & Defense Programs | | | | | | | | | | | | | | ||||||||
Michelle J. Lohmeier | | | 27,741 | (6) | | | 1,618,687 | | | | 929 | (13) | | | 54,207 | | | ||||
SVP and General Manager, Airbus programs | | | | | | | | | | | | | | ||||||||
| | | | | | | | | |
48 2017 Proxy Statement
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Option Exercises and Stock Vested for Fiscal Year 2016
The following table presents information concerning the vesting of restricted stock for the NEOs during the fiscal year ended December 31, 2016. The Company has not granted any options or option-like awards.
| Stock Awards | ||||||||||
| | | | | | ||||||
Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting(6) ($) | |||||||||
Thomas C. Gentile, III, President & CEO | | | — | | | | — | | | ||
Larry A. Lawson, Former President & CEO | | | 225,812 | (1) | | | 10,330,932 | | | ||
Sanjay Kapoor, EVP & CFO | | | 33,451 | (2) | | | 1,488,305 | | | ||
Samantha Marnick, EVP and Chief Administration Officer | | | 28,008 | (3) | | | 1,286,499 | | | ||
Duane F. Hawkins, SVP and General Manager, Boeing & Defense Programs | | | 12,949 | (4) | | | 590,565 | | | ||
Michelle J. Lohmeier, SVP and General Manager, Airbus Programs | | | 6,890 | (5) | | | 302,127 | | | ||
| | | | | |
2017 Proxy Statement 49
EXECUTIVE COMPENSATION
Nonqualified Deferred Compensation
The following table presents information concerning each of the Company's defined contribution or other plans that provides for the deferral of compensation of the NEOs on a basis that is not tax qualified.
Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($)(1) | Aggregate Earnings in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | |||||||||||||||||||||
Thomas C. Gentile, III, President & CEO | | | — | | | | — | | | | — | | | | — | | | | — | | | |||||
Larry A. Lawson, Former President & CEO | | | 0 | | | | 3,000,000 | | | | 195,924 | | | | 0 | | | | 8,171,499 | (2) | | |||||
Sanjay Kapoor, EVP & CFO | | | — | | | | — | | | | — | | | | — | | | | — | | | |||||
Samantha Marnick, EVP and Chief Administration Officer | | | 0 | | | | 100,000 | | | | 1,921 | | | | 0 | | | | 101,921 | | | |||||
Duane F. Hawkins, SVP and General Manager, Boeing & Defense | | | — | | | | — | | | | — | | | | — | | | | — | | | |||||
Programs | | | | | | | | | | | | | | | | | ||||||||||
Michelle J. Lohmeier, SVP and General Manager, Airbus | | | 0 | | | | 47,390 | | | | 781 | | | | 0 | | | | 73,445 | (3) | | |||||
Programs | | | | | | | | | | | | | | | | | ||||||||||
| | | | | | | | | | | |
The Company sponsors the Spirit AeroSystems Holdings Deferred Compensation Plan ("DCP"). This nonqualified plan allows eligible Spirit employees to defer receipt of a portion of their base salary or short-term incentive compensation. In addition, the DCP allows for discretionary contributions by the Company into a separate account in the DCP. Deferred amounts and amounts which the Company contributes to its employees' accounts in the DCP are credited with a rate of return equal to 120% of the applicable federal long-term rate for October of the prior fiscal year. For 2016, the interest crediting rate was 3.09%. Accumulated amounts are payable to the participant in either a lump sum or installments upon separation from employment with Spirit, or at the end of the deferral period selected by the participant upon enrollment in the DCP.
There were no "above-market" earnings (defined by SEC rule as that portion of interest that exceeds 120% of the applicable federal long-term rate) under the DCP during fiscal year 2016, as the Company used 120% of the applicable federal long-term rate to determine the amounts to be contributed.
Potential Payments Upon Termination or Change-in-Control
Termination of Employment
Spirit maintains employment agreements with certain NEOs, pursuant to which certain payments may be made, or benefits provided, in the event the executive's employment is terminated. Mr. Lawson entered into a retirement and consulting agreement in connection with his retirement from his positions as the Company's and Spirit's President and Chief Executive Officer, effective July 31, 2016 (as described in more detail below under "Retirement and Consulting Agreement"). In addition, upon termination of employment, amounts may become payable to the NEOs pursuant to the DCP and the STI Program under the OIP.
Employment Agreements
Employment agreements entered into by Spirit with Messrs. Gentile and Kapoor and Ms. Lohmeier provide for varying types and amounts of payments and additional benefits upon termination of employment, depending on the circumstances of the termination.
50 2017 Proxy Statement
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2017 Proxy Statement 51
EXECUTIVE COMPENSATION
continued employment with Spirit or a successor in a position other than a "diminished position." A position is defined to be a "diminished position" if it reflects: (1) a material diminution in base compensation; (2) a material diminution in authority, duties or responsibilities; (3) a change in reporting requirements; (4) relocation of the executive's principal office to a location greater than 50 miles from Wichita, Kansas; or (5) any action or inaction with respect to the terms and conditions of the applicable NEO's employment that constitutes a material breach by Spirit of the employment agreement.
The continued receipt of payments and benefits by Mr. Gentile, Mr. Kapoor or Ms. Lohmeier upon termination of his or her employment due to involuntary termination without cause is conditioned upon the execution of a release of claims against the Company and satisfaction, for a period of the longer of 12 months after termination of employment or the period in which Spirit is continuing to pay such executive his or her base salary, of a covenant not to compete and a covenant not to solicit customers or employees of Spirit.
Spirit's employment agreements with Ms. Marnick and Mr. Hawkins provide for certain benefits upon termination of such executives' employment by Spirit without cause within two years after the effective date of their respective agreements, which has since passed for these executives. Accordingly, upon termination of their employment, salary and benefits continue only through the date of termination, except as provided under the DCP and/or STI Program, as described below.
Deferred Compensation Plan
Pursuant to the DCP, the NEOs participating in the DCP are entitled to receive payment of amounts credited to their deferred compensation accounts under the DCP upon a separation from service with Spirit and its affiliates. Amounts are payable in a lump sum or in up to 15 annual installment payments, as elected by each participant (subject to the terms and conditions set forth in the DCP).
Payment to a participant of any employer matching or discretionary contributions made under the DCP is subject to satisfaction by the participant of noncompetition and nonsolicitation requirements during the term of the participant's employment and for so long as the participant receives payments under the DCP and confidentiality requirements. In addition, the participant must not have been terminated for cause.
For purposes of the DCP, a termination for cause means a separation from service involving (1) gross negligence or willful misconduct in the exercise of the executive's responsibilities; (2) breach of fiduciary duty with respect to Spirit; (3) material breach of any provision of an employment contract; (4) the commission of a felony crime or crime involving moral turpitude; (5) theft, fraud, misappropriation or embezzlement (or suspicion of the same); (6) willful violation of any federal, state or local law (except traffic violations and other similar matters not involving moral turpitude); or (7) refusal to obey any resolution or direction of the executive's supervisor or the Board. The Compensation Committee determines, in its sole discretion, whether an executive has incurred a separation from service that is a termination for cause under the DCP.
Short-Term Incentive Program
Under the STI Program, in the event of a "Qualifying Retirement" by a STI Program participant, (1) if such Qualifying Retirement occurs 90 days or more after the beginning of the relevant plan year, the participant will be entitled to receive a prorated STI award (based on the portion of such year that has elapsed prior to such participant's Qualifying Retirement), paid in cash, based on the full-year STI award performance metrics actually achieved for such year and (2) any outstanding STI awards previously granted to such participant in the form of unvested shares will vest immediately. A "Qualifying Retirement" is defined, for purposes of the STI Program, as a voluntary termination of employment on or after attaining the age of 55 with at least 10 years of service with the Company and its affiliates or the age of 60 with at least five years of such service.
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Summary Tables and Information
The following summarizes the amounts potentially payable upon termination of employment for Messrs. Gentile and Kapoor and Ms. Lohmeier, assuming termination occurred on December 31, 2016. For purposes of presenting amounts payable over a period of time (e.g., salary continuation), the amounts are shown as a single total but not as a present value (i.e., the single sum does not reflect any discount). Ms. Marnick and Mr. Hawkins would not be entitled to any payments upon termination other than salary and benefits through the date of termination.
| Voluntary Termination ($) | Termination for Cause ($) | Involuntary Termination Without Cause ($) | Termination by Executive for Good Reason ($) | Termination Due to Death or Disability ($) | |||||||||||||||||||||
Salary Continuation | | | — | | | | — | | | | 1,100,000 | (1) | | | 1,100,000 | (1) | | | — | | | |||||
Medical/Dental Insurance | | | — | | | | — | | | | 17,736 | (2) | | | 17,736 | (2) | | | — | | | |||||
| | | | | | | | | | | |
| Voluntary Termination ($) | Termination for Cause ($) | Termination Upon Expiration of Employment Agreement ($) | Involuntary Termination Without Cause ($) | Termination by Executive for Good Reason ($) | Termination Due to Death or Disability ($) | |||||||||||||||||||||||||
Salary Continuation | | | — | | | | — | | | | 650,000 | (1) | | | 650,000 | (1) | | | 650,000 | (1) | | | — | | | ||||||
Medical/Dental Insurance | | | — | | | | — | | | | 13,344 | (2) | | | 13,344 | (2) | | | 13,344 | (2) | | | — | | | ||||||
Sign-On Bonuses | | | — | | | | — | | | | 493,874 | (3) | | | 493,874 | (3) | | | 493,874 | (3) | | | 493,874 | (3) | | ||||||
| | | | | | | | | | | | | |
| Voluntary Termination ($) | Termination for Cause ($) | Termination Upon Expiration of Employment Agreement ($) | Involuntary Termination Without Cause ($) | Termination by Executive for Good Reason ($) | Termination Due to Death or Disability ($) | |||||||||||||||||||||||||
Salary Continuation | | | — | | | | — | | | | 475,000 | (1) | | | 475,000 | (1) | | | 475,000 | (1) | | | — | | | ||||||
Medical/Dental Insurance | | | — | | | | — | | | | 6,672 | (2) | | | 6,672 | (2) | | | 6,672 | (2) | | | — | | | ||||||
| | | | | | | | | | | | | |
Retirement and Consulting Agreement
On June 7, 2016, the Company and Spirit entered into a Retirement and Consulting Agreement and General Release with Larry A. Lawson (the "Retirement and Consulting Agreement"), in connection with his retirement. Mr. Lawson resigned from the position of President and Chief Executive Officer of the Company and Spirit, effective July 31, 2016 (the "Retirement Date").
Pursuant to the Retirement and Consulting Agreement, for a period of two years starting on the Retirement Date (the "Consulting Term"), Mr. Lawson will provide consulting and transition services to Spirit, its Board of Directors and its Chief Executive Officer. Mr. Lawson will receive annual compensation of $150,000 for the provision of such services.
Pursuant to the Retirement and Consulting Agreement, Mr. Lawson continued to receive his salary and benefits through his Retirement Date and is also receiving separation payments totaling $1,274,000, payable over a 12-month
2017 Proxy Statement 53
EXECUTIVE COMPENSATION
period following the Retirement Date. Mr. Lawson will continue to vest (as if he were an active employee) in the awards previously granted to him under each of the LTIP and the LTI Program. The Retirement and Consulting Agreement also provides that Mr. Lawson would receive an annual award for 2016 under the STI Program, paid fully in cash, in an amount equal to 58.33% of his target 2016 award thereunder, which amounts to $1,115,000.
In addition, on the Retirement Date, Mr. Lawson became entitled to his account balance and accrued benefits under the RSP, and his account under the DCP was credited with $2,000,000.
Under the Retirement and Consulting Agreement, Mr. Lawson is entitled to continue his health insurance coverage, as mandated by COBRA, to the extent required by applicable law, and Spirit will be required to pay for such coverage for up to a year following the Retirement Date. The estimated cost to the Company of this benefit is $15,636.
The Retirement and Consulting Agreement preserves and extends covenants contained in Mr. Lawson's employment agreement for the benefit of the Company and Spirit relating to non-competition and non-solicitation of Spirit employees for the entire Consulting Term and protection of the Company's and Spirit's confidential information. Mr. Lawson's right to receive payments and other benefits including continued vesting of previously granted share awards, is subject to his compliance with these covenants. On January 31, 2017, Elliott Associates, L.P. and Elliott International, L.P. (collectively, "Elliott"), announced they had nominated five nominees to the board of directors of Arconic, Inc. ("Arconic"), had engaged Mr. Lawson as a consultant and believed Mr. Lawson should be a leading candidate to become the chief executive officer of Arconic. Mr. Lawson was also named as a participant in the proxy solicitation by Elliott with respect to their nominees for director of Arconic. The Company believes that Mr. Lawson's engagement by and work for Elliott, as well as the potential appointment of Mr. Lawson as chief executive officer of Arconic, violates Mr. Lawson's obligations under his restrictive covenants. Accordingly, on February 2, 2017, the Company and Spirit suspended further payments to Mr. Lawson and vesting of any previously granted share awards made to Mr. Lawson.
Change-in-Control
Neither the Company nor Spirit maintains a change-in-control agreement or any other similar plan or arrangement intended specifically to provide income protection for executive officers upon a change-in-control. However, several of the Company's plans provide certain benefits to executive officers in the event of a change-in-control.
Under the LTIP, a change-in-control of the Company will entitle the participants in those plans (which includes Messrs. Lawson, Kapoor and Hawkins and Ms. Marnick) to accelerated vesting in full of any outstanding unvested shares held pursuant to the LTIP. For the LTIP, a change-in-control is (1) a transaction pursuant to which a person, or more than one person acting as a group, acquires more than 50% of the total voting power of the stock of the Company (including, but not limited to, acquisition by merger, consolidation, recapitalization, reorganization, or sale or transfer of the Company's equity interests), (2) a merger or consolidation involving the Company in which the Company is not the surviving entity, or (3) a transaction that is a sale of all or substantially all of the assets of the Company or Spirit if all or substantially all of the proceeds from such transaction are distributed to the stockholders of the Company.
Under the LTI Program established under the OIP, except as otherwise provided in a participant's award agreement, the unvested LTI awards made prior to 2017 to a participant (which includes each NEO) who is employed by Spirit on the date of a change-in-control, or whose employment was involuntarily terminated by Spirit (other than for cause) within the ninety (90) days preceding a change-in-control, become fully vested upon a change-in-control and prior to 2017 the participant would also have received a cash award equal to the dollar value of the LTI award that would have been made to the participant in the ordinary course of business within the 12-month period following the date of the change-in-control based on the participant's annual base pay in effect on the date of such change-in-control. The foregoing notwithstanding, if the vesting of such unvested LTI award is subject to performance conditions, the vested portion will, at the discretion of the Compensation Committee, be determined based upon actual performance through the date of the change-in-control or, if the Compensation Committee determines that measurement of actual performance cannot be reasonably assessed, the assumed achievement of target performance. Under the OIP, a change-in-control is defined in the same manner as in the LTIP (as described above).
Under the STI Program established under the OIP, upon the occurrence of a change-in-control of the Company prior to 2017 each STI award participant who was employed by Spirit on the date of the change-in-control or who was
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terminated without cause within 90 days prior to the change-in-control, would have been entitled to receive an award of cash in an amount equal to the full-year STI award that such participant would have been entitled to receive for such year had the target performance metrics established for such year been met.
Under the Perquisite Allowance Plan, prior to 2017, any of the NEOs who were employed by Spirit on the date of closing of a change-in-control transaction or who were involuntarily terminated by Spirit without cause during the 90-day period ending on the date of the change-in-control transaction would have been entitled to receive a cash award equal to (1) any remaining unused portion of the NEO's allowance for the calendar year in which the change-in-control transaction occurs, plus (2) an amount equal to 100% of the NEO's allowance for the calendar year in which the change-in-control transaction occurs. The annual allowance amount is $25,000 for Mr. Gentile and is determined by Mr. Gentile (subject to increase or decrease by the Board or the Compensation Committee) for the other NEOs (not exceeding an annual amount of $13,000 per participant, which is the amount determined for 2016). Under the Perquisite Allowance Plan, a change-in-control is defined in the same manner as in the LTIP (as described above).
Beginning in 2017, benefits under the LTI Program, STI Program and Perquisite Allowance Plan are subject to a "double-trigger." As a result of these program changes, upon the occurrence of a change-in-control of the Company, benefits under such programs are provided to each executive officer whose employment is terminated without cause (as defined in the OIP) or who terminated his or her employment for good reason (as defined in the OIP) either in anticipation of the change-in-control or during the period beginning 30 days before the change-in-control and ending two years after the change-in-control. You can find additional information regarding the 2017 changes to the Company's practices in providing compensation in connection with a change-in-control under the heading "Compensation in Connection with Change-in-Control" on page 41.
Summary Table
The following table summarizes the compensation that may become payable to the current NEOs upon a change-in-control, assuming the change-in-control occurred on December 31, 2016. Accordingly, the "double-trigger" changes described above, which were implemented for 2017, do not impact the amounts below.
| LTIP(1) ($) | Time-Based LTI Awards under OIP(2) ($) | Performance- Based LTI Awards under OIP(3) ($) | Cash Award in Respect of LTI Awards ($)(5) | STI Program ($) | Perquisite Allowance Plan ($)(8) | |||||||||||||||||||||
Thomas C. Gentile, III, President & CEO | | — | | | 3,812,122 | | | | — | | | | 4,400,000 | | | 1,458,525 | (6) | | 50,000 | | | ||||||
Larry A. Lawson, Former President & CEO | | 3,734,984 | | | 12,546,534 | | | | 4,695,249 | | | | — | | | 1,115,000 | (7) | | — | | | ||||||
Sanjay Kapoor, EVP, CFO | | 493,874 | | | 2,469,022 | | | | 2,600,134 | (4) | | | 1,430,000 | | | 625,888 | (6) | | 26,000 | | | ||||||
Samantha Marnick, EVP and Chief Administration Officer | | 924,381 | | | 1,300,213 | | | | 1,362,706 | (4) | | | 931,000 | | | 462,213 | (6) | | 26,000 | | | ||||||
Duane F. Hawkins, SVP and General Manager, Boeing & Defense Programs | | 356,227 | | | 1,596,631 | | | | 566,636 | | | | 1,000,000 | | | 498,087 | (6) | | 26,000 | | | ||||||
Michelle J. Lohmeier, SVP and General Manager, Airbus Programs | | — | | | 1,618,687 | | | | 216,887 | | | | 807,500 | | | 472,609 | (6) | | 26,000 | | | ||||||
| | | | | | | | | | | | | |
2017 Proxy Statement 55
EXECUTIVE COMPENSATION
56 2017 Proxy Statement
Approval of the Company's Third Amended and Restated Certificate of Incorporation Eliminating Our Class B Common Stock
The Company's Second Amended and Restated Certificate of Incorporation (the "Existing Certificate") currently provides for a dual-class common stock capital structure consisting of Class A Common stock and Class B Common stock. As of the Record Date, there are no shares of Class B Common stock issued and outstanding, and the Company does not have the power to issue shares of Class B Common stock in the future. As a result, the Board has concluded that the provisions in the Existing Certificate related to Class B Common stock are no longer operative, serve no continuing purpose and may be confusing to the capital markets.
Proposed Changes to Existing Certificate
The proposed Third Amended and Restated Certificate of Incorporation of the Company (the "Proposed Certificate") eliminates all references to Class B Common stock, including but not limited to the provisions relating to the rights, preferences and limitations of Class B Common stock, and makes related conforming changes. As a result of the elimination of 150,000,000 previously authorized shares of Class B Common stock, following approval of the Proposed Certificate, the Company's total number of shares of capital stock authorized to be issued will be reduced from 360,000,000 to 210,000,000, comprised of 200,000,000 shares of Class A Common stock and 10,000,000 shares of preferred stock. The Proposed Certificate will not change any substantive terms of the Company's Class A Common stock or preferred stock or any powers or rights of their respective holders. The Company's Class A Common stock will continue to be listed and traded on the NYSE under the symbol "SPR." The Proposed Certificate also updates certain outdated provisions and makes certain non-substantive clarifying revisions.
A copy of the Proposed Certificate is attached to this Proxy Statement as Appendix B. The proposed changes to the Existing Certificate are reflected in the form of markings, which indicate proposed deletions by striking through text that is proposed to be deleted (for example, "proposed deletion") and indicate proposed additions by underlining the text that is proposed to be added (for example, "proposed addition").
On January 26, 2017, the Board considered and approved the Proposed Certificate, subject to approval by the Company's stockholders at the Annual Meeting, and declared the Proposed Certificate to be advisable and in the best interests of the Company.
The Proposed Certificate will become effective when it is filed with the Secretary of State of the State of Delaware, which will occur promptly following its approval by the Company's stockholders. Stockholder approval of the Proposed Certificate requires the affirmative vote of the holders of a majority of the shares of Common stock outstanding as of the Record Date and present in person or by proxy at the Annual Meeting.
Before voting on this proposal, stockholders are encouraged to read and consider the proposal as described herein, as well as the Proposed Certificate.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION ELIMINATING THE COMPANY'S CLASS B COMMON STOCK.
2017 Proxy Statement 57
Approval of the Company's Employee Stock Purchase Plan
On January 25, 2017, the Board unanimously approved, subject to shareholder approval, the Spirit AeroSystems Employee Stock Purchase Plan (the "ESPP"). The ESPP is being submitted to the Company's stockholders for approval at the Annual Meeting. The Board believes that the ESPP will provide a key benefit to eligible employees. In particular, the ESPP provides a convenient way for our employees to purchase shares of the Company's Class A Common stock at a discounted price, which gives employees a vested interest in the Company's success and aligns their interests with those of the Company's stockholders. If approved by the Company's stockholders, the ESPP will become effective on October 1, 2017.
The following description of the ESPP is only a summary of the material features of the ESPP and does not describe all of its provisions. The ESPP is attached to this Proxy Statement as Appendix C. This summary is qualified in its entirety by reference to the text of the ESPP.
Purpose
The purpose of the ESPP is to provide an added incentive for eligible employees of the Company to promote the Company's best interests by providing an opportunity for those employees to purchase shares of the Company's Class A Common stock at below-market prices through payroll deductions. The ESPP is intended to align the interests of the Company's stockholders and employees by increasing the proprietary interest of employees in the Company's growth and success, advance the interests of the Company by attracting and retaining employees and motivate employees to act in the long-term best interests of the Company.
Administration
The ESPP will be administered by the Compensation Committee of the Board, which will have full and discretionary authority to conclusively determine the answers to any questions which may arise regarding the interpretation and application of the provisions of the ESPP and to make decisions and adopt rules, regulations, policies and procedures for administering the ESPP as it deems necessary. The Compensation Committee may correct any defect or omission or reconcile any inconsistency in the ESPP in the manner and to the extent it deems necessary or appropriate. The Compensation Committee also has the discretion to adopt rules regarding the administration of the ESPP to conform to local laws or to enable employees of the Company or certain subsidiaries or affiliates to participate in the plan. Any determinations will be made by the Compensation Committee in its sole discretion and will be final and conclusive. The Compensation Committee is authorized to delegate some or all of its authority under the ESPP to one or more employees or officers of the Company as it deems necessary, appropriate or advisable.
The rights to purchase Class A Common stock granted under the ESPP are intended to be treated as either:
The Compensation Committee will have the discretion to designate whether individual subsidiaries or affiliates of the Company will participate in the ESPP and whether they will participate in the 423 Plan or the Non-423 Plan. To be eligible for participation in the 423 Plan, a subsidiary must be at least 50% owned by the Company, Spirit or another entity at least 50% owned by the Company or Spirit, and must satisfy the other requirements of Section 424(f) of the Internal Revenue Code.
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Eligibility
Generally, any person who is employed by the Company, Spirit or by a subsidiary or affiliate of the Company that has been designated by the Compensation Committee may participate in the ESPP. However, no employee will be granted an option to participate in the ESPP to the extent that (1) immediately after such grant, such employee would own stock and/or hold outstanding options to purchase stock possessing 5% or more of the total combined voting power or value of the Company's Class A Common stock or (2) such employee's rights to purchase the Company's Class A Common stock under the ESPP would accrue at a rate that exceeds $25,000 in fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding.
As of March 9, 2017, approximately 14,650 individuals would be eligible to participate in the ESPP (if the ESPP were effective as of such date).
Shares Available for Issuance
If approved by the Company's stockholders at the Annual Meeting, the maximum number of shares of the Company's Class A Common stock that may be purchased under the ESPP will be 1,000,000 shares, subject to adjustment for stock dividends, stock splits or combinations of shares of the Company's stock. As of March 9, 2017, the market value of the 1,000,000 shares reserved for issuance under the ESPP was $60,430,000.
Offering Periods
The ESPP is currently implemented over consecutive six-month offering periods, beginning on April 1 and October 1 of each year and ending on the last day of September and March, respectively. Shares are issued on the last trading day of each six-month offering period. The Compensation Committee has the power to change the beginning date, ending date and duration of offering periods with respect to future offerings without stockholder approval if such change is announced at least five days before the scheduled beginning of the next offering period.
Participation in the Plan
An eligible employee may become a participant in the ESPP by giving instructions to the plan recordkeeper authorizing payroll deductions, and payroll deductions for such employee will begin as soon as administratively feasible after such instructions are received in good order, subject to compliance with the Company's insider trading policies and such rules and procedures as may be established by the Compensation Committee in connection therewith.
An employee's payroll deductions or other contributions under the ESPP may not exceed (1) 15% (or such other percentage as the Compensation Committee may determine) of such employee's "Compensation" (as defined in the ESPP) or (2) $25,000 for each year (or such lower annual dollar limit as may be designated by the Compensation Committee).
The per-share purchase price for the Company's Class A Common stock purchased under the ESPP is 95% of the fair market value of a share of such stock on the last day of the offering period. However, the Compensation Committee may adjust the purchase price to a higher or lower percentage, but not higher than 100% of fair market value nor lower than 85% of fair market value, each as determined on the first or last day of the offering period, whichever is lower. Upon the completion of the offering period, the Company will automatically apply the funds in the participant's account to purchase the maximum number of shares of the Company's Class A Common stock at the designated purchase price (subject to the eligibility requirements set forth in the ESPP).
Once made, a participant's payroll deduction election will automatically remain in effect for successive offering periods until the participant provides new instructions for a subsequent offering period, withdraws from the ESPP or terminates his or her employment. A participant's payroll deduction election may not be modified during an offering period except if the participant withdraws from the ESPP.
Withdrawal from the Plan
A participant may elect to withdraw from the ESPP, at any time. An election to withdraw from participation will become effective as soon as administratively feasible following the date such election is received by the plan recordkeeper and will remain in effect until the participant provides new enrollment instructions. A participant who
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PROPOSAL 3
withdraws from participation during an offering period may not make a new payroll deduction election that is effective any sooner than the first offering period that begins on or after the date that is 12 months after the date of the participant's withdrawal.
Upon a participant's withdrawal from the ESPP at least five business days before the last day of the then-current offering period, all payroll deductions credited to the participant's account during such offering period will be returned to the participant in cash, without interest.
Restrictions on Transfer
Rights granted under the ESPP are not transferable by a participant other than by will or the laws of inheritance following the participant's death.
Duration, Amendment and Termination
The Board has the power to amend or terminate the ESPP, subject to compliance with applicable law and NYSE requirements. However, stockholder approval is required within 12 months before or after the Board adopts an amendment to increase the maximum number of shares issuable under the plan (other than for adjustments upon changes in the Company's capitalization as described in the following paragraph), to amend the requirements as to the class of employees eligible to participate in the plan or to change the granting corporation or the stock available for purchase under the plan.
Adjustments Upon Changes in Capitalization
In the event of any increase or decrease in the number of issued shares of the Company's Class A Common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification or other extraordinary corporate event, the Compensation Committee shall proportionally adjust the maximum number of shares issuable under the ESPP, the price per share and the number of shares of the Company's Class A Common stock covered by each option under the ESPP that has not yet been exercised in order to prevent dilution or enlargement of the rights of participants.
Dissolution or Liquidation
Unless provided otherwise by the Compensation Committee, in the event of the proposed dissolution or liquidation of the Company, the offering period then in progress will be shortened (with the exercise date for the purchase of shares in that offering period being on the last day of the shortened offering period) and will terminate immediately prior to the consummation of the proposed dissolution or liquidation, unless otherwise determined by the Compensation Committee.
Asset Sale, Merger or Consolidation
In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger or consolidation of the Company with or into another entity, the Compensation Committee will shorten any offering period then in progress by setting a new exercise date for the purchase of shares for that offering period, which will occur prior to the proposed asset sale or merger.
Participation by the Company's Named Executive Officers
If stockholders approve the ESPP, the Company's named executive officers will be eligible to participate in the ESPP on the same terms and conditions as all other participants.
Federal Income Tax Information
The following summary briefly describes U.S. federal income tax consequences of rights under the ESPP, but is not a detailed or complete description of all U.S. federal tax laws or regulations that may apply, and does not address any local, state or other country laws. Therefore, no one should rely on this summary for individual tax compliance, planning or decisions. Participants in the ESPP should consult their own professional tax advisors concerning tax aspects of rights under the ESPP. This Proxy Statement is not written or intended to be used, and cannot be used, for the purposes of avoiding taxpayer penalties. The discussion below concerning tax deductions that may become
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PROPOSAL 3
available to the Company under U.S. federal tax law is not intended to imply that the Company will necessarily obtain a tax benefit or asset from those deductions. Taxation of equity-based payments in other countries is complex, does not generally correspond to U.S. federal tax laws and is not covered by the summary below.
423 Plan. If the ESPP is approved by the Company's stockholders, options to purchase shares granted under the 423 Plan are intended to qualify for favorable federal income tax treatment associated with rights granted under an employee stock purchase plan that qualifies under the provisions of Section 423(b) of the Internal Revenue Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the ESPP are sold or otherwise disposed of. If the shares are disposed of within two years from the grant date or within one year from the purchase date of the shares, a transaction referred to as a "disqualifying disposition," the participant will realize ordinary income in the year of such disposition equal to the difference between the fair market value of the stock on the purchase date and the purchase price. The amount of such ordinary income will be added to the participant's basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares after such basis adjustment will be a capital gain or loss. A capital gain or loss will be long-term if the participant holds the shares for more than one year after the purchase date.
If the stock purchased under the ESPP is sold (or otherwise disposed of) more than two years after the grant date and more than one year from the purchase date of the stock, then the lesser of (a) the excess of the fair market value of the stock at the time of such disposition over the purchase price and (b) the excess of the fair market value of the stock as of the grant date over the purchase price will be treated as ordinary income. The amount of such ordinary income will be added to the participant's basis in the shares, and any additional gain recognized on the disposition of the shares after such basis adjustment will be long-term capital gain. If the fair market value of the shares on the date of disposition is less than the purchase price, there will be no ordinary income and any loss recognized will be a capital loss.
The Company will generally be entitled to a deduction in the year of a disqualifying disposition equal to the amount of ordinary income realized in the United States by the participant as a result of such disposition, subject to the satisfaction of any tax-reporting obligations. In all other cases, no deduction is allowed.
Non-423 Plan. With respect to options to purchase shares granted under the Non-423 Plan, an amount equal to the difference between the fair market value of the stock on the purchase date and the purchase price will be treated as ordinary income at the time of such purchase. In such instances, the amount of such ordinary income will be added to the participant's basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares after such basis adjustment will be a capital gain or loss. A capital gain or loss will be long-term if the participant holds the shares for more than one year after the purchase date.
The Company will generally be entitled to a deduction in the year of purchase equal to the amount of ordinary income realized by the participant in the United States as a result of such disposition, subject to the satisfaction of any tax-reporting obligations. For U.S. participants, FICA/FUTA taxes will be due in relation to ordinary income earned as a result of participation in the Non-423 Plan.
Approval of the ESPP requires the affirmative vote of the holders of a majority of the shares of Class A Common stock outstanding as of the Record Date and present in person or by proxy at the Annual Meeting.
Before voting on this proposal, stockholders are encouraged to read and consider the proposal as described herein, as well as the ESPP attached to this Proxy Statement as Appendix C.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
2017 Proxy Statement 61
Advisory Vote on Executive Compensation
Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Schedule 14A of the Exchange Act require us to provide our stockholders with the opportunity to vote to approve, on an advisory (non-binding) basis, the compensation of our NEOs as disclosed in this Proxy Statement, in accordance with the applicable SEC rules (the Say-On-Pay Proposal).
In May 2011, in consideration of the results of the advisory vote of the Company's stockholders at the 2011 Annual Meeting of Stockholders regarding the frequency of "Say-On-Pay" votes (the "Say-When-On-Pay" vote), the Compensation Committee and the Board determined to include an advisory vote on executive compensation in the Company's Proxy Statement every three years until the next required stockholder advisory Say-When-On-Pay vote. The next required non-binding advisory vote regarding the frequency interval of the stockholder Say-When-On-Pay vote is contained in this year's Proxy Statement. Please refer to Proposal 5 — Advisory Vote on the Frequency of an Advisory Vote on Executive Compensation for more information on this proposal.
As described in detail under the heading "Executive Compensation — Compensation Discussion and Analysis", the Company's executive officer compensation program is designed to:
Additional details about the Company's executive compensation programs, including information about the fiscal year 2016 compensation of the Company's NEOs, are described under the section entitled "Executive Compensation — Compensation Discussion and Analysis."
The Compensation Committee regularly reviews best practices related to executive compensation to ensure that the Company's executive officer compensation program achieves the desired goals stated above.
The Board is asking the Company's stockholders to indicate their support for the Company's NEO compensation as described in this Proxy Statement. The Say-On-Pay Proposal gives the Company's stockholders the opportunity to express their views on the Company's NEO compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of the Company's NEOs and the philosophy, policies and practices described in this Proxy Statement. The Board believes that the executive compensation as disclosed in our Compensation Discussion and Analysis, tabular disclosures and other narrative executive compensation disclosure in this Proxy Statement aligns with the Company's peer group pay practices and coincides with the Company's compensation philosophy.
Accordingly, the Board asks the Company's stockholders to vote "FOR" the following resolution at the Annual Meeting:
"RESOLVED, that the Company's stockholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed by the Company pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure."
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The Say-On-Pay vote is advisory, and therefore not binding on the Company, the Company's Compensation Committee or the Board, but the Compensation Committee and Board value the opinions expressed by our stockholders in their vote and will review the voting results when making future compensation decisions.
Under the rules of the NYSE, brokers are prohibited from giving proxies to vote on executive compensation matters unless the beneficial owner of such shares has given voting instructions on the matter. This means that if your broker is the record holder of your shares, you must give voting instructions to your broker with respect to Proposal 4 if you want your broker to vote your shares on the matter.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DESCRIBED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC.
2017 Proxy Statement 63
Advisory Vote on the Frequency of an Advisory Vote on Executive Compensation
At least once every six years, the Dodd-Frank Act enables the Company's stockholders to indicate how frequently they believe the Company should conduct the advisory (non-binding) vote on the compensation of the Company's NEOs, as disclosed pursuant to the applicable SEC executive compensation disclosure rules, such as Proposal 4 included in this Proxy Statement. By voting on this Proposal 5, stockholders may indicate whether they would prefer an advisory vote on the compensation of the Company's NEOs once every three years, two years or one year.
After careful consideration of the different options for advisory vote frequency, the Board determined that conducting an advisory vote on the compensation of the Company's NEOs every year is in the best interests of the Company, and therefore the Board recommends that you vote for a one-year interval for the advisory vote on the compensation of the Company's NEOs.
In formulating its recommendation, the Board considered that an annual advisory vote on executive compensation will allow us to have a timely understanding of our stockholders' views of our compensation philosophy, policies and practices. The Board therefore believes that an annual vote on Say-On-Pay is the best choice for the Company and the Company's stockholders at the present time because the Board believes that is the frequency that allows the Company to react to its stockholders' opinions of its compensation decisions most efficiently.
You may cast your vote on your preferred voting frequency by choosing the option of three years, two years or one year, or you may abstain from voting when you vote in response to the resolution set forth below.
"RESOLVED, that the option of once every three years, two years or one year that receives the highest number of votes cast for this resolution will be determined to be the stockholders' preferred frequency with which the Company is to hold a stockholder vote to approve the compensation of the Named Executive Officers, as disclosed by the Company pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure."
The option of three years, two years or one year that receives the highest number of votes cast by stockholders will be the frequency for the advisory vote on the compensation of the NEOs that has been selected by stockholders. This vote is an advisory vote and is therefore not binding on the Company or the Board. However, the Board and the Compensation Committee will review the voting results in making a decision as to the policy to be adopted by the Board on the frequency of future advisory votes on the compensation of the NEOs. The Board may decide that it is in the best interests of the Company's stockholders and the Company to hold an advisory vote on the compensation of the Company's NEOs more or less frequently than the option approved by the Company's stockholders.
Under the rules of the NYSE, brokers are prohibited from giving proxies to vote on executive compensation matters unless the beneficial owner of such shares has given voting instructions on the matter. This means that if your broker is the record holder of your shares, you must give voting instructions to your broker with respect to Proposal 5 if you want your broker to vote your shares on the matter.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE OPTION OF ONCE EVERY YEAR AS THE FREQUENCY WITH WHICH STOCKHOLDERS ARE PROVIDED AN ADVISORY VOTE ON THE COMPENSATION OF THE COMPANY'S NAMED EXECUTIVE OFFICERS, AS DISCLOSED BY THE COMPANY PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC.
64 2017 Proxy Statement
Ratification of Selection of Independent Registered Public Accounting Firm
Ernst & Young LLP currently serves as the Company's independent registered public accounting firm, and that firm conducted the audit of the Company's accounts for fiscal year 2016. The Audit Committee has selected Ernst & Young LLP as the Company's independent registered public accounting firm for fiscal year 2017, and the Board is asking the Company's stockholders to ratify that selection. Selection of the Company's independent registered public accounting firm is not required to be submitted to a vote of the stockholders of the Company for ratification. Although the Sarbanes-Oxley Act as well as the charter of the Audit Committee require the Audit Committee to engage, retain and supervise the Company's independent registered public accounting firm, the Board considers the selection of the independent registered public accounting firm to be an important matter of stockholder concern and is submitting the selection of Ernst & Young LLP for ratification by the Company's stockholders as a matter of good corporate practice.
If a majority of votes cast on this matter are not cast in favor of the selection of Ernst & Young LLP, the Audit Committee and the Board will reconsider the selection of such firm as the Company's independent registered public accounting firm. Even if the Company's stockholders vote on an advisory (non-binding) basis in favor of the selection, the Audit Committee may, in its discretion, direct the selection of different independent auditors at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.
The Company expects that representatives of Ernst & Young LLP will be present at the Annual Meeting, will have an opportunity to make a statement and will be available to respond to appropriate questions.
Unless otherwise instructed, the proxy holders will vote proxies received by them "FOR" the proposal. The affirmative vote of a majority of the votes of the shares of Common stock represented at the Annual Meeting is required to approve the ratification of the selection of Ernst & Young LLP as the Company's independent registered public accounting firm for fiscal year 2017.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
The Board has a separately designated standing Audit Committee, established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee assists the Board in fulfilling its oversight responsibilities by reviewing the financial reports and other financial information provided by the Company to any governmental body or the public, the Company's systems of internal controls regarding finance, accounting, legal and regulatory compliance, and ethics that the Board and the Company's management have established, and the Company's auditing, accounting and financial reporting processes generally. The Audit Committee annually selects the Company's independent registered public accounting firm and evaluates the independence, qualifications, and performance of the Company's internal auditors and the independent registered public accounting firm. The Audit Committee establishes procedures for and oversees receipt, retention and treatment of complaints received by the Company regarding accounting, internal control or auditing matters and the confidential, anonymous submission by Spirit's employees of concerns regarding questionable accounting or auditing matters.
The Audit Committee has reviewed and discussed with management and the independent registered public accounting firm the Company's audited financial statements as of and for the year ended December 31, 2016, as well as the representations of management regarding the Company's internal control over financial reporting. The Audit Committee discussed with the Company's internal auditors and independent registered public accounting firm the
2017 Proxy Statement 65
PROPOSAL 6
overall scope and plans for their respective audits. The Audit Committee met with the internal auditors and the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, the evaluation of the Company's internal controls, management's representations regarding internal control over financial reporting and the overall quality of the Company's financial reporting.
The Audit Committee has discussed with the independent registered public accounting firm all items required by the standards of the Public Company Accounting Oversight Board ("PCAOB"), including the Statement on Auditing Standards, No. 61, as amended by American Institute of Certified Public Accountants, Professional Standards, Vol. 1, AU section 380, as adopted by the PCAOB in Rule 3200T,Communication with Audit Committees. The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountant's communications with the audit committee concerning independence, and the Audit Committee has discussed with the independent registered public accounting firm its independence from the Company and its management.
The Audit Committee has relied on management representations that the financial statements have been prepared in accordance with GAAP in the United States of America and on the opinion of the independent registered public accounting firm included in their report to the Company's audited financial statements.
Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements referred to above be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, for filing with the SEC, and selected Ernst & Young LLP as the Company's independent registered public accounting firm for fiscal year 2017.
Audit CommitteeFrancis Raborn, ChairmanIrene M. EstevesJohn L. Plueger
Fees Billed by the Independent Registered Public Accounting Firm
The fees incurred by the Company, including its majority-owned subsidiaries, for services provided by Ernst & Young LLP, the Company's independent registered public accounting firm, in 2015 and 2016 are set forth below.
| | December 31, | |||||||||
| 2015 (Dollars in thousands) ($) | 2016 (Dollars in thousands) ($) | |||||||||
Audit Fees(1) | | | 3,738.0 | | | | 3,419.7 | | | ||
Audit-Related Fees(2) | | | 713.5 | | | | 230.5 | | | ||
| | | | | | ||||||
Tax Fees(3) | | | 492.3 | | | | 128.9 | | | ||
All Other Fees(4) | | | 2.0 | | | | 0 | | | ||
| | | | | | ||||||
Total | | | 4,945.8 | | | | 3,779.1 | | | ||
| | | | | |
The Audit Committee concluded the provision of the non-audit services listed above is compatible with the independence of Ernst & Young LLP.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm
The Audit Committee has established a policy regarding pre-approval of all audit and permissible non-audit services provided by the independent registered public accounting firm. Each year, the Audit Committee approves the terms on which the independent registered public accounting firm is engaged for the ensuing fiscal year. All non-audit services must be approved by the Audit Committee.
66 2017 Proxy Statement
The Board does not intend to bring any other business before the meeting, and so far as is known to the Board, no matters are to be brought before the meeting except as specified in the notice of the meeting. In addition to the scheduled items of business, the meeting may consider stockholder proposals (including proposals omitted from the Proxy Statement and form of proxy pursuant to the proxy rules of the SEC) and matters relating to the conduct of the meeting. As to any other business that may properly come before the meeting, it is intended that proxies will be voted in respect thereof in accordance with the judgment of the persons voting such proxies.
The Company's Solicitation of Proxies
The Proxy accompanying this Proxy Statement is solicited by the Board. Proxies may be solicited by officers, directors, and regular supervisory and executive employees of Spirit, none of whom will receive any additional compensation for their services. The Company will pay persons holding shares of Common stock in their names or in the names of nominees, but not owning such shares beneficially, such as brokerage houses, banks and other fiduciaries, for the expense of forwarding solicitation materials to their principals. All of the costs of solicitation of proxies will be paid by the Company.
Stockholder Proposals to be Presented at the 2018 Annual Meeting of Stockholders
Stockholder Proposals. Under the rules and regulations of the SEC, proposals of stockholders intended to be included in the Company'sCompany’s proxy statement for presentation at the Company's 2018 Annual MeetingCompany’s 2020 annual meeting of Stockholders (1)stockholders must be received by the Company at its offices no later than November 24, 201712, 2019 (120 days preceding the one-year anniversary of the Mailing Date), (2) may not exceed 500 words and (3) must satisfy the conditions established by the SEC for stockholder proposals to be included in the Company's proxy statement and form of proxy for that meeting, and must otherwise contain certain information specifiedcomply with SEC rules in order to be eligible for inclusion in the Company's Bylaws. proxy statement for the 2020 annual meeting of stockholders.
In addition, pursuant to the Company's Bylaws,Company’s bylaws, a stockholder desiring to propose any matter for consideration at the 2018 Annual Meeting2020 annual meeting of Stockholders,stockholders, other than through inclusion in the Company'sCompany’s proxy materials, must notify the Company'sCompany’s Corporate Secretary at the Company'sCompany’s offices on or before December 27, 201726, 2019 (120 days prior to the one-year anniversary of the immediately preceding annual meeting).
In additionPursuant to our bylaws, a stockholder may nominate an individual for election as a director at the 2020 annual meeting of stockholders by providing notice to the information aboutCompany’s Corporate Secretary at the Companyaddress set forth below by December 26, 2019 (120 days preceding the one-year anniversary of the immediately preceding annual meeting) (the “Nominee Deadline”). Further, pursuant to the Company’s proxy access right, a stockholder may elect to have their nominee included in the Company’s proxy statement if the stockholder provides notice to the Company’s Corporate Secretary at the address set forth below by the Nominee Deadline and its subsidiaries containedexpressly elects to have such nominee included in this Proxy Statement, extensive information about the Company canCompany’s proxy materials pursuant to Section 1.13 of the Company’s bylaws. Any notice of a nomination must be found on its website located atwww.spiritaero.com, including information about its management team, products and services and its corporate governance practices. The content on the Company's website is available for information purposes only, and should not be relied upon for investment purposes, and is not deemed to be incorporated by reference into this Proxy Statement.
The Company makes available through its website under the heading "Investor Relations," its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports after it electronically files such materialsmade in compliance with the SEC. Copies ofprocedures required by the Company's key corporate governance documents, including its Corporate Governance Guidelines, Code of EthicsCompany’s bylaws.
Stockholder recommendations and Business Conduct, chartersnominations for the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee, and the Related Person Transaction Policy are available on the Company's website,www.spiritaero.com.
2017 Proxy Statement 67
OTHER MATTERS
The Company's 2016 Annual Report, which includes a copy of its Annual Report on Form 10-K (which is not a part of the Company's proxy soliciting materials), excluding exhibits, is being mailed to stockholders with this Proxy Statement. A copy of any or all exhibitscandidates to the Form 10-K willBoard as described above should be furnished to any stockholder, without charge, upon receipt of a phone call or written request from such person. Such request may be madesent to the Company's Investor Relations Department by writing to Spirit AeroSystems, Investor Relations, P.O. Box 780008,Company’s Corporate Secretary at 3801 S. Oliver St., Wichita, KS 67278-0008, by calling (316) 523-7040 or by sending an email 67210-2112.
TheCompany’s2018AnnualReportonForm10-Kisavailableathttp://www.spiritaero.com.TheCompanywillprovidetoanystockholder,withoutcharge,apapercopyofthe2018AnnualReportonForm10-Kuponwrittenrequestto investorrelations@spiritaero.com.SpiritAeroSystemsHoldings,Inc.,CorporateSecretary,3801S.OliverSt.,Wichita,KS67210-2112.
By order of the Board of Directors.
Sincerely,
StacyCozad
SeniorVicePresident,GeneralCounsel,ChiefComplianceOfficer,andCorporateSecretary
SpiritAeroSystemsHoldings, Inc.
March 24, 201711, 2019
SPIRIT AEROSYSTEMS
68 2017 - 2019 Proxy Statement73
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement includes “forward-looking statements.” Forward-looking statements generally can be identified by the use of forward-looking terminology such as “aim,” “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “objective,” “plan,” “predict,” “project,” “should,” “target,” “will,” “would,” and other similar words or phrases, or the negative thereof, unless the context requires otherwise. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties, both known and unknown, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K. Our actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to place undue reliance on any forward-looking statements. Important factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook include, but are not limited to, the following:
our ability to continue to grow our business and execute our growth strategy, including the timing, execution, and profitability of new and maturing programs;
our ability to perform our obligations under our new and maturing commercial, business aircraft, and military development programs, and the related recurring production, including our ability to meet contractually required production rate increases;
our ability to accurately estimate and manage performance, cost, and revenue under our contracts, including our ability to achieve certain cost reductions with respect to the B787 program and other programs;
margin pressures and the potential for additional forward losses on new and maturing programs;
our ability and our suppliers’ ability to accommodate, and the cost of accommodating, announced increases in the build rates of certain aircraft and expanding model mixes;
the effect on aircraft demand and build rates of changing customer preferences for business aircraft, including the effect of global economic conditions on the business aircraft market and expanding conflicts or political unrest;
customer cancellations or deferrals as a result of global economic uncertainty or otherwise;
the effect of economic conditions in the industries and markets in which we operate in the U.S. and globally and any changes therein, including fluctuations in foreign currency exchange rates;
the success and timely execution of key milestones such as the receipt of necessary regulatory approvals, including our ability to obtain in a timely fashion any required regulatory or other third party approvals for the consummation of our announced acquisition of Asco, and customer adherence to their announced schedules;
our ability to successfully negotiate, or re-negotiate, future pricing under our supply agreements with Boeing and our other customers;
our ability to enter into profitable supply arrangements with additional customers;
the ability of all parties to satisfy their performance requirements, including our ability to timely deliver quality products, under existing supply contracts with our two major customers, Boeing and Airbus, and other customers, and the risk of non-payment by such customers;
any adverse impact on Boeing’s and Airbus’ production of aircraft resulting from cancellations, deferrals, or reduced orders by their customers or from labor disputes, domestic or international hostilities, or acts of terrorism;
any adverse impact on the demand for air travel or our operations from the outbreak of diseases or epidemic or pandemic outbreaks;
our ability to avoid or recover from cyber-based or other security attacks, information technology failures, or other disruptions;
returns on pension plan assets and the impact of future discount rate changes on pension obligations;
our ability to borrow additional funds or refinance debt, including our ability to obtain the debt to finance the purchase price for our announced acquisition of Asco on favorable terms or at all;
competition from or in-sourcing by commercial aerospace original equipment manufacturers and competition from other aerostructures suppliers;
the effect of governmental laws, such as U.S. export control laws and U.S. and foreign anti-bribery laws such as the Foreign Corrupt Practices Act and the United Kingdom Bribery Act, and environmental laws and agency regulations, both in the U.S. and abroad;
the effect of changes in tax law, such as the effect of The Tax Cuts and Jobs Act that was enacted on December 22, 2017, and changes to the interpretations of or guidance related thereto, and the Company’s ability to accurately calculate and estimate the effect of such changes;
any reduction in our credit ratings;
our dependence on our suppliers, as well as the cost and availability of raw materials and purchased components;
our ability to recruit and retain a critical mass of highly skilled employees and our relationships with the unions representing many of our employees, including our ability to avoid labor disputes and work stoppages with respect to our union employees;
spending by the U.S. and other governments on defense;
the possibility that our cash flows and our credit facility may not be adequate for our additional capital needs or for payment of interest on and principal of our indebtedness;
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 74
our exposure under our revolving credit facility to higher interest payments should interest rates increase substantially;
the effectiveness of any interest rate hedging programs;
the effectiveness of our internal control over financial reporting;
the outcome or impact of ongoing or future litigation, claims, and regulatory actions;
our exposure to potential product liability and warranty claims;
our ability to effectively assess, manage, and integrate acquisitions that we pursue, including our ability to successfully integrate the Asco business and generate synergies and other cost savings;
the consummation of our announced acquisition of Asco while avoiding any unexpected costs, charges, expenses, and adverse changes to business relationships and other business disruptions for ourselves and Asco as a result of the acquisition;
our ability to continue selling certain receivables through our supplier financing program;
the risks of doing business internationally, including fluctuations in foreign currency exchange rates, impositions of tariffs or embargoes, trade restrictions, compliance with foreign laws, and domestic and foreign government policies; and
prolonged periods of inflation where we do not have adequate inflation protection in our customer contracts, among other things.
These factors are not exhaustive and it is not possible for us to predict all factors that could cause actual results to differ materially from those reflected in our forward-looking statements. These factors speak only as of the date hereof, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. Except to the extent required by law, we undertake no obligation to, and expressly disclaim any obligation to, publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. You should review carefully the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for a more complete discussion of these and other factors that may affect our business.
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 75
Non-GAAP Financial Measures NON-GAAP FINANCIAL MEASURES
In addition to reporting our financial information in our Annual Report on Form 10-K using U.S. Generally Accepted Accounting Principles (“GAAP”), certain non-GAAP measures (which are indicated generally by * in this Proxy Statement) are used with respect to our ACI and long-term incentives. Such non-GAAP measures include (i) free cash flow (“Free Cash Flow”), (ii) adjusted free cash flow (“Adjusted EBITFCF”), (iii) adjusted earnings before interest and taxes (“Adjusted EBIT”), and (iv) free cash flow as a percentage of revenue (“FCF Percentage”), which are described further below. The Company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define and calculate the measures differently than we do, limiting the usefulness of the measures for comparison with other companies.
Free Cash Flow is defined as GAAP cash from operating activities, less capital expenditures for property, plant, and equipment. Management believes Free Cash Flow provides investors with an important perspective on the cash available for stockholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long-term value creation. Free Cash Flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures. Management uses Free Cash Flow as a measurementmeasure to assess both business performance and overall liquidity.
FCF Percentage is the Company’s Free Cash Flow (as defined under “Free Cash Flow” above) as a percentage of revenue over a three-year performance period (cumulative Free Cash Flow over the performance period divided by cumulative GAAP revenue over the performance period). This metric is used to align long-term incentives with a key valuation driver of our business, which is Free Cash Flow. Since the Company does not provide multi-year Free Cash Flow guidance, a percentage of sales is used to drive sustained cash flow performance consistent with our established long-term goal of 7-9% of revenue. We use Free Cash Flow to calculate FCF Percentage under the FCF Percentage long-term incentive.
Management considers certain items that arise from time to time to be outside the ordinary course of our operations. Management believes that excluding these items provides a better understanding of the Company'sunderlying trends in the Company’s operating performance underand allows more accurate comparisons of the Company’s operating results to historical performance. Accordingly, Adjusted FCF is defined as Free Cash Flow less these special items. The most comparable GAAP and these measures should not be considered as alternatives to net income (loss) or any other financial measures derived in accordance with GAAP or as alternatives tomeasure is cash provided by operating activities. The tables below provide reconciliations between the GAAP and non-GAAP measures.
The table below presents a reconciliation of Free Cash Flow and Adjusted FCF to cash from operating activities asfor each of the periods presented, and also demonstrates a measurereconciliation of liquidity.FCF Percentage.
($ in millions) | Fiscal Year Ended December 31, |
| As a Percentage of Revenue | ||||||||||
2018 |
| 2017 |
| 2016 |
|
| 2018 |
|
| 2017 |
| 2016 | |
Cash from Operating Activities | 770 |
| 574 |
| 717 |
|
| 11% |
|
| 8% |
| 11% |
Capital Expenditures | (271 | ) | (273 | ) | (254 | ) |
| 4% |
|
| 4% |
| 4% |
Free Cash Flow (Used for FCF Percentage) | 499 |
| 301 |
| 463 |
|
| 7% |
|
| 4% |
| 7% |
Cash (Received)/Returned under 787 Interim Pricing Agreement |
|
| 236 |
| (43 | ) |
|
|
|
|
|
|
|
Costs Related to Asco Acquisition | 66 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted FCF | 565 |
| 537 |
| 420 |
|
|
|
|
|
|
|
|
SPIRIT AEROSYSTEMS - 2019 Proxy Statement 76
Adjusted EBIT and Reconciliation
As presented in this Proxy Statement, Adjusted EBIT is defined as earnings before interest and taxes as adjusted to exclude certain non-operating and/or non-recurring items whichthat the Company believes are not reflective of operating performance. Adjusted Free Cash Flow is defined as cash provided by operating activities, less capital expenditures, as adjusted to exclude certain non-operating and/or non-recurring items and capital expenditures which the Company believes are not reflective of operating performance.
The Company presents Adjusted EBIT and Adjusted Free Cash Flow because it considers them important supplemental measures of the Company's performance and believes they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Company's industry. The Company also used Adjusted EBIT to determine, in part, the compensation paid to the Company's NEOs under the STI Program (see "Executive Compensation — Compensation Discussion and Analysis — Analysis of 2016 Compensation — Short-Term Incentive Awards" on page 35). Since Adjusted EBIT and Adjusted Free Cash Flow are not measures determined in accordance with GAAP and thus are susceptible to varying interpretations and calculations, these measures may not be comparable to similarly titled measures used by other companies.
The table below presents a reconciliation of Adjusted EBIT to net income (loss) for each of the periods presented.
| Fiscal Year Ended December 31, | |||||||||
| | | | | | | | |||
| 2016 | 2015 | 2014 | |||||||
| ($ in millions) | |||||||||
Net Income (Loss) | | 469.7 | | 788.7 | | 358.8 | | |||
Interest Expense, Net | | 53.7 | | 50.6 | | 87.5 | | |||
Income Tax Provision | | 192.1 | | 20.6 | | (95.9 | ) | |||
Equity in net (income) loss of non-wholly owned affiliates | | (1.3 | ) | (1.2 | ) | (0.5 | ) | |||
| | | | | | | | |||
EBIT | | 714.2 | | 858.7 | | 349.9 | | |||
Impact from severe weather event | | 12.1 | | — | | — | | |||
Loss on divestiture of programs | | — | | — | | 471.1 | | |||
Other(1) | | 176.3 | (1) | 37.1 | (2) | — | | |||
| | | | | | | | |||
Adjusted EBIT | | 902.6 | | 895.8 | | 821.0 | | |||
| | | | | | | |
($ in millions) | Fiscal Year Ended December 31, | |||||
2018 | 2017 | 2016 | ||||
Net Income | 617.0 | 354.9 | 469.7 | |||
Interest Expense and Financing Fee Amortization | 80.0 | 41.7 | 53.7 | |||
Income Tax Provision | 139.8 | 180.0 | 192.1 | |||
Equity in Net (Income) Loss of Non-Wholly Owned Affiliates | (0.6) | (0.3 | ) | (1.3 | ) | |
Interest Income | (8.0) | (6.4 | ) | |||
EBIT | 828.2 | 569.9 | 714.2 | |||
Impact From Severe Weather Event | 12.1 | |||||
Other(1) | 51.7 | 346.0 | 176.3 | |||
Adjusted EBIT | 879.9 | 915.9 | 902.6 | |||
(1) Includes adjustments to reflect expenses related to the Asco acquisition and related debt financing, customer settlements, amounts paid to our former CEO upon his retirement, and other non-recurring items. |
SPIRIT AEROSYSTEMS
2017 - 2019 Proxy Statement A-177
APPENDIX A
Adjusted Free Cash Flow Reconciliation
The table below presents a reconciliation of Adjusted Free Cash Flow to cash provided by operating activities for each of the periods presented.
| Fiscal Year Ended December 31, | |||||||||
| | | | | | | | |||
| 2016 | 2015 | 2014 | |||||||
| ($ in millions) | |||||||||
Cash Provided by Operating Activities | | 716.9 | | 1,289.7 | | 361.6 | | |||
Cash Transferred on Gulfstream Divestiture | | | | — | | 160.0 | | |||
Cash Received Under B787 Interim Pricing Agreement | | (43.0 | ) | (192.0 | ) | — | | |||
| | | | | | | | |||
Adjusted Cash Provided by Operating Activities | | 673.9 | | 1,097.7 | | 521.6 | | |||
Adjusted Capital Expenditures | | (254.0 | ) | (360.1 | ) | (220.2 | ) | |||
| | | | | | | | |||
Adjusted Free Cash Flow | | 419.9 | | 737.6 | | 301.4 | |
A-2 2017 Proxy Statement
SECONDTHIRD AMENDED AND RESTATEDCERTIFICATE OF INCORPORATIONOF SPIRIT AEROSYSTEMS HOLDINGS, INC.
Spirit AeroSystems Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name under which the corporation was originally incorporated was Mid-Western Aircraft Systems Holdings, Inc. (the "Corporation") and the date of filing with the Secretary of State of the State of Delaware of the original Certificate of Incorporation was February 7, 2005, as amended by the Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware on June 15, 2005, as amended by a Certificate of Amendment of the Certificate of Incorporation filed with the Secretary of State of the State of Delaware on July 19, 2005, as amended by the Second Amended and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on November 16, 2006.
2. ThisSecondThird Amended and Restated Certificate of Incorporation has been dulyproposed by the Board of Directors of the Corporation andadopted by theboard of directorsstockholders of the Corporation pursuant to Section 141(f) of the General Corporation Law of the State of Delaware (the "DGCL") and written consent of the stockholders has been given in accordance with the provisions of Sections 228, 242 and 245 of theDGCLGeneral Corporation Law of the State of Delaware.
3. The text of the Certificate of Incorporation of the Corporation as amended and restated by thisSecondThird Amended and Restated Certificate of Incorporation reads in its entirety as follows:
ARTICLE FIRST:Name. The name of the Corporation is Spirit AeroSystems Holdings, Inc.
ARTICLE SECOND:Registered Office. The location and address of the Corporation's registered office in the State of Delaware is Corporation Service Company, 2711 Centerville Road, Suite 400, County of New Castle, Wilmington, Delaware 19808. Corporation Service Company is the Corporation's registered agent at that address.
ARTICLE THIRD:Purposes. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under theDelawareGeneral Corporation Law of the State of Delaware, as amended from time to time (the "DGCL").
ARTICLE FOURTH:Duration. The term of the Corporation's existence is perpetual.
ARTICLE FIFTH:Authorized Stock; Split.
Part A: Authorized Number of Shares. The total number of shares of capital stock that the Corporation shall have the authority to issue is360,000,000210,000,000 shares, consisting of: (i) 200,000,000 shares of Class A Common Stock, par value $0.01 per share (the "Class ACommon Stock"), (ii) 150,000,000 shares of Class B Common Stock, par value $0.01 per share (the "Class B Common Stocks") and (iii and (ii) 10,000,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock").The Class A Common Stock andOther than theClass BCommon Stock are hereinafter referred to collectively as "Common Stock"and, no other class or series of capital stock of the Corporation shall be considered as "Common Stock" for purposes of the certificate of incorporation of the Corporation. No share of Class B Common Stock shall be issued by the Corporation at any time when there is not already outstanding a share of Class B Common Stock.
Part B: Stock Split. Effective upon the filing of this Second Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, a 3-for-1 stock split as approved by the Board of Directors of the Corporation shall become effective, pursuant to which each share of any class or series of Common Stock outstanding or held in treasury immediately prior to such time shall automatically and without any action on the part of the holders thereof be reclassified and split into and thereafter represent three shares of such class or series of Common Stock (the "Stock Split"). All certificates representing shares of any class or series of Common Stock outstanding immediately prior to the filing of this Second Amended and Restated Certificate of Incorporation shall immediately after the filing of this Second Amended and Restated Certificate of Incorporation represent instead the number of shares of Common Stock of the same class or series as provided above. Notwithstanding the foregoing, any holder of Common Stock may (but shall not be required to) surrender his, her or its stock certificate or certificates to this corporation, and upon such surrender this corporation will issue a certificate for the correct
2017 Proxy Statement B-1
number of shares of Common Stock to which the holder is entitled under the provisions of this Second Amended and Restated Certificate of Incorporation.
Part C: Certain Definitions. As used in this Second Amended and Restated Certificate of Incorporation, the following capitalized terms have the following respective meanings:
(1) "Affiliate" means, with respect to any Person, (a) any director or executive officer of such Person, (b) any spouse, parent, sibling, descendant or trust for the exclusive benefit of such Person or his or her spouse, parent, sibling or descendant (or the spouse, parent, sibling or descendant of any director or executive officer of such Person), and (c) any other Person that, directly or indirectly, controls or is controlled by or is under common control with such Person. For the purpose of this definition, (i) "control" (including with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, status as a general partner, or by contract or otherwise and (ii) Onex and Onex Partners shall be deemed to control any Person (A) controlled by Gerald W. Schwartz so long as Mr. Schwartz controls Onex or (B) if Onex has sole or shared "voting power" or "investment power," as those terms are defined in the rules of the Securities and Exchange Commission, over the Class B Common Stock held by such Person.
(2) "Business Day" shall mean any day other than a Saturday, a Sunday, or any day on which banking institutions in the State of Delaware are required or authorized to close by law or executive order.
(3) "Initial Investor Group" means (i) all members of the Onex Group, (ii) all Management Investors and (iii) any other Person who obtains Class B Common Stock through a direct issuance by the Corporation, each of which shall be considered a member of the Initial Investor Group for purposes hereof.
(4) "Management Investor" mean any individual employed by the Company or any subsidiary of the Company at the time he or she acquires Common Stock and any Affiliate of such individual employee to whom such individual employee transfers Common Stock.
(5) "Minimum Condition" means, at any time, the state of affairs where the total number of outstanding shares of Class B Common Stock is at least 10% of the total number of shares of Common Stock outstanding.
(6) "Onex" means Onex Corporation, a corporation organized and existing on the Effective Date under the laws of the Province of Ontario, Canada, and any successor to all or substantially all the assets and business thereof, including any interest owned by Onex in the shares of capital stock of the Corporation.
(7) "Onex Group" means Onex, Onex Partners and any Affiliate of Onex or Onex Partners, each of which shall be considered "a member of the Onex Group" for purposes hereof.
(8) "Onex Partners" means Onex Partners LP, a limited partnership organized and existing on the Effective Date under the laws of the State of Delaware, and any successor to all or substantially all the assets and business thereof, including any interest owned by Onex Partners in shares of capital stock of the Corporation.
(9) "Person" means an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization or a government or any department or agency thereof.
(10) "Transfer" with respect to shares of Common Stock means to sell, assign, donate, contribute, place in trust (including a voting trust), or otherwise voluntarily or involuntarily dispose of, directly or indirectly, such shares, but shall not include the creation of a security interest in or pledge of such shares.
Part D: Powers, Privileges and Rights of the Common Stock. All shares of Common Stock (both shares of Class A Common Stock and shares of Class B Common Stock) will be identical in all respects and will entitle the holders thereof to the same powers, privileges and rights, except as otherwise provided by law or the following provisions of this article or any other provision of the Corporation's certificate of incorporation from time to time in effect. Without limiting the foregoing provisions of this paragraph, whenever any dividend or distribution (including any distribution upon liquidation, dissolution or winding up of the Corporation or upon the reclassification of shares or a recapitalization of the Corporation) is made on the shares of Class A Common Stock, a like dividend or distribution shall be made on the shares of Class B Common Stock, and, whenever any dividend or distribution is made on the shares of Class B Common Stock, a like dividend or distribution shall be made on the shares of Class A Common Stock;provided,however, that at any time when shares of Class B Common Stock are outstanding no dividend or other distribution shall be payable in shares of Class A Common Stock or Class B Common Stock or securities convertible into, exchangeable for or exercisable to acquire shares of Class A Common Stock or Class B Common Stock (including a distribution pursuant to a stock split or a division of such class of stock or
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a recapitalization of the Corporation), unless only shares of Class A Common Stock or securities convertible into, exchangeable for or exercisable to acquire shares of Class A Common Stock shall be distributed with respect to any outstanding shares of Class A Common Stock and simultaneously only a like number per share of shares of Class B Common Stock or securities convertible into, exchangeable for or exercisable to acquire shares of Class B Common Stock and otherwise in all material respects having the same powers, privileges and rights as the securities distributed with respect to the shares of Class A Common Stock shall be distributed with respect to any outstanding shares of Class B Common Stock. The Corporation shall not subdivide or combine (by stock split, reverse stock split, recapitalization, merger, consolidation or other transaction) its shares of Class A Common Stock or Class B Common Stock, as the case may be, without in the same manner subdividing or combining its shares of Class B Common Stock or Class A Common Stock, respectively.
Section 1.Mandatory Conversion and Optional Conversion of Shares of Class B Common Stock.
(a) Upon the Transfer of a share of Class B Common Stock to any Person other than a member of the Initial Investor Group, such share of Class B Common Stock so Transferred shall automatically, and without any notice to or action by the Corporation, the holder thereof or any other Person (other than the effectuation of the Transfer), convert into one share of Class A Common Stock. The Corporation shall not register or otherwise give effect to a Transfer of shares of Class B Common Stock referred to in the foregoing sentence without reflecting the conversion of such shares into shares of Class A Common Stock and, as soon as practicable after the Corporation has knowledge of any Transfer of shares of Class B Common Stock as to which conversion of such shares into shares of Class A Common Stock is required, shall effectuate the conversion of such shares. For the purpose of effectuating the conversion of shares of Class B Common Stock into shares of Class A Common Stock in accordance with the provisions of this paragraph, the provisions of paragraph (e) of this section shall apply. The Corporation may require a legend on any certificate representing shares of Class B Common Stock indicating that the Transfer thereof may require conversion of such shares into shares of Class A Common Stock as provided by this paragraph.
(b) Each holder of Class B Common Stock shall be entitled to convert at any time, in the manner provided by paragraph (d) of this section, all or any portion of such holder's Class B Common Stock into shares of fully paid and non-assessable Class A Common Stock at the ratio of one share of Class A Common Stock for each share of Class B Common Stock so converted.
(c) The holders of a majority of the voting power of all the outstanding shares of Class B Common Stock shall be entitled to convert at any time in the manner provided by paragraph (d) of this section, all, but not less than all, of the outstanding shares of Class B Common Stock into shares of fully paid and non-assessable Class A Common Stock at the ratio of one share of Class A Common Stock for each share of Class B Common Stock so converted. In the event of any such conversion, each share of Class B Common Stock which remains outstanding shall automatically, and without any notice to or action by the Corporation, the holder or any other Person, convert into one share of Class A Common Stock. For the purpose of effectuating the conversion of shares of Class B Common Stock into shares of Class A Common Stock in accordance with the immediately preceding sentence, the provisions of paragraph (e) of this section shall apply.
(d) The right to convert shares of Class B Common Stock into shares of Class A Common Stock as provided by paragraph (b) of this section and the first sentence of paragraph (c) of this section shall be exercised by the surrender to the Corporation of the certificate or certificates representing the shares to be converted at any time during normal business hours at the principal executive offices of the Corporation or at the office of the Corporation's transfer agent (the "Transfer Agent"), accompanied by a written notice of the holder of such shares stating that such holder desires to convert such shares, or a stated number of the shares represented by such certificate or certificates, into shares of Class A Common Stock, as shall be stated in such notice, and, if certificates representing any of the shares to be issued upon such conversion are to be issued in a name other than that of the holder of the share or shares converted, accompanied by an instrument of transfer, in form satisfactory to the Corporation and to the Transfer Agent, duly executed by such holder or such holder's duly authorized attorney, and the holder shall at such time also make payment or provision for payment of any taxes applicable to such Transfer if required by the following provisions of this subsection. As promptly as practicable following the surrender for conversion of a certificate representing shares to be converted with the notice and in the manner provided in this paragraph, and, in the event the conversion is effected in connection with a Transfer, the payment of any amount required by the provisions of this section to be paid by the holder in connection with such Transfer, the Corporation shall deliver or cause to be delivered at the office of the Transfer Agent a certificate or certificates representing the number of whole shares of Class A Common Stock issuable upon such conversion, issued in such name or names as such holder may have directed. The issuance of certificates for shares upon such a conversion shall be made without charge to the holders of the shares to be converted for any stamp or other similar stock transfer or documentary tax assessed in respect of such issuance;provided,however, that, if any such certificate is to be issued in a
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name other than that of the holder of the share or shares to be converted, then the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax that may be payable in respect of any Transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid or is not payable. Any such conversion of shares shall be considered to have been effected immediately prior to the close of business on the date of the surrender of the certificate or certificates representing the shares to be converted accompanied by the required notice and payment, if any. Upon the date any such conversion is deemed effected, all rights of the holder of the converted shares as such holder shall cease, and the person or persons in whose name or names the certificate or certificates representing the shares to be issued upon conversion of the shares surrendered for conversion shall be treated for all purposes as having become the record holder or holders of the shares of Class A Common Stock issuable upon such conversion;provided,however, that, if any such surrender and payment occurs on any date when the stock transfer books of the Corporation shall be closed, the person or persons in whose name or names the certificate or certificates representing shares are to be so issued shall be deemed the record holder or holders thereof for all purposes immediately prior to the close of business on the next succeeding day on which the stock transfer books are open.
(e) In the event of any conversion effected automatically without notice pursuant to paragraph (a) of this section and the last two sentences of paragraph (c) of this section, until the certificates representing shares which have been converted shall have been surrendered to the Corporation, such certificates shall represent the appropriate number of shares of Class B Common Stock or Class A Common Stock, as the case may be, into which the shares represented by such certificates shall have been converted. Upon surrender by any holder of certificates representing shares which have been automatically converted pursuant to paragraph (a) of this section and the last two sentences of paragraph (c) of this section, the Corporation shall issue to such holder a new certificate or certificates representing the number of shares of Class B Common Stock or Class A Common Stock, as the case may be, into which the shares represented by the surrendered certificates shall have been converted, without charge to the holder, provided that, in the event conversion is effected in connection with a Transfer, all required stamp and transfer taxes required to be paid in connection with such Transfer shall have been paid. Upon conversion of such shares, all rights of the holder of the converted shares as such holder shall cease, and the holder of such converted shares and/or such holder's transferee(s) shall be treated for all purposes as having become the record holder or holders of the shares of Class A Common Stock or Class B Common Stock, as the case may be, issuable upon such conversion. Any such conversion of shares shall be considered to have been effected immediately prior to the close of business on the date such conversion has been automatically effected, or if such automatic conversion is effected on any date when the stock transfer books of the Corporation shall be closed, such automatic conversion shall be considered to have been effected immediately prior to the close of business on the next succeeding day on which the stock transfer books are open.
(f) No adjustments in respect of dividends declared and payable on Common Stock (of any class), or any other security into which shares of Class B Common Stock or Class A Common Stock shall be convertible, shall be made upon the conversion of shares of Class B Common Stock or Class A Common Stock as provided in this section;provided,however, that, if a share of Common Stock shall be converted subsequent to the record date for the payment of a dividend or other distribution on the shares or other security into which such share is convertible but prior to such payment, then the registered holder of such share at the close of business on such record date shall be entitled to receive the dividend or other distribution payable on such share on such date notwithstanding the conversion thereof or any default in payment of the dividend or distribution due before the conversion.
(g) In the event of a reclassification of the Class A Common Stock or the Class B Common Stock, or a recapitalization of the Corporation or similar transaction, as a result of which the shares of Class A Common Stock or Class B Common Stock are converted into or exchanged for another security, then a holder of Class B Common Stock or Class A Common Stock, as the case may be, shall be entitled to receive upon conversion of such holder's shares where permitted in accordance with the foregoing provisions of this section the amount per share of such other security that such holder would have received if such holder had converted any or all of such holder's shares of Class B Common Stock into Class A Common Stock, or all of such holder's shares of Class A Common Stock into Class B Common Stock, as the case may be, immediately prior to the record date of such reclassification, recapitalization or similar transaction.
(h) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock (or any other security of the Corporation into which the Class B Common Stock becomes convertible), solely for the purpose of issuance upon conversion of the outstanding shares of Class B
B-4 2017 Proxy Statement
Common Stock, such number of shares of Class A Common Stock (or any other security of the Corporation into which the Class B Common Stock becomes convertible) that shall be issuable upon the conversion of all outstanding shares of Class B Common Stock.
(i) Shares of Class B Common Stock that are converted into shares of Class A Common Stock (or another security) as provided herein shall continue as authorized but unissued shares of Class B Common Stock and shall be available for reissue by the Corporation;provided,however, that no shares of Class B Common Stock shall be re-issued at any time when no shares of Class B Common Stock are outstanding. Shares of Class A Common Stock that are converted into shares of Class B Common Stock as provided herein shall continue as authorized but unissued shares of Class A Common Stock and shall be available for reissue by the Corporation.
Part B:Section 2. Voting Powers. Except as otherwise provided by law, by the following provisionsof this section or by Part Dof this article or by any other provision of the Corporation's certificate of incorporation from time to time in effect, the holders of shares of Common Stock shall have the sole power to vote on all matters on which stockholders of the Corporationmayare entitled to vote (or to consent in lieu of a vote at a meeting) and on all matters on which the holders of Common Stock shall be entitled to vote (or consent in lieu of a vote at a meeting) the holders of shares of Class A Common Stock and the holders of shares of Class B Common Stock shall vote together as though holders of a single class of capital stock (or, if any holders of any other class or series of capital stock of the Corporation are entitled to vote together with the holders of Common Stock of any class, as though a single class with the holders of such other class or series as well as the holders of Common Stock)and shall haveone vote per shareon each such matter the voting powers provided by the following provisions of this sectionall such matters.
(a) Holders of Class A Common Stock shall have one vote per share on all matters on which holders of Common Stock are entitled to vote.
(b) Holders of Class B Common Stock shall have ten votes per share on all matters on which holders of Common Stock are entitled to vote at all time until the Minimum Condition is not satisfied; thereafter such holders shall have one vote per share.
(c) In addition to any other voting right or power to which the holders of Class B Common Stock shall be entitled by law or other provisions of the certificate of incorporation of the Corporation from time to time in effect, holders of Class B Common Stock shall be entitled to vote as a separate class, in addition to any other vote of stockholders that may be required, on approval of (i) any alteration, repeal or amendment of the certificate of incorporation of the Corporation which would adversely affect the powers, preferences or rights of the holders of Class B Common Stock, and (ii) any merger or consolidation of the Corporation with any other entity if, as a result, shares of Class B Common Stock would be converted into or exchanged for, or receive, any consideration that differs from that applicable to the shares of Class A Common Stock as a result of such merger or consolidation, other than a difference limited to preserving the relative voting power of the holders of Class A Common Stock and Class B Common Stock. In respect of any matter as to which the holders of the Class B Common Stock shall be entitled to a class vote in accordance with this section, holders shall have one vote per share and the affirmative vote of the holders of a majority of the shares of Class B Common Stock shall be required for approval.
(d) In addition to any other voting right or power to which the holders of Class A Common Stock shall be entitled by law or other provisions of the certificate of incorporation of the Corporation from time to time in effect, holders of Class A Common Stock shall be entitled to vote as a separate class, in addition to any other vote of stockholders that may be required, on approval of (i) any alteration, repeal or amendment of the certificate of incorporation of the Corporation which would adversely affect the powers, preferences or rights of the holders of Class A Common Stock, and (ii) any merger or consolidation of the Corporation with any other entity if, as a result, shares of Class B Common Stock would be converted into or exchanged for, or receive, any consideration that differs from that applicable to the shares of Class A Common Stock as a result of such merger or consolidation, other than a difference limited to preserving the relative voting power of the holders of Class A Common Stock and Class B Common Stock. In respect of any matter as to which the holders of the Class A Common Stock shall be entitled to a class vote in accordance with this section, holders shall have one vote per share and the affirmative vote of the holders of a majority of the shares of Class A Common Stock shall be required for approval.
PartEC: Preferred Stock. Shares of Preferred Stock may be issued from time to time in one or more series, each such series having such powers, preferences and rights, and the qualifications, limitations or restrictions thereof, as are stated and expressed in the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Authority is hereby granted to the Board of Directors
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of the Corporation to issue from time to time shares of the Preferred Stock in one or more series, each such series to include such number of shares and to have such powers, preferences and rights as are stated and expressed in a resolution or resolutions adopted by the Board of Directors of the Corporation and filed as required by the DGCL before such issuance and determining and fixing such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights of such series of Preferred Stock, and the qualifications, limitations or restrictions thereof (including, without limitation, dividend rights, special voting rights or powers, conversion rights, redemption privileges and liquidation preferences), as shall in the discretion of the Board of Directors of the Corporation be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the DGCL. Any shares of Preferred Stock which may be redeemed, repurchased or otherwise acquired by the Corporation may be reissued except as otherwise provided by law.
PartFD: Uncertificated Shares. Any or all classes and series of stock of the Corporation, or any part thereof, may be represented by uncertificated stock to the extent permitted by the DGCL. The rights and obligations of the holders of stock represented by certificates and the rights and obligations of the holders of uncertificated stock of the same class and series shall be identical.
ARTICLE SIXTH:By-Laws. The Board of Directors shall have the power to make, alter or repeal the By-Laws of the Corporation.
ARTICLE SEVENTH:Election of Directors. The election of the Board of Directors need not be by written ballot.
ARTICLE EIGHTH:Indemnification. The Corporation shall indemnify to the fullest extent permitted by Section 145 of the DGCL, each person who is or was a director of the Corporation and the heirs, executors and administrators of such directors; and the Corporation may, in its sole discretion, indemnify such other persons that such Section grants the Corporation the power to indemnify.
ARTICLE NINTH:Liability. No director shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director for any act or omission occurring subsequent to the date when this provision becomes effective, except that he or she may be liable (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit.
ARTICLE TENTH:Certain Business Transactions. Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under Section 291 ofTitle 8 oftheDelaware CodeDGCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under Section 279 ofTitle 8 oftheDelaware CodeDGCL order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.
ARTICLE ELEVENTH:DGCL Section 203. The Corporation elects not to be governed by Section 203 of the DGCL.
ARTICLE TWELFTH:Effective Date. ThisSecondThird Amended and Restated Certificate of Incorporation shall become effective, in accordance with the DGCL, upon filing with the office of the Secretary of State of the State of Delaware (the date of such effectiveness, the "Effective Date").
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B-6 2017 Proxy Statement
SPIRIT AEROSYSTEMS EMPLOYEE STOCK PURCHASE PLAN
In addition, this Plan provides for the purchase of shares under a plan which is not subject to Section 423 of the Code pursuant to rules, procedures, or sub-plans adopted by the Committee designed to achieve tax, securities law, or other objectives for eligible employees of Designated Affiliates of the Company. Except as otherwise provided herein, the portion of the Plan that does not satisfy the requirements of Code Section 423 will operate and be administered in the same manner as the portion of the Plan that does satisfy such requirements.
Notwithstanding the foregoing, employees who are citizens or residents of a foreign jurisdiction (without regard to whether they are also citizens of the United States or resident aliens) will not be treated as Employees of the Company or a Participating Company for purposes of the Plan if either the grant of an option under the Plan to a citizen or resident of the foreign jurisdiction is prohibited under the laws of such jurisdiction or compliance with the laws of the foreign jurisdiction would cause the portion of the Plan that is intended to be subject to Code Section 423 to violate the requirements of such Code Section.
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Only Participating Companies may participate in the portion of the Plan subject to Code Section 423. A Participating Company will cease to be a Participating Company on the earlier of (i) the date the Committee determines that such entity is no longer a Participating Company, or (ii) when such Participating Company ceases for any reason to be a Subsidiary.
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Plan must be made in compliance with the Company's insider trading policies and such rules and procedures as may be established by the Committee or its delegates in connection therewith.
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or terminates employment as provided in Section 7.2. A participant's payroll deduction election may not be modified during an Offering Period, except as provided in Sections 5.5 and 7.1
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The provisions of the portion of the Plan intended to be subject to Code Section 423 will be construed in a manner consistent with the requirements of that Code Section. The Committee will have the discretion to determine whether a Subsidiary will be a Participating Company with respect to the portion of the Plan subject to Code Section 423 and whether an Affiliate will be a Designated Affiliate with respect to the portion of the Plan not subject to Code Section 423.
Additionally, the Committee will have discretion to adopt rules regarding Plan administration to conform to local laws or to enable eligible employees of the Company, Participating Companies, and Designated Affiliates to participate in the Plan. The Committee may also adopt rules, procedures, or sub-plans applicable to particular Designated Affiliates, which sub-plans may be designed to be outside the scope of Code Section 423. Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules and procedures regarding the handling of payroll deductions or other contributions by participants, payment of interest, conversion of local currency, data privacy and security, payroll tax, withholding procedures, and handling of
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stock certificates, which rules and procedures may vary according to local requirements, as part of the portion of the Plan not subject to Code Section 423.
The rules of any sub-plans designed to be outside the scope of Code Section 423 may take precedence over other provisions of the Plan, except that, unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan will govern the operation of such sub-plan and no such sub-plan may (i) supersede the provisions of Sections 3.3(a) and 8.1, (ii) provide participants with a discount (whether through a reduced purchase price or as a result of employer matching contributions) of greater than 15% of the Fair Market Value of a share of Stock on the Purchase Date, or (iii) provide for payroll deductions or other contributions by participants in excess of the maximum dollar amount set forth in Section 5.1. The Committee has the authority to suspend or limit participation in the portion of the Plan not subject to Code Section 423 (including any or all sub-plans thereunder) for any reason, including administrative or economic reasons. The approval of the stockholders of the Company is not required before the adoption, amendment, or termination of any sub-plan designed to be outside the scope of Code Section 423, unless required by the laws of the foreign jurisdiction in which eligible employees participating in the sub-plan are located or by any other applicable laws, rules, or regulations, including, without limitation, the rules or standards of any stock exchange on which shares of Stock are listed.
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Without limiting the generality of the foregoing, the Committee may permit or require a participant to satisfy, in whole or in part, any withholding liability by any of the following methods or any combination of the following methods: (A) delivering shares of Stock (that are not subject to any pledge or other security interest) owned by the participant having a Fair Market Value equal to such withholding liability; (B) having the Company withhold from the number of shares of Stock otherwise issuable or deliverable pursuant to the exercise of an option a number of shares with a Fair Market Value equal to such withholding liability, except that with respect to shares withheld pursuant to this clause (B), the number of such shares may not have a Fair Market Value greater than the minimum required statutory withholding liability; (C) requiring the participant, as a condition precedent to transfer of the shares, to make a payment in an amount equal to the amount of the withholdings or reductions; or (D) such other method or combination of methods as the Committee deems appropriate, in its sole discretion.
The Committee will have the right, in its sole discretion, to require, as a condition precedent to the transfer of any shares under this Plan, that the transferee execute a power of attorney or such other agreement or document as the Committee deems necessary or appropriate to facilitate, directly or indirectly, the withholding of taxes with respect to any transaction arising under or in connection with this Plan.
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issued under any Offering (except pursuant to Section 10.6), to amend the requirements as to the class of employees eligible to purchase Stock under the Plan (except for designations of Participating Companies and Designated Affiliates pursuant to Sections 2.8, 2.12 and 9.1), or to change the granting corporation or the Stock available for purchase under the Plan may be made only by the Board of Directors with the approval of the Company's stockholders within 12 months before or after the date such amendment is adopted by the Board. Any other amendment to the Plan may be made by either the Board of Directors or the Committee, unless otherwise required by any applicable law, rule, or regulation, including, without limitation, the rules and regulations of the New York Stock Exchange. No termination, modification, or amendment of the Plan may, without the consent of an employee then having an option under the Plan to purchase Stock, adversely affect the rights of such employee under such option.
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C-8 2017 Proxy Statement
MMMMMMMMMMMM . Admission Ticket MMMMMMMMMMMMMMM C123456789 000004 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext ENDORSEMENT_LINE______________ SACKPACK_____________ MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Proposals — The Board of Directors recommends a vote FOR the listed nominees in Proposal 1, FOR Proposals 2, 3, 4 and 6 and FOR Every Year on + Proposal 5. 1. Election of Directors: For Against Abstain For Against Abstain For Against Abstain 01 - Charles L. Chadwell 02 - Irene M. Esteves 03 - Paul Fulchino 04 - Thomas C. Gentile, III 05 - Richard Gephardt 06 - Robert Johnson 07 - Ronald T. Kadish 08 - John L. Plueger 09 - Francis Raborn For Against Abstain ForAgainst Abstain 2. Approve the Third Amended and Restated Certificate of IncorporationBack to eliminate the Company’s Class B Common stock. 4. Approve on an advisory basis the compensation of the Company’s named executive officers. 3. Approve the Employee Stock Purchase Plan. For Against Abstain ForFor For Every Every 2 Every 3 Abstain 5. Vote on an advisory basis on the frequency of an advisory vote on the compensation of the Company’s named executive officers. YearYears Years For Against Abstain 6. Ratify the selection of Ernst & Young, LLP as the Company’s independent registered public accounting firm. Authorized Signatures — This section must be completed for your voteContents
. Please keep this ticket to be admitted to the annual meeting NOTICE OF 2017 ANNUAL MEETING OF STOCKHOLDERS Time: 11 a.m. Eastern Time on Wednesday, April 26, 2017 Place: Fairmont Washington, D.C. Dumbarton Room 2401 M Street, NW Washington, D.C. 20037 Who May Vote: You may vote if you were a stockholder of record at the close of business on March 3, 2017. By order of the Board of Directors Stacy Cozad, Senior Vice President, General Counsel,Chief Compliance Officer and Secretary Important Notice Regarding the Internet Availability of Proxy Materials for Spirit AeroSystems Holdings, Inc.’s 2017 Annual Meeting of Stockholders. The Proxy Statement and the 2016 Annual Report are available at: www.edocumentview.com/spr q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q + Proxy — Spirit AeroSystems Holdings, Inc. PROXY / VOTING INSTRUCTIONS SOLICITED BY THE BOARD OF DIRECTORS SPIRIT AEROSYSTEMS HOLDINGS, INC. 2017 ANNUAL MEETING OF STOCKHOLDERS — APRIL 26, 2017 Each signatory on the reverse side hereby appoints Stacy Cozad and Robert Johnson, and each of them, with the power of substitution, proxies for the undersigned and authorizes them to represent and vote all of the shares of stock of Spirit AeroSystems Holdings, Inc. which the undersigned may be entitled to vote at the Annual Meeting of Stockholders to be held on Wednesday, April 26, 2017 (the "Meeting"), and at any adjournment thereof, with respect to all of the proposals indicated on the reverse side of this card, and with discretionary authority as to any other matters that may properly come before the Meeting, in accordance with and as described in the Notice and Proxy Statement for the Meeting. This proxy, when properly executed, will be voted as directed or, if no direction is given, will be voted in accordance with the recommendations of the Board of Directors of Spirit AeroSystems Holdings, Inc. on all the proposals referred to on the reverse side and in the discretion of the proxies on any other matters as may properly come before the Meeting. IMPORTANT: PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE. Non-Voting Items Change of Address — Please print new address below. Comments — Please print your comments below. + IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD. C