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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
Filed by the Registrantý | ||
Filed by a Party other than the Registranto | ||
Check the appropriate box: | ||
o | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
ý | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material under §240.14a-12 |
K12 INC. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
Payment of Filing Fee (Check the appropriate box): | ||||
ý | No fee required. | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: | |||
(2) | Aggregate number of securities to which transaction applies: | |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
(4) | Proposed maximum aggregate value of transaction: | |||
(5) | Total fee paid: | |||
o | Fee paid previously with preliminary materials. | |||
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
(1) | Amount Previously Paid: | |||
(2) | Form, Schedule or Registration Statement No.: | |||
(3) | Filing Party: | |||
(4) | Date Filed: |
October 27, 201725, 2019
Dear Fellow Stockholders:
On behalf of our Board of Directors, I cordially invite you to attend the 20172019 Annual Meeting of Stockholders of K12 Inc. ("Annual Meeting") to be held at the law firm of Latham & Watkins LLP, 555 Eleventh Street, N.W., Suite 1000, Washington, D.C. 20004-1304, on December 14, 2017,13, 2019, at 10:00 A.M., Eastern Time. The matters to be considered by the stockholders at the Annual Meeting are described in detail in the accompanying proxy materials.
IT IS IMPORTANT THAT YOU BE REPRESENTED AT THE ANNUAL MEETING REGARDLESS OF THE NUMBER OF SHARES YOU OWN OR WHETHER OR NOT YOU ARE ABLE TO ATTEND THE ANNUAL MEETING IN PERSON.
We urge you to vote promptly, even if you plan to attend the Annual Meeting. Please vote electronically via the Internet or by telephone, if permitted by the broker or other nominee that holds your shares, or if you receive a paper copy of the proxy materials, please complete, sign, date and return the accompanying proxy card. Voting electronically, by telephone or by returning your proxy card in advance of the Annual Meeting does not deprive you of your right to attend the Annual Meeting. Thank you for your continued support of K12.
Sincerely, | ||
Nathaniel A. Davis | ||
NOTICE OF 20172019 ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON
DECEMBER 14, 201713, 2019
The annual meeting of stockholders of K12 Inc., a Delaware corporation ("Company"), will be held at the law firm of Latham & Watkins LLP, 555 Eleventh Street, N.W., Suite 1000, Washington, D.C. 20004-1304, on Thursday,Friday, December 14, 2017,13, 2019, at 10:00 A.M., Eastern Time ("Annual Meeting").
At the Annual Meeting, stockholders will be asked to:
Stockholders of record at the close of business on October 20, 2017,18, 2019, the record date, will receive notice of and be allowed to vote at the Annual Meeting. The foregoing matters are described in more detail in the Proxy Statement. In addition, financial and other information about the Company is contained in the Annual Report to Stockholders on Form 10-K ("Annual Report") for the fiscal year ended June 30, 20172019 ("Annual Report"), which includes our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 ("fiscal 2017"2019"), as filed with the U.S. Securities and Exchange Commission ("SEC") on August 9, 2017.7, 2019.
This year weWe have elected to distribute our proxy materials primarily over the Internet rather than mailing paper copies of those materials to each stockholder, which will decrease our printing and distribution costs and allow for convenient access to and delivery of materials in an easily searchable format. If you would prefer to receive paper copies of our proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials that was mailed to our stockholders on or about October 27, 2017.25, 2019.
For admission to the Annual Meeting, stockholders should come to the stockholder check-in table. Those who own shares in their own names should provide identification and have their ownership verified against the list of registered stockholders as of the record date. Those who have beneficial ownership of stock through a bank or broker must bring account statements or letters from their banks or brokers indicating that they owned the Company's common stockCommon Stock as of the close of business on October 20, 2017.18, 2019. To vote at the meeting, those who have beneficial ownership of stock through a bank or broker must bring a legal proxy, which can be obtained only from the broker or bank.
Your vote is important to us. We encourage you to read the Proxy Statement and then vote by Internet, by phone or sign, date and return your proxy card (if you request a paper copy) at your earliest convenience. Sending in your proxy card will not prevent you from voting your shares at the Annual Meeting, if you desire to do so.
By Order of the Board of Directors, | ||
|
Herndon, VA
October 27, 201725, 2019
IMPORTANT NOTICE ABOUT THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 14, 201713, 2019
The 20172019 Proxy Statement and the 20172019 Annual Report are available at: www.edocumentview.com/LRN.
PROXY STATEMENT | 1 | |
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THESE PROXY MATERIALS | 4 | |
CORPORATE GOVERNANCE AND BOARD MATTERS | 6 | |
Corporate Governance Guidelines and Code of Business Conduct and Ethics | 6 | |
Board of Directors | 6 | |
Director Independence | 7 | |
Board of Directors Leadership Structure | 7 | |
Committees of the Board of Directors | 8 | |
Risk Management | 11 | |
Director Compensation for Fiscal | 12 | |
PROPOSAL 1: ELECTION OF DIRECTORS | 15 | |
NOMINEES FOR ELECTION AT THE ANNUAL MEETING | 15 | |
Executive Officers | 18 | |
COMPENSATION DISCUSSION AND ANALYSIS | ||
Executive Summary | ||
Say on Pay Results and Stockholder Engagement | 20 | |
2019 Performance Highlights | ||
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Executive Compensation Principles and Practices | ||
Tying Executive Pay to Company Performance | ||
Determining Executive Compensation | ||
Fiscal | ||
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Other Compensation | ||
Compensation Governance, Process and Incentive Decisions | ||
Other Compensation Policies and Practices | ||
COMPENSATION TABLES | ||
Summary Compensation Table for Fiscal | ||
Grants of Plan-Based Awards During Fiscal | ||
Outstanding Equity Awards at End of Fiscal | ||
Option Exercises and Stock Vested During Fiscal | ||
Fiscal | ||
Potential Payments upon Termination or Change in Control | ||
Pay Ratio Disclosure | 46 | |
COMPENSATION COMMITTEE REPORT | ||
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS | ||
Policies and Procedures for Related-Party Transactions | ||
Compensation Committee Interlocks and Insider Participation | ||
PROPOSAL 2: ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION | ||
Prior Year Vote and Fiscal 2019 Compensation Highlights | 49 | |
PROPOSAL 3: | ||
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Fees Paid to Independent Registered Public Accounting Firm | ||
AUDIT COMMITTEE REPORT | ||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | ||
DELINQUENT SECTION | ||
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED ON | ||
DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS | ||
PROPOSALS BY OUR STOCKHOLDERS | ||
WHERE YOU CAN FIND MORE INFORMATION |
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
DECEMBER 14, 201713, 2019
We are providing access to our proxy materials primarily over the Internet rather than mailing paper copies of those materials to each stockholder. On or about October 27, 201725, 2019 we mailed a Notice of Internet Availability of Proxy Materials ("Notice") to all stockholders entitled to vote at the Annual Meeting. The Notice tells you how to:
This Proxy Statement is provided in connection with the solicitation of proxies by and on behalf of the Board of Directors of K12 Inc., a Delaware corporation, for use at the annual meeting of stockholders to be held at the law firm of Latham & Watkins LLP, 555 Eleventh Street, N.W., Suite 1000, Washington, D.C. 20004-1304, on Thursday,Friday, December 14, 2017,13, 2019, at 10:00 A.M., Eastern Time, and any adjournments or postponements thereof ("Annual Meeting"). "K12," "we," "our," "us" and the "Company" each refer to K12 Inc. The mailing address of our principal executive offices is 2300 Corporate Park Drive, Herndon, VA 20171. This Proxy Statement will be made available on or about October 27, 2017,25, 2019, to holders of record as of the close of business on October 20, 201718, 2019 of our common stock, par value $0.0001 per share ("Common Stock").
Record Date; Outstanding Shares; Shares Entitled to Vote
Our Board of Directors has fixed the close of business on October 20, 201718, 2019 as the record date ("Record Date") for determining the stockholders entitled to notice of, and to vote at, the Annual Meeting. On the Record Date, we had 41,332,77440,955,110 shares of Common Stock outstanding and entitled to vote.
Holders of record of Common Stock on the Record Date will be entitled to one vote per share on any matter that may properly come before the Annual Meeting and any adjournments or postponements of the Annual Meeting.
Quorum and Vote Required
The presence, in person or by duly executed proxy, of stockholders representing a majority of all the votes entitled to be cast at the Annual Meeting will constitute a quorum. If a quorum is not present at the Annual Meeting, we expect that the Annual Meeting will be adjourned or postponed to solicit additional proxies.
If a quorum is present: (i)present, a plurality of votes present in person or represented by proxy at the Annual Meeting and entitled to vote on the election of directors is required to elect the members of the Board of Directors; and an affirmative vote of a majority of the votes present in person or represented by proxy at the Annual Meeting is required for (ii)(i) the non-binding advisory resolution approving the executive compensation of the named executive officers of the Company, (iii) the non-binding advisory vote on the frequency of Say on Pay in future years, (iv)(ii) the ratification of the appointment of BDO USA, LLP as the Company's independent registered public accounting firm for the fiscal year ending
accounting firm for the fiscal year ending June 30, 20182020 ("fiscal 2018"2020"), and (v)(iii) such other matters as may properly come before the Annual Meeting or any adjournments or postponements of the Annual Meeting.
Voting; Proxies; Revocation
Shares of our Common Stock represented at the Annual Meeting by properly executed proxies received prior to or at the Annual Meeting, and not revoked prior to or at the Annual Meeting, will be voted at the Annual Meeting, and at any adjournments, continuations or postponements of the Annual Meeting, in accordance with the instructions on the proxies.
If a proxy is duly executed and submitted without instructions, the shares of Common Stock represented by that proxy will be voted:
A record holder who executes a proxy may revoke it before or at the Annual Meeting by: (i) delivering to our corporate secretary a written notice of revocation of a previously delivered proxy, with such notice dated after the previously delivered proxy; (ii) duly executing, dating and delivering to our corporate secretary a subsequent proxy; or (iii) attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, in and of itself, constitute revocation of a proxy. Any written notice revoking a proxy should be delivered to K12 Inc., Attn: General Counsel and Secretary, 2300 Corporate Park Drive, Herndon, VA 20171. If your shares of Common Stock are held in a brokerage account, you must follow your broker's instructions to revoke a proxy.
Abstentions and Broker Non-Votes
Broker non-votes occur when a nominee holding shares of voting securities for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power on that item and has not received instructions from the beneficial owner. Abstentions, withheld votes, and broker non-votes are included in determining whether a quorum is present but are not deemed a vote cast "For" or "Against" a given proposal, and therefore, are not included in the tabulation of the voting results. As such, abstentions, withheld votes and broker non-votes do not affect the voting results with respect to the election of directors. Abstentions and broker non-votes will have the effect of a vote against the approval of any items requiring the affirmative vote of the holders of a majority or greater of the outstanding common stockCommon Stock entitled to vote.
Proxy Solicitation
We are soliciting proxies for the Annual Meeting from our stockholders and we will bear the entire cost of soliciting proxies from our stockholders. Copies of solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding Common Stock for the benefit of others so that such brokerage houses, fiduciaries and custodians may forward the solicitation materials to such beneficial
owners. We may reimburse persons representing beneficial owners of Common Stock for their expenses in forwarding solicitation materials to those beneficial owners. Original solicitation of proxies by mail may
be supplemented by telephone or personal solicitation by our directors, officers or other regular employees of the Company. No additional compensation will be paid to our directors, officers or other regular employees for these services.
The Company has retained D. F. King & Co. ("DF King") to assist in obtaining proxies from stockholders for the Annual Meeting. The estimated cost of such services is $17,500, plus out-of-pocket expenses. DF King may be contacted at (800) 431-9633 (banks and brokers may call (212) 269-5550) or via email at K12@dfking.com.
Business; Adjournments
We do not expect that any matter other than the proposals presented in this Proxy Statement will be brought before the Annual Meeting. However, if other matters are properly presented at the Annual Meeting or any adjournments or postponements of the Annual Meeting, then the proxy holders will vote in their discretion with respect to those matters.
If a quorum is not present at the Annual Meeting, the Annual Meeting may be adjourned from time to time upon the approval of the holders of shares representing a majority of the votes present in person or by proxy at the Annual Meeting, until a quorum is present. Any business may be transacted at the adjourned meeting which might have been transacted at the meeting originally noticed. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. We do not currently intend to seek an adjournment of the Annual Meeting.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THESE PROXY MATERIALS
The following addresses some questions you may have regarding the matters to be voted upon at the Annual Meeting. These questions and answers may not address all questions that may be important to you as a stockholder of the Company. Please refer to the more detailed information contained elsewhere in this Proxy Statement and the documents referred to or incorporated by reference in this Proxy Statement for additional information.
Why am I receiving this Proxy Statement?
The Company is soliciting proxies for the Annual Meeting. You are receiving a Proxy Statement because you owned shares of Common Stock at the close of business on October 20, 2017,18, 2019, the Record Date for the Annual Meeting, which entitles you to vote at the Annual Meeting. By use of a proxy, you can vote whether or not you attend the Annual Meeting. This Proxy Statement describes the matters on which we would like you to cast a vote and provides information on those matters so that you can make an informed decision.
Why is K12 calling the Annual Meeting?
We are calling the Annual Meeting and submitting proposals to stockholders of the Company to consider and vote upon Annual Meeting matters, including (i) the election of directors, (ii) a non-binding advisory resolution approving the compensation of the Company's named executive officers, a non-binding advisory vote on the frequency of Say on Pay in future years, and (iii) the ratification of the appointment of our independent registered public accounting firm.
How does the Board of Directors recommend that I vote?
Our Board of Directors recommends that you voteFOR the election of each of the Board of Director nominees named in Proposal 1 andFOReach of Proposals 1, 2 and 4 and for "ONE YEAR" as the frequency of Say on Pay in future years for Proposal 3.
What do I need to do now?
After carefully reading and considering the information in this Proxy Statement, please vote electronically via the Internet or by telephone by following the instructions provided by your bank or broker or complete, date, sign and promptly mail the proxy card (if you request a paper copy) in the envelope provided, which requires no postage if mailed in the United States.
May I vote in person?
Yes. If you were a stockholder of record as of the close of business on October 20, 2017,18, 2019, you may attend the Annual Meeting and vote your shares in person instead of voting by Internet or telephone or returning your signed proxy card (if you request a paper copy). However, we urge you to vote in advance even if you are planning to attend the Annual Meeting.
How do I vote if my shares are held in "street name" by my bank, broker or agent?
If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received voting instructions with these proxy materials from that organization rather than from us. Simply complete and mail your voting instructions as directed by your broker or bank to ensure that your vote is counted. To vote in person at the Annual Meeting, you must obtain a valid proxy from
your broker, bank, or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.
If my shares are held in "street name" by a broker, will my broker vote my shares for me even if I do not give my broker voting instructions?
Under the rules that govern brokers who have record ownership of shares that are held in "street name" for their clients, brokers may vote such shares on behalf of their clients with respect to "routine" matters (such as the ratification of auditors in Proposal 4)3), but not with respect to non-routine matters (such as Proposals 1 2 and 3)2). If the proposals to be acted upon at the Annual Meeting include both routine and non-routine matters, the broker may turn in a proxy card for uninstructed shares that votes on the routine matters, but expressly states that the broker is not voting on non-routine matters. This is called a "broker non-vote" as to non-routine matters. Broker non-votes on non-routine matters will be counted for the purpose of determining the presence or absence of a quorum, but will not be counted for the purpose of determining the number of votes cast. We encourage you to provide specific instructions to your broker by returning your proxy card or by voting electronically via the Internet or by telephone, if permitted by the broker or other nominee that holds your shares. This ensures that your shares will be properly voted at the Annual Meeting.
Can I revoke my proxy and change my vote?
Yes. You have the right to revoke your proxy at any time prior to the time your shares are voted at the Annual Meeting. If you are a stockholder of record, your proxy can be revoked in several ways: by timely delivery of a written revocation to our corporate secretary, by submitting another valid proxy bearing a later date or by attending the Annual Meeting and voting your shares in person, even if you have previously voted using one of the available methods.
When and where is the Annual Meeting?
The Annual Meeting will be held on December 14, 201713, 2019 at 10:00 A.M., Eastern Time, at the law firm of Latham & Watkins LLP, 555 Eleventh Street, NW,N.W., Suite 1000, Washington, DC 20004-1304.
Who can help answer my questions regarding the Annual Meeting or the proposals?
You may contact K12 to assist you with questions about the Annual Meeting. You may reach K12 at:
K12 Inc.
Attention: Investor Relations
2300 Corporate Park Drive
Herndon, VA 20171
(703) 483-7000
You may also contact DF King to assist you with questions about proxies or voting. You may reach DF King at:
D.F. King & Co.,Inc.,
48 Wall Street, 22nd Floor
New York, New York 10005
(800) 431-9633
Banks and brokers may call (212) 269-5550
CORPORATE GOVERNANCE AND BOARD MATTERS
Corporate Governance Guidelines and Code of Business Conduct and Ethics
Our Board of Directors oversees the management of the Company and its business for the benefit of our stockholders in order to enhance stockholder value over the long-term and to achieve its educational mission. The Board of Directors also has adopted Corporate Governance Guidelines to assist it in the exercise of its responsibilities. The Guidelines are reviewed annually and periodically amended as the Board of Directors enhances the Company's corporate governance practices. The Board of Directors has also adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees. The purpose of this code is to promote honest and ethical conduct for conducting the business of the Company, consistent with the highest standards of business ethics. The Corporate Governance Guidelines and Code of Business Conduct and Ethics are available on our website at www.K12.com under theK12 Corporate-Investor Relations-Governance section.
Our corporate governance and business conduct best practices include:
We intend to satisfy the disclosure requirements under the Securities Exchange Act of 1934, as amended, ("Exchange Act") regarding any amendment to, or waiver from a material provision of our Code of Business Conduct and Ethics involving our principal executive, financial or accounting officer or controller by posting such information on our website.
Term of Office. All directors of the Company serve terms of one year and until the election and qualification of their respective successors.
Attendance at Board and Committee Meetings and the 20162018 Annual Meeting. Our Board of Directors met sevennine times in person or telephonically during fiscal 2017.2019. Each director attended at least 75% of the total Board and committee meetings to which they were assigned. Our policy with respect to director attendance at the annual meeting of stockholders is to encourage, but not require, director attendance. Two membersMr. Davis was the only member of our Board of Directors attendedto attend our 2016 Annual Meeting2018 annual meeting of Stockholders: Mr. Davis and Mr. Udell.stockholders. Our director attendance policy is included in our Corporate Governance Guidelines, which is available on our website at www.K12.com.
Communication with Directors. Stockholders and other interested parties may communicate directly with our Board of Directors, individually or as a group, by sending an email to our General Counsel at OGC@K12.com, or by mailing a letter to K12 Inc., 2300 Corporate Park Drive, Herndon, VA 20171, Attention: General Counsel and Secretary. Our General Counsel will monitor these communications and provide summaries of all received communications to our Board of Directors at its regularly scheduled meetings. Where the nature of a communication warrants, our General Counsel may decide to seek the more immediate attention of the appropriate committee of the Board of Directors or an individual director, or our management or independent advisors and will determine whether any response is necessary.
Our Board of Directors has affirmatively determined that each of our non-employee directors is "independent" as defined in the currently applicable listing standards of the New York Stock Exchange ("NYSE") and the rules and regulations of the Securities and Exchange Commission ("SEC"). Messrs.Mr. Davis and Udell areis not independent under either NYSE or SEC rules because they are eachhe is an executive officer of the Company. If the nominees for the Board of Directors are duly elected at the Annual Meeting, then each of our directors, other than Messrs.Mr. Davis, and Udell, will serve as an independent director.
Board of Directors Leadership Structure
Our Board of Directors is comprised of independent, accomplished and experienced directors who provide advice and oversight of management to further the interests of the Company and its stockholders. Our governance framework provides the Board of Directors with the flexibility to determine an optimal organizational structure for leadership and engagement while ensuring appropriate insight into the operations and strategic issues of the Company. The Board of Directors has evaluated its leadership structure and determined that Mr. Davis should serve as Executive Chairman of the Board and that Dr. Craig Barrett should serve as Lead Independent Director.
Chairman. Our Board of Directors elects a chairman from among the directors and determines whether to separate or combine the roles of chairman and chief executive officer based on what it believes best serves the needs of the Company and its stockholders at any particular time. Both approaches have been taken depending on the circumstances. The determination to appoint Mr. Davis as Executive Chairman was based on a number of factors that made him particularly well-suited for the role. These factors included his prior position as Executive Chairman and Chief Executive Officer,CEO, his prior service on the Board of Directors and its Compensation Committee, and his understanding of the Company's business and day-to-day operations, growth opportunities, challenges and risk management practices. This combination of Company experience and expertise enables Mr. Davis to provide strong and effective leadership to the Board of Directors and to ensure that the Board of Directors is informed of important issues. Additional factors supporting the current leadership structure are described on page 27. In consultation with our Lead Independent Director, and the Chief Executive Officer, the Executive Chairman sets the agenda for the regular and special meetings of the Board of Directors, presides at the annual meeting of stockholders and performs such other functions and responsibilities as set forth in the Corporate Governance Guidelines, or as requested by the Board of Directors.
Lead Independent Director. The role of the Lead Independent Director is to facilitate communications between the Executive Chairman and CEO and the independent directors and the committees of the Board of Directors. In doing so, the Lead Independent Director, Dr. Barrett, serves as the liaison between the Board of Directors and the Executive Chairman and CEO, thereby giving guidance to management in meeting the objectives set by the Board of Directors and monitoring compliance with corporate governance policies. Additionally, the Lead Independent Director serves as a liaison between the Board of Directors and stockholders. The Lead Independent Director has the authority to call meetings of the independent
directors and chairs executive sessions of the Board of Directors during which no members of management are present. These meetings are intended to provide the Lead Independent Director with
information that he can use to assist the Executive Chairman and CEO to function in the most effective manner. The Board of Directors believes the Lead Independent Director provides additional independent oversight of executive management and Board matters.
Executive Sessions of the Board. Our Board of Directors holds executive sessions without management directors or management present at each regularly scheduled meeting of the Board of Directors. The independent directors also may also meet without management present at other times as requested by any independent director. As Lead Independent Director, Dr. Barrett chairs the executive sessions of the Board of Directors.
Committees of the Board of Directors
The standing committees of our Board of Directors are the Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Academic Committee. As of the date of this Proxy Statement, membership on the Committees of the Board of Directors is as follows:
Audit Committee
The Audit Committee, which was established in accordance with Section 3(a)(58)(A) of the Exchange Act, consists of Mr. Fink, who serves as the Chairman, Ms. Alvarez and Mr. Bron.Cohen. Our Board of Directors has determined that each of Messrs. FinkCohen and BronFink and Ms. Alvarez qualify as independent directors under the applicable NYSE listing requirements and SEC regulations.
The Audit Committee met ninesix times during fiscal 2017.2019. The meetings to review the Company's quarterly and annual periodic filings with the SEC each include at least two separate sessions (which together count as only one meeting). Mr. Fink engaged in routine separate communications with the Company's external auditors and Chief Financial Officer, held the required executive sessions at each meeting, and requested participation by outside counsel, as needed. The Audit Committee has a charter, available on our website at www.K12.com, setting forth its structure, powers and responsibilities. Pursuant to the charter, the Audit Committee is comprised of at least three members appointed by our Board of Directors, each of whom satisfies the requirements of independence and financial literacy. In addition, our Board of Directors has determined that Messrs. FinkCohen and BronFink and Ms. Alvarez are each an audit committee financial expert
financial expert, as that term is defined under the Exchange Act. Under its charter, the responsibilities of the Audit Committee include:
In addition, our Corporate Governance Guidelines provide that members of the Audit Committee may not serve on the audit committees of more than two other companies at the same time as they serve on our Audit Committee.
Compensation Committee
The Compensation Committee consists of Mr. Engler,Knowling, who serves as the Chairman, and Messrs. FinkEngler and Tisch.Fink. Our Board of Directors has determined that each of Messrs. Engler, Fink and TischKnowling qualify as independent directors within the meaning of the applicable NYSE listing requirements and SEC regulations.
The Compensation Committee met sevensix times during fiscal 2017.2019. The Compensation Committee has a charter, available on our website at www.K12.com, setting forth its structure, powers and responsibilities. These include:
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee consists of Mr. Tisch,Ms. McFadden, who serves as the Chairman, and Messrs. Bron and Engler and Ms. McFadden.Engler. Our Board of Directors has determined that each of
Ms. McFadden and Messrs. Tisch, Bron and Engler and Ms. McFadden qualify as independent directors within the meaning of the applicable NYSE listing requirements and SEC regulations. Our Board of Directors has adopted Corporate Governance Guidelines which are available on our website at www.K12.com.
The Nominating and Corporate Governance Committee met fourfive times during fiscal 2017.2019. The Nominating and Corporate Governance Committee has a charter, available on our website at www.K12.com, setting forth its structure, powers and responsibilities. Under its charter, the Nominating and Corporate Governance Committee has the authority to nominate persons to stand for election and to fill vacancies on our Board of Directors. The Nominating and Corporate Governance Committee may consider the following criteria, as well as any other factors it deems appropriate, in recommending candidates for election to our Board of Directors:
In fiscal 2017, theThe Board amended its Corporate Governance Guidelines to expressly include consideration of diversity in identifying director nominees. The BoardDirectors strives to nominate directors with a variety of complementary skills so that, as a group, the Board of Directors will possess a mix of the appropriate backgrounds, talent, gender, race, perspectives, skills and expertise to oversee the Company's business. Currently, theour nine member Board has a male and female director oftwo Hispanic descent and andirectors, two African American director, one of which we added in fiscal 2017.directors, and two female directors. The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders, provided such recommendations are submitted in writing not later than the close of business on the 90th day, or earlier than the close of business on the 120th day, prior to the anniversary of the preceding year's annual meeting of the stockholders. Such recommendations should include the name and address and other pertinent information about the candidate as is required to be included in the Company's proxy statement. Recommendations should be submitted to the corporate secretary of the Company at K12 Inc., 2300 Corporate Park Drive, Herndon, VA 20171, Attention: General Counsel and Secretary. The Nominating and Corporate Governance Committee will consider the criteria set forth above and other relevant information when evaluating director candidates recommended by stockholders.
Mses. AlvarezOn the recommendation of the Nominating and McFadden wereCorporate Governance Committee, Mr. Cohen was appointed to the Board of Directors, during 2017 to fill vacancies on the Board of DirectorsAudit Committee and therefore arethe Academic Committee. Accordingly, he is standing for election as directorsa director for the first time. Our directors as a group, recommended Mses. Alvarez and McFaddenMr. Cohen to the Nominating and Corporate Governance Committee, which vetted themevaluated him prior to theirhis appointment to the Board of Directors.
Academic Committee
The Academic Committee consists of Dr. Barrett, who serves as the Chairman, and Messrs. DavisCohen and Engler. The primary role of the Academic Committee is to make recommendations and assist
management in discharging its responsibility to ensure continuous improvement in academic outcomes for the students and schools we serve.
The Academic Committee has a charter, available on our website at www.K12.com, setting forth the structure, powers and responsibilities of the Academic Committee. Members of the Academic Committee participated in threefour meetings of the Company's Educational Advisory Committee ("EAC") during fiscal 2017.2019. Under its charter, the responsibilities of the Academic Committee include:
Our Board of Directors believes full and open communication with management is essential for effective enterprise risk management and oversight. Members discuss strategy and risks facing the Company with our Executive Chairman ourand CEO and our senior management at meetings of our Board of Directors or when members of our Board of Directors seek to focus on a particular area of risk, such as meeting state academic accountability standards at the schools we manage, ensuring the privacy of student information, compliance with state regulatory and reporting requirements, or information technology cyber-securitycybersecurity protections and preparedness. Because our Executive Chairman and our CEO also setsets the agenda for the Board of Directors' meetings, each functional division of the Company can identify risk-related topics that may require added attention, such aswhich have included evolving state curriculum standards, student engagement and retention, education technology, legal and policy matters, information security, and information security.succession planning. Each quarter, our Executive Chairman and our CEO also presentpresents an assessment of the strategic, financial and operational issues facing the Company, which frequently includes a review of associated risks and opportunities.
Management is responsible for identifying, prioritizing, remediating and monitoring the day-to-day management of risks that the Company faces, while our Board of Directors, as a whole and through its committees, is responsible for the oversight of enterprise risk management. In fiscal 2017,2019, the Audit Committee continued to work directly with a major independent accounting firm to support the Company's internal audit function in risk management. This combination provides us with the focus, scope, expertise and continuous attention necessary for effective risk management.
While our Board of Directors is ultimately responsible for risk oversight, three of its committees concentrate on specific risk areas.areas:
measures. The Audit Committee reports on our cybersecurity measures in its regular reports to the Board of Directors. In addition, ourthe Audit Committee assists the Board of Directors in the oversight of legal risk management. A Legal Compliance and Ethics Committee (consisting of senior management members) maintains a Legal Compliance and
Ethics Program, which includes a Chief School Compliance Officer within the Office of the General Counsel. The Legal Compliance and Ethics Committee provides semi-annual reports to the Audit Committee on the Company's legal risks and compliance-related matters in the schools we serve.serve and at the corporate level.
Director Compensation for Fiscal 20172019
In fiscal 2017,2019, pursuant to our Amended Non-Employee Directors Compensation Plan ("Directors Compensation Plan"), our non-employee directors receivedwere eligible to receive annual cash retainers for service on the Board of Directors and assigned committees and annual restricted stock awards. Messrs.Mr. Davis, and Udell, our Executive Chairman and Chief Executive Officer, respectively,CEO, received no additional compensation for theirhis service on our Board of Directors.
Pursuant to the terms of the Directors Compensation Plan, each non-employee director receives an annual cash retainer of $60,000$70,000 and an additional amount for each committee on which the non-employee director serves, as shown below:
| Additional Cash Retainer | |||||
---|---|---|---|---|---|---|
Committee | Chair | Member | | |||
| | | | | | |
Audit Committee | $35,000 | $10,000 | ||||
| | | | | | |
Compensation Committee | $15,000 | $5,000 | ||||
| | | | | | |
Nominating and Corporate Governance Committee | $10,000 | $5,000 | ||||
| | | | | | |
Academic Committee | $5,000 | $5,000 | ||||
| | | | | | |
The Directors Compensation Plan also provides for annual restricted stock awards for each non-employee director, valued at $100,000$120,000 as of the grant date (prorated for a partial year of service), with the shares underlying such awards vesting fully one year from the date of the grant. The annual cash retainer, including the committee fees, and the annual restricted stock awards were granted on January 3, 2017 to all non-employee directors who held such positions at the beginning of the calendar year.award may be deferred under our Deferred Compensation Plan for Non-Employee Directors ("Directors Deferred Compensation Plan").
The following table sets forth the compensation paid to our non-employee directors for their services during fiscal 2017:2019, including amounts that were deferred under the Directors Deferred Compensation Plan:
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) | Total ($) | | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) | Total ($) | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | |
Aida M. Alvarez (2) | 15,385 | 72,059 | 87,444 | 75,000 | 120,000 | 195,000 | ||||||||||
| | | | | | | | | | | | | | | | |
Craig R. Barrett (3) | 62,691 | 100,000 | 162,691 | 70,000 | 120,000 | 190,000 | ||||||||||
| | | | | | | | | | | | | | | | |
Guillermo Bron (4) | 67,500 | 100,000 | 167,500 | 80,000 | 120,000 | 200,000 | ||||||||||
| | | | | | | | | | | | | | | | |
Fredda J. Cassell (5) | 28,278 | — | 28,278 | |||||||||||||
Robert L. Cohen (5) | 25,795 | 103,874 | 129,669 | |||||||||||||
| | | | | | | | | | | | | | | | |
Kevin P. Chavous (6) | 29,333 | 98,623 | 127,956 | |||||||||||||
John M. Engler (6) | 85,000 | 120,000 | 205,000 | |||||||||||||
| | | | | | | | | | | | | | | | |
Adam L. Cohn (7) | 32,500 | — | 32,500 | |||||||||||||
Steven B. Fink (7) | 105,000 | 120,000 | 225,000 | |||||||||||||
| | | | | | | | | | | | | | | | |
John M. Engler (8) | 72,500 | 100,000 | 172,500 | |||||||||||||
Robert E. Knowling, Jr. (8) | 75,000 | 120,000 | 195,000 | |||||||||||||
| | | | | | | | | | | | | | | | |
Steven B. Fink (9) | 87,500 | 100,000 | 187,500 | |||||||||||||
Liza McFadden (9) | 75,000 | 120,000 | 195,000 | |||||||||||||
| | | | | | | | | | | | | | | | |
Liza McFadden (10) | — | — | — | |||||||||||||
| | | | | | | | | ||||||||
Jon Q. Reynolds (11) | 60,000 | 100,000 | 160,000 | |||||||||||||
| | | | | | | | | ||||||||
Andrew H. Tisch (12) | 65,000 | 100,000 | 165,000 | |||||||||||||
| | | | | | | | |
Please see the Security Ownership of Certain Beneficial Owners and Management table starting on page 6653 for additional information on the beneficial ownership of the Company's common stockCommon Stock by each of our directors.
Director Stock Ownership Guidelines
The Company encourages each director to purchase shares of the Company's common stockCommon Stock and to maintain a minimum ownership level during his or her tenure to foster alignment with our investing stockholders. To reinforce this objective, in early fiscal 2017, we adopted minimum director stock
ownership guidelines for all of our non-employee directors. Pursuant to those guidelines, these directors must hold shares of the Company's stockCommon Stock equal to the lesser of: (i) three times the annual cash retainer and (ii) 15,000 shares. Non-employee directors must be in compliance with this policy by September 28, 2021 or five years after they begin Board service, whichever date is later. As of the date of this Proxy Statement, all of our non-employee directors are in compliance with this policy.
Deferred Compensation Plan for Non-Employee Directors
Our non-employee directors may elect, pursuant to our Directors Deferred Compensation Plan, to defer payment of all or a portion of their cash and equity compensation for service on the Board of Directors. In the case of a deferral of an equity award, the non-employee director is granted an equal amount of deferred stock units in lieu of restricted stock. Deferred stock units granted in lieu of a restricted stock award are subject to the same vesting requirements or other restrictions that would have applied to such restricted stock award.
In the case of a deferral of cash compensation, the director receives a number of deferred stock units equal to the amount of the cash compensation being deferred, divided by the per-share closing price of a share of our Common Stock on the date that the cash compensation would have been paid but for the deferral. Deferred stock units credited in lieu of cash compensation are fully vested.
Deferred stock units generally become payable, in a lump sum, within 90 days of the date the director no longer serves on the Board of Directors. Deferred stock units are settled in shares of Common Stock or cash, at the Company's discretion.
PROPOSAL 1:
ELECTION OF DIRECTORS
Our Board of Directors currently has nine members: Aida M. Alvarez, Craig R. Barrett, Guillermo Bron, Robert L. Cohen, Nathaniel A. Davis, John M. Engler, Steven B. Fink, Robert E. Knowling, Jr. and Liza McFadden, Andrew H. Tisch and Stuart J. Udell. In October 2017, Mr. Tisch expressed his intention to retire from the Board of Directors and accordingly his term will end at the conclusion of the 2017 annual meeting.McFadden.
The term of office of each member of our Board of Directors expires at the Annual Meeting, or in any event at such time as their respective successors are duly elected and qualified or their earlier resignation, death, or removal from office. Each year, the stockholders will elect the members of our Board of Directors to a one-year term of office.
Upon the recommendation of our Nominating and Corporate Governance Committee, the Board of Directors has approved the nomination of eightnine directors, Aida M. Alvarez, Craig R. Barrett, Guillermo Bron, Robert L. Cohen, Nathaniel A. Davis, John M. Engler, Steven B. Fink, Robert E. Knowling, Jr. and Liza McFadden, and Stuart J. Udell, for election at the Annual Meeting to serve until the next annual meeting of the stockholders (or until such time as their respective successors are elected and qualified or their earlier resignation, death, or removal from office).
Our Board of Directors has no reason to believe that the persons listed below as nominees for directors will be unable or decline to serve if elected. In the event of death or disqualification of any nominee or the refusal or inability of any nominee to serve as a director, proxies cast for that nominee may be voted with discretionary authority for a substitute or substitutes as shall be designated by the Board of Directors. Nominees for election to the Board of Directors shall be elected by a plurality of votes present in person or by proxy at the annual meetingAnnual Meeting and entitled to vote.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL OF THE NOMINEES LISTED BELOW.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
Set forth below are the names and other information pertaining to each person nominated to the Board of Directors.
Aida M. Alvarez, Age 6870
Ms. Alvarez joined us a director in April 2017 and is a member of our Audit Committee. She currently serves as Chair of the Latino Community Foundation. As Administrator of the U.S. Small Business Administration, she was a member of President Clinton's Cabinet from 1997-2001.1997 to 2001. Previously, Ms. Alvarez served as the Director of the Office of Federal Housing Enterprise Oversight from 1993-1997,1993 to 1997, where she was charged with financial oversight of the secondary housing market, the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Prior to that, she worked for the New York City Health and Hospitals Corporation, Bear Stearns & Company, Inc. and the First Boston Corporation. She has served on the boards of directors of Fastly, Inc. since August 2019; Oportun, Inc. (formerly Progress Financial Corporation) since 2011; Zoosk, Inc. since 2015;2014; and HP Inc. since February 2016. From 2006 to June 2016, Ms. Alvarez served on the board of Wal-Mart Stores Inc., and from 2004 to 2014, served on the boards of MUFG Americas Holdings Corporation (formerly UnionBanCal Corporation) and MUFG Union Bank N.A. (formerly Union Bank N.A.). Ms. Alvarez holds a Bachelor's DegreeB.A. from Harvard College. Ms. Alvarez was selected as a director because of her financial expertise, government experience, and ability to bring diverse perspectives to the Board.Board of Directors.
Craig R. Barrett, Age 7880
Dr. Barrett joined us as a director in September 2010, currently serves as Chairman of our Academic Committee and became our Lead Independent Director in September 2017. He served as Chairman and Chief Executive Officer of Intel Corporation from 1998, until his retirement in 2009, havingand was also Chairman of the Board of Intel from 2005 to 2009. He previously served in various roles at Intel Corporation, including Chief Operating Officer, since joining Intel Corporation in 1974. Prior to Intel Corporation, Dr. Barrett was a member of the Department of Materials Science and Engineering faculty of Stanford University. Dr. Barrett currently serves as Co-Chairman of Achieve, Inc., an independent, bipartisan, non-profit education reform organization; Chairman of Change the Equation, an organization promoting widespread literacy in science, technology, engineering and math (STEM); President and Chairman of BASIS Schools, Inc.; Vice Chair of the Science Foundation Arizona; and Co-Chairman of the Business Coalition for Student Achievement. Dr. Barrett holds a B.S., M.S. and Ph.D. in Materials Science from Stanford University. Dr. Barrett was selected as a director because of his deep knowledge and experience in information technology innovation, as well as his global, operational, and leadership experience as Chairman and Chief Executive Officer of Intel Corporation. He also brings a unique perspective to the Board of Directors from his tenure as a professor and his volunteer work and support of numerous educational organizations.
Guillermo Bron, Age 6567
Mr. Bron joined us as a director in July 2007 and currently serves as a member of our Nominating and Corporate Governance Committee and our Audit Committee. Mr. Bron was Managing Director at Pine Brook Road Partners, LLC, an investment firm, from December 2013 to June 2017, and served as a Managing Director of Acon Funds Management LLC, a private equity firm, from 20062005 to 2012. Mr. Bron has also served as Chairman and a director of United Pan Am Financial Corp. (UPFC) since 1994, and he served as a director of Pan American Bank, FSB (Pan American), a former wholly-ownedwholly owned subsidiary of UPFC, from 1994 to 2005. Mr. Bron has served as Chairman of idX Corporation sincefrom 2008 to 2018, and from 2000 to 2002, Mr. Bron was a director of Telemundo Group, Inc. From 1994 to 2003, Mr. Bron was an officer, director and principal stockholder of a general partner of Bastion Capital Fund, L.P., a private equity investment fund primarily focused on the Hispanic market. Previously, Mr. Bron was a Managing Director of Corporate Finance and Mergers and Acquisitions at Drexel Burnham Lambert. Mr. Bron holds a B.S. degrees in Electrical Engineering and Management Science from Massachusetts Institute of Technology and an M.B.A. from Harvard University. Mr. Bron was selected as a director because of his extensive executive leadership and international experience, as well as his expertise in investment banking and capital markets, which enables him to bring valuable insights to the Board of Directors in the areas of finance and strategy. The Board of Directors also benefits from his prior experience as a public company director and audit committee member.
Robert L. Cohen, Age 54
Mr. Cohen joined us as a director in February 2019. Mr. Cohen currently serves in various roles including strategic advisor, investor, and board observer to high growth education technology companies including 2U Inc. and Zybooks. Mr. Cohen served as President and Chief Operating Officer of 2U through January 2016. He was appointed President in November 2013 and Chief Operating Officer in April 2012. In addition, Mr. Cohen was 2U's founding Chief Financial Officer beginning in June 2008. From 2001 to 2008, Mr. Cohen held several senior roles at The Princeton Review, including executive vice president of strategic development and executive vice president and general manager of K12 Services. From 1983 to 2001, Mr. Cohen founded and operated the largest network of franchises of The Princeton Review before selling them back to that company. Mr. Cohen attended Princeton University. He was selected as a director because of his deep knowledge and experience in the education technology industry, as well as his operational and leadership experience as Chief Operating Officer of 2U.
Nathaniel A. Davis, Age 6365
Mr. Davis joined us as a director in July 2009 and has served as our Chairman since June 2012. In January 2013, he became our Executive Chairman, and in January 2014, Mr. Davis was appointed to be our Chief Executive Officer,CEO, serving in that role through February 2016. He also is a member of our Academic Committee.2016 and again beginning in March 2018. Prior to joining the Company, he served as the managing director of RANND Advisory Group from 2003 until December 2012. Previously, Mr. Davis worked for XM Satellite Radio from June 2006 to November 2008, serving as President and then Chief Executive Officer until the company's merger with Sirius Radio. He also served on the XM Satellite Radio board from 1999 through 2008. From 2000 to 2003, Mr. Davis was President and Chief Operating Officer and a board member of XO Communications Inc. Mr. Davis has also held senior executive positions at Nextel Communications (EVP, Network and Technical Service), MCI Telecommunications (Chief Financial Officer) and MCI Metro (President and Chief Operating Officer). Since 2011, Mr. Davis has served as a director of Unisys Corporation and RLJ Lodging Trust. Mr. Davis has also previously served on the board of several public
and private firms including Mutual of America Capital Management Corporation, Charter Communications and Telica, Switching.Inc. Mr. Davis receivedholds an M.B.A. from the Wharton School of the University of Pennsylvania, an M.S. in Engineering Computer Science at the Moore School of the University of Pennsylvania, and a B.S. in Engineering from Stevens Institute of Technology. Mr. Davis was selected as a director based on his strong record of executive management, finance and systems engineering skills, as well as his insight into the considerations necessary to run a successful, diverse global business. The Board of Directors also benefits from his previous service on other public company boards and his experience in accounting and financial reporting.
John M. Engler, Age 6971
Mr. Engler joined us as a director in October 2012 and is Chairman of our Compensation Committee and a member of our Nominating and Corporate Governance Committee and our Academic Committee. He served as President of the Business Roundtable from January 2011 to JulyFebruary 2017. From 2004 to 2011, Mr. Engler was the President and Chief Executive Officer of the National Association of Manufacturers. He was President of State and Local Government and Vice President of Government Solutions for North America for Electronic Data Systems Corporation from 2003 to 2004. Mr. Engler served as Michigan's 46th governor for three terms from 1991 to 2003. He hasalso served on the boardas Interim President of directorsMichigan State University from February 2018 to January 2019. Previously, Mr. Engler was a director of Universal Forest Products Inc. sincefrom 2003 and is a member of its Compensation Committee. He is also a director of Munder Capital Management. Previously, Mr. Engler wasto 2019, a director of Northwest Airlines from 2003 to 2008, a director of Dow Jones & Company, Inc. from 2005 to 2007, and a director of Delta Airlines from 2008 to 2012.2012, and he was also a director of Munder Capital Management. Mr. Engler holds a B.S. in Agricultural Economics from Michigan State University and a J.D. from the Thomas M. Cooley Law School. Mr. Engler was selected as a director because of his executive and legislative expertise as a state governor, including working with state education budgets, and for his business experience. The Board of Directors also benefits from Mr. Engler's perspective as a director of numerous public companies and as a member of their audit committees.
Steven B. Fink, Age 6668
Mr. Fink joined us as a director in October 2003, currently serves as Chairman of our Audit Committee and is a member of our Compensation Committee. Mr. Fink is the Deputy ChairmanCo-Chairman of Heron International and a Director of the Foundation of the University of California, Los Angeles. Mr. FinkInternational. He served as a director of Nobel Learning Communities, Inc. from 2003 to 2011 and as Chairman of the Board of Life Storage, LLC from 2013 to 2016. In addition, Mr. Fink is a member of the Boards of Podium Data,the Jackson Laboratory, City of Hope, the Smithsonian National Museum of American HistorySt. Helena Hospital, Ole Health and the Herb Ritts Foundation, and is a member of The J. Paul Getty Photographs Council. From 1999 to 2009, Mr. Fink served as a director of Leapfrog Enterprises, Inc. and was its Chairman from 2004 to 2009. From 2000 to 2008, Mr. Fink was the Chief Executive Officer of Lawrence Investments, LLC. Mr. Fink has also previously served as Chairman and Chief Executive Officer of Anthony Manufacturing, Chairman and Managing Director of Knowledge
Universe and Chairman and Chief Executive Officer of Nextera.Nextera Enterprises, Inc. Mr. Fink holds a B.S. in Psychology from the University of California, Los Angeles and a J.D. and an L.L.M. from New York University. Mr. Fink was selected as a director based on his significant experience in operations and financial oversight gained as serving as director or chairman for various public and private companies in addition to his membership on various company audit committees which enables him to contribute significantly to the financial oversight, risk oversight and governance of the Company.
Robert E. Knowling, Jr., Age 64
Mr. Knowling joined us as a director in January 2018 and is a member of our Compensation Committee. Since May 2009, he has served as Chairman of Eagles Landing Partners, which specializes in helping senior management formulate strategy, lead organizational transformations, and re-engineer businesses. From 2002 to 2005 he served as Chief Executive Officer of the NYC Leadership Academy, an independent non-profit corporation created by Chancellor Joel I. Klein and Mayor Michael R. Bloomberg that is chartered with developing the next generation of principals in the New York City public school system. Mr. Knowling has also held roles as Chief Executive Officer of Telwares, Chairman and Chief Executive Officer of SimDesk Technologies, Inc. and Chairman, President and Chief Executive Officer of Covad Communications. He was awarded the Wall Street Project's Reginald Lewis Trailblazers Award by President Clinton and the Reverend Jesse Jackson in 1999. Mr. Knowling serves on the board of directors for Roper Technologies, Inc., Rite Aid Corporation and Stream Companies. He also previously served on the board of Heidrick & Struggles, Inc. from 2010 to 2015 and Convergys Corporation from 2017 to 2018. He holds a B.A. in theology from Wabash College and an M.B.A. from Kellogg School of Management, Northwestern University. Mr. Knowling was selected as a director based on his experience in public education, public company leadership roles, technology and organizational development.
Liza McFadden, Age 5456
Ms. McFadden joined us as a director in August 2017 and is a member of our Nominating and Corporate Governance Committee. Ms. McFadden iscurrently leads LIZA and Partners LLC. Previously, she was President and Chief Executive Officer of the Barbara Bush Foundation for Family Literacy a position she has held since 2012.from 2012 to 2018. She is a former high school teacher, Florida Department of Education administrator, and served in Governor Jeb Bush's administration.
Additionally, Ms. McFadden was appointed by President George W. Bush to serve on the National Institute for Literacy Board. She holds a Master's degreean M.A. from Florida State University and a Bachelor's DegreeB.A. from Fitchburg State University. Ms. McFadden was selected as a director because of her dedication to the education community and expertise in literacy.
Stuart J. Udell, Age 50
Mr. Udell joined us as a director and as Chief Executive Officer in February 2016. Mr. Udell brings significant strategic and operational experience to K12 in the education industry. Most recently, Mr. Udell served as Executive Chairman (from 2015-2016) and Chief Executive Officer (from 2010-2016), of Catapult Learning, LLC, a privately-held provider of instructional services, professional development, and operator of schools. Prior to joining Catapult Learning, from 2009-2010, Mr. Udell was the President of Postsecondary Education at The Princeton Review. He was concurrently, from 2007-2010, the Chief Executive Officer of Penn Foster Inc., a global leader in high school and career-focused online learning, which was acquired by The Princeton Review. Mr. Udell spent 11 years at Kaplan, most recently as President of Kaplan K12 Learning Services (from 2002-2007), where he built the K-12 school division. From 1997-2001, Mr. Udell was President of the School Renaissance Institute, the training, publishing, and research subsidiary of Renaissance Learning Inc. Mr. Udell has served the last 13 years on the board of directors of the National Dropout Prevention Center/Network at Clemson University. Mr. Udell holds a MBA from Columbia University and a BS from Bucknell University.
Mr. Tisch has expressed his intention not to stand for re-election to the Board of Directors at the 2017 annual meeting. We express our appreciation to Mr. Tisch for his service to the Company.
Andrew H. Tisch, Age 68
Mr. Tisch joined us as a director in August 2001 and served as Chairman of the Board of Directors from May 2007 to June 2012. He currently is Chairman of our Nominating and Corporate Governance Committee and a member of our Compensation Committee. Since 1985, Mr. Tisch has been a director of Loews Corporation, where he currently serves as Co-Chairman of its board, Chairman of its executive committee and, since 1999, as a member of its Office of the President. Mr. Tisch has also served as a director of three subsidiaries of Loews Corporation: Diamond Offshore Drilling, Inc. since 2011, CNA Financial Corporation since 2006, and Boardwalk Pipeline Partners, LP since 2005. Mr. Tisch previously served as a director of Bulova Corporation from 1979 to 2008 and as a director of Lord & Taylor from 2006 to 2008. Mr. Tisch engages in numerous public service activities including serving as a member of the Board of Overseers and executive committee member of Weill Cornell Medicine, trustee of the Brookings Institution, and as a member of the Dean's Advisory Board at the Harvard Business School. Mr. Tisch holds a B.S. in Hotel Administration from Cornell University and an M.B.A. from Harvard University. Mr. Tisch was selected as a director because of his extensive experience having served as president or chairman of various multinational companies over his career in addition to his membership on various boards of public companies which allows him to provide the Board of Directors with leadership and a variety of perspectives on important strategic and governance issues. The Board of Directors also benefits from his involvement in higher education and non-profit organizations.
Set forth below is biographical information for each of our current executive officers who is not also a director.
Kevin P. Chavous, President, Academics, Policy & Schools Group, Age 6163
Mr. Chavous joined us in January 2017 and currently serves as President, Academics, Policy & Schools Group. He was a directormember of our Board of Directors from January 2017 to October 2017 andbefore resigning to take his current position. Previously, he was a member of our Nominating and Corporate Governance Committee and Academic Committee until October 2017. He is the Founder and Chief Executive Officer of The Chavous Group, an educational consulting firm, a position he has held sincefrom January 2012 until January 2018 and iswas a founding Board Member of the American Federation for Children ("AFC"). He served as AFC's Executive Counsel from 2012-2016.2012 to 2016. Previously, Mr. Chavous was a partner at the SNR Denton law firm from 2002-20122002 to 2012 and served as a member of the Council of the District of Columbia from 1992-2004,1993 to 2005, where he was Chair of the Council's Education Committee. He also has served on the board of various charter
schools across the country including the Friendship Charter Schools in Washington, DC.D.C. Mr. Chavous hasholds a B.A. from Wabash College and holds a J.D. from the Howard University School of Law.
Allison B. Cleveland, Executive Vice President of School Management and Services, Age 44
Ms. Cleveland joined us in October 2002 and currently serves as Executive Vice President of School Management and Services. During her time at K12, Ms. Cleveland has been instrumental in building the managed public school line of business. Prior to her role as Executive Vice President, she served as the Senior Vice President of School Services, overseeing academic and operational services in the managed public schools. Prior to that, Ms. Cleveland was the Regional Vice President of the Southern Region, responsible for schools in the Southeast portion of the United States. In her early years at K12, Ms. Cleveland worked in support of new school start-up and school operations, where she was responsible for the successful launch of K12 Virtual Academies throughout the country. Ms. Cleveland began her career at Andersen Consulting, where she focused on clients in the telecommunications industry and government. She holds a BSE in Biomedical and Electrical Engineering from Duke University and an MBA and MA in Education from Stanford University. Ms. Cleveland also currently serves as a director for the Foundation for Blended and Online Learning.
Howard D. Polsky,Vincent W. Mathis, Executive Vice President, General Counsel and Secretary, Age 6655
Mr. PolskyMathis joined us in June 2004September 2018 and serves as Executive Vice President, General Counsel and Secretary. In this role, he has executive responsibility for providing comprehensive legal counsel for our business, including matters relating to securities, litigation, regulatory compliance, intellectual property, contracts and licensing, and corporate governance. Mr. Polsky previously heldMathis has more than 20 years of legal experience counseling diverse global businesses. Prior to joining the positionCompany, Mr. Mathis served as Senior Vice President Corporate Affairs, Corporate Secretary and Chief of Staff to the CEO at The AES Corporation where he earlier was Vice President and Deputy General Counsel. Prior to his roles at The AES Corporation, Mr. Mathis was an Executive Vice President and General Counsel of Lockheed Martin Global Telecommunications from 2000 to 2002. Prior to its acquisition by Lockheed Martin,at ContourGlobal, LLC, a private international energy company. Previously, Mr. Polsky was employed by COMSAT Corporation from 1992 to 2000, initially serving as Vice PresidentMathis worked for Venable, LLP, Shearman and General Counsel of COMSAT's largest operating division,Sterling, LLP and subsequently servingthe United States Securities and Exchange Commission. Mr. Mathis formerly served on the executive management team as Vice PresidentBoard of Federal PolicyDirectors of Indianapolis Power and Regulation. From 1983 to 1992, Mr. Polsky was a partnerLight Company Enterprises, Inc., AES Tietê Energia S.A., and AES Elpa S.A. In addition, he previously served on the Board of Directors at Wiley, Rein & Fielding,IPALCO Enterprises, Inc., DPL Inc. and The Dayton Power and Light Company and was an associate at Kirkland & EllisChairman of Eletropaulo Metropolitana Eletricidade de São Paulo S.A. Mr. Mathis holds a J.D. from 1979 to 1983. Mr. Polsky began his legal career at the Federal Communications Commission. He receivedUniversity of Virginia and a B.A. in GovernmentEconomics and Political Science from LehighThe University of Richmond.
Shaun E. McAlmont, President, Career Readiness Education, Age 53
Dr. McAlmont joined us in August 2018 and serves as President, Career Readiness Education. In this role, he has executive responsibility for managing all aspects of K12's career readiness education programs, including development of the Destinations Career Academies and Programs, and related market expansion. Prior to joining the Company, Dr. McAlmont served as President and CEO of Neumont College of Computer Science, which included Helio Training, LLC, a software development bootcamp. Previously, Dr. McAlmont served as President and CEO of Lincoln Educational Services (NASDAQ: LINC), a national provider of career training programs, where he earlier was President and Chief Operating Officer. Prior to his roles at Lincoln, Dr. McAlmont served as President of the Online Learning Division at Alta Colleges following a role as regional vice president over multiple school campuses. Dr. McAlmont holds an Ed.D. in Higher Education Management, with distinction, from the University of Pennsylvania, an M.A. in Education Administration from the University of San Francisco, and a J.D.B.S. from IndianaBrigham Young University. Mr. Polsky currently serves as a member of the Advisory Board to the Lehigh University College of Arts and Science.
James J. Rhyu, Executive Vice President and Chief Financial Officer and President, Product and Technology, Age 4749
Mr. Rhyu joined us in June 2013 and serves as Executive Vice President and Chief Financial Officer.Officer and President, Product and Technology. Prior to joining the Company, Mr. Rhyu served as Chief Financial Officer and Chief Administrative Officer of Match.com, a subsidiary of publicly traded IAC/InterActiveCorp, since June 2011. In those roles, he was responsible for overseeing a broad range of functions, including finance, human resources, legal, information technology and operations, certain international operations and product development. Prior to his roles at Match.com, Mr. Rhyu was a Senior Vice President of Finance at Dow Jones & Company from January 2009 until May 2011, where he ran the global financial function. Previously, Mr. Rhyu served for three years as the Corporate Controller of Sirius XM Radio Inc. and its predecessor company, XM Satellite Radio, as well as serving in the same role for Graftech International. Mr. Rhyu also served six
years as an auditor with Ernst & Young LLP in the United States and South America. Mr. Rhyu holds a B.S. from the Wharton School of Business at the University of Pennsylvania and an M.B.A. from the London Business School.
Joseph P. Zarella, Executive Vice President, Business Operations, Age 58
Mr. Zarella joined us in October 2014, and serves as Executive Vice President, Business Operations, leading the Company's marketing organization, information technology organization, enrollment and customer care operations, as well as contract provisioning, billing and collections functions. Mr. Zarella has more than 20 years of customer service, sales and marketing operations, and information technology management experience. Prior to joining the Company, Mr. Zarella served as Chief Service Officer for SiriusXM Satellite Radio and its predecessor company, XM Satellite Radio, since 2006. In this role, he led the Company's sales, marketing, customer service and retention operations. Before joining XM Satellite Radio, he served at Constellation NewEnergy as Managing Director of Operations, where he was responsible for setting the corporate operations consolidation strategy. Prior to that, he was Vice President of Revenue Operations for XO Communications for six years, which followed after more than ten years of experience at MCI Communications serving as Vice President of Financial Operations and holding several executive operations leadership positions. Mr. Zarella holds a B.S. in Information Systems from the University of Massachusetts and an M.B.A. in International Finance from the University of Dallas.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides information about our fiscal 20172019 compensation for the following named executive officers ("NEOs"):
We continued to deliver strong financial and operational performance during fiscal 2019 and the results of our 2018 vote to approve named executive officer compensation evidenced our stockholders' overwhelming approval of our executive compensation programs, which are designed to link compensation to performance, stockholder interests and student success.
From our inception in 1999, we have offered online curriculum, educationalinstructional support services, software and softwareproducts designed to facilitate individualized learning for students in kindergarten through 12th grade. In 2014Although we embarked onhave undergone a multi-yearperiod of significant transformation in recent years, highlighted by a shift in our strategic business planfocus and changes in our executive leadership structure, we remain committed to ensure thatfulfilling our educational mission of helping students were provided withreach their potential through personalized learning and inspired teaching. During fiscal 2019 we actively pursued the technology, curriculum, instruction and family support services to maximize their opportunity for academic success. That plan required significant investments, including the transition to a new learning platform and creation of a next generation curriculum, as well as exiting non-strategic businesses. We shifted our early priorities for revenue and enrollment growth to focus instead on building the software, systems and productsstrategies necessary to ultimately establish schools of academic quality. In addition, this all occurred in an environment of rapidly changing education policyaccelerate our business growth and regulatory requirements. The initiatives we took, combined with these external factors, led to an expected slower rate of enrollment growth, academic challenges and operational adjustments as the strategic plan was being implemented.
During this period, whilepromote our stock price declined for a time, we sought to maintain an engaged executive team and, therefore, adopted incentive compensation arrangements necessary to successfully execute the strategic plan. Among other things, we tailorededucational mission by focusing on: (1) strengthening our compensation programs toward achieving the academic, operational and financial milestones within the plan which we believe will increase long-term stockholder value by attracting and retaining more students in better performing schools. In fiscal 2017 we saw this approach begin to yield some positive results as our student enrollment levels improved, capital expenditures tapered, free cash flow increased, and the number of schools in academic jeopardy significantly declined. We describe these successes in more detailbusiness foundation in the section below titled "Performance Highlights."managed public school programs; (2) preparing our students for the future by building a comprehensive career readiness program; (3) positioning ourselves as a trusted software services provider delivering end to end digital learning solutions; and (4) developing international opportunities by building partnership-focused relationships with in-country organizations.
In addition, we heard the concerns raised by stockholders regarding a disconnect between pay and performanceAs in prior years, andduring fiscal 2019 we took meaningful actionscontinued to address those concerns. Given our previous non-majority "Say on Pay" votes, this year we engaged much earlier in an extensive stockholder outreach effort to understand and respond to the particular issues raised byfeedback received from stockholders includingand major proxy advisory firms on our executive team's pastcompensation programs by further developing our long-term performance-oriented approach to executive compensation through the introduction of a multi-year equity incentive plan intended to encourage the creation of stockholder value over a longer three-year performance period.
Say on Pay Results and pay. In fiscal 2017 and, again in earlyStockholder Engagement
95% of the shares voted at our 2018 annual meeting of stockholders voted to approve our named executive officer compensation for fiscal 2018, reflecting significant improvement over prior years and our stockholders' strong support of our executive pay programs and practices. We recognize the significance of stockholder support of our executive compensation programs and continued our stockholder outreach efforts during fiscal 2019. This year we endeavored to makingremain responsive to stockholder feedback and ensure that the elements of our executive compensation programs effectively reflect our desire to further our strategic business objectives while tightly linking executive pay to measurable performance results.
At the beginning of fiscal 2018 compensation decisions,2019, we proactively reached out to our most significanttop 35 stockholders, to seek their input on our compensation philosophy and approach. With participation from our investor relations and human resources executives, alongspeaking with a membertotal of four stockholders that responded and in the aggregate held over 8% of our Compensation Committee, over this period we contacted over 35 stockholders and engaged in meaningful dialogue with holders of more than 20% of our outstanding shares. This stockholder feedback is summarized in the section below titled "Stockholdershares outstanding.
Engagement"Our Investor Relations and Human Resources leaders conducted the following highlights someoutreach efforts. 100% of the stockholders that we spoke with supported our fiscal 2018 advisory vote on named executive officer compensation and several noted key decisions we made based onimprovements in our compensation practices, most notably our consolidation of the distinct roles of a separate CEO and Executive Chairman, our enhanced disclosure of stockholder outreach efforts and our continued responsiveness to stockholder and proxy advisory firm feedback. While no significant concerns were raised by stockholders during these conversations, an area for consideration involved the use of longer-term performance metrics for our equity incentive programs. In response to this and similar feedback received in prior years regarding the use of one-year performance periods for certain equity awards granted to certain of our named executive officers, for fiscal 2019 we introduced a new long-term shareholder performance plan (the "2019 SPP") designed to create stockholder value over a multi-year performance period by encouraging our NEOs to focus on executing our key strategic objectives. Awards under the 2019 SPP are based entirely on a three-year performance period and will be earned only if we realize significant stock price appreciation as of the end of the three-year period.
By actively pursuing our strategic priorities during both fiscal 20172019, we realized strong financial results and 2018:our core business delivered key operational and academic achievements. Highlights include:
While there is still progress remaining to fulfill our mission and achieve our full potential, we have begun to attain positive results from our redefined business strategy. For fiscal 2017, our key achievements included:
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Metric | Fiscal 2016 Actual Performance | Fiscal 2017 Target Level | Fiscal 2017 Actual Performance | ||||||||||||||
| | | | | | | | | | | | | | | | | |
Cash flow—Adjusted EBITDA minus CapEx | $44.9M | $55.3M | $66.5M | ||||||||||||||
| | | | | | | | | | | | | | | | | |
Margin—Adjusted EBITDA Margin | 12.4% | 12.5% | 12.9% | ||||||||||||||
| | | | | | | | | | | | | | | | | |
Profit—Adjusted Operating Income | $39.6M | $40.7M | $41.8M | ||||||||||||||
| | | | | | | | | | | | | | | | | |
Revenue | $872.7M | $921.7M | $888.5M | ||||||||||||||
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Metric | Fiscal 2018 Actual Performance | Fiscal 2019 Actual Performance | % Increase over Fiscal 2018 | ||||||||||||||
| | | | | | | | | | | | | | | | | |
Profit—Adjusted Operating Income | $49.2M | $62.2M | 26.4% | ||||||||||||||
| | | | | | | | | | | | | | | | | |
Revenue | $917.2M | $1,015.8M | 10.7% | ||||||||||||||
| | | | | | | | | | | | | | | | | |
While the structural changes made to our executive compensation programs and practices in recent years were continued into fiscal 2017, we successfully renewed our service agreement with one2019, the Compensation Committee (the "Committee") worked to ensure that fiscal 2019 compensation decisions reflect positive pay for performance practices in each of the key elements of our largest fully-managed online public school customersexecutive compensation programs. Highlights include:
The 2019 SPP is a new fully-managed public schooldeparture from the Company's historical practice of tying performance-based equity awards to achieving pre-established financial goals that may not directly correlate to stock price appreciation. Instead, the 2019 SPP was designed to focus on the creation of stockholder value over a three-year performance period and enable our NEOs to participate in a percentage of that growth. Awards under the 2019 SPP are earned at the end of a three-year performance period based solely on stock price increases over the three-year period and determined as a percentage of the total stockholder value creation that has been delivered. If a minimum percentage of stock price growth of 25% (measured on an absolute basis) is not attained during the performance period, the awards will be forfeited.
customer, Insight PA. These contracts demonstrate continuing interest of independent virtual charter school boards in pursuing fully-managed virtual schools.
As our business strategy and executive compensation programs have evolved in recent years, we have sought to provide executive compensation programs that are aligned with stockholder expectations and responsive to the extensive stockholder input we have sought and received on our executive compensation programs. We continue to engage in meaningful dialogue with our stockholders to identify and address their concerns regarding our executive pay practices. We were disappointed with the results of our annual advisory vote to approve executive compensation for fiscal 2016, where less than a majority of our stockholders voted in favor, and we increased our stockholder outreach efforts in fiscal 2017 and 2018.
In October 2017, we engaged a new proxy solicitation firm to build upon the prior stockholder outreach efforts made in November 2016 when we contacted our top 35 stockholders to seek to better understand investor concerns in this area. These outreach efforts were conducted by our investor relations and human resources executives with the assistance of Jon Q. Reynolds, Jr., who, at the time was our Lead Independent Director and a member of our Compensation Committee. We believed that among our Board members, Mr. Reynolds was best positioned to discuss executive compensation issues from a stockholder perspective due to his position as a General Partner of Technology Crossover Ventures, which together with its affiliates (collectively, "TCV"), constitute our largest investor and a holder of approximately 10% of our common shares.
These discussions covered our executive compensation programs and practices generally, and addressed the fundamental shift in our business strategy, which had impacted near term profitability. We explained to our stockholders that, in order to incentivize executives to execute on our redefined business strategies, the performance objectives and compensation program design for our executives must reflect this near-term impact in a realistic way in order to provide fair rewards for executive contributions toward achieving important milestones for our business. We also discussed our executive leadership structure, which changed in fiscal 2016, including the implementation of an engaged, full-time Executive Chairman position filled by our former CEO, Mr. Davis. We explained to our stockholders the value that our Board of Directors believes Mr. Davis continues to bring to the Company and the importance of his role, which includes fostering relationships with key industry leaders and executing on our corporate development strategies.
In fiscal 2018, we repeated this process, but commenced it much earlier in the year. In August and September 2017, we reached out to a slightly narrower group of our top 25 stockholders, with the goal of receiving meaningful feedback in advance of our making compensation decisions for fiscal 2018. Although the response rate from stockholders in fiscal 2017 and 2018 was not extremely high, we engaged in substantive discussions with nine of our largest holders over this 12 month period, which represented more than 20% of our outstanding shares.
Throughout these discussions, many of our stockholders have expressed general support for our executive compensation structure and have acknowledged favorably the many changes we have made in response to our continued discussions. But our stockholders also continued to provide constructive feedback on potential improvements to our compensation programs. We listened to these concerns and have thoughtfully considered them. During fiscal 2017, our Compensation Committee met seven times and discussed this stockholder feedback and potential corresponding design changes to our executive
compensation programs at nearly all of these meetings. The following table summarizes this key stockholder feedback and the responsive actions we have taken to improve our compensation programs.
Executive Compensation Principles, Policies and Practices
Principles. Our executive compensation program isprograms are guided by basic principles that we seek to reflectincorporate in our executive pay practices:
Policies and Practices. We employ certain executive compensation policies and practices to align our executives' compensation with stockholder interests. Listed below are those compensation policies and practices we employ and certain policies and practices we do not employ because we believe they would not serve the long-term interests of our stockholders.
What We Do
Pay for Performance. A significant portion of our NEOs' potential compensation is not guaranteed but is linked to our financial and operational performance. The target total direct compensationFor fiscal 2019, only 8% of pay for our Executive Chairman and our CEO for fiscal 2017 was approximately 87% and 82% performance-based, respectively.fixed in the form of base salary.
Align Compensation to Share Price. A significant portion of our performance-based compensation is tied to growth in our stock price which directly aligns to stockholder interests. Awards under the 2019 SPP will be earned only if we realize significant stock price appreciation as of the end of a three-year performance period.
Establish Performance Goals Aligned to Strategy. Our Executive Bonus Plan and LTIP2019 SPP utilize objective performance-based goals that the Committee believes are rigorous and challenging.
Target Pay Competitively. We seek to target compensation within a competitive range of the median of theour compensation peer group and seek only to deliver greater compensation only when warranted by market conditions or superior performance.
Use Meaningful Vesting Conditions on Equity Awards.to Promote Retention. Performance based RSAsAwards under the 2019 SPP are earned and PSUs begin to vest after attainment of performance criteria and can fully vest after two and three years, depending uponand only to the award. Time based RSAsextent that we experience significant stock price appreciation over such period. Time-based restricted stock awards ("RSAs") vest over three years.
Carefully Consider Stockholder Input. We regularly seek and engage in dialogues with our stockholders on executive compensation matters. Recent enhancements in our executive compensation programs have been significantly influenced by these discussions.
Maintain a Clawback Policy. We can recover incentive compensation wrongly awarded to an executive officer where fraud or intentional misconduct led to a restatement of our financial statements.
Require Mandatory Share Ownership. All of our executive officers, including our NEOs, and our non-employee directors are required to maintain a minimum ownership level of our common stock.Common Stock.
Perform Competitive Market Analysis. The Committee reviews competitive market data provided by its independent compensation consultant for our executive officers prior to making annual executive compensation decisions.
Analyze Executive Compensation Risk. We review the executive compensation programprograms annually to ensure that it doesthey do not encourage excessive or unnecessary risk taking.
What We Do Not Do
Grant Multi-Year or Guaranteed Bonuses or Equity Awards. We do not pay guaranteed bonuses and have no guaranteed equity-based awards. This ensures that we are able to base all compensation awards on measurable performance factors, operational results and competitive market needs.
Provide Generous Executive Perquisites. We do not provide significant perquisites to our executive officers, such as club memberships, personal income tax advisory services and similar items.
Offer Tax Gross-Ups. We do not provide income tax gross-ups for personal or broad-based benefits nor excise tax gross-ups for change in control payments or benefits.
Offer Pension or Supplemental Retirement Plans. We do not provide costly retirement benefits to our executive officers that reward longevity rather than contributions to Company performance.
Reprice Options. Our 2016 Incentive Award Plan ("2016 Plan") specifically prohibits repricing of options without stockholder approval.
Increase Shares without Stockholder Approval. Our 2016 Plan does not contain an "evergreen" provision to increase the number of shares available for grants each year. Any increase to the maximum number of shares available will require stockholder approval.
Provide Non-Performance Based Single Trigger Change in Control Payments. We maintain a "double trigger" vesting policy with respect to our equity awards whereby accelerated vesting in connection with a change in control of the Company alsogenerally requires a qualifying termination of employment. Awards under the 2019 SPP will be earned and vest in connection with a change in control only to the extent our stock price has increased as of the transaction. Legacy "single-trigger" vesting stock option awards from prior years have been completely eliminated from our compensation program.
Allow Hedging or Pledging. Our insider trading policy specifically prohibits short sales, hedging and margin transactions and our 2016 Plan prohibits pledging of any award granted under the plan unless otherwise determined by the plan administrator.
Tying Executive Pay to Company Performance
Our performance assessment framework and executive compensation programprograms are designed to link pay and performance in the following ways:
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Compensation Element | Determination and Link to Performance | Purpose | ||||||||||
Base Salary | Evaluated annually by the Committee and reviewed in light of market pay practices. Represents a lower percentage of target total direct compensation than at most peer companies, with average base salaries benchmarking near the | Provide a monthly income necessary to retain executives. | ||||||||||
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Executive Bonus Plan | Annual performance determines payouts. Ties a meaningful portion of target annual cash compensation to attaining | Focus executives on attaining financial and strategic performance objectives from year to year. | ||||||||||
| | | | | | | | | | | | |
Long-Term Incentives | Time-based RSAs: Encourages retention of executives and results in less dilution to our stockholders as compared to stock option | Enhance retention of key executives who drive consistent performance. Motivate and reward executives for | ||||||||||
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Other Compensation | Executives may participate in benefit programs on the same terms as other employees, such as health and welfare benefit plans, 401(k) plan, life insurance and executive life and disability plans. Executives may elect to participate in a non-qualified deferred compensation plan providing tax-efficient savings, but receive no additional Company contributions. Premiums for supplemental disability and life insurance benefits for executives are paid by the Company but no costly supplemental retirement programs are offered. | Provides benefits having high perceived values and offers tax advantages. | ||||||||||
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Determining Executive Compensation
The Committee uses a performance-based framework in making compensation decisions for our executives, including our NEOs. In fiscal 2017,2019, the Committee continued to engage Compensia, an independenta national compensation consultant, to evaluate the market competitiveness of compensation for our executive officers. Compensia's work for the Committee also included an assessment of peer group companies and a subsequent executive compensation market analysis. The Committee has assessed Compensia's independence and concluded that no conflict of interest exists that would prevent Compensia from providing services to the Committee.
Assessing Comparative Market Data and Practices
In evaluating the composition of our compensation peer group, the Committee considered a number of factors, including revenue, market capitalization, number of employees, industry and status as an existing peer. Compensia also considered companies that list us as a peer as well as our peers as identified by the major proxy advisory firms. The Committee seeks to maintain as much consistency as possible in the peer group year over year and carefully considers changes. The companies in the fiscal 20172019 compensation peer group are:were:
• ACI Worldwide, Inc. • • American Public Education, Inc. • Blackbaud, Inc. • Bridgepoint Education, Inc. • Capella Education Co. | • Career Education Corp. •
• Graham Holdings Co. • Grand Canyon Education, Inc. | • Houghton Mifflin Harcourt Co. | • Huron Consulting Group •
• Strayer Education, Inc. • Weight Watchers International, Inc. • Zynga, Inc. • 2U, Inc. |
This peer group reflects an adjustment made in late fiscal 20162018 to remove Fair Isaac, Gartner, Inc. and Tyler Technologies, which companies no longer met the screening criteria, and Apollo Education Group, Inc. and iGate Corp., which wereThe Advisory Board Company because it was acquired. In seeking replacements for those companies removed,a replacement, the Committee considered the previously mentioned factors and added ACI Worldwide, Inc., American Public Education, Inc., Chegg Inc., Graham Holdings Co., Lionbridge Technologies, Inc. and Weight Watchers International, Inc.Huron Consulting Group.
At the beginning of fiscal 2017,2019, Compensia used this peer group to prepare an analysis for the Committee that compared the compensation levels of our executive officers to comparable executive positions.
In general, the Committee seeks to establish the range of target total direct compensation for our executive officers near the median for similar positions in our peer group, with an overemphasisa greater emphasis on variable cash compensation versus fixed cash compensation.
Executive Chairman and CEO Pay Mix
Compensia assisted the Committee in designing competitive pay packages that focus heavily on variable pay components, with the intent that the target total direct compensation for our Executive Chairman and our CEO
should be overwhelmingly performance-based. A graphic illustration of the basic annual target total pay mix of our Executive Chairman and our CEO, which is set forth in their respectivehis employment agreements,agreement, is depicted below:
Fiscal 20172019 Compensation Decisions
Determination of Base Salaries
In considering base salary adjustmentsBase salaries for fiscal 2017,our NEOs are generally set at levels deemed necessary to attract and retain individuals with superior talent, while taking into account the total compensation package provided to each NEO. Base salaries are reviewed annually by the Committee after reviewingand are adjusted from time to time as deemed necessary by the competitive market analysis preparedCommittee, and for executive officers other than the CEO, in conjunction with recommendations made by Compensia, recognized that the base salaries of Ms. Cleveland and Mr. Zarella were below the market median and decided to increase their base salariesCEO, to ensure that they are offered reasonable and competitive salary levels. In making the adjustment to Mr. Zarella'sour executive compensation structure remains aligned with our compensation objectives.
Other than modest base salary the Committee also considered additional responsibilities that were recently assigned to him. In addition, the Committee decided to increase the base salaryincreases for Mr. Rhyu in lightand Mr. Chavous of his strong performance.3% and 1.5% respectively, none of our NEOs received a base salary increase for fiscal 2019. The fiscal 20172019 base salaries for our NEOs are set forth in the table below:
Name | Base Salary for Fiscal 2016 | Base Salary for Fiscal 2017 | Percentage Increase/Decrease | Base Salary for Fiscal 2019 | |||||||
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Nathaniel A. Davis | $ | 400,000 | (1) | $400,000 | —% | $ | 735,000 | ||||
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Stuart J. Udell | $ | 650,000 | (2) | $650,000 | —% | ||||||
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James J. Rhyu | $ | 486,500 | $500,000 | +2.8% | $ | 515,000 | |||||
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Allison B. Cleveland | $ | 396,000 | $415,000 | +4.8% | |||||||
Kevin P. Chavous | $ | 497,350 | |||||||||
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Joseph P. Zarella | $ | 390,000 | $410,000 | +5.1% | |||||||
Shaun E. McAlmont | $ | 415,000 | (1) | ||||||||
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Vincent W. Mathis | $ | 405,000 | (2) | ||||||||
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Determination of Annual Incentive Compensation
Our Executive Bonus Plan is designed to ensure that a meaningful portion of our NEOs' target total cash compensation is "at risk" based upon Company and, for certain NEOs, individual performance. ForAs part of our continued effort to align our pay for performance practices with our redefined business strategy, the Committee has focused in recent years on restructuring the Executive Bonus Plan. This has included updating and reducing the corporate PMOs, removing performance metrics that overlap with our performance-based equity incentive awards, eliminating individual performance criteria for our most senior NEOs and decreasing the weighting of individual PMOs for our other NEOs. The Committee continued this process for fiscal 2017, metrics under2019 by further reducing the number of corporate PMOs for all of our NEOs from five in fiscal 2018 to three for fiscal 2019 so that the Executive Bonus Plan consisted of corporate PMOs based uponis more closely tied to driving stockholder value through the achievement of objectivekey financial goals and measurable student retentionmetrics and operational metrics, and individual PMOs intended to motivate our executives to produce measurable strategic achievements. For Mr. Davis and Mr. Udell, in place of qualitative individual PMOs, additional PMOs were based solely on quantitative metrics, which the Committee determined was appropriate to focus their efforts on improving Company performance and increasing stockholder value.goals.
Target bonus levels for our NEOs are reviewed by the Committee annually and set at levels that, when combined with base salary levels, are intended to provide target total cash compensation opportunities that approximate the market median. For Mr. Davis, the target bonus level is set pursuant to his employment agreement. None of our NEOs received an increase in target bonus levels under our Executive Bonus Plan for fiscal 2019. Target bonus levels for our NEOs for fiscal 20172019 were as follows:
Name | Target Bonus Level (% of Base Salary) | |||
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Nathaniel A. Davis | 150 | % | ||
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James J. Rhyu | 80 | % | ||
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| 80 | % | ||
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Shaun E. McAlmont | 65 | % | ||
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| 65 | % | ||
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To seek to maintain the tax deductibility of awards under our Executive Bonus Plan for certain of our key executives, we maintain a performance-based "umbrella" bonus plan based upon objective performance measures that are intended to qualify bonus payouts as "performance-based compensation" for purposes of Section 162(m) of the Internal Revenue Code. While all Executive Bonus Plan awards continue to be determined based on performance against pre-established PMOs, the Committee determined that for fiscal 2017 awards under the umbrella bonus plan would not exceed 10% of our adjusted operating income for the year, resulting in a maximum possible bonus award to Mr. Davis of $1,950,000 and to Mr. Udell of $1,200,000. The actual bonus amounts earned by Mr. Davis and Mr. Udell for fiscal 2017 were calculated based on a strict analysis of performance against the PMOs and were well-below the maximum amount possible under the umbrella bonus plan, as set forth below.
The corporate PMOs under our Executive Bonus Plan for fiscal 2017 are set forth in the table below. The PMOs provide our NEOs with the opportunity to earn above target awards in the event they exceed the pre-established performance levels, but also provide for no awards below minimum thresholds of performance. Performance between two levels is extrapolated on a straight-line basis. In August 2017,
the Committee reviewed our financial results, enrollment growth and actual achievement against these corporate PMOs, and the results it certified are included in the following table.
Metric | Performance Level | Achievement | Actual Results | |||
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Threshold | $875.6M | |||||
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Revenue | Target | $921.7M | $888.5M | |||
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Outperform | $945M | |||||
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Adjusted | Threshold | $35M | ||||
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Operating | Target | $40.7M | $41.8M | |||
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Income (1) | Outperform | $44.8M | ||||
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Adjusted | Threshold | 11.0% | ||||
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EBITDA | Target | 12.5% | 12.9% | |||
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Margin (1) (2) | Outperform | 13.5% | ||||
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Threshold | 100 bps | |||||
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Retention (3) | Target | 150 bps | Improvement below 100 bps, | |||
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Outperform | 200 bps | resulting in no payout | ||||
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Threshold | 102.1K | |||||
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Average | Target | 107.5K | 103.7K average enrollments | |||
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Enrollments (4) | Outperform | 110.2K | ||||
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Additional PMOs
The additional PMOs for Mr. Davis and Mr. Udell were based on the Company's performance against the following quantitative performance metrics. These PMOs were included in the Executive Bonus Plan for
Mr. Davis and Mr. Udell to replace qualitative metrics used in prior years to ensure that their bonuses were earned based on attaining objective and measurable results.
Goal Setting Process and Rationale
The Compensation Committee spentspends considerable time evaluating the appropriate metrics to be included in our Executive Bonus Plan each fiscal year. For fiscal 2019, in order to tie annual bonus planbonuses more closely to top line financial results, the Committee increased the weighting attributable to the revenue metric and eliminated the performance metrics tied to CTE and MPS enrollments. Executive Bonus Plan metrics for fiscal 2017 across multiple committee meetings and additional discussions with management during2019 generally fell into the first quarter of fiscal 2017. The Committee's focus was on driving stockholder value through achievement of key financial metrics and on academic performance. The Committee ultimately determined that executives are appropriately incentivized toward driving academic improvements through our multi-year long-term incentive plan, which focuses primarily on academic performance and retention at our managed schools. Therefore, annual bonus plan goals were focused on key financial metrics, generally falling into four categories:three categories set forth in the table below.
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Category | Corresponding Metric | |||||||
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Profitability | Adjusted Operating Income | |||||||
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Growth | Revenue | |||||||
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In setting performance levels for each metric, the Committee remained committed to establishing rigorous performance goals to ensure alignment of realized pay amounts with corporate performance. Specifically, the Committee set threshold performance for the Adjusted Operating Income and Revenue metrics above the actual results for fiscal 2018 and target performance for all metrics at levels at or above fiscal 2019 budgeted performance. The threshold and target levels for the Retention metric required further improvement in student retention as compared to fiscal 2018, which saw robust student retention improvement. The threshold and target levels were set below the level of retention improvement we
experienced in fiscal 2018 in light of the strong recovery in student retention during fiscal 2018 from the retention drop we experienced in the prior year.
Metrics under the Executive Bonus Plan for Mr. Davis, Mr. Rhyu and Mr. Chavous were based solely on the achievement of these corporate PMOs, which the Committee determined was appropriate to focus their efforts on improving Company performance and increasing stockholder value. However, for Dr. McAlmont and Mr. Mathis, the Executive Bonus Plan also included individual PMOs intended to motivate these executives to produce measurable legal, compliance and business results, mindful of their functional roles within our organization and, particularly with respect to Dr. McAlmont, to ensure that a portion of his target total direct compensation is tied directly to growth of our Career Readiness business. For these NEOs, awards under the Executive Bonus Plan for fiscal 2019 were based 70% on the achievement of the corporate PMOs and 30% on the achievement of individual PMOs.
The corporate PMOs under our Executive Bonus Plan for fiscal 2019 are set forth in the table below. The PMOs provide our NEOs with the opportunity to earn above target awards in the event they exceed the pre-established performance levels, but also provide for no awards below minimum thresholds of performance. Achievement at the threshold level results in payout at 33% of the target level and achievement at the outperform level results in payout at 200% of the target level. Performance between two levels is extrapolated on a straight-line basis. In August 2019, the Committee reviewed our achievement against these corporate PMOs and the results are included in the following table.
| Weighting | | | | ||||||
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Metric | Davis Rhyu Chavous | McAlmont Mathis | Performance Levels | Actual Results | ||||||
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Adjusted | Threshold | $51.8M | ||||||||
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Operating | 40% | 28% | Target | $57.5M | $62.2M | |||||
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Income (1) | Outperform | $63.3M | ||||||||
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Threshold | $950M | |||||||||
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Revenue | 40% | 28% | Target | $1,000M | $1,015.8M | |||||
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Outperform | $1,050M | |||||||||
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Threshold | 150 bps | |||||||||
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Retention (2) | 20% | 14% | Target | 200 bps | Improvement 10 bps | |||||
| | | | | | | | | | |
Outperform | 250 bps | |||||||||
| | | | | | | | | | |
Individual PMOs
For Dr. McAlmont and Mr. Mathis, individual PMOs accounted for 30% of the NEO's target annual bonus opportunity under the Executive Bonus Plan for fiscal 2019, although the Committee retains discretion to
allow for individual adjustments based on factors and considerations it deems relevant. A general description of the individual PMOs for fiscal 2019 and the NEOs' achievements are provided below.
| | | | | | | | | | | | |
NEO | Individual Goals | Performance Results | ||||||||||
Shaun E. McAlmont | Develop and grow the Career Readiness business, including through the introduction of new models, acquisition targets and opening of new DCAs | Dr. McAlmont launched ten new standalone DCAs and added three new career readiness programs to existing managed schools resulting in significant growth of our Career Readiness presence for school year 2019 - 2020 and beyond; introduced the National Job Shadow Week to highlight career pathways and partnerships; and entered strategic partnership with TALLO (formerly known as Stem Premier). 124% | ||||||||||
| | | | | | | | | | | | |
Vincent W. Mathis | Achieve favorable outcomes in pending litigation; Oversee Board training programs; Ensure all public company filing requirements are satisfied; Support corporate development activities | Mr. Mathis achieved his established goals with respect to obtaining favorable outcomes in litigation; effectively oversaw the Board training programs; ensured all public company filing requirements were satisfied; and facilitated all corporate development activities. 120.1% | ||||||||||
| | | | | | | | | | | | |
For our Executive Chairman and our CEO, the Committee also focused on reducing the number of metrics in the annual bonus plan and eliminating any qualitative metrics to ensure that payouts correlate strictly to measurable performance results. In determining goal levels, the Committee reviewed our historical performance, ensuring that targets were set above prior year performance and were tied to our annual budget.
Fiscal 20172019 Executive Bonus Plan Payments
The following tables illustrate,table sets forth, for each NEO, the Committee's approved annual bonus award under our Executive Bonus Plan for fiscal 20172019 based upon performance against the relevant corporate PMOs and, for Dr. McAlmont and Mr. Mathis, performance against the executive's individual or additional PMOs.
Mr. Davis—Target Bonus Level = 150% of Base Salary
PMO | Performance Level Achieved | Maximum Bonus Opportunity (% of Base Salary) | % of Base Salary Earned | Amount of Bonus | |||||
---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | |
Corporate PMOs | |||||||||
| | | | | | | | | |
Revenue | Between Threshold and Target | 40% | 12.8% | $51,200 | |||||
| | | | | | | | | |
Adjusted Operating Income | Between Target and Outperform | 40% | 25.4% | $101,480 | |||||
| | | | | | | | | |
Adjusted EBITDA Margin | Between Target and Outperform | 40% | 28.0% | $112,000 | |||||
| | | | | | | | | |
Retention | Below Threshold | 40% | 0% | $— | |||||
| | | | | | | | | |
Average Enrollments | Between Threshold and Target | 40% | 13.0% | $51,840 | |||||
| | | | | | | | | |
Additional PMOs | |||||||||
| | | | | | | | | |
Adjusted EBITDA-CapEx | Outperform | 60% | 60.0% | $240,000 | |||||
| | | | | | | | | |
Quarterly Guidance | Met | 40% | 40.0% | $160,000 | |||||
| | | | | | | | | |
TOTAL: | 300% | 179.2% | $716,520 | ||||||
| | | | | | | | | |
Mr. Udell—Target Bonus Level = 150% of Base Salary
PMO | Performance Level Achieved | Maximum Bonus Opportunity (% of Base Salary) | % of Base Salary Earned | Amount of Bonus | Corporate PMOs | | | | |||||||||||||
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NEO | Adjusted Operating Income | Revenue | Retention | Individual PMOs | % of Target Bonus Earned | Amount of Bonus | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Corporate PMOs | |||||||||||||||||||||
Nathaniel A. Davis | 73% | 52.6% | 0% | — | 125.6% | $1,385,277 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Revenue | Between Threshold and Target | 40% | 12.8% | $83,200 | |||||||||||||||||
James P. Rhyu | 73% | 52.6% | 0% | — | 125.6% | $517,673 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Adjusted Operating Income | Between Target and Outperform | 40% | 25.4% | $164,905 | |||||||||||||||||
Kevin P. Chavous | 73% | 52.6% | 0% | — | 125.6% | $499,931 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA Margin | Between Target and Outperform | 40% | 28% | $182,000 | |||||||||||||||||
Shaun E. McAlmont | 51.1% | 36.8% | 0% | 36% | 124.0% | $334,366 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Retention | Below Threshold | 40% | 0% | $— | |||||||||||||||||
Vincent W. Mathis | 51.1% | 36.8% | 0% | 32.1% | 120.1% | $316,042 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Average Enrollments | Between Threshold and Target | 40% | 13.0% | $84,240 | |||||||||||||||||
| | | | | | | | | |||||||||||||
Additional PMOs | |||||||||||||||||||||
| | | | | | | | | | ||||||||||||
Adjusted EBITDA-CapEx | Outperform | 60% | 60.0% | $390,000 | |||||||||||||||||
| | | | | | | | | | ||||||||||||
Quarterly Guidance | Met | 40% | 40.0% | $260,000 | |||||||||||||||||
| | | | | | | | | |||||||||||||
TOTAL: | 300% | 179.2% | $1,164,345 | ||||||||||||||||||
| | | | | | | | |
Mr. Rhyu—Target Bonus Level = 80% of Base Salary
PMO | Performance Level Achieved | Maximum Bonus Opportunity (% of Base Salary) | % of Base Salary Earned | Amount of Bonus | |||||
---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | |
Revenue | Between Threshold and Target | 16% | 5.1% | $25,600 | |||||
| | | | | | | | | |
Adjusted Operating Income | Between Target and Outperform | 16% | 10.2% | $50,750 | |||||
| | | | | | | | | |
Adjusted EBITDA Margin | Between Target and Outperform | 16% | 11.2% | $56,000 | |||||
| | | | | | | | | |
Retention | Below Threshold | 16% | 0% | $— | |||||
| | | | | | | | | |
Average Enrollments | Between Threshold and Target | 16% | 5.2% | $25,950 | |||||
| | | | | | | | | |
Individual | Outperform | 60% | 60.0% | $300,000 | |||||
| | | | | | | | | |
Individual goals and performance results: | |||||||||
• Reduce CapEx ($62M at threshold, $60M at target or $58M at outperformance): Actual result of $48.2M. • Achieve over $1M in combined revenue capture and procurement savings: $1.5M in revenue capture and $1.2M in procurement savings. • Achieve effective tax rate below 38%: Achieved tax rate of 35.6%, with allowable adjustments. • Achieve corporate selling, general and administrative expense target (less bonus, stock-based compensation, legal expenses and any other non-controllable costs): Achieved at $18.5M under budget. • Conduct three non-deal related roadshows: Met. | |||||||||
| | | | | | | | | |
TOTAL: | 140% | 91.7% | $458,300 | ||||||
| | | | | | | | | |
Ms. Cleveland—Target Bonus Level = 65% of Base Salary
PMO | Performance Level Achieved | Maximum Bonus Opportunity (% of Base Salary) | % of Base Salary Earned | Amount of Bonus | |||||
---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | |
Revenue | Between Threshold and Target | 9.75% | 4.2% | $17,264 | |||||
| | | | | | | | | |
Adjusted Operating Income | Between Target and Outperform | 9.75% | 7.3% | $30,482 | |||||
| | | | | | | | | |
Adjusted EBITDA Margin | Between Target and Outperform | 9.75% | 7.8% | $32,370 | |||||
| | | | | | | | | |
Retention | Below Threshold | 9.75% | 0% | $— | |||||
| | | | | | | | | |
Average Enrollments | Between Threshold and Target | 9.75% | 4.2% | $17,534 | |||||
| | | | | | | | | |
Individual | Near Target | 65% | 31.3% | $130,000 | |||||
| | | | | | | | | |
Individual goals and performance results: | |||||||||
• Standardize programming across Managed Public School sector: Accomplished for Students First and Academic Excellence framework. • Improve school operations and finances: Achieved successful revenue capture improvement project. • Advance company marketing strategy: Achieved. • Service agreement and charter renewals: Many expiring service agreements renewed. | |||||||||
| | | | | | | | | |
TOTAL: | 113.75% | 54.86% | $227,650 | ||||||
| | | | | | | | | |
Mr. Zarella—Target Bonus Level = 65% of Base Salary
PMO | Performance Level Achieved | Maximum Bonus Opportunity (% of Base Salary) | % of Base Salary Earned | Amount of Bonus | |||||
---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | |
Revenue | Between Threshold and Target | 9.75% | 4.2% | $17,056 | |||||
| | | | | | | | | |
Adjusted Operating Income | Between Target and Outperform | 9.75% | 7.4% | $30,115 | |||||
| | | | | | | | | |
Adjusted EBITDA Margin | Between Target and Outperform | 9.75% | 7.8% | $31,980 | |||||
| | | | | | | | | |
Retention | Below Threshold | 9.75% | 0% | $— | |||||
| | | | | | | | | |
Average Enrollments | Between Threshold and Target | 9.75% | 4.2% | $17,323 | |||||
| | | | | | | | | |
Individual | Near Target | 65% | 31.3% | $128,500 | |||||
| | | | | | | | | |
Individual goals and performance results: | |||||||||
• Improve operational efficiency and lower bad debt write offs: Accomplished. • Improve customer experience, conversion rates, parent self-service capability, operational expense economics, customer care and private pay enrollment operations: Met established goals in all areas. • Improve the performance and contributions of the IT leadership team: Continued success in building a new IT leadership team. • Lead the marketing organization to deliver high quality student acquisition plan: Accomplished. | |||||||||
| | | | | | | | | |
TOTAL: | 113.75% | 54.9% | $224,974 | ||||||
| | | | | | | | | |
Determination of Long-Term Incentive Compensation
We believe that providing long-term incentive compensation opportunities in the form of equity awards promotes our philosophy of aligning executive pay with the long-term interests of our stockholders while building the value of our Company. During fiscal 2017,2019, we granted performance-basedtime-based RSAs and PSUs to Mr. Davis and Mr. Udell and market- and time- based RSAs to eachall of our other NEOs.
Mr. Davis and Mr. Udell-Performance-BasedTime-Based Restricted Stock Awards
In earlyMr. Davis. Pursuant to Mr. Davis' employment agreement, as amended in connection with his appointment as our CEO in March 2018, beginning with fiscal 2017, the Committee approved long term incentive awards for2019 Mr. Davis is entitled to a target award level under our annual equity incentive award plans in the range of $2,700,000 to $3,300,000, which awards may be subject to such vesting criteria determined by the Board of Directors and Mr. UdellDavis, including performance-based vesting criteria. While the Board of Directors has historically granted 100% of Mr. Davis' long-term incentives in the form of performance-based restricted stockequity awards, in light of recent tax law changes (which no longer provide tax benefits for granting performance-based awards) and to more closely match customary practices among companies in our compensation peer group and among public companies in general, for fiscal 2019, the Board of Directors determined to grant a portion of Mr. Davis' annual long-term incentive award in the form of a time-based RSA with a one year cash flow goal measured by Adjusted EBITDA minus CapEx. We do not grant time-vesting equity awards to Mr. Davis and Mr. Udell because we believe that for these executives, no equity incentive award payouts should be earned if financial performance falls below expected levels. This is intended to provide strong incentive opportunities to our most senior executives to maintain realistically attainable levels of short-term profitability while also aligning compensation with long-term stock price movements and seeking to ensure the tax deductibility of equity grants (as time-based awards would not be expected to be tax deductible for these executives).
The performance-based RSAs granted to Mr. Davis and Mr. Udell had a target award value of $2 million, as set forth in their respective employment agreements, and themillion. The number of shares granted was determined based upon the fair market value of our common stockCommon Stock on the date of grant, which resulted in a targetan award of 147,058 shares each. The115,674 restricted shares are earned based upon the attainment of certain Adjusted EBITDA minus CapEx performance levels for fiscal 2017 as set forth in the table below, with any earned shares subject to additional time-based vesting in equal annual installments over a
Table of Contentsshares.
periodThe remainder of three years. Financial achievement falling between the specified levels would result in a proportionate adjustment to the number of shares earned.
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The Compensation Committee determined to use the cash flow metric of Adjusted EBITDA-CapEx for these awards because we view this as a critical metric for driving stockholder value and the Committee sought to focus executives on this metric as we continue to implement our multi-year plan. In setting the threshold, target and outperform levels for these awards, the Committee takes into account the fact that 100% of the equity awards for these executives are performance-based and therefore at-risk. The Committee also takes into account that this is a meaningful departure from the compensation practices of our peer companies, many of which provide at least half of their annual equityMr. Davis' long-term incentive grantsaward was granted in the form of time-based awards. As a result, the threshold award level was set slightly below the requirement for threshold-level payoutPSUs under the corresponding metric2019 SPP as described in our annual bonus plan to ensure that executives are rewardedmore detail below under "Determination of Long-Term Incentive Compensation—2019 Long-Term Shareholder Performance Plan."
Mr. Rhyu and Mr. Chavous. For fiscal 2019, Mr. Rhyu and Mr. Chavous were granted time-based RSAs having a value of $1,000,000 for attaining a performance level thatMr. Rhyu and $700,000 for Mr. Chavous. The number of shares granted was viewed as reasonable but not intended to be viewed bydetermined based upon the executives as a "stretch" or impractical goal. The target level was then set in a range that included our budgeted performance level for the year, with the outperform level set at the same level as under our annual bonus plan. Payouts at each performance level are set in a narrower band than many programsfair market value of our peer companies to ensure that executives do not receive unreasonable payouts in the event of outperformance, taking into account the challenges we face in projecting our performance levels in our current operating environment and as we execute on transitioning our business, as we have described above.
In early fiscal 2018, the Committee determined that our fiscal 2017 Adjusted EBITDA minus CapEx was $66.5 million, which resulted in Mr. Davis and Mr. Udell each earning an award of 195,587 shares at the "Outperform" level, one-third of which vested in August 2017,Common Stock on the date of certificationgrant, which resulted in an award of achievement,60,386 restricted shares to Mr. Rhyu and the remainder of which will vest in annual installments in 2018 and 2019.42,271 restricted shares to Mr. Chavous.
Mr. Rhyu, Ms. ClevelandDr. McAlmont and Mr. Zarella—TimeMathis. In connection with commencing employment in early fiscal 2019, Dr. McAlmont was granted a time-based RSA for 45,000 shares and Market-Based Restricted Stock AwardsMr. Mathis was granted a time-based RSA for 35,000 shares.
In August 2016,All of the Committee determinedtime-based RSAs granted to increase the percentage of variable compensation for certain of our NEOs in order to better align the interests of these executives with those of our stockholders such that 20% of the annual restricted stock awards granted to each of Mr. Rhyu, Ms. Cleveland and Mr. Zarella are "at risk" and performance-based. Time and market-based restricted stock awards were granted to each of these NEOs in the following amounts:
Name | Time RSAs (#) (1) | Market-Based RSAs (#) (2) | ||
---|---|---|---|---|
| | | | |
James J. Rhyu | 64,000 | 16,000 | ||
| | | | |
Allison B. Cleveland | 32,000 | 8,000 | ||
| | | | |
Joseph P. Zarella | 32,000 | 8,000 | ||
| | | | |
2019 Long-Term Shareholder Performance Plan (SPP)
In early fiscal 2019, the Committee adopted and the Board of Directors approved the 2019 SPP—our new long-term shareholder performance plan under which a meaningful portion of the total long-term incentive award opportunities are provided to our NEOs in the form of PSUs designed to provide these executives with a percentage of stockholder value growth.
The 2019 SPP was adopted following the conclusion of our prior long-term incentive plan as a means of continuing our practice of providing multi-year performance-based equity incentive awards. Since awards under the 2019 SPP will not be granted on an annual basis, award amounts granted during fiscal 2019 take into account that no similar PSUs with overlapping performance periods and measured based on stock price growth are expected to be provided to our NEOs.
Awards under the 2019 SPP were originally granted to Mr. Davis, Mr. Rhyu and Mr. Chavous in September 2018 and in January 2019 the Committee determined to expand participation in the 2019 SPP to Dr. McAlmont and Mr. Mathis to ensure that the long-term incentive compensation opportunities for our NEOs were aligned to driving long-term stockholder value. PSUs granted under the 2019 SPP will be earned and vest only based on our market capitalization growth over a completed three-year performance period ending in 2021. The market-based RSAsPSUs will be earned and vest based uponon the Company's average closing stock price over the 30 calendar day period that begins on the eighth day after the date the Company achieving an averagereleases its earnings results for fiscal 2021.
The total number of shares that would be earned at each applicable stock price hurdle was determined in order to correspond to a specified percentage of $14.35 permarket capitalization growth delivered by the stock price increases, thereby directly aligning long-term incentive awards for the NEOs with long-term stock value growth for our stockholders. This percentage amount, along with the number of shares that would be earned by each of the NEOs under the 2019 SPP at different stock price hurdles and growth outcomes is illustrated in the following chart:
| | | | | | | | | | | | | | | | | | | | | | |
| 3-Year CAGR | Absolute Stock Price Growth | Stock Price Hurdle | Share of Market Cap Growth | # of Shares Earned | | ||||||||||||||||
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| | | | | Davis | Rhyu | Chavous | McAlmont | Mathis | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
7.6% | 25% | $21.18 | 1.0% | 54,649 | 12,882 | 10,539 | — | — | ||||||||||||||
10% | 33% | $22.63 | 6.0% | 413,331 | 93,885 | 83,257 | — | — | ||||||||||||||
15% | 52% | $25.86 | 6.5% | 528,571 | 179,714 | 172,666 | — | — | ||||||||||||||
20% | 73% | $29.38 | 6.5% | 596,022 | 243,827 | 243,827 | — | — | ||||||||||||||
25% | 95% | $33.21 | 7.5% | 724,185 | 362,093 | 362,093 | 118,265 | 88,699 | ||||||||||||||
30% | 120% | $37.35 | 7.5% | 727,673 | 382,433 | 382,433 | 138,606 | 103,954 | ||||||||||||||
40% | 174% | $46.65 | 7.5% | 848,857 | 425,372 | 425,372 | 181,545 | 136,158 | ||||||||||||||
50% | 238% | $57.38 | 7.5% | 939,858 | 425,372 | (1) | 425,372 | (1) | 181,545 | 136,158 | ||||||||||||
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No amounts will be earned if total stock price growth of approximately 10% over the averagethree-year period is below certain threshold levels, which levels are below 25% (7.6% annualized) for Mr. Davis, Mr. Rhyu and Mr. Chavous and below 95% (25% annualized) for Dr. McAlmont and Mr. Mathis. A maximum of 7.5% of total value growth will be earned if total stock price for the calendar month preceding the grant (July 2016), measured during the 30 consecutive calendar days following the reportgrowth equals or exceeds 95%. The number of fiscal 2017 earnings. Restricted shares granted upon the achievement ofPSUs earned will be interpolated on a straight line basis if the stock price appreciation threshold vest as to 20%falls between two of the shares immediately upon the date the threshold is achieved and the remaining 80% of the shares vest in four equal semi-annual installments. On September 8, 2017, the Committee certified the achievement of the stock price threshold and the shares began to vest.
Prior Year Long-Term Incentive Awards
Mr. Davis and Mr. Udell—Fiscal 2016 Market-Based Restricted Stock Awards
In fiscal 2016, Mr. Davis and Mr. Udell were granted market-based restricted stock awards that begin to vest based upon the Company achieving stock price appreciation thresholds for 30 consecutive calendar days. The stock price thresholds for these awards were achieved during fiscal 2017 and Mr. Davis and Mr. Udell began vestinglevels set forth in the restricted shares as follows:
| Date | Number of Shares (1) | ||||
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| | | | | | |
Stock Price | Achieved | Davis | Udell | |||
| | | | | | |
³ $13 per share | 8-1-16 | 38,462 | 76,923 | |||
| | | | | | |
³ $16 per share | 12-23-16 | 93,750 | 93,750 | |||
| | | | | | |
³ $19 per share | 4-24-17 | 131,579 | 157,895 | |||
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All NEOs—LTIP Performance Share Units
In fiscal 2016 the Committee granted PSUs to all of our NEOs, which are earned based on academic performance, weighted at 70%, and student retention, weighted at 30%. Academic performance goals are measured over both a two and three year period and the student retention goal is measured based on performance for the third year. The first tranche of the academic goal (i.e., the tranche for the two-year fiscal 2016-2017 period) was eligible towill be earned based on reducing the number of schools in academic jeopardy status over the performance period and was to be measured based on the percentage of schools not in academic jeopardy at the end of the performance period as follows:
For this purpose, "academic jeopardy" is defined as a school having a high probability of being closed within 12-18 months of the measurement date if academic performance does not improve. Over the two-year performance period, we reduced the number of schools in academic jeopardy from 11 to three, resultingstock price paid or implied in the first tranche of this award beingtransaction and the earned at the outperform level. The earned sharesPSUs will vest in four quarterly installments beginning November 15, 2017.immediately.
Awards under the LTIP are not granted on an annual basis such that additional PSUs with overlapping performance periods will not be granted to our NEOs.
Fiscal 2018 Compensation Decisions
As we implemented our executive compensation program for fiscal 2018, we continued our efforts to more tightly link executive pay to measurable performance results under the guidance of a reconstituted Compensation Committee, including a new Committee Chair to bring fresh perspectives to our executive compensation programs. We also implemented several changes to our programs in response to the valuable stockholder feedback we have received over the past 12 months, as we discuss in more detail above under the heading "Stockholder Engagement." While we will describe these programs in full detail in next year's proxy statement, the following fiscal 2018 compensation highlights are important in considering the evolution of our compensation program in the context of our transitioned business strategies and execution of our multi-year plan.
performance levels accordingly. However, because we outperformed on the Adjusted EBITDA-CapEx metric in fiscal 2017, the Committee set the low end of the target range for fiscal 2018 at a level meaningfully greater than the corresponding fiscal 2017 target.
Deferred Compensation Plan
We maintain a non-qualified deferred compensation plan, or the Deferred Compensation Plan, under which our NEOs are eligible to elect to defer the receipt of up to 50% of their annual base salary and up to 100% of any annual incentive bonus until retirement. Earnings are credited on deferred amounts based upon a variety of investment options that may be elected by each participant. We do not make any contributions to the Deferred Compensation Plan. Certain information with respect to amounts deferred by our NEOs under this plan is set forth below in the "Fiscal 20172019 Non-Qualified Deferred Compensation" table.
Defined Contribution Plan
We maintain a Section 401(k) Savings/Retirement Plan, or the 401(k) Plan, in which certain of our employees, including our NEOs, are eligible to participate. All employees, including our NEOs, are automatically enrolled in the 401(k) Plan at a 3% deferral rate with the ability to opt-out. The 401(k) Plan allows participants to defer a portion of their annual compensation, subject to certain limitations imposed by the Internal Revenue Code. We currently provide matching contributions equal to $0.25 for each dollar of a participant's contributions on the first 4% of eligible salary that they contribute each pay period, subject to certain statutory limits.
Employee Benefits and Perquisites
We provide our NEOs with certain perquisites and other personal benefits, and perquisites, which we do not consider to be a significant component of our executive compensation programs but recognize to be an important factor in attracting and retaining talented executives. Our NEOs participate in the same medical, dental, vision, disability and life insurance plans as our employees generally. We also pay for supplemental long-term disability and life insurance premiums for our executive officers and provide them with the opportunity to receive annual Company-paid executive physical examinations. We provide these supplemental benefits to our executive officers due to the relatively low cost of such benefitsexaminations and the value they provide in assisting us
in attracting and retaining talented executives. We reimburse certain executives for their relocation expenses from time to time and for temporary housing expenses they may incur in connection with their provision of services. We provide such reimbursementsthese supplemental benefits to our executives becauseexecutive officers due to the relatively low cost of such expenses are typically directly associated withbenefits and would not have been incurred but for their commencement or continued provision of services.
the value they provide in assisting us in attracting and retaining talented executives. None of our executive officers receive tax gross-ups or other tax payments in connection with our provision of any perquisites or personal benefits.
In order to incentivize Dr. McAlmont and Mr. Mathis to join the company in early fiscal 2019, each of these executives received a one-time sign-on bonus in the amount of $85,000 for Dr. McAlmont and $50,000 for Mr. Mathis. In addition, Dr. McAlmont and Mr. Mathis were provided reimbursement of relocation expenses in the amounts set forth in the "Summary Compensation Table for Fiscal 2019" below.
The value of perquisites and other personal benefits and perquisites we provided to each of our NEOs in fiscal 20172019 is set forth below in our "Summary Compensation Table for Fiscal 2017.2019."
Compensation Governance, Process Andand Incentive Decisions.Decisions
Role of Compensation Committee
The Committee is responsible for overseeing our executive compensation programs, as specified in its charter. The Committee's role includes:
In performing its responsibilities with respect to the compensation of our executive officers, the Committee uses information from a number of sources. The information utilized by the Committee includes advice from its independent compensation consultant, market data regarding the compensation practices of competitors, advice from outside legal counsel specializing in executive compensation, tally sheets
showing prior compensation awards, the recommendations of our Chairman and CEO with input from our Executive Chairman, and an assessment of the outstanding equity holdings of our executive officers.
Role of Management
Our management, under the leadership of our Executive Chairman and our CEO, plays an important role in establishing and maintaining our executive compensation programs. Management's role includes recommending plans and programs to the Committee, implementing the Committee's decisions and assisting and administering plans in support of the Committee. With feedback from our ExecutiveOur Chairman ourand CEO provides information on the individual performance of our other executive officers and makes annual recommendations to the Committee on compensation levels for our executive officers, including the other NEOs.NEOs (other than his own compensation). Our Executive Chairman and our CEO areis not present when the Committee discusses and determines matters regarding theirhis own compensation.
Role of Committee's Independent Compensation Consultant
The Committee's charter gives it the authority to retain and approve fees and other terms of engagement for compensation consultants and other advisors to assist it in performing its duties. In fiscal 2017,2019, the Committee continued to retain Compensia as its independent compensation consultant. Compensia reports directly to the Committee, which will annually review its performance, independence and fees.
The Committee receives a report from Compensia on an annual basis reviewing its independence in light of SEC regulations and NYSE listing standards. In fiscal 2017, the Committee concluded that the engagement of Compensia did not raise any conflicts of interest.
Other Compensation Policies and Practices
Stock Ownership Policy
We maintain a stock ownership policy that is designed to ensure that our executive officers and non-employee directors hold a significant equity stake in our Company to align their interests with those of our stockholders. The policy has expanded over the years such that it now applies to all of our executive officers and non-employee directors.officers. The policy requires each of our Executive Chairman and our CEO to maintain ownership of our common stockCommon Stock having a value equal to three times their respectivehis base salaries,salary, our CFO to maintain ownership of our common stockCommon Stock equal to two times his base salary and each of our other executive officers to maintain common stockCommon Stock ownership equal to one time their respective base salaries. Non-employee directors are required to maintain ownership of our common stock equal to the lesser of three times the annual cash retainer or 15,000 shares. Our executive officers and non-employee directors have five years from the date the policy became applicable to them to accumulate the specified level of ownership. As of the date of this Proxy Statement, all of our NEOs and non-employee directors are in compliance with this policy.
Compensation ClawbackRecovery ("Clawback") Policy
Our Board of Directors has adopted a clawback policy pursuant to which the Company may recover from current or former executive officers the amount of previously paid incentive compensation (including both cash bonuses and equity awards) that it determines to be appropriate if a material error or inaccuracy resulted in whole or in part from the fraud or intentional misconduct of an executive that leads to a financial restatement. This policy is intended to provide enhanced safeguards against certain types of employee misconduct, and allows for recovery of significant compensation paid to an executive.
Insider Trading Policy
We maintain a Policy Statement for the Prevention of Insider Trading that applies to all securities issued by the Company, including common stock,Common Stock, options to purchase shares of common stock,Common Stock, preferred stock, and any other type of security that the Company may issue or that relates to the Company's securities. Company employees, directors and consultants are prohibited from engaging in hedging transactions, including purchasing Company stockCommon
Stock on margin or engaging in transactions, in puts, calls or other derivative securities designed to hedge or offset any decrease in the market value of the Company's equity securities and we have not permittedsecurities. In addition, our 2016 Plan prohibits the pledging of any awards.award granted under the 2016 Plan unless otherwise determined by the plan administrator.
Tax Deductibility of Annual Compensation
Prior to the passage of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), Section 162(m) of the Internal Revenue Code limitslimited tax deductions for certain annual compensation in excess of $1 million paid to certain individualsexecutive officers of a publicly traded corporation. Compensation that qualified as "performance-based" under Section 162(m) was exempt from this $1 million limitation. As part of the Tax Act, the ability to rely on this "qualified performance-based compensation" exception was eliminated and the limitation on deductibility was generally expanded to include all named executive officers. Although we maintained compensation arrangements that were intended to qualify as performance-based compensation under Section 162(m), following passage of the Tax Act we may no longer take a deduction for any compensation paid to our covered employees in the summary compensation tablesexcess of public company proxy statements.$1 million, subject to certain transition relief rules. The Committee considersbelieves that tax deductibility is only one of several relevant considerations when structuring compensation programs and presently expectsstrives to pursue compensation programs that are intended to be tax deductible where practicable to the extent consistent with our compensation goals and philosophies. However, if circumstances warrant, the Committee retains the discretion to grant incentive awards to NEOs that are not fully deductible as a result of Section 162(m), as the Committee must balance the effectiveness and overall goals of our executive compensation programs with the materiality of reduced tax deductions. In addition, even whereAccordingly, the Committee has approved compensation programs are intended to qualify as performance-based
compensationamounts for purposesour executive officers that were not fully deductible because of Section 162(m), there can be no guarantee that and, in light of the requirementsrepeal of the performance-based compensation exception to Section 162(m) will be satisfied, expects in the future to approve compensation that is not deductible for federal income tax purposes in order to achieve the desired flexibility in the design and that all such compensation will be deductible.delivery of compensation.
Accounting for Stock-Based Compensation
ASC Topic 718, Compensation—Stock Compensation, requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of equity-based awards under our equity incentive award plans are accounted for under ASC Topic 718. The Committee considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, the Committee may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.
Equity Award Grant Practices
We do not have any program, plan or practice to time the grant of equity awards to our employees in coordination with the release of material non-public information. We generally grant awards at the time employment commences and annually in connection with our annual compensation review process. We do notNeither the Board of Directors nor the Committee seek to time the grant of equity awards based on our stock price. If we are in possession of material non-public information, either favorable or unfavorable, when equity awards are made, the Committee will not take the information into consideration in determining award amounts. Our practice is to determine the stock price for annual NEO equity awards on the day that incentive awards are granted.
Severance and Change in Control Arrangements
We consider severance to be an integral part of the overall compensation package for our executives. We provide severance to attract and retain individuals with superior ability and managerial talent, provide our executives with appropriate protections due to their vulnerability to terminations of employment due to a change in control, merger or acquisition and encourage our executives to focus their attention on their work duties and responsibilities in all situations.
We believe that providing the NEOs with severance payments and benefits upon certain terminations of employment are key retention tools that help us remain competitive with the companies in our compensation peer group, provide our executive officers with incentives to focus on the best interests of
our stockholders in the context of a potential change in control, and appropriately protect our executive officers in the event of an involuntary termination of employment without creating a windfall due solely to a change in control.
Severance. We have entered into an employment agreementsagreement with Mr. Davis and Mr. Udell and a letter agreement with Mr. Rhyu that provide for severance payments and benefits upon certain terminations of employment as further described below under the section "Potential Payments Upon Termination or Change in Control—Employment Agreements." Our other NEOs are generally entitled to receive severance pay upon a qualifying termination of employment under the Company's severance guidelines in an amount between six and 12 months of base salary, which amount is determined based on their position and tenure with the Company.Company, which for Mr. Chavous, Dr. McAlmont and Mr. Mathis is currently equal to six months of base salary. In addition, upon a termination without cause or resignation for good reason, the NEOs may be eligible to receive, subject entirely to the Committee's discretion and contingent upon signing a release of claims:claims in favor of the Company: (i) accelerated vesting of outstanding and unvested stock options that otherwise would have vested in the one year period following the date of termination (all other options to be forfeited), and (ii) accelerated vesting of outstanding and unvested restricted stock awards.
Pursuant to the terms of their outstanding award agreements, in the event the employment of Mr. Rhyu, Mr. Chavous, Dr. McAlmont or Mr. Mathis is terminated due to his death or by the Company due to disability, the executive (or his estate) would be entitled to full accelerated vesting of outstanding and unvested restricted stock awards.
Change in Control. TheExcept as described below with respect to PSUs granted under the 2019 SPP, the NEOs are generally not entitled to receive cash payments or accelerated vesting of equity awards solely as a result of a change in control of the Company.
We have entered into change in control agreements with our NEOs, other than Mr. Davis, and Mr. Udell, whose entitlements to payments or benefits upon a change in control areis set forth in their respectivehis employment agreements,agreement, pursuant to which, in the event the NEO is terminated without cause or resigns for good reason within 24 months following a change in control, the executive would be entitled to receive 1.5 times the cash severance amount available under the Company's standard severance guidelines as described above and reimbursement for COBRA premiums for up to 12 months following termination. In addition, all unvested equity awards would become fully vested, provided that any awards subject to performance-based vesting would generally only vest subject to the attainment of the applicable performance conditions.
With respect toUnder the 2019 SPP, in the event of a change in control during the three-year performance period, the PSUs awarded under our LTIP,will be earned based on the portion ofstock price paid or implied in the award attributable totransaction and the post-change in control period would be considered "earned" at the target level (100%), subject to remaining time-based vesting requirements.earned PSUs will vest immediately.
Risk Assessment in Compensation Programs
Consistent with SEC disclosure requirements, we periodically evaluate the risk profile associated with the Company's executive and other compensation programs. In fiscal 2017,2019, the Committee engaged Compensia to review the existing programs and assess whether theyour compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the Company. Among other factors, this assessment considered the program structure, design characteristics and performance-based measures associated with our executive compensation programs and concluded that our executive compensation programs contain a number of safeguards that are expected to minimize excessive risk taking, including a reasonable mix of cash and equity compensation opportunities, a compensation claw backrecovery ("clawback") policy, the use of multiple performance measures in oura balanced annual incentive plan balanced annual incentivedesign that emphasizes top and variablebottom line performance, formal policies for the administration of our equity pay structures, multi-year vestingprogram, a
Table of long-term incentive grants, a Contents
succession plan for key executives and a stock ownership policy for our non-employee directors and executive officers.
Based on the foregoing, we believe that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company as a whole. We also believe that our incentive compensation arrangements provide incentives that do not encourage risk-taking beyond the Company's ability to effectively identify and manage significant risks, are compatible with effective internal controls and the risk management practices of our Company, and are supported by the oversight and administration of the Committee with regard to our executive compensation programs.
Summary Compensation Table for Fiscal 20172019
The following table shows the compensation we paid to our NEOs for services rendered during fiscal 2017, 20162019, 2018 and 2015.2017.
Name | Fiscal Year | Base Salary | Bonus (1) | Stock Awards (2) | Option Awards (2) | Nonequity Incentive Plan Compensation (3) | All Other Compensation (4) | Total | |||||||||
| | | | | | | | | | | | | | | | | |
Nathaniel A. Davis | 2017 | $400,000 | $— | $1,999,989 | $— | $716,520 | $15,210 | $3,131,719 | |||||||||
Executive Chairman | 2016 | 610,178 | — | 3,160,796 | 1,500,001 | 1,616,972 | 17,885 | 6,905,832 | |||||||||
2015 | 700,000 | — | 1,702,755 | 1,500,899 | 1,407,280 | 14,512 | $5,325,446 | ||||||||||
Stuart J. Udell, (5) | 2017 | $650,000 | $200,000 | $1,999,989 | $— | $1,164,345 | $19,786 | $4,034,120 | |||||||||
Chief Executive Officer | 2016 | 256,438 | 200,000 | 3,475,390 | — | 539,981 | 68,889 | 4,540,698 | |||||||||
James J. Rhyu | 2017 | $500,000 | $— | $815,840 | $— | $458,300 | $9,048 | $1,783,188 | |||||||||
Executive Vice President and | 2016 | 486,500 | — | 533,140 | — | 510,825 | 9,719 | 1,540,184 | |||||||||
Chief Financial Officier | 2015 | 478,500 | — | 2,542,050 | — | 584,727 | 8,877 | 3,614,154 | |||||||||
Allison B. Cleveland | 2017 | $415,000 | $— | $407,920 | $— | $227,650 | $7,011 | $1,057,581 | |||||||||
Executive Vice President, School | 2016 | 396,000 | — | 491,050 | — | 196,650 | 7,380 | 1,091,080 | |||||||||
Management and Services | 2015 | 360,000 | — | 376,600 | | 160,668 | 6,754 | 904,022 | |||||||||
Joseph P. Zarella | 2017 | $410,000 | $— | $407,920 | $— | $224,974 | $13,297 | $1,056,191 | |||||||||
Executive Vice President | 2016 | 390,000 | — | 434,930 | — | 196,650 | 19,642 | 1,041,222 | |||||||||
Business Operations | 2015 | 245,702 | 75,000 | 306,250 | 325,200 | 110,055 | 4,166 | 1,066,373 |
Name | Fiscal Year | Base Salary | Bonus (1) | Stock Awards (2) | Nonequity Incentive Plan Compensation (3) | All Other Compensation (4) | Total | ||||||||
| | | | | | | | | | | | | | | |
Nathaniel A. Davis | 2019 | $706,731 | $— | $7,676,558 | $1,385,277 | $17,131 | $9,785,697 | ||||||||
Chief Executive Officer and Chairman | 2018 | 509,129 | — | 4,205,001 | 1,704,087 | 17,672 | 6,435,889 | ||||||||
2017 | 400,000 | — | 1,999,989 | 716,520 | 15,210 | 3,131,719 | |||||||||
James J. Rhyu | 2019 | $495,192 | $— | $3,654,349 | $517,673 | $9,211 | $4,676,425 | ||||||||
Chief Financial Officer | 2018 | 500,000 | — | 755,967 | 618,263 | 9,549 | 1,883,779 | ||||||||
President, Product and Technology | 2017 | 500,000 | — | 815,840 | 458,300 | 9,048 | 1,783,188 | ||||||||
Kevin P. Chavous | 2019 | $487,644 | $— | $3,329,353 | $499,931 | $14,943 | $4,331,871 | ||||||||
President of Academics, Policy and | 2018 | 317,557 | 85,000 | 1,000,017 | 388,439 | 94,303 | 1,885,317 | ||||||||
Schools | |||||||||||||||
Shaun E. McAlmont (5) | 2019 | $332,000 | $85,000 | $4,334,902 | $334,366 | $100,014 | $5,186,282 | ||||||||
President, Career Readiness Education | |||||||||||||||
Vincent W. Mathis (5) | 2019 | $317,769 | $50,000 | $3,265,637 | $316,042 | $45,286 | $3,994,734 | ||||||||
Executive Vice President, | |||||||||||||||
General Counsel and Secretary |
Grants of Plan-Based Awards During Fiscal 20172019 Table
The following table provides information regarding grants of plan-based awards to our NEOs during fiscal 2017.2019. The equity awards described in the following table were granted under our 2016 Plan, the K12 Inc. 2007 Equity Incentive Award Plan (which was replaced by the 2016 Plan) and the LTIP.Plan.
| | Estimated Possible Payouts under Nonequity Incentive Plan Awards (1) | | Estimated Possible Payouts under Equity Incentive Plan Awards | | All Other Stock Awards: Number of Shares of | | Grant Date Fair Value of Option and Stock | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Target | | Maximum | | Threshold | | Target | | Maximum | | Stock | | Awards | |||||||||||||
Name | | Grant Date | | ($) | | ($) | | | (#) | | (#) | | (#) | | (#) | | ($) | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nathaniel A. Davis | — | 600,000 | 1,200,000 | — | — | — | — | — | |||||||||||||||||||
Executive Chairman | 09/28/2016 (2 | ) | — | — | 117,646 | 147,058 | 195,587 | — | 1,999,989 | ||||||||||||||||||
Stuart J. Udell | | — | | 975,000 | | 1,950,000 | | | — | | — | | — | | — | | — | ||||||||||
Chief Executive Officer | | 09/28/2016 (2 | ) | | — | | — | | | 117,646 | | 147,058 | | 195,587 | | — | | 1,999,989 | |||||||||
James J. Rhyu | 400,000 | 700,000 | — | — | — | — | |||||||||||||||||||||
Executive Vice President and Chief | 08/24/2016 (3 | ) | — | — | — | 16,000 | — | — | 79,840 | ||||||||||||||||||
Financial Officer | 08/24/2016 (4 | ) | — | — | — | — | — | 64,000 | 736,000 | ||||||||||||||||||
Allison B. Cleveland | | — | | 269,750 | | 472,063 | | | — | | — | | — | | — | | — | ||||||||||
Executive Vice President of School | | 08/24/2016 (3 | ) | | — | | — | | | — | | 8,000 | | — | | — | | 39,920 | |||||||||
Management and Services | | 08/24/2016 (4 | ) | | — | | — | | | — | | — | | — | | 32,000 | | 368,000 | |||||||||
Joseph P. Zarella | — | 266,500 | 466,375 | — | — | — | — | — | |||||||||||||||||||
Executive Vice President | 08/24/2016 (3 | ) | — | — | — | 8,000 | — | — | 39,920 | ||||||||||||||||||
Business Operations | 08/24/2016 (4 | ) | — | — | — | — | — | 32,000 | 368,000 |
| | Estimated Possible Payouts under Nonequity Incentive Plan Awards (1) | | Estimated Possible Payouts under Equity Incentive Plan Awards | | All Other Stock Awards: Number of Shares of | | Grant Date Fair Value of Stock | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Target | | Maximum | | Threshold | | Target | | Maximum | | Stock | | Awards | |||||||||||||
Name | | Grant Date | | ($) | | ($) | | | (#) | | (#) | | (#) | | (#) | | ($) | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nathaniel A. Davis | — | 1,102,500 | 2,205,000 | — | — | — | — | — | |||||||||||||||||||
Chief Executive Officer and | 9/18/2018 (2 | ) | — | — | 54,649 | 413,331 | 939,858 | — | 5,676,554 | ||||||||||||||||||
Chairman | 9/18/2018 (3 | ) | — | — | — | — | — | 115,674 | 2,000,003 | ||||||||||||||||||
James J. Rhyu | | | | 412,000 | | 824,000 | | | — | | — | | — | | | | — | ||||||||||
Chief Financial Officer | | 9/18/2018 (2 | ) | | — | | — | | | 12,882 | | 93,885 | | 413,537 | | — | | 2,448,346 | |||||||||
President, Product and Technology | | 1/31/2019 (4 | ) | | — | | — | | | — | | 11,835 | | 11,835 | | — | | 206,011 | |||||||||
| | 8/31/2018 (3 | ) | | — | | — | | | — | | — | | — | | 60,386 | | 999,992 | |||||||||
Kevin P. Chavous | — | 397,880 | 795,760 | — | — | — | — | — | |||||||||||||||||||
President of Academics, Policy and | 9/18/2018 (2 | ) | — | — | 10,539 | 83,257 | 413,537 | — | 2,422,334 | ||||||||||||||||||
Schools | 1/31/2019 (4 | ) | — | — | 11,835 | 11,835 | — | 207,011 | |||||||||||||||||||
8/31/2018 (3 | ) | — | — | — | — | — | 42,271 | 700,008 | |||||||||||||||||||
Shaun E. McAlmont | | — | | 269,750 | | 581,000 | | | — | | — | | — | | — | | — | ||||||||||
President, Career Readiness | | 1/31/2019 (2 | ) | | — | | — | | | 118,265 | | 138,606 | | 181,545 | | — | | 3,587,002 | |||||||||
Education | | 8/29/2018 (3 | ) | | — | | — | | | — | | — | | — | | 45,000 | | 747,900 | |||||||||
Vincent W. Mathis | — | 263,250 | 567,000 | — | — | — | — | — | |||||||||||||||||||
Executive Vice President, | 1/31/2019 (2 | ) | — | — | 88,699 | 103,954 | 136,158 | — | 2,690,237 | ||||||||||||||||||
General Counsel and Secretary | 9/4/2018 (3 | ) | — | — | — | — | — | 35,000 | 575,400 |
Outstanding Equity Awards at End of Fiscal 20172019 Table
The following table provides information regarding outstanding equity awards held by our NEOs as of June 30, 2017.2019. The section titled "Determination"Determination of Long-Term Incentive Compensation"Compensation" in the Compensation Discussion and Analysis above provides additional information regarding the outstanding equity awards set forth in this table.
Option Awards | | Stock Awards | Option Awards | | Stock Awards | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Options Expiration Date | | Equity Incentive Plan Awards: Amount of Unearned Shares, Units or Other Rights That Have Not Vested ($) | Equity Incentive Plan Awards: Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Number of Securities Underlying Unexercised Options Exercisable (#) | | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | | Equity Incentive Plan Awards: Amount of Unearned Shares, Units or Other Rights That Have Not Vested ($) | Equity Incentive Plan Awards: Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | ||||||||||||||||
Nathaniel A. Davis | 420,000 | — | $21.26 | 01/07/21 | — | — | — | — | 420,000 | — | $21.26 | 01/07/21 | — | — | — | — | ||||||||||||||||||||||
Chief Executive Officer and | 97,720 | — | $33.92 | 09/19/21 | — | — | — | — | ||||||||||||||||||||||||||||||
Chairman | 185,985 | — | $18.17 | 09/04/22 | — | — | — | — | ||||||||||||||||||||||||||||||
91,607 | 6,113 | (1) | $33.92 | 09/19/21 | — | — | — | — | 227,917 | 15,195 | (1) | $13.43 | 09/10/23 | — | — | — | — | |||||||||||||||||||||
127,864 | 58,121 | (1) | $18.17 | 09/04/22 | — | — | — | — | — | — | — | — | 724,185 | (2) | 22,022,466 | — | — | |||||||||||||||||||||
106,361 | 136,751 | (1) | $13.43 | 09/10/23 | — | — | — | — | — | — | — | — | — | — | 341,276 | (3) | 10,378,203 | |||||||||||||||||||||
— | — | — | — | 252,000 | (2) | 4,515,840 | — | — | ||||||||||||||||||||||||||||||
— | — | — | — | — | — | 109,859 | (3) | 1,968,673 | ||||||||||||||||||||||||||||||
— | — | — | — | — | — | 324,653 | (4) | 5,817,782 | ||||||||||||||||||||||||||||||
Stuart J. Udell | — | | — | — | — | | 196,058 | (2) | 3,513,359 | | — | — | ||||||||||||||||||||||||||
| — | | — | — | — | | — | — | | 147,216 | (5) | 2,638,111 | ||||||||||||||||||||||||||
| — | | — | — | — | | — | — | | 297,701 | (6) | 5,334,802 | ||||||||||||||||||||||||||
James J. Rhyu | — | — | — | — | 109,620 | (2) | 1,964,390 | — | — | — | | — | — | — | | 362,093 | (2) | 11,011,248 | | — | — | |||||||||||||||||
— | — | — | — | — | — | 16,000 | (7) | 286,720 | ||||||||||||||||||||||||||||||
— | — | — | — | — | — | 139,400 | (8) | 2,498,048 | ||||||||||||||||||||||||||||||
Allison B. Cleveland | — | | — | — | — | | 91,980 | (2) | 1,648,282 | | — | — | ||||||||||||||||||||||||||
| — | | — | — | — | | — | — | | 8,000 | (7) | 143,360 | ||||||||||||||||||||||||||
| — | | — | — | — | | — | — | | 53,800 | (9) | 964,096 | ||||||||||||||||||||||||||
Joseph P. Zarella | — | 22,500 | (10) | $12.25 | 11/03/22 | — | — | — | — | |||||||||||||||||||||||||||||
— | — | — | — | 91,980 | (2) | 1,648,282 | — | — | ||||||||||||||||||||||||||||||
— | — | — | — | — | — | 8,000 | (7) | 143,360 | ||||||||||||||||||||||||||||||
— | — | — | — | — | — | 52,400 | (11) | 939,008 | ||||||||||||||||||||||||||||||
Chief Financial Officer | — | | — | — | — | | — | — | | 5,124 | (4) | 155,821 | ||||||||||||||||||||||||||
President, Product and | — | | — | — | — | | — | — | | 3,200 | (5) | 97,312 | ||||||||||||||||||||||||||
Technology | — | | — | — | — | | — | — | | 87,649 | (6) | 2,665,406 | ||||||||||||||||||||||||||
Kevin P. Chavous | — | — | — | — | 362,093 | (2) | 11,011,248 | — | — | |||||||||||||||||||||||||||||
President of Academics, | — | — | — | — | — | — | 7,251 | (7) | 220,503 | |||||||||||||||||||||||||||||
Policy and Schools | — | — | — | — | — | — | 67,651 | (8) | 2,057,267 | |||||||||||||||||||||||||||||
Shaun E. McAlmont | — | | — | — | — | | 118,265 | (2) | 3,596,439 | | — | — | ||||||||||||||||||||||||||
President, Career Readiness | — | | — | — | — | | — | — | | 40,500 | (9) | 1,231,605 | ||||||||||||||||||||||||||
Education | | | | |||||||||||||||||||||||||||||||||||
Vincent W. Mathis | — | — | — | — | 88,699 | (2) | 2,697,337 | — | — | |||||||||||||||||||||||||||||
Executive Vice President, | — | — | — | — | — | — | 31,500 | (10) | 957,915 | |||||||||||||||||||||||||||||
General Counsel and | ||||||||||||||||||||||||||||||||||||||
Secretary |
metrics for fiscal 2018, as modified by our total stockholder return ranking as compared to companies in the Russell 2000 Index.
Option Exercises and Stock Vested During Fiscal 20172019 Table
The following Option Exercises and Stock Vested table provides additional information about the value realized by the NEOs as a result of the vesting of restricted stock awards and exercise of stock options during the fiscal year ended June 30, 2017.2019. No stock options were exercised by the NEOs during fiscal 2019.
Stock Awards | ||||||||||||
| | | | | ||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise (1) ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting (2) ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting (1) ($) | ||||||
| | | | | | | | | | | | |
Nathaniel A. Davis | 2,500 | 7,493 | 253,087 | 3,924,968 | 351,092 | 6,113,631 | ||||||
Stuart J. Udell | — | — | 234,840 | 4,120,167 | ||||||||
Chief Executive Officer and Chairman | ||||||||||||
James J. Rhyu | — | — | 55,800 | 865,376 | 122,431 | 2,549,550 | ||||||
Allison B. Cleveland | 5,600 | 6,742 | 24,100 | 381,637 | ||||||||
Joseph P. Zarella | 37,500 | 311,133 | 22,500 | 368,429 | ||||||||
Chief Financial Officer President, Product and Technology | ||||||||||||
Kevin P. Chavous | 23,865 | 600,118 | ||||||||||
President of Academics, Policy and Schools | ||||||||||||
Shaun E. McAlmont | 4,500 | 144,270 | ||||||||||
President, Career Readiness Education | ||||||||||||
Vincent W. Mathis | 3,500 | 118,230 | ||||||||||
Executive Vice President, General Counsel and Secretary |
Fiscal 20172019 Non-Qualified Deferred Compensation Table
The following table sets forth certain information with respect to amounts deferred by the NEOs during the fiscal year ended June 30, 2017,2019, under our Deferred Compensation Plan, which is discussed in more detail in the Compensation Discussion and Analysis above.
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| Name | | Executive Contributions in Last Fiscal Year ($) | | Company Contributions in Last Fiscal Year ($) | | Aggregate Earnings/(Losses) in Last Fiscal Year ($) | | Aggregate Withdrawals/ Distributions ($) | | Aggregate Balance at Last FYE ($) | Name | | Executive Contributions in Last Fiscal Year ($) | | Company Contributions in Last Fiscal Year ($) | | Aggregate Earnings / (Losses) in Last Fiscal Year ($) | | Aggregate Withdrawals / Distributions ($) | | Aggregate Balance at Last FYE ($) | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nathaniel A. Davis | — | — | — | — | — | Nathaniel A. Davis | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| Stuart J. Udell | — | — | — | — | — | Chief Executive Officer and Chairman | |||||||||||||||||||||||||||||||||||||||||
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| James J. Rhyu | 101,082 | — | 42,883 | — | 286,876 | James J. Rhyu | 61,826 | — | 5,341 | — | 476,690 | ||||||||||||||||||||||||||||||||||||
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| Allison B. Cleveland | — | — | — | — | — | Chief Financial Officer President, Product and Technology | |||||||||||||||||||||||||||||||||||||||||
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| Joseph P. Zarella | 233,028 | — | 59,671 | — | 523,184 | Kevin P. Chavous | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
President of Academics, Policy and Schools | ||||||||||||||||||||||||||||||||||||||||||||||||
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Shaun E. McAlmont | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
President, Career Readiness Education | ||||||||||||||||||||||||||||||||||||||||||||||||
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Vincent W. Mathis | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Executive Vice President, General Counsel and Secretary | ||||||||||||||||||||||||||||||||||||||||||||||||
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Potential Payments upon Termination or Change in Control
We have entered into an employment agreementsagreement with each of Mr. Davis and Mr. Udell and a letter agreement with Mr. Rhyu that provide for severance payments and benefits upon certain terminations of employment. Our NEOs are also entitled to certain payments and benefits upon a change in control of the Company. The terms and conditions of such payments and benefits, and the circumstances in which they will be paid or provided to our NEOs, are described in more detail below.
Employment Agreements
Summary of Employment Agreement with Mr. Davis
In connection with the restructuring ofMr. Davis' appointment as our executive leadership team, on January 27, 2016,CEO during fiscal 2018, we entered into aan amendment to the second amended and restated employment agreement with Mr. Davis, pursuant to which Mr. Davis will continue employment as our Executive Chairman.Davis. The amendment extended the term of the employment agreement has an initialto September 30, 2019, which term of
two years and automatically renews for successive one year periods unless notice of non-renewal is delivered by either party at least 60 days prior to the expiration of the applicable term.
Under the terms of the employment agreement, as amended, Mr. Davis is entitled to receive an annual base salary of $400,000$735,000 and is eligible for annual performance-based bonuses with a target award amount equal to 150% of his base salary and a maximum award opportunity of 300% of his base salary. Mr. Davis is also entitled to annual awards under the Company's equity incentive awards plans and programs as in effect from time to time with a target award level beginning with fiscal 2019 in the range of $2,000,000 beginning in fiscal 2017,$2,700,000 to $3,300,000, subject to Committeesuch vesting criteria to be determined by the Board of Directors and Mr. Davis at the time of the grant, including performance-based vesting criteria.
To maintain flexibility and ensure that stockholders are not overly burdened with excessive severance costs as we continue to evaluate our leadership needs, in connection with his re-appointment as CEO, we negotiated an arrangement with Mr. Davis that would eliminate our cash severance obligations to Mr. Davis in the event Mr. Davis is replaced by a new chief executive officer. Specifically, if we (i) hire a replacement CEO and Mr. Davis' employment is terminated prior to September 30, 2019 or (ii) elect not to renew the employment agreement, no severance payments will be made; however, Mr. Davis' outstanding equity awards will continue to vest while he continues to serve as a member of the Board approval.and if Mr. Davis is asked to leave the Board, Mr. Davis will be entitled to accelerated vesting of his outstanding equity awards, provided that performance-based awards will only be payable subject to the attainment of the applicable performance measures, and an extended option exercise period of one year. Notwithstanding the terms of his employment agreement, as a means to incentivize Mr. Davis' continued employment, the Board approved a "modifier" to Mr. Davis' award under the 2019 SPP that reduces the number of PSUs that would otherwise be eligible to vest in certain circumstances. Pursuant to this modifier, if Mr. Davis voluntarily resigns from employment during the second year of the performance period (and he is not asked to leave the Board), he will remain eligible to vest in 50% of the PSUs that otherwise would have vested had he remained employed through the end of the performance period. If Mr. Davis voluntarily resigns from employment (i) during the second year of the performance period and is asked to leave the Board or (ii) during the third year of the performance period, he will remain eligible to vest in 75% of the PSUs that otherwise would have vested had he remained employed through the end of the performance period.
If the foregoing circumstances do not apply and we terminate Mr. Davis' employment without cause or he resigns for good reason, Mr. Davis will be entitled to receive (i) a lump sum cash payment equal to three times his base salary, (ii) a pro-rated portion of the annual bonus he would have received for the year of termination, based upon actual performance for such year and generally paid at the same time annual bonuses are paid to the Company's executives, and (iii) one year of continued health, medical, dental and vision benefits (or a payment in lieu thereof). Mr. Davis would also be entitled to accelerated vesting of his
outstanding equity awards (including market-based RSAs to the extent the applicable price threshold is attained within 30 days after termination) to the extent such awards would have vested during the 24 month24-month period following his termination of employment; provided that performance-based equity awards will only be payable subject to the attainment of the applicable performance measures. If Mr. Davis' termination without cause or resignation for good reason occurs within 24 months following a change in control, Mr. Davis will be entitled to receive the severance payments and benefits described above, except that, all of Mr. Davis' outstanding equity awards would become 100% vested and any performance-based equity awards will remain subject to the attainment of applicable performance measures as such measures apply in connection with the change in control.
If we elect not to renew the employment agreement, no severance payments will be made; however, if, in such event, Mr. Davis is asked to leave the Board of Directors, Mr. Davis will be entitled to accelerated vesting of his outstanding option awards, and an extended option exercise period of one year. Any restricted stock that has been awarded will not accelerate beyond the quarter in which the resignation occurs.
In the event Mr. Davis' employment is terminated due to his death or by the Company due to disability, Mr. Davis (or his estate) will be entitled to receive (i) three months of continued base salary payments for three months, (ii) a pro-rated performanceannual bonus, for the year of termination, and (iii) one year of continued health, medical, dental and vision benefits (or a payment in lieu thereof). Mr. Davis would also be entitled to accelerated vesting of his outstanding equity awards to the extent such awards would have vested during the 12 month12-month period following his termination of employment; provided that performance-based equity awards will only be payable subject to the attainment of the applicable performance measures.
Mr. Davis' receipt of any severance payments or benefits (other than upon death or disability) is generally contingent upon his entering into a customary separation agreement with the Company containing a release of claims in favor of the Company. The employment agreement also contains a three year confidentiality covenant and additional restrictive covenants pursuant to which Mr. Davis has agreed not to compete with us or solicit our customers or employees for 12 months following termination. If Mr. Davis is terminated without cause or resigns for good reason, in either case, within 24 months following a change in control and the Company or the successor entity elects to continue Mr. Davis' compliance with the non-compete provision, then Mr. Davis will be entitled to an additional payment equal to one time his then-current base salary.
Summary of Employment Agreement with Mr. Udell
We entered into an employment agreement with Mr. Udell, effective February 8, 2016, pursuant to which Mr. Udell serves as Chief Executive Officer. Mr. Udell's employment agreement has an initial term of three
years and automatically renews for successive one year periods unless notice of non-renewal is delivered by either party at least 60 days prior to the expiration of the applicable term.
Under the terms of the employment agreement, Mr. Udell is entitled to receive an annual base salary of $650,000 and is eligible for annual performance-based bonuses with a target award amount equal to 150% of his base salary and maximum award opportunity of 300% of his base salary. Mr. Udell is also entitled to annual awards under the Company's equity incentive awards plans and programs as in effect from time to time with a target award level of $2,000,000, subject to Committee and Board approval.
If we terminate Mr. Udell's employment without cause (which includes the Company's non-renewal of the term of the agreement) or he resigns for good reason, Mr. Udell will be entitled to receive (i) a lump sum cash payment equal to three times his base salary, (ii) a pro-rated portion of the annual bonus he would have received for the year of termination, based upon actual performance for such year and paid at the same time annual bonuses are generally paid to the Company's senior executives, (iii) his prior year's earned but unpaid bonus, and (iv) if he elects to continue participating in the Company's healthcare plans pursuant to COBRA, payment of his COBRA premiums for a period of up to 18 months. Mr. Udell would also be entitled to accelerated vesting of his outstanding equity awards (including market-based RSAs to the extent the applicable price threshold is attained within 30 days after termination) to the extent such awards would have vested during the 12 month period following his termination of employment; provided that, performance-based equity awards will only be payable subject to the attainment of the applicable performance measures. If Mr. Udell's termination without cause or resignation for good reason occurs within 24 months following a change in control, Mr. Udell will be entitled to receive those severance payments and benefits described above, except that all of Mr. Udell's outstanding equity awards would become 100% vested and any performance-based equity awards will remain subject to the attainment of applicable performance measures as such measures apply in connection with the change in control.
Mr. Udell's receipt of any severance payments or benefits is generally contingent upon his entering into a customary separation agreement with the Company. The employment agreement also contains a non-disparagement covenant pursuant to which Mr. Udell and the Company have agreed to refrain from disparaging the other and additional restrictive covenants pursuant to which Mr. Udell has agreed not to compete with us or solicit our customers or employees for 12 months following his termination.
Summary of Letter Agreement with Mr. Rhyu
We have entered into a letter agreement with Mr. Rhyu pursuant to which, in the event hehis employment is terminated without cause or he resigns for good reason, Mr. Rhyu is entitled to 12 months of base salary continuation and any earned but unpaid bonus for the fiscal year immediately preceding the year of termination.
The agreement also provides that Mr. Rhyu is subject to the terms of our Confidentiality, Proprietary Rights and Non-Solicitation Agreement which prohibits the solicitation of employees during the one year period following termination of employment.
Change in Control Arrangements
NoneExcept as described below with respect to PSUs granted under the 2019 SPP, none of our NEOs are entitled to any payments or benefits upon a change in control of the Company absent a qualifying termination of employment in connection with the change in control. In fiscal 2016, the Committee approved limited change in control benefits for our executives, other than Mr. Davis and Mr. Udell, and we subsequentlyWe have entered into change in control agreements with theseour executives, other than Mr. Davis, pursuant to which they are entitled to certain additional payments and benefits in the event they incur a qualifying termination of employment within the 24 month period following a change in control of the Company. These agreements are described in more detail above under the heading "Severance and Change in Control Arrangements—Change in Control." Pursuant to the terms of theirhis employment agreements,agreement, Mr. Davis and Mr. Udell areis entitled to certain additional payments and benefits in the event they incurhe incurs a qualifying termination of employment within 24 months following a change in control as described above.
Under the 2019 SPP, in the event of a change in control during the three-year performance period, the PSUs will be earned based on the stock price paid or implied in the transaction and the earned PSUs will vest immediately.
Potential Value of Termination and Change-in-Control Benefits
The following table provides the dollar value of the potential payments and benefits that each NEO would be eligible to receive upon certain terminations of employment (including in connection with a change in control of the Company), assuming that the termination or change in control, as applicable, occurred on June 30, 2017,2019, and the price per share of our common stockCommon Stock equaled $17.92,$30.41, the value of one share of our common stockCommon Stock on the last trading day of fiscal 2017.2019.
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| Name | | Payment | | Death | | Disability | | Termination Without Cause | | Constructive Termination/ Good Reason | | Change in Control (no Termination) | | Change in Control (and Qualifying Termination) | | Name | | Payment | | Death | | Disability | | Termination Without Cause | | Constructive Termination / Good Reason | | Change in Control (no Termination) | | Change in Control (and Qualifying Termination) | | ||||||||||||||||||||||||||||||||
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Nathaniel A. Davis (1) | Salary Continuation | $183,750 | $183,750 | $2,205,000 | $2,205,000 | — | $2,205,000 (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nathaniel A. Davis | Salary Continuation | $100,000 | $100,000 | $1,200,000 | $1,200,000 | — | $1,200,000 (1) | Chief Executive Officer | Bonus | 1,385,277 | 1,385,277 | 1,385,277 | 1,385,277 | — | 1,385,277 | |||||||||||||||||||||||||||||||||||||||||||||||||
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Bonus | 716,520 | 716,520 | 716,520 | 716,520 | — | 716,520 | and Chairman | Benefit Continuation (3) | 6,989 | 6,989 | 6,989 | 6,989 | — | 6,989 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Benefit Continuation (2) | 5,094 | 5,094 | 5,094 | 5,094 | — | 5,094 | Option Vesting (4) | 258,011 | 258,011 | 258,011 | 258,011 | — | 258,011 | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Option Vesting (3) | 272,893 | 272,893 | 545,786 | 545,786 | — | 614,012 | Restricted Stock Vesting (5) | 6,859,614 | 6,859,614 | 9,674,668 | 9,674,668 | — | 10,378,203 | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Restricted Stock and PSU Vesting (4) | 5,772,104 | 5,772,104 | 8,230,925 | 8,230,925 | — | 10,235,522 | PSU Vesting (6) | — | — | 19,173,165 | 19,173,165 | 19,173,165 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
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| Stuart J. Udell | | Salary Continuation | | — | | — | | 1,950,000 | | 1,950,000 | | — | | 1,950,000 | | James J. Rhyu | | Salary Continuation | | — | | — | | 515,000 | | 515,000 | | — | | 772,500 | | ||||||||||||||||||||||||||||||||
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| | | Bonus | | — | | — | | 1,164,345 | | 1,164,345 | | — | | 1,164,345 | | Chief Financial Officer | | Benefit Continuation (3) | | — | | — | | — | | — | | — | | 6,862 | | ||||||||||||||||||||||||||||||||
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| | | Benefit Continuation (2) | | — | | — | | 10,602 | | 10,602 | | — | | 10,602 | | President, Product and | | Restricted Stock Vesting (5) | | 2,918,539 | | 2,918,539 | | — | | — | | — | | 2,918,539 | | ||||||||||||||||||||||||||||||||
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| | | Restricted Stock and PSU Vesting (4) | | 9,227,680 | | 9,227,680 | | 4,474,075 | | 4,474,075 | | — | | 9,878,301 | | Technology | | PSU Vesting (6) | | — | | — | | — | | — | | 8,381,976 | | — | | ||||||||||||||||||||||||||||||||
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James J. Rhyu | Salary Continuation | — | — | 500,000 | 500,000 | — | 750,000 | Kevin P. Chavous | Salary Continuation | — | — | 248,675 | 248,675 | — | 373,013 | |||||||||||||||||||||||||||||||||||||||||||||||||
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Benefit Continuation (2) | — | — | — | — | — | 5,936 | President of Academics, | Benefit Continuation (3) | — | — | — | — | — | 6,902 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Restricted Stock and PSU Vesting (4) | 3,486,336 | 3,486,336 | 1,057,280 | 1,057,280 | — | 3,850,112 | Policy and Schools | Restricted Stock Vesting (5) | 2,277,770 | 2,277,770 | — | — | — | 2,277,770 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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PSU Vesting (6) | — | — | — | — | 8,381,976 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Shaun E. McAlmont | | Salary Continuation | | — | | — | | 207,500 | | 207,500 | | — | | 311,250 | | ||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | �� | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||
| Allison B. Cleveland | | Salary Continuation | | — | | — | | 415,000 | | 415,000 | | — | | 622,500 | | President, Career | | Benefit Continuation (3) | | — | | — | | — | | — | | — | | 6,887 | | ||||||||||||||||||||||||||||||||
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| | | Benefit Continuation (2) | | — | | — | | — | | — | | — | | 7,784 | | Readiness Education | | Restricted Stock Vesting (5) | | 1,231,605 | | 1,231,605 | | — | | — | | — | | 1,231,605 | | ||||||||||||||||||||||||||||||||
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| | | Restricted Stock and PSU Vesting (4) | | 1,696,128 | | 1,696,128 | | 71,680 | | 71,680 | | — | | 2,001,365 | | | | PSU Vesting (6) | | — | | — | | — | | — | | 967,188 | | — | | ||||||||||||||||||||||||||||||||
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Joseph P. Zarella | Salary Continuation | — | — | 205,000 | 205,000 | — | 307,500 | Vincent W. Mathis | Salary Continuation | — | — | 202,500 | 202,500 | — | 303,750 | |||||||||||||||||||||||||||||||||||||||||||||||||
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Benefit Continuation (2) | — | — | — | — | — | 5,177 | Executive Vice | Benefit Continuation (3) | — | — | — | — | — | 6,774 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Option Vesting (3) | — | — | — | — | — | 31,894 | President, General | Restricted Stock Vesting (5) | 957,915 | 957,915 | — | — | — | 957,915 | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Restricted Stock and PSU Vesting (4) | 1,671,040 | 1,671,040 | 89,600 | 89,600 | — | 1,976,277 | Counsel and Secretary | PSU Vesting (6) | — | — | — | — | 725,393 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
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As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information regarding the relationship of the annual total compensation of our employees and the annual total compensation of our Chairman and CEO, Mr. Davis. We consider the pay ratio specified below to be a reasonable estimate, calculated in a manner intended to be consistent with Item 402(u) of Regulation S-K.
There were no changes to the employee population or compensation programs from fiscal 2018 to fiscal 2019 that would significantly impact our pay ratio disclosure. As a result, we are using the same median employee identified in the CEO Pay Ratio disclosure included in our 2018 proxy statement. This employee represented the median employee following an examination of annual base salaries for fiscal 2018 of all employees who were employed by us on April 30, 2018, excluding our CEO. We included all employees in this analysis, whether employed on a full-time, part-time or seasonal basis, which would be deemed earned at target level uponyielded a total employee population of 4,757. We did not make any cost-of-living or other adjustments to employee compensation.
The median employee had no change in control, subjectrole and no significant change to continued time-based vesting. Amounts shown exclude other PSUs that would remain subjectcompensation from fiscal 2018 to attainingfiscal 2019. For the applicable performance goalsmedian employee, we calculated the annual total compensation for fiscal 2019 using the same methodology we used for our NEOs as set forth in the Summary Compensation Table for Fiscal 2019.
For fiscal 2019, the annual total compensation for our median employee was $52,182 and that were not considered probablethe annual total compensation for our Chairman and CEO was $9,785,697, resulting in an estimated pay ratio of 188 to be earned as of June 30, 2017.1.
The Compensation Committee (the "Committee"("Committee") has reviewed and discussed with management the Compensation Discussion and Analysis set forth above. Based on its review and discussion with management, the Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017.2019.
This report is provided by the following independent directors, who comprise the Committee:
Members of the Compensation Committee | ||
Robert E. Knowling, Jr. (Chairman) |
The foregoing report is not "soliciting material," shall not be deemed "filed" and shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, each as amended (together, the "Acts"), except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Acts.
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Policies and Procedures for Related-Party Transactions
We recognize that related-party transactions present a heightened risk of conflicts of interest and have adopted a written policy to which all related-party transactions shall be subject. Pursuant to the policy, the Audit Committee of our Board of Directors, or in the case of a transaction in which the aggregate amount is, or is expected to be, in excess of $250,000, the Board of Directors will review the relevant facts and circumstances of all related-party transactions, including, but not limited to: (i) whether the transaction is on terms comparable to those that could be obtained in arm's length dealings with an unrelated third party; and (ii) the extent of the related party's interest in the transaction. Pursuant to the policy, no director, including the Chairman of the Audit Committee, may participate in any approval of a related-party transaction to which he or she is a related party. The Board of Directors or Audit Committee, as applicable, will then, in its sole discretion, either approve or disapprove the transaction.
Certain types of transactions, which would otherwise require individual review, have been pre-approved by the Audit Committee. These types of transactions include, for example: (i) compensation to an officer or director where such compensation is required to be disclosed in our proxy statement; (ii) transactions where the interest of the related party arises only by way of a directorship or minority stake in another organization that is a party to the transaction; and (iii) transactions involving competitive bids or fixed rates. Additionally, pursuant to the terms of our related-party transaction policy, all related-party transactions are required to be disclosed in our applicable filings as required by the Securities Act of 1933, as amended and the Exchange Act and related rules. Furthermore, any material related-party transactions are required to be disclosed to the full Board of Directors. We have established internal policies relating to disclosure controls and procedures, which include policies relating to the reporting of related-party transactions that must be pre-approved under our related-party transactions policy.
Compensation Committee Interlocks and Insider Participation
InDuring fiscal 2017,2019, Messrs. Engler, Fink, and Knowling served on our Compensation Committee. During fiscal 2019, there were no interlocking relationships existing between members of our Board of Directors and our Compensation Committee and members of the board of directors or the compensation committee of any other company. NoDuring fiscal 2019, no members of the Compensation Committee arewere current or former officers of the Company or were employees of the Company during the past fiscal year and no members of the Compensation Committee havehad any relationship requiring disclosure by the Company under Item 404 of Regulation S-K.
PROPOSAL 2:
ADVISORY VOTE TO APPROVE NAMED EXECUTIVE
OFFICER COMPENSATION
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") and Section 14 of the Exchange Act, we are asking our stockholders to cast a non-binding advisory vote to approve the fiscal 20172019 compensation of our NEOs, as disclosed in this Proxy Statement. This Proposal, commonly known as a "Say on Pay,"Pay" proposal gives our stockholders the opportunity to express their views on the design and effectiveness of our executive compensation programs.
As described in detail under the heading "Compensation Discussion and Analysis," our executive compensation programs are designed to attract, motivate, and retain our NEOs, who are critical to our success. Under these programs, our NEOs are rewarded for the achievement of specific annual, long-term and strategic goals, corporate goals, and the realization of increased stockholder value. Please read the "Compensation Discussion and Analysis,"Analysis" and the compensation tables that follow, included in this Proxy Statement, for additional details about our executive compensation programs, including information about the fiscal 20172019 compensation of our NEOs.
Prior Year Vote and Fiscal 20172019 Compensation and Governance Highlights
AlthoughThe annual stockholder advisory vote on our named executive officer compensation for fiscal 2018 yielded an approval rate of 95%, which reflected a significant improvement over prior years and our stockholders' strong support of our executive pay programs and practices. As in prior years, we endeavored to remain responsive to stockholder feedback when designing and implementing our executive compensation programs to ensure that the Company accomplished severalelements of these programs effectively reflect our desire to further our strategic business objectives while tightly linking executive pay to measurable performance results. For fiscal 2019, we introduced a new long-term shareholder performance plan designed to create stockholder value over a multi-year performance period by encouraging our NEOs to focus on executing our key strategic objectives in fiscal 2016, ourobjectives. Awards under this plan are based entirely on a three-year performance period and will be earned only if we realize significant stock price previously lagged significantly behindappreciation as of the end of the three-year period.
By actively pursuing our peersstrategic business objectives during fiscal 2019, we realized solid financial results and the annual Say on Pay vote held at our 2016 Annual Meeting of Stockholders received less than majority support. As described in more detailkey achievements in the "Compensation Discussion and Analysis" section of this Proxy Statement, in an effort to understand and respond to our stockholders' concerns, both prior to and after our 2016 Annual Meeting of Stockholders, we engaged with virtually all of our major stockholders. As a result, we made the following compensation and governance changes in fiscal 2017 and continuing into fiscal 2018:areas:
RSA grants for our other NEOs in fiscal 2017. For fiscal 2018, a new total stockholder return modifier will be used for RSAs granted to our NEOs, other than the Executive Chairman and the CEO.
While we continue to work towards fulfilling our Company's mission and achieving our full potential, we have begun to realize significant results from investments made in furtherance of our redefined business strategy. For fiscal 2017, our key achievements included:
DCAs from 13 in school year 2018-2019 to 20 in school year 2019-2020 and launching our National Job Shadow Week offering hands-on learning experiences for the DCA students.
We are asking our stockholders to indicate their support for the compensation of our NEOs as described in this Proxy Statement. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement. Accordingly, we ask our stockholders to voteFOR the following resolution:
"RESOLVED, that the compensation paid to the Company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED."
The Say on Pay vote is advisory and, therefore, not binding on the Company, the Compensation Committee, or our Board of Directors. Our Board of Directors and our Compensation Committee value the opinions of our stockholders, and to the extent there is a significant vote against the NEO compensation, as disclosed in this Proxy Statement, we will consider our stockholders' concerns and will evaluate what,
if any, further actions are necessary to address those concerns. We have traditionally held such advisory votes on executive compensation each year and, assuming the recommendation of the Board of Directors to continueexpect to hold annual say-on-pay votes in Proposal 3 below is selected by our stockholders, we will hold anothernext Say on Pay vote at our 2018 Annual Meeting2020 annual meeting of Stockholders.stockholders.
OUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE NON-BINDING ADVISORY RESOLUTION APPROVING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC.
PROPOSAL 3:ADVISORY VOTE ON THE FREQUENCY OF SAYON PAY IN FUTURE YEARS
In accordance with Dodd-Frank, we are providing our stockholders with a non-binding advisory vote on whether future advisory votes to approve executive compensation of the nature reflected in Proposal 2 above should occur every one year, two years or three years.
After careful consideration and dialogue with our stockholders, the Board of Directors believes that holding a Say on Pay vote annually is the most appropriate alternative for the Company for the following reasons:
You may indicate your preferred voting frequency by choosing the option of one year, two years, three years or you may abstain from voting when you cast your vote in response to this Proposal 3. Stockholders are not voting to approve or disapprove the Board of Directors' recommendation. The advisory vote on the frequency of Say on Pay in future years is non-binding on the Company and its Board of Directors. Although the vote is advisory and non-binding, the Board of Directors will carefully consider the outcome of the vote. Notwithstanding the outcome of the vote or the Board of Directors' recommendation, the Board of Directors may decide to conduct future advisory votes to approve executive compensation on a more or less frequent basis. It may also vary its practice based upon certain factors including discussions with the Company's stockholders, material changes to the Company's executive compensation programs and/or any other factors that the Board of Directors reasonably deems to be appropriate.
OUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR "ONE YEAR" AS THE FREQUENCY OF SAY ON PAY IN FUTURE YEARS.
PROPOSAL 4:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITOR
Subject to stockholder ratification, the Audit Committee has appointed the firm of BDO USA, LLP or ("BDO USA,USA"), as the Company's independent registered public accounting firm for our fiscal year ending June 30, 2018.2020. Although ratification is not required by law, our Board of Directors believes that stockholders should be given the opportunity to express their view on the subject. While not binding on the Audit Committee, if the stockholders do not ratify this appointment, the appointment will be reconsidered by the Audit Committee. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders. A representative of BDO USA is expected to attend the Annual Meeting and this representative will be provided with an opportunity to make a statement, if he or she desires, and will be available to respond to appropriate questions of stockholders, if any.
The affirmative vote of the holders of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting is required to ratify the appointment of BDO USA as the Company's independent registered public accounting firm.
OUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE RATIFICATION OF BDO USA AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2018.2020.
Fees Paid to Independent Registered Public Accounting Firm
The following table sets forth the aggregate fees and expenses billed to us by BDO USA for fiscal years 20162018 and 2017:2019:
| 2016 | 2017 | 2018 | 2019 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Audit Fees | $ | 1,075,290 | $ | 1,112,324 | $ | 1,111,788 | $ | 1,119,500 | ||||||
Audit-Related Fees | 46,167 | 71,460 | 81,497 | 142,750 | ||||||||||
Tax Fees | — | — | — | — | ||||||||||
All Other Fees | — | — | — | — | ||||||||||
| | | | | | | | | | | | | | |
Total | $ | 1,121,457 | $ | 1,183,784 | $ | 1,193,285 | $ | 1,262,250 | ||||||
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Audit Fees are for professional services for the Company's annual audit, including the audit of internal control over financial reporting for fiscal 20162018 and 2017,2019, reviews of the interim financial statements included in the Company's quarterly reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings or engagements. Audit-related fees in fiscal 20162018 and 20172019 were for professional services associated with audits of certain managed schools and other minor matters.
The Audit Committee maintains policies and procedures for the pre-approval of work performed by the independent auditors in that, under the Audit Committee charter, all auditor engagements must be approved in advance by the Audit Committee. All of the services provided to the Company by BDO USA during fiscal 20162018 and 20172019 were pre-approved by the Audit Committee.
In accordance with a written charter adopted by the Board of Directors, the Audit Committee, or the "Committee", assists the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of the Company's financial reporting processes and its internal audit function. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls and for assessing the effectiveness of the Company's internal control over financial reporting. The independent auditors are responsible for performing an independent audit of the Company's consolidated financial statements and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board and for issuing reports thereon.
In this context, the Committee has met and held discussions with management, and the independent auditors and internal audit, as well as legal counsel. Management represented to the Committee that the Company's consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Committee has reviewed and discussed the consolidated financial statements with management and the independent auditors. The Committee discussed with the independent auditors matters required to be discussed by Auditing Standard No. 1301 (Communications with Audit Committees), as currently in effect and as adopted bythe applicable requirements of the Public Company Accounting Oversight Board.Board and the SEC.
In addition, the Committee has received the written disclosures and the letter from the independent auditors required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Committee concerning independence and has discussed with the independent auditors the auditors' independence from the Company and its management.
The Committee discussed with the Company's internal and independent auditors the overall scope and plans for their respective audits. The Committee meets with the internal and independent auditors, with and without management present, to discuss the results of their examinations, the evaluations of the Company's internal controls and the overall quality of the Company's accounting principles.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the audited financial statements of the Company for the fiscal year ended June 30, 2017,2019, in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017,2019, filed with the SEC on August 9, 2017.7, 2019. The Committee also recommended to the Board of Directors, subject to stockholder ratification, the selection of BDO USA as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2018,2020, and the Board of Directors accepted its recommendation.
Members of the Audit Committee | ||
Steven B. Fink (Chairman) |
The foregoing report is not "soliciting material," shall not be deemed "filed" and shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, each as amended (together, the "Acts"), except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Acts.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 20, 2017,18, 2019, certain information with respect to the beneficial ownership of Common Stock by each beneficial owner of more than 5% of the Company's voting securities (based solely on review of filings with the SEC), each director and each named executive officer and all directors and executive officers of the Company as a group, except as qualified by the information set forth in the notes to this table. To our knowledge, except as noted below, no person or entity is the beneficial owner of more than 5% of the voting power of the Company's voting securities. As of October 20, 2017, 41,332,77418, 2019, 40,955,110 shares of our Common Stock were outstanding.
Unless otherwise noted, the address for each director and executive officer is c/o K12 Inc., 2300 Corporate Park Drive, Herndon, VA 20171.
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|
| | Shares Beneficially Owned (1) | |
| | Shares Beneficially Owned (1) | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | Percent | |
| | | Percent | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Stuart J. Udell (2) | $878,801 | 2.13% | James J. Rhyu (2) | 294,683 | * | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| James J. Rhyu (3) | | 204,591 | | * | | Kevin P. Chavous (3) | | 99,263 | | * | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Allison B. Cleveland (4) | 119,555 | * | Shaun E. McAlmont (4) | 59,460 | * | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Joseph P. Zarella (5) | | 125,882 | | * | | Vincent W. Mathis (5) | | 44,382 | | * | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Nathaniel A. Davis (6) | 1,896,942 | 4.50% | Nathaniel A. Davis (6) | 1,577,495 | 3.76% | ||||||||||||||||||
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| Aida M. Alvarez (7) | | 3,870 | | * | | Aida M. Alvarez (7) | | 15,084 | | * | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Craig R. Barrett (8) | 39,519 | * | Craig R. Barrett (8) | 50,733 | * | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Guillermo Bron (9) | | 42,027 | | * | | Guillermo Bron (9) | | 53,241 | | * | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| John M. Engler (10) | 34,208 | * | Robert L. Cohen (10) | 3,240 | * | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Steven B. Fink (11) | | 131,315 | | * | | John M. Engler (11) | | 45,422 | | * | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Liza McFadden (12) | 2,318 | * | Steven B. Fink (12) | 142,529 | * | ||||||||||||||||||
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| Andrew H. Tisch (13) | | 437,345 | | 1.06% | | Robert E. Knowling, Jr. (13) | | 11,051 | | * | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| All Directors and Executive Officers as a Group (14 persons) (14) | 4,052,127 | 9.61% | Liza McFadden (14) | 13,532 | * | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Technology Crossover Ventures (15) | | 4,019,536 | | 9.72% | | All Directors and Executive Officers as a Group (13 persons) (15) | | 2,410,115 | | 5.75% | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||
| BlackRock, Inc. (16) | 2,648,936 | 6.41% | BlackRock, Inc. (16) | 2,682,386 | 6.55% | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| The Vanguard Group (17) | | 2,562,446 | | 6.20% | | The Vanguard Group (17) | | 3,239,885 | | 7.91% | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||
| Dimensional Fund Advisors (18) | 2,468,360 | 5.97% | Dimensional Fund Advisors (18) | 3,434,707 | 8.39% | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
exercisable within 60 days of October 20, 201718, 2019 and not subject to repurchase as of that date. Shares issuable pursuant to options and deferred stock units are deemed outstanding for calculating the percentage ownership of the person holding the options but are not deemed outstanding for the purposes of calculating the percentage ownership of any other person.
("Management VII") is the direct general partner of TCM VII, the ultimate general partner of TCV VII and TCV VII (A), and a general partner of the Member Fund. Mr. Reynolds, a former director of the Company and a Class A Director of Management VII, together with nine other individual Class A Directors of Management VII (the "Management VII Members") share voting and dispositive power with respect to the shares beneficially owned by the TCV Funds. Mr. Reynolds and each of the Management VII Members are also limited partners of TCM VII and Member Fund. Management VII, TCM VII and each of the Management VII Members disclaim beneficial ownership of any shares held by the TCV Funds except to the extent of their respective pecuniary interests. The address for Technology Crossover Ventures and the TCV Funds is 528 Ramona Street, Palo Alto, CA 94301.
DELINQUENT SECTION 16(A) BENEFICIAL OWNERSHIPREPORTING COMPLIANCE16(a) REPORTS
Section 16 of the Exchange Act requires directors and executive officers and persons, if any, owning more than 10% of a class of the Company's equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of the Company's equity and equity derivativeequity-derivative securities. Based solely upon a review of the copies of such reports and written representations from reporting persons, we believe that all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% stockholders were complied with on a timely basis during fiscal 2017,2019, except for a FormForms 4 for Mr. Davis covering one transaction that waswere filed late on February 17, 2017August 16, 2018 and October 11, 2018 in connection with the vesting of equity awards due to an administrative error and a Form 4 for Mr. Reynolds.error.
INTEREST OF CERTAIN PERSONS IN
MATTERS TO BE ACTED ON
No director or executive officer of K12 who has served in such capacity since July 1, 2016,2018, or any associate of any such director or officer, to the knowledge of the executive officers of K12, has any material interest, direct or indirect, through security holdings or otherwise, in any matter proposed to be acted on at the Annual Meeting, which is not shared by all other stockholders or as is otherwise described in this Proxy Statement.
DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS
The SEC's rules permit the Company to deliver a single set of Annual Meeting materials to one address shared by two or more of the Company's stockholders. The Company has delivered only one Notice of Internet Availability of Proxy Materials or Proxy Statement and Annual Report (where paper copies were previously requested) to multiple stockholders who share an address, unless the Company received contrary instructions from the affected stockholders prior to the mailing date. The Company will promptly deliver, upon written or oral request, a separate copy of the Notice of Internet Availability of Proxy Materials or separate paper copies of all Annual Meeting materials, as requested, to any stockholder at the shared address to which a single copy of those documents was delivered. If you prefer to receive separate copies of the Proxy Statement or Annual Report, contact K12 Inc., 2300 Corporate Park Drive, Herndon, VA 20171, Attention: Investor Relations, or call us at (703) 483-7000.
Stockholders sharing an address can request delivery of a single copy of the Annual Meeting materials, if they are currently receiving multiple copies of the Annual Meeting materials, by writing to K12 Inc., 2300 Corporate Park Drive, Herndon, VA 20171, Attention: Investor Relations, or call us at (703) 483-7000.
Stockholder proposals intended for inclusion in next year's proxy statement under Rule 14a-8 of the Exchange Act should be sent to our principal executive offices and must be received not less than 120 calendar days prior to October 27, 2018.25, 2020. Accordingly, stockholder proposals must be received no later
than June 29, 2018.27, 2020. As the rules of the SEC make clear, simply submitting a proposal does not guarantee that it will be included in the Proxy Statement.
Additionally, our Bylaws provide that stockholders desiring to nominate a director or bring any other business before the stockholders at an annual meeting must notify our Secretarycorporate secretary of this proposal in writing not later than 90 days nor earlier than 120 days prior to the first anniversary of the preceding year's annual meeting of stockholders. Accordingly, for our 2018 Annual Meeting2020 annual meeting of Stockholders,stockholders, any notification must be made no earlier than August 16, 201815, 2020 and no later than September 15, 2018.14, 2020. If during the prior year we did not hold an annual meeting, or if the date of the meeting has changed more than 30 days from the prior year, then notice must be received a reasonable time before we mail our proxy materials for the current year. The stockholder must be a stockholder of record both at the time of giving notice and at the time of the annual meeting. The fact that the Company may not insist upon compliance with these requirements should not be construed as a waiver of our right to do so at any time in the future.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information filing requirements of the Exchange Act and, in accordance with the Exchange Act, file certain reports and other information with the SEC relating to our business, financial condition and other matters. You may read and copy any reports, statements or other information that the Company filed with the SEC at the SEC's public reference room at 100 F Street, NE, Washington, DC 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Copies of these materials can be obtained, upon payment of the SEC's customary charges, by writing to the SEC's principal office at 100 F Street, NE, Washington, DC 20549. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements and other information.
Any person from whom proxies for the meeting are solicited may obtain, if not already received, from the Company, without charge, a copy of the Company's Annual Report on Form 10-K for fiscal 2017,2019, by written request addressed to K12 Inc., 2300 Corporate Park Drive, Herndon, VA 20171, Attention: Investor Relations Department. The Annual Report on Form 10-K is not soliciting material and is not incorporated in this document by reference.
In order to obtain any documents you request from the Company in time for the Annual Meeting, you must request the documents from the Company by Thursday,Tuesday, December 4, 2017,3, 2019, which is eight business days prior to the date of the Annual Meeting.
You should rely only on the information contained in this document to vote your shares of Common Stock at the Annual Meeting. We have not authorized anyone to provide you with information that is different from what is contained in this document. This document is dated as of October 27, 2017.25, 2019. You should not assume that the information contained in this document is accurate as of any date other than that date, and the mailing of this document to stockholders does not create any implication to the contrary. This document does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make such solicitation in that jurisdiction.
. K12 INC. MMMMMMMMMMMM MMMMMMMMMMMMMMM C123456789 IMPORTANT ANNUAL MEETING INFORMATION 000004 000000000.000000 ext 000000000.000000 ext ENDORSEMENT_LINE______________ SACKPACK_____________ 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000004 ENDORSEMENT_LINE______________ SACKPACK_____________ Your vote matters – here’s how to vote! You may vote online or by phone instead of mailing this card. Votes submitted electronically must be MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 X Electronic Voting Instructions Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or telephone must be received by 1:00 a.m.,00am, Central Time, on December 14, 2017. Vote by Internet • Go to www.investorvote.com/13, 2019 Online GIof ntoo welwewct.rinovneicstvoortviontge,.com/LRN • Oror scan delete QR code and control # the QR code with your smartphone • Follow— login details are located in the steps outlined on the secure website Vote by telephone •shaded bar below. Phone Call toll free 1-800-652-VOTE (8683) within the USA, US territories &and Canada onSave paper, time and money! Sign up for electronic delivery at www.investorvote.com/LRN Using a touch tone telephone • Followblack ink pen, mark your votes with an X as shown in this example. Please do not write outside the instructions provided by the recorded message Annual Meeting Proxy Card 1234 5678 9012 345designated areas. q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION,VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q A Proposals — The Board of Directors recommends a vote FOR all the nominees listed herein; FOR Proposals 2 and 4; and every 1 Year for + 1. ELECTION OF DIRECTORS:Election of Directors: For WithholdFor WithholdForWithhold For Withhold For Withhold 01 - Aida M. Alvarez 04 - Nathaniel A. Davis 07 - Liza McFadden 02 - Craig R. Barrett 03 - Guillermo Bron 04 - Robert L. Cohen 05 - Nathaniel A. Davis 06 - John M. Engler 08 - Stuart J. Udell 03 - Guillermo Bron 0607 - Steven B. Fink 08 - Robert E. Knowling, Jr. 09 - Liza McFadden ForAgainst Abstain ForAgainst Abstain 2. TO APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS 4.OFFICERS. 3. RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2018 ForAgainst Abstain 3. TO RECOMMEND, ON AN ADVISORY BASIS, THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION 1 Year 2 Years 3 Years Abstain B Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below2020. PLEASE SIGN name(s) exactly as shown above. Where there is more than one holder, each should sign. When signing as an attorney, administrator, executor, guardian or trustee or in another representative capacity, please add your title as such. If executed by a corporation or partnership, the Proxy should be executed in the full corporate or partnership name and signed by a duly authorized person, stating his or her title or authority. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box.Signaturebox. Signature 2 — Please keep signature within the box. MMMMMMMC 1234567890JMMMMMMM C 1234567890 J N T + IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS3 0 5 3 1 MR A - C ON BOTH SIDES OF THIS CARD. 1 U P X 3 5 1 6 8 4 1SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND + 9 2 D V 4 034CMC MMMMMMMMM 02P8QEB Authorized Signatures — This section must be completed for your vote to count. Please date and sign below. A Proposals — The Board of Directors recommend a vote FOR all the nominees listed and FOR Proposals 2 and 3. 2019 Annual Meeting Proxy Card1234 5678 9012 345
. IMPORTANT ANNUAL MEETING INFORMATION IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 14, 2017. THE PROXY STATEMENT AND THE ANNUAL REPORT ARE AVAILABLE AT:Important notice regarding the Internet availability of proxy materials for the Annual Meeting of Stockholders. The material is available at: www.edocumentview.com/LRN q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION,VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q + 2017 ANNUAL MEETING OF STOCKHOLDERSNotice of 2019 Annual Meeting of Stockholders This Proxy is solicited by the Board of Directors for the Annual Meeting of Stockholders on December 14, 201713, 2019 at 10:00 A.M. The undersignedabove signed stockholder of K12 Inc., a Delaware corporation (the “Company”), hereby constitutes and appoints Stuart J. UdellNathaniel A. Davis and Howard D. Polsky,Vincent W. Mathis, and each of them, with the power to act without the other and with the power of substitution, as proxies (the “Proxy Holders”) and attorneys-in-fact for the undersigned,above signed, to attend the annual meeting of stockholders of the Company to be held at the law firm of Latham & Watkins LLP, located at 555 Eleventh Street, NW, Suite 1000, Washington, DC 20004-1304, on December 14, 201713, 2019 at 10:00 A.M., Eastern Time, and any adjournment(s), continuation(s) or postponement(s) thereof, to cast on behalf of the undersignedabove signed all votes that the undersignedabove signed is entitled to cast at such annual meeting and in their discretion, to vote upon such other business as may properly come before the annual meeting and otherwise to represent the undersignedabove signed at the annual meeting with all powers possessed by the undersignedabove signed if personally present at the annual meeting. This Proxyproxy when properly executed will be voted in the manner directed herein by the undersignedabove signed stockholder. If no instruction is indicated but the Proxy Card is signed, this Proxy Card will be voted “FOR” the election of the Board of Directors nominees named in the proxy statement; “FOR” the approval, on a non-binding advisory basis, of the compensation of the named executive officers of the Company; FOR “1 Year” on the advisory vote on the frequency of future advisory votes on executive compensation; and “FOR” the ratification of the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2018.2020. Stockholders who plan to attend the annual meeting may revoke their Proxy by attending and casting their vote at the annual meeting in person. PLEASE ACT PROMPTLY. PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. The above signed hereby acknowledge(s) receipt of a copy of the accompanying Notice of 20172019 Annual Meeting of Stockholders and access to the proxy statement with respect thereto and hereby revoke(s)revokes any proxy or proxies heretofore given with respect to such annual meeting. THESE PROPOSALS ARE FULLY EXPLAINED IN THE ENCLOSED NOTICE OF 2017 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT. C Non-Voting Items(Items to be voted appear on reverse side) Change of Address — Please print new address below. Comments — Please print your comments below. Meeting Attendance Mark box to the right if you plan to attend the Annual Meeting. IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A -+ C ON BOTH SIDES OF THIS CARD.+Non-Voting Items REVOCABLE PROXY – K12 INC. Small steps make an impact. Help the environment by consenting to receive electronic delivery, sign up at www.investorvote.com/LRN