UNITED STATES | |||
SECURITIES AND EXCHANGE COMMISSION | |||
Washington, D.C. 20549 | |||
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SCHEDULE 14A | |||
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Proxy Statement Pursuant to Section 14(a) of | |||
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Filed by the Registrant x | |||
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Filed by a Party other than the Registrant o | |||
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Check the appropriate box: | |||
o | Preliminary Proxy Statement | ||
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
x | Definitive Proxy Statement | ||
o | Definitive Additional Materials | ||
o | Soliciting Material Pursuant to §240.14a-12 | ||
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ARKANSAS BEST CORPORATION | |||
(Name of Registrant as Specified In Its Charter) | |||
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | |||
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x | No fee required. | ||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | ||
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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. | ||
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ARKANSAS BEST
CORPORATION
Annual Meeting of Stockholders
To Be Held on May 21, 2013April 23, 2014
To the Stockholders of Arkansas Best Corporation:
You are cordially invited to attend the Annual Meeting of Stockholders of Arkansas Best Corporation (the “Company”) on Tuesday, May 21, 2013Wednesday, April 23, 2014 at 8:00 a.m. (CDT) at the principal offices of the Company located at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903. In addition to this notice, enclosed are a proxy card and a proxy statement containing information about the following matters to be acted upon at the meeting:
I.
| To elect nine directors for a one-year term to expire at the 2015 Annual Meeting of Stockholders; | |
II. | To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2014; | |
III. | To conduct an advisory vote on executive compensation; | |
IV. | To approve the Second Amendment to the 2005 Ownership Incentive Plan; | |
V. | To approve the material plan terms of the 2005 Ownership Incentive Plan, as amended, for purposes of complying with the requirements of Section 162(m) of the Internal Revenue Code; and | |
VI. | To act upon such other matters as may properly be brought before the meeting affecting the business and affairs of the Company. |
Only stockholders of record at the close of business on March 22, 2013February 24, 2014 are entitled to notice of and to vote at the meeting or any adjournment(s) or postponement(s) thereof. Whether or not you plan to attend the meeting, please complete, sign, date and return the enclosed proxy card or follow the instructions on the proxy card and vote by Internet or by telephone as promptly as possible. It is important that your shares be represented at the meeting.
The Board of Directors urges you to sign and date your enclosed proxy card and promptly return it in the enclosed pre-addressed, postage-paid envelope or follow the instructions on the proxy card and vote by Internet or by telephone, even if you are planning to attend the meeting. Many of the Company’s stockholders hold their shares in “street-name” in the name of a brokerage firm or bank. If you hold your shares in “street-name,” please note that only your brokerage firm or bank can sign a proxy on your behalf. Accordingly, you must provide voting instructions to your brokerage firm or bank in order for your shares to be voted. The Board of Directors urges you to contact the person responsible for your account today and instruct them to execute a proxy considering the recommendations of the Board, which are described in this Proxy Statement. Please note that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you will not be permitted to vote in person at the meeting unless you first obtain a legal proxy issued in your name from the record holder. |
By Order of the Board of Directors, April 9, 2013.February 28, 2014.
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Robert A. Young III |
| Judy R. McReynolds |
Chairman of the Board |
| President–Chief Executive Officer |
3801 OLD GREENWOOD ROAD / P.O. BOX 10048 / FORT SMITH, ARKANSAS 72917-0048 / 479-785-6000
ARKANSAS BEST
CORPORATION
Important Notice Regarding the Availability of Proxy
Materials for the Stockholder Meeting
To Be Held on May 21, 2013April 23, 2014
The Proxy Statement, proxy card and 20122013 Annual Report on Form 10-K
to stockholders are available at www.arkbest.com.
The 20132014 Annual Meeting of Stockholders of Arkansas Best Corporation (the “Company”) will be held on Tuesday, May 21, 2013Wednesday, April 23, 2014 at 8:00 a.m. (CDT) at the principal offices of the Company located at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903. To obtain directions to attend the Annual Meeting and to vote in person, contact the Company’s Investor Relations Department at toll-free telephone number 800-961-9744, email address invrel@arkbest.com or through the Company website www.arkbest.com.
The matters intended to be acted upon at the Annual Meeting are:
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| Election of nine directors for a one-year term to expire at the |
John W. Alden
Fred A. Allardyce
William M. Legg
Judy R. McReynolds
John H. Morris
Craig E. Philip
Steven L. Spinner
Janice E. Stipp
Robert A. Young III
II. | Ratification of appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2014; | |
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| Advisory vote on executive compensation; |
IV. | Approval of the Second Amendment to the 2005 Ownership Incentive Plan; | |
V. | Approval of Material Plan Terms of the 2005 Ownership Incentive Plan, as amended, for purposes of complying with the requirements of Section 162(m) of the Internal Revenue Code; and | |
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| Consideration of such other matters as may properly be brought before the meeting affecting the business and affairs of the Company. |
The Board of Directors recommends a vote “FOR” each of the
nominees for election to the Board, and“FOR” ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2014, “FOR” the approval of
the compensation of the Company’s Named Executive Officers.Officers, “FOR” approval of a Second Amendment to the 2005 Ownership Incentive Plan and “FOR” the approval of the material terms of the 2005 Ownership Incentive Plan, as amended, for purposes of complying with the requirements of Section 162(m) of the Internal Revenue Code.
The following proxy materials are being made available at the website location specified above:
· The Proxy Statement for the 20132014 Annual Meeting of Stockholders
· The 20122013 Annual Report on Form 10-K
· The form of proxy card being distributed to stockholders in connection with the 20132014 Annual Meeting of Stockholders
ARKANSAS BEST
CORPORATION
This Proxy Statement is furnished to the stockholders of Arkansas Best Corporation (“ABC” or the “Company”) in connection with the solicitation of proxies on behalf of the ABC Board of Directors (the “Board”) to be voted at the Company’s Annual Meeting of Stockholders (the “2013“2014 Annual Meeting”) to be held on May 21, 2013April 23, 2014 at 8:00 a.m. (CDT) at the principal offices of the Company for the purposes set forth in this Proxy Statement. This Proxy Statement, the Notice of Annual Meeting, the related proxy card, and the 20122013 Annual Report on Form 10-K to Stockholders are being mailed to stockholders beginning on or about April 12, 2013.March 19, 2014. ABC’s principal place of business is at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903, and its telephone number is 479-785-6000.
The Board has fixed the close of business on March 22, 2013February 24, 2014 as the record date for the 20132014 Annual Meeting. Only stockholders of record on that date are entitled to vote at the meeting in person or by proxy.
Registered stockholders may vote their shares of the Company’s common stock by proxy or in person at the meeting. To vote by proxy, registered stockholders must either: (i) visit the website designated on the proxy card to submit their proxy on the Internet; (ii) call the toll-free number set forth on the proxy card to submit their proxy telephonically; or (iii) mail their signed and dated proxy card in the envelope provided. Beneficial stockholders should follow the instructions that they receive from their bank, broker or other nominee to have their shares voted.
The proxies named on the enclosed proxy card were appointed by the Board to vote the shares represented by the proxy card. Upon receipt by the Company of either a submitted Internet or telephone vote or a properly signed and dated proxy card, the shares represented thereby will be voted in accordance with the stockholder’s instructions. If a stockholder does not vote either by Internet, telephone or returning a signed proxy card, his or her shares cannot be voted by proxy. Stockholders voting by returning a paper proxy card are urged to mark the ovals on the proxy card to show how their shares are to be voted. If a stockholder returns a signed proxy card without marking the ovals, the shares represented by the proxy card will be voted as recommended by the Board herein and in the proxy card. The proxy also confers discretionary authority to the proxy holders to vote on any other matter not presently known to the Company that may properly come before the meeting.
Registered stockholders may revoke their proxy at any time before the shares are voted at the 20132014 Annual Meeting by: (i) timely submitting a proxy with new voting instructions, using the Internet or telephone voting system; (ii) voting in person at the 20132014 Annual Meeting by completing a ballot; however, attending the meeting without completing a ballot will not revoke any previously submitted proxy; (iii) timely delivery of a valid, duly executed proxy card bearing a later date; or (iv) delivery of written notice of revocation to the Corporate Secretary of the Company at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903, by 5:00 p.m. (CDT), on or before May 20, 2013.April 22, 2014. Beneficial stockholders may change their votes by submitting new voting instructions to their bank, broker or other nominee in accordance with that entity’s procedures.
On the record date, there were 25,629,57325,868,155 shares of the Company’s common stock outstanding and entitled to vote (“Common Stock”). Each share of Common Stock is entitled to one vote. Cumulative voting is not allowed. The holders in person or by proxy of a majority of the total number of shares of Common Stock shall constitute a quorum for purposes of the 20132014 Annual Meeting. If stockholders holding the number of shares of Common Stock necessary for a quorum shall fail to be present in person or by proxy at the time and place fixed for any meeting, the holders of a majority of the shares entitled to vote who are represented in person or by proxy may adjourn the meeting from time to time, until a quorum is present, and at any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. Votes are tabulated by the inspector of elections, Wells Fargo Bank, N.A.
If you hold your shares in “street name,” you will receive instructions from your broker or other nomineenominees describing how to vote your shares. If you do not instruct your brokers or nominees how to vote your shares, they may vote your shares as they decide as to each matter for which they have discretionary authority under the rules of the New York Stock Exchange. For Proposal II (Ratification of Appointment of Independent Registered Public Accounting Firm) to be voted on at the annual meeting, brokers and other nominees will have discretionary authority in the absence of timely instructions from you.
For Proposal I (Election of Directors) and, Proposal IIIII (Advisory Vote on Executive Compensation), Proposal IV (Approval of the Second Amendment to the 2005 Ownership Incentive Plan) and Proposal V (Approval of the Material Plan Terms of the 2005 Ownership Incentive Plan, as Amended, for Purposes of Complying with the Requirements of Section 162(m) of the Internal Revenue Code) to be voted on at the 20132014 Annual Meeting, you must provide timely instructions on how the broker or other nominee should vote your shares. If you do not give timely instructions to the broker or other nominee on how that broker or nominee should vote your shares, a “broker non-vote” results. Although any broker non-vote would be counted as present at the meeting for purposes of determining a quorum, it would be treated as not entitled to vote with respect to Proposal I, Proposal III, Proposal IV and Proposal II.V.
Abstentions occur when stockholders are present at the annual meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which the stockholders are voting.
Election of Directors. DirectorsThe Company’s bylaws provide that directors are elected by a plurality of the votes of the shares of Common Stock presentcast by stockholders, in person or by proxy, and entitled toat a meeting at which a quorum is present. The Company’s bylaws, while not changing the requirement for a plurality vote onin the election of directors. Under Delaware law, votesdirectors, require additionally that are withheld fromany director in an uncontested election who does not receive the affirmative vote of a director’s election will be counted toward a quorum but will not affect the outcomemajority of the vote onvotes cast must promptly tender his or her resignation to the electionBoard following certification of a director. Brokerthe stockholder vote. For this purpose, “majority of the votes cast” means the number of FOR votes equals or exceeds the number of WITHHOLD votes, and “votes cast” include only FOR and WITHHOLD votes. Abstentions and broker non-votes will not be taken into account in determining the outcome of the election. The requirement that a director tender his or her resignation if he or she does not receive a majority of the votes cast does not apply in the case of a contested election where the number of nominees exceeds the number of directors to be elected.
Other Matters. The required vote to approve any matter other than the election of directors is the affirmative vote by the holders of a majority of the total number of shares of Common Stock present in person or by proxy and entitled to vote on the matter.
Proposal II. With respect to Proposal II, the ratification of the appointment of the Company’s independent registered public accounting firm, an abstention is treated as entitled to vote and, therefore, has the same effect as voting “against” the proposal.
Proposal III. With respect to Proposal III, an abstention is treated as entitled to vote and, therefore, has the same effect as voting “against” such proposal. For purposes of Proposal II,III, broker non-votes are not treated as entitled to vote and, therefore, are not counted for purposes of determining whether a majority has been achieved. Proposal IIIII is a non-binding advisory vote. However, the Board and the Compensation Committee will consider the outcome of the vote on Proposal IIIII when considering future executive compensation decisions.
Proposal IV. With respect to Proposal IV, an abstention is treated as entitled to vote and, therefore, has the same effect as voting “against” such proposal. For purposes of Proposal IV, broker non-votes are not treated as entitled to vote and, therefore, are not counted for purposes of determining whether a majority has been achieved.
Proposal V. With respect to Proposal V, an abstention is treated as entitled to vote and, therefore, has the same effect as voting “against” such proposal. For purposes of Proposal V, broker non-votes are not treated as entitled to vote and, therefore, are not counted for purposes of determining whether a majority has been achieved.
Unless otherwise instructed or unless authority to vote is withheld, the enclosed proxy card will be voted for the election of each of the director nominees andnominees; for the ratification of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2014; for the approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers (as defined below).in the “Compensation Discussion and Analysis”); for the approval of the Second Amendment to 2005 Ownership Incentive Plan; and for the approval of the material plan terms of the 2005 Ownership Incentive Plan.
Proposal I. Election of Directors
The Board of Directors recommends a vote “FOR” Proposal I.
The Board has designated John W. Alden, Fred A. Allardyce, William M. Legg, Judy R. McReynolds, John H. Morris, Craig E. Philip, Steven L. Spinner, Janice E. Stipp and Robert A. Young III as nominees for election as Directors of the Company at the Annual Meeting (each a “Nominee”). Each Nominee is currently a Director of the Company. If elected, each Nominee will serve until the expiration of his/her term at the Annual Meeting in 20142015 or until his/her earlier death, resignation or removal from office.
Each Nominee has indicated his/her willingness to serve as a member of the Board, if elected. If, for any reason not presently known, any of Messrs. Alden, Allardyce, Legg, Morris, Philip, Spinner or Young or Ms. McReynolds or Stipp are unable or unwilling to serve if elected, your proxy card may be voted for the election in his/her stead of a substitute nominee designated by the Board or a committee thereof, unless the proxy withholds authority to vote for the Nominee.
Assuming the presence of a quorum, to beThe Company’s bylaws provide that directors are elected a Nominee must receive the affirmative vote of the holders ofby a plurality of the shares of Common Stock voted on Proposal I,votes cast by stockholders, in person or by proxy, at a meeting at which a quorum is present. The Company’s bylaws, while not changing the 2013 Annual Meeting. requirement for a plurality vote in the election of directors, require additionally that any director in an uncontested election who does not receive the affirmative vote of a majority of the votes cast must promptly tender his or her resignation to the Board following certification of the stockholder vote. For this purpose, “majority of the votes cast” means the number of FOR votes equals or exceeds the number of WITHHOLD votes, and “votes cast” include only FOR and WITHHOLD votes. Abstentions and broker non-votes will not be taken into account in determining the outcome of the election. The Nominating/Corporate Governance Committee will consider any resignation tendered under this policy and recommend to the Board whether to accept or reject it, and the Board will act on such resignation, taking into account the Nominating/Corporate Governance Committee’s recommendation, within 90 days following the certification of the election results. The Nominating/Corporate Governance Committee in making its recommendation, and the Board in making its decision, may consider any information it deems appropriate, including, without limitation, any reasons given by stockholders for their WITHHOLD votes, the qualifications of the director and his or her contributions to the Board and the Company. The Board will promptly disclose its decision to accept or reject the resignation and, if rejected, the reasons for doing so. If a director’s resignation is not accepted by the Board, then such director will continue to serve until the next annual meeting for the year in which his or her term expires and until his or her successor is duly elected, or his or her earlier resignation or removal. If a director’s resignation is accepted by the Board, then the Board, in its sole discretion, may fill any remaining vacancy or decrease the size of the Board. The requirement that a director tender his or her resignation if he or she does not receive a majority of the votes cast does not apply in the case of a contested election where the number of nominees exceeds the number of directors to be elected.
Unless otherwise instructed or unless authority to vote is withheld, the enclosed proxy card will be voted for the election of each of the Nominees.
The following information relates to the Nominees named above.in “Proposal I. Election of Directors.” The information includes the publicly traded company directorships and certain other directorships held by each Director for the past five years and the specific experience, qualifications, attributes and skills that each Director possesses that led to the conclusion that the person should serve as a Director of the Company. There are no family relationships among Directors and executive officers of the Company or its subsidiaries.
Nominees for Election at the 20132014 Annual Meeting, Term Will Expire at the 20142015 Annual Meeting
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JOHN W. ALDEN,age
Key Attributes, Experience and Skills As Vice Chairman and Senior Vice President–Business Development of UPS, Mr. Alden led a global public transportation company and public company board. Through his 35 years at UPS, he gained expertise in the areas of sales and marketing, operations, customer service, management, senior management, business development and public company board strategic planning and oversight. Mr. Alden, Chairman of the Board’s Nominating/Corporate Governance Committee and member of the Board’s Compensation Committee, has served on seven boards over the past 20 years. | |
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FRED A. ALLARDYCE, age
Key Attributes, Experience and Skills Mr. Allardyce has extensive accounting and auditing experience in public and private organizations and has a strong background in financial controls and reporting, financial management, financial analysis, acquisitions, entrepreneurship and investment banking, including finance and private equity. A former chief financial officer and controller of a public company, his skills also include preparing financial reports, maintaining internal controls and overseeing financial reporting. Mr. Allardyce is Chairman of the Board’s Audit Committee and is the Audit Committee’s Financial Expert. | |
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WILLIAM M. LEGG, age
Key Attributes, Experience and Skills Mr. Legg brings to the Board significant investment banking experience, including finance, private equity, mergers and acquisitions, capital structures and strategic planning. His contributions to the Board include in-depth knowledge of other transportation companies and industry subsets. His years in transportation-related finance bring valuable analytical transportation knowledge to the Board. Mr. Legg has experience in executive compensation, governance and director nomination matters. He is the Board’s Compensation Committee Chairman and is a member of the Board’s Nominating/Corporate Governance Committee. | |
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JUDY R. MCREYNOLDS, age
Key Attributes, Experience and Skills As the only member of the Company’s senior management who serves on the Board, Ms. McReynolds provides significant industry-specific experience and unique expertise | |
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JOHN H. MORRIS, age
Key Attributes, Experience and Skills Mr. Morris has extensive experience in mergers and acquisitions, including the analysis of acquisitions, private equity investing and business and financial structures. He has other public transportation company-related board service as described | |
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DR. CRAIG E. PHILIP, age
Key Attributes, Experience and Skills Dr. Philip’s career in the marine, rail and intermodal industries spans more than 30 years. He provides the Board with a unique blend of leadership experience in various modes of freight transportation, in combination with experience in industrial marketing and strategic planning. Dr. Philip currently serves on the Board’s Compensation Committee and Nominating/Corporate Governance Committee. | |
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STEVEN L. SPINNER, age
Key Attributes, Experience and Skills Mr. Spinner provides the insight and knowledge that comes from years of senior-level executive management, logistical experience and knowledge of network businesses. His background has given him extensive experience in the wholesale food distribution business, which includes overseeing the organic and acquisition growth of a food distribution company and directing the successful integration of the operational, organizational and technological aspects of two companies. Mr. Spinner brings valuable knowledge to the Board as an active CEO of a public company. Mr. Spinner currently serves on the Board’s Audit Committee. | |
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JANICE E. STIPP, age
Key Attributes, Experience and Skills Ms. Stipp has | |
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ROBERT A. YOUNG III, age
Key Attributes, Experience and Skills Serving the Company and ABF Freight in executive and Board positions over the past four decades, Mr. Young has become an acknowledged leader in transportation and finance. He was a member of the Board of the Federal Reserve Bank (“Reserve Board”) of St. Louis, Little Rock Branch, from July 2004 until his retirement from the Reserve Board on December 31, 2011. After | |
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Board Leadership Structure
The Company has separated the positions of Chairman of the Board and Chief Executive Officer. The Company believes this separation allows the individuals serving in these positions to effectively utilize their skills and time on behalf of the Company. Robert A. Young III, who brings more than 4243 years of LTL transportation, finance and board experience to the Board, serves as nonemployee Chairman of the Board and leads the Board in its governance role. Judy R. McReynolds brings significant LTL and truckload experience to her day-to-day leadership role as Chief Executive Officer. For complete business biographical information on Mr. Young and Ms. McReynolds, see “Directors of the Company.” Because Mr. Young, as Chairman, qualifies as an independent director under NASDAQ requirements, the Company does not have a Lead Independent Director.
The business of the Company is managed under the direction of the Board. There are nine members of the Board. The three standing Board committees – the Audit Committee, the Compensation Committee, and the Nominating/Corporate Governance Committee – are an integral part of the Board leadership structure. These committees, of which all members are independent Directors, are discussed below in more detail under “Committees of the Board”.Board.” The Company’s leadership structure includes an experienced management team, upon whose advice, reports and opinions the Board relies. The Board also relies on the advice of counsel, accountants, executive compensation consultants, auditors, strategic planning consultants and other expert advisors.
The size of the Board and the different types of corporate and transportation backgrounds of the members of the Board allow for timely, effective action in the rapidly evolving trucking industry. See “Key Attributes, Experience and Skills” for each Director under “Directors of the Company.”
A robust committee framework sustains the lines of communication among Directors and with management. Regularly scheduled management reports and presentations, based on operational, financial, legal and risk management aspects of the Company’s operations, provide vital information to the Board. Directors have complete access to the Chief Executive Officer and other members of senior management.
The Board meets on a regularly scheduled basis fivesix times a year to review significant developments affecting the Company and to act on matters requiring Board approval. It also holds special meetings when Board action is required between scheduled meetings. The Board met six times during 2012.2013. During 2012,2013, each member of the Board participated in at least 75% of all Board and applicable committee meetings held during the period for which he/she was a Director. The Nominating/Corporate Governance Committee has determined that a majority of the members of the Board are independent pursuant to applicable NASDAQ independence standards. Independent Directors are Messrs. Alden, Allardyce, Legg, Morris, Philip, Spinner, and Young and Ms. Stipp. Independent Directors met in executive session four times in 2012.2013.
It is the Company’s policy that all members of its Board attend each annual meeting of its stockholders, except when illness or other personal matters prevent such attendance. All eightSeven of the nine members of the Board at the time of the 20122013 Annual Meeting attended the 20122013 Annual Meeting.
Board’s Role in Risk Oversight
The Board believes that the current management structure facilitates risk oversight by combining experienced leadership with independent review by the Board and its committees. Potential risk factors that are monitored through this structure include financial, operational, technological, disaster, environmental, cyberspace, legal and regulatory, fraud/corruption, employment practices, executive compensation, reputational and legislative areas. Risk factors may present themselves on any of the multiple levels of the Company. The Board is regularly informed through committee reports of each committee’s activities in overseeing risk management within their respective areas of oversight responsibility.
The Audit Committee directly oversees risk management relating to financial reporting and public disclosure and the steps management has taken to monitor and control those exposures. In addition, the Audit Committee is responsible for the oversight of general financial risk matters. The Audit Committee meets regularly with financial management, including the Chief Financial Officer and the Vice President–Controller, as well as our external auditors and our Chief Audit Executive. In addition, the Company’s Risk Management Committee, which consists of several members of senior management, provides periodic reports to the Audit Committee of its activities in various risk management areas, and the Chairman of the Company’s Risk Management Committee makes presentations to the Audit Committee from time to time regarding various risk or potential risk matters. The Audit Committee also requests and receives from time to time presentations regarding other potential risk areas, including those related to information technology.
The Compensation Committee is responsible for oversight of risk related to executive compensation. Additionally, the Compensation Committee is responsible for oversight of risk for the Company’s compensation policies and practices for all employees. Management has evaluated the Company’s compensation policies and practices for all employees, including the Named Executive Officers (listed below underin “Compensation, Discussion & Analysis”) and non-executive officers. The evaluation included consideration of whether any of the Company’s compensation policies and practices, including incentive plans, create risks that are reasonably likely to have a material adverse effect on the Company. The primary responsibility for the Company’s evaluation was assigned to the Company’s Risk Management Committee, which includes as its members the Vice President responsible for the Risk Management Department, the Vice President—President–General Counsel, the Senior Vice President—President–Chief Financial Officer & Chief Information Officer, the Senior Vice President—President–Tax and Chief Audit Executive, ABF Senior Vice President—Sales and Marketing,President–Enterprise Customer Solutions and the Vice President—President–Controller, as well as other executives.officers. Based on management’s evaluation, including the specific process completed by the Company’s Risk Management Committee, management concluded that the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. Management’s evaluation, including the conclusions reached by the Company’s Risk Management Committee, was discussed with the Compensation Committee.
The information used by management and the Company’s Risk Management Committee and provided to the Compensation Committee included a framework of potential risk factors for certain compensation plans and identified how the Company’s existing processes and compensation programs mitigate those risks. Mitigating factors for potential risks identified included:
· a combination of short- and long-term compensation;
· a combination of equity- and cash-based compensation;
·multiple performance metrics;
·multiple performance metrics;
· relative performance metric;
· robust financial control policies and audit practices;
· benefit caps for potential amounts earned under annual and long-term incentive plans;
· clawback policy;
· no hedging transactions or pledging of shares;
·five-year cliff vesting periods for equity awards;
· stock ownership requirements for senior officers;
· approval of performance criteria, as well as performance results by the Compensation Committee that consists of only independent Directors; and
· review of peer groups by an independent compensation consultant and the Compensation Committee.
The most recent management evaluation was provided to the Compensation Committee in January 2013.2014. Based on the information provided and the Compensation Committee’s knowledge of the compensation policies and practices of the Company, the Compensation Committee concluded that the risks arising from the Company’s compensation plans and practices are not reasonably likely to have a material adverse effect on the Company.
The Nominating/Corporate Governance Committee is responsible for overseeing risks associated with corporate governance and reviews corporate governance matters at least once a year. In connection with this responsibility, the Nominating/Corporate Governance Committee annually reviews the Company’s Corporate Governance Guidelines and their implementation.
Committees of the Board
The Board has established Audit, Compensation, and Nominating/Corporate Governance and Qualified Legal Compliance committees to devote attention to specific subjects and to assist it in the discharge of its responsibilities. The functions of those committees, their current members, and the number of meetings held during 20122013 are described below.
Audit Committee. Among the responsibilities of the Audit Committee contained in its charter are: (i) assisting the Board in overseeing matters involving the accounting, auditing, financial reporting and internal control functions of the Company; (ii) being directly responsible for the appointment, termination and oversight of the independent registered public accounting firm for the Company; (iii) responsibility for establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and (iv) implementing the Company’s policy regarding the review and approval of any “related person transaction” as required pursuant to Securities and Exchange Commission (“SEC”) Regulation S-K, Item 404. Pursuant to the Audit Committee Charter, the Audit Committee reviews, approves or ratifies all related person transaction issues brought to its attention. Annually, as part of the Company’s proxy preparation, all Directors and executive officers who are subject to related person transaction disclosure are instructed to report in writing any such transactions to the Company; and further, they are reminded of their obligation to report to the Company any such transactions that may be planned or subsequently occur.
Messrs. Allardyce (Chair) and Spinner and Ms. Stipp are currently members of the Audit Committee. The Nominating/Corporate Governance Committee has determined that each member of the Audit Committee meets all applicable SEC and NASDAQ independence standards. Mr. Allardyce is the Board-designated “Audit Committee Financial Expert.” The Audit Committee met fiveseven times during 2012.2013. The Audit Committee Charter is posted in the Corporate Governance section of the Company website, www.arkbest.com.
Compensation Committee. The Compensation Committee is responsible for reviewing and approving executive management compensation. The Compensation Committee’s current members are Messrs. Legg (Chair), Alden, Morris and Philip. The Nominating/Corporate Governance Committee has determined that each member of the Compensation Committee meets applicable NASDAQ independence standards and Internal Revenue Code (“IRC”) Section 162(m) nonemployee director requirements. The Compensation Committee met six times in 2012.2013. The Compensation Committee Charter is posted in the Corporate Governance section of the Company website, www.arkbest.com.
The Board has designated the Compensation Committee to also serve as the Stock OptionCompensation Committee for the Company’s stock optioncompensation plans. The Stock Option Committee administers the Company’s 2000 Non-Qualified Stock Option Plan and 2002 Stock Option Plan. The Compensation Committee also has authority to make and administer awards under the 2005 Ownership Incentive Plan.
The Compensation Committee has determined and reviewed the value and forms of compensation for Named Executive Officers and other officers based on the Compensation Committee members’ knowledge and experience; competitive proxy and market compensation information; periodic review and analysis from an independent compensation consultant retained by, and which reports directly to, the Compensation Committee; and management recommendations.
The Compensation Committee directly engaged Meridian Compensation Partners, LLC (“Meridian”) as its independent executive compensation consulting firm in 2012.2013. Meridian reviewed executive compensation practices, including executive compensation design issues, market trends, and technical considerations and provided ongoing consulting assistance to the Compensation Committee throughout the year. Other than executive and director compensation consulting to the Board, Compensation Committee or Nominating/Corporate Governance Committee, Meridian does not provide any other services to the Company. The Compensation Committee has assessed the independence of Meridian under the SEC rules and concluded that Meridian’s work for the Compensation Committee does not raise any conflict of interest.
The Compensation Committee did not direct Meridian to perform the above services in any particular manner or under any particular method. The Compensation Committee has the final authority to hire and terminate the consultant and evaluates the consultant periodically. The Compensation Committee also approves the fees paid to its independent compensation consultant.
The Compensation Committee may not and does not delegate its authority to review and determine the forms and values of the various elements of compensation for Named Executive Officers. The Compensation Committee does delegate to Company management the implementation and record-keeping functions related to the various elements of compensation it has approved.
Nominating/Corporate Governance Committee. The current members of the Nominating/Corporate Governance Committee are Messrs. Alden (Chair), Legg, Morris and Philip. The Nominating/Corporate Governance Committee has determined that each member of the committee is independent, as defined in applicable NASDAQ independence standards. The Nominating/Corporate Governance Committee’s responsibilities include: (i) identifying individuals believed to be qualified to become Directors and to select and recommend to the Board for its approval the nominees to stand for election as Directors by the stockholders or, if applicable, to be appointed to fill vacancies on the Board; (ii) determining appropriate compensation for Directors; (iii) recommending any changes regarding size, structure, composition, processes and practices of the Board; (iv) reviewing the independence of Directors and assessing whether members are meeting the applicable independence standards required to serve on the various Board committees; (v) reviewing the Company’s corporate governance standards; and (vi) making recommendations regarding succession planning for the Chief Executive Officer of the Company. Meridian consults with the Nominating/Corporate Governance Committee regarding the value and forms of compensation for Directors. The Nominating/Corporate Governance Committee held four meetings in 2012.2013. The Nominating/Corporate Governance Charter is posted on the Corporate Governance section of the Company website, www.arkbest.com.
In recommending nominees for the Board, the Nominating/Corporate Governance Committee considers any specific criteria the Board may request from time to time and such other factors as it deems appropriate. These factors may include any special training or skill, experience with businesses and other organizations of comparable size and type, experience or knowledge with businesses or organizations that are particularly relevant to the Company’s current or future business plans, financial expertise, the interplay of the candidate’s experience with the experience of the other Directors, sufficient time to devote to the responsibilities of a director, freedom from conflicts of interest or legal issues and the extent to which, in the Nominating/Corporate Governance Committee’s opinion, the candidate would be a desirable addition to the Board.
Diversity is taken into account when determining how the candidates’ qualities and attributes would complement the other Directors’ backgrounds. Type of advanced studies and certification, type of industry or aspect of transportation experience, area of corporate experience and gender, among other factors, are taken into consideration. The Nominating/Corporate Governance Committee believes that the different business and educational backgrounds of
the Directors of the Board contribute to the overall insight necessary to evaluate matters coming before the Board. The Nominating/Corporate Governance Committee implements its policy of considering a range of candidates by including diversity aspects in its analysis of candidates’ qualifications. A listing of current Directors’ and potential candidates’ qualifications and attributes is periodically discussed in Nominating/Corporate Governance Committee meetings. In these discussions, the effectiveness of this methodology is addressed.
There is currently no set of specific minimum qualifications that must be met by a nominee recommended by the Nominating/Corporate Governance Committee, as different factors may assume greater or lesser significance at particular times and the needs of the Board may vary in light of its composition and the Nominating/Corporate Governance Committee’s perceptions about future issues and needs.
The Nominating/Corporate Governance Committee may draw upon individuals known by members of the Board, and at the Nominating/Corporate Governance Committee’s discretion, candidates recommended by management or third parties engaged by the Nominating/Corporate Governance Committee to assist it in identifying appropriate candidates.
The Nominating/Corporate Governance Committee shall consider any candidate for director recommended by a stockholder if submitted in accordance with the Stockholder Director Nomination Procedure set forth below. The Nominating/Corporate Governance Committee shall consider the same factors when considering a stockholder-recommended candidate as it does when considering other candidates.
The Nominating/Corporate Governance Committee considers director candidates submitted by stockholders that follow the procedure set forth in the following Stockholder Director Nomination Procedure, in accordance with the Company’s bylaws:
Any stockholder entitled to vote at an annual meeting of stockholders and intending to recommend candidate(s) for nomination for director at that meeting must submit a written stockholder notice to Arkansas Best Corporation.the Company. The information required to be included in a stockholder notice nominating a candidate for the Board of Directors is set forth in detail in the Company’s bylaws and includes the following information: (1) as to the stockholder giving the notice and any beneficial owner, if any, on whose behalf the nomination is madeeach Stockholder Associated Person (a) the name and address, including business address and telephone number, of such persons, (b) the class and number of shares of the Company which are owned beneficially and of record by such persons, (c) any option, warrant or other derivative security owned by such persons, (d) any agreement pursuant to which such persons have the right to vote any shares of the Company, and (e) any other information relating to such persons required to be disclosed in a proxy statement in connection with the solicitation of proxies relating to the election of directors in a contested election; and (2) as to each person whom the stockholder proposes to nominate for election or re-election as a director (a) all information relating to such person required to be disclosed in a proxy statement relating to the election of directors in a contested election, (b) such person’s written consent to being named in the proxy statement and to serving as a director if elected, and (c) a description of all direct and indirect compensation and other material monetary agreements during the past three years between the stockholder and beneficial owner, if any,Stockholder Associated Person and their affiliates and the proposed nominee and his or her other affiliates. “Stockholder Associated Person” of any stockholder means (i) any beneficial owner of shares of stock of the corporation on whose behalf any proposal or nomination is made by such stockholder; (ii) any affiliates or associates of such stockholder or any beneficial owner described in the foregoing clause (i); and (iii) each other person with whom any of the persons described in the foregoing clauses (i) and (ii) either is acting in concert with respect to the corporation or has any agreement, arrangement or understanding (whether written or oral) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy given to such person in response to a public proxy solicitation made generally by such person to all stockholders entitled to vote at any meeting) or disposing of any capital stock of the corporation or to cooperate in obtaining, changing or influencing the control of the corporation (except independent financial, legal and other advisors acting in the ordinary course of their respective businesses).
Additionally, for a candidate to be eligible to be a nominee for election as director, the candidate must deliver to the Corporate Secretary a written response to a questionnaire with respect to candidate’s background and qualifications and a written representation and agreement. Such stockholder notice and candidate questionnaire and representation and agreement must be received by the Corporate Secretary at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903 not earlier than 120 days and not later than 90 days prior to the first anniversary of the preceding year’s annual meeting of stockholders: provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after the anniversary date of the preceding year’s annual meeting, notice by the stockholder to be timely must be received no earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 100th day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made. For information regarding the required information in the stockholder notice and the candidate’s questionnaire and representation and agreement, contact the Corporate Secretary’s office at info@arkbest.com or at 479-785-6000.
Qualified Legal Compliance Committee. The Qualified Legal Compliance Committee is responsible for confidentially receiving, retaining and considering any report pursuant to SEC Rule 205 by an attorney representing the Company. The Audit Committee serves as the Qualified Legal Compliance Committee. The Qualified Legal Compliance Committee Charter is posted in the Corporate Governance section of the Company website, www.arkbest.com.
Corporate Governance Guidelines and Code of Conduct
The Board has adopted Corporate Governance Guidelines and a Code of Conduct. The full text of both documents is posted in the Corporate Governance section of the Company website, www.arkbest.com.
The Company’s Code of Conduct applies to all of its Directors, officers (including the Chief Executive Officer, Chief Financial Officer, principal accounting officer,Principal Accounting Officer, Controller, and any person performing similar functions) and employees. The Company intends to post on its website any amendment to, or waiver from, a provision of the Code of Conduct that applies to its Chief Executive Officer, Chief Financial Officer, principal accounting officer,Principal Accounting Officer, Controller or persons performing similar functions and that relates to any of the following elements of the Code of Conduct: honest and ethical conduct; disclosure in reports or documents filed with the SEC and other public communications; compliance with applicable laws, rules and regulations; prompt internal reporting of code violations; and accountability for adherence to the Code of Conduct.
2012 Director Compensation Table
The table below summarizes the compensation paid by the Company to Non-Employee Directors for the fiscal year ended December 31, 2012. The Nominating/Corporate Governance Committee is responsible for reviewing and awarding compensation to the Directors. The Nominating/Corporate Governance Committee sets the levels and forms of Director compensation based on its experience, review of the compensation paid to directors of comparable publicly traded companies and the advice of its independent compensation consultant. The Nominating/Corporate Governance Committee uses a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board.
Name
|
| Fees Earned or |
| Stock
|
| All Other |
| Total |
|
John W. Alden(6) |
| $ 61,500 |
| $ 73,350 |
| $ – |
| $ 134,850 |
|
Fred A. Allardyce(6) |
| 62,500 |
| 73,350 |
| – |
| 135,850 |
|
Frank Edelstein |
| 6,333 |
| – |
| – |
| 6,333 |
|
William M. Legg(6) |
| 61,500 |
| 73,350 |
| – |
| 134,850 |
|
John H. Morris |
| 53,500 |
| 73,350 |
| – |
| 126,850 |
|
Craig E. Philip |
| 56,500 |
| 73,350 |
| – |
| 129,850 |
|
Steven L. Spinner |
| 55,000 |
| 73,350 |
| – |
| 128,350 |
|
Janice E. Stipp |
| 13,000 |
| 36,700 |
| – |
| 49,700 |
|
Robert A. Young III(7) |
| 109,000 |
| 73,350 |
| 72,425(5) |
| 254,775 |
|
(1)Judy R. McReynolds, the President and Chief Executive Officer of the Company, is not included in this table since she is an employee of the Company and thus received no compensation for her service as a Director. The compensation received by Ms. McReynolds as an officer of the Company is shown in the Summary Compensation Table on page 39. Mr. Edelstein retired from the Board on January 25, 2012 and did not receive compensation during fiscal year 2012 for his service as a Director, other than cash fees for meetings attended in January and a pro-rata portion of his annual retainer fee. Ms. Stipp joined the Board on October 23, 2012.
(2)Reflects the aggregate grant date fair value made during 2012 computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (formerly Statement of Financial Accounting Standards No. 123R) (“FASB ASC Topic 718”), determined without regard to estimated forfeitures. Messrs. Alden, Allardyce, Legg, Morris, Philip, Spinner and Young received an award of 5,000 restricted stock units (“RSUs”) under the 2005 Ownership Incentive Plan on May 4, 2012 (computed using the closing price of $14.67 per share on such date). As a new member of the Board, Ms. Stipp received an award of 5,000 RSUs under the 2005 Ownership Incentive Plan on November 8, 2012 (computed using the closing price of $7.34 per share on such date). See Note L to our consolidated financial statements on Form 10-K for the year ended December 31, 2012 for additional detail regarding assumptions underlying the value of these equity awards. Dividends are paid on RSUs at the same rate and at the same time as the dividends paid to stockholders.
(3)As of December 31, 2012, each Non-Employee Director had the following aggregate number of RSUs outstanding, although only the value of the 2012 RSU award is provided in the Stock Awards column.
|
| Alden |
| Allardyce* |
| Edelstein |
| Legg |
| Morris* |
| Philip |
| Spinner |
| Stipp |
| Young |
|
Vested but subject to transfer restrictions |
| 13,800 |
| 18,200 |
| – |
| 13,800 |
| 21,900 |
| – |
| – |
| – |
| 13,800 |
|
Unvested |
| – |
| – |
| – |
| – |
| – |
| 10,000 |
| 9,800 |
| 5,000 |
| – |
|
Total RSUs Outstanding |
| 13,800 |
| 18,200 |
| – |
| 13,800 |
| 21,900 |
| 10,000 |
| 9,800 |
| 5,000 |
| 13,800 |
|
*Messrs. Allardyce and Morris elected to defer their 2009 RSU award of 4,400 RSUs until their termination from Board service. Mr. Morris elected to defer his 2007 RSU award of 3,700 until the earlier of termination from Board service or April 23, 2013. All deferral elections must be made in the year prior to the year the award is granted.
(4)No stock options were granted during fiscal 2012 to any Director. As of December 31, 2012, each Non-Employee Director has the following aggregate number of stock options outstanding, although only the value of the 2012 RSU award is provided in the Stock Awards column. The options are all fully vested.
|
| Alden |
| Allardyce |
| Edelstein |
| Legg |
| Morris |
| Philip |
| Spinner |
| Stipp |
| Young |
|
Vested stock options |
| – |
| 7,500 |
| 12,000 |
| 7,500 |
| 13,500 |
| – |
| – |
| – |
| – |
|
Unvested stock options |
| – |
| – |
| – |
| – |
| – |
| – |
| – |
| – |
| – |
|
Total stock options outstanding |
| – |
| 7,500 |
| 12,000 |
| 7,500 |
| 13,500 |
| – |
| – |
| – |
| – |
|
(5)For purposes of the column titled “All Other Compensation,” for 2012 Mr. Young’s amount consists of the following:
| ||||
|
|
| ||
|
| |||
|
| |||
|
|
|
(i)Mr. Young’s perquisites include: (a) spousal travel to Company or industry events and any related Company lost tax deduction resulting from the spouse accompanying him on the Company’s corporate aircraft, (b) personal use of an administrative assistant, (c) infrequent personal use of a lodging facility and related hunting property owned by the Company for business entertainment purposes, and (d) a Christmas gift from the Company (the Company also provides a Christmas gift to each of the other Board members). It is estimated that 40% of Mr. Young’s administrative assistant’s time is spent on his personal business, and the incremental cost associated with that personal use is estimated to be $36,615. This value is calculated by adding together 40% of the administrative assistant’s salary, pension accrual and health and welfare cost for 2012. Mr. Young retains an office at the Company’s corporate office.
(ii)Because Mr. Young is a former officer of the Company, he and his spouse participate in the Company’s fully insured third-party executive medical plan that is provided for life upon retirement. The Company pays the majority of the premium amount for this coverage. The amount shown is total premiums paid by the Company for coverage during 2012.
(6)Committee Chairpersons: Mr. Allardyce, Audit Committee and Qualified Legal Compliance Committee; Mr. Legg, Compensation Committee; and Mr. Alden, Nominating/Corporate Governance Committee.
(7)The Company owns and pays premiums on two $1 million life insurance policies on Mr. Young. As owner of the policies, the Company is entitled to either the cash surrender value of each or the total of premiums paid, whichever amount is greater. The death value in excess of this amount is payable to Mr. Young’s beneficiary. For 2012, the aggregate premiums on these policies were $32,438. In 2012, Mr. Young paid the Company a premium amount of $16,077 for term life insurance based on the face value in excess of the December 31, 2012 cash surrender value; therefore, no compensation value is included for 2012.
Cash Compensation
For the fiscal year ended December 31, 2012,2013, the standard cash compensation arrangement for Non-Employee Directors was as follows:
Annual Retainers |
|
|
|
|
|
| ||
Board Chair |
| $ | 100,000 |
|
| $ | 100,000 |
|
Members |
| $ | 40,000 |
|
| $ | 40,000 |
|
Audit Committee Chair |
| $ | 7,500 |
|
| $ | 7,500 |
|
Other Committee Chair |
| $ | 5,000 |
|
| $ | 5,000 |
|
|
|
|
|
| ||||
Daily Meeting Fees |
|
|
| |||||
Board Meeting |
| $1,500 per day | ||||||
Committee Meeting |
| $1,500 per day |
Effective February 1, 2014, the standard cash compensation arrangement for Non-Employee Directors is as follows. The previous retainer amounts had been in place since 2002.
Annual Retainers |
|
|
| |
Board Chair |
| $ | 100,000 |
|
Members |
| $ | 50,000 |
|
Audit Committee Chair |
| $ | 15,000 |
|
Compensation Committee Chair |
| $ | 12,000 |
|
Nominating/Corporate Governance Committee Chair |
| $ | 8,000 |
|
|
|
|
| |
Daily Meeting Fees |
|
|
| |
Board Meeting |
| $1,500 per day | ||
Committee Meeting |
| $1,500 per day |
Retainers are cumulative, i.e., each Director who is (i) a Non-Employee and (ii) not the Board Chair, receives a “Member Retainer” plus the appropriate retainer fee for any other positions he holds.
| |||
|
| ||
|
|
Only one daily meeting fee is paid in the event of multiple meetings held on the same day.
Equity-Based Awards
The policy for granting equity awards states that the Nominating/Corporate Governance Committee is responsible for granting all equity compensation to Non-Employee Directors. Under the terms of this policy, the effective date of an equity award will be the date which is five business days following the Company’s applicable quarterly earnings release. The number of shares/units awarded is based on stated dollar amounts for each Director, which is divided by the closing stock price on the date of grant. In prior years, Non-Employee Directors received annual equity awards equal to approximately $100,000 on the date of grant of the awards. However, in 2012 the award value was reduced to $73,350 due to decreases in the Company’s stock price and the desire to preserve shares for issuance under the Company’s 2005 Ownership Incentive Plan.
The RSUrestricted stock unit (“RSU”) awards to Non-Employee Directors provide for three-year cliff vesting. All of the RSU awards are subject to accelerated vesting due to death, disability or change in control of the Company. Accelerated vesting for RSUs also occurs upon attainment of normal retirement age (age 65 with five years of service with the Company). Messrs. Alden, Allardyce, Legg, Morris, and Young are currently eligible for normal retirement. Upon early retirement (three years of service as a Director), a Director is eligible for accelerated vesting of a pro rata number of shares based on the number of whole months since the award date. Vested RSU awards are paid in shares, unless deferred under the provisions of the plan, on the earlier to occur of (i) the normal vesting date applicable to the award or (ii) the Director’s termination of service with the Company. On the normal vesting date of the 2007 and 2009 RSU awards in 2012, the resulting shares were issued to the Directors.
Prior to 2005, the Compensation Committee awarded stock options. A portion16
Stock Ownership Policy. The Nominating/Corporate Governance Committee believes that the Directors of the Company should maintain a level of equity holdings in the Company that will further align the interests of Directors with the Company’s stockholders. The Board adopted a Stock Ownership Policy for Directors, which was effective January 1, 2008. Under this policy, Directors must own shares equal to six times their annual retainer by January 1, 2013, or five years from the date he or she became a member of the Board.retainer. No Director covered by the policy is permitted to sell any shares of Company stock granted to such Director under any Company award agreement (except to pay the exercise price of stock options or taxes generated as a result of equity grants) until such time as the Director satisfies the stock ownership requirement. Restricted stock, RSUs and stock owned outright count toward the Company’s Stock Ownership Policy requirements. However, RSUs are not reflected as shares beneficially owned in the “Principal Stockholders and Management Ownership” table.table unless (i) the award is scheduled to vest within 60 days of the measurement date, (ii) the award is fully vested but deferred (and payable on a separation from service with the Company), or (iii) the award (or a portion of the award) is vested either due to the Director’s eligibility for retirement or early retirement pursuant to the award agreement under which the RSU was granted.
Should a Director covered by the policy fail to have the required amount accumulated after five years, the issuance of further equity awards to such Director may be discontinued until such time as the Director has complied with the policy. The Nominating/Corporate Governance Committee monitors ownership levels annually. As of the review completed in 2012,2013, all of the Directors have met their ownership requirements except for Messrs. Philip and Spinner and Ms. Stipp who became membersa member of the Board in 2011, 2011 and 2012, respectively, and thus have five years to meet their ownership requirements.2012.
Clawback Policy. The Committee has implemented a policy for the “clawback” of any equity awards granted to a Director whose misconduct contributed to the Company being required to restate its financial statements. Under the terms of the policy, the Board will, to the full extent permitted by governing law, in appropriate cases, effect the cancellation of unvested restricted or deferred stock awards previously granted to the Director if (a) the amount of the equity award was calculated based upon the achievement of certain financial results that were subsequently the subject of the restatement, (b) the Director engaged in intentional misconduct that caused or partially caused the need for the restatement and (c) the amount of the equity award that would have been awarded to the Director had the results been properly reported would have been lower than the amount actually awarded.
2013 Director Compensation Table
The table below summarizes the compensation paid by the Company to Non-Employee Directors for the fiscal year ended December 31, 2013.
Name
|
| Fees Earned or |
| Stock |
| All Other |
|
Total |
|
John W. Alden(5) |
| $ 61,500 |
| $ 101,232 |
| $ – |
| $ 162,732 |
|
Fred A. Allardyce(5) |
| 64,000 |
| 101,232 |
| – |
| 165,232 |
|
William M. Legg(5) |
| 61,500 |
| 101,232 |
| – |
| 162,732 |
|
John H. Morris |
| 55,000 |
| 101,232 |
| – |
| 156,232 |
|
Craig E. Philip |
| 56,500 |
| 101,232 |
| – |
| 157,732 |
|
Steven L. Spinner |
| 58,000 |
| 101,232 |
| – |
| 159,232 |
|
Janice E. Stipp |
| 58,000 |
| 101,232 |
| – |
| 159,232 |
|
Robert A. Young III |
| 109,000 |
| 101,232 |
| 67,408(4) |
| 277,640 |
|
(1)Judy R. McReynolds, the President and Chief Executive Officer of the Company, is not included in this table since she is an employee of the Company and thus received no compensation for her service as a Director. The compensation received by Ms. McReynolds as an officer of the Company is shown in the Summary Compensation Table on page 40.
(2)Reflects the aggregate grant date fair value made during 2013 computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (formerly Statement of Financial Accounting Standards No. 123R) (“FASB ASC Topic 718”), determined without regard to estimated forfeitures. Messrs. Alden, Allardyce, Legg, Morris, Philip, Spinner, Stipp and Young received an award of 3,700 RSUs under the 2005 Ownership Incentive Plan on November 1, 2013 (computed using the closing price of $27.36 per share on such date). See Note L to the consolidated financial statements in the Company’s 2013 Annual Report on Form 10-K for additional detail on share-based compensation. Dividends are paid on RSUs at the same rate and at the same time as the dividends paid to stockholders.
Medical Benefits Available(3)As of December 31, 2013, none of the Non-Employee Directors held any stock options and each Non-Employee Director had the following aggregate number of RSUs outstanding, although only the value of the 2013 RSU award is provided in the Stock Awards column.
|
| Alden |
| Allardyce* |
| Legg |
| Morris* |
| Philip |
| Spinner |
| Stipp |
| Young |
|
Vested but subject to transfer restrictions |
| 13,100 |
| 21,900 |
| 13,100 |
| 17,500 |
| – |
| – |
| – |
| 13,100 |
|
Unvested |
| – |
| – |
| – |
| – |
| 13,700 |
| 13,500 |
| 8,700 |
| – |
|
Total RSUs Outstanding |
| 13,100 |
| 21,900 |
| 13,100 |
| 17,500 |
| 13,700 |
| 13,500 |
| 8,700 |
| 13,100 |
|
*Messrs. Allardyce and Morris elected to Directorsdefer their 2009 RSU award of 4,400 RSUs until their termination from Board service. Mr. Allardyce elected to defer his 2010 RSU award of 4,400 RSUs until termination from Board service. All deferral elections must be made in the year prior to the year the award is granted.
Non-Employee Directors and their spouses do not participate in the Company’s health plan (medical/dental coverage). Because Mr. Young is a former employee(4)For purposes of the Company, he participates in the Company’s fully insured third-party executive medical plan that is provided to Company officerscolumn titled “All Other Compensation,” for life upon their retirement. The Company pays the majority2013 Mr. Young’s amount consists of the premium for this coverage.following:
|
|
| Young |
| |
Perquisites(i) |
|
| $ | 51,515 |
|
Gross-ups(i) |
|
| 5,966 |
| |
Executive medical premiums(ii) |
|
| 9,927 |
| |
Total |
|
| $ | 67,408 |
|
(i) | Mr. Young’s perquisites include: (a) spousal travel to Company or industry events and any related Company lost tax deduction resulting from the spouse accompanying him on the Company’s corporate aircraft, (b) personal use of an administrative assistant, (c) infrequent personal use of a lodging facility and related hunting property owned by the Company for business entertainment purposes and (d) a Christmas gift from the Company (the Company also provides a Christmas gift to each of the other Board members). It is estimated that 40% of Mr. Young’s administrative assistant’s time is spent on his personal business, and the incremental cost associated with that personal use is estimated to be $35,592. This value is calculated by adding together 40% of the administrative assistant’s salary, 401(k) match, pension accrual and health and welfare cost for 2013. Mr. Young retains an office at the Company’s corporate office. |
(ii) | Because Mr. Young is a former officer of the Company, he and his spouse participate in the Company’s fully insured third-party executive medical plan that is provided for life upon retirement. The Company pays the majority of the premium amount for this coverage. The amount shown is total premiums paid by the Company for coverage during 2013. |
(5)Committee Chairpersons: Mr. Allardyce, Audit Committee and Qualified Legal Compliance Committee; Mr. Legg, Compensation Committee; and Mr. Alden, Nominating/Corporate Governance Committee.
Principal Stockholders and Management Ownership
The following table sets forth certain information concerning beneficial ownership of the Common Stock as of March 22, 2013February 24, 2014 by (i) each person who is known by the Company to own beneficially more than five percent (5%) of the outstanding shares of Common Stock; (ii) each Director and Named Executive Officer of the Company or ABF Freight, the Company’s largest subsidiary, who is listed in the Summary Compensation Table (collectively “Named Executive Officers”), and Director nominees; and (iii) all Directors and executive officers as a group.
Unless otherwise indicated, to the Company’s knowledge, the persons included in the tables below have sole voting and investment power with respect to all the shares of Common Stock beneficially owned by them, subject to applicable community property laws. The number of shares beneficially owned by a person includes shares of Common StockRSUs that are subject(i) scheduled to stock options or warrants that are either currently exercisable or exercisablevest within 60 days after March 22, 2013.February 24, 2014, (ii) vested but deferred (and payable on a separation from service with the Company), or (iii) the award (or a portion of the award) is vested but unsettled either due to the Director’s or Named Executive Officer’s eligibility for retirement or early retirement pursuant to the award agreement under which the award was granted. These shares are also deemed outstanding for the purpose of computing the percentage of outstanding shares owned by the person. These shares are not deemed outstanding for the purpose of computing the percentage ownership of any other person. On March 22, 2013,February 24, 2014, there were 25,629,57325,868,155 shares of Common Stock outstanding.
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| Shares |
| Percentage |
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| Shares |
| Percentage |
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| Beneficially |
| of Shares |
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| Beneficially |
| of Shares |
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| Owned |
| Outstanding
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| Owned |
| Outstanding |
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(i) Name / Address |
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| (i) Name / Address |
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BlackRock, Inc.(1) |
| 1,947,626 |
| 7.60% |
| BlackRock, Inc.(1) |
| 2,294,541 |
|
|
| 8.87% |
| |
40 East 52nd Street, New York, NY 10022 |
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| 40 East 52nd Street, New York, NY 10022 |
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Dimensional Fund Advisors LP(2) |
| 1,678,367 |
| 6.55% |
| Dimensional Fund Advisors LP(2) |
| 2,185,129 |
|
|
| 8.45% |
| |
Palisades West, Building One, 6300 Bee Cave Road, Austin, TX 78746 |
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| Palisades West, Building One, 6300 Bee Cave Road, Austin, TX 78746 |
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The Vanguard Group, Inc.(3) |
| 1,476,067 |
| 5.76% |
| The Vanguard Group, Inc.(3) |
| 1,526,515 |
|
|
| 5.90% |
| |
100 Vanguard Blvd., Malvern, PA 19355 |
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| 100 Vanguard Blvd., Malvern, PA 19355 |
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Royce & Associates, LLC(4) |
| 1,422,120 |
| 5.55% |
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745 Fifth Avenue, New York, NY 10151 |
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State of Wisconsin Investment Board(4) | State of Wisconsin Investment Board(4) |
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121 East Wilson Street, Madison, WI 53703 | 121 East Wilson Street, Madison, WI 53703 |
| 1,459,180 |
|
|
| 5.64% |
| ||||||
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Franklin Resources, Inc.(5) |
| 1,309,170 |
| 5.11% |
| |||||||||
One Franklin Parkway, San Mateo, CA 94403 |
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(ii) Name |
| Position |
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| |||||
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| |||||
Robert A. Young III(5, 7) |
| Chairman of the Board (also a Director Nominee) |
| 1,207,903 |
|
|
| 4. 67% |
| |||||
John W. Alden(5, 8) |
| Director (also a Director Nominee) |
| 31,000 |
|
|
| * |
| |||||
Fred A. Allardyce(5, 6) |
| Director (also a Director Nominee) |
| 35,500 |
|
|
| * |
| |||||
William M. Legg(5) |
| Director (also a Director Nominee) |
| 35,500 |
|
|
| * |
| |||||
Judy R. McReynolds(5, 9) |
| Director and President–CEO (also a Director Nominee) |
| 25,117 |
|
|
| * |
| |||||
John H. Morris(5, 6) |
| Director (also a Director Nominee) |
| 17,500 |
|
|
| * |
| |||||
Craig E. Phillip(5) |
| Director (also a Director Nominee) |
| – |
|
|
| * |
| |||||
Steven L. Spinner(5) |
| Director (also a Director Nominee) |
| – |
|
|
| * |
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Janice E. Stipp(5) |
| Director (also a Director Nominee) |
| – |
|
|
| * |
| |||||
Jim A. Ingram(5) |
| Sr. VP–Strategy and ABF Logistics President |
| – |
|
|
| * |
| |||||
James W. Keenan(5, 10) |
| Sr. VP–Enterprise Customer Solutions |
| 39,059 |
|
|
| * |
| |||||
Michael E. Newcity(5) |
| Sr. Vice President–CFO and CIO |
| 1,642 |
|
|
| * |
| |||||
Roy M. Slagle(5, 11) |
| ABF Freight President–CEO |
| 35,796 |
|
|
| * |
| |||||
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| |||||
(iii) All Current Directors and Executive Officers as a Group (19 total)(12) | (iii) All Current Directors and Executive Officers as a Group (19 total)(12) |
| 1,555,680 |
|
|
| 5.97% |
| ||||||
*Less than 1% |
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(ii) Name |
| Position |
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Robert A. Young III(6, 7, 9) |
| Chairman of the Board (also a Director Nominee) |
| 1,190,403 |
| 4.64 | % |
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John W. Alden(6, 7, 10) |
| Director (also a Director Nominee) |
| 15,500 |
| * |
|
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Fred A. Allardyce(6, 7, 8) |
| Director (also a Director Nominee) |
| 25,500 |
| * |
|
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William M. Legg(6, 7) |
| Director (also a Director Nominee) |
| 22,500 |
| * |
|
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Judy R. McReynolds(6, 7, 11) |
| Director and President–CEO (also a Director Nominee) |
| 26,691 |
| * |
|
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John H. Morris(6, 7, 8) |
| Director (also a Director Nominee) |
| 15,600 |
| * |
|
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Craig E. Phillip(6, 7) |
| Director (also a Director Nominee) |
| – |
| * |
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Steven L. Spinner(6, 7) |
| Director (also a Director Nominee) |
| – |
| * |
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Janice E. Stipp(6, 7) |
| Director (also a Director Nominee) |
| – |
| * |
|
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Jim A. Ingram(6, 7) |
| Sr. VP–Strategic Development |
| 8,821 |
| * |
|
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J. Lavon Morton(6, 7, 12) |
| Sr. VP–Tax and Chief Audit Executive |
| 19,585 |
| * |
|
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Michael E. Newcity(6, 7) |
| Vice President–CFO |
| 1,900 |
| * |
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Roy M. Slagle(6, 7, 13) |
| ABF President–CEO |
| 21,168 |
| * |
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(iii) All Current Directors and Executive Officers as a Group (19 total)(14) |
| 1,433,859 |
| 5.57 | % |
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(1) | Based on information contained in Amendment No. 4 to Schedule 13G filed with the SEC by BlackRock, Inc. on January 28, 2014, BlackRock, Inc. has sole voting power with respect to 2,188,616 shares and sole dispositive power with respect to 2,294,541 shares. |
(2) | Based on information contained in Amendment No. 5 to Schedule 13G filed with the SEC by Dimensional Fund Advisors LP on February 10, 2014, Dimensional Fund Advisors LP beneficially owns 2,185,129 shares of Common Stock and has sole voting power with respect to 2,118,765 shares and sole dispositive power with respect to 2,185,129 shares. |
*Less than 1%
(3)
| Based on information contained in Amendment No. 2 to Schedule 13G filed with the SEC by The Vanguard Group, Inc. (“Vanguard”) on February 11, 2014, Vanguard has sole voting power with respect to 41,600 shares of Common Stock, shared voting power with respect to 0 shares of Common Stock, sole dispositive power with respect to 1,487,415 shares of Common Stock and shared dispositive power with respect to 39,100 shares of Common Stock. |
(4) | Based on information contained in Schedule 13G filed with the SEC by the State of Wisconsin Investment Board on January 28, 2014, the State of Wisconsin Investment Board has sole voting and sole dispositive power with respect to 1,459,180 shares of Common Stock. |
(5) | Includes RSUs, that are (i) scheduled to vest within 60 days after February 24, 2014, (ii) vested but deferred (and payable on a separation from service with the Company), or (iii) the award (or a portion of the award) is vested but unsettled either due to the Director’s or Named Executive Officer’s eligibility for retirement or early retirement pursuant to the award agreement under which the award was granted as follows: |
|
| As of | ||
Young | 13,100 | |||
Alden | 13,100 | |||
Allardyce | 21,900 | |||
Legg | 13,100 | |||
McReynolds |
| – |
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| |||
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Morris |
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Philip |
| – |
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Spinner |
| – |
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Stipp |
| – |
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Ingram |
|
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| |
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| |
Newcity |
| – |
| |
Slagle |
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(7)Includes RSUs, which are vested (or will vest within 60 days of the record date) as follows:
(6) | Includes RSUs which are vested and deferred. Messrs. Allardyce and Morris elected to defer their 2009 RSU award of 4,400 RSUs until their termination from Board service. Mr. Allardyce also elected to defer his 2010 RSU award of 4,400 RSUs. All deferral elections must be made in the year prior to the year the award is granted. RSUs were granted under the Company’s 2005 Ownership Incentive Plan. | ||
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| ||
| Includes 941,785 shares of Common Stock held by the Robert A. Young III 2008 Trust and 14,556 shares of Common Stock held by Cross Creek Management Co. of which Mr. Young is director and President. Mr. Young has sole voting and investment power over these shares. | ||
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| |
| Includes 17,900 shares of Common Stock held by the John W. Alden Trust, of which Mr. Alden is trustee. | ||
|
| ||
| Includes 25,117 shares of Common Stock held by the McReynolds 2005 Joint Trust, of which Ms. McReynolds is co-trustee. | ||
|
| ||
| Includes 9,486 shares held by Mr. Keenan in the Arkansas Best 401(k) and DC Retirement Plan. | ||
|
| ||
| Includes 12,196 shares of Common Stock held by the Roy M. Slagle Living Trust, of which Mr. Slagle is trustee. | ||
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| Includes 13,200 that are vested and deferred and 170,655 that will vest in 60 days or are vested either due to the Director’s or Named Executive Officer’s eligibility for retirement or early retirement pursuant to the terms of the Company’s 2005 Ownership Incentive Plan. |
(8)Includes RSUs which are vested and deferred. Messrs. Allardyce and Morris elected to defer their 2009 RSU award of 4,400 RSUs until their termination from Board service. Mr. Morris also elected to defer his 2007 RSU award of 3,700 until the earlier of termination from Board service or April 23, 2013. All deferral elections must be made in the year prior to the year the award is granted.
(9)Includes 937,385 shares of Common Stock held by the Robert A. Young III 2008 Trust and 14,556 shares of Common Stock held by Cross Creek Management Co. of which Mr. Young is director and President. Mr. Young has sole voting and investment power over these shares.
(10)Includes 15,500 shares of Common Stock held by the John W. Alden Trust, of which Mr. Alden is trustee.
(11)Includes 14,591 shares of Common Stock held by the McReynolds 2005 Joint Trust, of which Ms. McReynolds is co-trustee.
(12)Includes 22 shares held by Mr. Morton in the Arkansas Best 401(k) and DC Retirement Plan.
(13)Includes 9,068 shares of Common Stock held by the Roy M. Slagle Living Trust, of which Mr. Slagle is trustee.
(14)Includes 52,900 shares of Common Stock that may be acquired upon the exercise of options that are currently vested or will vest within 60 days of the record date. Also includes 38,550 RSUs that will vest within 60 days of the record date and 12,500 RSUs that are vested and deferred; RSUs were granted under the Company’s 2005 Ownership Incentive Plan.
Executive Officers of the Company
The following information sets forth the name, age, principal occupation and business experience during the last five years of each of the current executive officers of the Company and ABF Freight, the Company’s largest subsidiary. The executive officers, including the Named Executive Officers, serve at the pleasure of the Board. For information regarding ownership of the Common Stock by the executive officers of the Company, see “Principal Stockholders and Management Ownership” on page 20.21. There are no family relationships among Directors and executive officers of the Company or its subsidiaries.
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| |
JUDY R. MCREYNOLDS, age | ||
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ROY M. SLAGLE, age | ||
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MICHAEL E. NEWCITY, age | ||
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J. LAVON MORTON, age | ||
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JIM A. INGRAM, age | ||
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JAMES W. KEENAN, age | ||
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CHRISTOPHER L. BURTON, age | ||
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DAVID R. COBB, age | ||
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WALTER J. ECHOLS, age | ||
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ERIN K. GATTIS, age | ||
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MICHAEL R. JOHNS, age | ||
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Compensation Discussion & Analysis
The purpose of this Compensation Discussion & Analysis (“CD&A”) is to provide you with an overview and analysis of (i) our executive compensation programs; (ii) material compensation changes made during the year for Named Executive Officers; and (iii) the process for review and decision-making for the executive compensation programs. The Compensation Committee (the “Committee”) of the Board of Directors determines the compensation and reviews, approves and oversees the administration of plans and programs for our Named Executive Officers.
The Named Executive Officers for 20122013 are listed below:
Named | Title | ||
|
| ||
Judy R. McReynolds | ABC | ||
Roy M. Slagle | ABF | ||
| James W. Keenan | ABC Senior Vice President– | |
Jim A. Ingram | ABC Senior Vice President– | ||
Michael E. Newcity | ABC Senior Vice President–Chief Financial Officer & Chief Information Officer (“ |
Executive Summary
Our Company
From our roots 90 years ago as LTL carrier ABF Freight System, Inc., the Arkansas Best companies have significantly expanded and continue to expand our total product and service offering through an array of emerging, non-asset-based businesses that focus on skillful solutions, emerging technology and our employees’ will to get things done. We are a transportation and logistics partner that goes the extra mile, solving the most complex, daily changing problems, one customer at a time. Our problem-solving culture and personal touch set us apart, and our best-in-class ABF and Panther brands stand for quality in every business we operate.
Company Performance
In 2012,2013, the Company experienced a return to profitability as the emerging non-asset businesses continued their operating income growth and ABF Freight produced positive earnings. ABF Freight’s union contract was finalized and implemented on November 3, 2013. Each of the Company’s operating segments experienced revenue growth and exceeded $2 billion in revenue but returned to operating losses because of ABF’s unionized cost structure and weaker economic conditions particularly infor the second half of the year. The revenue growth resulted from the non-asset-based segments of the Company while ABF’s revenues were flat. The non-asset-based segments improved operating income despite weaker economic conditions. We have continued to expand our portfolio of expedited and premium logistics services in 2012. As a result of the acquisition of Panther Expedited Services in June and other initiatives, we now have access to the broader logistics market beyond less than truckload and are better able to serve customers seeking end-to-end solutions to all of their shipping and supply chain needs. A few financial statisticshighlights for 2013 include:
· revenue of $2.3 billion, up from to $2.1 billion compared to $1.9 billion in 2011.2012
· net earnings of $15.8 million, or $0.59 per share, compared to a net loss of $7.7 million, or $0.31 per share compared to net incomeloss, in 2012
·stock price increase of $6.2 million, or $0.23 per share, in 2011.over 250%
Executive Compensation Relative to Company Performance
Overall compensation levels in 20122013 for the Named Executive Officers were downincreased compared to 2011 as a result of2012, reflecting the weakimproved performance in certain segments of the Company.
Annual Incentive Compensation: For 2012,2013, the annual cash incentive continued to be based in part on Return on Capital Employed (“ROCE”), as further described on page 31. However, the Committee wanted to shift the focus to improving operating results. As a result, in 2012 the cash flow improvement metric was replaced with and operating income improvement. The 2012improvement as compared to the prior year. These metrics were weighted 50% each. NoOperating income improvement levels over 2012 resulted in a payout under the plan. However, because ROCE was less than the plan threshold, no incentive was paidearned under that component for 2013. Overall, the 2012 Annual Cash Incentive Compensation Plan because neither performance goalpayout was attained.below target, as outlined further on page 32.
Long-Term Incentive Compensation: There were no payouts under the 2010-2012The 2011-2013 cash long-term incentive compensation plan dueis based on Total Shareholder Return (“TSR”) compared to our peer group and ROCE goals. Relative performance under the continued negative effects of our unfavorable union cost structureTSR component generated a payment under the 2011-2013 plan. However, because ROCE was less than the plan threshold, no incentive was earned under that component. Overall, the resulting payout was below target, as outlined further on page 34. A cash long-term incentive award for 2013-2015 was granted including metrics for ROCE and weak economic conditions onTSR consistent with the profitability of the Company. grant for 2011-2013 and 2012-2014.
Consistent with equity awards in 20102011 and 2011,2012, an RSU award was granted to Named Executive Officers in 20122013 to further link Named Executive Officer compensation with stock price performance and stockholder interests. A cash long-term incentive award for 2012-2014 was granted including metrics for ROCE and Total Shareholder Return (“TSR”) consistent with the grant in 2011-2013.
As of the Proxy Statement record date, the stock options awarded to the Named Executive Officers in 2004 and prior years were “underwater,” meaning the Company’s stock price was less than the exercise price of the options. It is the Company’s policy to not re-price options.
Compensation Philosophy and Objectives
The primary objectives of the Company’s executive compensation program are to:
·attract and retain highly qualified executives; ·motivate the Company’s leaders to work together as a team to deliver superior business performance; ·encourage balance between short-term results and the long-term strategic decisions needed to ensure sustained business performance over time; and ·ensure that the interests and risk tolerance of the Company’s leaders are closely aligned with those of the Company’s stockholders. |
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As discussed in the sections that follow, the Company uses a variety of compensation vehicles to meet its compensation philosophy and objectives. The Company does not establish a targeted mix of weightings between the various components. Both internal and external influences on our compensation program fluctuate periodically, and the Company believes that it is in the best interest of the Company, the Company’s stockholders, as well as the Named Executive Officers, to provide the Committee with the flexibility to design a compensation program appropriate to the current market environment and the Company’s goals.
Position and level of responsibility are important factors in the compensation of the Company’s executives. There are internal salary levels, as well as annual and long-term target incentive opportunities for each executive level in the organization. The Company believes this strategy emphasizes the executive team concept.
Each Named Executive Officer is a long-term employee of the Company with tenure ranging from 1516 to 3637 years, resulting in a group that is very knowledgeable about our Company and the overall transportation industry. This knowledge is veryextremely valuable to both the Company and our stockholders and makes members of our management desired targets for recruitment by other transportation companies. Our compensation program is designed to prevent loss of our existing managerial talent as well as attract future leaders for the Company.
2013 Variable vs. Fixed Compensation
The charts below show the significant portion of the Named Executive Officers’ 2013 target compensation that was variable based either on reaching certain performance goals or the value of the Common Stock.
Pay for Performance
In addition to being designed to attract and retain effective management, our compensation program also has a strong relationship between pay and performance and our compensation programs evolve and are adjusted over time to support the Company’s goals and short- and long-term objectives. The following chart illustrates how incentive payments (both short- and long-term) track with the Company’s operating income performance.
Performance-based annual and long-term incentive compensation represents a significant portion of the Named Executive Officers’ compensation package.
Prior to 2010, the annual incentive plan was tied solely to the Company’s ROCE. Starting in 2010, the plan was based 50% on ROCE and 50% on cash flow improvement. In 2012, the cash flow improvement metric was replaced with operating income improvement.
Prior to 2011, the long-term incentive compensation plans were based on EPS growth and ROCE. Beginning in 2011, relative TSR replaced EPS. These plans are described in more detail below.
Response to 2013 Say on Pay Vote
In 2013, the Company held its secondthird annual stockholder advisory vote on the compensation paid to our Named Executive Officers, again resulting in over 99%90% of votes cast approving such compensation. The Committee considered these results and the overwhelming support expressed by stockholders as well as many other factors in evaluating the Company’s executive compensation programs as discussed in this CD&A. These factors include the Committee’s assessment of the interaction of our compensation programs with our corporate business objectives, evaluations of our programs by external consultants, and review of data of a selected group of peers. Each of these factors is evaluated in the context of the Committee’s duty to act as the Directors determine to be in the stockholders’ best interests. Based on this evaluation, the Committee did not make any changes to our executive compensation program, policies or pay levels as a result of the 20122013 “say on pay” advisory vote.
Roles and Responsibilities in Determining Executive Compensation
The Compensation Committee is responsible for overseeing and approving compensation levels and incentive plans for the Named Executive Officers. The Committee approves salary levels, incentive plan performance metrics, performance goals, targets and maximum payouts, equity awards and the peer group used for benchmarking. The Committee also evaluates the need for, and the provisions of, severance arrangements for the Named Executive Officers. As a part of its responsibilities, the Committee also reviews risks associated with compensation plans.
The Committee retains an independent consultant, Meridian, to assist with the evaluation of compensation programs and award levels and to provide updates to the Committee on trends and issues related to executive compensation as well as to review executive compensation related proxy disclosures. Meridian participates in Committee meetings, reviews Committee materials and provides advice to the Committee upon request. Meridian does not provide any services to the Company other than the services provided as independent executive compensation consultant forSee “Committees of the Board and Compensation and Nominating/Corporate Governance Committees. The Compensation Committee has assessedCommittee” for more information regarding the independence of Meridian under the SEC rules and concluded that Meridian’s work for the Compensation Committees does not raise any conflict of interest.
Table of ContentsCommittee’s independent consultant.
The Company has retained Mercer to provide additional consulting services at the direction of management and to assist with management’s recommendations for our peer group and executive compensation. Mercer assists with market analysis, plan design, proxy disclosure review, review of corporate governance practices and periodically participates in Committee meetings and reviews Committee materials.
From time to time, at the Committee’s request, the Company’s Chairman of the Board, President–President & Chief Executive Officer, Senior Vice President–Tax & Chief Audit Executive, Vice President–General Counsel and& Corporate Secretary, Senior Vice President–Chief Financial Officer & Chief Information Officer, Vice President–Human Resources and ABF President–Freight President & Chief Executive Officer provide analysis and recommendations to the Committee on compensation issues.
At certain meetings, the President–President & Chief Executive Officer presents pay recommendations to the Committee for her direct reports. The President–President & Chief Executive Officer does not make recommendations on her own compensation. Some or all of the above-listed individuals are routinely attend the meetings ofinvited by the Committee to attend Committee meetings in order to provide information relating to matters the Committee is considering. None of the above-listed individuals participate in discussions concerning their own pay or attend Committee executive sessions, except to the extent requested by the Committee.
Management formulates its recommendations with assistance from Mercer. The Committee considers management recommendations and reviews recommendations from Meridian before making decisions on compensation to be provided to the executives. The Committee feels these recommendations provide valuable insight in making compensation decisions; however, the Committee alone approves all pay decisions for the Named Executive Officers.
Determining Appropriate Pay Levels and Linkage to Objectives
The Committee compares its compensation program with the compensation levels of executives at similar peer entities in our industry to determine whether the Company is providing a competitive compensation program within the market in which we compete for qualified executives. For base salary, the Company has historically targeted between the 25th and 50th percentiles of the market (i.e., the peer group described below)on page 30) for Named Executive Officers. Annual cash incentives are designed to deliver total cash compensation (salary and annual incentives) to meet or exceed the 50th percentile of the market when the Company performs above target performance. Total direct compensation, including base salary, annual cash incentives, long-term cash incentives and equity awards, is also targeted to meet or exceed the 50th percentile of the market when the Company exceeds target performance levels.
To assess the competitive range of pay for a particular position, the Committee periodically examines pay data for executives in positions of comparable size and complexity at other companies. The Company’s market compensation peer group is designated by the Committee.
During the fall of 2011, aThe latest in depth market analysis was conducted for the Company’s executive compensation program in 2011 in conjunction with the Company’s retention assessment and incentive plan review. TheAs part of the analysis, the Committee examined peer group incentive plan designs and practices and reviewed severance and change in control agreements provided by peers. This analysis indicated that total direct compensation for the Named Executive Officers is within the desired range when the Company performs well. The 2011 industry peer companies included the seven trucking companies listed below, which the Company considers to be its direct competitors for business and executive talent.
·Con-Way, Inc.
·J.B. Hunt Transportation Services, Inc.
·Landstar System, Inc.
·Old Dominion Freight Line, Inc.
·SAIA, Inc.
·Werner Enterprises
·YRC Worldwide, Inc.
In conjunction with input from Meridian and Mercer, in January 2012Officers is within the Committee reviewed and reviseddesired range when the Company performs well. The next in-depth market analysis of executive compensation will be conducted during 2014.
A change to the peer group to more accurately represent the Company’s current direct competitors (which are the same companies usedwas made in the TSR comparison of the 2012-2014 cash long-term incentive plan). The previous market compensation peer group had been in place since 2008. The peer group, as listed below, consists of2012, moving to the Stephen’s Transportation Index with the addition of YRC Worldwide, Inc. Although this peer groupThe change was made in 2012, no market compensation analysis was conducted in 2012.to more accurately represent the Company’s direct competitors for business and executive talent at that time. This peer group hasis also been approved byused in the Committee for any 2013 market compensation analysis.TSR component of the 2012-2014 and 2013-2015 cash long-term incentive plan, and includes the following companies:
Company Name | Revenue in 2013 | ||
Arkansas Best Corporation | $2,300,000 | ||
Celadon Group Inc. | 680,900 | ||
Con-Way, Inc. | 5,470,000 | ||
Covenant Transport, Inc. | 684,500 | ||
Heartland Express, Inc. | 582,300 | ||
Knight Transportation, Inc. | 969,200 | ||
Marten Transport, Ltd. | 659,200 | ||
Old Dominion Freight Line, Inc. | 2,340,000 | ||
SAIA, Inc. | 1,140,000 | ||
Swift Transportation Corporation | 4,120,000 | ||
USA Truck Inc.1 | 548,400 | ||
Vitran Corporation1 | 310,300 | ||
Werner Enterprises | 2,030,000 | ||
| 4,826,300 |
1.12 months ended 9/30/2013
Due to the strong performance orientation of the annual cash incentive, as discussed on page 31, and the long-term cash incentives, as described on page 32,33, the Committee is satisfied that above-median total cash and total direct compensation will only be awarded when the Company performs well against the historical ROCE (as further described below) of the S&P 500 companies. The S&P 500 is an appropriate performance benchmark because it is a broad-based group of companies in leading industries in the United States. The S&P 500 reflects the risk and return characteristics of the broader market on an on-going basis. While the S&P 500 includes companies that are larger than the Company, the performance of these companies reflects stable, well-managed organizations. Performance at or above the level of the S&P 500 companies is considered acceptable performance by management and worthy of performance-based incentive payments. For long-term incentives, the Company also uses TSR relative to the above listed peer group to more directly align the cash long-term incentive plan with shareholder value creation.
The Committee evaluates Named Executive Officers’ compensation by analyzing two general categories: (i) short-term cash compensation and (ii) long-term incentive compensation.
Short-Term Cash Compensation |
| Long-Term Incentive Compensation | ||||||||||||||||||
Base | + | Annual Cash | = | Total Short-Term Cash |
| + |
| Long-Term Cash |
| + | Equity | = | Total Direct | |||||||
Although the Committee does reviewalso reviews retirement, perquisites and other benefits such as the 401(k) plan, pension plan and health and welfare benefits, these benefits are not referenced against market data or used in determining direct compensation levels. These benefits are more fully described in the “Retirement and Other Benefits” and the “Perquisites” sections of this CD&A.
Pay for Performance
In addition to being designed to attract and retain effective management, our compensation program also has a strong relationship between pay and performance and our compensation programs evolve and are adjusted over time to support the Company’s goals and short- and long-term objectives. The following chart illustrates how incentive payments (both short- and long-term) track with the Company’s net income performance.
Performance-based annual and long-term incentive compensation represents a significant portion of the Named Executive Officers’ compensation package.
Historically, the annual incentive plan was tied to the Company’s ROCE. There was no annual incentive benefit paid for performance in 2008 and 2009 due to the severe recessionary environment and its effect on the Company’s financial results. For 2010, the primary annual incentive plan was again tied to the Company’s ROCE but cash flow improvement over the 2010 forecast was added as a second measure. While no payout was earned on ROCE in 2010, there was a benefit earned under the cash flow improvement component of the plan. For 2011, the annual incentive plan benefit was based on 2011 cash flow improvement over 2010 and ROCE. The target cash flow improvement for 2011 was exceeded resulting in a payout under the cash flow component; however, the threshold payout under the ROCE component was not attained. The resulting payment for 2011 was below target incentive levels. In 2012, the cash flow improvement metric was replaced with operating income improvement. Operating income was added in 2012 to encourage focus on profitable growth of the Company. In 2012, the Company again faced difficult economic conditions and an unfavorable union cost structure resulting in no incentive payment under either the operating income or ROCE component for the year.
The 2012-2014 cash long-term incentive compensation plan is based equally on ROCE and TSR relative to a peer group. Beginning in 2011, TSR replaced EPS and was added to incorporate a relative metric into the long-term plan that reflects the cyclicality of the Company’s industry. The Committee believes that this more directly aligns the plan with shareholder value creation. Prior long-term incentive compensation plans were based on EPS growth and ROCE. Due to the continuing effects of the recession and an unfavorable union cost structure and its effect on the Company’s financial results, there have been no payouts under the cash long-term plans since the 2006-2008 plan.
2012 Variable vs. Fixed Compensation
The charts below show the significant portion of the Named Executive Officers’ 2012 target compensation that was variable based on reaching certain performance goals or the value of the Common Stock.
Components of Compensation
Base Salary. Base salaries for Named Executive Officers are reviewed by the Committee on an annual basis. In establishing base salaries, the Committee reviews the following:
· the Company’s compensation philosophy and objectives as described above;
· market analysis, the latest of which was conducted in 2011 by Mercer;analysis;
· input from the Compensation Committee’s independent consultant, Meridian;
· economic and inflationary factors;
· the Company’s recent and historical financial performance;
· the Company’s strategic plans;
·differences in the level of responsibility and authority between the Named Executive Officers;
· the resources of the Company; and
· the President–Chief Executive Officer’s recommendations (on positions other than her own).
The Committee does not assign a specific weighting to any of these factors.
For 2012,2013, the Committee approved modest baseonly salary increases for the officer group generally consistent with increases made for salaried employees.to Named Executive Officer base salaries increased by approximately 3% in 2012 other than with respectOfficers related to Ms. McReynolds,promotions. Mr. Slagle and Mr. Ingram. Based on Ms. McReynolds’ performance in her second year as the Company’s President–CEO and the Company’s continued improvement in operating results in 2010 and 2011, the Committee increased Ms. McReynolds salary from $525,000 to $575,000. This increase was a part of the Compensation Committee’s plan to increase Ms. McReynolds’ pay level as she has additional time in her new CEO role. With this increase, based on the most recent market analysis in 2011, her salary is between the 25th and 50th percentile as compared to our 2011 market compensation peer group and is below the salary for the Company’s two prior President-CEOs. Mr. Slagle’sIngram’s salary was increased from $285,000 to $375,000 upon his promotion to ABF President-CEOLogistics President effective August 1, 2013. Mr. Ingram also continued to serve as ABC Senior Vice President–Strategy through January 1, 2012.31, 2014. Mr. Ingram’sNewcity’s salary was increased from $232,000 to $294,000 upon his promotion to ABC Senior Vice President-Strategic DevelopmentPresident–Chief Financial Officer & Chief Information Officer effective NovemberAugust 1, 2011.2013. The following chart shows the annualized base salary rates for each Named Executive Officer for 20112012 and 2012:2013:
| 2011 Salary
| 2012 Salary
|
Judy R. McReynolds | $525,000 | $575,000 |
Roy M. Slagle | $285,000 | $375,000 |
J. Lavon Morton | $285,000 | $294,000 |
Jim A. Ingram | $240,833 | $294,000 |
Michael E. Newcity | $258,000 | $266,000 |
| 2012 Salary | 2013 Salary |
Judy R. McReynolds | $575,000 | $575,000 |
Roy M. Slagle | $375,000 | $375,000 |
James W. Keenan | $294,000 | $294,000 |
Jim A. Ingram | $294,000 | $325,000 |
Michael E. Newcity | $266,000 | $294,000 |
Annual Cash Incentive Compensation. The annual cash incentive compensation plan benefit for 20122013 was based on the Company’s ROCE and operating income improvement. In 2010 and 2011, in addition to ROCE, the incentiveimprovement, as it was based on cash flow improvement; however, the Committee wanted to shift the focus to improving operating results. This resulted in a change from the cash flow improvement metric to operating income improvement in 2012. Operating income was added to encourage focus on profitable growth of the Company. In 2012, theThe performance metrics were equally weighted. Under the plan, participants would receive a payout if certain goals for improvement in operating income improvement levels over 2011 wereas compared to the previous year are met and/or if certain ROCE levels wereare achieved. Operating income is generally determined as operating income as shown by the consolidated financial statements and consistent with the historical determination of operating income in Arkansas Best’s financial statements.statements after taking into account the required adjustments specified in the annual incentive plan. ROCE is generally calculated by dividing net income (adjusted for nonrecurring or unusual items) by average debt plus average equity for the applicable period. The Committee and management believe that ROCE keeps participants focused on the profitable use of Company resources, and promotes profitable growth, both of which increaseincreases the value of the Company to its stockholders. Additionally, ROCE is a valuable motivational tool since it can be calculated throughout the year by participants. The use of improvement in operating income as a performance metric reinforces the Company’s emphasis on profitable growth.
The ROCE incentive award scale is based on studies conducted since the inception of the ROCE plan in 1998 regarding the historical average ROCE for the S&P 500 publicly traded companies over longer periods of time.
For 2012,2013, Named Executive Officers had a target incentive opportunity expressed as a percentage of their base salary called the target salary factor that is multiplied by a performance factor determined by the operating income improvement orand ROCE achieved by the Company. The target incentive opportunity for Mr. Ingram was raised from 50% to 60% of base salary to reflect his promotion to ABF Logistics President in 2013. The target for Mr. Newcity the Company’s was raised from 45% to 50% of base salary to reflect his promotion to ABC Senior Vice President–Chief Financial Officer since June 2010, was raised from 40%& Chief Information Officer in 2014. Both adjustments were effective for the incentive paid with respect to 45%performance in 2013.
Table of base salary based on his performance during that time period and to bring his total compensation closer to the 50th percentile of our 2011 market compensation peer group, based on results of the 2011 market analysis.Contents
The following table shows the 2012 target salary factorsincentive targets for the 2013 fiscal year for the annual incentive plan:
Job Title | Target | |
ABC President & CEO | 100% | |
ABF President & CEO | 70% | |
ABC Senior Vice President–Enterprise Customer Solutions | 50% | |
ABC Senior Vice President–Strategy and ABF Logistics President | 60% | |
ABC Senior Vice | 50% | |
|
|
The following tables show how the Company determined the performance factor applied in each half of the incentive paid under the 2012 annual cash incentive compensation plan:plan with respect to performance in fiscal year 2013.
Operating
| Performance | ||
<+$ | 0% |
| |
+$ |
|
| |
+$ | 100% |
| |
+$ | 200% |
|
The operating income component was capped at a 200% performance factor.
ROCE % | Performance | ||
<5% |
| 0% |
|
5% |
| 50% |
|
10% |
| 100% |
|
15% |
| 300% |
|
The ROCE component was capped at a 300% performance factor.
Actual operating income improvement achieved for the 2013 fiscal year as measured under the annual plan was $39.9 million and the ROCE was 3.66%. Combining the two resulting performance factors (weighted 50% each), a payout of approximately 69% of the target incentive opportunity under the 2013 annual plan was achieved as reflected in the table below.
Job Title | 2013 Target | Actual 2013 Annual |
ABC President & CEO | $575,000 | $394,559 |
ABF President & CEO | $262,500 | $180,125 |
ABC Senior Vice President–Enterprise Customer Solutions | $147,000 | $100,870 |
ABC Senior Vice President–Strategy and ABF Logistics President | $167,000 | $114,594 |
ABC Senior Vice President–CFO & CIO | $131,075 | $89,942 |
Performance requirements for an incentive under the ROCE or operating income improvement component of the 2012 annual plan were not met; therefore, no incentive was paid under the plan, as reflected in the table below.
Job Title | 2012 Target Annual | Actual 2012 Annual |
ABC President & CEO | $575,000 | $0 |
ABF President & CEO | $262,500 | $0 |
ABC Senior Vice Presidents | $147,000 | $0 |
ABC Vice President–CFO | $119,700 | $0 |
Long-Term Cash Incentive Compensation. The Committee has adoptedawarded three-year cash incentive programsopportunities annually since 2006 (each new three-year measurement period is considered a separate and distinct cash long-term incentive plan for purposes of performance measures and payouts), each of which includes certain Named Executive Officers as participants. The cash long-term incentive plan provides long-term incentive compensation as described below. Management and the Committee believe that the combination of performance measures in the cash long-term incentive plan places an emphasis on motivating profitable growth and on the level of profitability from the efficient use of Company assets. The performance period for the 2010-2012 cash long-term incentive compensation plan ended on December 31, 2012. Performance requirements for the ROCE and earnings per share growth components were not met; therefore, no incentive was paid under the plan, as reflected in the table below.2006.
Job Title | 2010-2012 Target Cash | Actual 2010-2012 |
ABC President & CEO | $439,167 | $0 |
ABF President & CEO | $223,361 | $0 |
ABC Senior Vice President, Morton | $199,267 | $0 |
ABC Senior Vice President, Ingram1 | $154,077 | $0 |
ABC Vice President–CFO | $122,803 | $0 |
|
In January 2012,2013, the Committee adoptedgranted a three-year cash long-term incentive plan programaward for January 1, 20122013 through December 31, 2014.2015 using the same components as the 2011-2013 and 2012-2014 plans. The 2012-20142013-2015 cash long-term incentive plan is comprised of two parts:components are:
Cash Long-Term Incentive | Weighting |
Relative TSR Component | 50% |
ROCE Component | 50% |
In addition to ROCEManagement and the Committee believe that has been a componentthe combination of performance measures in the three-year cash long-term incentive plan since its inception, since 2011places an emphasis on the second metric has been TSR compared to our performance peer group. This peer group consists of certain publicly held transportation companies, all of which are engaged in motor freight transportation or related businesses as a significant part of their business. The purpose of the plan is to encourage focus on efficient use of corporate assets to create profitable growth during the measurement period and to rewardrewards participants when they outperform their peer group, particularly in light of the cyclical nature of the Company’s industry.group. The relative TSR component is intended to more directly align the plan with shareholder value creation.creation relative to our peers while the ROCE component aligns management’s interest with our profitability and appropriate employment of capital.
The performance peer group for the TSR component of the 2012-20142013-2015 cash long-term incentive plan (which beginning in 2012(which includes the same companies used for the 2012-2014 plan) is listed in market compensation comparisons) is as follows:
·Celadon Group Inc.
·Con-Way, Inc.
·Covenant Transport, Inc.
·Heartland Express, Inc.
·Knight Transportation, Inc.
·Marten Transport, Ltd.
Tablethe “Determining Appropriate Pay Levels and Linkage to Objectives” section of Contents
·Old Dominion Freight Line, Inc.
·SAIA, Inc.
·Swift Transportation Corporation
·USA Truck Inc.
·Vitran Corporation
·Werner Enterprises
·YRC Worldwide, Inc.the CD&A.
For the “ROCE Component,” the Committee used the Company’s three-year average ROCE as its performance measure. The ROCE goal is based on studies conducted by the Company on historical averages of ROCE for S&P 500 publicly traded companies over longer periods of time. The minimum ROCE required to receive an incentive underis generally calculated by dividing net income (adjusted for nonrecurring or unusual items) by average debt plus average equity for the applicable period.
For the 2013-2015 cash long-term incentive plan, is 3%. The actual incentive earned for the ROCE Portion is dependent on the three-year average of ROCE achieved and the participant’s average annualized base salary during the measurement period. Participants receive 100% of their target incentive opportunity, subject to the applicable weighting for the ROCE Portion, if an ROCE level of 10% is achieved during the measurement period.
As described more fully below, in prior years, the Named Executive Officers were given an election to remain in the Deferred Salary Agreements (collectively “DSA”) or transition to the cash long-term incentive plan program. All of the Named Executive Officers participate in the cash long-term incentive plan.
For 2012, Named Executive Officers hadhave a target incentive opportunity expressed as a percentage of their base salary calledearned during the target salary factor that is multiplied by a performance factor for each performance component.period. The target incentive opportunity for Mr. Ingram was raised from 70% to 75% of base salary to reflect his promotion to ABF Logistics President. The target incentive opportunity for Mr. Newcity the Company’s was raised from 60% to 70% of base salary due to his promotion to ABC Senior Vice President–Chief Financial Officer since June 2010, was raised from 55% to 60% of base salary based on his performance during that time period and to bring him closer to the 50th percentile in total compensation as compared to our compensation peer group, based on results of the 2011 market analysis.& Chief Information Officer. The following table shows the 20122013 target salary factorincentive for the Named Executive Officers.Officers for the 2013-2015 cash long-term incentive plan.
Job Title | Cash Long-Term Incentive Plan |
ABC President & CEO | 85% |
ABF President & CEO | 75% |
ABC Senior Vice | 70% |
ABC Senior Vice President– |
|
Senior Vice President–CFO & CIO | 70% |
The following tables show how payments are determined for each half of the cash long-term incentive plan for the 2013-2015 cash long-term incentive plan:
Relative TSR | Performance Factor | |
< 25th percentile | 0% | |
25th percentile | 25% | |
50th percentile | 100% | |
75th percentile | 200% |
The Relative TSR component was capped at a 200% performance factor.
ROCE % | Performance Factor Earned on ROCE |
<3% | 0% |
3% | 30% |
10% | 100% |
15% | 300% |
The ROCE component was capped at a 300% performance factor.
Any paymentsThe Relative TSR component was capped at a 200% performance factor.
ROCE % | Performance | ||
<3% |
| 0% |
|
3% |
| 30% |
|
10% |
| 100% |
|
15% |
| 300% |
|
The ROCE component was capped at a 300% performance factor.
Payments for the 2012-20142013-2015 cash long-term incentive plan, if any, will be made in early 2015.2016.
For 2012-2014Payout of Past Award
The performance period for the 2011-2013 cash long-term incentive compensation plan ended on December 31, 2013.
The following tables show how payments were determined for each half of this cash long-term incentive award:
Actual TSR performance was at the 45th percentile and ROCE was 1.36% for the 2011-2013 cash long-term incentive compensation plan. Combining the resulting two performance factors (weighted 50% each), a payout of approximately 43% of the target incentive opportunity under the 2011-2013 cash long-term incentive plan awards, the 2012 Change in Control Plan provides for immediate payment of an earned award upon a qualified termination following a change in control. For awards that have not reached the end of the measurement period, the benefit amount will be prorated based on the number of whole months completed during the measurement periodwas achieved as of the date of the qualified termination; provided, however that the amount payable shall be computed and paidreflected in the normal course of business and under the terms of the cash long-term incentive plan after the end of the measurement period. See the “Potential Payments upon Termination or Change in Control” section for more information.table below.
Job Title | 2011-2013 Target Cash | Actual 2011-2013 |
ABC President & CEO | $474,583 | $204,545 |
ABF President & CEO | $253,000 | $109,043 |
ABC Senior Vice President–Enterprise Customer Solutions | $177,667 | $76,574 |
ABC Senior Vice President and ABF Logistics President | $186,666 | $80,453 |
ABC Senior Vice President–CFO & CIO | $159,591 | $70,703 |
Equity Awards. The Company’s policies and practices for aligning the Named Executive Officers’ interests with stockholders’ interests and encouraging stock ownership by Named Executive Officers are described below:
To help align executive interests with those of shareholders, the Company awards RSUs. In 2012, target award values were reduced due to a decrease in the Company’s stock price and the desire to preserve shares for issuance under the Company’s 2005 Ownership Incentive Plan.2013, Named Executive Officers were granted RSUs in 2012 under the Company’s 2005 Ownership Incentive Plan as follows:
Named Executive Officer | Target Award | Reduced Target | RSUs | Target Award | RSUs Granted in 2013 | |
Judy R. McReynolds | $330,000 | $242,055 | 16,500 | $330,000 | 12,100 |
|
Roy M. Slagle | $240,000 | $176,040 | 12,000 | $240,000 | 8,800 |
|
J. Lavon Morton | $180,000 | $132,030 | 9,000 | |||
James W. Keenan | $180,000 | 6,600 |
| |||
Jim A. Ingram | $180,000 | $132,030 | 9,000 | $200,000 | 7,300 |
|
Michael E. Newcity | $170,000 | $124,695 | 8,500 | $180,000 | 6,600 |
|
The number of RSUs awarded to each Named Executive Officer was based, in large part, on the Named Executive Officer’s position within the Company. Other considerations included the total number of shares available to be granted, the number of previously granted RSUs currently outstanding, burn rate and potential shareholder dilution.
See the “Outstanding Equity Awards at 20122013 Fiscal Year-End” section for additional information.
information regarding these awards. Prior to 2005, the Named Executive Officers were awarded stock options. A portion of these options are still outstanding. All outstanding options are fully vested but have an exercise price substantially in excess of the Company’s current and recent stock price.
The Committee has granted RSUs since 2007. The Committee believes the awarding of RSUs with five-year cliff vesting facilitates the Named Executive Officers’ accumulation of an equity interest in the Company.Company and helps to retain key talent. This vesting schedule also assists the Named Executive Officers in complying with the Stock Ownership Policy. Stock will be issued in settlement of the RSUs on the regular five-year vesting date or, if earlier, at the time the Named Executive Officer’s employment terminates due to retirement, death or disability.
Ownership and Retention Policy – The Committee believes that the Named Executive Officers should maintain meaningful equity holdings in the Company.Company in order to align their interests with those of the Company’s shareholders. The Board adopted a Stock Ownership Policy (the “Policy”) for Named Executive Officers that became effective January 1, 2008. Under this Policy, Named Executive Officers must own stock with a value equal to or greater than the following multiple of their base salary within five years from the date of their appointment to a position subject to the Policy. If a Named Executive Officer is already subject to the Policy and is subsequently promoted, that officer will have three years from the promotion date to satisfy the new higher ownership requirement.salary.
Position Title | Stock Ownership Multiple |
ABC President & CEO | 3 x base salary |
Other Named Executive Officers | 2 x base salary |
Participants may not sellare prohibited from selling any shares granted under a Company award agreementcompany stock (except to pay the exercise price of stock options or taxes generated as a result of equity grants)grants or vesting) until they satisfy the stock ownership requirement.requirement is attained. Stock owned in a Company-sponsored retirement plan, restricted stock, RSUs and stock owned outright each count toward the ownership requirement. Should a person covered by the Policy fail to have the required amount accumulated after his or her required compliance date, then further equity grants may be discontinued until the person has complied with the Policy. The Committee monitors ownership levels annually. As of the previouslast review which took place in April, 2012,February, 2014, all Named Executive Officers have met or exceeded their ownership requirement. The Committee reserves the right to amend or terminate the Policy at any time or waive the restrictions for any individual at its sole discretion.
Equity Award Practices – The Committee’s policy for granting equity awards states:
· the Committee shall be responsible for the granting of all equity-based compensation for all employees;
· the award dates for each grant shall be five business days following the Company’s applicable quarter’s earnings release;
· the exercise price or value of the grant shall be determined by reference to the closing price of the Common Stock on the specified award date;
· the number of shares/units awarded will be based on stated dollar amounts for each participant unless otherwise approved by the Board; and
· any award which does not conform to these policy requirements must be approved by the Board
Retirement and Other Benefits. The Named Executive Officers are eligible to participate in retirement and benefit programs as described below. The Committee generally reviews the overall cost to the Company of the various programs generally on an annual basis or when changes are proposed. The Committee believes the benefits provided by these programs continue to be important factors in attracting and retaining the overall officer group, including the Named Executive Officers. However, in recent years, these benefits have become more limited.limited as their cost rises and general compensation trends move away from the provision of additional benefits under defined benefit retirement plans.
In the past, the Company provided officers with the predominant portion of their long-term cash compensation through post-employment payments under the Supplemental Benefit Plan (the “SBP”) and DSADeferred Salary Agreements (“DSA”) retirement programs described below.on page 36. All benefits under these plans have been frozen, and officers now receive a significant portion of their long-term cashcompensation through the performance plan described earlier. As officers promoted after the SBP and DSA freeze, Messrs. Newcity and Ingram are not participants in the SBP or DSA.
Following are the various benefit programs in which the Named Executive Officers have either active or frozen participation.
Supplemental Benefit Plan – Prior to 2010, the Company maintained a noncontributory, unfunded supplemental pension benefit plan that supplements benefits under the Arkansas Best Corporation Pension Plan (the “Pension Plan”). Under the SBP, the Company will pay sums in addition to amounts payable under the Pension Plan to eligible officers, including the Named Executive Officers. The SBP has been frozen since December 31, 2009. See the “2012“2013 Pension Benefits” section for more information.
Deferred Salary Agreements – The Company and ABF also have unfunded, noncontributory DSAs with certain of their officers. No Named Executive Officers are active participants in the DSA. See the “2012“2013 Pension Benefits” section for more information.
Pension Plan – As part of their postemployment compensation, the Named Executive Officers participateparticipated in the Company’s non-union defined benefit Pension Plan on the same basis as all other eligible noncontractual employees. Participation in the Pension Plan was frozen to new entrants effective December 31, 2005. Because the Named Executive Officers were already active Pension Plan participants as of the participation freeze date, they remained in the Plan with other eligible noncontratual employees hired prioruntil the Pension Plan was amended to Januaryfreeze the participant’s final average compensation and years of credited service as of July 1, 2006.2013. See the “2012“2013 Pension Benefits” section for more information on the benefit and terms and conditions of the Pension Plan.
401(k) Savingsand DC Retirement Plan – The Company maintains the Arkansas Best 401(k) and DC Retirement Plan for eligible noncontractual employees. The Named Executive Officers are eligible to participate in this plan on the same basis as all other eligible employees. Prior to 2010, theThe Company matchedmatches 50% of the employee’s contributions up to a maximum of 6% of the employee’s eligible earnings subject to the Internal Revenue Service (“IRS”) annual compensation limit. Due to the adverse economic environment and our unfavorable union cost structure and its effect on the Company’s operating results and the need to conserve cash, the 401(k) match was suspended in 2010 and 2011. The 401(k) match was reinstated at the prior rate effective January 1, 2012.
TableAfter the freeze of Contentsthe accrual of benefits for active participants of the Pension Plan effective on July 1, 2013, the former Pension Plan participants, including the Named Executive Officers, became eligible for Discretionary Defined Contributions. Discretionary Defined Contributions were originally established for those hired after the Pension Plan was frozen to new participants effective December 31, 2005. The Discretionary Defined Contributions are made by the Company and determined annually based on the operating results of the Company and made to the participant’s Arkansas Best 401(k) and DC Retirement Plan account. The amount of the Discretionary Defined Contribution is based on a percentage of annual eligible compensation (generally wages and incentive payments).
Voluntary Savings Plan (“VSP”) – The Arkansas Best VSP is a nonqualified plan which was created to offset the IRC limitations on contributions to the Company’s 401(k) plan for certain eligible officers, including the Named Executive Officers. Prior to 2010, the Company matched 15% of theeach participant’s contributions up to a maximum annual match amount of $15,000. The match was suspended for the VSP effective January 1, 2010. See the “2012“2013 Non-Qualified Deferred Compensation” section for a more detailed description of the VSP. Mr. Morton is the onlyNo Named Executive Officer who hasOfficers currently have a balance in the VSP.
Health and Welfare Plans – The Company provides medical, dental, vision, life insurance and disability benefits to all eligible noncontractual employees. The Named Executive Officers are eligible to participate in these benefit plans on the same basis as all other eligible noncontractual employees. The Named Executive Officers also have individual long-term disability policies subsidized by the Company that supplement the group disability policy.
Officer Life Insurance – The Company’sCompany, ABF Freight and ABF’sABF Logistics officers, including the Named Executive Officers, are provided with life insurance coverage of $1 million in the event they suffer accidental death while traveling on Company business.
Post-Employment Supplemental Medical Policy (“Executive Medical Policy”) – The Company provides the Named Executive Officers and their eligible dependents with lifetime health coverage under the Company’s Executive Medical Policy following their termination of employment after age 55 with 10 years of service. The health coverage is provided through a fully insured third-party provided health plan. Eligible officers from age 55 to 60 pay a premium to the Company, historically equivalent to the then current COBRA rate. From age 60 to 65, the terminated officer is required to reimburse the Company an amount equivalent to the premium paid for health coverage by active officers of the Company. For retired officers age 65 and over, nominal premiums are charged by the Company for continued retiree coverage.
The Executive Medical Policy provides that coverage will be forfeited if the officer becomes an employee, consultant or director of, or has an ownership interest in, any competitor of the Company.
Perquisites. Perquisites provided by the Company are generally limited to situations where there is some related business benefit to the Company, such as personal travel cost associated with spousal attendance at Company or industry events. See the “Summary Compensation Table” for a listing of the reportable perquisites for the Named Executive Officers.
Employment Agreements and Change in Control Provisions
None of our Named Executive Officers is party to an employment agreement with the Company. However, in September 2011, the Committee conducted an assessment of retention programs within our peer group and the broader market. It was determined that the Company did not have adequate protection in place for its Named Executive Officers do participate in the event of a change in control. In January 2012, the Committee approved a Change in Control Plan for certain senior officers of the Company including the Named Executive Officers.Company. The Committee believes the newthis plan serves the best interests of the stockholders since it helps retain executives during uncertain times leading up to and immediately following a change in control. By providing fair compensation in the event of termination following a change in control, the plan allows the executives to reasonably evaluate potential actions without concern over how it may impact them financially.
The plan provides the following benefits if an eligible executive is involuntarily terminated following a change in control:
(i)
| a cash payment (for Ms. McReynolds the payment is two times her base salary plus two times her average annual cash incentive, and for other Named Executive Officers the payment is one times the executive’s base salary plus one times his average annual cash incentive); |
(ii) | a prorated annual incentive payment for the year of termination; |
(iii) | prorated cash long-term incentive payments; |
(iv) | full vesting of all equity awards; and |
(v) | a lump sum payment adequate to cover medical and dental premiums for 24 months. |
In addition, each of the officer compensation programs listed below contains provisions which accelerate that program’s benefit if certain Company change in control or termination followingupon a change in control, events occur:
·benefits including the DSA and VSP will automatically vest. Also, if the equity awards are not replaced with awards of equal value upon on a change in control, then they will also vest.
·cash long-term incentive plan
·DSA
·VSPIf the awards are replaced by the successor company and the Named Executive Officer is terminated within 24 months of the change in control, he/she shall become vested as of the termination date in any unvested equity awards.
The benefits are intended to provide the officer participants with a reasonable severance package that is based on the value the officers have created and is realized by the Company’s stockholders in the event of a change in control. None of the change in control provisions requires the Company to gross-up a Named Executive Officer for taxes they may owe on change in control benefits including any excise taxes under IRC Section 4999. Under the terms of the Change in Control Plan, a best-of-net calculation will be performed to determine whether change in control benefits due to the Named Executive Officers should be reduced (so no excise tax will be imposed under IRC Section 280G) or should be paid in full (with any excise taxes resulting to be paid in full by the Named Executive Officer). See the “Potential Payments upon Termination or Change in Control” section for additional information regarding these changethe provisions of the Change in control provisions.Control Plan.
Clawbacks
The Committee has implemented a policy for the “clawback” of any bonus or incentive compensation awarded to any executive officer, including a Named Executive Officer, whose misconduct contributed to the Company being required to restate its financial statements. Under the terms of the policy, the Board may require reimbursement of any bonus or incentive compensation awarded or effect the cancellation of unvested RSUs or deferred stock awards previously granted to the executive officer under the scenarios described below:as follows:
·
| the amount of the bonus or incentive compensation was calculated based upon the achievement of certain financial results that were subsequently the subject of the restatement; |
· | the executive officer engaged in intentional misconduct that caused or partially caused the need for the restatement; and |
· | the amount of the bonus or incentive compensation that would have been awarded to the executive officer had the results been properly reported would have been lower than the amount actually awarded. |
Prohibited Transactions in Company StockAnti-hedging and Pledging Policies
The Insider Trading Agreement prohibits certain transactions in the Company’s securities, including the purchase or sale of puts, calls, options or other derivative securities based on the Company’s securities. The policy also prohibits monetization transactions, such as forward sale contracts, in which the stockholder continues to own the underlying security without all the risks or rewards of ownership, short-selling Company securities or “selling against the box” (failing to deliver sold securities), as well as any other hedging or pledging transaction involving the Company’s securities.
Tax and Accounting Implications
Deductibility of Executive Compensation. Section 162(m) of the IRC generally precludes a public company from taking a federal income tax deduction for annual compensation in excess of $1 million per individual paid to its Chief Executive Officer or the other three most highly compensated officers of the Company (other than the Chief Executive Officer or Chief Financial Officer). Under Section 162(m), certain compensation, including “performance-based compensation,” is excluded from this deduction limitation. It is generally the Committee’s intent to structure compensation paid to the officers to be fully deductible. However, from time to time, the Committee may award compensation that mayis not be fully deductible if it determines that such awards are consistent with its compensation philosophy and in the best interests of the Company and its stockholders. The Committee has been advised thatintends for all of the 2012 compensation paid to the Named Executive Officers isin 2013 to be deductible.
IRC Section 280G applies to payments made to executives of a company in connection with a changed in control and prohibits the deduction of any “excess parachute payment.” Benefits payable under the Change in Control Plan as well as accelerated vesting of equity awards and annual and long-term cash incentives could result in “excess parachute payments” that are not deductible by us. For more information regarding amounts payable and benefits available upon the occurrence of certain changes in control, see “Executive Compensation – Potential Payments upon Termination or Change in Control.”
Non-Qualified Deferred Compensation. The Company designs and operates its nonqualified deferred compensation arrangements in a manner that is intended to be in compliancecompliant with Section 409A of the IRC and the final regulations issued thereunder.
Key Compensation Actions, Including Changes for 20132014
Base Salary: At this time, no salary increases have been approved for Named Executive Officers in 2013.2014.
Annual Incentive Goals and Metrics: For the 20132014 Annual Cash Incentive Compensation Plan, the incentive continuesperformance metrics will continue to be based on ROCE and operating income improvement. The 20132014 metrics are weighted 50% each.
Long-Term Incentive Plan: The 2013-20152014-2016 cash long-term incentive plan continues to be based on ROCE and relative TSR. Under the cash long-term incentive plan, the Company’s relative three-year TSR is compared to our performance peer group.
Risk Assessment: The most recent compensation plan risk assessment by the Committee was conducted in January 2013.2014. For more information on the risk assessment process and results, see the section of this proxy titled “Governance of the Company -– Board’s Role in Risk Oversight” in the Corporate Governance section of this proxy.
Peer Group Updates: In conjunction with input from Meridian and Mercer, in January 2014 the Committee reviewed and revised the peer group for market compensation and the performance peer group for the TSR component of the cash long-term incentive plan to more accurately represent the Company’s current competitors. With our aggressive corporate goals to continue to expand into other areas of transportation and logistics in addition to less than truckload, our competitor group has evolved since the peer group was last updated. The following group incorporates a more diverse mix of our transportation- and logistics-related competitors and will be utilized for awards granted in 2014.
·Con-Way, Inc.
·Echo Global Logistics, Inc.
·Forward Air Corp
·Hub Group, Inc.
·J.B. Hunt Transport Services, Inc.
·Landstar System, Inc.
·Old Dominion Freight Line, Inc.
·Roadrunner Transportation Systems, Inc.
·SAIA, Inc.
·Swift Transportation Corporation
·Werner Enterprises
·XPO Logistics, Inc.
·YRC Worldwide, Inc.
The Compensation Committee generally meets in conjunction with the Company’s regular Board meetings, but also holds special meetings when deemed appropriate. In 2012, the Compensation Committee met six times. The Nominating/Corporate Governance Committee has determined that each member of the Compensation Committee meets applicable NASDAQ independence standards and IRC Section 162(m) non-employee director requirements. The Compensation Committee Charter is published in the Corporate Governance section of the Company website at www.arkbest.com.
The Compensation Committee has reviewed and discussed the above Compensation Discussion & Analysis with management, and based on the review and discussions, the Compensation Committee recommended to the Board that it be included in the Company’s 2013 Annual Report filed on Form 10-K and, as applicable, the Company’s 20132014 Proxy Statement.