The Audit Committee Report and the Compensation Committee Report are not deemed filed with the SEC and, in addition to the information included under the section entitled “2023 Pay Versus Performance Disclosures”, shall not be deemed incorporated by reference into any prior or future filings made by us under the Securities Act of 1933, as amended (the “Securities Act”), or the ExchangeSecurities Act of 1934, as amended (the “Exchange Act”) except to the extent that we specifically, and in writing, incorporate such information by reference.MATTERS TO COME BEFORE THE MEETING
PROPOSAL 1—ELECTION OF DIRECTORS
(Item 1 on Proxy Card)
General Information
We currently have a classified Board consisting of seven members. Four of our Directors Web links throughout this document are independent Directors as determined under NASDAQ listing rules. Our Directors are divided into three classes (Class A, Class Bprovided for convenience only, and Class C). Directors in each class are elected to serve for three-year terms that expire in successive years. The terms of the Class B Directors Stephen C. Cook and Peter J. Moerbeek expire at the upcoming 2016 Annual Meeting.
In February 2016, the Board of Directors’ Nominating and Corporate Governance Committee recommended to the Board the nomination of Stephen C. Cook and Peter J. Moerbeek for re-election as Class B Director for three-year terms expiring at the 2019 Annual Meeting, or until their successors are elected and qualified or their earlier death, resignation or removal. These recommendations were adopted unanimously by the Board. If the nominees become unavailable for any reason, or if any vacancy occurs before the election at the 2016 Annual Meeting (although we know of no reason to anticipate that this will occur), the proxies may be voted for such substitute nominees as the Board may designate.
Each nominee has consented to being named in this Proxy Statement and has agreed to serve if elected. If a quorum is present and voting, the nominees receiving the highest number of votes will be elected as Class B Directors. Abstentions and broker non-votes have no effect on the result of the vote; however, abstentions and broker non-votes will be counted as shares present for purposes of determining the presence of a quorum.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR STEPHEN C. COOK AND PETER J. MOERBEEK AS CLASS B DIRECTORS TO HOLD OFFICE UNTIL OUR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD IN 2019 OR UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED OR UPON THEIR EARLIER DEATH, RESIGNATION OR REMOVAL.
Information Regarding Directors and Director Nominees
The following table sets forth information regarding our current Directors, including the Class B Director nominees up for election at the Annual Meeting. There are no family relationships among any Directors, nominees or named executive officers of the Company. To our knowledge, there are no material proceedings to which any Director or executive officer is a party adverse to the Company or has a material interest adverse to the Company.
Name | | Position with our Company | | Age | | Director
Since |
| | | | | | |
Class B Directors whose terms will expire at the 2016 Annual Meeting and are re-nominated for terms ending at the 2019 Annual Meeting: | | | | | | |
Stephen C. Cook | | Independent Lead Director | | 66 | | 2008 |
Peter J. Moerbeek | | Director,
Executive Vice President,
Chief Financial Officer | | 68 | | 2008 |
| | | | | | |
Class C Directors whose term will expire at the 2017 Annual Meeting: | | | | | | |
Robert A. Tinstman | | Independent Director | | 69 | | 2009 |
David L. King | | Director,
President and Chief Executive Officer | | 63 | | 2015 |
| | | | | | |
Class A Directors whose terms will expire at the 2018 Annual Meeting: | | | | | | |
Brian Pratt | | Director and Chairman of the Board | | 64 | | 2008 |
Thomas E. Tucker | | Independent Director | | 73 | | 2008 |
Peter C. Brown | | Independent Director | | 72 | | 2009 |
The person named in the enclosed proxy card will vote to elect Stephen C. Cook and Peter J. Moerbeek as Class B Directors, unless you withhold this authority to vote for the election of any or all of the nominees by marking the proxy to that effect.
Director Biographies and Special Skills
Directors with Terms Expiring at the 2016 Annual Meeting (Class B)
STEPHEN C. COOK has served as one of our Directors since July 2008 and in May 2010 was appointed by the Board as Lead Director of the Company. Since 1990 he has served as President and principal stockholder of Fieldstone Partners, a Houston, Texas-based investment banking firm, focused primarily on corporate merger and acquisition advisory services. He has over 30 years of experience in the investment banking business, including 10 years with Rotan Mosle, Inc., a Texas-based regional investment firm and underwriter where he served as co-head of the corporate finance department and as a director of the firm. Mr. Cook received an A.B. in Economics from Princeton University and an MBA from Harvard Business School.
We believe that Mr. Cook’s qualifications to servecontained on our Board include his business and investment banking experience and his wealth of knowledge of mergers and acquisitions. The Board has determined that Mr. Cook meets the NASDAQ rules for independence andwebsite or other web links is therefore an independent Director.
PETER J. MOERBEEK was named our Executive Vice President, Chief Financial Officer effective February 6, 2009. He has served as one of our Directors since July 2008 and was Chairman of the Audit Committee until February 2009. From 2006 through February 2009, he was the Chief Executive Officer and a founder of a private equity-funded company engaged in the acquisition and operation of water and wastewater utilities. From August 1995 to June 2006, Mr. Moerbeek held several positions with publicly traded Southwest Water Company, a California based company which provides water and wastewater services, including director from 2001 to 2006; President and Chief Operating Officer from 2004 to 2006; President of the Services Group from 1997 to 2006; Secretary from 1995 to 2004; and Chief Financial Officer from 1995 to 2002. From 1989 to 1995, Mr. Moerbeek was the Vice President of Finance and Operations for publicly traded Pico Products, Inc., a manufacturer and distributor of cable television equipment. Mr. Moerbeek received a B.S. in Electrical Engineering and an MBA from the University of Washington and is a licensed certified public accountant.
We believe that Mr. Moerbeek’s qualifications to serve on our Board include his prior experience as the chief operating officer and the chief financial officer of a NASDAQ listed company, as well as his in-depth knowledge and understanding of generally accepted accounting principles, experience in analyzing financial statements, understanding of internal control over financial reporting and his understanding and knowledge of public company rules and regulations.
Nominee whose Term Expires at the 2017 Annual Meeting (Class C)
ROBERT A. TINSTMAN was appointed a Director on December 18, 2009. Mr. Tinstman was the former president of Tinstman and Associates, LLC. From 1974 to 1999, Mr. Tinstman was employed by Morrison Knudsen and served as its President/Chief Executive Officer for the period 1995 to 1999. Mr. Tinstman was the Executive Chairman of James Construction Group from 2002 to 2007. Mr. Tinstman is a registered Professional Engineer in the state of Idaho. He graduated from University of Wisconsin, Platteville, with a B.S., Mining Engineering in 1968.
Mr. Tinstman is also a director on the following public company boards: IDA CORP, Inc., where he is chairman of the board; Home Federal Bancorp, where he was a member of the audit committee and chairman of the compensation committee until May 2014; and CNA Surety, where he was a member of the audit committee and chairman of the compensation committee until June 2011.
We believe that Mr. Tinstman’s qualifications to serve on our Board include his experience as President and Chief Executive Officer of one of the largest construction companies in the United States, as well as his wealth of knowledge of business systems and construction operations. The Board determined that Mr. Tinstman meets the NASDAQ rules for independence and is therefore an independent Director.
DAVID L. KING has served as our President and Chief Executive Officer since August 1, 2015 and has served as one of our Directors since May 2015. Mr. King directs strategy, establishes goals and oversees our operations. Prior to that, Mr. King was our Executive Vice President, Chief Operating Officer since March 2014. Prior to joining Primoris, Mr. King spent several years at Chicago Bridge & Iron (“CB&I”), most recently as President of Lummus Engineered Products. From 2010 to 2013 he was President of CB&I Project Engineering & Construction based in The Hague, Netherlands responsible for P&L operations worldwide. From 2009 to 2010 he was Group Vice President for Downstream Operations for CB&I Lummus located in The Woodlands, Texas. Mr. King also managed and helped establish the Global Services Group for CB&I in 2008 to 2009. He has extensive EPF&C (Engineering, Procurement, Fabrication and Construction) industry experience in energy-related projects, Liquified Natural Gas (“LNG”), offshore, pipelines, refining, petrochemicals, gas processing, oil sands, synthesis gas and gas-to-liquids. Mr. King received his bachelor’s degree in Mechanical Engineering from Texas Tech University, an MBA from the University of Texas, Tyler, and an Advanced Executive Management Degree from Insead University in Fontainebleau, France.
Mr. King has a wealth of knowledge and experience in the industry and our business and has obtained in-depth knowledge of our employees, culture, competitors and the effect on our business of various government policies. We believe that his long history and experience demonstrate that Mr. King is well qualified to serve on our Board.
Directors with Terms Expiring at the 2018 Annual Meeting (Class A)
BRIAN PRATT has been a Director and our Chairman since July 2008. He served as our President and Chief Executive Officer from July 2008 through July 31, 2015. He also holds the non-employee position of Senior Strategic Advisor. Since 1983, he served as the President, Chief Executive Officer and Chairman of the Board of Primoris and its predecessor, ARB, Inc., a California corporation. Prior to July 2008, Mr. Pratt was the majority owner of Primoris. Mr. Pratt has over 35 years of hands-on operations and management experience in the construction industry. Mr. Pratt completed four years of courses in Civil Engineering at California Polytechnic College in Pomona, California.
Mr. Pratt has an intimate knowledge of our business, employees, culture, competitors and the effect on our business of various government policies. We believe that his long history and experience with Primoris, his significant ownership position in the Company and his in-depth knowledge of the construction industry demonstrate that Mr. Pratt is well qualified to serve on our Board.
THOMAS E. TUCKER has served as one of our Directors since July 2008. He is currently Chairman of Pennhill Land Company, a real estate development and investment company, where he has worked since he founded the company in 1983. He served as a board member of RSI Holding Corporation, a privately held national manufacturer of cabinets for homes, from 2002 to November 2008. Prior to that, he served as an advisory board member of ORCO Block Company, a Southern California manufacturer of block products, and Gemini Investors, a Boston based Investment Capital firm. Mr. Tucker also serves as a board member of the Segerstrom Center for the Arts in Orange County, California. Mr. Tucker received a B.S. in Business from the University of Southern California.
We believe that Mr. Tucker’s experience as a founder and executive officer of a large real estate development company, his expertise in the real estate development business and his directorships of both private and public companies qualify him to serve on our Board. The Board determined that Mr. Tucker meets the NASDAQ rules for independence and is therefore an independent Director.
PETER C. BROWN joined our Board on February 6, 2009. He has served from 1974 to 2005 as President at Brown Armstrong Accountancy Corporation, a regional provider of tax, audit, consulting and business services headquartered in Bakersfield, California and is a retired partner. Mr. Brown received a B.S. in Accounting from the University of Arizona. He is a member of the American Institute of Certified Public Accountants, the California Society of Certified Public Accountants and the Colorado Society of Certified Public Accountants.
We believe that Mr. Brown’s qualifications to serve on our Board include his in-depth knowledge and understanding of generally accepted accounting principles, his background in tax regulations, experience in preparing, auditing and analyzing financials statements and understanding of the responsibilities and functions of audit committees. The Board determined that Mr. Brown meets the NASDAQ rules for independence and is therefore an independent Director.
PROPOSAL 2—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Item 2 on Proxy Card)
General
We are asking the stockholders to ratify the Audit Committee’s appointment of Moss Adams, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016. The firm is a registered public accounting firm with the Public Company Accounting Oversight Board (“PCAOB”), as required by the Sarbanes-Oxley Act of 2002 and the rules of the PCAOB. In the event the stockholders fail to ratify the appointment, the Audit Committee will reconsider this appointment. If the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of the Company and our stockholders.
A Moss Adams, LLP representative is expected to attend the 2016 Annual Meeting of the Stockholders. The representative will have an opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate stockholder questions.
The affirmative vote of a majority of the shares of Common Stock present, in person or by proxy, entitled to vote at the Annual Meeting is required to approve the ratification of the appointment of Moss Adams, LLP as our independent registered public accounting firm for 2016.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF MOSS ADAMS, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2016.
Independent Registered Public Accounting Firm Fees and Services
The following is a summary of the fees billed for professional services for the fiscal years ended December 31, 2015 and 2014:
Fee Category | | Calendar Year
2015 Fees | | Calendar Year
2014 Fees | |
Audit Fees (1) | | $ | 1,183,266 | | $ | 841,000 | |
Audit Related Fees (2) | | 199,590 | | 152,000 | |
Tax Fees (3) | | 127,043 | | 190,000 | |
| | | | | |
Total Fees | | $ | 1,509,899 | | $ | 1,183,000 | |
(1) Fees for audit services consist of the fees associated with the annual audit, for quarterly SAS 100 reviews and reviews of our Quarterly Reports on Form 10-Q.
(2) Audit related fees include proxy filings, registration statements and standalone audits for Primoris subsidiaries.
(3) Tax fees include professional services rendered for tax compliance (preparation and review of tax returns), tax advice and tax planning.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
The Audit Committee has adopted policies and procedures regarding the pre-approval of the performance by Moss Adams, LLP of audit, audit-related and tax services, except as may otherwise be provided by law or regulation. Moss Adams, LLP has also been instructed to obtain advance approval of any other services. All services listed above and all fees were approved in advance by the Audit Committee.
Audit Committee Report
The following report of the Audit Committee does not constitute soliciting material and shall not be deemed filed or incorporated by reference into any other filing by us under the Securities Act or the Securities Exchange Act, except to the extent we specifically incorporate this report by reference.
The primary purpose of the Audit Committeein, nor is to assist the Board in fulfilling its responsibility to oversee (i) the integrity of our financial statements, (ii) the independent registered public accounting firm’s qualifications, independence and performance, (iii) our accounting and financial reporting processes, (iv) our compliance with financial legal and regulatory requirements, and (v) the audits of our financial statements. The Audit Committee is directly responsible for the appointment, compensation and oversight of the work of the independent registered public accounting firm. The independent registered public accounting firm reports directly to the Audit Committee.
Management has the primary responsibility for the preparation of the financial statements and the reporting process. Our management has represented to the Audit Committee that the consolidated financial statements for the fiscal year ended December 31, 2015 were prepared in accordance with generally accepted accounting principles. In addition to its review of the consolidated financial statements and in the performance of its oversight function, the Audit Committee reviewed and discussed with management the critical accounting policies that were applied in the preparation of our consolidated financial statements, and the process for certifications by our Chief Executive Officer and our Chief Financial Officer. Our independent registered public accounting firm is responsible for auditing the consolidated financial statements for the fiscal year ended December 31, 2015. The Audit Committee discussed the results of the work of the independent registered public accounting firm. The Audit Committee discussed with the independent registered public accounting firm the matters requiredit considered to be discussed by Auditing Standard No.16 (Communications with Audit Committees). In addition, the Audit Committee received from the independent registered public accounting firm the written disclosures required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and discussed with them their independence from the Company and its management. The Audit Committee also evaluated whether the independent registered public accounting firm’s provision of non-audit services to us was compatible with the auditor’s independence and determined it was compatible.
The Board determined that the Audit Committee members meet the independence requirements of Rule 10A-3 of the Exchange Act and applicable NASDAQ independence rules.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board approved, the inclusion of the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2015 for filing with the Securities and Exchange Commission.
Peter C. Brown (Chairman)
Stephen C. Cook
Thomas E. Tucker
CORPORATE GOVERNANCE
We believe that effective corporate governance is an important element of our long-term success and ability to create value for our stockholders. Our Board periodically reviews our existing corporate governance policies and practices, as well as related provisions of the Sarbanes-Oxley Act of 2002, current and proposed rules of the SEC, and the corporate governance requirements of NASDAQ. Based on its review, the Board has approved charters, policies, procedures and controls that we believe promote and enhance our corporate governance, accountability and responsibility and promote a culture of honesty and integrity.
Charters for each of our Board committees are available on the Investor Relations section of our website at www.prim.com, and copies are available free of charge upon request to our Secretary at Primoris Services Corporation, 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201.
Board Independence
The listing standards of NASDAQ require that companies have a board of directors with at least a majority of independent directors. Determining director independence requires that the Board affirmatively determine that the director has no material relationship with us, either directly or as a partner, stockholder or officer of an organization that has a relationship with us which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
To assist it in making independence determinations, the Board has adopted independence standards, which include the standards required by NASDAQ for independent directors. Under these standards, a director is not independent if:
· The director is, or has been within the last three years, one of our or our subsidiaries’ employees, or the director has an immediate family member who is, or has been within the last three years, one of our executive officers;
· The director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in compensation from us (other than compensation for Board or Committee service, compensation to a family member who is an employee but not an executive officer, or benefits under a tax-qualified retirement plan or non-discretionary compensation);
· The director is, or has a family member that is, a partner in, or a controlling stockholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current year or in any of the last three years, that exceed 5% of the recipient’s consolidated gross revenues for that year or $200,000, whichever is greater, other than payments arising solely from investments in our securities or payments under non-discretionary charitable contribution matching programs;
· The director, or an immediate family member, is currently employed, or has been employed within the last three years, as an executive officer of another company where any of our present executive officers serves or has served on that company’s compensation committee; or
· The director is, or has a family member, that is a current partner of our outside auditor, or was a partner or employee of our outside auditor who worked on our audit at any time during any of the past three years.
On the basis of the Board independence standards identified above, and such other factors as the Board may consider from time to time, the Board has affirmatively determined that Messrs. Brown, Cook, Tinstman and Tucker are independent.
Board Structure and Committee Composition
The Board has: (i) an Audit Committee, (ii) a Compensation Committee, (iii) a Nominating and Corporate Governance Committee and (iv) a Succession Planning Committee. The Board and its Committees meet throughout the year on a set schedule and also hold special meetings, both telephonically and in person, and act by written consent from time to time, as appropriate. During 2015, the Board held a total of seven meetings, the Audit Committee held five meetings, the Compensation Committee held four meetings, the Nominating and Corporate Governance Committee held three meetings and the Succession Planning Committee held four meetings. The independent Directors meet in executive session at meetings of the Board and Committees as necessary. During the Board meetings, all of the independent Directors met in executive session without any management members five times during 2015.
Mr. Pratt, our Chairman of the Board, served as Chief Executive Officer through July 31, 2015. In May 2015, Mr. David L. King became a member of the Board and effective August 1, 2015 was appointed as Chief Executive Officer. In May 2010, Mr. Cook was appointed by the Board as the Lead Director, responsible for chairing the Board meetings in the absence of the Chairman, chairing executive sessions of independent Directors, acting as the principal liaison between the Chairman and the independent Directors and serving as the contact Director for stockholders.
The Board and the Compensation Committee do not make decisions regarding an executive officer’s compensation in the presence of such executive officer. The compensation of our Chief Executive Officer and all other executive officers is recommended to the Board of Directors for approval by the Compensation Committee. The Board of Directors act on the recommendations in a vote in which only independent Directors participate and which takes place during executive sessions of independent Board members.
Director nominees are selected or recommended for the Board of Directors’ selection by the Nominating and Corporate Governance Committee. The Board of Directors act on the recommendation in a vote in which only independent Directors participate and which takes place during executive sessions of independent Board members.
Each Director attended all of the Board meetings held in 2015. In addition, each Director attended all of the meetings held by all Board committees on which such person served (during the periods that such person served).
The Audit, Compensation and Nominating and Corporate Governance committees operate under written charters adopted by the Board. The Board committee charters are available on the investor relations section of our website at www.prim.com.
The members of the Board committees are identified in the following table:
Director (1)
|
| Audit
Committee
|
| Compensation
Committee
|
| Nominating and
Corporate
Governance
Committee
|
| Succession
Planning
Committee
|
|
Brian Pratt
| | | | | | | | X
| |
Stephen C. Cook
| | X
| | Chair
| | X
| | X
| |
Thomas E. Tucker
| | X
| | | | Chair
| | | |
Peter C. Brown
| | Chair
| | X
| | | | | |
Robert A. Tinstman
| | | | X
| | X
| | Chair
| |
(1) Messrs. Brown, Cook, Tinstman and Tucker are independent Directors.
Audit Committee
The Audit Committee consists of three persons, all of whom are independent under the NASDAQ listing standards. Members of the Audit Committee must also satisfy additional SEC independence requirements, which provide that they may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company other than compensation in their capacity as Director, or otherwise be an “affiliated person” of us. The Board has determined that Audit Committee members Messrs. Brown, Cook and Tucker all satisfy the applicable SEC independence requirements. The Board has also determined that each member of our Audit Committee qualifies as independent under Rule 10A-3 of the Exchange Act.
The Audit Committee oversees our accounting and financial reporting processes, internal control systems, independent auditor relationships and the audits of our financial statements. Among other matters, the Audit Committee’s responsibilities include the following:
· Selecting and hiring our independent registered public accounting firm;
· Evaluating the qualifications, independence and performance of our independent registered public accounting firm;
· Reviewing and approving the audit and non-audit services to be performed by our independent registered public accounting firm;
· Reviewing with management and our independent registered public accounting firm the results of our annual and quarterly financial statements;
· Overseeing the administration of management’s process for the design, review of adequacy, implementation and effectiveness of our internal controls established for finance, accounting, legal compliance and ethics;
· Reviewing management’s assessment of internal control and steps taken to monitor and control our exposure to financial risk;
· Overseeing the administration of management’s process of reviewing the design, adequacy, implementation and effectiveness of our critical accounting and financial policies;
· Overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements of accounting matters; and
· Reviewing and approving any related party transactions.
Audit Committee Financial Expert. The Board has also determined that Mr. Brown is the Audit Committee “financial expert” as defined under SEC rules and regulations. Management has the primary responsibility for the preparation of the financial statements and the financial reporting processes of the Company. On a quarterly basis, the independent Audit Committee members meet with the auditors without the presence of management. During these independent sessions, the Committee and the auditors discuss, among other things, the acceptability of the Company’s accounting principles, critical accounting policies and sensitive accounting estimates.
Compensation Committee
The members of the Compensation Committee of the Board are Messrs. Cook (Chairman), Brown and Tinstman. All of the members of the Compensation Committee meet the independence requirements of NASDAQ listing standards.
The Compensation Committee monitors and assists the Board in determining compensation for our executive officers and Directors. The Board and the Compensation Committee do not make decisions regarding an executive officer’s compensation in the presence of such executive officer. After the Compensation Committee analyzes compensation issues related to our Chief Executive Officer and other executive officers, it makes a recommendation to the Board’s independent Directors for determination by independent Directors in a vote in which only independent Directors participate. The Compensation Committee has the following authority and responsibilities, among others, with respect to our Director and executive compensation plans:
· Reviewing the goals and objectives of our executive compensation programs and recommending to the Board any changes to these goals and objectives;
· Reviewing our executive compensation plans including incentive, equity-based and benefit plans, and recommending to the Board the adoption of new plans or amendments to existing plans;
· Evaluating annually the performance of the Chief Executive Officer and recommending to the independent members of the Board his or her compensation level based on this evaluation;
· Evaluating annually the performance of the other executive officers of the Company and its subsidiaries and recommending to the independent members of the Board the compensation level of each based on this evaluation;
· Reviewing and recommending to the independent members of the Board, concurrently with the Board’s Audit Committee, any employment, severance or termination arrangements made with any executive officer of the Company or its subsidiaries; and
· Evaluating the appropriate level and types of compensation for Board and Committee service by non-employee Directors and recommending any changes to the Board.
The Compensation Committee has the power to form subcommittees for any purpose that it deems appropriate and may delegate to such subcommittee such power and authority as the Compensation Committee may deem appropriate, provided it does not delegate to a subcommittee any power or authority required by any law, regulation or listing standard to be exercised by the Compensation Committee as a whole. The Compensation Committee may consider the recommendations of our Chief Executive Officer in determining the level of compensation of the executive officers of the Company and its subsidiaries. The Compensation Committee has the authority to retain such independent consultants or advisers as it deems necessary and appropriate, including compensation consultants, to advise it with respect to amounts or forms of executive or Director compensation, and may rely on the
integrity and advice of any such advisers. The Compensation Committee also has the sole authority to retain a compensation consultant to assist it in carrying out its responsibilities, including the sole authority to approve the consultant’s fees and other retention terms, such fees to be borne by us, and to terminate any such consultant.
The Committee engaged Pay Governance, LLC as its independent advisor in 2012. Prior to their engagement, Pay Governance did not perform any services for the Company. The Committee considered independence factors under Dodd-Frank and NASDAQ rules and concluded that the work performed by Pay Governance did not present any conflicts of interest. Pay Governance advises and consults with the Committee on compensation issues, compensation design and trends, and keeps the Committee apprised of regulatory, legislative, and accounting developments and competitive practices related to executive compensation. Pay Governance reviews, at the direction of the Committee, compensation levels, trends and practices at the discretion of the Committee. Pay Governance does not determine the exact amount or form of executive compensation for any executive officers. See “Compensation Discussion and Analysis—Our Compensation Program.” Pay Governance reports directly to the Committee, and a representative of Pay Governance, when requested, attends meetings of the Committee, is available to participate in executive sessions and communicates directly with the Committee Chair or its members outside of meetings. Pay Governance does no other work for the Company.”
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between any member of our Board and any member of the Board of Directors or compensation committee of any other companies, nor has such interlocking relationships existed in the past.
Stockholder Advisory “Say on Pay” Vote
In our 2011 proxy, we indicated that we believed that seeking stockholder approval advisory votes every third year would provide the most efficient form of communication and would lend itself to the long-term nature of the compensation plans for our management. At the 2011 annual meeting, of those votes that expressed a position on the frequency of pay, 76.25% recommended an advisory vote every three years. After deliberation, the Compensation Committee and the Board adopted the position of asking for an advisory vote every three years. Three years later, at the 2014 Annual Meeting, the stockholders made a non-binding advisory vote with 93.6% approving the Company’s executive compensation program. Voting at the 2017 Annual Meeting will include a non-binding advisory vote as to the frequency of the vote and a nonbinding advisory vote approving the executive compensation program.
Nominating and Corporate Governance Committee
The members of the Nominating and Corporate Governance Committee are Messrs. Tucker (Chairman), Cook, and Tinstman. All of the members of the Committee meet the independence requirements of NASDAQ listing standards.
The Nominating and Corporate Governance Committee assists the Board by identifying individuals qualified to become Directors consistent with criteria established by the Board. After the Nominating and Corporate Governance Committee identifies qualified individuals, it makes a recommendation to the Board’s independent Directors. Director nominees are selected by a majority of the Board’s independent Directors in a vote in which only independent Directors participate. Among other matters, the Committee’s responsibilities include the following:
· Evaluating the composition, size and governance of the Board and its committees and making recommendations regarding future planning and the appointment of Directors to committees of our Board;
· Administering a policy for evaluating and considering nominees for election to the Board;
· Overseeing the evaluation of our Board as a whole;
· Reviewing our corporate governance principles and providing recommendations to the Board regarding possible changes; and
· Developing and reviewing our Code of Ethics and assuring that it is appropriate for us.
Selection of Board Nominees
In identifying Board nominees, we may consider individuals who are known to our officers or Directors, or individuals with significant industry or other relevant experience. The Nominating and Corporate Governance Committee’s consideration of a candidate as a Director includes assessment of the individual’s understanding of our business, the individual’s professional and
educational background, skills, expertise, potential time commitment, and other criteria established by the Nominating and Corporate Governance Committee from time to time.
To provide such a contribution to us, a Director must generally possess one or more of the following, in addition to personal and professional integrity:
· Experience in corporate management;
· Experience in our industry;
· Experience as a board member or officer of a publicly held company;
· Experience in financial and accounting matters;
· Diversity of expertise and experience in substantive matters related to our business; and
· Practical and mature business judgment.
The Nominating and Corporate Governance Committee has adopted its own procedures for evaluating the suitability of potential Director nominees, including qualifications for a “financial expert” and financially literate members for the Audit Committee.
Succession Planning Committee
In May 2011, the Board of Directors established a Succession Planning Committee and appointed Mr. Tinstman as Committee Chair with Mr. Pratt, our Chairman, and Mr. Cook, our independent Lead Director, as members. The purpose of the Committee is to coordinate the efforts of the Board and executive management in establishing the processes, procedures and practices that the Board and management will use to meet their succession planning responsibilities, including succession with respect to the position of CEO. In addition, the Committee has established contingency plans for the departure, death or disability of our CEO.
Board Role in Risk Oversight
Our Board is responsible for oversight of our Company’s risks. As with all companies, and especially with construction companies, we face a variety of risks in our business. Many of these risks are discussed in Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K, which was filed with the SEC on February 29, 2016.
The Board believes that having a system in place for risk management and implementing strategies responsive to our risk profile and exposures is the best way to identify in a timely manner specific material risks, but we can give no assurances that we will be able to identify or mitigate all possible risks in advance. In order to more efficiently provide oversight of these material risks, the Board has designated certain risk oversight responsibilities to relevant Board committees. The Audit Committee has the direct responsibility for risk oversight relating to accounting matters, financial reporting, enterprise, legal and compliance risks. To assist in this risk oversight function, the Audit Committee obtains assistance from the following: (1) our Chief Financial Officer, who is responsible for managing our risk management function, (2) our General Counsel, who is responsible for the Company’s third party insurance programs and (3) our independent registered public accounting firm. The Audit Committee meets periodically with management and the independent auditors to review financial exposures. The Compensation Committee is responsible for risks related to employment policies and our compensation and benefits systems. The Nominating and Corporate Governance Committee oversees risks associated with our Code of Conduct, including compliance with listing standards for independent Directors and committee assignments. As necessary, the committee chairmen report any risk-related matters to the full Board at Board of Directors meetings.
While the Board is responsible for risk oversight, the day-to-day risk management is the responsibility of the operating management and executive officers. Our executive officers maintain a significant ownership interest which results in an increased level of awareness of the need of risk management and risk oversight for the long-term benefit of the Company.
Code of Ethics
The Company has a Code of Ethics that complies with the rules and regulations adopted by the SEC and NASDAQ listing standards and are applicable to all of our Directors, officers and employees. The Code of Ethics is available on the Investor Relations section of our website at www.prim.com. We intend to post amendments to, or waivers, if any, from our Code of Ethics (to the extent
applicable to our Directors or Chief Executive Officer, Principal Financial Officer, or Principal Accounting Officer) at this location on our website. Among other matters, this Code of Ethics is designed to promote:
· Honest and ethical conduct;
· Avoidance of conflicts of interest;
· Full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in our other public communications;
· Compliance with applicable governmental laws and regulations and stock exchange rules;
· Prompt internal reporting of violations of the Code of Ethics to an appropriate person or persons identified in the Code of Ethics; and
· Accountability for adherence to the Code of Ethics.
Policy Regarding Director Attendance at Annual Meetings of Stockholders
Directors are strongly encouraged to attend our Annual Meetings of Stockholders, and we currently expect all of our Directors to be in attendance at the Annual Meeting on May 3, 2016. All the Directors were in attendance at the 2015 Annual Meeting.
Stockholder Communications with the Board of Directors
Stockholders may communicate with any of our Directors, either individually or as a group, by writing to them at Primoris Services Corporation, c/o Secretary, 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201. Please specify to whom your correspondence should be directed. The Secretary will promptly forward all correspondence to the Board or any specific committee member, as indicated in the correspondence, except for mass mailings, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material. Our Secretary may forward certain correspondence, such as product-related or service-related inquiries, elsewhere within the Company for review and possible response.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our Board has adopted a written policy requiring review, approval and ratification of any related party transaction. All related party transactions may be consummated and continued only if the Audit Committee has approved or ratified such transaction after a review of the relevant facts and circumstances.
The following is a description of related party transactions to which we have been a party, in which the amount involved exceeded $120,000, other than compensation and employment arrangements described elsewhere in this Proxy Statement. The descriptions are for the annual periods of 2015, 2014 and 2013. We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s length transactions with independent third parties.
Primoris has entered into leasing transactions with Stockdale Investment Group, Inc. (“SIGI”). Brian Pratt, our Chairman of the Board of Directors and our largest stockholder, holds a majority interest in, and is the chairman, president and chief executive officer and a director of SIGI. John M. Perisich, our Executive Vice President and General Counsel, is secretary of SIGI.
Primoris leases properties from SIGI at the following locations:
1. Bakersfield, California (lease expires October 2022)
2. Pittsburg, California (lease expires April 2023)
3. San Dimas, California (lease expires March 2019)
During the years ended December 31, 2015, 2014 and 2013, the Company paid $831,000, $862,000 and $907,000, respectively, in lease payments to SIGI for the use of these properties.
Primoris leases a property from Roger Newnham, a former owner and current manager of our subsidiary, OnQuest Canada, ULC. The property is located in Calgary, Canada. During the years ended December 31, 2015, 2014 and 2013 Primoris paid $254,000, $289,000 and $295,000, respectively, in lease payments. The current term of the lease is through December 31, 2017.
Primoris leases a property from Lemmie Rockford, one of the Rockford sellers, which commenced November 1, 2011. The property is located in Toledo, Washington. During the years ended December 31, 2015, 2014 and 2013, Primoris paid $90,000, $90,000 and $90,000, respectively, in lease payments. The lease will expire in January 2017.
Primoris leases a property from Quality RE Partners, owned by three of the Q3 Contracting, Inc. (“Q3C”) selling shareholders, of whom two are current employees, including Jay Osborn, an operations president in the West Construction segment. The property is located in Little Canada, Minnesota. During the years ended December 31, 2015, 2014 and 2013, the Company paid $270,000, $264,000 and $264,000, respectively, in lease payments to Quality RE Partners. The lease expires in October 2022. In addition, in November 2015, Q3C purchased construction equipment at fair value from Quality RE Partners for $589,000. Q3C also leased construction equipment from Mr. Osborn during 2015 for $36,000 and subsequently purchased the equipment at fair value for $145,000.
We believe that the amounts that we pay for the leases approximate terms that we could obtain from independent third parties. In addition, any new leases, extensions of lease terms and changes in lease terms or amounts must be approved in advance by the independent directors of the Board of Directors Audit Committee.
DIRECTOR COMPENSATION
Directors who also are employees of the Company do not receive additional compensation for serving as Directors. Compensation for employee Directors is determined by the Board’s Compensation Committee and is discussed further in the Compensation Discussion and Analysis section of this proxy.
Current compensation for independent Directors of the Company, effective July 1, 2014, includes the following components:
· Cash payments of $35,000 made for the second and fourth calendar quarters of each year.
· In lieu of cash payments for the first and third calendar quarters of each year, the Directors are issued Common Stock with an approximate aggregate value of $46,667 each. The Common Stock cannot be traded for a period of one year from the date of issuance. The number of shares is determined using the average of the closing prices of the Company’s Common Stock on NASDAQ for the one-month period prior to the beginning of the quarter. The shares are issued pursuant to the Primoris 2013 Equity Incentive Plan, approved by the stockholders on May 3, 2013 (“2013 Equity Plan”).
· Additional annual cash compensation as follows:
· $25,000 to the Chairman of the Board;
· $20,000 to the Chairman of the Audit Committee
· $15,000 to the Chairman of the Compensation Committee; and
· $15,000 to the non-employee chairman of any other committees established by the Board of Directors.
In addition, Directors are reimbursed for expenses incurred in connection with Board and Board Committee meetings and assignments.
Effective July 31, 2015, Brian Pratt relinquished his role of Chief Executive Officer and President. Mr. Pratt remained as Chairman of the Board and assumed the non-employee position of Senior Strategic Advisor. On August 5, 2015, the Board of Directors approved a four year agreement for Brian Pratt’s services as Senior Strategic Advisor. The agreement provides for an annual fee of $325,000, medical insurance benefits equal to those provided to Company employees, Company-provided automobile insurance coverage similar to that provided prior to the change in his status, up to 100 hours of personal use of any Company owned or leased aircraft per year, and reimbursement of personal use of Company-paid club memberships in Dallas County, Texas and Orange County, California.
The table below details the compensation earned by our non-employee Directors in 2015.
Non-Employee Director | | Fees
Earned or
Paid in
Cash | | Stock Awards (1) | | All Other
Compensation
(3) | | Total | |
Peter C. Brown | | $ | 90,000 | | $ | 93,334 | | $ | — | | $ | 183,334 | |
Stephen C. Cook | | $ | 85,000 | | $ | 93,334 | | $ | — | | $ | 178,334 | |
Robert A. Tinstman | | $ | 85,000 | | $ | 93,334 | | $ | — | | $ | 178,334 | |
Thomas E. Tucker | | $ | 85,000 | | $ | 93,334 | | $ | — | | $ | 178,334 | |
Brian Pratt (2) | | $ | 209,498 | | $ | — | | $ | 20,935 | | $ | 230,433 | |
(1) The non-employee Directors were each issued 2,042 shares of Common Stock in March 2015 and 2,437 shares in August 2015. The shares were issued under the 2013 Equity Plan and are subject to a one-year contractual holding requirement. The aggregate market value of the shares on the date received was $87,257 for 2015. The Company has never issued stock options as Director compensation and there were no outstanding equity awards as of March 31, 2016.
(2) Effective July 31, 2015, Mr. Pratt relinquished his role of Chief Executive Officer and President. He was paid Director fees, Chairman of the Board fees and Strategic Advisor Fees on a pro rata basis for the period August 1, 2015 through December 31, 2015. In lieu of issuing stock to Mr. Pratt for the third quarter 2015, the Company paid the equivalent pro rata amount in cash. Note that Mr. Pratt’s compensation prior to August 1, 2015 is discussed in the Compensation Discussion and Analysis section of this proxy.
(3) All Other Compensation amounts reflected the value of personal use of Company aircraft. The Company determined the value of personal aircraft use using the aggregate incremental cost to the Company, based on the cost of fuel, trip-related maintenance, crew travel expenses, landing fees, trip related costs and smaller variable costs. For tax purposes, income is imputed to the Director for non-business travel based on a multiple of the Standard Industry Fare Level (SIFL) rates.
STOCK OWNERSHIP
Security Ownership of 5% or Greater Stockholders, Directors, Director Nominees and Executive Officers
The following table sets forth information with respect to beneficial ownership of Common Stock for (a) those persons known by management of the Company to beneficially own 5% or more of our Common Stock (other than executives and Directors), (b) each Director and Director nominee, (c) the Named Executive Officers listed in the Summary Compensation Table under “Executive Compensation” (which includes (i) our current Chief Executive Officer, (ii) our current Chief Financial Officer, (iii) our two other executive officers and (iv) our two most highly compensated employees who are not executive officers), and (d) all of our executive officers and Directors as a group. The information for the officers and Directors is provided as of March 31, 2016 and the information for 5% or more stockholders is as of the most recent filing with the SEC. The Company is not aware of any arrangement or pledge of Common Stock that could result in a change of control of the Company.
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. To our knowledge, the persons named in the table have “sole voting and investment power” and “shared voting and investment power”, with respect to all shares of Common Stock beneficially owned, subject to community property laws where applicable.
Name | | Amount and
Nature of
Beneficial
Ownership (1) | | Percentage of
Common Stock
Outstanding(2) | |
5% or Greater Stockholders (other than executives and Directors): | | | | | |
Barrow, Hanley, Mewhinney & Strauss, LLC (3) | | 3,332,154 | | 6.4 | % |
The Vanguard Group (4) | | 2,701,779 | | 5.2 | % |
| | | | | |
Named Executive Officers and Directors: | | | | | |
Brian Pratt (5) | | 10,243,908 | | 19.8 | % |
Scott Summers | | 770,006 | | 1.5 | % |
David L. King (6) | | 49,679 | | * | |
Timothy R. Healy | | 265,574 | | * | |
John M. Perisich (7) | | 139,475 | | * | |
Peter J. Moerbeek (8) | | 117,821 | | * | |
Thomas E. Tucker (9) | | 22,376 | | * | |
Peter C. Brown | | 22,205 | | * | |
Robert A. Tinstman | | 22,205 | | * | |
Stephen C. Cook | | 18,405 | | * | |
All Directors, nominees and executive officers as a group (12 individuals) | | 11,989,811 | | 23.1 | % |
* Indicates beneficial ownership of less than one percent of total outstanding Common Stock.
(1) This table lists voting securities, including shares held of record, shares held by a bank, broker or nominee for the person’s interest and shares held through family trust arrangements.
(2) For each individual and group included in the table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group plus the number of shares of Common Stock that such person or group has the right to acquire on or within 60 days after March 31, 2016 divided by the sum of the 51,772,497 shares of Common Stock outstanding on March 31, 2016, plus the number of shares of Common Stock that such person or group has the right to acquire on or within 60 days after March 31, 2016.
(3) Based on information set forth in the Schedule 13G/A filed with the SEC on February 2, 2016. The principal business address of Barrow, Hanley, Mewhinney & Strauss, LLC is 2200 Ross Avenue, 31st Floor, Dallas, TX 75201.
(4) Based on information set forth in the Schedule 13G/A filed with the SEC on February 10, 2016. The principal business address of The Vanguard Group is 100 Vanguard Blvd, Malvern, PA 19355.
(5) Includes 10,146,098 shares of Common Stock held directly by Brian Pratt and indirectly by Barbara Pratt, as the spouse of Mr. Pratt, and 97,810 shares of Common Stock owned directly by Ms. Pratt and indirectly by Mr. Pratt.
(6) Includes vested RSU Units as follows: 24,256 vested Units and 190 vested Dividend Equivalent Units (as provided for under the 2013 Equity Plan).
(7) Represents 139,475 shares of Common Stock owned directly by the Perisich Family Trust dated July 11, 2007 and indirectly by John M. Perisich, as trustee of the trust.
(8) Includes vested RSU Units as follows: 50,000 vested Units, 25,000 Units that will vest on April 30, 2016 and 701 vested Dividend Equivalent Units (as provided for under the 2013 Equity Plan).
(9) Includes 15,205 shares of Common Stock held directly by Thomas E. Tucker, 6,868 shares of Common Stock held by the Tucker Family Trust U/A dated 12/21/1998, a revocable trust, of which Thomas E. Tucker is a trustee and beneficiary and 303 shares of Common Stock held by SaraJen Capital, LLC, a California limited liability company, of which Mr. Tucker is a one-third member and sole manager with full dispositive power over such shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, Directors and persons who beneficially own more than ten percent (10%) of a registered class of our equity securities to file reports of securities ownership and changes in ownership with the SEC.
As of the datepart of, this Proxy Statement, and based solely on our review of the copies of such reports furnished to us and written representations from our executive officers and Directors, we believe that all reports needed to be filed by current Section 16 reporting persons were timely filed for the year ended December 31, 2016 and through April 4, 2016, with the exception of four Form 4 reports filed on December 11, 2015 for restricted stock issued to the independent Directors on August 3, 2015 as part of their third quarter 2015 Director compensation program. Each of the four Directors, Messrs Brown, Cook, Tinstman and Tucker, were issued 2,090 shares of common stock.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This section discusses the oversight of our executive compensation program by the Compensation Committee of the Board of Directors and provides a discussion of the compensation earned in 2015 by our executive officers. At December 31, 2015, the following were designated by the Board of Directors as the executive officers of the Company:
· David L. King, 63, President and Chief Executive Officer (CEO) since August 1, 2015, and prior to that Executive Vice President, Chief Operating Officer;
· Peter J. Moerbeek, 68, Executive Vice President, Chief Financial Officer (CFO); and
· John M. Perisich, 51, Executive Vice President, General Counsel and Secretary.
In addition, the discussion will encompass compensation earned by our Chairman for his service as CEO for part of 2015 and the compensation earned by our two most highly compensated employees who are not executive officers, as follows:
· Brian Pratt, current Chairman and former CEO and President through July 31, 2015;
· Timothy R. Healy, 56, Co-President, ARB, Inc. (Industrial); and
· Scott Summers, 57, Co-President, ARB, Inc. (Underground).
These six persons are referred to as Named Executive Officers (“NEOs”) in the following discussion.
Overview
Our management compensation programs apply broadly to all officers and management persons at the Company with modifications to reflect the different management levels and types of responsibilities. The Company’s goal is to align compensation so that all management is committed to the Company’s corporate objectives of achieving both near- and long-term profitable growth.
In overseeing the executive compensation policies and practices for the Company, the Compensation Committee recognizes several unique cultural elements associated with the transition in July 2008 from a successful privately owned company to a successful publicly traded company. Our present Chairman and former CEO became majority owner of the private company in 1983 and has served as CEO through July 31, 2015. Just prior to the time that we became a publicly traded company, ownership was held by 42 employees, directors and associates, all of whom had purchased their ownership interest. Additionally, a significant part of our acquisitions of James Construction Group in 2009 and Rockford in 2010 involved issuing Company stock which added to the number of executives and managers who own Company stock as a material part of their personal wealth. Many of these former owners have remained executives and managers, and a significant portion of their personal wealth results from their ownership of our stock. This ownership helps align the interests of many of the Company’s executives and managers with those of our stockholders.
To help maintain the ownership culture, the Compensation Committee has approved the following during the past few years:
· For significant acquisitions, the issuance of shares as part of the purchase price, especially to owners who will continue as Company employees;
· Grant of 48,512 Restricted Stock Units (“Units”) vesting over a three-year period to our current CEO at the time of his hire in 2014 and a grant of 100,000 Units vesting over a four-year period to our CFO in 2013; and
· Offering discounted shares to executives and managers as part of our Long-term Retention Plan (“LTR Plan”).
Prior to becoming a public company, it was our practice to provide annual discretionary bonus awards based both on overall financial and non-financial performance. These discretionary awards were not tied to attaining a specific financial result; that is, there was no mathematical formula for determining bonus amounts. The Compensation Committee has retained this practice. The Committee believes that based on the history and culture of the Company, the discretionary approach has served to recognize performance for the executive management team. The Committee also notes that the largest annual discretionary bonus amount awarded since 2008 has been $500,000.
The Compensation Committee recognizes that as the Company grows, as some executives roles change and as new executives are recruited, we may need to consider changes that could align our practices more closely with those of other publicly traded companies. These practices may include establishment of more formulaic annual incentive calculations, a more formulaic total bonus amount and an increased emphasis on equity awards. In addition, opportunity for equity awards may be required to attract executives. As discussed later in this Compensation Discussion and Analysis, the Committee adopted a formula to calculate a portion of the CEO’s annual incentive bonus when David L. King was promoted to CEO in August 2015.
Based on our overall financial performance since becoming a public company and the fact that there has been minimal turn-over at the senior and executive management levels of the Company, we believe that our current compensation practices and ownership culture have served our stockholders well.
Shareholder “Say-on-Pay” Vote
At our Annual Meeting of Stockholders in May 2014, 93.6% of votes cast on our advisory vote on executive compensation (say-on-pay proposal) were voted in favor of the proposal.
2015 Performance Highlights
To put the compensation decisions in context, the following summarizes the Company’s results for 2015:
· Revenues decreased by 7.5% to $1.9 billion from 2014; and, earnings per share decreased by 41.8% to $0.71 per share compared to $1.22 per share in 2014, reflecting the challenging weather and market factors of 2015.
· Total stockholder return for the five-year period ending December 31, 2015 was in excess of 185%; however, for the year 2015, total shareholder return decreased by 4.2%. During 2015, our share price decreased from $22.99 per share at December 31, 2014 to $22.03 per share at December 31, 2015. This 4.1% price decline compared to a decline of 12.3% for the same period for the ten companies identified in the “Role of Benchmarking” section below.
· In 2015, cash flow from operations was $48.4 million, an increase of $12.3 million, compared to 2014 cash flow from operations of $36.1 million. At December 31, 2015, year-end cash and cash equivalents was $161.1 million, an increase of $21.6 million, compared to December 31, 2014 year-end cash and cash equivalents of $139.5 million.
· Tangible net worth increased by $27.8 million to $322.6 million.
The Committee noted that of the $0.51 decline in earnings per share, 82% occurred during the first half of 2015, especially in the second quarter, reflecting the impact of adverse weather conditions.
Compensation Philosophy
Our goal is to create an executive compensation program that will adequately reward our executives for their roles in creating both near-term and long-term value for our stockholders without encouraging or rewarding excessive risk. The Compensation Committee is charged with reviewing our executive officers’ cash compensation and equity holdings to determine whether these provide adequate incentives and motivation to our executive officers and whether they adequately compensate the executive officers relative to comparable officers in other companies within our industry. Our goal is to be competitive with other similarly situated companies in our industry and to attract, retain and motivate key executives.
Processes and Procedures for Determining Executive Compensation
The following describes the roles of the key participants and sources of information in the process of setting compensation.
The Role of the Compensation Committee
The Compensation Committee reviews and approves compensation and benefit policies and objectives, determines whether our officers, directors and employees are compensated in general according to these objectives, and carries out certain of the Board’s responsibilities relating to the compensation of our executives. The Compensation Committee operates under a charter approved by the Board. All of the Compensation Committee members meet the NASDAQ independence standards, are “Non-employee” Directors as defined by the Exchange Act and are “outside Directors” as defined by Section 162(m) of the Internal Revenue Code.
For our executive’s compensation, the Compensation Committee approves the structure of the compensation program. In addition, the Committee directly sets compensation for the Company’s senior officers, including all NEOs. The Compensation Committee is involved in all matters where approval is appropriate for tax or regulatory reasons.
The Role of the Board of Directors
The Board provides final approval of Compensation Committee recommendations for compensation changes for the executive officers. This approval is obtained at an independent Director session without the presence of management Directors.
The Role of Executives
Our CEO is responsible for reviewing the compensation and performance of all the executive officers. He makes recommendations to the Compensation Committee for adjustments in compensation, for annual short-term bonus amounts and for any other compensation changes including any equity awards. The Compensation Committee uses the CEO’s recommendations and its evaluation of current individual and business performance and historical individual and business performance to review and approve annual bonus amounts. Our CEO is not present during and does not participate in the discussion of any elements of his compensation with the Compensation Committee.
Our CFO facilitates the flow of information among the Company, the compensation consultant and the Compensation Committee. In this role, he communicates with the compensation consultant at the direction of the Compensation Committee.
The Role of External Advisors
The Compensation Committee has engaged Pay Governance, LLC as an independent consulting resource to help it with its responsibilities.Statement.
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