UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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ARCHROCK, INC.
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Notice of 2022 Annual Meeting of Stockholders and Proxy Statement | |
Table of ContentsTABLE OF CONTENTS
MESSAGE TO OUR STOCKHOLDERS |
Dear Fellow Stockholder:
AsOn behalf of the Board of Directors and our management team, we look backcordially invite you to attend Archrock, Inc.’s Annual Meeting of Stockholders, which will be held at 9:00 a.m. Central Time on 2020, not much remainsThursday, April 28, 2022 at our corporate offices located at 9807 Katy Freeway, Suite 100, Houston, Texas. The 2022 Annual Meeting of Stockholders will be held in-person and according to be said about a year that resulted in so much global upheaval. Therecommended safety protocols necessitated by the COVID-19 pandemic threatened the most vulnerable among us and forced us to reassess our approach to social interaction. It challenged the way we do business and threatened the survival of hundreds of businesses and even entire industries. The pandemic severely impacted oil demand, which coupled with a price war, sent prices into negative territory during the Spring of 2020. In addition, the essential and accelerating focus on climate-related risks challenged the oil and gas industry.pandemic.
WithAt this meeting, you will have a history that spans more than six decades,chance to vote on the matters set forth in the accompanying Notice of Annual Meeting and Proxy Statement.
Your vote is important. Whether or not you plan to attend the Annual Meeting, please vote by internet, telephone, or mail as soon as possible to ensure your vote is recorded promptly. The instructions set forth in the Proxy Statement and on the proxy card explain how to vote your shares.
Thank you for your continued support of Archrock has endured through many challenges, providing critical compression infrastructure required to moveat a time when the delivery of reliable, affordable and cleaner burning natural gasenergy to end markets. Our business mission, strong ethicsindustries and legacy of resilience served ashomes across the compass for our journey through 2020, and because of the actions we took, our performance was distinctive and our financial position remains sound.United States has never been more critical.
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Despite facing significant financial and operational challenges, we prioritized our focus on environmental, social and governance issues. We assembled an internal, employee-led committee to evaluate data and begin considering initiatives to improve performance. We formalized our ESG governance structures, which include board-level oversight. Our 2019 Sustainability Report, published in 2020 and available at www.archrock.com, is our first report that adheres to the SASB standards for midstream service providers.
We believe our legacy of resilience will ensure that we continue to play a critical role in the future of energy. The use of natural gas as a primary feedstock for industry and replacement for coal has helped achieve significant emissions reductions. Natural gas can affordably and reliably bridge the gap between retail energy demand and intermittent renewable energy, as well as mitigate disruption in energy transition. With technological advancements, natural gas can aid in meeting global emissions targets and be a key contributor to the elimination of energy poverty.
The Board of Directors, management team and dedicated employees of Archrock thank you for your past support. Your continued support is a signal that you share our commitment to an energy future that delivers on expectations for a cleaner and healthier world through continued resilience and a reasoned, sustainable approach.
Sincerely,
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Gordon Hall, Chairman of the Board | Brad Childers, President and Chief Executive Officer |
Table of ContentsTABLE OF CONTENTS
NOTICE OF STOCKHOLDERS’ MEETING |
ANNUAL MEETING DETAILS | MEETING AGENDA | |||
DATE
| PROPOSAL | BOARD’S VOTING | PAGE | |
TIME 9: | Election of nine director nominees | FOR EACH NOMINEE | 1 | |
LOCATION Archrock, Inc. 9807 Katy Freeway, Suite 100 Houston, Texas 77024 | Ratification of the appointment of the independent registered public accounting firm for fiscal | FOR |
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RECORD DATE March 3, | Non-binding, advisory vote to approve | FOR |
The Board recommends that you vote “FOR” each director nominee and “FOR” each of the other proposals. The full text of these proposals is set forth in the accompanying Proxy Statement.
For specific instructions on how to vote your shares, please refer to the Notice of Internet Availability of Proxy Materials you received in the mail, the instructions provided in this document, or, if you requested to receive printed proxy materials, your proxy card.
By Order of the Board of Directors,
Stephanie C. Hildebrandt, Secretary March | AVAILABILITY OF PROXY MATERIALS This Proxy Statement and our
CONTINGENT VIRTUAL MEETING Due to the public health impact of the COVID-19 pandemic, we will monitor the need to conduct the meeting solely by means of remote communication. In that event, details on how to participate will be set forth in a press release issued by the Company and available at www.archrock.com. If you plan to attend the meeting, please check our website one week prior to the meeting. |
VOTING METHODSVOTE AS SOON AS POSSIBLE
Vote right away using any of the following methods. Have your proxy card or voting instructions accessible and follow the instructions. If your shares are held in the name of a broker or other nominee, follow the voting instructions you receive from suchyour broker or other nominee.
CONTENTS |
2021 IN REVIEW |
$89M cash returned to stockholders | 2.2x dividend coverage |
0.10 TRIR Total Recordable Incident Rate | 8% year-end dividend yield |
Generated net income and earnings per share growth at the bottom of the business cycle |
Delivered free cash flow after dividend of $164 million, driven by the resilience of our business, disciplined capital allocation and proceeds from the strategic sale of non-core assets |
Maintained capital discipline, reducing growth spending by 53% compared to 2020, in alignment with the market and customer demand |
Strength and durability of our business and cash flows supported returns to stockholders of $89 million |
In the second half of 2021, we experienced improved momentum in horsepower booking and resumed operating horsepower growth, leading indicators for our business, through the redeployment of assets and disciplined and selective capital spending |
Achieved our best ever Total Recordable Incident Rate in 2021 of 0.10, a significant improvement over 2020 TRIR of 0.25 |
Published our third Sustainability Report and continued to focus on ways to improve our environmental, social and governance (“ESG”) performance |
Completed several major phases of a process and technology transformation project that we expect will result in improved operating efficiencies, reduced internal costs and improved profitability, as well as reduced emissions on a per horsepower basis |
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FISCAL 2020 FINANCIAL HIGHLIGHTSENVIRONMENTAL, SOCIAL AND GOVERNANCE
Archrock is committed to a strategy focused on natural gas and a cleaner energy future for us, our customers and other stakeholders. We believe that a multi-faceted approach focused on partnerships, customer expectations, investments in technology and sustained affordability, will drive an effective energy transition. At Archrock, we began by estimating and analyzing our scope 1, 2 and 3 emissions, reporting on our current state, closely monitoring trends and expectations and establishing the internal governance structure to advance our initiatives. We recognize that the energy transition will present both challenges and opportunities to the industry. We also appreciate the impact of affordable energy on our collective health and wellbeing – and our natural gas compression infrastructure plays a critical role. To ensure we not only achieve our near-term objectives but also address long-term sustainability and evolving stakeholder expectations, we have identified the following points of focus that we believe are the most impactful to our operations:
Managed 2020 Adjusted EBITDAEconomic Impact. Our mission is to $415 million, roughly flat year-over-year, through aggressive cost managementbe the premier provider of natural gas compression services in the U.S. By providing superior service to maximize our customers’ operations, we play a critical role in the delivery of cleaner burning and affordable natural gas. In addition, we are focused on capital discipline, generation of free cash flow and returns to our stockholders. Finally, we foster a culture that is committed to sharing our time and resources for the betterment of our communities.
Reduced growth capex by $221Customers and the Environment. Our mission to be the premier provider of compression services is the bedrock of our operating strategy. This demands the delivery of high quality services, a compression fleet of nearly 4 million available horsepower to $79 millionhelp meet the gas compression services requirements of approximately 400 customers throughout all major U.S. energy producing regions, and the commitment to alignpartner with customer demandour customers to help them meet evolving emissions standards.
IncreasedSafety. With over 500 field service technicians and shop mechanics deployed across the U.S., operating safely must be and is a core value. Our talented technicians and mechanics are equipped with the support, tools and skills to perform their jobs safely, efficiently and in an environmentally-conscious way. Safety has consistently been a performance metric of our contract operations gross margin by 320 basis points to 65% in 2020 compared to 2019annual short-term incentive program.
Strategic sales of non-core assets yielded proceeds of over $52 millionPeople. We take pride in operating and maintaining superior equipment, but it is our people who truly make the difference, providing best-in-class customer service to the energy industry on a 24/7/365 basis. To hire and retain the top people in the industry, we have made it a priority to create a work environment based on integrity, respect and inclusion and to offer training programs for continuous improvement as well as compensation and other programs that fairly reward and recognize employee contributions.
StrengthLeadership and durabilityGovernance. We believe that good corporate governance practices are the foundation for lasting performance, and we are committed to maintaining best practices in governance, with appropriate Board oversight of strategy and risk, including environmental and social risks and opportunities. We believe our history bears out the value we ascribe to corporate governance and the effectiveness of our businesscorporate governance structure and cash flows supported returns to stockholders and $155 million in debt reductionprocesses.
We invite our stockholders to learn more about our approach and performance with respect to environmental, social and governance matters by reading our 2020 Sustainability Report and listening to our quarterly earnings calls. Our Sustainability Report can be found at www.archrock.com.
Annual election of all directors |
Plurality vote standard which requires that any nominee for director who receives a greater number of “withheld” votes than “for” votes must submit his or her resignation for consideration by the Board |
Separate chairman and chief executive officer |
Majority independent |
100% independent board committees |
Independent directors meet regularly without management present |
33% gender and racial diversity; 50% of board leadership roles are held by women |
Modest director compensation with emphasis on equity component |
Officer and director stock ownership guidelines |
No hedging or pledging of Company securities |
Annual board and committee evaluations |
Our philosophy is to reward performance with compensation that is a mix of fixed and variable compensation and is balanced between long termlong-term and annual performance objectives. Good governance, adherence to best practices and consideration of stakeholder interests form the foundation of our executive compensation program, developed by a fully independent Compensation Committee with the support of an independent executive compensation consultant. Our best practices include:
Annual review and consideration of our peer group |
Separate performance measures for short-term and long-term incentives |
Caps on performance-based compensation |
Regular review of burn rate and dilution associated with long-term incentives |
Extremely limited perquisites |
Double trigger change of control agreements |
Performance-based compensation clawback policy |
For more information regarding our 20202021 executive compensation program, see the “Compensation Discussion and Analysis” in this Proxy Statement.
Table of ContentsTABLE OF CONTENTS
Nine directors are nominated to be elected to the Board of Directors (the “Board”) at the Annual Meeting. Each nominee has consented to serve as a director if elected.
The Board recommends a vote “FOR” the election of each director nominee to hold office for a one-year term expiring at the | VOTE REQUIRED With respect to the election of directors, you may vote “for” or withhold authority to vote for each director nominee. A plurality of the votes present in person or by proxy and entitled to vote is required to elect each director nominee, meaning that the nine director nominees who receive the highest number of shares voted “for” their election are elected. However, our Corporate Governance Principles require that any nominee who receives a greater number of “withheld” votes than “for” votes must submit his or her resignation for consideration by our Board. Broker non-votes will not have |
SNAPSHOTOVERVIEW OF 20212022 DIRECTOR NOMINEES
Archrock, inc. 2022 proxy statement | 1
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Archrock, inc. 2022 proxy statement | 2
The following biographical information is furnished with respect to each director nominee, together with a discussion of each nominee’s experience, qualifications and attributes or skills that were considered in their nomination to the Board. Wendell R. Brooks served as a director since November 2015, and during 2020, served on the Audit and Compensation Committees. Mr. Brooks retired from
ANNE-MARIE N. AINSWORTH Age 65 Independent Director since April 2015 Member, Audit Committee Chair, Governance and Sustainability Committee | Qualifications | ||
● | Extensive leadership experience in the oil and gas industry | ||
● | Familiarity with governance issues, having served as chief executive officer of both public and private energy companies | ||
● | Experience operating a portfolio of energy assets including direct responsibility for safety |
Career Highlights
● | President, Chief Executive Officer and director of the general partner of Oiltanking Partners, L.P. (a provider of terminal, storage and transportation services to the crude oil, refined petroleum and liquefied petroleum gas industries) and President and Chief Executive Officer of Oiltanking Holding Americas, Inc. from 2012 to 2014 |
● | Senior Vice President, Refining of Sunoco, Inc. (a petroleum and petrochemical manufacturer) from 2009 to 2012 |
● | General Manager of the Motiva Enterprises, LLC, refinery in Norco, Louisiana from 2006 to 2009 |
● | Director, Management Systems and Process Safety at Shell Oil Products U.S. from 2003 to 2006, and Vice President of Technical Assurance at Shell Deer Park Refining Company from 2000 to 2003 |
Board in January 2021 and is not standing for re-election.Service
● | Director, member of the compensation committee and chair of the safety and environment committee of Pembina Pipeline Corporation (a Canadian oil and gas pipeline company) |
● | Director and member of the audit committee of Kirby Corporation (an operator of inland and offshore tank barge fleets in the U.S. and provider of diesel engine services) |
● | Director and member of the EHS and public policy committee and finance committee of Holly Frontier Corporation (an independent petroleum refiner in the U.S.) |
● | Former director of Seventy Seven Energy Inc. from 2014 to 2015 |
Education
● | BS, Chemical Engineering, University of Toledo |
● | MBA, Rice University, where she also served as an Adjunct Professor from 2000 to 2009 |
● | Graduate, Institute of Corporate Directors Education Program, Rotman School of Management, University of Calgary, with ICD.D designation |
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Background: Ms. Ainsworth served as President, Chief Executive Officer and director of the general partner of Oiltanking Partners, L.P. (a provider of terminal, storage and transportation services to the crude oil, refined petroleum and liquefied petroleum gas industries) and as President and Chief Executive Officer of Oiltanking Holding Americas, Inc. from November 2012 to March 2014. She previously served as Senior Vice President of Refining of Sunoco, Inc. (a petroleum and petrochemical manufacturer) from November 2009 to March 2012. Prior to joining Sunoco, Ms. Ainsworth was employed by Motiva Enterprises, LLC, where she was the General Manager of the Motiva Norco refinery in Norco, Louisiana from 2006 to 2009. From 2003 to 2006, she was Director of Management Systems & Process Safety at Shell Oil Products U.S., and from 2000 to 2003, she was Vice President of Technical Assurance at Shell Deer Park Refining Company.
Education: B.S. in Chemical Engineering, University of Toledo; M.B.A., Rice University, where she also served as an Adjunct Professor from 2000 to 2009; graduate, Institute of Corporate Directors Education Program, Rotman School of Management, University of Calgary; holds ICD.D designation
Current Directorships: Director, member of the compensation committee and chair of the safety & environment committee of Pembina Pipeline Corporation (a Canadian oil and gas pipeline company); director and member of the audit committee for Kirby Corporation (an operator of inland and offshore tank barge fleets in the U.S. and provider of diesel engine services); and director and member of the EHS & public policy committee and finance committee of Holly Frontier Corporation (an independent petroleum refiner in the U.S.)
Prior Directorships: Director of Seventy Seven Energy Inc. from June 2014 to June 2015
Qualifications: Ms. Ainsworth has extensive leadership experience in the oil and gas industry and familiarity with governance issues, having served as Chief Executive Officer of both public and private energy companies, as well as experience operating a portfolio of energy assets, which we believe make her well qualified to serve as a member of our Board.
D. BRADLEY CHILDERS
President and Chief Executive Officer, Archrock Non-Independent Director since April 2013 |
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● | Intimate knowledge of our strategy, operations and markets | ||
● | Deep understanding of operational opportunities and challenges acquired through prior operating roles | ||
● | Business judgment, management experience and leadership skills that are highly valuable in assessing our business strategies and accompanying risks |
Background: Career HighlightsMr. Childers was elected as our President and Chief Executive Officer in December 2011, after serving as our Interim President and Chief Executive Officer since November 2011. He also served as President, Chief Executive Officer and Chairman of the Board of Archrock GP LLC, the managing general partner of Archrock Partners, L.P., a master limited partnership in which we owned an equity interest (the “Partnership”) from November 2011 until the Partnership’s merger into a wholly-owned subsidiary of Archrock, Inc. in April 2018 (the “Partnership Merger”). Mr. Childers served as our Senior Vice President from August
2007 through November 2011. He served as an officer, including as President, North America of Exterran Energy Solutions, L.P., a predecessor subsidiary, from March 2008 through November 2011, and as Senior Vice President of the Partnership from June 2006 through November 2011. Mr. Childers joined Universal Compression Holdings, Inc., a predecessor company, in 2002 and served in a number of management positions, including as Senior Vice President and as President of the International Division of Universal Compression, Inc. (“UCI,” a Universal subsidiary). He held various positions with Occidental Petroleum Corporation (an international oil and gas exploration and production company) and its subsidiaries from 1994 to 2002. He also serves as an officer of certain other Archrock subsidiaries.
Education: B.A., Claremont McKenna College; J.D., University of Southern California
Current Directorships: Yellowstone Academy (a non-profit private school) since February 2014
Prior Directorships: Chairman of the Board of the Partnership from May 2008 through April 2018 when it merged into a wholly owned subsidiary of Archrock, Inc.
Qualifications: Mr. Childers’ day-to-day leadership as our Chief Executive Officer provides him with an intimate knowledge of our strategy, operations and markets. His previous experience as President, North America of our operating subsidiary has provided him with extensive experience in our business and a deep understanding of operational opportunities and challenges. Mr. Childers’ business judgment, management experience and leadership skills are highly valuable in assessing our business strategies and accompanying risks. We believe this knowledge and experience make Mr. Childers well qualified to serve as a member of our Board.
| President and Chief Executive Officer since 2011, Senior Vice President from 2007 to 2011, as well as various senior management roles with Exterran Energy Solutions, L.P., a predecessor subsidiary, from 2008 to 2011, and with Universal Compression Holdings, Inc. (“UCI”), a predecessor company from 2002 to 2007 |
● | President, Chief Executive Officer and Chairman of the Board of Archrock |
● | Various roles with Occidental Petroleum Corporation (an international oil and |
Background: Mr. Hall is Chairman of the Board, a position he assumed in November 2015. At predecessor companies to Archrock, Mr. Hall served as Vice Chairman and Lead Independent Director from April 2013 to November 2015, as Chairman of the Board of Exterran Holdings, Inc. from August 2007 through April 2013 and as Chairman of the Board of Hanover Compressor from May 2005 through August 2007. Prior to his retirement in 2002 from Credit Suisse (a brokerage services and investment banking firm), Mr. Hall served as Managing Director, Senior Oil Field Services Analyst and Co-Head of the Global Energy Group. Mr. Hall serves as Treasurer of Gordon College where he has been a professor in the Master of Science in Financial Analysis program and served as the interim Chief Financial Officer for four months during 2018.
Education: B.A. in Mathematics, Gordon College; S.M., M.I.T. Sloan School of Management
Current Directorships: Member of the executive board of Gordon College
Prior Directorships: Director of Noble Corporation from 2010 through February 2021; Director of Weatherford International plc, from December 2019, upon emergence from Weatherford’s Chapter 11 reorganization, to June 2020; Director of Hydril Company from March 2002 until its merger with Tenaris S.A. in May 2007; director of Grant Prideco, Inc. from November 2007 until its acquisition by National Oilwell Varco, Inc. in April 2008; and director of Select Energy Services from 2012 through 2015
Qualifications: As Chairman of the Board, Mr. Hall has developed a thorough understanding of our operational and strategic opportunities and challenges. Mr. Hall’s prior experience as a research analyst covering oil field services companies gives him a broad-based understanding of the industry, as well as mergers and acquisitions and capital markets transactions. We believe this knowledge and experience, together with Mr. Hall’s former and current experience as a member of the boards of other public oil and gas related companies, make him well qualified to serve as a member of our Board.
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Background: Ms. Hawes has over twenty years of experience as a financial advisor and Chief Financial Officer (“CFO”) for both public and private companies. Most notably, she served as CFO of New Process Steel, L.P. (a privately held steel distribution company) from September 2012 through December 2013. She was Senior Vice President and CFO of American Electric Technologies, Inc. (a publicly traded provider of power delivery solutions) from September 2011 to September 2012. Ms. Hawes served as CFO, Executive Vice President and Treasurer of NCI Building Systems, Inc. (a publicly traded firm providing engineered building solutions) from 2005 to 2008; as CFO and Treasurer of Grant Prideco, Inc. (a manufacturer of engineered tubular products for the energy industry) from 2000 to 2001; and as Chief Accounting Officer, Vice President Accounting and Controller of Weatherford International Ltd. (a multinational oil field service company), having advanced through a number of positions of increasing responsibility, from 1989 to 2000.
Education: Certified Public Accountant; B.B.A. in Accounting, University of Houston
Current Directorships: Director, chair of the audit committee and member of the nominating and corporate governance committee of Laredo Petroleum (a company focused on the exploration, development and acquisition of oil and natural gas properties in the Permian region of the U.S); director of PGT Innovations (a manufacturer of premium windows and doors); director of Financial Executives International, Houston Chapter
Prior Directorships: Director of Energen Corporation from 2013 to November 2018; director of Express Energy Services from January 2011 to November 2014
Qualifications: Ms. Hawes brings financial expertise, business knowledge and leadership experience, having served as a CFO of both private and public companies in the manufacturing and energy industries and as a financial consultant and advisor, which we believe make her well qualified to serve as a member of our Board.
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Background: As Managing Director of First Reserve (a private equity firm), a position he has held since January 1999, Mr. Honeybourne is responsible for deal origination, investment structuring and monitoring, with a particular emphasis on the equipment, manufacturing and services sector, upstream oil and gas and international markets. Prior to joining First Reserve, Mr. Honeybourne served as Senior Vice President of Western Atlas International (a seismic and wireline logging company) from 1996 to 1998. Mr. Honeybourne is a member of the Society of Petroleum Engineers and the Society of Exploration Geophysicists.
Education: B.Sc. in Oil Technology, Imperial College, London University
Current Directorships: Director of Barra Energia Petróleo e Gás (a private Brazilian oil and gas exploration and production company)
Prior Directorships: Director of Red Technology Alliance from December 2006 to January 2010; director of Acteon Group from November 2006 to November 2012; non-executive chairman of KrisEnergy from November 2009 to February 2017
Qualifications: Mr. Honeybourne’s technical background in petroleum engineering and his experience as Managing Director of a private equity firm focused on the oil and gas industry result in a valuable combination of skills for a member of our Board. Mr. Honeybourne’s current and former service as a director of various oil and gas companies brings an understanding of the challenges and opportunities of markets and operations. We believe these skills and experience make Mr. Honeybourne well qualified to serve as a member of our Board.
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Background: Mr. Lytal has served as a Senior Advisor for Global Infrastructure Partners (a leading global, independent infrastructure investor) since April 2009. From 1994 to 2004, he served as President of Leviathan Gas Pipeline Partners, which later became El Paso Energy Partners, and then Gulfterra Energy Partners. In 2004, Gulfterra merged with Enterprise Products Partners (a North American midstream energy services provider), where he served as Executive Vice President until 2009. From 1980 to 1994, Mr. Lytal held a series of commercial, engineering and business development positions with various companies engaged in oil and gas exploration and production and gas pipeline services.
Education: B.S. in Petroleum Engineering, The University of Texas at Austin
Prior Directorships: Director and member of the audit committee and chairman of the conflicts committee of Rice Midstream Management LLC, the managing general partner of Rice Midstream Partners, L.P. from 2015 until it was acquired in July 2018; director of Gulfterra Energy Partners from 1994 to 2004; director of Azure Midstream Partners GP, LLC, the general partner of Azure Midstream Partners, LP from 2013 to 2017, including service as member of the audit committee and chairman of the conflicts committee; director and chairman of the compensation committee and member of the audit committee of SemGroup Corporation from 2011 until it was acquired in December of 2019
Qualifications: With over 40 years of experience in the midstream oil and gas sector, including over 25 years in executive leadership and advisory roles, Mr. Lytal brings to the
Archrock, inc. 2022 proxy statement | 3
Board a broad knowledge and understanding of the oil and gas services industry, a deep familiarity with the management of midstream assets and experience with governance issues associated with a public company, which we believe make him well qualified to serve as a member of our Board.Service
● | Yellowstone Academy (a non-profit private school) since 2014 |
● | Former Chairman of the Board of the Partnership from 2008 until the Partnership Merger in 2018 |
Education
● | BA, Claremont McKenna College |
● | JD, University of Southern California |
GORDON T. HALL Age 62 Independent Director since March 2002 Member, Audit and Governance and Sustainability Committees | Qualifications | ||
● | Thorough understanding of our operational and strategic opportunities and challenges | ||
● | Experience as a research analyst covering oil field services companies provides a broad-based understanding of the industry, as well as mergers, acquisitions and capital markets transactions | ||
● | Extensive energy company board service |
Career Highlights
● | Independent Chairman of the Board since November 2015, having served as Vice Chairman and Lead Independent Director from 2013 to 2015 |
● | Chairman of the Board of Exterran Holdings, Inc. from 2007 to 2013 and Chairman of the Board of Hanover Compressor from 2005 to 2007 (both predecessor companies) |
● | Retired as Managing Director, Senior Oil Field Services Analyst and Co-Head of the Global Energy Group, Credit Suisse (an investment banking firm) in 2002 after fifteen years with the firm |
● | Professor in the Master of Science in Financial Analysis Program from 2018 to 2020 and interim Chief Financial Officer in 2018 |
Board Service
● | Member of the executive board of trustees, chairman of the finance committee and non-executive treasurer of Gordon College |
● | Former director of Noble Corporation from 2010 to 2021, of Weatherford International plc from 2019 (upon emergence from Weatherford’s Chapter 11 reorganization) to 2020, of Select Energy Services from 2012 to 2015, of Grant Prideco, Inc. from 2007 until its acquisition by National Oilwell Varco, Inc. in 2008 and of Hydril Company from 2002 until its merger with Tenaris S.A. in 2007 |
Education
● | BBA, Mathematics, Gordon College |
● | SM, M.I.T. Sloan School of Management |
FRANCES POWELL HAWES Age 67 Independent Director since April 2015 Chair, Audit Committee Member, Governance and Sustainability Committee | Qualifications | ||
● | Over 20 years of service as a financial advisor and CFO for both private and public companies resulting in financial expertise, business knowledge and leadership experience | ||
● | Extensive understanding of the audit function and risk management | ||
● | Financial consulting and advisory experience |
Career Highlights
● | CFO of New Process Steel, L.P. (a privately held steel distribution company) from 2012 to 2013 |
● | Senior Vice President and CFO of American Electric Technologies, Inc. (a publicly traded provider of power delivery solutions) from 2011 to 2012 |
● | CFO, Executive Vice President and Treasurer of NCI Building Systems, Inc. (a publicly traded firm providing engineered building solutions) from 2005 to 2008 |
● | CFO and Treasurer of Grant Prideco, Inc. (a manufacturer of engineered tubular products for the energy industry) from 2000 to 2001 |
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● | Chief Accounting Officer, Vice President Accounting and Controller of Weatherford International Ltd. (a multinational oil field service company), having advanced through a number of positions of increasing responsibility, from 1989 to 2000 |
Board Service
● | Director, chair of the audit committee and member of the Governance and Sustainability Committee of Laredo Petroleum (a company focused on the exploration, development and acquisition of oil and natural gas properties in the Permian region of the U.S) |
● | Director and audit committee member of PGT Innovations (a manufacturer of premium windows and doors) |
● | Director of Financial Executives International, Houston Chapter |
● | Former director of Energen Corporation from 2013 to 2018 and of Express Energy Services from 2011 to 2014 |
Education
● | BBA, Accounting, University of Houston |
● | Certified Public Accountant |
Age 70 Independent Director since April 2006 Member, Compensation and Governance and Sustainability Committees | Qualifications | ||
● | Technical background in petroleum engineering | ||
● | Operations and senior leadership experience with oilfield services companies | ||
● | Thorough understanding of the challenges and opportunities of markets and financing through current and former energy company board service and as managing director of a private equity firm focused on the energy industry |
Career Highlights
● | Managing Director of First Reserve (a private equity firm) since 1999, with responsibility for deal origination, investment structuring and monitoring, with a particular emphasis on the equipment, manufacturing and services sector, upstream oil and gas and international markets |
● | Senior Vice President of Western Atlas International (a seismic and wireline logging company) from 1996 to 1998 |
● | Member of the Society of Petroleum Engineers and the Society of Exploration Geophysicists |
Board Service
● | Director of Barra Energia Petróleo e Gás (a private Brazilian oil and gas exploration and production company) |
● | Former director of Red Technology Alliance from 2006 to 2010 and of Acteon Group from 2006 to 2012 |
● | Former non-executive chairman of KrisEnergy from 2009 to 2017 |
Education
● | BSc, Oil Technology, Imperial College, London University |
JAMES H. LYTAL
Independent Director
Chair, Compensation Committee Member, Governance and Sustainability Committee | Qualifications | ||
● | Over 40 years of experience in the midstream oil and gas sector, including executive leadership and advisory roles | ||
● | Deep familiarity with the management of midstream assets | ||
● | Through extensive board service, experience with public company executive compensation and governance matters |
Background: Career HighlightsMr. Mallett served as Executive Vice President and Chief Operations Officer of Summit Midstream Partners, LP (a midstream provider of natural gas, oil and water gathering services) from December 2015 to October 2019. In addition, he served as Summit’s interim Chief Executive Officer from February to September 2019. Prior to joining Summit, Mr. Mallett was Senior Vice President of Engineering of Enterprise Products Partners L.P. (a midstream natural gas and oil pipeline company) from 2008 through 2015 and Senior Vice President of Environmental Health and Safety from 2006. Mr. Mallett served in roles of increasing responsibility with TEPPCO (a master limited partnership that provided oil and natural gas pipelines and storage and related facilities) from 1979 through 2006, including as Senior Vice President of Operations. During his career, Mr. Mallett has held leadership roles with Pipeline Research Council International, the Office of Pipeline Safety and the Clean Channel Association.
Education: B.S. in Mechanical Engineering, Prairie View A&M University; M.B.A., Houston Baptist University; completed the Kellogg Executive Development Program at Northwestern University
Qualifications: Mr. Mallett has significant operating experience with prior responsibility for engineering, strategic sourcing and environmental, health and safety training, compliance and reporting. His operations experience includes all aspects of the construction, start-up and operation of natural gas and oil pipeline gathering, transportation and processing facilities. Mr. Mallet’s midstream operations experience, along with his interim service as the chief executive officer of Summit, make him well qualified to serve on the Board.
● | Advisor for Global Infrastructure Partners (a leading global, independent infrastructure investor) from 2009 to June 2021 |
● | Executive Vice President, Enterprise Products Partners (a North American midstream energy services provider) from 2004 to 2009 |
● | President of Leviathan Gas Pipeline Partners, which later became El Paso Energy Partners, and then Gulfterra Energy Partners, from 1994 to 2004 |
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Background: Mr. Rebrook presently serves as Chief Executive Officer of Harvest Midstream (a privately-held midstream company services provider), a position he has held since 2018.Mr. Rebrook previously served as President of Hilcorp Energy Company (a privately held oil and gas production company). He joined Hilcorp in 2008 as Asset Team Manager of the company’s Gulf of Mexico properties and was appointed Executive Vice President in 2009 until his appointment as President. Prior to joining Hilcorp, Mr. Rebrook was with GE Capital as Senior Vice President, Oil & Gas and with Chevron Corporation, managing both domestic and international assignments. Mr. Rebrook is a member of Young Presidents’ Organization, Duke University’s Energy Task Force, the Society of Petroleum Engineers, the Independent Petroleum Association of America and the Greater Houston Partnership.
Education: B.S., Petroleum in Engineering, Marietta College; M.B.A., Duke University’s Fuqua School of Business
Current Directorships: Member of the board of trustees for Marietta College; member of the board of directors of privately-held companies Harvest Midstream Company, Hilcorp Energy Company, Baywater Drilling, LLC, Kenai Logistics, LLC and STX Beef, LLC
Prior Directorships: Director of privately-held companies Elite Compression Services, LLC from 2012 to 2019 and Texas Coastal Ventures, LLC from 2016 to 2019
Qualifications: With over 25 years of experience in capital markets, acquisitions, divestures and operations within both the upstream and midstream sectors of the oil and gas industry, Mr. Rebrook brings considerable insight into the oil and gas industry, including its unique risks, opportunities and challenges. His leadership of a highly entrepreneurial and successful privately-held company and extensive operational experience make Mr. Rebrook well qualified to serve as a member of our Board.
● | Held a series of commercial, engineering and business development positions with various companies engaged in oil and gas exploration and production and gas pipeline services from 1980 to 1994 |
Board Service
● | Director and chairman of the audit committee of Rice Acquisition Corp. II (a special purpose acquisition company) since June 2021 |
● | Director of ColdStream Energy, LLC (a privately held oil and gas energy services company) since 2020 |
● | Former director and member of the audit committee and chairman of the conflicts committee of Rice Midstream Management LLC, the managing general partner of Rice Midstream Partners, L.P. from 2015 until it was acquired in 2018 |
● | Former director of Gulfterra Energy Partners from 1994 to 2004 |
● | Former director of Azure Midstream Partners GP, LLC, the general partner of Azure Midstream Partners, LP from 2013 to 2017, including service as member of the audit committee and chairman of the conflicts committee |
● | Former director and chairman of the compensation committee and member of the audit committee of SemGroup Corporation from 2011 until it was acquired in 2019 |
Education
● | BS, Petroleum Engineering, The University of Texas at Austin |
LEONARD W. MALLETT Age: 65 Independent Director since January 2021 Member, Compensation Committee | Qualifications | ||
● | Significant executive leadership experience with responsibility for engineering, strategic sourcing and health, safety and environmental training, compliance and reporting | ||
● | Operations experience and technical expertise, including construction, start-up and operation of natural gas and oil pipeline gathering, transportation and processing facilities |
Career Highlights
● | Executive Vice President and Chief Operations Officer of Summit Midstream Partners, LP (a midstream provider of natural gas, oil and water gathering services) from 2015 to 2019; Interim Chief Executive Officer during 2019 |
● | Senior Vice President, Engineering, Enterprise Products Partners L.P. (a midstream natural gas and oil pipeline company) from 2008 to 2015 and Senior Vice President of Environmental Health and Safety from 2006 to 2008 |
● | Served in roles of increasing responsibility with TEPPCO (a master limited partnership that provided oil and natural gas pipelines and storage and related facilities) from 1979 to 2006, including as Senior Vice President of Operations |
● | Formerly held leadership roles with the Pipeline Research Council International, the Office of Pipeline Safety and the Clean Channel Association |
Board Service
● | Former director of Summit Midstream GP, LLC, the general partner of Summit Midstream Partners, LP, 2019 |
Education
● | BS, Mechanical Engineering, Prairie View A&M University |
● | MBA, Houston Baptist University |
● | Kellogg Executive Development Program at Northwestern University |
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JASON C. REBROOK Age 48 Non-Independent Director since July 2020 | Qualifications | ||
● | Over 25 years of experience in capital markets, acquisitions, divestures and operations in both the upstream and midstream sectors | ||
● | Operating experience and understanding of the unique risks, opportunities and challenges of the oil and gas industry | ||
● | Leadership experience in a highly entrepreneurial and successful privately-held company |
Career Highlights
● | Chief Executive Officer and director of Harvest Midstream Company (a privately-held midstream company services provider) since 2018 and Chief Executive Officer of JDH Capital Company |
● | President of Hilcorp Energy Company (a privately held oil and gas production company) from 2018 to January 2021 and Executive Vice President from 2009 to 2018, having joined Hilcorp in 2008 as Asset Team Manager of the company’s Gulf of Mexico properties |
● | Previously served as Senior Vice President, Oil & Gas, GE Capital and in both domestic and international assignments with Chevron Corporation |
● | Member of Young Presidents’ Organization, Duke University’s Energy Task Force, the Society of Petroleum Engineers, the Independent Petroleum Association of America and the Greater Houston Partnership |
Board Service
● | Director of privately-held companies Hilcorp Energy Company, Baywater Drilling, LLC, Kenai Logistics, LLC and STX Beef, LLC |
● | Member of the board of trustees for Marietta College |
● | Former director of privately-held companies Elite Compression Services, LLC from 2012 to 2019 and Texas Coastal Ventures, LLC from 2016 to 2019 |
Education
● | BS, Petroleum Engineering, Marietta College |
● | MBA, Duke University’s Fuqua School of Business |
EDMUND P. SEGNER, III
Age 68 Independent Director since July 2018
| Qualifications | ||
● | Technical experience and financial acumen | ||
● | Thorough understanding of the energy industry and operational challenges unique to the industry | ||
● | Experience with compensation, financing matters and the evaluation of acquisition opportunities through service as a president and director of other publicly-traded companies |
Background: Career HighlightsMr. Segner is a Professor in the Practice of Engineering Management in the Department of Civil and Environmental Engineering at Rice University (Houston). In November 2008, Mr. Segner retired from EOG Resources, Inc. (“EOG,” a publicly traded independent oil and gas exploration and production company). Among the positions he held at EOG was President and Chief of Staff and Director from 1999 to 2007. From March 2003 through June 2007, he also served as EOG’s principal financial officer.
● | Professor in the Practice of Engineering Management in the Department of Civil and Environmental Engineering at Rice University (Houston) since 2006 |
● | President, Chief of Staff and Director from 1999 to 2007 and principal financial officer from 2003 to 2007, EOG Resources, Inc. (a publicly traded independent oil and gas exploration and production company) |
Education:Board Service Certified Public Accountant; B.S. in Civil Engineering, Rice University; M.A. in Economics, University of Houston
● | Member of the audit committee and finance committee of Laredo Petroleum, Inc. (a company focused on the exploration, development and acquisition of oil and natural gas properties in the U.S. Permian region) |
● | Former chairman of the compensation committee and member of the audit committee and the reserves and environment, health and safety committee of HighPoint Resources (a company engaged in exploration and development of natural gas and oil reserves in the U.S. Rocky Mountain region) from 2009 and until its merger with Bonanza Creek Energy, Inc. in 2021 |
Current Directorships: Chairman of the compensation committee and member of the audit committee and the reserves and environment, health and safety committee of HighPoint Resources (a company engaged in exploration and development of natural gas and oil reserves in the Rocky Mountain region of the U.S.); member of the audit committee and compensation committee of Laredo Petroleum, Inc. (a company focused on the exploration, development and acquisition of oil and natural gas properties in the Permian region of the U.S.)
● | Former director and member of the audit, conflicts and compensation committees of Archrock GP LLC, the managing general partner of the Partnership, from 2009 to 2018 |
Prior Directorships: Director and member of the Audit, Conflicts and Compensation Committees of Archrock GP LLC, the managing general partner of the Partnership, from May 2009 to April 2018, when it was merged into a wholly-owned subsidiary of Archrock, Inc.; director and a member of the conflicts committee of Midcoast Holdings, LLC from February 2014 until it was acquired and taken private by Enbridge Energy Partners, L.P. in April 2017
● | Former director and a member of the conflicts committee of Midcoast Holdings, LLC from 2014 until it was acquired and taken private by Enbridge Energy Partners, L.P. in 2017 |
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Qualifications: EducationMr. Segner brings technical experience and financial acumen to the Board. Having served in a senior management position for an oil and gas company, Mr. Segner also possesses a thorough understanding of the energy industry and operational challenges unique to this industry. In addition, as a former president of a public company and as a director of other public companies, Mr. Segner has valuable experience with other functions pertinent to our Board, including compensation, financing matters and the evaluation of acquisition opportunities. We believe this knowledge and experience, as well as his prior service on the board of the Partnership, makes Mr. Segner well qualified to serve as a director.
● | BS, Civil Engineering, Rice University |
● | MA, Economics, University of Houston |
● | Certified Public Accountant |
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GOVERNANCE |
Highlights of our corporate governance practices are provided at the beginning of this Proxy Statement under “2020“2021 in Review”. The Board is committed to responsible and responsive corporate governance policies and practices that serve the interests of all stockholders. The full Board, at the direction of the NominatingGovernance and Corporate GovernanceSustainability Committee, routinely reviews best practices in corporate governance, as well as environmental and social issues, and considers stakeholder interests and feedback. During 2020,2021, members of our senior management team attended 1112 energy investor conferences and two non-deal road showsevents and participated in numerous phone calls to communicate our mission and vision with our stockholders and receive information on the issues they consider most important as an investor in Archrock.
DIRECTOR INDEPENDENCE AND TENURE
Our Code of Business Conduct requires all employees, officers and directors to avoid situations that may impact their ability to carry out their duties in an independent and objective fashion. Any circumstance that has the potential to compromise their ability to perform independently must be disclosed. In addition, we distribute director and officer questionnaires at least annually to elicit related-party information. The questionnaire includes our Code of Conduct and Corporate Governance Principles and requires that each director and executive officer certify their review and compliance with such documents. We also require that responses to the questionnaire be updated throughout the year to the extent circumstances change.
The NominatingGovernance and Corporate GovernanceSustainability Committee assesses director independence each year by considering all direct and indirect business relationships between Archrock and each director (including his or her immediate family), as well as relationships with our registered public accounting firm, our compensation consultant, other for-profit concerns and charitable organizations. With the NominatingGovernance and Corporate GovernanceSustainability Committee’s recommendation, the Board makes a determination relating to the independence of each member, which is based on applicable laws, regulations, our Corporate Governance Principles and the rules of the NYSE.New York Stock Exchange (“NYSE”).
During the NominatingGovernance and Corporate GovernanceSustainability Committee’s most recent review of independence, in addition to the responses to the director and officer questionnaires, the committee was provided information regarding transactions with any related parties as determined through a search of our accounting records as well as the responses to the director and officer questionnaires.records. See the section titled “Related Party Information” in this Proxy Statement for more information.
Based on the recommendation of the NominatingGovernance and Corporate GovernanceSustainability Committee, the Board determined that the following nominees for director are independent: Mmes. Ainsworth and Hawes and Messrs. Hall, Honeybourne, Lytal, Mallett and Segner.
The Board believes it has a healthy mix of representation based on tenure of the directors currently serving, with two new directors added in the last year.two years.
We separate the roles of Chairman of the Board and Chief Executive Officer. The Board recognizes the time, effort and energy that our Chief Executive Officer is required to devote to his position, as well as the stewardship commitment required to serve as our Chairman. The Board believes this structure is appropriate for the Company and is in the best interest of our stockholders because of the size and composition of the Board, the scope of our operations and the responsibilities of the Board and management.
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Our Chief Executive Officer | Our independent Chairman |
Mr. Hall serves as Chairman and presides over the regular sessions of the Board and the executive sessions of the Board, held at every regularly scheduled Board meeting, as well as the executive sessions of independent directors.
DIRECTOR QUALIFICATIONS, DIVERSITY AND NOMINATIONS
The NominatingGovernance and Corporate GovernanceSustainability Committee believes that all Board candidates should be selected for their character, judgment, ethics, integrity, business experience, time commitment and acumen. The Board, as a whole, through its individual members, seeks to have competence in areas of particular importance to us such as finance, accounting, operations, energy industry, health, safety and the environment and relevant technical expertise. The NominatingGovernance and Corporate GovernanceSustainability Committee also considers issues of diversity in the director identification and nomination process. While the NominatingGovernance and Corporate GovernanceSustainability Committee does not have a formal policy with respect to diversity, it seeks nominees with a broad diversity of experience, professions, skills, education and backgrounds. The NominatingGovernance and Corporate GovernanceSustainability Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The NominatingGovernance and Corporate GovernanceSustainability Committee believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities. Nominees are not discriminated against on the basis of race, color, religion, sex, age, national origin, citizenship, veteran status, disability, sexual orientation, gender identity, genetic information or any other basis proscribed by law.
Directors must be committed to enhancing the long-term interests of our stockholders as a whole and should not be biased toward the interests of any particular segment of the stockholder or employee population. Board members should also be prepared to travel to attend meetings of the Board and its committees and should be ready to dedicate sufficient time to prepare in advance of such meetings to allow them to make an effective contribution to the meetings. Further, Board members should ensure that they are not otherwise committed to other activities which would make a commitment to the Board impractical or unadvisable andunadvisable. In addition, Board members should satisfy the independence, qualification and composition requirements of the Board and its committees, as required by applicable law, regulation and the rules of the NYSE, our certificate of incorporation, our bylaws and our Corporate Governance Principles.
Stockholders may propose director nominees to the NominatingGovernance and Corporate GovernanceSustainability Committee (for consideration for election at the 20222023 Annual Meeting of Stockholders) by submitting, within the time frame set forth in this Proxy Statement, the names and supporting information (including confirmation of the nominee’s willingness to serve as a director) to: Archrock, Inc., 9807 Katy Freeway, Suite 100, Houston, Texas 77024, Attention: Secretary. Seeto the section titled “Additional Information – 2022 Annual Meeting of Stockholders.address provided under “Company Contact Information.” Any stockholder-recommended nominee will be evaluated in the context of our director qualification standards and the existing size and composition of the Board. See “Additional Information – 2023 Annual Meeting of Stockholders.”
COMMITTEES OF THE BOARD, MEMBERSHIP AND ATTENDANCE
The Board has designated an Audit Committee, a Compensation Committee and a NominatingGovernance and Corporate GovernanceSustainability Committee to assist in the discharge of the Board’s responsibilities. The Board and the committees of the Board are governed by our Code of Business Conduct, Corporate Governance Principles and the applicable committee charters, each of which is available to the public on our website at www.archrock.com or in print by submitting a written request to Archrock, Inc., 9807 Katy Freeway, Suite 100, Houston, Texas 77024, Attention: Secretary.the address provided under “Company Contact Information.” The purpose and composition of each committee is summarized in the following table.
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Committee | Purpose | Composition | Committee Report |
Audit Committee | The Audit Committee’s purpose is to assist the Board in its oversight of the integrity of our financial statements, our compliance with legal and regulatory requirements, the independence, qualifications and performance of the independent auditor and our systems of disclosure controls and procedures and internal controls over financial reporting. | The Board has determined that each member of the Audit Committee is independent and possesses the requisite financial literacy to serve on the Audit Committee. The Board has also determined that each of Mmes. Ainsworth and Hawes and | The Report is included in this Proxy Statement on pages |
Compensation Committee | The Compensation Committee’s purpose is to oversee the development and implementation of our compensation philosophy and strategy with the goals of attracting, developing, retaining and compensating the senior executive talent required to achieve corporate objectives and linking pay and performance. In addition, the Compensation Committee is charged with overseeing our broad-based strategies related to human capital management, including our approach to diversity and inclusion. | The Board has determined that each member of the Compensation Committee is independent. | The Report is included in this Proxy Statement on page |
The | The Board has determined that each member of the |
Members of each committee are elected by the Board at its first meeting following the annual meeting of stockholders to serve for one-year terms. The current members of our committees and number of meetings held during 20202021 are indicated in the following chart:
Director | Independent Director | Audit Committee | Compensation Committee | Nominating and Corporate Governance Committee | Independent Director | Audit Committee | Compensation Committee | Governance and Sustainability Committee |
Anne-Marie N. Ainsworth | t | Member | Chair | ♦ | Member | Chair | ||
D. Bradley Childers | ||||||||
Gordon T. Hall | t | Member | ♦ | Member | ||||
Frances Powell Hawes | t | Chair | Member | ♦ | Chair | Member | ||
J.W.G. Honeybourne | t | Member | ♦ | Member | ||||
James H. Lytal | t | Chair | Member | ♦ | Chair | Member | ||
Leonard W. Mallett | t | Member | ♦ | Member | ||||
Jason C. Rebrook | ||||||||
Edmund P. Segner, III | t | Member | ♦ | Member | Member | |||
Number of Meetings Held in 2020 | 4 | 6 | 5 | |||||
Number of Meetings Held in 2021 | 5 | 8 | 5 |
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The Board met tensix times in 2020.2021. Each director who served during 2020 and is standing for re-election attended at least 95%100% of the meetings of the Board and Board committees on which he or she served during 2020. Jeffery D. Hildebrand, who served on the Board as JDH’s Representative Director, attended 67% of the meetings of the Board in 2020. Mr. Hildebrand resigned in July 2020, at which time Mr. Rebrook was elected as JDH’s Representative Director. The independent directors met in executive session regularly in 2020, and Mr. Hall presided over such executive sessions.2021. Directors are also encouraged to attend each annual meeting of stockholders, and in 2020,2021 all of our then-serving directors attended the meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Hall, Honeybourne, Lytal and Mallett served on the Compensation Committee in 2021. There are no matters relating to interlocks or insider participation that we are required to report.
THE BOARD’S ROLE IN RISK OVERSIGHT
The Board has an active role, as a whole and through its committees, in overseeing management of the Company’s risks. The Board’s role in the risk oversight process includes receivingBoard receives regular reports from members of senior management on areas of material risk to us, including those listed in the chart below. The involvement of the Board in reviewing, approving and monitoring our fundamental financial and business strategies, as contemplated by our Corporate Governance Principles, is important to the determination of the types and appropriate levels of risk we undertake. The Board’s committees, all comprised solely of independent directors, assist the Board in fulfilling its oversight responsibilities.
Full Board | ● | Strategic, financial and execution risk associated with the annual performance plan and long-term plan, including major operational and sustainability initiatives |
● | Risks associated with capital management, including financing, dividends and capital expenditures | |
● | Mergers, acquisitions and divestitures | |
● | Major litigation, disputes and regulatory matters | |
● | Management succession planning | |
● | Cybersecurity risk and prevention | |
● | Risks associated with climate change and sustainability | |
Audit Committee | ● | Financial reporting, accounting, disclosure and internal controls, including oversight of the internal and independent audit functions |
● | Oversight of the enterprise risk management process for identifying key risks and assessing management’s response | |
● | Compliance, litigation and tax regulatory matters | |
Compensation | ● |
|
● | Risks associated with the design of executive compensation, including a mix of short-term and long-term incentive compensation that does not encourage excessive risk-taking | |
● | Performance management as it relates to our executive officers | |
● | Risks associated with human capital management, including management succession planning and diversity and inclusion | |
| ● | Risks associated with corporate governance and board composition and effectiveness and director succession planning |
● | Monitoring and disclosure of material governance, safety, environmental and social risks and integration of company-wide response | |
While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about such risks. This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONMANAGEMENT SUCCESSION PLANNING
Messrs. Brooks, Hall, HoneybourneSuccession planning is a critical Board function. The Compensation Committee considers our business strategy in evaluating the skills and Lytal served onexperience necessary for us to achieve our objectives and is actively engaged in management succession planning. With input from our Chief Executive Officer, the Compensation Committee routinely reviews management talent and leadership development and advises the Board in 2020. There are no matters relating to interlocks or insider participation that we are required to report.this regard. The Board has adopted a management succession plan, as well as a succession policy in the event of an unanticipated vacancy in the Chief Executive Officer position.
Related Party Policy and Practices. We recognize that transactions with related persons can present potential or actual conflicts of interest and create the appearance that decisions are based on considerations other than the best interests of usArchrock and our stockholders. Therefore, our Audit Committee has adopted a written policy on related party transactions to provide guidance and set standards for the approval and reporting of transactions between usArchrock and individuals with a direct or indirect affiliation with usthe Company and to ensure that those transactions are in ourArchrock’s best interest. Any proposed related party transaction must be submitted to the Audit Committee for approval prior to entering into the transaction. Additionally, our policy requires a review by our Financial Reporting Department of any related party transactions on a quarterly basis. In the event the Company becomes aware of any pending or ongoing related party transaction that has not been previously approved or ratified, the transaction must be promptly submitted to the Audit Committee or its Chair for ratification, amendment or termination of the related party transaction. If a related party transaction is ongoing, the Audit Committee may establish guidelines for management and will annually assess the relationship with such related party.
In reviewing a proposed or ongoing related party transaction, the Audit Committee will consider, among other things, the following factors to the extent relevant to the related party transaction:
● | whether the terms of the transaction are fair to the Company and would apply on the same basis if the transaction did not involve a related party; |
● | whether there are any compelling business reasons for the Company to enter into the transaction; |
● | whether the transaction would impair the independence of an otherwise independent director; and |
● | whether the transaction would present an improper conflict of interest for any director or executive officer of the Company, taking into account, among other factors the Audit Committee deems relevant, the size of the transaction, the overall financial position of the director, executive officer or other related party, that person’s interest in the transaction and the ongoing nature of any proposed relationship. |
Related Party Transactions During 2020.2021. On August 1, 2019, the Company and Archrock Services, L.P., a wholly owned subsidiary of the Company, acquired substantially all of the assets of Elite Compression Services, LLC (“Elite”), a portfolio company of JDH Capital CompanyHildebrand Enterprises, LP (“JDH Capital,” and together with its affiliates, “JDH”Hildebrand Enterprises”), resulting in the issuance of 21,656,683 shares of Archrock’s common stock to JDH. JDH Capital Holdings, LP (“JDH”). Hildebrand Enterprises owns 100% of the limited partner interest in JDH. Hildebrand Enterprises is a private investment firmholding company of energy-related and other operating companies and investments controlled by our former Director Jeffery D. Hildebrand, Executive Chairman and Founder of Hilcorp Energy Company (“Hilcorp”), which is one of Archrock’s customers. In February 2022, JDH changed its name to Old Ocean Reserves, LP (“Old Ocean”).
As of March 3, 2021, JDH2022, Old Ocean and its affiliates owned 11.5%11% of the outstanding shares of our common stock. JDH CapitalOld Ocean has the right to designate one director to Archrock’s Board (the “Representative Director”) for so long as JDHOld Ocean or its successors (together with all affiliates of such person) continue to hold, on an aggregate basis, at least 7.5% of the then-issued and outstanding shares of our common stock. As indicated in his bio on page 6, Jason C. Rebrook, who was elected to the Board in July 2020 as JDH’sOld Ocean’s Representative Director, is Chief Executive Officer and director of Harvest Midstream Company (“Harvest”), a Hilcorp affiliate. See “Election of Directors – Nominees for Director.”
In the normal course of business, the Company and its affiliates provide Hilcorp, Harvest and certain other Hilcorp affiliates with contract operations services and aftermarket parts at standard market rates. For fiscal year 2020,2021, the Company realized revenuereceived payments of approximately $40.3$39 million from transactions with Hilcorp, Harvest and their affiliates and made payments of approximately $75,000$30,000 to such companies.
Pursuant to the Elite Acquisition, and ongoing transactions with Hilcorp, Harvest and their affiliates, and his position as the Representative Director, Mr. Rebrook is deemed not independent. Therefore, the Board may request that Mr. Rebrook recuse himself from discussions that would reasonably be expected to result in a conflict of interest, including (without limitation) matters relating directly to Hilcorp, Harvest or any of their Affiliates, as well as pricing discussions specific to the areas in which they operate.discussions.
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Our Compensation Committee is responsible for recommending director compensation to the full Board for approval. Director compensation is designed to ensure the Company can attract and retain outstanding directors who meet the qualifications outlined in the Board’s Corporate Governance Principles, ensure alignment with long-term stockholder interests and recognize the substantial time commitments associated with service on the Board.
The independent membersEach non-employee member of the Board areis compensated in cash and equity. Mr. Hall receivedreceives additional cash compensation to reflect his additional responsibilities as Chairman of the Board. Messrs.As president and chief executive officer of Archrock, Mr. Childers Hildebrand and Rebrook diddoes not receive additional compensation for service on the Board. In December
Effective with the second quarter of 2020, the BoardCompensation Committee determined to providetemporarily reduce all cash and equityretainers by 25% due to the economic impact of the pandemic. Because the reduction in cash compensation was expected to Mr. Rebrook effective January 1,be temporary, cash retainers in effect prior to the reduction were used for the independent consultant’s evaluation of 2021 in the same amounts provided to all other directors.
director compensation. In evaluating director compensation for 2020,their review, the Compensation Committee considered data provided by the independent compensation consultant, which included data derived from the proxy statements of our peer companies and the National Association of Corporate Directors Compensation Survey for energy industry companies with revenues between $650$450 million and $2.9$3.0 billion. The review indicated that the structure of our director compensation program was consistent with our peer group however,and our typical director compensation fell just below(pre-reduction) was at the median of the peer group 50th percentile. The Compensation Committee took into consideration indicators of a softening market and determined in December 2019 to approve no changes in the structure of the program and no increase in director compensation for 2020. However, in late 2020, the Compensation Committee reviewed the increased risk oversight responsibilities of the Audit and Nominating and Corporate Governance Committees as a result of the pandemic and our environmental, social and governance initiatives, respectively, and approved a modest increase in the chair retainers as described below.group.
Cash Compensation. Each independentnon-employee director earned an annual cash retainer (the “Base Retainer”) for his or her service during 2020.2021. The Chairman of the Board and the chairs of the Audit Committee, Compensation Committee and NominatingGovernance and Corporate GovernanceSustainability Committee each received an additional retainer for their services. All retainers are paid in arrears in equal quarterly installments. Directors are also reimbursed for reasonable expenses incurred to attend Board and committee meetings.
|
Effective During the first six months of 2021, the directors’ cash compensation was reduced by 25%, as discussed above; effective with the fourththird quarter of 20202021 and based on increased responsibilities,improved industry conditions, the Compensation Committee increased the Audit Committee chair retainer from $20,000cash retainers were restored to $22,500 per annumpre-pandemic levels, along with management and the Nominating and Governance Committee chair retainer from $15,000 to $20,000 per annum, both reduced by 25% due to the pandemic, as indicated in the chart below. employee salaries.
2021 Director Cash Compensation | |||||||||||||
2020 Director Compensation | Reduced Retainers Due to Pandemic | Restored Retainers | |||||||||||
Description of Remuneration | 2019 Total | First Qtr | Second Qtr | Third Qtr | Fourth Qtr | 2020 Total | First Qtr | Second Qtr | Annualized | Third Qtr | Fourth Qtr | Annualized | |
Base Retainer | 90,000 | 22,500 | 16,875 | 73,125 | 16,875 | 67,500 | 22,500 | 90,000 | |||||
Additional Retainers | |||||||||||||
Chairman of the Board | 100,000 | 25,000 | 18,750 | 81,250 | 18,750 | 75,000 | 25,000 | 100,000 | |||||
Audit Committee Chair | 20,000 | 5,000 | 3,750 | 3,750 | 4,219 | 16,719 | 4,219 | 16,875 | 5,625 | 22,500 | |||
Compensation Committee Chair | 20,000 | 5,000 | 3,750 | 16,250 | 3,750 | 15,000 | 5,000 | 20,000 | |||||
Nominating and Corporate Governance Committee Chair | 15,000 | 3,750 | 2,813 | 3,750 | 13,126 | ||||||||
Governance and Sustainability Committee Chair | 3,750 | 3,750 | 15,000 | 5,000 | 20,000 | ||||||||
Equity-Based Compensation. On January 23, 2020,March 5, 2021, the Compensation Committee approved the grant of restricted stock or restricted stock units with a deferred delivery date to each independentnon-employee director with a grant date value equal to approximately $130,000. The number of shares awarded was determined based on the market closing price of our common stock on the grant date ($9.09)10.70) and resulted in the award of 14,30112,149 restricted shares or restricted stock units to each independentnon-employee director. The 2020 equity award was one-quarter vested on the grant date, and on each of June 1, September 1 and December 1, 2020.2021.
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Stock Ownership Requirements. Our stock ownership policy requires each independentnon-employee director to own an amount of our common stock equal to at least five times the Base Retainer amount (which currently equals $450,000 of our common stock) within five years of his or her election to the Board. We measure the stock ownership of our directors annually as of each June 30. All directors are in compliance with our stock ownership policy.
Director Stock and Deferral Plan. Under our Directors’ Stock and Deferral Plan (the “Directors’ Plan”), directors may elect to receive all or a portion of their cash compensation for Board service in the form of our common stock and may defer their receipt of commonthe stock. Mr. BrooksNo director elected to participate in the Directors’ Plan during 2020.2021.
Total Director Compensation. The following table shows the total compensation paid to each non-employee director for his or her service during 2020.2021. As shown below, excluding our Chairman of the Board, the equity (at-risk) portion of compensation is greater than 50% of each director’s total compensation.
Director | Fees Earned in Cash ($) | Fees Earned in Stock ($) | Stock Awards ($) 1 | All Other Compensation ($) 2 | Total ($) | Fees Earned in Cash ($) | Stock Awards ($) 1 | All Other Compensation ($) 2 | Total ($) |
Anne-Marie N. Ainsworth | 86,250 | — | 129,996 | 4,665 | 220,911 | 96,250 | 129,994 | 2,642 | 228,886 |
Wendell R. Brooks 3 | 18,281 | 54,844 | 129,996 | 7,524 | 210,645 | 3,750 | — | 3,750 | |
Gordon T. Hall | 154,375 | — | 129,996 | 4,665 | 289,036 | 166,250 | 129,994 | 2,642 | 298,886 |
Frances Powell Hawes | 89,844 | — | 129,996 | 4,665 | 224,505 | 98,438 | 129,994 | — | 228,432 |
Jeffery D. Hildebrand 4 | — | — | — | ||||||
J.W.G. Honeybourne | 73,125 | — | 129,996 | 4,665 | 207,786 | 78,750 | 129,994 | 2,642 | 211,386 |
James H. Lytal | 89,375 | — | 129,996 | 4,665 | 224,036 | 96,250 | 129,994 | 2,642 | 228,886 |
Leonard W. Mallett 4 | — | — | — | ||||||
Jason C. Rebrook 4 | — | — | — | ||||||
Leonard W. Mallett 3 | 75,000 | 129,994 | 2,642 | 207,636 | |||||
Jason C. Rebrook | 78,750 | 129,994 | 2,642 | 211,386 | |||||
Edmund P. Segner, III | 73,125 | — | 129,996 | 4,665 | 207,786 | 78,750 | 129,994 | — | 208,744 |
1 Represents the grant date fair value of our common stock calculated in accordance with ASC 718. In lieu of restricted stock, Ms. Hawes and Mr. Segner elected to receive restricted stock units with deferred delivery.
2 Represents the payment of dividends on unvested restricted stock and unvestedstock. Dividend equivalent rights were accrued on the restricted stock units acquired underissued to Ms. Hawes and Mr. Segner and will be paid upon distribution of the Directors’shares underlying the units according to the terms of the Archrock, Inc. 2020 Stock Incentive Plan.
3 Pursuant to his election to participate in the Directors’ Plan, 75% of Mr. Brooks’ retainer was paid in the form of restricted stock units with deferred delivery; such units also earned dividend equivalent rights, which were paid as and when dividends were paid to stockholders, reflected in “All Other Compensation”. Mr. Brooks retired from the Board in January 2021.
4 Mr. Hildebrand, who resigned from the Board in July 2020, and Mr. Rebrook, who was elected to the Board in July 2020, were not compensated for Board service. Mr. Mallett was elected to the Board in January 2021.2021
MANAGEMENT SUCCESSION PLANNING
Succession planning is a critical Board function. The Board considers our business strategy in evaluating the skills and experience necessary for us to achieve our objectives. With input from our Chief Executive Officer, the Board routinely reviews management talent and leadership development and is actively engaged in succession planning. The Board has adopted a succession policy in the event of an unanticipated vacancy in the Chief Executive Officer position.
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The following provides information regarding our executive and senior leadership officers as of March 3, 2021.2022. Information concerning the business experience of Mr. Childers is provided under “Nominees for Director” in this Proxy Statement.
Douglas S. Aron (48) – Senior Vice President and Chief Financial Officer since 2018 | ||
| ● | Executive Vice President and Chief Financial Officer of HollyFrontier Corporation (an independent petroleum refiner and marketer of petroleum products) from 2011 to 2017 |
● | Prior to Frontier Oil Corporation’s merger with Holly Corporation in 2011, served Frontier as Executive Vice President and Chief Financial Officer, from 2009, as Vice President of Corporate Finance, from 2005 to 2008 and as Director of Investor Relations, from 2001 to 2005 | |
● | Executive Vice President and Chief Financial Officer of Nine Energy Service, Inc. (a North America oilfield services company) in 2017 | |
● | BA, Journalism, The University of Texas at Austin | |
● | MBA, Jesse H. Jones Graduate School of Business, Rice University | |
Donna A. Henderson (54) – Vice President and Chief Accounting Officer since 2016 | ||
● | Vice President, Accounting, of our primary operating subsidiary since 2015 | |
● | Vice President and Chief Accounting Officer of Southcross Energy Partners GP, LLC (a provider of natural gas gathering, processing, treating, compression and transportation services) from 2013 to 2015 | |
● | Vice President and Chief Audit Executive of GenOn Energy, Inc. (a wholesale electric generator that merged into NRG Energy) from 2011 to 2012 | |
● | Assistant Controller of GenOn Energy, Inc. and its predecessor companies, RRI Energy, Inc. and Reliant Energy Inc., from 2005 to 2011, and various other leadership roles within the accounting department of that organization since 2000 | |
● | From 1996 to 2000, various accounting positions with Lyondell Chemical (a manufacturer of chemicals and polymers), having begun her career with accounting firms Deloitte & Touche LLP and KPMG LLP | |
● | Member of the Executive Committee and Board of Trustees of the Good Samaritan Foundation | |
● | BBA, Accounting, Eastern New Mexico University | |
● | Member of the American Institute of Certified Public Accountants | |
Stephanie C. Hildebrandt (57) – Senior Vice President, General Counsel and Secretary since 2017 | ||
● | Partner, Norton Rose Fulbright (a global law firm) from 2015 to 2017 | |
● | Senior Vice President, General Counsel and Secretary of Enterprise Products Partners L.P. (“Enterprise”, a publicly traded pipeline and infrastructure company and consumer energy service provider) from 2010 to 2014, after serving in various other roles at Enterprise | |
● | Member of the Tulane Center for Energy Law Advisory Board since 2019 | |
● | Member of the executive council, since 2020, and advisory council, since 2014, of The University of Texas Kay Bailey Hutchison Center for Energy, Law & Business | |
● | Member of the President’s Advisory Board at the University of St. Thomas since 2016 | |
● | Former director and member of the audit committee of WildHorse Resource Development Corporation from 2017 until it was acquired in 2019, and for a portion of her tenure, as chair of the compensation committee | |
● | Former director and member of the conflicts committee of Rice Midstream Management LLC, the general partner of Rice Midstream Partners LP from 2016 until it was acquired in 2018 | |
● | Former director, chair of the compensation committee and member of the nominating and governance committee of TRC Companies, Inc. from 2014 until it was acquired in 2017 | |
● | BS, Foreign Service, Georgetown University | |
● | JD, Tulane University Law School |
Donna A. Henderson
Age 53
Vice President and Chief Accounting Officer since January 2016
Ms. Henderson served as Vice President, Accounting, of our primary operating subsidiary since August 2015. From April 2013 until June 2015, she served as Vice President and Chief Accounting Officer of Southcross Energy Partners GP, LLC (a provider of natural gas gathering, processing, treating, compression and transportation services). From September 2011 to December 2012, she was the Vice President and Chief Audit Executive of GenOn Energy, Inc. (a wholesale electric generator that merged into NRG Energy). Prior to that position, Ms. Henderson served as Assistant Controller of GenOn Energy, Inc. and its predecessor companies, RRI Energy, Inc. and Reliant Energy Inc., from July 2005 to September 2011, and held various other leadership roles within the accounting department of that organization since September 2000. From 1996 to 2000, Ms. Henderson held various accounting positions with Lyondell Chemical (a manufacturer of chemicals and polymers). Ms. Henderson began her career with accounting firms Deloitte & Touche LLP and KPMG LLP. She also serves as an officer of certain Archrock, subsidiaries and is a member of the Executive Committee and Board of Trustees of the Good Samaritan Foundation. Ms. Henderson holds a B.B.A. in Accounting from Eastern New Mexico University and is a member of the American Institute of Certified Public Accountants.
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Age 56
Senior Vice President, General Counsel and Secretary since August 2017
Ms. Hildebrandt was a partner of global law firm Norton Rose Fulbright from February 2015 to July 2017. She previously served as the Senior Vice President, General Counsel and Secretary of Enterprise Products Partners L.P. (“Enterprise”, a publicly traded pipeline and infrastructure company and consumer energy service provider) from May 2010 to December 2014 and held various other roles at Enterprise. Ms. Hildebrandt has served as a member of the Tulane Center for Energy Law Advisory Board since 2019; as a member of the executive council, since 2020, and advisory council, since 2014, of the Kay Bailey Hutchison Center for Energy, Law & Business at the University of Texas; and as a member of the University of St. Thomas President's Advisory Board since 2016. She previously served as director and member of the audit committee of WildHorse Resource Development Corporation (an independent oil and natural gas resource company) from December 2017 until it was acquired in February 2019, and for a portion of her tenure, as chair of the compensation committee; director and member of the conflicts committee of Rice Midstream Management LLC, the general partner of Rice Midstream Partners LP (owner and operator of midstream natural gas assets in the Appalachian Basin) from March 2016 until it was acquired in July 2018; and director, chair of the compensation committee and member of the nominating and governance committee of TRC Companies, Inc. (a global consulting, engineering and construction management firm serving the oil and gas industry) from December 2014 until it was acquired in June 2017. Ms. Hildebrandt also serves as an officer and director of certain other Archrock subsidiaries. Ms. Hildebrandt earned a B.S. in Foreign Service from Georgetown University and a J.D. from Tulane University Law School.
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Jason G. Ingersoll (51) – Senior Vice President, Sales and Operations Support since 2018 and 2020, respectively | ||
| ● | Senior Vice President, Marketing and Sales of Archrock since 2018 after having served as Vice President from 2015 to 2018 |
● | Vice President, Sales of our predecessor subsidiary Exterran Energy Solutions, L.P. (“EESLP”) from 2013 to 2015, as well as positions of increasing responsibility with EESLP, including as Regional Vice President, from 2012 to 2013, Business Unit Director from 2009 to 2012 | |
● | Held positions of increasing responsibility including Country Manager of China with UCI | |
● | BS, Mechanical Engineering, Texas A&M University | |
Elspeth A. Inglis (53) – Senior Vice President and Chief Human Resources Officer since 2019 | ||
● | Vice President, Culture Integration at Baker Hughes from 2018 to 2019 | |
● | Head of Human Resources, Downstream Technology Services, GE Oil and Gas (a global manufacturing business) from 2013 to 2017 | |
● | Vice President, Human Resources supporting the startup operations for the US unconventional shale gas business of Reliance Industries from 2011 to 2013 | |
● | From 2002 to 2009, held positions of increasing responsibility at CGG (a geophysical services company) including Marine Human Resource Manager and Vice President Human Resources, Western Hemisphere in Houston and Senior Vice President Geophysical Services based in Paris | |
● | Human Resource Manager for Enron Corp. from 1999 to 2001 in both London and Houston | |
● | Director and member of the human resource committee of Catholic Charities | |
● | Advisory board member of Workforce Next | |
● | Member of the Chartered Institute of Personnel and Development (UK) and SPHR (US) certification | |
Eric W. Thode (56) – Senior Vice President, Operations since 2020 | ||
● | Vice President, Operations since October 2018, having previously served as Vice President and Business Unit Director of the South Texas Business Unit of Archrock Services, L.P., our wholly owned operating subsidiary, since 2018 and 2014, respectively | |
● | Director of Archrock’s Barnett Business Unit from 2012 to 2014 | |
● | Director of Archrock Business Development, negotiating alliance contracts that generated over $100 million in annual revenue, having served our predecessor subsidiaries, EESLP and UCI, since 2004 | |
● | Director, Public Relations of Enron Corporation from 1999 to 2004 | |
● | Manager, Government and Public Affairs of TEPPCO Partners from 1991 to 1999 | |
● | BS, Economics, Texas A&M University | |
● | MPA, Texas A&M University |
Elspeth A. Inglis
Age 52
Senior Vice President and Chief Human Resources Officer since October 2019
Ms. Inglis joined Archrock, in October 2019. She most recently served as Vice President, Culture Integration at Baker Hughes. From 2013 to 2017, she served at GE Oil and Gas as Head of Human Resources, Downstream Technology Services (a global manufacturing business). Ms. Inglis worked for Reliance Industries from 2011 to 2013 as Vice President, Human Resources supporting the startup operations for their US unconventional shale gas business. From 2002 to 2009, she served in positions of increasing responsibility at CGG (a geophysical services company) including Marine Human Resource Manager and Vice President Human Resources, Western Hemisphere in Houston and Senior Vice President Geophysical Services based in Paris. She served as a Human Resource Manager for Enron Corp. from 1999 to 2001 in both London and Houston. She serves on the board of directors human resource committee of Catholic Charities and is an advisory board member of Workforce Next. She also serves as an officer of certain Archrock subsidiaries. Ms. Inglis is a member of the Chartered Institute of Personnel and Development (UK) and holds her SPHR HR certification (US).
inc. 2022 proxy statement | Eric W. Thode17
Age 55
Senior Vice President, Operations since February 2020
Mr. Thode served as Vice President, Operations since October 2018, having previously served as Vice President and Business Unit Director of the South Texas Business Unit of Archrock Services, L.P., our wholly owned operating subsidiary, since mid-2018 and December 2014, respectively. He was Business Unit Director of the Barnett Business Unit from June 2012 to December 2014. Mr. Thode also previously served as Director, Business Development, negotiating alliance contracts that generated over $100 million in annual revenue. Mr. Thode has worked with us and our predecessor subsidiaries, EESLP and UCI, since 2004. Prior to joining us, Mr. Thode worked at Enron Corporation as Director, Public Relations from 1999 to 2004 and at TEPPCO Partners as Manager, Government and Public Affairs from 1991 to 1999. Mr. Thode holds a B.S. in Economics and a Master of Public Administration from Texas A&M University.
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STOCK OWNERSHIP |
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table provides information about beneficial owners, known by us as of March 3, 2021,2022, of 5% or more of our outstanding common stock (the “5% Stockholders”). Unless otherwise noted in the footnotes to the table, the 5% Stockholders named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them.
Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | Percent of Class 1 |
BlackRock, Inc. 55 East 52nd Street | ||
1111 Travis Street Houston, Texas 77002 | ||
The Vanguard Group, Inc. 100 Vanguard Blvd. | ||
1180 Peachtree Street NE, Suite 2300 Atlanta, Georgia 30309 | ||
Dimensional Fund Advisors LP Palisades West, Building One | ||
Invesco Ltd. 1555 Peachtree Street NE, Suite 1800 Atlanta, Georgia 30309 |
1 Reflects shares of common stock beneficially owned as a percentage of approximately 153155 million shares of common stock outstanding as of March 3, 2021.2022.
2 Based solely on a review of the Schedule 13G/A filed by BlackRock, Inc. on January 26, 2021.2022. BlackRock, Inc. has sole voting power over 21,546,14423,560,694 shares and sole dispositive power over 22,143,25324,386,732 shares.
3 Based on a review of the Schedule 13D/AForm 4 filed on March 5,June 17, 2021, by Old Ocean Reserves, LP (“Old Ocean,” formerly known as JDH Capital Holdings, L.P. (“JDH Holdings”). JDH HoldingsOld Ocean shares voting and dispositive power over all shares with JDH Capital Company (“JDH Capital”), Hildebrand Enterprises, LP (“Hildebrand Enterprises”), Hildebrand Enterprises Company (“Hildebrand Company”), Melinda B. Hildebrand and Jeffery D. Hildebrand. The principal business of JDH Capital is to manage investments and to serve as the general partner of JDH HoldingsOld Ocean and other affiliated entities. The principal business of Hildebrand Enterprises is to serve as a holding company of energy-related and other operating companies and investments and as the sole limited partner of JDH Holdings.Old Ocean. The principal business of Hildebrand Company is to serve as the general partner of Hildebrand Enterprises. The principal business occupation of Mrs. Hildebrand is investments. The principal business occupation of Mr. Hildebrand is investments and to serve as Executive Chairman and founder of Hilcorp Energy Company and President and Chief Executive Officer of Hildebrand Enterprises.
4 Based solely on a review of the Schedule 13G/A filed on February 10, 20219, 2022 by The Vanguard Group, Inc. on behalf of itself and the following subsidiaries (collectively, “Vanguard”(“Vanguard”): Vanguard Asset Management, Limited, Vanguard Fiduciary Trust Company, Vanguard Global Advisors, LLC, Vanguard
Group (Ireland) Limited, Vanguard Investments Australia Ltd, Vanguard Investments Canada Inc., Vanguard Investments Hong Kong Limited and Vanguard Investments UK, Limited.. Vanguard does not have sole power to vote any of the shares reported, but has shared voting power over 152,133145,005 shares. Vanguard has sole dispositive power over 15,698,56116,146,874 shares and shared dispositive power over 272,415256,231 shares.
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5 Based solely on a review of the Schedule 13G filed by EarnestEARNEST Partners, LLC on February 16, 2021. Earnest9, 2022. EARNEST Partners, LLC has sole voting power over 8,369,32810,623,129 shares and sole dispositive power over 11,386,96814,106,386 shares.
6 Based solely on a review of the Schedule 13G/A filed by Dimensional Fund Advisors LP on February 12, 2021,8, 2022, which provides investment advice to four registered investment companies and acts as investment manager or sub-advisor to certain other commingled funds, group trusts and separate accounts (collectively, the “Funds”). Dimensional and its subsidiaries (collectively, “Dimensional”) may act as an adviser, sub-adviser and/or manager to certain Funds. Dimensional possesses sole voting power over 9,689,7899,228,404 shares and sole dispositive power over the 10,051,3809,454,101 shares held by the Funds and may be deemed to be the beneficial owner of the shares held by the Funds. However, all shares are owned by the Funds, and Dimensional disclaims beneficial ownership of such shares.
7 Based solely on a review of the Schedule 13G filed by Invesco Ltd. on February 16, 2021.9, 2022. Invesco Ltd., in its capacity as a parent holding company to its investment advisers (Invesco Advisers, Inc., Invesco Investment Advisers, LLC and Invesco Capital Management LLC), may be deemed to beneficially own the shares. Invesco Ltd. has sole voting power over 7,998,9857,930,052 shares and sole dispositive power over 8,054,4497,991,544 shares.
The following table provides information, as of March 3, 2021,2022, regarding the beneficial ownership of our common stock by each of our directors, each of our Named Executive Officers and all of our current directors and executive officers as a group. Unless otherwise noted in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them. The address for each individual listed below is c/o Archrock, Inc., 9807 Katy Freeway, Suite 100, Houston, Texas 77024.
Name of Beneficial Owner | Shares Owned Directly | Restricted Stock 1 | Right to Acquire Stock | Indirect Ownership 2 | Total Ownership | Percent of Class | Shares Owned Directly | Restricted Stock and Units 1 | Right to Acquire Stock | Indirect Ownership 2 | Total Ownership | Percent of Class | |||||
Non-Employee Directors | |||||||||||||||||
Anne-Marie N. Ainsworth | 71,904 | — | — | — | 71,904 | * | 87,918 | 11,592 | — | — | 99,510 | * | |||||
Gordon T. Hall | 208,074 | — | — | — | 208,074 | * | 224,088 | 11,592 | — | — | 235,680 | * | |||||
Frances Powell Hawes | 71,904 | — | — | — | 71,904 | * | 71,904 | 27,606 | — | — | 99,510 | * | |||||
J.W.G. Honeybourne | 114,210 | — | — | — | 114,210 | * | 130,224 | 11,592 | — | — | 141,816 | * | |||||
James H. Lytal | 71,904 | — | — | — | 71,904 | * | 87,918 | 11,592 | — | — | 99,510 | * | |||||
Leonard W. Mallett | — | — | — | — | — | * | 16,014 | 11,592 | — | — | 27,606 | * | |||||
Jason C. Rebrook | — | — | — | — | — | * | 16,014 | 11,592 | — | — | 27,606 | * | |||||
Edmund P. Segner, III | 74,476 | — | — | — | 74,476 | * | 74,476 | 27,606 | — | — | 102,082 | * | |||||
Named Executive Officers | |||||||||||||||||
D. Bradley Childers | 1,077,119 | 330,393 | — | 1,360 | 1,408,872 | * | 1,285,482 | 638,959 | — | 1,453 | 1,925,894 | 1.2% | |||||
Douglas S. Aron | 156,163 | 76,181 | — | — | 232,344 | * | 220,797 | 190,698 | — | — | 411,495 | * | |||||
Stephanie C. Hildebrandt | 99,420 | 65,861 | — | — | 165,281 | * | 164,384 | 129,473 | — | — | 293,857 | * | |||||
Jason G. Ingersoll | 96,949 | 47,454 | — | — | 144,403 | * | 141,954 | 93,217 | — | — | 235,171 | * | |||||
Eric W. Thode | 32,215 | 34,177 | — | 2,025 | 68,417 | * | 61,260 | 91,017 | — | 8,479 | 160,756 | * | |||||
All directors and current executive officers as a group (14 persons) | 2,108,084 | 574,578 | — | 3,385 | 2,686,047 | 1.76% | 2,616,540 | 1,302,296 | — | 9,932 | 3,928,768 | 2.5% |
* Less than 1%
1 For Ms. Hawes and Mr. Segner, includes restricted stock units awarded in 2021 and 2022 with deferred delivery. For all other directors, includes unvested restricted stock awarded in 2022. For executive officers, includes unvested restricted stock awards from annual grants that vest minimally over a three-year period from the date of grant. Officers and directors have voting power and, once vested, dispositive power.
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2 For Mr. Childers, includes shares previously acquired under our 401(k) Plan and since February 2014, the 401(k) Plan's dividend reinvestment on previously acquiredsuch shares; for Mr. Thode, includes 8,375 shares held by immediate family members for which he shares dispositive power.power and 104 shares held by a family member for which he disclaims beneficial ownership.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our directors and officers are required to file reports of holdings and transactions in Archrock stock with the SEC on a timely basis. Based on our records, and other information, in 2020 Mr. Brooks’ acquisition of stock (with deferred delivery) as a participant in the Directors’ Plan, was filed late due to an administrative error. In addition, the February 2020 certification of performance awards was reported upon vesting and payout of the units in August 2020; this was an administrative error and was considered a late filing for each of Messrs. Childers and Ingersoll. Wewe believe all other filing requirements of Section 16(a) of the Exchange Act were met by our officers and directors.directors in 2021.
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PROPOSAL 2 RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBIC ACCOUNTING FIRM |
Deloitte & Touche LLP (“Deloitte”) served as our independent registered public accounting firm for the fiscal year ended December 31, 2020.2021. The Audit Committee has selected Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2021.2022. We are submitting the selection of Deloitte for stockholder ratification at the Annual Meeting.
Representatives of Deloitte attended all meetings of the Audit Committee in 20202021 as well as our 20202021 Annual Meeting of Stockholders. For additional information concerning the Audit Committee and its activities with Deloitte, see “Pre-Approval Policy” and “Report of the Audit Committee” following this proposal description. We expect that a representative of Deloitte will attend the Annual Meeting, and the representative will have an opportunity to make a statement if he or she so chooses. The representative will also be available to respond to appropriate questions from stockholders.
|
The Board recommends a vote “FOR” the ratification of the Audit Committee’s appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, | VOTE REQUIRED
Ratification of Proposal 2 requires the affirmative vote of the holders of a majority of the votes cast in favor of or against the proposal, which means that the number of shares voted “for” ratification must exceed the number of shares voted “against” ratification. Abstentions and broker non-votes will have no effect on the outcome of the vote.
Our organizational documents do not require that our stockholders ratify the selection of our independent registered public accounting firm. We are requesting ratification because we believe it is a matter of good corporate practice. If our stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain Deloitte. Even if the selection is ratified, the Audit Committee may change the appointment at any time during the year if it determines that such a change would be in the best interests of us and our stockholders. |
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The following table presents fees for professional services rendered by Deloitte and its member firms and respective affiliates on our behalf for calendar years 20202021 and 2019.2020.
Types of Fees | 2020 | 2019 | 2021 | 2020 | ||
(In thousands) | (In thousands) | |||||
Audit fees 1 | $1,595 | $1,650 | 1,470 | $1,595 | ||
Audit-related fees 2 | 240 | 285 | 70 | 240 | ||
Tax fees 3 | 125 | 35 | 100 | 125 | ||
All other fees | — | — | 2 | — | ||
Total | $1,960 | $1,970 | $1,642 | $1,960 |
1 Audit fees include fees billed by our independent registered public accounting firm related to audits and reviews of financial statements we are required to file with the SEC, audits of internal control over financial reporting and assistance with and review of documents filed with the SEC.
2 Audit-related fees include fees billed by our independent registered public accounting firm primarily related to issuance of comfort letters.
3 Tax fees include fees billed by our independent registered public accounting firm primarily related to tax compliance and consulting services.
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In considering the nature of the services provided by Deloitte, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with Deloitte and our management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by (a) the SEC to implement the Sarbanes-Oxley Act of 2002, and (b) the American Institute of Certified Public Accountants.
The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. This policy generally provides that we will not engage our independent registered public accounting firm to render audit or non-audit services, and will not engage any other independent registered public accounting firm to render audit services, unless the service is specifically approved in advance by the Audit Committee.
The Audit Committee’s practice is to consider for approval, at its regularly scheduled meetings, all audit and non-audit services proposed to be provided by our independent registered public accounting firm. In situations where a matter cannot wait until the next regularly scheduled committee meeting, the chair of the Audit Committee has been delegated authority to consider and, if appropriate, approve audit and non-audit services. Approval of services and related fees by the Audit Committee chair is reported to the full Audit Committee at the next regularly scheduled meeting. All services performed by our independent registered public accounting firm in 20202021 were pre-approved pursuant to this policy.
The purpose of the Audit Committee is to assist the Board in its general oversight of Archrock’s financial reporting, internal controls and audit functions. The Audit Committee Charter describes in greater detail the full responsibilities of the Audit Committee and is available on Archrock’s website at www.archrock.com.
The Audit Committee has reviewed and discussed the consolidated financial statements and management’s assessment and report on internal controls over financial reporting with management and Deloitte, Archrock’s independent registered public accounting firm.Deloitte. The Audit Committee also reviewed and discussed with Deloitte its review and report on Archrock’s internal control over financial reporting. Archrock published these reports in its Annual Report on Form 10-K for the year ended December 31, 2020,2021, which it filed with the SEC on February 23, 2021.2022. Management is responsible for the preparation, presentation and integrity of financial statements and the reporting process, including the system of internal controls. Deloitte is responsible for performing an independent audit of Archrock’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing a report thereon, as well as expressing an opinion on the effectiveness of Archrock’s internal control over financial reporting. The Audit Committee monitors these processes.
The Audit Committee members are not professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management or the independent auditors. The Audit Committee serves a board-level oversight role, in which it provides advice, counsel and direction to management and the independent auditors on the basis of the information it receives, discussions with management and the independent auditors, and the experience of the Audit Committee’sCommittee members in business, financial and accounting matters. In accordance with law, the Audit Committee has ultimate authority and responsibility for selecting, compensating, evaluating, and, when appropriate, replacing Archrock’s independent auditors. The Audit Committee has the authority to engage its own outside advisers, including experts in particular areas of accounting, as it determines appropriate, apart from counsel or advisers hired by management.
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In this context, the Audit Committee discussed with Archrock’s internal auditors and Deloitte the overall scope and plans for their respective audits. The Audit Committee met with the internal auditors and Deloitte, with and without management present, to discuss the results of their examinations, their evaluations of Archrock’s internal controls, and the overall quality of Archrock’s financial reporting. Management represented to the Audit Committee that Archrock’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, and the Audit Committee reviewed and discussed the consolidated financial statements with management and Deloitte, including a discussion of the quality, not just the acceptability, of the accounting principles applied, the reasonableness of significant judgments and the clarity of disclosures in the consolidated financial statements. The Audit Committee also discussed with Deloitte the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as currently in effect.
In addition, the Audit Committee discussed with Deloitte its independence, considered the compatibility of non-audit services with the auditors’ independence and received the written disclosures and letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as currently in effect.
Based on the reviews and discussions referred to above, the Audit Committee recommended to Archrock’s Board, and the Board has concurred, that (a) the audited financial statements be included in Archrock’s Annual Report on Form 10-K for the year ended December 31, 2020,2021, for filing with the SEC; (b) Deloitte meets the requirements for independence; and (c) the appointment of Deloitte for 20212022 be submitted to the stockholders for ratification.
The Audit Committee of the Board of Directors
Frances Powell Hawes, Chair
Anne-Marie N. Ainsworth
Gordon T. Hall
Edmund P. Segner, III
The information contained in this Report of the Audit Committee shall not be deemed to be “soliciting material,” to be “filed” with the SEC or be subject to Regulation 14A or Regulation 14C or to the liabilities of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any filing of Archrock, except to the extent that Archrock specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended, or the Exchange Act.
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PROPOSAL 3 ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS |
Pursuant to Section 14A of the Exchange Act, our stockholders are provided the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers as disclosed in this Proxy Statement. This proposal gives stockholders the opportunity to approve, reject or abstain from voting with respect to the compensation provided to our Named Executive Officers for 2020.2021.
As discussed in the Compensation Discussion and Analysis section of this Proxy Statement, our executive compensation program is designed to attract and retain individuals with the level of expertise and experience needed to help achieve the business objectives intended to drive both short- and long-term success and stockholder value. You are encouraged to read the detailed information concerning our executive compensation program and policies contained in the Compensation Discussion and Analysis following this proposal description, as well as the compensation-related tabular and other disclosure following the Compensation Discussion and Analysis.
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The Board has determined to hold a “say on pay” advisory vote every year. In accordance with this determination and Section 14A of the Exchange Act, the Board recommends that stockholders vote “FOR” the following resolution:
| VOTE REQUIRED
Approval of Proposal 3 requires the affirmative vote of the holders of a majority of the votes cast in favor of or against the proposal, which means that the number of shares voted “for” approval must exceed the number of shares voted “against” approval. Abstentions and broker non-votes will have no effect on the outcome of the vote. | |
“RESOLVED, that the stockholders of Archrock, Inc. approve, on an advisory basis, the compensation paid to its Named Executive Officers for 2021, as disclosed in this Proxy Statement, including the Compensation Discussion and Analysis, the Summary Compensation table and the other related tables and disclosure.” | Because the vote on this proposal is advisory in nature, the outcome will not be binding on the Company, the Board or the Compensation Committee and will not affect compensation already paid or awarded. However, the Board and the Compensation Committee value the opinions of our stockholders and will take into account the outcome of the vote when considering future compensation arrangements for our Named Executive Officers. |
Consistent with the results of our stockholders’ most recent vote on the frequency of future “say on pay” votes, our Board has determined to hold future “say on pay” advisory votes on executive compensation on an annual basis. Unless the Board modifies its determination of the frequency of future “say on pay” advisory votes, the next “say on pay” advisory vote will be held at our 20222023 Annual Meeting of Stockholders.
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COMPENSATION DISCUSSION AND ANALYSIS
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EXECUTIVE SUMMARY |
The Compensation Discussion and Analysis that follows focuses on compensation earned during 20202021 by our Chief Executive Officer, Chief Financial Officer and our other executive officers whom we refer to as "Named“Named Executive Officers".Officers.” It also summarizes our executive compensation philosophy, each element of compensation, and how each element supports our compensation objectives and corporate strategy. Our executive compensation program is designed to balance rewards and risks, drive performance and sustain long-term stockholder value. Our 20202021 Named Executive Officers were as follows:
D. Bradley Childers | Douglas S. Aron | Stephanie C. Hildebrandt | Jason G. Ingersoll | Eric W. Thode |
President and Chief | Senior Vice President and Chief Financial Officer | Senior Vice President, General Counsel and Secretary | Senior Vice President, Sales and Operations Support | Senior Vice President, Operations |
20202021 PERFORMANCE HIGHLIGHTS AND RESPONSE TO COVID-19
At the onset of the COVID-19 pandemic, our management team and Board modified our 2020 strategy to add heightened focus on the following objectives: protect employees, reduce expenses, preserve revenue, and maintain our dividend program. We metcontinued to meet these objectives and delivered solid performance against our 20202021 business plan and long-term strategic goals.
Financial and Operational | ● |
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● | Normalizing for a
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● | We reduced debt by
$314 million. | |
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| We generated free cash flow and maintained our dividend program, paying a total of $89 million in dividends to our stockholders, with a year-end yield of | |
● | In the second half of 2021, we saw improvement in leading indicators for our business: heightened momentum in horsepower booking and growth in operating horsepower, which we accomplished through the redeployment of assets and selective capital spending. | |
Strategic | ● |
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● | We completed sales of compression and other assets totaling
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● | As 2021 came to |
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Human Capital | ● |
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● | Our | |
● | We continued to
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● | After implementing enhanced ESG oversight, our Governance and Sustainability Committee reviewed various ESG-related matters at each committee meeting held during 2021 and management reported to the full Board October 2021. | |
● | Our |
Executive | ● |
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MOST RECENT SAY ON PAY VOTE AND HISTORICAL PROGRAM CHANGES
At our 20202021 Annual Meeting of Stockholders, our 20192020 executive compensation program received a 95% stockholder approval rating of approximately 94%.rating. Our Compensation Committee values the feedback it has received from our stockholders, and it took into consideration this overwhelming support of our program. Based in part upon feedback from our stockholders, the Compensation Committee has made the following enhancements to our executive compensation program over the past three years:
The Compensation Committee remains committed to the ongoing evaluation of our executive compensation program, taking into consideration market trends, best practices, industry conditions, our performance and feedback received from our stockholders.
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Our executive compensation program provides balanced incentives and does not promote risks that are reasonably likely to have a material adverse effect on us. The Compensation Committee has incorporated severalcertain stockholder-aligned compensation governance practices into our executive compensation program, including:
Governance
| Compensation Program Design
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Policies
● Annual risk assessment of our executive compensation program | Performance-Based Compensation Features
● Three-year performance periods on all long-term incentive awards ● All performance-based payouts are
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COMPONENTS OF OUR 20202021 EXECUTIVE COMPENSATION
The charts below show the target annual total direct compensation for our CEO and our other Named Executive Officers (“NEOs”) for fiscal 2020.2021. These charts illustrate that the majority of compensation is variable (85% for our CEO and an average of 71%73% for our other Named Executive Officers).
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The chart below illustrates that our CEO’s realizable compensation aligns with total stockholder return (“TSR”).* Realizable compensation includes the actual annual incentive award paid for performance during each year and the year-end face value of equity-based awards granted during the year.
* TSR derived from Standard & Poor’s Capital IQ Platform and reflects adjustments for spin-off and dividends.
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DISCUSSION OF OUR FISCAL 2021 EXECUTIVE COMPENSATION PROGRAM |
COMPENSATION PHILOSOPHY AND OBJECTIVES
Our Philosophy and Objectives | How We Accomplish Our Objectives | |
Pay Competitively | Attract, retain and motivate an effective management team with the level of expertise and experience needed to achieve consistent profitability and return for our stockholders. | Total compensation should be competitive with that of comparably-sized companies within the oilfield services and midstream sectors and, where applicable, across a variety of industries, as further described below in “How Our Compensation Committee Determines Executive Compensation.”
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Pay for Performance | Provide for performance-based, variable compensation designed to motivate and reward key accomplishments. | A balance of fixed and variable compensation is considered essential for motivating performance while mitigating risk. As shown in the graphs in our executive summary, 85% of our Chief Executive Officer’s |
Stockholder Alignment | Align our Named Executive Officers’ compensation and our stockholders’ expectations for a profitable and sustainable long-term partnership. | Emphasis on equity-based compensation and share ownership encourages executives to act strategically to drive sustainable long-term performance and enhance long-term stockholder value. The Compensation Committee also believes that a competitive base salary ensures that the Company can attract and retain the level of managerial talent necessary to achieve optimal performance and profitability and, therefore, is also aligned with our stockholders' interest. |
The chart below compares the compensation awarded by the Compensation Committee to our CEO at target compared to the year-end value of that compensation, and in the case of performance-based equity, at target performance. The year-end value of compensation was 17% less than target, demonstrating that our executives’ compensation is significantly correlated to performance-based components.
2021 CEO Target Compensation Compared to Year End Value
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Our executive compensation program is designed to align our Named Executive Officers’ pay with individual and Company performance in order to achieve profitability and return for our stockholders, and to attract and retain executives with the level of expertise and experience necessary to achieve our business objectives while driving short- and long-term results. The key elements of our Named Executive Officers’ compensation and the targeted objectives of each are as follows:
Key Elements of Compensation | Description | Pay | Pay for | Stockholder |
Base salary | Fixed cash income
Establishes a base level of compensation that is essential to attract and retain talent | |||
Annual performance-based incentive compensation | Variable cash incentive award earned annually
Based upon achievement of key annual financial, operational, safety, and individual performance goals that are expected to contribute to long-term stockholder returns | |||
Long-term incentive compensation ("LTI Awards") | Provided through a combination of restricted shares and performance units vesting over
Promotes stockholder alignment by tying a significant portion of executive compensation directly to stockholder value |
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
The Compensation Committee is responsible for establishing and overseeing compensation programs that are consistent with our compensation philosophy. In carrying out this role, the Compensation Committee considers such factors as they deem relevant, including the following:
External Factors | Internal Factors | |
Data and analysis provided by the Compensation Committee’s independent compensation consultant | Current and past total compensation, including an annual review of base salary, short-term incentive pay and the value of LTI Awards received | |
Feedback provided from our stockholders and the results of our annual advisory say-on-pay vote | Company performance and operating unit performance (where applicable), as well as each executive’s impact on performance | |
Best practices in executive compensation | Our Chief Executive Officer’s recommendations (other than with respect to his own compensation) | |
Applicable macroeconomic and market considerations | Each executive’s relative scope of responsibility and potential | |
Individual goal setting, performance and demonstrated leadership | ||
Internal pay equity and retention considerations |
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Role and Independence of Compensation Consultant. For 2020, the Compensation Committee engaged2021, Pearl Meyer, an independent third-party compensation consultant, was engaged by the Compensation Committee to:
● | provide data and analysis to inform the Compensation Committee in selecting an appropriate peer group; |
● | provide a review of market trends in executive compensation, including base salary, annual incentives, LTI Awards and total direct compensation; and |
● | provide information on how trends in best practices, new rules, regulations and laws impact executive and director compensation practice and administration. |
Following review and consultation with Pearl Meyer, the Compensation Committee determined that Pearl Meyer is independent and that no conflict of interest, either currently or during 2020,2021, results from this engagement. The Compensation Committee continues to monitor the independence of its compensation consultant on a periodic basis.
For 2020,2021, Pearl Meyer provided analysis of data derived from (a) proxy statements filed by the companies in our peer group, as further described below, and (b) surveys of the compensation practices of companies in the energy industry and across a variety of industries, in each case with annual revenues within a reasonable and comparable range relative to Archrock. In performing its compensation analysis, Pearl Meyer generally placed more weight on the proxy compensation data for Named Executive Officers at our peer companies than on the information derived from the broader compensation surveys, where sufficient data was available.
Pearl Meyer also provided input to the Compensation Committee in their review and determination of the appropriate types and mix of LTI Awards and the performance factors and related payout percentages for performance-based compensation awarded in 2020.2021.
20202021 Peer Group. The Compensation Committee annually reviews the composition of the peer group, based on input from its compensation consultant, and modifies it as circumstances, including industry consolidation and other competitive forces, warrant. Since there are few publicly traded companies that directly match our profile, the Compensation Committee uses a peer group that includes a diverse group of midstream, oilfield services and related companies with primarily domestic operations. The analysis presented by Pearl Meyer includes a review of each company’s financial data and business profile (including geographic footprint), and includes companies considered talent competitors, companies that identify us as a peer and companies identified by proxy advisory firms as potential peers.
Executive Compensation Peer Group. Based on the timing of peer group and executive compensation review, In consultation with Pearl Meyer, the Compensation Committee made nothe following changes into the 2021 peer group from 2019 for evaluating 2020 executive compensation. Characteristicsthe evaluation of this group, in addition to2021 total compensation as well as relative stock price performance for long-term incentive compensation over the above, included:period of January 1, 2021 through December 31, 2023:
● | removed Forum Energy Technologies, Inc. and TETRA Technologies, Inc., two oilfield services companies |
● | added ChampionX Corporation, Enable Midstream Partners, LP and Enlink Midstream, LLC, based on assets and market capitalization, and in the case of Enable and Enlink, the desire to add additional midstream company representation in the peer group. |
With these changes, the following peer group was approved by the Compensation Committee for 2021:
ChampionX Corporation | Helix Energy Solutions Group, Inc. | Oil States International, Inc. | ||
Crestwood Midstream Partners LP | Helmerich & Payne, Inc. | Patterson-UTI Energy, Inc. | ||
Enable Midstream Partners, LP | Newpark Resources, Inc. | Summit Midstream Partners, LP | ||
Enlink Midstream, LLC | NOW Inc. | USA Compression Partners, LP | ||
Exterran Corporation | Oceaneering International, Inc. |
The Compensation Committee considered the peer group to be appropriate based on the following:
● | The companies in the peer group had estimated |
● |
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● | The number, size and type of companies included in the peer group provide a reasonable comparator group for purposes of evaluating stock price performance. |
● | The peer group includes companies with which we may compete for technical and managerial talent and that provide an appropriate reference point for assessing the competitiveness of our executive compensation |
● | The peer group provides an appropriate number of companies to provide a blend of data that is useful for determining the general positioning of our executive compensation. Executive compensation is targeted at the median of the market data, although individual pay levels may vary from median depending upon multiple factors including individual responsibilities, impact to the organization, tenure in position and individual performance. |
Our 2020 compensation peer group, selected by the Compensation Committee in consultation with Pearl Meyer, included the following companies:
Long-Term Incentive Peer Group. In consultation with Pearl Meyer, the Compensation Committee made the following changes to the 2020 peer group for the evaluation of relative stock price performance for the period of January 1, 2020 through December 31, 2022:
With these changes, the following peer group was approved by the Compensation Committee for 2020 performance awards that are based on relative stock price performance for the three-year performance period of January 1, 2020 through December 31, 2022:
Archrock ranked between the 50th and 75th percentiles for estimated 2020 revenues, assets, and market capitalization relative to the peer group.
Role of Management. The most significant aspects of management’s, including our Chief Executive Officer’s, role in the compensation-setting process are:
● | recommending compensation programs, compensation policies, compensation levels and incentive opportunities that are based on analysis provided by our independent compensation consultant and are consistent with our business strategies; |
● | preparing and distributing materials for Compensation Committee review and consideration; |
● | recommending corporate performance goals on which performance-based compensation will be based; and |
● | assisting in the evaluation of employee performance. |
Our Chief Executive Officer annually reviews the individual performance of our Named Executive Officers and recommends salary adjustments, annual cash incentives and LTI Awards for executives other than himself, which the Compensation Committee considers along with the other factors discussed above.
Due to the negative impact of the COVID-19 pandemic on the oil and gas industry and at the recommendation of Mr. Childers to reduce costs and improve cash flow, in 2020 the Compensation Committee approved the entry into a compensation letter with each Named Executive Officer under which each executive agreed to a temporary 10% reduction (25% in the case of Mr. Childers) in base salary (the “Pre-Reduction Base Salary”), effective as of June 7, 2020 (the “Compensation Letters”). Based on improved energy market conditions, tightening of the labor market and inflationary pressure, the Compensation Committee determined to restore the base salary of Ms. Hildebrandt and Messrs. Aron, Ingersoll and Thode to each executive’s Pre-Reduction Base Salary effective July 4, 2021. At Mr. Childers’ request, his salary was restored by only half of the 25% reduction to his base salary, subject to future review in the discretion of the Compensation Committee.
In its review of executive compensation in early 2021, the Compensation Committee determined that the Pre-Reduction Base Salary for each of Ms. Hildebrandt and Messrs. Childers, Aron and Ingersoll was appropriate. This determination was based on the competitive positioning of our Named Executive Officers'each officer’s base salariessalary as compared to the data provided by our independent compensation consultant, market conditions and individual performance, the Compensation Committee determined that Messrs. Childers, Aron and Ingersoll and Ms. Hildebrandt were appropriately positioned. The Compensation Committee, therefore, approved Mr. Childers’ existing base salary and approved modest increases in base salaries for Ms. Hildebrandt and Messrs. Aron and Ingersoll, consistent with the Company’s overall merit program.performance. In determining Mr. Thode’s increase, in February 2020, the Compensation Committee took into account Mr. Thode’shis performance, leading to his promotion to Senior Vice President, internal equity of executive compensation and the positioning of his salary relative to market data.
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The following chart lists each executive’s annualized 2019 base salary, merit increase percentage determined in early 2020, new 2020 base salary in effect through June 7, 2020 (the “Pre-Reduction Base Salary”)(Pre-Reduction and reduced), the percentage reduction due to the pandemic,2021 merit increase and the post-reductionrestored base salary effective as of June 7, 2020.July 4, 2021.
2019 | 2020 | ||||||||||
Name | Base Salary ($) | Merit Increase (%) | Pre-Reduction Base Salary ($) | Pandemic (%) | Post-Reduction ($) | Pre-Reduction Base Salary 1/1/20 – 6/6/20 Annualized ($) | Pandemic Reduction (%) | Reduced Base Salary 6/7/20 – 7/3/21 Annualized ($) | 2021 Merit Increase (%) | Restored Base Salary 7/4/21 – 12/31/21 Annualized ($) | |
Childers | 875,000 | — | 875,000 | 25.0 | 656,250 | 875,000 | 25.0 | 656,250 | — | 765,625 | |
Aron | 450,000 | 2.2 | 460,000 | 10.0 | 414,000 | 460,000 | 10.0 | 414,000 | — | 460,000 | |
Hildebrandt | 410,000 | 2.4 | 420,000 | 10.0 | 378,000 | 420,000 | 10.0 | 378,000 | — | 420,000 | |
Ingersoll | 350,000 | 2.9 | 360,000 | 10.0 | 324,000 | 360,000 | 10.0 | 324,000 | — | 360,000 | |
Thode | 300,000 | 16.7 | 350,000 | 10.0 | 315,000 | 350,000 | 10.0 | 315,000 | 2.9 | 360,000 |
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ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
During the first quarter of each year, the Compensation Committee adopts a program to provide the short-term cash incentive element of our Named Executive Officers’ compensation for that year. In February 2020,early 2021, the Compensation Committee adopted the short-term incentive program for 20202021 (the “2020“2021 Incentive Program”). Each Named Executive Officer’s potential cash payout under the 20202021 Incentive Program ranged from 0% to 200% of his or her incentive target, as described below. No payouts would be made unless Company results exceeded 50% of target performance. Under the 20202021 Incentive Program, the Compensation Committee determined payouts to the Named Executive Officers using the following formula:
The Compensation Committee believes Adjusted EBITDA is a comprehensive measure of financial performance, requiring focus on various components of financial and operating health, and an appropriate measure of management’s ability to run the business on an annual basis. The above formula, which in addition to a corporate-level goal includes operating unit and individual goals, is designed to create a focus on the overall success of the Company as well as the achievement of line of sight performance objectives. In addition, the Compensation Committee has retained discretion to include or exclude exceptional, non-recurring items, which could result in unintended consequences and an erroneous performance achievement to the advantage or detriment of employees, including our Named Executive Officers.
2020 Incentive Program Target. The Compensation Letters provide that in connection with the salary reduction, for purposes of calculating any other payments or benefits, the Company shall apply the Pre-Reduction Base Salary. Therefore, each Named Executive Officer’s cash incentive target was a specified percentage of Eligible Earnings during 2020 as defined in the footnote below. The table below presents each Named Executive Officer's 2020 cash incentive target as a specified percentage of his or her Eligible Earnings and a potential payout assuming the achievement of results at 100%.
2020 Incentive Program Target | |||
Name | 2020 Eligible Earnings ($)1 | Percent (%) of Eligible Earnings | ($) 2 |
Childers | 908,654 | 120 | 1,090,385 |
Aron | 475,000 | 75 | 356,250 |
Hildebrandt | 433,462 | 70 | 303,423 |
Ingersoll | 371,154 | 70 | 259,808 |
Thode | 350,000 | 70 | 245,000 |
1 Each Named Executive Officer’s Eligible Earnings includes (a) actual salary paid for the first seven pay periods of 2020 (based on the calendar, an extra pay cycle is included during 2020) plus (b) the Pre-Reduction Base Salary pro-rated for the remaining 20 pay cycles in 2020.
2 The 2020 Incentive Program potential payout at target assumes Company, operating unit and individual results (as discussed below) are achieved at 100%.
The incentive target for Mr. Thode was increased from 60% to 70% by the Compensation Committee in February 2020 to position his target compensation at the median of the market data and to place additional emphasis on performance-based compensation.
Company Results. The Compensation Committee set the target performance criteria for 2020* Adjusted EBITDA at $437.1 million, a 13% increase over 2019 actual performance of $387.1 million. At the time the 2020 Incentive Program was approved, the Compensation Committee considered the performance criteria at target to be a challenging goal, particularly with indications in late 2019 and early 2020 of a slowing market. The Compensation Committee considered it extremely challenging due to the macro impact of the pandemic.
Adjusted EBITDA for 2020 was achieved at approximately $415 million, which was 95%<80% of target performance and resultedwill result in a performance payout factor of 86.7%0%.
2020 Performance | ||||||||
2020 Adjusted EBITDA Performance Range 1 | Achievement | Payout | ||||||
Below Threshold (0% payout) | Threshold (50% payout) | Target (100% payout) | Maximum (150% payout) | ($) | (%) | (%) | ||
< $349.7M | $349.7M | $437.1M | $524.5M | 415M | 95 | 86.7 |
1 Adjusted EBITDA, a non-GAAP measure, is defined as net income (loss) excluding loss from discontinued operations, net of tax, income taxes, interest expense, depreciation and amortization, long-lived and other asset impairment, restatement and other charges, restructuring and other charges, corporate office relocation costs, debt extinguishment loss, transaction-related costs, indemnification (income) expense, net, non-cash stock-based compensation expense and other items. See the inside cover of the 20202021 Annual Report for a reconciliation of net income (loss) to Adjusted EBITDA.
The Compensation Committee believes Adjusted EBITDA is a comprehensive measure of financial performance, requiring focus on various components of financial and operating health, and an appropriate measure of management’s ability to run the business on an annual basis. The above formula is designed to create a focus on the overall success of the Company as well as the achievement of line of sight performance objectives. In addition, the Compensation Committee retains discretion to include or exclude exceptional, non-recurring items, which could result in unintended consequences and an erroneous performance achievement to the advantage or detriment of employees, including our Named Executive Officers.
2021 Incentive Program Target. For purposes of calculating payments under the Company’s Incentive Program, the Compensation Letters provided that the Company shall apply the Pre-Reduction Base Salary. Therefore, each Named Executive Officer’s cash incentive target was a specified percentage of Eligible Earnings during 2021 as defined in the footnote below. The table below presents each Named Executive Officer's 2021 cash incentive target as a specified percentage of his or her Eligible Earnings and a potential payout assuming the achievement of results at 100%.
ARCHROCK, INC. 2022 PROXY STATEMENT | 35
2021 Incentive Program Target | |||
Name | 2021 Eligible Earnings 1 ($) | Percent (%) of Eligible Earnings | ($) |
Childers | 875,000 | 120 | 1,050,000 |
Aron | 460,000 | 80 | 368,000 |
Hildebrandt | 420,000 | 75 | 315,000 |
Ingersoll | 360,000 | 70 | 252,000 |
Thode | 360,000 | 70 | 252,000 |
1 Eligible Earnings for Mr. Childers is his Pre-Reduction Base Salary, according to the terms of his Compensation Letter. For Ms. Hildebrandt and Messrs. Aron, Ingersoll and Thode, Eligible Earnings is each executive’s current base salary.
To place additional emphasis on performance-based compensation, the Compensation Committee determined to increase the 2021 incentive target for Mr. Aron and Ms. Hildebrandt by an additional 5% of eligible earnings as shown in the chart.
Operating Unit Results. Weighting of Performance Criteria.Under the 2020 Incentive Program, operating unit results, based on pre-determined objectives for Adjusted EBITDA, safety, people, technology, and where applicable, operating unit financial and operational metrics for 2021 were measured for each Named Executive Officer,weighted as applicable, with the following weighting:follows:
% Weighting for Each Named Executive Officer | |||
Operating Unit Performance Factors | Childers, Aron, Hildebrandt | Ingersoll | Thode |
Safety 1 | 5% TRIR 5% PVIR | 5% TRIR | 5% Operations TRIR 5% Operations PVIR |
People | 10% | 10% | 10% |
Technology | 10% | 10% | 10% |
Financial/Operational Metrics | 70% Adjusted EBITDA | 25% Horsepower Bookings 20% Aftermarket Services Revenue 15% Year-End Horsepower 15% Revenue per Horsepower | 40% Contract Operations Results 15% Aftermarket Services Results 15% Make Ready Results |
% Weighting for Each Named Executive Officer | |||
Performance Criteria | Childers, Aron, Hildebrandt | Ingersoll | Thode |
Adjusted EBITDA | 80% | 70% | 70% |
Safety 1
| 5% TRIR 5% PVIR | 10% TRIR | 5% Operations TRIR 5% Operations PVIR |
Technology | 10% | 10% | 10% |
Operating Unit Metrics | Not applicable | 10% | 10% |
1TRIR is total recordable incident rate and PVIR is preventable vehicle incident rate.
Adjusted EBITDA Target and Results. The Compensation Committee set the performance target for 2021 Adjusted EBITDA at $326 million. In determining the performance target, the Compensation Committee took into consideration the following factors: |
We have not disclosed
● | Due to the sharp decline in demand and market volatility caused by the COVID-19 pandemic, Archrock took an aggressive approach to reductions in growth capital spending during 2020 and continuing into 2021. |
● | The full year 2021 impact of 2020 returns of horsepower was considered, as well as our expectation for additional horsepower declines and pricing pressure in 2021, which historically occurs in gas compression services revenue following a significant decline in oil and gas production. Further, the market faced continued uncertainty from the potential impact of COVID-19 variants. |
● | In 2020, we completed the sale of over $52 million in non-core assets to pay down debt and standardize our fleet, which was expected to reduce Adjusted EBITDA in 2021. |
● | The Company realized a non-recurring tax benefit in 2020 of nearly $11 million. |
For these reasons, the Compensation Committee considered the target for Adjusted EBITDA appropriate. Adjusted EBITDA performance had to be achieved at 80% or greater of target performance for our Named Executive Officers to earn a payout under the 2021 Incentive Program.
Adjusted EBITDA for 2021 was achieved at $361 million. In its discretion, the Compensation Committee, reduced Adjusted EBITDA for purposes of the 2021 Incentive Plan to $357 million, which was 109.6% of target performance and resulted in a performance payout factor of 148%. The Compensation Committee considered the positive net impact of asset sales on Adjusted EBITDA in 2021 of $21 million. Because such asset sales are part of the Company’s longer-term strategy to standardize and reduce the age of its compression fleet, the Compensation Committee determined to make no discretionary adjustments to the portion of performance achievement attributable to such asset sales. The Compensation Committee did, however, reduce the performance achieved for Adjusted EBITDA by $3.7 million (a payout factor of 4%) for non-recurring items that had no strategic significance to the Company.
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2021 Adjusted EBITDA Performance Range | 2021 Performance Results | |||||||
Below Threshold | Threshold | Target | Maximum | Achievement | Payout | Weighting | ||
(0% payout) | (50% payout) | (100% payout) | (200% payout) | ($) | (%) | (%) | (%) | |
< $261M
| $261M
| $326M
| $392M
| 357M
| 109.6
| 148
| 70-80
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Safety Criteria and Results. The Company views safety performance as a core indicator of our success, therefore, the Compensation Committee has included safety as a standalone component of our incentive program for over 15 years. Our safety results include all permanent and part-time employees and contractors and are measured against over 4 million man hours worked and over 23 million miles driven in 2021. To achieve a payout, 2021 performance had to meet or be better than our safety criteria as indicated in the chart below. |
2021 Performance Results | |||||||
2021 Safety Criteria | Results | (%) Achievement | (%) Payout | Weighting (%) | Weighting (%) | ||
TRIR 1 | </= 0.50 | 0.10 | >100 | 100 | 10 | 5 | |
PVIR 2 | </= 0.50 | 0.13 | >100 | 100 | — | 5 |
1 TRIR (calculated pursuant to OSHA guidelines) = total number of recordable incidents (TRIR) x 200,000/divided by the total hours worked during the year
2 PVIR (calculated pursuant to API guidelines) = total number of preventable vehicle incidents x 1,000,000 miles/divided by mileage driven during the year
Technology Targets and Results. At the end of 2021, we had completed several major phases of our process and technology transformation project that enables us to harness technology in all aspects of our business to drive operational efficiencies and enhance our value proposition to our customers. Our investments have focused on the automation of workflows, integration of digital and mobile tools for our field service technicians and expanded remote monitoring capabilities of our vehicle and compressor fleets. We expect this project to, among other things, help us achieve increased asset uptime, improve the efficiency of our field service technicians, improve our supply chain and inventory management and reduce our emissions and carbon footprint, thereby improving our profitability. |
2021 Performance Results | ||||
2021 Technology Performance Criteria | Achievement (%) | Payout (%) | Weighting (%) | |
The Compensation Committee’s quantitative and qualitative evaluation of the following: Defined Project Milestones/Timeline Financial Performance Risk Mitigation Internal Adoption | 100 | 100 | 10% |
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Operating Unit Targets and Results. Operating Unit performance criteria are applicable to Mr. Ingersoll, Sales and Operations Support, and to Mr. Thode, Operations, and include more granular and specific line of sight performance goals necessary to maintain our focus on operating efficiencies at the business unit level and critical to the Company’s success. |
2021 Performance Results | ||||
2021 Operating Unit Performance Criteria 1 | Weighting (%) | Combined Achievement (%) | Combined Weighting (%) | |
Sales and Operations Support – Ingersoll Horsepower Bookings Aftermarket Services Quoted Job Performance |
70 30 |
146 |
10 | |
Operations – Thode Service Availability Aftermarket Services Quoted Job Performance Startup Quality |
60 25 15 |
99
|
10
|
1 Specific performance targets with respect to the achievement of these operating unit performance factorsare not disclosed because they are derived from internal analyses reflecting our business strategy and will not otherwise be publicly disclosed.strategy. We believe their disclosure would provide our competitors, customers and other third parties with significant insights regarding our confidential business strategies that could cause us substantial competitive harm.
|
The following provides additional insight into operating unit performance metrics and the performance achievement for each factor and the impact of the Compensation Committee’s decision to adjust operating unit financial and operational performance achievement due to the disparate impact of the pandemic on certain operating units.
Operating Unit Performance Factors | Percentage (%) Performance Achievement | ||
Childers, Aron, Hildebrandt | Ingersoll | Thode | |
Safety, People and Technology | 67 | 60 | 67 |
Financial/Operational – Actual/Adjusted | 85.7/100 | 30.1/85 | 85.4/100 |
Total Operating Unit Performance (based on Adjusted Financial/Operational performance achievement) | 90.0 | 78.8 | 90.0 |
Individual Performance. In early 2020,2021, the Compensation Committee approved individual performance objectives for Mr. Childers related to the Company's financial and operational performance, strategic initiatives (including strategic asset sales, debt reduction, implementation of our process and technology transformation project and certain ESG initiatives), leadership goals and Company culture initiatives. Upon conclusion of fiscal year 2020,2021, the Compensation Committee met with Mr. Childers to discuss his performance relative to the approved individual objectives. Thereafter, the Compensation Committee met in executive session and reported its assessment to the full Board. The Board delivered its evaluation to Mr. Childers, the result of which is summarized below and in “Executive Summary – 20202021 Performance Highlights and Response to COVID-19”Highlights”. The Compensation Committee considered each Named Executive Officers’ accomplishments during 2020,2021, including implementation of operational improvements, demonstrated leadership, capital discipline, progress on sustainability data gathering, analysis and reporting and the achievementsuccessful implementation of certain milestones in connection with a multi-yearmajor components of our process and technology initiative to modernize the Company’s operations.transformation project.
Following such assessments of individual performance during 2020,2021, the Compensation Committee and Board concluded that Mr. Childers exceededmet expectations, and the Compensation Committee determined that each of Ms. Hildebrandt and Messrs. Aron, Ingersoll and Thode exceeded expectations.
The Compensation Committee also considered each Named Executive Officer's (including Mr. Childers’) individual contribution toward significant strategic initiatives and accomplishments that were not specifically enumerated in the 20202021 Incentive Program performance criteria but are critical to the Company’s long-term strategic objectives or became imperative due to the COVID-19 pandemic. Specifically, the Compensation Committee considered the following:
● | Our team |
● |
● | In addition to the inclusion of quantitative safety metrics in our |
ARCHROCK, INC. 2022 PROXY STATEMENT | 38
The chart below provides each Named Executive Officer’s target cash incentive, multiplied by the achievement percentages for Company performance, operating unit performance and individual performance and the payout earned.
Name | 2020 Cash ($) | Company (%) | X | Operating Unit (%) | X | Individual (%) | = | Performance (%) | = | Total ($) |
Childers | 1,090,385 | 86.7 | 90.0 | 120 | 93.6 | 1,021,000 | ||||
Aron | 356,250 | 86.7 | 90.0 | 125 | 97.5 | 347,477 | ||||
Hildebrandt | 303,423 | 86.7 | 90.0 | 110 | 85.8 | 260,437 | ||||
Ingersoll | 259,808 | 86.7 | 78.8 | 120 | 82.0 | 213,000 | ||||
Thode | 245,000 | 86.7 | 90.0 | 150 | 117.0 | 286,760 |
1 Assumes Company and, as applicable, operating unit results are achieved at 100%.
Name | 2021 Cash Incentive Target ($) | Company Performance Factor (%) | X | Individual Performance (%) | = | Performance Achievement (%) | = | Total Payout Earned ($) |
Childers | 1,050,000 | 138.4 | 100 | 138.4 | 1,453,200 | |||
Aron | 368,000 | 138.4 | 110 | 152.2 | 560,243 | |||
Hildebrandt | 315,000 | 138.4 | 110 | 152.2 | 479,556 | |||
Ingersoll | 252,000 | 138.2 | 110 | 152.0 | 383,160 | |||
Thode | 252,000 | 133.5 | 120 | 160.2 | 403,757 |
2 As discussed under “Impact of COVID-19 on Operating Unit Results” above, the Compensation Committee equalized all operating unit financial and operational performance achievement. Actual operating unit financial and operational performance results are provided above.
LONG-TERM INCENTIVE COMPENSATION
During 2020,2021, our long-term incentive program consisted of the following LTI Awards:
Award Type | LTI Mix | Features | |
Restricted Stock | 60% | ● |
|
● | Supports retention objectives and incentivizes employees to work toward long-term performance goals by aligning their interests with stockholder interests
| ||
● | Dividends are paid on unvested shares as and when they are paid to our stockholders | ||
Cash Available for Dividend (“CAD”) Performance Units | ● |
| |
● | Performance goals are intended to drive consistent stockholder returns
| ||
● | Payout will range between 0% to 200% of units awarded at target | ||
● | Earned units cliff-vest following conclusion of the
| ||
● | Units are denominated in shares but settled in cash based on the stock price on the date of vesting; the awards are non-dilutive
| ||
● | Dividend equivalents are accrued during the performance period and are paid based on the actual number of units earned and vested | ||
● |
| ||
● | Performance goals are intended to | ||
● | Payout will range between 0% to 200% of units awarded at target
| ||
● | Earned units cliff-vest following conclusion of the three-year performance period | ||
● |
| ||
● |
| ||
Total Stockholder Return (“TSR”) Performance Units | 20% | ● | Performance awards that are earned based upon achievement of total stockholder return performance relative to our peers over the three-year performance period, January 1, 2021 through December 31, 2023 |
● | Performance goals are intended to drive long-term consistent stockholder value | ||
● | Payout will range between 0% to 200% of units awarded at target | ||
● | Earned units cliff-vest following conclusion of the three-year performance period | ||
● | Units are denominated in shares and settled in shares on a one-for-basis, complimentary to the underlying performance criteria and the value creation aspect of the award | ||
● | Dividend equivalents are accrued during the performance period and are paid based on the actual number of units earned and vested |
ARCHROCK, INC. 2022 PROXY STATEMENT | 39
Long-Term Incentive Plans. Grants of restricted stock and performance awards through April 30, 2020performance-based restricted stock units were made under the Archrock, Inc. 20132020 Stock Incentive Plan, (as amended, the “2013 Stock Incentive Plan”), which was approved by our stockholders in April 2013. In April 2020, our stockholders approved the adoption of our 2020 Stock Incentive Plan. Thereafter, all awards have been made are under our2020. The 2020 Stock Incentive Plan and no additional awards may be made under the 2013 Stock Incentive Plan. The Stock Incentive Plans areis administered by the Compensation Committee.
Timing of Awards. We generally seek to grant equity incentive awards on a regular and predictable cycle and we have historically granted during the first quarter of each year. The Compensation Committee generally establishes its schedule for making annual LTI Awards several months in advance, and does not make such awards based on knowledge of material nonpublic information. This practice results in awards typically being granted on a regular, predictable cycle. Equity-based awards are occasionally granted at other times during the year, such as upon the hiring of a new employee or following the promotion of an employee. LTI Awards are granted and valued based on the market closing price of our common stock on the date of approval by the Compensation Committee.
Named Executive Officers' 20202021 LTI Awards. In determining the grant of 20202021 LTI Awards, the Compensation Committee considered the factors discussed above under “How Our Compensation Committee Determines Executive Compensation,” and also reviewed share utilization with respect to the 20132020 Stock Incentive Plan, and potential overhang and burn rate under various award scenarios. The Compensation Committee also considered the retention aspect of awards as well as performance metrics that balance short- and long-term objectives. The following chart provides the total value of each Named Executive Officer's 20202021 LTI Award based on the grant date market value of our stock and the number of shares and units awarded (in the case of performance-based units, listed at target payout).
Name | Target Long-Term ($) | Restricted (#) | CAD (#) | TSR (#) | Target Long-Term Incentive Grant Date Value ($) | Restricted (#) | CAD (#) | Leverage Performance Units (#) | TSR (#) |
Childers | 4,000,000 | 264,026 | 88,008 | 88,008 | 4,100,000 | 229,906 | 38,318 | 38,317 | 76,635 |
Aron | 1,000,000 | 66,006 | 22,002 | 1,100,000 | 61,682 | 10,280 | 10,280 | 20,560 | |
Hildebrandt | 800,000 | 52,805 | 17,601 | 850,000 | 47,663 | 7,944 | 7,943 | 15,887 | |
Ingersoll | 600,000 | 39,603 | 13,201 | 600,000 | 33,644 | 5,607 | 5,607 | 11,214 | |
Thode | 500,000 | 33,003 | 11,001 | 600,000 | 33,644 | 5,607 | 5,607 | 11,214 |
20202021 Performance-Based LTI Awards.
CAD and Leverage Performance Units. CAD Performance Units may be earned based upon growth in our cash available for dividend over the three-year performance period of January 1, 2020 through December 31, 2022 (the “CAD Performance Units”), with payout ranging from 0% to 200% of the total units granted. The percentage of each award of2021 CAD and Leverage Performance Units that may be earned at the conclusion of the performance period will be based on the achievement of the performance factorfactors over a three-year performance period as indicated in the chart below.
Potential Payout Based on Performance Achievement | ||||
Performance Factor | Below (0% payout) | Threshold (50% payout) | Target (100% payout) | Maximum (200% payout) |
Average Annual Growth Rate in Cash Available for Dividend 1 Calculated as the sum of the annual growth (as compared to the prior year) in cash available for dividend divided by the weighted average of common shares outstanding for the fiscal year for each of the three fiscal year performance periods, divided by three |
<1.0%
|
1.0%
|
3.0%
|
6.0%
|
ARCHROCK, INC. 2022 PROXY STATEMENT | 40
Performance Achievement and Payout | ||||
Performance Factor | Below Threshold (0% payout) | Threshold (50% payout) | Target (100% payout) | Maximum (200% payout) |
Cumulative CAD Adjusted EBITDA, minus Maintenance and other Capital Expenditures, minus Cash Taxes, minus Cash Interest measured for the three-year performance period | <$450M | $450M | $550M | $750M |
Leverage 1 The ratio of (a) Total Indebtedness as of the performance period end to (b) EBITDA (earnings before interest, taxes, depreciation and amortization) for the period of four (4) consecutive fiscal quarters most recently ended (i.e., EBITDA as of the performance period end) | >5.0x | 5.0x | 4.5x | =/<3.5x |
1 Cash Available for Dividend is defined as Adjusted EBITDA2, minus maintenanceThe calculation of Leverage includes the Parent and other capital expenditures, minus cash taxes, minus cash interest.
2 Adjusted EBITDA,its Restricted Subsidiaries on a non-GAAP measure, is defined as net income (loss) excluding loss from discontinued operations, net of tax, income taxes, interest expense, depreciation and amortization, long-lived and other asset impairment, restatement and other charges, restructuring and other charges, corporate office relocation costs, debt extinguishment loss, transaction-related costs, indemnification (income) expense, net, non-cash stock-based compensation expense and other items.consolidated basis in accordance with GAAP. All capitalized terms have the meaning ascribed to them under the Company’s revolving credit agreement.
At the conclusion of the three-year performance period, a number of CAD and Leverage Performance Units ranging from 0% to 200% of the total number of CAD Performance Unitsunits granted will be earned. If the Company'sCompany’s performance falls between the levels specified in the chart, the percentage of CAD and Leverage Performance Units that will be earned will be determined using straight-line interpolation between such levels. No payout will be earned if the Company'sCompany’s CAD and Leverage performance is below the threshold level. The earned CAD and Leverage Performance Units are also subject to three-year cliff vesting on January 25, 2023,March 5, 2024, subject to continued employment through the vesting date. In addition, the award is subject to accelerated vesting as described below under “Potential Payments upon Termination or Change of Control”. Each earned CAD and Leverage Performance Unit is payable in cash based on the market closing price of our common stock on the date of vesting. The award includes tandem DERs which are accrued during the performance period and will be paid based on the number of units earned and vested.
TSR Performance Units. TSR Performance Units may be earned based upon our three-year total stockholder return (the “TSR Performance Units”), with payout ranging between 0% and 200% of the units granted. The percentage of each award of2021 TSR Performance Units that willmay be earned will be determined at the conclusion of the three-year performance period of January 1, 2020 through December 31, 2022, based on the Company'sour TSR performance rank relative to the companies in our 2020 Long-Term Incentive Peer Group.2021 peer group at the conclusion of the three-year performance period.
Below Threshold (0% payout) | Threshold ( | Target (100% payout) | Maximum (200% payout) | |
Performance Factor | Rank Based on | |||
Total Stockholder Return The Average Fair Market Value |
<
|
|
7th
|
1st
|
1 Average Fair Market Value as of any given date is the average fair market value of a share of Archrock common stock during the 20 consecutive trading dates ending on and including such date.
2 Payout at target assumesPayouts assume no changes in the Long-Term Incentive Peer Group.2021 peer group. In the event a company in the Long-Term Incentive Peer Grouppeer group becomes insolvent or liquidates, that company shall remain in the group, but will be moved to the lowest rank. In the event a company is acquired or merged into another company and is not the surviving company, or as a result of any other corporate transaction, such company shall be removed from the Long-Term Incentive Peer Grouppeer group and the percentile payouts shall be ratably adjusted.
As discussed above, based2 Average Fair Market Value as of any given date is the average fair market value of a share of Archrock common stock during the 20 consecutive trading dates ending on and including such date.
ARCHROCK, INC. 2022 PROXY STATEMENT | 41
Based on our ordinal rank in the Long-Term Incentive Peer Grouppeer group at the conclusion of the three-year performance period, a number of TSR Performance Units ranging from 0% to 200% of the total number of TSR Performance Units granted will become earned. If the Company'sCompany’s TSR rank falls between the levels specified in the chart above, the percentage of TSR Performance Units that will be earned will be determined using straight-line interpolation between such levels. No payout will be earned if the Company'sCompany’s TSR rank is below the threshold level. The earned TSR Performance Units are also subject to three-year cliff vesting on January 25, 2023,March 5, 2024, subject to continued employment through the vesting date. In addition, the award is subject to accelerated vesting as described below under “Potential Payments upon Termination or Change of Control”. Each earned TSR Performance Unit is payable as a share of common stock upon vesting. The award includes tandem DERs which are accrued during the performance period and will be paid based on the number of units earned and vested.
2019 Performance Units. In 2019, the Compensation Committee awarded performance units to our Named Executive Officers measured over the period of January 1, 2019 through December 31, 2021 (the “2019 Performance Units”) based on the following performance criteria:
| ● | total stockholder return (the “2019 TSR Performance Units”), the payment of |
● | growth in cash available for dividend (the “2019 CAD Performance Units”), the payment of which was based on the average annual dividend growth rate per share. The average annual dividend growth rate over the performance period did not meet the threshold performance criteria; therefore, the Compensation Committee determined that no |
2018 TSR Performance Units. In 2018,The following chart provides the Compensation Committee awarded TSRnumber of 2019 Performance Units (the “2018 TSRawarded and the number of 2019 Performance Units”), the payment of which isUnits earned and paid based on our stock price performance relative to our 2018 peer group over the performance period of January 1, 2018 through December 31, 2020. Archrock ranked 2nd among the 16 companies included in the comparison. Based on this result, the Compensation Committee determined that the 2018 TSR Performance Units are payable at 186% of target, subject to cliff vesting on August 20, 2021.actual performance. Each 2018 TSRearned 2019 Performance Unit will be paidwas settled as a share of common stock or the cash equivalent based on the market closing price on the date of vesting, as follows:vesting.
2019 TSR Performance Units | 2019 CAD Performance Units | ||||||
Name | Payable at Target | Paid Based on Performance | Payable at Target | Paid Based on Performance | |||
Childers | 82,802 | 139,107 | 82,802 | — | |||
Aron | 19,108 | 32,101 | 19,108 | — | |||
Hildebrandt | 15,923 | 26,750 | 15,923 | — | |||
Ingersoll | 10,615 | 17,833 | 10,615 | — | |||
Thode | 8,492 | 14,266 | 8,492 | — | |||
Dividend equivalents were accrued during the performance period and were paid on earned 2019 Performance Units upon vesting of Contentsthe underlying award.
Name | Units Payable at Target | Units Payable Based on Performance |
Childers | 53,685 | 99,854 |
Hildebrandt | 6,310 | 11,737 |
Ingersoll | 4,470 | 8,314 |
Vesting of LTI Awards. All annual awards granted to employees, including our Named Executive Officers, include a minimum three-year vesting period.
Upon a Termination Due to Death or Disability. The award agreements for all outstanding equity awards provide that, upon a termination due to death or disability, the award will accelerate in full. Performance units will accelerate (a) in full based on the achievement of the applicable performance measures if such achievement has been or can be determined by the Compensation Committee in good faith as of the date of termination due to death or disability or (b) if the Compensation Committee cannot reasonably determine the achievement percentage, then achievement at the target performance level.
Upon a Change of Control. The award agreements for all outstanding equity awards are structured as “double trigger” arrangements, that is, they provide that no portion of the award shall be subject to accelerated vesting solely upon a change of control. Instead, such awards will be subject to accelerated vesting only if a termination of the applicable executive’s employment by the Company without cause or by the executive for good reason occurs six months prior to or within eighteen months following a change of control. Performance units will accelerate (a) in full based on the achievement of the applicable performance measures as determined by the Compensation Committee in good faith as of the date of termination or (b) if the Compensation Committee cannot reasonably determine the achievement percentage, then achievement at the target performance level.
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OTHER COMPENSATION POLICIES, PRACTICES |
Stock Ownership Requirements. The Compensation Committee believes that stock ownership requirements closely align our Named Executive Officers’ interests with those of our stockholders by ensuring they hold a meaningful ownership stake in our Company. Our Chief Executive Officer is required to hold an aggregate amount of our common stock with a market value of at least five times his annual base salary (two times annual base salary in the case of our other Named Executive Officers). Our Compensation Committee reviews the stock ownership of our Named Executive Officers annually as of June 30. As of the date of this Proxy Statement, all Named Executive Officers subject to the stock ownership guidelines were in compliance with the guidelines.
Prohibition on Hedging and Pledging. Company policy prohibits all employees and directors from entering into any transaction designed to hedge or offset any decrease in the market value of our equity securities, including purchasing financial instruments (such as variable forward contracts, equity swaps, collars or exchange funds), or otherwise trading in market options (such as puts or calls), warrants, or other derivative instruments of our equity securities. In addition, our Named Executive Officers and directors may not pledge, hypothecate or otherwise encumber shares of the Company'sCompany’s common stock as collateral for indebtedness.
Executive Compensation Recoupment (“Clawback”). The Company has adopted a formal Clawback policy that allows, as applicable, the adjustment to or recovery of Performance-Based Compensation that exceeds the amount that would have been earned or paid had it been determined based on a restatement of the Company’s financial results due to material non-compliance with financial reporting requirements as a result of misconduct, including fraud or theft of Company assets. For this purpose, Performance-Based Compensation generally means all bonuses and other incentive and equity compensation (including, but not limited to, stock options), the amount, payment and/or vesting of which was calculated based on financial reporting measures. Performance-Based Compensation is deemed to be “received” in the fiscal period during which the applicable financial reporting measure is attained, even if the payment or grant occurs after the end of that fiscal period.
RETIREMENT SAVINGS, WELFARE AND OTHER BENEFITS
Our Named Executive Officers participate in our company-sponsoredCompany-sponsored benefit programs on generally the same basis as other salaried employees. These benefits are designed to provide retirement income and protection against the financial hardship that can result from illness, disability or death.
Retirement Savings Plan. The Archrock 401(k) Plan allows certain employees who are U.S. citizens, including our Named Executive Officers, to defer a portion of their eligible salary, up to the Internal Revenue Code (the “Code”) maximum deferral amount, on a pre-tax basis or on a post-tax (Roth) basis. Participants make contributions to an account maintained by an independent trustee and direct how those contributions are invested. We match 100% of a participant’s contribution up to a maximum of 5% of his or her annual eligible compensation. Participants vest in our matching contributions after two years of employment.
Employee Stock Purchase Plan. The Archrock, Inc. Employee Stock Purchase Plan (the “ESPP”) provides our eligible employees, including our Named Executive Officers, the opportunity to purchase our common stock through payroll deductions and is designed to comply with Section 423 of the Code. Our Compensation Committee, which administers the ESPP, has the discretion to set the purchase price at 85% to 100% of the fair market value of a share of our common stock on one of the following dates: (i) the offering date, (ii) the purchase date or (iii) the offering date or the purchase date, whichever is lower. Employees who elected to participate in the ESPP could purchase a share of our common stock at the lesser of (a) 95% of the fair market value of a share of common stock on the offering date or (b) 95% of the fair market value of a share of common stock on the purchase date. Offering periods consist of three-month periods, or such other periods as may be determined from time to time by our Compensation Committee. A total of 1,000,000 shares of our common stock has been authorized and reserved for issuance under the ESPP. As of December 31, 2020, 611,7072021, 521,719 shares remained available for purchase under the ESPP.
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Deferred Compensation Plan. The Archrock, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”) allows certain key employees who are U.S. citizens, including our Named Executive Officers, to defer receipt of their compensation, including up to 100% of their salaries and bonuses, and be credited with Company contributions designed to serve as a make-up for the portion of the employer-matching contribution that cannot be made under the Archrock 401(k) Plan due to Code limits. Participants generally must make elections relating to compensation deferrals and plan distributions in the year preceding that in which the compensation is earned. Contributions to the Deferred Compensation Plan are self-directed investments in the various funds available under the plan. There are thus no interest calculations or earnings measures other than the performance of the investment funds selected by the participant. Participants direct how their contributions are invested and may change these investment elections at any time.
Health and Welfare Benefit Plans. We maintain a standard complement of health and welfare benefit plans for our employees, including our Named Executive Officers, which provide medical, dental and vision benefits, employee assistance, health savings and flexible spending accounts, short-term and long-term disability insurance, accidental death and dismemberment insurance and life insurance coverage. These benefits are provided to our Named Executive Officers on the same terms and conditions as they are provided to our other employees.
Perquisites. The Compensation Committee has approved a de minimis amount of perquisites for our Named Executive Officers that falls below the $10,000 disclosure threshold; the Compensation Committee believes this approach to perquisites is in our stockholders’ best interest.
AGREEMENTS WITH EXECUTIVE OFFICERS
Executive Employment Letters. Each of our Named Executive Officers entered into employment letters with us, which set forth the applicable executive’s initial title, reporting relationship and compensation (the “Employment Letters”). Under the Employment Letters, each such Named Executive Officer is eligible for an annual base salary, short-term incentive target and LTI Award value, which are subject to annual review by our Compensation Committee. In addition, each Employment Letter provides that the applicable executive is eligible to participate in all employee benefit plans maintained by the Company.
Agreements Related to Termination of Employment. We have entered into severance benefit agreements and change of control agreements with each of our Named Executive Officers. Our Compensation Committee believes that severance and change of control agreements are necessary to attract and retain executive talent and are, therefore, a customary part of executive compensation. Our change of control agreements are structured as “double trigger” agreements. In other words, the change of control alone does not trigger benefits; rather, benefits are paid only if the executive incurs a qualifying termination of employment within six months prior to or 18 months following a change of control. See “Severance Benefit and Change of Control Arrangements” and “Potential Payments upon Termination or Change of Control” for a description of the terms of and the potential payouts under those agreements.
COVID-19 – Compensation Letters. As indicated under “Base Salary,” the Compensation Letters entered into among the Company and each Named Executive Officer in April 2020 provided for temporary salary reductions (25% in the case of our CEO and 10% for all other Named Executive Officers). Under the Compensation Letters, |
Effective July 2021, Mr. Childers’ base salary was restored by half of the 25% reduction and effective April 2022, his base salary will be fully restored. Effective July 4, 2021, the base salary was restored for each of Ms. Hildebrandt and Messrs. Aron, Ingersoll and Thode. Upon payout to our Named Executive Officers during the first quarter of 2022 of performance-based compensation earned under the 2021 Incentive Program and, with respect to Mr. Childers, the full restoration of his base salary in April 2022, the Compensation Letters are no longer in effect.
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RISK ASSESSMENT RELATED TO OUR COMPENSATION STRUCTURE
Pearl Meyer performed an analysis of our compensation practices in 20202021 to identify areas of compensation-related risk and risk mitigation. This analysis supports our position that our compensation practices reflect sound risk management practices and do not promote risks that are reasonably likely to result in a material adverse effect on us. For example, our Compensation Committee and management set performance goals in light of past performance, future expectations and market conditions that they believe do not encourage the taking of unreasonable risks. Our Compensation Committee believes its practice of considering non-financial and other qualitative factors in determining compensation awards discourages excessive risk taking and encourages good judgment. In addition, we believe executive compensation is allocated between cash and equity-based awards, between fixed and variable awards, and between short-term and long-term focused compensation in a manner that encourages decision-making that balances short-term goals with long-term goals and thereby reduces the likelihood of excessive risk taking. Finally, our Compensation Committee has established (a) short-term incentives that balance various Company objectives and provide for payout limits, and (b) LTI Awards with three-year minimum performance and vesting periods; we believe these program features further balance short- and long-term objectives and encourage employee behavior designed to achieve sustained profitability and stockholder value.
TAX AND ACCOUNTING CONSIDERATIONS
Section 162(m) of the Code. Section 162(m) of the Code generally disallows the deductibility of certain compensation expenses in excess of $1,000,000 to certain executive officers within a fiscal year. Compensation that is “performance-based” may be excluded from this limitation only if it is payable pursuant to a binding written agreement in effect on November 2, 2017 that is not materially modified. We believe that maintaining the discretion to evaluate the performance of and compensate our executive officers is an important part of our responsibilities and benefits our stockholders, even if compensation may be non-deductible under Section 162(m) of the Code. In light of the repeal of the performance-based compensation exception to Section 162(m) of the Code, the Compensation Committee expects in the future to approve compensation that is non-deductible for income tax purposes.
Section 280G of the Code. Section 280G of the Code disallows a tax deduction for excess parachute payments to certain executives of companies that undergo a change of control. In addition, Section 4999 of the Code imposes a 20% excise tax on the individual with respect to the excess parachute payment. Parachute payments are compensation linked to or triggered by a change of control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from LTI plans including stock options and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G of the Code based on the executive’s average prior compensation. Since 2009, we have had a policy of prohibiting tax gross-ups on income attributable to change of control agreements and other executive benefit agreements, which is discussed further in “Potential Payments upon Termination or Change of Control”.
Accounting for Stock-Based and Unit-Based Compensation. We have followed Financial Accounting Standards Board Accounting Standards Codification 718, “Stock Compensation” (“ASC 718”) in accounting for stock-based and unit-based compensation awards. ASC 718 requires companies to calculate the grant date “fair value” of their stock-based and unit-based awards using a variety of assumptions. ASC 718 also requires companies to recognize the compensation cost of their stock-based and unit-based awards in their income statements over the period that an employee is required to render service in exchange for the award. We expect that we will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our stock incentive plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.
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REPORT OF THE COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Submitted by the Compensation Committee of the Board of Directors
James H. Lytal, Chair
Gordon T. Hall
J.W.G. Honeybourne
Leonard W. Mallett
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COMPENSATION TABLES |
The following table shows the compensation paid during the years shown to our Named Executive Officers.
Name and Title | Year | Salary ($)(1) | Bonus ($) | Stock Awards ($)(2) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($)(3) | All Other Compensation ($)(4) | Total ($) | Year | Salary ($)(1) | Stock Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | All Other Compensation ($)(4) | Total ($) | ||||||||||||||||
D. Bradley Childers | 2020 | 782,452 | — | 4,245,524 | — | 1,021,000 | 74,272 | 6,123,248 | 2021 | 710,937 | 4,375,869 | 1,453, 200 | 69,266 | 6,609,272 | ||||||||||||||||
President and Chief | 2019 | 861,539 | — | 4,188,963 | — | 1,027,700 | 78,600 | 6,156,802 | 2020 | 782,452 | 4,245,524 | 1,021,000 | 74,272 | 6,123,248 | ||||||||||||||||
Executive Officer | 2018 | 818,269 | — | 3,612,605 | — | 1,140,422 | 377,916 | 5,949,212 | 2019 | 861,539 | 4,188,963 | 1,027,700 | 78,600 | 6,156,802 | ||||||||||||||||
Douglas S. Aron | 2020 | 448,462 | — | 1,061,376 | — | 347,477 | 50,178 | 1,907,493 | 2021 | 437,000 | 1,173,997 | 560,243 | 39,224 | 2,210,464 | ||||||||||||||||
Senior Vice President and | 2019 | 445,192 | — | 966,674 | — | 555,100 | 39,345 | 2,006,311 | 2020 | 448,462 | 1,061,376 | 347,477 | 50,178 | 1,907,493 | ||||||||||||||||
Chief Financial Officer | 2018 | 155,288 | — | 499,991 | — | 150,000 | 13,440 | 818,719 | 2019 | 445,192 | 966,674 | 555,100 | 39,345 | 2,006,311 | ||||||||||||||||
Stephanie C. Hildebrandt | 2020 | 409,231 | — | 849,090 | — | 260,437 | 39,549 | 1,558,308 | 2021 | 399,000 | 907,169 | 479,556 | 32,972 | 1,818,697 | ||||||||||||||||
Senior Vice President, | 2019 | 407,308 | — | 805,554 | — | 388,600 | 31,906 | 1,633,368 | 2020 | 409,231 | 849,090 | 260,437 | 39,549 | 1,558,308 | ||||||||||||||||
General Counsel and Secretary | 2018 | 397,308 | — | 624,998 | — | 330,000 | 73,027 | 1,425,333 | 2019 | 407,308 | 805,554 | 388,600 | 31,906 | 1,633,368 | ||||||||||||||||
Jason G. Ingersoll | 2020 | 350,385 | — | 636,816 | — | 213,000 | 33,020 | 1,233,221 | 2021 | 342,000 | 640,341 | 383,160 | 27,750 | 1,393,251 | ||||||||||||||||
Senior Vice President, | 2019 | 347,308 | — | 537,032 | — | 325,600 | 33,214 | 1,243,154 | 2020 | 350,385 | 636,816 | 213,000 | 33,020 | 1,233,221 | ||||||||||||||||
Sales and Operations Support | 2018 | 329,231 | — | 442,712 | — | 340,000 | 63,184 | 1,175,127 | 2019 | 347,308 | 537,032 | 325,600 | 33,214 | 1,243,154 | ||||||||||||||||
Eric W. Thode | 2020 | 329,808 | — | 530,688 | — | 286,760 | 19,500 | 1,166,756 | 2021 | 337,500 | 640,341 | 403,757 | 31,213 | 1,412,811 | ||||||||||||||||
Senior Vice President, | 2019 | 300,000 | — | 429,620 | — | 287,300 | 22,378 | 1,039,298 | 2020 | 329,808 | 530,688 | 286,760 | 19,500 | 1,166,756 | ||||||||||||||||
Operations | 2019 | 300,000 | 429,620 | 287,300 | 22,378 | 1,039,298 |
(1) | Amounts reported in this column reflect base salaries earned on a fiscal year basis. |
(2) | The amounts in this column for |
Name | CAD Performance Units Maximum Payout (based on ($) | |
Childers | ||
Aron | ||
Hildebrandt | ||
Ingersoll | 240,000 | |
Thode |
The grant date fair value of performance awards at target payout in the Summary Compensation table and at maximum payout in the above table is calculated in accordance with ASC 718. The amounts reflect our accounting expense and do not correspond to the actual value that was considered by the Compensation Committee on the date of grant nor the value that will be recognized by our Named Executive Officers. For a discussion of valuation assumptions, see Note 24 (Stock-Based Compensation) to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. See “Long-Term Incentive Compensation – Named Executive Officers’ 20202021 LTI Awards” for the target grant date value approved by the Compensation Committee.
(3) | The amounts in this column for |
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(4) | The amounts in this column for |
Name | 401(k) Plan Company Contribution ($)(a) | Deferred Compensation Plan Company Contribution ($)(b) | Other ($)(c) | Total ($) | 401(k) Plan Company Contribution ($)(a) | Deferred Compensation Plan Company Contribution ($)(b) | Other ($)(c) | Total ($) | ||||||||
Childers | 14,250 | 60,022 | — | 74,272 | 14,500 | 54,766 | — | 69,266 | ||||||||
Aron | 14,250 | 35,928 | — | 50,178 | 14,500 | 24,724 | — | 39,224 | ||||||||
Hildebrandt | 14,250 | 25,299 | — | 39,549 | 14,500 | 18,472 | — | 32,972 | ||||||||
Ingersoll | 14,250 | 18,770 | — | 33,020 | 14,500 | 13,250 | — | 27,750 | ||||||||
Thode | 14,250 | 5,250 | — | 19,500 | 14,500 | 16,713 | — | 31,213 |
(a) | The amounts shown represent the Company’s matching contributions for |
(b) | Our Named Executive Officers could contribute up to 100% of their base pay and bonus to the Deferred Compensation Plan, and the Company made certain matching contributions designed to serve as a make-up for the portion of the employer matching contributions that cannot be made under our 401(k) Plan due to Code limits. |
(c) | None of our Named Executive Officers received aggregate perquisites or personal benefits in excess of $10,000 during |
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The following table shows the short- and long-term incentive plan awards granted to the Named Executive Officers in 2020.2021.
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Possible Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | Grant Date Fair Value of Stock and Option Awards ($)(4) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Possible Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | Grant Date Fair Value of Stock Awards ($)(4) | |||||||||||||||||||||||||||||
Name | Grant Date |
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) |
Grant | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||
Childers | 1/23/20 | — | 1,090,385 | 2,180,770 | — | 88,008 | 176,016 | — | 799,993 | 3/5/21 | — | 1,050,000 | 2,100,000 | — | 76,635 | 153,270 | — | 819,995 | ||||||||||||||||||
1/27/20 | 88,008 | 176,016 | 997,131 | 3/5/21 | 76,635 | 153,270 | 1,095,881 | |||||||||||||||||||||||||||||
1/23/20 | 264,026 | 2,399,996 | 3/5/21 | 229,906 | 2,459,994 | |||||||||||||||||||||||||||||||
Aron | 1/23/20 | — | 356,250 | 712,500 | — | 22,002 | 44,004 | — | 199,998 | 3/5/21 | — | 368,000 | 736,000 | — | 20,560 | 41,120 | — | 219,992 | ||||||||||||||||||
1/23/20 | 22,002 | 44,004 | 261,384 | 3/5/21 | 20,560 | 41,120 | 294,008 | |||||||||||||||||||||||||||||
1/23/20 | 66,006 | 599,995 | 3/5/21 | 61,682 | 659,997 | |||||||||||||||||||||||||||||||
Hildebrandt | 1/23/20 | — | 303,423 | 606,847 | — | 17,601 | 35,202 | — | 159,993 | 3/5/21 | — | 315,000 | 630,000 | — | 15,887 | 31,774 | — | 169,991 | ||||||||||||||||||
1/23/20 | 17,601 | 35,202 | 209,100 | 3/5/21 | 15,887 | 31,774 | 227,184 | |||||||||||||||||||||||||||||
1/23/20 | 52,805 | 479,997 | 3/5/21 | 47,663 | 509,994 | |||||||||||||||||||||||||||||||
Ingersoll | 1/23/20 | — | 259,808 | 519,616 | — | 13,201 | 26,402 | — | 119,997 | 3/5/21 | — | 252,000 | 504,000 | — | 11,214 | 22,428 | — | 119,990 | ||||||||||||||||||
1/23/20 | 13,201 | 26,402 | 156,828 | 3/5/21 | 11,214 | 22,428 | 160,360 | |||||||||||||||||||||||||||||
1/23/20 | 39,603 | 359,991 | 3/5/21 | 33,644 | 359,991 | |||||||||||||||||||||||||||||||
Thode | 1/23/20 | — | 245,000 | 490,000 | — | 11,001 | 22,002 | — | 99,999 | 3/5/21 | — | 252,000 | 504,000 | — | 11,214 | 22,428 | — | 119,990 | ||||||||||||||||||
1/23/20 | 11,001 | 22,002 | 130,692 | 3/5/21 | 11,214 | 22,428 | 160,360 | |||||||||||||||||||||||||||||
1/23/20 | 33,003 | 299,997 | 3/5/21 | 33,644 | 359,991 | |||||||||||||||||||||||||||||||
(1) | The amounts in these columns show the range of potential payouts under the |
(2) | The amounts in these columns show the range of potential payouts of performance units awarded under the |
(3) | Shares of restricted stock awarded under the |
(4) | The grant date fair value of performance units (at target) and restricted stock is calculated in accordance with ASC 718. For a discussion of valuation assumptions, see Note 24 (Stock-Based Compensation) to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, |
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table shows our Named Executive Officers’ equity awards and equity-based awards denominated in our common stock outstanding at December 31, 2020.2021.
Option Awards | Stock Awards | Stock Awards (1) | |||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) (1) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) (2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Yet Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Yet Vested ($) (2) | Number of Shares or Units of Stock That Have Not Vested (#) (3) | Market Value of Shares or Units of Stock That Have Not Vested ($) (2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Yet Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Yet Vested ($) (2) | |||||||||||
Childers | 63,891 | 25.18 | 3/4/2021 | 501,206(3) | 4,340,444 | 45,927(4) | 397,728 | 488,723 | 3,655,648 | 82,802(4) | 619,359 | ||||||||||||
82,802(5) | 717,065 | 88,008(5) | 658,300 | ||||||||||||||||||||
88,008(6) | 762,149 | 76,635(6) | 573,230 | ||||||||||||||||||||
53,685(7) | 464,912 | 82,802(7) | 619,359 | ||||||||||||||||||||
82,802(8) | 717,065 | 88,008(8) | 658,300 | ||||||||||||||||||||
88,008(9) | 762,149 | 76,635(9) | 573,230 | ||||||||||||||||||||
Aron | 117,292(3) | 1,015,749 | 19,108(5) | 165,475 | 124,792 | 933,444 | 19,108(4) | 142,928 | |||||||||||||||
22,002(5) | 164,575 | ||||||||||||||||||||||
20,560(6) | 153,789 | ||||||||||||||||||||||
22,002(6) | 190,537 | 19,108(7) | 142,928 | ||||||||||||||||||||
19,108(8) | 165,475 | 22,002(8) | 164,575 | ||||||||||||||||||||
22,002(9) | 190,537 | 20,560(9) | 153,789 | ||||||||||||||||||||
Hildebrandt | 99,387(3) | 860,691 | 6,486(4) | 56,169 | 98,788 | 738,934 | 15,923(4) | 119,104 | |||||||||||||||
15,923(5) | 137,893 | 17,601(5) | 131,655 | ||||||||||||||||||||
17,601(6) | 152,425 | 15,887(6) | 118,835 | ||||||||||||||||||||
6,310(7) | 54,645 | 15,923(7) | 119,104 | ||||||||||||||||||||
15,923(8) | 137,893 | 17,601(8) | 131,655 | ||||||||||||||||||||
17,601(9) | 152,425 | 15,887(9) | 118,835 | ||||||||||||||||||||
Ingersoll | 71,272(3) | 617,216 | 4,594(4) | 39,784 | 70,660 | 528,537 | 10,615(4) | 79,400 | |||||||||||||||
10,615(5) | 91,926 | 13,201(5) | 98,743 | ||||||||||||||||||||
13,201(6) | 114,321 | 11,214(6) | 83,881 | ||||||||||||||||||||
4,470(7) | 38,710 | 10,615(7) | 79,400 | ||||||||||||||||||||
10,615(8) | 91,926 | 13,201(8) | 98,743 | ||||||||||||||||||||
13,201(9) | 114,321 | 11,214(9) | 83,881 | ||||||||||||||||||||
Thode | 53,671(3) | 464,791 | 8,492(5) | 73,541 | 64,137 | 479,745 | 8,492(4) | 63,520 | |||||||||||||||
11,001(6) | 95,269 | 11,001(5) | 82,287 | ||||||||||||||||||||
8,492(8) | 73,541 | 11,214(6) | 83,881 | ||||||||||||||||||||
11,001(9) | 95,269 | 8,492(7) | 63,520 | ||||||||||||||||||||
11,001(8) | 82,287 | ||||||||||||||||||||||
11,214(9) | 83,881 |
(1) |
(2) | Based on the market closing price of our common stock on December 31, |
(3) | Includes shares of restricted stock that vest at the rate of one-third per year beginning on the initial vesting date shown below, subject to continued service through each vesting date. |
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Name | Unvested
| Initial
| |||
Childers | |||||
1/25/ | |||||
Aron | |||||
1/25/ | |||||
Hildebrandt | |||||
1/25/ | |||||
Ingersoll | |||||
1/25/ | |||||
Thode | |||||
1/25/ | |||||
(4) |
Unearned 2020 CAD Performance Units that cliff vest on January 25, 2023, subject to continued service through the vest date. Amounts shown are the number of units awarded at target performance. The number of actual units paid will be determined by the Compensation Committee following the conclusion of the three-year performance period, January 1, 2020 through December 31, 2022. |
Unearned |
Unearned 2019 TSR Performance Units that were outstanding as of December 31, 2021 and cliff vested on January 25, 2022. Amounts shown are the number of units awarded at target performance. The number of actual units paid were determined by the Compensation Committee following the conclusion of the three-year performance period, January 1, 2019 through December 31, 2021, as discussed under “Long-Term Incentive Compensation – 2019 Performance Units.” |
(8) | Unearned 2020 TSR Performance Units that cliff vest on January 25, 2023, subject to continued service through the vest date. Amounts shown are the number of units awarded at target performance. The number of actual units paid will be determined by the Compensation Committee following the conclusion of the three-year performance period, January 1, 2020 through December 31, 2022. |
(9) | Unearned 2021 TSR Performance Units that cliff vest on March 5, 2024, subject to continued service through the vest date. Amounts shown are the number of units awarded at target performance. The number of actual units paid will be determined by the Compensation Committee following the conclusion of the three-year performance period, January 1, 2021 through December 31, 2023. |
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The following table shows the value realized by the Named Executive Officers upon the vesting of equity awards covering our common stock during 2020.2021. No stock options were outstanding or exercised during 2020.2021.
Stock Awards | Stock Awards | ||||||||||||||
Name | Number of Shares and Units Acquired on Vesting (#) (1) | Value Realized on Vesting ($) (2) | Number of Shares and Units Acquired on Vesting (#) (1) | Value Realized on Vesting ($) (2) | |||||||||||
Childers | 330,878 | 2,564,324 | 388,170 | 3,395,904 | |||||||||||
Aron | 32,181 | 259,191 | 54,182 | 483,917 | |||||||||||
Hildebrandt | 55,211 | 412,475 | 66,485 | 580,344 | |||||||||||
Ingersoll | 37,771 | 289,887 | 47,164 | 411,743 | |||||||||||
Thode | 20,738 | 159,729 | 23,178 | 211,112 | |||||||||||
(1) | Includes our restricted stock and stock- and cash-settled performance units that vested during |
(2) | The value realized for vested awards was determined by multiplying the fair market value of our common stock (the market closing price of our common stock on the vesting date) by the number of shares or units that vested, plus dividend equivalents attributable to the |
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NONQUALIFIED DEFERRED COMPENSATION
The following table shows the Named Executive Officers’ compensation for 20202021 under our nonqualified deferred compensation plan.
Name | Executive Contributions in Last Fiscal Year ($) | Company Contributions in Last Fiscal Year ($) (1) | Aggregate Earnings/ (Losses) in Last Fiscal Year ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year End ($) | ||||||
Childers | 54,772 | 60,022 | 81,286 | (14,864) | 598,305 | ||||||
Aron | 50,178 | 35,928 | 34,456 | — | 168,830 | ||||||
Hildebrandt | 20,049 | 25,299 | 7,720 | — | 67,111 | ||||||
Ingersoll | 13,520 | 18,770 | 15,299 | — | 94,936 | ||||||
Thode | — | 5,250 | 4,640 | — | 23,617 | ||||||
Name | Executive Contributions in Last Fiscal Year ($) | Company Contributions in Last Fiscal Year ($) (1) | Aggregate Earnings/ (Losses) in Last Fiscal Year ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year End ($) | ||||||||||||||||
Childers | 49,766 | 54,766 | 138,144 | (15,929) | 825,051 | ||||||||||||||||
Aron | 39,224 | 24,724 | 31,409 | — | 264,187 | ||||||||||||||||
Hildebrandt | 17,157 | 18,472 | 15,572 | — | 118,312 | ||||||||||||||||
Ingersoll | 11,100 | 13,250 | 13,780 | — | 133,066 | ||||||||||||||||
Thode | 13,500 | 16,713 | 5,323 | — | 59,153 |
(1) | The amounts in this column represent Company contributions to each Named Executive Officer’s Deferred Compensation Plan account earned in |
Under our Deferred Compensation Plan, eligible employees are permitted to defer receipt of up to 100% of their base salary and bonus. We also make certain employer matching contributions designed to serve as a make-up for the portion of the employer matching contributions that cannot be made under our 401(k) Plan due to Code limits. The amounts deferred under each participant’s Deferred Compensation Plan account are deemed to be invested in investment alternatives chosen by the participant from a range of choices established by the plan administrator. The balances of participant accounts are adjusted to reflect the gains or losses that would have been obtained if the participant contributions had actually been invested in the applicable investment alternatives.
Participants may elect to defer the distribution of their account balances until the occurrence of a specified future date or event, including: (a) a future date while the participant is employed by us, as specified by the participant, (b) the participant’s separation from service (within the meaning of Section 409A of the Code), including due to death, or (c) the participant’s disability. Participants may also elect whether to receive distributions of their account balances in a single lump-sum amount or in annual installments to be paid over a period of two to ten years.
Payment of a participant’s account will be made or commence, as applicable, as follows:
● | for lump sum payments, on the earlier of: (x) in the case of a specified in-service date, January 1 of such year and (y) in the case of a separation from service or disability, the date of the participant’s separation of service or, if earlier, disability and |
● | for installment payments, the earlier of: (x) in the case of a specified in-service date, January 1 of such year and (y) in the case of a separation from service or disability, January 1 of the calendar year immediately following the date of the participant’s separation of service or, if earlier, disability. |
The Deferred Compensation Plan is administered by our Compensation Committee. The Deferred Compensation Plan is an unfunded plan for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. We have established a “rabbi trust” to satisfy our obligations under the Deferred Compensation Plan.
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SEVERANCE BENEFIT AND CHANGE OF CONTROL ARRANGEMENTS
Severance Benefit Agreements. We have entered into a severance benefit agreement with each of our Named Executive Officers. Each such agreement provides that if the executive’s employment is terminated by us without cause or by the executive for good reason at any time through the term of the agreement (one year, to be automatically renewed for successive one-year periods until notice of non-renewal is given by either party), he or she will receive a lump sum payment in cash on the 35th day after the termination date equal to the sum of:
● | his or her annual base salary then in effect plus the target annual incentive program opportunity; plus |
● | a pro-rated portion of his or her target annual incentive program opportunity for the termination year based on the length of time during which he or she was employed during such year; plus |
● | any earned but unpaid annual incentive program award for the fiscal year ending prior to the termination date; plus |
● | a payment equal to twelve months of the portion of the monthly premiums that would be payable by us under our group health plan had the executive’s employment not terminated, based on the executive’s elections as in effect on the termination date, together with the monthly administrative fee that would be assessed under COBRA. |
In addition, the executive would be entitled to the accelerated vesting as of the termination date of that portion of each of his or her outstanding unvested Archrock equity, equity-based or cash awards that was scheduled to vest on the next vesting date immediately following the termination date. In the case of outstanding performance shares or units which are based in common stock of Archrock and subject to time-based cliff vesting at the end of a three-year performance period (including the CAD, Leverage and TSR Performance Units), such shares or units shall vest as follows: if the termination date occurs in the first year of the performance period, one-third of the performance units payable at target; if the termination date occurs in the second year of the performance period, two-thirds of the performance units payable at target; or if the termination date occurs in the third year of the performance period, depending on whether performance has been determined, (a) 100% of the performance units payable at target or (b) a percentage of the performance units payable at target based on actual performance.
Each executive’s entitlement to the payments and benefits under his or her severance benefit agreement is subject to his or her execution (and non-revocation) of a waiver and release for our benefit. In addition, each executive is subject to non-disparagement restrictions following termination.
Change of Control Agreements. We have entered into a change of control agreement with each of our Named Executive Officers. Each such agreement provides that if the executive’s employment is terminated by us other than for cause, death or disability, or by the executive for good reason (in each case, a “Qualifying Termination”), within six months before or 18 months following a change of control (as defined in the change of control agreements), he or she would receive a cash payment within 60 days after the termination date equal to:
● | two times (three times in the case of Mr. Childers) his or her current annual base salary plus two times (three times in the case of Mr. Childers) his or her target annual incentive program opportunity for that year; plus |
● | a pro-rated portion of the target annual incentive program opportunity for the termination year based on the length of time during which the executive was employed during such year; plus |
● | any earned but unpaid annual incentive program award for the fiscal year ending prior to the termination date; plus |
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● | two times the total of the Company contributions that would have been credited to him or her under the Archrock 401(k) Plan and any other deferred compensation plan had he or she made the required amount of elective deferrals or contributions during the twelve months immediately preceding the termination month; plus |
● | a lump-sum cash payment equal to twenty-four months of the portion of the monthly premiums that would be payable by us under our group health plan had the executive’s employment not terminated, based on the executive’s elections as in effect on the termination date, together with the monthly administrative fee that would be assessed under COBRA. |
In addition, the executive would be entitled to the accelerated vesting of all his or her unvested LTI Awards.
Our change of control agreements do not provide for tax gross-ups. Instead, the agreements include a Section 280G “best pay” provision pursuant to which in the event any payments or benefits received by the executive would be subject to an excise tax under Section 4999 of the Code, the executive will receive either the full amount of his or her payments or a reduced amount such that no portion of the payments is subject to the excise tax (whichever results in the greater after-tax benefit to the executive).
Each executive’s entitlement to the payments and benefits under his or her change of control agreement is also subject to his or her execution (and non-revocation) of a waiver and release for our benefit. In addition, in the event an executive receives payments from the Company under his or her change of control agreement, such executive will be subject to confidentiality, non-disclosure, non-solicitation and non-competition restrictions for two years following a termination of his or her employment.
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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
The following table shows the potential payments to the Named Executive Officers upon a theoretical termination of employment or change of control (as applicable) occurring on December 31, 2020.2021. The amounts shown are, as applicable, based on each Named Executive Officer’s Pre-Reduction Base Salary and assumes an Archrock common stock value of $8.66$7.48 per share, the December 31, 20202021 market closing price. The actual amount paid out to an executive upon an actual termination or change of control can only be determined at the time of such event.
Name | Termination Due to Death or Disability ($)(1) | Termination Without Cause or Resignation with Good Reason ($)(2) | Change of Control Without a Qualifying Termination ($)(3) | Change of Control with a Qualifying Termination ($)(3) | Termination Due to Death or Disability ($)(1) | Termination Without Cause or Resignation with Good Reason ($)(2) | Change of Control Without a Qualifying Termination ($)(3) | Change of Control with a Qualifying Termination ($)(3) | |||||||||||||||||||
D. Bradley Childers | |||||||||||||||||||||||||||
Cash Severance | — | 2,975,000 | (4) | — | 6,825,000 | (5) | — | 2,975,000 | (4) | — | 6,825,000 | (5) | |||||||||||||||
Stock Options | — | — | — | — | |||||||||||||||||||||||
Restricted Stock (6) | 4,340,444 | 2,099,069 | — | 4,340,444 | 3,655,648 | 1,850,887 | — | 3,655,648 | |||||||||||||||||||
Performance Awards (7) | 3,821,069 | 2,326,827 | — | 3,821,069 | 3,701,777 | 2,498,604 | — | 3,701,777 | |||||||||||||||||||
Other Benefits (8) | — | 21,291 | — | 191,126 | — | 21,291 | — | 194,114 | |||||||||||||||||||
Total Pre-Tax Benefit | 8,161,513 | 7,422,187 | — | 15,177,639 | 7,357,425 | 7,345,782 | — | 14,376,539 | |||||||||||||||||||
Douglas S. Aron | |||||||||||||||||||||||||||
Cash Severance | — | 1,150,000 | (4) | — | 1,955,000 | (5) | — | 1,196,000 | (4) | — | 2,024,000 | (5) | |||||||||||||||
Stock Options | — | — | — | — | |||||||||||||||||||||||
Restricted Stock (6) | 1,015,749 | 469,203 | — | 1,015,749 | 933,444 | 461,285 | — | 933,444 | |||||||||||||||||||
Performance Awards (7) | 712,025 | 347,659 | — | 712,025 | 922,583 | 607,815 | — | 922,583 | |||||||||||||||||||
Other Benefits (8) | — | 20,266 | — | 140,888 | — | 20,266 | — | 118,979 | |||||||||||||||||||
Total Pre-Tax Benefit | 1,727,774 | 1,987,128 | — | 3,823,662 | 1,856,027 | 2,285,366 | — | 3,999,006 | |||||||||||||||||||
Stephanie C. Hildebrandt | |||||||||||||||||||||||||||
Cash Severance | — | 1,008,000 | (4) | — | 1,722,000 | (5) | — | 1,050,000 | (4) | — | 1,785,000 | (5) | |||||||||||||||
Stock Options | — | — | — | — | |||||||||||||||||||||||
Restricted Stock (6) | 860,691 | 417,937 | — | 860,691 | 738,934 | 369,599 | — | 738,934 | |||||||||||||||||||
Performance Awards (7) | 691,449 | 396,287 | — | 691,449 | 739,189 | 492,972 | — | 739,189 | |||||||||||||||||||
Other Benefits (8) | — | 17,720 | — | 114,537 | — | 17,720 | — | 101,383 | |||||||||||||||||||
Total Pre-Tax Benefit | 1,552,140 | 1,839,944 | — | 3,388,677 | 1,478,123 | 1,930,291 | — | 3,364,506 | |||||||||||||||||||
Jason G. Ingersoll | |||||||||||||||||||||||||||
Cash Severance | — | 864,000 | (4) | — | 1,476,000 | (5) | — | 864,000 | (4) | — | 1,476,000 | (5) | |||||||||||||||
Stock Options | — | — | — | — | |||||||||||||||||||||||
Restricted Stock (6) | 617,216 | 296,644 | — | 617,216 | 528,537 | 262,026 | — | 528,537 | |||||||||||||||||||
Performance Awards (7) | 490,987 | 277,276 | — | 490,987 | 524,049 | 346,379 | — | 524,049 | |||||||||||||||||||
Other Benefits (8) | — | 22,812 | — | 111,663 | — | 22,812 | — | 101,123 | |||||||||||||||||||
Total Pre-Tax Benefit | 1,108,203 | 1,460,732 | — | 2,695,866 | 1,052,586 | 1,495,217 | — | 2,629,709 | |||||||||||||||||||
Eric W. Thode | |||||||||||||||||||||||||||
Cash Severance | — | 840,000 | (4) | — | 1,435,000 | (5) | — | 864,000 | (4) | — | 1,476,000 | (5) | |||||||||||||||
Stock Options | — | — | — | — | |||||||||||||||||||||||
Restricted Stock (6) | 464,791 | 200,713 | — | 464,791 | 479,745 | 229,690 | — | 479,745 | |||||||||||||||||||
Performance Awards (7) | 337,619 | 161,567 | — | 337,619 | 459,377 | 292,677 | — | 459,377 | |||||||||||||||||||
Other Benefits (8) | — | 20,266 | — | 79,531 | — | 20,266 | — | 102,957 | |||||||||||||||||||
Total Pre-Tax Benefit | 802,410 | 1,222,546 | — | 2,316,941 | 939,122 | 1,406,633 | — | 2,518,079 |
(1) | “Disability” is defined in the 2013 and 2020 Stock Incentive |
(2) | “Cause” and “Good Reason” are defined in the severance benefit agreements. |
(3) | “Qualifying Termination” is defined in the change of control agreements. No payments may be made in the event of a change of control absent a Qualifying Termination. |
(4) | If the executive had been terminated without Cause or resigned with Good Reason on December 31, |
ARCHROCK, INC. 2022 PROXY STATEMENT | 56
(5) | If the Company consummated a change of control that was followed by the executive’s Qualifying Termination on December 31, |
(6) | The amounts in this row represent the value of the accelerated vesting of the executive’s unvested restricted stock based on the December 31, |
(7) | The amounts in this row represent the value of the accelerated vesting of the executive’s unvested performance awards based on the December 31, |
(8) | The amounts in this row represent each Named Executive Officer’s right to the payment, as applicable, of (a) in the event of a termination without Cause or voluntary resignation for Good Reason, a lump sum payment comprised of the executive’s medical benefit premiums for a one year period and the amount of the administrative fee assessed under COBRA, or (b) in the event of a Qualifying Termination in connection with a change of control, a lump sum payment comprised of the executive’s medical benefit premiums for a two year period, the amount of the administrative fee assessed under COBRA and two times the Company contributions for the preceding 12 months under the 401(k) Plan and deferred compensation plan. |
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information regarding the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Childers, our Chief Executive Officer. We consider the pay ratio specified below to be a reasonable estimate, calculated in a manner that is intended to be consistent with Item 402(u) of Regulation S-K.
Mr. Childers had an annual total compensation of $6,123,248$6,609,272 in 20202021 as reflected in the “Total” column of our Summary Compensation table included in this Proxy Statement. With respect to the annual total compensation of the median employee, we identified and calculated the elements of such employee’s compensation for 20202021 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation for 20202021 of $96,773.$106,297. As a result, we estimate that Mr. Childers' 20202021 annual total compensation was approximately 6362 times that of the median of the annual total compensation of all of our employees (other than the CEO).
Archrock has elected to identify its median employee every three years unless there is a significant change in employee population or employee compensation arrangements. In determining the median employee, Archrock prepared a listing of all employees (including full-time, part-time, seasonal and temporary employees) as of December 31, 2020 and the total compensation of each such employee for fiscal year 2020. The median employee was selected from this list. Archrocklist and did not change for 2021. The Compensation Committee believes this is reasonable on the basis there has elected to identify its median employee every three years unless there is abeen no significant change in its employee population, or employee compensation arrangements.arrangements, or the compensation of the median employee.
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. Because the SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
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Table of ContentsTABLE OF CONTENTS
ADDITIONAL INFORMATION |
20212022 ANNUAL MEETING OF STOCKHOLDERS
Stockholders Entitled to Vote. Owners of our common stock as of the close of business on the record date of March 3, 2021,2022, are entitled to receive notice of and to vote at the Annual Meeting. At the close of business on March 3, 2021,2022, there were 152,788,049155,296,353 shares of common stock outstanding. Each share of common stock entitles the holder to one vote on all matters submitted to a vote at the Annual Meeting and any adjournment or postponement of the meeting. A complete list of the stockholders entitled to vote will be available for examination at the meeting and for at least 10 days prior to the meeting at our corporate offices located at 9807 Katy Freeway, Suite 100, Houston, Texas 77024.
Stockholder of Record. If you are a stockholder of record, you may vote over the telephone, by Internet, by mailing in a proxy card, in person at the Annual Meeting or you can give a proxy to be voted at the meeting. Please refer to the specific voting instructions set forth on the Notice of Internet Availability of Proxy Materials.
Street Name Holder. If, like most of our stockholders, you hold your shares through a bank, broker or other nominee (in “street name”), you must vote your shares in the manner prescribed by your bank, broker or other nominee. Your broker or other nominee will either explain how to vote your stock or enclose a voting instruction card for you to use in directing the broker or other nominee how to vote your stock. If you are a street name holder, you may vote your stock in person at the Annual Meeting only if you obtain a signed proxy from your broker or other nominee giving you a right to vote the stock.
Annual Meeting Quorum. A quorum of stockholders is necessary for a valid meeting. The presence in person or by proxy of the holders of a majority of the outstanding shares of our common stock will constitute a quorum for the Annual Meeting. Under our Third Amended and Restated Bylaws, as amended, and under Delaware law, abstentions and “broker non-votes” are counted as present in determining whether the quorum requirement is satisfied.
“Broker Non-Votes”Non-Votes and Their Impact on the Annual Meeting. A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power for that proposal and has not received instructions from the beneficial owner. Under the rules of the New York Stock Exchange (“NYSE”),NYSE, brokers do not have discretionary authority to vote shares in connection with non-routine matters without instructions from the beneficial owner. Therefore, if you hold your shares in the name of a bank, broker or other nominee, for your vote to be counted on any of the proposals other than Proposal 2, you will need to communicate your voting decisions to your bank, broker or other nominee before April 28, 2021.2022.
Each proposal to be voted on at the Annual Meeting is described in this Proxy Statement, as is the vote required to approve each proposal. For any other matters that may be properly presented for consideration at the Annual Meeting, the persons named as proxies will have discretion to vote on those matters according to their best judgment to the same extent as the person delivering the proxy would be entitled to vote. As of the date of this Proxy Statement, we do not anticipate that any other matters will be properly presented for consideration at the Annual Meeting.
How to Change Your Vote. A proxy may be revoked at any time before it is voted by sending written notice of revocation to our Secretary (see “Company Contact Information”), by delivering a later-dated proxy (by one of the methods described above) or by voting in person at the meeting. The Secretary may be contacted at the following address: Archrock, Inc., 9807 Katy Freeway, Suite 100, Houston, Texas 77024, Attention: Secretary. If you hold your shares in street name, you should follow the directions provided by your broker or other nominee regarding how to revoke your proxy.
Tabulation of Votes. An independent representative has been selected to tabulate and certify the vote results and act as the inspector of election for the Annual Meeting.
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Solicitation of Votes. This solicitation is made on behalf of the Board, and we will pay the cost of soliciting proxies. In addition to solicitations by mail, our directors, officers and employees, without additional compensation, may solicit proxies on the Company's behalf in person, by telephone, or by electronic communication. We must also pay brokerage firms, banks, broker-dealers and other similar organizations representing beneficial owners certain fees associated with:
● | forwarding the Notice of Internet Availability of Proxy Materials to beneficial owners; |
● | forwarding printed proxy materials by mail to beneficial owners who specifically request them; and |
● | obtaining beneficial owners’ voting instructions. |
Availability of Proxy Materials. Instead of mailing a printed copy of our proxy materials, including this Proxy Statement, form of proxy card and our 20202021 Annual Report to Stockholders, we have elected to provide access to such documents on the Internet. Most stockholders will not receive printed copies of the proxy materials unless they request them, in which case printed copies of the proxy materials will be provided at no charge. Our Notice of Internet Availability of Proxy Materials was first mailed to stockholders of record and beneficial owners on or about March 17, 2021.16, 2022. Any stockholder may request to receive proxy materials in printed form by mail or electronically by e-mail for this year and on an ongoing basis by following the instructions set forth in the Notice of Internet Availability of Proxy Materials.
Householding. The SEC rules regarding the delivery of the notice of internet availability, proxy statements and annual reports permit us, in specified circumstances, to deliver a single set of these reports to any address at which two or more stockholders reside. This method of delivery, often referred to as householding, will reduce the amount of duplicative information that security holders receive and lower printing and mailing costs for us. Each stockholder will continue to receive a separate proxy card.
We have attempted to deliver only one Notice of Internet Availability of Proxy Materials to eligible stockholders who share an address, unless we received contrary instructions from any such stockholder prior to the mailing date. We will deliver promptly, upon written or oral request, a separate copy of the Notice of Internet Availability of Proxy Materials to a stockholder at a shared address to which a single copy of such document was delivered. Any stockholder who would like to receive a separate copy of the Notice of Internet Availability of Proxy Materials, now or in the future, should submit this request to our Secretary. The Secretary may be contacted at the following address: Archrock, Inc., 9807 Katy Freeway, Suite 100, Houston, Texas 77024, Attention: Secretary.(see “Company Contact Information”). Beneficial owners sharing an address who receive multiple copies of the Notice of Internet Availability of Proxy Materials and who would like to receive a single copy of such materials in the future will need to contact their broker, bank or other nominee to request that only a single copy of such document be mailed to all stockholders at the shared address in the future.
20222023 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder proposal that is intended for inclusion in our Proxy Statement for our 20222023 Annual Meeting of Stockholders must be received by our Secretary at the address provided below no later than October 18, 2021.2022.
Our bylaws establish an advance-notice procedure for stockholder proposals or director nominations to be brought before an annual meeting but not included in our Proxy Statement. Under these bylaw provisions, we must receive written notice of a stockholder proposal or director nomination to be brought before the 20222023 Annual Meeting of Stockholders on or after October 18, 20212022 and no later than November 17, 20212022 for that proposal or nomination to be considered timely. Stockholder proposals and director nominations brought under these bylaw provisions must include the information required under our bylaws, including the following:
● | a description of the material terms of certain derivative instruments to which the stockholder or the beneficial owner, if any, on whose behalf the nomination or proposal is being made is a party, a description of the material terms of any proportionate interest in our shares or derivative instruments held by a general or limited partnership in which such person is a general partner or beneficially owns an interest in a general partner, and a description of the material terms of any performance-related fees to which such person is entitled based on any increase or decrease in the value of our shares or derivative instruments; and |
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● | with respect to a nomination of a director, a description of the material terms of all direct and indirect compensation and other material monetary arrangements during the past three years, and any other material relationships between or among the proponent of the nomination and his or her affiliates, on the one hand, and each proposed nominee and his or her affiliates, on the other hand, including all information that would be required to be disclosed pursuant to Rule 404 promulgated under the SEC’s Regulation S-K if the proposing person were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant. |
A stockholder submitting a proposal or director nomination under our bylaw provisions must, among other things:
● | include the name and address of the stockholder, and the number of our shares that are, directly or indirectly, owned beneficially and of record by the stockholder; |
● | state whether the stockholder intends to deliver a proxy statement and form of proxy to holders of a sufficient number of voting shares to carry the proposal or to elect the nominee or nominees, as applicable; |
● | be a stockholder of record as of the time of giving the notice and at the time of the meeting at which the proposal or nomination will be considered and include a representation to that effect; and |
● | update and supplement the required information ten (10) business days prior to the date of the meeting. |
These requirements in our bylaws are in addition to the SEC’s requirements with which a stockholder must comply to have a stockholder proposal included in our Proxy Statement. Stockholders may obtain a copy of our bylaws by making a written request to our Secretary at the address provided below.
Stockholder proposals and nominations of directors must be delivered to our Secretary at the address provided below.
Stockholders or other interested parties may communicate with the entire Board or any individual member of the Board by writing to Gordon T. Hall, Chairman, at the address provided below. All written inquiries will be immediately forwarded as directed. In addition, any concern or inquiry may be communicated to the Audit Committee or the Board by calling our compliance hotline at 1-844-809-1630 or by going to www.archrock.ethicspoint.com.
We will provide to any stockholder or potential investor, without charge, upon written or oral request, by first class mail or other equally prompt means, a copy of this Proxy Statement or Annual Report on Form 10-K for the year ended December 31, 2020.2021. These documents are also available on our website at www.archrock.com.
The Company's Secretary and Investor Relations Departments can be contacted as follows:
By mail:
Archrock, Inc.
9807 Katy Freeway, Suite 100
Houston, Texas 77024
By telephone: (281) 836-8000
By email: investor.relations@archrock.com
Archrock, Inc. 2021 Proxy StatementARCHROCK, INC. 2022 PROXY STATEMENT | 5860