SUMMARY OF THE PROXY STATEMENT
A summary of some of the information contained in this Proxy Statement for the 20152017 Annual Meeting of Stockholders are(2017 Annual Meeting) is set forth on the following five pages. TheEach summary does not contain all of the information that a stockholder should consider before voting. The entire Proxy Statement should be read before doing so. The Company's 2016 Annual Report is its Annual Report on Form 10-K for the year ended December 31, 2014,2016, which has been filed with the Securities and Exchange Commission.
| Matters to be Voted on at the Meeting | ||||||||
| Proposal #1: | The election of six Directors for one-year terms. The table below contains a summary of some of the information about the nominees for director. More detailed information can be found below under the headingElection of Directors (Proposal 1)at Page 4. | |||||||
| Nominees | Current Position | Age | Occupation | Board Committee | Director Since | |||
| Marian M. Davenport | Director | 63 | Executive Director, Genesys Works — Houston | Corporate Governance Compensation | 2014 | |||
| Maarten D. Hemsley | Director | 67 | Founder, Chairman and President of New England Center for Arts & Technology, Inc. | Audit Corporate Governance | 1998 | |||
| Charles R. Patton | Director | 57 | Executive Vice President — External Affairs of American Electric Power (AEP) | Compensation | 2013 | |||
| Richard O. Schaum | Director | 70 | General Manager, 3rd Horizon Associates LLC | Audit Compensation | 2010 | |||
| Milton L. Scott | Director Chairman | 60 | Chairman and Chief Executive Officer of the Tagos Group, LLC | Audit Corporate Governance | 2005 | |||
| Paul J. Varello | Director | 73 | Chief Executive Officer of the Company | N/A | 2014 | |||
| Proposal #2: | To approve the adoption by the Board of an amendment of Article IV of the Company's charter to increase the authorized shares from 28 million shares to 38 million shares, a 36% increase. | |||||||
| At February 28, 2017, the Company had 25.5 million shares of common stock outstanding or reserved for issuance under the Company's Stock Incentive Plan, approximately 91% of the total number of shares currently authorized for issuance, leaving approximately 2.5 million shares available for issuance. This limits the Company's flexibility if shares are needed for raising funds, for acquisitions, or for other, general corporate purposes. If the amendment is approved, the Company will have approximately 12.5 million shares available for issuance for these purposes. | ||||||||
| The Board of Directors believes that an increase in the number of authorized shares is advisable so that the Company will have enough shares to implement an acquisition strategy, to raise capital, and for other corporate purposes. | ||||||||
| More information about this amendment can be found below under the headingAmendment of Article IV of the Certificate of Incorporation (Proposal 2)on Page 9. | ||||||||
| Proxy Statement Summary Page I |
| Matters to be Voted on at the Meeting | ||||||||
| Proposal #1: | The election of three Directors for one-year terms. See the section entitled Term of Office, Successors & Declassification of Directors under the heading Election of Directors on Page 4. The table below contains a summary of some of the information concerning each of the nominees. More detailed information can be found below under the heading Election of Directors (Proposal 1) at Page 4. | |||||||
Nominees | Current Position | Age | Occupation | Board Committee(s) | Director Since | |||
| Richard O. Schaum | Director | 68 | General Manager, 3rd Horizon Associates LLC | Audit Compensation | 2010 | |||
| Milton L. Scott | Director | 58 | Chairman and Chief Executive Officer of the Tagos Group, LLC | Audit Corporate Governance | 2005 | |||
| Paul J. Varello | Director | 71 | Chief Executive Officer (1) | — | 2014 | |||
| (1) | Mr. Varello was elected acting Chief Executive Officer on February 1, 2015 to replace Peter E. MacKenna, the Company's former President & Chief Executive Officer, who left the Company on January 31, 2015. Effective March 9, 2015, Mr. Varello was appointed Chief Executive Officer and entered into a three-year employment agreement with the Company. | |||||||
| Proposal #2: | Approval of a special, one-time stock plan for the Company’s Chief Executive Officer. Paul J. Varello. Mr. Varello's employment agreement provides for a nominal annual salary of $1.00. Stockholders are being asked to approve this one-time stock plan to permit the Company to award him, in lieu of cash compensation, a 600,000-share restricted stock award that vests over the three-year period of his employment agreement. | |||||||
| Proposal #3: | Ratification of the selection of Grant Thornton LLP as the Company's independent registered public accounting firm for 2015. Grant Thornton was also the Company's 2014 firm of auditors. More information about Grant Thornton and their fees can be found below under the heading Information About Audit Fees & Audit Services on Page 42. | |||||||
| Proposal #4: | Approval of the compensation of the Company's named executive officers. More information about the compensation of executives can be found in the following summary and below under the heading Executive Compensation on Page 24. | |||||||
| Proposal #3: | To approve the adoption by the Board of an amendment of Article VI of the Company's charter to provide for the removal of directorswithout cause. | ||||||||||
| Under the current charter, the Company's directors may only be removed for cause which is permitted by Delaware law, but only for companies that have a board of classified directors. The Company's directors will cease to be classified at the 2017 Annual Meeting. Accordingly, the Board has voted to amend the charter to conform it to Delaware law. Whether or not stockholders approve the amendment, directors of the Company may be removed with or without cause from and after the 2017 Annual Meeting. | |||||||||||
| More information about this amendment can be found below under the headingAmendment of Article VI of the Certificate of Incorporation (Proposal 3) on Page 9. | |||||||||||
| Proposal #4: | Ratification of the selection of Grant Thornton LLP as the Company's independent registered public accounting firm for 2017. Grant Thornton was the Company's firm of independent auditors for 2016. More information about Grant Thornton and their fees can be found below under the headingInformation About Audit Fees & Audit Services on Page 37. | ||||||||||
| Proposal #5: | Advisory approval of the compensation of the Company's named executive officers. Information about the compensation of executives can be found in the summary below and under the headingExecutive Compensation on Page 23. | ||||||||||
| Proposal #6: | Advisory selection of the frequency of holding stockholder advisory votes on executive compensation. The Company recommends annual votes, the same recommendation the Company made in 2011. Information about the frequency of say-on-pay votes can be found below under the headingThe Frequency of the Vote on Executive Compensation (Proposal 6) (an advisory vote)on Page 11. | ||||||||||
| Summary of Executive Compensation | |||||||||||
| This summary is qualified by the information below under the headingExecutive Compensation, which begins on Page | |||||||||||
Named Executive Officers. The Company's named executive officers are those officers who are named in theSummary Compensation Table for | |||||||||||
The Company's named executive officers for 2016 were as follows: | |||||||||||
| Name | Title/Position | ||||||||||
| Paul J. Varello | |||||||||||
| Con L. Wadsworth | Executive Vice President & Chief Operating Officer | ||||||||||
| Ronald A. Ballschmiede | Executive Vice President & Chief Financial Officer, | Chief Accounting Officer | |||||||||
| Executive Vice President & Chief Business Development Officer | |||||||||||
| (Mr. Cutillo was elected President of the Company in February 2017) | |||||||||||
| Roger M. Barzun | Senior Vice | ||||||||||
| & General Counsel, Secretary | |||||||||||
Proxy Statement Summary Page II
| 2016 Compensation. The table below shows the salaries and incentive compensation paid to the named executive officers for 2016. | |||||||||
| Elements of Executive Compensation(1) | Paul J. Varello(2) | Con L. Wadsworth | Ronald A. Ballschmiede | Joseph A. Cutillo | Roger M. Barzun(2) | ||||
| Salary paid for 2016 | $1.00 | $420,482 | $403,420 | $314,423 | $250,000 | ||||
| Total incentive compensation paid for 2016 | — | $160,650 | $272,000 | $175,500 | — | ||||
| 50% portion of total incentive compensation paid in restricted stock (#)(3) | — | — | 15,921 | 10,272 | — | ||||
| (1) | At the 2016 Annual Meeting, Stockholders voted on executive compensation as follows: | ||||||||
| Number of Shares Entitled to Vote | Voted For | Voted Against | Abstained | ||||||
| 14,586,623 | 13,640,928 (93.5%) | 509,528 (3.3%) | 436,167 (3.2%) | ||||||
| (2) | Messrs. Varello and Barzun did not participate in any incentive compensation plan for 2016. | ||||||||
| (3) | One-half of the total incentive compensation paid for 2016 was paid in the form of restricted stock that vests on the third anniversary of the award date, February 10, 2017, as provided in the 2016 incentive compensation plan. The number of shares awarded is the dollar amount divided by the simple average of the closing prices of the Company's common stock in December 2016 ($8.542). | ||||||||
| For more information about the named executive officers' stock awards, see the tables starting at Page 31 in the section entitledCompensation & Stock Tables. | |||||||||
| Summary of Corporate Governance | |||||||||
Peter E. MacKenna | Thomas R. Wright | Brian R. Manning | Con L. Wadsworth (1) | Peter J. Holland | ||||
| Annual Salary | $600,000 | $350,000 | $315,000 | $365,000 | $325,000 | |||
Target Incentive Compensation (%) & ($) | 120% $720,000 | 120% $420,000 | 40% $126,000 | N/A | 120% $390,000 | |||
| Percent of Target Allocated to Company EPS Goal | 50% | 50% | 50% | N/A | 25% | |||
Percent of Target Allocated to TSC Financial Goal (2) | — | — | — | N/A | 50% | |||
2014 Achievement of Financial Goals | 0% | 0% | 0% | N/A | 0% | |||
| Percent of Target Allocated to Personal Goals | 50% | 50% | 50% | N/A | 25% | |||
2014 Achievement of Personal Goals (%) & ($) | 75% $270,000 | 100% $210,000 | 100% $63,000 | N/A | 60% $58,500 | |||
Percent of Earned Incentive Compensation Payable in Cash and Shares of Restricted Stock | Cash: 70% Shares: 30% | Cash: 50% Shares: 50% | Cash: 50% Shares: 50% | N/A | Cash: 50% Shares: 50% | |||
2014 Payments for Goal Achievement — Cash & Shares(3) | Cash: $189,000 Shares: 12,865(4) | Cash: $105,000 Shares: 16,677 | Cash: $31,500 Shares: -0- (5) | N/A | Cash: $58,500 Shares: -0- (6) | |||
| (1) | For 2014, in lieu of incentive compensation, Mr. Wadsworth was paid a bonus of $182,500 after the end of the year based on the revenues and profits of the Company's Ralph L. Wadsworth Construction Company, LLC subsidiary of which he is President. | |||||||
| (2) | Mr. Holland, as President of Texas Sterling Construction Co. (TSC) in 2014, was the only named executive officer whose 2014 incentive compensation was based partially on a TSC financial goal. | |||||||
| (3) | The number of shares was computed using the simple average closing price of the Company's common stock in December 2014 ($6.296) as provided in the executive's employment agreement or in the incentive compensation plan in which he participated. | |||||||
| (4) | In connection with Mr. MacKenna's leaving the Company, these shares were issued to him without restrictions. | |||||||
| (5) | Because Mr. Manning resigned his employment in January 2015, shares of restricted stock otherwise issuable to him would have been forfeited; accordingly, no award of restricted stock was made to him for 2014. | |||||||
| (6) | In connection with Mr. Holland's leaving the Company, the Compensation Committee determined to pay all of his 2014 incentive compensation in cash. | |||||||
For the value at December 31, 2014 of the named executive officers' outstanding and unvested restricted stock, see the table below entitled Outstanding Equity Awards at December 31, 2014 at Page 38. | ||||||||
New Incentive Plan for 2015. For 2015, the Compensation Committee has adopted a new incentive compensation plan consisting of — | ||||||||
| · | A short-term incentive compensation program based on the achievement in 2015 of a Company financial goal and personal goals, in which amounts earned, if any, are paid in cash; and | |||||||
| · | A long-term (three-year) stock-based incentive compensation program. The stock consists of a time-based, cliff-vesting shares of restricted stock, and restricted stock units convertible into shares of common stock at the end of the program period based on the ranking of the Company's total stockholder return (TSR) over the three-year period compared to the TSR of the Company's peer group over the same period. For a detailed description of the programs see Page 28. | |||||||
| The Board has adopted a set of governance guidelines that it reviews periodically to ensure that they reflect the Board's and the Company's needs, as well as current trends in corporate governance. | |||||||||
| The following is a description of some of the main elements of the Company's corporate | |||||||||
| • | Independence: | ||||||||
| o | Of the Company's six | ||||||||
| o | The roles of Chairman and Chief Executive Officer are separate, and the Board's Chairman is an independent director. | ||||||||
| o | All members of the Board's standing committees are independent directors. | ||||||||
| o | No director has entered into any | ||||||||
| Majority Vote:Directors | |||||||||
| �� | |||||||||
Proxy Statement Summary Page III
| • | Meeting Attendance: | ||||||||
| o | In | ||||||||
| o | All | ||||||||
| Executive Sessions:Executive sessions of independent directors are held at all | |||||||||
| Financial Experts:Two of the | |||||||||
| Stock Ownership Guidelines & | |||||||||
| o | Directors and executive officers are prohibited from hedging shares of the Company's common stock. | ||||||||
| o | Executive officers, depending on their position, are required to retain shares of the Company's common stock equal to a multiple of their base salaries. | ||||||||
| o | Directors are expected to hold shares of the Company's common stock with an acquisition value equal to five times their annual retainer. | ||||||||
| o | The Company's claw-back policy is applicable to incentive compensation paid irrespective of culpability, and applies to both cash and equity compensation. | ||||||||
| Golden Parachutes:The | |||||||||
| • | Poison Pill:The Company has no stockholders rights plan (poison pill). | ||||||||
| • | Board Operations: | ||||||||
| o | |||||||||
| o | For individual director | ||||||||||
| o | At each of the Board's regularly-scheduled meetings, directors receive an assessment and/or an update on the Company's primary risk categories. | ||||||||||
| Since 2011, the Company | |||||||||||
| Persons interested in communicating with the Board about their concerns, questions or other matters may do so as follows: | |||||||||||
By U.S. Mail to: | By E-mail to: | ||||||||||
| Board of Directors — ℅ The Secretary | Reports@Lighthouse-Services.com | ||||||||||
| Sterling Construction Company, Inc. | |||||||||||
| 1800 Hughes Landing Blvd. — Suite 250 | |||||||||||
| The Woodlands, TX 77380 | |||||||||||
Proxy Statement Summary Page VIV
STERLING CONSTRUCTION COMPANY, INC.
1800 Hughes Landing Boulevard
The Woodlands, Texas 77380
Telephone: (281) 214-0800
PROXY STATEMENT
FOR THE 20152017 ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION
In this Proxy Statement, Sterling Construction Company, Inc. is sometimes referred to as the Company, and the Board of Directors of the Company is sometimes referred to as the Board. The Company is making this Proxy Statement, the form of proxy, and the Company's 20142016 Annual Report on Form 10-K available to stockholders starting on March 27, 2015____,2017 in connection with the solicitation of proxies by the Board for the 20152017 Annual Meeting of Stockholders. The Annual Meeting will be held on Friday, May 8, 2015April 28, 2017 at 8:30 a.m. local time at the Company's headquarters office at 1800 Hughes Landing Boulevard — Suite 250, The Woodlands, Texas 77380.
On March 27, 2015,____, 2017, the Company mailed aNotice of Internet Availability of Proxy Materials (the Availability Notice) to stockholders of record on March 10, 2015February 28, 2017 (the Record Date) and posted the proxy materials on the Company's website:
www.STRLco.com
as well as on the website provided in the Availability Notice:
http://www.astproxyportal.com/ast/04770
The Company is sending the Availability Notice to all stockholders of record instead of mailing them a printed set of the proxy materials to save postage and paper. As stated in the Availability Notice, if you wish to obtain a printed set of the proxy materials, you can do so without charge by requesting a copy either by telephone, by e-mail, or through either of the websites listed above, all as described in the Availability Notice.
On or about April 6, 2015,1, 2017, the Company plans to mail a second Availability Notice to stockholders that will be accompanied by a proxy card on which you can indicate how you wish your shares to be voted.
The Record Date
. The Company has establishedthere were 18,910,44125,051,045 shares of the Company's common stock outstanding.
Methods of Voting
. As a holder of record of common stock of the Company on the Record Date, you may vote your shares either by coming to the Annual Meeting and voting in person, or by appointing someone to vote your shares for you by giving that person a proxy.Voting in Person
. To vote your shares in person, come to the meeting at the date, time and address set forth above in the Notice of theHowever, if your shares are held for you in the name of your broker, bank or other nominee, evidence of your stock ownership on the record date, March 10, 2014February 28, 2017 (such as a current letter from your broker, bank or other nominee, or a photocopy of your brokerage or other account statement for March 2015)February 2017) must be presented at the meeting in order for you to vote your shares in person.
| - 1 - |
Voting by Proxy
. In this Proxy Statement, you are being asked to appoint each of Milton L. Scott, the Chairman of the Board of Directors;• | Via the Internet: You may vote via the Internet by following the instructions in the Availability Notice. |
• | By Telephone: You may vote by telephone by calling toll-free 1-800-PROXIES (1-800-776-9437) in the United States, or 1-718-921-8500 from a foreign country using a touch-tone telephone, and by following the instructions given to you. You should have your proxy card with you when you make the call so that you can provide the numbers found on your proxy card when asked to do so. |
• | By Mail: You may vote by mail by obtaining a printed copy of the proxy card in the manner described in the Availability Notice. You may then complete, sign, and date the proxy card and mail it to the Company in the envelope that will have been provided to you with the proxy card. |
If your shares are held in the name of a bank, a broker or by another nominee holder of record, please refer to the information provided to you by the nominee about your voting options.
If you vote by proxy, your shares will be voted as you direct if —
If you do not specify on your proxy how you want your shares voted, they will be voted in the following ways:
| FOR | the election of the |
| FOR | the |
| FOR | the amendment of Article VI of the Company's Certificate of Incorporation to provide for the removal of directors without cause (Proposal 3). |
| FOR | the ratification of the selection of Grant Thornton LLP as the Company's independent registered public accounting firm for |
| FOR | the approval of the compensation of the Company's named executive officers as set forth in this Proxy Statement (Proposal |
| FOR | "every one (1) year" as the frequency for the Company to hold a stockholder vote on executive compensation (Proposal 6) (an advisory vote). |
The Board does not know of any other proposal that will be presented for consideration at the Annual Meeting.
| - 2 - |
Revocation of a Proxy
. You may revoke a proxy you have already given in any one of the following three ways:Quorum, Vote Required & Method of Counting
The Quorum for the Meeting
. A quorum must be present in order to hold the Annual Meeting. A quorum consists of the holders of a majority of the shares of outstanding common stock who areVote Required & Method of Counting
.| Proposal 1. | To be elected a director, a nominee must receive more votes for his or her election than against it. Because the election of a nominee does not require a minimum number of votes, abstentions and broker non-votes will have no effect on the voting for the election of directors. |
| Proposals 2 & 3. | The approval of |
| Proposal 4. | The ratification of the selection of Grant Thornton LLP as the Company's independent registered public accounting firm for vote on this proposal in the absence of direction on how to vote the shares from their beneficial holders. |
| See also the information below under the headingRatification of the Selection of the Independent Registered Public Accounting Firm (Proposal |
| Proposals 5 & 6. | The advisory vote to approve the compensation of the named executive officers and to select the frequency with which the Company should hold advisory votes on executive compensation also requires the affirmative vote of the holders of a majority of the shares of common stock who are present in person or represented by proxy at the Annual Meeting and who are entitled to vote on that proposal. Abstentions will have the effect of votes against the proposal, but broker non-votes will not be counted as, by definition, they are not entitled to vote. |
| - 3 - |
The Solicitation of Proxies & Expenses
. In addition to the solicitation of proxies by means of this Proxy Statement, directors, officers and employees of the Company and a third-party solicitation agent may solicit proxies using personal interviews, telephone calls, facsimile transmissions and e-mails. The cost of the proxy solicitation agent retained by the Company, Georgeson Inc., will be borne by the Company and is anticipated to be no more thanThe 20142016 Annual Report
ELECTION OF DIRECTORS(Proposal 1)
Term of Office Successors & Declassification of Directors
To be elected, a director must receive more votes for his or her election than against it.
the board of directors recommends that stockholders votefor each director nominee
The Nominees & Continuing Directors; Independence.
Each of the nominees listed below has been nominated by the independent directors of the Board and has stated a willingness to serve if elected. If any nominee is unable to serve, the proxy holders may vote for a substitute nominee. The Board has no reason to believe that any of the nominees will be unable to serve.
A proxy cannot be voted by the proxy holders for more persons than the number of nominees named in this Proxy Statement. Information about the number of shares of common stock of the Company owned by the nominees and the continuing directors can be found below under the headingStock Ownership Information.
The table below shows certain information about the nominees for director andnominees. All of the continuing directors. Messrs. Schaum and Scottdirectors satisfy the Nasdaq Stock Market's definition of an independent director.
| Nominees | Current Position | Board Committee(1)* | Age | Class | Director Since | Year Term Expires (if elected) |
| Richard O. Schaum | Director | Audit Compensation* | 68 | II | 2010 | 2016 |
| Milton L. Scott | Director | Chairman of the Board Audit* Corporate Governance | 58 | II | 2005 | 2016 |
| Paul J. Varello | Director, Chief Executive Officer | — | 71 | II | 2014 | 2016 |
| Continuing Directors | ||||||
| Maarten D. Hemsley | Director | Audit Compensation Corporate Governance | 65 | III | 1998 | 2016 |
| Charles R. Patton | Director | Compensation | 55 | III | 2013 | 2016 |
| Marian M. Davenport | Director | Compensation Corporate Governance* | 61 | I | 2014 | 2017 |
| Nominees | Current Position | Committee Assignment(1) | Age | Director Since | Year Term Expires |
| Marian M. Davenport | Director | Compensation Corporate Governance* | 63 | 2014 | 2017 |
| Maarten D. Hemsley | Director | Audit Corporate Governance | 67 | 1998 | 2017 |
| Charles R. Patton | Director | Compensation | 57 | 2013 | 2017 |
| Richard O. Schaum | Director | Audit Compensation* | 70 | 2010 | 2017 |
| Milton L. Scott | Director, Chairman | Audit* Corporate Governance | 60 | 2005 | 2017 |
| Paul J. Varello | Director, Chief Executive Officer | — | 73 | 2014 | 2017 |
| (1) | The full names of the committees are the Audit Committee, Compensation Committee, and Corporate Governance & Nominating Committee. |
| * | An asterisk indicates that the director is the Chair of the committee. |
| - 4 - |
Background & Skills of the Nominees
Marian M. Davenport
Executive Director, Genesys Works — Houston,
a nationally-recognized nonprofit organization that trains and employs economically disadvantaged high school students to work as professionals in major corporations during their senior year.
Ms. Davenport has served in the above capacity since March 2013. From September 2004 to March 2013, Ms. Davenport was associated with Big Brothers Big Sisters, a non-profit organization that provides one-to-one mentoring for children. She held various positions in its affiliated organizations, including serving from September 2004 to June 2010 as President & Continuing DirectorsChief Executive Officer of Big Brothers Big Sisters of Greater Houston, and from June 2010 to March 2013 as Senior Vice President, Operations and Capacity Building of Big Brothers Big Sisters Lone Star. From April 1997 to December 2002, Ms. Davenport was employed by Dynegy Inc., a publicly-traded company in the business of power distribution, marketing and trading of gas, power and other commodities, midstream services and electric distribution. She joined Dynegy as General Counsel, Commercial Development and rose to the position of Senior Vice President, Legislative and Regulatory Affairs.
Experience, Qualifications, Attributes & Skills. Ms. Davenport brings to the Board her background as a lawyer, with experience in corporate governance and securities compliance, having served as general counsel of a public company. In addition, she has extensive experience as an executive in the energy industry as a result of managing the development of large natural gas-fired power plants and where she served as a change agent to improve performance of critical company functions, including human resources. Ms. Davenport's more recent career in the non-profit sector providing mentoring and workforce development opportunities for disadvantaged youth brings a new perspective and expertise to the Company, which is in an industry where finding competent candidates for employment at all levels is more and more competitive. In sum, Ms. Davenport's extensive background in both the for-profit and non-profit sectors brings cognitive diversity to the Board and the committees on which she serves. Ms. Davenport holds a Bachelor of Arts degree, Liberal Arts and Sciences, from The Colorado College, of Colorado Springs, Colorado, and a JD degree from the University of Denver, College of Law, in Denver, Colorado. Ms. Davenport is a member of the bar of Texas.
Maarten D. Hemsley
Founder, Chairman and President of New England Center for Arts & Technology, Inc. (NECAT),
a career-directed educational non-profit serving resource-limited adults and youth in Boston, Massachusetts.
| - 5 - |
Mr. Hemsley founded NECAT in 2010. Before that, he was the Company's President and Chief Operating Officer from 1988 until 2001, and its Chief Financial Officer from 1998 until 2007. From 2001 until March 2012, when he retired, Mr. Hemsley was a consultant to, or employee of, Harwood Capital LLP (Harwood) (formerly JO Hambro Capital Management Limited) an investment management company based in the United Kingdom. During that period, Mr. Hemsley served as a Fund Manager, Senior Fund Manager and Senior Advisor to several investment funds managed by Harwood.
Other Directorships. From 2003 until February 2016, Mr. Hemsley was a director of Sevcon, Inc., a public company that manufactures electronic controls for electric vehicles and other equipment, and of a number of privately-held companies in the United Kingdom.
Experience, Qualifications, Attributes & Skills. Mr. Hemsley has extensive financial experience and managerial skills gained over many years, including as Chief Financial Officer of the Company for nine years and as its President for thirteen years; through his recent position managing investment funds; and his responsibilities during his career as chief financial officer of several medium-sized public and private companies in a variety of business sectors in the U.S. and Europe. His knowledge of the Company derived from more than twenty-five years of service, as well as his analytical skills honed as a fund manager in making investment decisions and overseeing the management of a wide range of portfolio companies, enable him to contribute to the Board's oversight of the Company's business, its financial risks, its executive compensation arrangements, the risks inherent in its acquisition program, and in post-acquisition integration issues. Mr. Hemsley is a Fellow of the Institute of Chartered Accountants in England and Wales.
Charles R. Patton
Executive Vice President — External Affairs American Electric Power Company, Inc. (AEP)
one of the largest electric utilities in the U.S., serving nearly 5.4 million customers in 11 states.
As Executive Vice President — External Affairs of AEP, Mr. Patton is responsible for leading AEP's customer services, communications, federal public policy and corporate sustainability initiatives. From June 2010 until January 2017, Mr. Patton served as President & Chief Operating Officer of Appalachian Power Company, an electric utility serving approximately one million customers in West Virginia, Virginia and Tennessee with responsibility for distribution operations and a wide range of customer and regulatory relationships. Appalachian Power Company is a unit of AEP. From June 2008 to June 2010, Mr. Patton served as Senior Vice President of Regulatory Policy and subsequently Executive Vice President of AEP's Western Utilities where he was responsible for oversight of utilities in Texas, Louisiana, Arkansas and Oklahoma. Prior to that, from May 2004 to June 2008, Mr. Patton was President and Chief Operating Officer of AEP Texas, and held various other executive roles, with responsibility for external affairs in Texas and in the Southwestern region of AEP. Before joining AEP in December 1995, Mr. Patton spent nearly 11 years in the energy and telecommunications business with Houston Lighting & Power Company.
Other Directorships. Mr. Patton served as a director of the Richmond Federal Reserve Bank from January 2014 through 2016.
Experience, Qualifications, Attributes & Skills. As evidenced by his biographical data, above, Mr. Patton has extensive experience in the utilities industry combined with high-level management experience, both of which benefit the Board in its deliberations by bringing a different perspective than any other director. Mr. Patton received a bachelor’s degree (cum laude) from Bowdoin College in Brunswick, Maine, and a master’s degree from the LBJ School of Public Policy at the University of Texas in Austin.
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Richard O. Schaum (nominee)
General Manager, 3rd Horizon Associates LLC,
a technology assessment and development company.
Mr. Schaum has served in the above capacity since May 2003. From October 2003 until June 2005, he was also Vice President and General Manager of Vehicle Systems for WaveCrest Laboratories, Inc. and led its vehicle systems development group. Prior to that, for more than thirty years, he was with DaimlerChrysler Corporation, and its predecessor, Chrysler Corporation, most recently, fromCorporation. From January 2000 until his retirement in March 2003, ashe was Executive Vice President, Product Development.
Other Directorships. Mr. Schaum is currently a director of BorgWarner Inc., a publicly-traded company that manufactures and sells technologies for engines and drive trains, and Gentex Corporation, a publicly-traded company that manufactures and sells automotive electro-chromic dimming mirrors, windows, camera-based driver assist systems, and commercial fire protection products.
Experience, Qualifications, Attributes & Skills.
Mr. Schaumhas extensive executive and management experience at all levels in a Fortune 100 company, and knowledge of, and interest in, corporate governance matters, gained while on the board of a Fortune 500 company. In addition, his technical background and his operating experience at all levels of management contribute to the breadth and depth of the Board's deliberations. Mr. Schaum is a fellow of the Society of Automotive Engineers and served as its President from 2007 to 2008. He earned a B.S. in Mechanical Engineering from Drexel University and an M.S. in Mechanical Engineering from the University of Michigan.Milton L. Scott
Chairman and Chief Executive Officer of the Tagos Group, LLC (Tagos),
a company that provides expertise in Supply Chain Advisory Services Oilfield Support Products & Services, Outsourced Technology and Anti-Corrosion Technology.
Mr. Scott was elected Chairman of the Board of Directors in March 2015, and he remains Chair of the Audit Committee. He has served as Chairman and Chief Executive Officer of Tagos since April 2007. From October 2012 to November 2013, Mr. Scott was also the Chairman and Chief Executive Officer of CorrLine International, LLC (CorrLine), a private company that manufactured CorrX, a surface decontamination product that treats and destroys the primary cause of premature coating failures. CorrLine was placed into involuntary Chapter 7 bankruptcy in August 2014, and in October 2014, Tagos purchased the assets of CorrLine and placed them in a subsidiary of Tagos, TGS Solutions, LLC, of which Mr. Scott is Chairman and Chief Executive Officer. Mr. Scott was previously associated with Complete Energy Holdings, LLC, a company of which he was Managing Director until January 2006, and which he co-founded in January 2004 to acquire, own and operate power generation assets in the United States. From March 2003 to January 2004, Mr. Scott was a Managing Director of The StoneCap Group, an entity formed to acquire, own and operate power generation assets. From October 1999 to November 2002, Mr. Scott served as Executive Vice President and Chief Administrative Officer at Dynegy Inc., a public company in the business of power distribution, marketing and trading of gas, power and other commodities, midstream services and electric distribution. From July 1977 to October 1999, Mr. Scott was a partner with the Houston office of Arthur Andersen LLP, a public accounting firm, where from 1996 to 1999, he served as partner in charge of the Southwest Region Technology and Communications practice.
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Other Directorships
. Mr. Scott is Chairman and Chief Executive Officer of TGS Solutions, LLC, a private company that manufactures Corrx, a surface decontamination product that treats and destroys the primary cause of premature coating failures.Past Directorships
. Mr. Scott was a director of W-H Energy Services, Inc., which at the time was a publicly-traded company in the oilfield servicesExperience, Qualifications, Attributes & Skills.
Mr. Scotthas many years of experience as an audit partner at a large public accounting firm; leadership, managerial and corporate governance skills acquired during his tenure as a senior executive at a Fortune 500 company; and entrepreneurial skills developed through the founding of several companies in the energy service andPaul J. Varello
Chief Executive Officer of the Company.
Mr. Varello is the Founder and President of Commonwealth Projects, LLC, a project development company specializing in developing LNG projectsthe development of a liquefied natural gas (LNG) facility in the Caribbean Basin and Bermuda.Cameron, Louisiana. He is the former Founder and Chairman of Commonwealth Engineering & Construction, LLC (CEC), an engineering and construction management company specializing in the design and construction of major capital projects for the oil & gas, refining, alternative fuels,LNG, power, and related energy industries, which he sold in January of 2014.
Prior to founding CEC in May 2003, Mr. Varello was Senior Partner of Varello & Associates, a company that provided technical assessments, economic evaluations, estimates and constructability reviews to project lenders, plant operators and engineering companies from September 2001 to May 2003. From May 1990 to September 2001, Mr. Varello was Chairman of the Board and Chief Executive Officer of American Ref-Fuel Company of Houston, Texas. The company was formed as a joint venture of two publicly-traded companies formed to develop, own and operate plants that convertconverted solid municipal waste into energy. For the eighteen years prior to 1990, Mr. Varello was with Fluor Corporation, a Fortune 500 company that provides engineering, procurement, construction, maintenance, and project management services to a wide range of global clients. Mr. Varello started with Fluor as a project construction manager and rose to the position of President of the Process Sector.
Prior Directorships.
From 2005 to 2012, Mr. Varello was a director of Sims Metal Management Limited (NYSE: SMS and ASX: SGM), a global recycler of metals and electronics, headquartered in Sydney, Australia. From 1992 to 1999, he served on the board of Ryland Group, Inc. (NYSE: RYL), a homebuilder and a mortgage-finance company located in the United States.Experience, Qualifications, Attributes & Skills.
Mr. Varello's background encompasses a diversity of experience in engineering, construction, executive management and board service that enhances both the scope and breadth of the Board's expertise as a group, thereby contributing to the overall performance of the Board's responsibilities. He is a Registered Professional Engineer in California, Texas and Louisiana, and holds a Bachelor of Civil Engineering from Villanova University. He is also a graduate of Harvard Business School's Advanced Management Program.| - 8 - |
AMENDMENT OF ARTICLE IV OF THE CERTIFICATE OF INCORPORATIONOther Directorships.(Proposal 2) Mr. Hemsley is a director of Sevcon, Inc., a public company that manufactures electronic controls for electric vehicles and other equipment, and of a number of privately-held companies in the United Kingdom.
Adoption of the Company for thirteen years and as its President for seven years; through his recent position managing investment funds; and his responsibilities during his career as chief financial officerAmendment. On November 4, 2016, the Board of several medium-sized public and private companies in a variety of business sectors inDirectors adopted, subject to the U.S. and Europe. His knowledgeapproval of the Company derived from more than twenty years' service, as well as his analytical skills honed as a fund manager in making investment decisions and overseeing the managementstockholders, an amendment of a wide rangeSection 4.1(b) of portfolio companies, enable him to contribute to the Board's oversightArticle IV of the Company's business, its financial risks, its executive compensation arrangements,Certificate of Incorporation (charter) to increase the risks inherent in its acquisition program, and in post-acquisition integration issues. Mr. Hemsley is a Fellownumber of the Institute of Chartered Accountants in England and Wales.
The amended Section 4.1(b) reads as follows:
[4.1] "(b) The number of shares of Common Stock that vest in equal annual installmentsthe Corporation has authority to issue is thirty-eight million (38,000,000) with a par value of 200,000one cent ($0.01) per share."
Reasons for the Amendment. At February 28, 2017, the Company had 25.5 million shares each, onof common stock outstanding which includes the first three anniversaries492,046 shares reserved for issuance under the Company's Stock Incentive Plan. With approximately 91% of the March 9, 2015 award date. Ittotal number of shares currently authorized for issuance outstanding or reserved, only 2.5 million shares remain available for issuance. This limits the Company's flexibility if shares are needed for raising funds, for acquisitions, or for other, general corporate purposes. If the amendment is this restrictedapproved, the Company will have approximately 12.5 million shares available for issuance for these purposes.
The Company has grown through acquisitions and seeks to have a portion of the acquisition purchase price payable in shares of common stock awardso that comprises the special one-time stock planseller has an incentive to support and that stockholders are being asked to approve.
Effect of the Issuance of Newly-Authorized Shares. The issuance by the Company without cause; because of his death or permanent disability; or ifadditional shares of common stock would have the Company breaches his employment agreement. The shares would also vest if there were to be a changeeffect of controldiluting the percentage ownership of current stockholders of the Company. A copyIn addition, in the absence of a proportionate increase in the Company’s earnings and book value, an increase in the number of outstanding shares of common stock would dilute the earnings per share and book value per share of outstanding shares of common stock.
The Board of Directors recommends that stockholders votefor the approval of the
Amendment of Section 4.1(b) of Article IV of the formCertificate of Incorporation
AMENDMENT OF ARTICLE VI OF THE CERTIFICATE OF INCORPORATION
(Proposal 3)
Adoption of the award agreement is attachedAmendment.Under theDelaware General Corporation Law (DGCL), only a board with classified directors can provide that directors may only be removed for cause, and Section 6.4 (Removal of Directors) of Article VI of the Company's charter contains that provision. Until the 2017 Annual Meeting, the Company had classified directors.At the 2014 Annual Meeting, stockholders approved an amendment to this Proxy Statementthe charterto phase out the classified board over three years beginning with the 2015 Annual Meeting. As a result, at the 2017 Annual Meeting, the Board's directors will no longer be classified.
Therefore, in order to bring the charter into compliance with Delaware law, on November 4, 2016, the Board voted to amend Section 6.4 to eliminate the requirement for cause in the removal of directors. The amended section reads as Appendix A.
| - 9 - |
| "6.4 | Removal of Directors. Subject to the rights of the holders of any outstanding series of Preferred Stock, any director or the entire Board of Directors may be removed from office at any time by the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of capital stock of all classes and series of the Corporation entitled to vote generally in the election of directors, voting together as a single class." |
If the event that the special, one-time stock planamendment is not approved, Section 6.4 will remain out of compliance with Delaware law, but directors may nevertheless be removed with or without cause.
Pursuant to the award agreement will become nullDGCL, the Board of Directors has declared the amendment of Section 6.4 of Article VI to be advisable.
Required Approval and void, and Mr. Varello and the Company will re-negotiate his salary, his equity compensation, and the various consequences of a termination of his employment.
The Board of Directors recommends that stockholders votefor
Amendment of Section 6.4 of Article VI of the Certificate of Incorporation
RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM(Proposal 4)
Pursuant to its charter, the Audit Committee is directly responsible for the appointment of the Company's independent auditors.registered public accounting firm. The Audit Committee has selected Grant Thornton LLP as the Company's independent registered public accounting firm to perform the audit of the Company's 2017 financial statements for 2015.statements. Grant Thornton was also the Company's 2016 independent registered public accounting firm for the year ended December 31, 2014.
The Audit Committee may select ana different independent registered public accounting firm at any time during the year if it determines that to do so would be in the best interests of the Company and its stockholders. The Board is asking stockholders to ratify the selection of Grant Thornton as a matter of good corporate practice, although ratification is not required by law or by the Company's Bylaws, and the vote is not binding on the Audit Committee. There is additional information about Grant Thornton,Thornton's fees below under the headingInformation About Audit Fees & Audit Services.
The ratification of the selection of Grant Thornton requires the affirmative vote of the holders of a majority of shares of common stock representedpresent in person or represented by proxy at the meeting and who are entitled to vote on this proposal at the Annual Meeting.
the Board of Directors recommends that stockholders votefor the ratification
of the selection of Grant Thornton LLP
APPROVAL OF THE COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATION FOR 2016 (an advisory vote)(Proposal 5)
Current SEC regulations require the Company to solicit an advisory stockholder vote on the approval of the compensation of the executive officers of the Company who are listed below in the section entitledThe Executive Officers under headingExecutive Compensation. The advisory vote, as described below, is commonly referred to as say-on-pay. The vote is not binding on the Company.
At the 20112016 Annual Meeting, of Stockholders, the holders of 80% of the shares who were present in person or represented by proxy at the meeting voted in accordance with the Company's recommendation to hold a say-on-pay vote annually. The Company has done so in the past and intends to continue to do so in the future.
Number of Shares Entitled to Vote | Voted For | Voted Against | Abstained |
| 13,111,842 | 86.3% | 12.6% | 1.1% |
| Number of Shares Entitled to Vote | Voted For | Voted Against | Abstained |
| 14,586,623 | 13,640,928 (93.5%) | 509,528 (3.3%) | 436,167 (3.2%) |
In determining how to vote on the Company's 20142016 executive compensation, stockholders should take into account all of the disclosures in this Proxy Statement that relate to the compensation of executives. That information includes a discussion and tables that are found below under the headingExecutive Compensation, as well as an explanation of why and how the types and levels of executive compensation were determined.
In the event that stockholders do not approve executive compensation, the Compensation Committee of the Board will review its decisions on compensation structure and levels, as well as the comparability of the executives' compensation to that of a peer group of companies, before deciding whether to make any changes in the compensation of one or more of the executives.
The Board of Directors recommends that stockholders votefor the approval of
named executive officer compensation pursuant to the following resolution:
Resolved, that the compensation paid to the Company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion set forth below under the headingExecutive Compensation, is hereby approved.approved on a non-binding, advisory basis.
THE FREQUENCY OF THE VOTE ON EXECUTIVE COMPENSATION (an advisory vote)
(Proposal 6)
In addition to the approval of executive compensation, current SEC regulations also require the Company to solicit a stockholder vote on the frequency with which the Company should conduct a vote on executive compensation. The vote is commonly referred to as say-on-frequency. At a minimum, the vote on executive compensation must be held at least every three years, and the vote to select the frequency of voting on executive compensation must be held every six years. Stockholders may vote to hold the vote on executive compensation each year, every two years, or every three years, or they may abstain from voting. It should be noted that stockholders are not voting to approve or disapprove the Company's frequency recommendation, but will vote on which of the three frequency choices they prefer. The vote is advisory in nature and therefore does not bind the Company. At the 2011 Annual Meeting, stockholders voted as follows for the frequency of executive compensation votes:
| Every One Year | Every Two Years | Every Three Years | Abstained |
| 11,232,700 (92.2%) | 20,223 (0.2%) | 869,492 (7.1%) | 57,379 (0.5%) |
In accordance with the 2011 vote, and as the Board recommended at the time, the Company has held say-on-pay votes annually. The next advisory vote on say-on-pay after the 2017 Annual Meeting will depend on the outcome of the say-on-frequency vote at the 2017 Annual Meeting. The Company believes that a vote every year will enable the Compensation Committee to take into account stockholders' approval or disapproval of executive compensation prior to renegotiating any new compensation arrangements.
In the event that stockholders elect to hold the vote on executive compensation every two or three years, the Board will honor that determination. The affirmative vote of the holders of a majority of the shares of common stock represented and entitled to vote at the Annual Meeting is required to select the frequency of stockholder votes on executive compensation.
the board recommends that stockholders vote "for every one (1) year" as the
frequency for holding a stockholder vote on executive compensation
THE BOARD OF DIRECTORS
Communicating with the Board. Stockholders and other interested parties may communicate with the whole Board, the Chairman of the Board, or with any independent director by sending commentsthe communication as follows:
By U.S. Mail:
℅ The Secretary
Sterling Construction Company, Inc.
1800 Hughes Landing Blvd. — Suite 250
The Woodlands, TX 77380
or
By e-mail to: E-mail to the Secretary at: Reports@Lighthouse-Services.com
The Secretary will give these communicationsthe communication to the directors as they arewhen received unless they areit is frivolous. If the communications arecommunication is voluminous, the Secretary will summarize themit and furnish the summary to the Board.
Board Governance
.The Board has adopted a set of governance guidelines, some of which are referred to elsewhere in this Proxy Statement. The full set ofBoard Governance Guidelines can be found on the Company's website, www.StrlCo.com,www.STRLco.com, on the Investor Relations page under Corporate Governance.
Independence
. The Board is currently made up of sixLeadership Structure
. For the short period between February 1 and March 9, 2015, Mr. Varello was the Company's Chairman of the Board and acting Chief Executive Officer. As a result of his election as Chief Executive Officer on a more permanent basis and his execution of a three-year employment agreement with the Company, Mr. Varello resigned as Chairman of the Board. Milton L. Scott, who is the Chair of the Audit Committee, was elected Chairman in his place. The Company believes that the separation of the roles of Chairman and Chief Executive Officer, as required by the Board Governance Guidelines, is appropriate in order to enhance the independence of the Board. It separates the operational leadership role of the chief executive from the fiduciary leadership role of the Board.| - 12 - |
Declassification of Directors
. As described above under the headingElection of Directors (Proposal 1),Election of Directors by Majority Vote
. In order to be elected a director, a nominee must receive more votes for his or her election than against it, which isDirectors' Attendance at Meetings in 2014
Stock Ownership Guidelines & Policies
.• | Hedging of Company Stock.Directors, executive officers, officers of the Company's majority-owned subsidiaries, as well as any employee of the Company or its subsidiaries to whom the Company has awarded shares of common stock, are prohibited from hedging the value of their shares, however acquired. |
• | Pledging Shares & Share Retention. This policy prohibits officers from selling or pledging their shares of the Company's stock if, after giving effect to the sale or pledge, the market value of the number of unpledged shares then held by the officer would be — |
In the Chiefcase of an Executive Officer less than two times his or her annualized base salary;
In the case of a president, chief executive, or a vice president of one of the Company's majority-owned subsidiaries, less than one times his or her annualized base salary.
The policy does not apply to stock purchased in the open market prior to January 1, 2011.
• | Directors. Under the Board Governance Guidelines, within five years of initial election to the Board, each non-employee director is expected to own shares of the Company's common stock equal in value to five times the annual cash retainer payable to directors. Market value is determined by the acquisition price or the closing market price at the time of acquisition, as the case may be. See the section below entitledDirector Compensation. All directors with five or more years of service on the Board have met this requirement. |
| - 13 - |
In the event of an increase in the annual retainer, the Corporate Governance & Nominating Committee will review this guideline to determine if there is a need for a change to reflect the increase.
Claw-Back Policy
. The Company's Claw-Back Policy applies to all bonuses, incentive compensation and the like thatin equity, or both) that waswere based on financial statements that are subsequently restated. If necessary, the compensation is adjusted so that the employee will have received no more and no less than the amount that he or she would have received had the financial statements been restated before the amount of the compensation was determined. The policy applies to all such compensation paid to an employee, whether or not the employee was culpable with respect to the error, event, act or omission that caused the restatement to be made.
Board Evaluations
. Directors conduct an annual evaluation of the performance of the Board and its committees. Questionnaires are sent to each Board member and committee member. Replies are anonymous and are collected and summarized by the Chair of the Corporate Governance & Nominating Committee. The summary is then discussed by the independent directors in an executive session held for the purpose. Any areas of Board or committee performance that are identified as needing improvement or change are considered by the Corporate Governance & Nominating Committee, which then makes a recommendation to the Board on the matter.In addition, the Chair of the Corporate Governance & Nominating Committee confers each year with each director individually to solicit comments about nominations for election and re-election to the Board, and to permit each director to express any concerns about the functioning of the Board, its committees and its members. Any comments a director may have about the Corporate Governance & Nominating Committee and its Chair are directed to the Chairman of the Board.
The Board's Risk Oversight
. Directors identify and exercise oversight of the Company's material risks acting as the whole Board as well as through its three standing committees. At each of the Board's regularly-scheduled meetings, directors receive a briefing and an assessment of the Company's risks as they relate to:Risk Oversight by Board Committees.
Each standing committee of the Board shares the risk oversight responsibility as shown in the table below:| Board of Directors | |||||||||||
| Audit Committee | Compensation Committee | Corporate Governance & Nominating Committee | |||||||||
| Financial liquidity | Executive compensation | Board organization | |||||||||
| Covenant compliance | Incentive compensation | Board membership | |||||||||
| Accounting | Board governance | ||||||||||
| Internal controls | |||||||||||
| Legal compliance | |||||||||||
| Related-party transactions | |||||||||||
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The Audit Committee
. In furtherance of its risk oversight responsibility, the Audit Committee provides for the confidential, anonymous submission by employees and others of concerns regarding questionable accounting, auditingThe Compensation Committee
. More information about the Compensation Committee and compensation risk can be found below in the section entitledCompensation Policies & Practices — Risk Management under the headingExecutive Compensation.The Corporate Governance & Nominating Committee
. The Corporate Governance & Nominating Committee addresses some of its risk oversight responsibilities through identifying and recommending for nomination well-qualified independent directors; through the periodic review of the Board Governance Guidelines; and by conducting annual Board self-evaluations, and through the Chair of the Committee, individual director evaluations.Selecting Director Nominees
. The Board's Corporate Governance & Nominating Committee has the responsibility, among others, to identify and recommend for nomination by the Board (including by a majority of independent directors) qualified candidates for election as director.The Corporate Governance & Nominating Committee has voted to recommend to the Board the nomination for re-election of Ms. Davenport and Messrs. Hemsley, Patton, Schaum, Scott and Varello, whose current terms expire at the 2017 Annual Meeting. If re-elected, they will serve for one-year terms.
Information about the background and qualifications of the nominees is set forth above in the section entitledBackground & Skills of the Nominees & Continuing DirectorsDirector under the headingElection of Directors (Proposal 1).
The Corporate Governance & Nominating Committee has not specified any minimum qualifications for serving on the Board, but seeks to achieve a Board that is composed of individuals who have experience that is relevant to the needs of the Company, who have a high level of professional and personal ethics, and who contribute to the cognitive diversity of the Board, including business experience, public sector experience, professional training, public and private offices held, geographical representation, race, gender and age, among other considerations. Experience in the construction industry and in one or more of engineering, transportation, finance and accounting, corporate governance, senior management, and public sector matters are considered particularly valuable. An independent director candidate is expected to be committed to enhancing stockholder value, and to have sufficient time to carry out the duties of a director, both on the full Board and on one or more of its standing committees.
The Corporate Governance & Nominating Committee periodically assesses the strengths, experience and skills of the independent directors to determine if there is a gap in the skills or experience that the Board should seek to fill. Given the Company's size, the Committee realizes that it is difficult to achieve a Board with broad diversity. Whenever it is determined that replacement directors or additional directors are needed, the Corporate Governance & Nominating Committee will perform a similar assessment.
In identifying potential candidates for Board membership, the Corporate Governance & Nominating Committee relies on suggestions and recommendations from directors, management and others, including from time to time executive search and board advisory firms. The Committee has not established a special policy regarding the consideration of director candidates recommended by stockholders. Before recommending a candidate for election, the Corporate Governance & Nominating Committee conducts an independent evaluation of the candidate and checks references. The evaluation of any candidate recommended by a stockholder would be conducted in the same manner as for any other candidate.
| - 15 - |
If a stockholder wishes to recommend a person as a candidate for nomination as a director, the stockholder should follow the procedure for communicating with the Board that is described above in the section entitledCommunicating with the Board. Recommendations of candidates for nomination for the 20162018 Annual Meeting of Stockholders must be received by the date set forth below under the headingSubmission of Stockholder Proposals.
Board Operations
.Committees of the Board
. The Board's three standing committees are the Audit Committee, the Compensation Committee and the Corporate Governance & Nominating Committee. The professional background and skills of each of the members of these committees are described above in the section entitledBackground & Skills of the Nominees & ContinuingEach of these committees has a charter that is posted on the Company's website, www.StrlCo.comwww.STRLco.com, under the Investor Relations tabpage in the Corporate Governance section. The Board also establishes special-purpose, orad hoc, committees as the need arises.
The Audit Committee
. The current members of the Audit Committee are Milton L. Scott, Chair, Maarten D. Hemsley, and Richard O. Schaum. The Board has determined that each of Messrs. Hemsley and Scott is an Audit Committee Financial Expert based on the definition of that term contained in applicable regulations. The Audit Committee meets at least quarterly.The Audit Committee assists the Board in fulfilling its responsibility to oversee the Company's accounting and financial reporting processes, and the audits by the Company's independent registered public accounting firm, which is referred to in the Committee's charter as the independent auditors. In particular, the Audit Committee has the responsibility to —
| Review financial reports and other financial information, internal accounting and financial controls, controls and procedures relating to public disclosure of information, and the audit of the Company's financial statements by the Company's independent auditors; Appoint independent auditors, approve their compensation, supervise their work, oversee their independence, and evaluate their qualifications and performance; Review with management and the independent auditors the audited and interim financial statements that are included in filings with the Securities and Exchange Commission; Review the quality of the Company's accounting policies; Review with management major financial risk exposures; Review and discuss with management the Company's policies with respect to press releases on earnings and earnings guidance, including the use of pro forma information; Review all proposed transactions between the Company and related parties in which the amount involved exceeds $100,000; Provide for the confidential, anonymous submission by employees and others of concerns regarding questionable accounting or auditing matters; and Oversee the Company's Ethics & Compliance Program by supporting the resource needs of the Company's Chief Compliance Officer, and by receiving periodic reports from the Chief Compliance Officer on the status of the compliance program and other matters.
The Audit Committee Report . In fulfillment of its responsibilities, the Audit Committee has —Reviewed and discussed with management and with the Company's independent registered public accounting firm the Company's 2016 audited consolidated financial statements;
Received the written disclosures and the letter from the independent accountant required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the audit committee concerning independence, and discussed with the independent accountant the independent accountant's independence; and Based and in reliance on the foregoing review and discussions, recommended to the Board, and the Board approved the inclusion of the Company's audited consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 for filing with the SEC. Submitted by the members of the Audit Committee on March ____, 2017: Milton L. Scott,Chair Maarten D. Hemsley Richard O. Schaum The Compensation Committee . The current members of the Compensation Committee are Richard O. Schaum, Chair, Marian M. Davenport,The Compensation Committee has the responsibility to — Determine the type, the amount, the manner and the time of payment, of salary, incentive compensation and any other compensation that is paid to officers of the Company and the principal executive officers of the Company's subsidiaries; Set any goals, financial or individual, pursuant to which any incentive compensation may be earned by an officer, and to determine the level of achievement, if any, of those goals; Determine the terms and conditions of officers' employment agreements and severance arrangements; Determine which, if any, employees of the Company and its subsidiaries and affiliates are provided with change-in-control severance benefits, and the terms and conditions of those benefits; Administer the Company's stock plans; Review and make recommendations on the Company's benefit plans; Evaluate risks that arise from the Company's compensation policies and practices; Review and advise the Corporate Governance & Nominating Committee on the compensation of non-employee directors; Appoint, retain, compensate and oversee the work of compensation consultants, independent legal counsel, and other compensation advisers, and to consider certain independence factors before selecting them; and Review and discuss with management the Company's Compensation Discussion and Analysis, and based on that review and those discussions, to determine whether to recommend that it be included in the Company's Annual Report on Form 10-K.
In exercising its authority and carrying out its responsibilities, the Compensation Committee meets to discuss the structure of executive compensation, proposed employment agreements, salaries, cash and equity incentive awards, and the achievement and the setting of financial and Compensation Committee Interlocks and Insider Participation . DuringNone of the Company's executive officers served as a director or member of the compensation committee, or of any other committee serving an equivalent function, of any other entity that has an executive officer who is currently serving, or during The Compensation Committee Report . The Compensation Committee of the Board of Directors has reviewed and discussed with management theCompensation Discussion and Analysis set forth below under the headingExecutive Compensation. Based on that review and those discussions, the Compensation Committee recommended to the Board of Directors that theCompensation Discussion and Analysis be included in the Company's proxy statement on Schedule 14A.Submitted by the members of the Compensation Committee on March ____, 2017: Richard O. Schaum,Chair Marian M. Davenport Charles R. Patton The Corporate Governance & Nominating Committee . The current members of the Corporate Governance & Nominating Committee are Marian M. Davenport, Chair, Maarten D. Hemsley, and Milton L. Scott. The Committee typically holds three to four regularly-scheduled meetings a year.The Corporate Governance & Nominating Committee assists the Board in fulfilling its corporate governance responsibilities, and in particular has the responsibility to —
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