UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrantx Filed by a Party other than the Registrant¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| x | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to §240.14a-12 |
The Hershey Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: |
| (2) | Aggregate number of securities to which transaction applies: |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) | Proposed maximum aggregate value of transaction: |
| (5) | Total fee paid: |
| ¨ | Fee paid previously with preliminary materials. |
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | Amount Previously Paid: |
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| (4) | Date Filed: |
Wednesday, May 4, 2016
10:00 a.m., Eastern Daylight Time
GIANT Center
The 2016 Annual Meeting of Stockholders (the “Annual Meeting”) of The Hershey Company (the “Company”) will be held on Wednesday, May 4, 2016, beginning at 10:00 a.m., Eastern Daylight Time, at GIANT Center, 550 West Hersheypark Drive, Hershey, Pennsylvania. The purposes of the meeting are as follows:
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
| 1. | To elect the 11 nominees named in the Proxy Statement to serve as directors of the Company until the 2017 Annual Meeting of Stockholders; |
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| To consider the stockholder proposal set forth in the Proxy Statement, if properly presented at the Annual Meeting; and |
| 6. | To discuss and take action on any other business that is properly brought before the | |||||
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The Proxy Statement accompanying this Notice of 2016 Annual Meeting of Stockholders describes each of these items in detail. The Proxy Statement contains other important information that you should read and consider before you vote.
The Board of Directors of the Company has established the close of business on March 7, 2016 as the record date for determining the stockholders who are entitled to notice of, and to vote at, the Annual Meeting and any adjournment or postponement thereof.
The Company is furnishing proxy materials to its stockholders through the Internet as permitted under the rules of the Securities and Exchange Commission. Under these rules, many of the Company’s stockholders will receive a Notice of Internet Availability of Proxy Materials instead of a paper copy of the Notice of 2016 Annual Meeting of Stockholders and Proxy Statement, our proxy card, and our Annual Report on Form 10-K. We believe this process gives us the opportunity to serve you more efficiently by making the proxy materials available quickly online and reducing costs associated with printing and postage. Stockholders who do not receive a Notice of Internet Availability of Proxy Materials will receive a paper copy of the proxy materials by mail.
By order of the Board of Directors,
Leslie M. Turner
Senior Vice President,
General Counsel and Secretary
March 18, 201424, 2016
Your vote is important. Instructions on how to vote are contained in our proxy statementProxy Statement and in the Notice of Internet Availability of Proxy Materials. Please cast your vote by telephone or over the Internet as described in those materials. Alternatively, if you requested a copy of the proxy/voting instruction card by mail, you may mark, sign, date and return the proxy/voting instruction card in the envelope provided.
The Hershey Company
100 Crystal A Drive
Hershey, Pennsylvania 17033
March 18, 2014
For the Annual Meeting of Stockholders
To Be Held on April 29, 20142016 ANNUAL MEETING OF STOCKHOLDERS
Date and Time: | Wednesday, May 4, 2016 10:00 a.m., Eastern Daylight Time | |
Place: | GIANT Center 550 West Hersheypark Drive Hershey, Pennsylvania 17033 | |
Record Date: | March 7, 2016 | |
VOTING MATTERS AND BOARD RECOMMENDATIONS
Voting Matter | Board Vote Recommendation | Page Number with More Information | ||||
Proposal 1: | Election of Directors | FOR each nominee | 23 | |||
Proposal 2: | Ratification of Appointment of KPMG LLP as Independent Auditors | FOR | 41 | |||
Proposal 3: | Approval of Named Executive Officer Compensation on a Non-binding Advisory Basis | FOR | 81 | |||
Proposal 4: | Re-approval of Material Terms of the Performance Criteria under The Hershey Company Equity and Incentive Compensation Plan | FOR | 82 | |||
Proposal 5: | Stockholder Proposal Entitled “Report on Use of Nanomaterials” | AGAINST | 89 | |||
This Proxy Statement Summary contains highlights of certain information in this Proxy Statement. Because it is only a summary, it does not contain all the information that you should consider prior to voting. Please review the complete Proxy Statement and the Company’s Annual Report on Form 10-K for additional information.
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You have the opportunity to vote on the election of the following 11 nominees for director. Additional information regarding each director nominee’s experience, skills and qualifications to serve as a member of the Company’s Board of Directors (the “Board”) can be found on pages 24 – 29.
Name
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Age
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Years on
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Position
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Independent
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Committee
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Pamela M. Arway | 62 | 6 | Former President, Japan/Asia Pacific/Australia Region of American Express Company, Inc. | Yes | Audit Executive Governance+ | |||||
John P. Bilbrey** | 59 | 5 | Chairman of the Board, President and Chief Executive Officer of The Hershey Company | No | Executive+ | |||||
Robert F. Cavanaugh | 57 | 13 | Former Chief Executive Officer of ValueRock Investment Partners | Yes | Finance & Risk Governance | |||||
Charles A. Davis | 67 | 9 | Chief Executive Officer of Stone Point Capital LLC | Yes | Audit+ Executive | |||||
Mary Kay Haben | 59 | 3 | Retired President, North America of Wm. Wrigley Jr. Company | Yes | Compensation Governance | |||||
Robert M. Malcolm | 63 | 5 | Retired President, Global Marketing, Sales & Innovation of Diageo PLC | Yes | Compensation Finance & Risk | |||||
James M. Mead | 70 | 5 | Founder and Managing Director of JM Mead, LLC | Yes | Audit Compensation+ Executive | |||||
James E. Nevels*** | 64 | 9 | Chairman of The Swarthmore Group | Yes | Audit Compensation**** Executive Finance & Risk**** Governance | |||||
Anthony J. Palmer | 56 | 5 | President, Global Brands and Innovation of Kimberly-Clark Corporation | Yes | Compensation Finance & Risk | |||||
Thomas J. Ridge | 70 | 9 | Chairman of Ridge Global, LLC | Yes | Finance & Risk Governance | |||||
David L. Shedlarz | 67 | 8 | Retired Vice Chairman of Pfizer Inc. | Yes | Compensation Executive Finance & Risk+ |
| * | Compensation = Compensation and Executive Organization Committee |
| Finance & Risk = Finance and Risk Management Committee |
| ** | Chairman of the Board |
| *** | Lead Independent Director |
| **** | Mr. Nevels, as our Lead Independent Director, is an ex-officio member of the Compensation and Executive Organization Committee and the Finance and Risk Management Committee |
| + | Committee Chair |
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Board Composition
Corporate Governance
| ¡ | 10 Board meetings in 2015 |
| ¡ | 32 committee meetings in 2015 |
| • | Directors generally not nominated for re-election after 72nd birthday |
| ¡ | Approximately 95% stockholder approval (based on votes cast) every year |
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EXECUTIVE COMPENSATION HIGHLIGHTS
Our executive compensation program is intended to provide competitive compensation based on performance and contributions to the Company, to incentivize, attract and retain key executives, to align the interests of our executive officers and our stockholders and to drive stockholder value over the long term. To achieve these objectives, our executive compensation program includes the following key features:
| • | We Pay for Performance by aligning our short- and long-term incentive compensation plans with business strategies to reward executives who achieve or exceed applicable Company and business division goals. |
| ¡ | In 2015, variable compensation represented 86% of our Chairman of the Board, President and Chief Executive Officer’s (“CEO’s”) target total direct compensation and, on average, 71% of target total direct compensation for our other named executive officers (“NEOs”). |
| ¡ | Payouts under our annual cash incentive program for 2015 were 100% performance based. |
| ¡ | 50% of the equity awards granted to our NEOs in 2015 took the form of performance stock units, which will be earned based on achievement of pre-determined performance goals. |
| ¡ | 50% of the equity awards granted to our NEOs in 2015 took the form of stock options, which will only have value to our NEOs to the extent our stock price increases over the long term. |
| • | We Pay Competitively by targeting total cash compensation and total direct compensation for each of our NEOs around the 50th percentile of our defined market for talent. |
| ¡ | We regularly review and, as appropriate, make changes to our compensation peer group to ensure it is representative of our market for talent, our business portfolio, our overall size and our global footprint. |
| ¡ | We do not provide excessive benefits and perquisites to our executives. |
| • | We Align Our Compensation Program with Stockholder Interests by providing a significant amount of each NEO’s compensation opportunity in the form of equity and requiring executive stock ownership. |
| ¡ | Equity grants represented 66% of our CEO’s 2015 target total direct compensation and, on average, 50% of the 2015 target total direct compensation for our other NEOs. |
| ¡ | Stock ownership requirements for our NEOs (excluding those who served in interim positions in 2015) range from 5x salary (for our CEO) to 3x salary (for NEOs other than our CEO). |
CEO Target Total Direct Compensation for 2015 | ||||||||
Compensation Element | % of Total | Description | Cash | Equity | ||||
Salary | 14 | Fixed annual cash amount | ü | |||||
Annual Cash Incentive | 20 | Variable annual cash payment | ü | |||||
Long-Term Incentive | 66 | Equity awards with 3-4 year vest periods | ü | |||||
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The Board of Directors (the “Board”) of The Hershey Company a Delaware corporation,(the “Company,” “we,” or “us”) is furnishing this Proxy Statement and the accompanying form of proxy statement to you in connection with the solicitation of proxies for our 2014 annual meetingthe 2016 Annual Meeting of stockholders.Stockholders of the Company (the “Annual Meeting”). The meetingAnnual Meeting will be held on April 29, 2014,May 4, 2016, beginning at 10:00 a.m., Eastern Daylight Time or EDT,(“EDT”), at GIANT Center, 550 West Hersheypark Drive, Hershey, Pennsylvania 17033. Valid proxies received in connection with the annual meeting may be voted at the annual meeting and at any adjournments or postponements of that meeting.
Important Notice Regarding the Availability of Proxy Materials for the
20142016 Annual Meeting of Stockholders to be held on April 29, 2014May 4, 2016
Our noticeThe Notice of annual meeting2016 Annual Meeting of Stockholders and proxy statement, annual report to stockholders, electronicProxy Statement, our proxy card, our Annual Report on Form 10-K and other annual meeting materials are available free of charge on the Internet atwww.proxyvote.com.We intend to begin mailing our Notice of Internet Availability of Proxy Materials to stockholders on or about March 18, 2014.24, 2016. At that time, we also will begin mailing paper copies of our proxy materials to stockholders who requested them. Please see page 2 of this proxy statement for more information on how these materials will be distributed.
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INFORMATIONQUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
What is a proxy statement and why is it important?
We hold a meeting of stockholders annually. This year’s meeting will be held on April 29, 2014. There will be certain items of business that must be voted on by our stockholders at the meeting, and our Board of Directors is seeking your proxy to vote on these items. This proxy statement contains important information about The Hershey Company and the matters that will be voted on at the meeting. Please read these materials carefully so that you have the information you need to make informed decisions. Throughout this proxy statement, we will refer to ourselves as “The Hershey Company,” “Hershey,” “we,” “our” or the “Company.”
How are proxy solicitation and other required annual meeting materials distributed?
The Securities and Exchange Commission, or SEC, has adopted rules that allow us to mail a notice to our stockholders advising that our proxy statement, annual report to stockholders, electronic proxy card and related materials are available for viewing, free of charge, on the Internet. Stockholders may then access these materials and vote over the Internet or request delivery of a full set of materials by mail or email. We have elected to utilize this process for the 2014 annual meeting. We intend to begin mailing the required notice, called Notice of Internet Availability of Proxy Materials, or Notice, to stockholders on or about March 18, 2014. The proxy materials will be posted on the Internet, atwww.proxyvote.com, no later than the day we begin mailing the Notice. If you receive a Notice, you will not receive a paper or email copy of the proxy materials unless you request one in the manner set forth in the Notice.
The Notice of Internet Availability of Proxy Materials contains important information, including:
| Q: | Who is entitled to attend and vote at the Annual Meeting? |
The date, time and location of the annual meeting;
| A: | You can attend and vote at the Annual Meeting if, as of the close of business on March 7, 2016 (the “Record Date”), you were a stockholder of record of the Company’s common stock (“Common Stock”) or Class B common stock (“Class B Common Stock”). As of the Record Date, there were 154,349,189 shares of our Common Stock and 60,619,777 shares of our Class B Common Stock outstanding. |
| Q: | How do I gain admission to the Annual Meeting? |
A brief description of the matters to be voted on at the meeting;
| A: | If you are aregistered stockholder, you must bring with you the Notice of Internet Availability of Proxy Materials and a government-issued photo identification (such as a valid driver’s license or passport) to gain admission to the Annual Meeting. If you did not receive a Notice of Internet Availability of Proxy Materials because you elected to receive a paper copy of the proxy materials, please bring the admission ticket printed on the top half of the proxy card supplied with those materials, together with your government-issued photo identification. If you receive your proxy materials by email, please call our Investor Relations Department at (800) 539-0261 and request an admission ticket for the meeting. |
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Instructions on how to access and review the proxy materials online, how to vote your shares over the Internet, and how to get a paper or email copy of the proxy materials, if that is your preference.
These rules give us the opportunity to serve you more efficiently by making the proxy materials available quickly online and reducing costs associated with printing and postage.
What is a proxy?
A proxy is your legal designation of another person to vote the stock that you own. The person you designate to vote your shares is also called a proxy. We have provided an electronic proxy card atwww.proxyvote.com that you will use to vote your shares online or by telephone. If you requested a paper copy of our proxy materials, you also can vote using the proxy card enclosed with those materials. On our proxy card, you will find the names of the persons designated by the Company to act as proxies to vote your shares at the annual meeting. When you submit a valid proxy, the people named on the proxy card as proxies are required to vote your shares at the annual meeting in the manner you have instructed. Please turn to page 4 for more information about voting your shares.
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What is the record date and why is it important?
The record date is the date used by our Board of Directors to determine which stockholders of the Company are entitled to receive notice of, and to vote on the items presented at, the annual meeting. Our Board established February 28, 2014, as the record date for the 2014 annual meeting.
What is the difference between a registered stockholder and a stockholder who owns stock in street name?
If you hold shares of Hershey stock directly in your name, you are a registered stockholder. If you own your Hershey shares indirectly through a broker, bank or other holder of record, those shares are held in street name.
How do I gain admission to the annual meeting?
If you owned Hershey stock on the record date, you may attend the annual meeting. If you are aregistered stockholder, you must bring with you the Notice of Internet Availability of Proxy Materials and a government-issued photo identification (such as a valid driver’s license or passport) to gain admission to the meeting. If you did not receive a Notice because you elected to receive a paper copy of the proxy materials, please bring the admission ticket printed on the top half of the proxy card supplied with those materials, together with your government-issued photo identification, to gain admission to the meeting. If you receive your proxy materials by email, please call our Investor Relations Department at (800) 539-0261 and request an admission ticket for the meeting.
If you hold your shares instreet name and want to attend the meeting, you must bring your government-issued photo identification, together with:
The Notice of Internet Availability of Proxy Materials you received from your broker, bank or other holder of record; or
A letter from your broker, bank or other holder of record indicating that you were the beneficial owner of HersheyCompany stock as of the record date for the meeting;Record Date; or
Your most recent account statement indicating that you were the beneficial owner of HersheyCompany stock as of the record date for the meeting.Record Date.
What will occur at the annual meeting?
Following opening remarks, stockholders will be offered an opportunity to submit completed voting ballots on the proposals to be presented at this year’s meeting. Following the vote, we will provide an update on our business followed by an opportunity for stockholders to ask questions. Finally, we will provide a preliminary report on the votes cast for each of the proposals presented at the meeting.
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What proposals will I be voting on, and how does the Board of Directors recommend I vote?
| Q: | What is the difference between a registered stockholder and a stockholder who owns stock in street name? |
| A: | If you hold shares of Common Stock or Class B Common Stock directly in your name, you are aregistered stockholder. If you own your Company shares indirectly through a broker, bank or other holder of record, those shares are held instreet name. |
| Q: | What are the voting rights of each class of stock? |
| A: | Stockholders are entitled to cast one vote for each share of Common Stock held as of the Record Date, and 10 votes for each share of Class B Common Stock held as of the Record Date. There are no cumulative voting rights. |
| Q: | Can I vote my shares before the Annual Meeting? |
| Yes. If you are aregistered stockholder, there are three ways to vote your shares before the Annual Meeting: |
| • | By Internet (www.proxyvote.com) – Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on May 3, 2016. Have your Notice of Internet Availability of Proxy Materials or proxy card available and follow the instructions on the website to vote your shares. |
By telephone (800-690-6903) – Submit your vote by telephone until 11:59 p.m. EDT on May 3, 2016. Have your Notice of Internet Availability of Proxy Materials or proxy card available and follow the instructions provided by the recorded message to vote your shares.
By mail – If you received a paper copy of the proxy materials, you can vote by mail by filling out the proxy card enclosed with those materials and returning it pursuant to the instructions set forth on the card. To be valid, proxy cards must be received before the start of the Annual Meeting.
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| Q: | Can I vote in person at the Annual Meeting instead of by proxy? |
| A: | If you are aregistered stockholder, you can vote at the Annual Meeting any shares that were registered in your name as the stockholder of record as of the |
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What other matters might arise
| Q: | Can I revoke my proxy or change my voting instructions once submitted? |
| A: | If you are aregistered stockholder, you can revoke your proxy and change your vote prior to the Annual Meeting by: |
Sending a written notice of revocation to our Corporate Secretary at the meeting?
We are not aware of any other matters that will100 Crystal A Drive, Hershey, Pennsylvania 17033 (the notification must be brought before the stockholders at the annual meeting. Except under very limited circumstances, stockholder proposals and nominations for director had to be submitted to us in advance and meet certain requirements in order to be eligible for consideration at the meeting. We described those requirements in our 2013 proxy statement. If any other item of business is properly presented for a vote at the annual meeting, the proxies will vote validly executed proxies returned to us in accordance with their best judgment. Procedures for submitting stockholder proposals and nominations for director for the 2015 annual meeting are described beginning on page 92.
Does Hershey have more than one class of stock outstanding?
We have two classes of stock outstanding, Common Stock and Class B Common Stock. As of the record date for the annual meeting, there were 162,776,016 shares of Common Stock outstanding and 60,619,777 shares of Class B Common Stock outstanding. All shares of Common Stock and Class B Common Stock outstanding as of the record date are entitled to be voted at the meeting.
What are the voting rights of each class of stock?
You may cast one vote for each share of Common Stock that you held as ofreceived by the close of business on May 3, 2016);
Voting again by Internet or telephone prior to 11:59 p.m. EDT on May 3, 2016 (only the record date. You may cast ten votes for each share of Class B Common Stock thatlatest vote you held as of the close of business on the record date.
What is a quorum and why is it important?
A quorum is the minimum number of votes entitled to be cast that must be present, either in person or by proxy, at the annual meeting in order for business to be conducted at the annual meeting. Votessubmit will be deemed to be “present” at the meeting if a stockholder of record:
Attends the meeting in person;counted); or
Properly submitsSubmitting a new properly signed and dated paper proxy in advancecard with a later date (your proxy card must be received before the start of the meeting by Internet, telephone or proxy card.Annual Meeting).
On most
| If your shares are held instreet name, you should contact your broker, bank or other holder of record about revoking your voting instructions and changing your vote prior to the Annual Meeting. |
| If you are eligible to vote at the Annual Meeting, you also can revoke your proxy or voting instructions and change your vote at the Annual Meeting by submitting a written ballot before the polls close. |
| Q: | What will happen if I submit my proxy but do not vote on a proposal? |
| A: | If you submit a valid proxy but fail to provide instructions on how you want your shares to be voted, your proxy will be voted in the manner recommended by the Board on all matters presented in this Proxy Statement, which is as follows: |
“FOR” the voteselection of all director nominees;
“FOR” the ratification of the holdersappointment of KPMG LLP as our independent auditors;
“FOR” the approval of the Common Stockcompensation of the Company’s named executive officers (“NEOs”);
“FOR” the re-approval of the material terms of the performance criteria under The Hershey Company Equity and Class B Common Stock are counted together. However, there are some matters that must be voted on only byIncentive Compensation Plan; and
“AGAINST” the holders ofstockholder proposal set forth in this Proxy Statement (if such stockholder proposal is properly presented at the Annual Meeting).
| If any other item is properly presented for a vote at the Annual Meeting, the shares represented by your properly submitted proxy will be voted at the discretion of the proxies. |
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| Q: | What will happen if I neither submit my proxy nor vote my shares in person at the Annual Meeting? |
one class of stock. We
| A: | If you are aregistered stockholder, your shares will not be voted. |
| If your shares are held instreet name, your broker, bank or other holder of record may vote your shares on certain “routine” matters. The ratification of independent auditors is currently considered to be a routine matter. On this matter, your broker, bank or other holder of record can: |
Vote your street-name shares even though you have a quorumnot provided voting instructions; or
Choose not to vote your shares.
| The other matters you are being asked to vote on are not routine and cannot be voted by your broker, bank or other holder of record without your instructions. When a broker, bank or other holder of record is unable to vote shares for this reason, it is called a “broker non-vote.” |
| Q: | How do I vote if I am a participant in one of the Company’s 401(k) Plans? |
| A: | If you are a participant in either The Hershey Company 401(k) Plan or The Hershey Company Puerto Rico 401(k) Plan, you may have certain voting rights with respect to shares of our Common Stock credited to your account in the plan. You do not own these shares. They are owned by the plan trustee. |
| Each of the plans provides you with voting rights based on the number of shares of Common Stock that were constructively invested in your plan account as of the close of business on the Record Date. We originally contributed these shares to the plan on your behalf as matching or supplemental retirement contributions. You may vote these shares in much the same way as registered stockholders vote their shares, but you have an earlier deadline. Your vote must be received by the plan trustee by 11:59 p.m. EDT on April 29, 2016. You may vote these shares by following the instructions provided on the Notice of Internet Availability of Proxy Materials and on the voter website,www.proxyvote.com. If you requested a paper copy of the proxy materials, you also may vote by mail by signing, dating and returning the proxy/voting instruction card included with those materials. |
| The plan trustee will submit one proxy to vote all shares of Common Stock in the plan. The trustee will vote the shares of Common Stock credited to participants submitting voting instructions in accordance with their instructions and will vote the shares of Common Stock in the plan for which no voting instructions were received in the same proportion as the final votes of all participants who actually voted. Please note that if you do not submit voting instructions for the shares of Common Stock in your account by the voting deadline, those shares will be included with the other undirected shares and voted by the trustee as described above. Because the trustee submits one proxy to vote all shares of Common Stock in the plan, you may not vote plan shares in person at the Annual Meeting. |
| Q: | How do I vote my shares in the Company’s Automatic Dividend Reinvestment Service Plan? |
| A: | Computershare, our transfer agent, has arranged for any shares that you hold in the Automatic Dividend Reinvestment Service Plan to be included in the total registered shares of Common Stock shown on the Notice of Internet Availability of Proxy Materials or proxy card we have provided you. By voting these shares, you also will be voting your shares in the Automatic Dividend Reinvestment Service Plan. |
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| Q: | What does it mean if I received more than one Notice of Internet Availability of Proxy Materials or proxy card? |
| A: | You probably have multiple accounts with us and/or brokers, banks or other holders of record. You should vote all of the shares represented by these Notices/proxy cards. Certain brokers, banks and other holders of record have procedures in place to discontinue duplicate mailings upon a stockholder’s request. You should contact your broker, bank or other holder of record for more information. Additionally, Computershare can assist you if you want to consolidate multiple registered accounts existing in your name. To contact Computershare, write to P.O. Box 30170, College Station, Texas 77842-3170; or for overnight delivery, to Computershare, 211 Quality Circle, Suite 210, College Station, Texas 77845; or call: |
(800) 851-4216 Domestic Holders
(201) 680-6578 Foreign Holders
(800) 952-9245 Domestic TDD line for all matters to be voted on at the annual meeting if the following number of votes is present, in person or by proxy:hearing impaired
(312) 588-4110 Foreign TDD line for hearing impaired
| Q: | How many shares must be present to conduct business at the Annual Meeting? |
| A: | To carry on the business of the Annual Meeting, a minimum number of shares, constituting a quorum, must be present, either in person or by proxy. |
| On most matters, the votes of the holders of the Common Stock and Class B Common Stock are counted together. However, there are some matters that must be voted on only by the holders of one class of stock. We will have a quorum for all matters to be voted on at the Annual Meeting if the following number of votes is present, in person or by proxy: |
| • | For any matter requiring the vote of the Common Stock voting separately: a majority of the votes of the Common Stock outstanding on the |
| • | For any matter requiring the vote of the Class B Common Stock voting separately: a majority of the votes of the Class B Common Stock outstanding on the |
| • | For any matter requiring the vote of the Common Stock and Class B Common Stock voting together without regard to class: a majority of the votes of the Common Stock and Class B Common Stock outstanding on the |
It is possible that we could have a quorum for certain items of business to be voted on at the annual meeting and not have a quorum for other matters. If that occurs, we will proceed with a vote only on the matters for which a quorum is present.
Abstentions are counted as being present and entitled to vote in determining whether a quorum is present. Shares as to which “broker non-votes” exist will be counted as present and entitled to vote in determining whether a quorum is present for any matter requiring the vote of the Common Stock and Class B Common Stock voting together as a class, but they will not be counted as present and entitled to vote in determining whether a quorum is present for any matter requiring the vote of the Common Stock or Class B Common Stock voting separately as a class. A “broker non-vote” occurs when a nominee, such as a broker, bank or other holder of record, holding shares for astreet nameowner, cannot vote on a particular proposal because the nominee does not have discretionary voting power for that particular matter and has not received instructions on how to vote from thestreet nameowner.
What vote is required to approve each proposal?
Proposal No. 1: Election of Directors. Eleven directors are to be elected at our annual meeting. As required by our certificate of incorporation and by-laws:
| It is possible that we could have a quorum for certain items of business to be voted on at the Annual Meeting and not have a quorum for other matters. If that occurs, we will proceed with a vote only on the matters for which a quorum is present. |
One-sixth of the total number of our directors (which equates presently to two directors) will be elected by the holders of our Common Stock voting separately as a class.
| Q: | What vote is required to approve each proposal? |
The remaining nine directors will be elected by the holders of our Common Stock and Class B Common Stock voting together without regard to class.
You can cast your vote “FOR” any or all of the director nominees named on the proxy card or “WITHHOLD” your vote on any or all of the nominees. Please refer to the voter website,www.proxyvote.com, for voting instructions. If you requested a paper copy of the proxy materials, voting instructions are contained on the proxy card enclosed with those materials.
Directors will be elected byplurality. That means the nominees who receive the greatest number of properly cast “FOR” votes will be elected.
Robert M. Malcolm and Anthony J. Palmer have been nominated by the Board for election by the holders of our Common Stock voting separately at the 2014 annual meeting. The other director nominees have been nominated for election by the holders of our Common Stock and Class B Common Stock voting together. Please go to page 28 for more information about Proposal No. 1.
Proposal Nos. 2 and 3. Each of Proposal Nos. 2 and 3 will be approved if the holders of record of our Common Stock and Class B Common Stock representing a majority of the votes present (in person or by proxy) and entitled to vote at the annual meeting vote in favor of each proposal. We have provided additional information about these proposals in this proxy statement.
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How can I vote my shares before the meeting?
If you are aregistered stockholder, there are three ways to vote your shares before the meeting:
| A: | Assuming that a quorum is present: |
| • |
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| • |
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| • | Proposal No. 3: Approval of Named Executive Officer Compensation on |
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If your shares are held instreet name, your broker, bank or other holder of record may provide you with a Notice of Internet Availability of Proxy Materials. Follow the instructions on the Notice to access our proxy materials and vote online or to request a paper or email copy of our proxy materials. If you received these materials in paper form, the materials included a voting instruction card so you can instruct your broker, bank or other holder of record how to vote your shares.
Proposal No. 5: Stockholder Proposal Entitled “Report on Use of Nanomaterials”– the affirmative vote of the holders of at least a majority of the shares of Common Stock and Class B Common Stock (voting together as a class) represented at the Annual Meeting. Further instructions on how to vote your shares are provided on the Notice of Internet Availability of Proxy Materials, the voter website,www.proxyvote.com and elsewhere in this proxy statement. If you requested a paper copy of the proxy materials, voting instructions also are contained on the proxy card enclosed with those materials.• Can I vote at the meeting?If you are aregistered stockholder, you can vote at the meeting any shares that were registered in your name as the stockholder of record as of the record date.If your shares are held instreet name, you are not a holder of record of those shares and cannot vote them at the annual meeting unless you have a legal proxy from the holder of record. If you plan to attend and vote your street-name shares at the annual meeting, you should request a legal proxy from your broker, bank or other holder of record and bring it with you to the meeting.If you plan to vote at the meeting, please pick up a ballot at the designated voting booth upon your arrival. You may then either deposit your ballot in any of the designated ballot boxes located inside the meeting room before the meeting begins or submit your ballot to a meeting usher at the time designated during the meeting.Ballots will not be distributed during the meeting. Shares may not be voted after the polls close.Whether or not you plan to attend the meeting, we strongly encourage you to vote by proxy prior to the meeting.6Can I revoke my proxy or change my voting instructions once submitted?If you are aregistered stockholder, you can revoke your proxy and change your vote prior to the annual meeting by:Q: Are abstentions and broker non-votes counted in the vote totals? Sending a written notice of revocation to our Corporate Secretary at 100 Crystal A Drive, Hershey, Pennsylvania 17033 (the notification must be received by the close of business on April 28, 2014);A: Abstentions are counted as being present and entitled to vote in determining whether a quorum is present. Shares as to which broker non-votes exist will be counted as present and entitled to vote in determining whether a quorum is present for any matter requiring the vote of the Common Stock and Class B Common Stock voting together as a class, but they will not be counted as present and entitled to vote in determining whether a quorum is present for any matter requiring the vote of the Common Stock or Class B Common Stock voting separately as a class. Voting again by Internet or telephone prior to 11:59 p.m. EDT on April 28, 2014 (only the latest vote you submit will be counted); orIf you mark or vote “abstain” on any of Proposal Nos. 2-5, the abstention will have the effect of being counted as a vote “AGAINST” the proposal. Broker non-votes with respect to ProposalNos. 1-5 are not included in vote totals and will not affect the outcome of the vote on those proposals. Submitting a new properly signed and dated paper proxy card with a later date (your proxy card must be received before the start of the annual meeting).If your shares are held instreet name, you should contact your broker, bank or other holder of record about revoking your voting instructions and changing your vote prior to the meeting.If you are eligible to vote at the annual meeting, you also can revoke your proxy or voting instructions and change your vote at the annual meeting by submitting a written ballot before the polls close.What will happen if I submit my proxy but do not vote on a proposal?If you submit a valid proxy but fail to provide instructions on how you want your shares to be voted, properly submitted proxies will be voted:Q: Who will pay the cost of soliciting votes for the Annual Meeting? “FOR” the election of all director nominees;“FOR” the ratification of the appointment of KPMG LLP as our independent auditors; and“FOR” the approval of the Company’s executive compensation.If any other item is properly presented for a vote at the meeting, the shares represented by your properly submitted proxy will be voted at the discretion of the proxies.What will happen if I neither submit my proxy nor vote my shares in person at the annual meeting?If you are aregistered stockholder, your shares will not be voted.If your shares are held instreet name, your broker, bank or other holder of record may vote your shares on certain “routine” matters. The ratification of independent auditors is currently considered to be a routine matter. On this matter, your broker, bank or other holder of record can:Vote your street-name shares even though you have not provided voting instructions; orChoose not to vote your shares.The other matters you are being asked to vote on are not routine and cannot be voted by your broker, bank or other holder of record without your instructions. When a broker, bank or other holder of record is unable to vote shares for this reason, it is called a “broker non-vote.”
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Are abstentions and broker non-votes counted in the vote totals?
If you mark or vote “abstain” on either Proposal No. 2 or 3, the abstention will have the effect of being counted as a vote “AGAINST” the proposal. Broker non-votes with respect to Proposal Nos. 1, 2 and 3 are not included in vote totals and will not affect the outcome of the vote on those proposals.
How do I vote if I am a participant in one of the Company’s 401(k) Plans?
If you are a participant in either The Hershey Company 401(k) Plan or The Hershey Company Puerto Rico 401(k) Plan, you may have certain voting rights regarding shares of our Common Stock credited to your account in the plan. You do not own these shares. They are owned by the plan trustee.
The plan provides you with voting rights based on the number of shares of Hershey Common Stock that were constructively invested in your plan account as of the close of business on the record date. We originally contributed these shares to the plan on your behalf as matching or supplemental retirement contributions. You may vote these shares in much the same way as registered stockholders vote their shares, but you have an earlier deadline. Your vote must be received by the plan trustee by 11:59 p.m. EDT on April 24, 2014. You may vote these shares by following the instructions provided on the Notice of Internet Availability of Proxy Materials and on the voter website,www.proxyvote.com. If you requested a paper copy of the proxy materials, you also may vote by mail by signing, dating and returning the proxy/voting instruction card included with those materials.
By submitting voting instructions, you will direct the plan trustee:
How to vote the shares of Common Stock allocated to your account in the plan; and
How to vote a portion of the shares of Common Stock allocated to the accounts of other participants in the plan who have not submitted voting instructions by the deadline.
The plan trustee will submit one proxy to vote all shares of Common Stock in the plan. The trustee will vote the shares of participants submitting voting instructions in accordance with their instructions and will vote the remaining shares of Common Stock in the plan in the same proportion as the final votes of all participants who actually voted. Please note that if you do not submit voting instructions for the shares of Common Stock in your account by the voting deadline, those shares will be included with the other undirected shares and voted by the trustee as described above. Because the trustee submits one proxy to vote all shares of Common Stock in the plan, you may not vote plan shares in person at the annual meeting.
How do I vote my shares in the Company’s Automatic Dividend Reinvestment Service Plan?
Computershare, our transfer agent, has arranged for any shares that you hold in the Automatic Dividend Reinvestment Service Plan to be included in the total registered shares of Common Stock shown on the Notice of Internet Availability of Proxy Materials or proxy card we have provided you. By voting these shares, you also will be voting your shares in the Automatic Dividend Reinvestment Service Plan.
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Additional Information about the Annual Meeting
Who will pay the cost of soliciting votes for the annual meeting?
We will pay the cost of preparing, assembling and furnishing proxy solicitation and other required annual meeting materials. We do not use a third-party solicitor. It is possible that our directors, officers and employees might solicit proxies by mail, telephone, telefax, electronically over the Internet or by personal contact, without receiving additional compensation. We will reimburse brokers, banks and other nominees, fiduciaries and custodians who nominally hold shares of our stock as of the record date for the reasonable costs they incur furnishing proxy solicitation and other required annual meeting materials to street-name holders who beneficially own those shares on the record date.
What is householding?
The SEC has adopted rules that allow us to send in a single envelope our Notice of Internet Availability of Proxy Materials or a single copy of our proxy solicitation and other required annual meeting materials to two or more stockholders sharing the same address. We may do this only if the stockholders at that address share the same last name or if we reasonably believe that the stockholders are members of the same family. If we are sending a Notice, the envelope must contain a separate Notice for each stockholder at the shared address. Each Notice must contain a unique control number that each stockholder will use to gain access to our proxy materials and vote online. If we are mailing a paper copy of our proxy materials, the rules require us to send each stockholder at the shared address a separate proxy card.
We believe this rule is beneficial both to our stockholders and to us. Our printing and postage costs are lowered anytime we eliminate duplicate mailings to the same household. However, stockholders at a shared address may revoke their consent to the householding program and receive their Notice in a separate envelope, or, if they have elected to receive a full copy of our proxy materials in the mail, receive a separate copy of these materials. If you have elected to receive paper copies of our proxy materials and want to receive a separate copy of these materials for our 2014 annual meeting, please call our Investor Relations Department, toll free, at (800) 539-0261. If you consented to the householding program and wish to revoke your consent for future years, simply call, toll free, (800) 542-1061, or write to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717.
What does it mean if I received more than one Notice or proxy card?
You probably have multiple accounts with us and/or brokers, banks or other holders of record. You should vote all of the shares represented by these Notices/proxy cards. Certain brokers, banks and other holders of record have procedures in place to discontinue duplicate mailings upon a stockholder’s request. You should contact your broker, bank or other holder of record for more information. Additionally, our transfer agent, Computershare, can assist you if you want to consolidate multiple registered accounts existing in your name. To contact our transfer agent, write to Computershare, P.O. Box 30170, College Station, Texas 77842-3170; or for overnight delivery, to Computershare, 211 Quality Circle, Suite 210, College Station, Texas 77845; or call:
(800) 851-4216 Domestic Holders
(201) 680-6578 Foreign Holders
(800) 952-9245 Domestic TDD line for hearing impaired
(312) 588-4110 Foreign TDD line for hearing impaired
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Will you publish the results of voting?
Preliminary results of voting will be announced at the annual meeting. We also will publish voting results in a current report on Form 8-K that we will file with the SEC within four business days following the meeting. If the Inspector of Elections for the annual meeting has not yet certified the voting results as final on the day we file the Form 8-K, we will note in the filing that the results are preliminary and publish the final results in a subsequent Form 8-K within four business days after the final voting results are known. The final results also will be posted in the “Investors” section of the Company’s website,www.thehersheycompany.com, as soon as they are certified by the Inspector of Elections for the annual meeting. Questions also may be directed to our Investor Relations Department at (800) 539-0261.
| A: | We will pay the cost of preparing, assembling and furnishing proxy solicitation and other required Annual Meeting materials. We do not use a third-party solicitor. It is possible that our directors, officers and employees might solicit proxies by mail, telephone, telefax, electronically over the Internet or by personal contact, without receiving additional compensation. We will reimburse brokers, banks and other nominees, fiduciaries and custodians who nominally hold shares of our stock as of the Record Date for the reasonable costs they incur furnishing proxy solicitation and other required Annual Meeting materials to street-name holders who beneficially own those shares on the Record Date. |
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CORPORATE GOVERNANCE OF THE COMPANY
What isWe have a long-standing commitment to good corporate governance?governance practices. Our corporate governance policies and other documents establish the high standards of professional and personal conduct we expect of our Board, members of senior management and all employees, and promote compliance with various financial, ethical, legal and other obligations and responsibilities.
Corporate governance is the process by which companies govern themselves.
At The Hershey Company, day-to-day business activities of the Company are carried out by our employees under the direction and supervision of our Chairman of the Board, President and Chief Executive Officer or CEO.(“CEO”). The Board of Directors overseesis responsible for overseeing these activities. In doing so, each director is required to use his or her business judgment in the best interests of the Company. The Board’s responsibilities include:
Review ofReviewing the Company’s performance, strategies and major decisions;
Oversight ofOverseeing the Company’s compliance with legal and regulatory requirements and the integrity of its financial statements;
Oversight ofOverseeing the Company’s policies and practices for identifying, managing and mitigating key enterprise risks;
Overseeing management, including review ofreviewing the CEO’s performance and succession planning for key management roles; and
OversightOverseeing executive and director compensation, and our compensation program and policies.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines that, along with the charters of compensationthe Board committees, provide the basic framework for the CEO, key executivesBoard’s operation and role in the governance of the Company. The guidelines include the Board’s policies regarding director independence, qualifications and responsibilities, access to management and outside advisors, compensation, continuing education, oversight of management succession and stockholding requirements. They also provide a process for directors to annually evaluate the performance of the Board.
The Governance Committee is responsible for overseeing and reviewing the Board’s Corporate Governance Guidelines at least annually and recommending any proposed changes to the Board as well as oversight of executive compensation policies and programs.
What principles hasfor approval. The Corporate Governance Guidelines are available on the Board established with respect to corporate governance?
The general principles governing the functionsInvestors section of our Board and its committees are contained in the following documents:website atwww.thehersheycompany.com.
Code of Ethical Business Conduct
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You can view the Corporate Governance Guidelines, committee charters and Code of Ethical Business Conduct in(the “Code”) that applies to all of our directors, officers and employees worldwide. Adherence to this Code assures that our directors, officers and employees are held to the highest standards of integrity. The Code covers areas such as conflicts of interest, insider trading and compliance with laws and regulations. The Audit Committee oversees the Company’s communication of, and compliance with, the Code. The Code, including amendments thereto or waivers granted to a director or officer, if any, can be viewed on the Investors section of our website atwww.thehersheycompany.comwww.thehersheycompany.com.. We will post amendments to any of these documents on our website as soon as possible after the effective date of the amendment. If any amendment or waiver of the Code of Ethical Business Conduct applies to directors or executive officers, our posting will appear within four business days of the amendment or waiver.
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What is the composition of the BoardStockholder and how often are members elected?Interested Party Communications with Directors
There currently are eleven members of the Board. Each member’s term will expire at the annual meeting. As discussed in greater detail beginning on page 28, the Board is recommending that you reelect each of these eleven members for an additional one-year term at the annual meeting.
Which directors are independent,Stockholders and how does the Board make that determination?
The Board determines which of our directors are independent. For a director to be considered independent under the listing standards of the New York Stock Exchange, the Board must affirmatively determine that the director has no direct or indirect material relationship with The Hershey Company. The Board has adopted categorical standards for independence that the Board uses in determining which directors are independent. The Board bases its determination of independence for each director on the more stringent independence standards applicable to Audit Committee members regardless of whether such director serves on the Audit Committee. These standards are contained in our Corporate Governance Guidelines, which are available for viewing in the Investors section of our website,www.thehersheycompany.com.
Applying the categorical standards for independence, the listing standards of the New York Stock Exchange and rules of the SEC, the Board determined that the following directors recommended for election at the annual meeting are independent: Pamela M. Arway, Robert F. Cavanaugh, Charles A. Davis, Mary Kay Haben, Robert M. Malcolm, James M. Mead, James E. Nevels, Anthony J. Palmer, Thomas J. Ridge and David L. Shedlarz. The Board determined that John P. Bilbrey, President and Chief Executive Officer of The Hershey Company, is not independent because he is an executive officer of the Company.
Although there were no transactions, relationships or arrangements of the type or category described under the categorical standards that would disqualify any of the directors, other than Mr. Bilbrey, from being independent, in making its independence determinations with respect to Messrs. Cavanaugh, Mead and Nevels, the Board considered each of their roles as independent members of the board of directors of Hershey Trust Company and the board of managers (governing body) of Milton Hershey School and certain transactions the Company had or may have with these entities.
Hershey Trust Company, as trustee for the trust established by Milton S. and Catherine S. Hershey that has as its sole beneficiary Milton Hershey School, is our controlling stockholder. Throughout this proxy statement, as the context permits, we refer to Hershey Trust Company, in its capacity as trustee for the benefit of Milton Hershey School, as the “Milton Hershey School Trust.” Hershey Trust Company, the Milton Hershey School Trust and companies owned by the Milton Hershey School Trust are considered affiliates of the Company under SEC rules. During 2013, we had a number of transactions with the Milton Hershey School Trust and companies owned by the Milton Hershey School Trust involving the purchase and sale of goods and services in the ordinary course of business and the leasing of real estate at market rates. We have outlined these transactions in greater detail in the section entitled “Certain Transactions and Relationships,” beginning on page 89 of this proxy statement. We have provided information about Company stock owned by the Milton Hershey School Trust and by Hershey Trust Company as investments beginning on page 39.
Messrs. Cavanaugh, Mead and Nevels do not receive any compensation from The Hershey Company, from Hershey Trust Company or from Milton Hershey School other than compensation they receive or will receive in the ordinary course as board members of each of those entities. In
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addition, Messrs. Cavanaugh, Mead and Nevels do not participate in Board decisions in connection with the Company’s transactions with the Milton Hershey School Trust and companies owned by the Milton Hershey School Trust. The Board therefore concluded that the relationships Messrs. Cavanaugh, Mead and Nevels have with the Company, other than as directors of the Company, are not material.
Do our independent directors meet separately in regularly scheduled executive sessions, and, if so, who presides at those meetings?
Our independent directors meet regularly in executive session at the conclusion of every Board meeting and at other times as the independent directors deem necessary. Each executive session is chaired by James E. Nevels, our Chairman of the Board. In the Chairman’s absence, executive sessions are chaired by an independent director assigned on a rotating basis. Members of the Audit Committee, Compensation and Executive Organization Committee, Finance and Risk Management Committee, Governance Committee and Executive Committee also meet regularly in executive session at the conclusion of committee meetings. Additional information about executive sessions is contained in our Corporate Governance Guidelines, which are available for viewing in the Investors section of our website,www.thehersheycompany.com.
Can I communicate with directors?
Youinterested parties may communicate with our directors in several ways. Communications regarding accounting, internal accounting controls or auditing matters may be emailed to the Audit Committee at auditcommittee@hersheys.com or addressed to the Audit Committee at the following address:
Audit Committee
c/o Corporate Secretary
The Hershey Company
100 Crystal A Drive
P.O. Box 810
Hershey, PA 17033-0810
YouStockholders and other interested parties also may email the Audit Committee at auditcommittee@hersheys.com. Finally, you maycan submit your comments, confidentially and anonymously if you desire,desired, to the Audit Committee by calling the Hershey Concern Line at (800) 362-8321 or by accessing the Hershey Concern Line website atwww.HersheysConcern.com.
YouStockholders and other interested parties may contact any of the independent directors, atincluding the following address:
Lead Independent Directors
c/o Corporate Secretary
The Hershey Company
100 Crystal A Drive
P.O. Box 810
Hershey, PA 17033-0810
You also may emailDirector, as well as the independent directors as a group, by writing to the specified party at independentdirectors@hersheys.comthe address set forth above or by emailing the independent directors (or a specific independent director, including the Lead Independent Director) at independentdirectors@hersheys.com. Stockholders and other interested parties may also contact any of the independent directors using the Hershey Concern Line telephone number or website noted above.
Communications to the Audit Committee, any of the independent directors and the Hershey Concern Line are processed by the Office of General Counsel. The Office of General Counsel reviews and summarizes these communications and provides reports to the applicable party on a periodic basis. Communications regarding any accounting, internal control or auditing matter are reported immediately to the Audit Committee, as are allegations about our officers. The Audit Committee will address communications from any interested party in accordance with our Board-approved Procedures for Submission and Handling of Complaints Regarding Compliance Matters, which are available for viewing inon the Investors section of our website at
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www.thehersheycompany.com. Communications to the Audit Committee, independent directors and Hershey Concern Line are processed by the Office of General Counsel. The Office of General Counsel reviews and summarizes these communications and provides reports to the Audit Committee on a periodic basis. Communications regarding any accounting, internal control or auditing matter are reported immediately to the Audit Committee, as are allegations about our officers. Solicitations, junk mail and obviously frivolous or inappropriate communications are not forwarded to the Audit Committee or the independent directors, but copies are retained and made available to any director who wishes to review them.
How often did the Board meet in 2013?Director Independence
The Board, held six regular meetings and three special meetings in 2013. Each director attended at least 86%consultation with the Governance Committee, determines which of all of the meetings of the Board and committees of the Board on which he or she served in 2013. Average attendance for all of these meetings equaled 94%.
What is the Company’s policy regarding Board members’ attendance at the annual meeting?
Directorsour directors are expected to attend our annual meetings of stockholders. All ten directors that were standing for election at our 2013 annual meeting, held on April 30, 2013, were in attendance at that meeting. An eleventh director, Ms. Haben, was appointed to the Board after the 2013 annual meeting.
What is the Board’s leadership structure, and why is it the best structure for the Company at this time?
The Board’s current leadership structure separates the roles of the Chairman of the Board of Directors and the Chief Executive Officer. Our Chairman of the Board presides at all Board and stockholder meetings, approves the agendas for all Board meetings and sees that all orders, resolutions and policies adopted or established by the Board are carried into effect.independent. The Board has determinedadopted categorical standards for independence that our Chairman is an independent member of the Board underuses in determining which directors are independent. The Board bases its determination of independence for each director on the more stringent independence standards applicable to Audit Committee members regardless of whether such director serves on the Audit Committee. These standards are contained in the Board’s Corporate Governance Guidelines.
Applying these categorical standards for independence, as well as the independence requirements set forth in the listing standards of the New York Stock Exchange (the “NYSE Rules”) and our Corporate Governance Guidelines. Our Chief Executive Officer is responsible for the Company’s strategic focusrules and oversees the day-to-day operationsregulations of the Company. He also serves as a member ofSecurities and Exchange Commission (“SEC”), the Board and is the primary liaison between the Board and Company management.
Our Board believes that separation of the roles of Chairman and Chief Executive Officer is the best governance model for the Company at this time. Under this model, our Chairman can devote his attention to assuringdetermined that the Company has the proper governance controls in place, that our Board is properly structured from the standpoints of membership, size and diversity, and that management has the support it needs from the Board to carry out the Company’s strategic priorities. The Chief Executive Officer, relieved of the duties normally performed by the Chairman, is free to focus his entire attention on growing and strengthening the business.
What is the Board’s role in risk oversight?
Our Board takes an active role in risk oversight. In August 2009, the Board established a Finance and Risk Management Committee. This Committee was established, in part, to enhance the Board’s oversight of how senior management manages the material risks facing the Company.
The Finance and Risk Management Committee is composed of independentfollowing directors and operates in accordance with a written charter. The Committee meets periodically with management to discuss risk topics pursuant to the Committee’s rolling agenda. Reports are then provided by the
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Committee to the Boardrecommended for election at the Board’s next regularly scheduled meeting. The Chair of the FinanceAnnual Meeting are independent: Pamela M. Arway, Robert F. Cavanaugh, Charles A. Davis, Mary Kay Haben, Robert M. Malcolm, James M. Mead, James E. Nevels, Anthony J. Palmer, Thomas J. Ridge and Risk Management Committee also meets at least annually with the Audit Committee to discuss the Company’s risk management programs. The Audit Committee includes a summary of these discussions in its report to the Board at the Board’s next regularly scheduled meeting.
In addition, when setting the performance measures and goals for the Company’s incentive plans for 2013 and 2014, the Compensation and Executive Organization Committee of the Board received management’s views on whether the incentive plans’ measures or goals may encourage inappropriate risk-taking by the Company’s officers or employees. Management noted, and the Committee concurred and reported to the full Board, that the performance measures and goals were tied to the Company’s strategic objectives and achievable financial performance centered on the Company’s publicly announced financial expectations. As such, the incentive plans were believed not to encourage risk-taking outside of the range of risks contemplated by the Company’s business plan.
What are the committees of the Board and what are their functions?
David L. Shedlarz. The Board has five standing committees: Audit, Compensation and Executive Organization, Finance and Risk Management, Governance, and Executive. The Board also establishes, from time to time, committees of limited duration for a special purpose. Our Corporate Governance Guidelines requiredetermined that every member of the Audit Committee, Compensation and Executive Organization Committee, Finance and Risk Management Committee, and Governance Committee be independent.
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The Compensation and Executive Organization Committee recommends or establishes director and executive officer compensation in accordance with the authority granted by its charter and the Board-approved compensation plans the Committee oversees. The Committee may delegate its responsibilities under limited circumstances to a subcommittee composed only of a subset of Committee members. Also, under the terms of the Board- and stockholder-approved Incentive Plan, the CommitteeJohn P. Bilbrey is authorized to provide our CEO with limited authority to make stock-based awards to employees other than executive officers in connection with recruitment, retention, performance recognition or promotion. The Incentive Plan does not authorize our CEO to make grants to our executive officers.
The Committee engaged Mercer (US) Inc. (“Mercer”),independent because he is an executive compensation consultant, to provide independent assistance to the Committee with respect to the Committee’s development and refinement of our compensation policies and the Committee’s assessment of whether our compensation programs support our business objectives, are market competitive and are cost-efficient.
Under its engagement letter with the Committee, Mercer has acknowledged that the firm is retained by and performs its services for the Committee while working with management to provide advice, counsel and recommendations that reinforce the Company’s business strategy, economics, organization and management style. Mercer has provided and continues to provide services and products to the Company in addition to its work for the Committee, including services related to global compensation consulting and surveys for various geographies. Mercer and its affiliates also provide products and services to the Company that are unrelated to compensation, including expatriate consulting services (provided by Mercer), international benefits consulting and claims processing services (provided by Mercer), brand strategy and design services (provided by Lippincott) and property insurance consulting services (provided by Marsh USA Inc. and Marsh INSCO LLC). The Committee reviews all fees for services related to executive and director compensation provided by Mercer to the Committee, as well as fees for compensation-related products and services provided to the Company in the United States. The Committee also reviews fees paid to Mercer for compensation-related products or services provided to the Company outside the United States. The Committee has no role in the engagement of Mercer or Mercer affiliates that provide products or services to the Company that are unrelated to compensation; however, the Committee reviews the fees for such products and services concurrently with its review of compensation-related fees paid to Mercer.
The fees paid to Mercer and its affiliates for services provided in 2013 were as follows:
Services related to executive and director compensation | $ | 275,893 | ||||||
Other services: | ||||||||
• Compensation-related products and services | $ | 194,456 | ||||||
• Services unrelated to compensation | $ | 932,417 | ||||||
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• Total other services | $ | 1,126,873 |
The Committee also received and discussed with Mercer its letter to the Committee addressing factors relevant under SEC and New York Stock Exchange rules in assessing Mercer’s independence from management and whether Mercer’s work for the Committee has raised any conflicts of interest, as well as Mercer’s belief that no conflict of interest exists and that it serves as an independent advisor to the Committee. The factors addressed included the extent of any business or personal relationships with any member of the Committee or any executive officer of the Company; MercerCompany.
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In making its independence determinations, the Board, in consultation with the Governance Committee, reviewed the direct and indirect relationships between each director and the Company and its affiliates’ provision ofsubsidiaries, as well as the compensation and other servicespayments each director received from or made to the Company;Company and its subsidiaries.
In making its independence determinations with respect to Messrs. Cavanaugh, Mead and Nevels, the levelBoard considered each of fees received fromtheir roles as independent members of the board of directors of Hershey Trust Company and the board of managers (governing body) of Milton Hershey School, as well as certain transactions the Company had or may have with these entities.
Hershey Trust Company, as trustee for the trust established by Milton S. and Catherine S. Hershey that has as its sole beneficiary Milton Hershey School (such trust, the “Milton Hershey School Trust”), is our controlling stockholder. Hershey Trust Company is in turn owned by the Milton Hershey School Trust. As such, Hershey Trust Company, Milton Hershey School, the Milton Hershey School Trust and companies owned by the Milton Hershey School Trust are considered affiliates of the Company under SEC rules. During 2015, we had a percentagenumber of total revenuetransactions with Hershey Trust Company, Milton Hershey School and companies owned by the Milton Hershey School Trust involving the purchase and sale of goods and services in the ordinary course of business and the leasing of real estate at market rates. We have outlined these transactions in greater detail in the section entitled “Certain Transactions and Relationships,” beginning on page 91. We have provided information about Company stock owned by Hershey Trust Company, as trustee for the Milton Hershey School Trust, and by Hershey Trust Company for its own investment purposes beginning on page 36.
Messrs. Cavanaugh, Mead and Nevels do not receive any compensation from The Hershey Company, from Hershey Trust Company or from Milton Hershey School other than compensation they receive or will receive in the ordinary course as members of the board of directors or board of managers of each of Mercerthose entities. In addition, Messrs. Cavanaugh, Mead and Mercer’s parent company;Nevels do not participate in Board decisions in connection with the policiesCompany’s transactions with Hershey Trust Company, Milton Hershey School and procedures employed by Mercer to avoid conflicts of interest; and
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any ownership of Company stock by individuals employed by Mercer to advise the Committee. The Committee considered these factors before selecting or receiving advice from Mercer, and after considering these and other factors in their totality, no conflicts of interest with respect to Mercer’s advice were identifiedcompanies owned by the Committee.
Mercer providesMilton Hershey School Trust. The Board therefore concluded that the Committee with advice, counselpositions Messrs. Cavanaugh, Mead and recommendations with respect to the compositionNevels have as members of the peer group and competitive data used for benchmarking our compensation programs. The Committee uses this and other information provided by Mercer to reach an independent recommendation regarding compensation to be paid to our CEO. The Committee’s final recommendation is then given to the independentboard of directors of our Board for reviewHershey Trust Company and final approval.the board of managers of Milton Hershey School do not impact their independence.
In establishing compensation levels and awards for executive officers other than our CEO, the Committee takes into consideration the recommendations of Mercer and Company management, evaluations by our CEO of each officer’s individual performance and Company performance. The Committee evaluates director compensation primarily on the basis of peer group data used for benchmarking director compensation provided by Mercer.
Please turn to page 44 for additional information regarding our executive compensation programs and page 24 for information regarding compensation of our directors.
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How are nominees for the Board selected?Director Nominations
The Governance Committee is responsible for identifying and recommending to the Board candidates for Board membership. TheAs our controlling stockholder, Hershey Trust Company, as trustee for the Milton Hershey School Trust, our controlling stockholder, also may from time to time recommend to the Governance Committee, or elect outright, individuals to serve on our Board.
In administering its responsibilities, the Governance Committee has not adopted formal selection procedures, but instead utilizes general guidelines that allow it to adjust the selection process to best satisfy the objectives established for any director search. The Governance Committee considers recommendations fromdirector candidates recommended by any reasonable source, including current directors, management, stockholders (including Hershey Trust Company, as trustee for the Milton Hershey School Trust) orand other sources. Occasionally, the Governance Committee engages a paid third-party consultant to assist it in identifying and evaluating director candidates. The Governance Committee has sole authority under its charter to retain, compensate and terminate these consultants.evaluates all director candidates in the same manner, regardless of the source of the recommendation. The Governance Committee has established a policy that it will not recommend a candidate to the full Board until all members of the Governance Committee have interviewed and approved the candidate for nomination.
OurOccasionally, the Governance Committee engages a paid third-party consultant to assist in identifying and evaluating director candidates. The Governance Committee has sole authority under its charter to retain, compensate and terminate these consultants. No such third-party consultants were engaged by the Governance Committee in 2015.
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Stockholders desiring to recommend or nominate a director candidate must comply with certain procedures. If you are a stockholder and desire to nominate a director candidate at the 2017 Annual Meeting of Stockholders of the Company, you must comply with the procedures for nomination set forth in the section entitled “Information Regarding the 2017 Annual Meeting of Stockholders,” beginning on page 93. Stockholders who do not intend to nominate a director at an annual meeting may recommend a director candidate to the Governance Committee for consideration at any time. Stockholders desiring to do so must submit their recommendation in writing to The Hershey Company, c/o Corporate Secretary, 100 Crystal A Drive, Hershey, Pennsylvania 17033-0810, and include in the submission all of the information that would be required if the stockholder nominated the candidate at an annual meeting. The Governance Committee may require the nominating stockholder to submit additional information before considering the candidate.
There were no changes to the procedures relating to stockholder nominations during 2015, and there have been no changes to such procedures to date in 2016. These procedural requirements are intended to ensure the Governance Committee has sufficient time and a basis on which to assess potential director candidates and are not intended to discourage or interfere with appropriate stockholder nominations. The Governance Committee does not believe that these procedural requirements subject any stockholder or proposed nominee to unreasonable burdens. The Governance Committee and the Board reserve the right to change the procedural requirements from time to time and/or to waive some or all of the requirements with respect to certain nominees, but any such waiver shall not preclude the Governance Committee from insisting upon compliance with any and all of the above requirements by any other recommending stockholder or proposed nominees.
General Oversight
The Board has general oversight responsibility for the Company’s affairs. Although the Board does not have responsibility for day-to-day management of the Company, Board members stay informed about the Company’s business through regular meetings, site visits and other periodic interactions with management. The Board is deeply involved in the Company’s strategic planning process. The Board also plays an important oversight role in the Company’s leadership development and succession planning processes.
Composition
The Board is currently comprised of 11 members, each serving a one-year term that expires at the Annual Meeting. Ten of the 11 director nominees are considered independent under the NYSE Rules and the Board’s Corporate Governance Guidelines.
Leadership Structure
The Company’s governance documents provide the Board with flexibility to select the leadership structure that is most appropriate for the Company and its stockholders. The Board regularly evaluates its governance structure and has concluded that the Company and its stockholders are best served by not having a formal policy regarding whether the same individual should serve as both Chairman of the Board and CEO. This approach allows the Board to exercise its business judgment in determining the most appropriate leadership structure in light of the current facts and circumstances facing the Company, including the composition and tenure of the Board, the tenure of the CEO, the strength of the Company’s management team, the Company’s recent financial performance, the Company’s current strategic plan, and the current economic environment, among other factors.
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At the beginning of 2015, the roles of Chairman of the Board and CEO were held by separate individuals, with John P. Bilbrey serving as CEO and James E. Nevels serving as Chairman of the Board. As part of its regular evaluation of the Board’s leadership structure during the first quarter of 2015, the Board determined that the interests of the Company and its stockholders would best be served by combining the roles of Chairman of the Board and CEO in a single individual. Accordingly, effective April 2, 2015, the Board elected Mr. Bilbrey to serve as Chairman of the Board, in addition to his responsibilities as President and CEO.
Several factors led to the Board’s decision:
Mr. Bilbrey has served as the Company’s CEO and a member of the Board for nearly five years. During that time, he has developed a strong working relationship between the Board and management and has cultivated a high level of trust with the Board. He also has a deep understanding of Board governance and operations, having worked closely with the Chairman of the Board to develop meeting topics, set meeting schedules and agendas, and ensure efficient communications among the directors.
Having served as an executive in numerous positions with the Company for more than a dozen years, Mr. Bilbrey has an unparalleled knowledge of the Company and its products, which the Board believes puts him in the best position to lead the Board through the strategic business issues facing the Company. During his tenure as CEO, Mr. Bilbrey has proven his ability to drive business strategy and operational excellence. The Board believes that providing Mr. Bilbrey with an opportunity to leverage these skills as Chairman of the Board provides the Company with a significant competitive advantage in the current marketplace.
The Board believes that combining the roles of Chairman of the Board and CEO promotes decisive, unified leadership, which will enable the Company to make rapid strategic decisions in the face of increasing competition and shifting market opportunities.
In making its decision to combine the roles of Chairman of the Board and CEO, the Board also recognized the importance of strong independent Board leadership. For that reason, on April 1, 2015, the Board amended the Company’s by-laws and the Board’s Corporate Governance Guidelines describeto establish the experience, qualifications, attributesposition and responsibilities of Lead Independent Director. Effective April 2, 2015, the Board elected Mr. Nevels to serve as the Lead Independent Director. Having previously served as Chairman of the Board since February 2009, Mr. Nevels’s service as Lead Independent Director helps ensure continuity of Board leadership and effective communication between the Chairman of the Board and the independent directors.
Under the terms of the Board’s Corporate Governance Guidelines, the Lead Independent Director’s responsibilities include the following:
In the absence of the Chairman of the Board, presiding at all Board and stockholder meetings;
Calling meetings of the independent directors of the Board, in addition to the executive sessions of independent directors held after each Board meeting;
Establishing the agenda and presiding at all executive sessions and other meetings of the independent directors of the Board;
Communicating with the independent directors of the Board between meetings as necessary or appropriate;
Serving as a liaison between the Chairman of the Board and the independent directors, ensuring independent director consensus is communicated to the Chairman of the Board, and communicating the results of meetings of the independent directors to the Chairman of the Board and other members of management, as appropriate;
Approving Board meeting agendas and schedules to assure there is sufficient time for discussion of all agenda items;
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Approving Board meeting materials and other information sent to the Board;
Evaluating the quality and timeliness of information sent to the Board by the CEO and other members of management;
Assisting the Chairman of the Board on matters of Board succession planning and crisis management;
Overseeing the evaluation of the CEO;
Assisting the chair of the Governance Committee with Board and individual director evaluations; and
Being available for consultation and direct communication at the request of major stockholders.
The Board has determined that Mr. Nevels is an independent member of the Board under the NYSE Rules and the Board’s Corporate Governance Guidelines.
In addition to the Lead Independent Director role, the Board has established five standing committees to assist with its oversight responsibilities: (1) Audit Committee; (2) Compensation and Executive Organization Committee (“Compensation Committee”); (3) Finance and Risk Management Committee; (4) Governance Committee; and (5) Executive Committee. Each of the Audit Committee, the Compensation Committee, the Finance and Risk Management Committee, and the Governance Committee is comprised entirely of independent directors. Finally, three of the Board’s current 11 directors are direct representatives of the Company’s largest stockholder. The composition of our Board helps to ensure that boardroom discussions reflect the views of management, our independent directors and our stockholders.
Board Role in Risk Oversight
Our Board takes an active role in risk oversight. While management is responsible for identifying, evaluating, managing and mitigating the Company’s exposure to risk, it is the Board’s responsibility to oversee the Company’s risk management process and to ensure that management is taking appropriate action to identify, manage and mitigate key risks. The Board administers its risk oversight responsibilities both through active review and discussion of key risks facing the Company and by delegating certain risk oversight responsibilities to committees for further consideration and evaluation.
In August 2009, the Board established the Finance and Risk Management Committee. This committee was established, in part, to enhance the Board’s oversight of how senior management manages the material risks facing the Company.
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The following table summarizes the role of the Board and each of its committees in overseeing risk:
Governing Body | Role in Risk Oversight | |
| Board | • Regularly reviews and evaluates the Company’s strategic plans and associated risks. • Oversees the Company’s enterprise risk management (“ERM”) framework and the overall ERM process. • Conducts annual succession plan reviews to ensure the Company maintains appropriate succession plans for members of senior management. | |
| Audit Committee | • Oversees compliance with legal and regulatory requirements and the Company’s Code of Ethical Business Conduct. • Oversees risks relating to key accounting policies. • Reviews internal controls with the Principal Financial Officer, Principal Accounting Officer, and internal auditors. • Meets regularly with representatives of the Company’s independent auditors. | |
Compensation and Executive Organization Committee | • Oversees risks relating to the Company’s compensation program and policies. • Oversees the process for conducting annual risk assessments of the Company’s compensation policies and practices. • Employs independent compensation consultants to assist in reviewing the Company’s compensation program, including the potential risks created by such program. • Oversees the Company’s succession planning and talent processes and programs. | |
Finance and Risk Management Committee | • Reviews enterprise-level and other key risks identified through the Company’s ERM process as well as management’s plans to mitigate those risks. • Oversees key financial risks. • Oversees and approves proposed merger and acquisition activities and related risks. • Chair meets at least annually with the Audit Committee to discuss the Company’s risk management programs. | |
| Governance Committee | • Oversees risks relating to the Company’s governance structure and other corporate governance matters and processes. • Oversees compliance with key corporate governance documents, including the Corporate Governance Guidelines and the Insider Trading Policy. | |
| Executive Committee | • Reviews and approves, through a special committee of independent directors on the Executive Committee, any related party transactions between the Company and entities affiliated with the Company and certain of its directors. |
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The decision to administer the Board’s oversight responsibilities in this manner has a key effect on the Board’s leadership and committee structure, described in more detail above. The Board believes that its structure – including a strong Lead Independent Director, 10 of 11 independent directors and key committees comprised entirely of independent directors – helps to ensure that key strategic decisions made by senior management, up to and including the CEO, are reviewed and overseen by independent directors of the Board.
Experiences, Skills and Qualifications
The Governance Committee works with the Board to determine the appropriate characteristics, skills soughtand experiences that should be possessed by the Board of any Board nominee. Generally,as a whole as well as its individual members. While the Governance Committee has not established minimum criteria for director candidates, in general the Board seeks individuals with skills and backgrounds that will complement those of other directors and maximize the diversity and effectiveness of the Board as a whole.
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In reviewingaddition, the Board’s Corporate Governance Guidelines describe the general experiences, qualifications, of prospective directors,attributes and skills sought by the Board considers factors it deems appropriate, including the candidate’s:of any director nominee, including:
Integrity;
Judgment;
Skill;
Diversity;
AbilityThe ability to express informed, useful and constructive views;
Experience with businesses and other organizations of comparable size;
AbilityThe ability to commit the time necessary to learn our business and to prepare for and participate actively in committee meetings and in Board meetings;
Experience and how it relates to the experience of the other Board members; and
Overall desirability as an addition to the Board and its committees.
The Board seeks individuals havingwith knowledge and experience in such disciplines as finance, international business, marketing, mergers and acquisitions, supply chain management, information technology, human resources and consumer products. The Board also seeks individuals who bring unique and varied perspectives and life experiences to the Board. As such, the Governance Committee assists the Board by recommending prospective director candidates who will enhance the overall diversity of the Board. The Board views diversity broadly, taking into consideration the age, professional experience, race, education, gender and other attributes of its members.
TheIn addition to evaluating new director candidates, the Governance Committee does not distinguish between nominees recommended by stockholdersregularly assesses the composition of the Board in order to ensure it reflects an appropriate balance of knowledge, skills, expertise, diversity and independence. As part of this assessment, each director is asked to identify and assess the particular experiences, skills and other nominees. However, stockholders desiringattributes that qualify him or her to nominateserve as a member of the Board. Based on the most recent assessment of the Board’s composition completed in February 2016, the Governance Committee and the Board have determined that, in light of the Company’s current business structure and strategies, the Board has an appropriate mix of director candidateexperiences, skills, qualifications and backgrounds.
A description of the most relevant experiences, skills, attributes and qualifications that qualify each director nominee to serve as a member of the Board is included in his or her biography.
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MEETINGS AND COMMITTEES OF THE BOARD
Meetings of the Board of Directors and Director Attendance at Annual Meeting
The Board held 10 meetings in 2015. Each director attended at least 90% of all of the meetings of the Board and committees of the Board on which he or she served in 2015. Average attendance for all of these meetings equaled 97%.
In addition, the independent directors meet regularly in executive session at every Board meeting and at other times as the independent directors deem necessary. These meetings allow the independent directors to discuss important issues, including the business and affairs of the Company as well as matters concerning management, without any member of management present. Each executive session is chaired by Mr. Nevels, the Lead Independent Director. In the absence of the Lead Independent Director, executive sessions are chaired by an independent director assigned on a rotating basis. Members of the Audit Committee, Compensation Committee, Finance and Risk Management Committee, and Governance Committee also meet regularly in executive session.
Directors are expected to attend our annual meeting must comply with certain procedures. We explained the proceduresmeetings of stockholders. All 11 directors that were standing for nominating a director candidateelection at this year’s annual meeting in our 2013 proxy statement. If you are a stockholder and desire to nominate a director candidate at next year’s annual meeting, you must comply with the procedures for nomination set forth in the section entitled “Information about the 2015 Annual Meeting” beginning of Stockholders of the Company attended that meeting.
Committees of the Board
The Board has established five standing committees. Membership on page 92. Stockholders who do not intend to nominateeach of these committees, as of March 7, 2016, is shown in the following chart:
Name | Audit | Compensation and Executive Organization | Finance and Risk Management | Governance | Executive | |||||
Pamela M. Arway |  | Chair | | |||||||
John P. Bilbrey | Chair | |||||||||
Robert F. Cavanaugh | | | ||||||||
Charles A. Davis | Chair | | ||||||||
Mary Kay Haben | | | ||||||||
Robert M. Malcolm | | | ||||||||
James M. Mead | | Chair | | |||||||
James E. Nevels | | * | * | | | |||||
Anthony J. Palmer | | | ||||||||
Thomas J. Ridge | | | ||||||||
David L. Shedlarz | | Chair | |
| | Committee Member |
| * | Ex-Officio |
All directors, including committee chairs, served on the respective committees listed above throughout 2015, except as follows:
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DoesExecutive Committee concurrent with his election as Chairman of the Board imposeon April 2, 2015.
The Board’s Corporate Governance Guidelines require that every member of the Audit Committee, Compensation Committee, Finance and Risk Management Committee, and Governance Committee be independent.
The Board may also from time to time establish committees of limited duration for a maximum age limitspecial purpose. No such committees were established in 2015.
The table below identifies the number of meetings held by each committee in 2015, provides a brief description of the duties and responsibilities of each committee, and provides general information regarding the location of each committee’s charter:
Committee | Audit | |
Meetings | 9 | |
Duties and Responsibilities | • Oversee the Company’s financial reporting processes and the integrity of the Company’s financial statements. • Oversee the Company’s compliance with legal and regulatory requirements. • Oversee the performance of the Company’s independent auditors and the internal audit function. • Approve all audit and non-audit services and fees. • Oversee (in consultation with the Finance and Risk Management Committee) the Company’s risk management processes and policies. • Review the adequacy of internal controls. • Review and discuss with management Quarterly Reports on Form 10-Q and Annual Report on Form 10-K prior to filing with the SEC. • Review and discuss with management earnings releases. • Administer the Company’s Procedures for Submission and Handling of Complaints Regarding Compliance Matters. | |
General Information | • The Board has determined that all directors on the Audit Committee are financially literate. The Board has also determined that Messrs. Davis, Mead and Nevels qualify as “audit committee financial experts” as defined in SEC regulations and that each has accounting or related financial management expertise. • Charter can be viewed on the Investors section of our website at www.thehersheycompany.com. • Charter prohibits any member of the Audit Committee from serving on the audit committees of more than two other public companies unless the Board determines that such simultaneous service would not impair the ability of the director to effectively serve on the Committee. • Audit Committee Report begins on page 38. |
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Committee | Compensation and Executive Organization | |
Meetings | 12 | |
Duties and Responsibilities | • Establish executive officer compensation (other than CEO compensation) and oversee the compensation program and policies for all executive officers. • Evaluate the performance of the CEO and make recommendations to the independent directors of the Board regarding CEO compensation. • Review and recommend to the Board the form and amount of director compensation. • Make equity grants under and administer the Company’s Equity and Incentive Compensation Plan (the “EICP”). • Establish target award levels and make awards under the annual cash incentive component of the EICP. • Monitor executive compensation arrangements for consistency with corporate objectives and stockholders’ interests. • Review the executive organization of the Company. • Monitor the development of personnel available to fill key executive positions as part of the succession planning process. | |
General Information | • Charter can be viewed on the Investors section of our website at www.thehersheycompany.com. • Compensation Committee Report begins on page 60. |
Committee | Finance and Risk Management | |
Meetings | 7 | |
Duties and Responsibilities | • Oversee management of the Company’s assets, liabilities and risks. • Review and make recommendations regarding capital projects, acquisitions and dispositions of assets and changes in capital structure. • Review the annual budget and monitor performance against operational plans. • Recommend to the Board the terms of the Company’s principal banking relationships, credit facilities and commercial paper programs. • Oversee (in consultation with the Audit Committee) the Company’s risk management processes and policies. | |
General Information | • Charter can be viewed on the Investors section of our website at www.thehersheycompany.com. |
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Committee | Governance | |
Meetings | 4 | |
Duties and Responsibilities | • Review and make recommendations on the composition of the Board and its committees. • Identify, evaluate and recommend candidates for election to the Board consistent with the Board’s membership qualifications. • Review and make recommendations to the Board on corporate governance matters and policies, including the Board’s Corporate Governance Guidelines. • Administer the Company’s Related Person Transaction Policy as directed by the Board. • Evaluate the performance of the Board, its independent committees and each director. | |
General Information | • Charter can be viewed on the Investors section of our website at www.thehersheycompany.com. |
Committee | Executive | |
Meetings | 0 | |
Duties and Responsibilities | • Manage the business and affairs of the Company, to the extent permitted by the Delaware General Corporation Law, when the Board is not in session. • Review and approve, through a subcommittee consisting of the independent directors on the Executive Committee who are not affiliated with Hershey Trust Company, Hershey Entertainment & Resorts Company and/or Milton Hershey School, or any of their affiliates, any transaction not in the ordinary course of business between the Company and any of these entities, unless otherwise provided by the Board or the Corporate Governance Guidelines. • Currently, the Corporate Governance Guidelines provide that, unless directed otherwise by the independent members of the Board who have no affiliation with any of the above entities, such transactions will be reviewed and approved in advance by a special committee consisting of the directors elected by the holders of our Common Stock voting separately, and only in the absence of such directors will the subcommittee of the Executive Committee approve such transactions. | |
General Information | • Charter can be viewed on the Investors section of our website at www.thehersheycompany.com. • For more information regarding the review, approval or ratification of related-party transactions, please refer to the section entitled “Certain Transactions and Relationships” beginning on page 91. |
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PROPOSAL NO. 1 – ELECTION OF DIRECTORS
| ü | The Board of Directors unanimously recommends that stockholders |
The first proposal to be voted on at the Annual Meeting is the election of 11 directors. If elected, the directors will hold office until the 2017 Annual Meeting of Stockholders of the Company or until their successors are elected and qualified.
Election Procedures
We have two classes of common stock outstanding: Common Stock and Class B Common Stock. Under our certificate of incorporation and by-laws:
One-sixth of the total number of our directors (which equates presently to two directors) will be elected by the holders of our Common Stock voting separately as a class. For the 2016 Annual Meeting, the Board has nominated Robert M. Malcolm and Anthony J. Palmer for directors?election by the holders of our Common Stock voting separately as a class.
The remaining nine directors will be elected by the holders of our Common Stock and Class B Common Stock voting together without regard to class.
With respect to the nominees to be elected by the holders of the Common Stock and the Class B Common Stock voting together, the nine nominees receiving the greatest number of votes of the Common Stock and Class B Common Stock will be elected as directors. With respect to the nominees to be elected by the holders of the Common Stock voting separately as a class, the two nominees receiving the greatest number of votes of the Common Stock will be elected as directors.
OurThe Board’s Corporate Governance Guidelines provide that directors maywill generally not be nominated for reelectionre-election after their 72nd birthday. All of the directors standing for election at the 2014 annual meeting of stockholders2016 Annual Meeting satisfied the applicable age requirement at the time of their nomination.
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How are directors compensated?
The Company maintains a Directors’ Compensation Plan designed to:
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Directors who are employees of the Company receive no additional compensation for their service on our Board. Mr. Bilbrey, our current President and Chief Executive Officer, is the only employee of the Company who also served as a director during 2013 and thus received no additional compensation for his Board service.
The Board targets non-employee director compensation at the 50th percentile of compensation paid to directors at a peer group of companies we call the Compensation Peer Group. Information about the Compensation Peer Group is included in the Compensation Discussion and Analysis beginning on page 44. Each year, with the assistance of the Compensation and Executive Organization Committee and the Committee’s compensation consultant, the Board reviews the compensation paid to directors at companies in the Compensation Peer Group and establishes its compensation in accordance with its target. As a result of its review in December 2012, the Board elected to increase the annual retainer paid to the Chairman of the Board from $195,000 to $215,000, effective January 1, 2013. The Board determined to maintain all other elements of 2013 director compensation at 2012 levels. Accordingly, compensation paid to non-executive directors in 2013 was as follows:
• | Annual retainer for Chairman of the Board | $ | 215,000 | |||
• | Annual retainer for other non-employee directors | $ | 90,000 | |||
• | Annual restricted stock unit award | $ | 120,000 | |||
• | Annual fee for chairs of the Audit Committee, Compensation and Executive Organization Committee and Finance and Risk Management Committee | $ | 15,000 | |||
• | Annual fee for the chair of the Governance Committee | $ | 10,000 |
Payment of Annual Retainer and Committee Chair Fees
Non-employee directors may elect to receive all or a portion of the annual retainer in cash or in Common Stock. Non-employee directors also may elect to defer receipt of the retainer or committee chair fees until the date their membership on the Board ends. Committee chair fees that are not deferred are paid only in cash. Non-employee directors choosing to defer all or a portion of their retainer or committee chair fees may invest the deferred amounts in two ways:
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Restricted Stock Units
Restricted stock units, or RSUs, are granted quarterly to non-employee directors on the first day of January, April, July and October. In 2013, the number of RSUs granted in each quarter was determined by dividing $30,000 by the average closing price of a share of our Common Stock on the New York Stock Exchange on the last three trading days preceding the grant date. RSUs awarded to non-employee directors vest one year after the date of grant, or earlier upon termination of the director’s membership on the Board by reason of retirement (termination of service from the Board after the director’s 60th birthday), death or disability, for any reason after a Change in Control, as defined in our Executive Benefits Protection Plan (Group 3A), or EBPP 3A, or under such other circumstances as the Board may determine. Once vested, RSUs are paid to directors only in shares of Common Stock or, at the option of the director, deferred as common stock units under the Directors’ Compensation Plan until the director’s membership on the Board ends. Dividend equivalent units are credited at regular rates on the RSUs during the restriction period and, upon vesting of the RSUs, are paid currently in shares of Common Stock or deferred as common stock units together with RSUs the director has deferred. As of February 28, 2014, Messrs. Davis, Malcolm, Mead, Nevels, Ridge and Shedlarz and Ms. Arway had attained retirement age for purposes of the vesting of RSUs.
Other Compensation, Reimbursements and Programs
The Board occasionally establishes committees of limited duration for special purposes. The Board will consider paying additional compensation to non-employee directors who serve on special committees, generally $1,250 per meeting, if the special committee holds six or more meetings, each lasting one hour or more. No director received compensation for service on a special committee in 2013.
Prior to 1997, directors participated in our Directors’ Charitable Award Program. No directors have been added to the program since 1996, and our obligations under the program were not affected by the service of any director during 2013. Under the program, upon the participating director’s death, the Company makes a charitable gift to an educational institution designated by the director. The amount of the donation varies, depending upon the director’s length of service, with a maximum donation of $1 million after five years of service. As of December 31, 2013, there were 16 former directors who participated in the program for whom we are committed to make charitable contributions aggregating $15.8 million. No current director participates in this program.
We reimburse our directors for travel and other out-of-pocket expenses they incur when attending Board and committee meetings and for minor incidental expenses they incur when performing directors’ services. We also provide reimbursement for at least one directorcontinuing-education program each year. Directors receive travel accident insurance while traveling on the Company’s business and receive discounts on the purchase of our products to the same extent and on the same terms as all of our employees. Directors also are eligible to participate in the Company’s Gift Matching Program. Under the Gift Matching Program, the Company will match, upon a director’s request, contributions made by the director to one or more charitable organizations, on a dollar-for-dollar basis up to a maximum aggregate contribution of $5,000 annually.
We do not award stock options or maintain a non-equity incentive plan or defined benefit pension plan for our non-employee directors.
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The following table and explanatory footnotes provide information with respect to the compensation paid or provided to non-employee directors during 2013 in accordance with the policies and programs described above.
Director Compensation
2013
| Name | Fees Earned and/or Paid ($) | Stock Awards(2) ($) | All Other Compensation(3) ($) | Total ($) | ||||
Pamela M. Arway | 100,000 | 120,000 | 5,000 | 225,000 | ||||
Robert F. Cavanaugh | 105,000 | 120,000 | 4,500 | 229,500 | ||||
Charles A. Davis | 105,000 | 120,000 | 5,000 | 230,000 | ||||
Mary Kay Haben | 35,550 | 47,283 | 5,000 | 87,833 | ||||
Robert M. Malcolm | 90,000 | 120,000 | 5,000 | 215,000 | ||||
James M. Mead | 90,000 | 120,000 | 5,000 | 215,000 | ||||
James E. Nevels | 215,000 | 120,000 | 5,000 | 340,000 | ||||
Anthony J. Palmer | 90,000 | 120,000 | 5,000 | 215,000 | ||||
Thomas J. Ridge | 90,000 | 120,000 | 5,000 | 215,000 | ||||
David L. Shedlarz | 105,000 | 120,000 | 5,000 | 230,000 |
| Immediate Payment | Deferred and Investment Election | |||||||||||||||||||||||
| Name | Cash Paid ($) | Value Paid in Shares of Common Stock ($) | Number of Shares of Common Stock (#) | Value Deferred to a Cash Account ($) | Value Deferred to a Common Stock Unit Account ($) | Number of Deferred Common Stock Units (#) | ||||||||||||||||||
Pamela M. Arway | 100,000 | — | — | — | — | — | ||||||||||||||||||
Robert F. Cavanaugh | — | — | — | — | 105,000 | 1,204 | ||||||||||||||||||
Charles A. Davis | 105,000 | — | — | — | — | — | ||||||||||||||||||
Mary Kay Haben | 35,550 | — | — | — | — | — | ||||||||||||||||||
Robert M. Malcolm | 90,000 | — | — | — | — | — | ||||||||||||||||||
James M. Mead | 90,000 | — | — | — | — | — | ||||||||||||||||||
James E. Nevels | 150,500 | 64,500 | 739 | — | — | — | ||||||||||||||||||
Anthony J. Palmer | — | 90,000 | 1,032 | — | — | — | ||||||||||||||||||
Thomas J. Ridge | 90,000 | — | — | — | — | — | ||||||||||||||||||
David L. Shedlarz | 105,000 | — | — | — | — | — | ||||||||||||||||||
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| Name | Number of Deferred Common Stock Units (#) | Market Value of Retainers and Committee Chair Fees Deferred to the Common Stock Unit Account as of December 31, 2013 ($) | Number of RSUs (#) | Market Value of RSUs as of ($) | ||||||||
Pamela M. Arway | — | — | 1,442 | 140,206 | ||||||||
Robert F. Cavanaugh | 35,447 | 3,446,512 | 1,442 | 140,206 | ||||||||
Charles A. Davis | — | — | 1,442 | 140,206 | ||||||||
Mary Kay Haben | — | — | 521 | 50,657 | ||||||||
Robert M. Malcolm | — | — | 1,442 | 140,206 | ||||||||
James M. Mead | 3,390 | 329,610 | 1,442 | 140,206 | ||||||||
James E. Nevels | — | — | 1,442 | 140,206 | ||||||||
Anthony J. Palmer | — | — | 1,442 | 140,206 | ||||||||
Thomas J. Ridge | 25,118 | 2,442,223 | 1,442 | 140,206 | ||||||||
David L. Shedlarz | — | — | 1,442 | 140,206 | ||||||||
Have there been any changes to director compensation since the end of 2013?
Following a review of competitive data, the Board elected to increase the annual retainer for non-employee directors (other than the Chairman) from $90,000 to $100,000 and to increase the quarterly RSU grant to all non-employee directors, in each case effective as of January 1, 2014. For 2014, the number of RSUs granted in each quarter will be determined by dividing $33,750 by the average closing price of a share of our Common Stock on the New York Stock Exchange on the last three trading days preceding the grant date. Except for these changes, all other elements of director compensation described above remain unchanged for 2014.
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PROPOSAL NO. 1 – ELECTION OF DIRECTORS
How many directors are standing for election?
Eleven directors are to be elected at the annual meeting. Each director is expected to serve until the next annual meeting and until his or her successor has been elected and qualified.
What happens if a nominee becomes unavailable for election?
All nominees for election as director have indicated their willingness to serve if elected. If a nominee becomes unavailable for election for any reason, the proxies will have discretionary authority to vote for a substitute.
Who are the nominees?Nominees for Director
The Board unanimously recommends the following nominees for election at the annual meeting,2016 Annual Meeting, each of whom is currently a member of the Board. These nominees were recommended to the Board by the Governance Committee. In making its recommendation, the Governance Committee considered the experience, qualifications, attributes and skills of each nominee, as set forth in the biographies below. The Governance Committee also reviewedwell as each director’s past performance on our Board, as reflected in the Governance Committee’s annual evaluation of Board and individual director performance. This evaluation considers, among other things, each director’s individual contributions to the Board, the director’s ability to work collaboratively with other directors and the effectiveness of the Board as a whole.
On the following pages, we provide certain biographical information about each nominee for director, as well as information regarding the nominee’s specific experience, qualifications, attributes and skills that qualify him or her to serve as a director and as a member of the committee(s) of the Board on which the nominee serves.
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PAMELA M. ARWAY Committees: Governance (Chair) Audit Executive Director since May 2010 Age 62 |
• Formerly served in a number of capacities with the American Express Company, Inc., ¡ President, Japan/Asia Pacific/Australia Region, American Express International, Inc. ¡ Chief Executive Officer, American Express Australia Ltd. ¡ Executive Vice President and General Manager, Corporate Travel North America, American Express Company, Inc. (July 2000 to December 2004) Throughout her 21-year career with American Express Company, Inc., Ms. Arway gained experience in the areas of finance, marketing, international business, government affairs, consumer products and human resources. She Public and Other Key Directorships • Iron Mountain Incorporated (May 2014 to present) • DaVita HealthCare Partners, Inc. Education • Bachelor’s degree in languages from Memorial University of Newfoundland • Masters of Business Administration degree from Queen’s University, Kingston, Ontario, | |||
|
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JOHN P. BILBREY Committees: Executive (Chair) Chairman since April 2015 Director since June 2011 Age 59 |
• Chairman of the Board, President and Chief Executive Officer of The Hershey Company ¡ President and Chief Executive Officer (May 2011 ¡ Executive Vice President, Chief Operating Officer ¡ Senior Vice President, President Hershey North ¡ Senior Vice President, President International Commercial Group ¡ Senior Vice President, President Hershey International • Various executive positions at Mission Foods and Danone Waters of North America, Inc. • 22-year career at The Procter & Gamble Company, serving in positions of increasing responsibility in the United States as well as numerous international assignments As our President and Chief Executive Officer, Mr. Bilbrey is responsible forday-to-day global operations and commercial activities and has a thorough and comprehensive knowledge of all aspects of the Company’s business. He has extensive experience in the consumer packaged goods and fast-moving consumer goods categories in the United States and international markets and has the benefit of having served as both a Chief Executive Officer and Chief Operating Officer of the Company. Public and Other Key Directorships • Colgate-Palmolive Company (March 2015 to present) • Former director of McCormick & Company, Incorporated Education • Bachelor’s degree in psychology from Kansas State |
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ROBERT F. CAVANAUGH Committees: Finance and Risk Management Governance Director since October 2003 Age 57 |
• Director of Hershey Trust ¡ Chairman of both organizations (2012 to 2015) • Chief Executive Officer of ValueRock Investment Partners, an owner/operator of retail real estate properties located throughout the western United States (January 2013 to February 2014) • Chief Investment Officer of Vestar Development Company, a privately held retail real estate operating company in the western United States (October 2011 to January 2013) • Managing Director of DLJ Real Estate Capital Partners, a global real estate private equity firm (October 1999 to October 2011) • Various positions with Deutsche Bank Securities; Goldman, Sachs & Co.; and LaSalle Partners One of three representatives of Education • Bachelor’s degree, • Masters of Business Administration degree from Harvard Business School, where he earned academic | |||
| honors
| ||||
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CHARLES A. DAVIS Committees: Audit (Chair) Executive Director since November 2007 Age 67 |
• Chief Executive Officer of Stone Point Capital LLC, • MMC Capital, Inc., the private equity business of Marsh & McLennan Companies, Inc. ¡ Chairman (January 2002 to May 2005) ¡ Chief Executive Officer (January 1999 to May 2005) ¡ President • Vice Chairman of Marsh & McLennan Companies, Inc., a global professional services firm • Spent 23 years at Goldman, Sachs & Co. where he served as head of Investment Banking Services worldwide, co-head of the Americas Group, head of the Financial Services Industry Group, a member of the International Executive Committee and a General Having served in the fields of investment banking and private equity for more than 40 years, Mr. Davis brings extensive experience in finance, investment banking Public and • AXIS Capital Holdings Limited • The Progressive Corporation Education • Bachelor’s degree from the University of Vermont • Masters of Business Administration degree from Columbia University Graduate School of | |||
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MARY KAY HABEN Committees: Compensation Governance Director since August 2013 Age 59 |
• Retired from Wm. Wrigley Jr. Company, ¡ President, North America (October 2008 to ¡ Group Vice President and Managing Director, North • Held several key positions during 27-year career with Kraft Foods, Inc., ¡ Senior Vice President, Open Innovation (2006 to 2007) ¡ Senior Vice President, Global Snack Sector (2004 to 2006) ¡ Group Vice President, Kraft Foods and President, Cheese, Enhancers and Meals Throughout her 33-year career, Ms. Haben gained extensive experience managing businesses in the consumer packaged goods industry and developed a track record of growing brands and developing new products. Public and Other Key Directorships • Bob Evans Farms, Inc. • Trustee of Equity Residential Education • Bachelor’s degree,magna cum laude, in business administration from the University of Illinois • Masters of Business Administration degree in marketing from the University of Michigan, Ross School of | |||
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ROBERT M. MALCOLM Committees: Compensation Finance and Risk Management Director since December 2011 Age 63 |
• Retired from Diageo PLC, a ¡ President, Global Marketing, Sales & Innovation • Spent 24 years at The Procter & Gamble Company in positions of increasing responsibility, Mr. Malcolm is a globally recognized expert in strategic marketing and is currently Executive in Residence, Center for Customer Insight and Marketing Solutions, McCombs School of Business, University of Texas. He One of two directors nominated for election by the Public and Other Key Directorships • American Marketing Association • Just Marketing, Inc. • Boston Consulting • Former director of Logitech International S.A. Education • Bachelor’s degree in marketing • Masters of Business Administration degree in marketing | |||
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JAMES M. MEAD Committees: Compensation (Chair) Audit Executive Director since April 2011 Age 70 |
• Director and non-executive president of Hershey Trust • Founder and Managing Director of JM Mead, LLC, an economic advisory firm serving the health care industry (July 2004 to present) • Co-CEO of PinnacleCare International, a private healthcare advisory and navigation company (July 2015 to present) • President and Chief Executive Officer of Capital BlueCross, a full-service managed-care and health insurance provider (1984 to 2004) One of three representatives of Public and • Serves on the board of directors of several privately held health care and health care technology • Capital BlueCross • PinnacleCare International (July 2015 to • Federal Reserve Bank of Philadelphia ¡ Chairman • Actively involved in other professional and community board activities, including as board member and treasurer of the North American branch of the International Life Sciences Institute, Washington, D.C. Education • Bachelor’s degree in economics • Masters of Arts degree in economics from The Pennsylvania State |
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JAMES E. NEVELS Committees: Audit Compensation (ex-officio) Executive Finance and Risk Management (ex-officio) Governance Lead Independent Director Chairman from February 2009 Director since November 2007 Age 64 |
• Director of Hershey Trust • Chairman of The Swarthmore Group, • Appointed by the President of the United States to a three-year term on the advisory committee to the Pension Benefit Guaranty Corporation ¡ Chairman As Lead Independent Director and one of three representatives of Hershey Trust Company and Milton Hershey School serving on our Board, Mr. Nevels is uniquely positioned to help ensure that boardroom discussions reflect the Public and Other Key Directorships • First Data Corporation (November 2014 to present) • WestRock Company (formerly MeadWestvaco Corporation) (June 2014 to present) • Federal Reserve Bank of Philadelphia ¡ Chairman (January 2014 to December 2015) ¡ Deputy Chairman • Former director of Tasty Baking Company Education • Bachelor’s degree,cum laudeand Phi Beta Kappa, in political science and philosophy from Bucknell University • Masters of Business Administration degree from the Wharton School of the University of Pennsylvania • Juris Doctor degree from the University of Pennsylvania Law | |||
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ANTHONY J. PALMER Committees: Compensation Finance and Risk Management Director since April 2011 Age 56 |
• President, ¡ Senior Vice President and Chief Marketing Officer • Held positions of increasing responsibility at the Kellogg Company ¡ Member of • Held various positions of significant responsibility in the consumer products field, including marketing and general management positions with the Minute Maid division of the Coca-Cola Company USA and as region director for Coca-Cola in Having spent most of his professional career in the One of two directors nominated for election by the holders of the Common Stock voting separately as a Education • Bachelor’s degree in business marketing from Monash University in Melbourne, Australia • Masters of Business Administration degree, with distinction, from the International Management Institute, Geneva, | |||
| Switzerland
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THOMAS J. RIDGE Committees: Finance and Risk Management Governance Director since November 2007 Age 70 |
• Chairman of Ridge Global, LLC, ¡ Chief Executive Officer (July 2006 to July • Co-founder (with Howard Schmidt) of Ridge Schmidt Cyber, a provider of strategic services to companies in • Partner of Ridge Policy Group, • Secretary of the U.S. Department of Homeland • Governor of Pennsylvania Mr. Ridge’s background and Public and Other Key Directorships • Advaxis, Inc. (August 2015 to present) • Safety Quick Lighting & Fans Corp. (November 2014 to present) • LifeLock, Inc. (March 2010 to present) • Former director of Chart Acquisition Corp. (July 2011 to August 2015); FS Investment Corporation Education • Bachelor’s degree,cum laude, from Harvard University • Juris Doctor degree from The Dickinson School of Law of The Pennsylvania State | |||
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DAVID L. SHEDLARZ Committees: Finance and Risk Management (Chair) Compensation Executive Director since August 2008 Age 67 |
• Retired from Pfizer Inc., ¡ Vice Chairman (July 2005 to ¡ Executive Vice President and Chief Financial Mr. Shedlarz spent the majority of his professional career with Pfizer. At the time of his retirement in 2007, Mr. Shedlarz was responsible for operations including the animal health business, finance, accounting, strategic planning, business development, global sourcing, manufacturing, information systems and human Public and Other Key Directorships • Pitney Bowes, Inc. • Teachers Insurance and Annuity Association Board of Trustees Education • Bachelor’s degree in economics and mathematics from Oakland/Michigan State University • Masters of Business Administration degree in finance and accounting from the New York University, Leonard N. Stern School of |
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NON-EMPLOYEE DIRECTOR COMPENSATION
The Hershey Company Directors’ Compensation Plan
We maintain a Directors’ Compensation Plan that is designed to:
Directors who are employees of the Company receive no additional compensation for their service on our Board. Mr. Bilbrey, our current Chairman of the Board, President and CEO, is the only employee of the Company who also served as a director during 2015 and thus received no additional compensation for his Board service.
The Board targets non-employee director compensation at the 50th percentile of compensation paid to directors at a peer group of companies we call the 2015 Peer Group. Information about the 2015 Peer Group is included on page 48 of the Compensation Discussion & Analysis. Each year, with the assistance of the Compensation Committee and the Compensation Committee’s compensation consultant, the Board reviews the compensation paid to directors at companies in the current peer group to determine whether any changes to non-employee director compensation are warranted.
As a result of its review in December 2014, the Board determined that no changes to non-employee director compensation were warranted for 2015. However, effective April 2, 2015, in connection with the establishment of the Lead Independent Director position, and upon the recommendation of the Compensation Committee, the Board approved an annual fee of $25,000 for the Lead Independent Director, to be paid in addition to the annual retainer for non-employee directors.
Accordingly, compensation paid to non-employee directors in 2015 was as follows:
Form of Compensation
| Payment ($) | |||
Annual retainer for Chairman of the Board(1) | 215,000 | |||
Annual retainer for other non-employee directors | 100,000 | |||
Annual restricted stock unit (“RSU”) award | 135,000 | |||
Annual fee for Lead Independent Director(2) | 25,000 | |||
Annual fee for chairs of Audit, Compensation, and Finance and Risk Management Committees(2) | 15,000 | |||
Annual fee for chair of Governance Committee(2) | 10,000 | |||
| (1) | Applies only when Chairman of the Board is a non-employee director. |
| (2) | Paid in addition to $100,000 annual retainer for non-employee directors. |
The Board completed its annual review of non-employee director compensation in October 2015 and determined that no changes to any of the compensation elements were warranted for 2016.
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Payment of Annual Retainer, Lead Independent Director Fee and Committee Chair Fees
The annual retainer and any applicable Lead Independent Director or committee chair fees for all non-employee directors are paid in quarterly installments on the 15thday of March, June, September and December, or the prior business day if the 15th is not a business day. Non-employee directors may elect to receive all or a portion of the annual retainer in cash or in Common Stock. Non-employee directors may also elect to defer receipt of all or a portion of the retainer, Lead Independent Director fee or committee chair fees until the date their membership on the Board ends. Lead Independent Director and committee chair fees that are not deferred are paid only in cash.
Non-employee directors choosing to defer all or a portion of their retainer, Lead Independent Director fee or committee chair fees may invest the deferred amounts in two ways:
Restricted Stock Units
RSUs are granted quarterly to non-employee directors on the first day of January, April, July and October. In 2015, the number of RSUs granted in each quarter was determined by dividing $33,750 by the average closing price of a share of our Common Stock on the New York Stock Exchange (“NYSE”) on the last three trading days preceding the grant date. RSUs awarded to non-employee directors vest one year after the date of grant, or earlier upon termination of the director’s membership on the Board by reason of retirement (termination of service from the Board after the director’s 60th birthday), death or disability, for any reason after a Change in Control as defined in our Executive Benefits Protection Plan (Group 3A) (“EBPP 3A”), or under such other circumstances as the Board may determine. Vested RSUs are payable to directors in shares of Common Stock or, at the option of the director, can be deferred as common stock units under the Directors’ Compensation Plan until the director’s membership on the Board ends. Dividend equivalent units are credited at regular rates on the RSUs during the restriction period and, upon vesting of the RSUs, are payable in shares of Common Stock or deferred as common stock units together with any RSUs the director has deferred.
As of March 7, 2016, Messrs. Davis, Malcolm, Mead, Nevels, Ridge and Shedlarz and Ms. Arway had attained retirement age for purposes of the vesting of RSUs.
Other Compensation, Reimbursements and Programs
The Board occasionally establishes committees of limited duration for special purposes. The Board will consider paying additional compensation to non-employee directors who serve on special committees, generally $1,250 per meeting, if the special committee holds six or more meetings, each lasting one hour or more. No director received compensation for service on a special committee in 2015.
We reimburse our directors for travel and other out-of-pocket expenses they incur when attending Board and committee meetings and for minor incidental expenses they incur when performing
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directors’ services. We also provide reimbursement for at least one director continuing education program each year. Directors receive travel accident insurance while traveling on the Company’s business and receive discounts on the purchase of our products to the same extent and on the same terms as our employees. Directors also are eligible to participate in the Company’s Gift Matching Program. Under the Gift Matching Program, the Company will match, upon a director’s request, contributions made by the director to one or more charitable organizations, on a dollar-for-dollar basis up to a maximum aggregate contribution of $5,000 annually.
Stock Ownership Guidelines
Pursuant to the Board’s Corporate Governance Guidelines, non-employee directors are expected to own shares of Common Stock having a value equal to at least four times the annual retainer. Each non-employee director has until January 1 of the year following his or her fifth anniversary of becoming a director to satisfy the guideline. The Compensation Committee reviews the stock ownership guidelines annually to ensure they are aligned with external market comparisons.
2015 Director Compensation
The following table and explanatory footnotes provide information with respect to the compensation paid or provided to non-employee directors during 2015:
Name
| Fees Earned or Paid in Cash(1) ($)
| Stock Awards(2) ($)
| All Other Compensation(3) ($)
| Total ($)
| ||||||||||||
Pamela M. Arway | 110,000 | 135,000 | 5,000 | 250,000 | ||||||||||||
Robert F. Cavanaugh | 115,000 | 135,000 | 4,800 | 254,800 | ||||||||||||
Charles A. Davis | 115,000 | 135,000 | 5,000 | 255,000 | ||||||||||||
Mary Kay Haben | 100,000 | 135,000 | 5,000 | 240,000 | ||||||||||||
Robert M. Malcolm | 100,000 | 135,000 | 5,000 | 240,000 | ||||||||||||
James M. Mead | 100,000 | 135,000 | 5,000 | 240,000 | ||||||||||||
James E. Nevels* | 147,748 | 135,000 | 5,000 | 287,748 | ||||||||||||
Anthony J. Palmer | 100,000 | 135,000 | 5,000 | 240,000 | ||||||||||||
Thomas J. Ridge | 100,000 | 135,000 | 2,500 | 237,500 | ||||||||||||
David L. Shedlarz | 115,000 | 135,000 | — | 250,000 | ||||||||||||
| * | On April 2, 2015, Mr. Nevels was appointed Lead Independent Director and ceased serving as Chairman of the Board. |
| (1) | Includes amounts earned or paid in cash or shares of Common Stock at the election of the director or deferred by the director under the Directors’ Compensation Plan. Amounts credited as earnings on amounts deferred under the Directors’ Compensation Plan are based on investment options available to all participants in our 401(k) Plan or our Common Stock and, accordingly, the earnings credited during 2015 were not considered “above market” or “preferential” earnings. |
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| The following table sets forth the portion of fees earned or paid in cash or Common Stock, and the portion deferred with respect to retainers and fees earned during 2015: |
Name
| Immediate Payment
| Deferred and Investment Election
| ||||||||||||||||||||||
Cash Paid ($)
| Value Paid in Shares of Common Stock ($)
| Number of Shares of Common Stock (#)
| Value Deferred to a Cash Account ($)
| Value Deferred to a Common Stock Unit Account ($)
| Number of Deferred Common Stock Units (#)
| |||||||||||||||||||
Pamela M. Arway | 110,000 | — | — | — | — | — | ||||||||||||||||||
Robert F. Cavanaugh | 115,000 | — | — | — | — | — | ||||||||||||||||||
Charles A. Davis | 115,000 | — | — | — | — | — | ||||||||||||||||||
Mary Kay Haben | 100,000 | — | — | — | — | — | ||||||||||||||||||
Robert M. Malcolm | 100,000 | — | — | — | — | — | ||||||||||||||||||
James M. Mead | 100,000 | — | — | — | — | — | ||||||||||||||||||
James E. Nevels | 103,424 | 44,324 | 456 | — | — | — | ||||||||||||||||||
Anthony J. Palmer | — | 100,000 | 1,045 | — | — | — | ||||||||||||||||||
Thomas J. Ridge | 100,000 | — | — | — | — | — | ||||||||||||||||||
David L. Shedlarz | 115,000 | — | — | — | — | — | ||||||||||||||||||
| (2) | Represents the dollar amount recognized as expense during 2015 for financial statement reporting purposes with respect to RSUs awarded to the directors during 2015. RSUs awarded to directors are charged to expense in the Company’s financial statements at the grant date fair value on each quarterly grant date. The target annual grant date fair value of the RSUs for each director during 2015 was $135,000. |
| The following table provides information with respect to the number and market value of deferred common stock units and RSUs held as of December 31, 2015, based on the $89.27 closing price of our Common Stock as reported by NYSE on December 31, 2015, the last trading day of the year. The information presented includes the accumulated value of each director’s common stock units and RSUs. Balances shown below include dividend equivalent units credited in the form of additional common stock units on retainers and committee chair fees that have been deferred as common stock units and dividend equivalent units credited in the form of additional common stock units on RSUs. |
Name
| Number of
| Market Value of ($)
| Number of
| Market Value of RSUs as of ($)
| ||||||||||||
Pamela M. Arway | — | — | 1,423 | 127,031 | ||||||||||||
Robert F. Cavanaugh | 41,234 | 3,680,959 | 1,423 | 127,031 | ||||||||||||
Charles A. Davis | — | — | 1,423 | 127,031 | ||||||||||||
Mary Kay Haben | 1,977 | 176,487 | 1,423 | 127,031 | ||||||||||||
Robert M. Malcolm | — | — | 1,423 | 127,031 | ||||||||||||
James M. Mead | 6,485 | 578,916 | 1,423 | 127,031 | ||||||||||||
James E. Nevels | — | — | 1,423 | 127,031 | ||||||||||||
Anthony J. Palmer | — | — | 1,423 | 127,031 | ||||||||||||
Thomas J. Ridge | 29,207 | 2,607,309 | 1,423 | 127,031 | ||||||||||||
David L. Shedlarz | — | — | 1,423 | 127,031 | ||||||||||||
| (3) | Represents the Company match for contributions made by the director to one or more charitable organizations during 2015 under the Gift Matching Program. |
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How many votes will be required to elect a nomineeSHARE OWNERSHIP OF DIRECTORS, MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the Board?beneficial ownership of our outstanding voting securities and stock options by:
For nominees
Holder
| Common
| Exercisable
| Percent of Common
| Class B
| Percent Common
| |||||||||||||||||
Hershey Trust Company, as trustee for the Milton Hershey School Trust(5) Milton Hershey School(5) |  | 12,703,921 | — | 8.2 | 60,612,012 | 99.9 | ||||||||||||||||
Hershey Trust Company(6) | 199,000 | — | ** | — | — | |||||||||||||||||
BlackRock, Inc.(7) | 9,634,666 | — | 6.2 | — | — | |||||||||||||||||
Vanguard Group, Inc.(8) | 8,404,140 | — | 5.4 | — | — | |||||||||||||||||
Pamela M. Arway* | 9,599 | — | ** | — | — | |||||||||||||||||
John P. Bilbrey* | 101,092 | 594,414 | ** | — | — | |||||||||||||||||
Michele G. Buck | 18,757 | 115,368 | ** | — | — | |||||||||||||||||
Robert F. Cavanaugh* | 1,000 | — | ** | — | — | |||||||||||||||||
Charles A. Davis* | 17,577 | — | ** | — | — | |||||||||||||||||
Mary Kay Haben* | — | — | ** | — | — | |||||||||||||||||
Patricia A. Little | — | 7,207 | ** | — | — | |||||||||||||||||
Robert M. Malcolm* | 5,535 | — | ** | — | — | |||||||||||||||||
Richard M. McConville | 1,731 | 33,452 | ** | — | — | |||||||||||||||||
James M. Mead* | 700 | — | ** | — | — | |||||||||||||||||
James E. Nevels* | 4,889 | — | ** | — | — | |||||||||||||||||
Terence L. O’Day | 33,308 | 136,114 | ** | — | — | |||||||||||||||||
Anthony J. Palmer* | 12,882 | — | ** | — | — | |||||||||||||||||
Thomas J. Ridge* | 666 | — | ** | — | — | |||||||||||||||||
David L. Shedlarz* | 16,391 | — | ** | — | — | |||||||||||||||||
Leslie M. Turner | 959 | 55,449 | ** | — | — | |||||||||||||||||
All directors and executive officers as a group (20 persons) | 262,656 | 1,195,881 | ** | — | — | |||||||||||||||||
| * | Director |
| ** | Less than 1% |
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| (1) | Amounts listed for NEOs and other executive officers include, if applicable, shares of Common Stock allocated by the Company to the officer’s account in The Hershey Company 401(k) Plan. Amounts listed also include the following RSUs that will vest and be paid to the following holders within 60 days of March 7, 2016: |
Name | RSUs (#) | |||
Pamela M. Arway | 338 | |||
Charles A. Davis | 338 | |||
Robert M. Malcolm | 338 | |||
James E. Nevels | 338 | |||
Anthony J. Palmer | 338 | |||
Thomas J. Ridge | 338 | |||
David L. Shedlarz | 338 | |||
| Amounts listed also include shares for which certain of the directors and NEOs share voting and/or investment power with one or more other persons as follows: Ms. Arway, 9,261 shares owned jointly with her spouse; Mr. Cavanaugh, 1,000 shares owned jointly with his spouse; Mr. Malcolm, 5,197 shares owned jointly with his spouse; Mr. Nevels, 4,110 shares owned jointly with his spouse and 441 shares owned jointly with another individual; Mr. Palmer, 12,544 shares owned jointly with his spouse; and Mr. Ridge, 328 shares owned jointly with his spouse. |
| (2) | This column reflects stock options that were exercisable by the NEOs and the executive officers as a group on March 7, 2016. For Ms. Little column reflects stock options that will become exercisable within 60 days of March 7, 2016. |
| (3) | Based upon 154,349,189 shares of Common Stock outstanding on March 7, 2016. |
| (4) | Based upon 60,619,777 shares of Class B Common Stock outstanding on March 7, 2016. |
| (5) | Hershey Trust Company, as trustee for the Milton Hershey School Trust, has the right at any time to convert its Class B Common Stock into Common Stock on a share-for-share basis. If on March 7, 2016, Hershey Trust Company, as trustee for the Milton Hershey School Trust, converted all of its Class B Common Stock into Common Stock, Hershey Trust Company, as trustee for the Milton Hershey School Trust, would own beneficially 73,315,933 shares of our Common Stock (12,703,921 Common Stock shares plus 60,612,012 converted Class B Common Stock shares), or 34.1% of the 214,961,201 shares of Common Stock outstanding following the conversion (calculated as 154,349,189 Common Stock shares outstanding prior to the conversion plus 60,612,012 converted Class B Common Stock shares). For more information about the Milton Hershey School Trust, Hershey Trust Company, Milton Hershey School and the ownership and voting of these securities, please see pages 36 and 37. |
| (6) | Please see pages 36 and 37 for more information about shares of Common Stock held by Hershey Trust Company as investments. |
| (7) | Information regarding BlackRock, Inc. and its beneficial holdings was obtained from a Schedule 13G/A filed with the SEC on January 26, 2016. The filing indicated that, as of December 31, 2015, BlackRock, Inc. had sole voting and investment power over 9,634,666 shares of Common Stock. The filing indicated that BlackRock, Inc. is a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G) and that various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, our Common Stock. |
| (8) | Information regarding Vanguard Group, Inc. and its beneficial holdings was obtained from a Schedule 13G filed with the SEC on February 11, 2016. The filing indicated that, as of December 31, 2015, Vanguard Group, Inc. had sole voting and investment power over 8,404,140 shares of Common Stock. The filing indicated that Vanguard Group, Inc. is a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G) and that various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, our Common Stock. |
Ownership of Other Company Securities
Certain directors and NEOs hold Company securities not reflected in the beneficial ownership table above because they will not convert, or cannot be converted, to shares of Common Stock within 60 days of our March 7, 2016 Record Date. These securities include:
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The table below shows these holdings as of March 7, 2016. You can find additional information about RSUs and deferred common stock units held by directors in the Non-Employee Director Compensation section beginning on page 30. You can find additional information about stock options, RSUs and deferred common stock units held by the NEOs in the Executive Compensation section beginning on page 42.
Holder
| Shares Underlying RSUs and Beneficially Owned
| Shares Underlying Stock Options Not Beneficially Owned
| ||||||
Pamela M. Arway* | 1,130 | — | ||||||
John P. Bilbrey* | 87,877 | 387,564 | ||||||
Michele G. Buck | 36,622 | 91,793 | ||||||
Robert F. Cavanaugh* | 43,031 | — | ||||||
Charles A. Davis* | 1,130 | — | ||||||
Mary Kay Haben* | 3,773 | — | ||||||
Patricia A. Little | 31,603 | 53,908 | ||||||
Robert M. Malcolm* | 1,130 | — | ||||||
Richard M. McConville | 722 | 17,868 | ||||||
James M. Mead* | 8,282 | — | ||||||
James E. Nevels* | 1,130 | — | ||||||
Terence L. O’Day | 2,732 | 63,911 | ||||||
Anthony J. Palmer* | 1,130 | — | ||||||
Thomas J. Ridge* | 30,337 | — | ||||||
David L. Shedlarz* | 1,130 | — | ||||||
Leslie M. Turner | 70,093 | 83,847 | ||||||
| * | Director |
Information Regarding Our Controlling Stockholder
In 1909, Milton S. and Catherine S. Hershey established a trust having as its sole beneficiary Milton Hershey School, a non-profit school for the full-time care and education of disadvantaged children located in Hershey, Pennsylvania. Hershey Trust Company, a state-chartered trust company, is trustee of the Milton Hershey School Trust.
In its capacity as trustee for the Milton Hershey School Trust, Hershey Trust Company is our controlling stockholder. In this capacity, it will have the right to cast 8.2% of all of the votes entitled to be elected bycast on matters requiring the holdersvote of the Common Stock voting separately and 81.4% of all of the votes entitled to be cast on matters requiring the vote of the Common Stock and Class B Common Stock voting together:together. The nominees receivingboard of directors of Hershey Trust Company, with the greatest numberapproval of the board of managers (governing body) of Milton Hershey School, decides how funds held by Hershey Trust Company, as trustee for the Milton Hershey School Trust, will be invested. The board of directors of Hershey Trust Company generally decides how shares of The Hershey Company held by Hershey Trust Company, as trustee for the Milton Hershey School Trust, will be voted.
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As of the Record Date, Hershey Trust Company also held 199,000 shares of our Common Stock as investments. The board of directors or management of Hershey Trust Company decides how these shares will be voted.
In all, Hershey Trust Company, as trustee for the Milton Hershey School Trust and as direct owner of investment shares, will be entitled to vote 12,902,921 shares of our Common Stock and 60,612,012 shares of our Class B Common Stock at the Annual Meeting. Stated in terms of voting power, Hershey Trust Company will have the right to cast 8.4% of all of the votes entitled to be cast on matters requiring the vote of the Common Stock voting separately and 81.4% of all of the votes entitled to be cast on matters requiring the vote of the Common Stock and Class B Common Stock in descending order, will be elected tovoting together at the positions to be filled.Annual Meeting.
For nominees to be elected byOur certificate of incorporation contains the following important provisions regarding our Class B Common Stock:
What is the Board’s recommendation for voting on Proposal No. 1?
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To Our Stockholders:
The Audit Committee is currently comprised of four directors, each of whom is considered independent under the NYSE Rules and the rules and regulations of the SEC. The Board has determined that each member of the Audit Committee is financially literate and that each of Messrs. Davis, Mead and Nevels qualifies as an “audit committee financial expert,” as that term is defined under the rules promulgated by the SEC.
Our role as the Audit Committee of the Board of Directors is to prepare this report and to assist the Board in its oversight of:
The integrity of the Company’s financial statements;
The Company’s compliance with legal and regulatory requirements;
The independent auditors’ qualifications and independence; and
The performance of the independent auditors and the Company’s internal audit function.
OurThe Audit Committee operates under a written charter that was last amendedreviewed by the BoardAudit Committee on December 4, 2012. The charter may be viewed on the Company’s website atwww.thehersheycompany.com in the Investors section.1, 2015.
Our duties as aan Audit Committee include overseeing the Company’s management, internal auditors and independent auditors in their performance of the following functions, for which they are responsible:
Management
Preparing the Company’s financial statements;
Establishing effective financial reporting systems and internal controls and procedures; and
Reporting on the effectiveness of the Company’s internal control over financial reporting.
Internal Audit Department
Independently assessing management’s system of internal controls and procedures; and
Reporting on the effectiveness of that system.
Independent Auditors
Auditing the Company’s financial statements;
Expressing an opinion about the financial statements’ conformity with U.S. generally accepted accounting principles; and
Annually auditing the effectiveness of the Company’s internal control over financial reporting.
We meet periodically with management, the internal auditors and independent auditors, independently and collectively, to discuss the quality of the Company’s financial reporting process and the adequacy and effectiveness of the Company’s internal controls. Prior to the Company filing its Annual Report on Form 10-K for the year ended December 31, 2013,2015 with the SEC, we also:
Reviewed and discussed the audited financial statements with management and the independent auditors;
| • | Discussed with the independent auditors the matters required to be discussed by Auditing Standard No. 16,Communications with Audit Committees,of the Public Company Accounting Oversight Board; |
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Received the written disclosures and the letter from the independent auditors in accordance with applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the Audit Committee concerning independence; and
Discussed with the independent auditors their independence from the Company.
We are not employees of the Company and are not performing the functions of auditors or accountants. We are not responsible as aan Audit Committee or individually to conduct “field work” or other types of auditing or accounting reviews or procedures or to set auditor independence standards. In carrying out our duties as Audit Committee members, we have relied on the information provided to us by management and the independent auditors. Consequently, we do not assure that the audit of the Company’s financial statements has been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with U.S. generally accepted accounting principles or that the Company’s auditors are in fact “independent.”
Based on the reports and discussions described in this report, and subject to the limitations on our role and responsibilities as aan Audit Committee referred to above and in our charter, we recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013,2015, filed with the SEC on February 21, 2014.26, 2016.
Submitted by the Audit Committee of the Company’s Board of Directors:Committee:
Charles A. Davis, Chair
Pamela M. Arway
James M. Mead
James E. Nevels
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INFORMATION ABOUT OUR INDEPENDENT AUDITORS
Who areThe following table sets forth the Company’s current independent auditors?
amount of audit fees, audit-related fees, tax fees and all other fees billed or expected to be billed by KPMG LLP, anour independent registered public accounting firm, has auditedauditors, for the Company’s financial statements since May 10, 2002.
What were KPMG LLP’s fees for professional services to the Company in fiscal years 2012ended December 31, 2015 and 2013?
KPMG LLP’s fees were as follows:December 31, 2014:
| For the Fiscal Years Ended December 31, | 2013 | 2012 | ||||||
Audit Fees | $ | 4,283,302 | $ | 3,848,590 | ||||
Audit-Related Fees(1) | 1,380,023 | 1,307,391 | ||||||
Tax Fees(2) | 82,979 | 212,400 | ||||||
All Other Fees(3) | 66,438 | 219,331 | ||||||
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Total Fees | $ | 5,812,742 | $ | 5,587,712 | ||||
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| 2015 ($)
| 2014 ($)
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Audit Fees | 5,674,000 | 6,736,000 | ||||||
Audit-Related Fees(1) | 346,500 | 1,204,340 | ||||||
Tax Fees(2) | 222,398 | 146,413 | ||||||
All Other Fees(3) | — | 188,624 | ||||||
Total Fees | 6,242,898 | 8,275,377 | ||||||
| (1) | Fees associated primarily with services related to due diligence for potential business acquisitions, auditing of carve-out financial statements and auditing of employee benefit plans. |
| (2) | Fees pertaining primarily to |
| (3) | Fees associated primarily with professional services rendered in connection with the Company’s |
What is the Audit Committee’s policy regarding pre-approval of audit and non-audit services performed by the Company’s independent auditors?
The Audit Committee pre-approves all audit, audit-related and non-audit services performed by KPMG LLP. The Audit Committee is authorized by its charter to delegate to one or more of its members the authority to pre-approve any audit, audit-related or non-audit services, provided that the approval is presented to the Audit Committee at its next scheduled meeting.
The Audit Committee pre-approved all services provided by KPMG LLP in 2013.2015.
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PROPOSAL NO. 2 – RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
What is
| ü | The Board of Directors unanimously recommends that stockholders vote FORratification of the Audit Committee’s appointment of KPMG LLP as the Company’s independent auditors for 2016 |
The Audit Committee has appointed KPMG LLP as the Company’s independent auditors for 2016. Although not required to do so, the Board, proposing?upon the Audit Committee’s recommendation, has determined to submit the Audit Committee’s appointment of KPMG LLP as our independent auditors to stockholders for ratification as a matter of good corporate governance.
The Board is proposing that stockholders ratify the Audit Committee’s appointment of KPMG LLP as the Company’s independent auditors for 2014. The Audit Committee2016 will be considered ratified if a majority of the shares of the Common Stock and the Board consider KPMG LLPClass B Common Stock (voting together without regard to be well qualified for that role.
Is stockholder ratification necessary or required?
The Audit Committee is not required to obtain stockholder ratification of its appointment of KPMG LLP. However, the Audit Committee recommended to the Board that stockholders be given the opportunityclass) present and entitled to vote on KPMG LLP’s appointment at the annual meeting.
What will happen ifAnnual Meeting are voted for the appointment of KPMG LLP is not ratified by the stockholders?
proposal. If stockholders do not ratify the appointment of KPMG LLP as the Company’s independent auditors for 2014,2016, the Audit Committee will reconsider its appointment.
How many votes will be required for ratification?
KPMG LLP’s appointment as the Company’s independent auditors for 2014 will be considered ratified if a majority of the votes of the shares of the Common Stock and Class B Common Stock present and entitled to vote at the annual meeting are cast for the proposal.
Will representatives of KPMG LLP attend the annual meeting?
Representatives of KPMG LLP will attend the annual meeting,Annual Meeting, will have the opportunity to make a statement, if they so desire, and will respond to questions.
What is the Board’s recommendation for voting on Proposal No. 2?
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OWNERSHIP OF THE COMPANY’S SECURITIES
When are shares “beneficially owned”?
Shares are beneficially owned when a person has voting or investment power over the shares or the right to acquire voting or investment power within 60 days. Voting power is the power to vote the shares. Investment power is the power to direct the sale or other disposition of the shares.
What information is presented in the following table?
This table shows the number of Company shares beneficially owned by:
Stockholders who we believe owned more than 5% of our outstanding Common Stock or Class B Common Stock, as of February 28, 2014; and
Our directors, the executive officers named in the Summary Compensation Table on page 64 (we refer to these officers as “named executive officers”), and all directors, named executive officers and other executive officers as a group, as of February 28, 2014.
Unless we have indicated otherwise in a footnote, the individuals and entities listed in the table have sole voting and investment power over the shares listed.
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| Holder | Common Stock(1) | Exercisable Stock Options(2) | Percent of Common | Class B Common Stock | Percent Common | |||||||||||||||||||
Hershey Trust Company and the Milton Hershey School Trust(5) 100 Mansion Road Hershey, PA 17033
Milton Hershey School(5) Founders Hall Hershey, PA 17033
|  | 12,513,721 | — | 7.7 | 60,612,012 | 99.9 | ||||||||||||||||||
Hershey Trust Company(6) | 389,000 | — | ** | — | — | |||||||||||||||||||
BlackRock, Inc.(7) 40 East 52nd Street New York, NY 10022 | 8,267,188 | — | 5.1 | — | — | |||||||||||||||||||
Humberto P. Alfonso | 58,835 | 269,433 | ** | — | — | |||||||||||||||||||
Pamela M. Arway* | 6,850 | — | ** | — | — | |||||||||||||||||||
John P. Bilbrey* | 83,455 | 294,598 | ** | — | — | |||||||||||||||||||
Michele G. Buck | 9,211 | 24,249 | ** | — | — | |||||||||||||||||||
Robert F. Cavanaugh* | 1,000 | — | ** | — | — | |||||||||||||||||||
Charles A. Davis* | 14,828 | — | ** | — | — | |||||||||||||||||||
Mary Kay Haben* | — | — | ** | — | — | |||||||||||||||||||
Robert M. Malcolm* | 2,786 | — | ** | — | — | |||||||||||||||||||
James M. Mead* | 700 | — | ** | — | — | |||||||||||||||||||
James E. Nevels* | 9,248 | — | ** | — | — | |||||||||||||||||||
Terence L. O’Day | 25,507 | 72,293 | ** | — | — | |||||||||||||||||||
Anthony J. Palmer* | 8,057 | — | ** | — | — | |||||||||||||||||||
Thomas J. Ridge* | — | — | ** | — | — | |||||||||||||||||||
David L. Shedlarz* | 13,002 | — | ** | — | — | |||||||||||||||||||
David W. Tacka | 35,944 | 51,871 | ** | — | — | |||||||||||||||||||
Leslie M. Turner | — | 13,375 | ** | — | — | |||||||||||||||||||
| All directors, named executive officers and other executive officers as a group (20 persons) | 290,207 | 871,940 | ** | — | — | |||||||||||||||||||
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RSUs held by directors:
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464 RSUs held by an executive officer who is not a named executive officer.
Amounts listed also include shares for which certain of the directors and named executive officers share voting and/or investment power with one or more other persons as follows: Ms. Arway, 6,500 shares owned jointly with her spouse; Mr. Cavanaugh, 1,000 shares owned jointly with his spouse; Mr. Malcolm, 2,436 shares owned jointly with his spouse; Mr. Nevels, 8,219 shares owned jointly with his spouse and 679 shares owned jointly with another individual; and Mr. Palmer, 7,707 shares owned jointly with his spouse.
Do the directors and named executive officers listed in the beneficial ownership table above hold additional Company securities not reflected in that table?
Our directors and named executive officers hold certain Company securities not reflected in the beneficial ownership table above. We are not permitted to show these securities in the beneficial ownership table because they will not convert, or cannot be converted, to actual shares of Common Stock over which the holder will have voting or investment power within 60 days of our February 28, 2014, record date. These securities include:
Certain unvested RSUs or deferred common stock units held by our directors and named executive officers; and
Certain unvested stock options held by our named executive officers.
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We have added the table below to show these holdings by our directors and named executive officers as of February 28, 2014. You can find additional information about RSUs and deferred common stock units held by directors in the Director Compensation section beginning on page 24. You can find additional information about stock options, RSUs and deferred common stock units held by the named executive officers in the Executive Compensation section beginning on page 44.
| Holder | Shares Underlying RSUs and Beneficially Owned | Shares Underlying Stock Options Not Beneficially Owned | ||
Humberto P. Alfonso | — | 123,197 | ||
Pamela M. Arway* | 1,014 | — | ||
John P. Bilbrey* | 71,741 | 513,910 | ||
Michele G. Buck | 77,437 | 116,202 | ||
Robert F. Cavanaugh* | 37,237 | — | ||
Charles A. Davis* | 1,014 | — | ||
Mary Kay Haben* | 868 | — | ||
Robert M. Malcolm* | 1,014 | — | ||
James M. Mead* | 5,180 | — | ||
James E. Nevels* | 1,014 | — | ||
Terence L. O’Day | — | 92,977 | ||
Anthony J. Palmer* | 1,014 | — | ||
Thomas J. Ridge* | 26,907 | — | ||
David L. Shedlarz* | 1,014 | — | ||
David W. Tacka | 250 | 53,730 | ||
Leslie M. Turner | 26,499 | 64,970 |
Does the Company have policies designed to prevent executives from hedging Company stock?COMPENSATION DISCUSSION & ANALYSIS
Our Insider Trading Policy prohibits our executive officers, directors and other insiders from entering into hedging transactions related to our stock.
What is the Milton Hershey School Trust?
In 1909, Milton S. and Catherine S. Hershey established a trust having as its sole beneficiary Milton Hershey School, a non-profit school for the full-time care and education of disadvantaged children located in Hershey, Pennsylvania. Hershey Trust Company, a state-chartered trust company, is trustee for the benefit of Milton Hershey School. Throughout this proxy statement, as the context permits, we refer to Hershey Trust Company, in its capacity as trustee for the benefit of Milton Hershey School, as the “Milton Hershey School Trust.”
What is the relationship of the Milton Hershey School Trust and Hershey Trust Company to The Hershey Company?
The Milton Hershey School Trust is our controlling stockholder. It will have the right to cast 7.7% of all of the votes entitled to be cast on matters requiring the vote of the Common Stock voting
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separately and 80.4% of all of the votes entitled to be cast on matters requiring the vote of the Common Stock and Class B Common Stock voting together. The board of directors of Hershey Trust Company, as trustee for the benefit of Milton Hershey School, with the approval of the board of managers (governing body) of Milton Hershey School, decides how funds held by the Milton Hershey School Trust will be invested. The board of directors of Hershey Trust Company, as trustee for the benefit of Milton Hershey School, generally decides how shares of The Hershey Company held by the Milton Hershey School Trust will be voted.
As of the record date, Hershey Trust Company also held 389,000 shares of our Common Stock as investments. The board of directors or management of Hershey Trust Company decides how these shares will be voted.
In all, Hershey Trust Company, as trustee for the benefit of Milton Hershey School and as direct owner of investment shares, will be entitled to vote 12,902,721 shares of our Common Stock and 60,612,012 shares of our Class B Common Stock at the annual meeting. Stated in terms of voting power, Hershey Trust Company will have the right to cast 7.9% of all of the votes entitled to be cast on matters requiring the vote of the Common Stock voting separately and 80.5% of all of the votes entitled to be cast on matters requiring the vote of the Common Stock and Class B Common Stock voting together at the annual meeting.
Our certificate of incorporation contains the following important provisions regarding Class B Common Stock and the Milton Hershey School Trust’s ownership of that stock:
All holders of Class B Common Stock, including the Milton Hershey School Trust, may convert any of their Class B Common Stock shares into shares of our Common Stock at any time on a share-for-share basis.
All shares of Class B Common Stock will automatically be converted to shares of Common Stock on a share-for-share basis if the Milton Hershey School Trust, or any successor trustee, or Milton Hershey School, as appropriate, ceases to hold more than 50% of the total Class B Common Stock shares outstanding and at least 15% of the total Common Stock and Class B Common Stock shares outstanding.
We must obtain the approval of the Milton Hershey School Trust, or any successor trustee, or Milton Hershey School, as appropriate, before we issue any Common Stock or take any other action that would deprive the Milton Hershey School Trust, or any successor trustee or Milton Hershey School, as appropriate, of the ability to cast a majority of the votes on any matter where the Class B Common Stock is entitled to vote, either separately as a class or together with any other class.
What is the governance structure of Milton Hershey School and Hershey Trust Company?
All of the outstanding shares of Hershey Trust Company are owned by itself, as trustee for the benefit of Milton Hershey School. The members of the board of managers of Milton Hershey School are appointed by and from the board of directors of Hershey Trust Company. There are nine members of the board of directors of Hershey Trust Company. There are nine members of the board of managers of Milton Hershey School. Robert F. Cavanaugh, James M. Mead and James E. Nevels, each currently a director of our Company, are members of the board of directors of Hershey Trust Company and board of managers of Milton Hershey School. Directors of Hershey Trust Company and members of the Milton Hershey School board of managers individually are not considered to be beneficial owners of the shares of Hershey Common Stock and Class B Common Stock held by Hershey Trust Company, as trustee for the benefit of Milton Hershey School.
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Compensation Discussion and Analysis
This section discusses and analyzes the decisions we made concerning the compensation of Hershey’sour named executive officers.officers (“NEOs”) for 2015, including our former interim Principal Financial Officer (“PFO”). It also describes the process for determining executive compensation and the factors considered in determining the amount of compensation awarded to our named executive officers.NEOs. The NEOs for 2015 include the following:
Name | Title | |
John P. Bilbrey(1) | Chairman of the Board, President and Chief Executive Officer (“CEO”) | |
Patricia A. Little(2) | Senior Vice President, Chief Financial Officer (“CFO”) | |
Michele G. Buck | President, North America | |
Terence L. O’Day | Senior Vice President, Chief Supply Chain Officer | |
Leslie M. Turner | Senior Vice President, General Counsel and Secretary | |
Richard M. McConville(3) | Former interim Principal Financial Officer |
| (1) | Mr. Bilbrey has served as our President and CEO since 2011 and was appointed Chairman of the Board on April 2, 2015. |
| (2) | Ms. Little was hired and appointed as our CFO on March 16, 2015. |
| (3) | Mr. McConville has served as our Vice President, Chief Accounting Officer since July 2012 and served as our interim PFO from January 1, 2015 through March 15, 2015. |
Executive Summary
2015 Highlights
The named executive officers are: J. P. Bilbrey,Hershey Company (the “Company”), headquartered in Hershey, Pa., is a global confectionery leader known for bringing goodness to the world through its chocolate, sweets, mints and other great-tasting snacks. The Company has approximately 21,000 employees around the world who work every day to deliver delicious, quality products. The Company has more than 80 brands that drive approximately $7.4 billion in annual revenues. Building on its core business, the Company is expanding its portfolio to include a broader range of delicious snacks. The Company remains focused on growing its presence in key international markets while continuing to extend its competitive advantage in North America.
In January 2015, we announced high expectations for the Company, which we also incorporated into our Chief Executive Officer, or CEO; D. W. Tacka, who was named our Chief Financial Officer, or CFO, in May 2013; H. P. Alfonso, who served as our CFO prior2015 incentive programs:
What material highlights and events affecteddecision-making regarding 2013 named executive officer compensation? What actions were taken in response to those highlights and events?
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In January 2013 we gave the following outlook:
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We incorporated our expectations into the performance goals set for our 2013 annual incentive program, the One Hershey Incentive Program, or OHIP. Growth in adjusted earnings pershare-diluted also was included as a performance goal in the long-term incentive program.
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Our 2013 performance reflected continued strong execution of a strategy focused on investments in the core brands, innovative pipeline and international markets that provide us with the greatest growth opportunities. Under the direction of our Global Leadership Team, these investments produced products, promotions, programs and merchandising across all channels, generating significant organic growth. We achieved:
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Actual results for 2015 were as follows:
Because we surpasseddid not meet our expectations, our executive officersNEOs earned above-targetsignificantly below-target performance stock unit (“PSU”) payouts and annual cash incentive awards, underfurther reinforcing our pay-for-performance philosophy.
Hershey Has Strong Pay-for-Performance Alignment
The Compensation and Executive Organization Committee (the “Compensation Committee”) of our Board of Directors (the “Board”) has oversight responsibility for our executive compensation framework and for aligning our executive’s pay with the OHIP for 2013.Company’s performance. We believe we have a strong pay-for-performance alignment because a significant portion of each NEO’s target total direct compensation is tied to the financial performance of the Company as well as shareholder returns.
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In 2015, approximately 86% of our CEO’s and 71% of our other NEOs’ target total direct compensation was variable and tied to Company performance, including a substantial portion tied to shareholder value. Specifically, 50% of our PSUs were tied to Total shareholder return, or TSR, was 37.4% during 2013, reflecting:Shareholder Return (“TSR”). Combined with the other financial and strategic metrics that determine our NEOs’ compensation, we have aligned our executive compensation program with the long-term interests of our stockholders.
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Our TSR forOver the last three years, ended December 31, 2013,we have delivered a TSR of 120.8% was31.9%, which is at the top9th percentile of our Financial Peer Group (as described beginning on page 57), over ten percentage points higher than any other company in our Financial Peer Grouppages 53 and more than double that of the Standard & Poor’s 500 Index.54.
This TSR performance, together with the strong financial performance we generated during 2011, 2012 and 2013, merited substantially above-target payouts of performance stock unit, or PSU, awards for the three-year performance period ended in 2013.
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In May 2013, we implemented changes toBecause our TSR metric was below threshold for the roles and responsibilities of certain members of2013-2015 PSU cycle, our Global Leadership Team to further enhance our ability to execute our business strategy, accelerate international growth and broaden leadership talent:
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No changes were made to the compensation of Mr. Alfonso or Ms. BuckNEOs received a 0% payout for this metric, significantly reducing their overall PSU payout, as a result of their new roles. We increased Mr. Tacka’s annual base salary, target award level under OHIP and the long-term incentive program, and we awarded stock options and PSUs in recognition of his becoming CFO. In addition, the title for Mr. O’Day, previously Senior Vice President, Global Operations, was changed to Senior Vice President, Chief Supply Chain Officer, to better reflect his current responsibilities.
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Our executive compensation program features many “best practices.”
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Additional information and analysis regarding these events and actions is provided in the series of questions and answers below.
What are the objectives of our executive compensation program?
We create a strong alignment between the interests of our executive officers and our stockholders. We design compensation programs that help achieve our business strategies, which build stockholder value over the long term. We do this by:
Considering industry and market practices to establish pay levels that attract, retain and motivate executive talent;
Cultivating a high performance culture by linking the compensation of our named executive officers directly to Company financial and stock performance. In general variable compensation represented between 68% and 85% of our named executive officers’ target total direct compensation;
Setting challenging individual goals that directly link each executive’s compensation to the Company’s overall strategic goals;
Balancing achievement of short- and long-term financial results by focusing incentive compensation for all executive officers on realization of both annual and long-term growth and earnings expectations;
Using our Common Stock forlong-term incentive compensation to ensure that a significant amount of the executive officers’ total compensation earned fluctuates with the long-term market value of our Common Stock; and
Requiring substantial stock ownership by all executives. Named executive officers are required to hold three to five times their base salary in Company stock.
These actions are described in the discussion that follows.more detail on page 54.
What do we reward?
We reward results. Our executive officers and employees are engaged by a high performance culture that requires and recognizes both Company and individual performance.
AchievementStockholders Strongly Approve of individual performance objectives is considered, along with other factors, in the determination of base salary and annual incentive compensation.
A significant amount of our executive officers’ pay depends upon achieving our financial goals. If we achieve strong financial performance relative to our goals and our stock price appreciates, executives will earn significant rewards from our annual incentive program and from long-term incentives. If performance falls below our goals, incentive pay will be lower or not paid at all. If our stock price lags, compensation realized under these equity programs will be reduced or eliminated.
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What was the result of the “say-on-pay” vote at our 2013 Annual Meeting of Stockholders? What was our response?Our Pay Practices
Last year, our stockholders overwhelmingly approved our “say-on-pay” resolution, with more than 95%94% of the votes cast by the holders of Common Stock and more than 99% of the combined votes cast by the holders of the Common Stock and Class B Common Stock.Stock voting in favor. Our approach to executive compensation in 2013 is2015 was substantially the same as the approach stockholders approved in 2012.2014. In keeping with the preference expressed by our stockholders at the 2011 annual meetingAnnual Meeting of stockholders,Stockholders, our Board has committed to having an annual “say-on-pay” vote (asas described beginning on page 88).81. We plan to next ask stockholders to express a preference for the frequency of the “say-on-pay” vote at our 2016 annual meeting.2017 Annual Meeting of Stockholders.
WhoWe believe our compensation and governance policies and practices are significant drivers of our stockholder support. These policies and practices include:
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The Role and Philosophy of the Compensation Committee
The Compensation and Executive Organization Committee of our Board of Directors, or the Committee has primary responsibility for making executive compensation decisions.decisions for our NEOs other than our CEO. Our CEO’s compensation is approved by the independent members of the Board of Directors based on the recommendations of the Compensation Committee.
What process does the Committee follow to implement the executive compensation program?
The Compensation Committee operates under a charter approved by the Board of Directors and carries out the responsibilities outlined on pages 17 through 19 of this proxy statement. InformationBoard. The Compensation Committee uses information from Mercer (US) Inc. (“Mercer”), or Mercer, the Compensation Committee’s independent executive compensation consultant, input from our CEO (except for matters regarding his own pay) and assistance from our internal compensation specialists are used by the CommitteeHuman Resources Department to make decisions and to conduct its annual review of the Company’s executive compensation program.
The Compensation Committee works with a rolling agenda. Itsagenda, with its heaviest workload occursoccurring during the first quarter of the year, asyear. During this quarter, decisions are made with respect to annual andlong-term incentives earned forbased on the prior year’s performance and it finalizes the design,target-setting andtarget compensation levels are finalized for the current year’s base salaries and incentive programs.year. The Compensation Committee also reviews and approves this Compensation Discussion and& Analysis. During the second and third quarters, the Compensation Committee reviews materials relating to peer group composition, tally sheets, competitive pay analysis and other information that forms the foundation for future decisions. The Compensation Committee uses the third and fourth quarters to finalize decisions relating to the peer group and compensation plan design for use in the upcoming year.
DoesThe philosophy of our executive compensation program is to provide a compelling, dynamic, market-based total compensation program tied to performance and aligned with our stockholders’ interests. Our goal is to ensure the Company has the talent it needs to maintain sustained long-term performance for our stockholders, employees and communities. The guiding principles that help us achieve this goal are:
Compensation Advisor Independence
Under its engagement letter with the Compensation Committee, use benchmarkingMercer has acknowledged that the firm is retained by and performs its services for the Compensation Committee while working with management to provide advice, counsel and recommendations that reinforce the Company’s business strategy, economics, organization and management style. Mercer has provided and continues to provide services and products to the Company in addition to itsdecision-making? What work for the Compensation Committee, including services related to global compensation consulting and surveys for various geographies. Mercer and its affiliates also provide products and services to the Company that are unrelated to compensation, including expatriate consulting services (provided by Mercer), international benefits
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consulting and claims processing services (provided by Mercer) and property and casualty insurance consulting services (provided by Marsh USA Inc. and Marsh INSCO LLC). The Compensation Committee reviews all fees for services related to executive and director compensation provided by Mercer to the Compensation Committee, as well as fees for compensation-related products and services provided to the Company. The Compensation Committee has no role in the engagement of Mercer or Mercer affiliates that provide products or services to the Company that are unrelated to compensation; however, the Compensation Committee reviews the fees for such products and services concurrently with its review of compensation-related fees paid to Mercer.
Fees paid to Mercer and its affiliates for services provided in 2015 related to executive and director compensation totaled $372,745. Fees paid to Mercer and its affiliates for other services provided in 2015 were as follows:
Compensation-related products and services | $ | 128,820 | ||
Services unrelated to compensation | $ | 588,007 | ||
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Total other services | $ | 716,827 | ||
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The Compensation Committee also received and discussed with Mercer its letter to the Compensation Committee addressing factors relevant under the Securities Exchange Commission (“SEC”) and New York Stock Exchange (“NYSE”) rules in assessing Mercer’s independence from management and whether Mercer’s work for the Compensation Committee has raised any conflicts of interest, as well as Mercer’s belief that no conflict of interest exists and that it serves as an independent advisor to the Compensation Committee. The factors addressed included the extent of any business or personal relationships with any member of the Compensation Committee or any executive officer of the Company; Mercer’s and its affiliates’ provision of other services to the Company; the level of fees received from the Company as a percentage of total revenue of each of Mercer and Mercer’s parent company; the policies and procedures employed by Mercer to avoid conflicts of interest; and any ownership of Company stock by individuals employed by Mercer to advise the Compensation Committee. The Compensation Committee considered these factors before selecting or receiving advice from Mercer, and after considering these and other factors in their totality, the Compensation Committee identified no conflicts of interest with respect to Mercer’s advice.
In establishing compensation levels and awards for executive officers other than our CEO, the Compensation Committee takes into consideration the recommendations of Mercer and the Human Resources Department, evaluations by our CEO of each officer’s individual performance and Company performance. The Compensation Committee evaluates director compensation primarily on the basis of peer group is used?data used for benchmarking director compensation provided by Mercer.
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Our executive compensation program includes the following key elements:
Element | Design | Purpose | Key 2015 Actions | |||
Base Salary | Fixed compensation component. Reviewed annually and adjusted as appropriate. | Intended to attract and retain executives with proven skills and leadership abilities that will enable us to be successful. | Each NEO, with the exception of Ms. Little, received an increase to their base salary in the beginning of the year consistent with how the Company sets compensation as described beginning on page 48. | |||
Annual Incentive Award | Variable, performance-based compensation component. Payable based on business results and individual performance. | Intended to motivate and reward executives for successful execution of strategic priorities. | Targets as a percentage of base salary were established at the beginning of 2015 for each NEO and at the time of hire for Ms. Little. Mr. Bilbrey also received a target increase upon his appointment as Chairman of the Board. No changes were made to the plan design from the previous year. | |||
Long-Term Incentive Awards | Variable, performance-based compensation component. Typically granted annually as a combination of PSUs and stock options. The value of amounts actually earned depend on Company and stock price performance. | Intended to motivate and reward executives for long-term Company financial performance and enhanced long-term stockholder value by balancing compensation opportunity and risk, while encouraging sustained performance and retention. | Targets as a percentage of base salary were established at the beginning of 2015 for each NEO and at the time of hire for Ms. Little. The plan design remained consistent with the previous year. |
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The following charts illustrate the weighting of base salary, annual incentive awards and long-term incentive awards at target for our CEO and our other NEOs during 2015:
| (1) | Mr. Bilbrey’s target annual cash incentive award was initially set at 140% of base salary in January 2015. Upon his appointment as Chairman of the Board, Mr. Bilbrey’s target increased to 150%. The above calculation uses the proration of Mr. Bilbrey’s incentive targets to calculate his annual cash incentive. |
The Compensation Committee’s annual compensation review for 20132015 included an analysis of data, compiled by Mercer, comparing the Company’s executive and director compensation levels against a peer group ofpublicly-held consumer products companies that we callcompanies. Mercer provides the Compensation Committee with advice, counsel and recommendations with respect to the composition of the peer group and competitive data used for benchmarking our compensation program. The Compensation Committee uses this and other information provided by Mercer to reach an independent recommendation regarding compensation to be paid to our CEO. The Compensation Committee’s final recommendation is then given to the independent directors of our Board for review and final approval.
In prior years, the Company had two separate peer groups, which we referred to as our Compensation Peer Group and our Financial Peer Group.
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In 2014, the Compensation Committee decided to utilize one common peer group for 2015 (the “2015 Peer Group”). Companies in the Compensation2015 Peer Group used to benchmark executive and director pay levels for 2013 were:2015 are:
Brown-Forman Corporation | ||
Campbell Soup Company | ||
ConAgra Foods, Inc. | ||
Constellation Brands, Inc. | ||
| Molson Coors Brewing Company | |
Dean Foods Company | Mondelez International | |
Dr Pepper Snapple Group, | ||
| The Clorox Company | |
General Mills, Inc. | The J. M. Smucker Company | |
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The Compensation Peer GroupCommittee selected these companies were selected by the Committee following an August 2012 review by Mercer ofafter reviewing publicly-held companies offering products/services similar to ours, with annual revenuerevenues within a range of approximately one-half to two and one-half times our annual revenue (with the exception of Mondelez International whom we also consider a peer company for executive talent) and market capitalization within a reasonable range of our market capitalization. The 2013 Compensation2015 Peer Group was composed of companies with annual revenues ranging from $2.7$3.9 billion to $14.9$35.2 billion (measured as of the most recent fiscal year end) and market capitalization ranging from $2.9$1.6 billion to $24.8$63.8 billion (measured in the second quarter of 2012)
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2014). Hershey’s 2013 annual revenuesrevenue of $6.1$7.2 billion and third-quarter 2014 market capitalization of $14.9$21.7 billion were at the 5747th and 8475th percentiles, respectively. Except for Hillshire Brands,Mondelez International, all of the companies in our 2013 Compensation2015 Peer Group were included in our 20122014 Compensation Peer Group. Energizer Holdings, Inc. and Hillshire Brands, was added toincluded in 2014, were not included in the Compensation2015 Peer Group for 2013. Sara Lee Corporation, included in 2012, was removed due to its 2012a split into two companies, the larger of which was Hillshire Brands. At the time of the split, the projected annual revenue of Hillshire Brands fell within the target range and the company was added at the recommendation of Mercer.a merger, respectively, occurring in 2014.
Mercer’s benchmarking of our executive officers’ compensation is based primarily on the Compensation Peer Group. Data from the Compensation2015 Peer Group iswas supplemented by composite data from consumer products companies ranging in size from $3 billion to $15$17 billion in approximate annual sales. This information iswas included in three national surveys conducted by Aon Hewitt, Mercer and Towers Watson. The use of the survey composite providesdata provided us with broader,industry-specific information regarding pay levels at consumer products companies not only for our named executive officers but also for other executives reporting to our CEO.NEOs.
Mercer provided theThe Compensation Committee and Company withreviewed a report summarizing compensation levels at the 25th, 50th and 75th percentiles of the Compensation2015 Peer Group and the survey composite data for positions comparable to those held by each of our executive officers.NEOs. The Compensation Committee also received an analysis from Mercerreviewed a report comparing the target total cash compensation (base salary plus target annual incentive) and target total direct compensation (base salary plus target annual incentive plus target grant value oflong-term incentives) incentive) for each of the executive officersNEOs against these benchmarks. For retention and competitive considerations, the Company targets each executive officer’sNEO’s total cash compensation and total direct compensation levels which includearound the officer’s base salary, annual incentive and long-term incentive, at the 50th percentile of the Compensation2015 Peer Group data or survey composite data applicable to his or her position. The Compensation Committee’s final determinations with respect to base salary, target annual incentive compensation and targetlong-term incentive compensation reflect consideration of the Company’s and the executive officer’sNEO’s performance, internal comparisons and other factors the Compensation Committee deems appropriate. As a result of these factors, the target total cash compensation and target total direct compensation of our named executive officersNEOs in 20132015 was generally set around or below the medians.
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What other information does the Committee consider when making executive compensation decisions?
In addition to the benchmark and other competitive landscape data, the Committee also receives and considers “tally sheet” information (as described below) relating to the CEO and each of his direct reports. Much of this information is reflected on pages 64 through 87 of this proxy statement.applicable median.
During 2013,2015, the Compensation Committee received detailed tally sheets prepared by management and reviewed by Mercer.management. Each tally sheet captures comprehensive compensation, benefits and stock ownership data. The tally sheets provide the Compensation Committee with a complete picture of each executive’s current and projected compensation and the amount of each element of compensation or other benefit the executive would receive in the event of voluntary or involuntary termination, retirement, disability, death, or death.upon change in control. The Compensation Committee considers this information, as well as the benchmark information, when making compensation decisions.
Do costs and tax rules play a role?Base Salary
An important factor in the Committee’s deliberationsBase salary is the anticipated costlargest fixed component of the various components of executive compensation. Accounting treatment also is taken into consideration in the design and implementation of the annual andlong-term incentive programs.
Section 162(m) of the Internal Revenue Code, or IRC, limits the Company’s ability to deduct certain compensation in excess of $1 million paid to our CEO or to our other named executive officers who are employed on the last day of the fiscal year (other than officers who served as CFO during the year). This limitation does not apply to compensation that qualifies as“performance-based” under applicable Internal Revenue Service regulations or that is paid after termination of employment. The Committee has considered the effect of Section 162(m) of the IRC on the Company’s executive compensation program. It is the Committee’s opinion that, in administering the incentive compensation components of the Company’s executive compensation program, it will attempt to satisfy the requirements for deductibility under Section 162(m) of the IRC. However, the Committee is authorized to exercise discretion in structuring incentive compensation awards and in determining payments in relation to levels of achievement of performance goals and believes that the total compensation program for executive officers should be managed in accordance with the objectives outlined in the Company’s compensation philosophy and in the best overall interests of the Company’s stockholders. Accordingly, compensation paid by the Company may not be deductible because such compensation exceeds the limitations, or does not meet the“performance-based” or other requirements, for deductibility under Section 162(m) of the IRC.
Section 409A of the IRC specifies certain rules and limitations regarding the operation of our deferred compensation plan and other retirement programs. Failure to comply with these rules could subject participants in those plans and programs to additional income tax and interest penalties. We believe our plans and programs comply with Section 409A of the IRC.
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What are the individual components of the executive compensation program and why doesis determined by considering the Company choose to use these components of pay? What percentagerelative importance of the named executive officers’ target compensation is dependent on performance?
Our core executive compensation program includes three key elements summarized inposition, the following table.
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The following charts illustrate the target total direct compensation of our CEO and our named executive officers.
How are base salaries determined?
The initial base salary for a new executive officer reflects his or her responsibilities and experience, salaries paid by other companies for comparable executive talent and consideration of
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the base salary necessary to recruit the individual to Hershey. A similar approach is applied when adjusting an executive’s base salary to reflect a promotion or significant change in job responsibilities.
experience. Salary reviews for incumbent officers are generally conducted annually at the beginning of the year. Each executive officer’sNEO’s base salary is compared to the range of the 25th to 75thpercentiles of the base salary level for the comparable position at the companies in our Compensation Peer Groupinternal and the survey composite. Base salaries are targeted at the median, or 50th percentile.external references. Base salary adjustments, if any, are made after considering peer group comparisons,market references, Company performance against financial goals and individual performance. CEO performance is evaluated by the Compensation Committee and independent members of the Board. The CEO evaluates the performance of his direct reports, including all NEOs except interim officers, and reviews his recommendations for salary adjustments with the Compensation Committee prior to theirits approval of the base salary level for each executive officer.NEO. If an executive officera NEO has responsibility for a particular business unit, the business unit’s financial results also will be strongly considered.
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On the basis of the foregoing considerations, the Compensation Committee, and all independent directors in the case of our CEO, approved base salaries for 20132015 as follows:
| Name | 2013 ($) | Increase (%) | ||||||
J. P. Bilbrey | 1,125,000 | 3.0 | ||||||
D. W. Tacka | 500,000 | 35.8 | (1) | |||||
H. P. Alfonso | 620,000 | 3.3 | ||||||
M. G. Buck | 535,300 | 6.0 | ||||||
T. L. O’Day | 541,000 | 5.0 | ||||||
L. M. Turner | 490,000 | 3.2 | ||||||
Name
| 2015 ($)
| Increase (%)
| Percent of Target Total (%)
| |||||||||
Mr. Bilbrey | 1,200,000 | 3.5 | 13.8 | |||||||||
Ms. Little | 600,000 | N/A | (1) | 29.0 | ||||||||
Ms. Buck | 652,800 | 2.0 | 25.3 | |||||||||
Mr. O’Day | 570,650 | 1.0 | 29.9 | |||||||||
Ms. Turner | 600,000 | 14.3 | (2) | 29.4 | ||||||||
Mr. McConville | 316,404 | 3.5 | 44.4 | |||||||||
| (1) |
| (2) | In addition to a merit increase, Ms. Turner received a market adjustment to more closely align her compensation with median level. |
See Column (c) of the 2015 Summary Compensation Table on page 6461 for information regarding the base salary earned by each of our named executive officersNEOs during 2013.2015.
How is the Company’s annual incentive program designed? How are target annual incentive amounts and required performance goals established?Annual Incentives
Our executive officers, as well as all other salaried employees globally,NEOs are eligible to receive an annual cash incentive award under the OHIP ofOne Hershey Incentive Program (“OHIP”), a program established under ourstockholder-approved Equity and Incentive Compensation Plan, which we refer to as the Incentive Plan. EICP.
The OHIP links the executive officer’sNEO’s payout opportunity to measures he or she can affect most directly. For 2013,2015, our CEO and all executive officersemployees reporting directly to him, (includingincluding the named executive officers)NEOs, had common financial objectives tied to total Company performance consistent with their responsibility to manage the entire Company. Total Company performance targets are established in the context of our announced expectations for financial performance, prior year results and market conditions. Nominal or no incentive compensation is paid for missing targets while an appropriate and competitive degree of upside is included to motivate and rewardabove-target performance.
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In 2013, participating executive officersFor 2015, our NEOs were eligible to earn individual OHIP awards, expressed as a percentage of base salary, contingent upon attainment of Company and individual performance objectives. If target levels are achieved, eachEach of the named executive officers would beNEOs was eligible to receive an annual incentiveOHIP award based on the following target percentages:
Name
| 2015 Target One Hershey (% of Base Salary)
| Percent of Target (%)
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Mr. Bilbrey | 150 | (1) | 20.4 | (1) | ||||
Ms. Little | 75 | 21.7 | ||||||
Ms. Buck | 85 | 21.5 | ||||||
Mr. O’Day | 65 | 19.4 | ||||||
Ms. Turner | 70 | 20.6 | ||||||
Mr. McConville | 45 | 20.0 | ||||||
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| the Board, Mr. Bilbrey’s target increased to 150%. |
In determining the target OHIP percentage for each of the executive officers,NEOs (excluding interim officers), the Compensation Committee, comparedand the levelindependent directors in the case of our CEO, considered the
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value of target total cash compensation (base salary and target OHIP award) to the benchmark range of the median percentile level for his or her counterparts in the Compensation Peer Group, the survey composite or a blend of the two.against market references. For each of the named executive officers,NEOs, in 20132015 the target total cash compensation generally fell betweenin the 20thsecond and 55th percentilesthird quartiles of target total cash compensation for comparable positions.
TheIn general, the final award earned under the OHIP by participating executive officersaward is determined by multiplying the executive officer’sNEO’s base salary, the applicable target percentage and performance scores ranging from 0% to 200% based on Company performance and performance against individual performance goals.performance. The Company performance goals are established at the beginning of each year by the Compensation Committee. Individual performance goals also are established at that time.time, or at the time of hire if later. If performance scores exceed the target objectives, an individual executive officera NEO may receive morean OHIP payout greater than his or her target percentage.award value. If performance scores are below the target objectives, the executive officer’sNEO’s OHIP payout will be below his or her target percentage,award value, subject to no award if performance is below threshold levels.
For executive officers in 2013, the weighting of2015, Company financial performance metrics accounted for 65% of theireach NEO’s target award under the program. The remaining 35% of the target award was based upon individual performance toward achievement of up to five individual performance goals focused on strategic priorities applicable to the named executive officer’s position.
The 65%/35% weighting of Company financial performance and individual performance reflected a continuation ofNEO’s position, but tied to the 65%/35% weighting used in 2012, a change from the 75%/25% split used prior to 2012. The Committee continued the higher individual performance goal weighting to reinforce the increased focus on execution of theoverall Company’s top strategic priorities.priorities for the year.
What were the performance targets under the 2013 OHIP? Were they achieved? What were the final2015 OHIP payouts for 2013?Performance Targets and Results
The financial performance metrics for our executive officers’ OHIP awards reflected our results-oriented,pay-for-performance compensation philosophy. The Company performance objectives for the 20132015 OHIP participants centered on the following targets:
Consolidated net sales of $7.074$7.866 billion, a 6.5%6.0% increase from 2012;
Adjustedearnings per share-diluted of $3.61, an 11.4% increase from 2012; and
| • | Adjusted earnings per share-diluted(1) of $4.34, a 9.0% increase from 2014; and |
| • | Operating cash flow(2) of $1.129 billion, a 12.5% increase from 2014. |
Operating cash flow of $974 million, a 17.5% increase from 2012. Operating cash flow is defined as the average of cash from operations less pension contributions and commodities hedging transactions, measured in five12-month periods ending on the last day of fiscal year 2012 and each quarter of fiscal year 2013.
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We achieved above-target performance in net sales, adjustedearnings per share-diluted and operating cash flow. Our financial performance during 20132015 and the resulting financial performance scores for OHIP were as follows:
| Metric | 2013 Target ($) | 2013 Actual ($) | Target Award (%) | Performance Score (%) | 2015
| 2015
| Target
| Performance
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Net Sales | 7.074 billion | 7.146 billion | 50.00 | 71.14 | 7.866 billion | 7.387 billion | 50.00 | 13.10 | ||||||||||||||||||||
Adjusted Earnings perShare-Diluted | 3.61 | 3.72 | 40.00 | 66.99 | ||||||||||||||||||||||||
Adjusted Earnings per Share-Diluted(1) | 4.34 | 4.12 | 40.00 | 24.20 | ||||||||||||||||||||||||
Operating Cash Flow | 0.974 billion | 1.096 billion | 10.00 | 20.00 | 1.129 billion | 1.102 billion | 10.00 | 9.85 | ||||||||||||||||||||
Total One Hershey Incentive Program Company Score | Total One Hershey Incentive Program Company Score |
| 100.00 | 158.13 | Total One Hershey Incentive Program Company Score | 100.00 | 47.15 | |||||||||||||||||||||
For 2013,
| (1) | Adjusted earnings per share-diluted is a non-GAAP performance measure. For more information regarding how we define adjusted earnings per share-diluted and our use of non-GAAP performance measures, please see footnote (1) on page 42. |
| (2) | Operating cash flow is a non-GAAP performance measure. We define operating cash flow as the average of cash from operations less pension contributions and commodities hedging transactions, measured in five 12-month periods ending on the last day of fiscal year 2014 and each quarter of fiscal year 2015. For more information regarding our use of non-GAAP performance measures, please see footnote (1) on page 42. |
We achieved below-target performance in net sales, adjusted earnings per share-diluted and operating cash flow. As a result, 65% of the 2015 OHIP award for each of the named executive officersNEO was based on the Company performance score of 158.13%47.15%. The remainder of the OHIP award was determined by individual performance ratings based on achievement of individual performance goals and the execution of position responsibilities. The individual performance goals and weightings for each of the named executive officers other than Mr. Tacka were established in February 2013 based on strategic objectives for each officer tied to our top priorities for the year. Mr. Tacka’s individual performance goals were established shortly after he became CFO in May 2013.ratings.
Following the close of 2013,2015, the Compensation Committee provided the independent directors with an assessment and scoring of Mr. Bilbrey’s performance, and Mr. Bilbrey provided the Committee with his assessment and scoring of each named executive officer’s 20132015 performance and achievement relative to thesehis individual performance goals. Each of our named executive officers received a successful or higher performance rating for 2013 for achievement of position responsibilities and individual performance goals.
The individual performance goals for Mr. Bilbrey centered on delivery of the Company’s financial goals, strategic leadership and portfolio and geographic expansion and strategic leadership. Based uponexpansion. Although our overall strong financial results growthwere below target due to challenging industry conditions in the category and the negative impact of foreign
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exchange fluctuations, Mr. Bilbrey delivered on his strategic leadership and portfolio expansion goals including growing in key geographies, capturing significant cost savings, delivering above-target innovation, successfully integrating acquisitions, succession planning and his strategic leadership,diversity efforts. Thus, the Compensation Committee recommended to the independent directors, and the independent directors agreed, that Mr. Bilbrey earned an individual performance scoreaward of 200%.$464,092, resulting in a total OHIP payout of $1,005,930, as shown in the table below.
Mr. Tacka,Ms. Little, our Senior Vice President and Chief Financial Officer,CFO, had individual performance goals that included seamless transition ofexpanding the CFO roleCompany’s global financial capabilities, delivering process improvements and due diligence regarding potential business development opportunities. Based upon Mr. Tacka’s successful transition ofefficiencies, and expanding the CFO positionmergers and support of our business development opportunities, Mr. Bilbrey recommended, and the Committee agreed, that Mr. Tacka earned an individual performance score of 140%.
The individual performance goals for Mr. Alfonso, who held the titles of CFO, Executive Vice President and Chief Administrative Officer during fiscal year 2013 prior to becoming our President, International, in May 2013, included business development across geographic regions and leadership of our international businesses. Based upon Mr. Alfonso’s success in business development and leadership of our international businesses, Mr. Bilbrey recommended, and the Committee agreed, that Mr. Alfonso earned an individual performance score of 175%.
acquisitions organization integration capability. For Ms. Buck, our President, North America, and until May 13, 2013, our Senior Vice President, Chief Growth Officer,the individual performance goals centered on delivering the North America financial plan, innovative growthincreasing innovation contribution and marketplace objectives. Based upon Ms. Buck’s deliverystrategic leadership of solid financial results inour core North America as well as innovative growth and marketplace gains,
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Mr. Bilbrey recommended, and the Committee agreed, that Ms. Buck earned an individual performance score of 175%.
American businesses. The individual performance goals for Mr. O’Day, our Senior Vice President, Chief Supply Chain Officer, focused on designing a supply chain network to enable growth and until May 13, 2013, our Senior Vice President, Global Operations, included focus on sourcing expansion in the Asia market and operational support for strategic innovations. Based upon Mr. O’Day’s success regarding sourcing expansion in the Asia market and delivery of operational support for strategic innovation,Mr. Bilbrey recommended, and the Committee agreed, that Mr. O’Day earned an individual performance score of 150%.
delivering enterprise margin expansion. For Ms. Turner, our Senior Vice President, General Counsel and Secretary, the individual performance goals centered on expansionincluded architecting a global government relations strategy and developing legal capabilities in the Company’s key geographies. Mr. McConville, Vice President, Chief Accounting Officer, was charged with the responsibility for overseeing the Company’s financial statements during the period he was interim PFO.
Mr. Bilbrey provided the Compensation Committee with his assessment of legal team expertiseeach NEO’s 2015 performance and achievement in relation to support our global growth and enhancement of corporate governance.their performance goals. Based upon Ms. Turner’s success in developing capabilities to supportthe results for each of our global operations and enhancement of corporate governance,NEOs, Mr. Bilbrey recommended, and the Compensation Committee agreed, that Ms. Turner earned anapproved, the individual performance score of 150%.awards and total OHIP payouts as shown in the table below.
Based upon a 65% weight for the Company financial score of 158.13%47.15% of target and a 35% weight for theirthe individual performance scores,award, our named executive officersNEOs earned the following 20132015 OHIP awards:
| 2013 One Hershey Incentive Program Awards | ||||||||||||||
| Name | Award (%) | Award ($) | Company (%) | Individual (%) | Combined (%) | 2013 ($) | ||||||||
J. P. Bilbrey | 130 | 1,462,334 | 158.13 | 200 | 172.78 | 2,526,686 | ||||||||
D. W. Tacka | 70 | 289,343(2) | 158.13 | 140 | 151.78 | 439,178 | ||||||||
H. P. Alfonso | 75 | 464,942 | 158.13 | 175 | 164.03 | 762,666 | ||||||||
M. G. Buck | 75 | 401,388 | 158.13 | 175 | 164.03 | 658,414 | ||||||||
T. L. O’Day | 65 | 351,585 | 158.13 | 150 | 155.28 | 545,957 | ||||||||
L. M. Turner | 60 | 293,965 | 158.13 | 150 | 155.28 | 456,483 | ||||||||
Name
| Award
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| Individual
| 2015
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Mr. Bilbrey | 150 | (2) | 1,767,969 | (2) | 541,838 | 464,092 | 1,005,930 | |||||||||||||
Ms. Little | 75 | 354,808 | 108,740 | 180,065 | 288,805 | |||||||||||||||
Ms. Buck | 85 | 554,754 | 170,018 | 232,997 | 403,015 | |||||||||||||||
Mr. O’Day | 65 | 370,880 | 113,665 | 155,770 | 269,435 | |||||||||||||||
Ms. Turner | 70 | 419,394 | 128,534 | 212,842 | 341,376 | |||||||||||||||
Mr. McConville | 45 | 142,326 | 43,620 | 49,814 | 93,434 | |||||||||||||||
| (1) | Target award is based upon actual salary received in |
| (2) |
SeeThe 2015 OHIP payments are included in Column (g) of the 2015 Summary Compensation Table for information relatingeach NEO.
We provide long-term incentive opportunities to the amount of OHIP payments mademotivate, retain and reward our NEOs for their contributions to the named executive officers.
What are the elements of thelong-term incentive program?
We use awards of PSUs, stock optionsmulti-year performance in achieving strategies and Restricted Stock Units, or RSUs, to provideimproving long-term incentive compensation that aligns the interests of our executives with our stockholders. These awards are based on provisions of the Incentive Plan. The Committee customarily awardslong-term incentive grants, including stock options, to executive officers, other senior executives and key managerial employees in share value. In February of each year, following the release of fourth quarterCompensation Committee awards long-term incentive grants, including PSUs and annual financial results.stock options, to our NEOs.
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The Compensation Committee, and the independent directors in the case of our CEO, determines the value oflong-term incentive awards made to an executive officereach NEO by comparingconsidering the executive officer’sNEO’s target total direct compensation (the sum of base salary, target OHIP awardagainst internal and the value of the targetlong-term incentive award) to the 50th percentile level of target total direct compensation of his or her counterparts in the Compensation Peer Group and survey composite data.external references. The target award percentages approved in February 2013 (and April 20132015, or at the time of hire for Mr. Tacka),Ms. Little, expressed as a percentage of base salary, were:
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Name
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| Percent of (%)
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Mr. Bilbrey | 475 | 65.8 | ||||||
Ms. Little | 170 | 49.3 | ||||||
Ms. Buck | 210 | 53.2 | ||||||
Mr. O’Day | 170 | 50.7 | ||||||
Ms. Turner | 170 | 50.0 | ||||||
Mr. McConville | 80 | 35.6 | ||||||
In determining the value of thelong-term incentive awards, theThe Compensation Committee values PSUs using the average of the daily closing pricesstock price of the Company’s Common Stock in the December preceding the start of the performance cycle. The Committee values RSUs using the closing price of our Common Stock on the New York Stock Exchange, or NYSE on the date of the award andgrant. The Compensation Committee values stock options using the value of the stock options at the date of grant as determined for financial reporting purposes (theBlack-Scholes value). Overall, after taking into account thelong-term incentive awards made in 2013,2015, the target total direct compensation of our named executive officersNEOs (excluding interim officers) was generally betweenset within the 20thsecond and 60thpercentilesthird quartiles of target total direct compensation for the comparable positions in the Compensation2015 Peer Group and survey composite data.data.
How are PSU awards structured? What performance goals are used? What were the results atyear-end 2013?Performance Stock Unit Targets and Results
PSUs are granted to those executive officersNEOs and other senior executives in a position to affect the Company’slong-term results. At the start of eachthree-year cycle, a contingent target number of PSUs is established for each executive. This target is expressed as a percentage of the executive’s annual base salary and is determined as part of a total compensation package based on the applicable Compensation Peer Grouppeer group and survey composite benchmarks. The PSU award generally represents approximatelyone-half of the recipient’slong-term incentive compensation target award. Dividends are not paid on PSU awards during the three-year performance cycle.
The performance objectives for the2011-2013 2013-2015 performance cycle awarded in 20112013 were based upon the following metrics:
Three-year relative TSR versus the Financial Peer Group (described below);
Three-year compound annual growth rate (“CAGR”) in organic net sales outside the United States and Canada;
Annual (as opposed to three-year) growth in adjustedearnings per share-diluted measured against an internal target for each year of the three-year performance cycle.
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The Compensation Committee selected these metrics to measure performance against internal targets aligned with our stockholders’ interests and investment returns offered by our peer companies. Based on input from Mercer,Although the Committee selected 13 food, beverage and consumer products companies with a median revenue of $7.6 billion for useCompany decided to utilize one common peer group beginning in assessing our Company’s2011-2013 TSR against the food and beverage industry. We refer2015, PSU cycles prior to these companies as2015 still utilize our Financial Peer Group. The Financial Peer Group is a high-performing group of companies with whom we compete for investors in the food and beverage industry. Initially the
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Compensation Committee approved a Financial Peer Group of 15 companies with median revenues of $7.9 billion. As a result of corporate transactions, H.J. Heinz Co., Hillshire Brands, Ralcorp Holdings, Inc. and Kraft Foods Group were removed from the Financial Peer Group. Therefore, 11 companies remained in the 2013-2015 cycle for use in assessing our Company’s 2013-2015 TSR.
Companies included in the 13-member 2011 Financial Peer Group for the 2013-2015 PSU cycle award were:
Campbell Soup Company | Kellogg Company | |
ConAgra Foods, Inc. | McCormick & Company, Inc. | |
Dean Foods Company |
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Dr Pepper Snapple Group, Inc. |
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General Mills, Inc. |
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| The J. M. Smucker Company | |
Hormel Foods Corporation |
Due to privatization of the Del Monte Foods Company in 2011, the spin-offs by Kraft Foods Inc. and Sara Lee Corporation in 2012, and privatization of H. J. Heinz during 2013, the Committee removed these companies from the Financial Peer Group for the purpose of measuring three-year relative TSR for the2011-2013 performance cycle and, to the extent applicable, the2012-2014 and2013-2015 performance cycles.
The Compensation Committee approves the annual adjustedearnings per share-diluted target for each year of the three-year performance cycle at the beginning of the performance year. The annual component allows the Compensation Committee to establish performance targets that reflect current business conditions, thus strengthening the link between pay and performance for each year of thethree-year cycle. Payment of any amounts earned, including amounts based on the annual performance goals, will be made in shares of our Common Stock at the conclusion of thethree-year performance cycle. The maximum award for any participant in a performance cycle is 250% of the contingent target award.
Targets and results for the2011-2013 2013-2015 performance cycle and the Company’s TSR and financial performance during the2011-2013 performance three-year cycle were as follows:
| 2011-2013 PSU Performance Cycle | ||||||||||||||||
| Metric | Target (Increase vs. | Actual (Increase vs. | Target Award (%) | Performance (%) | ||||||||||||
Total Shareholder Return | 50th Percentile | 100thPercentile | 50.00 | 125.00 | ||||||||||||
Three-year Compound Annual Growth Rate (CAGR) in Adjusted Earningsper Share-Diluted | 7.0% CAGR | 12.2% CAGR | (1)(2) | 12.50 | 31.25 | |||||||||||
2011 Adjusted Earnings |
| $2.76 (8.2% increase) |
|
| $2.82 (10.6% increase) | (1)
| 12.50 | 15.00 | ||||||||
2012 Adjusted Earnings |
| $3.10 (9.5% increase) | (1)(2)
|
| $3.24 (14.5% increase) | (1)(2)
| 12.50 | 23.99 | ||||||||
2013 Adjusted Earningsper Share-Diluted |
| $3.61 (11.4% increase) | (1)(2)
|
| $3.72 (14.8% increase) | (1)(2)
| 12.50 | 20.98 | ||||||||
Total | 100.00 | 216.22 | ||||||||||||||
Metric
| Target
| Actual
| Target
| Final (%)
| ||||||||||||
Total Shareholder Return | 50th Percentile | 9th Percentile | 50.00 | 0.00 | ||||||||||||
Three-year CAGR in Organic Net Sales Outside the United States and Canada | 21.7% CAGR | (1) | 4.7% CAGR | (1) | 15.00 | 0.00 | ||||||||||
Three-year CAGR in Adjusted Earnings per Share-Diluted(3) | 10.0% CAGR | (1),(2) | 11.2% CAGR | (1),(2) | 15.00 | 23.75 | ||||||||||
2013 Adjusted Earnings per |
| $3.61 (11.4% increase) |
|
| $3.72 (14.8% increase) |
| 6.67 | 11.16 | ||||||||
2014 Adjusted Earnings per |
| $4.10 (10.2% increase) | (1)
|
| $3.98 (7.0% increase) | (1)
| 6.66 | 3.10 | ||||||||
2015 Adjusted Earnings per |
| $4.34 (9.0% increase) |
|
| $4.12 (3.5% increase) |
| 6.67 | 4.03 | ||||||||
Total | 100.00 | 42.04 | ||||||||||||||
| (1) |
|
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|
| (2) |
| (3) | Adjusted earnings per share-diluted |
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At the conclusion of eachthree-year and annual performance period, the Compensation Committee reviews the level of performance achieved and the percentage, if any, of the applicable portion of the target number of PSUs earned. In determining the final performance cycle score, negative adjustments may be made by the Compensation Committee to the Company’s performance score to take into account extraordinary or unusual items occurring during the period. No adjustments were made in determining the 216.22%42.04% performance score or the number of PSUs earned by our named executive officersNEOs for the2011-2013 2013-2015 performance cycle described above.cycle.
The performance objectivesmetrics and weightings for the2012-2014 2014-2016 and2013-2015 2015-2017 performance cycles were based uponare the following metrics:
|
Three-year compound annual growth insame as the 2013-2015 performance cycle. Actual Company results of $4.12 for the 2015 adjustedearnings per share-diluted measured against an internal target consistent with ourlong-term financial goal of 8% to 10% annual growth;
Annual (as opposed tothree-year) growth in adjustedearnings per share-diluted measured against an internal target for each year of thethree-year performance cycle with target performance consistent with our growth expectations at the start of the year; and
Organic net sales growth outside the United States and Canada, measured against an internal target.
The relative weighting of the performance metrics for the2012-2014 and2013-2015 performance cycles is set forth in the table below.
| ||
| ||
| ||
|
| |
| ||
|
The Committee introduced a target for organic net sales growth outside of the United States and Canada as a performance metric for the 2012-2014 performance cycle, and continued it in the2013-2015 performance cycle, in recognition of our strategic initiatives emphasizing the contributions that international sales growth can make to our long-term success.
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The actual Company results for 2013 of $3.72 of adjustedearnings per share-diluted reflected a 14.8%3.5% increase from 2012 and exceeded2014 but did not meet the 20132015 target of $3.61.$4.34. As a result, 11.16%4.03% of the final award was earned for this metric in the2012-2014 2014-2016 and2013-2015 2015-2017 performance cycles. These PSUs will be paid at the end of each of the applicablethree-year performance cycles to participating executives who are entitled to payouts under the terms of the program.
See Column (e) of the 2015 Summary Compensation Table on page 64,61, Columns (f) through (h) of the 2015 Grants ofPlan-Based Awards tableTable on page 69,64, Columns (i) and (j) of the Outstanding Equity Awards tableat 2015 Fiscal-Year End Table on page 7166 and Columns (d) and (e) of the 2015 Option Exercises and Stock Vested tableTable on page 7368 for more information about PSUs awarded to the named executive officers.NEOs.
How are stock options used within the Company’slong-term incentive program? What process is followed in the granting of stock options?Stock Options
Stock options are an important element of our long-term incentive program, enabling us to align the interests of executive officersNEOs with those of stockholders. In general, stock options are awarded annually to the Company’s senior executive groupexecutives as well as to other key managerial employees. Stock options entitle the holder to purchase a fixed number of shares of Common Stock at a set price during a specified period of time. The right to exercise the options is subject to a vesting schedule. Because stock options vest over time and only have value if the price of our Common Stock increases, they encourage efforts to enhancelong-term stockholder value.
The Compensation Committee sets guidelines for the value of stock options to be awarded based on competitive compensation data. The stock option award represents approximately one-half of the NEO’s long-term incentive compensation target award. In 2013,2015, the target number of stock options awarded to each executive officerNEO was determined by multiplying the executive officer’sNEO’s base salary by one-half of his or her target long-term incentive award percentage divided by the Black-Scholes value of each option on the grant date. The Black-Scholes option-pricing model is described in Note 1710 to the Consolidated Financial Statements contained in the 20132015 Annual Report to Stockholderson Form 10-K that accompanies this proxy statement.Proxy Statement. The actual number of options awarded may vary from the target level based on an executive officer’seach NEO’s individual performance evaluation.
Stock options awarded in 2013 vest in equal increments over four years and have aten-year 10-year term. As required by the stockholder-approved Incentive Plan,EICP, the options have an exercise price equal to the closing market price of the Common Stock on the NYSE on the date of the award.
See Column (f) of the 2015 Summary Compensation Table, Columns (j) through (l) of the 2015 Grants of Plan-Based Awards Table, Columns (b) through (f) of the Outstanding Equity Awards at 2015 Fiscal-Year End Table and Columns (b) and (c) of the 2015 Option Exercises and Stock Vested Table for more information on stock options awarded to the NEOs.
Restricted Stock Units
The Compensation Committee awards Restricted Stock Units (“RSUs”) to NEOs and other executives from time to time as special incentives. RSUs also are awarded by the Compensation Committee to
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replace compensation forfeited by newly-hired executive officers and by the CEO to employees other than executive officers from the RSU pool described below. In 2015, the Compensation Committee granted an RSU award to Ms. Little to replace compensation forfeited as a result of her leaving her previous employer. See Column (e) of the 2015 Summary Compensation Table and Column (i) of the 2015 Grants of Plan-Based Awards Table for more information on RSUs awarded to the NEOs.
Equity Pools
To ensure flexibility in providing awards for recruitment, retention, performance recognition or in conjunction with a promotion, the Compensation Committee is authorized under the Incentive PlanEICP to establish a stock option pool, ana PSU pool, a RSU pool and a separate CEO discretionary equity pool for use by our CEO for such purposes. The pools are available for approximately 12 months from the date created. The Compensation Committee determines whether to establish any or all of these three pools annually. Options, PSUs and RSUs remaining in any pool at the end of the period do not carry over to pools established for a subsequent period. The CEO may not make discretionary awards from any pool to the Company’s executive officers. Stock option and RSU awardsNEOs. Awards from the CEO pools as well as awards fromand the CEO discretionary equity pool are made monthly according to an annuallypre-determined schedule. The exercise price for the options is based on the closing price of our Common Stock on the date of the award.
See Column (f) of the Summary Compensation Table, Columns (j) through (l) of the Grants ofPlan-Based Awards table, Columns (b) through (f) of the Outstanding Equity Awards table and Columns (b) and (c) of the Option Exercises and Stock Vested table for more information on stock options awarded to the named executive officers.
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How are RSUs used within thelong-term incentive program?Perquisites
The Committee awards RSUs to executive officers and other senior executives from time to time as special incentives. RSUs also are awarded by the Committee to replace compensation forfeited bynewly-hired executive officers and by the CEO to employees other than executive officers from the RSU pool described previously. In 2013, the Committee did not make any RSU awards to any of the named executive officers.
What retirement benefits are provided to the executive officers?
Based on their date of hire, executive officers participate in the same defined benefit pension and defined contribution 401(k) plans as do other salaried employees of the Company. IRC regulations do not permit the Company to use base salary and other compensation paid above certain limits to determine the benefits earned by the executive officers undertax-qualified plans. The Company maintains a defined benefit Supplemental Executive Retirement Plan, or DB SERP, a defined contribution Supplemental Executive Retirement Plan, or DC SERP, a defined benefit Compensation Limit Replacement Plan, or CLRP, and a Deferred Compensation Plan to provide these and additional benefits that are comparable to those offered by our competitors. Under the provisions of the Deferred Compensation Plan, our named executive officers may elect to defer payments from the DB SERP, DC SERP, CLRP, the OHIP, and PSU and RSU awards, but not stock options.
The DB SERP was closed to new participants in 2006. No new participants have been or will be added to the DB SERP. Executive officers and Senior Vice Presidents reporting to the CEO not eligible for the DB SERP are considered by the Committee for participation in the DC SERP. In comparison, the DC SERP typically yields a lower benefit than the DB SERP upon retirement. Executive officers eligible for the Company’s qualified defined benefit pension plan who are not eligible for the DB SERP participate in the CLRP. The Company believes that the DB SERP, DC SERP, CLRP and Deferred Compensation Plan help, in the aggregate, to attract and retain executive talent, as similar plans are often components of the executive compensation programs within our Compensation Peer Group. The DC SERP was established as part of our Deferred Compensation Plan and is not a separate plan.
See the Pension Benefits table and accompanying narrative beginning on page 74 and theNon-Qualified Deferred Compensation table and accompanying narrative beginning on page 76 for more information regarding the DB SERP, DC SERP, CLRP and other retirement benefits.
What role do executive perquisites play in the total compensation package for the executive officers?
Executive perquisites are kept by the Committee to a minimal level relative to an executive officer’sa NEO’s total compensation and do not play a significant role in our executive compensation program. The perquisites that we do provide, including personal use of Company aircraft, security services for our CEO, and financial counseling and tax counseling,preparation reimbursement, are of the type that we believe promote the efficiency, effectiveness and focus of our executive officersNEOs in the performance of their duties. See the footnotes to Column (i) of the 2015 Summary Compensation Table for information regarding the perquisites received by our named executive officers.NEOs.
Our CEO and the other named executive officersNEOs are eligible to participate in our Gift Matching Program on the same basis as other employees, retirees or their spouses. Through the Gift Matching Program, we match contributions made to one or more accredited colleges or
60
universitiesnon-profit organizations on adollar-for-dollar basis up to a maximum aggregate contribution of $5,000 per employee annually. These matching contributions are not considered compensation and are not included in Column (i) of the 2015 Summary Compensation Table.
NEOs participate in our tax-qualified defined benefit pension plan (“pension plan”) and tax-qualified defined contribution 401(k) plan (“401(k) plan”) on the same basis as other salaried employees of the Company. Internal Revenue Code (“IRC”) regulations do not permit the Company implementedto use base salary and other compensation paid above certain limits to determine the benefits earned by the NEOs under tax-qualified plans. The Company maintains a defined benefit Supplemental Executive Retirement Plan (“DB SERP”), a defined contribution Supplemental Executive Retirement Plan (“DC SERP”) and a Deferred Compensation Plan to provide these and additional benefits that are comparable to those offered by our peers. Under the provisions designedof the Deferred Compensation Plan, our NEOs may elect to protectdefer payments from the DB SERP, DC SERP, OHIP, PSU and RSU awards, but not stock options or base salary.
The DB SERP was closed to new participants in 2006. No new participants have been or will be added to the DB SERP. NEOs and other senior executives reporting to the CEO not eligible for the DB SERP are considered by the Compensation Committee for participation in the DC SERP. In comparison, the DC SERP typically yields a lower benefit than the DB SERP upon retirement. The Company believes that the DB SERP, DC SERP and Deferred Compensation Plan help, in the aggregate, to attract and
56
retain executive talent, as similar plans are often components of the executive compensation programs within our Peer Group. The DC SERP was established as part of our Deferred Compensation Plan and is not a separate plan.
See the 2015 Pension Benefits Table and accompanying narrative beginning on page 68 and the 2015 Non-Qualified Deferred Compensation Table and accompanying narrative beginning on page 70 for more information regarding the DB SERP, DC SERP and other retirement benefits.
We have not entered into employment agreements with any NEO, except for Mr. Bilbrey.
The Company entered into an employment agreement with Mr. Bilbrey in August 2012, which provides for Mr. Bilbrey’s continued employment as President and CEO and as a member of the Board of Directors. In November 2015, the Company and Mr. Bilbrey entered into an amendment to this employment agreement to reflect revisions to Mr. Bilbrey’s compensation and other benefits as a result of his election as Chairman of the Board. The employment agreement does not have a specified term. In the event Mr. Bilbrey’s employment is terminated by the Company without Cause or he resigns for Good Reason (in each case as defined in the employment agreement), Mr. Bilbrey will be entitled to certain severance benefits. In the event of his termination after a change in control, Mr. Bilbrey will be eligible to receive benefits under the Executive Benefits Protection Plan (Group 3A) (“EBPP 3A”). He is not entitled to an excise tax gross-up. The employment agreement subjects Mr. Bilbrey to certain non-competition and non-solicitation covenants under the ECRCA and to compensation recovery (clawback) to the extent required by applicable law and regulations.
See the discussion beginning on page 72 for information regarding the payments Mr. Bilbrey would receive in the event of termination or a change in control.
Severance and Change in Control Plans
Mr. McConville is covered by our Executive Benefits Protection Plan (Group 3) (“EBPP 3”), while all other NEOs are covered by our EBPP 3A. The EBPP 3A and EBPP 3 are intended to help us attract and retain executive talent and maintain a stable work environment in the event of activity that could potentially result in a Change in Control. The severance protection provided under the EBPP 3A and the EBPP 3 upon a Change in Control is based upon a “double trigger.” The terms of the plans generally provide that a covered NEO whose employment with the Company terminates in qualifying circumstances within two years after a Change in Control of the Company is entitled to certain severance payments and benefits. The EBPP 3A and EBPP 3 also provide severance benefits in the event of involuntary termination without Cause unrelated to a Change in Control or voluntary termination for Good Reason within two years after election of a new CEO. Change in Control, Cause and Good Reason are defined in the EBPP 3A and EBPP 3, as applicable.
See the discussion beginning on page 72 for information regarding the payments that would be due to our NEOs under the EBPP 3A and EBPP 3 in the event of an applicable termination of employment or a Change in Control.
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Compensation Policies and Practices
Clawbacks
Under the EICP, when an individual’s actions result in the filing of financial documents not in compliance with financial reporting requirements, the Company has the right to recoup or require repayment of an award earned or accrued during the twelve-month period following the first public issuance or filing with the SEC of the financial document not in compliance with such as conditioning compensation on restrictive covenants?financial reporting requirement. Repayment or clawback occurs where the material noncompliance results from misconduct, the participant’s knowledge or gross negligence in engaging in the misconduct or failing to prevent the misconduct, or if the participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Action of 2002.
In 2008, the Company initiated a program forthe execution of the ECRCA by executive officers conditioningas a condition for the receivingreceipt of PSUs and otherlong-term incentive awards and, for new executive officers, also as a condition of their employment, onemployment. The purpose of the execution of an agreement designedECRCA is to protect the Company with certain restrictive covenants. In 2013,and further align the Company expanded the program to include certain employees along with executive officers. As is the case withinterests of the executive officers, these employees are required to enter into the Employee Confidentiality and Restrictive Covenant Agreement, or ECRCA, as a conditionofficer with those of the receipt of long-term incentive awards, and, for new employees, also as a condition of employment.
Company. The terms of the ECRCA prohibit the executive officer or employee from misusing or disclosing the Company’s confidential information, competing with the Company in specific categories for a period of 12 months following separation from employment, recruiting or soliciting the Company’s employees, or disparaging the Company’s reputation in any way. For those officers or employees based outside the U.S., the restrictive covenants and terms may be modified to comply with local laws.
Failure to comply with the provisions of the ECRCA may result in cancellation of the unvested portion of PSU and RSU awards, cancellation of any unexercised stock options and a requirement for repayment of amounts received from equity awards during the last year of employment, as well as any amounts received from the DB SERP or DC SERP.
HasTax Considerations
The anticipated cost of the various components of executive compensation is also a factor in the Compensation Committee’s deliberations. Section 162(m) of the IRC may limit the Company’s ability to deduct certain compensation in excess of $1 million paid to our CEO or to our other NEOs who are employed on the last day of the fiscal year (other than officers who served as CFO during the year). This limitation does not apply to compensation that qualifies as “performance-based” under applicable Internal Revenue Service (“IRS”) regulations or that is paid after termination of employment. The Compensation Committee has considered the effect of Section 162(m) of the IRC on the Company’s executive compensation program. The Compensation Committee exercises discretion in setting base salaries, structuring incentive compensation awards and in determining payments in relation to levels of achievement of performance goals. The Compensation Committee believes that the total compensation program for NEOs should be managed in accordance with the objectives outlined in the Company’s compensation philosophy and in the best overall interests of the Company’s stockholders. Accordingly, compensation paid by the Company entered into any employment agreements withmay not be deductible because such compensation exceeds the limitations, or does not meet the Company provide severance“performance-based” or Change in Control plansother requirements, for its executive officers?
We have not entered into employment agreements with any named executive officer, except for Mr. Bilbrey, our CEO.
During 2012, we entered into an employment agreement with Mr. Bilbrey. The Committee and independent membersdeductibility under Section 162(m) of the Board determined that doing so was appropriate since we had entered into an employment agreement with Mr. Bilbrey’s predecessor and believed we would have been required to enter into an employment agreement with any individual recruited to become our CEO from another company. Mr. Bilbrey’s employment agreement does not include a golden parachute excise tax gross-up feature.IRC.
AllSection 409A of the named executive officers participateIRC specifies certain rules and limitations regarding the operation of our Deferred Compensation Plan and other retirement programs. Failure to comply with these rules could subject participants in those plans and programs to additional income tax and interest penalties. We believe our Executive Benefits Protection Plan (Group 3A), or EBPP 3A. The EBPP 3A is intended to help us attractplans and retain qualified management employees and maintain a stable work environment in the event of activity that could potentially result in a Change in Control. The severance protection provided under EBPP 3A upon a Change in Control is a “double trigger.” The termsprograms comply with Section 409A of the plan generally provide that a covered executive officer whose employment with the Company terminates in qualifying circumstances within two years after a Change in Control of the Company is entitled to certain severance payments and benefits. The EBPP 3A also provides severance benefits in the event of involuntary termination without Cause unrelated to a Change in Control or voluntary termination for Good Reason within two years after election of a new CEO. Cause and Good Reason are defined in the EBPP 3A. The EBPP 3A does not include a golden parachute excise taxgross-up feature.IRC.
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See the discussion beginning on page 78 for information regarding the EBPP 3A and payments that would be due to our named executive officers under that plan in the event of an applicable termination of employment or a Change in Control, as defined in the EBPP 3A.Stock Ownership Guidelines
Do we require our executive officers to hold Company stock?
The CompanyCompensation Committee believes that requiring NEOs and other executive officers to hold significant amounts of our Common Stock strengthens thetheir alignment of the executive officers with the interest of our stockholders and promotes achievement oflong-term business objectives. Our executive stock ownership policy has been in place for more than 20 years. OwnershipThe Compensation Committee reviews ownership requirements annually to ensure they are reviewed annually by Mercer and were updated in 2008 to better alignaligned with external market comparisons provided by Mercer.comparisons.
Executives with stock ownership requirements have five years from their initial election to their position to accumulate and hold the minimum number of shares required. For purposes of this requirement, “shares” include shares of our Common Stock that are owned by the executive, unvestedtime-based RSUs, PSUs earned for the annual segments of open performance cycles as well asand vested RSUs and PSUs that have been deferred by the executive as common stockCommon Stock units under our Deferred Compensation Plan. It is anticipated that executives will hold a significant number of the shares earned from PSU and RSU awards and the exercise of stock options to satisfy their obligations. Currently, minimumMinimum stockholding requirements for executive officersthe CEO and the other executives range from one to five times base salary,NEOs are as described in the table below. The dollar value of shares which must be acquired and held equals a multiple of the individual executive’s base salary. Stock holding requirements are updated whenever a change in base salary occurs.follows:
Position | Stock Ownership Level | |
CEO | 5 times base salary | |
| ||
CFO and | 3 times base salary | |
Other executives subject to stockholding requirements | 1 times base salary |
The dollar value of shares which must be acquired and held equals a multiple of the individual executive’s base salary. Stockholding requirements are updated whenever a change in base salary occurs. Failure to reach the minimum within thefive-year period results in a notification letter to the executive, with a copy to the CEO, and a requirement that future stock option exercises and PSU payments be settled by retaining at least 50% of the shares of Common Stock received until the minimum ownership level is attained. The Compensation Committee receives an annual summary of each individual executive’s ownership status to monitor compliance.
As of February 28, 2014, the record date for the annual meeting, all of the named executive officers exceeded their ownership requirements.
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Compensation Committee ReportCOMPENSATION COMMITTEE REPORT
To Our Stockholders:
We have reviewed and discussed with management the Compensation Discussion and& Analysis, beginning on page 44.42. Based on that review and discussion, we have recommended to the Board of Directors that the Compensation Discussion and& Analysis be included in this proxy statement.Proxy Statement.
Submitted by the Compensation and Executive Organization Committee of the Board of Directors:
Robert F. Cavanaugh,James M. Mead, Chair
Mary Kay Haben*Haben
Robert M. Malcolm
Anthony J. Palmer
David L. Shedlarz
The independent members of the Board of Directors who are not members of the Compensation and Executive Organization Committee join in the Compensation Committee Report with respect to the approval of Mr. Bilbrey’s compensation.
Pamela M. Arway
Robert F. Cavanaugh
Charles A. Davis
James M. Mead
James E. Nevels
Thomas J. Ridge
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2015 Summary Compensation Table
The following table and accompanyingexplanatory footnotes provide information regarding compensation earned by, held by, or paid to, individuals holding the positions of Chief (Principal) Executive Officer and Chief (Principal) Financial Officer during 20132015 and the three most highly compensated of our other executive officers. We refer to these executive officers, aswhich collectively comprise our named executive officers.NEOs. The following table provides information with respect to 2013,2015, as well as 20122014 and 20112013 compensation where required. Since2014 and 2013 information is not provided for Ms. Little and Mr. TackaMcConville because they were not NEOs in those years, and 2014 information is not provided for Ms. Turner because she was not a named executive officerNEO in the Company’s 2012 or 2011 proxy statement, the information on Mr. Tacka’s 2012 and 2011 compensation is not required to be included in the table. Ms. Turner joined the Company during 2012; therefore, no compensation is reported for her for 2011.
Summary Compensation Table2014.
| Name and Principal Position | Year | Salary(1) ($) | Bonus(2) ($) | Stock Awards(3) ($) | Option Awards(4) ($) | Non- Equity Incentive Plan Compen- sation(5) ($) | Change in Non-Qualified | All Other Compen- sation(7) ($) | Total ($) | |||||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
J. P. Bilbrey | 2013 | 1,129,327 | — | 3,572,564 | 3,037,501 | 2,526,686 | 3,299,185 | 260,423 | 13,825,686 | |||||||||||||||||||||||||||
President and | 2012 | 1,095,999 | — | 2,817,355 | 2,183,606 | 2,187,876 | 3,839,163 | 165,651 | 12,289,650 | |||||||||||||||||||||||||||
CEO | 2011 | 945,538 | — | 3,760,073 | 1,742,167 | 1,541,698 | 2,455,275 | 182,122 | 10,626,873 | |||||||||||||||||||||||||||
D. W. Tacka | 2013 | 454,235 | — | 518,886 | 375,083 | 439,178 | — | 40,607 | 1,827,989 | |||||||||||||||||||||||||||
Senior Vice | ||||||||||||||||||||||||||||||||||||
President, Chief | ||||||||||||||||||||||||||||||||||||
Financial | ||||||||||||||||||||||||||||||||||||
Officer(8) | ||||||||||||||||||||||||||||||||||||
H. P. Alfonso | 2013 | 622,385 | — | 941,184 | 651,063 | 762,666 | 37,747 | 233,294 | 3,248,339 | |||||||||||||||||||||||||||
President, | 2012 | 602,308 | — | 798,084 | 630,010 | 664,843 | 51,897 | 204,310 | 2,951,452 | |||||||||||||||||||||||||||
International, | 2011 | 544,021 | — | 716,683 | 504,017 | 557,340 | 44,517 | 216,134 | 2,582,712 | |||||||||||||||||||||||||||
previously | ||||||||||||||||||||||||||||||||||||
Chief Financial | ||||||||||||||||||||||||||||||||||||
Officer(8) | ||||||||||||||||||||||||||||||||||||
M. G. Buck | 2013 | 537,359 | — | 723,678 | 610,254 | 658,414 | 195,971 | 65,615 | 2,791,291 | |||||||||||||||||||||||||||
President, North | 2012 | 506,942 | — | 591,344 | 575,728 | 559,577 | 762,787 | 51,878 | 3,048,256 | |||||||||||||||||||||||||||
America | 2011 | 466,552 | — | 488,220 | 412,676 | 420,125 | 729,351 | 55,752 | 2,572,676 | |||||||||||||||||||||||||||
T. L. O’Day | 2013 | 543,081 | — | 679,791 | 551,853 | 545,957 | — | 222,152 | 2,542,834 | |||||||||||||||||||||||||||
Senior Vice | 2012 | 516,981 | — | 574,359 | 525,342 | 523,860 | — | 205,849 | 2,346,391 | |||||||||||||||||||||||||||
President, Chief | 2011 | 491,400 | — | 579,423 | 501,231 | 468,247 | — | 222,709 | 2,263,010 | |||||||||||||||||||||||||||
Supply Chain | ||||||||||||||||||||||||||||||||||||
Officer | ||||||||||||||||||||||||||||||||||||
L. M. Turner | 2013 | 491,885 | — | 465,978 | 367,566 | 456,483 | — | 238,855 | 2,020,767 | |||||||||||||||||||||||||||
Senior Vice | 2012 | 230,192 | 150,000 | 2,415,066 | 332,538 | 188,049 | — | 80,407 | 3,396,252 | |||||||||||||||||||||||||||
President, | ||||||||||||||||||||||||||||||||||||
General Counsel and Secretary | ||||||||||||||||||||||||||||||||||||
Name and
| Year
| Salary(1)
| Bonus(2)
| Stock
| Option
| Non-
| Change in
| All
| Total
| |||||||||||||||||||||||||||
(a)
| (b)
| (c)
| (d)
| (e)
| (f)
| (g)
| (h)
| (i)
| (j)
| |||||||||||||||||||||||||||
Mr. Bilbrey | 2015 | 1,204,616 | — | 3,146,305 | 2,844,073 | 1,005,930 | 2,438,084 | 170,991 | 10,809,999 | |||||||||||||||||||||||||||
Chairman of the Board, | 2014 | 1,164,462 | — | 3,947,534 | 4,123,889 | 1,018,395 | 7,293,845 | 229,276 | 17,777,401 | |||||||||||||||||||||||||||
| 2013 | 1,129,327 | — | 3,572,564 | 3,037,501 | 2,526,686 | 3,299,185 | 260,423 | 13,825,686 | ||||||||||||||||||||||||||||
Ms. Little | 2015 | 482,308 | — | 2,172,076 | 510,003 | 288,805 | — | 246,579 | 3,699,771 | |||||||||||||||||||||||||||
Senior Vice President, CFO | ||||||||||||||||||||||||||||||||||||
Ms. Buck | 2015 | 655,310 | — | 746,418 | 685,505 | 403,015 | 587,394 | 73,220 | 3,150,862 | |||||||||||||||||||||||||||
President, North America | 2014 | 642,461 | — | 944,845 | 1,008,038 | 307,046 | 1,312,980 | 69,596 | 4,284,966 | |||||||||||||||||||||||||||
| 2013 | 537,359 | — | 723,678 | 610,254 | 658,414 | 195,971 | 65,615 | 2,791,291 | ||||||||||||||||||||||||||||
Mr. O’Day | 2015 | 572,845 | — | 538,594 | 485,067 | 269,435 | — | 168,052 | 2,033,993 | |||||||||||||||||||||||||||
Senior Vice President, | 2014 | 567,172 | — | 695,571 | 576,407 | 222,292 | — | 231,604 | 2,293,046 | |||||||||||||||||||||||||||
Chief Supply Chain Officer | 2013 | 543,081 | — | 679,791 | 551,853 | 545,957 | — | 222,152 | 2,542,834 | |||||||||||||||||||||||||||
Ms. Turner | 2015 | 602,308 | — | 550,394 | 765,062 | 341,376 | — | 196,234 | 2,455,374 | |||||||||||||||||||||||||||
Senior Vice President, | 2013 | 491,885 | — | 465,978 | 367,566 | 456,483 | — | 238,855 | 2,020,767 | |||||||||||||||||||||||||||
Mr. McConville | 2015 | 317,621 | — | 139,815 | 151,970 | 93,434 | — | 37,071 | 739,911 | |||||||||||||||||||||||||||
Vice President, Chief | ||||||||||||||||||||||||||||||||||||
| (1) | Column (c) reflects |
| (2) |
64
| (3) | Column (e) shows the aggregate grant date fair value of contingent target PSU awards granted to the |
| For 2015, the amount |
61
| The number |
| Name | Year | Maximum Value at Grant Date ($) | ||||
J. P. Bilbrey | 2013 | 7,736,858 | ||||
| 2012 | 6,560,267 | |||||
| 2011 | 7,377,919 | |||||
D. W. Tacka | 2013 | 1,113,915 | ||||
H. P. Alfonso | 2013 | 2,044,942 | ||||
| 2012 | 1,855,291 | |||||
| 2011 | 1,468,555 | |||||
M. G. Buck | 2013 | 1,568,234 | ||||
| 2012 | 1,372,127 | |||||
| 2011 | 1,000,119 | |||||
T. L. O’Day | 2013 | 1,481,029 | ||||
| 2012 | 1,338,904 | |||||
| 2011 | 1,181,117 | |||||
L. M. Turner | 2013 | 991,177 | ||||
| 2012 | 878,697 | |||||
Name
| Year
|
Maximum Value at ($)
| ||||||
Mr. Bilbrey | 2015 | 7,308,849 | ||||||
| 2014 | 7,858,523 | |||||||
| 2013 | 7,736,858 | |||||||
Ms. Little | 2015 | 1,105,137 | ||||||
Ms. Buck | 2015 | 1,732,476 | ||||||
| 2014 | 1,872,631 | |||||||
| 2013 | 1,568,234 | |||||||
Mr. O’Day | 2015 | 1,251,856 | ||||||
| 2014 | 1,389,453 | |||||||
| 2013 | 1,481,029 | |||||||
Ms. Turner | 2015 | 1,276,533 | ||||||
| 2013 | 991,177 | |||||||
Mr. McConville | 2015 | 324,932 | ||||||
| For Ms. |
| (4) | Column (f) presents the grant date fair value of stock options awarded to the |
| (5) |
| (6) | Column (h) reflects the aggregate change in the actuarial present value of the |
65
| The |
62
| (7) | All other compensation includes |
| Name | Year | Amount ($) | Description | |||||||
J. P. Bilbrey | 2013 | 137,599 | Supplemental 401(k) Match | |||||||
| 51,693 | Security services (See footnote 10) | |||||||||
| 49,584 | Personal use of Company aircraft (See footnote 9) | |||||||||
| 11,475 | 401(k) Match | |||||||||
| 8,400 | Company-paid financial counseling | |||||||||
| 872 | Supplemental Retirement Contribution | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
| 2012 | 107,257 | Supplemental 401(k) Match | ||||||||
| 37,126 | Security services (See footnote 10) | |||||||||
| 11,250 | 401(k) Match | |||||||||
| 8,400 | Company-paid financial counseling | |||||||||
| 818 | Supplemental Retirement Contribution | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
| 2011 | 83,305 | Security services (See footnote 10) | ||||||||
| 76,218 | Supplemental 401(k) Match | |||||||||
| 11,025 | 401(k) Match | |||||||||
| 10,010 | Company-paid financial counseling | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
| 764 | Supplemental Retirement Contribution | |||||||||
D. W. Tacka | 2013 | 20,382 | Supplemental 401(k) Match | |||||||
| 11,475 | 401(k) Match | |||||||||
| 8,750 | Company-paid financial counseling | |||||||||
H. P. Alfonso | 2013 | 160,596 | DC SERP contribution | |||||||
| 46,339 | Supplemental 401(k) Match | |||||||||
| 14,084 | Company-paid financial counseling | |||||||||
| 11,475 | 401(k) Match | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
| 2012 | 144,667 | DC SERP contribution | ||||||||
| 40,830 | Supplemental 401(k) Match | |||||||||
| 11,250 | 401(k) Match | |||||||||
| 7,563 | Company-paid financial counseling | |||||||||
| 2011 | 150,758 | DC SERP contribution | ||||||||
| 43,248 | Supplemental 401(k) Match | |||||||||
| 11,025 | 401(k) Match | |||||||||
| 10,303 | Company-paid financial counseling | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
Retirement Income
| Perquisites and Other Benefits
| |||||||||||||||||||||||||||||||||||||||||||||||
Name
| Year
| 401(k) Match ($)
| Supple- ($)
| Supple- ment ($)
| DC bution ($)
| Core Retirement ($)
| Supple- Core Retirement ($)
| Personal ($)
| Security ($)
| Company- ($)
| Reimburse- ration ($)
| Relocation and Related ($)
| ||||||||||||||||||||||||||||||||||||
Mr. Bilbrey | 2015 | 11,925 | 87,882 | 980 | — | — | — | 52,825 | 7,479 | 8,400 | 1,500 | — | ||||||||||||||||||||||||||||||||||||
| 2014 | 11,700 | 154,189 | 926 | — | — | — | — | 52,561 | 8,400 | 1,500 | — | |||||||||||||||||||||||||||||||||||||
| 2013 | 11,475 | 137,599 | 872 | — | — | — | 49,584 | 51,693 | 8,400 | 800 | — | |||||||||||||||||||||||||||||||||||||
Ms. Little | 2015 | 11,925 | 9,363 | — | 59,135 | 7,950 | 6,242 | — | — | 12,379 | — | 139,585 | ||||||||||||||||||||||||||||||||||||
Ms. Buck | 2015 | 11,925 | 31,261 | 859 | — | — | — | 18,975 | — | 10,200 | — | — | ||||||||||||||||||||||||||||||||||||
| 2014 | 11,700 | 46,692 | 805 | — | — | — | — | — | 8,914 | 1,485 | — | |||||||||||||||||||||||||||||||||||||
| 2013 | 11,475 | 37,789 | 751 | — | — | — | 6,050 | — | 8,750 | 800 | — | |||||||||||||||||||||||||||||||||||||
Mr. O’Day | 2015 | 11,925 | 23,754 | — | 99,110 | 7,950 | 15,836 | — | — | 8,400 | 1,077 | — | ||||||||||||||||||||||||||||||||||||
| 2014 | 11,700 | 38,285 | — | 138,847 | 7,800 | 25,523 | — | — | 8,400 | 1,049 | — | |||||||||||||||||||||||||||||||||||||
| 2013 | 11,475 | 36,439 | — | 133,095 | 7,650 | 24,293 | — | — | 8,400 | 800 | — | |||||||||||||||||||||||||||||||||||||
Ms. Turner | 2015 | 11,925 | 28,515 | — | 112,334 | 7,950 | 19,010 | — | — | 15,000 | 1,500 | — | ||||||||||||||||||||||||||||||||||||
| 2013 | 11,475 | 19,035 | — | 84,749 | 7,650 | 12,690 | — | — | 7,500 | 800 | 94,956 | |||||||||||||||||||||||||||||||||||||
Mr. McConville | 2015 | 11,925 | — | — | — | 7,950 | 4,541 | — | — | 12,655 | — | — | ||||||||||||||||||||||||||||||||||||
66
| Name | Year | Amount ($) | Description | |||||||
M. G. Buck | 2013 | 37,789 | Supplemental 401(k) Match | |||||||
| 11,475 | 401(k) Match | |||||||||
| 8,750 | Company-paid financial counseling | |||||||||
| 6,050 | Personal use of Company aircraft (See footnote 9) | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
| 751 | Supplemental Retirement Contribution | |||||||||
| 2012 | 30,381 | Supplemental 401(k) Match | ||||||||
| 11,250 | 401(k) Match | |||||||||
| 8,750 | Company-paid financial counseling | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
| 697 | Supplemental Retirement Contribution | |||||||||
| 2011 | 32,339 | Supplemental 401(k) Match | ||||||||
| 11,025 | 401(k) Match | |||||||||
| 10,945 | Company-paid financial counseling | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
| 643 | Supplemental Retirement Contribution | |||||||||
T. L. O’Day | 2013 | 133,095 | DC SERP contribution | |||||||
| 36,439 | Supplemental 401(k) Match | |||||||||
| 24,293 | Supplemental Core Retirement Contribution (See footnote 11) | |||||||||
| 11,475 | 401(k) Match | |||||||||
| 8,400 | Company-paid financial counseling | |||||||||
| 7,650 | Core Retirement Contribution (See footnote 11) | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
| 2012 | 122,906 | DC SERP contribution | ||||||||
| 32,996 | Supplemental 401(k) Match | |||||||||
| 21,997 | Supplemental Core Retirement Contribution (See footnote 11) | |||||||||
| 11,250 | 401(k) Match | |||||||||
| 8,400 | Company-paid financial counseling | |||||||||
| 7,500 | Core Retirement Contribution (See footnote 11) | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
| 2011 | 132,162 | DC SERP contribution | ||||||||
| 36,553 | Supplemental 401(k) Match | |||||||||
| 24,369 | Supplemental Core Retirement Contribution (See footnote 11) | |||||||||
| 11,025 | 401(k) Match | |||||||||
| 10,825 | Company-paid financial counseling | |||||||||
| 7,350 | Core Retirement Contribution (See footnote 11) | |||||||||
| 425 | Reimbursement of personal tax return preparation fee | |||||||||
L. M. Turner | 2013 | 94,956 | Relocation expenses (See footnote 12) | |||||||
| 84,749 | DC SERP contribution | |||||||||
| 19,035 | Supplemental 401(k) Match | |||||||||
| 12,690 | Supplemental Core Retirement Contribution (See footnote 11) | |||||||||
| 11,475 | 401(k) Match | |||||||||
| 7,650 | Core Retirement Contribution (See footnote 11) | |||||||||
| 7,500 | Company-paid financial counseling | |||||||||
| 800 | Reimbursement of personal tax return preparation fee | |||||||||
| 2012 | 28,546 | DC SERP contribution | ||||||||
| 20,145 | Relocation expenses and related taxes (See footnote 12) | |||||||||
| 15,000 | Company-paid financial counseling | |||||||||
| 9,865 | 401(k) Match | |||||||||
| 6,851 | Core Retirement Contribution (See footnote 11) | |||||||||
| Employees who earn over the |
| (b) | As are all new hires of the Company since January 1, 2007, Mmes. Little and Turner and Messrs. O’Day and McConville are eligible to receive a contribution to their 401(k) plan account equal to 3% of base salary and OHIP up to the maximum amount permitted by the IRS. We call this contribution the Core Retirement Contribution (“CRC”). They also are eligible to receive a Supplemental Core Retirement Contribution (“Supplemental CRC”) equal to the amount by which the CRC exceeds the IRS limit. |
| (c) | The value of any personal use of Company aircraft by the |
67
| (d) | From time to time the Company provides security services for Mr. Bilbrey when the Company determines that conditions warrant such services for the safety and protection of Mr. Bilbrey and his family. |
| For 2015, Ms. Buck and Mr. |
| (f) | Ms. |
6863
2015 Grants ofPlan-Based Awards Table
The following table and explanatory footnotes provide information with regard to the potential cash award that might have been earnedeach NEO had the opportunity to earn during 20132015 under the OHIP, and with respectregard to each PSU,PSUs, RSUs and stock option and RSUoptions awarded to each named executive officerNEO during 2013.2015, as applicable. The amounts that were actually earned under the OHIP during 20132015 by the named executive officersNEOs are set forth in Column (g) of the 2015 Summary Compensation Table.
Grants ofPlan-Based Awards
2013
| Name | Grant Date(1) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(2) | Estimated Possible Equity Incentive Plan Awards(3) | All Other Stock Awards: Number of (#) | All Other Option Awards: Number of Securities Under- lying Options(5) (#) | Exercise or Base Price Awards(6) ($/Sh) | Grant Date Fair Value of Stock and Option Awards(7) ($) | |||||||||||||||||||||||||||||||||||||
Thres- hold ($) | Target ($) | Maximum ($) | Thres- hold (#) | Target (#) | Maxi- mum (#) | |||||||||||||||||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | |||||||||||||||||||||||||||||||||
J. P. Bilbrey | 02/19/2013 | 5,118 | 1,462,334 | 3,494,978 | — | — | — | — | 210,645 | 81.73 | 3,037,501 | |||||||||||||||||||||||||||||||||
| 03/01/2013 | — | — | — | 308 | 37,085 | 92,713 | — | — | — | 3,572,564 | ||||||||||||||||||||||||||||||||||
D. W. Tacka | 02/19/2013 | 1,013 | 289,343 | 691,530 | — | — | — | — | 14,040 | 81.73 | 202,457 | |||||||||||||||||||||||||||||||||
| 03/01/2013 | — | — | — | 26 | 3,153 | 7,883 | — | — | — | 301,672 | ||||||||||||||||||||||||||||||||||
| 05/13/2013 | — | — | — | 17 | 2,059 | 5,148 | — | — | — | 217,214 | ||||||||||||||||||||||||||||||||||
| 07/10/2013 | — | — | — | — | — | — | — | 9,585 | 90.71 | 172,626 | ||||||||||||||||||||||||||||||||||
H. P. Alfonso | 02/19/2013 | 1,627 | 464,942 | 1,111,212 | — | — | — | — | 45,150 | 81.73 | 651,063 | |||||||||||||||||||||||||||||||||
| 03/01/2013 | — | — | — | 81 | 9,802 | 24,505 | — | — | — | 941,184 | ||||||||||||||||||||||||||||||||||
M. G. Buck | 02/19/2013 | 1,405 | 401,388 | 959,316 | — | — | — | — | 42,320 | 81.73 | 610,254 | |||||||||||||||||||||||||||||||||
| 03/01/2013 | — | — | — | 62 | 7,517 | 18,793 | — | — | — | 723,678 | ||||||||||||||||||||||||||||||||||
T. L. O’Day | 02/19/2013 | 1,231 | 351,585 | 840,288 | — | — | — | — | 38,270 | 81.73 | 551,853 | |||||||||||||||||||||||||||||||||
| 03/01/2013 | — | — | — | 59 | 7,099 | 17,748 | — | — | — | 679,791 | ||||||||||||||||||||||||||||||||||
L. M. Turner | 02/19/2013 | 1,029 | 293,965 | 702,577 | — | — | — | — | 25,490 | 81.73 | 367,566 | |||||||||||||||||||||||||||||||||
| 03/01/2013 | — | — | — | 39 | 4,751 | 11,878 | — | — | — | 465,978 | ||||||||||||||||||||||||||||||||||
Name
| Grant Date(1)
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(2)
| Estimated Possible Payouts Under Equity Incentive Plan Awards(3)
| All Other Stock Awards: Number of (#)
| All Other Option Awards: Number of Securities Under- lying Options(5) (#)
| Exercise or Base Price Awards(6) ($/Sh)
| Grant Date Fair Value of Stock and Option Awards(7) ($)
| |||||||||||||||||||||||||||||||||||||
Thresh- old ($)
| Target ($)
| Maximum ($)
| Thresh- old (#)
| Target (#)
| Maxi- mum (#)
| |||||||||||||||||||||||||||||||||||||||
(a)
| (b)
| (c)
| (d)
| (e)
| (f)
| (g)
| (h)
| (i)
| (j)
| (k)
| (l)
| |||||||||||||||||||||||||||||||||
Mr. Bilbrey | 02/17/2015 | 6,188 | 1,767,969 | 3,535,938 | 105 | 27,604 | 69,010 | — | 147,285 | 105.91 | 5,990,378 | |||||||||||||||||||||||||||||||||
Ms. Little | 04/15/2015 | 1,242 | 354,808 | 709,616 | 17 | 4,392 | 10,980 | 16,543 | 28,830 | 100.65 | 2,682,079 | |||||||||||||||||||||||||||||||||
Ms. Buck | 02/17/2015 | 1,942 | 554,754 | 1,109,508 | 25 | 6,543 | 16,358 | — | 35,500 | 105.91 | 1,431,923 | |||||||||||||||||||||||||||||||||
Mr. O’Day | 02/17/2015 | 1,298 | 370,880 | 741,760 | 18 | 4,728 | 11,820 | — | 25,120 | 105.91 | 1,023,661 | |||||||||||||||||||||||||||||||||
Ms. Turner | 02/17/2015 | 1,468 | 419,394 | 838,788 | 18 | 4,821 | 12,053 | — | 39,620 | 105.91 | 1,315,456 | |||||||||||||||||||||||||||||||||
Mr. McConville | 02/17/2015 | 498 | 142,326 | 284,652 | 5 | 1,227 | 3,068 | — | 7,870 | 105.91 | 291,785 | |||||||||||||||||||||||||||||||||
| (1) |
| (2) |
| The threshold amount is the amount that would have been payable had the minimum individual performance score been |
| (3) |
| Each PSU represents the value of one share of our Common Stock. The number of PSUs earned for the |
Three-year relative TSR versus the Financial Peer Group (50% of the target award);
Organic net sales growth outside the U.S. and Canada (15% of the target award);
Three-year compound annual growth in adjustedearnings per share-diluted measured against an internal target (15% of the target award); and
|
69
| Payment, if any, will be made in shares of the Company’s Common Stock at the conclusion of thethree-year performance cycle. The Compensation Committee will approve the targets for the annual adjustedearnings per share-diluted metrics at the beginning of each of the three years in the performance cycle. The minimum award as shown in Column (f) is the number of shares payable for achievement of the threshold level of performance on one of the metrics and the maximum award as shown in Column (h) is the number of shares payable for achievement of the maximum level of performance on all metrics. |
| More information regarding PSUs and the |
| (4) |
| (5) |
64
| (6) |
| (7) | Column (l) presents the aggregate grant date fair value of the target number of PSUs reported in Column (g), the |
7065
Outstanding Equity Awards at 2015 Fiscal-Year End Table
The following table providesand explanatory footnotes provide information regarding unexercised stock options and unvested stock awards held by our named executive officersNEOs as of December 31, 2013. All values in the table are based on a market value for our Common Stock of $97.23, the closing price of our Common Stock on December 31, 2013, the last trading day of 2013, as reported by the NYSE.
Outstanding Equity Awards
As of December 31, 20132015:
| Option Awards(1) | Stock Awards | |||||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options(2) (#) Exercisable | Number of (#) | Equity Unexercised (#) | Option ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested(4) (#) | Market Value of Shares or Units of Stock That Have Not Vested(5) ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(6) (#) | Equity or Payout That Have Not ($) | |||||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
J. P. Bilbrey | — | 210,645 | — | 81.73 | 02/18/2023 | — | — | 86,750 | 8,434,703 | |||||||||||||||||||||||||||
| 51,842 | 155,528 | — | 60.68 | 02/20/2022 | — | — | 91,500 | 8,896,545 | ||||||||||||||||||||||||||||
| 35,637 | 35,638 | — | 55.48 | 05/17/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| 50,655 | 50,655 | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| 316 | 26,317 | — | 39.26 | 02/22/2020 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 138,450 | 478,783 | — | — | — | — | — | 178,250 | 17,331,248 | |||||||||||||||||||||||||||
D. W. Tacka | — | 9,585 | — | 90.71 | 07/09/2023 | — | — | 12,938 | 1,257,913 | |||||||||||||||||||||||||||
| — | 14,040 | — | 81.73 | 02/18/2023 | — | — | 8,250 | 802,148 | ||||||||||||||||||||||||||||
| 4,667 | 14,003 | — | 60.68 | 02/20/2022 | — | — | — | — | ||||||||||||||||||||||||||||
| 9,590 | 9,590 | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| 8,126 | 8,127 | — | 39.26 | 02/22/2020 | — | — | — | — | ||||||||||||||||||||||||||||
| 8,388 | — | — | 34.89 | 02/16/2019 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 30,771 | 55,345 | — | — | — | — | — | 21,188 | 2,060,061 | |||||||||||||||||||||||||||
H. P. Alfonso | — | 45,150 | — | 81.73 | 02/18/2023 | — | — | 22,375 | 2,175,521 | |||||||||||||||||||||||||||
| 14,957 | 44,873 | — | 60.68 | 02/20/2022 | — | — | 26,500 | 2,576,595 | ||||||||||||||||||||||||||||
| 25,327 | 25,328 | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| 53,647 | 17,883 | — | 39.26 | 02/22/2020 | — | — | — | — | ||||||||||||||||||||||||||||
| 89,455 | — | — | 34.89 | 02/16/2019 | — | — | — | — | ||||||||||||||||||||||||||||
| 41,255 | — | — | 35.87 | 02/12/2018 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 224,641 | 133,234 | — | — | — | — | — | 48,875 | 4,752,116 | |||||||||||||||||||||||||||
M. G. Buck | — | 42,320 | — | 81.73 | 02/18/2023 | — | — | 17,500 | 1,701,525 | |||||||||||||||||||||||||||
| 13,668 | 41,007 | — | 60.68 | 02/20/2022 | — | — | 20,125 | 1,956,754 | ||||||||||||||||||||||||||||
| — | 20,738 | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| — | 12,144 | — | 39.26 | 02/22/2020 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 13,668 | 116,209 | — | — | — | — | — | 37,625 | 3,658,279 | |||||||||||||||||||||||||||
T. L. O’Day | — | 38,270 | — | 81.73 | 02/18/2023 | — | — | 15,875 | 1,543,526 | |||||||||||||||||||||||||||
| 12,472 | 37,418 | — | 60.68 | 02/20/2022 | — | — | 18,375 | 1,786,601 | ||||||||||||||||||||||||||||
| 25,187 | 25,188 | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| 3,000 | 16,833 | — | 39.26 | 02/22/2020 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 40,659 | 117,709 | — | — | — | — | — | 34,250 | 3,330,127 | |||||||||||||||||||||||||||
L. M. Turner | — | 25,490 | — | 81.73 | 02/18/2023 | 21,000 | 2,096,640 | 12,625 | 1,227,529 | |||||||||||||||||||||||||||
| 7,003 | 21,012 | — | 72.44 | 07/08/2022 | — | — | 14,000 | 1,361,220 | ||||||||||||||||||||||||||||
Total | 7,003 | 46,502 | — | — | — | 21,000 | 2,096,640 | 26,625 | 2,588,749 | |||||||||||||||||||||||||||
Name
| Option Awards(1)
| Stock Awards
| ||||||||||||||||||||||||||||||||||
Number of
| Number of Unexercisable(3) (#)
| Equity Unexercised (#)
| Option ($)
| Option
| Number
| Market
| Equity
| Equity or Payout That Have Not ($)
| ||||||||||||||||||||||||||||
(a)
| (b)
| (c)
| (d)
| (e)
| (f)
| (g)
| (h)
| (i)
| (j)
| |||||||||||||||||||||||||||
Mr. Bilbrey | — | 147,285 | — | 105.91 | 02/16/2025 | — | — | 26,967 | 2,407,344 | |||||||||||||||||||||||||||
| 47,818 | 143,457 | — | 105.96 | 02/17/2024 | — | — | 28,750 | 2,566,513 | ||||||||||||||||||||||||||||
| 105,322 | 105,323 | — | 81.73 | 02/18/2023 | — | — | — | — | ||||||||||||||||||||||||||||
| 155,527 | 51,843 | — | 60.68 | 02/20/2022 | — | — | — | — | ||||||||||||||||||||||||||||
| 71,275 | — | — | 55.48 | 05/17/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| 25,328 | — | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 405,270 | 447,908 | — | — | — | — | — | 55,717 | 4,973,857 | |||||||||||||||||||||||||||
Ms. Little | — | 28,830 | — | 100.65 | 04/14/2025 | 16,543 | 1,504,934 | 5,068 | 452,420 | |||||||||||||||||||||||||||
Total | — | 28,830 | — | — | — | 16,543 | 1,504,934 | 5,068 | 452,420 | |||||||||||||||||||||||||||
Ms. Buck | — | 35,500 | — | 105.91 | 02/16/2025 | — | — | 6,472 | 577,755 | |||||||||||||||||||||||||||
| 11,688 | 35,067 | — | 105.96 | 02/17/2024 | — | — | 7,000 | 624,890 | ||||||||||||||||||||||||||||
| 21,160 | 21,160 | — | 81.73 | 02/18/2023 | — | — | — | — | ||||||||||||||||||||||||||||
| 27,338 | 13,669 | — | 60.68 | 02/20/2022 | — | — | — | — | ||||||||||||||||||||||||||||
| 10,369 | — | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 70,555 | 105,396 | — | — | — | — | — | 13,472 | 1,202,645 | |||||||||||||||||||||||||||
Mr. O’Day | — | 25,120 | — | 105.91 | 02/16/2025 | — | — | 4,580 | 408,857 | |||||||||||||||||||||||||||
| 6,683 | 20,052 | — | 105.96 | 02/17/2024 | — | — | 5,000 | 446,350 | ||||||||||||||||||||||||||||
| 19,135 | 19,135 | — | 81.73 | 02/18/2023 | — | — | — | — | ||||||||||||||||||||||||||||
| 37,417 | 12,473 | — | 60.68 | 02/20/2022 | — | — | — | — | ||||||||||||||||||||||||||||
| 37,875 | — | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 101,110 | 76,780 | — | — | — | — | — | 9,580 | 855,207 | |||||||||||||||||||||||||||
Ms. Turner | — | 39,620 | — | 105.91 | 02/16/2025 | 7,000 | 673,092 | 4,816 | 429,924 | |||||||||||||||||||||||||||
| 6,210 | 18,630 | — | 105.96 | 02/17/2024 | — | — | 4,650 | 415,106 | ||||||||||||||||||||||||||||
| 12,745 | 12,745 | — | 81.73 | 02/18/2023 | — | — | — | — | ||||||||||||||||||||||||||||
| 14,007 | 7,004 | — | 72.44 | 07/08/2022 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 32,962 | 77,999 | — | — | — | 7,000 | 673,092 | 9,466 | 845,030 | |||||||||||||||||||||||||||
Mr. McConville | — | 7,870 | — | 105.91 | 02/16/2025 | — | — | 1,195 | 106,678 | |||||||||||||||||||||||||||
| 2,127 | 6,383 | — | 105.96 | 02/17/2024 | — | — | 1,275 | 113,819 | ||||||||||||||||||||||||||||
| 4,000 | 4,000 | — | 81.73 | 02/18/2023 | — | — | — | — | ||||||||||||||||||||||||||||
| 5,561 | 1,854 | — | 60.68 | 02/20/2022 | — | — | — | — | ||||||||||||||||||||||||||||
| 7,260 | — | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| 6,555 | — | — | 39.26 | 02/22/2020 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 25,503 | 20,107 | — | — | — | — | — | 2,470 | 220,497 | |||||||||||||||||||||||||||
| (1) | Columns (b) through (f) |
7166
|
| (2) | Options listed in Column (b) are vested and may be exercised by the |
| (3) | Options listed in Column (c) were not vested as of December 31, |
Grant Date | Future Vesting Dates | Number of Options Vesting | ||||||||||||||||||||||||
| J. P. Bilbrey | D. W. Tacka | H. P. Alfonso | M. G. Buck | T. L. O’Day | L. M. Turner | |||||||||||||||||||||
07/10/2013 | 07/10/2014 | — | 2,396 | — | — | — | — | |||||||||||||||||||
| 07/10/2015 | — | 2,396 | — | — | — | — | ||||||||||||||||||||
| 07/10/2016 | — | 2,396 | — | — | — | — | ||||||||||||||||||||
| 07/10/2017 | — | 2,397 | — | — | — | — | ||||||||||||||||||||
02/19/2013 | 02/19/2014 | 52,661 | 3,510 | 11,287 | 10,580 | 9,567 | 6,372 | |||||||||||||||||||
| 02/19/2015 | 52,661 | 3,510 | 11,288 | 10,580 | 9,568 | 6,373 | ||||||||||||||||||||
| 02/19/2016 | 52,661 | 3,510 | 11,287 | 10,580 | 9,567 | 6,372 | ||||||||||||||||||||
| 02/19/2017 | 52,662 | 3,510 | 11,288 | 10,580 | �� | 9,568 | 6,373 | |||||||||||||||||||
07/09/2012 | 07/09/2014 | — | — | — | — | — | 7,004 | |||||||||||||||||||
| 07/09/2015 | — | — | — | — | — | 7,004 | ||||||||||||||||||||
| 07/09/2016 | — | — | — | — | — | 7,004 | ||||||||||||||||||||
02/21/2012 | 02/21/2014 | 51,843 | 4,668 | 14,958 | 13,669 | 12,473 | — | |||||||||||||||||||
| 02/21/2015 | 51,842 | 4,667 | 14,957 | 13,669 | 12,472 | — | ||||||||||||||||||||
| 02/21/2016 | 51,843 | 4,668 | 14,958 | 13,669 | 12,473 | — | ||||||||||||||||||||
05/18/2011 | 05/18/2014 | 17,819 | — | — | — | — | — | |||||||||||||||||||
| 05/18/2015 | 17,819 | — | — | — | — | — | ||||||||||||||||||||
02/22/2011 | 02/22/2014 | 25,327 | 4,795 | 12,664 | 10,369 | 12,594 | — | |||||||||||||||||||
| 02/22/2015 | 25,328 | 4,795 | 12,664 | 10,369 | 12,594 | — | ||||||||||||||||||||
02/23/2010 | 02/23/2014 | 26,317 | 8,127 | 17,883 | 12,144 | 16,833 | — | |||||||||||||||||||
Total per Executive | 478,783 | 55,345 | 133,234 | 116,209 | 117,709 | 46,502 | ||||||||||||||||||||
Grant Date
| Future Dates
| Number of Options Vesting
| ||||||||||||||||||||||||||
Mr. Bilbrey
| Ms. Little
| Ms. Buck
| Mr. O’Day
| Ms. Turner
| Mr. McConville
| |||||||||||||||||||||||
04/15/2015 | 04/15/2016 | — | 7,207 | — | — | — | — | |||||||||||||||||||||
| 04/15/2017 | — | 7,208 | — | — | — | — | ||||||||||||||||||||||
| 04/15/2018 | — | 7,207 | — | — | — | — | ||||||||||||||||||||||
| 04/15/2019 | — | 7,208 | — | — | — | — | ||||||||||||||||||||||
02/17/2015 | 02/17/2016 | 36,821 | — | 8,875 | 6,280 | 9,905 | 1,967 | |||||||||||||||||||||
| 02/17/2017 | 36,821 | — | 8,875 | 6,280 | 9,905 | 1,968 | ||||||||||||||||||||||
| 02/17/2018 | 36,821 | — | 8,875 | 6,280 | 9,905 | 1,967 | ||||||||||||||||||||||
| 02/17/2019 | 36,822 | — | 8,875 | 6,280 | 9,905 | 1,968 | ||||||||||||||||||||||
02/18/2014 | 02/18/2016 | 47,819 | — | 11,689 | 6,684 | 6,210 | 2,128 | |||||||||||||||||||||
| 02/18/2017 | 47,819 | — | 11,689 | 6,684 | 6,210 | 2,127 | ||||||||||||||||||||||
| 02/18/2018 | 47,819 | — | 11,689 | 6,684 | 6,210 | 2,128 | ||||||||||||||||||||||
02/19/2013 | 02/19/2016 | 52,661 | — | 10,580 | 9,567 | 6,372 | 2,000 | |||||||||||||||||||||
| 02/19/2017 | 52,662 | — | 10,580 | 9,568 | 6,373 | 2,000 | ||||||||||||||||||||||
07/09/2012 | 07/09/2016 | — | — | — | — | 7,004 | — | |||||||||||||||||||||
02/21/2012 | 02/21/2016 | 51,843 | — | 13,669 | 12,473 | — | 1,854 | |||||||||||||||||||||
Total per NEO |
| 447,908 | 28,830 | 105,396 | 76,780 | 77,999 | 20,107 | |||||||||||||||||||||
| (4) | Column (g) |
| Column (h) |
| Column (j) |
7267
2015 Option Exercises and Stock Vested Table
The following table and explanatory footnotes provide information with regard to amounts paid to or received by our named executive officersNEOs during 20132015 as a result of the exercise of stock options or the vesting of stock awards.
Option Exercises and Stock Vested
2013awards:
| Name | Option Awards(1) | Stock Awards(2) | ||||||
Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||
| (a) | (b) | (c) | (d) | (e) | ||||
J. P. Bilbrey | 110,413 — | 3,706,723 — | 79,028 625(3) | 7,683,892 54,462 | ||||
D. W. Tacka | 16,252 | 665,357 | 8,757 | 851,443 | ||||
H. P. Alfonso | 15,700 | 649,509 | 23,135 | 2,249,416 | ||||
M. G. Buck | 75,497 | 3,151,749 | 15,783 | 1,534,581 | ||||
T. L. O’Day | 67,802 | 3,102,133 | 19,136 | 1,860,593 | ||||
L. M. Turner | — | — | 7,000(4) | 694,330 | ||||
Name
| Option Awards(1)
| Stock Awards(2)
| ||||||||||||||
Number of (#)
| Value ($)
| Number of Vesting (#)
| Value ($)
| |||||||||||||
(a)
| (b)
| (c)
| (d)
| (e)
| ||||||||||||
Mr. Bilbrey | — | — | 14,587 | 1,318,519 | ||||||||||||
Ms. Little | — | �� | — | — | — | |||||||||||
Ms. Buck | — | — | 2,943 | 266,018 | ||||||||||||
Mr. O’Day | 12,500 | 732,250 | 2,671 | 241,432 | ||||||||||||
Ms. Turner | 7,004 | 243,266 | 2,124 | 191,988 | ||||||||||||
| 7,000 | (3) | 675,710 | (3) | |||||||||||||
Mr. McConville | 6,388 | 440,160 | 674 | 60,923 | ||||||||||||
| 724 | (4) | 74,537 | (4) | |||||||||||||
| (1) |
| (2) |
| (3) |
| (4) | For Mr. McConville, the second number in Column (d) reflects RSUs that were distributed in 2015 from 2011 and 2012 awards. The second number in Column (e) sets forth the value of |
73
Each of the named executive officers, with the exception of Mr. O’DayBilbrey and Ms. Turner, is a participantBuck are participants in ourtax-qualified defined benefit pension plan and isare fully vested in his or her benefitbenefits under that plan. Mr. Bilbrey Mr. Tacka and Ms. Buck are also eligible to participate in ournon-qualified DB SERP. No benefit is payable under the DB SERP if the executive officer terminates employment prior to age 55 or if he or she does not have five years of service with the Company. As of December 31, 2013,2015, Mr. Bilbrey and Mr. Tacka had attained age 55 with five years of service.services and therefore was fully vested in his DB SERP benefit.
68
The combination of thetax-qualified defined benefit pension and DB SERP plans werewas designed to provide a benefit upon retirement at or after reaching age 60 based on a joint and survivor annuity equal to 55% of final average compensation for an executive with 15 or more years of service (reduced pro rata for each year of service under 15). Effective January 1, 2007, the benefit payable under the DB SERP to an executive who was age 50 or over as of January 1, 2007, was reduced by 10%, and the benefit payable to an executive who had not attained age 50 as of January 1, 2007, was reduced by 20%. TheAs a result, the benefit payable to Mr. Bilbrey was reduced by 10% and the benefit payable to Ms. Buck was reduced by 20%. In connection with his promotion to Senior Vice President and Chief Financial Officer in May 2013, a 2007 arrangement exempting Mr. Tacka’s benefit from
Under the 10% reduction was extended through Mr. Tacka’s retirement. The exemption had been scheduled to expire in September 2013.
Finalterms of the DB SERP, final average compensation is calculated as the sum of (i) the average of the highest three calendar years of base salary paid over the last five years of employment with the Company and (ii) the average of the highest three annual incentive programOHIP awards, paid or deferred, for the last five years of employment with the Company, whether paid or deferred.Company. The benefit accrued under the DB SERP is payable upon retirement (subject to the provisions of Section 409A of the IRC) as a lump sum or a life annuity with 50% benefit continuation to the participant’s surviving spouse, or payment may be deferred in accordance with the provisions of the Company’s Deferred Compensation Plan. The lump sum is equal to the actuarial present value of the joint and survivor pension earned, reduced by the lump sum value of the benefits to be paid under thetax-qualified defined benefit pension plan and the value of the executive’s Social Security benefits. If the executive terminates employment after age 55 but before age 60, the benefit is reduced for early retirement at a rate of 5% per year for the period until the executive would have turned 60.
The defined benefit Compensation Limit Replacement Plan, or CLRP, provides eligible participantsOn November 16, 2015, the defined benefit he or she would have earned under ourtax-qualified defined benefit pension plan were it notCompany and Mr. Bilbrey entered into an amendment to his existing employment agreement, the effect of which was to increase, from five to ten years, the duration of the look-back period for selecting the legal limitation on compensationhighest three years of base salary and annual incentive payment used to determine benefits. An executive who is a participantcalculate Mr. Bilbrey’s final average compensation for determining his benefit under the DB SERP. The amendment also established the interest rate to be applied to the calculation of amounts payable to Mr. Bilbrey under the DB SERP as the rate equal to the Lump Sum Interest Rate (as defined in the DB SERP is not eligible to participate in the CLRP unless he or she (i) ceases to be designated by the CommitteeSERP) as eligible to participate in the DB SERP prior to his or her termination of employment with the Company or (ii) has his or her employment involuntarily terminated by the Company other than for Cause prior to vesting in the DB SERP. Named executive officers meeting these criteria become eligible to participate in the CLRP and receive a benefit for all years in which they would have been a participant of the CLRP had they not been designated by the Committee to be eligible for the DB SERP.October 31, 2015.
Executives who are eligible for both the DC SERP (described underNon-Qualified Deferred Compensation below) and thetax-qualified defined benefit pension plan receive an additional credit under the CLRP equal to 3% of eligible earnings less the IRS annual limitation on compensation. Mr. Alfonso is the only named executive officer eligible for the CLRP. Upon separation, benefits under the CLRP are payable in a single lump sum or may be deferred into the Deferred Compensation Plan. A participant is eligible for his or her CLRP benefit upon separation
74
from service (subject to the provisions of Section 409A of the IRC) after five years of service or attaining age 55 (unless the participant is terminated for Cause). Payment is also made to the estate of a participant who dies prior to separation from service. Participants who become disabled are 100% vested in their benefit and continue to accrue additional benefits for up to two additional years.
The following table and explanatory footnotesfootnote provide information regarding the present value of benefits accrued under thetax-qualified defined benefit pension plan as applicable, and the DB SERP, or CLRPas applicable, for each named executive officerNEO as of December 31, 2013.2015. The amounts shown for the DB SERP reflect the reduction for the present value of the benefits under thetax-qualified defined benefit pension plan and Social Security benefits.
Pension Benefits
2013
| Name | Plan Name | Number of Years | Present Value of | Payments During Last Fiscal Year ($) | ||||||||
| (a) | (b) | (c) | (d) | (e) | ||||||||
J. P. Bilbrey | Tax-Qualified Defined Benefit Pension Plan | 10 | 126,594 | — | ||||||||
DB SERP | 10 | 12,309,023 | — | |||||||||
D. W. Tacka | Tax-Qualified Defined Benefit Pension Plan
DB SERP |
| 40 40 |
|
| 914,382 4,709,273 |
| — — | ||||
H. P. Alfonso | Tax-Qualified Defined Benefit Pension Plan | 7 | 60,380 | — | ||||||||
CLRP | 7 | 151,003 | — | |||||||||
M. G. Buck | Tax-Qualified Defined Benefit Pension Plan | 9 | 88,053 | — | ||||||||
DB SERP | 9 | 2,728,397 | — | |||||||||
T. L. O’Day | — | — | — | — | ||||||||
L. M. Turner | — | — | — | — | ||||||||
Name
| Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit(1) ($) | Payments During Year ($) | ||||||
(a) | (b) | (c) | (d) | (e) | ||||||
Mr. Bilbrey | Pension Plan DB SERP | 12 12 | 165,970 22,001,576 | — — | ||||||
Ms. Little | — | — | — | — | ||||||
Ms. Buck | Pension Plan DB SERP | 11 11 | 122,610 4,594,215 | — — | ||||||
Mr. O’Day | — | — | — | — | ||||||
Ms. Turner | — | — | — | — | ||||||
Mr. McConville | — | — | — | — | ||||||
69
| (1) | These amounts have been calculated using |
Name | Final Average Compensation ($) | ||||
| |||||
| |||||
| |||||
| |||||
| — | ||||
| — | ||||
Mr. McConville | — | ||||
75
2015 Non-Qualified Deferred Compensation Table
Our named executive officersNEOs are eligible to participate in The Hershey Companythe Company’s Deferred Compensation Plan. The Deferred Compensation Plan is anon-qualified,non-funded plan that permits participants to defer compensation that would otherwise be paid to them currently. The Deferred Compensation Plan is intended to secure the goodwill and loyalty of participants by enabling them to defer compensation when the participants deem it beneficial to do so and by providing a vehicle for the Company to provide,make, on anon-qualified basis, contributions that could not be made on the participants’ behalf to thetax-qualified 401(k). plan. The Company credits the Deferred Compensation Plan with a specified percentage of compensation for executive officersNEOs participating in thenon-qualified DC SERP.
Our named executive officersNEOs may elect to defer payments to be received from the DB SERP, DC SERP, CLRP, and the OHIP, as well as PSU and RSU awards, but not stock options.options or base salary. Amounts deferred are fully vested and are credited to the individual’s account under the Deferred Compensation Plan. Participants elect to receive payment at termination of employment or some other future date. DB SERP and CLRP payments designated for deferral into the Deferred Compensation Plan are not credited as earned but are credited in full upon the participant’s retirement.
Payments are distributed in a lump sum or in annual installments for up to 15 years. All amounts are payable in a lump sum following a Change in Control.Control (as such terms is defined in the EICP). All elections and payments under the Deferred Compensation Plan are subject to compliance with Section 409A of the IRC, which may limit elections and require a delay in payment of benefits in certain circumstances.
While deferred, amounts are credited with notional earnings as if they were invested by the participant in one or more investment options offered by the Deferred Compensation Plan. The investment options under the Deferred Compensation Plan consist of investment in a deferred common stock unit account that we value according to the performance of our Common Stock (for awards paid in stock) or in mutual funds or other investments available to participants in our 401(k) plan (for awards paid in cash). The participants’ accounts under the Deferred Compensation Plan fluctuate daily, depending upon performance of the investment options elected.
Effective January 1, 2007, we began crediting the deferred compensation accounts of all employees, including the named executive officers,NEOs, with the amount of employer matching contributions that exceed the limits established by the IRS for contribution to the 401(k). plan. These amounts are credited in the first quarter of the year after they are earned. As shown in the footnotes to the 2015 Summary Compensation Table, beginning on page 64, these amounts are designated as “Supplemental 401(k) Match” and are included
70
as “All Other Compensation” in the year earned. These amounts also are included in Column (c) of the 2015 Non-Qualified Deferred Compensation tableTable in the year earned. With the exception of Ms. Turner,Little, all of the named executive officersNEOs are fully vested in the Supplemental 401(k) Match credits presented and will be paid at a future date or at termination of employment, as elected by the officerexecutive subject to the provisions of Section 409A of the IRC. Ms. TurnerLittle will vest in this benefit upon completion of two years of employment. If vested, she will receive payment for this benefit at termination of employment subject to the provisions of Section 409A of the IRC.
Effective January 1, 2007, we began crediting the deferred compensation accounts of all employees hired on or after January 1, 2007, including eligible named executive officers,NEOs, with the amount of Core Retirement Contributions that exceed the limits established by the IRS for contribution to the 401(k). plan. These amounts are credited in the first quarter of the year after they are earned. As shown in the footnotes to the 2015 Summary Compensation Table, these amounts are
76
designated as “Supplemental Core Retirement Contribution” and are included as “All Other Compensation” in the year earned. These amounts also are included in Column (c) of the 2015 Non-Qualified Deferred Compensation tableTable in the year earned. Mr.Mmes. Little and Turner and Messrs. O’Day and Ms. TurnerMcConville are eligible for a Supplemental Core Retirement ContributionCRC credit for 2013. Mr.2015. Ms. Turner and Messrs. O’Day isand McConville are fully vested in this benefit and will receive payment for this benefit at termination of employment subject to the provisions of Section 409A of the IRC. Ms. TurnerLittle will vest in this benefit upon completion of two years of employment. If vested, she will receive payment for this benefit at termination of employment subject to the provisions of Section 409A of the IRC.
Mr. Alfonso,Mmes. Little and Turner and Mr. O’Day and Ms. Turner are also eligible to participate in our DC SERP, a part of the Deferred Compensation Plan. The DC SERP provides annual allocations to the Deferred Compensation Plan equal to a percentage of compensation determined by the Compensation Committee in its sole discretion. In order to receive the annual DC SERP allocation, an executive officer must (i) defer ininto the 401(k) plan the maximum amount allowed by the Company or the IRS and (ii) be employed on the last day of the plan year, unless the executive officer terminates employment after age 55 and completion of five years of continuous employment preceding termination, dies or becomes disabled. After completing five years of service with the Company, an executive officer is vested in 10% increments based on his or her age. An executive age 46 with five years of service is 10% vested and an executive age 55 with five years of service is 100% vested. Mr. Alfonso’s, Mr. O’Day’s and Ms. Turner’sThe annual DC SERP allocation for Mmes. Little and Turner and Mr. O’Day is equal to 12.5% of base salary and OHIP award for the calendar year, whether paid or deferred. Mr. Alfonso and Mr. O’Day areis 100% vested in theirhis DC SERP benefit. Ms.benefit, while Mmes. Little and Turner isare 0% vested because they have not vested in any portionyet completed five years of her DC SERP benefit.continuous employment with the Company.
71
The following table and explanatory footnotes provide information relating to the activity in the Deferred Compensation Plan accounts of the named executive officersNEOs during 20132015 and the aggregate balance of the accounts as of December 31, 2013.
Non-Qualified Deferred Compensation
20132015:
| Name | Executive Contributions in Last Fiscal Year(1) ($) | Registrant Year(2) | Aggregate Earnings in Last Fiscal Year(3) ($) | Aggregate Withdrawals/ Distributions(4) ($) | Aggregate Balance at Last Fiscal Year-End(5) ($) | |||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||
J. P. Bilbrey | 51,081 | 137,599 | 2,025,234 | — | 7,939,669 | |||||||||||||
D. W. Tacka | — | 20,382 | 14,932 | — | 122,286 | |||||||||||||
H. P. Alfonso | — | 206,935 | 264,703 | (551,459) | 1,624,131 | |||||||||||||
M. G. Buck | 1,653,888 | 37,789 | 1,891,714 | — | 8,043,804 | |||||||||||||
T. L. O’Day | — | 193,827 | 1,128,848 | — | 4,900,343 | |||||||||||||
L. M. Turner | 536,427 | 116,474 | 6,630 | — | 688,077 |
Name
| Executive Contributions in Last Fiscal Year(1) ($)
| Registrant Contributions in Last Fiscal Year(2) ($)
| Aggregate Earnings in Last Fiscal Year(3) ($)
| Aggregate Withdrawals/ Distributions ($)
| Aggregate Balance at Last Fiscal Year-End(4) ($)
| |||||||||||||
(a)
| (b)
| (c)
| (d)
| (e)
| (f)
| |||||||||||||
Mr. Bilbrey | — | 87,882 | (877,748 | ) | — | 7,992,157 | ||||||||||||
Ms. Little | — | 74,740 | — | — | 74,740 | |||||||||||||
Ms. Buck | — | 31,261 | (947,688 | ) | — | 7,860,495 | ||||||||||||
Mr. O’Day | — | 138,700 | (6,473 | ) | — | 1,331,058 | ||||||||||||
Ms. Turner | 1,320,018 | 159,859 | (252,670 | ) | — | 2,736,865 | ||||||||||||
Mr. McConville | — | 4,541 | (430 | ) | — | 59,424 | ||||||||||||
| (1) | Column (b) reflects |
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| (2) | For Mr. Bilbrey and Ms. Buck, |
| (3) | Column (d) reflects the |
| (4) |
| Column (f) reflects the aggregate balance credited to each |
Name |
($) | |
| ||
| — | |
| 2,956,339 | |
Mr. O’Day | 1,185,209 | |
Ms. Turner | 2,402,594 | |
Mr. McConville | |
| ||
| ||
|
Potential Payments Uponupon Termination or Change in Control
We maintain plans covering our executive officersNEOs that will require us to provide incremental compensation in the event of involuntary termination of employment or a Change in Control (as such term is defined in the applicable governing document), provided certain conditions are met. We describe these obligations below.
Overview
The Company entered into an employment agreement with Mr. Bilbrey, our President and CEO in August 2012, which provides for Mr. Bilbrey’s continued employment as President and CEO and as a member of the Board of Directors. The employment agreement does not have a specified term; Mr. Bilbrey’s employment is on an at-will basis. In the event Mr. Bilbrey’s employment is terminated by the Company without Cause or he resigns for Good Reason (in each case as defined in the employment agreement), Mr. Bilbrey will be entitled to certain severance benefits. In the event of his termination after a Change in Control, Mr. Bilbrey will be eligible to receive benefits under the EBPP 3A. He is not entitled to an excise tax gross-up. The employment agreement subjects Mr. Bilbrey to certain non-competition and non-solicitation covenants under the ECRCA (as described below) and to compensation recovery (clawback) to the extent required by applicable law and regulations.
Our other named executive officers also participate in the EBPP 3A. The EBPP 3A is intended to help us attract and retain qualified executive employees and maintain a stable work environment by making a provision for the protection of covered executives in connection with a Change in Control of Hershey or termination of employment under certain circumstances.
7872
Each of our named executive officers was required to sign an Employee Confidentiality and Restrictive Covenant Agreement, or ECRCA, as a condition to receivinglong-term incentive compensation awards such as stock options and PSUs. The ECRCA obligates the executive officer to not disclose or misuse our confidential and proprietary information or, for a period of 12 months following termination, carry on any activities that compete with our business.
Termination of employment and a Change in Control also impact PSUs, RSUs and stock option awards we have made, as well as benefits payable under our employee benefit plans.
The following narrative takes each termination of employment situation – voluntary resignation, termination for Cause, (as defined in the EBPP 3A), death, disability, retirement, termination without Cause, and resignation for Good Reason (as defined in the EBPP 3A) – and a Change in Control of the Company, and it describes the additional amounts, if any, that the Company would pay or provide to Messrs. Bilbrey, Tacka, Alfonso, and O’Day, Ms. Buck and Ms. Turner,the NEOs, or their beneficiaries, as a result.
The narrative below and the amounts shown reflect certain assumptions we have made in accordance with SEC rules. We have assumed that the termination of employment or Change in Control occurred on December 31, 2013,2015, and that the value of a share of our Common Stock on that day was $97.23,$89.27, the closing price on the NYSE on December 31, 2013.2015.
In addition, in keeping with SEC rules, the following narrative and amounts do not include payments and benefits which are not enhanced by a qualifying termination of employment or Change in Control. These payments and benefits are referred to as “vested benefits” and include:
BenefitsVested benefits accrued under the Company’sbroad-based,tax-qualified401(k) andtax-qualified defined benefit pension plan;
Accrued vacation pay, health plan continuation and other similar amounts payable when employment terminates under programs generally applicable to the Company’s salaried employees;
Vested Supplemental 401(k) Match and Supplemental CRC provided to the named executive officersNEOs on the same basis as all other employees eligible for Supplemental 401(k) Match;
Vested benefits accrued under the DB SERP CLRP and account balances held under the Deferred Compensation Plan as previously described beginning on pages 7468 – 72; and 76; and
Stock options which have vested and become exercisable prior to termination of employment or Change in Control.
The payments and benefits described in the five bullet points above are referred to in the following discussion as the executive officer’s “vested benefits.”
Voluntary Resignation (other than a Resignation for Good Reason)
We are not obligated to pay amounts over and above vested benefits to a named executive officerNEO who voluntarily resigns. Vested stock options may not be exercised after the named executive officer’sNEO’s resignation date unless the officer isexecutive meets retirement eligibility requirements (separation after attainment of age 55 or older and, in certain instances, has met minimum service requirements as described in Treatmentwith at least five years of Stock Options upon Retirement, Death or Disability below.continuous service).
Termination for Cause
If we terminate a named executive officer’sNEO’s employment for Cause, (as defined in the EBPP 3A), we are not obligated to pay the officerexecutive any amounts over and above the vested benefits. The named executive officer’sNEO’s right to exercise vested stock options expires upon dischargetermination for Cause, and amounts otherwise payable under the DB SERP are subject to forfeiture at the Company’s discretion. In general, a dischargetermination will be for Cause if the executive has been convicted of a felony
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or has engaged in gross negligence or willful misconduct in the performance of duties, material dishonesty or a material violation of Company policies, including our Code of Ethical Business Conduct, or bad faith actions in the performance of duties not in the best interests of the Company.
Death or Disability
If an executive officera NEO dies and has not metprior to meeting the vesting requirements to be eligible to receive a benefit fromunder the DB SERP, no benefits are paid. As of December 31, 2015, Mr. Bilbrey and Mr. Tacka arewas fully vested in theirhis DB SERP benefits asand his estate would therefore be entitled to a payout of December 31, 2013.
A maximum monthlylong-term disability benefit of $35,000 would be provided for Mr. Bilbrey and $25,000 for all other named executive officerssuch benefits in the event of his death.
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In the event of termination due to disability, long-term disability.Long-term disability (“LTD”) benefits are generally payable until age 65, but may extend for longer if disability benefits begin after age 60.Long-term disability benefits60, and are offset by other benefits such as Social Security. The maximum amount of the monthlylong-term disability LTD payments from all sources, assuminglong-term disability LTD began on December 31, 2013,2015, is set forth in the tables below. The additional lump sum DB SERP amount that would be payable for Mr. Bilbrey, Mr. Tacka and Ms. Buck at age 65, attributable to vesting and benefit service credited during the disability period for the DB SERP, if the executive’s disability started on December 31, 2013, is shown on the table below. Mr. Alfonso participates in the CLRP which provides two additional years of credit after approval forlong-term disability benefits. Mr. O’Day and Ms. Turner are eligible for the Supplemental Core Retirement Contribution and would receive up to two additional years of Supplemental Core Retirement Contribution credit after approval forlong-term disability benefits. Mr. Alfonso, Mr. O’Day and Ms. Turner participate in the DC SERP which provides up to two additional years of credit after approval forlong-term disability benefits. Those amounts are listed in the table below:
| Name | Long-Term Disability Benefit | |||||||||||||||||
| Maximum Monthly Amount ($) | Years and Months Until End | Total of Payments ($) | Lump Sum DB SERP/ DC SERP | |||||||||||||||
J. P. Bilbrey | 35,000 | 7 years 7 months | 3,185,000 | 5,778,700 | (1) | |||||||||||||
D. W. Tacka | 25,000 | 5 years 0 months | 1,500,000 | 13,992 | (1) | |||||||||||||
H. P. Alfonso | 25,000 | 8 years 6 months | 2,550,000 | 398,272 | (2) | |||||||||||||
M. G. Buck | 25,000 | 12 years 9 months | 3,825,000 | 5,606,253 | (1) | |||||||||||||
T. L. O’Day | 25,000 | 2 years 6 months | 750,000 | 314,807 | (3) | |||||||||||||
L. M. Turner | 25,000 | 8 years 10 months | 2,650,000 | 344,075 | (3)(4) | |||||||||||||
Long-Term Disability Benefit
| ||||||||||||||||
Name
| Maximum ($)
| Years and Months Until End (#)
| Total of Payments ($)
| Lump Sum Benefit(1)
| ||||||||||||
Mr. Bilbrey | 35,000 | 5 years 7 months | 2,345,000 | 1,337,724 | ||||||||||||
Ms. Little | 25,000 | 9 years 5 months | 2,825,000 | 229,235 | ||||||||||||
Ms. Buck | 25,000 | 10 years 9 months | 3,225,000 | 6,378,138 | ||||||||||||
Mr. O’Day | 25,000 | 1 year 9 months | 525,000 | 201,173 | ||||||||||||
Ms. Turner | 25,000 | 6 years 10 months | 2,050,000 | 619,136 | ||||||||||||
Mr. McConville | 25,000 | 4 years 0 months | 1,200,000 | 9,090 | ||||||||||||
| (1) |
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Treatment of Stock Options upon Retirement, Death or Disability
In the event of retirement, death or disability, vested stock options remain exercisable for a period of three or five years, but not later thanto exceed the option expiration date. The exercise period is based upon the terms and conditions of the individual grant. For awards granted prior to April 28, 2011, retirement was defined as separation after attainment of age 55. For awards granted on or after April 28, 2011, retirementRetirement is defined as separation after attainment of age 55 with at least five years of continuous service.
Options awarded prior to April 28, 2011, that are not vested at the time of retirement, death or disability will continue to vest over the five years following termination in accordance with the original vesting schedule established on the grant date. Options granted on or after April 28, 2011, that are not vested at the time of retirement, death or disability willgenerally vest in full (subject to the exception described in the following sentence) and the options will remain exercisable for three or five years following termination.termination, depending on the terms and conditions of the grant. Options granted in the year of retirement are prorated based upon the number of full calendar months worked in that year.
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The following table provides the number of unvested stock options as of December 31, 2013,2015, that would have become vested and remained exercisable during the three-year or five-year periods following death or disability, or retirement if applicable, on December 31, 2013,2015, and the value of those options based on the excess of the fair market value of our Common Stock on December 31, 2013,2015, over the applicable option exercise price. As of December 31, 2015, Messrs. Bilbrey, Tacka, Alfonso,O’Day and O’DayMcConville were considered retirement eligible based on the provisions of all outstanding option awards onawards. Because Mmes. Little, Buck and Turner were not considered retirement eligible as of December 31, 2013.2015, they would forfeit 28,830 stock options, 105,396 stock options and 77,999 stock options, respectively, upon voluntary separation.
| Name | Stock Options | |||||||
| Number(1) (#) | Value(2) ($) | |||||||
J. P. Bilbrey | 478,783 | 14,283,534 | ||||||
D. W. Tacka | 55,345 | 1,702,364 | ||||||
H. P. Alfonso | 133,234 | 4,536,866 | ||||||
M. G. Buck | 116,209 | 3,808,761 | ||||||
T. L. O’Day | 117,709 | 4,090,484 | ||||||
L. M. Turner | 46,502 | 915,982 | ||||||
Stock Options
| ||||||||
Name
| Number(1)
| Value(2)
| ||||||
Mr. Bilbrey | 447,908 | 2,276,327 | ||||||
Ms. Little | 28,830 | — | ||||||
Ms. Buck | 105,396 | 550,343 | ||||||
Mr. O’Day | 76,780 | 500,881 | ||||||
Ms. Turner | 77,999 | 213,975 | ||||||
Mr. McConville | 20,107 | 83,166 | ||||||
| (1) |
| (2) |
Ms. Turner is not considered retirement eligible for any of her unvested options because she does not have five years of continuous service. Ms. Turner would forfeit 46,502 stock options upon voluntary separation.
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Treatment of RSUs upon Retirement, Death or Disability
Upon retirement, any unvested RSUs held by our named executive officers that are not vested are forfeited.
A prorated portion of unvested RSUs granted prior to April 28, 2011, will vest upon death or disability. The prorated number of RSUs is based upon the number of full and partial calendar months from the grant date to the date of death or disability divided by the full and partial calendar months from the grant date to the end of the restriction period, multiplied by the number of RSUs originally granted. Unvested RSUs granted on or after April 28, 2011, will vest in full upon death or disability.
The following table summarizesprovides the number of unvested RSU awardsRSUs that would have vested on December 31, 2013,2015, if the executive’s employment terminated that day due to death or disability.disability:
| Name | Restricted Stock Units | |||||||
| Number(1) (#) | Value(2) ($) | |||||||
J. P. Bilbrey | — | — | ||||||
D. W. Tacka | — | — | ||||||
H. P. Alfonso | — | — | ||||||
M. G. Buck | — | — | ||||||
T. L. O’Day | — | — | ||||||
L. M. Turner | 21,000 | 2,096,640 | ||||||
Restricted Stock Units
| ||||||||
Name
| Number(1)
| Value(2) ($)
| ||||||
Mr. Bilbrey | — | — | ||||||
Ms. Little | 16,543 | 1,504,934 | ||||||
Ms. Buck | — | — | ||||||
Mr. O’Day | — | — | ||||||
Ms. Turner | 7,000 | 673,092 | ||||||
Mr. McConville | — | — | ||||||
| (1) |
| (2) |
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Treatment of PSUs upon Retirement, Death or Disability
In the event of retirement, death or disability, any unvested contingent PSUs are prorated based on the number of full or partial months worked in each of the open PSU cycles. Any remaining unvested contingent PSUs not prorated are forfeited. The following table provides the total number of contingent PSUs each NEO would be entitled to if the executive’s employment ended on December 31, 2015 due to death or disability, or retirement if applicable. As of December 31, 2015, Messrs. Bilbrey, O’Day and McConville were considered retirement eligible based on the provisions of all open PSU cycles. Because Mmes. Little, Buck and Turner were not considered retirement eligible as of December 31, 2015, they would forfeit all of their contingent PSUs upon voluntary separation.
Performance Stock Units
| ||||||||
Name
| Number(1)
| Value(2)
| ||||||
Mr. Bilbrey | 42,743 | 3,815,668 | ||||||
Ms. Little | 1,689 | 150,777 | ||||||
Ms. Buck | 9,767 | 871,900 | ||||||
Mr. O’Day | 7,531 | 672,292 | ||||||
Ms. Turner | 6,829 | 609,625 | ||||||
Mr. McConville | 1,922 | 171,577 | ||||||
| (1) | For the 2013-2015 PSU cycle, amount reflects the total number of contingent PSUs calculated by multiplying the number of contingent target PSUs by 42.04%, the final performance score for that cycle. For the 2014-2016 and 2015-2017 PSU cycles, amount reflects the total number of contingent PSUs at target. |
| (2) | Based on the closing price for our Common Stock on the NYSE on December 31, 2015 ($89.27). |
Termination without Cause; Resignation for Good Reason
Under Mr. Bilbrey’s employment agreement, the EBPP 3A and the EBPP 3A,3, as applicable, we have agreed to pay severance benefits of two times base salary in a lump sum if we terminate the executive officer’sa NEO’s active employment without Cause or if the NEO resigns from active employment for Good Reason, in each case as it is defined in the applicable document (one andone-half timesdocument. Severance benefits consist of a lump sum payment calculated as a multiple of base salary if the executive becameand target OHIP as well as continuation of health and welfare benefits for a participant in EBPP 3A after February 22, 2011). We have agreed to provide to Mr. Bilbreyset period of time, as additional severance payments an amount equal to two times his target award under the OHIP, and to other named executive officers, additional severance paymentsshown in the amount that the executive officer would have been eligible to receive under the OHIP for a period of two years (18 months for participants first covered by EBPP 3A after February 22, 2011) following termination. Under Mr. Bilbrey’s employment agreement and EBPP 3A, the executivetable below. Additionally, all NEOs would be entitled to receive a pro rata payment of the OHIP award, if any, earned for the year in which termination occurs. These benefits also are payable if the executive officer resigns from active employment for Good Reason as it is defined in the applicable document. Good Reason will arise under Mr. Bilbrey’s employment agreement in the event of a diminution of his title, duties, responsibilities, a material breach of the employment agreement by the Company, any adverse amendment to the DB SERP or EBPP 3A affecting Mr. Bilbrey or his removal or failure to be reelected to the Board. Good Reason arises under the EBPP 3A if we appoint a new Chief Executive Officer, and during the first two years of his or her tenure, the executive officer’s position, authority, duties or responsibilities are materially diminished or base salary is materially reduced. If Mr. Bilbrey’s or an executive officer’s employment is terminated for reasons other than for Cause, or if the executive officer terminates for Good Reason, the Company will continue the executive’s
Benefit Entitlement | ||||||||
Plan | Severance | Health and | ||||||
Mr. Bilbrey’s employment agreement and participants in EBPP 3A on or before February 22, 2011 | 2 times | 24 months | ||||||
Participants in EBPP 3A after February 22, 2011 | 1.5 times | 18 months | ||||||
EBPP 3 | 1 times | 12 months | ||||||
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welfare benefits forIf a period of two years. For executives first covered by EBPP 3A after February 22, 2011, welfare benefit coverage will continue for 18 months. Ms. Turner is the only named executive officer first covered by EBPP 3A after February 22, 2011. Coverage for disability and participation in alltax-qualifiedNEO has not met retirement plans will not be continued.
If an executive officer is under age 55eligibility requirements and his or her employment is terminated for reasons other than for Cause, or if the executive officerNEO terminates for Good Reason, the executivehe or she will be eligible to exercise all vested stock options and a prorated portion of his or her unvested stock options held on the date of separation from service for a period of 120 days following separation. If the executive officerNEO is age 55 or
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older (withwith five or more years of continuous service with respect to stock options granted on or after April 28, 2011) and his or her employment is terminated for reasons other than for Cause, or if the executiveNEO terminates for Good Reason, the executiveNEO will be entitled to exercise (provided any vesting requirement has been satisfied as of the date of exercise) any outstandingvested stock options until the earlier of three or five years (based on the provisions of the individual grant) from the date of termination or the expiration of the options. In addition, if an executive officer’sa NEO’s employment is terminated for reasons other than for Cause, or if the executive officerNEO terminates for Good Reason, the executiveNEO will receive payment forvest in a prorated portion of any unvested RSUs held on the date of separation from service.
The following table summarizesprovides the incremental amounts that would have been payable to the named executive officereach NEO had his or her employment terminated on December 31, 2013,2015, under circumstances entitling the officerNEO to severance benefits as described above.above:
| Name | Salary ($) | One Hershey Incentive Program at Target ($) | Value of Benefits Continuation(1) | Total ($) | ||||
J. P. Bilbrey | 2,250,000 | 2,925,000 | 25,053 | 5,200,053 | ||||
D. W. Tacka | 1,000,000 | 700,000 | 23,080 | 1,723,080 | ||||
H. P. Alfonso | 1,240,000 | 930,000 | 23,731 | 2,193,731 | ||||
M. G. Buck | 1,070,600 | 802,950 | 32,808 | 1,906,358 | ||||
T. L. O’Day | 1,082,000 | 703,300 | 21,409 | 1,806,709 | ||||
L. M. Turner(2) | 735,000 | 441,000 | 7,791 | 1,183,791 |
Name
| Salary ($)
| One Hershey ($)
| Value of Benefits Continuation(1)
| Total ($)
| ||||||||||||
Mr. Bilbrey | 2,400,000 | 3,600,000 | 27,630 | 6,027,630 | ||||||||||||
Ms. Little | 900,000 | 675,000 | 24,661 | 1,599,661 | ||||||||||||
Ms. Buck | 1,305,600 | 1,109,760 | 36,461 | 2,451,821 | ||||||||||||
Mr. O’Day | 1,141,300 | 741,845 | 23,894 | 1,907,039 | ||||||||||||
Ms. Turner | 900,000 | 630,000 | 8,935 | 1,538,935 | ||||||||||||
Mr. McConville | 316,404 | 142,382 | 426 | 459,212 | ||||||||||||
| (1) | Reflects projected medical, dental, vision and life insurance continuation premiums paid by the Company during the |
InformationFor information with respect to stock options and RSUs held by each executive officerNEO as of December 31, 2013, appears in2015, refer to the Outstanding Equity Awards table.at 2015 Fiscal-Year End Table beginning on page 66.
Change in Control
Special provisions apply if a Change in Control occurs. In general, a Change in Control will occur if the Milton Hershey School Trust no longer owns voting control of the Company and another person or group acquires 30% or more of the combined voting power of our voting stock; there is an unwelcome change in a majority of the members of our Board, or, if after consummation of a merger or similar business transaction or a sale of substantially all of our assets, the Milton Hershey School Trust does not own voting control of the merged or acquiring company.
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The EBPP 3A providesand EBPP 3, as applicable, provide for the vesting and payment of the following benefits to each of the NEOs upon a Change in Control to each of the named executive officers:Control:
An OHIP payment for the year ofin which the Change in Control atoccurs, calculated as the greater of target or the estimated payment based on actual performance tothrough the date of the Change in Control;
For awards granted prior to April 28, 2011,To the extent not vested, full vesting of benefits accrued under the DB SERP and the Deferred Compensation Plan; and
Under our EICP, awards are continued as qualifying replacement awards after a Change in Control, and therefore, no accelerated vesting or payment will occur for such awards because of the Change in Control. In the event of termination of employment within two years following the Change in Control for any reason other than termination for Cause or resignation without Good Reason, the replacement awards will vest and become payable as described above.
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The following table and explanatory footnotes provide information with respect to the incremental amounts that would have vested and become payable on December 31, 2015, if a Change in Control occurred on that date. All unvested awards would continue as qualifying replacement awards, and therefore are not included in the table below:
Name
| One Hershey ($)
| PSU Related Payments ($)
| Vesting Stock Options ($)
| Vesting of Restricted Stock Units ($)
| Retirement ($)
| Total(3) ($)
| ||||||||||||||||||
Mr. Bilbrey | 762,039 | — | — | — | — | 762,039 | ||||||||||||||||||
Ms. Little | 66,003 | — | — | — | 94,260 | 160,263 | ||||||||||||||||||
Ms. Buck | 151,739 | — | — | — | 6,766,961 | 6,918,700 | ||||||||||||||||||
Mr. O’Day | 101,445 | — | — | — | — | 101,445 | ||||||||||||||||||
Ms. Turner | 78,018 | — | — | — | 356,180 | 434,198 | ||||||||||||||||||
Mr. McConville | 48,892 | — | — | — | — | 48,892 | ||||||||||||||||||
| (1) | Reflects the difference between the target amount and the actual amount earned based upon salary received in 2015. |
| (2) | Reflects the full vesting value of DB SERP benefits and more favorable early retirement discount factors as provided under the EBPP 3A. Mr. Bilbrey is fully vested in his DB SERP benefit so no additional benefit is applicable. For Ms. Little, the amount includes the vesting of her DC SERP benefit, 401(k), Supplemental Match, CRC and Supplemental CRC. For Ms. Buck, the amount includes the vesting of her DB SERP benefit. Mr. O’Day is fully vested in his DC SERP benefit so no additional benefit is applicable. For Ms. Turner, the amount includes the vesting of her DC SERP benefit. |
| (3) | For any given executive, the total payments made in the event of termination after a Change in Control would be reduced to the “safe harbor” limit under IRC Section 280G if such reduction would result in a greater after-tax benefit for the executive. |
Termination without Cause or Resignation for Good Reason after Change in Control
If a NEO’s employment is terminated by the Company without Cause or by the NEO for Good Reason within two years after a Change in Control, we pay severance benefits under the EBPP 3A or EBPP 3, as applicable, to assist the NEO in transitioning to new employment. These severance benefits as of December 31, 2015, consist of:
| • | A lump sum cash payment equal to two (or, if less, the number of full and fractional years from the date of termination to the executive’s 65th birthday, but not less than one) times: |
| ¡ | The executive’s base salary; and |
| ¡ | The highest OHIP award payment paid or payable during the three years preceding the year of the Change in Control (but not less than the OHIP target award for the year of the termination); |
For replacement PSU awards, granted prior to April 28, 2011, full vesting of outstanding PSU awardsPSUs at target that are in the second year of the performance cycle at the time of the Change in Control and prorated vesting of outstanding PSU awardsPSUs at target that are in the first year of the performance cycle at the time of the Change in Control;
To the extent not vested, full vesting of benefits accrued under the CLRP, DB SERP and the Deferred Compensation Plan; and
To the extent not vested, full vesting of benefits under thetax-qualified defined benefit pension plan and the 401(k).
Our Incentive Plan provides for full vesting of all outstandingFor replacement stock options and RSUsRSU awards (including accrued cash credits equivalent to dividends that would have been earned had the executive held Common Stock instead of RSUs) granted prior to April 28, 2011, upon a Change in Control.
The, full vesting and payment provisions applicable to PSUs,of all unvested stock options and RSUs described aboveRSUs;
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| • | For executives who do not participate in the pension plan, a lump sum equal to the CRC rate times the sum of their base salary and OHIP earnings times the number of years in their Severance Period (two, or, if less, the number of full and fractional years from the date of termination to the executive’s 65th birthday, but not less than one). IRS limitations imposed on the 401(k) and pension plans will not apply for this purpose; |
The following table provides the severance payments and explanatory footnotes provide information with respect to the incrementalall other amounts that would have vested and become payable on December 31, 2013, if a Change in Control occurred and the executive’s employment terminated on that date and any awards made on or after April 28, 2011, were continued as qualifying replacement awards.December 31, 2015:
| Name | One Hershey ($) | PSU Related Payments(2) ($) | Vesting of Stock Options(3) ($) | Vesting of Restricted Stock Units(4) ($) | DB SERP/ DC SERP Benefits(5) ($) | Total(6) ($) | ||||||||||||||||
J. P. Bilbrey | — | 88,490 | 3,846,102 | — | — | 3,934,592 | ||||||||||||||||
D. W. Tacka | — | 19,966 | 910,440 | — | — | 930,406 | ||||||||||||||||
H. P. Alfonso | — | 52,749 | 2,196,953 | — | — | 2,249,702 | ||||||||||||||||
M. G. Buck | — | 35,988 | 1,653,995 | — | 4,432,286 | 6,122,269 | ||||||||||||||||
T. L. O’Day | — | 43,629 | 2,129,671 | — | — | 2,173,300 | ||||||||||||||||
L. M. Turner | — | — | — | — | 187,595 | 187,595 | ||||||||||||||||
Name
| Lump Sum ($)
| PSU Related ($)
| Vesting ($)
| Vesting of ($)
| Value of ($)
| Value of ($)
| Value of DC SERP ($)
| Total(5) ($)
| ||||||||||||||||||||||||
Mr. Bilbrey | 7,453,372 | 2,806,736 | 2,276,327 | — | 27,630 | 68,000 | 5,164,492 | 17,796,557 | ||||||||||||||||||||||||
Ms. Little | 2,100,000 | 154,439 | — | 1,504,934 | 33,188 | 68,000 | 420,000 | 4,280,561 | ||||||||||||||||||||||||
Ms. Buck | 2,622,428 | 1,214,381 | 550,343 | — | 36,461 | 68,000 | 1,929,560 | 6,421,173 | ||||||||||||||||||||||||
Mr. O’Day | 1,116,607 | 504,893 | 500,881 | — | 11,622 | 68,000 | 223,321 | 2,425,324 | ||||||||||||||||||||||||
Ms. Turner | 2,112,965 | 843,925 | 213,975 | 673,092 | 12,014 | 68,000 | 422,593 | 4,346,564 | ||||||||||||||||||||||||
Mr. McConville | 1,058,528 | 127,641 | 83,166 | — | 852 | 68,000 | 79,390 | 1,417,577 | ||||||||||||||||||||||||
| (1) |
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| Amounts reflect vesting of PSUs awarded, |
For the performance cycle which ended on December 31, 2013, at2015, the difference between target and actual performance as of December 31, 2013,2015, and the difference between a value per PSU of $99.51,$91.42, the highest closing price for our Common Stock on the NYSE during the last 60 days of 2013,2015, and a value per PSU of $97.23,$89.27, the closing price of our Common Stock on the NYSE on December 31, 2013.2015;
Because Messrs. Bilbrey, O’Day and McConville were retirement eligible as of December 31, 2015, as of that date they had already vested in a portion of the PSU awards for the performance cycles ending December 31, 2016 and December 31, 2017. Accordingly, with respect to these NEOs, the amount for the performance cycle ending December 31, 2016, reflects only (i) an incremental
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payment of the portion of the PSU award that would vest upon termination following a Change in Control (i.e. 1/3 of the total award) and (ii) an incremental benefit equal to the difference between a value per PSU of $91.42, the highest closing price of our Common Stock on the NYSE during the last 60 days of 2015, and a value per PSU of $89.27, the closing price of our Common Stock on the NYSE on December 31, 2015, while the amount for the performance cycle ending December 31, 2017, reflects only an incremental benefit equal to the difference between a value per PSU of $91.42 and a value per PSU of $89.27.
| Reflects the value of unvested options that would vest upon the executive’s employment termination following a Change in Control based on the excess, if any, of the value of our Common Stock of |
| (3) | Value of maximum payment for financial planning and tax preparation continuation for two years following termination of employment plus outplacement services of $35,000. |
| (4) |
| (5) |
| For any given executive the total payments made in the event of termination after a Change in Control would be reduced to the “safe harbor” limit under IRC Section 280G if such reduction would result in a greater after-tax benefit for the executive. |
Termination without Cause or Resignation for Good Reason after Change in Control
If the named executive officer’s employment is terminated by the Company without Cause or by the executive for Good Reason within two years after a Change in Control, we pay severance benefits to assist the executive in transitioning to new employment. Good Reason for this purpose includes, but is not limited to, the material diminution of the executive’s position, authority, duties or responsibilities; a material reduction in base salary; the Company’s unilateral failure to pay current compensation or to continue in effect applicableshort- andlong-term compensation and employee and retirement benefits; or the failure to fund a grantor trust to support payment of amounts under the EBPP 3A. The severance benefits under the EBPP 3A for termination without Cause or a resignation for Good Reason after a Change in Control as of December 31, 2013, consist of:
|
|
|
For replacement awards relating to awards granted on or after April 28, 2011, full vesting for any PSU awards for the performance cycle ending in the year of the Change in Control. The cash payment will be based upon the greater of target or actual performance through the date of the Change in Control, with each PSU valued at the highest closing price for our Common Stock during the 60 days prior to the Change in Control;
For replacement awards relating to awards granted on or after April 28, 2011, full vesting of outstanding PSU awards at target that are in the second year of the performance cycle at the time of the Change in Control and prorated vesting of outstanding PSU awards at target that are in the first year of the performance cycle at the time of the Change in Control;
Continuation of medical and other benefits for 24 months (or, if less, the number of months until the executive attains age 65, but not less than 12 months), or payment of
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|
|
Outplacement services up to $35,000 and reimbursement for financial counseling and tax preparation services for two years;
For participants in the DB SERP an enhanced benefit reflecting an additional two years of credit; and
For participants in the DC SERP an enhanced benefit reflecting a cash payment equal to the applicable percentage rate multiplied by his or her annual base salary and last annual incentive pay calculated as if such amounts were paid during the years in the executive’s severance period.
In February 2011, we amended the EBPP 3A to eliminate the excise tax gross-up for all participants.
Our Incentive Plan provides for full vesting of all unvested replacement awards relating to outstanding stock options and RSUs (including accrued cash credits equivalent to dividends that would have been earned had the executive held Common Stock instead of RSUs) granted on or after April 28, 2011, for a termination after a Change in Control. The table below summarizes the severance payments and all other amounts that would have vested and become payable if a Change in Control occurred and the executive officer’s employment terminated on December 31, 2013.
| Name | Lump Sum Severance Payment ($) | PSU ($) | Vesting ($) | Vesting of Restricted Stock Units(3) ($) | Value of Medical and Other Benefits Continuation(4) ($) | Value of Financial Planning and Outplace- ment(5) ($) | Value of Enhanced DB SERP/ DC SERP and 401(k) Benefit(6) ($) | Total(7) ($) | ||||||||||||||||||||||||||||||||||||||
J. P. Bilbrey | 6,625,752 | 1,277,901 | (8) | 10,437,432 | — | 25,053 | 66,600 | 7,281,922 | 25,714,660 | |||||||||||||||||||||||||||||||||||||
D. W. Tacka | 1,700,000 | 106,953 | (9) | 791,924 | — | 23,080 | 66,600 | 1,422,427 | 4,110,984 | |||||||||||||||||||||||||||||||||||||
H. P. Alfonso | 2,569,687 | 343,546 | (9) | 2,339,933 | — | 23,731 | 66,600 | 513,938 | 5,857,435 | |||||||||||||||||||||||||||||||||||||
M. G. Buck | 2,189,753 | 1,009,572 | 2,154,766 | — | 32,808 | 66,600 | 1,804,066 | 7,257,565 | ||||||||||||||||||||||||||||||||||||||
T. L. O’Day | 1,106,896 | 238,214 | (9) | 1,960,813 | — | 10,366 | 66,600 | 212,973 | 3,595,862 | |||||||||||||||||||||||||||||||||||||
L. M. Turner | 1,568,000 | 708,159 | 915,982 | 2,096,640 | 10,599 | 66,600 | 313,600 | 5,679,580 | ||||||||||||||||||||||||||||||||||||||
For the performance cycle ended December 31, 2013, at actual performance as of December 31, 2013, and the difference between a value per PSU of $99.51, the highest closing price for our Common Stock during the last 60 days of 2013, and a value per PSU of $97.23, the closing price of our Common Stock on the NYSE on December 31, 2013;
For the performance cycle ending December 31, 2014, at target performance as of December 31, 2013, with the value per PSU of $97.23, the closing price of our Common Stock on the NYSE on December 31, 2013; and
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For the performance cycle ending December 31, 2015, one-third of the contingent target units awarded, at target performance as of December 31, 2013, with the value per PSU of $97.23, the closing price of our Common Stock on the NYSE on December 31, 2013.
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PROPOSAL NO. 3 – NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATIONAPPROVAL OF OUR NAMED EXECUTIVE OFFICERS
What am I voting on?OFFICER COMPENSATION ON A NON-BINDING
YouADVISORY BASIS
| ü | The Board of Directors unanimously recommends that stockholders voteFOR approval of the Company’s named executive officer compensation on a non-binding advisory basis |
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and related SEC rules, and as required under Section 14A of the Exchange Act, we are being askedproviding stockholders an opportunity to voteapprove the compensation of our NEOs as disclosed in this Proxy Statement on a non-binding advisory basis. This proposal, commonly known as athe “say-on-pay” proposal,vote, will be presented annually until the 2017 Annual Meeting of Stockholders, at which givestime stockholders will be asked to vote again on how frequently we should hold the “say-on-pay” vote.
Prior to submitting your vote, we encourage you to read our Compensation Discussion & Analysis beginning on page 42 and the opportunity to approve or not approve,accompanying executive compensation tables beginning on a non-binding advisory basis,page 61 for details about our executive officer compensation program, policies and practices throughincluding information about the following resolution:
“RESOLVED, that the stockholders of The Hershey Company approve, on an advisory basis, the2015 compensation of the Company’s named executive officers, as describedour NEOs.
As discussed in more detail in the Compensation Discussion and Analysis, the compensation tables and the accompanying narrative disclosure set forth, pursuant to Item 402 of Regulation S-K, in the Company’s proxy statement for the 2014 annual meeting of stockholders.”
What factors should I consider in voting on this proposal?
We urge you to consider the various factors regarding our executive compensation program, policies and practices as detailed in the Compensation Discussion and Analysis, beginning on page 44.
As discussed at length in the Compensation Discussion and& Analysis, we believe that our executive compensation program is competitive and governed by pay-for-performance principles. We emphasize compensation opportunities that reward results. Our stock ownership requirements and use of stock-based incentives reinforce the alignment of the interests of our executives with those of our long-term stockholders. In doing so, our executive compensation program supports our strategic objectives and mission.
Why is this proposal being submittedAccordingly, we ask you to approve the following resolution at the Annual Meeting:
“RESOLVED, that the stockholders of The Hershey Company approve, on an advisory basis, the compensation paid to the stockholders?
This “say-on-pay” proposal is being submittedCompany’s named executive officers, as disclosed in the Proxy Statement for the 2016 Annual Meeting of Stockholders pursuant to you to obtain the advisory vote ofSEC’s compensation disclosure rules, including the stockholders in accordance withCompensation Discussion & Analysis, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, section 14A of the Securities Exchange Act of 1934, as amended,Executive Compensation Tables and the SEC’s rules. The Dodd-Frank Act requires that public companies give their stockholders the opportunity to cast advisory votes relating to executive compensation at the first annual meeting of stockholders held after January 21, 2011, and no less frequently than once every three years thereafter. At the 2011 annual meeting, the Board of Directors recommended, and our stockholders approved, holding a “say-on-pay” vote every year. Accordingly, we will hold a “say-on-pay” vote annually until the 2017 annual meeting, when stockholders will be asked to vote again on how frequently we should hold the “say-on-pay” vote.
Is this vote binding on the Board of Directors?related narrative discussion.”
Because your vote is advisory, it will not be binding upon the Board of Directors.Board. However, as noted in the Compensation Discussion & Analysis, the Compensation Committee and Analysis, ourthe Board of Directors (including our Compensation and Executive Organization Committee) will, as deemed appropriate, take into account the outcome of the vote when considering future decisions affecting executive compensation as it deems appropriate.compensation.
How many votes will be required for approvalThe affirmative vote of Proposal No. 3?
Approvalthe holders of Proposal No. 3, the advisory, non-binding “say-on-pay” proposal, requires thatat least a majority of the votes of the shares of Common Stock and Class B Common Stock present(voting together as a class) represented at the Annual Meeting, in person or by proxy, is required to approve this proposal.
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PROPOSAL NO. 4 – RE-APPROVAL OF THE MATERIAL TERMS OF
THE PERFORMANCE CRITERIA UNDER THE HERSHEY
COMPANY EQUITY AND INCENTIVE COMPENSATION PLAN
| ü | The Board of Directors unanimously recommends that stockholders vote FOR re-approval of the material terms of the performance criteria under the Company’s Equity and Incentive Compensation Plan |
We seek stockholder re-approval of the material terms of the performance criteria under The Hershey Company Equity and Incentive Compensation Plan (the “EICP”) so that compensation payable under the EICP may continue to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code (“Section 162(m)”).
Section 162(m) limits the deduction that a corporate may claim for compensation paid to its CEO and certain other NEOs (“Covered Employees”). Section 162(m) generally provides that amounts paid to a Covered Employee in excess of $1 million are not deductible. However, the deduction limitation of Section 162(m) does not apply to “performance-based compensation.” Compensation can qualify as “performance-based” under Section 162(m) only if a number of requirements are satisfied. One requirement is that the corporation’s stockholders must approve the material terms of the performance criteria pursuant to which the compensation is payable. For this purpose, the material terms include: (1) the employees eligible to receive compensation; (2) the business criteria on which the performance targets may be based and; (3) the maximum amount that an employee may receive for achieving the performance goals. Section 162(m) also requires that the material terms of the performance criteria be submitted to stockholders on a recurring basis as set forth in the regulations.
The EICP is intended to permit the grant of certain awards that qualify as “performance-based compensation” under Section 162(m). Stockholders are being asked to re-approve the material terms of the EICP’s performance criteria in accordance with the regulations so that these awards can continue to qualify as performance-based compensation that is deductible by the Company without regard to the limitation of Section 162(m).
A copy of the EICP, as most recently amended and restated, is attached to this Proxy Statement asAnnex A. The EICP has not been amended since it was approved by stockholders at the 2011 Annual Meeting of Stockholders.
No amendments or modifications to the EICP are being proposed for stockholder approval, and the approval of this proposal by stockholders will not result in any increase in the number of shares of our Common Stock currently available for issuance under the EICP.
Effect of Proposal
The sole effect of stockholder re-approval of the material terms of the performance criteria under the EICP is to facilitate our continued compliance with applicable legal requirements so that certain incentive awards granted to Covered Employees under the EICP may continue to qualify as tax deductible “performance-based compensation” under Section 162(m). However, even if this proposal is approved, there are additional requirements that must be satisfied for performance-based awards under the EICP to be fully deductible under Section 162(m). In addition, while re-approval of the performance criteria under the EICP is required for compensation to qualify as “performance-based compensation” under Section 162(m), it does not mean that all awards or other compensation under the EICP will qualify, or be intended to qualify, as performance-based compensation or otherwise be deductible.
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Summary of the EICP
The EICP promotes our success by providing a vehicle under which a variety of cash- or stock-based annual and long-term incentive and other awards can be granted to employees, non-employee directors and certain service providers upon whom the successful conduct of our business is dependent. These awards are intended to help us attract top talent, motivate the recipients to continue their efforts on behalf of the Company and remain in the service of the Company, and align their interests with the interests of our long-term stockholders. The EICP was last reviewed and approved by stockholders in 2011.
The following is a brief description of the material features of the EICP. This summary is qualified in its entirety by reference to the full text of the EICP, a copy of which is attached to this Proxy Statement asAnnex A.
Eligibility
Employees of the Company and its subsidiaries worldwide are eligible to be selected to receive one or more awards under the EICP. Individuals who provide services to the Company as consultants, or as contractors or through agencies per local custom or practice, also may be granted awards under the EICP. We cannot determine the actual number of individuals who will receive awards under the EICP because eligibility for participation in the EICP is at the discretion of the Compensation Committee. As of December 31, 2015, there were approximately 21,000 full- and part-time Hershey employees.
The EICP also provides for the grant of awards to our non-employee directors. There are currently 10 non-employee directors on our Board. The Board will determine and administer the awards to non-employee directors.
Shares Available Under the EICP
As of March 7, 2016, of the68,500,000 shares previously approved by the stockholders, there were remaining8,340,149 shares of our Common Stock subject to issuance pursuant to outstanding awards under the EICP and12,100,492 shares reserved for future awards.
If the aggregate number of shares issued under the EICP for any full-value awards made after February 22, 2011 (“full-value awards” are awards other than stock options and stock appreciate rights (“SARs”)) exceeds the full-value award pool of 6,918,266 shares, the aggregate number of shares available for issuance under the EICP will be reduced on a basis of 4.66 shares for each excess share issued. And, no more than 1,991,827 shares (or approximately 10% of the up to 19,918,266 shares authorized by stockholders in 2011 for issuance as future awards) may be issued with respect to full-value awards, other than performance awards, which at the date of grant are scheduled to fully vest prior to three years from the grant date.
To the extent that shares subject to an outstanding award under the EICP are not issued or are canceled by reason of the failure to earn the shares issuable under, or the forfeiture, termination, surrender, cancellation, or expiration of such award, then such shares shall, to the extent of such forfeiture or cancellation, again be available for awards under the EICP. If the shares were subject to a full-value award they will again be available for full-value awards. Shares shall not again be available if such shares are surrendered or withheld as payment of either the exercise price of an award or of withholding taxes in respect of an award. Awards settled solely in cash shall not reduce the number of shares of Common Stock available for awards. The exercise or settlement of an award of stock options or SARs reduces the shares available under the EICP by the gross number of stock options or SARs exercised or settled, not just the net amount of shares actually issued upon exercise or settlement of the award.
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Forms of Awards
The EICP provides for the granting of annual incentive awards, stock options, SARs, restricted stock units and performance stock units. The EICP also provides for the granting of restricted stock, performance stock and other stock-based and cash-based awards, including annual cash incentive awards and awards under deferred compensation plans.
Restricted stock awards and restricted stock units. Restricted stock awards and restricted stock units are shares of our Common Stock or rights reflecting the value of shares of our Common Stock that vest in accordance with terms and conditions established by the Compensation Committee. The Compensation Committee determines the number of shares subject to a restricted stock or restricted stock unit award, provided that during any calendar year no participant may be granted more than 500,000 shares. In determining whether an award of restricted stock or restricted stock units should be made, and/or the vesting schedule for an award, the Compensation Committee may impose whatever conditions to vesting it determines to be appropriate, which may include a requirement that vesting will
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occur only if certain performance goals are satisfied. We will issue a share of our Common Stock or pay cash equal to the fair market value of a share of Common Stock for each restricted stock unit that vests, as permitted by the Compensation Committee. Awards are subject to required tax withholding. We issue shares of our Common Stock at the time a restricted stock award is made, but the shares cannot be transferred or sold by the participant until they vest. |
Performance Criteria
The Compensation Committee may, in its discretion, make performance goals applicable to a participant with respect to an award. The Compensation Committee determines the performance goal, the length of the period over which performance against the goal is to be measured and the number of shares or cash to be paid based upon the extent to which the performance goal is achieved. Certain additional provisions apply to awards made to executive officers which are intended to meet the tax deductibility rules of Section 162(m). The EICP permits the Compensation Committee to reduce (but not increase) any award payment, notwithstanding the achievement of a performance goal.
The Compensation Committee may base a performance goal on one or more of the following criteria:
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Performance goals may be particular to a participant or the division, line of business or other unit in which the participant works, or the Company generally, and may be absolute in their terms or measured against or in relationship to the performance of a peer group or other external or internal measure. A performance goal may include or exclude items to measure specific objectives, including, without limitation, extraordinary or other non-recurring items, acquisitions and divestitures, internal restructuring and reorganizations, accounting charges and effects of accounting changes.
Dividends and Dividend Equivalents
Recipients of awards may be entitled to votereceive cash or stock dividends, or cash payments in amounts equivalent to cash or stock dividends declared with respect to shares of our Common Stock, and the Compensation Committee or the Board may provide that these amounts shall be deemed to have been reinvested in additional shares of our Common Stock or otherwise reinvested. The EICP contains an express prohibition on payment of dividends or dividend equivalents on any performance-based awards until those awards are earned and vested.
Administration
The Compensation Committee administers the EICP. Subject to the terms of the EICP and except as described below with respect to awards granted to non-employee directors or our CEO, the Compensation Committee has sole discretion to determine the employees and service providers who are granted awards, the size and types of these awards, and the terms and conditions of these awards. The Compensation Committee may delegate to one or more officers or directors appointed by the Compensation Committee its authority to grant and administer awards, but only the Compensation Committee can make awards to our executive officers. The Compensation Committee has on an annual basis delegated, and intends to continue to delegate, to our CEO authority to grant a limited number of stock options and restricted stock unit awards for recruitment, retention, performance recognition and promotion situations. The CEO may not make any awards to our executive officers or take any actions affecting their awards.
The Board administers awards to the non-employee directors and the independent directors of the Board administer awards to the CEO.
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U.S. Income Tax Considerations
A recipient of a stock option or SAR will not have taxable income upon the grant of the option or SAR. For options and SARs, the participant will recognize ordinary taxable income on exercise equal to the increase of the fair market value of the shares over the exercise price on the proposal are cast in favordate of exercise. In the United States, any gain or loss recognized upon any later disposition of the proposal.shares generally will be a capital gain or loss.
Unless the participant elects to be taxed at the time of receipt of an award of restricted stock or performance stock, the participant will not have taxable income until the restricted stock or performance stock vests. The taxable income will be the fair market value of the shares at the time of vesting. A recipient of restricted stock units, performance stock units, or deferred stock units or other stock-based awards and cash awards will not have taxable income until the award is paid. The participant will recognize taxable income equal to the fair market value of the shares or the amount of cash received by the participant. In addition, Section 409A of the Internal Revenue Code imposes certain restrictions on deferred compensation arrangements. Awards that are treated as deferred compensation under Section 409A are intended to meet the requirements of that section.
At the discretion of the Compensation Committee, the EICP allows a participant to satisfy tax withholding requirements under U.S. federal and state tax laws or applicable foreign tax laws in connection with the exercise or receipt of an award by electing to have shares of Common Stock withheld, or by delivering to us already-owned shares of our Common Stock, having a value equal to the amount required to be withheld. If shares of our Common Stock are withheld to satisfy a participant’s tax withholding obligations with respect to an award, then the withheld shares will not be available again for issuance under the EICP.
We will be entitled to a tax deduction in connection with an award under the EICP only in an amount equal to the ordinary taxable income realized by the participant and at the time the participant recognizes the income.
As indicated above, we are able to make awards under the EICP that qualify for exemption from the deduction limitations under Section 162(m). While we generally seek to take advantage of favorable tax treatment for executive compensation where appropriate, we may in the future award compensation that does not comply with the Section 162(m) requirements for deductibility if we conclude that to be in our best interests under the circumstances.
The tax discussion above is based on U.S. income tax laws as currently in effect and is not intended to be a complete discussion of or to address the tax treatment under any foreign jurisdiction or any state or local laws.
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Equity Compensation Plan Information
The following table provides information about all of the Company’s equity compensation plans as of December 31, 2015:
Plan Category
| Number of (#)
| Weighted-average ($)
| Number of (#)
| |||||||||
(a)
| (b)
| (c)
| ||||||||||
Equity compensation plans | ||||||||||||
Stock Options | 6,842,563 | $75.48 | ||||||||||
Performance Stock Units and Restricted Stock Units | 495,207 | N/A | ||||||||||
Subtotal | 7,337,770 | 13,800,072 | ||||||||||
Equity compensation plans not approved by security holders | ||||||||||||
Stock Options | N/A | N/A | ||||||||||
Total | 7,337,770 | $75.48 | (2) | 13,800,072 | ||||||||
| (1) | Includes amounts earned or paid in cash or shares of Common Stock at the election of the director or deferred by the director under the Directors’ Compensation Plan. Column (a) includes stock options, PSUs and RSUs granted under the EICP. Of the securities available for future issuances under the EICP in column (c), 7,760,847 were available for awards of stock options and 6,039,225 were available for full-value awards such as PSUs, performance stock, RSUs, restricted stock and other stock-based awards. Securities available for future issuance of full-value awards may also be used for stock option awards. As of December 31, 2015, 20,586 PSUs were excluded from the number of securities remaining available for issuance in column (c) because the measurement date had not yet occurred for accounting purposes. For more information, see Note 10 to the Consolidated Financial Statements contained in the 2015 Annual Report on Form 10-K that accompanies this Proxy Statement. |
| (2) | Weighted-average exercise price of outstanding stock options only. |
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How doesPROPOSAL NO. 5 – STOCKHOLDER PROPOSAL ENTITLED
“REPORT ON USE OF NANOMATERIALS”
As You Sow has advised the Company that it intends to present the following stockholder proposal at the Annual Meeting on behalf of stockholder Lutra Living Trust. In accordance with applicable proxy regulations, the proposed resolution and supporting statement, for which the Board and the Company accept no responsibility, are set forth below.
| × | The Board of Directors unanimously recommends that stockholders voteAGAINST the stockholder proposal entitled “Report on Use of Nanomaterials” |
Stockholder Proposal
Whereas: Nanotechnology is the science of Directors recommendmanipulating matter at the molecular scale to build structures, tools, or products. One nanometer is approximately one millionth the length of a grain of sand. While nanoparticles allow innovation, the scientific community has raised serious questions about their safety, especially when ingested.
Hershey’s Good and Plenty candies have been found in independent laboratory testing in 2014 to contain titanium dioxide nanoparticles.
Because of their small size, nanoparticles are more likely to enter cells, tissues, and organs where they may interfere with normal cellular function and cause damage and cell death. Peer-reviewed scientific research suggests that I vote?nanomaterials (including those larger than 100 nm) may not be safe for ingestion. There is no consensus on what size is safe, or what long-term effects these materials may have.
Severalin vivo andin vitro studies on the effects of titanium dioxide nanoparticles have raised potential concerns including that such nanoparticles may cause inflammation, cell death, and/or DNA damage (including DNA strand breaks and chromosomal damage in bone marrow and peripheral blood). (See Trouiller 2009; Lai 2008; Gerloff 2009; Tassinari 2013; Gui 2013; Lucarelli 2004).
The National Research Council reported in 2012 that “regulators, decision-makers, and consumers still lack the information needed to make informed public health and environmental policy and regulatory decisions” about nanoparticles.
Similarly, the U.S. Food and Drug Administration has not enacted regulations to protect consumer health related to use of nanomaterials in food, but has issued guidance stating:
Companies that use, intend to use, or simply allow the use of nanomaterials in their food and food packaging products may face significant financial, legal, or reputational risk. Proponents believe that the best way for Hershey’s to protect the public, and shareholder value, is to avoid using nanoparticles until and unless they have been subject to robust evaluation and demonstrated to be safe for human health and the environment.
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Resolved: Shareholders request the Board publish, by October 2016, at reasonable cost and excluding proprietary information, a report on Hershey’s use of nanomaterials, including the products or packaging that currently contain nanoparticles, the purpose of such, and actions management is taking to reduce or eliminate risk associated with human health and environmental impacts, such as eliminating the use of nanomaterials until and unless they are proven safe through long-term testing.
Board Statement in Opposition to Stockholder Proposal
The Board of Directors unanimously recommends that stockholders voteAGAINSTthe stockholder proposal.
voteFOR Proposal No. 3,We have a demonstrated commitment to conducting our business in an ethically and socially responsible manner, and we include the advisory resolution approvingsafety and quality of our products among our highest priorities. Each of our brands uses high quality ingredients and we have stringent food quality standards for all of our products that meet the requirements of the U.S. Food and Drug Administration (“FDA”). In addition, our Supplier Code of Conduct requires suppliers to comply with all laws, ordinances, rules, regulations and orders of public authorities pertaining to the business that supplies our system.
compensationThe science behind and research into nanotechnology as it relates to the food industry remains in its very early stages. The FDA has not issued final regulations regarding nanomaterials in food products and importantly, there remains no agreed upon method for analyzing a product for the presence of nanoparticles.
As part of our commitment to quality and safety, we regularly engage in discussions with regulatory agencies, suppliers and industry leaders on the topic of nanomaterials and have reviewed the use of nanotechnology in the food industry generally, as well as in our product portfolio. Specifically, we reviewed the ingredient of concern identified to us by As You Sow – titanium dioxide – which is commonly used as a food colorant. Our review indicated that when we use this ingredient in our products, such usage is within the FDA’s approved usage level, which allows for the use of titanium dioxide in food at a level of up to 1% of the weight of the food. International agencies such as the Joint FAO/WHO Expert Committee on Food Additives and the European Food Safety Authority have also evaluated titanium dioxide and support its use as a food colorant.
As we announced in 2015, we are in the process of reviewing the ingredients used in our products as part of a major initiative we call “Simple Ingredients.” Through this initiative, we are looking closely at every product in our portfolio and are striving to develop simpler recipes using ingredients with which consumers are familiar, including more natural colors and flavors. While we may not achieve simplicity with all of our products, we will continue to look for ways to transition our products to deliver no artificial flavors, no synthetic colors and no high fructose corn-syrup. For ingredients that are not as simple, we will continue to explain what they are and why we use them to provide the great flavors, aromas, textures and appearances that our consumers know and love.
For the reasons stated above, the Board feels strongly that the requested report would be an unnecessary diversion of the Company’s named executive officers asresources with no corresponding benefit to the Company or our stockholders, customers, or consumers. We will, nevertheless, continue to monitor developments with respect to the use of nanotechnologies to help ensure our products continue to meet recognized standards of safety and quality.
described in this proxy statement.
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SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
What is section 16(a) of the Securities Exchange Act of 1934?
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, andas well as any person who is the beneficial owner of more than 10% of our outstanding Common Stock, to file reports with the SEC and NYSE showing their ownership and changes in ownership of Hersheythe Company’s securities. Copies of these reports also must be furnished to us. Based solely on ouran examination of these reports and on written representations provided to us, it is our opinion that all reports for 20132015 were timely filed.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
What is being disclosed in this section?
Item 404 of SEC regulations requireRegulation S-K requires that we disclose any transaction or series of similar transactions, since the beginning of 2013, or any currently proposed transactions,transaction(s), in which (i) the Company was or is to be a participant, in which(ii) the amount involved exceeds $120,000 and in which(iii) any of the following persons had or will have a direct or indirect material interest:
Our directors or nominees for director;
Our executive officers;
Persons owning more than 5% of any class of our outstanding voting securities; or
The immediate family members of any of the persons identified in the preceding three bullets.
The SEC refers to these types of transactions asrelated person transactionsPolicies and to the persons listed in the bullets asrelated persons. The SEC is concerned about related person transactions because such transactions, if not properly monitored, may present risks of conflicts of interest or the appearance of conflicts of interest.Procedures Regarding Transactions with Related Persons
Does the Company have a policy to review, approve or ratify related person transactions?
OurThe Board has adopted a written Related Person Transaction Policy that governs the review, approval or ratification of related person transactions. The Related Person Transaction Policy may be viewed on the Company’sInvestors section of our website atwww.thehersheycompany.com, in the Investors section..
Under our policy,the Related Person Transaction Policy, each related person transaction, and any significant amendment or modification to a related person transaction, must be reviewed and approved or ratified by a committee of our Board composed solely of independent directors who have no interest in the transaction. We refer
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to each such committee as a Reviewing Committee. The policyRelated Person Transaction Policy also permits the disinterested members of the full Board to act as a Reviewing Committee.
The Board has designated the Governance Committee as the Reviewing Committee primarily responsible for the administration of the Related Person Transaction Policy. In addition, the Board has designated special Reviewing Committees to oversee certain transactions involving the Company and Hershey Trust Company, Milton Hershey School, the Milton Hershey School Trust and companies owned by or affiliated with any of the Milton Hershey School Trust, which we describe in further detail in the answer to the fourth question in this section below.foregoing. Finally, the policyRelated Person Transaction Policy provides that the Compensation and Executive Organization Committee will review and approve, or review and recommend to the Board for approval, any employment relationship or transaction involving an executive officer of the Company and any related compensation.
When reviewing, approving or ratifying a related person transaction, the Reviewing Committee will examine several things, including the approximate dollar value of the transaction and all material facts about the related person’s interest in, or relationship to, the transaction, including the approximate dollar value of the transaction. If the related person transaction involves an outside director or nominee for director, the Reviewing Committee also may consider whether the transaction would compromise the director’s status as an “independent director,” “outside director” or “non-employee director” under ourthe Board’s Corporate Governance Guidelines, and rules and regulations of the New York Stock Exchange,NYSE Rules, the Internal Revenue Code or the Securities Exchange Act of 1934, as amended.Act.
Was
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Transactions with Hershey Trust Company, Milton Hershey School and the Milton Hershey School Trust
During 2015, there were no transactions with the Company a participant in which any related person transactions in 2013,executive officer, director or does the Company currently contemplate being a participant innominee for director, or any related person transactions in 2014, involving its directors, executive officers orof their immediate family members?members, had a direct or indirect material interest that would need to be disclosed pursuant to Item 404 of SEC Regulation S-K, nor were any such transactions planned.
We were not a participant inIn any related person transactions in 2013, andgiven year, we do not currently contemplate being a participant in any related person transactions in 2014, involving our directors, executive officers or their immediate family members.
Was the Company a participant in any related person transactions in 2013, or does the Company currently contemplate being a participant in any related person transactions in 2014, involving a stockholder owning more than 5% of any class of the Company’s voting securities?
Wemay engage in certain transactions with Hershey Trust Company, Milton Hershey School, the Milton Hershey School Trust and companies owned by or affiliated with any of the Milton Hershey School Trust. As discussed in the next question, many of theseforegoing. These transactions are typically immaterial,ordinary-course transactions and arethat do not consideredconstitute related person transactions. However, from time to time we may also engage in certain related person transactions with Hershey Trust Company, Milton Hershey School, the Milton Hershey School Trust and/or their subsidiaries and its affiliates.
Our Board has directed that Under the Board’s Corporate Governance Guidelines, a special Reviewing Committee normally composed of the directors elected by the holders of the Common Stock voting separately as a class reviewreviews and makemakes recommendations to the Board regarding these transactions. However, the BoardThe Corporate Governance Guidelines also has directed that, if there are no directors on the Board who were elected by the holders of our Common Stock voting separately, such transactions will be reviewed by the independent members of the Executive Committee who have no affiliation with the Milton Hershey School Trust or its affiliates. In addition to the process outlined above, the Board has authorizedauthorize the independent directors having no affiliation with Hershey Trust Company, Milton Hershey School, the Milton Hershey School Trust or itstheir affiliates to designate anothera different special Reviewing Committee to review these transactions.
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We wereThe Company was not a participant in any related person transactions in 2013,2015, and dodoes not currently contemplate being a participant in any related person transactions in 2014,2016, involving Hershey Trust Company, as trustee for the Milton Hershey School Trust, its affiliates or any other stockholder owning more than 5% of any class of the Company’s outstanding voting securities.
Did the Company engage in other transactions with the Milton Hershey School Trust or its affiliates during 2013?securities that would need to be disclosed pursuant to Item 404 of SEC Regulation S-K.
During 2013,2015, we engaged in transactions in the ordinary course of our business with Hershey Trust Company, Milton Hershey School theand companies affiliated with Hershey Trust Company, Milton Hershey School Trust, and companies owned by the Milton Hershey School Trust. These transactions involved the sale and purchase of goods and services as well as the leasing of real estate at market rates. The transactions were primarily with Hershey Entertainment & Resorts Company, a company that is wholly owned by the Milton Hershey School Trust. All sales and purchases were made on terms and at prices we believe were generally available in the marketplace and were in amounts that were not material to us or to the Milton Hershey School Trust.Entertainment & Resorts Company. Therefore, they are not related personthese transactions and did not have to be approvedrequire approval under our Related Person Transaction Policy. However,
Although our transactions with Hershey Trust Company, Milton Hershey School and the companies affiliated with each of the foregoing and with the Milton Hershey School Trust (including Hershey Entertainment & Resorts Company) are either immaterial or otherwise not required to be disclosed under Item 404 of SEC Regulation S-K, because of our relationship with the Milton Hershey School Trust,these entities, we have elected to disclose the aggregate amounts of our purchase and sale transactions with these entities for your information. In this regard:
Our total sales to these entities in 20132015 were approximately $1.8 million; and
Our total purchases from these entities in 20132015 were approximately $3.2$3.0 million.
We do not expect that the types of transactions or the amount of payments willto change materially in 2014.
In prior years we made monetary contributions to the M. S. Hershey Foundation to support the capital campaign for The Hershey Story, The Museum on Chocolate Avenue, a facility constructed by the Foundation in Hershey, Pennsylvania, to honor the life and legacy of our founder, Milton S. Hershey. We have contributed $1.0 million to the Foundation to support The Hershey Story’s capital campaign; however, no monetary contributions were made in 2013. The Foundation was established by Mr. Hershey in 1935 to provide educational and cultural benefits for the residents of Derry Township, Pennsylvania, where the community of Hershey is located. The Foundation is separate from the Milton Hershey School Trust; however, it is governed by a board of managers appointed by Hershey Trust Company, as trustee for the trust established by Mr. Hershey to benefit the Foundation, from the membership of the board of directors of Hershey Trust Company. James M. Mead, an independent member of our Board of Directors and an independent member of the board of directors of Hershey Trust Company and the board of managers of Milton Hershey School, also is a member of the board of managers of the Foundation. Mr. Mead received no compensation for his service on the board of managers of the Foundation.2016.
The Company also leases to Hershey Entertainment & Resorts Company a portion of a building owned and occupied by the Company in Hershey, Pennsylvania. The leased area consists of approximately 22,500 square feet of storage space in the building that is not being utilized currently by the Company. The lease was first entered into on January 1, 2011, and had a term of one year. The lease permits
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Hershey Entertainment & Resorts Company to renew the lease for subsequent one-year terms and, if space is available, to request an increase in the area occupied. Hershey Entertainment & Resorts Company has renewed the lease for additional one-year terms beginning January 1 of 2013 and 2014,each year since 2012, and in 2013 elected to increase its total occupied area. The lease is on terms we believe are generally available in the marketplace and is not material to us or Hershey Entertainment & Resorts Company. Rent during 20132015 was $180,000$276,780 and for 20142016 is expected to be $270,000,$288,900, which amounts include a pro rata allocation of utilities, insurance, maintenance and other operating costs.
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INFORMATION ABOUT THECOMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Messrs. Cavanaugh, Malcolm, Palmer and Shedlarz and Ms. Haben served as members of our Compensation Committee during 2015. None of the members of our Compensation Committee served as one of our officers or employees during 2015 ANNUAL MEETINGor at any time in the past, and neither they nor any other director served as an executive officer of any entity for which any of our executive officers served as a director or member of its compensation committee.
WhenNone of the members of our Compensation Committee has a relationship with us that is the 2015required to be disclosed under Item 404 of SEC Regulation S-K.
Householding of Proxy Materials
The SEC has adopted rules that allow us to send in a single envelope our Notice of Internet Availability of Proxy Materials or a single copy of our proxy solicitation and other required annual meeting materials to two or more stockholders sharing the same address. We may do this only if the stockholders at that address share the same last name or if we reasonably believe that the stockholders are members of stockholders?the same family. If we are sending a Notice of Internet Availability of Proxy Materials, the envelope must contain a separate notice for each stockholder at the shared address. Each Notice of Internet Availability of Proxy Materials must contain a unique control number that each stockholder will use to gain access to our proxy materials and vote online. If we are mailing a paper copy of our proxy materials, the rules require us to send each stockholder at the shared address a separate proxy card.
We believe this rule is beneficial both to our stockholders and to the Company. Our 2015 annual meetingprinting and postage costs are lowered anytime we eliminate duplicate mailings to the same household. However, stockholders at a shared address may revoke their consent to the householding program and receive their Notice of stockholders willInternet Availability of Proxy Materials in a separate envelope, or, if they have elected to receive a full copy of our proxy materials in the mail, receive a separate copy of these materials. If you have elected to receive paper copies of our proxy materials and want to receive a separate copy of these materials for our 2016 Annual Meeting, please call our Investor Relations Department, toll free, at (800) 539-0261. If you consented to the householding program and wish to revoke your consent for future years, simply call, toll free, (866) 540-7095, or write to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717.
Information Regarding the 2017 Annual Meeting of Stockholders
The 2017 Annual Meeting of Stockholders is expected to be held on April 28, 2015.
What is the deadline to submit a proposal for inclusion in the proxy materials for the 2015 annual meeting?
May 3, 2017. To be eligible for inclusion in the proxy materials for the 2015 annual meeting,2017 Annual Meeting of Stockholders, a stockholder proposal
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must be received by our Corporate Secretary by the close of business onno later than November 18, 2014,23, 2016, and must comply in all respects with applicable rules of the SEC. Stockholder proposals should be addressed to The Hershey Company, Attn:c/o Corporate Secretary, 100 Crystal A Drive, Hershey, Pennsylvania 17033-0810.
What procedure should I follow if I intend to present a proposal or nominate a director from the floor at the 2015 annual meeting?
A stockholder may present a proposal not included in our 2015 proxy materials from the floor of the 2015 annual meeting2017 Annual Meeting of Stockholders only if our Corporate Secretary receives notice of the proposal, along with additional information required by our by-laws, during the time period beginning at the close of business on December 30, 2014,between January 4, 2017 and ending at the close of business on January 29, 2015.February 3, 2017. Notice should be addressed to The Hershey Company, Attn:c/o Corporate Secretary, 100 Crystal A Drive, Hershey, Pennsylvania 17033-0810.
The notice must contain the following additional information:
The stockholder’s name and address;
The stockholder’s shareholdings;
A brief description of the proposal;
A brief description of any financial or other interest the stockholder has in the proposal; and
Any additional information that the SEC would require if the proposal were presented in a proxy statement.
A stockholder may nominate a director from the floor of the 2015 annual meeting2017 Annual Meeting of Stockholders only if our Corporate Secretary receives notice of the nomination, along with additional information required by our by-laws, during the time period beginning at the close of business on December 30, 2014,between January 4, 2017 and ending at the close of business on January 29, 2015.February 3, 2017. The notice must contain the following additional information:
The stockholder’s name and address;
A representation that the stockholder is a holder of record of any class of our equity securities;
A representation that the stockholder intends to make the nomination in person or by proxy at the meeting;
A description of any arrangement the stockholder has with the individual the stockholder plans to nominate and the reason for making the nomination;
The nominee’s name, address and biographical information;
The written consent of the nominee to serve as a director if elected; and
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Any additional information regarding the nominee that the SEC would require if the nomination were included in a proxy statement regardless of whether the nomination may be included in such proxy statement.
Any stockholder holding 25% or more of the votes entitled to be cast at the annual meeting2017 Annual Meeting of Stockholders is not required to comply with these pre-notification requirements.
By order of the Board of Directors,
Leslie M. Turner
Senior Vice President,
General Counsel and Secretary
March 18, 201424, 2016
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Annex A
THE HERSHEY COMPANY
EQUITY AND INCENTIVE COMPENSATION PLAN
(As amended and restated February 22, 2011)
1.Establishment and Purpose. The Hershey Company (the “Company”) hereby amends and restates The Hershey Company Equity and Incentive Compensation Plan (the “Plan”). The purpose of the Plan is to provide to employees,non-employee directors and certain service providers to the Company or its subsidiaries (as defined below), upon whose efforts the Company is dependent for the successful conduct of its business, further incentive to continue and increase their efforts and to remain in the service of the Company and its subsidiaries.
The Plan was originally adopted by the Board of Directors and approved by the stockholders during 2007 as an amendment, restatement and continuation of the Key Employee Incentive Plan (“KEIP”), including the Annual Incentive Program (“AIP”) and the Long-Term Incentive Program (“LTIP”) portions of the KEIP, with certain modifications, and to be the vehicle for any future awards under the Broad Based Stock Option Plan, Directors’ Compensation Plan and Broad Based Annual Incentive Plan.
This amendment and restatement of the Plan was adopted by the Board of Directors on February 22, 2011, subject to approval of the stockholders at the 2011 Annual Meeting of Stockholders. This Plan shall be effective on the date of such stockholder approval (the “Effective Date”).
As used herein, (i) the term “Subsidiary Company” or “Subsidiary” shall mean any present or future corporation or entity which is or would be a “subsidiary” of the Company as defined in Section 424 of the Internal Revenue Code of 1986 (the “Code”) or any successor provision, and (ii) the term “Company” defined above shall refer collectively to The Hershey Company and its Subsidiary Companies unless the context indicates otherwise.
| 2. | Stock Subject to the Plan. |
(a) The aggregate number of shares of the Company’s common stock, $1.00 par value per share (the “Common Stock”), that may be issued under the Plan pursuant to awards granted wholly or partly in Common Stock (including rights or options which may be exercised for or settled in Common Stock) is (i) 16,500,000, plus the remaining 3,418,266 shares previously authorized by the stockholders for issuance as full-value awards (as defined below) under the Plan, but which as of February 22, 2011 have not been issued or are not subject to an outstanding award, together with (ii) 21,392,336 shares previously authorized by the stockholders for issuance under the Plan that may be issued pursuant to awards outstanding under the Plan as of February 22, 2011. In the event that the number of shares issued under the Plan with respect to awards made after February 22, 2011 that are not stock options or stock appreciation rights (such other awards being “full-value awards”), exceeds 6,918,266 (the “Full-Value Award Pool”), then the aggregate number of shares available for issuance under this Plan shall be reduced on the basis of 4.66 shares for each excess share issued. No more than 1,991,827 shares of Common Stock may be issued with respect to full-value awards, other than performance-based awards, which at the date of grant are scheduled to fully vest prior to three years from the date of grant (although such awards may provide scheduled vesting earlier with respect to some of such shares).
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(b) The shares of Common Stock issued under this Plan may be either authorized but unissued shares, treasury shares held by the Company or any direct or indirect subsidiary thereof, or shares acquired by the Company through open market purchases or otherwise.
(c) The number of shares of Common Stock underlying any awards outstanding on or after February 22, 2011 that are forfeited or terminated, surrendered, expire unexercised, or are settled in cash in lieu of Common Stock, shall not be considered issued or transferred under the Plan and shall immediately become available for issuance pursuant to awards hereunder. To the extent such shares were subject to a full-value award, those shares shall become available for issuance as part of the Full-Value Award Pool. Shares withheld by the Company to satisfy tax withholding obligations and all shares covered by stock appreciation rights and stock options, to the extent exercised and settled in Common Stock, shall be considered issued or transferred pursuant to the Plan. The Committee may from time to time adopt and observe such procedures concerning the counting of shares in accordance with the Plan limitations as it may deem appropriate.
3.Administration. The Plan shall be administered by the Compensation and Executive Organization Committee (the “Committee”), or any successor committee, appointed by and consisting solely of members of the Board of Directors (the “Board”) of the Company. To the extent provided by resolution of the Board, the Committee may authorize the Chief Executive Officer of the Company, acting to the extent necessary as a committee of the Board, and other senior officers of the Company to designate officers and employees to be recipients of awards, to determine the terms, conditions, form and amount of any such awards, and to take such other actions which the Committee is authorized to take under this Plan, provided that the Committee may not delegate to any person the authority to grant awards to, or take other action with respect to, participants who at the time of such awards or action are subject to Section 16 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) or are “covered employees” as defined in Section 162(m) of the Code. Notwithstanding the foregoing, awards relating to thenon-employee directors shall be administered by the full Board of Directors, who shall have all of the authority and discretion otherwise granted to the Committee with respect to the administration of the Plan, and with respect to such awards, reference herein to “Committee” shall mean reference to the Board, and to the extent required by the Company’s governing documents or the Board, awards to the Company’s Chief Executive Officer shall be administered by the independent directors on the Company’s Board, and with respect to such awards references to “Committee” shall mean reference to such independent directors.
Subject to the terms and conditions of the Plan, the Committee shall have authority: (i) to determine the terms, conditions, form and amount of awards, distributions or payments granted or made to each participant, including conditions upon and provisions for vesting, exercise and acceleration of any awards, distributions or payments, which terms and conditions shall be set forth in an agreement or other writing, and any amendment or modification thereof (which agreement or other writing may be framed as a subplan, program, notification, statement, resolutions or other document) evidencing such award (any such agreement or writing being an “award agreement”); (ii) to construe and interpret the terms and intent of the Plan and any award agreement; (iii) to define the terms used in the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to select individuals to participate in the Plan; (vi) upon the request of a participant in the Plan, to approve and determine the duration of leaves of absence which may be granted to the participant without constituting a termination of his or her employment for purposes of the Plan; (vii) to adopt such procedures, agreements, arrangements, subplans and terms as are necessary or appropriate to permit participation in the Plan by employees who are foreign nationals or employed outside the United States; and (viii) to make all other determinations necessary or advisable for the administration and operation of the Plan. The Committee shall have the right to impose varying terms and conditions with respect to each grant or award. All determinations and interpretations made by the Committee shall be final, binding and conclusive on all participants and on their legal representatives and beneficiaries.
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4. Fair Market Value. As used in the Plan (unless a different method of calculation is required by applicable law, and except as otherwise specifically provided in any Plan provision or provided by the Committee with respect to an award), “Fair Market Value” on or as of the applicable date shall mean (i) the closing price of the Common Stock as reported in the New York Stock Exchange Composite Transactions Report (or any other consolidated transactions reporting system which subsequently may replace such Composite Transactions Report) for the New York Stock Exchange on such date (or, unless otherwise provided in the award with respect to awards made prior to April 17, 2007, the trading day immediately preceding such date), or if there are no sales on such date, on the next preceding day on which there were sales, or (ii) in the event that the Common Stock is no longer listed for trading on the New York Stock Exchange, an amount determined in accordance with standards adopted by the Committee.
5.Eligibility and Participation. Employees,non-employee directors and individuals who provide services to the Company or any of its Subsidiary Companies as consultants, contractors or agency employees, shall be eligible for selection to participate in the Plan. An individual who receives an award under the Plan is referred to herein as a participant. A participant may receive more than one award from time to time, and may be granted any combination of awards as the Committee shall determine.
6.Annual Incentive Program. The Committee may from time to time, subject to the provisions of the Plan and such other terms and conditions as the Committee may determine, establish contingent target awards for those eligible individuals it selects to participate in the AIP. Each such contingent target award shall be evidenced by an award agreement, and shall be determined based upon such factors as are deemed appropriate by the Committee, subject to the following:
(a) The amounts earned by and paid to AIP participants with respect to the contingent target awards (“AIP Awards”) will be based primarily upon achievement of Performance Goals (as defined in Paragraph 9 below) over aone-year performance cycle as approved by the Committee.
(b) The Committee, within the limits of the Plan, shall have full authority and discretion to determine the time or times of establishing AIP Awards; to select from among those eligible the individuals to receive AIP Awards; to designate the amounts to be earned under the AIP Award in relation to levels of achievement of Performance Goals; to adopt such financial and nonfinancial performance or other criteria for the payment of AIP Awards as it may determine from time to time; to establish such other measures as may be necessary to achieve the objectives of the Plan; and to review and certify the achievement of Performance Goals. The financial or nonfinancial Performance Goals established by the Committee may be based upon one or more Performance Factors (as defined in Paragraph 9 below).
(c) Any AIP Award the Committee intends to be performance-based compensation within the meaning of Section 162(m) of the Code, shall be based on one or more Performance Factors and otherwise established, earned and paid in conformity with the provisions of Paragraph 9 applicable to Performance Awards.
(d) The maximum amount any participant can receive as an AIP Award for any calendar year shall not exceed $10,000,000.
(e) AIP Awards as earned under the terms of the Plan shall be paid in cash, Common Stock or in a combination thereof as the Committee in its sole discretion shall determine, and may be equal to, exceed or be less than the contingent target awards, subject nevertheless to the maximum award limit set forth in subparagraph (d) above.
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(f) The disposition of AIP Awards held by a participant at the time of (i) termination of service shall be determined in accordance with Paragraph 8 below, and (ii) a Change in Control shall be determined in accordance with Paragraph 15 below.
7.Long-Term Incentive Program. Awards under the LTIP may be one or more of the following:
| I. | Performance Stock Units and Performance Stock |
The Committee may, subject to the provisions of the Plan and such other terms and conditions as the Committee may determine, grant Performance Stock Units and/or shares of Performance Stock to reflect the value of contingent target awards established for each eligible individual selected for participation. Each grant of Performance Stock Units or Performance Stock shall be evidenced by an award agreement, subject to the following:
| (a) | Each Performance Stock Unit shall be equivalent to a share of Common Stock and each share of Performance Stock shall be a share of Common Stock. The amount actually earned by and paid to holders of Performance Stock Units and/or Performance Stock (“PSU/PS Awards”) will be based upon achievement of Performance Goals over performance cycles established by the Committee. Such performance cycles each shall cover such period of time as the Committee from time to time shall determine. |
| (b) | The Committee, within the limits of the Plan, shall have full authority and discretion to determine the time or times of establishing contingent target awards and the awarding of Performance Stock Units and/or Performance Stock; to select the eligible individuals to receive PSU/PS Awards; to designate levels of awards to be earned in relation to levels of achievement of Performance Goals; to adopt such financial and nonfinancial performance or other criteria for the payment of PSU/PS Awards as it may determine from time to time; to make awards; to establish such other measures as may be necessary to the objectives of the Plan; and to review and certify the achievement of Performance Goals. The Performance Goals established by the Committee may be based on one or more of the Performance Factors. |
| (c) | Payments of PSU/PS Awards shall be made in shares of Common Stock, provided payments of Performance Stock Unit awards may be made in Common Stock, cash, or a combination thereof, as the Committee in its sole discretion shall determine; provided, however, that no fractional shares shall be issued and any such fraction will be eliminated by rounding downward to the nearest whole share. Dividends or dividend equivalents, if any, credited with respect to PSU/PS Awards shall not be payable prior to the payment, if any, of the PSU/PS Award. |
| (d) | PSU/PS Awards earned under the terms of the Plan may be equal to, exceed or be less than the contingent target award. |
| (e) | All unearned or unvested PSU/PS Awards shall be forfeited to the Company. |
| (f) | The maximum aggregate number of shares of Common Stock covered by awards of Performance Stock Units and shares of Performance Stock that a participant may receive with respect to any calendar year shall be 500,000 shares. |
| (g) | The disposition of PSU/PS Awards held by a participant at the time of (i) termination of service shall be determined in accordance with Paragraph 8 below, and (ii) a Change in Control shall be determined in accordance with Paragraph 15 below. |
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| II. | Stock Options |
The Committee may, from time to time, subject to the provisions of the Plan and such other terms and conditions as it may determine, grant an award of nonqualified Options to purchase shares of Common Stock of the Company to individuals eligible to participate in the Plan. Each Option award shall be evidenced by an award agreement on such terms and conditions and be in such form as the Committee may from time to time approve, subject to the following:
| (a) | The exercise price per share with respect to each Option shall be determined by the Committee in its sole discretion, but shall not be less than 100% of the Fair Market Value of the Common Stock as of the date of the grant of the Option. |
| (b) | Options granted under the Plan shall be exercisable, in such installments and for such periods, as shall be provided by the Committee at the time of granting, but in no event shall any Option granted extend for a period in excess of ten (10) years from the date of grant. |
| (c) | The maximum number of shares of Common Stock covered by Options granted to a participant for any calendar year shall not exceed 500,000; 1,000,000 in the participant’s initial calendar year of participation. |
| (d) | Among other conditions that may be imposed by the Committee, if deemed appropriate, are those relating to (i) the period or periods and the conditions of exercisability of any Option; (ii) the minimum periods during which grantees of Options must be employed, or must hold Options before they may be exercised; (iii) the minimum periods during which shares acquired upon exercise must be held before sale or transfer shall be permitted; (iv) conditions under which such Options or shares may be subject to forfeiture; and (v) the frequency of exercise or the minimum or maximum number of shares that may be acquired at any one time. |
| (e) | Exercise of an Option shall be made by written notice (including electronic notice) in the form and manner determined by the Committee. |
| (f) | The purchase price upon exercise of any Option shall be paid in full by making payment (i) in cash; (ii) in whole or in part by the delivery of a certificate or certificates of shares of Common Stock of the Company, valued at the then Fair Market Value; or (iii) by a combination of (i) and (ii). |
| (g) | Notwithstanding subparagraph (f) above, any optionee may make payment of the Option price through a simultaneous exercise of his or her Option and sale of the shares thereby acquired pursuant to a brokerage arrangement compliant with such terms and conditions as the Committee may determine. |
| (h) | The disposition of outstanding Options held by a participant at the time of (i) termination of service shall be determined in accordance with Paragraph 8 below, and (ii) a Change in Control shall be determined in accordance with Paragraph 15 below. |
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| III. | Stock Appreciation Rights |
The Committee may, from time to time, subject to the provisions of the Plan and such other terms and conditions as the Committee may determine, grant an award of SARs to individuals eligible to participate in the Plan. SARs shall be evidenced by an award agreement, and shall be subject to such terms and conditions consistent with the Plan as the Committee shall impose from time to time, including the following:
| (a) | SARs may, but need not, relate to Options granted under the Plan, as the Committee shall determine from time to time. In no event shall any SARs granted extend for a period in excess of ten (10) years from the date of grant. |
| (b) | Exercise of an SAR shall be made by written notice (including electronic notice) in the form and manner determined by the Committee. |
| (c) | A holder of SARs shall be entitled to receive upon exercise the excess of the Fair Market Value of a share of Common Stock at the time of exercise over the Fair Market Value of a share at the time the SARs were granted, multiplied by the number of shares with respect to which the SARs being exercised relate. |
| (d) | In the sole discretion of the Committee, the amount payable to the holder upon exercise of SARs may be paid either in Common Stock or in cash or in a combination thereof; provided, however, that no fractional shares shall be issued and any such fraction will be eliminated by rounding downward to the nearest whole share. |
| (e) | In the sole discretion of the Committee, SARs related to specific Options may be exercisable only upon surrender of all or a portion of the related Option, or may be exercisable, in whole or in part, only at such times and to the extent that the related Option is exercisable, and the number of shares purchasable pursuant to the related Option may be reduced to the extent of the number of shares with respect to which the SARs are exercised. |
| (f) | The maximum number of SARs granted to a participant during any calendar year shall not exceed 500,000; 1,000,000 in the participant’s initial year of participation. |
| (g) | The disposition of outstanding SARs held by a participant at the time of (i) termination of service shall be determined in accordance with Paragraph 8 below, and (ii) a Change in Control shall be determined in accordance with Paragraph 15 below. |
| IV. | Restricted Stock Units and Restricted Stock |
The Committee may, from time to time, subject to the provisions of the Plan and such other terms and conditions as it may determine, grant an award of Restricted Stock Units and/or shares of Restricted Stock to individuals eligible to participate in the Plan. Each grant of Restricted Stock Units and/or shares of Restricted Stock shall be evidenced by an award agreement. The grant of Restricted Stock Units and/or Restricted Stock (an “RSU/RS Award”) shall state the number of Restricted Stock Units or shares of Common Stock covered by the grant, and shall contain such terms and conditions and be in such form as the Committee may from time to time approve, subject to the following:
| (a) | Each Restricted Stock Unit shall be equivalent in value to a share of Common Stock, and each share of Restricted Stock shall be a share of Common Stock. |
| (b) | Vesting of each RSU/RS Award grant shall require the holder to remain in the service of the Company or a Subsidiary Company for a prescribed period (a “Restriction Period”). The Committee shall determine the Restriction Period or Periods which shall |
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apply to the shares of Common Stock covered by each RSU/RS Award grant. The Committee may also, in its sole discretion, establish other terms and conditions for the vesting of an RSU/RS Award, including conditioning vesting on the achievement of one or more Performance Goals. |
| (c) | Upon expiration of the Restriction Period or Periods applicable to each RSU/RS Award grant, the holder shall, upon such expiration, without payment, be entitled to receive payment in an amount equal to the aggregate Fair Market Value of the shares of Common Stock covered by such award of Restricted Stock Units or retain the shares of Restricted Stock. Such payment with respect to Restricted Stock Units may be made in cash, in shares of Common Stock equal to the number of Restricted Stock Units with respect to which such payment is made, or in any combination thereof, as the Committee in its sole discretion shall determine; the participant shall retain the shares of Restricted Stock, free of all restrictions. Further upon such expiration, except as otherwise provided in the award agreement, the holder shall be entitled to receive a cash payment in an amount equal to each cash dividend the Company would have paid to such holder during the term of those Restricted Stock Units as if the holder had been the owner of record of the shares of Common Stock covered by such Restricted Stock Units on the record date for the payment of such dividend. Cash dividends paid on shares of Restricted Stock shall be paid to the participant as provided in the award agreement. |
| (d) | The maximum aggregate number of shares of Common Stock covered by an award of Restricted Stock Units or shares of Restricted Stock that a participant may receive with respect to any calendar year shall be 500,000 shares of Common Stock, or equal to the value of 500,000 shares. |
| (e) | The disposition of RSU/RS Awards held by a participant at the time of (i) termination of service shall be determined in accordance with Paragraph 8 below, and (ii) a Change in Control shall be determined in accordance with Paragraph 15 below. |
| V. | Other Cash-Based Awards and Stock-Based Awards |
The Committee may, from time to time, subject to the provisions of the Plan and such other terms and conditions as it may determine, grant other Cash-Based Awards and/or Stock-Based Awards to individuals eligible to receive awards under the Plan. Each grant of a Cash-Based Award or Stock-Based Award shall be evidenced by an award agreement, subject to the following:
| (a) | Each Cash-Based Award shall have a value as may be determined by the Committee. For each Cash-Based Award, the Committee may establish Performance Goals in its discretion. If the Committee exercises its discretion to establish such Performance Goals, the number and/or value of Cash-Based Awards that will be paid out to the participant will be determined, in the manner determined by the Committee, by the extent to which the Performance Goals are met. |
| (b) | Payment of earned Cash-Based Awards shall be as determined by the Committee and evidenced in the award agreement. The Committee, in its sole discretion, may provide the payment of earned Cash-Based Awards in the form of cash, in shares of Common Stock, or in a combination thereof, that have an aggregate Fair Market Value equal to the value of the earned Cash-Based Awards (the applicable date regarding which aggregate Fair Market Value shall be determined by the Committee). Such shares may be granted subject to any restrictions deemed appropriate by the Committee. |
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| (c) | The Committee may grant Stock-Based Awards, which are equity-based or equity-related awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted shares of Common Stock), in such amounts and subject to such terms and conditions including, but not limited to being subject to Performance Goals, or in satisfaction of such obligations, as the Committee shall determine. Stock-Based Awards may entail the transfer of shares to participants, or payment in cash or otherwise of amounts based on the value of shares and may include, without limitation, awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States. |
| (d) | Each award agreement shall set forth the extent to which the participant shall have the right to receive Cash-Based Awards and Stock-Based Awards following termination of the participant’s service with the Company and Company Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the applicable award agreement, need not be uniform among all awards of Cash-Based Awards and Stock-Based Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. |
| (e) | The maximum aggregate amount awarded to any one participant in any calendar year with respect to Cash-Based Awards may not exceed $10,000,000 and with respect to Stock-Based Awards, may not exceed 500,000 shares. |
| (f) | The disposition of any outstanding Cash-Based Award or Stock-Based Award held by a participant at the time of (i) termination of service shall be determined in accordance with Paragraph 8 below and (ii) a Change in Control shall be determined in accordance with Paragraph 15 below. |
8.Termination of Service.Except as otherwise provided in an award agreement or determined by the Committee, upon termination of service with the Company of any participant, such participant’s rights with respect to awards shall be as follows:
(a) In the event that the service of a participant is terminated by the Company for any reason, except as and to the extent provided otherwise in this Paragraph 8 below or by the Committee in an award agreement, and except as provided in Paragraph 15 after the occurrence of a Potential Change in Control or Change in Control, the participant’s rights and interests in outstanding awards under the Plan shall immediately terminate upon termination of service.
(b) If a participant terminates service with the Company as the result of his or her becoming totally disabled or if a participant should die or retire (as defined by the Committee with respect to an award) while in the service of the Company or any of its Subsidiary Companies, then the participant or, as the case may be, the person or persons to whom the participant’s interest under the Plan shall pass in accordance with an effective beneficiary designation, by will, or by the laws of descent and distribution (such person or persons, as applicable, the “Estate”), shall have the following rights:
(i) With respect to awards made prior to the Effective Date:
| (A) | the grantee of a contingent AIP Award or the Estate shall be entitled to receive payment of an AIP Award as, and to the extent, determined by the Committee; |
| (B) | if the holder of a PSU/PS Award shall have performed services for at leasttwo-thirds of the related performance cycle prior to the date of termination or death, then, except as otherwise provided in the award |
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agreement evidencing the PSU/PS Award, and subject to any further adjustments the Committee may make in its absolute discretion, the participant or the Estate shall be entitled to receive payment of a PSU/PS Award upon the expiration of the related performance cycle, provided that such payment shall be adjusted by multiplying the amount thereof by a fraction, the numerator of which shall be the number of full and partial calendar months between the date of the beginning of each such performance cycle and the date of termination or death, and the denominator of which shall be the number of full and partial calendar months from the date of the beginning of the performance cycle to the end of the said performance cycle; |
| (C) | except as otherwise provided in the terms and conditions of the award agreement, the holder or the Estate shall be entitled to exercise (provided any vesting requirement has been satisfied as of the date of exercise) any Option or SAR for a period of five (5) years from such date of death, total disability or retirement, or for such longer period as the Committee may determine in the case of financial hardship or other unusual circumstances (subject to the maximum exercise period for Options and SARs specified in Paragraph 7II(b) and 7III(a) hereof, respectively); |
| (D) | except as otherwise provided in the award agreement for an RSU/RS Award, (1) upon death or termination due to total disability the holder or the Estate shall be entitled to receive payment in respect of the RSU/RS Award, provided that such award shall be adjusted by multiplying the amount thereof by a fraction, the numerator of which shall be the number of full and partial calendar months between the date of grant of such RSU/RS Award and the date of death or termination, and the denominator of which shall be the number of full and partial calendar months from the date of the grant to the end of the Restriction Period, and (2) upon retirement, the participant’s rights with respect to an RSU/RS Award shall immediately terminate; and |
| (E) | the grantee of a Cash-Based Award or Stock-Based Award or the Estate shall be entitled to receive payment of such award as, and to the extent, provided in the applicable award agreement. |
(ii) With respect to awards made on or after the Effective Date:
| (A) | the grantee of a contingent AIP Award or the Estate shall be entitled to receive payment of an AIP Award as, and to the extent, determined by the Committee; |
| (B) | except as otherwise provided in the award agreement evidencing the PSU/PS Award, and subject to any further adjustments the Committee may make in its absolute discretion, (1) the participant in the case of retirement, shall be entitled to receive payment of a PSU/PS Award upon the expiration of the applicable performance cycle based upon the amount, if any, of the PSU/PS Award earned from actual performance during the performance cycle, or (2) the participant or Estate in the case of termination of service due to total disability or death, shall be entitled to receive payment of a PSU/PS Award based on the amount, if any, of |
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the PSU/PS Award estimated to be earned as of the expiration of the applicable performance cycle as determined from the Company’s financial statement accruals through the completed fiscal quarter immediately preceding the date of termination, payable following such termination; provided in each case that such payment shall be adjusted by multiplying the amount thereof by a fraction, the numerator of which shall be the number of full and partial calendar months between the date of the beginning of each such performance cycle and the date of termination or death, and the denominator of which shall be the number of full and partial calendar months from the date of the beginning of the performance cycle to the end of the said performance cycle; |
| (C) | except as otherwise provided in the terms and conditions of the award agreement, Options or SARs held shall become fully vested and exercisable upon such termination or death and the holder or the Estate shall be entitled to exercise such Option or SAR for a period of three (3) years from such date of death, total disability or retirement, or for such longer period as the Committee may determine in the case of financial hardship or other unusual circumstances (subject to the maximum exercise period for Options and SARs specified in Paragraph 7II(b) and 7III(a) hereof, respectively); provided that any Option or SAR granted in the calendar year in which such termination as a result of retirement occurs shall not vest in full but shall instead vest based on a fraction, the numerator of which shall be the number of full and partial months in the period between the date of grant and the date of termination, and the denominator of which shall be the number of full and partial months from the date of grant through the end of the calendar year, and the unvested portion of the Options and SARs shall immediately terminate. |
| (D) | except as otherwise provided in the award agreement for an RSU/RS Award, (1) upon death or termination due to total disability the holder or the Estate shall be entitled to receive payment in respect of each RSU/RS Award held and (2) upon retirement, the participant’s rights with respect to an RSU/RS Award shall immediately terminate; and |
| (E) | the grantee of a Cash-Based Award or Stock-Based Award or the Estate shall be entitled to receive payment of such award as, and to the extent, provided in the applicable award agreement. |
(c) In the event of resignation by the participant, the participant’s rights and interests in outstanding awards under the Plan shall immediately terminate upon such resignation; provided, however, that the Committee shall have the absolute discretion to review the reasons and circumstances of the resignation and to determine whether, alternatively, and to what extent, if any, the participant may continue to hold any rights or interests under the Plan.
(d) For purposes of this Plan, references to a participant’s “service” and termination thereof shall mean, in the case of (i) an employee, the participant’s employment with the Company or Subsidiary Company, (ii) anon-employee director, the director’s service as a director of the Company or Company Subsidiary, or (iii) a contractor, consultant or agency employee, the participant’s service to the Company or Subsidiary Company in such capacity. A transfer of a participant without an
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intervening period from the Company to a Subsidiary Company or vice versa, or from one Subsidiary Company to another, shall not be deemed a termination of service. Unless otherwise provided by the Committee, a transfer of a participant from the Company or a Subsidiary Company to contractor, consultant or agency employee shall be deemed a termination of service.
(e) The Committee shall be authorized to make all determinations and calculations required by this Paragraph 8, including any determinations necessary to establish the reason for terminations of employment for purposes of the Plan, which determinations and calculations shall be conclusive and binding on any affected participants and Estates.
9. Performance Factors; Additional Requirements. Without limiting the type or number of awards that may be made under this Plan, an award may be a performance-based award. A performance-based award intended to comply as “performance-based” compensation under Section 162(m) of the Code is referred to as a “Performance Award.” A Performance Award shall, except as may otherwise be permitted under Section 162(m) of the Code, be paid, vested or otherwise deliverable solely on account of the attainment of one or morepre-established, objective performance goals (“Performance Goals”) established by the Committee prior to the earlier to occur of (x) 90 days after the commencement of the period of service to which the Performance Goal relates and (y) the elapse of 25% of the period of service (as established in good faith at the time the Performance Goal is established), and in any event while the outcome is substantially uncertain. A Performance Goal is objective if a third party having knowledge of the relevant facts could determine whether the goal is met. A Performance Goal may be based on one or more of the following measures: net earnings or net income (before or after taxes), earnings per share (basic or diluted), net sales or revenue growth, net operating profit, return measures (including, but not limited to, return on assets, capital, invested capital, equity, revenue, or sales), cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on equity), earnings before or after taxes, interest, depreciation, and/or amortization, gross or operating margins, productivity ratios, share price (including, but not limited to, growth measures and total shareholder return), expense targets, margins, operating efficiency, market share, customer satisfaction, and/or balance sheet measures (including but not limited to, working capital amounts and levels of short- and long-term debt) (collectively, the “Performance Factors”). Performance Factors may be particular to a participant or the division, line of business or other unit, or the Company generally, or may be absolute in their terms or measured against or in relationship to the performance of a peer group or other external or internal measure. A Performance Goal may, but need not, be based upon a change or an increase or positive result under a particular Performance Factor and could include, for example, maintaining the status quo, limiting economic losses, or a relative comparison of performance to the performance of a peer group or other external or internal measure (measured, in each case, by reference to specific Performance Factors). A Performance Goal may include or exclude items to measure specific objectives, including, without limitation, extraordinary or othernon-recurring items, acquisitions and divestitures, internal restructuring and reorganizations, accounting charges and effects of accounting changes. In interpreting Plan provisions applicable to Performance Awards to participants who are “covered employees” under Section 162(m) of the Code, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and applicable Treasury Regulations, and the Committee in establishing such goals and interpreting the Plan shall be guided by such provisions. Prior to the payment of any compensation based on the achievement of Performance Goals to any such “covered employee,” the Committee must certify in writing that applicable Performance Goals and any of the material terms thereof were, in fact, satisfied. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Performance Awards made pursuant to this Plan shall be determined by the Committee.
The Committee has the authority to provide for accelerated vesting of any performance-based award based on the achievement of Performance Goals or such other factors as the Committee shall determine, including a Change in Control.
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Awards that are intended to qualify as Performance Awards may not be adjusted upward. The Committee shall retain the discretion to adjust Performance Awards downward, either on a formula or discretionary basis or any combination, as the Committee determines. In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Goals and Performance Factors without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval.
The Committee may grant or administer performance-based awards that are not intended to or do not qualify as Performance Awards meeting the requirements of Section 162(m) of the Code and may base vesting, payment or delivery of such awards on performance criteria (which shall be the Performance Goals with respect to such awards) which may be other than those set forth in this Paragraph 9.
No awards granted pursuant to the Plan shall be exercisable or realized in whole or in part, and the Company shall not be obligated to sell, distribute or issue any shares subject to any such award, if such exercise and sale would, in the opinion of counsel for the Company, violate the Securities Act of 1933, as amended (or other federal, state or foreign statutes having similar requirements). Each award shall be subject to the further requirement that, if at any time the Board of Directors shall determine in its discretion that the listing or qualification of the shares relating or subject to such award under any securities exchange requirements or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such award or the distribution or issue of shares thereunder, such award may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Board of Directors.
Awards may be subject to restrictions as to resale or other disposition and to such other provisions as may be appropriate to comply with federal, state or foreign securities laws and stock exchange requirements, and the exercise of any award or entitlement to payment thereunder may be contingent upon receipt from the holder (or any other person permitted by this Plan to exercise any award or receive any distribution hereunder) of a representation that at the time of such exercise it is his or her then present intention to acquire the shares being distributed for investment and not for resale.
10.Non-Employee Directors. The Board may, from time to time, subject to the provisions of the Plan and such other terms and conditions as it may determine, grant awards tonon-employee directors of the Company. Such awards shall be evidenced by an award agreement.
11.Nontransferability. Unless otherwise approved by the Committee or provided in an award agreement, awards granted under the Plan shall be nonassignable and shall not be transferable by the participant other than by will or the laws of descent and distribution, and shall be exercisable, during the participant’s lifetime, only by the participant or the participant’s guardian or legal representative.
12.Disclaimer of Rights. No provision in the Plan or any awards granted pursuant to the Plan shall be construed to confer upon the participant any right to be employed by or continue in the service of the Company or by any Subsidiary Company, to receive additional awards, or to interfere in any way with the right and authority of the Company or any Subsidiary Company either to increase or decrease the compensation of the participant at any time, or to terminate any relationship between the participant and the Company or any of its Subsidiary Companies.
Participants under the Plan shall have none of the rights of a stockholder of the Company with respect to shares subject to any award hereunder unless and until such shares have been issued to them.
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13.Stock Adjustments. In the event that the shares of Common Stock, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another company (whether by reason of merger, consolidation, recapitalization, reclassification, stock split, combination of shares or otherwise), or if the number of such shares of Common Stock shall be increased through the payment of a stock dividend, or a dividend on the shares of Common Stock of rights or warrants to purchase securities of the Company shall be made, then there shall be substituted for or added to each share available under and subject to the Plan as provided in Paragraph 2 hereof, and to the limitations set forth in Paragraph 7, and each share theretofore appropriated or thereafter subject or which may become subject to awards under the Plan, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged or to which each such share shall be entitled, as the case may be. Outstanding awards also shall be appropriately amended as to price and other terms as may be necessary to reflect the foregoing events. In the event there shall be any other change in the number or kind of the outstanding shares of Common Stock, or of any stock or other securities into which the Common Stock shall have been changed or for which it shall have been exchanged, then if the Committee shall, in its sole discretion, determine that such change equitably requires an adjustment in the shares available under and subject to the Plan, or in any awards theretofore granted or which may be granted under the Plan, such adjustments shall be made in accordance with such determination.
No fractional shares of Common Stock or units of other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share or unit.
14.Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a participant to remit to the Company, the minimum statutory amount to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan.
With respect to withholding required upon any taxable event arising from the issuance or delivery of shares of Common Stock with respect to an award granted hereunder, participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares of Common Stock having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory withholding tax that could be imposed on the transaction or such other amount as may be authorized by the Committee. All such elections shall be made in accordance with procedures and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
15. Change in Control. Notwithstanding any other provisions of this Plan to the contrary and except as may be provided in an applicable award agreement, the provisions of this Paragraph 15 shall apply in the event of a Change in Control (as defined below) or Potential Change in Control (as defined below).
(a) Except in the case of awards made on or after the Effective Date for which another award meeting the requirements of subparagraph (b) of this Paragraph 15 (a “Replacement Award”) is provided to the participant to replace such outstanding award (the “Replaced Award”), upon a Change in Control:
| (i) | Each outstanding Option held by a participant shall become fully vested and exercisable notwithstanding any vesting schedule or installment schedule relating to the exercisability of such Option contained in the applicable Option agreement or otherwise established at the time of grant of the Option. |
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| (ii) | Each outstanding SAR held by a participant shall become fully vested and exercisable notwithstanding any vesting schedule or installment schedule relating to the exercisability of such SAR contained in the applicable SAR agreement or otherwise established at the time of grant of the SAR. |
| (iii) | The Restriction Period shall expire and all restrictions on any RSU/RS Awards held by a participant shall lapse. |
| (iv) | The disposition of any PSU/PS Award, Cash-Based Award or Stock-Based Award held by a participant shall be determined as provided in the applicable award agreement or as the Committee shall determine. |
(b) An award shall meet the conditions of this subparagraph (b) of Paragraph 15 (and hence qualify as a Replacement Award) if:
| (i) | it has a value at least equal to the value of the Replaced Award; |
| (ii) | it relates to publicly traded equity securities of the Company or its successor in the Change in Control or another entity that is affiliated with the Company or its successor following the Change in Control; and |
| (iii) | its other terms and conditions (A) include the provisions of subparagraph (c) of this Paragraph 15 and (B) are not less favorable to the participant than the terms and conditions of the Replaced Award (including the provisions that would apply in the event of a subsequent Change in Control and the provisions of subparagraph (c) of this Paragraph 15). |
Without limiting the generality of the foregoing, the Replacement Award may take the form of a continuation of the Replaced Award if the requirements of the preceding sentence are satisfied. The determination of whether the conditions of this subparagraph (b) of Paragraph 15 are satisfied shall be made by the Committee, as constituted immediately before the Change in Control, in its sole discretion.
(c) In the event the termination of service of the participant occurs in connection with or during the period of two (2) years after a Change in Control and such termination of service is by the Company without Cause (as defined below), by participant for Good Reason (as defined below), or due to the participant’s death or disability, then upon such termination of service each Replacement Award held by the participant shall become fully vested, exercisable or the disposition thereof shall be determined in accordance with the provisions of subparagraphs (i) through (iv) of subparagraph (a) of this Paragraph 15, it being intended that such vesting, exercisability and other disposition of the Replacement Awards shall be the same as would have applied upon the Change in Control to the Replaced Awards under subparagraph (a) of this Paragraph 15, in the absence of the Replacement Award.
| (d) | For purposes of this Plan, a “Change in Control” means: |
| (i) | Individuals who, on February 22, 2011, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to February 22, 2011, whose election or nomination for election was approved by a vote of at leasttwo-thirds of the Incumbent Directors then on the Board (either by specific vote or by approval of the proxy statement of the Company in which such person is named as nominee for director, without written objection to such nomination) |
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shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest or opposition solicitation (as described inRule 14a-12(c) under the Exchange Act) (“Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of any person (as such term is defined in Section 3(a)(9) of the Exchange Act and as used in Section 13(d)(3) and 14(d)(2) of the Exchange Act) (“Person”) other than the Board (“Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest, shall be deemed an Incumbent Director; and provided further, however, that a director who has been approved by the Hershey Trust while it beneficially owns more than 50% of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Power”) shall be deemed to be an Incumbent Director; or |
| (ii) | The acquisition or holding by any Person of beneficial ownership (within the meaning of Section 13(d) under the Exchange Act and the rules and regulations promulgated thereunder) of shares of the Common Stock and/or the Class B Common Stock of the Company representing 25% (30% with respect to awards made on or after the Effective Date) or more of either (A) the total number of then outstanding shares of both Common Stock and Class B Common Stock of the Company (the “Outstanding Company Stock”) or (B) the Outstanding Company Voting Power; provided that, at the time of such acquisition or holding of beneficial ownership of any such shares, the Hershey Trust does not beneficially own more than 50% of the Outstanding Company Voting Power; and provided, further, that any such acquisition or holding of beneficial ownership of shares of either Common Stock or Class B Common Stock of the Company by any of the following entities shall not by itself constitute such a Change in Control hereunder: (1) the Hershey Trust; (2) any trust established by the Company or by any Subsidiary Company for the benefit of the Company and/or its employees or those of a Subsidiary Company or by any Subsidiary Company for the benefit of the Company and/or its employees or those of a Subsidiary Company; (3) any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary Company; (4) the Company or any Subsidiary Company or (5) any underwriter temporarily holding securities pursuant to an offering of such securities; or |
| (iii) | The approval by the stockholders of the Company of any merger, reorganization, recapitalization, consolidation or other form of business combination (a “Business Combination”) if, following consummation of such Business Combination, the Hershey Trust does not beneficially own more than 50% of the total voting power of all outstanding voting securities of (A) the surviving entity or entities (the “Surviving Company”) or (B) if applicable, the ultimate parent company that directly or indirectly has beneficial ownership of more than 50% of the combined voting power of the then outstanding voting securities eligible to elect directors of the Surviving Company; provided, however, that with respect to any award made on or after the Effective Date, no Change in Control shall be deemed to occur under this clause (iii) prior to consummation of the Business Combination; or |
| (iv) | The approval by the stockholders of the Company of (A) any sale or other disposition of all or substantially all of the assets of the Company, other than to |
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a company (the “Acquiring Company”) if, following consummation of such sale or other disposition, the Hershey Trust beneficially owns more than 50% of the total voting power of all outstanding voting securities eligible to elect directors of (1) the Acquiring Company or (2) if applicable, the ultimate parent Company that directly or indirectly has beneficial ownership of more than 50% of the combined voting power of the then outstanding voting securities eligible to elect directors of the Acquiring Company, or (B) a liquidation or dissolution of the Company; provided, however, that with respect to any award made on or after the Effective Date, no Change in Control shall be deemed to occur under clause (iv) (A) prior to consummation of such sale or other disposition. |
For purposes of this Plan, “Hershey Trust” means either or both of (a) Hershey Trust Company, a Pennsylvania corporation, as Trustee for the Milton Hershey School, or any successor to Hershey Trust Company as such trustee, and (b) Milton Hershey School, a Pennsylvanianot-for-profit corporation.
| (e) | For purposes of this Plan, a “Potential Change in Control” means: |
| (i) | The Hershey Trust by action of any of the Board of Directors of Hershey Trust Company; the Board of Managers of Milton Hershey School; the Investment Committee of the Hershey Trust; and/or any of the officers of Hershey Trust Company or Milton Hershey School (acting with authority) undertakes consideration of any action the taking of which would lead to a Change in Control as defined herein, including, but not limited to consideration of (A) an offer made to the Hershey Trust to purchase any number of its shares in the Company such that if the Hershey Trust accepted such offer and sold such number of shares in the Company the Hershey Trust would no longer have more than 50% of the Outstanding Company Voting Power, (B) an offering by the Hershey Trust of any number of its shares in the Company for sale such that if such sale were consummated the Hershey Trust would no longer have more than 50% of the Outstanding Company Voting Power or (C) entering into any agreement or understanding with a person or entity that would lead to a Change in Control; or |
| (ii) | The Board approves a transaction described in subsection (ii), (iii) or (iv) of the definition of a Change in Control contained in subparagraph (d) of Paragraph 15 hereof. |
(f) In the event that a transaction which would constitute a Change in Control if approved by the stockholders of the Company is to be submitted to such stockholders for their approval, each participant who holds an Option or SAR granted prior to the Effective Date at the time scheduled for the taking of such vote, whether or not then exercisable, shall have the right to receive a notice at least ten (10) business days prior to the date on which such vote is to be taken. Such notice shall set forth the date on which such vote of stockholders is to be taken, a description of the transaction being proposed to stockholders for such approval, a description of the provisions of this Paragraph 15 and the impact thereof on such participant in the event that such stockholder approval is obtained. Such notice shall also set forth the manner in which and price at which all Options or SARs then held by each such participant could be exercised upon the obtaining of such stockholder approval.
(g) Upon the occurrence of a Potential Change in Control (as defined in subparagraph (e) of this Paragraph 15) or a Change in Control and for a period of two (2) years thereafter, the following special provision and notice requirement shall be applicable in the event of the
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termination of the service of any participant holding an Option or SAR granted prior to the Effective Date: (i) in no event may a notice of termination of service be issued to such a participant unless at least ten (10) business days prior to the effective date of such termination, the participant is provided with a written notice of intent to terminate the participant’s service which sets forth in reasonable detail the reason for such intent to terminate, the date on which such termination is to be effective, and a description of the participant’s rights under this Plan and under the applicable award agreements, including the fact that no such Option or SAR may be exercised after such termination has become effective and the manner, extent and price at which such Options and SARs then held by such participant may be exercised; and (ii) such notice of intent to terminate a participant’s employment shall not be considered a “termination of service” for purposes of the first sentence of Paragraph 8(a). This subparagraph (g) is intended only to provide for a requirement of notice to terminate upon the occurrence of the events set forth herein and shall not be construed to create an obligation of continued service in any manner or to otherwise affect or limit the Company’s ability to terminate the service of any participant holding an Option or SAR under the Plan.
(h) Upon the occurrence of a Change in Control and for a period of two (2) years thereafter, in the event of the termination of a participant’s service by the Company for any reason other than for Cause (as defined below) or by the participant for Good Reason (as defined below), such participant shall have one (1) year (or, if a longer period is applicable under Paragraph 8 hereof, for such longer period) from the date of termination of service to exercise any Option or SAR held by the participant as of the date of the Change in Control (including any Replacement Award relating to any such Option or SAR) or until the date of expiration of the Option or SAR or Replacement Award), if earlier. In addition, all restrictions and limitations on the exercise of such Option or SAR (or Replacement Award) or the sale of shares of Common Stock received pursuant to exercise of an Option or SAR (or Replacement Award) relating to minimum stockholding requirements shall immediately terminate upon the occurrence of a Change in Control.
(i) For purposes of this Plan, “Cause” means, with respect to a participant who is covered under the Company’s Severance Benefits Plan for Salaried Employees, Employee Benefits Protection Plan (Group 2), Executive Benefits Protection Plan (Group 3), or Executive Benefits Protection Plan (Group 3A) or any similar or successor plan, or an employment or similar agreement with the Company or any Subsidiary, “cause” as defined in the plan or agreement applicable to such participant, and with respect to all other participants, means (A) the willful and continued failure of the participant to substantially perform the participant’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the participant by the participant’s supervisor which specifically identifies the manner in which the participant’s supervisor believes that the participant has not substantially performed the participant’s duties; (B) the willful engaging by the participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company; (C) the participant having been convicted of, or having entered into a plea of nolo contendere to, a crime that constitutes a felony; or (D) the willful material breach by the participant of the Company’s Code of Ethical Business Conduct or any successor or similar code of conduct, or other material policies applicable to the participant, including policies prohibiting disclosure or misuse of confidential information. For purposes of the preceding clauses (A) and (B), no act or failure to act, on the part of the participant, shall be considered “willful” unless it is done, or omitted to be done, by the participant in bad faith or without reasonable belief that the participant’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon the instructions or with the approval of a senior officer of the Company or the participant’s superior or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the participant in good faith and in the best interests of the Company.
(j) For purposes of this Plan, “Good Reason” means, with respect to a participant who is covered under the Company’s Severance Benefits Plan for Salaried Employees, Employee
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Benefits Protection Plan (Group 2), Executive Benefits Protection Plan (Group 3), or Executive Benefits Protection Plan (Group 3A), or any similar or successor plan, or an employment or similar agreement with the Company or any Subsidiary, “good reason” (or other words of similar import) as defined in the plan or agreement applicable to such participant, and with respect to all other participants, means “good reason” as defined in the Company’s Severance Benefits Plan for Salaried Employees as in effect immediately prior to the Change in Control as if such plan applied to such participant.
| 16. | General Provisions. |
(a) The Committee may specify in an award agreement that the participant’s rights, payments, and benefits with respect to an award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an award. Such events may include, but shall not be limited to, termination of employment for Cause, termination of the participant’s provision of services to the Company and/or its Subsidiaries, violation of material policies, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the participant, or other conduct by the participant that is detrimental to the business or reputation of the Company and/or its Subsidiaries.
(b) If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, if the participant knowingly or grossly negligently engaged in the misconduct, or knowingly or grossly negligently failed to prevent the misconduct, or if the participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 (and not otherwise exempted), the participant shall reimburse the Company the amount of any payment in settlement of an award earned or accrued during the twelve-month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurred) of the financial document not in compliance with such financial reporting requirement. Rights, payments and benefits under any award shall be subject to repayment to or recoupment (clawback) by the Company in accordance with such policies and procedures as the Committee or Board may adopt from time to time, including, but not limited to, policies and procedures to implement applicable laws, rules and regulations, or as may otherwise be required by law.
(c) Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural.
(d) In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
(e) The granting of awards and the issuance of shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
(f) Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and/or its Subsidiaries operate or have employees, directors or service providers, the Committee, in its sole discretion, shall have the power and authority to:
| (i) | determine which Subsidiaries shall be covered by the Plan; |
| (ii) | determine which individuals outside the United States are eligible to participate in the Plan; |
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| (iii) | modify the terms and conditions of any award granted to participants outside the United States to comply with applicable foreign laws; |
| (iv) | establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable; and/or |
| (v) | take any action, before or after an award is made, that it deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals. |
Notwithstanding the above, the Committee may not take any actions hereunder, and no awards shall be granted, that would violate applicable law.
(g) To the extent that the Plan provides for issuance of certificates to reflect the transfer of shares of Common Stock, the transfer of such shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange.
(h) The Plan and each award agreement shall be governed by the laws of the Commonwealth of Pennsylvania, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction. Unless otherwise provided in the award agreement, participants are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of Pennsylvania to resolve any and all issues that may arise out of or relate to the Plan or any related award agreement.
(i) This Plan is intended to comply and shall be administered in a manner that is intended to comply with Code Section 409A and shall be construed and interpreted in accordance with such intent. To the extent that an award or the payment, settlement or deferral thereof is subject to Code Section 409A, the award shall be granted, paid, settled or deferred in a manner that will comply with Section 409A, including regulations or other guidance issued with respect thereto (collectively, “Section 409A”), except as otherwise determined by the Committee. Any provision of this Plan that would cause the grant of an award or the payment, settlement or deferral thereof to fail to satisfy Section 409A shall be amended to comply with Section 409A on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A. In the case of amounts not intended to be deferrals of compensation subject to Section 409A, such as, but not limited to, amounts payable under an AIP Award, payment or settlement of amounts under such awards shall occur not later than March 15 of the year following the year in which the participant has a legally-binding right to payment or settlement. In the case of amounts intended to be deferrals of compensation subject to Section 409A the initial deferral election shall be made and become irrevocable not later than December 31 of the year immediately preceding the year in which the participant first performs services related to such compensation, provided that the timing of such initial deferral election may be later as provided in Section 409A with respect to initial participation in the Plan and for “performance-based compensation” as defined under Section 409A. If an amount payable under an award as a result of the separation from service (other than due to death) occurring while the participant is a “specified employee” constitutes a deferral of compensation subject to Section 409A, then payment of such amount shall not occur until six (6) months and a day after the date of participant’s “separation from service” except as permitted under Section 409A. The Committee, in its sole discretion, may permit a participant to defer receipt of the payment of cash or the delivery of shares that would otherwise be delivered to a participant under the Plan in accordance with any plan or program providing for deferral of compensation which is applicable to the participant (a “Deferred Compensation Plan”). Any such deferral elections shall be subject to the provisions of the Deferred Compensation Plan and such rules and procedures as shall be determined by the Committee in its sole discretion. Notwithstanding the foregoing, any deferral shall be made in accordance with the provisions of Section 409A of the Code and the applicable guidance issued by the Secretary of the Treasury thereunder.
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(j) Subject to the provisions of the Plan and any award agreement, the recipient of an award (including without limitation, any deferred award) may, if so determined by the Committee, be entitled to receive, currently or on a deferred basis, cash or stock dividends, or cash payments in amounts equivalent to cash or stock dividends on shares (“dividend equivalents”) with respect to the number of shares covered by the award, as determined by the Committee and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional shares or otherwise reinvested; provided, however, that in no event shall dividend or dividend equivalents credited with respect to any performance-based award be paid to the participant prior to payment, if any, of such performance-based award.
(k) Options and SARs may not be repriced without the approval of the Company’s stockholders. For this purpose, “reprice” means that the Company has: (i) lowered or reduced the exercise price of outstanding Options and/or outstanding SARs after they have been granted, (ii) canceled an Option and/or an SAR when the applicable Exercise Price exceeds the Fair Market Value of the underlying shares in exchange for cash or another award, or (iii) taken any other action with respect to an Option and/or an SAR that would be treated as a repricing under the rules and regulations of the principal securities market on which the shares are traded. An adjustment pursuant to Paragraph 13 shall not be treated as a repricing.
(l) Each participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively and who may include a trustee under a will or living trust) to whom an award under the Plan is to be paid, assigned or transferred in case of the participant’s death before participant receives all amounts payable under such award. Each designation will revoke all prior designations by the same participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the participant in writing or electronically with the Committee during the participant’s lifetime. In the absence of any such designation or if all designated beneficiaries predecease the participant, benefits remaining unpaid at the participant’s death shall pass in accordance with the participant’s will, or by the laws of descent and distribution, as applicable.
17.Effective Date and Termination of Plan. The Plan as amended and restated herein shall become effective upon approval by the stockholders at the 2011 Annual Meeting of Stockholders. Awards and amounts outstanding under the Plan and the predecessor Broad Based Stock Option Plan, Broad Based Annual Incentive Plan or the Directors’ Compensation Plan shall remain in effect and shall not be modified by this amended and restated Plan.
The Board of Directors at any time may terminate the Plan, but such termination shall not alter or impair any of the rights or obligations under any awards theretofore granted under the Plan unless the affected participant shall so consent.
18.Application of Funds. The proceeds received by the Company from the sale of shares hereunder will be used for general corporate purposes.
19.Amendment. The Board of Directors at any time and from time to time, may alter or amend the Plan, subject to any requirement of stockholder approval imposed by applicable law, rule or regulation; provided that any such amendment shall not adversely alter or impair any of the rights or obligations under any award theretofore granted under the Plan unless the affected participant shall so consent. Notwithstanding the foregoing, the Plan may not be terminated or amended in a manner adverse to the interests of any participant (without the consent of the participant) either: (a) at the time a Potential Change in Control occurs and continuing for a period of one (1) year following the cessation of a Potential Change in Control, or (b) for atwo-year period beginning as of the date of a Change in Control (the “Coverage Period”). Upon the expiration of the Coverage Period, Paragraph 15 of the Plan may not be amended in any manner that would adversely affect any participant without the consent of the participant.
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THE HERSHEY COMPANY P.O. BOX 810 HERSHEY, PA 17033-0810 | VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on
| |
VOTE BY PHONE - (800) 690-6903 Use any touch-tone telephone to transmit your voting instructions until 11:59 p.m. EDT on | ||
VOTE BY MAIL Mark, sign and date your proxy and voting instruction card and return it in the postage-paid envelope we have provided or return it to The Hershey Company, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. | ||
401(k) PLAN AND PR 401(k) PLAN PARTICIPANTS Your voting instructions must be received no later than 11:59 p.m. EDT on April |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
M67434-P46448-Z62308E01148-P72824-Z67195 KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY AND VOTING INSTRUCTION CARD IS VALID ONLY WHEN SIGNED AND DATED.
THE HERSHEY COMPANY | For | Withhold All | For All | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | ||||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR each of the following nominees: | ||||||||||||||||||||||||||||||||
| 1. | Election of | ¨ | ¨ | ¨ |
| |||||||||||||||||||||||||||
Nominees: | ||||||||||||||||||||||||||||||||
01) | P. M. Arway | 07) J. M. Mead | ||||||||||||||||||||||||||||||
| 02) | J. P. Bilbrey | 08) J. E. Nevels | ||||||||||||||||||||||||||||||
| 03) | R. F. Cavanaugh | 09) A. J. Palmer | ||||||||||||||||||||||||||||||
| 04) | C. A. Davis | 10) T. J. Ridge | ||||||||||||||||||||||||||||||
| 05) | M. K. Haben | 11) D. L. Shedlarz | ||||||||||||||||||||||||||||||
| 06) | R. M. Malcolm | |||||||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR Proposals 2, 3 and | For | Abstain | ||||||||||||||||||||||||||||||
2. |
Ratify the appointment of KPMG LLP as independent auditors for | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||
3. |
Approve named executive officer compensation on a non-binding advisory |
¨ |
¨ |
¨ | ||||||||||||||||||||||||||||
4. | Re-approve the material terms of the performance criteria under The Hershey Company Equity and Incentive Compensation Plan. | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||
The Board of Directors recommends you vote AGAINST Proposal 5: | ||||||||||||||||||||||||||||||||
5. | Stockholder proposal entitled “Report on Use of Nanomaterials.” | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||
The proxies are authorized to vote, in their discretion, for a substitute should any nominee become unavailable for election and upon such other business as may properly come before the meeting. | ||||||||||||||||||||||||||||||||
NOTE:Please follow the instructions above to vote by Internet or telephone, or mark, sign (exactly as name(s) appear(s) above) and date this card and mail promptly in the postage-paid, return envelope provided. Executors, administrators, trustees, attorneys, guardians, etc., should so indicate when signing. | ||||||||||||||||||||||||||||||||
| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | |||||||||||||||||||||||||||||
Admission Ticket
THE HERSHEY COMPANY
20142016 Annual Meeting of Stockholders
Tuesday, April 29, 2014Wednesday, May 4, 2016
10:00 a.m. EDT
GIANT Center
550 West Hersheypark Drive
Hershey, PA 17033
Presenting this Admission Ticket at
HERSHEY’S CHOCOLATE WORLDvisitors center Attraction
entitles you to 25% off selected items
from 9:00 a.m. until 6:00 p.m. EDT
on April 29, 2014.May 4, 2016.
Offer good on April 29, 2014,May 4, 2016, only.
Important Notice Regarding the Availability of Proxy Materials for the
20142016 Annual Meeting of Stockholders to be held on April 29, 2014:May 4, 2016:
The 2014 Notice of 2016 Annual Meeting and Proxy Statement, 20132015 Annual Report to Stockholders
and proxy card are available at www.proxyvote.com.
| q FOLD AND DETACH HEREq | q FOLD AND DETACH HEREq | |
E01149-P72824-Z67195
THE HERSHEY COMPANY
STOCKHOLDER’S PROXY AND VOTING INSTRUCTION CARD
The undersigned hereby appoints J. P. Bilbrey and L. M. Turner, and each of them, as proxies, with full power of substitution, to attend The Hershey Company (the “Company”) Annual Meeting of Stockholders to be held at 10:00 a.m. EDT, May 4, 2016, at GIANT Center, 550 West Hersheypark Drive, Hershey, Pennsylvania, or at any adjournment thereof (“Annual Meeting”), and to vote all of the undersigned’s shares of the Company’s Common Stock in the manner directed on the reverse side of this card. The shares represented by this proxy, when executed properly, will be voted in the manner directed.If direction is not given but the card is signed, this proxy will be voted FOR the election of all nominees under Proposal 1, FOR Proposal 2, FOR Proposal 3, FOR Proposal 4 and AGAINST Proposal 5 as set forth on the reverse side, and in the discretion of the proxies with respect to such other business as may properly come before the meeting.
SPECIAL INFORMATION for participants in The Hershey Company 401(k) Plan (“401(k) Plan”) and The Hershey Company Puerto Rico 401(k) Plan (“PR 401(k) Plan”): This proxy also provides voting instructions for shares held on the record date for the Annual Meeting by Vanguard Fiduciary Trust Company (“Vanguard”),* as trustee of the 401(k) Plan or as custodian appointed by Banco Popular de Puerto Rico, trustee of the PR 401(k) Plan, as applicable. If you are a participant in either plan, this paragraph (and not the paragraph above) applies with respect to voting these plan shares. By marking and returning this card, you will direct Vanguard (i) how to vote the shares of Common Stock allocated to your account in that plan and (ii) how to vote a portion of the shares of Common Stock allocated to the accounts of other participants in that plan who have not submitted voting instructions by the voting deadline. If Vanguard receives your properly marked and executed card on or before April 29, 2016, Vanguard will vote these shares in the manner directed by you.If direction is not given or is received after April 29, 2016, Vanguard will vote these shares in the 401(k) Plan or PR 401(k) Plan, as applicable, in the same proportion, respectively, as the final aggregate vote of the 401(k) Plan or PR 401(k) Plan participants who submitted timely votes on the matter.
This proxy is solicited on behalf of the Board of Directors pursuant to a separate Notice of 2016 Annual Meeting and Proxy Statement dated March 24, 2016, receipt of which is hereby acknowledged. The shares of Common Stock represented by this proxy shall be entitled to one vote for each such share held. Except with regard to voting separately as a class on the election of R. M. Malcolm and A. J. Palmer, shares of Common Stock will vote together with shares of Class B Common Stock without regard to class.
THIS PROXY AND VOTING INSTRUCTION CARD IS CONTINUED ON THE REVERSE SIDE.
| * |
|
THE HERSHEY COMPANY P.O. BOX 810 HERSHEY, PA 17033-0810 | VOTE BY INTERNET - www.proxyvote.com | |
Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on | ||
VOTE BY PHONE - (800) 690-6903 | ||
Use any touch-tone telephone to transmit your voting instructions until 11:59 p.m. EDT on | ||
VOTE BY MAIL | ||
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to The Hershey Company, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
E01150-P72824-Z67195 KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
THE HERSHEY COMPANY | For |
Withhold All | For All | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | ||||||||||||||||||||||||||||||||||||||||||
| The Board of Directors recommends you vote FOR each of the following nominees: | ||||||||||||||||||||||||||||||||||||||||||||||
| 1. | Election of | ¨ | ¨ | ¨ |
| |||||||||||||||||||||||||||||||||||||||||
Nominees: | ||||||||||||||||||||||||||||||||||||||||||||||
01) | P. M. Arway | 06) J. M. Mead | ||||||||||||||||||||||||||||||||||||||||||||
| 02) | J. P. Bilbrey | 07) J. E. Nevels | ||||||||||||||||||||||||||||||||||||||||||||
| 03) | R. F. Cavanaugh | 08) T. J. Ridge | ||||||||||||||||||||||||||||||||||||||||||||
| 04) | C. A. Davis | 09) D. L. Shedlarz | ||||||||||||||||||||||||||||||||||||||||||||
| 05) | M. K. Haben | |||||||||||||||||||||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR Proposals 2, 3 and | For | Against | Abstain | |||||||||||||||||||||||||||||||||||||||||||
2. |
Ratify the appointment of KPMG LLP as independent auditors for | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||||||||||||
3. |
Approve named executive officer compensation on a non-binding advisory |
¨ |
¨ |
¨ | ||||||||||||||||||||||||||||||||||||||||||
4. | Re-approve the material terms of the performance criteria under The Hershey Company Equity and Incentive Compensation Plan. | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||||||||||||
The Board of Directors recommends you vote AGAINST Proposal 5: | ||||||||||||||||||||||||||||||||||||||||||||||
5. | Stockholder proposal entitled “Report on Use of Nanomaterials.” | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||||||||||||||||
The proxies are authorized to vote, in their discretion, for a substitute should any nominee become unavailable for election and upon such other business as may properly come before the meeting. | ||||||||||||||||||||||||||||||||||||||||||||||
NOTE:Please follow the instructions above to vote by Internet or telephone, or mark, sign (exactly as name(s) appear(s) above) and date this card and mail promptly in the postage-paid, return envelope provided. Executors, administrators, trustees, attorneys, guardians, etc., should so indicate when signing. | ||||||||||||||||||||||||||||||||||||||||||||||
| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | |||||||||||||||||||||||||||||||||||||||||||
Admission Ticket
THE HERSHEY COMPANY
20132016 Annual Meeting of Stockholders
Tuesday, April 29, 2014Wednesday, May 4, 2016
10:00 a.m. EDT
GIANT Center
550 West Hersheypark Drive
Hershey, PA 17033
Presenting this Admission Ticket at
HERSHEY’S CHOCOLATE WORLDvisitors center Attraction
entitles you to 25% off selected items
from 9:00 a.m. until 6:00 p.m. EDT
on April 29, 2014.May 4, 2016.
Offer good on April 29, 2014,May 4, 2016, only.
Important Notice Regarding the Availability of Proxy Materials for the
20142016 Annual Meeting of Stockholders to be held on April 29, 2014:May 4, 2016:
The 2014 Notice of 2016 Annual Meeting and Proxy Statement, 20132015 Annual Report to Stockholders
and proxy card are available at www.proxyvote.com.
| q FOLD AND DETACH HEREq | q FOLD AND DETACH HEREq |
E01151-P72824-Z67195
THE HERSHEY COMPANY CLASS B COMMON STOCK This Proxy is Solicited on Behalf of the Board of Directors The undersigned, having received the Notice of 2016 Annual Meeting and Proxy Statement of The Hershey Company (the “Company”) dated March 24, 2016, appoints J. P. Bilbrey and L. M. Turner, and each of them, as proxies, with full power of substitution, to represent and vote all of the undersigned’s shares of the Company’s Class B Common Stock at the Annual Meeting of Stockholders to be held at 10:00 a.m. EDT, May 4, 2016, at GIANT Center, 550 West Hersheypark Drive, Hershey, Pennsylvania, or at any adjournment thereof. The shares represented by this proxy will be voted in the manner directed herein by the undersigned stockholder(s), who shall be entitled to cast ten votes for each such share held.If direction is not given but the card is signed, this proxy will be voted FOR the election of all nominees under Proposal 1, FOR Proposal 2, FOR Proposal 3, FOR Proposal 4 and AGAINST Proposal 5 as set forth on the reverse side, and in the discretion of the proxies with respect to such other business as may properly come before the meeting. This proxy is continued on the reverse side.
|
