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)) |
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):
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. |
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(4) | Date Filed: |
Wednesday, May 3, 2017
10:00 a.m., Eastern Daylight Time
GIANT Center
The 2017 Annual Meeting of Stockholders (the “Annual Meeting”) of The Hershey Company (the “Company”) will be held on Wednesday, May 3, 2017, 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 12 nominees named in the Proxy Statement to serve as directors of the Company until the 2018 Annual Meeting of Stockholders; |
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To conduct an advisory vote regarding the frequency of future advisory votes on |
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The Proxy Statement accompanying this Notice of 2017 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 6, 2017 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 2017 Annual Meeting of Stockholders and Proxy Statement, our proxy card, and our Annual Report on Form10-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, 201423, 2017
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, 20142017 ANNUAL MEETING OF STOCKHOLDERS
Date and Time: | Wednesday, May 3, 2017 10:00 a.m., Eastern Daylight Time | |
Place: | GIANT Center 550 West Hersheypark Drive Hershey, Pennsylvania 17033 | |
Record Date: | March 6, 2017 |
VOTING MATTERS AND BOARD RECOMMENDATIONS
Voting Matter | Board Vote Recommendation | Page Number with More Information | ||||
Proposal 1: | Election of Directors | FOR each nominee | 22 | |||
Proposal 2: | Ratification of Appointment of Ernst & Young LLP as Independent Auditors | FOR | 40 | |||
Proposal 3: | Advise on Named Executive Officer Compensation | FOR | 82 | |||
Proposal 4: | Advise on Frequency of Future Advisory Votes on Named Executive Officer Compensation | 1 YEAR | 83 |
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 2016 Annual Report onForm 10-K that accompanies the Proxy Statement for additional information.
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You have the opportunity to vote on the election of the following 12 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 in the Proxy Statement under Proposal No. 1 – Election of Directors.
Name
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Age
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Years on Board
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Position
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Independent
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Committee Memberships*
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Pamela M. Arway | 63 | 7 | Former President, Japan/Asia Pacific/Australia Region, American Express International, Inc. | Yes | Audit Executive Governance+ | |||||
John P. Bilbrey** | 60 | 6 | Chairman of the Board, The Hershey Company | No | Executive+ | |||||
James W. Brown | 65 | 0 | Director, Hershey Trust Company; Member, Board of Managers, Milton Hershey School | Yes | None | |||||
Michele G. Buck | 55 | 0 | President and Chief Executive Officer, The Hershey Company | No | None | |||||
Charles A. Davis | 68 | 10 | Chief Executive Officer, Stone Point Capital LLC | Yes | Audit+ Executive | |||||
Mary Kay Haben | 60 | 4 | Former President, North America, Wm. Wrigley Jr. Company | Yes | Compensation Governance | |||||
M. Diane Koken | 64 | 0 | Director, Hershey Trust Company; Member, Board of Managers, Milton Hershey School | Yes | None | |||||
Robert M. Malcolm | 64 | 6 | Former President, Global Marketing, Sales & Innovation, Diageo PLC | Yes | Compensation Finance & Risk | |||||
James M. Mead | 71 | 6 | Founder and Managing Director, JM Mead, LLC | Yes | Audit Compensation+ Executive | |||||
Anthony J. Palmer | 57 | 6 | President, Global Brands and Innovation, Kimberly-Clark Corporation | Yes | Compensation Finance & Risk | |||||
Thomas J. Ridge | 71 | 10 | Chairman, Ridge Global, LLC | Yes | Finance & Risk Governance | |||||
David L. Shedlarz | 68 | 9 | Former Vice Chairman, Pfizer Inc. | Yes | Compensation Executive Finance & Risk+ |
* | Compensation = Compensation and Executive Organization Committee |
Finance & Risk = Finance and Risk Management Committee |
** | Mr. Bilbrey retired from the position of President and Chief Executive Officer of the Company effective March 1, 2017 |
+ | Committee Chair |
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Board Composition
Corporate Governance
¡ | 13 Board meetings in 2016 |
¡ | 34 standing committee meetings in 2016 |
¡ | 4 special committee meetings in 2016 |
• | Directors generally not nominated forre-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 2016, approximately 70% of the target total direct compensation for our Chief Executive Officer (“CEO”) and, on average, 60% of the target total direct compensation for our other named executive officers (“NEOs”) was variable and tied to Company performance. |
¡ | Payouts under our annual cash incentive program for 2016 were 100% performance based. |
¡ | 50% of the equity awards granted to our NEOs in 2016 took the form of performance stock units, which will be earned based on achievement ofpre-determined performance goals. |
¡ | 25% of the equity awards granted to our NEOs in 2016 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 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 65% of our CEO’s 2016 target total direct compensation and, on average, 52% of the 2016 target total direct compensation for our other NEOs. |
¡ | Stock ownership requirements for our NEOs range from 5x salary (for our CEO) to 3x salary (for NEOs other than our CEO). |
CEO Target Total Direct Compensation for 2016 | ||||||||||
Compensation Element | % of Total | Description | Cash | Equity | ||||||
Salary | 14 | Fixed annual cash amount | ✓ | |||||||
Annual Cash Incentive | 21 | Variable annual cash payment | ✓ | |||||||
Long-Term Incentive | 65 | Equity awards with 3-4 year vest periods | ✓ |
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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 2017 Annual Meeting of stockholders.Stockholders of the Company (the “Annual Meeting”). The meetingAnnual Meeting will be held on April 29, 2014,May 3, 2017, 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
20142017 Annual Meeting of Stockholders to be held on April 29, 2014May 3, 2017
Our noticeThe Notice of annual meeting2017 Annual Meeting of Stockholders and proxy statement, annual report to stockholders, electronicProxy Statement, our proxy card, our Annual Report on Form10-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, 2014.23, 2017. 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:
The date, time and location of the annual meeting;
Q: | Who is entitled to attend and vote at the Annual Meeting? |
A: | You can attend and vote at the Annual Meeting if, as of the close of business on March 6, 2017 (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 152,069,763 shares of our Common Stock and60,619,777 shares of our Class B Common Stock outstanding. |
A brief description of the matters to be voted on at the meeting;
Q: | How do I gain admission to the Annual 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.
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 on the books of the Company’s transfer agent, you are aregistered stockholder. If you own your Company shares indirectly through a broker, bank or other holder of record, then you are a beneficial owner and those shares are held instreet name. |
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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? |
A: | 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 2, 2017. 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 2, 2017. Have your Notice of Internet Availability of Proxy Materials or proxy card available and follow 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 |
What other matters might arise
Please see the Notice of Internet Availability of Proxy Materials or the information your bank, broker or other holder of record provided you for more information on these voting options. |
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 Record Date. |
If your shares are held instreet name, you cannot vote those shares 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 Annual Meeting. |
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If you plan to vote at the Annual 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 Annual Meeting, we strongly encourage you to vote your shares by proxy prior to the Annual Meeting. |
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: |
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 2, 2017);
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. |
What is a quorum and why is it important?
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. |
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. Votes will be deemed to be “present” at the meeting if a stockholder of record:
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: |
Attends“FOR” the meeting in person; or
Properly submits a proxy in advance“FOR” the ratification of the meeting by Internet, telephone or proxy card.
On most matters,
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: |
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 “brokernon-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 28, 2017. 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, visit their website at www.computershare.com/investor; or 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: |
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:
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.
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:
Q: | What vote is required to approve each proposal? |
A: |
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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.
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.
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Can 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:
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);
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); or
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:
“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; 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.”
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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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• | Proposal No. 3: Advise on Named Executive Officer Compensation– 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. |
Will you publish the results of voting?
• | Proposal No. 4: Advise on the Frequency of Future Advisory Votes on Named Executive Officer Compensation –You are not being asked to vote “for” or “against” this proposal. Instead, this proposal asks stockholders to inform us how often we should conduct an advisory vote on the compensation of our NEOs. You are given the option of selecting every 1, 2 or 3 years, or abstaining. The frequency that receives the greatest number of votes from the holders of our Common Stock and Class B Common Stock voting together will be considered by the Board when determining how often the Company will conduct an advisory vote on NEO compensation in future years. |
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.
Q: | Are abstentions and brokernon-votes counted in the vote totals? |
A: | Abstentions are counted as being present and entitled to vote in determining whether a quorum is present. Shares as to which brokernon-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. |
If you mark or vote “abstain” on Proposal Nos. 2 or 3, the abstention will have the effect of being counted as a vote “AGAINST” the proposal. If you mark or vote “abstain” on Proposal No. 4, your vote will not be counted as a vote for any of the other three options under that proposal. Brokernon-votes with respect to ProposalNos. 1-4 are not included in vote totals and will not affect the outcome of the vote on those proposals. |
Q: | Who will pay the cost of soliciting votes for the Annual Meeting? |
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 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 of
OversightCorporate 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 of Conduct”) that applies to all of our directors, officers and employees worldwide. Adherence to this Code of Conduct assures that our directors, officers and employees are held to the highest standards of integrity. The Code of Conduct 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 of Conduct. The Code of Conduct, 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, James W. Brown, Charles A. Davis, Mary Kay Haben, M. Diane Koken, Robert M. Malcolm, James M. Mead, 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”), 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 servesbecause he served 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 until March 1, 2017, and that Michele G. Buck is not independent because she is an executive officer of the Company.
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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 Ms. Koken and Messrs. Brown and Mead, the levelBoard considered their roles as current members of fees received fromthe 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 2016, 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.” 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 in the section entitled “Information Regarding Our Controlling Stockholder.”
Ms. Koken and Messrs. Brown and Mead 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, as applicable. In addition, Ms. Koken and Mercer’s parent company;Messrs. Brown and Mead 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 Ms. Koken and recommendations with respect to the compositionMessrs. Brown and Mead 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.
Our Corporate Governance Guidelines describe the experience, qualifications, attributes and skills sought by the Board of any Board nominee. Generally, 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 reviewing the qualifications of prospective directors, the Board considers factors it deems appropriate, including the candidate’s:
Integrity;
Judgment;
Skill;
Diversity;
Ability to express informed, useful and constructive views;
Experience with businesses and other organizations of comparable size;
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 having 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,Occasionally, the Governance Committee assists the Board by recommending prospectiveengages a paid third-party consultant to assist in identifying and evaluating 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.
candidates. The Governance Committee does not distinguish between nominees recommended by stockholdershas sole authority under its charter to retain, compensate and other nominees. However, stockholdersterminate these consultants. In 2016, the Governance Committee retained Egon Zehnder to assist in identifying potential future director candidates as several current directors approach their 72nd birthday.
Stockholders desiring to recommend or nominate a director candidate at the annual meeting must comply with certain procedures. We explained the procedures for nominating a director candidate 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,the 2018 Annual Meeting of Stockholders of the Company, you must comply with the procedures for nomination set forth in the section entitled “Information aboutRegarding the 20152018 Annual Meeting of Stockholders.” beginning on page 92. 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 as described above and in the section beginning on page 92.meeting. The Governance Committee may require the nominating stockholder to submit additional information before considering the candidate.
DoesThere were no changes to the procedures relating to stockholder nominations during 2016, and there have been no changes to such procedures to date in 2017. 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 imposereserve 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 forday-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 12 members, each serving a maximum age limitone-year term that expires at the Annual Meeting. Ten of the 12 director nominees are considered independent under the NYSE Rules and the Board’s Corporate Governance Guidelines.
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Leadership Structure
The Company’s governance documents provide the Board with flexibility to select the leadership structure that is most appropriate for directors?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.
Throughout 2016, John P. Bilbrey served as our Chairman of the Board and CEO. The Board believed that combining the roles of Chairman of the Board and CEO under Mr. Bilbrey’s leadership was in the best interests of the Company and its stockholders for several reasons:
Effective March 1, 2017, the Board split the roles of Chairman of the Board and CEO, with Michele G. Buck assuming responsibility as President and CEO and Mr. Bilbrey transitioning to the role ofOurNon-Executive Chairman of the Board. The Board believes this leadership structure is the most appropriate at this time as it enables the Company to continue to leverage Mr. Bilbrey’s knowledge of the Company and his expertise in Board governance and operations while allowing Ms. Buck to focus on her new responsibilities as CEO.
The Board also recognizes the importance of strong independent Board leadership. Although no longer serving as an executive officer of the Company, the Board has determined that Mr. Bilbrey is not independent at this time due to his prior service as CEO. For that reason, James E. Nevels continues to serve as Lead Independent Director, a position he has held since April 2, 2015. Having previously served as Chairman of the Board from February 2009 until his appointment as Lead Independent Director, Mr. Nevels’s service helps ensure continuity of independent Board leadership as well as effective communication between the CEO, the Chairman of the Board, and the independent directors.
Under the terms of the Board’s Corporate Governance Guidelines, provide that directors may not be nominated for reelection after their 72nd birthday. Allthe Lead Independent Director’s responsibilities include the following:
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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.
Mr. Nevels is not standing for electionre-election as a director at the 2014 annual meetingAnnual Meeting. Pursuant to the terms of stockholders satisfied the applicable age requirement atBoard’s Corporate Governance Guidelines, the timeindependent directors are currently considering potential candidates from among the other independent members of their nomination.the Board to replace Mr. Nevels as Lead Independent Director upon expiration of his term.
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, Mr. Mead is a direct representative of the Company’s largest stockholder. This 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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How are directors compensated?
The Company maintains a Directors’ Compensation Plan designed to:following table summarizes the role of the Board and each of its committees in overseeing risk:
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Board | • Regularly reviews and • 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 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. | |
Executive Organization Committee | • Oversees risks relating to the • Oversees the process for conducting annual risk assessments of • 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 |
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The decision to administer the Board’s oversight responsibilities in this manner has an important 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 12 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 and experiences that should be possessed by the Board 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. 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. In addition, the Board’s Corporate Governance Guidelines describe the general experiences, qualifications, attributes and skills sought by the Board of any director nominee, including:
Qualifications, Attributes and Skills | Knowledge and Experience | |
✓ Integrity | ✓ Finance | |
✓ Judgment | ✓ International business | |
✓ Skill | ✓ Marketing | |
✓ Diversity | ✓ Mergers and acquisitions | |
✓ Ability to express informed, useful and constructive views | ✓ Supply chain management | |
✓ Experience with business and other organizations of comparable size | ✓ Information technology | |
✓ Ability to commit the time necessary to learn our | ✓ Human resources | |
✓ Experience and how it relates to the experiences of | ✓ Consumer products | |
✓ Overall desirability as an addition to the Board and its committees | ✓ Government, public policy and regulatory affairs |
In addition to evaluating new director candidates, the Governance Committee regularly 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 attributes that qualify him or her to serve as a member of the Board. Based on the most recent assessment of the Board’s composition completed in February 2017, 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 experiences, 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 who are employeesand Director Attendance at Annual Meeting
The Board held 13 meetings in 2016. Each director attended at least 83% of all of the meetings of the Board and committees of the Board on which he or she served in 2016. Average attendance for all of these meetings equaled 94%.
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 receive no additional compensationas well as matters concerning management, without any member of management present. Each executive session is chaired by 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 meetings of stockholders. Ten of the eleven directors standing for their service on our Board. Mr. Bilbrey, our current President and Chief Executive Officer, iselection at the only employee2016 Annual Meeting of Stockholders of the Company who also served as a director during 2013 and thus received no additional compensation for his Board service.attended that meeting.
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 ChairmanCommittees of the Board from $195,000 to $215,000, effective January 1, 2013.
The Board determined to maintain all other elementshas established five standing committees. Membership on each of 2013 director compensation at 2012 levels. Accordingly, compensation paid to non-executive directorsthese committees, as of March 6, 2017, is shown in 2013 was as follows:the following chart:
• | 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 |
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 |
Payment of Annual Retainer and Committee Chair Fees
Non-employee
Committee Member |
* | Ex-Officio |
All directors, may elect to receive all or a portionincluding committee chairs, served on the respective committees listed above throughout 2016.
The Board’s Corporate Governance Guidelines require that every member of the annual retainerAudit Committee, Compensation Committee, Finance and Risk Management Committee, and Governance Committee be independent.
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The Board may also from time to time establish committees of limited duration for a special purpose. In 2016, the Board established a special committee to oversee the Company’s CEO search process. This special committee was chaired by Ms. Arway and included Ms. Haben and Messrs. Malcolm, Mead, Nevels and Shedlarz as members. The special committee met four times in cash or2016.
The table below identifies the number of meetings held by each standing committee in Common Stock. Non-employee directors also may elect to defer receipt2016, provides a brief description of the retainer orduties and responsibilities of each committee, chair fees untiland provides general information regarding 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 portionlocation of their retainer or committee chair fees may invest the deferred amounts in two ways:each committee’s charter:
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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 • Approve all audit andnon-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 Form10-Q and Annual Report onForm 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. |
Committee | Compensation and Executive Organization | |
Meetings | 8 | |
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 • 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 | |
| • Charter can be viewed on the Investors section of our website at www.thehersheycompany.com. |
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Committee | Finance and Risk Management | |
Meetings | 8 | |
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. |
Committee | Governance | |
Meetings | 8 | |
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 | 1 | |
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 | |
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.” |
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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
✓ | The Board of Directors unanimously recommends that stockholders |
The first proposal to be voted on at the Annual Meeting is the election of 12 directors. If elected, the directors will hold office until the 2018 Annual Meeting of Stockholders of the Company or until their successors are standing for election?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 andby-laws:
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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.
The Board’s Corporate Governance Guidelines provide that directors will generally not be nominated forre-election after their 72nd birthday. All of the directors standing for election at the annual meeting. Each director is expected to serve until2017 Annual Meeting satisfied the next annual meeting and until his or her successor has been elected and qualified.
What happens if a nominee becomes unavailable for election?applicable age requirement at the time of their nomination.
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, each of whom is currently a member of the Board.2017 Annual Meeting. 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 directorcommittee 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.
Mr. Nevels, the current Lead Independent Director, and Mr. Cavanaugh are not standing forre-election at the Annual Meeting.
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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Director since May 2010 Age63 Board Committees • Governance (Chair) • Audit • Executive | PAMELA M. ARWAY Former President, Japan/Asia Pacific/Australia Region, American Express QUALIFICATIONS, ATTRIBUTES AND SKILLS Throughout her21-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 | |||
PREVIOUS BUSINESS EXPERIENCE • Spent 21 years in positions of increasing responsibility at American Express Company, Inc. and its subsidiaries CURRENT PUBLIC AND OTHER KEY DIRECTORSHIPS • Iron Mountain Incorporated (May 2014 to present) • DaVita | 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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Director since June 2011 Age60 Board Committees • Executive (Chair) | JOHN P. BILBREY Chairman of the Board, The Hershey Company QUALIFICATIONS, ATTRIBUTES AND SKILLS Having served as our President and Chief Executive Officer from May 2011 to March 2017, Mr. Bilbrey | |||
PREVIOUS BUSINESS EXPERIENCE • Chairman of the Board, President and Chief Executive Officer, The Hershey Company (April 2015 to March 2017) • President and Chief Executive Officer, The Hershey Company (May 2011 to April 2015) • Executive Vice President, Chief Operating Officer, The Hershey Company (November 2010 to May 2011) • Senior Vice President, President Hershey North America, The Hershey Company (December 2007 to November 2010) • Senior Vice President, President International Commercial Group, The Hershey Company (November 2005 to December 2007) • Senior Vice President, President Hershey International, The Hershey Company (November 2003 to November 2005) | CURRENT PUBLIC AND OTHER KEY DIRECTORSHIPS • Colgate-Palmolive Company (March 2015 to present) PAST PUBLIC COMPANY BOARDS • McCormick & Company, Incorporated EDUCATION • Bachelor’s degree in psychology from Kansas State | |||
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Director Nominee Age65 Board Committees • None |
Director, Hershey QUALIFICATIONS, ATTRIBUTES AND SKILLS One of | |||
PREVIOUS BUSINESS EXPERIENCE • Chief of Staff, United States Senator Robert P. Casey, Jr. (January 2007 to • Partner, SCP Private Equity Partners • Chief of Staff, Pennsylvania Governor Robert P. Casey (January 1989 to | CURRENT PUBLIC AND OTHER KEY DIRECTORSHIPS • FS Investment Corporation III (February 2016 to present) EDUCATION • Bachelor’s degree, • Juris Doctor degree from the University of | |||
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Director since March 2017
Age55 Board Committees • None |
President and QUALIFICATIONS, ATTRIBUTES AND SKILLS On February 21, 2017, the Board, upon the recommendation of the Governance Committee, increased the size of the Board from 11 to 12 members and elected Ms. Buck as a director to fill the newly created directorship, effective March 1, 2017. As our President and Chief Executive Officer, Ms. Buck is responsible for allday-to-day global operations and commercial activities of the Company. Having served at the Company for more than 11 years and as an executive in the consumer packaged goods industry for more than 25 years, Ms. Buck is a valuable contributor to our Board in the areas of marketing, consumer products, supply chain management and mergers and acquisitions. Her presence in the boardroom also ensures efficient communication between the Board and Company management. | |||
PREVIOUS BUSINESS EXPERIENCE • Executive Vice President, Chief Operating Officer, The Hershey Company (June 2016 to March 2017) • President, North America, The Hershey Company (May 2013 to June 2016) • Senior Vice President, Chief Growth Officer, The Hershey Company (September 2011 to May 2013) • Senior Vice President, Global Chief Marketing Officer, The Hershey Company (December 2007 to September 2011) | CURRENT PUBLIC AND OTHER KEY DIRECTORSHIPS • New York Life Insurance (November 2013 to present) EDUCATION • Bachelor’s degree from Shippensburg University of Pennsylvania • Master’s degree from the University of North Carolina |
Director since November 2007 Age68 Board Committees • Audit (Chair) • Executive | CHARLES A. DAVIS Chief Executive Officer, Stone Point Capital LLC, QUALIFICATIONS, ATTRIBUTES AND SKILLS Having served in the fields of investment banking and private equity for more than 40 years, Mr. Davis | |||
PREVIOUS BUSINESS EXPERIENCE • 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 | CURRENT PUBLIC AND OTHER KEY DIRECTORSHIPS • 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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____________________
Director since August 2013 Age60 Board Committees • Compensation • Governance | MARY KAY HABEN Former President, North America, QUALIFICATIONS, ATTRIBUTES AND SKILLS Throughout Ms. Haben’s33-year career, she | |||
PREVIOUS BUSINESS EXPERIENCE • Group Vice President and Managing Director, North America, Wm. Wrigley Jr. Company (April 2007 to October 2008) • Held several key positions during 27-year career with Kraft Foods, Inc., a grocery manufacturing and processing conglomerate | CURRENT 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 | |||
Business |
One of two directors nominated for election by the holders of the Common Stock voting separately as a class.
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Director Nominee Age64 Board Committees • None |
Director, Hershey QUALIFICATIONS, ATTRIBUTES AND SKILLS One of three representatives of Hershey Trust Company and Milton Hershey School being nominated to serve on our Board, Ms. Koken will be well positioned to bring to our Board valuable insights from our largest stockholder. Having served as Insurance Commissioner of Pennsylvania for three governors and as President of the | |||
PREVIOUS BUSINESS EXPERIENCE • Commissioner of Insurance in Pennsylvania (August 1997 to February 2007) • Provident Mutual Life Insurance Company (October 1975 to July 1997) | CURRENT PUBLIC AND OTHER KEY DIRECTORSHIPS • Capital Blue Cross (December 2011 to present) • NORCAL Mutual (January 2009 to present) • Nationwide Corporation; Nationwide Mutual Insurance Company; Nationwide Mutual Fire Insurance Company (April 2007 to present) EDUCATION • Bachelor’s degree,magna cum laude, in education from Millersville University • Juris Doctor degree from Villanova University School of Law |
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Director since December 2011 Age64 Board Committees • Compensation • Finance and Risk Management | ROBERT M. MALCOLM Former President, Global Marketing, Sales & Innovation, QUALIFICATIONS, ATTRIBUTES AND SKILLS Mr. Malcolm | |||
PREVIOUS BUSINESS EXPERIENCE • Spent 24 years at The Procter & Gamble Company in positions of CURRENT PUBLIC AND OTHER KEY DIRECTORSHIPS • American Marketing Association • Boston Consulting | EDUCATION • Bachelor’s degree in marketing • Masters of Business Administration degree in marketing |
One of two directors nominated for election by the holders of the Common Stock voting separately as a class.
| ||||
Director since April 2011 Age71 Board Committees • Compensation • Audit • Executive | JAMES M. MEAD Founder and QUALIFICATIONS, ATTRIBUTES AND SKILLS One of three representatives of Hershey Trust Company and Milton Hershey School being nominated to serve on | |||
ADDITIONAL POSITIONS • Director and President, Hershey Trust Company; Member, Board of Managers, Milton Hershey School • CEO, PinnacleCare International, a CURRENT PUBLIC AND OTHER KEY DIRECTORSHIPS • Capital BlueCross (1984 to present) • PinnacleCare International (2012 to present) | EDUCATION • Bachelor of Science degree in economics • Masters of Arts degree in economics from The Pennsylvania State | |||
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|
| |||||
April 2011
| ||||||
| • • Finance and Risk Management | ANTHONY J. PALMER President, QUALIFICATIONS, ATTRIBUTES AND SKILLS Having spent most of | ||||
PREVIOUS BUSINESS EXPERIENCE • Senior Vice President and Chief Marketing Officer, Kimberly-Clark Corporation (October 2006 to March 2012) | 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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November 2007 Age71 Board Committees • Finance and Risk Management • Governance | THOMAS J. RIDGE Chairman, Ridge Global, LLC, QUALIFICATIONS, ATTRIBUTES AND SKILLS Mr. Ridge’s background and | ||||
ADDITIONAL POSITIONS • Co-founder (with Howard Schmidt), Ridge • Partner, Ridge Policy Group, a bipartisan, full-service government affairs and issue management group (April 2010 to present) PREVIOUS BUSINESS EXPERIENCE • Chief Executive Officer, Ridge Global, LLC (July 2006 to July 2015) • Secretary, U.S. Department of Homeland Security (October 2001 to February 2005) • Governor, Pennsylvania (1995 to 2001) CURRENT 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) | PAST PUBLIC COMPANY BOARDS • Chart Acquisition Corp. (July 2011 to August 2015) • FS Investment Corporation • Exelon Corporation (May 2005 to October 2013) • Brightpoint, Inc. • Geospatial Holdings, Inc. �� EDUCATION • Bachelor’s degree,cum laude, • Juris Doctor degree from The Dickinson School of Law of The Pennsylvania State | |||||
____________________
|
August Age68 Board Committees • Finance and Risk Management • Compensation • Executive | DAVID L. SHEDLARZ Former Vice Chairman, QUALIFICATIONS, ATTRIBUTES AND SKILLS 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 | ||||
PREVIOUS BUSINESS EXPERIENCE • Executive Vice President and Chief Financial Officer, Pfizer Inc. (January 1999 to July 2005) CURRENT PUBLIC AND OTHER KEY DIRECTORSHIPS • Teladoc, Inc. (September 2016 to present) • 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 |
27
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, is the only employee of the Company who also served as a director during 2016 and thus received no additional compensation for his Board service.
The Board targetsnon-employee director compensation at the 50th percentile of compensation paid to directors at a peer group of companies we call the 2016 Peer Group. Information about the 2016 Peer Group is included in the section entitled “Setting Compensation” in 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 tonon-employee director compensation are warranted.
As a result of its review in December 2015, the Board determined that no changes tonon-employee director compensation were warranted for 2016.
Accordingly, compensation paid tonon-employee directors in 2016 was as follows:
Form of Compensation
| Payment ($) | |||
Annual retainer for othernon-employee directors | 100,000 | |||
Annual restricted stock unit (“RSU”) award | 135,000 | |||
Annual fee for Lead Independent Director(1) | 25,000 | |||
Annual fee for chairs of Audit, Compensation, and Finance and Risk Management Committees(1) | 15,000 | |||
Annual fee for chair of Governance Committee(1) | 10,000 |
(1) | Paid in addition to $100,000 annual retainer fornon-employee directors. |
The Board completed its annual review ofnon-employee director compensation in December 2016 and determined that the following changes were warranted for 2017 to ensure that the program remains aligned to the 50th percentile of compensation paid to directors from our 2016 Peer Group. The Board elected to increase the annual RSU award from $135,000 to $150,000 and to increase the annual Governance Committee Chair retainer from $10,000 to $15,000. The Board also elected to increase thenon-employee director stock ownership guidelines, as described below, from four times the annual retainer to five times the annual retainer. Except for these changes, all other elements of thenon-employee director compensation program described above remain unchanged for 2017.
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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 allnon-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 tonon-employee directors on the first day of January, April, July and October. In 2016, 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 tonon-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 6, 2017, Messrs. Davis, Malcolm, Mead, Nevels, Ridge and Shedlarz and Mmes. Arway and Haben 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. When a special committee is established, the Board will determine whether to providenon-employee directors with additional compensation for service on such committee based on the expected duties of the committee, the anticipated number and length of any committee meetings, and other factors the Board, in its discretion, may deem relevant. In 2016, the Board approved payments of $25,000 to Ms. Arway as Chair and $20,000 to each of Ms. Haben and Messrs. Malcolm, Mead, Nevels and Shedlarz for their service on the special committee established in connection with the Company’s Chief Executive Officer search.
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We reimburse our directors for travel and otherout-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 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 adollar-for-dollar basis up to a maximum aggregate contribution of $5,000 annually.
Stock Ownership Guidelines
Pursuant to the Board’s Corporate Governance Guidelines,non-employee directors are expected to own shares of Common Stock having a value equal to at least five times the annual retainer. Eachnon-employee director has until January 1 of the year following his or her fifth anniversary of becoming a director to satisfy the guideline.
The Compensation Committee reviews the stock ownership guidelines annually to ensure they are aligned with external market comparisons. Prior to December 2016,non-employee directors were expected to own shares of Common Stock having a value equal to at least four times the annual retainer. As part of the annual review completed in December 2016, the Board, upon the recommendation of the Compensation Committee, elected to increase thenon-employee director stock ownership guidelines from four times the annual retainer to five times the annual retainer. Under the Board’s Corporate Governance Guidelines, eachnon-employee director serving on the Board as of the date of the increase has until January 1, 2019 to satisfy the new stock ownership guidelines. Anynon-employee director serving on the Board that had not yet reached his or her initial compliance date as of the date of the increase has until the second anniversary of such initial compliance date to satisfy the new stock ownership guidelines.
2016 Director Compensation
The following table and explanatory footnotes provide information with respect to the compensation paid or provided tonon-employee directors during 2016:
Name
| Fees Earned or Paid in Cash(1) ($)
| Stock Awards(2) ($)
| All Other Compensation(3) ($)
| Total ($)
| ||||||||||||
Pamela M. Arway | 135,000 | 135,000 | 5,000 | 275,000 | ||||||||||||
Robert F. Cavanaugh | 100,000 | 135,000 | 5,000 | 240,000 | ||||||||||||
Charles A. Davis | 115,000 | 135,000 | 5,000 | 255,000 | ||||||||||||
Mary Kay Haben | 120,000 | 135,000 | 5,000 | 260,000 | ||||||||||||
Robert M. Malcolm | 120,000 | 135,000 | 5,000 | 260,000 | ||||||||||||
James M. Mead | 135,000 | 135,000 | 5,000 | 275,000 | ||||||||||||
James E. Nevels | 145,000 | 135,000 | 5,000 | 285,000 | ||||||||||||
Anthony J. Palmer | 100,000 | 135,000 | 5,000 | 240,000 | ||||||||||||
Thomas J. Ridge | 100,000 | 135,000 | 5,000 | 240,000 | ||||||||||||
David L. Shedlarz | 135,000 | 135,000 | — | 270,000 |
(1) | Includes amounts earned or paid in cash or shares of Common Stock at the election of the director or deferred by the director under the Directors’ Compensation Plan. Amounts credited as earnings on amounts deferred under the Directors’ Compensation Plan are based on investment options available to all participants in our 401(k) Plan or our Common Stock and, accordingly, the earnings credited during 2016 were not considered “above market” or “preferential” earnings. |
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The following table sets forth the portion of fees earned or paid in cash or Common Stock, and the portion deferred with respect to retainers and fees earned during 2016: |
Name
| Immediate Payment
| Deferred and Investment Election
| ||||||||||||||||||||||
Cash Paid ($)
| 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 | 135,000 | — | — | — | — | — | ||||||||||||||||||
Robert F. Cavanaugh | 100,000 | — | — | — | — | — | ||||||||||||||||||
Charles A. Davis | 115,000 | — | — | — | — | — | ||||||||||||||||||
Mary Kay Haben | 120,000 | — | — | — | — | — | ||||||||||||||||||
Robert M. Malcolm | 120,000 | — | — | — | — | — | ||||||||||||||||||
James M. Mead | 135,000 | — | — | — | — | — | ||||||||||||||||||
James E. Nevels | 107,500 | 37,500 | 393 | — | — | — | ||||||||||||||||||
Anthony J. Palmer | — | 100,000 | 1,050 | — | — | — | ||||||||||||||||||
Thomas J. Ridge | 100,000 | — | — | — | — | — | ||||||||||||||||||
David L. Shedlarz | 135,000 | — | — | — | — | — |
(2) | Represents the dollar amount recognized as expense during 2016 for financial statement reporting purposes with respect to RSUs awarded to the directors during 2016. 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 2016 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, 2016, based on the $103.43 closing price of our Common Stock as reported by NYSE on December 30, 2016, the last trading day of 2016. The information presented includes the accumulated value of each director’s deferred common stock units and RSUs. Balances shown below include dividend equivalent units credited in the form of additional common stock units on retainers and committee chair fees that have been deferred as common stock units and dividend equivalent units credited in the form of additional common stock units on RSUs. |
Name
| Number of Deferred Common Stock Units (#)
| Market Value of Retainers and Committee Chair Fees Deferred to the Common Stock Unit Account as of December 31, 2016 ($)
| Number of RSUs (#)
| Market Value of RSUs as of December 31, 2016 ($)
| ||||||||||||
Pamela M. Arway | — | — | 1,448 | 149,767 | ||||||||||||
Robert F. Cavanaugh | 43,731 | 4,523,097 | 1,448 | 149,767 | ||||||||||||
Charles A. Davis | — | — | 1,448 | 149,767 | ||||||||||||
Mary Kay Haben | 3,485 | 360,454 | 1,448 | 149,767 | ||||||||||||
Robert M. Malcolm | — | — | 1,448 | 149,767 | ||||||||||||
James M. Mead | 8,107 | 838,507 | 1,448 | 149,767 | ||||||||||||
James E. Nevels | — | — | 1,448 | 149,767 | ||||||||||||
Anthony J. Palmer | — | — | 1,448 | 149,767 | ||||||||||||
Thomas J. Ridge | 29,942 | 3,096,901 | 1,448 | 149,767 | ||||||||||||
David L. Shedlarz | — | — | 1,448 | 149,767 |
(3) | Represents the Company match for contributions made by the director to one or more charitable organizations during 2016 under the Gift Matching Program. |
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SHARE OWNERSHIP OF DIRECTORS, MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the beneficial ownership of our outstanding voting securities and stock options by:
Holder
| Common Stock(1)
| Exercisable Stock Options(2)
| Percent of Common Stock(3)
| Class B Common Stock
| Percent of Class B Common Stock(4)
| |||||||||||||||||||
Hershey Trust Company, as trustee for the Milton Hershey School Trust(5) Milton Hershey School(5) |
|
|
| 12,753,521 | — | 8.4 | 60,612,012 | 99.9 | ||||||||||||||||
Hershey Trust Company(6) | 149,500 | — | ** | — | — | |||||||||||||||||||
BlackRock, Inc.(7) | 9,680,398 | — | 6.4 | — | — | |||||||||||||||||||
Vanguard Group, Inc.(8) | 9,042,606 | — | 6.0 | — | — | |||||||||||||||||||
Pamela M. Arway* | 11,125 | — | ** | — | — | |||||||||||||||||||
John P. Bilbrey* | 105,126 | 1,000,655 | ** | — | — | |||||||||||||||||||
James W. Brown* | — | — | ** | — | — | |||||||||||||||||||
Michele G. Buck* | 21,039 | 109,445 | ** | — | — | |||||||||||||||||||
Robert F. Cavanaugh* | 1,000 | — | ** | — | — | |||||||||||||||||||
Charles A. Davis* | 19,103 | — | ** | — | — | |||||||||||||||||||
Mary Kay Haben* | — | — | ** | — | — | |||||||||||||||||||
M. Diane Koken* | 600 | — | ** | — | — | |||||||||||||||||||
Patricia A. Little | — | 22,486 | ** | — | — | |||||||||||||||||||
Robert M. Malcolm* | 7,061 | — | ** | — | — | |||||||||||||||||||
James M. Mead* | 700 | — | ** | — | — | |||||||||||||||||||
James E. Nevels* | 6,808 | — | ** | — | — | |||||||||||||||||||
Terence L. O’Day | 34,913 | 164,179 | ** | — | — | |||||||||||||||||||
Anthony J. Palmer* | 15,458 | — | ** | — | — | |||||||||||||||||||
Thomas J. Ridge* | 1,864 | — | ** | — | — | |||||||||||||||||||
David L. Shedlarz* | 18,336 | — | ** | — | — | |||||||||||||||||||
Leslie M. Turner | 1,918 | 51,896 | ** | — | — | |||||||||||||||||||
All directors and executive officers as a group (19 persons) | 285,270 | 1,665,557 | ** | — | — |
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* | Director |
** | Less than 1% |
(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 6, 2017: |
Name | RSUs (#) | |||
Pamela M. Arway | 374 | |||
Michele G. Buck | 1,289 | |||
Charles A. Davis | 374 | |||
Robert M. Malcolm | 374 | |||
James E. Nevels | 374 | |||
Terence L. O’Day | 910 | |||
Anthony J. Palmer | 374 | |||
Thomas J. Ridge | 374 | |||
David L. Shedlarz | 374 |
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, 10,751 shares owned jointly with her spouse; Mr. Cavanaugh, 1,000 shares owned jointly with his spouse; Ms. Koken, 600 shares held at Glenmede Trust Company; Mr. Malcolm, 6,687 shares owned jointly with his spouse; Mr. Nevels, 5,546 shares owned jointly with his spouse and 888 shares owned jointly with another individual; Mr. Palmer, 15,084 shares owned jointly with his spouse; and Mr. Ridge, 1,490 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 6, 2017. For Ms. Little, the column reflects stock options that will become exercisable within 60 days of March 6, 2017. |
(3) | Based upon 152,069,763 shares of Common Stock outstanding on March 6, 2017. |
(4) | Based upon 60,619,777 shares of Class B Common Stock outstanding on March 6, 2017. |
(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 ashare-for-share basis. If on March 6, 2017, 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 73,365,533 shares of our Common Stock (12,753,521 Common Stock shares plus 60,612,012 converted Class B Common Stock shares), or 34.5% of the 212,681,775 shares of Common Stock outstanding following the conversion (calculated as 152,069,763 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 seethe section entitled “Information Regarding Our Controlling Stockholder.” |
(6) | Please see the section entitled “Information Regarding Our Controlling Stockholder” 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 24, 2017. The filing indicated that, as of December 31, 2016, BlackRock, Inc. had sole voting and investment power over 9,680,398 shares of Common Stock. The filing indicated that BlackRock, Inc. is a parent holding company or control person in accordance with Rule13d-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/A filed with the SEC on February 13, 2017. The filing indicated that, as of December 31, 2016, Vanguard Group, Inc. had sole voting and investment power over 9,042,606 shares of Common Stock. The filing indicated that Vanguard Group, Inc. is a parent holding company or control person in accordance with Rule13d-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. |
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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 6, 2017 Record Date. These securities include:
The table below shows these holdings as of March 6, 2017. You can find additional information about RSUs and deferred common stock units held by directors in theHow manyNon-Employee Director Compensation section of this Proxy Statement. You can find additional information about stock options, RSUs and deferred common stock units held by the NEOs in the Executive Compensation section of this Proxy Statement.
Holder
| Shares Underlying RSUs and Beneficially Owned
| Shares Underlying Stock Options Not Beneficially Owned
| ||||||
Pamela M. Arway* | 1,053 | — | ||||||
John P. Bilbrey* | 90,579 | — | ||||||
James W. Brown* | — | — | ||||||
Michele G. Buck* | 146,595 | 130,007 | ||||||
Robert F. Cavanaugh* | 45,542 | — | ||||||
Charles A. Davis* | 1,053 | — | ||||||
Mary Kay Haben* | 5,296 | — | ||||||
M. Diane Koken* | — | — | ||||||
Patricia A. Little | 34,671 | 60,364 | ||||||
Robert M. Malcolm* | 1,053 | — | ||||||
James M. Mead* | 9,918 | — | ||||||
James E. Nevels* | 1,053 | — | ||||||
Terence L. O’Day | 10,459 | 59,921 | ||||||
Anthony J. Palmer* | 1,053 | — | ||||||
Thomas J. Ridge* | 30,996 | — | ||||||
David L. Shedlarz* | 1,053 | — | ||||||
Leslie M. Turner | 72,627 | 68,332 |
* | 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, anon-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.
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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 8.4% of all of the votes will be required to elect a nominee to the Board?
For nomineesentitled to be elected bycast on matters requiring the holdersvote of the Common Stock voting separately and 81.6% 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.
As of the Record Date, Hershey Trust Company also held 149,500 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 12,903,021 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 8.5% of all of the votes entitled to be cast on matters requiring the vote of the Common Stock voting separately and 81.6% 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?
|
3435
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.5, 2016.
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 Form10-K for the year ended December 31, 2013,2016 with the SEC, we also:
Reviewed and discussed the audited financial statements with management and the independent auditors;
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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 onForm 10-K for the year ended December 31, 2013,2016, filed with the SEC on February 21, 2014.2017.
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 an(“KPMG”), our 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, 2016 and 2013?
KPMG LLP’s fees were as follows:December 31, 2015:
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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Nature of Fees
| 2016 ($)
| 2015 ($)
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Audit Fees | 5,170,365 | 5,674,000 | ||||||
Audit-Related Fees(1) | 85,750 | 346,500 | ||||||
Tax Fees(2) | 962,073 | 222,398 | ||||||
All Other Fees | — | — | ||||||
Total Fees | 6,218,188 | 6,242,898 |
(1) | Fees associated primarily with services related to due diligence for potential business acquisitions, auditing ofcarve-out financial statements and auditing of employee benefit plans. |
(2) | Fees pertaining primarily to |
What is theThe Audit Committee’s policy regarding pre-approval ofCommitteepre-approves all audit, audit-related andnon-audit services performed by the Company’s independent auditors?
auditors. The Audit Committee pre-approves all audit and non-audit services performed by KPMG LLP. The Committee is authorized by its charter to delegate to one or more of its members the authority topre-approve any audit, audit-related ornon-audit services, provided that the approval is presented to the Audit Committee at its next scheduled meeting.
The Audit Committeepre-approved all services provided by KPMG LLP in 2013.2016.
On April 21, 2016, upon the approval of the Audit Committee, we notified KPMG that it would be dismissed as our independent auditors effective upon the completion of KPMG’s audit of the Company’s consolidated financial statements for the fiscal year ending December 31, 2016 (and the effectiveness of internal control over financial reporting as of December 31, 2016), and the issuance of their report thereon. The decision to dismiss KPMG was made as part of a competitive bidding process to determine the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017.
The audit reports of KPMG on the Company’s consolidated financial statements as of and for the years ended December 31, 2016 and 2015 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of KPMG on the effectiveness of internal control over financial reporting as of December 31, 2016 and 2015 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except that KPMG’s report indicates that the Company did not maintain effective internal control over financial reporting as of December 31, 2015, because of the effect of a material weakness related to the Company’s accounting for cocoa derivative instruments. During the Company’s two most recent fiscal years ended December 31, 2016 and December 31, 2015, there were no (1) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference to the subject matter of the disagreements in connection with its reports; and (2) events of the type listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of RegulationS-K, except for the material weakness as described in this paragraph.
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On June 15, 2016, the Audit Committee appointed Ernst & Young LLP as the Company’s independent registered public accounting firm for the Company’s fiscal year ending December 31, 2017. During the Company’s two most recent fiscal years ended December 31, 2016 and 2015, neither the Company nor anyone acting on its behalf consulted with Ernst & Young LLP regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that Ernst & Young LLP concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of RegulationS-K and the related instructions thereto) or a reportable event (as described in paragraph (a)(1)(v) of Item 304 of RegulationS-K).
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PROPOSAL NO. 2 – RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
What is the Board proposing?
✓ | The Board of Directors unanimously recommends that stockholders voteFORratification of the Audit Committee’s appointment of Ernst & Young LLP as the Company’s independent auditors for 2017 |
The Board is proposing that stockholders ratify the Audit Committee’s appointment of KPMGCommittee has appointed Ernst & Young LLP as the Company’s independent auditors for 2014. The Audit Committee and2017. Although not required to do so, the Board, consider KPMGupon the Audit Committee’s recommendation, has determined to submit the Audit Committee’s appointment of Ernst & Young LLP as our independent auditors to be well qualifiedstockholders for that role.
Is stockholder ratification necessary or required?as a matter of good corporate governance.
The Audit Committee is not required to obtain stockholder ratification of itsCommittee’s appointment of KPMG LLP. However, the Audit Committee recommended to the Board that stockholders be given the opportunity to vote on KPMG LLP’s appointment at the annual meeting.
What will happen if the appointment of KPMG LLP is not ratified by the stockholders?
If stockholders do not ratify the appointment of KPMGErnst & Young LLP as the Company’s independent auditors for 2014, 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 20142017 will be considered ratified if a majority of the votes of the shares of the Common Stock and Class B Common Stock (voting together without regard to class) present and entitled to vote at the annual meetingAnnual Meeting are castvoted for the proposal.
Will representatives If stockholders do not ratify the appointment of KPMGErnst & Young LLP attendas the annual meeting?Company’s independent auditors for 2017, the Audit Committee will reconsider its appointment.
Representatives of both Ernst & Young LLP and KPMG LLP(our independent auditors for the fiscal year ended December 31, 2016) 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?COMPENSATION DISCUSSION & ANALYSIS
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?
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 2016. 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. Our NEOs for 2016 are:
Name | Title | |
John P. Bilbrey(1) | Chairman of the Board, President and Chief Executive Officer (“CEO”) | |
Patricia A. Little | Senior Vice President, Chief Financial Officer (“CFO”) | |
Michele G. Buck(2) | Executive Vice President, Chief Operating Officer (“COO”) | |
Terence L. O’Day | Senior Vice President, Chief Supply Chain Officer | |
Leslie M. Turner | Senior Vice President, General Counsel and Secretary |
(1) | On March 1, 2017, Mr. Bilbrey retired from the position of President and CEO. He continues to serve as Chairman of the Board. |
(2) | On June 2, 2016, Ms. Buck was promoted from President, North America to Executive Vice President, COO. On March 1, 2017, Ms. Buck became our President and CEO. |
Executive Summary
2016 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. We have approximately 17,980 employees around the world who work every day to deliver delicious, quality products. We have 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 2016, we announced the following Company expectations, which are substantially reflected in 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 prior to becoming President, International, in May 2013; and M. G. Buck (President, North America), T. L. O’Day (Senior Vice President, Chief Supply Chain Officer) and L. M. Turner (Senior Vice President, General Counsel and Secretary), who were the three highest paid of our other executive officers during 2013. For the purpose of this discussion and analysis, compensation information provided for Mr. Tacka reflects his appointment as our CFO.
What material highlights and events affecteddecision-making regarding 2013 named executive officer compensation? What actions were taken in response to those highlights and events?2016 incentive programs:
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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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(2) | Adjustedearnings per share-diluted is anon-GAAP financial measure. We define adjusted earnings per share-diluted as diluted earnings per share of |
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In April 2016, we lowered our guidance for our expected 2016 constant currency net sales increase to 2.5% and for our expected 2016 adjusted earnings per share-diluted increase to 3% to 4%. See the section entitled “Annual Incentives” for more information regarding our 2016 annual incentive targets and related results.
Actual results for 2016 were as follows:
Because
While we surpasseddid not meet our expectations for net sales growth, we exceeded our executive officersadjusted earnings per share-diluted expectations. Because of our mixed financial performance results, our NEOs earned significantly below-target performance stock unit (“PSU”) payouts and slightly above-target annual cash incentive awards, underas described further in the OHIPsections entitled “Long-Term Incentives” and “Annual Incentives.”
Hershey Has StrongPay-for-Performance Alignment
The Compensation and Executive Organization Committee (the “Compensation Committee”) of our Board of Directors (the “Board”) has oversight responsibility for 2013.our executive compensation framework and for aligning our executives’ pay with the Company’s performance. We believe we have a strongpay-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.
In 2016, approximately 70% of our CEO’s and 60% of our other NEOs’ target total direct compensation was variable and tied to Company performance, including a substantial portion tied to shareholder value. Specifically, 34% of our PSUs were tied to Total 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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Total shareholder return, or TSR, was 37.4% during 2013, reflecting:42
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Our TSR forOver the last three years, ended December 31, 2013,we have delivered a TSR of 120.8% was14%, which is at the topbottom of our Financial Peer Group (as described beginning on page 57), over ten percentage points higher than any other company in our Financial Peer Group and more than double that of the Standard & Poor’s 500 Index.
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 to the roles and responsibilities of certain members of 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. Buck 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.section entitled “Performance Stock Unit Targets and Results.”
What do we reward?
We reward results. Our executive officers and employees are engaged by
Because our TSR metric was below threshold for the 2014-2016 PSU cycle, our NEOs received a high performance culture that requires and recognizes both Company and individual performance.
Achievement of individual performance objectives is considered, along with other factors,0% payout for this metric, significantly reducing their overall PSU payout, as described in more detail in the determinationsection entitled “Performance Stock Unit Targets and Results.”
Our Stockholders Strongly Approve 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”“say-on-pay” resolution, with more than 95%93% 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 Compensation Committee believes the results of last year’s“say-on-pay” vote affirmed our stockholders’ support of our Company’s executive compensation program. Consequentially, our approach to executive compensation in 2013 is2016 was substantially the same as the approach stockholders approved in 2012.2015. 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”“say-on-pay” vote (asas described beginningin Proposal No. 3 – Approval of Named Executive Officer Compensation on page 88).aNon-Binding Advisory Basis. We plan to next askare asking stockholders to express a preference for the frequency of the “say-on-pay”“say-on-pay” vote, atpursuant to Section 14A of the Exchange Act, in this proxy statement.
We believe our 2016 annual meeting.compensation and governance policies and practices are significant drivers of our stockholder support. These policies and practices include:
Who
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¡ | For the protection of the Company, we require our NEOs to enter into an Employee Confidentiality and Restrictive Covenant Agreement (“ECRCA”) as a condition of receipt of long-term incentive awards. Failure to comply with the ECRCA may subject the employee to cancellation of awards and a requirement to repay amounts received from awards. |
¡ | 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 the12-month period following the first public issuance or filing with the SEC of the financial document not in compliance with such financial reporting requirement. |
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.
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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.
Does theThe Compensation Committee use benchmarkingmay, in its discretion, delegate all or a portion of its duties and responsibilities to a subcommittee of the Compensation Committee and, pursuant to the provisions of the EICP, may appoint the CEO as a committee of the Board as necessary for the purpose of making equity grants under the EICP; provided, however, the Compensation Committee may not delegate the approval of certain transactions to a subcommittee or to the CEO if such transactions involve the approval or grant of equity-based compensation to an “officer” for purposes of Ruledecision-making?16b-3 Whatunder the Securities Exchange Act of 1934 (“Exchange Act”) or a “covered employee” for purposes of Section 162(m) of the Internal Revenue Code (“IRC”) unless such subcommittee consists solely of members of the Compensation Committee who are (i)“Non-Employee Directors” for the purposes of Rule16b-3 under the Exchange Act, and (ii) “outside directors” for the purposes of Section 162(m) of the IRC.
The 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:
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Compensation Advisor Independence
Under its engagement letter with the Compensation Committee, Mercer 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 its 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 consulting and claims processing services (provided by Mercer) and coordination of certain third party health and welfare benefits (coordinated by Marsh). Mercer’s affiliates, Marsh USA Inc. and Marsh INSCO LLC, provided property and casualty insurance consulting services until June 2016.
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 decision to engage Mercer for other services was made by management. Neither the Compensation Committee nor the Board has a 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 2016 related to executive and director compensation totaled $476,782. Fees paid to Mercer and its affiliates for other services provided in 2016 were as follows:
Compensation-related products and services | $ | 116,301 | ||
Services unrelated to compensation | $ | 294,401 | ||
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Total other services | $ | 410,702 | ||
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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 2016 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 received an increase at the beginning of the year consistent with how the Company sets compensation as described below.(1) | |||
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 2016 for each NEO.(1)The metric weightings were changed in 2016 as follows: Net Sales(2) – 50% to 45%, Adjusted Earnings per Share-Diluted(3) – remained at 40% and Operating Cash Flow(4) – 10% to 15%. | |||
Long-Term Incentive Awards | Variable, performance-based compensation component. Granted annually as a combination of Restricted Stock Units (“RSUs”), 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 2016 for each NEO. In 2016, the Compensation Committee approved changing the equity mix from 50% stock options and 50% PSUs to 25% stock options, 50% PSUs and 25% RSUs. In addition, the Compensation Committee approved changing the PSU metrics and weightings for the 2016 – 2018 performance cycle as described in the section entitled “Long-Term Incentives.” |
(1) | Ms. Buck’s base salary and annual incentive award were adjusted when she was promoted to Executive Vice President, COO, as described further in the sections entitled “Base Salary” and “Annual Incentives.” |
(2) | Net Sales is measured on a constant currency basis, which is anon-GAAP performance measure. For more information regarding how we define constant currency net sales, please see footnote (1) in the section entitled “Executive Summary.” |
(3) | Adjusted earnings per share-diluted is anon-GAAP performance measure. For more information regarding how we define adjusted earnings per share-diluted, please see footnote (2) in the section entitled “Executive Summary.” |
(4) | Operating cash flow is anon-GAAP performance measure. We define operating cash flow as the average of cash from operations less certainone-time items impacting comparability. For more information regarding our use ofnon-GAAP performance measures, please see footnote (1) in the section entitled “Executive Summary.” |
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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 2016:
The Compensation Committee’s annual compensation review for 20132016 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, directors and other officers. The Compensation Committee’s final recommendation is then given to the independent directors of our Board for review and final approval.
Before 2015, 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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Since 2015, the Compensation Committee has utilized one common peer group. Companies in the Compensation Peer Grouppeer group used to benchmark executive and director pay levels for 2013 were:2016 (the “2016 Peer Group”) are:
Brown-Forman Corporation | ||
Campbell Soup Company | ||
Colgate-Palmolive Company | McCormick & Company, Inc. | |
ConAgra Foods, Inc. | ||
Constellation Brands, Inc. | ||
Dean Foods Company | ||
Dr Pepper Snapple Group, | ||
| The Clorox Company | |
General Mills, Inc. | The J. M. Smucker Company | |
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H. J. Heinz Company
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 approximatelyone-half to two andone-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 Compensation2016 Peer Group was composed of companies with annual revenues ranging from $2.7$3.6 billion to $14.9$29.6 billion (measured as(as of the most recent fiscal year end)2015) and market capitalization ranging from $2.9$1.6 billion to $24.8$71.3 billion (measured in the second quarter(as of 2012)December 31, 2015). Hershey’s annual revenuesfiscal year 2015 revenue of $6.1$7.4 billion and December 31, 2015 market capitalization of $14.9$19.4 billion were at the 5751st and 56th and 84th percentiles, respectively. Except for Hillshire Brands,Colgate-Palmolive Company and Mead Johnson Nutrition Company, all of the companies in our 2013 Compensation2016 Peer Group were included in our 2012 Compensation2015 Peer Group. Hillshire BrandsKraft Foods Group, included in 2015, was added tonot included in the Compensation2016 Peer Group for 2013. Sara Lee Corporation, included in 2012, was removed due to its 2012 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 occurring in 2015.
Mercer’s benchmarking of our executive officers’ compensation is based primarily on the Compensation Peer Group. Data from the Compensation2016 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 Compensation2016 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 Compensation2016 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 20132016 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 2013,2016, 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, 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 20132016 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
| 2016 Base Salary ($)
| Increase from 2015 (%)
| Percent of Target Total Direct Compensation (%)
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Mr. Bilbrey | 1,236,000 | 3.0 | 13.8 | |||||||||
Ms. Little | 627,000 | 4.5 | 26.7 | |||||||||
Ms. Buck | 750,000 | (1) | 14.9 | 23.9 | ||||||||
Mr. O’Day | 587,800 | 3.0 | 29.9 | |||||||||
Ms. Turner | 627,000 | 4.5 | 29.4 |
(1) |
See Column (c) of the 2016 Summary Compensation Table on page 64 for information regarding the base salary earned by each of our named executive officersNEOs during 2013.2016.
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 2013,2016, 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 2016, 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, each of the named executive officers would be eligible to receive an annual incentive award based on the following target percentages:follows:
Name
| 2016 Target One Hershey Incentive Program (% of Base Salary)
| Percent of Target Total Direct Compensation (%)
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Mr. Bilbrey | 150 | 20.7 | ||||||
Ms. Little | 80 | 21.3 | ||||||
Ms. Buck | 90 | (1) | 21.0 | (1) | ||||
Mr. O’Day | 65 | 19.4 | ||||||
Ms. Turner | 70 | 20.6 |
(1) | ||||||
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| is based on a base salary of $716,274, reflecting her target base salary both before and after the June increase. |
In determining the target OHIP percentage for each of the executive officers,NEOs, the Compensation Committee, comparedand the levelindependent directors in the case of our CEO, considered the value of target total cash compensation (base salary and target OHIP award) to the benchmark range of the median percentile levelagainst market references. Target total cash compensation levels for his or her counterparts in the Compensation Peer Group, the survey composite or a blend of the two. For each of the named executive officers, in 2013NEOs fall within an appropriate range relative to the target total cash compensation generally fell between the 20th and 55th percentiles of target total cash compensationmedian for comparable positions.positions given each incumbent’s performance, responsibilities and tenure in the role.
The
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In 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 of2016, 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 fivesix 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 final2016 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 objectivestargets for the 20132016 OHIP participants centered on the following targets:were as follows:
Consolidated net sales of $7.074 billion, a 6.5% increase from 2012;
• | Consolidated net sales(1) of $7.571 billion, a 2.5% increase from 2015; |
Adjustedearnings per share-diluted of $3.61, an 11.4% increase from 2012; and
• | Adjusted earnings per share-diluted(2) of $4.37, a 6.0% increase from 2015; and |
• | Operating cash flow(3) of $1.190 billion, an 8.0% increase from 2015. |
Operating cash flow of $974 million, a 17.5% increase from 2012. Operating cash flow is defined as the average of cash from operations less pension contributions and commodities hedging transactions, measured in five12-month periods ending on the last day of fiscal year 2012 and each quarter of fiscal year 2013.
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We achieved above-target performance in net sales, adjustedearnings per share-diluted and operating cash flow. Our financial performance during 20132016 and the resulting financial performance scores for OHIP were as follows:
Metric | 2013 Target ($) | 2013 Actual ($) | Target Award (%) | Performance Score (%) | 2016
| 2016
| Target
| Performance
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Net Sales | 7.074 billion | 7.146 billion | 50.00 | 71.14 | 7.571 billion | 7.455 billion | 45.00 | 43.50 | ||||||||||||||||||||
Adjusted Earnings perShare-Diluted | 3.61 | 3.72 | 40.00 | 66.99 | ||||||||||||||||||||||||
Adjusted Earnings per Share-Diluted(2) | 4.37 | 4.45 | 40.00 | 48.86 | ||||||||||||||||||||||||
Operating Cash Flow | 0.974 billion | 1.096 billion | 10.00 | 20.00 | 1.190 billion | 1.172 billion | 15.00 | 14.73 | ||||||||||||||||||||
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 | 107.09 |
For 2013,
(1) | Net Sales is measured on a constant currency basis, which is anon-GAAP performance measure. For more information regarding how we define constant currency net sales, please see footnote (1) in the section entitled “Executive Summary.” The Net Sales results above differ from those disclosed in our fourth quarter 2016 earnings release as a result of acquisitions made during 2016. |
(2) | Adjusted earnings per share-diluted is anon-GAAP performance measure. For more information regarding how we define adjusted earnings per share-diluted, please see footnote (2) in the section entitled “Executive Summary.” Adjusted Earnings Per Share-Diluted results above differ from those disclosed in our fourth quarter 2016 earnings release as a result of acquisitions made during 2016. |
(3) | Operating cash flow is anon-GAAP performance measure. We define operating cash flow as the average of cash from operations less certainone-time items impacting comparability. For more information regarding our use ofnon-GAAP performance measures, please see footnote (1) in the section entitled “Executive Summary.” |
We achieved below-target performance in net sales and operating cash flow and above-target performance in adjusted earnings per share-diluted. As a result, 65% of the 2016 OHIP award for each of the named executive officersNEO was based on the Company performance score of 158.13%107.09%. 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.
Following the close of 2013, the 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 2013 performance and achievement relative to these 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.ratings.
The individual performance goals for Mr. Bilbrey centered on delivery of the Company’s financial goals, geographic expansion and strategic leadership. Based upon our overall strong financial results, growth in key geographies and his strategic leadership and succession planning.
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At the Committee recommended to the independent directors, and the independent directors agreed, that Mr. Bilbrey earnedbeginning of 2016, Ms. Buck served as our President, North America. On June 2, 2016, Ms. Buck took on an individual performance scoreexpanded role of 200%.
Mr. Tacka, our SeniorExecutive Vice President, COO, while continuing to lead the Company’sday-to-day North American operations. Her goals and Chief Financial Officer,evaluation reflected both roles. Ms. Buck was responsible for strategic leadership and delivery of the Company’s financial objectives, establishing future growth pipelines, building critical capabilities and improving the Company’s operations.
Ms. Little, our CFO, had individual performance goals that included seamless transition ofbuilding the CFO roleCompany’s global financial capabilities, delivering continued process improvements and due diligence regarding potential business development opportunities. Based upon Mr. Tacka’s successful transition of the CFO position and support ofdelivering on 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%.
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 growth and marketplace objectives. Based upon Ms. Buck’s delivery of solid financial results in 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%.
strategic plan. The individual performance goals for Mr. O’Day, our Senior Vice President, Chief Supply Chain Officer, focused on delivering a supply chain network that enables 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 centeredincluded enhancing our global ethics and compliance culture as well as supporting our CEO and Board on expansiona variety of legal team expertisematters.
Following the close of 2016, the Compensation Committee provided the independent directors with an assessment of Mr. Bilbrey’s 2016 performance and achievement relative to support our globalhis individual performance goals. Our financial results were around target despite challenging industry conditions in the category. Mr. Bilbrey also delivered on his strategic leadership goals, including enabling continued growth through portfolio expansion, investing in key geographies, capturing significant cost savings, delivering above-target innovation, succession planning and enhancement of corporate governance.diversity efforts. Based upon Ms. Turner’s successthose assessments, the Compensation Committee recommended, and the Board approved, the individual performance award and total OHIP payout for Mr. Bilbrey as shown in developing capabilitiesthe table below.
Mr. Bilbrey provided the Compensation Committee with his assessment of each NEO’s 2016 performance and achievement in relation to support our global operations and enhancement of corporate governance,their performance goals. Based upon those assessments, 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%107.09% of target and a 35% weight for theirthe individual performance scores,award, our named executive officersNEOs earned the following 20132016 OHIP awards:
2013 One Hershey Incentive Program Awards | ||||||||||||||
Name | Award (%) | Award ($) | Company (%) | Individual (%) | Combined (%) | 2013 ($) | ||||||||
J. P. Bilbrey | 130 | 1,462,334 | 158.13 | 200 | 172.78 | 2,526,686 | ||||||||
D. W. Tacka | 70 | 289,343(2) | 158.13 | 140 | 151.78 | 439,178 | ||||||||
H. P. Alfonso | 75 | 464,942 | 158.13 | 175 | 164.03 | 762,666 | ||||||||
M. G. Buck | 75 | 401,388 | 158.13 | 175 | 164.03 | 658,414 | ||||||||
T. L. O’Day | 65 | 351,585 | 158.13 | 150 | 155.28 | 545,957 | ||||||||
L. M. Turner | 60 | 293,965 | 158.13 | 150 | 155.28 | 456,483 |
Name
| Award Target (%)
| Award Target(1) ($)
| Company Financial Performance Award (65% Weighting) ($)
| Individual Performance Award (35% Weighting) ($)
| 2016 OHIP Award ($)
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Mr. Bilbrey | 150 | 1,853,169 | 1,289,963 | 810,762 | 2,100,725 | |||||||||||||||
Ms. Little | 80 | 501,268 | 348,925 | 210,532 | 559,457 | |||||||||||||||
Ms. Buck | 90 | (2) | 629,778 | (2) | 438,379 | 275,528 | 713,907 | |||||||||||||
Mr. O’Day | 65 | 381,898 | 265,834 | 200,496 | 466,330 | |||||||||||||||
Ms. Turner | 70 | 438,609 | 305,309 | 191,892 | 497,201 |
(1) | Target award is based upon actual salary received in |
(2) |
SeeThe 2016 OHIP payments are included in Column (g) of the 2016 Summary Compensation Table for information relatingeach NEO.
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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 releaseCompensation Committee awards long-term incentive grants to our NEOs. Prior to 2016, long-term incentive grants were comprised of fourth quarterPSUs and annual financial results.
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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 2013 for Mr. Tacka),2016, expressed as a percentage of base salary, were:
Name
| Target Long- (% of Salary)
| Percent of Target Total Direct Compensation (%)
| ||||||
Mr. Bilbrey | 475 | 65.5 | ||||||
Ms. Little | 195 | 52.0 | ||||||
Ms. Buck | 230 | 55.0(1) | ||||||
Mr. O’Day | 170 | 50.8 | ||||||
Ms. Turner | 170 | 50.0 |
(1) | ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| is based on a base salary of $716,274, reflecting her target base salary both before and after the June increase. |
In determining the value of thelong-term incentive awards, theThe Compensation Committee values RSUs and 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, the targetTarget total direct compensation levels for each of our named executive officers was generally between the 20th and 60thpercentiles of total direct compensationNEOs fall within an appropriate range relative to the median for the comparable positions given the each incumbent’s, performance, responsibilities and tenure in the Compensation Peer Grouprole.
Performance Stock Unit Targets and survey composite data.Results
How are PSU awards structured? What performance goals are used? What were the results atyear-end 2013?
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.
2014-2016 PSU Award
The performance objectives for the2011-2013 2014-2016 performance cycle awarded in 20112014 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;
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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 Compensation Committee approved a Financial Peer Group of 15 companies with median revenues of $8.1 billion. As a result of corporate transactions, Hillshire Brands and Kraft Foods Group were removed from the Financial Peer Group. Therefore, 13 companies remained in the 2014-2016 cycle for use in assessing our Company’s 2014-2016 TSR.
Companies included in the 13-member 2011 Financial Peer Group for the 2014-2016 PSU cycle award were:
Brown-Forman Corporation | Hormel Foods Corporation | |
Campbell Soup Company | Kellogg Company | |
ConAgra Foods, Inc. | McCormick & Company, Inc. | |
Constellation Brands, Inc. | Molson Coors Brewing Company | |
Dean Foods Company |
| |
|
| |
Dr Pepper Snapple Group, Inc. |
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General Mills, Inc. |
| |
|
| |
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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 thresholds, targets and maximums 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 2014-2016 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 | 0th Percentile | 50.00 | 0.00 | ||||||||||||
Three-year CAGR in Organic Net Sales Outside the United States and Canada | 18.3% CAGR | (1) | 1.9% CAGR | (1) | 15.00 | 0.00 | ||||||||||
Three-year CAGR in Adjusted Earnings per Share-Diluted(3) | 10.1% CAGR | (1),(2) | 8.1% CAGR | (1),(2) | 15.00 | 4.64 | ||||||||||
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 | ||||||||
2016 Adjusted Earnings per | | $4.37 (6.1% increase) | (1)
| | $4.45 (8.0% increase) | (1)
| 6.67 | 8.89 | ||||||||
Total | 100.00 | 20.66 |
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(1) |
|
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|
(2) |
(3) | Adjusted earnings per share-diluted is anon-GAAP |
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%20.66% performance score or the number of PSUs earned by our named executive officersNEOs for the2011-2013 2014-2016 performance cycle.
2015-2017 PSU Award
The performance metrics and weightings for the 2015-2017 performance cycle described above.
are the same as the 2014-2016 performance cycle. In 2015, the Company decided to utilize one common peer group for benchmarking compensation and for measuring financial performance in PSU cycles. The performance objectives2015 peer group originally included 15 companies, all of which were included in the Financial Peer Group used for the2012-2014 2014-2016 PSU cycle, except that Hillshire Brands was removed as a result of a corporate transaction and2013-2015 performance cycles were based upon was replaced by the following metrics:
|
Three-year compound annual growth inClorox Company. Kraft Foods Group was subsequently removed from the 2015 peer group as a result of a corporate transaction so that the 2015 peer group currently includes 14 companies. Actual Company results of $4.45 for the 2016 adjustedearnings per share-diluted measured against metric reflected 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.
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|
| |
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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% increase from 2012 and exceeded2015 exceeding the 20132016 target of $3.61.$4.37. As a result, 11.16%8.89% of the final award was earned for this metric in the2012-2014 and2013-2015 2015-2017 performance cycles.cycle. These PSUs will be paid at the end of each of the applicablethree-year performance cyclescycle to participating executives who are entitled to payouts under the terms of the program.
2016-2018 PSU Award
In December 2016, the Committee approved changes to the performance metrics and weightings for the 2016-2018 performance cycle to simplify our program, reduce complexity and improve focus on our current long-term growth strategies.
The performance objectives for the 2016-2018 performance cycle are based upon the following metrics:
These metrics are weighted 34%, 33% and 33%, respectively.
See Column (e) of the 2016 Summary Compensation Table, on page 64, Columns (f) through (h) of the 2016 Grants ofPlan-Based Awards table on page 69,Table, Columns (i) and (j) of the Outstanding Equity Awards table on page 71at 2016 Fiscal-Year End Table and Columns (d) and (e) of the 2016 Option Exercises and Stock Vested table on page 73Table 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?
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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 approximatelyone-quarter of the NEO’s long-term incentive compensation target award. In 2013,2016, the target number of stock options awarded to each executive officerNEO was determined by multiplying the executive officer’sNEO’s base salary by one-halfone-quarter 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 20132016 Annual Report to Stockholderson Form10-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-year10-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 2016 Summary Compensation Table, Columns (j) through (l) of the 2016 Grants of Plan-Based Awards Table, Columns (b) through (f) of the Outstanding Equity Awards at 2016 Fiscal-Year End Table and Columns (b) and (c) of the 2016 Option Exercises and Stock Vested Table for more information on stock options awarded to the NEOs.
Restricted Stock Units
In 2016, we updated our long-term incentive program to include RSUs in our annual equity mix. The Compensation Committee sets guidelines for the value of the annual RSUs to be awarded based on competitive compensation data. These RSU awards represent approximatelyone-quarter of the NEO’s long-term incentive compensation target award. In 2016, the target number of RSUs awarded to each NEO was determined by multiplying the NEO’s base salary byone-quarter of his or her target long-term incentive award percentage divided by the closing price of the Company’s Common Stock on the NYSE on the grant date. The actual number of RSUs awarded may vary from the target level based on each NEO’s individual performance evaluation. Annual RSUs vest in equal increments over three years.
The Compensation Committee also awards RSUs to NEOs and other executives from time to time as special incentives. RSUs also are awarded by the Compensation Committee to 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 February 2016, retention RSUs were granted to Mmes. Little, Buck and Turner, which vest in the event the recipient remains employed by the Company and/or its subsidiaries as of the third-anniversary of the grant date. In June 2016, retention RSUs were granted to Mr. O’Day, which vest in the event the recipient remains employed by the Company and/or its subsidiaries as of theone-year anniversary of the grant date.
See Column (e) of the 2016 Summary Compensation Table, Column (i) of the 2016 Grants of Plan-Based Awards Table, Columns (g) and (h) of the Outstanding Equity Awards at 2016 Fiscal-Year End Table and Columns (d) and (e) of the 2016 Option Exercises and Stock Vested Table for more information about RSUs awarded to the NEOs.
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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, include personal use of Company aircraft, security services for our CEO, and financial counseling and tax counseling, are of the type that we believe promote the efficiency, effectiveness and focus of our executive officers in the performance of their duties.preparation reimbursement. See the footnotes to Column (i) of the 2016 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
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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 2016 Summary Compensation Table.
NEOs participate in ourHastax-qualified defined benefit pension plan (“pension plan”) andtax-qualified defined contribution 401(k) plan (“401(k) plan”) on the same basis as other salaried employees of the Company. 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 undertax-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 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 2016 Pension Benefits Table and accompanying narrative and the 2016Non-Qualified Deferred Compensation Table and accompanying narrative for more information regarding the DB SERP, DC SERP and other retirement benefits.
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The Company entered into an employment agreement with Mr. Bilbrey in August 2012, which provided for Mr. Bilbrey’s continued employment as President and CEO and continued nomination 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 did not have a specified term. Under the terms of the employment agreement, in the event Mr. Bilbrey’s employment was terminated by the Company without Cause or he resigned for Good Reason (in each case as defined in the employment agreement), Mr. Bilbrey would have been entitled to certain severance benefits. In the event of his termination after a change in control, Mr. Bilbrey would have been eligible to receive benefits under the Executive Benefits Protection Plan (Group 3A) (“EBPP 3A”). He was not entitled to an excise taxgross-up. The employment agreement subjected Mr. Bilbrey to certainnon-competition andnon-solicitation covenants under the ECRCA and to compensation recovery (clawback) to the extent required by applicable law and regulations.
Mr. Bilbrey retired as our President and CEO effective March 1, 2017. In connection with his retirement, the Company and Mr. Bilbrey entered into a retirement agreement in February 2017 in order to set forth the benefits Mr. Bilbrey will receive in connection with his retirement. The retirement agreement supersedes and replaces Mr. Bilbrey’s employment agreement.
In February 2017, the Company entered into an employment agreement with Ms. Buck to reflect the terms and conditions of her employment as President and CEO, effective March 1, 2017. The terms of Ms. Buck’s employment agreement are substantially similar to the terms of Mr. Bilbrey’s employment agreement prior to the November 2015 amendment.
See the section entitled “Potential Payments upon Termination or Change in Control” for information regarding the payments Mr. Bilbrey and Ms. Buck would have received in the event of an applicable termination or change in control occurring on December 31, 2016.
Other than as set forth above, we have not entered into employment agreements with any NEO.
Severance and Change in Control Plans
All of the NEOs are covered by our EBPP 3A. The EBPP 3A is 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 upon a Change in Control is based upon a “double trigger.” The terms of the plan 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 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. Change in Control, Cause and Good Reason are defined in the EBPP 3A.
See the discussion in the section entitled “Potential Payments upon Termination or Change in Control” for information regarding the payments that would be due to our NEOs under the EBPP 3A 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 | |
COO | 4 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.& Analysis. 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
6361
2016 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 20132016 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 2013,2016, as well as 20122015 and 20112014 compensation where required. Since Mr. Tacka was not a named executive officer in the Company’s 2012 or 2011 proxy statement, the2014 information on Mr. Tacka’s 2012 and 2011 compensation is not required to be includedprovided for Mmes. Little and Turner because they were not NEOs 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(2)
| Bonus(3)
| Stock
| Option
| Non- ($)
| Change in Pension and Non-Qualified Deferred Compensation Earnings(7) ($)
| All ($)
| Total ($)
| |||||||||||||||||||||||||||
(a)
| (b)
| (c)
| (d)
| (e)
| (f)
| (g)
| (h)
| (i)
| (j)
| |||||||||||||||||||||||||||
Mr. Bilbrey | 2016 | 1,240,753 | — | 5,031,976 | 1,470,896 | 2,100,725 | 2,700,403 | 134,823 | 12,679,576 | |||||||||||||||||||||||||||
Chairman of the Board, | 2015 | 1,204,616 | — | 3,146,305 | 2,844,073 | 1,005,930 | 2,438,084 | 170,991 | 10,809,999 | |||||||||||||||||||||||||||
2014 | 1,164,462 | — | 3,947,534 | 4,123,889 | 1,018,395 | 7,293,845 | 229,276 | 17,777,401 | ||||||||||||||||||||||||||||
Ms. Little | 2016 | 629,412 | — | 2,067,059 | 368,695 | 559,457 | — | 194,425 | 3,819,048 | |||||||||||||||||||||||||||
Senior Vice President, CFO | 2015 | 482,308 | — | 2,172,076 | 510,003 | 288,805 | — | 246,579 | 3,699,771 | |||||||||||||||||||||||||||
Ms. Buck | 2016 | 720,352 | — | 6,208,007 | 356,418 | 713,907 | 832,570 | 67,490 | 8,898,744 | |||||||||||||||||||||||||||
Executive Vice President, COO | 2015 | 655,310 | — | 746,418 | 685,505 | 403,015 | 587,394 | 73,220 | 3,150,862 | |||||||||||||||||||||||||||
2014 | 642,461 | — | 944,845 | 1,008,038 | 307,046 | 1,312,980 | 69,596 | 4,284,966 | ||||||||||||||||||||||||||||
Mr. O’Day | 2016 | 590,061 | — | 1,354,674 | 252,782 | 466,330 | — | 188,577 | 2,852,424 | |||||||||||||||||||||||||||
Senior Vice President, | 2015 | 572,845 | — | 538,594 | 485,067 | 269,435 | — | 168,052 | 2,033,993 | |||||||||||||||||||||||||||
2014 | 567,172 | — | 695,571 | 576,407 | 222,292 | — | 231,604 | 2,293,046 | ||||||||||||||||||||||||||||
Ms. Turner | 2016 | 629,412 | — | 3,959,690 | 323,586 | 497,201 | — | 210,647 | 5,620,536 | |||||||||||||||||||||||||||
Senior Vice President, | 2015 | 602,308 | — | 550,394 | 765,062 | 341,376 | — | 196,234 | 2,455,374 |
(1) | Mr. Bilbrey was Chairman of the Board, President and CEO for the entirety of 2016, retiring from the position of President and CEO on March 1, 2017. Mr. Bilbrey continues to serve asnon-executive Chairman of the Board. Ms. Buck was promoted to Executive Vice President, COO in June 2016 and served in that position at the end of fiscal 2016. On March 1, 2017, Ms. Buck was promoted to President and CEO. |
(2) | Column (c) reflects |
64
Column (e) shows the aggregate grant date fair value of RSUs and contingent target PSU awards granted to the |
For 2016, the amount |
62
The number |
Name | Year | Maximum Value at Grant Date ($) | ||||
J. P. Bilbrey | 2013 | 7,736,858 | ||||
2012 | 6,560,267 | |||||
2011 | 7,377,919 | |||||
D. W. Tacka | 2013 | 1,113,915 | ||||
H. P. Alfonso | 2013 | 2,044,942 | ||||
2012 | 1,855,291 | |||||
2011 | 1,468,555 | |||||
M. G. Buck | 2013 | 1,568,234 | ||||
2012 | 1,372,127 | |||||
2011 | 1,000,119 | |||||
T. L. O’Day | 2013 | 1,481,029 | ||||
2012 | 1,338,904 | |||||
2011 | 1,181,117 | |||||
L. M. Turner | 2013 | 991,177 | ||||
2012 | 878,697 |
Name
| Year
| Maximum Value at Grant Date ($)
| ||||||
Mr. Bilbrey | 2016 | 8,194,305 | ||||||
2015 | 7,308,849 | |||||||
2014 | 7,858,523 | |||||||
Ms. Little | 2016 | 1,612,558 | ||||||
2015 | 1,105,137 | |||||||
Ms. Buck | 2016 | 1,968,242 | ||||||
2015 | 1,732,476 | |||||||
2014 | 1,872,631 | |||||||
Mr. O’Day | 2016 | 1,393,633 | ||||||
2015 | 1,251,856 | |||||||
2014 | 1,389,453 | |||||||
Ms. Turner | 2016 | 1,475,165 | ||||||
2015 | 1,276,533 |
(5) |
Column (f) presents the grant date fair value of stock options awarded to the |
(6) | Column (g) reflects the OHIP payments made to each NEO based upon actual salary received in 2016. |
(7) | Column (h) reflects the aggregate change in the actuarial present value of the |
65
The |
63
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- 401(k) Match(a) ($)
| Supple- Contri- ($)
| DC SERP ($)
| Core Retirement ($)
| Supple- mental Core Retirement ($)
| Personal ($)
| Security ($)
| Company- ($)
| Reimburse- Return ($)
| Relocation and Related ($)
| Attorney ($)
| |||||||||||||||||||||||||||||||||||||||
Mr. Bilbrey | 2016 | 11,925 | 89,176 | 1,034 | — | — | — | — | 8,680 | 8,400 | 1,500 | — | 14,108 | |||||||||||||||||||||||||||||||||||||||
2015 | 11,925 | 87,882 | 980 | — | — | — | 52,825 | 7,479 | 8,400 | 1,500 | — | — | ||||||||||||||||||||||||||||||||||||||||
2014 | 11,700 | 154,189 | 926 | — | — | — | — | 52,561 | 8,400 | 1,500 | — | — | ||||||||||||||||||||||||||||||||||||||||
Ms. Little | 2016 | 11,925 | 29,395 | — | 114,777 | 7,950 | 19,596 | — | — | 10,782 | — | — | — | |||||||||||||||||||||||||||||||||||||||
2015 | 11,925 | 9,363 | — | 59,135 | 7,950 | 6,242 | — | — | 12,379 | — | 139,585 | — | ||||||||||||||||||||||||||||||||||||||||
Ms. Buck | 2016 | 11,925 | 38,627 | 913 | — | — | — | 4,325 | — | 10,200 | 1,500 | — | — | |||||||||||||||||||||||||||||||||||||||
2015 | 11,925 | 31,261 | 859 | — | — | — | 18,975 | — | 10,200 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
2014 | 11,700 | 46,692 | 805 | — | — | — | — | — | 8,914 | 1,485 | — | — | ||||||||||||||||||||||||||||||||||||||||
Mr. O’Day | 2016 | 11,925 | 26,752 | — | 107,437 | 7,950 | 17,835 | — | — | 8,400 | — | 8,278 | — | |||||||||||||||||||||||||||||||||||||||
2015 | 11,925 | 23,754 | — | 99,110 | 7,950 | 15,836 | — | — | 8,400 | 1,077 | — | — | ||||||||||||||||||||||||||||||||||||||||
2014 | 11,700 | 38,285 | — | 138,847 | 7,800 | 25,523 | — | — | 8,400 | 1,049 | — | — | ||||||||||||||||||||||||||||||||||||||||
Ms. Turner | 2016 | 11,925 | 31,760 | — | 121,348 | 7,950 | 21,174 | — | — | 15,000 | 1,490 | — | — | |||||||||||||||||||||||||||||||||||||||
2015 | 11,925 | 28,515 | — | 112,334 | 7,950 | 19,010 | — | — | 15,000 | 1,500 | — | — |
66
Name | Year | Amount ($) | 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 Mr. O’Day 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 3% of the amount by which their eligible earnings (salary and OHIP) exceeds the IRS compensation 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 Mr. O’Day, reflects payment for relocation expenses and |
Reflects attorney fees paid or incurred in |
6864
2016 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 20132016 under the OHIP, and with respectregard to each PSU,PSUs, RSUs and stock option and RSUoptions awarded to each named executive officerNEO during 2013.2016, as applicable. The amounts that were actually earned under the OHIP during 20132016 by the named executive officersNEOs are set forth in Column (g) of the 2016 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 Shares of Stock or Units(4) (#) | All Other Option Awards: Number of Securities Under- lying Options(5) (#) | Exercise or Base Price of Option 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 | 02/16/2016 | 6,486 | 1,853,169 | 3,706,338 | 51 | 36,262 | 90,655 | 16,136 | 128,800 | 90.39 | 6,502,872 | |||||||||||||||||||||||||||||||||
Ms. Little | 02/16/2016 | 1,754 | 501,268 | 1,002,535 | 10 | 7,136 | 17,840 | 15,060 | 32,285 | 90.39 | 2,435,754 | |||||||||||||||||||||||||||||||||
Ms. Buck | 02/16/2016 | 2,204 | 629,778 | 1,259,557 | 12 | 8,710 | 21,775 | 59,185 | 31,210 | 90.39 | 6,564,425 | |||||||||||||||||||||||||||||||||
Mr. O’Day | 02/16/2016 | 1,337 | 381,898 | 763,797 | 9 | 6,167 | 15,418 | 2,732 | 22,135 | 90.39 | 1,107,420 | |||||||||||||||||||||||||||||||||
06/15/2016 | — | — | — | — | — | — | 5,206 | — | 96.05 | 500,036 | ||||||||||||||||||||||||||||||||||
Ms. Turner | 02/16/2016 | 1,535 | 438,609 | 877,218 | 9 | 6,528 | 16,320 | 36,687 | 28,335 | 90.39 | 4,283,276 |
(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) |
For Mmes. Little, Buck and Turner, Column (i) also represents the number of retention RSUs granted to each NEO on February |
For Mr. O’Day, the second number in Column (i) represents the number of retention RSUs granted to Mr. O’Day on June 15, 2016. These retention RSU awards will vest in the event the recipient remains employed by the Company and/or its subsidiaries as of June 15, 2017, theone-year anniversary of the grant date. |
Information on the treatment of RSUs upon retirement, death, disability, termination, or Change in Control can be found in the section entitled “Potential Payments upon Termination or Change in Control.” |
65
(5) | Column (j) represents the number of options awarded to each NEO. Target option awards were determined by multiplyingone-quarter of the executive’s long-term incentive target percentage times his or her 2016 base salary, divided by the Black-Scholes value of (i) $11.42 per option for each NEO. The Black-Scholes value is based on the option exercise price, which is equal to the closing price of the Company’s Common Stock on the NYSE on the award date. The actual number of options awarded varied from the target level based on the executive’s performance evaluation for |
(6) |
(7) | Column (l) presents the aggregate grant date fair value of the target number of PSUs reported in Column (g), the |
7066
Outstanding Equity Awards at 2016 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 $97.23, the closing price of our Common Stock on December 31, 2013, the last trading day of 2013, as reported by the NYSE.
Outstanding Equity Awards
As of December 31, 20132016:
Option Awards(1) | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options(2) (#) Exercisable | Number of (#) | Equity Unexercised (#) | Option ($) | 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 ($)
| Option
| Number (#)
| Market of ($) | Equity Rights (#)
| Equity Plan or Payout That Have Not ($)
| ||||||||||||||||||||||||||||
(a)
| (b)
| (c)
| (d)
| (e)
| (f)
| (g)
| (h)
| (i)
| (j)
| |||||||||||||||||||||||||||
Mr. Bilbrey | — | 128,800 | — | 90.39 | 02/15/2026 | 16,136 | 1,707,705 | 81,363 | 8,415,375 | |||||||||||||||||||||||||||
36,821 | 110,464 | — | 105.91 | 02/16/2025 | — | — | 26,967 | 2,789,197 | ||||||||||||||||||||||||||||
95,637 | 95,638 | — | 105.96 | 02/17/2024 | — | — | — | — | ||||||||||||||||||||||||||||
157,983 | 52,662 | — | 81.73 | 02/18/2023 | — | — | — | — | ||||||||||||||||||||||||||||
207,370 | — | — | 60.68 | 02/20/2022 | — | — | — | — | ||||||||||||||||||||||||||||
71,275 | — | — | 55.48 | 05/17/2021 | — | — | — | — | ||||||||||||||||||||||||||||
25,328 | — | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 594,414 | 387,564 | — | — | — | 16,136 | 1,707,705 | 108,330 | 11,204,572 | |||||||||||||||||||||||||||
Ms. Little | — | 32,285 | — | 90.39 | 02/15/2026 | 27,468 | 2,928,099 | 16,995 | 1,757,793 | |||||||||||||||||||||||||||
7,207 | 21,623 | — | 100.65 | 04/14/2025 | — | — | 5,068 | 524,183 | ||||||||||||||||||||||||||||
Total | 7,207 | 53,908 | — | — | — | 27,468 | 2,928,099 | 22,063 | 2,281,976 | |||||||||||||||||||||||||||
Ms. Buck | — | 31,210 | — | 90.39 | 02/15/2026 | 59,185 | 6,263,667 | 19,528 | 2,019,781 | |||||||||||||||||||||||||||
8,875 | 26,625 | — | 105.91 | 02/16/2025 | — | — | 6,472 | 669,399 | ||||||||||||||||||||||||||||
23,377 | 23,378 | — | 105.96 | 02/17/2024 | — | — | — | — | ||||||||||||||||||||||||||||
31,740 | 10,580 | — | 81.73 | 02/18/2023 | — | — | — | — | ||||||||||||||||||||||||||||
17,007 | — | — | 60.68 | 02/20/2022 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 80,999 | 91,793 | — | — | — | 59,185 | 6,263,667 | 26,000 | 2,689,180 | |||||||||||||||||||||||||||
Mr. O’Day | — | 22,135 | — | 90.39 | 02/15/2026 | 7,938 | 834,024 | 13,820 | 1,429,403 | |||||||||||||||||||||||||||
6,280 | 18,840 | — | 105.91 | 02/16/2025 | — | — | 4,580 | 473,709 | ||||||||||||||||||||||||||||
13,367 | 13,368 | — | 105.96 | 02/17/2024 | — | — | — | — | ||||||||||||||||||||||||||||
28,702 | 9,568 | — | 81.73 | 02/18/2023 | — | — | — | — | ||||||||||||||||||||||||||||
49,890 | — | — | 60.68 | 02/20/2022 | — | — | — | — | ||||||||||||||||||||||||||||
37,875 | — | — | 51.42 | 02/21/2021 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 136,114 | 63,911 | — | — | — | 7,938 | 834,024 | 18,400 | 1,903,112 | |||||||||||||||||||||||||||
Ms. Turner | — | 28,335 | — | 90.39 | 02/15/2026 | 36,687 | 3,882,658 | 14,743 | 1,524,868 | |||||||||||||||||||||||||||
9,905 | 29,715 | — | 105.91 | 02/16/2025 | — | — | 4,816 | 498,119 | ||||||||||||||||||||||||||||
12,420 | 12,420 | — | 105.96 | 02/17/2024 | — | — | — | — | ||||||||||||||||||||||||||||
— | 6,373 | — | 81.73 | 02/18/2023 | — | — | — | — | ||||||||||||||||||||||||||||
Total | 22,325 | 76,843 | — | — | — | 36,687 | 3,882,658 | 19,559 | 2,022,987 |
(1) | Columns (b) through (f) |
71
|
(2) | Options listed in Column (b) are vested and may be exercised by the |
67
(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 Vesting Dates
| Number of Options Vesting
| ||||||||||||||||||||||
Mr. Bilbrey
| Ms. Little
| Ms. Buck
| Mr. O’Day
| Ms. Turner
| ||||||||||||||||||||
02/16/2016 | 02/16/2017 | 32,200 | 8,071 | 7,802 | 5,533 | 7,083 | ||||||||||||||||||
02/16/2018 | 32,200 | 8,071 | 7,803 | 5,534 | 7,084 | |||||||||||||||||||
02/16/2019 | 32,200 | 8,071 | 7,802 | 5,534 | 7,084 | |||||||||||||||||||
02/16/2020 | 32,200 | 8,072 | 7,803 | 5,534 | 7,084 | |||||||||||||||||||
04/15/2015 | 04/15/2017 | — | 7,208 | — | — | — | ||||||||||||||||||
04/15/2018 | — | 7,207 | — | — | — | |||||||||||||||||||
04/15/2019 | — | 7,208 | — | — | — | |||||||||||||||||||
02/17/2015 | 02/17/2017 | 36,821 | — | 8,875 | 6,280 | 9,905 | ||||||||||||||||||
02/17/2018 | 36,821 | — | 8,875 | 6,280 | 9,905 | |||||||||||||||||||
02/17/2019 | 36,822 | — | 8,875 | 6,280 | 9,905 | |||||||||||||||||||
02/18/2014 | 02/18/2017 | 47,819 | — | 11,689 | 6,684 | 6,210 | ||||||||||||||||||
02/18/2018 | 47,819 | — | 11,689 | 6,684 | 6,210 | |||||||||||||||||||
02/19/2013 | 02/19/2017 | 52,662 | — | 10,580 | 9,568 | 6,373 | ||||||||||||||||||
Total per NEO | 387,564 | 53,908 | 91,793 | 63,911 | 76,843 |
(4) | Column (g) |
after 1 year. Column (h) |
Column (j) |
7268
2016 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 20132016 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 | — | — | 5,940 | 641,223 | ||||||||||||
Ms. Little | — | — | 4,135 | (3) | 392,717 | (3) | ||||||||||
Ms. Buck | 34,369 | 1,549,963 | 1,446 | 156,096 | ||||||||||||
Mr. O’Day | — | — | 1,034 | 111,620 | ||||||||||||
Ms. Turner | 40,128 | 1,017,311 | 960 | 103,632 | ||||||||||||
7,000 | (4) | 823,263 | (4) |
(1) |
(2) |
(3) |
(4) |
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, 2013,2016, Mr. Bilbrey and Mr. TackaMs. Buck had attained age 55 with five years of service.service and therefore were fully vested in their respective DB SERP benefits.
69
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, 2013.2016. 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) ($) | Payments During Last Fiscal Year ($) | ||||||
(a)
| (b) | (c) | (d) | (e) | ||||||
Mr. Bilbrey | Pension Plan DB SERP | 13 13 | 184,718 24,683,231 | — — | ||||||
Ms. Little | — | — | — | — | ||||||
Ms. Buck | Pension Plan DB SERP | 12 12 | 137,564 5,411,831 | — — | ||||||
Mr. O’Day | — | — | — | — | ||||||
Ms. Turner | — | — | — | — |
70
(1) | These amounts have been calculated using |
Name | Final Average Compensation ($) | ||||
| |||||
| |||||
| |||||
| |||||
| — | ||||
| — |
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2016Non-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.
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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 2016 Summary Compensation Table, beginning on page 64, these amounts are designated as “Supplemental 401(k) Match” and are included as “All Other Compensation” in the year earned. These amounts also are included in Column (c) of the 2016Non-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 2016 Summary Compensation Table, these amounts are
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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 2016Non-Qualified Deferred Compensation tableTable in the year earned. Mmes. Little and Turner and Mr. O’Day and Ms. Turner are eligible for a Supplemental Core Retirement ContributionCRC credit for 2013.2016. Ms. Turner and Mr. O’Day isare 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.
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The following table and explanatory footnotes provide information relating to the activity in the Deferred Compensation Plan accounts of the named executive officersNEOs during 20132016 and the aggregate balance of the accounts as of December 31, 2013.
Non-Qualified Deferred Compensation
20132016:
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 | — | 88,937 | 1,313,390 | — | 9,394,484 | |||||||||||||
Ms. Little | 379,287 | 163,204 | 58,186 | — | 675,417 | |||||||||||||
Ms. Buck | — | 38,429 | 1,302,335 | — | 9,201,259 | |||||||||||||
Mr. O’Day | — | 151,519 | 83,810 | — | 1,566,387 | |||||||||||||
Ms. Turner | 801,632 | 173,717 | 442,316 | — | 4,154,530 |
(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 |
($) | |
| ||
| | |
| ||
| ||
| ||
|
(1) | This amount reflects the fair market value as of December 31, 2016, of vested PSU, RSU and OHIP awards as well as DC SERP, Supplemental Match and Supplemental CRC credits. The amounts disclosed in the Summary Compensation Table included in proxy statements for years prior to 2016 reflect the grant date value of such awards, rather than the fair market value as of December 31, 2016. |
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.
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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.
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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, 2013,2016, and that the value of a share of our Common Stock on that day was $97.23,$103.43, the closing price on the NYSE on December 31, 2013.30, 2016, the last trading day of 2016.
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 74in the sections entitled “2016 Pension Benefits Table” and 76;“2016Non-Qualified Deferred Compensation Table”; 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, 2016, Mr. Bilbrey and Mr. Tacka areMs. Buck were fully vested in their respective DB SERP benefits asand their respective estates 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 $25,000 for all other named executive officerssuch benefits in the event of their death.
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In the event of termination due to disability, long-term disability.Long-term disability (“LTD”) benefits are generally payable until age 65, but may extend for longer if disability benefits begin after age 60.Long-term disability benefits60, and are offset by other benefits such as Social Security. The maximum amount of the monthlylong-term disability LTD payments from all sources, assuminglong-term disability LTD began on December 31, 2013,2016, is set forth in the tables below. The additional lump sum DB SERP amount that would be payable for Mr. Bilbrey, Mr. Tacka and Ms. Buck at age 65, attributable to vesting and benefit service credited during the disability period for the DB SERP, if the executive’s disability started on December 31, 2013, is shown on the table below. Mr. Alfonso participates in the CLRP which provides two additional years of credit after approval forlong-term disability benefits. Mr. O’Day and Ms. Turner are eligible for the Supplemental Core Retirement Contribution and would receive up to two additional years of Supplemental Core Retirement Contribution credit after approval forlong-term disability benefits. Mr. Alfonso, Mr. O’Day and Ms. Turner participate in the DC SERP which provides up to two additional years of credit after approval forlong-term disability benefits. Those amounts are listed in the table below:
Name | Long-Term Disability Benefit | |||||||||||||||||
Maximum Monthly Amount ($) | 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 0 months | 2,100,000 | — | (2) | |||||||||||
Ms. Little | 25,000 | 8 years 5 months | 2,525,000 | 446,900 | ||||||||||||
Ms. Buck | 35,000 | (3) | 9 years 9 months | 4,095,000 | 718,892 | |||||||||||
Mr. O’Day | 25,000 | 1 year 6 months | 450,000 | 187,383 | ||||||||||||
Ms. Turner | 25,000 | 5 years 10 months | 1,750,000 | 787,586 |
(1) |
(2) |
(3) |
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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, 2013,2016, 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, 2013,2016, and the value of those options based on the excess of the fair market value of our Common Stock on December 31, 2013,30, 2016, the last trading day of 2016, over the applicable option exercise price. As of December 31, 2016, Messrs. Bilbrey, Tacka, Alfonso,O’Day and O’DayMs. Buck were considered retirement eligible based on the provisions of all outstanding option awards onawards. Because Mmes. Little and Turner were not considered retirement eligible as of December 31, 2013.2016, they would forfeit 53,908 stock options and 76,843 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 | 387,564 | 2,822,317 | ||||||
Ms. Little | 53,908 | 481,108 | ||||||
Ms. Buck | 91,793 | 636,564 | ||||||
Mr. O’Day | 63,911 | 496,266 | ||||||
Ms. Turner | 76,843 | 507,783 |
(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, 2013,2016, 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 | 16,136 | 1,707,705 | ||||||
Ms. Little | 27,468 | 2,928,099 | ||||||
Ms. Buck | 59,185 | 6,263,667 | ||||||
Mr. O’Day | 7,938 | 834,024 | ||||||
Ms. Turner | 36,687 | 3,882,658 |
(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, 2016 due to death or disability, or retirement if applicable. As of December 31, 2016, Messrs. Bilbrey and O’Day and Ms. Buck were considered retirement eligible based on the provisions of all open PSU cycles. Because Mmes. Little and Turner were not considered retirement eligible as of December 31, 2016, they would forfeit all of their contingent PSUs upon voluntary separation.
Performance Stock Units
| ||||||||
Name
| Number(1) (#)
| Value(2) ($)
| ||||||
Mr. Bilbrey | 34,766 | 3,595,847 | ||||||
Ms. Little | 5,645 | 583,862 | ||||||
Ms. Buck | 8,365 | 865,192 | ||||||
Mr. O’Day | 5,930 | 613,340 | ||||||
Ms. Turner | 6,137 | 634,750 |
(1) | For the 2014-2016 PSU cycle, amount reflects the total number of contingent PSUs calculated by multiplying the number of contingent target PSUs by 20.66%, the final performance score for that cycle. For the 2015-2017 and 2016-2018 PSU cycles, amount reflects the total number of contingent PSUs at target. |
(2) | Based on the closing price of $103.43 for our Common Stock on the NYSE on December 30, 2016, the last trading day of 2016. |
Termination without Cause; Resignation for Good Reason
Under Mr. Bilbrey’s employment agreement and the EBPP 3A, 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 | 2 times | 24 months | ||||||
Participants in EBPP 3A after February 22, 2011 | 1.5 times | 18 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 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, 2013,2016, 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 ($)
| One Hershey Incentive Program at Target ($) | Value of Benefits Continuation(1) ($) | Total ($)
| ||||||||||||
Mr. Bilbrey | 2,472,000 | 3,708,000 | 29,424 | 6,209,424 | ||||||||||||
Ms. Little | 940,500 | 752,400 | 26,341 | 1,719,241 | ||||||||||||
Ms. Buck | 1,500,000 | 1,350,000 | 38,242 | 2,888,242 | ||||||||||||
Mr. O’Day | 1,175,600 | 764,140 | 25,558 | 1,965,298 | ||||||||||||
Ms. Turner | 940,500 | 658,350 | 9,783 | 1,608,633 |
(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 in2016, refer to the Outstanding Equity Awards table.at 2016 Fiscal-Year End Table.
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 provides 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 below.
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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, 2016, 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 | — | — | — | — | — | — | ||||||||||||||||||
Ms. Little | — | — | — | — | 285,153 | 285,153 | ||||||||||||||||||
Ms. Buck | — | — | — | — | 1,795,122 | 1,795,122 | ||||||||||||||||||
Mr. O’Day | — | — | — | — | — | — | ||||||||||||||||||
Ms. Turner | — | — | — | — | 503,289 | 503,289 |
(1) | The amount of the OHIP award earned for 2016 was greater than target. Therefore no incremental amount attributable to that program would have been payable upon a Change in Control. |
(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 unreduced DB SERP benefit so no additional benefit is applicable. Ms. Buck is fully vested in her DB SERP benefit so the amount includes the value of more favorable early retirement discount factors. For Ms. Little, the amount includes the vesting of her DC SERP benefit, 401(k), Supplemental Match, CRC and Supplemental CRC. 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 greaterafter-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 to assist the NEO in transitioning to new employment. These severance benefits as of December 31, 2016, 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, 2016:
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 | 7,525,372 | 3,356,202 | 2,822,317 | 1,707,705 | 29,424 | 68,000 | 4,419,735 | 19,928,755 | ||||||||||||||||||||||||
Ms. Little | 2,257,200 | 765,963 | 481,108 | 2,928,099 | 35,444 | 68,000 | 451,440 | 6,987,254 | ||||||||||||||||||||||||
Ms. Buck | 2,850,000 | 813,819 | 636,564 | 6,263,667 | 38,242 | 68,000 | 2,957,388 | 13,627,680 | ||||||||||||||||||||||||
Mr. O’Day | 1,133,757 | 579,643 | 496,266 | 834,024 | 12,438 | 68,000 | 226,752 | 3,350,880 | ||||||||||||||||||||||||
Ms. Turner | 2,166,965 | 1,094,630 | 507,783 | 3,882,658 | 13,149 | 68,000 | 433,393 | 8,166,578 |
(1) |
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Amounts reflect vesting of PSUs awarded, |
For the performance cycle which ended on December 31, 2013, at2016, the difference between target and actual performance as of December 31, 2013,2016, and the difference between a value per PSU of $99.51,$104.44 the highest closing price for our Common Stock on the NYSE during the last 60 days of 2013,2016, and a value per PSU of $97.23,$103.43 the closing price of our Common Stock on the NYSE on December 30, 2016, the last trading day of 2016;
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Because Messrs. Bilbrey and O’Day and Ms. Buck were retirement eligible as of December 31, 2016, as of that date they had already vested in a portion of the PSU awards for the performance cycles ending December 31, 2017 and December 31, 2018. Accordingly, with respect to these NEOs, the amount for the performance cycle ending December 31, 2017, reflects only (i) an incremental 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 $104.44 the highest closing price of our Common Stock on the NYSE during the last 60 days of 2016, and a value per PSU of $103.43 the closing price of our Common Stock on the NYSE on December 30, 2016, the last trading day of 2016, while the amount for the performance cycle ending December 31, 2018, reflects only an incremental benefit equal to the difference between a value per PSU of $104.44 and a value per PSU of $103.43.
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 greaterafter-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 COMPENSATION OF OURADVISE ON NAMED EXECUTIVE OFFICERS
What am I voting on?OFFICER COMPENSATION
You
✓ | The Board of Directors unanimously recommends that stockholders voteFOR approval, on anon-binding advisory basis, of the compensation of the Company’s named executive officers |
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 asked to vote on a proposal commonly known as a “say-on-pay” proposal, which gives you theproviding stockholders an opportunity to approve or not approve, on a non-binding advisory basis, our executive officer compensation program, policies and practices through the following resolution:
“RESOLVED, that the stockholders of The Hershey Company approve, onconduct an advisory basis,vote regarding the compensation of our NEOs as disclosed in this Proxy Statement.
Prior to submitting your vote, we encourage you to read our Compensation Discussion & Analysis and the Company’s namedaccompanying executive officers, as describedcompensation tables for details about our executive compensation program, including information about the 2016 compensation of our 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 bypay-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 2017 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 – ADVISE ON FREQUENCY OF FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION
✓ | The Board of Directors unanimously recommends that stockholders vote to hold future advisory votes on named executive officer compensation every1 YEAR |
In accordance with the Dodd-Frank Wall Street Reform and entitledConsumer Protection Act and related SEC rules, and as required under Section 14A of the Exchange Act, we are providing stockholders an opportunity to conduct an advisory vote regarding the frequency with which future advisory votes on the compensation of our NEOs should be held.
At our 2011 Annual Meeting of Stockholders, a majority of stockholders indicated a preference for holding advisory votes on NEO compensation every year, and we have conducted such an annual vote since that time. Under Section 14A of the Exchange Act, every six years we are required to provide stockholders an opportunity to again advise on the frequency with which future votes on NEO compensation should be held.
After careful consideration, the Board has determined that continuing to conduct an advisory vote on NEO compensation each year remains the most appropriate policy at this time. The Board believes such an annual vote best enables stockholders to timely express their views on the Company’s executive compensation program and policies and assists the Board and the Compensation Committee in determining current stockholder sentiment. Additionally, conducting an annual advisory vote on NEO compensation is consistent with our practice of regularly seeking input from stockholders on corporate governance matters.
You are not being asked to vote “for” or “against” this proposal. Instead, this proposal asks stockholders to inform us how often we should conduct an advisory vote on the proposal arecompensation of our NEOs. You may cast your vote by choosing the option of every 1, 2 or 3 years, or abstaining, in favorresponse to the following resolution:
“RESOLVED, that the option of every 1 year, 2 years or 3 years that receives the highest number of votes cast for this resolution will be determined to be the preferred frequency with which the Company is to hold future advisory votes on named executive officer compensation, as disclosed in the Company’s annual proxy statement pursuant to the SEC’s compensation disclosure rules, including the Compensation Discussion & Analysis, the Executive Compensation Tables and the related narrative discussion.”
The frequency that receives the greatest number of votes from the holders of our Common Stock and Class B Common Stock voting together will be deemed to be stockholders’ preferred frequency for conducting future advisory votes on NEO compensation. Because your vote is advisory, it will not be binding upon the Board. However, the Board will, as it deems appropriate, take into account the outcome of the proposal.vote when determining how often the Company will conduct advisory votes on NEO compensation in future years.
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How does the Board of Directors recommend that I vote?
The Board of Directors unanimously recommends that stockholders
voteFOR Proposal No. 3, the advisory resolution approving the
compensation of the Company’s named executive officers as
described in this proxy statement.
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 20132016 were timely filed.filed, except for a Form 4 filed by Thomas J. Ridge on April 21, 2016 reporting the disposition of shares on March 9, 2016.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
What is being disclosed in this section?
Item 404 of SEC regulations requireRegulationS-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“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 2016, 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 RegulationS-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 2013,2016, and dodoes not currently contemplate being a participant in any related person transactions in 2014,2017, 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.
securities that would need to be disclosed pursuant to Item 404 of SEC RegulationDid the Company engage in other transactions with the Milton Hershey School Trust or its affiliates during 2013?S-K.
During 2013,2016, 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 RegulationS-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 20132016 were approximately $1.8$1.5 million; and
Our total purchases from these entities in 20132016 were approximately $3.2 million.
We do not expect that the types of transactions or the amount of payments willto change materially in 2014.2017.
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.
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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 22,50067,500 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 Hershey Entertainment & Resorts Company to renew the lease for subsequentone-year terms and, if space is available, to request an increase in the area occupied. Hershey Entertainment & Resorts Company has renewed the lease for additionalone-year terms beginning January 1 of 2013 and 2014, and in 2013 elected to increase its total occupied area.each year since 2012. 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 20132016 was $180,000$288,900 and for 20142017 is expected to be $270,000,$297,000, which amounts include a pro rata allocation of utilities, insurance, maintenance and other operating costs.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Ms. Haben and Messrs. Malcolm, Mead, Palmer and Shedlarz served as members of our Compensation Committee during 2016. None of the members of our Compensation Committee served as one of our officers or employees during 2016 or 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.
None of the members of our Compensation Committee has a relationship with us that is required to be disclosed under Item 404 of SEC RegulationS-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 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 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 of Internet 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 2017 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.
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INFORMATION ABOUT THE 2015 ANNUAL MEETINGInformation Regarding the 2018 Annual Meeting of Stockholders
WhenThe 2018 Annual Meeting of Stockholders is the 2015 annual meeting of stockholders?
Our 2015 annual meeting of stockholders willexpected 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 2, 2018. To be eligible for inclusion in the proxy materials for the 2015 annual meeting,2018 Annual Meeting of Stockholders, a stockholder proposal must be received by our Corporate Secretary by the close of business onno later than November 18, 2014,23, 2017, 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 meeting2018 Annual Meeting of Stockholders only if our Corporate Secretary receives notice of the proposal, along with additional information required by ourby-laws, during the time period beginning at the close of business on December 30, 2014, between January 3, 2018 and ending at the close of business on January 29, 2015.February 2, 2018. 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 meeting2018 Annual Meeting of Stockholders only if our Corporate Secretary receives notice of the nomination, along with additional information required by ourby-laws, during the time period beginning at the close of business on December 30, 2014, between January 3, 2018 and ending at the close of business on January 29, 2015.February 2, 2018. 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 meeting2018 Annual Meeting of Stockholders is not required to comply with thesepre-notification requirements.
By order of the Board of Directors,
Leslie M. Turner
Senior Vice President,
General Counsel and Secretary
March 18, 201423, 2017
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HERSHEY 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 May 2, 2017. Have your proxy and voting instruction card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. VOTE BY PHON E-(800)690-6903 Use any touch-tone telephone to transmit your voting instructions until 11:59 p.m. EDT on May 2, 2017. Have your proxy and voting instruction card in hand when you call and follow the instructions from the telephone voting site. 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 28, 2017. Use any of the voting methods above to submit your voting instructions. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
M67434-P46448-Z62308 E20239-P85907-Z69291 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. DETACH AND RETURN THIS PORTION ONLY THE HERSHEY COMPANY For Withhold For All To withhold authority to vote for any individual All All Except nominee(s), mark “For All Except” and write the The Board of Directors recommends you vote FOR number(s) of the nominee(s) on the line below. each of the following nominees: ! ! ! 1. Election of Directors Nominees: 01) P. M. Arway 07) M. D. Koken 02) J. P. Bilbrey 08) R. M. Malcolm 03) J. W. Brown 09) J. M. Mead 04) M. G. Buck 10) A. J. Palmer 05) C. A. Davis 11) T. J. Ridge 06) M. K. Haben 12) D. L. Shedlarz The Board of Directors recommends you vote FOR Proposals 2 and 3: For Against Abstain 2. Ratify the appointment of Ernst & Young LLP as independent auditors for 2017. ! ! ! 3. Approve named executive officer compensation on anon-binding
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HERSHEY Admission Ticket
THE HERSHEY COMPANY
2014 2017 Annual Meeting of Stockholders
Tuesday, April 29, 2014
Wednesday, May 3, 2017 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 3, 2017. Offer good on April 29, 2014,May 3, 2017, only.
Important Notice Regarding the Availability of Proxy Materials for the
2014 2017 Annual Meeting of Stockholders to be held on April 29, 2014:
May 3, 2017: The 2014 Notice of 2017 Annual Meeting and Proxy Statement, 20132016 Annual Report to Stockholders
and proxy card are available at www.proxyvote.com.
FOLD AND DETACH HERE FOLD AND DETACH HERE E20240-P85907-Z69291 THE HERSHEY COMPANY STOCKHOLDER’S PROXY AND VOTING INSTRUCTION CARD The undersigned hereby appoints M. G. Buck 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 3, 2017, 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 and for a frequency of 1 YEAR on Proposal 4 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
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HERSHEY 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 May 2, 2017. Have your proxy and voting instruction card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. VOTE BY PHONE - (800)690-6903 Use any touch-tone telephone to transmit your voting instructions until 11:59 p.m. EDT on May 2, 2017. Have your proxy and voting instruction card in hand when you call and follow the instructions from the telephone voting site. 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: E20241-P85907-Z69291 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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Admission Ticket
DETACH AND RETURN THIS PORTION ONLY THE HERSHEY COMPANY For Withhold For All To withhold authority to vote for any individual All All Except nominee(s), mark “For All Except” and write the The Board of Directors recommends you vote FOR number(s) of the nominee(s) on the line below. each of the following nominees: ! ! ! 1. Election of Directors Nominees: 01) P. M. Arway 06) M. D. Koken 02) J. P. Bilbrey 07) J. M. Mead 03) J. W. Brown 08) A. J. Palmer 04) M. G. Buck 09) T. J. Ridge 05) C. A. Davis 10) D. L. Shedlarz The Board of Directors recommends you vote FOR Proposals 2 and 3: For Against Abstain 2. Ratify the appointment of Ernst & Young LLP as independent auditors for 2017. ! ! ! 3. Approve named executive officer compensation on anon-binding advisory basis. ! ! ! The Board of Directors recommends you vote for a frequency of 1 YEAR on Proposal 4: 1 Year 2 Years 3 Years Abstain 4. The frequency of future advisory votes on named executive officer compensation. ! ! ! ! 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 V.1.1
2013HERSHEY Admission Ticket THE HERSHEY COMPANY 2017 Annual Meeting of Stockholders
Tuesday, April 29, 2014
Wednesday, May 3, 2017 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 3, 2017. Offer good on April 29, 2014,May 3, 2017, only.
Important Notice Regarding the Availability of Proxy Materials for the
2014 2017 Annual Meeting of Stockholders to be held on April 29, 2014:
May 3, 2017: The 2014 Notice of 2017 Annual Meeting and Proxy Statement, 20132016 Annual Report to Stockholders
and proxy card are available at www.proxyvote.com. FOLD AND DETACH HERE FOLD AND DETACH HERE E20242-P85907-Z69291 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 2017 Annual Meeting and Proxy Statement of The Hershey Company (the “Company”) dated March 23, 2017, appoints M. G. Buck 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 3, 2017, 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 and for a frequency of 1 YEAR on Proposal 4 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. V.1.1
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