UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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 Rule14a-6(e)(2)) |
| Definitive Proxy Statement |
| Definitive Additional Materials |
| Soliciting Material Pursuant to§240.14a-12 |
FLIR SYSTEMS, INC.
(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 Rules14a-6(i)(1) and0-11. | |||
| (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 Rule0-11 (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 Rule0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
| (1) | Amount Previously Paid: | |||
| (2) | Form, Schedule or Registration Statement No.: |
| (3) | Filing |
party:
| (4) | Date Filed: |
27700 SW Parkway Avenue
The World’sSixth Sense™ 27700 SW Parkway Avenue Wilsonville, Oregon 97070 (503) 498 -3547 |
Wilsonville, Oregon 97070
(503) 498 -3547
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 22, 2016
Date and Time: | Friday, April 20, 2018 | Place: | FLIR Systems, Inc. | |||
9:00 a.m. | 27700 SW Parkway Avenue | |||||
Pacific Time | Wilsonville, Oregon 97070 |
ToDear Fellow Shareholder,
It is my pleasure to invite you to attend the Annual Meeting of Shareholders of FLIR Systems, Inc.:
NOTICE IS HEREBY GIVEN that The following items are on the Annual Meeting of Shareholders (the “Annual Meeting”) of FLIR Systems, Inc. (the “Company”) will be held on Friday, April 22, 2016, at 10:00 a.m., local time at the principal executive offices of FLIR Systems, Inc. at 27700 SW Parkway Avenue, Wilsonville, Oregon 97070 for the following purposes:agenda:
| 1. | Election of Directors. |
| 2. | KPMG Ratification |
| 3. |
|
| 4. |
| Other |
The Boardrecord date is February 23, 2018. Holders of Directors of the Company has fixedFLIR shares at the close of business on February 22, 2016 as the recordthis date for the determination of shareholdersare entitled to notice of and to vote at the Annual Meeting. Only shareholders of record at the close of business on that date will be entitled to notice of and to vote at the Annual Meeting or any adjournments or postponements thereof.
On or about March 9, 2016, weWe expect to mail to our stockholdersshareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containingnotice that proxy materials are available online on or about March 9, 2018. These materials will contain instructions on how to access ourthe proxy statement for our annual meeting and our annual report to stockholders. This Notice providesshareholders. The notice also will provide instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of proxy materials by mail. This Proxy Statementproxy statement and our 20152017 annual report can be accessed directly at the following Internet address: www.flir.com/investor.
By Order of the Board,
Earl R. Lewis
Chairman of the Board of Directors
Wilsonville, Oregon
March 9, 20162018
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 22, 2016
Your vote is important! Please vote.The Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K are available at www.flir.com/investor and www.proxyvote.com. IT IS IMPORTANT THAT PROXIES BE COMPLETED AND SUBMITTED PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SUBMIT YOUR VOTE BY PROXY VIA THE INTERNET, BY TELEPHONE OR BY MAIL IN THE ENCLOSED POSTAGE-PAID ENVELOPE IN ACCORDANCE WITH THE ACCOMPANYING INSTRUCTIONS. | ||||
IT IS IMPORTANT THAT PROXIES BE COMPLETED AND SUBMITTED PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SUBMIT YOUR VOTE BY PROXY VIA THE INTERNET, BY TELEPHONE OR BY MAIL IN THE ENCLOSED POSTAGE-PAID ENVELOPE IN ACCORDANCE WITH THE ACCOMPANYING INSTRUCTIONS.PROXY STATEMENT SUMMARY i CORPORATE GOVERNANCE AND RELATED MATTERS 1 1 1 1 1 2 3 3 4 5 9 MANAGEMENT 10 10 COMPENSATION DISCUSSION AND ANALYSIS 12 12 12 15 17 18 20 20 28 29 30 30 30 COMPENSATION COMMITTEE REPORT 31 COMPENSATION OF NAMED EXECUTIVE OFFICERS 32 32 34
FLIR SYSTEMS, INC.
27700 SW Parkway Avenue
Wilsonville, Oregon 97070
(503) 498-3547
| PROXY STATEMENT SUMMARY | | |
for the
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 22, 2016
INTRODUCTION
General SUMMARY
This Proxy Statement is being furnished to the shareholders of FLIR Systems, Inc.,summary sets forth certain performance highlights and provides an Oregon corporation (“FLIR,” the “Company,” “we,” “us,” or “our”), as partoverview of the solicitation of proxies by the Company’s Board of Directors (the “Board of Directors” or the “Board”) from holders of the outstanding shares of FLIR common stock, par value $0.01 per share (the “Common Stock”), for use at the Company’s Annual Meeting of Shareholders to be held on April 22, 2016, at 10:00 a.m., local time at the principal executive offices of FLIR Systems, Inc. at 27700 SW Parkway Avenue, Wilsonville, OR 97070, and at any adjournment or postponement thereof (the “Annual Meeting”). At the Annual Meeting, shareholders will be asked to elect ten members to the Board of Directors, ratify the appointment by the Audit Committee of the Board of Directors of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2016, amend the Company’s articles of incorporation to adopt a majority vote standard, consider the shareholder proposal includedmore detailed information contained later in this Proxy Statement, if properly presented at the Annual Meeting, and transact such other business as may properly come before the Annual Meeting. This Proxy Statement, together with the enclosed proxy card, is first being made available to shareholders of FLIR on or about March 9, 2016.
Solicitation, Voting and Revocability of Proxies
The Board of Directors has fixed the close of business on February 22, 2016 as the record date for the determination of the shareholders entitled to notice of and to vote at the Annual Meeting. Accordingly, only holders of record of shares of Common Stock at the close of business on such date will be entitled to vote at the Annual Meeting, with each such share entitling its owner to one vote on all matters properly presented at the Annual Meeting. On the record date, there were 137,558,972 shares of Common Stock then outstanding. The presence, in person or by proxy, of a majority of the total number of outstanding shares of Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting.
If you are a shareholder of record, you can vote (i) by attending the Annual Meeting and voting in person, (ii) by signing, dating and mailing in your proxy card, or (iii) by following the instructions on your proxy card for voting by telephone or on the Internet. If you hold your shares through a broker, bank or other nominee, that institution will instruct you as to how your shares may be voted by proxy. If you hold your shares through a broker, bank or other nominee and would like to vote in person at the Annual Meeting, you must first obtain a proxy issued in your name from the institution that holds your shares.
If the form of proxy is properly executed and returned in time to be voted at the Annual Meeting, the shares represented thereby will be voted in accordance with the instructions marked thereon.Executed but unmarked proxies will be voted FOR the election of the ten nominees to the Board of Directors, FOR the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for 2015,
1
FOR amendment no. 1 to the Company’s articles of incorporation to eliminate the supermajority voting requirement and adopt a simple majority voting standard relating to the removal of directors, FOR amendment no. 2 to the Company’s articles of incorporation to remove the supermajority voting requirement and adopt a simple majority voting standard to amend, alter, change of repeal the provision relating to the removal of directors in the Company’s articles of incorporation, and AGAINST the shareholder proposal included in this Proxy Statement.The Board of Directors does not know of any matters other than those described in the Notice of Annual Meeting that are to come before the Annual Meeting. If any other matters are properly brought before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy upon such matters as determined by a majority of the Board of Directors.
A shareholder may revoke a proxy at any time prior to its exercise by filing a written notice of revocation with, or by delivering a duly executed proxy bearing a later date to, the Corporate Secretary, FLIR Systems, Inc., 27700 SW Parkway Avenue, Wilsonville, Oregon 97070, or by attending the Annual Meeting and voting in person (although the mere presence of a shareholder at the Annual Meeting will not automatically revoke such shareholder’s previous proxy). A shareholder who attends the Annual Meeting need not revoke a previously executed proxy and vote in person unless such shareholder wishes to do so. All valid, unrevoked proxies will be voted at the Annual Meeting.
2
PROPOSAL 1: ELECTION OF DIRECTORS
The Company’s Board of Directors has ten members and all director nominees will stand for election to a one-year term.
Unless otherwise specified on the proxy, it is the intention of the persons named in the proxy to vote the shares represented by each properly executed proxy FOR the election as directors of the persons named below as nominees. The Board of Directors believes that the nominees will stand for election and will serve if elected as directors. However, if any of the persons nominated by the Board of Directors fails to stand for election or is unable to accept election, the number of directors constituting the Board of Directors may be reduced prior to the Annual Meeting or the proxies may be voted for the election of such other person as the Board of Directors may recommend.
Information as to Nominees and Continuing Directors
The following tablereport. It sets forth the names ofproposals for vote. You should read the Board of Directors’ nominees for election as a directorentire proxy statement before casting your vote. In this proxy statement, the terms “FLIR,” “we,�� and those directors who will continue“our” refer to serve after the Annual Meeting. Also set forth in this section is certain other information with respect to each such person’s age (as of the date of the Annual Meeting), principal occupation and business experience during at least the past five years, the periods during which he or she has served as a director of FLIR the expiration of his or her term as a director, and any position(s) currently held with FLIR.
Nominees: | Age | Director Since | Position Held with FLIR | |||||||
John D. Carter | 70 | 2003 | Director | |||||||
William W. Crouch | 74 | 2005 | Director | |||||||
Catherine A. Halligan | 53 | 2014 | Director | |||||||
Earl R. Lewis | 72 | 1999 | Chairman of the Board of Directors | |||||||
Angus L. Macdonald | 61 | 2001 | Director | |||||||
Michael T. Smith | 72 | 2002 | Director | |||||||
Cathy A. Stauffer | 56 | 2014 | Director | |||||||
Andrew C. Teich | 55 | 2013 | Director and Chief Executive Officer | |||||||
John W. Wood, Jr. | 72 | 2009 | Director | |||||||
Steven E. Wynne | 64 | 1999 | Director | |||||||
NomineesSystems, Inc.
JOHN D. CARTER. Mr. Carter has served as a director of the Company since August 2003. From 2002 to 2005, Mr. Carter was a principal in the consulting firm of Imeson & Carter, which specialized in transportation and international business transactions. Mr. Carter served as President and Chief Executive Officer of Schnitzer Steel Industries Inc., a metals recycling company, from May 2005 to November 2008. Since December 1, 2008, Mr. Carter has served as Chairman of the Board of Directors of Schnitzer Steel Industries, Inc. From 1982 to 2002, Mr. Carter served in a variety of senior management capacities at Bechtel Group, Inc. including Executive Vice President and Director, as well as President of Bechtel Enterprises, Inc., a wholly owned subsidiary. Mr. Carter is a member of the Board of Directors and Chairman of the Audit Committee of Northwest Natural Gas Company. He is Chairman of privately-owned Kuni Enterprises, Inc. and is a member of the Boards of privately-owned JELD-WEN, Inc. and the Oregon chapter of the Nature Conservancy. He also is the principal owner and manager of Birch Creek Associates LLC, which is engaged in agricultural and commercial land ownership, including vineyard ownership, and Dusky Goose LLC, which is in the wine production and sales business. He received his BA in History from Stanford University and his JD from Harvard Law School. In addition to his legal experience gained while practicing law, Mr. Carter brings many years of senior executive management experience, most recently as president and chief executive officer of a multi-billion dollar public company. This combination of legal and management experience enables Mr. Carter to provide guidance to the Company in the areas of legal risk oversight, enterprise risk management, corporate governance, financial management and corporate strategic planning.
3
GENERAL WILLIAM W. CROUCH (UNITED STATES ARMY—RETIRED). General Crouch has served as a director of the Company since May 2005. General Crouch retired from the United States Army in 1999 following a 36-year career during which he served in numerous roles including Commanding General—Eighth Army and Chief of Staff, United Nations Command and United States Forces Korea; Commander in Chief, United States Army, Europe; Commanding General, NATO Implementation (later Stabilization) Force, Bosnia/Herzegovina; and the United States Army’s 27th Vice Chief of Staff. Until 2010, he served as one of five generals who oversaw the Army’s Battle Command Training Program. In October 2000, General Crouch was named co-chair of the USS COLE Commission, which was formed to examine the terrorist attack on the USS COLE. He has served as a Distinguished Senior Fellow with the Center for Civil Military Operations at the United States Naval Post Graduate School, and serves on the Board of the Keck Institute for International and Strategic Studies at Claremont McKenna College. He received a B.A. in Civil Government from Claremont McKenna College, and a M.A. in History from Texas Christian University. He holds an Advanced Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. General Crouch’s career as an Army officer and continuing interest in the United States military afford the Company significant insight into the Company’s important military customers in terms of strategic and tactical doctrines and how the Company’s products should be developed and adapted to facilitate the implementation of these doctrines. General Crouch also possesses an understanding of the political and military realities in certain global regions in which the Company’s products are employed. In addition, General Crouch’s experience in senior leadership roles in large Army commands enables him to offer guidance on the leadership of complex organizations such as the Company.
CATHERINE A. HALLIGAN. Ms. Halligan has served as a director of the Company since March 2014. She served as Advisor to Narvar, a supply chain and post purchase optimization SaaS technology from 2013-2016. Previously, Ms. Halligan was an Advisor to PowerReviews Inc., a leading social commerce network, from January to March 2012 and Senior Vice President Sales and Marketing from July 2010 to January 2012. Prior to joining PowerReviews Inc., Ms. Halligan held several executive level positions with prominent retailers. From 2005 to 2010, Ms. Halligan served in various executive positions with Walmart, a retailer, including as Vice President Market Development, Global eCommerce from 2009 to 2010 and as Chief Marketing Officer of Walmart.com from 2007 to 2009 along with other executive roles from 2005 to 2009. From 2000 to 2005, Ms. Halligan was an associate partner at Prophet, a management consulting firm. From 1996 to 1999, Ms. Halligan held retail management positions with Williams Sonoma Inc., including Vice President and General Manager, Internet and Vice President, Marketing. Ms. Halligan also has previous executive marketing retail experience with Blue Nile, Inc. and the Gymboree Corporation. Ms. Halligan began her career as a Marketing and Planning Analyst for Lands’ End from 1987 to 1991. Since January 2012, Ms. Halligan has served as an independent director at Ulta Beauty, where she chairs the Compensation Committee and is a member of the Nominating and Governance Committee, and previously served for two years on the Audit Committee. Ms. Halligan received her B.S. in Finance from Northern Illinois University. With over 20 years of experience in marketing, digital and e commerce within the retail industry, Ms. Halligan provides significant expertise with respect to strategic marketing issues, Internet technology and omnichannel business capabilities.
EARL R. LEWIS. Mr. Lewis served as Chairman, President and Chief Executive Officer of the Company from November 2000 until his retirement in May 2013 as President and Chief Executive Officer. He continues to serve as Chairman of the Board. Mr. Lewis was initially elected to the Board in June 1999 in connection with the acquisition of Spectra Physics AB (which at the time owned approximately 35% of the Company) by Thermo Instrument Systems, Inc. Prior to joining FLIR, Mr. Lewis served in various capacities at Thermo Instrument Systems, Inc., with his last role as President and Chief Executive Officer. Mr. Lewis is a member of the Board of Directors of Harvard BioScience and NxStage Medical, Inc., and Tecogen. Mr. Lewis is a Trustee of Clarkson University and New Hampton School. Mr. Lewis holds a B.S. from Clarkson College of Technology and has attended post-graduate programs at the University of Buffalo, Northeastern University and Harvard University. Mr. Lewis holds a Masters Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. Mr. Lewis’ leadership of the Company in the past decade affords him a deep understandingHighlights of the Company’s technology and operations, asPerformance
4
well asBusiness highlights for 2017 include the markets in which the Company operates. Mr. Lewis’ prior service in executive management positions and his past and present service on other boards of directors, including public company boards, enable him to provide insight and guidance in an array of areas including global operations and strategic planning, enterprise risk management, and corporate governance. Mr. Lewis has played, and continues to play, an active role in the Company’s financial management and corporate development, including merger and acquisition activity.
ANGUS L. MACDONALD. Mr. Macdonald has served as a director of the Company since April 2001. In 2000, Mr. Macdonald founded and is currently President of Venture Technology Merchants, LLC, an advisory and merchant banking firm to growth companies regarding capital formation, corporate development and strategy. From 1996 to 2000, Mr. Macdonald was Senior Vice President and headed Special Situations in the health care equities research group at Lehman Brothers, Inc. Prior to joining Lehman Brothers, Mr. Macdonald was a senior securities analyst at Fahnestock, Inc. (now Oppenheimer). He holds a B.A. from the University of Pennsylvania and an MBA from Cranfield University, UK. Through his more than 20 years of experience in investment and merchant banking, Mr. Macdonald has developed extensive expertise in corporate development strategies for technology enterprises such as the Company as well as in financial structuring and strategy. Mr. Macdonald’s years of experience in the financial services sector benchmarking and comparing best practices operationally as well as from an executive management and compensation perspective, provide the Company with insight into the value creation impacts of various financial and operational strategies. These skills enable him to successfully serve as a member of the Company’s Audit and Compensation Committees and to provide insight to the Company in the development of its financial management, capital deployment, employee compensation and executive retention strategies.
MICHAEL T. SMITH. Mr. Smith has served as a director of the Company since July 2002. From 1997 until his retirement in May 2001, Mr. Smith was Chairman of the Board and Chief Executive Officer of Hughes Electronics Corporation. From 1985 until 1997, he served in a variety of capacities for Hughes, including Vice Chairman of Hughes Electronics, Chairman of Hughes Missile Systems and Chairman of Hughes Aircraft Company. Prior to joining Hughes in 1985, Mr. Smith spent nearly 20 years with General Motors in a variety of financial management positions. Mr. Smith is also a director of Teledyne Technologies Incorporated, WABCO Holdings Inc., and Zero Gravity Solutions. He was previously a director of Ingram Micro. Mr. Smith holds a B.A. from Providence College and an MBA from Babson College. He also served as an officer in the United States Army. Throughout his career, Mr. Smith has had extensive financial and general management experience, including service as the chief executive officer of a large public company. These skills and experiences qualify him to serve as the Company’s Audit Committee financial expert and also provides the Company with expertise in corporate governance, enterprise risk management and strategic planning as well as in the areas of global operations and corporate strategic development.
CATHY A. STAUFFER. Ms. Stauffer has served as a director of the Company since March 2014. Ms. Stauffer has owned and operated her own consulting Company, Cathy Stauffer Consulting, since September 2005. Cathy Stauffer Consulting specializes in consumer technology products and assists clients in identifying and understanding key opportunities and market trends, and developing strategies and tactics for successful market implementation and consumer adoption. In 2010, Ms. Stauffer also served as the Executive Vice President of Market Development for Premier Retail Networks / IZ-ON Media, a Technicolor owned digital media company. From 2004 to 2005, Ms. Stauffer served as Senior Vice President Marketing and Chief Marketing Officer for Gateway Computers, a global personal computer original equipment manufacturer and consumer electronics direct marketer. From 1977 to 1993 and from 1997 to 2004, Ms. Stauffer served in multiple capacities, including as President and in other executive roles, for The Good Guys, Inc., a consumer electronics specialty retailer. Ms. Stauffer also currently serves as the Chairman of BevMo!, a leading specialty retailer of alcoholic beverages and related products and Wilton Brands LLC. Ms. Stauffer’s over three decades of experience in the branding, marketing, communications and market insights in the consumer electronics industry affords the Board valuable insight into the strategic marketing of consumer electronics, a continually increasing focus of the Company.
ANDREW C. TEICH. Mr. Teich has been President and Chief Executive Officer of the Company since May 2013. He was elected to the Company’s Board of Directors in July 2013. Previously, Mr. Teich was President of
| Operational realignment | In June 2017 we hired a new Chief Executive Officer, James J. Cannon, and in November 2017 we hired a new Chief Financial Officer, Carol P. Lowe. During the fourth quarter of 2017 we realigned our operations to reduce our six operating segments into three business units for the fiscal year beginning January 1, 2018: Government and Defense, Industrial and Commercial. Streamlining the operations in this way is expected to reduce our complexity, improve our agility, unlock synergies, increase team collaboration, and enhance management focus to enhance growth and create sustained shareholder value. | |||
| Revenue | During 2017, Revenue was $1.80 Billion, compared to $1.66 Billion for 2016, an increase of 8.4% over prior year. Revenue was a metric in our annual incentive plan and we achieved 99% of our target for this metric in 2017. | |||
| Earnings Per Share | 2017 GAAP net earnings per diluted share was $0.77 compared to $1.20 in 2016. GAAP net earnings in 2017 were negatively impacted by discrete tax charges of $94.4 million related to the U.S. Tax Cuts and Jobs Act, as well as a $23.6 million pre-tax loss on assets held for sale. Adjusted earnings per share for the year ended December 31, 2017 was $1.88, compared to adjusted earnings per share for 2016 of $1.69, an increase in adjusted earnings per share of 11%. Adjusted earnings per share was a metric in our annual incentive plan and we achieved 99% of our target for this metric in 2017. Adjusted earnings per share and adjusted net income are non-GAAP financial measures that refer to the Company’s net earnings and earnings per share in accordance with GAAP, as adjusted to reflect certain adjustments approved by the Compensation Committee. (See Appendix A for more information about non-GAAP financial measures used by the Company to monitor performance as well as a reconciliation to GAAP metrics). | |||
| Operating cash flow | During 2017, we generated $308 million of cash flow from operations, representing 117% of adjusted net income. Operating cash flow was a metric in our annual incentive plan and after adjusting for certain items approved by our Compensation Committee we achieved 100% of our target for this metric in 2017. | |||
| New products and innovation | We introduced a wide array of new products during 2017, many utilizing our revolutionary Lepton® thermal microcamera and Boson longwave infrared thermal camera cores. For example, we introduced third generation FLIR One thermal camera attachments for smartphones, a broad array of outdoor and tactical thermal imagers using Boson and new thermal cameras for electronics development and testing, the oil and gas industry and plant and building professionals, as well as compact thermal marine cameras, sonar equipped navigation equipment and a variety of instruments and test and measurement and detection devices. |
5
| 2018 PROXY STATEMENT | FLIR | i |
the Company’s Commercial Systems Division from January 2010 to May 2013. From April 2006 to January 2010, he served as President of the Company’s Commercial Vision Systems Division. From 2000 to 2006, he served as the Senior Vice President of Sales and Marketing and then as Co-President of the Imaging Division at FLIR. Mr. Teich joined FLIR as Senior Vice President, Marketing, as a result of FLIR’s acquisition of Inframetrics in March 1999. While at Inframetrics, Mr. Teich served as Vice President of Sales and Marketing from 1996 to 1999. From 1984 to 1996, Mr. Teich served in various capacities within the sales organization at Inframetrics. He holds a B.S. in Marketing from Arizona State University and is an alumnus of the Harvard Business School Advanced Management Program. Mr. Teich has been a Director of Sensata Technologies Inc. since May 2013. Mr. Teich’s over 30-year career in the thermal imaging industry, including the last 16 years with the Company, has enabled him to develop a comprehensive understanding of the Company’s technologies, operations and markets. Combined with prior executive service in roles of increasing responsibility, Mr. Teich’s skill set affords the Company expertise in technology innovation, strategic planning, global operations, and sales and marketing.
JOHN W. WOOD, JR. Mr. Wood has served as a director of the Company since May 2009. Mr. Wood served as Chief Executive Officer of Analogic Corporation, a leading designer and manufacturer of medical imaging and security systems, from 2003 to 2006. Prior to joining Analogic, Mr. Wood held senior executive positions over a 22-year career at Thermo Electron Corporation. He served as President of Peek Ltd., a division of Thermo Electron Corporation, and as a Senior Vice President of the parent company. He previously served as President and Chief Executive Officer of Thermedics, a subsidiary of Thermo Electron Corporation. Mr. Wood is a director of ESCO Corporation and American Superconductor Corporation. Mr. Wood earned a Bachelor’s degree in Electrical Engineering from Louisiana Tech University and a Master’s degree in Electrical Engineering from Massachusetts Institute of Technology. Mr. Wood holds an Executive Masters Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. Through his academic training and his extensive executive experience with companies in relevant industries, Mr. Wood possesses the knowledge and expertise to understand and offer guidance regarding the Company’s technologies and markets. In addition, as the former chief executive officer of a public company, Mr. Wood is qualified to provide leadership in the areas of corporate governance, operations and enterprise risk management.
STEVEN E. WYNNE. Mr. Wynne has served as a director of the Company since November 1999. Since July 2012, Mr. Wynne has served as an Executive Vice President of Moda, Inc., a diversified insurance and pharmacy company, where he previously served as Senior Vice President, from February 2010 to January 2011. From January 2011 through July 2012, he served as Executive Vice-President of JELD-WEN, Inc., an international manufacturer of doors and windows. From March 2004 through March 2007, Mr. Wynne was President and Chief Executive Officer of SBI International, Ltd., parent company of sports apparel and footwear company Fila. From August 2001 through March 2002, and from April 2003 through February 2004, Mr. Wynne was a partner in the Portland, Oregon law firm of Ater Wynne LLP. Mr. Wynne served as acting Senior Vice President and General Counsel of the Company from April 2002 through March 2003. Mr. Wynne was formerly Chairman and Chief Executive Officer of eteamz.com, an online community serving amateur athletics, from June 2000 until its sale to Active.com in January 2001. From February 1995 to March 2000, Mr. Wynne served as President and Chief Executive Officer of adidas America, Inc. Prior to that time, he was a partner in the law firm of Ater Wynne LLP. Mr. Wynne received an undergraduate degree and a J.D. from Willamette University. Mr. Wynne also serves on the boards of directors of JELD-WEN, Inc., Pendleton Woolen Mills and Cityfyd. Mr. Wynne has been associated with the Company in a variety of capacities since 1983, including prior service as its outside counsel. By virtue of this extensive relationship, Mr. Wynne has developed a high degree of familiarity with the Company’s operations, risks and opportunities. In addition, Mr. Wynne’s legal training and senior executive leadership experience with other companies qualify him to provide insight and guidance as a member of the Company’s Audit Committee, as well as in the areas of corporate governance, strategic planning and enterprise risk management.
| CORPORATE GOVERNANCE AND RELATED MATTERS | | ||||
6
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that shareholders vote FOR the election of its nominees for director. If a quorum is present, a director nominee will be elected if the number of votes castFOR the nominee exceeds the number of votes castAGAINST such nominee. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting, but will have no effect on the election of directors.
CORPORATE GOVERNANCE AND RELATED MATTERS
Shareholders and other parties interested in communicating directly with the Chairman or with the non-employee directors as a group may do so by writing to the Chairman of the Board, c/o Corporate Secretary, FLIR Systems, Inc., 27700 SW Parkway Avenue, Wilsonville, Oregon 97070. Concerns relating to accounting, internal controls or auditing matters are promptly brought to the attention of the Audit Committee and handled in accordance with procedures established by the Audit Committee with respect to such matters.
During 2015,2017, the Company’s Board of Directors held sixeight meetings. Each incumbentIn 2017, each director attended more than 75% of the aggregate of the total number ofboard and committee meetings held by the Board of Directors and the total number of meetings held by all(for committees of the Board on which he or she served, during the period in which he or she served as a director or a committee member, as applicable, in 2015.served). Under the Company’sFLIR’s Corporate Governance Principles, each director is expected to commit the time necessary to prepare for and attend all Boardboard and committee meetings, and meetings of committees of the Board on which he or she serves, as well as the Company’s Annual Meeting of Shareholders. All members of the Company’s Board of Directors attended the 20152017 Annual Meeting of Shareholders.
Board of Directors Independence
The Company’sFLIR’s Corporate Governance Principles provide that the Board of Directors must be comprised of a majority of independent directors. The Board of Directors reviews annually the relationship that each director has with the Company (either directly or as a partner, shareholder or
officer of an organization that has a relationship with the Company) and determines the independence of each director. The Board has determined that each of the directors of the Company is “independent” as defined by applicable NASDAQ Stock Market (“NASDAQ”) rules, except for Mr. Lewis, who recently retired as the Company’s President and Chief Executive Officer in May 2013, and Mr. Teich,Cannon, the Company’s current President and Chief Executive Officer. The Board of Directors took into account all relevant facts and circumstances in making this determination.
7
The Board of Directors has standing Audit, Compensation and Corporate Governance Committees. In 2016 the Board of Directors established an Ethics and Compliance Committee to provide enhanced focus specifically on ethics and compliance matters involving the Company and to highlight the Board’s commitment to Company compliance efforts. Each committee operates pursuant to a written charter, which is reviewed annually. The charter of each committee may be viewed online at www.flir.com/investor. The performance of each committee is reviewed annually. Each committee may obtain advice and assistance from internal or external legal, accounting and other advisors. The members of the Audit, Compensation, and Corporate Governance and Ethics and Compliance Committees have all been determined to be “independent” as defined by applicable NASDAQ rules. The members of each committee are identified in the following table.
Name | Audit | Corporate Governance | Compensation | Ethics and Compliance | |||||||||||||||||
James J. Cannon | |||||||||||||||||||||
John D. Carter | Chair | ||||||||||||||||||||
William W. Crouch |  | | | ||||||||||||||||||
Catherine A. Halligan | | ||||||||||||||||||||
Earl R. Lewis | |||||||||||||||||||||
Angus L. Macdonald | | Chair | |||||||||||||||||||
Michael T. Smith | Chair | | |||||||||||||||||||
Cathy A. Stauffer | | ||||||||||||||||||||
| |||||||||||||||||||||
John W. Wood, Jr. | | ||||||||||||||||||||
Steven E. Wynne | | | Chair | ||||||||||||||||||
| 2018 PROXY STATEMENT | 1 |
| CORPORATE GOVERNANCE AND RELATED MATTERS | |
The Audit Committee is responsible for, among other things: overseeing the integrity of the Company’s financial statements and financial reporting process; the Company’s compliance with legal and regulatory requirements; the independent registered public accounting firm’s qualifications, appointment and independence; the performance of the internal audit function; the review of all third-party transactions involving, directly or indirectly, the Company and any of its directors or officers; and the adequacy of the Company’s accounting and internal control systems. During fiscal year 2015,2017, the Audit Committee held five meetings.
The Compensation Committee is responsible for, among other things,things: all matters relating to the compensation of the Company’s executives, including salaries, bonuses, fringe benefits, incentive compensation, equity-based compensation, retirement benefits, severance pay and benefits, and compensation and benefits in the event of a change of control of the Company.Company, and executive talent management and succession. The Compensation Committee also administers the Company’s equity compensation plans. During fiscal year 2015, the Compensation Committee held eight meetings and acted by unanimous written consent one time. See also the “Compensation Discussion and Analysis” section of this Proxy Statement for additional details on the governance of the Compensation Committee and a description of the Company’s processes and procedures for determining executive compensation. During 2017, the Compensation Committee held eight meetings.
The Corporate Governance Committee is responsible for, among other things: recommending to the Board operating policies that conform to appropriate levels of corporate governance practice; overseeing the Board’s annual self-evaluation; identifying qualified candidates to serve on the Board; determining the qualification of Board members; evaluating the size and composition of the Board and its committees; reviewing the Company’s Corporate Governance Principles; reviewing the compensation policies for non-employee directors; providing oversight assistance of management activities relating to the integrity and security of the Company’s information technology systems,systems; and recommending nominees to stand for election at each annual meeting of shareholders. The Corporate Governance Committee seeks candidates to serve on the Board who are persons of integrity, with significant accomplishments and recognized business experience, but does not have any specific minimum qualifications or criteria for director nominees. As required by its charter, the Corporate Governance Committee considers diversity of backgrounds, experiences, expertise, skill sets and viewpoints when considering nominees for director but has not established a formal policy regarding diversity. We actively seek director candidates who bring diversity of age, gender, nationality, race, ethnicity, and sexual orientation.
The Ethics and Compliance Committee was established in identifying director nominees. During fiscal year 2015,2016 to provide enhanced focus specifically on ethics and compliance matters involving the Company and to highlight the Board’s commitment to Company compliance efforts and is responsible for, among other things: at the direction of the Board, to make recommendations regarding the Company’s corporate compliance and ethics posture, programs, policies
and procedures to facilitate the operation of the Company in a compliant and ethical manner; as may be requested by the Board from time to time, to develop and recommend to the Corporate Governance Committee held four meetings.
8
Shareholder Nominations and Proxy Access
The Corporate Governance Committee will review recommendations by shareholders of individuals for consideration as candidates for election to the Board of Directors. Any such recommendations should be submitted in writing to the Corporate Secretary, FLIR Systems, Inc., 27700 SW Parkway Avenue, Wilsonville, Oregon 97070. Historically, the Company has not had a formal policy concerning shareholder recommendations to the Corporate Governance Committee (or its predecessors) because the informal consideration process in place to date has been adequate given that the Company has never received any director recommendations from shareholders. The absence of such a policy does not mean, however, that a recommendation would not have been considered had one been received. The Corporate Governance Committee will consider director candidates recommended by shareholders on the same basis it considers director candidates identified by the Committee.
The Company’s Second RestatedOur Bylaws (the “Bylaws”) set forth procedures that must be followed by shareholders seeking to nominate directors. See alsoOur Fourth Restated Bylaws include proxy access, which permits eligible shareholders to nominate candidates for election to the Board. Our Bylaws allow a shareholder or a group of no more than 20 shareholders that has maintained continuous ownership of 3% or more of the Company’s Common Stock for at least three years to include nominees for election as director in the Company’s proxy materials for an annual meeting of shareholders. With our current board consisting of eleven members, eligible shareholders may nominate a number of director nominees not to exceed two of the directors then in office. To nominate a director, the shareholder must provide the information required by our Bylaws. In addition, the shareholder must give timely notice to our Corporate Secretary in accordance with our Bylaws, which, in general, require that the notice be received by our Corporate Secretary within the period described above under “Dates for Submission of Shareholder Proposals for 20172019 Annual Meeting of of Shareholders” section of this Proxy Statement for additional details on such procedures with respect to nominations for the 2017 Annual Meeting of Shareholders.Statement. Each notice given by a shareholder with respect to nominations for the election of directors must comply with the requirements of Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company’s Bylaws.
9
| 2 | FLIR | 2018 PROXY STATEMENT |
| CORPORATE GOVERNANCE AND RELATED MATTERS | | |
FLIR maintains a Governance page on its website that provides specific information about its corporate governance initiatives, including FLIR’s Corporate Governance Principles, Code of Ethical Business Conduct, for FLIR Operations Inside the United States, Code of Ethics for Senior Financial Officers and charters for the committees of the Board of Directors. The Governance page can be found on our website at www.flir.com/investor. To the extent mandated by legal requirements, we intend to disclose on our website any amendments to our Corporate Governance Principles, Code of Ethical Business Conduct, for FLIR Operations Inside the United States and Code of Ethics for Senior Financial Officers, or any waivers of its requirements.
FLIR’s policies and practices reflect corporate governance initiatives that are compliant with the listing requirements of NASDAQ and the corporate governance requirements of the Sarbanes-Oxley Act of 2002, as amended (“SOX”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended (the “Dodd-Frank Act”), including:
The Board of Directors has adopted clear corporate governance policies;
A majority of the Board members is independent of FLIR and its management based on the relevant independence requirements contained in the Company’s Corporate Governance Principles as well as any additional or supplemental independence standards established by NASDAQ;
All members of the Board’s Audit, Compensation, and Corporate Governance and Ethics and Compliance Committees are independent based on the relevant independence requirements contained in the Company’s Corporate Governance Principles as well as any additional or supplemental independence standards established by NASDAQ, SOX, and the Dodd-Frank Act;
The independent members of the Board of Directors meet regularly without the presence of management;
FLIR has a Code of Ethical Business Conduct for FLIR Operations Inside the United States and a Code of Ethical Business Conduct for FLIR Operations Outside the United States;Conduct;
The charters of the Board committees clearly establish their respective roles and responsibilities;
| • | FLIR has |
FLIR has adopted a Code of Ethics for Senior Financial Officers that applies to its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer/Corporate Controller, Vice President of Global Tax and Planning, Corporate Treasurer, Vice President of Global Finance Operations, Business Unit Controllers and Site Controllers.
You may obtain copies of the documents posted on FLIR’s Governance page on its website by writing to the Corporate Secretary, FLIR Systems, Inc., 27700 SW Parkway Avenue, Wilsonville, Oregon 97070.
Board Leadership Structure and Role in Risk Oversight
The Company has a separate Chairman of the Board and Chief Executive Officer structure that became effective with the retirement of Mr. Lewis in May 2013 and the promotion of Mr. Teich to the position of President and Chief Executive Officer.structure. In addition, the Chairman of the Company’s Corporate Governance Committee serves as Presiding Director for the executive sessions of the independent directors. The Board has determined that this structure is appropriate for the Company at this time as it most fully exploits Mr. Lewis’ and Mr. Teich’smaximizes our Chairman’s extensive knowledge of the Company’s business and industry, combined with Mr. Lewis’ experience as Chairman of the Board.industry. The Board acknowledges that no single leadership model is right for all companies, at all times, however, so the Board periodically reviews its leadership structure.
10
The Board is actively involved in oversight of risks inherent in the operation of the Company’s business including, without limitation, those risks described in the Company’s reports filed from time to time with the Securities and Exchange Commission (“SEC”). It is management’s responsibility to manage risk and bring to the Board’s attention the material risks to the Company. The Board of Directors has oversight responsibility offor the processes established to report and monitor systems for material risks applicable to the Company. The Board manages this responsibility at the Board level with assistance from its threefour committees, as appropriate. The Board has delegated to the Audit Committee certain tasks related to the Company’s risk management process. The Audit Committee (i) serves as an independent and objective body to monitor the Company’s financial reporting process and internal control systems and (ii) assists the Board in oversight of the Company’s compliance with legal and regulatory requirements. The Board has delegated to the Compensation Committee basic responsibility for oversight of management’s compensation risk assessment, including the annual determination of whether or not the Company’s compensation policies and practices are reasonably likely to have a material adverse effect on the Company. The Corporate Governance Committee oversees the Company’s risks in the areas of corporate governance and ethics and compliance, and is primarily responsible for the integrity and security of the Company’s information technology systems, Board and committee performance and membership and compensation and director nomination/succession. The Ethics and Compliance Committee at the direction of the Board of Directors provides enhanced oversight and makes recommendations concerning the Company’s compliance and ethics posture. These committees report the results of their review processes to the full Board during regularly scheduled Board meetings or more frequently, if warranted. In addition to review and discussion of reports prepared by the committees of the Board, the Board periodically discusses risk oversight in specific areas as they arise, including as part of its corporate strategy review.
| 2018 PROXY STATEMENT | FLIR | 3 |
| CORPORATE GOVERNANCE AND RELATED MATTERS | |
Company management annually conducts an assessment of our compensation policies and practices, including our executive compensation programs, to evaluate the potential risks associated with these policies and practices. Management has reviewed and discussed the findings of the assessment with the Compensation Committee concluding that our compensation programs are designed with an appropriate balance of risk and reward and do not encourage excessive or unnecessary risk-taking behavior. As a result, we do not believe that risks relating to our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on the Company.
In conducting this review, management considered the following attributes of our programs:
Mix of base salary, annual incentive opportunities, and long-term equity compensation;
Balance between annual and longer-term performance opportunities;
Alignment of annual and long-term incentives to ensure that the awards encourage consistent behaviors and achievable performance results;results over the long term;
Use of equity awards (performance-based and time-based) that vest over time;time and in some cases attach additional holding periods after vesting;
Generally providing senior executives with long-term equity-based compensation on an annual basis. We believe that accumulating equity over a period of time encourages executives to take actions that promote the long-term sustainability of our business;
Stock ownership guidelines that are reasonable and designed to align the interests of our executive officers with those of our shareholders. This discourages executive officers from focusing on short-term results without regard for longer-term consequences; and
Compensation decisions include subjective considerations, which limit the influence of strictly formulaic factors on excessive risk taking.
In addition, our Compensation Committee considered compensation risk implications during its deliberations on the design of our 20162018 executive compensation programs with the goal of appropriately balancing short-term incentives and long-term performance.
| 4 | FLIR | 2018 PROXY STATEMENT |
| CORPORATE GOVERNANCE AND RELATED MATTERS | | |
Nominees and Continuing Directors
11
The Board of Directors nominates the following individuals to serve on the Board.
Nominees: | Age | Director Since | Position Held with FLIR | |||
James J. Cannon | 47 | 2017 | Director and Chief Executive Officer | |||
John D. Carter | 72 | 2003 | Director | |||
William W. Crouch | 76 | 2005 | Director | |||
Catherine A. Halligan | 55 | 2014 | Director | |||
Earl R. Lewis | 74 | 1999 | Chairman of the Board of Directors | |||
Angus L. Macdonald | 63 | 2001 | Director | |||
Michael T. Smith | 74 | 2002 | Director | |||
Cathy A. Stauffer | 58 | 2014 | Director | |||
Robert S. Tyrer | 60 | 2017 | Director | |||
John W. Wood, Jr. | 73 | 2009 | Director | |||
Steven E. Wynne | 65 | 1999 | Director |
| 2018 PROXY STATEMENT | FLIR | 5 |
| CORPORATE GOVERNANCE AND RELATED MATTERS | |
Nominees
James J Cannon Age: 47 Director Since: 2017 Position Held: President, CEO and Director | Mr. Cannon has served as a director of the Company since June 2017. Previously, Mr. Cannon was an employee of Stanley Black & Decker, Inc. since 2001, most recently as President, Stanley Security, North America & Emerging Markets, since October 2014. Previously, Mr. Cannon was President of Stanley Oil & Gas from August 2012 to October 2014, President of Stanley Industrial & Automotive Repair, Europe and Latin America, from July 2011 to August 2012, and President of Stanley Industrial and Automotive Repair, North America from February 2009 to July 2011. Prior to that, from 1989 to 1999, Mr. Cannon served in the United States Army in various locations around the World as an infantryman and armor officer, including Operations Desert Shield and Desert Storm in Iraq, where he was awarded a Combat Infantryman’s Badge. Mr. Cannon is a graduate of the University of Tennessee, Chattanooga, with a B.S. in Business Administration/Marketing. Mr. Cannon is a member of the Board of Directors of Lydall, Inc. Mr. Cannon’s experience in the United States Army, prior executive experience and his position as Chief Executive Officer provide the knowledge and expertise to understand and offer guidance regarding the Company’s business operations, technologies and markets. | |||
John D. Carter Age: 72 Director Since: 2003 Position Held: Director | Mr. Carter has served as a director of the Company since August 2003. From 2002 to 2005, Mr. Carter was a principal in the consulting firm of Imeson & Carter, which specialized in transportation and international business transactions. Mr. Carter served as President and Chief Executive Officer of Schnitzer Steel Industries Inc., a metals recycling company, from May 2005 to November 2008. Since December 1, 2008, Mr. Carter has served as Chairman of the Board of Directors of Schnitzer Steel Industries, Inc. From 1982 to 2002, Mr. Carter served in a variety of senior management capacities at Bechtel Group, Inc. Mr. Carter is a member of the Board of Directors and Chairman of the Audit Committee of Northwest Natural Gas Company. He is also on the Board of the Oregon chapter of the Nature Conservancy. He received his BA in History from Stanford University and his JD from Harvard Law School. In addition to his legal experience gained while practicing law, Mr. Carter brings many years of senior executive management experience, most recently as president and chief executive officer of a multi-billion dollar public company. This combination of legal and management experience enables Mr. Carter to provide guidance to the Company in the areas of legal risk oversight, enterprise risk management, corporate governance, financial management and corporate strategic planning. | |||
General William W. Crouch (United States Army—Retired) Age: 76 Director Since: 2005 Position Held: Director | General Crouch has served as a director of the Company since May 2005. General Crouch retired from the United States Army in 1999 following a 36-year career during which he served in numerous roles including Commanding General—Eighth Army and Chief of Staff, United Nations Command and United States Forces Korea; Commander in Chief, United States Army, Europe; Commanding General, NATO Implementation (later Stabilization) Force, Bosnia/Herzegovina; and the United States Army’s 27th Vice Chief of Staff. Until 2010, he served as one of five generals who oversaw the Army’s Battle Command Training Program. In October 2000, General Crouch was named co-chair of the USS COLE Commission, which was formed to examine the terrorist attack on the USS COLE. He has served as a Distinguished Senior Fellow with the Center for Civil Military Operations at the United States Naval Postgraduate School, and serves on the Board of the Keck Institute for International and Strategic Studies at Claremont McKenna College. He received a B.A. in Civil Government from Claremont McKenna College, and a M.A. in History from Texas Christian University. He holds a Masters Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. General Crouch’s career as an Army officer and continuing interest in the United States military afford the Company significant insight into the Company’s important military customers in terms of strategic and tactical doctrines and how the Company’s products should be developed and adapted to facilitate the implementation of these doctrines. General Crouch also possesses an understanding of the political and military realities in certain global regions in which the Company’s products are employed. In addition, General Crouch’s experience in senior leadership roles in large Army commands enables him to offer guidance on the leadership of complex organizations such as the Company. | |||
Catherine A. Halligan Age: 55 Director Since: 2014 Position Held: Director | Ms. Halligan has served as a director of the Company since March 2014. Ms. Halligan has served as Advisor to Narvar, a provider of supply chain and post purchase optimization SaaS technology, since 2013. Previously, Ms. Halligan was an Advisor to PowerReviews Inc., a leading social commerce network, from January to March 2012 and Senior Vice President Sales and Marketing from July 2010 to January 2012. Prior to joining PowerReviews Inc., Ms. Halligan held several executive level positions with prominent retailers. From 2005 to 2010, Ms. Halligan served in various executive positions with Walmart, a retailer, including as Vice President Market Development, Global eCommerce from 2009 to 2010 and as Chief Marketing Officer of Walmart.com from 2007 to 2009 along with other executive roles from 2005 to 2009. From 2000 to 2005, Ms. Halligan was an associate partner at Prophet, a management consulting firm. From 1996 to 1999, Ms. Halligan held retail management positions with Williams Sonoma Inc., including Vice President and General Manager, Internet and Vice President, Marketing. Ms. Halligan also has previous executive marketing retail experience with Blue Nile, Inc. and the Gymboree Corporation. Ms. Halligan began her career as a Marketing and Planning Analyst for Lands’ End from 1987 to 1991. Since January 2012, Ms. Halligan has served as an independent director at Ulta Beauty, where she chairs the Compensation Committee and is a member of the Nominating and Governance Committee, and previously served for two years on the Audit Committee. Ms. Halligan is also on the board of privately held Wilton Brands L.L.C. With over 20 years of experience in marketing, digital and e-commerce within the retail industry, Ms. Halligan provides significant expertise with respect to strategic marketing issues, Internet technology and omnichannel business capabilities. | |||
| 6 | FLIR | 2018 PROXY STATEMENT |
| CORPORATE GOVERNANCE AND RELATED MATTERS | | |
Earl R. Lewis Age: 74 Director Since: 1999 Position Held: Chairman of the Board of Directors | Mr. Lewis served as Chairman, President and Chief Executive Officer of the Company from November 2000 until his retirement in May 2013 as President and Chief Executive Officer. He continues to serve as Chairman of the Board. Mr. Lewis was initially elected to the Board in June 1999 in connection with the acquisition of Spectra Physics AB (which at the time owned approximately 35% of the Company) by Thermo Instrument Systems, Inc. Prior to joining FLIR, Mr. Lewis served in various capacities at Thermo Instrument Systems, Inc., with his last role as President and Chief Executive Officer. Mr. Lewis is a member of the Board of Directors of Harvard BioScience and NxStage Medical, Inc. Mr. Lewis is a Trustee of Clarkson University and New Hampton School. Mr. Lewis holds a B.S. from Clarkson College of Technology and has attended post-graduate programs at the University of Buffalo, Northeastern University and Harvard University. Mr. Lewis holds a Masters Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. Mr. Lewis’ leadership of the Company in the past decade affords him a deep understanding of the Company’s technology and operations, as well as the markets in which the Company operates. Mr. Lewis’ prior service in executive management positions and his past and present service on other boards of directors, including public company boards, enable him to provide insight and guidance in an array of areas including global operations and strategic planning, enterprise risk management, and corporate governance. Mr. Lewis has played, and continues to play, an active role in the Company’s financial management and corporate development, including merger and acquisition activity. | |||
Angus L. Macdonald Age: 63 Director Since: 2001 Position Held: Director | Mr. Macdonald has served as a director of the Company since April 2001. In 2000, Mr. Macdonald founded and is currently President of Venture Technology Merchants, LLC, an advisory and merchant banking firm to growth companies regarding capital formation, corporate development and strategy. From 1996 to 2000, Mr. Macdonald was Senior Vice President and headed Special Situations in the health care equities research group at Lehman Brothers, Inc. Prior to joining Lehman Brothers, Mr. Macdonald was a senior securities analyst at Fahnestock, Inc. (now Oppenheimer). He holds a B.A. from the University of Pennsylvania and an MBA from Cranfield University, UK. Through his more than 20 years of experience in investment and merchant banking, Mr. Macdonald has developed extensive expertise in corporate development strategies for technology enterprises such as the Company as well as in financial structuring and strategy. Mr. Macdonald’s years of experience in the financial services sector benchmarking and comparing best practices operationally as well as from an executive management and compensation perspective, provide the Company with insight into the value creation impacts of various financial and operational strategies. These skills enable him to successfully serve as a member of the Company’s Audit and Compensation Committees and to provide insight to the Company in the development of its financial management, capital deployment, employee compensation and executive retention strategies. | |||
Michael T. Smith Age: 74 Director Since: 2002 Position Held: Director | Mr. Smith has served as a director of the Company since July 2002. From 1997 until his retirement in May 2001, Mr. Smith was Chairman of the Board and Chief Executive Officer of Hughes Electronics Corporation. From 1985 until 1997, he served in a variety of capacities for Hughes, including Vice Chairman of Hughes Electronics, Chairman of Hughes Missile Systems and Chairman of Hughes Aircraft Company. Prior to joining Hughes in 1985, Mr. Smith spent nearly 20 years with General Motors in a variety of financial management positions. Mr. Smith is also a director of Teledyne Technologies Incorporated, WABCO Holdings Inc., and Zero Gravity Solutions. He was previously a director of Ingram Micro. Mr. Smith holds a B.A. from Providence College and an MBA from Babson College. He also served as an officer in the United States Army. Throughout his career, Mr. Smith has had extensive financial and general management experience, including service as the chief executive officer of a large public company. These skills and experiences qualify him to serve as the Company’s Audit Committee financial expert and also provide the Company with expertise in corporate governance, enterprise risk management and strategic planning as well as in the areas of global operations and corporate strategic development. | |||
| 2018 PROXY STATEMENT | FLIR | 7 |
| CORPORATE GOVERNANCE AND RELATED MATTERS | |
Cathy A. Stauffer Age: 58 Director Since: 2014 Position Held: Director | Ms. Stauffer has served as a director of the Company since March 2014. From September 2005 to 2016 Ms. Stauffer owned and operated her own consulting Company, Cathy Stauffer Consulting, specializing in consumer technology products and assisting clients in identifying and understanding key opportunities and market trends, and developing strategies and tactics for successful market implementation and consumer adoption. In 2010, Ms. Stauffer also served as the Executive Vice President of Market Development for Premier Retail Networks / IZ-ON Media, a Technicolor owned digital media company. From 2004 to 2005, Ms. Stauffer served as Senior Vice President Marketing and Chief Marketing Officer for Gateway Computers, a global personal computer original equipment manufacturer and consumer electronics direct marketer. From 1977 to 1993 and from 1997 to 2004, Ms. Stauffer served in multiple capacities, including as President and in other executive roles, for The Good Guys, Inc., a consumer electronics specialty retailer. Ms. Stauffer also currently serves as the Chairman of Beverages & More, Inc., a leading specialty retailer of alcoholic beverages and related products, and Wilton Brands LLC, a privately owned baking food crafting and celebrations company. In addition, Ms. Stauffer is a National Associate of Corporate Directors (“NACD”) Board Leadership Fellow, the highest standard of credentialing for directors and governance professionals. Ms. Stauffer’s over three decades of experience in the branding, marketing, communications and market insights in the consumer technology industry affords the Board valuable insight into the strategic marketing of consumer technology, a continually increasing focus of the Company. | |||
Robert S. Tyrer Age: 60 Director Since: 2017 Position Held: Director | Mr. Tyrer has served as a director of the Company since October 2017. Mr. Tyrer is currently the co-president of The Cohen Group, a business advisory firm providing strategic advice and assistance in business development, regulatory affairs, deal sourcing, and capital raising activities, a position he has held since 2001. Previously, he served as the Chief of Staff to the United States Secretary of Defense William Cohen from 1997-2001, where he provided strategic advice on all aspects of national security and acted as the primary liaison between the Department of Defense and Congress, the White House, other Federal agencies and private industry. Prior to entering the Pentagon, Mr. Tyrer served 21 years on Capitol Hill in a variety of congressional staff roles, including Chief of Staff to then-Senator William Cohen of Maine from 1989-1996 and campaign manager for U.S. Senator Susan Collins in her successful 1996 U.S. Senate campaign. Mr. Tyrer is a graduate of the University of Maine and a member of the Advisory Board of the University of Maine’s School of Policy and International Affairs. He is a Senior Adviser at the Center for Strategic and International Studies in Washington, DC. He served as a member of the board of directors of EDO Corporation, a military and commercial products and professional services company, for four years until the company was purchased by ITT Corporation in 2007. Mr. Tyrer also served on the Board of Directors of Clean Air Power, a publicly-traded company based in the United Kingdom, from 2014 until it was acquired in 2015. He is also a member of the Advisory Board of the Public Diplomacy Collaborative at the John F. Kennedy School of Government at Harvard University. Mr. Tyrer’s experience in government, politics, business and consulting makes him uniquely qualified to offer guidance regarding the Company’s business operations, technologies and markets, particularly as it relates to government procurement and defense. | |||
John W. Wood, Jr. Age: 74 Director Since: 2009 Position Held: Director | Mr. Wood has served as a director of the Company since May 2009. Mr. Wood served as Chief Executive Officer of Analogic Corporation, a leading designer and manufacturer of medical imaging and security systems, from 2003 to 2006. Prior to joining Analogic, Mr. Wood held senior executive positions over a 22-year career at Thermo Electron Corporation. He served as President of Peek Ltd., a division of Thermo Electron Corporation, and as a Senior Vice President of the parent company. He previously served as President and Chief Executive Officer of Thermedics, a subsidiary of Thermo Electron Corporation. Mr. Wood is a director of ESCO Corporation and American Superconductor Corporation. Mr. Wood earned a Bachelor’s degree in Electrical Engineering from Louisiana Tech University and a Master’s degree in Electrical Engineering from Massachusetts Institute of Technology. Mr. Wood holds a Masters Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. Through his academic training and his extensive executive experience with companies in relevant industries, Mr. Wood possesses the knowledge and expertise to understand and offer guidance regarding the Company’s technologies and markets. In addition, as the former chief executive officer of a public company, Mr. Wood is qualified to provide leadership in the areas of corporate governance, operations and enterprise risk management. | |||
| 8 | FLIR | 2018 PROXY STATEMENT |
| CORPORATE GOVERNANCE AND RELATED MATTERS | | |
Steven E. Wynne Age: 66 Director Since: 1999 Position Held: Director | Mr. Wynne has served as a director of the Company since November 1999. Since July 2012, Mr. Wynne has served as an Executive Vice President of Health Services Group, Inc., a diversified insurance and pharmacy company, where he previously served as Senior Vice President, from February 2010 to January 2011. From January 2011 through July 2012, he served as Executive Vice-President of JELD-WEN, Inc., an international manufacturer of doors and windows. From March 2004 through March 2007, Mr. Wynne was President and Chief Executive Officer of SBI International, Ltd., parent company of sports apparel and footwear company Fila. From August 2001 through March 2002, and from April 2003 through February 2004, Mr. Wynne was a partner in the Portland, Oregon law firm of Ater Wynne LLP. Mr. Wynne served as acting Senior Vice President and General Counsel of the Company from April 2002 through March 2003. Mr. Wynne was formerly Chairman and Chief Executive Officer of eteamz.com, an online community serving amateur athletics, from June 2000 until its sale to Active.com in January 2001. From February 1995 to March 2000, Mr. Wynne served as President and Chief Executive Officer of adidas America, Inc. Prior to that time, he was a partner in the law firm of Ater Wynne LLP. Mr. Wynne received an undergraduate degree and a J.D. from Willamette University. Mr. Wynne also serves on the boards of directors of JELD-WEN Holding, Inc., Pendleton Woolen Mills, Cityfyd and Lone Rock Resources. Mr. Wynne has been associated with the Company in a variety of capacities since 1983, including prior service as its outside counsel. By virtue of this extensive relationship, Mr. Wynne has developed a high degree of familiarity with the Company’s operations, risks and opportunities. In addition, Mr. Wynne’s legal training and senior executive leadership experience with other companies qualify him to provide insight and guidance as a member of the Company’s Audit Committee, as well as in the areas of corporate governance, strategic planning and enterprise risk management. | |||
MANAGEMENTRecommendation of the Board of Directors
The Board of Directors unanimously recommends that shareholders voteFOR the election of each of its nominees for director.If a quorum is present, a director nominee will be elected if the number of votes cast FOR the nominee exceeds the number of votes cast AGAINST such nominee. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting, but will have no effect on the election of directors.
| 2018 PROXY STATEMENT | FLIR | 9 |
| MANAGEMENT | |
The executive officers of the Company for 2017 are as follows:
Name | Age | Position | ||||
| 47 |
| Chief Executive Officer | |||
| Executive Vice President and Chief | |||||
Todd M. DuChene | 54 | Senior Vice President, General Counsel, Secretary, and | ||||
Jeffrey D. Frank | 61 | Senior Vice President, Global Product Strategy | ||||
Shane R. Harrison | 41 | Senior Vice President, Corporate Development and Strategy | ||||
Travis D. Merrill | ||||||
| ||||||
| ||||||
| 41 | Senior Vice President, Chief |
Information concerning the principal occupations and business experience during at least the past five years of Mr. TeichCannon is set forth under “Proposal 1: “Election of Directors—Directors - Information as to Nominees and Continuing Directors—DirectorDirectors - Nominees.” Information concerning the principal occupations and business experience during at least the past five years of the executive officers of the Company who are not also directors of the Company is set forth below. Mr. Trunzo resigned as Senior Vice President and Chief Finance Officer of the Company on March 27, 2015.
TODD M. DUCHENE. Mr. DuChene joined FLIR in September 2014 as its Senior Vice President, General Counsel and Secretary. Prior to joining FLIR, Mr. DuChene served as Executive Vice President, General Counsel and Secretary of Nuance Communications, Inc., a leading provider of speech recognition and related technology to enterprise, healthcare and mobile and consumer customers, where he was responsible for the legal, intellectual property, corporate governance and regulatory activities of the company, from October 2011 to September 2014. Previously, Mr. DuChene served as Senior Vice President, General Counsel and Secretary of National Semiconductor Corporation from January 2008 to October 2011, prior to its acquisition by Texas Instruments Inc. In addition, Mr. DuChene has served as General Counsel to each of Solectron Corporation, Fisher Scientific International Inc. (now ThermoFisher Scientific), and OfficeMax, Inc. Mr. DuChene began his legal career as a corporate lawyer with BakerHostetler in Cleveland, Ohio in 1988. Mr. DuChene is a graduate of The College of Wooster, Wooster, Ohio and the University of Michigan Law School.
JEFFREY D. FRANK. Prior to his promotion to Senior Vice President, Global Product Strategy in January 2014, Mr. Frank had served as the Company’s Vice President, Global Product Strategy since May 2013. Mr. Frank previously served as Vice President of Product Strategy for the Company’s Commercial Systems Division from December 2004 to May 2013. Prior to joining FLIR, Mr. Frank was a founder and served as Vice President of Business Development for Indigo Systems, Inc. commencing with that company’s inception in 1997. Mr. Frank joined FLIR upon Indigo’s acquisition by FLIR in 2004. Previously, Mr. Frank was Vice President of Business Development for Raytheon Corporation from 1994 to 1997, and for Amber Engineering from 1987 to 1994 prior to Amber’s acquisition by Raytheon Corporation.
SHANE R. HARRISON. Mr. Harrison has been Senior Vice President, Corporate Development and Strategy since April 2015. Previously, Mr. Harrison was FLIR’s Vice President of Corporate Development and Investor Relations from August 2010 to April 2015. Prior to joining FLIR, Mr. Harrison was a Vice President at Lehman Brothers in their Global Technology Investment Banking group from 2004 to 2008, where he managed business acquisition and capital markets transactions for a variety of technology companies. Previously, he was a Business Planning Analyst at Goodrich Aerospace and an Audit Senior with Deloitte & Touche. Mr. Harrison received his BS cum laude from the University of Oregon and his MBA from the UCLA Anderson School of Management.
Carol P. Lowe Age: 52 Position Held: Executive Vice President and Chief Financial Officer | Ms. Lowe has been Executive Vice President and Chief Financial Officer since November 2017. Previously, Ms. Lowe served as Senior Vice President and Chief Financial Officer at Sealed Air Corporation (NYSE: SEE). Ms. Lowe also worked for Carlisle Companies Inc. for over ten years in numerous executive leadership positions, including President of two business units and Chief Financial Officer. Ms. Lowe also served as a board member of Cytec Industries, Inc. from 2007 to 2015, and currently serves on the board of EMCOR Group, Inc., where she is a member of the Audit Committee. She received her Bachelor of Science degree in accounting from the University of North Carolina Charlotte and an MBA from the Fuqua School of Business at Duke University. | |||
Todd M. DuChene Age: 54 Position Held: Senior Vice President, General Counsel and Secretary | Mr. DuChene joined FLIR in September 2014 as its Senior Vice President, General Counsel and Secretary. Prior to joining FLIR, Mr. DuChene served as Executive Vice President, General Counsel and Secretary of Nuance Communications, Inc., a leading provider of speech recognition and related technology to enterprise, healthcare and mobile and consumer customers, where he was responsible for the legal, intellectual property, corporate governance and regulatory activities of the company, from October 2011 to September 2014. Previously, Mr. DuChene served as Senior Vice President, General Counsel and Secretary of National Semiconductor Corporation from January 2008 to October 2011, prior to its acquisition by Texas Instruments Inc. In addition, Mr. DuChene has served as General Counsel to each of Solectron Corporation, Fisher Scientific International Inc. (now ThermoFisher Scientific), and OfficeMax, Inc. Mr. DuChene began his legal career as a corporate lawyer with BakerHostetler in Cleveland, Ohio in 1988. Mr. DuChene is a graduate of The College of Wooster, Wooster, Ohio and the University of Michigan Law School. | |||
12
| 10 | FLIR | 2018 PROXY STATEMENT |
| MANAGEMENT | | |
TRAVIS D. MERRILL. Mr. Merrill joined FLIR in April 2014 as Senior Vice President, Marketing and Chief Marketing Officer. Prior to joining FLIR, Mr. Merrill served as Vice President of Marketing for Samsung Electronics America, where he led the GALAXY Tab business from 2011 to 2014. Previously, he held Strategy and Marketing roles for Samsung in Korea and in the US from 2006 to 2011. From 1998 to 2004, Mr. Merrill held various Operations, Marketing, and International Development positions in the telecommunications industry at Covad and at US West (now CenturyLink). Mr. Merrill received a B.A. magna cum laude from Wabash College, an M.S. in Telecommunications from the University of Colorado Boulder, and an MBA from Harvard Business School.
DAVID A. MUESSLE. Mr. Muessle has served as the Company’s Vice President, Corporate Controller since March 2000 and has served as the Company’s Chief Accounting Officer since November 2010. Additionally, between March 2015 and August 2015, Mr. Muessle served the Company as the Interim Chief Financial Officer. Prior to joining FLIR, Mr. Muessle held various Finance and Accounting management positions from 1983 to 1999 with Tektronix, Inc., most recently as Controller, Americas Operations. Previously, he was an Audit Manager at Touche Ross (now Deloitte). Mr. Muessle received his BSC cum laude in Accounting with a minor in Finance from Santa Clara University.
AMIT SINGHI. Mr. Singhi joined FLIR in August 2015 as Senior Vice President, Finance, and Chief Financial Officer. Prior to joining FLIR, Mr. Singhi was an employee of Ford Motor Company from August 1994 to August 2015, most recently as Controller of Ford Motor Company’s Global Customer Service Division, Aftermarket Parts & Services since April 2015. Mr. Singhi was previously Chief Financial Officer of Ford South America from April 2012 to March 2015, Director, Americas Profit Analysis from January 2011 to March 2012, and Controller, Retail/Fleet Marketing & Global Lifecycle Analytics from January 2010 to December 2010. He holds an M.B.A. and an M.S. in Electrical Engineering Systems from the University of Michigan, and a Bachelors of Technology in Electrical Engineering from the Indian Institute of Technology.
THOMAS A. SURRAN. Mr. Surran has served as the Company’s Senior Vice President, Chief Operating Officer since January 2014. Mr. Surran previously served as President of the Company’s Commercial Systems Division from May 2013 to January 2014. Mr. Surran joined the Company for a second time in December 2009 as the Chief Financial Officer of the Commercial Systems Division. From May 2010 until May 2013, in addition to his Division Chief Financial Officer role, Mr. Surran also served as Vice President and General Manager of Raymarine, a FLIR company. Previously, Mr. Surran served in the role of General Manager of the Company’s Commercial Vision Systems (formerly Indigo) Operations in Goleta, CA from January 2004 to June 2007. Mr. Surran initially joined FLIR upon Indigo’s acquisition by FLIR in 2004. Prior to Indigo, he held positions with TDK Corporation, Headway Technologies, Inc., and Everex Systems, Inc. Mr. Surran received his B.S. from Xavier University and his MBA from the University of Chicago.
Jeffrey D. Frank Age: 61 Position Held: Senior Vice President, Global Product Strategy | Prior to his promotion to Senior Vice President, Global Product Strategy in January 2014, Mr. Frank had served as the Company’s Vice President, Global Product Strategy since May 2013. Mr. Frank previously served as Vice President of Product Strategy for the Company’s Commercial Systems Division from December 2004 to May 2013. Prior to joining FLIR, Mr. Frank was a founder and served as Vice President of Business Development for Indigo Systems, Inc. commencing with that company’s inception in 1997. Mr. Frank joined FLIR upon Indigo’s acquisition by FLIR in 2004. Previously, Mr. Frank was Vice President of Business Development for Raytheon Corporation from 1994 to 1997, and for Amber Engineering from 1987 to 1994 prior to Amber’s acquisition by Raytheon Corporation. | |||
Shane R. Harrison Age: 41 Position Held: Senior Vice President, Corporate Development and Strategy | Mr. Harrison has been Senior Vice President, Corporate Development and Strategy since April 2015. Previously, Mr. Harrison was FLIR’s Vice President of Corporate Development and Investor Relations from August 2010 to April 2015. Prior to joining FLIR, Mr. Harrison was a Vice President at Lehman Brothers in their Global Technology Investment Banking group from 2004 to 2008, where he managed business acquisition and capital markets transactions for a variety of technology companies. Previously, he was a Business Planning Analyst at Goodrich Aerospace and an Audit Senior with Deloitte & Touche. Mr. Harrison received his BS cum laude from the University of Oregon and his MBA from the UCLA Anderson School of Management. | |||
Travis D. Merrill Age: 41 Position Held: President, Commercial Business Unit | Prior to his promotion to President, Commercial Business Unit in September 2017, Mr. Merrill served as the Company’s Senior Vice President, Marketing and Chief Marketing Officer since April 2014. Prior to joining FLIR, Mr. Merrill served as Vice President of Marketing for Samsung Electronics America, where he led the GALAXY Tab business from 2011 to 2014. Previously, he held Strategy and Marketing roles for Samsung in Korea and in the US from 2006 to 2011. From 1998 to 2004, Mr. Merrill held various Operations, Marketing, and International Development positions in the telecommunications industry at Covad and at US West (now CenturyLink). Mr. Merrill received a B.A. magna cum laude from Wabash College, an M.S. in Telecommunications from the University of Colorado Boulder, and an MBA from Harvard Business School. | |||
Paul G. Sale Age: 41 Position Held: Senior Vice President, Chief Human Resources Officer | Mr. Sale joined FLIR in May 2017 as Senior Vice President, Chief Human Resources Officer. Prior to joining FLIR, Mr. Sale served as Chief Human Resources Officer of Mentor Graphics, an electronic design automation company, since 2015. Previously he served as Director of Global Compensation and Benefits since 2011. From 2004 to 2011, Mr. Sale served in a variety of HR and Finance roles including Financial Planning and Analysis and External Reporting. Prior to that, Mr. Sale worked at CNF, Inc., a logistics and supply chain company, and was an Auditor with KPMG LLP. Mr. Sale has a B.A. in Accounting and Finance from Seattle Pacific University and an MBA from the Olin School of Management at Babson College with a focus on Entrepreneurship. | |||
13
| 2018 PROXY STATEMENT | FLIR | 11 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
COMPENSATION DISCUSSION AND ANALYSIS
The following discussion and analysis contains statements regarding future Company performance targets and goals. These targets and goals are disclosed in the context of FLIR’s compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. FLIR specifically cautions investors not to apply these statements to other contexts.
For purposes of thisThis Compensation Discussion and Analysis describes the principles and material elements of our executive compensation program, how we applied those principles in determining the material elements of the compensation for our Named Executive Officers (“NEOs”) consistfor 2017 and how we use our executive compensation program to drive performance.
Our executive compensation program is designed to align the interests of our executive officers with those of our shareholders by providing market-competitive compensation opportunities to our executives upon the achievement of a variety of short-term and long-term objectives. The Compensation Committee reviews at least annually all elements of executive officer compensation and makes changes as needed to remain competitive, fair, reasonable and consistent with our goals of pay for performance and alignment with shareholder interests. We believe that our actions in 2017 and in prior years effectively link pay to performance.
2017 was a transformative year for us—we focused on building positive momentum in revenue and earnings growth through realigning our operating structure in order to enhance business processes and improve execution. We successfully executed on a smooth transition to a new Chief Executive Officer (the “CEO”),and strengthened our leadership team by appointing a new Chief Financial Officer (the “CFO”),and a new Chief Human Resources Officer. In addition, effective January 1, 2018 we realigned our business operations from six segments to three next most highly compensated executivesoperating business units.
Our 2017 executive compensation program reflected our objective of effectuating an operating realignment to establish a foundation for building consistent long-term revenue and earnings growth, and we invested to recruit new additions to our management team and retain existing key leadership in an extremely competitive marketplace to install a senior management team that were actively employed as of December 31, 2015, our former Chief Financial Officer (the “Former CFO”) and our interim Chief Financial Officer (the “Interim CFO”).we believe best positions us for sustainable long-term growth.
Executive Summary
Our Business and Strategy
FLIR isWe are a world leader in sensor systems that enhance perception and awareness. Our advanced sensors and integrated sensor systems enable the creation, gathering, and analysis of critical data and images for use in a wide variety of applications in commercial, industrial, and government markets worldwide.
Our strategyoperational task is focused on enablingto consistently exceed shareholder commitments with integrity. And our purpose as an entity is to innovate the world’s sixth sense to save lives and livelihoods. We will operate with these in mind all the time and will drive our strategies with the intention to succeed in the eyes of our customers, employees, and shareholders.
During 2017 we developed a better articulation of our core values so they are more actionable, more aspirational, and can be better owned by our employees: Be Ready, Be Bold, Be Brave, and Be Ambitious. First is Be Ready, which speaks to benefit fromprioritizing speed and agility in reacting to an ever-changing technology landscape; Second is Be Bold, by pioneering and innovating to continue pushing the valuable information produced by advanced sensing technologiesboundaries of what is possible in both our technology as well as our daily operations. Third is Be Brave in our actions to exhibit the utmost integrity and on delivering sustained superior financial performanceethics in our daily decision-making – not usually, but always. And Fourth is Be Ambitious with a will to win, a tenacity to find the best ways accomplish our tasks, and returnscollaborate with the utmost respect for our shareholders. Overteammates and our customers.
These core values will serve as the past ten yearsstandards by which our people operate and behave at FLIR. We expect our teams to feel accountable for upholding these values each and every day, and by doing so, we have dramatically expanded the availability of thermal imaging technologyexpect to see tangible results in our business performance.
During 2017 we also introduced a wide range of applications through acontinuous business modelimprovement initiative that focuses on reducing costs through continuous innovation and vertical integration. This has resulted in a nearly twenty fold increase in annual unit volumes since 2005, and the establishment of thermal imaging solutions in numerous markets where it was previously unavailable due to cost or technology constraints.
For the five-year period ending in 2015, we are calling The FLIR Method. While implementation began during the fourth quarter of 2017, this is a long-term investment that we expect will better enable organic growth, increase our profitability, and generate excess cash to utilize in the top quartileways that enhance shareholder returns. Each of our Peer Group (as definednewly constituted Business Units for 2018 will have dedicated FLIR Method Leaders at various facilities globally who will lead the focus on page 21) in the key metrics of gross marginenhancing our productivity, refining our product pricing strategy,
| 12 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION DISCUSSION AND ANALYSIS | | |
standardizing our core business terminology to better share best practices globally, implement expanded talent development programs, boost our acquisition and operating marginintegration processes, and just below the top quartile in the key metric of return on capital. Our revenue and net income growth during the period have been belowcontinue to develop world-class products that exceed our Peer Group average due to a significant reduction in United States government revenue associated with lower defense spending and the negative impacts of the strengthening U.S. dollar (particularly during 2015).customers’ expectations.
14
20152017 Business and Financial Highlights
Our 2015 financial performance was mixed. While only twoIn 2017, we increased consolidated revenue by 8% with five of our six operating segments showedshowing revenue growth. For 2017 we achieved 99% of our revenue growth target established for our 2017 executive annual incentive plan (“AIP”). GAAP net earnings per diluted share was $0.77 compared to $1.20 in revenue over 2014, consolidated operating profitability increased 18% over2016. GAAP net earnings were negatively impacted by discrete tax changes of $94.4 million related to the prior year. Our SurveillanceU.S. Tax Cuts and OEMJobs Act, as well as $23.6 million pretax net loss on assets held for sale. Adjusted earnings per share for 2017 was $1.88, compared to adjusted
earnings per share for 2016 of $1.69, an increase in adjusted earnings per share of 11%. Adjusted earnings per share was a metric in our 2017 AIP, and Emerging segments declinedwe achieved 99% of our target for this metric in revenue primarily2017. During 2017, we generated $308 million of cash flow from operations, representing 117% of adjusted net income. Operating cash flow was a metric in our 2017 AIP and, after adjusting for certain items approved by our Compensation Committee, we achieved 100% of our target for this metric in 2017.
Stock Price Performance
Over the three- and five-year periods ending December 31, 2017, we outperformed the Standard & Poor’s 500 Index (the “S&P 500”) and underperformed our 2017 Peer Group (see below) in relative total shareholder return (“TSR”), as a result of lower United States Military spending in 2015. Revenuereflected in the Instruments and Maritime segments declined compared to 2014 primarily due tofollowing graph. At December 31, 2017, the negative impactclosing price of the strengthening U.S. dollar during 2015. Total Company revenue grew 2% and our net earnings improved by 21% as compared to 2014.Common Stock was $46.62.
Business highlights for 2015 include the following:
| 2018 PROXY STATEMENT | FLIR | 13 |
| ||
|
|
15
20152017 Executive Compensation ActionsHighlights
During 2015,2017, the Compensation Committee made several key decisions:
Base Salary—Increased annual base salaries of our NEOs to maintain market-competitiveness. Salary increases for our NEOs generally were 2.8%, and higher in consultation with its independent compensation consultant from Aon Hewitt’s technology compensation consulting group, Radfordthe case of NEOs who moved to new positions or who assumed increased responsibilities in 2017.
Annual Cash Incentive—Designed our 2017 AIP to focus on growth in three key Company performance measures, non-GAAP adjusted earnings per share (“Radford”Adjusted EPS”), implemented several changesrevenue and non-GAAP adjusted operating cash flow (“Adjusted Operating Cash Flow”), as the criteria for payment of cash incentives to the NEOs. Consistent with recent years, growth in Adjusted EPS was the most heavily weighted performance metric.
Long-Term Equity Incentive—Granted a mix of time-based and performance-based equity awards to our NEOs, with a greater emphasis on performance-based equity awards in 2017 as they represented approximately 50% of the value of many of our NEO’s annual equity grants. 2017 performance-based equity awards are eligible for vesting based on our non-GAAP adjusted operating margin (“Adjusted Operating Margin”) achievement over a three-year performance period. This structure is designed to retain key executives over a longer-term period by providing time-based equity awards generally vesting over three years and performance-based equity awards vesting only if we achieve Adjusted Operating Margin goals over a multi-year performance period. These programs provide the opportunity for our key executives to earn additional compensation packages for Messrs. Teich and Surranover performance that is also beneficial to bring their total targetour shareholders.
One-Time Recruitment or Promotion Compensation—Provided one-time compensation (“TTC”) nearer to the 50th percentile of comparable executives in the Peer Group. The Compensation Committee increased Mr. Teich’s base salary by 10.3% from $739,000 to $815,000. This increase placed Mr. Teich’s base salaryform of cash and total target cash compensation slightly below the 50th percentile of CEOs in the Peer Group median. Additionally, the Compensation Committee increased the grant date value of Mr. Teich’s 2015 annual equity award, excluding his market-based equity award, to approximately $3.1 million (from approximately $2.6 million in 2014), which was equal to the 50th percentile of comparable executives in our Peer Group. The Compensation Committee also increased the base salary of Mr. Surran by 8.9% from $450,000 to $490,000. This increase placed Mr. Surran’s base salary and TTC slightly above the 50th percentile of comparable executives in the Peer Group. Additionally, the Compensation Committee increased the grant date value of Mr. Surran’s annual equity award, excluding his market-based equity award, to approximately $1.1 million (from approximately $1.0 million in 2014), which was slightly below the 50th percentile of comparable executives in our Peer Group. TTC is defined as the sum of base salary, target annual incentive compensation and target long-term incentive compensation
Anthony L. Trunzo, our Former CFO, voluntarily departed from the Company in March 2015. Mr. Muessle was appointed to the role of Interim CFO upon Mr. Trunzo’s departure. In connection with Mr. Muessle’s Interim CFO role, the Compensation Committee, in consultation with Radford increased his base salary from $284,500 to $400,000 and increased his annual incentive target from 50% to 60%. These increases placed Mr. Muessle’s base salary and total target cash compensation at the 25th percentile of the Peer Group for comparable executives. Additionally, in recognition of Mr. Muessle’s intention to retire from the Company in mid-2016, the Compensation Committee approved an equity award that would fully vest one year from the date of grant as long as he remains in service with the Company through the vesting date.
Mr. Singhi became our Senior Vice President, Finance and Chief Financial Officer in August 2015. After considering the Peer Group data for comparable executives and Mr. Singhi’s extensive prior experience as a finance executive, the Compensation Committee set his base salary and target annual incentive at the 50th percentile of comparable executives in our Peer Group. Mr. Singhi received three equity awards upon hire, which were (i) an annual equity award with a grant date value of approximately $0.6 million which was just above the 25th percentile of the Peer Groupto recruit our new CEO and CFO and compensate them for comparable executives, (ii) acompensation opportunities they forfeited at his or her prior employer. Also provided one-time sign-on equity award of $0.3 million to partially compensate him for forfeiting unvestedcash or equity awards from his prior employer, (iii)to certain NEOs that moved to new positions or who assumed increased responsibilities in 2017.
Further details about these practices and a market-based performance equity award of $0.1 millionthe reasons behind them are discussed below under the same program as“Base Salary,” “Annual Incentive Compensation,” “Long-Term Incentive
Compensation,” “One-Time Recruitment or Promotion Compensation,” “Employment Agreements,” and “Post-Termination Compensation” sections below.
We continually review our other NEOs.
The Compensation Committee annually reviews all elements of compensation for our executive officers, including our NEOs, and makes modifications as needed to remain competitive, fair, reasonable and consistent with the financial objectives of the Company. We expect to make changes to our executive officer compensation plans and practices when appropriate based on such factors the Compensation Committee deems appropriate, which may include evolving market practices, executive officer retention, feedback from our shareholders, changes in our strategy or financial performance, or changes in accounting and tax rules.
Forfeiture For 2017, our Compensation Committee solicited input from several of Pay, At-Risk Compensationour key shareholders regarding the Company’s compensation program and TSR Programhas taken shareholder feedback into account in designing our 2017 compensation program for executive officers.
Our annual incentive plan (“AIP”) paymentsNEOs for 2015 were 7% below target due to underperformance relative to the revenue and cash flow from operations components of the plan, partly offset by outperformance relative to the earnings per share component of the plan.
For 2015 we implemented a long-term incentive program (“LTIP”) that includes a relative total shareholder return (“TSR”) overlay program (the “2015 TSR Program”). The 2015 TSR Program pays out at target only
16James J. Cannon, our President, Chief Executive Officer (“CEO”), and Director
Carol P. Lowe, our Executive Vice President and Chief Financial Officer (“CFO”)
Todd M. DuChene, our Senior Vice President, General Counsel, Secretary and Chief Ethics and Compliance Officer
Jeffrey D. Frank, our Senior Vice President, Global Product Strategy
Travis D. Merrill, our Senior Vice President, Chief Marketing Officer (now President, Commercial Business Unit)
Under applicable Securities and Exchange Commission (“SEC”) rules, our NEOs for 2017 also include:
Andrew C. Teich, our former President and Chief Executive Officer
Shane R. Harrison, our Senior Vice President, Corporate Development and Strategy, who served as interim Chief Financial Officer following the employment termination of Amit Singhi
Amit Singhi, our former Senior Vice President, Finance and Chief Financial Officer, who resigned in July 2017 to pursue other business opportunities
Thomas A. Surran, our former Senior Vice President, Chief Operating Officer, who resigned in September 2017 as a result of our planned realignment of our operating structure
| 14 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION DISCUSSION AND ANALYSIS | | |
when our TSR equals the TSR of the 60th percentile of the Standard & Poor’s 500 Index (the “S&P 500”) component companies (the “60th Percentile Company”) and diminishes to zero should our TSR be 10 percentage points below the TSR of the 60th Percentile Company. The 2015 TSR Program has a three-year performance period, which is designed to directly link the vesting of LTIP compensation to sustained superior long-term stock price performance in excess of the performance of the S&P 500.Pay for Performance Overview
The Company first introducedPay Mix
In 2017, we continued our strong commitment to a TSR overlaypay for performance executive compensation program in 2012 (the “2012 TSR Program” and togetherby aligning a significant portion of executive compensation with demonstrated performance. As shown by the 2015 TSR Program, the “TSR Programs”). The 2012 TSR Programcharts below, fixed compensation for our CEO was comprisedonly 15% of a front-loaded, three-year grant. Thus no ensuing TSR grantsannual total direct compensation (20% on average for our other NEOs who were made in 2013 or 2014 and by its terms no shares were earned or issued pursuant to the 2012 TSR Program because our TSR for the three-year period ended May 1, 2015 was 34.7% compared to the total return of the S&P 500 of 51.2%.
To calculate the total shareholder return, each of the TSR Programs also uses a 20 day average stock price prior to the beginning of the performance period and before maturityemployed with us at the end of 2017) with CEO at risk performance-based compensation (annual cash incentives and annual long-term equity incentives) making up
the instrument’s liferemaining 85% of annual total direct compensation (base salary, annual cash incentives, and annual long-term incentive equity incentives) (80% on average for our other NEOs). Any one-time cash and equity compensation paid to dampen any short-term volatility that could skew measurement of long-term results under the programs. A more detailed descriptionour CEO or other NEOs in connection with their recruitment or promotion, as applicable, are excluded for purposes of the 2015 TSR Programpercentages set forth in this paragraph and the chart set forth below. Our CEO’s employment agreement guaranteed his 2017 AIP payment at no less than $350,000. Since our CEO’s AIP payment exceeded this guaranteed amount, for purposes of the percentages set forth in this paragraph and the chart below, his full AIP payment is included starting on page 24.considered variable.
Overall Alignment between Strategy, Resultsof Pay and Executive CompensationPerformance
Our executive compensation program is designed to limit the amount of fixed (not at risk) compensation and to pay for performance—out incentive (at risk) compensation at or above pre-established target amounts only upon the achievement of superior financial results. For our executive officers, we seek to establish target annual total direct compensation (which includes both at risk and not at risk compensation annually at or about the 50th percentile of our 2017 Comparator Group (see below)). At risk incentive compensation is paid only if objective Company financial metrics are met. As a result,
because most of our annual total direct compensation is at risk and subject to stringent Company performance criteria, it is intended that our executive officers will earn compensation only at or above the 50th percentile of our 2017 Comparator Group if the Company achieves superior results. Company failure to achieve targeted metrics significantly impacts the amount of performance-based compensation earned and is intended to result in total realized compensation for executive officers below the 50th percentile of our 2017 Comparator Group. We believe this pay-for-performance philosophy incentivizes our executive officers including each of our NEOs, should rise or fall based onto meet Company and individual performance. This has been the case in each of the past three years. Since we have not performed at expected levels, our currently active NEOs have received, on average, only 81% of their target annual incentive compensation. Over the same three-year period, the currently active NEOs who received grants under the 2012 TSR Program also forfeited over $0.9 million (based on grant date fair value) in market-based long-term incentive compensation from the 2012 TSR Program. In 2015, our long-term incentive compensation, the actual value of which is directly correlated with the performance of our stock price, comprised 71% of TTC for Mr. Teich and, on average, 55% for our other NEOs.
Our AIP is designed to reflect annual financial performance as measured by growth in EPS and revenue, and the ratio of cash flow from operations to net income, thereby complementing our longer-term, equity-based LTIP. In each of the past three years, our annual performance did not meet the targets set for full payout. The payouts received by our then existing NEOs for 2015, 2014 and 2013 were 93%, 91% and 58%, respectively. In 2015, our annual incentive plan targets, comprised 15% of TTC for Mr. Teich and, on average, 19% for our other NEOs.
In 2015, base salary accounted for 14% of TTC for Mr. Teich and, on average, 26% for our other NEOs. This means our NEOs, on average, have 79% of their TTC opportunity tied to annualshort-term and long-term incentive compensation.objectives.
17
| 2018 PROXY STATEMENT | FLIR | 15 |
Over the five-year period ending December 31, 2015, we underperformed both the S&P 500 and our Peer Group in TSR, as reflected in the following graph. At December 31, 2015, the closing price of our Common Stock was $28.07.
Since our executive compensation program is designed to place a significant emphasis on pay-for-performance, our executive officers, including our NEOs, who were employed by us during the last three years did not receive their full AIP targets in any of the past three years and those that received awards under the 2012 TSR program forfeited those awards in their entirety. This strong link between pay and performance is highlighted in our “Annual Incentive Plan” and “Long-Term Incentive Program” descriptions in the “Compensation Design and Elements of Compensation” section below.
CEO Target Compensation versus Realized/Realizable Compensation
The chart below compares our CEO’s TTC for each of the past three years to the actual value of the compensation realized or still realizable based on our stock price on December 31, 2015 and the achievement of performance goals established under our AIP and LTIP. As a result of our significant emphasis on incentive-based compensation, the realized and still realizable pay for our CEO is less than the TTC for 2015, 2014 and 2013 by 31%, 37% and 11%, respectively.
18
Specifically, for 2015 our CEO’s target AIP was $855,750; however, based on our performance, he received a payout of $796,509. The LTIP granted in 2015 at its target value was approximately $4.3 million; and, based on our stock price on December 31, 2015, the intrinsic value of the 2015 LTIP grants was approximately $2.5 million. Therefore, the decrease in total value from our CEO’s 2015 TTC was approximately $1.8 million as of December 31, 2015. Correspondingly, the decrease in our CEO’s TTC as compared to the realized or realizable values for 2014 and 2013, respectively, were $1.5 million and $0.4 million as of December 31, 2015.
| COMPENSATION DISCUSSION AND ANALYSIS | |
The information incharts below illustrate the Target Delivery columns above for 2013, 2014alignment between key metrics (our TSR and 2015 reflects: base salaryadjusted EPS) on which our compensation decisions (annual total direct compensation and annual cash incentives paid to our CEO) were based for each of these years; the value of AIP compensation at target (which may be more or less than the actual AIP received);last
five fiscal years. Any one-time cash and equity compensation valued at grantpaid to our CEO in connection with his recruitment or promotion, as applicable, are excluded for purposes of the charts below.
Annual total direct compensation consists of annual base salary, AIP payment and annual long-term incentive award (grant date targetfair value (which may be more or less than actual realized value)of annual equity awards, not cash actually received). Base salary informationAnnual total direct compensation is based on the compensation of Mr. Teich for fiscal 2013, 2014, 2015 and 2015 is contained2016 and Mr. Cannon for fiscal 2017. Compensation shown above excludes any one-time compensation paid to Mr. Cannon in connection with his hiring, as described in greater detail below. For comparability, Mr. Cannon’s prorated 2017 salary, AIP payment and onboarding equity awards have been annualized. Compensation shown above also excludes amounts reported under the “Change in Pension Value” (which was applicable only to Mr. Teich) and the “All Other Compensation” columns in the Summary Compensation TableTable.
TSR line illustrates the total shareholder return on page 29. Stock option grant date target value information for 2013, 2014our common stock during the period from December 31, 2012 through December 31, 2017, assuming $100 was invested at the end of fiscal 2012 and 2015 is contained in the 2013, 2014 and 2015 Grantsassuming reinvestment of Plan-Based Awards Tables. The grant date target value for RSUs in the above chart is defined as the market price of our Common Stock on the grant date times the number of RSUs subject to the award.dividends.
The informationAdjusted EPS line illustrates our reported EPS as adjusted by our Compensation Committee for fiscal 2013 through fiscal 2017 to exclude certain non-operating adjustments. Our 2013 reported EPS of $1.22 was adjusted to exclude $27.5 million of pre-tax restructuring expenses and $3.5 million of pre-tax executive retirement expenses related to Mr. Lewis’ retirement as CEO. Our 2014 reported EPS of $1.39 was adjusted to exclude $17.0 million ofpre-tax restructuring expenses. Our reported EPS of $1.72 and $1.20 in 2015 and 2016, respectively, were not adjusted from GAAP. (See our GAAP to non-GAAP reconciliation for 2017 Adjusted EPS for the Compensation Value as ofyear ended December 31, 2015 columns above for each of 2013, 2014 and 2015 illustrates actual compensation realized or still realizable based on the price of our stock on December 31, 2015 and reflects: base salary earned2017 in each of these years; actualAppendix A). For comparability, Mr. Cannon’s pro-rated 2017 AIP compensationpayment has been annualized.
19
| 16 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION DISCUSSION AND ANALYSIS |
| |
Other Key Compensation Practices
We believe we engage in best practice executive compensation policies and programs:
 |  |
| What we do | ||
| ✓ | Independent Compensation Committee. The Compensation Committee is made up of all independent directors. | |
| ✓ | Independent Compensation Committee Advisor. The Compensation Committee engaged its own independent compensation consultant to assist with the design of the 2017 compensation program. | |
| ✓ | Annual Executive Compensation Review. The Compensation Committee conducts an annual review of compensation for our executive officers and a review of compensation-related risks. | |
| ✓ | Compensation At-Risk. The executive compensation program is designed so that a significant portion of executive annual compensation is “at risk” to align the interests of our NEOs and our shareholders. For 2017 AIP achievement for NEOs was 92% of target based on the challenging goals set by our Compensation Committee. | |
| ✓ | Mixed Performance-Based Incentives and Incentive Caps. Our executive compensation program utilizes a mix of performance-based cash incentives (short-term) and time- and performance-based equity incentives (long-term) having different performance-based metrics. We also cap maximum annual performance-based cash incentives at 200% of the payout target and performance-based equity compensation at 200% of the payout target for the Performance Grant, as discussed below. | |
| ✓ | Multi-Year Vesting Requirements. The performance-based equity awards granted to the executive officers vest or are earned over a three-year period, consistent with current market practice and our retention objectives. | |
| ✓ | Clawback Policy. We adopted a clawback policy with respect to cash incentive awards that requires that such awards be repaid to the Company in the event of certain acts of misconduct or gross negligence. | |
| ✓ | Stock Ownership Guidelines. We maintain stock ownership guidelines for our directors and our executive officers. Within five years of joining the Company, directors and executive officers are required to hold shares of the Company’s common stock or in the money options equal to or greater than four times the director’s annual board retainer (greater than or equal to one times salary for executive officers, other than the CEO). The CEO is required to hold vested shares of the Company’s common stock equal to or greater than three times the CEO’s annual salary. | |
| What we don’t do | ||
× | Limited Perquisites. We provide minimal perquisites and other personal benefits to the NEOs. | |
× | No “Golden Parachute” Tax Reimbursements. We do not provide any tax reimbursement payments (including “gross-ups”) on any tax liability that the NEOs might owe as a result of the application of Sections 280G or 4999 of the Internal Revenue Code (the “Code”). | |
× | Hedging and Pledging Prohibited. Employees may not hedge or pledge Company securities as collateral. | |
× | No Repricing of Underwater Options. Our plan prohibits the repricing of stock options or other downward adjustment in the option price of previously granted stock options (other than to reflect corporate transactions such as mergers). | |
× | No Stock Options Granted with an Exercise Price Less Than Fair Market Value. All stock options are granted with an exercise price at the closing price on the date of grant. | |
RSUs that vested during the period are reflected based on the value realized at the time of vesting.
| 2018 PROXY STATEMENT | FLIR | 17 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
The decreases in value illustrated in the chart for 2013, 2014Corporate Governance and 2015 reflect the change in value of compensation delivered each year between the time of delivery or grant date and December 31, 2015. For all three years, the actual annual incentive compensation earned was less than target. For 2014 and 2015, the decrease is largely due to the stock options granted in those years being under-water as of December 31, 2015.
As reflected in the foregoing table, unless the efforts of the Company translate into sustained long-term value creation for our shareholders, the CEO will not be able to fully realize the intended economic benefits of the equity awards granted to him.
“Say on Pay” VoteDecision-Making
The Compensation Committee seeks to align the objectives of our executive compensation program with the interests of our shareholders. In that respect, as part of its on-going review of the executive compensation programs, the Compensation Committee considered the approval by approximately 86% of the votes cast for our “say on pay” vote at our 2014 annual meeting of shareholders and determined that the executive compensation philosophy and compensation elements continued to be appropriate and did not make any changes to the executive compensation program in response to such shareholder vote.
Philosophy and Objectives of Compensation Programs
General Philosophy
We believe the totalOur executive compensation of our executive officers, including our NEOs, should support the following objectives:program is designed to:
To attractAttract and retain executive officers with the skills, experience and motivation to enable theachieve stated Company to achieve its stated objectives;
To provideProvide a mix of current, short-term and long-term compensation to achieve a balance between current income and long-term incentive opportunity and promote focus on both annual and multi-year business objectives;
To alignAlign total compensation with the performance commitmentsresults we make toseek for our shareholders, including, long-term growth in revenue and EPS;
To allowAllow executive officers who demonstrate consistent performance over a multi-year period to earn above-average compensation when we achieve above-average long-term performance;
IsBe affordable and appropriate in light of the Company’sour size, strategy and anticipated performance; and
IsBe straightforward and transparent in its design, so that shareholders and other interested parties can clearly understand all elements of our executive compensation programs, individually and in the aggregate.
Annual Process for Determining Executive OfficerThe Compensation
We evaluate Committee uses these principles to determine base salaries, annual cash incentives and long-term equity incentives. The Compensation Committee also considers our business objectives, the skills and experience of the executive, competitive practices and trends and corporate considerations, including the compensation plans and programs annually. In December 2014, Radford providedlevel of an executive officer relative to our other executive officers and affordability of the compensation overview presentationprogram. The Compensation Committee further considers the results of the annual advisory “say-on-pay” vote and shareholder feedback.
Impact of Shareholder Advisory Vote on 2017 Executive Compensation Program
In April 2017, we conducted a non-binding, advisory vote on the compensation of our NEOs, commonly referred to as a “say-on-pay” vote, at our Annual Meeting of Shareholders. Our shareholders approved the Compensation Committee. The presentation
20
contained a competitive pay analysis based on a methodology that included a reviewcompensation of Peer Group data, and evaluated the three major componentsNEOs, with over 96% of the votes cast in favor of our executive compensation program—base salary, annual incentive,program.
The Compensation Committee evaluated our executive compensation policies and long-term incentive, as well as the impact ofpractices throughout 2017 and determined we should retain our financial performance on executive compensation. This data was then integrated with other considerations such as relative compensation among the executive officers, overall Company performance in both absolute termsphilosophy and relative to the Peer Group, and the results achieved by each individual executive officer during the previous year. In February 2015, with the assistance of our human resources team, our CEO then made recommendations regarding base salary and target levels of annual incentive and long-term incentive compensation for each executive officer (other than himself) toobjectives from prior years. As a result, the Compensation Committee for its review and approval. The Compensation Committee independently reviewed the Peer Group data relatingdecided to our CEO’s compensation, the overall Company performance and the performance of our CEO to determine his base salary and target levels of annualmaintain an emphasis on incentive and long-term incentive compensation. Concurrently, our human resources team, Former CFO and CEO developed and recommended performance targets for the AIP to the Compensation Committee for its review and approval. The criteria for establishing these metrics included our anticipated financial performance for the year as measured by our internal budget, our long-term performance outlook as communicated to our shareholders, the Company’s recent and anticipated financial results, and consistency with historical practice.
We currently use similar metrics and similar plan design elements for the AIP compensation offered to our executive officers, including our NEOs, as we use for the rest of our employees. While the amount of compensation that is at risk for performance varies among employee groups, all ofrewards our annual incentive pools are determined based on achievement of target levels of earnings and revenue, and operating cash flow as a percentage of net income. We believe earnings and revenue (and their annual growth rates), and cash flow are important performance metricsmost senior executives when they deliver value for our shareholders and, weigh heavily in determiningexcept as noted above, made no significant changes to our executive compensation program. However, after soliciting the input of several of our shareholders during meetings with representatives of our Compensation Committee, the Compensation Committee did reduce the grant date value of our common stock.
In 2015, the LTIPtime-based equity awards in favor of performance-based equity awards to further align executive compensation vehicles granted to the NEOs consisted of time-based stock options, time-based RSUs and market-based RSUs (as discussed on page 24).
We believe this approach to short-term and long-term compensation offers appropriate incentives to our NEOs who are most able to impact our long-term success, while aligning the objectives of all of our employees with those of our shareholders. The Compensation Committee periodically reviews this approach to evaluate whether it remains consistent with the interests of our shareholders.
DefiningConsistent with the Market—recommendation of the Board of Directors and the approval of our shareholders in connection with the advisory vote on the frequency of future say-on-pay votes conducted at our 2017 Annual Meeting of Shareholders, the Board of Directors has adopted a policy providing for annual advisory vote on the compensation of our NEOs because it will allow our shareholders to provide us with timely input on the compensation of our NEOs.
Fiscal 2017 Peer Group
The Compensation Committee, in collaborationconsultation with management and from Aon Hewitt’s technology compensation consulting group, Radford reviews and approves the group of public companies against whom we benchmark compensation for(“Radford”), compares our executive officers, includingcompensation program with compensation paid by a peer group consisting of a broad range of high-technology companies whose businesses are similar to ours and with which we typically compete for executive talent.
For our NEOs2017 peer group (the “Peer“2017 Peer Group”). Our Peer Group consists of United States-based, we considered publicly-traded companies of similar size (based on revenues, employee size and market capitalization) and in the test and measurement and sensor systems industries. The Compensation Committee and RadfordEach of the companies below met most, if not all, of these criteria. We also quantitativelyqualitatively evaluated each comparison company2017 Peer Group member based on its business focus and corporate strategy and ultimately selected companies most similar to FLIRus with regards to business focus and financial profile.
After reviewing our Peer Group in September 2016, the Compensation Committee did not make any changes to the Peer Group, other than the removal of Woodward given its dissimilar business and industry profile. The tables below set forth our 2017 Peer Group.
Fiscal 2017 Peer Group
| AMETEK | KLA-Tencor | Perkin Elmer | Trimble | |||
| Bio-Rad Laboratories | Lam Research | Rockwell Collins | Viavi Solutions (formerly JDSU) | |||
| Curtiss Wright | MKS Instruments | Roper Technologies | Waters Corporation | |||
| Esterline Technologies | Moog | Teledyne Technologies | ||||
| FEI Company | OSI Systems | Teradyne |
| 18 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION DISCUSSION AND ANALYSIS | | |
Based on data compiled by Radford in September 2016, the below chart illustrates our positioning versus our 2017 Peer Group in relation to our employee size, revenues, net income, gross margin and market capitalization.
Radford provided data for our 2017 Peer Group on base salary, annual cash incentive opportunities, long-term equity incentives, and annual total direct compensation. Radford supplemented the 2017 Peer Group data with data from the Radford Global Technology Survey. The survey data was blended equally with the 2017 Peer Group data, where possible, to create our comparison group (the “2017 Comparator Group”). The Compensation Committee, uses Peer Group compensationin consultation with management, used this data to benchmark each element of executive officer’s TTC againstassess the compensation levels paid by the 2017 Comparator Group and the levels paid at approximately the 50th percentile of the comparable executives in the Peer2017 Comparator Group. However, theThe Compensation Committee retains the discretion to set any element of an executive officer’s TTCcompensation outside the 50th percentile benchmarkthis targeted level based on such factors as it deems appropriate including, but not limited to, the experience and responsibilities of such executive officer, the expected future contribution of each executive officer, the overall mix of base salary and short-term and long-term incentives being offered to the executive, internal pay equity based on the impact on the business and performance, retention and such other individual and business factors that may be relevant to an executive officer.
After reviewingRole of Compensation Committee
The Compensation Committee has a written charter approved by the Board that specifies the Compensation Committee’s duties and responsibilities, which is available on our Peerwebsite at: www.flir.com/investor/governance/Committee Charters. In accordance with its charter, the Compensation Committee is responsible for all compensation for our executive officers. In discharging this responsibility, the Compensation Committee annually:
reviews and establishes our compensation strategy to ensure that our executive officers are rewarded appropriately for their contributions to our growth and profitability,
reviews and establishes performance goals and objectives with respect to the compensation of our Chief Executive Officer and other executive officers, and
evaluates the performance of the Chief Executive Officer, and reviews the Chief Executive Officer’s evaluation of our other executive officers and in conjunction with the Corporate Governance Committee of the Board reviews and establishes the compensation of the Board.
Each member of the Compensation Committee has been determined to be independent under rules and regulations issued by Nasdaq, the SEC and the Internal Revenue Service.
Role of Compensation Consultant
The Compensation Committee has the authority to engage independent advisors to assist it in carrying out its responsibilities. For 2017, the Compensation Committee engaged Radford as its independent executive compensation consultant. Radford reports directly to the Compensation Committee and not to management. The Compensation Committee assessed the independence of Radford pursuant to Nasdaq and SEC rules and concluded that the work Radford performed for the Compensation Committee did not raise any conflict of interest. Radford provides the Compensation Committee with an annual update of its services and related fees. Radford’s aggregate fees rendered for consulting services for the Compensation Committee in 2017 were $87,416.
Company management separately engages Radford for compensation surveys to benchmark non-executive officer employee compensation and also engages the Radford affiliate, Aon Risk Services, for risk related insurance products, such as property and casualty insurance and director and officer liability insurance. Neither of these engagements is approved by the Compensation Committee. The fees paid in aggregate by the Company to Radford and Aon Risk Services for all other services excluding Compensation Committee consulting services, totaled $219,475.
Role of Management
The Chief Executive Officer, with the assistance of other members of our management team and our human resources team, works closely with the Compensation Committee in determining the compensation of the other executive officers, including our other NEOs. Each year, the Chief Executive Officer reviews the performance of the other executive officers for the previous year, and then shares these evaluations with, and, with the assistance of our human resources team, makes recommendations to the Compensation Committee for each element of compensation. These recommendations concern the base salary, annual incentive compensation, and long-term equity incentives for
| 2018 PROXY STATEMENT | FLIR | 19 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
each executive officer (other than himself) based on our financial results from the previous fiscal year and the individual executive officer’s contribution to these results and to our Company. The Compensation Committee then reviews these recommendations and considers the other factors described above and makes decisions as to each individual compensation element for the executive officers. The Chief Executive Officer, in collaboration with our Chief Financial Officer and other members of management, also assists the Compensation Committee with the identification of performance objectives for the AIP and long-term equity incentive program.
For 2017, Mr. Teich performed the Chief Executive Officer functions described above until the appointment of Mr. Cannon as CEO who provided these functions for the remainder of 2017.
Certain executive officers attend Compensation Committee meetings at the invitation of the Compensation Committee. No executive officer attends an executive session at which the executive officer’s compensation is determined.
Components of our Executive Compensation Program
Our executive compensation program consists of the following four primary components:
Compensation Component | Purpose | |||
Base Salary | To compensate our executive officers for their day-to-day efforts based on demonstrated experience, competencies, and performance. | |||
Annual Cash Incentives | To motivate and reward achievement of our annual strategic goals only if we achieve our short-term goals, consistent with our “pay-for-performance” philosophy. | |||
Long-Term Equity Incentives | To align our executive officers’ interests with the long-term interests of our shareholders and to achieve our retention objectives through multi-year vesting requirements and through performance-based vesting requirements linked to our long-term strategic goals. | |||
Benefits (including post-employment compensation arrangements) | To retain our executive officers and reduce the degree to which the possible loss of employment might affect our executives’ willingness to take risks or enter into strategic relationships and transactions that, while potentially beneficial to our shareholders, might result in the termination of the executive’s employment. |
We believe that each individual component is useful in achieving one or more of the objectives of our executive compensation program and that together, these components are effective in achieving our overall objectives.
In 2017, certain of our NEOs received one-time recruitment or promotion bonuses in the form of cash and/or equity compensation. In the case of new-hire NEOs, these bonuses were designed to recruit them to our Company and compensate them for compensation opportunities they forfeited at their prior employer. In the case of promoted NEOs, these bonuses were designed to provide additional incentives and recognize their increased responsibilities with us.
Compensation Setting and Elements of Compensation
At the beginning of 2017, the Compensation Committee evaluated the annual total direct compensation - annual base salary, annual cash incentives and long-term equity incentive - for each of our executive officers, including our NEOs, who was employed with us at the time. In determining these NEOs’ targeted annual total direct compensation, the Compensation Committee considered, among other factors,
each element of compensation, the compensation package as a whole and compensation levels at our peer companies for comparable positions, as well as the impact of our financial performance on executive compensation. The Compensation Committee targeted the approximately 50th percentile of the 2017 Comparator Group for each component of each of these NEO’s annual total direct compensation (base salary, annual cash incentives, and time-based and performance-based equity grants). Additionally, due to the uncertainty created by our active CEO search in early 2017, the Compensation Committee took into account longer-term retention incentives in the form of performance-based restricted stock designed to increase the retention value of equity incentives during the period of transition to our new CEO. For further details, see the “Long-term Incentive Program” section of this Compensation Discussion and Analysis.
We believe that this design allows us to meet the objectives of our executive compensation program, including attracting and retaining talented executives in a highly competitive market, while retaining flexibility to tailor compensation based on individual circumstances.
| 20 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION DISCUSSION AND ANALYSIS | | |
The Compensation Committee retained the discretion to set any element of an NEO’s compensation outside the applicable target percentiles based on such factors as it deemed appropriate including, but not limited to, the experience and responsibilities of such NEO, the expected future contribution of the applicable NEO, the overall mix of base salary and short-term and long-term incentives being offered to the NEO, internal pay equity based on the impact on the business and performance, retention and such other individual and business factors that may be relevant to the NEO.
In connection with the hiring of our new CEO and new CFO in 2017, the Compensation Committee negotiated and approved compensation packages for each of them that the Compensation Committee believed were necessary to recruit each of them and appropriate for providing incentive for each to remain with the Company to grow our business. In setting compensation, the Compensation Committee reviewed the Radford market data for comparable positions, other factors described in the paragraph above, and the compensation opportunities available to each of them at his and her existing employer, respectively.
Base Salary
We provide base salary to compensate our executive officers, including our NEOs, for their day-to-day efforts based on demonstrated experience, competencies and performance. In the first quarter of 2017 the Compensation Committee made market-based increases to the base salaries of each of our NEOs based on the data provided by Radford at that time regarding market positioning of each NEO’s annual base salary and the recommendations of Mr. Teich (except with respect to his own base salary), in recognition of each executive officer’s strong performance as well as the other factors described above under the “Compensation Setting and Elements of Compensation” section of this report.
The base salaries for our new CEO and new CFO were negotiated in 2017 as part of his or her new-hire package. In setting the base salary as part of these negotiations, the Compensation Committee considered the data provided by Radford regarding market positioning, the respective base salary of each NEO while employed by his or her respective former employer, as well as the other factors described above under the “Compensation Setting and Elements of Compensation” section of this report.
The base salary for Mr. Merrill was increased by the Compensation Committee in October 2014,2017, in anticipation of the planned change in operational structure for 2018. In deciding the appropriate base salary increase, the Compensation Committee reviewed market salary data provided by Radford regarding the responsibilities Mr. Merrill would assume in his new position.
The 2017 base salary decisions generally placed each NEO’s base salary at approximately the 50th percentile of the 2017
Comparator Group, except as described in this paragraph. The base salary our CEO negotiated as part of his new hire package was below the 50th percentile of the 2017 Comparator Group, which was determined as part of his overall package taking into consideration his role with his former employer and his experience. The base salary our CFO negotiated as part of her new hire package was in the upper quartile of the 2017 Comparator Group, which we believed was important for recruiting her to the Company from her prior employer in light of her compensation opportunities with that employer.
Except as noted in the footnotes to the chart below, the base salaries for 2017 were effective as of February 18, 2017. The chart below summarizes the base salaries of our NEOs for 2017:
2017 Base Salary
NEO | 2016 Salary | 2017 Salary | Percentage Change | |||||||||
James J. Cannon(1) | -- | $ | 725,000 | -- | ||||||||
Carol P. Lowe(1) | -- | $ | 650,000 | -- | ||||||||
Todd M. DuChene | $ | 411,100 | $ | 422,400 | 2.75 | % | ||||||
Jeffrey D. Frank | $ | 329,600 | $ | 338,700 | 2.75 | % | ||||||
Travis D. Merrill(2) | $ | 304,500 | $ | 400,000 | 31.4 | % | ||||||
Andrew C. Teich | $ | 839,500 | $ | 862,600 | 2.75 | % | ||||||
Shane R. Harrison | $ | 273,000 | $ | 282,600 | 3.50 | % | ||||||
Amit Singhi | $ | 432,200 | $ | 441,000 | 2.75 | % | ||||||
Thomas A. Surran | $ | 504,700 | $ | 518,600 | 2.75 | % | ||||||
| (1) | The base salaries of our CEO and CFO were effective on the date they commenced employment with us. |
| (2) | Mr. Merrill’s base salary was increased 3.5% to $315,900, effective February 18, 2017. He subsequently received an additional increase to his base salary to $400,000, effective September 2, 2017, in anticipation of his appointment as President, Commercial Business Unit upon the implementation of the Company’s new operational structure. |
The base salaries paid to the NEOs during 2017 are set forth in the “Summary Compensation Table.”
Annual Incentive Compensation
We use annual incentive compensation in the form of cash incentives to motivate and reward achievement of annual strategic goals and to better align the executive officer, including our NEOs, interests with shareholders’ interest by promoting strong, annual financial and business results. These cash incentive opportunities are granted under our 2017 AIP pursuant to our Amended and Restated 2012 Executive Bonus Plan that was initially approved by our shareholders in 2012 and re-approved by our shareholders in 2017 (the “Bonus Plan”).
| 2018 PROXY STATEMENT | FLIR | 21 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
The 2017 AIP covers all employees that are not eligible for sales incentives or profit sharing. The 2017 AIP is designed to pay cash incentives based on our achieving pre-established financial objectives intended to incentivize management to drive strong operating performance, invest in innovation to drive future growth and create shareholder value. For our executive officers who were employed with us in the first quarter of 2017, including Messrs. DuChene, Frank, Merrill, Teich, and Harrison, these cash incentive opportunities granted under our Bonus Plan were intended to qualify as “performance-based” compensation under Section 162(m) of the Code. The cash incentive earned by our new CEO pursuant to the AIP for 2017 exceeded the amount guaranteed in his employment agreement and is partially “performance-based” compensation under Section 162(m) of the Code. Due to recent changes in the tax code to repeal this “performance based” compensation exception effective December 31, 2017 and the uncertainties regarding certain provisions of this repeal, there are no assurances these AIP bonuses will qualify as being fully deductible.
Target Cash Incentive Opportunities
Target cash incentive opportunities for each of our executive officers, including our NEOs, are expressed as a percentage of base salary. In the first quarter of 2017, the Compensation Committee reviewed the 2016 target cash incentive opportunities of each NEO, taking into consideration cash incentive data provided by Radford pursuant to a competitive market analysis and the recommendations of Mr. Teich (except with respect to his own target cash incentive opportunity), as well as the other factors described above under the “Compensation Setting and Elements of Compensation” section of this report. We set each of these NEO’s target cash incentive opportunity at a level that, when considered with his or her base salary, was market competitive and provided appropriate motivational and retention incentives to drive long-term Company financial objectives.
The Compensation Committee did not make any changes to the Peertarget cash incentive opportunities for any of these NEOs in 2017 as it believed the 2016 cash incentive opportunities provided were market-competitive and designed to motivate and reward achievement of established financial objectives. The 2017 target cash incentive opportunities established at that time for the NEOs were between the 50th and 75th percentiles of the 2017 Comparator Group.
21
The 2015 Peer Group was as follows: (1) AMETEK, (2) Bio-Rad Laboratories, (3) Curtiss Wright, (4) Esterline Technologies, (5) FEI Company, (6) JDS Uniphase, (7) KLA-Tencor, (8) Lam Research, (9) MKS Instruments, (10) Moog, (11) OSI Systems, (12) Perkin Elmer, Inc., (13) Rockwell Collins, (14) Roper Industries, Inc., (15) Teledyne Technologies, (16) Teradyne, (17) Trimble Navigation, (18) Waters,target cash incentives for our new CEO and (19) Woodward.
Based onnew CFO were negotiated in connection with their hiring and approved by the Compensation Committee after it considered the competitive market data compiledprovided by Radford, in 2014, the Company was belowtarget cash incentive opportunities at their former employer, and the median ofother factors described above under the Peer Group based on employee size (7th percentile), below the median of the Peer Group based on trailing 12 month revenues (16th percentile), below the Peer Group median based on trailing 12 month net income (32nd percentile), and above the Peer Group median with respect to market capitalization (58th percentile).
Compensation Design“Compensation Setting and Elements of CompensationCompensation” section of this report.
We have designed our executive compensation plans to reward achievement
The target cash incentive opportunities of superior financial results, as measured primarily by growth in EPS both annually and over multi-year periods. If we meet our objectives, which reflect superior results comparedthe NEOs for 2017 were:
2017 Target Cash Incentives & Actual Payments Received
NEO | Percent of Base Salary | 2017 AIP Target | 2017 AIP Actual | |||||||||
James J. Cannon (1) | 100 | % | $ | 389,315 | $ | 357,115 | ||||||
Carol P. Lowe (2) | 85 | % | 0 | 0 | ||||||||
Todd M. DuChene | 75 | % | 316,800 | 290,600 | ||||||||
Jeffrey D. Frank | 60 | % | 203,200 | 186,400 | ||||||||
Travis D. Merrill (3) | 60 | % | 240,000 | 220,200 | ||||||||
Andrew C. Teich (4) | 110 | % | 948,900 | 632,600 | ||||||||
Amit Singhi (5) | 80 | % | 355,300 | 0 | ||||||||
Shane R. Harrison | 60 | % | 169,560 | 155,600 | ||||||||
Thomas A. Surran (6) | 80 | % | 414,900 | 414,900 | ||||||||
| (1) | The 2017 target cash incentive opportunity shown for our CEO is pro-rated based on the number of days employed during 2017, provided that Mr. Cannon is guaranteed a minimum incentive payment for 2017 of $350,000. |
| (2) | Ms. Lowe was not eligible for our 2017 AIP due to employment start date. |
| (3) | In connection with his appointment to President of our Commercial Business Unit and related base salary increase, Mr. Merrill’s target cash incentive opportunity was increased from $189,100 to $240,000. |
| (4) | In connection with his resignation in 2017, Mr. Teich’s 2017 cash incentive amount is guaranteed at target and pro-rated based on the number of days in which he served as chief executive officer during 2017. |
| (5) | In connection with his termination of employment in 2017, Mr. Singhi forfeited his right to receive any 2017 AIP bonus. |
| (6) | Mr. Surran entered into a separation agreement and release that provided for the payment of Mr. Surran’s target cash incentive opportunity to be paid along with one-year’s base salary in 26 equal installments during the year following his termination date. |
The annual incentive payments made to the marketNEOs for 2017 are also set forth in the “Summary Compensation Table,” which appears later on in this report.
| 22 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION DISCUSSION AND ANALYSIS | | |
In addition to the above, the maximum cash incentive that any executive officer who was employed with us at the beginning of 2017, including Messrs. DuChene, Frank, Merrill, and our Peer Group,Harrison, could achieve in 2017 was equal to 0.5% of 2017 net earnings used to calculate Adjusted EPS for purposes of the 2017 AIP.
The Compensation Committee, with input from management, approved the following performance metrics and relative weightings under the 2017 AIP applicable to our executive officers, including our NEOs, generally will earn compensation at or aboveNEOs:
These performance metrics are similar to the 50th percentile of comparable executives inperformance metrics for the Peer Group. Failure2016 annual incentive plan, except that the 2017 AIP removed a metric related to achieve targeted results will significantly reduce our executive officers’ total realized compensation, because a significant portion of our executive officers’ pay is in“bookings” which the form of (i) short-term incentives that are based on achieving a target growth in EPSCompensation Committee determined too closely resembled the revenue metric and revenue, and our ratio of cash flow from operations to net income and (ii) long-term incentives that include market-based RSUs that are based on achieving TSR in excess of the 60th percentile of the S&P 500. was redundant.
We believe this pay-for-performance philosophy motivates ourthese performance metrics incented executive officers, including our NEOs, to perform atachieve the level necessaryfinancial, business, and strategic objectives reflected in our 2017 operating plan and were appropriately linked to meet the Company’s objectives and helps attract and retain the talent needed to meetinterests of our goals.shareholders.
Base SalaryAIP Formula
Performance Metric | Description of Performance Metric | |||
Adjusted EPS | The Adjusted EPS target is approximately 12% higher than our 2016 Adjusted EPS. The incentive amount payable with respect to this metric is increased or decreased, as the case may be, by 10% for every 1% increase or decrease in actual Adjusted EPS versus the target, provided that the amount payable is zero if Actual 2017 Company Adjusted EPS is less than Actual 2016 Company Adjusted EPS. | |||
Revenue | Revenue is a GAAP measure that is reported in our Annual Report on Form 10-K for the fiscal year end December 31, 2017. The revenue target established was approximately 10% greater than the actual Company revenue for 2016. The incentive amount payable with respect to this metric is increased or decreased, as the case may be, by 10% for every 1% increase or decrease in actual revenue versus the target, provided that the amount payable is zero when actual Company revenue for 2017 is less than the actual Company revenue for 2016. | |||
Adjusted Operating Cash Flow | Adjusted Operating Cash Flow is calculated as cash flows from operations in accordance with GAAP and adjusted for certain cash payments for specific items approved by the Compensation Committee. For 2017, the adjustment was $15.2 million and included cash payments associated with the Belgian State Aid tax matter, executive transition costs, acquisition related costs, and cash paid for restructuring activities during the year. The operating cash flow target is approximately 3% greater than the actual operating cash flow achievement in 2016. For every 1% increase or decrease in operating cash flow versus the target, the multiplier increases or decreases, as applicable, by 10%, provided that the multiplier is zero when operating cash flow is less than the operating cash flow achievement in 2016. |
| 2018 PROXY STATEMENT | FLIR | 23 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
The table below sets forth the threshold, target, and maximum levels of each performance metric, as well as the multiplier that would be applied to the portion of the eligible cash incentive upon achievement of this performance metric.
2017 Annual Incentive Plan Matrix
| Threshold 0% Funding | Target100% Funding | Maximum 200% Funding | ||||||||||
Adjusted EPS | $ | 1.71 or less | $ | 1.90 | $ | 2.09 or greater | ||||||
Revenue | $ | 1.662 billion or less | $ | 1.821 billion | $ | 2.003 billion or greater | ||||||
Adjusted Operating Cash Flow | $ | 312.3 million or less | $ | 322.7 million | $ | 355.0 million or greater | ||||||
AIP Award Decisions
In establishing base salary levels for our executive officers,February 2018, the Compensation Committee benchmarks the base salary for each executive officer, including our NEOs,assessed performance against the 50th percentile of comparable executives ofperformance metrics under the Peer Group. For some executive officers, there can be rather wide dispersion around the mean of compensation as between companies in the Peer Group and in the larger market in general. The Compensation Committee retains discretion to set each executive officer’s base salary at a level other than the benchmarked percentile after considering such factors it deems relevant, including the overall level of responsibility the executive officer, the importance of his role, and the experience, expertise and specific performance of the executive officer. For newly-promoted executive officers, including our NEOs, we expect the base salaries to be between the 25th and 50th percentiles, as was the case for Mr. Muessle who served as Interim CFO during 2015. We consider current base salary levels for each of our executive officers, including our NEOs, to be consistent with these criteria. The base salary of Mr. Teich was increased by 10.3% from $739,000 to $815,000, effective February 2015. After this increase, Mr. Teich’s base salary is at the 50th percentile of the Peer Group chief executive officers. The base salary of our COO, Mr. Surran was increased by 8.9% from $450,000 to $490,000. After this increase, Mr. Surran’s base salary was at the 50th percentile of the Peer Group chief operating officers. All other NEOs’ base salaries are determined annually by the Compensation Committee in consultation with Radford and with input from our CEO. In 2015, this resulted in 3% increases for each of the other NEOs (other than Mr. Singhi). Mr. Singhi, who was hired in August 2015, received a starting base salary of $425,000 which was slightly below the 50th percentile of comparable executives in the Peer Group and took into consideration his previous base salary, his extensive experience as a finance executive and the Compensation Committee’s desire to place a greater portion of his TTC in the form of equity awards tied to Company performance and his continued employment.
Annual Incentive Plan
Our annual incentive plan covers virtually all United States employees that are not eligible for sales incentives and all employees outside of the United States that are not eligible for sales incentives, profit sharing or other individual incentives.
22
For our executive officers, including our NEOs, this program awards annual cash incentive compensation based upon achievement against pre-established targets. The AIP target award levels for each NEO approximated the 50th percentile of comparable executives in the Peer Group, other than Mr. Muessle reflecting his Interim CFO status. The 2015 AIP target percentage for Mr. Frank was increased from 50% to 60% of his base salary to better align with comparable executives in the Peer Group. Target percentages for our other NEOs were unchanged and ranged from 75% to 105% of base salary, consistent with the Peer Group. Mr. Singhi’s 2015 AIP target award was prorated based on his hire date in August 2015. Based on our performance and our compensation objectives, the Compensation Committee determined that these target award levels were appropriate. While we compare our specific AIP targets against the Peer Group on a position by position basis, we also evaluate the overall mix of base salaries, short-term and long-term incentive compensation using the Peer Group data to determine whether to make any appropriate adjustments from the 50th percentile benchmark.
The 2015 AIP funding was based on achievement of reported EPS and revenue, and our ratio of cash flow from operations to net income. For the Company, growth in EPS and revenue, and cash flow from operations are believed to be critical performance measures. Under the AIP, if we achieved the EPS, revenue, and operating cash flow targets, the 2015AIP pool would equal 100% of the target incentive awards for all executive officers, including our NEOs. Each metric was measured separately and weighted as follows: EPS—50%, revenue and cash flow from operation—25% each. For the EPS metric, with each $0.01 variance above or below target EPS, the AIP pool for NEOs was increased or decreased by 5.9%. The EPS target for 2015 was $1.67, representing a 13% increase over our adjusted EPS of $1.48 in 2014. For the revenue metric, with each $10,000,000 variance above or below the target revenue, the AIP pool for NEOs was increased or decreased by 6.3%. The revenue target for 2015 was $1.580 billion, representing a 3% increase over our revenue of $1.531 billion in 2014. For the cash flow from operations metric, we calculated the ratio of cash flow from operations to net income. Our target was set so that for cash from operations equal to 150% of net income, this metric would fund at 100%. For each 1% variance above or below 150%, the funding for this metric was increased or decreased by 2%.
2017 AIP. The table below illustrates the formula for measuring achievement against each metric and our actual achievement under the 20152017 AIP.
2015 Annual Incentive Plan2017 AIP Officer Matrix
| Below Threshold | Threshold | Target | Maximum | Actual | Payout | Weighting | Weighted Payout | Achievement | Funding Percentage Achieved | Weighting | Weighted Payout | |||||||||||||||||||||
EPS | $1.50 or Below | $1.51 | $1.67 | $1.84 | $1.72 | 129.4% | 50% | 64.7% | ||||||||||||||||||||||||
Adjusted EPS | $ | 1.88 | 89 | % | 50 | % | 44.7 | % | ||||||||||||||||||||||||
Revenue | $1.422B or Below | $1.423B | $1.580B | $1.738B | $1.557B | 85.5% | 25% | 21.4% | $ | 1.800 billion | 89 | % | 30 | % | 26.7 | % | ||||||||||||||||
Cash Flow from Operations | 100% or Below | 101% | 150% | 200% | 114%(1) | 28.0% | 25% | 7.0% | ||||||||||||||||||||||||
Adjusted Operating Cash Flow | $ | 323.2 million | 102 | % | 20 | % | 20.3 | % | ||||||||||||||||||||||||
AIP Payout | No payout | 4% of target | 100% of target | 200% of target | 93.1% of target | 91.7 | % | |||||||||||||||||||||||||
The incentive payments to our executive officers, including our NEOs, and the non-executive employee pools have fluctuated from year-to-year in relation to our performance relative to our targets. The chart below details the past five years of AIP targets, actual results and payouts as a percentage of the target awards. We believe that the AIP results illustrate our pay-for-performance philosophy.
23
Annual Incentive Plan Historical Targets and ResultsPayouts
Year | EPS | Revenue (in millions) | Cash Flow from Operations to Net Income | Discretionary | Payout as Percent of Target | |||||||||||||||||||||||||||||||||||
| Target | Actual(1) | Target | Actual | Target | Actual | Target | Actual | Payout as Percent of Target | ||||||||||||||||||||||||||||||||
2011 | $ | 1.69 | $ | 1.55 | $ | 1,593 | $ | 1,544 | n/a | n/a | n/a | n/a | 53 | % | ||||||||||||||||||||||||||
2012 | 1.65 | 1.45 | 1,600 | 1,405 | n/a | n/a | n/a | n/a | — | % | ||||||||||||||||||||||||||||||
2013 | 1.65 | 1.37 | n/a | n/a | 115 | % | 201 | % | 100 | % | 50 | % | 58 | % | 58 | % | ||||||||||||||||||||||||
2014 | 1.47 | 1.48 | 1,541 | 1,531 | 150 | % | 113 | % | 100 | % | 100 | % | 91 | % | 91 | % | ||||||||||||||||||||||||
2015 | 1.67 | 1.72 | 1,580 | 1,557 | 150 | % | 114 | % | n/a | n/a | 93 | % | 93 | % | ||||||||||||||||||||||||||
2016 | 48 | % | ||||||||||||||||||||||||||||||||||||||
2017 | 92 | % | ||||||||||||||||||||||||||||||||||||||
Long-Term Incentive Program
We believe sustaineduse long-term growth in our share price, achieved through growing revenue and EPS, is the primary responsibility of our NEOs. Long-term incentives in the form of stock options, time-based RSUs, market-basedand performance-based RSUs or other equity instruments are considered by the Compensation Committee to be an appropriate wayincentivize management to linkbuild long-term growth in our business thereby linking the interests of management and shareholders, and to incent management to achieve this objective. Therefore, weour shareholders. Historically, equity awards have consistently used such instruments asrepresented an integral part of our executive compensation programs,program, and the
largest single component of each NEO’s TTC.executive officer’s annual total direct compensation. Over the past several years, we issued stock-based compensationequity awards annually following our annual meeting of shareholders. Pursuant to our Equity Granting Policy, annual equity awards to executive officers, including NEOs, are made on the second trading day after the first public announcement of earnings following Compensation Committee grant approval. We have not granted, nor do we intend to grant, equity awards in anticipation of the release of material, nonpublic information that is likely to result in changes to the price of our common stock, such as a significant positive or negative earnings announcement.
Structure of Company Long-Term Equity Incentive Program.
The Compensation Committee has designed long-term compensation utilizing time-based equity awards that vest annually and performance-based equity awards that cliff vest only upon Company achievement of pre-determined financial results.
Structure of 2017 Long-Term Equity Incentive Program.
In 2017, the Compensation Committee, Charterwith input from Radford, modified the structure of our long-term equity incentive program to place a greater emphasis on performance-based equity awards for our executive officers, including our NEOs, by including performance-based equity awards as a core component of our 2017 long-term equity
| 24 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION DISCUSSION AND ANALYSIS | | |
incentive program and did not provide for an “overlay program” composed of performance-based equity awards as in past years. The Compensation Committee believed that this approach was consistent with market practices and our pay-for-performance compensation philosophy and was responsive to feedback solicited by the Compensation Committee from key shareholders.
The 2017 long-term equity incentive program for our NEOs (other than Mr. Teich) consists of three parts:
| (1) | Time-based stock options weighted 25% that generally vest annually over three years; |
| (2) | Time-based RSUs weighted 25% that generally vest annually over three years; and |
| (2) | Performance-based RSUs weighted 50% at target that vest based on adjusted operating margin over a three-year performance period. |
The Compensation Committee believes that a mix of stock options and full-value awards is important for reducing the risk of options during turbulent economic times and remaining competitive with the group of companies to which we compare our compensation and other comparable high-growth technology companies with which we compete for talent, most of whom offer full-value awards as a central piece of their executive equity compensation program.
The Compensation Committee also believes that granting performance-based equity offers an economically efficient way to further enhance the alignment between the interests of our shareholders and our executive officers, including our NEOs, because the amount that each NEO ultimately realizes from the award depends on the executive officer’s ability to (i) contribute to the successful execution of long-term financial objectives and (ii) achieve those objectives in a manner that is reflected in the actual value of the shares that are earned under the award.
The metrics used for the performance RSUs are different from the metrics used in the AIP in an effort to provide financial incentives for our executive officers, including our NEOs, to grow various components of our business. The Compensation Committee believes the use of adjusted operating margin for the performance-based RSUs reinforced the emphasis on providing incentives for our executives to enhance business processes and improve execution in an effort to create sustainable long-term shareholder value.
Mr. Teich only received a time-based RSU award in 2017, which the Compensation Committee believed was appropriate in light of his retirement announcement in early 2017.
Size of 2017 Long-Term Equity Incentives.
In determining the size of the 2017 long-term equity incentives for each of our NEOs who were employed with us at the beginning of 2017, the Compensation Committee considered a competitive market analysis performed by Radford and the Equity Granting Policy, we expectrecommendations of Mr. Teich (except with respect to continue to make annual grants inhis own long-term equity incentives), as well as the future.other factors described above under the “Compensation Setting and Elements of Compensation” of this report.
Our 2015 LTIP has two components. The first LTIP component includes grants whereFor the target value is established benchmarking to2017 long-term equity incentives of each of these NEOs (other than Mr. Teich), the Compensation Committee targeted the 50th percentile of the Peer2017 Comparator Group, (the “Base Grant)”. Forwhich the Base Grant,Compensation Committee believed provided the value is allocatedappropriate incentives for our business. As discussed above, we did not provide our executive officers with an “overlay program” as follows: 50% time-based RSUsin past years, and 50% stock options. The stock options and RSUs granted in 2015 vest atthis change decreased the ratesize of one third per year, subjectthe 2017 annual equity awards to our executive officers as compared to the size of the annual equity awards granted to these executive officer’s continued serviceofficers who were employed with us in 2016. The Compensation Committee believed the respective sizes of the 2017 annual equity awards were appropriate for achieving our objectives and in line with the competitive market and consistent with shareholder feedback.
For Mr. Teich, the Compensation Committee targeted 1/3 of the 50th percentile of the 2017 Comparator Group, which the Compensation Committee believed provided the appropriate incentives for Mr. Teich to remain with our business until a successor was appointed. Mr. Teich’s award vested monthly between the grant date and December 31, 2017.
In light of the Company’s active search for a new CEO in early 2017, the Compensation Committee determined that additional retention performance-based RSUs (“Retention PRSUs”) were in our best interest to ensure retention of the executive team. These Retention PRSUs are included in the table below under Retention Awards and vest as described in the “Performance RSUs” section below.
For our new CEO and new CFO, each of his or her long-term equity awards were negotiated in connection with his or her hiring and approved by the Compensation Committee after it considered the competitive market data provided by Radford, the long-term equity opportunities at each NEO’s former employer, and the other factors described above under the “Compensation Setting and Elements of Compensation” section of this report.
| 2018 PROXY STATEMENT | FLIR | 25 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
The values of the equity awards granted to the NEOs on April 28, 2017 (or in the applicable vesting date.case of our new CEO and new CFO on June 19, 2017 and November 27, 2017, respectively) were:
2017 Equity Awards
NEO | Annual Awards | Retention Awards | ||||||
James J. Cannon(1) | $ | 1,926,911 | $ | -- | ||||
Carol P. Lowe | $ | 2,500,000 | $ | -- | ||||
Todd M. DuChene | $ | 851,206 | $ | 250,000 | ||||
Jeffrey D. Frank | $ | 540,775 | $ | 250,000 | ||||
Travis Merrill | $ | 540,775 | $ | 250,000 | ||||
Andrew C. Teich | $ | 1,166,671 | $ | -- | ||||
Amit Singhi(2) | $ | 1,101,603 | $ | 350,000 | ||||
Shane R. Harrison | $ | 380,539 | $ | 250,000 | ||||
Thomas A. Surran | $ | 1,502,167 | $ | 500,000 | ||||
| (1) | Mr. Cannon’s annual award excludes his one-time RSU award of $3.2 million intended to compensate him for the loss of long-term equity grants from his previous employer which were forfeited when Mr. Cannon joined the Company. |
| (2) | The unvested portions of the equity awards held by Mr. Singhi were forfeited on the date his employment with us terminated in 2017. |
Performance RSUs
The second LTIP component, the 2015 TSR Program, is a market-based RSU award that provides the opportunity for executive officers to earn above market awards for above market performance. The market-basedperformance-based RSUs vest based on our relative TSR versus“adjusted operating margin” over the 60th Percentile Company of the S&P 500, as determined on the date of grant, forperformance period. The performance period is the three-year period beginning MayJanuary 1, 2015. Potential awards are capped at 200% of target. For our TSR calculation, the beginning2017 and ending values are an averageon December 31, 2019 (which may be truncated in the event of our 20 closing stock prices prior to the date of grant and the vesting date. To determine the 60th Percentile Company, we measure the TSR of all S&P 500 component companiesa corporate transaction as described below). For this purpose, “adjusted operating margin” is measured for each fiscal year of the date of grant usingperformance period, and then averaged to arrive at an achievement percentage.
Performance Metrics.For this purpose, “adjusted operating margin” is determined by applying the same methodology (20 closing stock prices prior tofollowing formula for each fiscal year during the date of grantperformance period:
| (1) | “Operating Income” means our income from operations, as determined under GAAP, adjusted for one-time events impacting GAAP and costs related to mergers, acquisitions and other non-ordinary course investment (whether or not consummated), and other costs and expenses excluded as non-recurring or not reflective of our core operations in accordance with the Company’s accounting policies. |
| (2) | “Revenue” means total revenues, as determined under GAAP and recorded in our audited financial statements and adjusted for non-ordinary events in accordance with our accounting policies and to exclude the financial impact of acquisitions in the fiscal year of the acquisition. |
Performance Formula.Following the vesting date). When our TSR is equal to the TSRend of the 60th Percentile Company, 100%first two years of the performance period, “adjusted operating margin” performance for the first years is assessed, and each performance-based RSU may be earned as to up to 2/3 of the target shares vest. When our TSRsubject to such grant based on achievement of the “2-Year Adjusted Operating Margin” metric in the chart below (the “Banked Shares”).
Following the end of the performance period, “adjusted operating margin” performance for the three-year
performance period is assessed, and each performance-based RSU grant may be earned as to the greater of:
the total number of Shares achieved based on actual achievement for the full performance period, or
| • | the sum of (1) the Banked Sharesplus (2) the product of: (a) the actual achievement percentage for the “3-Year Adjusted Operating Margin” metric as set forth in the table belowmultipliedby (b) 1/3 of the target shares subject to such grant (rounded up to the nearest whole number so as to avoid fractional units) |
| 26 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION DISCUSSION AND ANALYSIS | | |
The chart below describes the 60th Percentile Company,formula for determining the number of target shares subject to the performance-based RSU grants that vest decreasesmay vest.
Achievement Level | 2-Year Adjusted Operating Margin | Payout | 3-Year Adjusted Operating Margin | Payout | ||||||||||||
Below Threshold | <14.5 | % | 0 | % | <14.7 | % | 0 | % | ||||||||
Threshold | 14.5 | % | 50 | % | 14.7 | % | 50 | % | ||||||||
Target | 17.5 | % | 100 | % | 17.7 | % | 100 | % | ||||||||
Stretch | 21.3 | % | 150 | % | ||||||||||||
Maximum | 22.1 | % | 200 | % | ||||||||||||
For performance falling between “Threshold and “Target” achievement levels or between “Stretch” and “Maximum” achievement levels in the table above, the actual payout percentage will be calculated by 10% for each 1% that our TSR is less thanlinear interpolation between (i) the TSRtwo identified Company Operating Margin achievement levels represented as percentages of the 60th Percentile Company. When our TSR isCompany Operating Margin target and (ii) the two payout percentages set forth in the applicable “Payout” column that correspond to the two identified operating income achievement levels. For the avoidance of doubt, there will be no linear interpolation between 1%the “Target” and 20%“Stretch” achievement levels, and if the 3-Year Adjusted Operating Margin achievement falls between the “Target” and “Stretch” levels, the payout percentage will be 100%.
The performance-based RSU grants will be subject to additional vesting restrictions as described in the “Additional Restrictions for PerformanceAwards”section below.
Additional Restrictions for Performance Awards
Vesting Restrictions. In addition to the performance criteria set forth above, the 60th Percentilegrantees must remain in continuous service as an employee or consultant to the Company or its subsidiaries through April 28, 2020 to vest in any portion of the performance-based RSUs except in the case of death or “qualifying disability,” then grantee (or his or her successors, as applicable) will vest in the same portion of the applicable performance-based RSUs that would have vested had such grantee remained an employee or consultant through April 28, 2020. Grantees whose service terminates prior to April 28, 2020 due to “retirement,” will vest in the portion of the applicable performance-based RSUs that are earned based on “adjusted operating margin” achievement, as applicable, during the performance period, but prorated to reflect the number of days as to which grantee remained in service.
“qualifying disability” means a total and permanent disability as defined in Section 22(e)(3) of the Code, which we determine is expected to prevent you from thereafter engaging in any gainful employment.
“retirement” means a voluntary termination of employment and consultancy by the grantee if the grantee is, on the effective date of such termination, at least 60 years of age and has worked for us or one of our subsidiaries for the preceding 5 years.
Additional vesting rules apply in the event of a corporate transaction. These provide that if a corporate transaction occurs before the end of the applicable three-year performance period, each performance-based RSU grant will vest as to the greater of:
the target shares that vest increases by 2.5% for each 1% that our TSR is greater than the TSR of the 60th Percentile Company. When our TSR is greater than 20% above the 60th Percentile Company, subject to such grant, or
the number of target shares that would be achieved if the performance period ended on the last day of our fiscal year immediately preceding the year in which the corporate transaction is completed and applying with the achievement percentage determined by applying the formula for the“3-Year Adjusted Operating Margin” in the table above.
One-Time Recruitment or Promotion Compensation
James J. Cannon. In order to successfully recruit Mr. Cannon to serve as our CEO and provide the appropriate incentives to drive and grow the Company’s business, the Compensation Committee approved the one-time compensation to Mr. Cannon set forth below and pursuant to the terms of his employment agreement with us.
a one-time, cash payment of $3,146,869, which was intended to compensate Mr. Cannon for the loss of unvested stock options scheduled to vest increasesover the short term and other incentives Mr. Cannon was granted pursuant to his employment with his previous employer and forfeited because of his joining the Company.
a one-time, RSU award of $3,152,601 intended to compensate him for the loss of long-term equity grants Mr. Cannon was granted by 5% for each 1% that our TSR is greater thanhis previous employer and forfeited because of his joining the TSR of the 60th Percentile Company, plus 20%. Any shares earned under the 2015 TSR Program areand vesting in unequal tranches on December 6, 2018, 2019, 2020 and 2021 inclusively, subject to a mandatory one-year holding period where all executive officers are prohibited from sellingMr. Cannon’s continued employment with us.
| 2018 PROXY STATEMENT | FLIR | 27 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
Carol P. Lowe. In order to successfully recruit Ms. Lowe to serve as our CFO and provide her with the earned shares. For all currently active executive officers, including our NEOs,appropriate incentives to drive and grow the grant date fair valueCompany’s business, the Compensation Committee approved the one-time compensation to Ms. Lowe set forth below and pursuant to the terms of the 2015 TSR Program market-based RSUs approximated 30% of the Base Grant.
24a one-time, cash payment of $2,500,000 paid in January 2018 to compensate her for the loss of unvested stock options scheduled to vest over the short term and other incentives forfeited because of her leaving her former employer to join the Company. Ms. Lowe is obligated to repay a prorated portion of this bonus (based on her length of service with us) if she voluntarily terminates her employment within 18 months of her start date.
a one-time, RSU award of $2,500,000, effective as of her start date, and vesting annually over three years as long as Ms. Lowe remains employed with us.
Travis D. Merrill. In connection with his appointment to the role of President, Commercial Business Unit, the Compensation Committee approved the one-time equity award to Mr. Teich’s 2015 Base Grant valueMerrill set forth below. The Compensation Committee believed that this additional compensation was increased to approximately $3.1M from the approximately $2.6M value he receivedappropriate in 2014 and Mr. Surran’s 2015 Base Grant was increased to approximately $1.1M from the approximately $1.0M value he received in 2014, in each caseMerrill’s new role to provide additional incentives to drive business unit performance.
a grant value nearone-time, time-based RSU award of $150,000, effective October 27, 2017, and vesting annually over three years as long as Mr. Merrill remains employed with us.
Shane R. Harrison. In recognition of his increased responsibilities as interim Chief Financial Officer, the 50th percentile of comparable executives inCompensation Committee approved the Peer Group.one-time compensation to Mr. Singhi received an onboarding equity grantHarrison set forth below. The Compensation Committee believed that this additional compensation was appropriate to provide incentives for Mr. Harrison to remain with a grant value of approximately $0.6 million which was slightly aboveus through and following the 25th percentile of the chief financial officer Peer Group plus an additional grant of approximately $0.3 milliontransition period and to partially offset the value of the unvested equity awards Mr. Singhi forfeited when he resigned fromrecognize his prior employer. Mr. Singhi was also addedincreased contributions to the 2015 TSR Program usingCompany during this transition period.
a cash bonus of $156,000, 50% paid following the same methodology as the other NEOs shortly after he was hireddate our CFO commenced her employment with us and 50% paid in August 2015. The remaining NEOs were provided a 2015 Base Grant near the 50th percentile of comparable executives in the Peer Group.February 2018.
Perquisites and Other Benefits
In general, we minimize the value and number of perquisites provided to our executive officers, including our NEOs. We believe this makes our overall compensation program simpler, easier to understand, and more transparent to shareholders. The primary perquisite for our NEOs is an automobile allowance. We also agreed to reimburse our CEO for the cost of relocation to Portland, Oregon, including temporary living expenses for up to two years and any loss of sale of our CEO’s current residence and a monthly car allowance of $1,500.
In addition, our NEOs have supplemental life insurance benefits beyond those provided to other United States-based
employees. Our standard life insurance benefit is equal to two times an employee’s annual salary up to a maximum benefit of $500,000. The NEOs supplemental life insurance benefit provides three times the NEO’s salary, up to a maximum benefit of $1,200,000. The values of all perquisites for our NEOs are included in the 20152017 All Other Compensation Table on page 30.34.
Our executive officers, including our NEOs, are also eligible to participate in our other benefit plans on the same terms as other employees. These plans include health plans, disability plans, retirement plans and an employee stock purchase plan.
Supplemental Executive Retirement Plan
In January 2001, we implemented a SERPsupplemental executive retirement plan (“SERP”) for certain executives then employed by FLIR in the United States. Since the SERP’s inception, no additional participants have been added, and we do not intend to add participantsParticipation in the future. As of December 31, 2015,SERP is currently frozen, and Mr. Teich iswas the only remaining participantparticipant. Due to Mr. Teich’s retirement, his account was paid in full in March 2018. Our intention is to terminate the SERP.plan as soon as feasible.
Non-Qualified Deferred Compensation Plans
We have a non-qualified deferred compensation (“NQDC”) plan and a stock deferral plan. Participation by our employees, including our NEOs, is optional. The NQDC plan provides an additional pre-tax savings vehicle for our more highly compensated United States-based employees whose retirement savings opportunity is limited under our 401(k) plan. The stock deferral plan allows eligible employees to defer the receipt of vested RSUs. The NQDC plan does not allow for Company contributions to be made to the plan on behalf of any employee, including the NEOs. See page 36 for additional details.
Mr. TeichCannon has an employment agreement, effective Maydated June 19, 2013,2017, approved by the Compensation Committee that established his initial base salary as CEO and provides for annual incentive and long-term incentive awards under our approved plans (i.e., AIP and LTIP). The agreement was for an initial term through December 31, 2014 and automatically renews for additional one-year successive periods unless either the Company or Mr. Teich provides a notice of non-renewal at least 60 days in advance of the expiration of the current term. In addition, the agreements include provisions regarding various termination scenarios which are described in the Potential Payments upon Termination or Change of Control section beginning on page 37.
Mr. Singhi has an employment agreement, effective August 12, 2015, pursuant to which Mr. Singhi will be paid an annualized base salary of $425,000one-time sign-on bonus, one-time equity award, and annual incentive and long-term awards under our approved plans
25
(i.e. (i.e., AIP and LTIP)long-term incentive program). Pursuant to his employment agreement, Mr. SinghiCannon has an AIP target of 80%100% of his base salary prorated from June 19, 2017, with a minimum incentive payment for 2017 of $350,000. For 2018 Mr. Cannon will be paid a base salary of $850,000 and will have an annual incentive target for 2018 of 110% of base salary with a minimum annual incentive payment equal to 50% of base salary. Mr. Singhi’sCannon’s employment agreement has an initial term ending December 31, 2016,2018 and automatically renews for successive one-year periods unless eithermay be renewed by mutual agreement of the Company orand Mr. Singhi provides notice of non-renewal at least 60 days in advanceCannon. In addition, subject to the approval of the expirationBoard of Directors and the current term. In addition,Compensation Committee to occur in or around April 2018, Mr. Singhi’sCannon shall be eligible to receive an equity grant in 2018 having a grant date economic value of
| 28 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION DISCUSSION AND ANALYSIS | | |
not less than $3.6 million, with the grant type(s) and performance criteria as determined by the Compensation Committee in accordance with the Company’s annual executive incentive program. Mr. Cannon’s employment agreement also includes provisions regarding various termination scenarios which are described in the Potential Payments upon Termination or Change of Control section beginning on page 37.42.
Ms. Lowe has an employment offer letter, dated October 16, 2017, approved by the Compensation Committee that established her initial base salary as CFO and provides for one-time sign-on bonus, one-time equity award, and annual incentive and long-term awards under our approved plans (i.e., AIP and long-term incentive program). Pursuant to her employment agreement, Ms. Lowe has an AIP target of 85% of her base salary. In addition, Ms. Lowe’s employment offer letter includes provisions regarding various termination scenarios which are described in the Potential Payments upon Termination or Change of Control section beginning on page 42.
Post-Termination Elements of Compensation
2017 Transition and Separation Agreements
SeveranceAndrew Teich.In connection with the appointment of our CEO effective June 19, 2017, we entered into a Separation and Transition Agreement with Mr. Teich dated June 18, 2017 (the “Transition Agreement”) under which he voluntarily resigned, effective June 19, 2017, as President and Chief Executive Officer of the Company and from all other executive positions he holds with the Company and any and all of the Company’s subsidiaries and other affiliates, and contemporaneously delivered his written resignation from the Company’s board of directors, also effective June 19, 2017.
Messrs.The Transition Agreement provides that Mr. Teich’s employment continued, on an at-will basis, during a transition period (the “Transition Period”) from June 19, 2017 through August 31, 2017 (the “Separation Date”). During the Transition Period, Mr. Teich was (a) compensated for the performance of his duties at his base salary in effect as of June 18, 2017 and (b) continued his participation in the Company’s benefit plans under the same terms and conditions in effect as of June 18, 2017.
Following the Separation Date, Mr. Teich serves as a senior advisor to the Company, on an at-will basis, for a period of one year (the “Advisory Period”) providing transition and other related advisory services to the Company to assist in providing an effective transition of his responsibilities to his successor in accordance with the terms of the Transition Agreement. During the Advisory Period, and in connection with the effectiveness of the release of claims with the Company that is attached to the Transition Agreement (the “Release”), Mr. Teich received the following benefits:
compensation for the performance of his duties at a rate of $35,917 per month (pro-rated for any partial month)
reimbursement from the Company for the portion of Consolidated Omnibus Budget Reconciliation Act (“COBRA”) premiums for the participation of Mr. Teich and Singhi havehis qualified dependent in an amount equal to the portion of the premiums paid by Mr. Teich that would be paid by the Company if Mr. Teich were an active employee, and
reimbursement from the Company for certain technology-related expenses set forth in the Transition Agreement as well as out-of-pocket expenses Mr. Teich incurred in the performance of his duties as senior advisor.
Under the Transition Agreement, and following the effectiveness of the Release, Mr. Teich will receive payment of his target 2017 bonus payment, pro-rated for the period of January 1, 2017, through the Separation Date, and payable at the same time as other similarly-situated participants in the AIP.
The Transition Agreement also provides that for a period of two years following the Separation Date or one year following the termination of the Transition Agreement by Mr. Teich, whichever is longer, Mr. Teich will be subject to certain non-competition and non-solicitation restrictions set forth in the Transition Agreement. If we terminate the Transition Agreement before the end of the Advisory Period, these restrictions apply for a period of 12 months after the date of such termination.
Thomas A.Surran.In connection with his resignation and termination of employment on September 30, 2017, Mr. Surran entered into a separation and release agreement with the Company providing him the following severance provisions includedbenefits: (a) cash severance equal to the sum of (i) twelve (12) months of base salary and (ii) 100% of Mr. Surran’s target bonus amount payable in twenty-six equal installments in accordance with the Company’s normal payroll practices, (b) full vesting acceleration of any unvested time-based outstanding equity awards granted to Mr. Surran, and (c) reimbursement of the premium costs for continued health coverage under COBRA for a period of up to twelve (12) months following termination of his employment.
Severance Agreements
Our employment arrangements with our CEO and CFO provide for severance.
In 2017, we adopted a severance plan for our executive officers, including our other NEOs, and certain other key employees. We determined that it was important to adopt a severance plan at this time due to the uncertainty regarding a CEO transition and to secure the continued dedication of these participants to their work, notwithstanding the possibility of a termination of employment by us, and provide these individuals with an incentive to continue their employment agreements. We do not have any formalwith us. The severance arrangementsplan provides for severance payments and benefits upon certain qualifying terminations of employment and the participant’s compliance with Messrs. Surran, DuChene, Frank or Muessle; however,certain requirements, including entry into a release of claims in the past we have provided severance on a case by case basis in situations where a termination was not for cause, and such payment was deemed to be appropriate and in the best interestsfavor of the Company. We are likely to consider doing so in the future.company. The severance plan expires on May 1, 2020.
| 2018 PROXY STATEMENT | FLIR | 29 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
Change of Control Agreements
We consider a sound and vital management team to be essential in protecting and enhancing the best interests of the Company and our shareholders. To this end, we recognize that the possibility of a change of control could arise and that such possibility may result in the departure or distraction of management to the detriment of the Company and our shareholders. In order to encourage thetheir continued attention and dedication of our NEOs to their assigned duties without distraction in circumstances arising from the possibility of a change of control of the Company, we have change of control agreements in place for our NEOs, excluding Mr. Muessle.NEOs.
We believe that the severance payments and benefits are competitive relative to the severance protection provided to similarly situated individuals at companies with which we compete for talent. The terms and value of these severance and change of control termination benefits are further described starting on page 37.42.
Compensation Committee GovernanceClawback Policy
Compensation Committee Members and Compensation Committee Charter
Our executiveThe Company’s clawback policy requires any current or former officer of the Company subject to Section 16 of the Exchange Act to repay certain cash-based incentive compensation policies are established, reviewed and approvedif such officer was found by the Compensation Committee of the Board of Directors. The Compensation Committee is composed of four non-employee directors—Angus L. Macdonald (Chair), William W. Crouch, Michael T. Smith and Cathy A. Stauffer—all of whomto have been determined by the Board to be “independent” as defined by the Board’s Corporate Governance Principles and applicable SEC and NASDAQ rules. The members of the Compensation Committee, in aggregate, have significant experience in executive positions including management, talent development, finance, and accounting, and have been involved in executive compensation matters in their respective careers. See pages 3 - 6 in this Proxy Statement for a more detailed biography for each of our directors. In accordance with its Charter, the Board’s Corporate Governance Committee annually reviews the operation, structure, and membership of all committees, including the Compensation Committee.
The Compensation Committee has primary responsibility for all matters relating to the compensation of our executive officers, including our NEOs, as well as certain compensation elements for other employees. “Compensation” for this purpose means all forms of remuneration including, without limitation, salaries, bonuses, annual and long-term incentive compensation, equity-based compensation, retirement benefits, severance pay and benefits, fringe benefits and perquisites, and compensation and benefits in the event of a change of control of the Company. The Compensation Committee, in its discretion, may retain the services of outside consultants to assist it in compensation matters. The Compensation Committee is governed by a charter adopted by the Board, which can be found at www.flir.com/investor. The Corporate Governance Committee of the Board annually considers and makes recommendations, as appropriate, to the Board regarding the content of all Board committee charters, including the Compensation Committee’s charter. The Compensation Committee charter was most recently updated in October 2014.
26
Compensation Consultant
The Compensation Committee has from time to time engaged professional compensation consultants to advise the Compensation Committee on our executive compensation programs and policies. As indicated above, the Compensation Committee engaged Radford to conduct a competitive analysis of our executive compensation levels in late 2014, and utilized that analysis as part of its determination of executive compensation levels for 2015. The Compensation Committee and the Corporate Governance Committee intend to continue using compensation consultants in the future, but not necessarily on an annual basis. Decisions as to whether the use of a consultant is appropriate for any annual period will be determined by the respective committees based on considerations including length of time since the last engagement of a consultant and changes in factors affecting executive compensation at the Company or in the market at large.
The Compensation Committee is responsible, without the influence or input of management, for retaining and terminating compensation consultants and determining their terms and conditions, including fees. Radford provides the Compensation Committee with an annual update of its services and related fees. Radford’s aggregate fees rendered for consulting services for the Compensation Committee in 2015 were approximately $79,100.
Company management separately engages Radford for compensation surveys to benchmark non-executive officer employee compensation and also engages the Radford affiliate, Aon Risk Services, for risk related insurance products, such as property and casualty insurance and director and officer liability insurance. Neither of these engagements is approved by the Compensation Committee. The fees paid in aggregate bycaused the Company to Radford and Aon Risk Services for all other services excluding Compensation Committee consulting services, totaled approximately $302,402 in 2015.materially restate its financial statements as a result of such officer’s gross negligence, intentional misconduct, or fraud.
Role of Executives in Establishing Compensation
Our CEO and Vice President of Global Human Resources participate in the development of certain executive officer compensation programs, particularly the AIP and the LTIP described above. Once formulated, these programs are reviewed by our CEO and other individuals whose counsel may be sought from time to time and submitted to the Compensation Committee for its review and approval. The Compensation Committee considers these recommendations in its decision process, but they are not necessarily determinative. As noted previously, with the assistance of our human resources team, our CEO makes recommendations to the Compensation Committee regarding base salary and target levels of the AIP and LTIP compensation for each NEO (other than himself). Our human resources team and CEO also recommend to the Compensation Committee the performance targets under the AIP and LTIP, if applicable. From time to time, certain individuals including our CEO, Vice President of Global Human Resources, Senior Vice President, General Counsel and Secretary and CFO are invited to attend meetings of the Compensation Committee. While these individuals may be asked to provide input and perspective, only Compensation Committee members vote on NEO compensation matters. Our Vice President of Global Human Resources is responsible for the implementation, execution and operation of our compensation programs, as directed by the CEO and the Compensation Committee.
The Company’s insider trading policy prohibits our executive officers and directors from pledging our securities or engaging in hedging transactions with respect to our securities.
Impact of Tax on Compensation Decisions
As a general matter, the Compensation Committee takes into account the various tax implications of the compensation vehicles employed by the Company but it is not a determining factor in the Compensation Committee’s compensation decisions.
27
Deductibility of Executive Compensation.Section 162(m) of the United States Internal Revenue Code (“Section 162(m)”) generally prohibitslimits the amount of compensation that we may deduct in any publicly held corporation from taking a federal income tax deductionone year for compensation paid in excess of $1,000,000 in any taxable year to “covered employees” within the meaning ofCEO and the three other most highly compensated executive officers (including the CFO for compensation earned after 2017) to $1,000,000. However, compensation that qualifies as “performance-based” under Section 162(m). Exceptions that is paid in 2017 or payable pursuant to a “written binding contract” prior to November 2, 2017 and not subsequently modified may be excluded from the $1,000,000 limit. Our 2011 Stock Incentive Plan and Bonus Plan are made for qualified performance-based compensation, among other things. It isintended to permit (but not require) the Compensation Committee’s policyCommittee to maximizeaward compensation that is “performance-based” and thus fully tax-deductible by us. While the effectivenessCompensation Committee considers
the deductibility of compensation as a factor in making compensation decisions, the Compensation Committee retains the flexibility to provide compensation that is consistent with our goals for our executive compensation plans in this regard. However, the Compensation Committee believes thatprogram even if such compensation and benefits decisions should be primarily driven by the needs of the business, rather than byis not fully tax policy. Therefore, thedeductible. The Compensation Committee may make decisions that result in compensation expense that is not fully deductible under Section 162(m) of the Code. Recent tax reform legislation expanded the number of individuals covered by Section 162(m) of the Code and eliminated the exception for “performance-based” compensation beginning in 2018, subject to certain exceptions for compensation payable pursuant to a “written binding contract” in effect on November 2, 2017 that has not been subsequently materially modified. Due to the ambiguities and uncertainties as to this tax reform legislation, it is uncertain whether the 2017 AIP and performance-based equity awards satisfy the requirement for the performance-based compensation exception to Section 162(m).
Taxation of Parachute Payments.Sections 280G and 4999 of the Code provide that executive officers, directors who hold significant equity interests, and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change of control that exceed certain prescribed limits, and that we (or our successor) may forfeit a deduction on the amounts subject to this additional tax. We do not provide any executive, including any NEO, with a “gross-up” or other reimbursement payment for any tax liability that the executive might owe as a result of the application of Sections 280G or 4999 during 2017, and we have not agreed and are not otherwise obligated to provide any executive with such a “gross-up” or other reimbursement.
Accounting for Stock-Based Compensation.We follow Financial Accounting Standards Board’s Accounting Standards Codification Topic 718 (“ASC Topic 718”) in connection with the financial reporting of our stock options and other stock-based awards. ASC Topic 718 requires companies to calculate the grant date “fair value” of their stock option grants using a variety of assumptions, as well as the grant date “fair value” of their other stock-based awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executives may never realize any value from their options or other stock-based awards. ASC Topic 718 also requires companies to recognize the compensation cost of their stock option grants and other stock-based awards in their income statements over the period that an executive is required to render service in exchange for vesting of the option or other award. When determining the types and amounts of equity compensation granted to the NEOs, the Compensation Committee considers the advantages and disadvantages of various equity vehicles, such as stock options, RSU awards and performance-based equity awards. As part of this consideration, the Compensation Committee takes into account the overall program cost, which includes the associated compensation expense for financial reporting purposes.
| 30 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION COMMITTEE REPORT | | |
We have reviewed and discussed the Compensation Discussion and Analysis with our management and, based on our review and discussions, we recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.2017.
THE COMPENSATION COMMITTEE
Angus L. Macdonald,Chair
William W. Crouch
Michael T. Smith
Cathy A. Stauffer
| 2018 PROXY STATEMENT | FLIR | 31 |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
28
COMPENSATION OF NAMED EXECUTIVE OFFICERS
20152017 Summary Compensation Table
The following table summarizes compensation for our CEO, former CFO and our fivethree other NEOs for the years ended December 31, 20152017 and, to the extent required under the SEC executive compensation disclosure rules, December 31, 20142016 and December 31, 2013.2015.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Change in Pension Value ($)(4) | All Other Compensation ($)(5) | Total ($) | |||||||||||||||||||||||||||
Andrew C. Teich | 2015 | $ | 831,731 | $ | — | $ | 2,570,748 | $ | 1,509,288 | $ | 796,509 | $ | 2,467,193 | $ | 35,477 | $ | 8,210,946 | |||||||||||||||||||
President and Chief Executive Officer | | 2014 2013 | | | 726,692 577,692 | |
| — — |
| | 1,294,290 1,090,440 | | | 1,279,390 1,075,085 | | | 706,115 388,125 | |
| 579,893 — |
| | 29,627 30,156 | | | 4,616,007 3,161,498 | | |||||||||
Amit Singhi(6) | 2015 | 143,846 | — | 723,806 | 292,581 | 123,141 | n/a | 72,218 | 1,355,592 | |||||||||||||||||||||||||||
Senior Vice President, Finance and Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
David A. Muessle(6) | 2015 | 380,433 | — | 354,676 | — | 223,385 | n/a | 11,322 | 969,816 | |||||||||||||||||||||||||||
Vice President, Interim Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
Anthony L. Trunzo(6) | 2015 | 215,297 | — | — | — | — | n/a | 14,701 | 229,998 | |||||||||||||||||||||||||||
Former Senior Vice | 2014 | 470,308 | — | 479,610 | 473,710 | 344,344 | n/a | 29,627 | 1,797,599 | |||||||||||||||||||||||||||
President, Finance and Chief Financial Officer | 2013 | 450,385 | — | 2,224,346 | 506,990 | 211,140 | n/a | 23,976 | 3,416,837 | |||||||||||||||||||||||||||
Thomas A. Surran | 2015 | 501,154 | — | 883,662 | 518,818 | 364,863 | n/a | 29,762 | 2,298,259 | |||||||||||||||||||||||||||
Senior Vice | 2014 | 440,385 | — | 479,610 | 473,710 | 327,600 | n/a | 27,427 | 1,748,732 | |||||||||||||||||||||||||||
President, Chief Operating Officer | 2013 | 355,399 | — | 457,962 | 311,307 | 184,000 | n/a | 30,435 | 1,339,103 | |||||||||||||||||||||||||||
Todd M. DuChene(7) | 2015 | 404,346 | — | 562,326 | 330,157 | 273,298 | n/a | 34,516 | 1,604,643 | |||||||||||||||||||||||||||
Senior Vice | 2014 | 90,615 | 225,000 | (8) | 468,450 | 499,200 | — | n/a | 19,979 | 1,303,244 | ||||||||||||||||||||||||||
President, General Counsel and Secretary | ||||||||||||||||||||||||||||||||||||
Jeffrey D. Frank(7) | 2015 | 330,481 | — | 401,656 | 235,826 | 178,708 | n/a | 34,893 | 1,181,564 | |||||||||||||||||||||||||||
Senior Vice | 2014 | 308,481 | — | 216,810 | 213,356 | 141,278 | n/a | 35,154 | 915,079 | |||||||||||||||||||||||||||
President, Global Product Strategy | ||||||||||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock ($)(2) | Option ($)(3) | Non-Equity ($)(4) | Change in ($)(5) | All Other ($)(6) | Total ($) | |||||||||||||||||||||||||||
James J. Cannon(7) President and Chief Executive Officer | 2017 | $ | 390,385 | $ | 3,496,869 | $ | 4,596,224 | $ | 483,288 | $ | 7,700 | n/a | $ | 10,807 | $ | 8,985,273 | ||||||||||||||||||||
Andrew C. Teich President and Chief Executive Officer | 2017 | 764,492 | 632,600 | 1,166,671 | — | — | — | 176,668 | 2,740,431 | |||||||||||||||||||||||||||
| 2016 | 835,731 | — | 2,338,236 | 1,487,360 | 440,800 | 600,325 | 35,318 | 5,737,770 | ||||||||||||||||||||||||||||
| 2015 | 831,731 | — | 2,570,748 | 1,509,288 | 796,509 | 2,467,193 | 35,477 | 8,210,946 | ||||||||||||||||||||||||||||
Carol P. Lowe(8) Executive Vice President, and Chief Financial Officer | 2017 | 50,000 | — | 2,499,989 | — | — | n/a | 1,751 | 2,551,740 | |||||||||||||||||||||||||||
Shane R. Harrison(8) Senior Vice President, Corporate Development and Strategy and Interim Chief Financial Officer | 2017 | 281,123 | 78,000 | 534,983 | 95,557 | 155,900 | n/a | 27,959 | 1,173,522 | |||||||||||||||||||||||||||
Amit Singhi(8) Senior Vice President, Finance and Chief Financial Officer | 2017 | 286,407 | — | 1,175,002 | 276,601 | — | n/a | 21,684 | 1,759,694 | |||||||||||||||||||||||||||
| 2016 | 431,092 | — | 657,604 | 418,320 | 165,100 | n/a | 30,174 | 1,702,290 | ||||||||||||||||||||||||||||
| 2015 | 143,846 | — | 723,806 | 292,581 | 123,141 | n/a | 72,218 | 1,355,592 | ||||||||||||||||||||||||||||
Todd M. DuChene Senior Vice President, General Counsel and Secretary | 2017 | 420,661 | — | 887,473 | 213,733 | 291,100 | n/a | 30,174 | 1,843,141 | |||||||||||||||||||||||||||
| 2016 | 408,085 | — | 584,500 | 371,840 | 147,200 | n/a | 30,134 | 1,541,759 | ||||||||||||||||||||||||||||
| 2015 | 404,346 | — | 562,326 | 330,157 | 273,298 | n/a | 34,516 | 1,604,643 | ||||||||||||||||||||||||||||
Jeffrey D. Frank Senior Vice President, Global Product Strategy | 2017 | 337,300 | — | 654,987 | 135,788 | 186,700 | n/a | 37,662 | 1,352,437 | |||||||||||||||||||||||||||
| 2016 | 328,123 | — | 365,325 | 232,400 | 94,500 | n/a | 39,205 | 1,059,553 | ||||||||||||||||||||||||||||
| 2015 | 330,481 | — | 401,656 | 235,826 | 178,708 | n/a | 34,893 | 1,181,564 | ||||||||||||||||||||||||||||
Travis D. Merrill(9) President, Commercial Business Unit | 2017 | 339,646 | — | 805,009 | 135,788 | 220,600 | n/a | 28,537 | 1,529,580 | |||||||||||||||||||||||||||
Thomas A. Surran(10) Former Senior Vice President, Chief Operating Officer | 2017 | 497,672 | — | 1,624,984 | 377,183 | — | n/a | 248,017 | 2,747,856 | |||||||||||||||||||||||||||
| 2016 | 502,438 | — | 949,876 | 604,240 | 192,800 | n/a | 30,174 | 2,279,528 | ||||||||||||||||||||||||||||
| 2015 | 501,154 | — | 883,662 | 518,818 | 364,863 | n/a | 29,762 | 2,298,259 | ||||||||||||||||||||||||||||
| (1) | For Mr. Cannon, represents his guaranteed 2017 AIP payment of $350,000 and his one-time, cash payment of $3,146,869, which was intended to compensate him for the loss of unvested stock options scheduled to vest over the short term and other incentives he was granted pursuant to his employment with his previous employer and forfeited because of his joining the Company. For Mr. Teich, represents his pro-rated guaranteed AIP payment for 2017. For Mr. Harrison, represents the first of two recognition bonus payments for his role as interim Chief Financial Officer. |
| (2) | Represents the aggregate grant date fair value for time-based, market-based and |
For the market-based RSUs granted in 2015, if we assume that each NEO receives the highest level of performance under the 2015 TSR Program, the values in the 2015 Summary Compensation table would double to $1,905,767, $240,476, $157,800, $655,068, $416,847 and $297,763 for Messrs. Teich, Singhi, Muessle, Surran,
For the performance-based RSUs granted in 2017, assuming that each NEO achieves the highest level of performance under the 2017 program, the values related to these awards in the 2017 Summary Compensation Table would double to $1,933,151, $879,985, $1,349,982, $1,040,008 and $1,040,008 for Messrs. Cannon, Harrison, DuChene, |
| 32 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | | |
Represents the aggregate grant date fair value for stock options granted in |
Represents amounts earned under our AIP with respect to the specified year. The |
Represents the aggregate change in actuarial present value of Mr. Teich’s accumulated benefit under the SERP during the years indicated. The Change in Pension Value in the table above is calculated on the basis of Minimum Retirement Benefit (as described |
29
| in the Pension Benefits table on page |
Represents actual cash expenses incurred by the Company and includes car allowances, Company matching contributions under our |
| (7) | Mr. |
| (8) | Ms. Lowe joined the Company |
| (9) | Mr. Merrill was not a NEO prior to 2017. |
| (10) | Mr. Surran resigned on September 30, 2017. |
| 2018 PROXY STATEMENT | FLIR | 33 |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
20152017 All Other Compensation Table
The following table provides the components of the amounts shown for 20152017 in the “All Other Compensation” column of the 20152017 Summary Compensation Table.
Name | Car Allowance ($) | Company Contributions under 401(k) Plan ($) | Group Life Insurance Premiums ($) | Other Personal Benefits ($) | Total ($) | Car Allowance ($) | Company Contributions under 401(k) Plan ($) | Group Life Insurance Premiums ($) | Other Benefits ($) | Total ($) | ||||||||||||||||||||||||||||||
James J. Cannon | $ | 9,692 | $ | — | $ | 1,115 | $ | — | $ | 10,807 | ||||||||||||||||||||||||||||||
Andrew C. Teich | $ | 18,692 | $ | 9,000 | $ | 3,174 | $ | 4,611 | (1) | $ | 35,477 | 12,462 | 9,000 | 3,880 | 151,326 | (1) | 176,668 | |||||||||||||||||||||||
Carol P. Lowe | 1,385 | — | 366 | — | 1,751 | |||||||||||||||||||||||||||||||||||
Shane R. Harrison | 18,000 | 9,000 | 959 | — | 27,959 | |||||||||||||||||||||||||||||||||||
Amit Singhi | 6,923 | 4,913 | 382 | 60,000 | (2) | 72,218 | 10,731 | 9,000 | 1,953 | — | 21,684 | |||||||||||||||||||||||||||||
David A. Muessle | — | 9,000 | 2,322 | — | 11,322 | |||||||||||||||||||||||||||||||||||
Anthony L. Trunzo | 4,846 | 9,000 | 855 | — | 14,701 | |||||||||||||||||||||||||||||||||||
Thomas A. Surran | 18,692 | 9,000 | 2,070 | — | 29,762 | |||||||||||||||||||||||||||||||||||
Todd M. DuChene | 18,692 | 9,000 | 2,070 | 4,754 | (3) | 34,516 | 18,000 | 9,000 | 3,174 | — | 30,174 | |||||||||||||||||||||||||||||
Jeffrey D. Frank | 18,692 | 9,000 | 3,870 | 3,331 | (4) | 34,893 | 18,000 | 9,000 | 7,636 | 3,026 | (2) | 37,662 | ||||||||||||||||||||||||||||
Travis D. Merrill | 18,000 | 9,000 | 1,087 | 450 | (3) | 28,537 | ||||||||||||||||||||||||||||||||||
Thomas A. Surran | 13,846 | 9,000 | 4,336 | 220,835 | (4) | 248,017 | ||||||||||||||||||||||||||||||||||
| (1) | Represents |
| (2) | Represents airline club membership dues of $450 and a |
| (3) | Represents |
| (4) | Represents |
| 34 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | | |
30
20152017 Grants of Plan-Based Awards
The following Grants of Plan-Based Awards table provides information regarding non-equity incentive plan awards and equity-based awards granted to our NEOs during the year ended December 31, 2015.2017. The equity-based awards were granted under the FLIR Systems, Inc. 2011 Stock Incentive Plan, while the non-equity incentive plan awards were granted under the FLIR Systems, Inc. 2012 Executive Bonus Plan.
| Estimated Future Payouts under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts under Equity Incentive Plan Awards | Estimated Future Payouts under Non-Equity Incentive Plan Awards(1) |
Estimated Future Payouts | All Other (#) | All Other Option Awards; Numberof Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | GrantDate FairValue of Stock and Option Awards($) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Approval Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards; Number of Shares of Stock or Units (#) | All Other Option Awards; Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) | Grant Date | Approval Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
James J. Cannon | 5/16/17 | $ | — | $ | 389,300 | $ | 778,600 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6/26/17(5) | 5/16/17 | 59,372 | 35.17 | $ | 483,288 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6/26/17 (6) | 5/16/17 | 14,219 | 477,047 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6/26/17 (7) | 5/16/17 | 94,158 | 3,152,601 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6/26/17 (8) | 5/16/17 | — | 28,810 | 57,620 | 966,576 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Andrew C. Teich | 2/26/15 | $ | 30,807 | $ | 855,750 | $ | 1,711,500 | 2/8/17 | — | 948,900 | 1,897,800 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(2) | 4/23/15 | 251,968 | 31.15 | $ | 1,509,288 | 4/28/17(9) | 4/19/17 | 32,025 | 1,166,671 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carol P. Lowe | 11/27/17(10) | 10/18/17 | 54,466 | 2,499,989 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shane R. Harrison | 2/8/17 | — | 169,600 | 339,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(3) | 4/23/15 | 54,218 | 1,617,865 | 4/28/17(2) | 4/19/17 | 11,047 | 36.73 | 95,557 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(4) | 4/23/15 | 363 | 36,328 | 72,656 | 952,883 | 4/28/17 (3) | 4/19/17 | 2,672 | 94,990 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/17 (4) | 4/19/17 | — | 12,582 | 25,164 | 439,993 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amit Singhi | 6/30/15 | 4,763 | 132,300 | 264,600 | 2/8/17 | — | 335,300 | 710,600 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/30/15(5) | 7/23/15 | 55,100 | 26.67 | 292,581 | 4/28/17(2) | 4/19/17 | 31,977 | 36.73 | 276,601 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/30/15(6) | 7/23/15 | 23,800 | 603,568 | 4/28/17 (3) | 4/19/17 | 7,735 | 274,979 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/30/15(7) | 7/23/15 | 79 | 7,900 | 15,800 | 120,238 | 4/28/17 (4) | 4/19/17 | — | 25,737 | 51,474 | 900,023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
David A. Muessle | 3/9/15 | 8,640 | 240,000 | 480,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(8) | 4/23/15 | 8,980 | 275,776 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(4) | 4/23/15 | 30 | 3,008 | 6,016 | 78,900 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Anthony L. Trunzo | 2/26/15 | 14,832 | 412,000 | 824,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas A. Surran | 2/26/15 | 14,112 | 392,000 | 784,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(2) | 4/23/15 | 86,614 | 31.15 | 518,818 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(3) | 4/23/15 | 18,637 | 556,128 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(4) | 4/23/15 | 124 | 12,487 | 24,974 | 327,534 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Todd M. DuChene | 2/26/15 | 10,571 | 293,625 | 587,250 | 2/8/17 | — | 316,800 | 633,600 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(2) | 4/23/15 | 55,118 | 31.15 | 330,157 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(3) | 4/23/15 | 11,860 | 353,902 | 4/28/17(2) | 4/19/17 | 24,709 | 36.73 | 213,733 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(4) | 4/23/15 | 79 | 7,946 | 15,892 | 208,424 | 4/28/17 (3) | 4/19/17 | 5,977 | 212,482 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/17 (4) | 4/19/17 | 19,302 | 38,604 | 674,991 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jeffrey D. Frank | 2/26/15 | 6,912 | 192,000 | 384,000 | 2/8/17 | — | 203,200 | 406,400 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(2) | 4/23/15 | 39,370 | 31.15 | 235,826 | 4/28/17(2) | 4/19/17 | 15,698 | 36.73 | 135,788 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(3) | 4/23/15 | 8,471 | 252,775 | 4/28/17 (3) | 4/19/17 | 3,797 | 134,983 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/15(4) | 4/23/15 | 56 | 5,676 | 11,352 | 148,881 | 4/28/17 (4) | 4/19/17 | — | 14,870 | 29,740 | 520,004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Travis D. Merrill | 2/8/17 | — | 240,000 | 480,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/17(2) | 4/19/17 | 15,698 | 36.73 | 135,788 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/17 (3) | 4/19/17 | 3,797 | 134,983 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/17 (4) | 4/19/17 | — | 14,870 | 29,740 | 520,004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/27/17(11) | 10/18/17 | 3,303 | 150,022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas A. Surran | 2/8/17 | — | 414,900 | 829,800 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/17(2) | 4/19/17 | 43,605 | 36.73 | 377,183 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/17 (3) | 4/19/17 | 10,548 | 374,981 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/28/17 (4) | 4/19/17 | — | 35,745 | 71,490 | 1,250,003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | Represents the target awards under the AIP. The |
| (2) | The Compensation Committee approved the stock option grants on April |
| (3) | The Compensation Committee approved the time-based RSU grants on April |
| (4) | The Compensation Committee approved the |
| 2018 PROXY STATEMENT | FLIR | 35 |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
“Long-Term Incentive Program.” The |
31
| grant date fair value of |
| (5) | The Compensation Committee approved the stock option grant on |
| (6) | The Compensation Committee approved the time-based RSU grant on |
| (7) | The Compensation Committee approved the |
| (8) | The Compensation Committee approved the performance-based RSU grants on |
The Compensation Committee approved the time-based RSU |
| (10) | The Compensation Committee approved the time-based RSU grant on October 18, 2017. The time-based RSU grant was issued on November 27, 2017. This time-based RSU grant will vest over a three-year period, in three installments on November 27, 2018, 2019 and 2020. In accordance with FASB ASC Topic 718, the grant date fair value for this award was $45.90, which was the closing market price of our Common Stock on the date of grant, discounted by the net present value of our quarterly dividends. |
| (11) | The Compensation Committee approved the time-based RSU grant on October 18, 2017. The time-based RSU grant was issued on October 27, 2017. This time-based RSU grant will cliff vest on the third anniversary of the grant date on October 27, 2020. In accordance with FASB ASC Topic 718, the grant date fair value for this award was $45.42, which was the closing market price of our Common Stock on the date of grant, discounted by the net present value of our quarterly dividends. |
| 36 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | | |
Outstanding Equity Awards at Fiscal Year-End 20152017
The following Outstanding Equity Awards at Fiscal Year-End 20152017 table summarizes the equity awards we have made to our NEOs, which were outstanding as of December 31, 2015.2017.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
| Equity Incentive Plan Awards: | ||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Been Vested (#) | Market Value of Shares or Units of Stock That Have Not Been Vested ($)(1) | Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) | ||||||||||||||||||||||||
Andrew C. Teich | 95,538 | — | $ | 12.57 | 2/13/16 | |||||||||||||||||||||||||||
| 65,200 | — | 20.75 | 5/1/17 | |||||||||||||||||||||||||||||
| 32,500 | — | 34.31 | 4/28/18 | |||||||||||||||||||||||||||||
| 75,950 | — | 25.64 | 5/5/19 | |||||||||||||||||||||||||||||
| 71,400 | — | 30.27 | 4/27/20 | |||||||||||||||||||||||||||||
| 38,400 | — | 35.22 | 5/3/21 | |||||||||||||||||||||||||||||
| 68,000 | — | 22.30 | 5/1/22 | |||||||||||||||||||||||||||||
| 118,466 | 59,234 | (2) | 24.31 | 4/30/23 | ||||||||||||||||||||||||||||
| 57,166 | 114,334 | (3) | 33.86 | 4/29/24 | ||||||||||||||||||||||||||||
| — | 251,968 | (4) | 31.15 | 4/28/25 | ||||||||||||||||||||||||||||
| 15,534 | (5) | $ | 436,039 | |||||||||||||||||||||||||||||
| 26,267 | (6) | 737,315 | ||||||||||||||||||||||||||||||
| 54,218 | (7) | 1,521,899 | ||||||||||||||||||||||||||||||
| 36,328 | (8) | $ | 1,019,727 | |||||||||||||||||||||||||||||
Amit Singhi | — | 55,100 | (9) | 26.67 | 10/30/25 | |||||||||||||||||||||||||||
| 23,800 | (10) | 668,066 | ||||||||||||||||||||||||||||||
| 7,900 | (11) | 221,753 | ||||||||||||||||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
| Equity Incentive Plan Awards: | ||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option ($) | Option Expiration Date | Number of (#) | Market ($)(1) | Number of (#) | Market or ($)(1) | ||||||||||||||||||||||||
James J. Cannon | — | 59,372 | (12) | $ | 35.17 | 6/26/27 | ||||||||||||||||||||||||||
| 14,219 | (13) | $ | 662,890 | |||||||||||||||||||||||||||||
| 94,158 | (14) | 4,389,646 | ||||||||||||||||||||||||||||||
| 28,810 | (15) | $ | 1,343,122 | |||||||||||||||||||||||||||||
Andrew C. Teich | — | 83,990 | (2) | 31.15 | 4/28/25 | |||||||||||||||||||||||||||
| — | 170,667 | (3) | 30.75 | 4/28/26 | ||||||||||||||||||||||||||||
| 18,073 | (5) | 842,563 | ||||||||||||||||||||||||||||||
| 33,970 | (6) | 1,583,681 | ||||||||||||||||||||||||||||||
| 36,328 | (8) | 1,693,611 | ||||||||||||||||||||||||||||||
| 16,883 | (9) | 787,085 | ||||||||||||||||||||||||||||||
| 17,403 | (10) | 811,328 | ||||||||||||||||||||||||||||||
Carol P. Lowe | 54,466 | (16) | 2,539,205 | |||||||||||||||||||||||||||||
Shane R. Harrison | 10,165 | — | 33.86 | 4/29/24 | ||||||||||||||||||||||||||||
| 13,123 | 6,562 | (2) | 31.15 | 4/28/25 | ||||||||||||||||||||||||||||
| 9,333 | 18,667 | (3) | 30.75 | 4/28/26 | ||||||||||||||||||||||||||||
| — | 11,047 | (4) | 36.73 | 4/28/27 | ||||||||||||||||||||||||||||
| 1,412 | (5) | 65,827 | ||||||||||||||||||||||||||||||
| 3,716 | (6) | 173,240 | ||||||||||||||||||||||||||||||
| 2,672 | (7) | 124,568.6 | ||||||||||||||||||||||||||||||
| 2,838 | (8) | 132,308 | ||||||||||||||||||||||||||||||
| 1,846 | (9) | 86,061 | ||||||||||||||||||||||||||||||
| 1,903 | (10) | 88,718 | ||||||||||||||||||||||||||||||
| 12,582 | (11) | 586,573 | ||||||||||||||||||||||||||||||
Amit Singhi (19) | ||||||||||||||||||||||||||||||||
Todd M. DuChene | 45,000 | 15,000 | (17) | 32.51 | 10/28/24 | |||||||||||||||||||||||||||
| 36,745 | 18,373 | (2) | 31.15 | 4/28/25 | ||||||||||||||||||||||||||||
| 21,333 | 42,667 | (3) | 30.75 | 4/28/26 | ||||||||||||||||||||||||||||
| — | 24,709 | (4) | 36.73 | 4/28/27 | ||||||||||||||||||||||||||||
| 3,750 | (18) | 174,825 | ||||||||||||||||||||||||||||||
| 3,954 | (5) | 184,335 | ||||||||||||||||||||||||||||||
| 8,492 | (6) | 395,897 | ||||||||||||||||||||||||||||||
| 5,977 | (7) | 278,648 | ||||||||||||||||||||||||||||||
| 7,946 | (8) | 370,443 | ||||||||||||||||||||||||||||||
| 4,220 | (9) | 196,736 | ||||||||||||||||||||||||||||||
| 4,350 | (10) | 202,797 | ||||||||||||||||||||||||||||||
| 19,302 | (11) | 899,859 | ||||||||||||||||||||||||||||||
Jeffrey D. Frank | 3,800 | — | 34.31 | 4/28/18 | ||||||||||||||||||||||||||||
| 3,542 | — | 25.64 | 5/5/19 | |||||||||||||||||||||||||||||
| 6,748 | — | 22.30 | 5/1/22 | |||||||||||||||||||||||||||||
| 4,130 | — | 31.89 | 7/29/23 | |||||||||||||||||||||||||||||
| 28,600 | — | 33.86 | 4/29/24 | |||||||||||||||||||||||||||||
| 26,246 | 13,124 | (2) | 31.15 | 4/28/25 | ||||||||||||||||||||||||||||
| 13,333 | 26,667 | (3) | 30.75 | 4/28/26 | ||||||||||||||||||||||||||||
| — | 15,698 | (4) | 36.73 | 4/28/27 | ||||||||||||||||||||||||||||
| 2,824 | (5) | 131,655 | ||||||||||||||||||||||||||||||
| 5,308 | (6) | 247,459 | ||||||||||||||||||||||||||||||
| 3,797 | (7) | 177,016 | ||||||||||||||||||||||||||||||
| 5,676 | (8) | 264,615 | ||||||||||||||||||||||||||||||
| 2,638 | (9) | 122,984 | ||||||||||||||||||||||||||||||
| 2,719 | (10) | 126,760 | ||||||||||||||||||||||||||||||
| 14,870 | (11) | 693,239 | ||||||||||||||||||||||||||||||
32
| 2018 PROXY STATEMENT | FLIR | 37 |
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
| Equity Incentive Plan Awards: | ||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Been Vested (#) | Market Value of Shares or Units of Stock That Have Not Been Vested ($)(1) | Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) | ||||||||||||||||||||||||
David A. Muessle | 23,000 | — | 20.75 | 5/1/17 | ||||||||||||||||||||||||||||
| 11,300 | — | 34.31 | 4/28/18 | |||||||||||||||||||||||||||||
| 19,000 | — | 25.64 | 5/5/19 | |||||||||||||||||||||||||||||
| 10,700 | — | 30.27 | 4/27/20 | |||||||||||||||||||||||||||||
| 12,800 | — | 35.22 | 5/3/21 | |||||||||||||||||||||||||||||
| 8,100 | — | 22.30 | 5/1/22 | |||||||||||||||||||||||||||||
| 13,220 | 6,610 | (2) | 24.31 | 4/30/23 | ||||||||||||||||||||||||||||
| 3,176 | 6,354 | (3) | 33.86 | 4/29/24 | ||||||||||||||||||||||||||||
| 1,734 | (5) | 48,673 | ||||||||||||||||||||||||||||||
| 4,380 | (6) | 122,947 | ||||||||||||||||||||||||||||||
| 8,980 | (12) | 252,069 | ||||||||||||||||||||||||||||||
| 3,008 | (8) | 84,435 | ||||||||||||||||||||||||||||||
Thomas A. Surran | 10,700 | — | 30.27 | 4/27/20 | ||||||||||||||||||||||||||||
| 5,124 | — | 35.22 | 5/3/21 | |||||||||||||||||||||||||||||
| 8,772 | — | 22.30 | 5/1/22 | |||||||||||||||||||||||||||||
| 7,160 | 3,580 | (2) | 24.31 | 4/30/23 | ||||||||||||||||||||||||||||
| 21,466 | 10,734 | (13) | 31.89 | 7/29/23 | ||||||||||||||||||||||||||||
| 21,166 | 42,334 | (3) | 33.86 | 4/29/24 | ||||||||||||||||||||||||||||
| — | 86,614 | (4) | 31.15 | 4/28/25 | ||||||||||||||||||||||||||||
| 2,817 | (5) | 79,073 | ||||||||||||||||||||||||||||||
| 2,800 | (14) | 78,596 | ||||||||||||||||||||||||||||||
| 9,734 | (6) | 273,233 | ||||||||||||||||||||||||||||||
| 18,637 | (7) | 523,141 | ||||||||||||||||||||||||||||||
| 12,487 | (8) | 350,510 | ||||||||||||||||||||||||||||||
Todd M. DuChene | 15,000 | 45,000 | (15) | 32.51 | 10/28/24 | |||||||||||||||||||||||||||
| — | 55,118 | (4) | 31.15 | 4/28/25 | ||||||||||||||||||||||||||||
| 11,250 | (16) | 315,788 | ||||||||||||||||||||||||||||||
| 11,860 | (7) | 332,910 | ||||||||||||||||||||||||||||||
| 7,946 | (8) | 223,044 | ||||||||||||||||||||||||||||||
Jeffrey D. Frank | 3,800 | — | 34.31 | 4/28/18 | ||||||||||||||||||||||||||||
| 3,542 | — | 25.64 | 5/5/19 | |||||||||||||||||||||||||||||
| 6,748 | — | 22.30 | 5/1/22 | |||||||||||||||||||||||||||||
| 5,506 | 2,754 | (2) | 24.31 | 4/30/23 | ||||||||||||||||||||||||||||
| 2,753 | 1,377 | (13) | 31.89 | 7/29/23 | ||||||||||||||||||||||||||||
| 9,533 | 19,067 | (3) | 33.86 | 4/29/24 | ||||||||||||||||||||||||||||
| — | 39,370 | (4) | 31.15 | 4/28/25 | ||||||||||||||||||||||||||||
| 2,167 | (5) | 60,828 | ||||||||||||||||||||||||||||||
| 1,084 | (14) | 30,428 | ||||||||||||||||||||||||||||||
| 4,400 | (6) | 123,508 | ||||||||||||||||||||||||||||||
| 8,471 | (7) | 237,781 | ||||||||||||||||||||||||||||||
| 5,676 | (8) | 159,325 | ||||||||||||||||||||||||||||||
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
33
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
| Equity Incentive Plan Awards: | ||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option ($) | Option Expiration Date | Number of (#) | Market ($)(1) | Number of (#) | Market or ($)(1) | ||||||||||||||||||||||||
Travis D. Merrill | 18,900 | — | 33.86 | 4/29/24 | ||||||||||||||||||||||||||||
| 20,997 | 10,499 | (2) | 31.15 | 4/28/25 | ||||||||||||||||||||||||||||
| 13,333 | 26,667 | (3) | 30.75 | 4/28/26 | ||||||||||||||||||||||||||||
| — | 15,698 | (4) | 36.73 | 4/28/27 | ||||||||||||||||||||||||||||
| 2,259 | (5) | 105,315 | ||||||||||||||||||||||||||||||
| 5,308 | (6) | 247,459 | ||||||||||||||||||||||||||||||
| 3,797 | (7) | 177,016 | ||||||||||||||||||||||||||||||
| 4,541 | (8) | 211,701 | ||||||||||||||||||||||||||||||
| 2,638 | (9) | 122,984 | ||||||||||||||||||||||||||||||
| 2,719 | (10) | 126,760 | ||||||||||||||||||||||||||||||
| 14,870 | (11) | 693,239 | ||||||||||||||||||||||||||||||
| 3,303 | (20) | 153,986 | ||||||||||||||||||||||||||||||
Thomas A. Surran (19) | ||||||||||||||||||||||||||||||||
| (1) | Based on the closing market price of our Common Stock as of December |
| (2) |
| Time-based stock options granted on April 28, 2015 that will vest |
Time-based |
Time-based stock options granted on April 28, 2017 that will vest in three equal installments on April 28, 2018, 2019 and 2020. |
| (5) | Time-based RSUs granted on April 28, 2015 that will vest on April 29, 2018. |
| (6) | Time-based RSUs granted on April 28, 2016 that will vest in two equal installments on April 28, 2018 and 2019. |
| (7) | Time-based RSUs granted on April 28, 2017 that will vest in three equal installments on April |
| (8) | Market-based RSUs granted on April 28, 2015 that will vest on May 1, 2018 based on the Company’s relative TSR performance versus the S&P 500 for the three-year period beginning May 1, 2015. This amount represents the target number of shares. The maximum number of shares that can be earned is 200% of the target number of shares. |
| (9) |
Performance-based RSUs granted on |
| (10) | Market-based RSUs granted on April 28, 2016 that will vest on May 1, 2019 based on the Company’s relative TSR performance versus the S&P 500 for the three-year period beginning May 1, 2016. This amount represents the target number of shares. The maximum number of shares that can be earned is 200% of the target number of shares. |
| (11) | Performance-based RSUs granted on April 28, 2017 that will vest on April 28, 2020 based on the Company’s non-GAAP adjusted operating margin performance for the three-year period beginning January 1, 2017. This amount represents the target number of shares. The maximum number of shares that can be earned is 200% of the target number of shares. |
| (12) | Time-based |
| (13) | Time-based |
| (14) | Time-based RSUs granted on |
| (15) | Performance-based RSUs granted on June 26, 2017 that will vest on April 28, 2020 based on the Company’s non-GAAP adjusted operating margin performance for the three-year period beginning January 1, 2017. This amount represents the target number of shares. The maximum number of shares that can be earned is 200% of the target number of shares. |
| (16) | Time based RSUs granted on November 27, 2017 that will vest in three equal installments on November 27, 2018, 2019 and 2020. |
| (17) | Time-based stock options granted on October 28, 2014 that will vest |
Time-based RSUs granted on October 28, 2014 that will vest |
| (19) | Messrs. Singhi and Surran had no outstanding equity awards at December 31, 2017. |
| (20) | Time-based RSUs granted on October 27, 2017 |
| 38 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | | |
34
20152017 Option Exercises and Stock Vested
The following Option Exercises and Stock Vested table provides additional information about the value realized by our NEOs on the exercise of outstanding stock options and the vesting of RSUs during the year ended December 31, 2015.2017.
| Option Awards(1) | Stock Awards(2) | Option Awards (1) | Stock Awards (2) | |||||||||||||||||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||||||||||||||
James J. Cannon | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
Andrew C. Teich | — | $ | — | 36,000 | $ | 1,116,067 | 953,961 | 7,913,369 | 80,217 | (3) | 3,087,042 | |||||||||||||||||||||
Carol P. Lowe | — | — | — | — | ||||||||||||||||||||||||||||
Shane R. Harrison | — | — | 4,048 | 149,231 | ||||||||||||||||||||||||||||
Amit Singhi | — | — | — | — | 42,366 | 401,450 | 4,777 | 175,459 | ||||||||||||||||||||||||
David A. Muessle | 52,579 | 831,305 | 6,556 | (3) | 203,708 | |||||||||||||||||||||||||||
Anthony L. Trunzo | 271,016 | (4) | 1,930,897 | — | — | |||||||||||||||||||||||||||
Todd M. DuChene | — | — | 11,949 | 477,450 | ||||||||||||||||||||||||||||
Jeffrey D. Frank | 8,260 | 108,469 | 7,677 | (4) | 283,232 | |||||||||||||||||||||||||||
Travis D. Merrill | — | — | 6,712 | 247,547 | ||||||||||||||||||||||||||||
Thomas A. Surran | — | — | 13,353 | 413,239 | 365,255 | 3,013,380 | 48,540 | 1,919,501 | ||||||||||||||||||||||||
Todd M. Duchene | — | — | 3,750 | 97,538 | ||||||||||||||||||||||||||||
Jeffrey D. Frank | — | — | 7,658 | 237,289 | ||||||||||||||||||||||||||||
| (1) | The value realized upon exercise represents the difference between the exercise price per share of the stock option and the sales price or the fair market value of each share of our Common Stock multiplied by the number of shares exercised. The exercise price of each stock option was equal to the closing price of our Common Stock as reported on NASDAQ on the date of grant. |
| (2) | The value realized on vesting was determined by multiplying the number of RSUs vesting by the closing price of our Common Stock as reported on NASDAQ on the vesting date. |
| (3) | Included are |
| (4) | Included are 2,824 shares that vested on |
| 2018 PROXY STATEMENT | FLIR | 39 |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
The following Pension Benefits table provides the present value of the accumulated benefits payable to each of our NEOs under our SERP. Mr. Teich is the only participant in the SERP.
Name | Plan Name | Number of Years of Credited Service (#) | Present Value of Accumulated Benefit ($)(1) | Payments During Last Fiscal Year ($) | Plan Name | Number of Years of Credited Service (#) | Present ($)(1) | Payments During Last Fiscal Year ($) | ||||||||||||||||||||||||
James J. Cannon | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
Andrew C. Teich | SERP | 15 | $ | 5,781,562 | — | SERP | 16 | $ | 5,923,111 | — | ||||||||||||||||||||||
Carol P. Lowe | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
Shane R. Harrison | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
Amit Singhi | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||
David A. Muessle | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
Anthony L. Trunzo | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
Thomas A. Surran | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
Todd M. DuChene | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||
Jeffrey D. Frank | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||
Travis D. Merrill | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
Thomas A. Surran | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||
| (1) | The assumptions made in determining the present value of the accumulated benefit are disclosed in Note 16 to the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, |
Under the SERP, there are two methods for calculating retirement benefits: (1) Retirement Benefit and (2) Minimum Retirement Benefit. Under the Retirement Benefit method, a participant who terminates is entitled to receive his vested account balance in a lump sum payable within 60 days after the date of termination. Under the Minimum Retirement Benefit method, a participant is entitled to receive a lump sum payment equal to 118%
35
of the present value of a hypothetical stream of installments payable annually for 20 years, with each payment equal to 25% of the greater of (A) the participant’s cash compensation earned during his final 12 full months of employment, (B) the average of the participant’s two highest full calendar years of cash compensation, or (C) the participant’s highest cash compensation received in any one of the five full calendar years preceding retirement.Normal Retirement, as defined below. Under certain circumstances defined below, participants are eligible to receive the greater of the Retirement Benefit or the Minimum Retirement Benefit. The present value of accumulated benefits in the table above is calculated on the basis of Minimum Retirement Benefit even though Mr. Teich has not fully achieved eligibility for such benefits.
Mr. Teich’s account is in an unfunded retirement account and is credited with an amount equal to 10% of his cash compensation during each plan year. Cash compensation is defined as salary plus annual incentive payments. The
retirement account earns interest at the prime interest rate plus 2%. Vesting in the retirement account is based upon the age of the participant and increases annually with full vesting provided at the earlier of age 60 or after 10 years of service. Mr. Teich is 100% vested.
Upon Normal Retirement, death or disability, Mr. Teich will be entitled to receive the greater of his Retirement Benefit or his Minimum Retirement Benefit.
The SERP defines Normal Retirement as termination of employment with the Company at or after age 60. There are early retirement provisions in the SERP established based upon termination of employment at or after age 55 with at least five full years of service. Under these early retirement provisions, the participant is eligible to receive the Minimum Retirement Benefit; however, benefits are reduced by 6% for each year prior to age 60 in which the termination occurs. If a participant is eligible for early retirement and terminates within two years of a change of control, the 6% reduction above shall not apply and the benefit will be increased by 5% for each year, or partial year, that the participant’s age at termination is less than 60.
Due to his retirement from the Company, Mr. Teich’s SERP account balance in the amount of $5,931,480 was distributed to him in March 2018.
| 40 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | | |
20152017 Non-Qualified Deferred Compensation
The following Non-Qualified Deferred Compensation table provides information regarding the contributions made and the aggregate earnings recognized during the year ended December 31, 2015,2017, and the account balances as of December 31, 20152017 for our NEOs under the NQDC plan and the stock deferral plan.
Name | Executive Contributions ($) | Registrant Contributions ($) | Aggregate Earnings (Loss) ($)(1) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at December 31 ($) | Executive Contributions ($) | Registrant Contributions ($) | Aggregate Earnings (Loss) ($)(1) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at December 31 ($) | ||||||||||||||||||||||||||||||
James J. Cannon | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||
| — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Andrew C. Teich | $
| 272,263 — | (2)
| $ | — — | | $
| (1,951 (29,529 | )(3) )(4) | $
| — — |
| $ | 918,097 219,730 | | 583,636 | (2) | — | 455,227 | (3) | — | 3,079,152 | ||||||||||||||||||
| 668,340 | (4) | — | 381,975 | (5) | — | 1,711,628 | ||||||||||||||||||||||||||||||||||
Carol P. Lowe | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Shane R. Harrison | 39,100 | — | 16,263 | — | 123,310 | |||||||||||||||||||||||||||||||||||
| — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Amit Singhi |
| — — |
| | — — | |
| — — |
|
| — — |
|
| — — |
| — | — | — | — | — | ||||||||||||||||||||
Anthony L. Trunzo |
| 194,344 — | (2)
| | — — | | (66,825 | )(3) |
| (741,450 — | )
| | 198,725 — | | ||||||||||||||||||||||||||
David A. Muessle |
| 57,065 121,369 | (2) (5) |
| (5,242 (33,110 | )(3) )(4) |
| — (315,039 | ) | | 248,321 161,123 | | ||||||||||||||||||||||||||||
| — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Todd M. DuChene | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Jeffrey D. Frank | 186,585 | (2) | — | 68,573 | (3) | — | 650,609 | |||||||||||||||||||||||||||||||||
| 104,432 | (6) | — | 59,675 | (5) | — | 267,410 | ||||||||||||||||||||||||||||||||||
Travis D. Merrill | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Thomas A. Surran |
| — — |
| | — — | |
| — — |
|
| — — |
|
| — — |
| — | — | — | — | — | ||||||||||||||||||||
Todd M. DuChene |
| — — |
| | — — | |
| — — |
|
| — — |
|
| — — |
| |||||||||||||||||||||||||
Jeffrey D. Frank |
| 99,144 — | (2)
| | — — | |
| (3,220 — | )(3)
|
| — — |
| | 95,924 — | | |||||||||||||||||||||||||
| — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| (1) | These amounts are not reported in the |
36
| (2) | These amounts are reported as Salary or Non-Equity Incentive Plan Compensation in the |
| (3) | Earnings from the NQDC plan. |
| (4) | Includes 18,073 RSUs that vested on April 29, 2017. |
| (5) | Earnings from the stock deferral plan. |
| (6) | Included are |
We implemented the NQDC plan in order to provide highly compensated employees with an additional savings option. NEOs can defer up to 50% of salary and up to 100% of AIP compensation. Participants elect the timing and method of distribution during the annual enrollment period. Distribution options include a lump sum or annual installments. The deferred compensation and investment earnings are held as a Company asset within a rabbi trust. Participants have a menu of market-based investment options from which to choose to invest their contributions.
In addition, we have a Stock Deferral Plan that provides highly compensated employees the ability to defer the receipt of RSUs after vesting. Participants may elect to defer the distribution for up to 1110 years from the grant date and must make the election to defer within 30 daysin accordance with Section 409A of grant.the Code.
| 2018 PROXY STATEMENT | FLIR | 41 |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | |
Potential Payments upon Termination or Change of Control
We entered into certain agreements and maintain certain plans that will require us to provide compensation to our NEOs (excluding Mr. Muessle) in the event of a termination of employment or a termination in connection with a change of control of the Company. The following tables show potential payments to our NEOs assuming a December 31, 20152017 termination date and, where applicable, using the closing market price of our Common Stock as of December 31, 201529, 2017 of $28.07,$46.62, as reported on NASDAQ.
Andrew C. Teich
| James J. Cannon | ||||||||||||
Executive Benefits and Payments Upon Termination | Termination without cause or Resignation for Good Reason / Constructive Termination | Termination due to death or disability | Termination without cause or Resignation for Good Reason / Constructive Termination in connection with a Change in Control | |||||||||
Severance payment (1) | $ | 1,450,000 | $ | 725,000 | $ | 2,900,000 | ||||||
Continued health coverage (2) | 25,925 | 39,795 | ||||||||||
Accelerated vesting (3) | 7,075,467 | 7,075,467 | ||||||||||
Total | $ | 8,551,392 | $ | 725,000 | $ | 10,015,262 | ||||||
| Carol P. Lowe | ||||||||
Executive Benefits and Payments Upon Termination | Termination without cause or Resignation for Good Reason / Constructive Termination | Termination without cause or Resignation for Good Reason / Constructive Termination in connection with a Change in Control | ||||||
Severance payment (4) | $ | 1,202,500 | $ | 2,405,000 | ||||
Continued health coverage (2) | 21,951 | 33,694 | ||||||
Accelerated vesting (3) | 2,539,205 | 2,539,205 | ||||||
Total | $ | 3,763,656 | $ | 4,977,899 | ||||
| Shane R. Harrison | ||||||||
Executive Benefits and Payments Upon Termination | Termination without cause or Resignation for Good Reason / Constructive Termination | Termination without cause or Resignation for Good Reason / Constructive Termination in connection with a Change in Control | ||||||
Severance payment (5) | $ | 452,160 | $ | 745,673 | ||||
Continued health coverage (2) | 26,981 | 41,415 | ||||||
Accelerated vesting (6) | 870,650 | 1,764,310 | ||||||
Total | $ | 1,349,791 | $ | 2,551,398 | ||||
| 42 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | | |
Executive Benefits and | Voluntary Termination | Early Retirement | Normal Retirement | Involuntary Not For Cause Termination and Termination For Good Reason | For Cause Termination | Termination in connection with a Change of Control | Death | Disability | ||||||||||||||||||||||||
Compensation | ||||||||||||||||||||||||||||||||
Base Salary Continuation(1) | — | $ | — | $ | — | $ | 815,000 | $ | — | $ | — | $ | — | $ | 815,000 | |||||||||||||||||
Lump Sum Payment(2) | — | — | — | 815,000 | — | 1,692,509 | 815,000 | |||||||||||||||||||||||||
Stock Options (unvested and accelerated)(3) | — | — | — | 222,720 | — | 222,720 | — | — | ||||||||||||||||||||||||
RSUs (unvested and accelerated)(3) | — | — | — | 3,714,980 | — | 3,714,980 | — | — | ||||||||||||||||||||||||
Benefits & Perquisites | ||||||||||||||||||||||||||||||||
Post-Termination Health Care Benefits(4) | — | — | — | 14,220 | — | 21,757 | — | — | ||||||||||||||||||||||||
Supplemental Executive Retirement Plan(5) | 4,866,312 | 4,866,312 | — | 4,866,312 | 1,318,369 | 8,689,842 | 4,866,312 | 4,866,312 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 4,866,312 | $ | 4,866,312 | $ | — | $ | 10,448,232 | $ | 1,318,369 | $ | 14,341,808 | $ | 5,681,312 | $ | 5,681,312 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Todd M. DuChene | ||||||||
Executive Benefits and Payments Upon Termination | Termination without cause or Resignation for Good Reason / Constructive Termination | Termination without cause or Resignation for Good Reason / Constructive Termination in connection with a Change in Control | ||||||
Severance payment (5) | $ | 739,200 | $ | 1,085,729 | ||||
Continued health coverage (2) | 23,631 | 36,237 | ||||||
Accelerated vesting (6) | 2,451,082 | 4,120,917 | ||||||
Total | $ | 3,213,913 | $ | 5,242,919 | ||||
37
Amit Singhi
| Jeffrey D. Frank | ||||||||
Executive Benefits and Payments Upon Termination | Termination without cause or Resignation for Good Reason / Constructive Termination | Termination without cause or Resignation for Good Reason / Constructive Termination in connection with a Change in Control | ||||||
Severance payment (5) | $ | 541,920 | $ | 978,590 | ||||
Continued health coverage (2) | 23,505 | 36,081 | ||||||
Accelerated vesting (6) | 1,337,616 | 2,545,214 | ||||||
Total | $ | 1,903,041 | $ | 3,559,885 | ||||
Executive Benefits and Payments Upon Termination | Voluntary Termination | Involuntary Not For Cause Termination and Termination For Good Reason | For Cause Termination | Termination in connection with a Change of Control | Death | Disability | ||||||||||||||||||
Compensation | ||||||||||||||||||||||||
Base Salary Continuation(1) | $ | — | $ | 425,000 | $ | — | $ | — | $ | — | $ | 425,000 | ||||||||||||
Lump Sum Payment(2) | — | 340,000 | — | 1,530,000 | 425,000 | — | ||||||||||||||||||
Stock Options (unvested and accelerated)(3) | — | 77,140 | — | 77,140 | — | — | ||||||||||||||||||
RSUs (unvested and accelerated)(3) | — | 889,819 | — | 889,819 | — | — | ||||||||||||||||||
Benefits & Perquisites | ||||||||||||||||||||||||
Post-Termination Health Care Benefits(4) | — | 381 | — | 583 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | — | $ | 1,732,340 | $ | — | $ | 2,497,542 | $ | 425,000 | $ | 425,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| Travis D. Merrill | ||||||||
Executive Benefits and Payments Upon Termination | Termination without cause or Resignation for Good Reason / Constructive Termination | Termination without cause or Resignation for Good Reason / Constructive Termination in connection with a Change in Control | ||||||
Severance payment (5) | $ | 640,000 | $ | 812,617 | ||||
Continued health coverage (2) | 23,631 | 36,273 | ||||||
Accelerated vesting (6) | 1,424,654 | 2,579,338 | ||||||
Total | $ | 2,088,285 | $ | 3,428,228 | ||||
| (1) |
|
In the event the employment of Mr. Singhi is involuntarily terminated without cause by the Company or he resigns for good reason, he is entitled to a lump sum severance payment equal to 80% of his base salary. If Mr. Singhi’s employment is involuntarily terminated by the Company or Mr. Singhi resigns for good reason, in either case, in connection with a change of control, he is entitled to a lump sum payment equal to 200% of his current base salary and target AIP then in effect. If Mr. Singhi’s employment is terminated due to death, his beneficiaries are entitled to a lump sum payment equal to 12 months of his base salary in effect at the time of termination.
|
38
David A. Muessle
| 2018 PROXY STATEMENT | FLIR | 43 |
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
Thomas A. Surran
Executive Benefits and Payments Upon Termination | Voluntary Termination | Involuntary Not For Cause Termination | For Cause Termination | Termination in connection with a Change of Control | Death | Disability | ||||||||||||||||||
Compensation | ||||||||||||||||||||||||
Lump Sum Payment(1) | $ | — | $ | — | $ | — | 979,784 | $ | — | $ | — | |||||||||||||
Stock Options (unvested and accelerated)(2) | — | — | — | 13,461 | — | — | ||||||||||||||||||
RSUs (unvested and accelerated)(2) | — | — | — | 1,304,553 | — | — | ||||||||||||||||||
Benefits & Perquisites | ||||||||||||||||||||||||
Post-Termination Health Care Benefits(3) | — | — | — | 21,757 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | — | $ | — | $ | — | $ | 2,319,555 | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Todd M. DuChene
Executive Benefits and Payments Upon Termination | Voluntary Termination | Involuntary Not For Cause Termination | For Cause Termination | Termination in connection with a Change of Control | Death | Disability | ||||||||||||||||||
Compensation | ||||||||||||||||||||||||
Lump Sum Payment(1) | $ | — | $ | — | $ | 90,615 | $ | — | $ | — | ||||||||||||||
Stock Options (unvested and accelerated)(2) | — | — | — | — | — | — | ||||||||||||||||||
RSUs (unvested and accelerated)(2) | — | — | — | 871,742 | — | — | ||||||||||||||||||
Benefits & Perquisites | ||||||||||||||||||||||||
Post-Termination Health Care Benefits(3) | — | — | — | 21,757 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | — | $ | — | $ | — | $ | 984,114 | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Jeffrey D. Frank
Executive Benefits and Payments Upon Termination | Voluntary Termination | Involuntary Not For Cause Termination | For Cause Termination | Termination in connection with a Change of Control | Death | Disability | ||||||||||||||||||
Compensation | ||||||||||||||||||||||||
Lump Sum Payment(1) | $ | — | $ | — | 675,401 | $ | — | $ | — | |||||||||||||||
Stock Options (unvested and accelerated)(2) | — | — | — | 10,355 | — | — | ||||||||||||||||||
RSUs (unvested and accelerated)(2) | — | — | — | 611,870 | — | — | ||||||||||||||||||
Benefits & Perquisites | ||||||||||||||||||||||||
Post-Termination Health Care Benefits(3) | — | — | — | 44,086 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | — | $ | — | $ | — | $ | 1,341,712 | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
39
| (3) | Stock Options and RSUs: In the event an NEO’s employment is involuntarily terminated by the Company without cause, the employee resigns for Good Reason/Constructive Termination or is involuntarily terminated by the Company in connection with a change of control, the NEO will be entitled to immediate vesting on all unvested equity awards. For unvested market-based and performance-based RSUs, the target number of underlying shares will remain subject to the market-based and performance-based criteria. Once the performance period has completed, the number of earned market-based and performance-based RSUs will be determined. The value in the table assumes that the target number of shares will be earned. See the “Outstanding Equity Awards at Fiscal Year-End 2017” table for additional details. |
| (4) | Severance Payment: In the event Ms. Lowe’s employment is involuntarily terminated by the Company without cause or the employee resigns for Good Reason/Constructive Termination, she will be entitled to payments for one year that are equal to the sum of her base salary and target AIP. In the event Ms. Lowe’s employment is involuntarily terminated by the Company in connection with a change of control, she will be entitled to a lump sum payment equal to her base salary and actual AIP for the two most recent taxable years ending before the date upon which the change of control occurred. |
| (5) | Severance Payment: In the event the NEO’s employment is involuntarily terminated by the Company without cause or the employee resigns for Good Reason/Constructive Termination, the NEO will be entitled to payments for one year that are equal to the sum of the NEO’s base salary and target AIP. In the event the NEO’s employment is involuntarily terminated by the Company in connection with a change of control, the NEO will be entitled to a lump sum payment equal to 200% of the NEO’s base salary and target AIP. |
| (6) | Stock Options and RSUs: In the event an NEO’s employment is involuntarily terminated by the Company without cause or the employee resigns for Good Reason/Constructive Termination, the NEO will be entitled to immediate vesting on all unvested equity awards, the vesting of which depends merely on the satisfaction of a service obligation by the NEO. In the event an NEO’s employment is involuntarily terminated by the Company in connection with a change of control, the NEO will be entitled to immediate vesting on all unvested equity awards. For unvested market-based and performance-based RSUs, the target number of underlying shares will remain subject to the market-based and performance-based criteria. Once the performance period has completed, the number of earned market-based and performance-based RSUs will be determined. The value in the table assumes that the target number of shares will be earned. See the “Outstanding Equity Awards at Fiscal Year-End 2017” table for additional details. |
Termination or Change of Control Payments
We have change of control agreements with Messrs. Teich, Singhi, Surran, DuChene, and Frank.each of our NEOs.
For change of control benefits to be paid, a change of control must have occurred and the NEO must be involuntarily terminated within a specific period of time prior to or following the change of control event (i.e., between 60 days prior to and 180 days after the event). In such circumstances, the agreements provide for the following benefits: (a) immediate vesting of any unvested equity awards, (b) for Mr. Cannon and Ms. Lowe a payment equal to two hundred percent (200%) of the sum of the NEO’s annual base salary and target annual incentive compensation in effect as of the day before the change of control and for Messrs. DuChene, Frank, Merrill & Harrison a payment equal to the cash compensationsum of the NEO (except for Mr. Singhi)NEO’s base salary and AIP for the two most recent taxable years ending before the date upon which the change of control occurred, and (c) a maximum of 18 months of continuation of health benefits. For Mr. Singhi, the payment referenced in (b) above is according tobenefits for a different formula than the other NEOs. For Mr. Singhi that payment will be equal to 200%maximum period of his salary and target AIP at the time of the change of control.18 months. If the payment would result in a “parachute payment” within the meaning of Section 280G under the United States Internal Revenue Code, then benefits will be reduced to the extent necessary, so that the payment would be $1.00 less than the amount that would cause the payments to be subject to the excise tax. ChangeThe change of control benefits described in (b) and (c) above are contingent on the NEO signing and not revoking a release of claims in a form satisfactory to the Company. Each change
of control agreement has a term ending December 31, 2018 and will renew for successive one-year periods unless we provide notice of non-renewal as provided therein. Any severance payments or benefits received under the NEO’s employment agreement or employer offer letter, as applicable, will offset payments or benefits payable under the change of control agreement.
Termination without Cause and with Good Reason
Cannon Employment Agreement.The employment agreementsagreement for Messrs. TeichMr. Cannon provides for the following benefits due to the Company not renewing his employment agreement, an involuntary termination without cause or a termination for good reason, subject to his execution of a release and Singhi provideseparation agreement:
continued payments of his base salary in effect at the time of such termination for a period equal to the greater of 12 months or the remaining term of his employment agreement,
payment or reimbursement for the premiums cost of any continued health coverage elected by Mr. Cannon under COBRA for a period of up to 12 months following the termination date,
| 44 | FLIR | 2018 PROXY STATEMENT |
| COMPENSATION OF NAMED EXECUTIVE OFFICERS | | |
an annual bonus of not less than one year’s base salary for the year in which such termination occurs, and
immediate vesting acceleration of all equity awards granted to him.
In addition, if Mr. Cannon’s employment terminates because of his death or disability, Mr. Cannon’s employment agreement provides that his estate or designated beneficiary will be entitled to an amount equal to his annual base salary.
Lowe Employment Agreement.The employment offer letter for Ms. Lowe provides for the following benefits due to an involuntary termination without cause or a termination for good reason: (a) immediate vestingreason, subject to execution of any unvested equity awards, (b) a lump sum payment for Mr. Teich equal to hisrelease and separation agreement:
continued payments of base salary in effect at the time of such termination and a lump sum payment for Mr. Singhi equal to 80% of his salary at the time of termination, (c) continuation of the NEO’s current salary for a period of 12 months, and (d)
an annual bonus payment for the year in which such termination occurs in an amount not less than 85% of base salary,
payment or reimbursement for the premiums cost of any continued health coverage under COBRA for a period of 12 months following the termination date, and
continued vesting for all equity awards for a period of continuation12 months following the date of healthtermination.
Senior Executive Severance Plan.The severance plan as it applies to Messrs. DuChene, Frank, Harrison, and Merrill provides for the following benefits due to an involuntary termination without cause or a constructive termination, subject to execution of a release and separation agreement and compliance with the non-competition, non-solicitation, and non-disparagement restrictive covenants through the one-year anniversary of the termination date:
continued payments of base salary in effect at the time of such termination for a period of 12 months,
an annual bonus payment for the year in which such termination occurs in an amount equal to the target bonus for the year of termination, and
immediate vesting acceleration of all time-based equity awards and “banked” performance-based equity awards which only depend on additional service for vesting.
In addition, the severance plan provides that, if any payment or benefits to a severance plan participant (including the payments and benefits under the severance plan) would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code and would therefore be subject to an excise tax under Section 4999 of the Internal Revenue Code, then such payments and benefits will be either (1) reduced to the largest portion of the payments and benefits that would result in no portion of the payments and benefits being subject to the excise tax, or
(2) not reduced, whichever, after taking into account all applicable federal, state and local income taxes and the excise tax, results in the participant’s receipt, on an after-tax basis, of the greater payments and benefits.
NEOs who Departed fromCEO Pay Ratio
As required by Section 953(b) of the CompanyDodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of our CEO, James J. Cannon.
For 2017, our last completed fiscal year:
The median of the annual total compensation of all employees of the company (other than the CEO) was $79,263; and
The annual total compensation of our CEO was $11,290,574. This amount equals the CEO’s compensation as reported in 2015
Mr. Trunzo departed from the Company“Summary Compensation Table” plus an additional amount that reflects the annualizing of his base salary, non-equity incentive plan compensation, and annual long-term equity award for 2017 consistent with the applicable U.S. Securities and Exchange Commission guidance.
Based on this information, for 2017, the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 142 to 1 (the “2017 Pay Ratio”). The provided pay ratio is a reasonable estimate calculated in March 2015. In accordance with his voluntary termination, he received no severance benefits, accelerationItem 402(u) of vesting on unvestedRegulation S-K.
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of the “median employee,” the methodology and the material assumptions that we used were as follows:
We selected December 1, 2017 (which is a date within the last 3 months of our last completed fiscal year) as the date upon which we would identify the “median employee”.
To identify the “median employee” from our employee population, we use total target cash compensation plus grant date value of equity awards norfor January 1 through December 31, 2017.
In light of the additional one-time cash and equity compensation that we paid to our CEO in 2017 in order to successfully recruit him to our Company, payment for continuation of his health benefits.we expect the 2017 Pay Ratio to be significantly higher than the CEO pay ratio in future years when we are not providing compensation to recruit a new Chief Executive Officer. Alternatively, if we were to exclude these one-time cash and equity compensation values, our CEO compensation would have been $4,991,104 and the resulting CEO pay ratio would have been 63 to 1.
| 2018 PROXY STATEMENT | FLIR | 45 |
| DIRECTOR COMPENSATION | |
40
DIRECTOR COMPENSATION
Under a policy adopted by the Board of Directors,For 2017, each non-employee director shall automatically bewas granted an annual grant of RSUs and stock options under the Company’s current stock incentive plan (currently the 2011 Stock Incentive Plan) based on a targeted dollar value. The stock options vestvested immediately upon grant while the RSUs fully vest approximately one year from the date of grant. In April 2013, the Board adjusted the amount of the annual cash retainer paid to non-employee directors based on a recommendation made by Willis Towers Watson, the Board’s director compensation consultant. The new annual retainer amount is $70,000.for each non-employee director was $70,000 with an additional $100,000 retainer for the Chairman of the Board. In addition, each non-employee director receives an attendance fee of $1,500 for each meeting of the Board of Directors attended, and reimbursement for out-of-pocket and travel expenses incurred in attending Board meetings. The retainers for the Board’s committees are:were: the Chairman of the Audit Committee receivesreceived a $15,000 annual retainer, the Chairman of the Compensation Committee receivesreceived a $9,000 annual retainer and the Chairman of the Corporate Governance Committee receivesreceived a $7,000 annual retainer. Each non-employee director who servesserved on the Audit Committee (other than the Chairman) receivesreceived a $7,000 annual retainer, and each non-employee director who servesserved on the Compensation or Corporate Governance Committees (other than the Chairmen of such Committees), receives
received an annual retainer of $4,000.
Beginning in 2018, the annual retainer amount is $75,000 with no additional fee for meeting attendance, and reimbursement for out-of-pocket and travel expenses. The Retainers for the Board’s committees are: The Chairman of each of the Audit Committee and Compensation Committee receives a $20,000 annual retainer and the Chairman of the Corporate Governance Committee receives a $15,000 annual retainer. Each member (other than a committee chair) of a Board committee (other than the Ethics and Compliance Committee) receives a $10,000 annual retainer. In addition, each non-employee director will receive an annual grant of RSUs having a grant date value of $160,000 vesting one year from the date of grant.
The table below summarizes the compensation paid by us to our non-employee directors during the year ended December 31, 2015.2017.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Option Awards ($)(2) | All Other Compensation ($) | Total ($) | Fees Earned ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Total ($) | |||||||||||||||||||||||||||
Earl R. Lewis | $ | 177,500 | $ | 75,762 | $ | 71,302 | $ | 150,000 | (3) | $ | 474,564 | $ | 182,000 | $ | 75,437 | $ | 75,006 | $ | 332,443 | |||||||||||||||||
John D. Carter | 84,500 | 75,762 | 71,302 | — | 231,564 | 87,500 | 75,437 | 75,006 | 237,943 | |||||||||||||||||||||||||||
William W. Crouch | 88,500 | 75,762 | 71,302 | — | 235,564 | 93,000 | 75,437 | 75,006 | 243,443 | |||||||||||||||||||||||||||
Catherine A. Halligan | 84,500 | 75,762 | 71,302 | — | 231,564 | 90,750 | 75,437 | 75,006 | 241,193 | |||||||||||||||||||||||||||
Angus L. Macdonald | 100,250 | 75,762 | 71,302 | — | 247,314 | 106,500 | 75,437 | 75,006 | 256,943 | |||||||||||||||||||||||||||
Michael T. Smith | 99,500 | 75,762 | 71,302 | — | 246,564 | 107,750 | 75,437 | 75,006 | 256,693 | |||||||||||||||||||||||||||
Cathy A. Stauffer | 84,500 | 75,762 | 71,302 | — | 231,564 | 89,000 | 75,437 | 75,006 | 239,443 | |||||||||||||||||||||||||||
John W. Wood, Jr. | 81,500 | 75,762 | 71,302 | — | 228,564 | |||||||||||||||||||||||||||||||
Robert S. Tyrer | 20,500 | — | — | 20,500 | ||||||||||||||||||||||||||||||||
John W. Wood. | 86,000 | 75,437 | 75,006 | 236,443 | ||||||||||||||||||||||||||||||||
Steven E. Wynne | 88,500 | 75,762 | 71,302 | — | 235,564 | 94,750 | 75,437 | 75,006 | 245,193 | |||||||||||||||||||||||||||
| (1) | Represents the grant date fair value for time-based RSUs granted in |
| (2) | Represents the grant date fair value for the stock options granted in |
41
We require that all of our independent directors, within the later of five years from joining the Board or July 2017, hold shares of our Common Stock, restricted stock or stock options in an amount equal in value to no less than four times the average
of the annual cash retainer for Board (but not committee) service during the immediately preceding five-year period. All of our independent directors are currently in compliance with this stock ownership policy.
In addition to serving as the Non-Executive Chairman, Mr. Lewis also serves as a senior advisor to the Board and Mr. Teich. He has a consulting agreement with the Company for a period of two years from his May 2013 retirement date which establishes his compensation and his responsibilities. Based in part on advice from Radford, the Compensation Committee determined an appropriate level of compensation for Mr. Lewis considering his years of experience directly related to our industry. Under the agreement, Mr. Lewis advises both the Board and the Company’s executive management on strategy, mergers and acquisitions, organizational considerations and other matters specified by the Board.
42
| 46 | FLIR | 2018 PROXY STATEMENT |
| EQUITY COMPENSATION PLAN INFORMATION | | |
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 20152017 with respect to the shares of the Company’s Common Stock that may be issued under the Company’s existing equity compensation plans.
| A | B | C | A | B | C | |||||||||||||||||||
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights(1) | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A)(3) | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights(1) | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A)(3) | ||||||||||||||||||
Equity Compensation Plans Approved by Shareholders(4) | 6,447,580 | $ | 27.49 | 9,425,173 | 5,223,124 | $ | 29.66 | 6,974,519 | ||||||||||||||||
| (1) | Excludes purchase rights accruing under the Company’s 2009 Employee Stock Purchase Plan (the “Purchase Plan”). Under the Purchase Plan, each eligible employee may purchase shares of Common Stock at semi-annual intervals at a purchase price per share equal to 85% of the lower of (i) the fair market value of the Common Stock on the enrollment date for the offering period in which that semi-annual purchase date occurs, or (ii) the fair market value of the Common Stock on the semi-annual purchase date. |
| (2) | The calculation of weighted average exercise price does not include RSUs. |
| (3) | Includes shares available for future issuance under the Purchase Plan. As of December 31, |
| (4) | Consists of the Company’s 2002 Stock Incentive Plan, 2011 Stock Incentive Plan and the Purchase Plan. In addition, |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company’s directors, officers, and beneficial owners of more than 10% of a registered class of the Company’s equity securities to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are also required to furnish the Company with copies of all Section 16(a) reports they file.
Based solely on the Company’s review of the copies of such reports received by it with respect to fiscal year 2015,2017, or written representations from certain reporting persons, the Company believes that except as noted below, no director, officer or beneficial owner of more than 10% of the outstanding Common Stock of the Company failed to file on a timely basis the reports required under Section 16(a) of the Exchange Act during 2015.2017. The Company was unablefailed to make afile timely filingForm 3s for each of the Form 4 for Mr. Smith of his grant of stock optionsPaul G. Sale and RSUs on April 28, 2015 due to inaccessibility to his Securities and Exchange Commission account. Mr. Smith’s Form 4 wasRobert S. Tyrer which forms were filed on May 1, 2015.June 5, 2017 and November 2, 2017, respectively.
| 2018 PROXY STATEMENT | FLIR | 47 |
| STOCK OWNED BY MANAGEMENT | |
43
The following table sets forth certain information known to the Company with respect to the beneficial ownership of the Company’s Common Stock as of February 12, 201614, 2018 by: (i) each of the Company directors, (ii) each of the Company’s
NEOs, and (iii) all directors and executive officers as a group. The Company believes that each of the following shareholders has sole voting and investment power with respect to the shares beneficially owned by such shareholder.
Name | Shares of Common Stock Beneficially Owned(1) | Percent of Common Stock Outstanding | ||||||
Earl Lewis | 2,203,552 | 2 | % | |||||
John Carter | 158,903 | * | ||||||
William Crouch | 140,543 | * | ||||||
Cathy Halligan | 28,440 | * | ||||||
Angus MacDonald | 147,043 | * | ||||||
Michael Smith | 227,066 | * | ||||||
Cathy Stauffer | 28,440 | * | ||||||
John Wood | 114,050 | * | ||||||
Steve Wynne | 154,043 | * | ||||||
Todd M. DuChene | 17,724 | * | ||||||
Jeffrey D. Frank | 41,163 | * | ||||||
David A. Muessle | 174,948 | * | ||||||
Amit Singhi | — | * | ||||||
Thomas A. Surran | 90,625 | * | ||||||
Andrew C. Teich | 754,697 | 1 | % | |||||
Anthony L. Trunzo(2) | 801 | * | ||||||
Directors and executive officers as a group (18 persons) | 4,301,255 | 3 | % | |||||
Name | Shares of Common Stock Beneficially Owned(1) | Percent of Common Stock Outstanding | ||||||
Earl R. Lewis | 1,703,611 | 1 | % | |||||
John D. Carter | 155,241 | * | ||||||
William W. Crouch | 117,906 | * | ||||||
Catherine A. Halligan | 53,843 | * | ||||||
Angus L. MacDonald | 133,509 | * | ||||||
Michael T. Smith | 228,357 | * | ||||||
Cathy A. Stauffer | 51,446 | * | ||||||
Robert S. Tyrer | — | — | ||||||
John W. Wood, Jr. | 141,841 | * | ||||||
Steven E. Wynne | 138,449 | * | ||||||
James J. Cannon | — | — | ||||||
Todd M. DuChene | 185,348 | * | ||||||
Jeffrey D. Frank | 127,771 | * | ||||||
Shane R. Harrison | 69,269 | * | ||||||
Carol P. Lowe | — | — | ||||||
Travis D. Merrill | 100,120 | * | ||||||
Amit Singhi | 9,707 | * | ||||||
Thomas A. Surran | 294 | * | ||||||
Andrew C. Teich | 5,435 | * | ||||||
Directors and executive officers as a group (21 persons) | 3,222,525 | 2 | % | |||||
| * | Less than one percent (1%) |
| (1) | Applicable percentage of ownership is based on |
| 48 | FLIR | 2018 PROXY STATEMENT |
| STOCK OWNED BY PRINCIPAL SHAREHOLDERS | | |
44
STOCK OWNED BY PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to the Company with respect to the beneficial ownership of the Company’s Common Stock by each person known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock as of December 31, 2015.
2017. Except as otherwise indicated, the Company believes that each of the following shareholders has sole voting and investment power with respect to the shares beneficially owned by such shareholder.
Name and Address of Beneficial Owner | Shares of Common Stock Beneficially Owned(1) | Percent of Common Stock Outstanding | ||||||
The Vanguard Group(2) 100 Vanguard Blvd. Malvern, PA 19355 | | 12,059,953 | | | 9 | % | ||
BlackRock, Inc.(5) 55 East 52nd Street New York, NY 10022 | | 10,726,584 | | | 8 | % | ||
Name and Address of Beneficial Owner | Shares of Common Stock Beneficially Owned(1) | Percent of Common Stock Outstanding | ||||||
The Vanguard Group(2) 100 Vanguard Blvd. Malvern, PA 19355 | 14,203,200 | 10 | % | |||||
BlackRock, Inc.(3) 55 East 52nd Street New York, NY 10022 | 9,950,564 | 7 | % | |||||
| (1) | Applicable percentage of ownership is based on |
| (2) | This information as to beneficial ownership is based on a Schedule 13G/A filed by The Vanguard Group with the SEC on February |
This information as to beneficial ownership is based on a Schedule 13G/A filed by Blackrock, Inc. with the SEC on January |
45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions with related persons during the year ended December 31, 2015.2017. The Company’s Corporate Governance Principles adopted by the Board of Directors provide that neither the Company nor any individual shall enter into a related party transaction unless it has been
reviewed and approved or ratified by the Audit Committee. A “related party transaction” for these purposes is defined as a transaction for which disclosure would be required pursuant to Item 404 of Regulation S-K.
| 2018 PROXY STATEMENT | FLIR | 49 |
| PROPOSAL 1 | |
ELECTION OF DIRECTORS
46The Company’s Board of Directors has eleven members, and all director nominees will stand for election to a one-year term. Unless otherwise specified on the proxy, it is the intention of the persons named in the proxy to vote the shares represented by each properly executed proxy FOR the election as directors of the persons named below as nominees. The Board of Directors believes that the nominees
will stand for election and will serve if elected as directors. However, if any of the persons nominated by the Board of Directors fails to stand for election or is unable to accept election, the number of directors constituting the Board of Directors may be reduced prior to the Annual Meeting or the proxies may be voted for the election of such other person as the Board of Directors may recommend.
| 50 | FLIR | 2018 PROXY STATEMENT |
| PROPOSAL 2 | | |
RATIFICATION OF APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND RELATED INFORMATION
Appointment of Independent Registered Public Accounting Firm
The Audit Committee of the Board of Directors has appointed KPMG LLP to act as the independent registered public accounting firm for the Company for the fiscal year ending December 31, 2016,2018, subject to the ratification of such appointment by the Company’s shareholders. KPMG LLP served as the Company’s independent registered public accounting firm for the year ended December 31, 2015.2017.
Recommendations of the Audit Committee and the Board of Directors
Each of the Audit Committee and the Board of Directors unanimously recommends that shareholders voteFOR the ratification of the appointment of the independent registered public accounting firm.If a quorum is present, this proposal will be approved if the number of votes castFOR the proposal exceedexceeds the number of votes castAGAINST the proposal. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting but will have no effect on the determination of the outcome of this proposal. No determination has been made as to what action the Board of Directors would take if the shareholders do not ratify the appointment.
A representative of KPMG LLP, who is expected to be present at the Annual Meeting, will be given the opportunity to make a statement and will be available to respond to appropriate questions at the Annual Meeting.
Fees Paid Toto KPMG LLP
All services to be provided by KPMG LLP are required to be, and in 20152017 and 20142016 were, approved by the Audit Committee in advance. The audit and audit-related services are approved annually. With respect to services other than audit and audit-related services, at least annually, the independent registered public accounting firm submits to the Audit Committee, for its approval, anticipated engagements for the ensuing year, either at the time that the Audit Committee reviews and approves the annual audit engagement, or at a time specifically scheduled for reviewing
such other services. Quarterly, and in conjunction with the Audit Committee’s regularly scheduled meetings, the independent registered public accounting firm presents to the Audit Committee for pre-approval any proposed engagements not previously reviewed and approved. In the event that an audit or non-audit service requires approval prior to the next regularly scheduled meeting of the Audit Committee, KPMG LLP must contact the Chairman of the Audit Committee to obtain such approval. The approval must be reported to the Audit Committee at its next regularly scheduled meeting.
The aggregate fees billed by KPMG LLP for professional services rendered by KPMG LLP for the fiscal years ended December 31, 20152017 and 20142016 were as follows:
| Years Ended December 31 | Years Ended December 31, | |||||||||||||||
| 2015 | 2014 | 2017 | 2016 | |||||||||||||
Audit Fees | $ | 2,496,000 | $ | 2,697,000 | $ | 2,459,000 | $ | 2,625,000 | ||||||||
Audit-Related Fees | 30,000 | 30,000 | 3,000 | 32,000 | ||||||||||||
Tax Fees | 999,000 | 828,000 | 710,000 | 709,000 | ||||||||||||
Other Fees | — | — | — | — | ||||||||||||
|
| |||||||||||||||
Total Fees | $ | 3,525,000 | $ | 3,555,000 | $ | 3,172,000 | $ | 3,206,000 | ||||||||
|
| |||||||||||||||
Audit FeesFees. . Audit fees include fees for services rendered for the audit of the annual financial statements included in Annual Reports on Form 10-K, including audit procedures related to business acquisitions, the audit of internal control over financial reporting and the review of the quarterly financial statements included in Quarterly Reports on Form 10-Q. In addition, amounts include fees for statutory
47
filings and audits, issuance of consents and assistance with and review of documents filed with the SEC. For 2014,2016, audit fees included $90,000$160,000 incurred for that year’s audit that werewas not known at the time of the finalization of the 20152017 proxy statement.
Audit-Related FeesFees. . Audit-related fees include fees for consultation on internal control matters and the annual audit of an employee benefit plan.
Tax Fees. Tax fees include fees principally for tax consultation and tax compliance services.
| 2018 PROXY STATEMENT | FLIR | 51 |
| PROPOSAL 3 | |
ADVISORY VOTE ON EXECUTIVE COMPENSATION
48Pursuant to Section 14A of the Exchange Act, we are providing shareholders with a vote to approve, on an advisory basis, the compensation of our NEOs as disclosed in this Proxy Statement in accordance with SEC rules. The advisory vote on executive compensation described in this proposal is commonly referred to as a “say-on-pay” vote. As a result of the vote of the Company’s shareholders at the 2011 Annual Meeting, the Company is required to provide the Company’s shareholders the opportunity to vote to approve, on an advisory basis, the compensation of our NEOs every six years.
Attract and retain executive officers with the skills, experience and motivation to enable the Company to achieve its stated objectives;
Provide a mix of current, short-term and long-term compensation to achieve a balance between current income and long-term incentive opportunity and promote focus on both annual and multi-year business objectives;
Align total compensation with the performance results we seek for our shareholders, including long-term growth in revenue and EPS;
Allow executive officers who demonstrate consistent performance over a multi-year period to earn above-average compensation when we achieve above-average long-term performance;
Be affordable and appropriate in light of our size, strategy and anticipated performance; and
Be straightforward and transparent in its design, so that shareholders and other interested parties can clearly understand all elements of our executive compensation programs, individually and in the aggregate.
This proposal gives our shareholders the opportunity to express their views on the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement. For the reasons discussed above, we are asking our shareholders to indicate their support for our executive compensation by voting FOR the following resolution at the Annual Meeting:
PROPOSAL 3: APPROVAL OF AMENDMENT NO. 1 TO ARTICLES OF INCORPORATION TO ADOPT A MAJORITYVOTE STANDARD TO BE USED IN THE REMOVAL OF DIRECTORSRESOLVED
The Board has adopted, and recommends, that the Company’s shareholders approve, edits to Article Von an advisory basis, the compensation of the Company’s Articlesnamed executive officers, as disclosed in this Proxy Statement pursuant to (i) provide for majority voting to remove directors and (ii) remove obsolete provisions (the “Proposed Amendments”).
An explanationthe compensation disclosure rules of the Proposed AmendmentSEC (which disclosure includes the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure).
The say-on-pay vote is included below. Certain conforming amendments will be made to the Company’s Second Amended Bylaws (the “Bylaws”) if the shareholders approve the Proposed Amendment; however, shareholder approval is not required for the proposed amendment to the Bylaws. Other than as described herein, the approval of the Proposed Amendmentan advisory vote only, and therefore it will not have any effect on your rights as a shareholder.
Background
At the 2015 Annual Meeting of Shareholders, a majority of our shareholders supported a shareholder proposal requesting that the Board take the steps necessary to causebind the Company to eliminate voting requirement in each of the Articles and the Bylaws that calls for greater than a simple majority vote, and replace all such “supermajority” requirements with a majority vote standard. The Articles contain such a requirement, with Article V, Section B providing that the holders of 75 percent of the votes then entitled to be cast for the election of directors must approve the removal of directors from office.
The Board regularly considers shareholder voting issues and has monitored the evolving debate on best practices among corporate governance experts, companies and investors with respect to supermajority voting requirements.
The Board recognizes the growing sentiment that the elimination of supermajority voting provisions in a company’s constituent documents increases a Board’s accountability to shareholders and increases the ability of shareholders to participate effectively in corporate governance. The Board believes that meaningful shareholder participation is critical to the Company’s success.
After considering the foregoing issues and the results of the shareholder vote in 2015, the Board has determined to recommend that a majority of the shares then outstanding standard for director removals be reflected in the Articles and Bylaws. The Board therefore has approved and recommends shareholder approval of an amendment to Article V of the Articles to (i) provide for a majority of the shares then outstanding standard for removal of directors and (ii) remove certain language from Article V, Section A that will be obsolete as of the 2016 Annual Meeting of Shareholders, as of which all ofor our directors will be serving one-year terms.
Summary of Proposed Amendment
Under the Proposed Amendment, the Company’s directors may be removed with or without cause, in each case upon the vote of a majority of the votes cast.
The Proposed Amendment is set forth below, with additions indicated by underlining and deletions indicated by strikeout:
“A. The number of directors of the Corporation shall be not less than five nor more than twelve, and within such limits, the exact number shall be fixed and increased or decreased from time to time by resolution of the Board of Directors. At each annual meeting of shareholders beginning in 2014, directors shall be elected annually for one-year terms expiring at the next succeeding annual meeting of shareholders.Notwithstanding the foregoing, the Class I directors elected at the 2011 annual meeting of shareholders shall continue to serve until the 2014 annual meeting of shareholders, the Class II directors elected at the 2012 annual meeting of
49
shareholders shall continue to serve until the 2015 annual meeting of shareholders and the Class III directors elected at the 2013 annual meeting of shareholders shall continue to serve until the 2016 annual meeting of shareholders.
B. Prior to and until the time at whichDirectors or our Compensation Committee. However, the Board of Directors ceases to be classified pursuant to this Article V, Section A, allAll or any number ofand the directors ofCompensation Committee will consider the Corporation may be removed only for cause and at a meeting of shareholders called expressly for this purpose, by the vote of75 percent of the votes then entitled to be cast for the election of directors. From and after the time at which the Board of Directors ceases to be classified pursuant to this Article V, Section A, any director may be removed with or without cause, by the vote of 75 percent of the votes then entitled to be cast for the election of directorsa majority of the shares then outstanding. At any meeting of shareholders at which one or more directors are removed, a majority ofvotesshares thenentitled to be castoutstandingfor the election of directors may fill any vacancy created by such removal. If any vacancy created by removal of a director is not filled by the shareholders at the meeting at which the removal is effected, such vacancy may be filled by a majority vote of remaining directors. The provisions of this Article V, Section B, may not be amended, altered, changed or repealed in any respect unless such action is approved by the affirmative vote of not less than 75 percent of the votes then entitled to be cast for election of directors.”voting results as appropriate when making future decisions regarding executive compensation.
Required Vote
The Proposed Amendment requires the approval of 75 percent of the votes then entitled to be cast for the election of directors. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting and will have the same effect as a vote against this proposal.
In the event the shareholders do not approve this proposal, the Articles will remain unchanged and 75 percent of the votes then entitled to be cast for the election of directors would continue to be required in order to remove directors.
RecommendationsRecommendation of the Board of Directors
The Board of Directors unanimously recommends that shareholders voteFOR the approval of the amendment to the Articles of Incorporation to effectuate the Proposed Amendments.If a quorum is present, this proposal will be approved with the affirmative voteFOR by at least 75% of the votes then entitled to be cast for the election of directors. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting but will have no effect on the determination of the outcome of this proposal. No determination has been made as to what action the Board of Directors would take if the shareholders do not ratify the appointment.
NOTE REGARDING PROPOSALS 3 AND 4
Proposals No. 3 and 4 pertain to amending the Company’s Articles. The Board has unanimously adopted the amendments to the Articles as set forth in Appendix A, which include the amendments proposed from both Proposals No. 3 and 4 (the “Articles Amendment”), and is submitting for shareholder approval the provisions to be amended. The Articles Amendment, including only those amendments adopted by the shareholders, will become effective upon filing with the Secretary of State of the State of Oregon, which we intend to do promptly upon approval of one or more of the proposed amendments at the Annual Meeting. The only changes to the Company’s existing Articles are as set forth in the Articles Amendment. None of these proposals are conditioned upon the approval of any other proposal, so a negative vote on one proposal will not affect the vote on any other proposal.
50
PROPOSAL 4: APPROVAL OF AMENDMENT NO. 2 TO ARTICLES OF INCORPORATION
TO ADOPT A MAJORITY VOTE STANDARD TO BE USED TO AMEND, ALTER, CHANGE
OR REPEAL THE PROVISION RELATING TO THE REMOVAL OF DIRECTORS IN THE
ARTICLES OF INCORPORATION
The Board has adopted, and recommends that the Company’s shareholders approve, edits to Article V.B. of the Company’s Articles to remove the supermajority voting requirement to amend, alter, change or repeal the provisionadvisory resolution relating to the removal of directors in the Company’s Articles (the “Proposed Deletion”).
An explanation of the Proposed Deletion is included below. Other than as described herein, the approval of the Proposed Deletion will not have any effect on your rights as a shareholder.
Background
At the 2015 Annual Meeting of Shareholders, a majoritycompensation of our shareholders supported a shareholder proposal requesting that the Board take the steps necessary to cause the Company to eliminate the voting requirement in each of the Articles and the Bylaws that calls for greater than a simple majority vote, and replace all such “supermajority” requirements with a majority of the votes cast standard. The Articles contain such a requirement, with Article V, Section B providing that the holders of 75 percent of the votes then entitled to be cast for the election of directors must approve any amendment, alteration, change or repeal of the provision in the Articles relating to the removal of directors.
The Board regularly considers shareholder voting issues and has monitored the evolving debate on best practices among corporate governance experts, companies and investors with respect to supermajority voting requirements.
The Board recognizes the growing sentiment that the elimination of supermajority voting provisions in a company’s constituent documents increases a Board’s accountability to shareholders and increases the ability of shareholders to participate effectively in corporate governance. The Board believes that meaningful shareholder participation is critical to the Company’s success.
After considering the foregoing issues and the results of the shareholder vote in 2015, the Board has determined to recommend that the Proposed Deletion be reflected in the Articles. The Board therefore has approved and recommends shareholder approval of an amendment to Article V of the Articles to delete the supermajority voting requirement with respect to the amendment, alteration, change or repeal of the director removal provisions of Article V, Section B.
Summary of Proposed Deletion
Under the Proposed Deletion, the provision in the Articles relating to the removal of directors may be amended, altered, changed or repealed upon the vote of a majority of the votes cast.
The Proposed Deletion is set forth below, with deletions indicated by strikeout:
“B. Prior to and until the time at which the Board of Directors ceases to be classified pursuant to this Article V, Section A, all or any number of the directors of the Corporation may be removed only for cause and at a meeting of shareholders called expressly for this purpose, by the vote of 75 percent of the votes then entitled to be cast for the election of directors. From and after the time at which the Board of Directors ceases to be classified pursuant to this Article V, Section A, any director may be removed with or without cause, by the vote of 75 percent of the votes then entitled to be cast for the election of directors. At any meeting of shareholders at which one or more directors are removed, a majority of votes then entitled to be cast for the election of directors may fill any vacancy created by such removal. If any vacancy created by removal of a director is not filled by the
51
shareholders at the meeting at which the removal is effected, such vacancy may be filled by a majority vote of remaining directors.The provisions of this Article V, Section B, may not be amended, altered, changed or repealed in any respect unless such action is approved by the affirmative vote of note less than 75 percent of the notes then entitled to be cast for election of directors.”
Required Vote
The Proposed Deletion requires the approval of 75 percent of the votes then entitled to be cast for the election of directors. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting and will have the same effectnamed executive officers as a vote against this proposal.
In the event the shareholders do not approve this proposal, the Articles will remain unchanged and 75 percent of the votes then entitled to be cast for the election of directors would continue to be required in order to amend, alter, change or repeal the provisions relating to the removal of directors in the Articles.
Recommendations of the Board of Directors
The Board of Directors unanimously recommends that shareholders vote FOR the approval of the amendment to the Articles of Incorporation to effectuate the Proposed Deletion.If a quorum is present, this proposal will be approved with the affirmative voteFOR by at least 75% of the votes then entitled to be cast for the election of directors. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting but will have no effect on the determination of the outcome of this proposal. No determination has been made as to what action the Board of Directors would take if the shareholders do not ratify the appointment.
52
PROPOSAL 5: SHAREHOLDER PROPOSAL
The UAW Retiree Medical Benefits Trust, the beneficial owner of more than $2,000 worth of our Common Stock, has notified the Company that it intends to present a proposal at the Annual Meeting. The shareholder proposal is set forth below. The Company is not responsible for the accuracy of the proposal or the proponent’s supporting statement. Shareholders should be aware that this shareholder proposal is simply a precatory request that the Board of Directors take the action stated in the proposal.
RESOLVED: Shareholders of FLIR Systems, Inc. (“FLIR”) ask the board of directors (“Board”) to adopt, and present for shareholder approval, a “proxy access” bylaw. The bylaw should require FLIR to include in proxy materials prepared for a shareholder meeting at which directors are to be elected the name, Disclosure and Statement (defined below) of any person nominated for election to the board by a shareholder or group (“Nominator”) satisfying the criteria below. It should also allow shareholders to vote on such nominee on FLIR’s proxy card.
The number of shareholder-nominated candidates appearing in proxy materials should not exceed one quarter of the directors then comprising the Board. This bylaw, which would supplement existing rights, should provide that a Nominator must:
a) have beneficially owned 3% or more of FLIR’s outstanding common stock continuously for at least three years; give FLIR, within the time period identified in its bylaws, written notice of the information required by the bylaws and any Securities and Exchange Commission rules about (i) the nominee, including consent to being named in the proxy materials and to serving as director if elected; and (ii) the Nominator, including proof it owns the required shares (information required by this subsection (b) is the “Disclosure”); and
b) certify that (i) it will assume liability stemming from any legal or regulatory violation arising out of the Nominator’s communications with FLIR shareholders, including the Disclosure and Statement; (ii) it will comply with all applicable laws and regulations if it uses soliciting material other than FLIR’s proxy materials; and (c) to the best of its knowledge, the required shares were acquired in the ordinary course of business and not to change or influence control at FLIR.
The Nominator may submit a statement not exceeding 500 words in support of each nominee (the “Statement”). The Board shall adopt procedures for promptly resolving disputes over whether notice of a nomination was timely, whether the Disclosure and Statement satisfy the bylaw and applicable rules, and the priority to be given when nominations by multiple Nominators exceed the one-quarter limit.
Supporting Statement
We believe proxy access is a fundamental shareholder right that will make directors more accountable and enhance shareholder value. A 2014 study by the CFA Institute concluded that proxy access:
Would “benefit both the markets and corporate boardrooms, with little cost or disruption”
|
The proposed bylaw terms enjoy strong investor support. Votes on proxy access proposals averaged approximately 55% in 2015, as of July 26 (http://corpgov.law.harvard.edu/2015/08/10/proxy-access-proposals/)and similar bylaws have been adopted by companies of various sizes across industries, including Chesapeake Energy, Hewlett-Packard, Western Union and Verizon. The Council of Institutional Investors recently issued best practices for proxy access endorsing the 3% ownership threshold (with no limit on the number of nominating shareholders in a group) we propose. (CII, “Proxy Access: Best Practices,” at 3 (Aug. 2015))
53
Board of Directors Statement in Opposition to the Shareholder Proposal
Our Board and Corporate Governance Committee have carefully considered this shareholder proposal and do not believe that its adoption, in the form proposed, is in the best interests our Company or our shareholders at this time. In particular, this proposal is potentially harmful to the effectiveness of the board and director nomination process, advances a solution for a problem that does not exist at our Company, does not take into account the effective voice our shareholders already have, and would introduce an unnecessary and potentially expensive and destabilizing dynamic into the board election process. Proxy access as advanced by this proposal could encourage a short-term perspective and limit our Board’s ability to serve the long-term interests of all our shareholders. As detailed above in connection with the removal of the supermajority voting provisions in our Articles and Bylaws, we have demonstrated our willingness to listen and respond to the concerns of our shareholders. We believe that any proxy access provision we adopt should be thoughtfully designed to protect the best interests of all our shareholders without unduly risking the costs and distractions associated with encouraging unnecessary contests in director elections.
Allowing shareholders to use company proxy materials for contested director elections will not improve our corporate governance. Rather, proxy access could harm our company, Board and shareholders by:
|
|
|
|
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that shareholders vote AGAINST the shareholder proposal as includeddisclosed in this Proxy Statement.If a quorum is present, in order to approve the shareholder proposal,advisory vote on executive compensation, the number of votes castFOR in favor of the proposal must exceed the number of votes castAGAINST opposing the proposal. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting but will have no effect on the determination of the outcome of this proposal.
| 52 | FLIR | 2018 PROXY STATEMENT |
| AUDIT COMMITTEE REPORT | | |
54
The Audit Committee of the Board of Directors is responsible for monitoring the integrity of the Company’s consolidated financial statements, the Company’s systems of internal controls and the independence and performance of the independent registered public accounting firm. The Audit Committee is comprised of four non-employee directors, each of whom is an independent director as defined in Section 10A(m) of the Exchange Act, and Rule 10A-3 promulgated thereunder, and by the listing rules of NASDAQ. The Board of Directors has determined that Mr. Smith qualifies as an “audit committee financial expert” for purposes of regulations of the SEC. The Audit Committee operates pursuant to a written charter approved by the Board of Directors. The charter is reviewed annually. A copy of the charter is available for review on the Company’s website at www.flir.com/investor.
The Company’s management is responsible for the financial reporting process, including the system of internal controls, and for the preparation, presentation and integrity of the consolidated financial statements in accordance with United States generally accepted accounting principles. The Company’s independent registered public accounting firm is accountable to the Audit Committee and is responsible for performing an independent audit of those consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”). The independent registered public accounting firm is responsible for expressing an opinion as to the conformity of the Company’s consolidated financial statements with United States generally accepted accounting principles and on the Company’s effectiveness of internal control over financial reporting. The Audit Committee acts in an oversight capacity and its responsibility is to monitor and review these processes. The Audit Committee selects, hires and evaluates the independent registered public accounting firm. In its oversight role, the Audit Committee relies, without independent verification, on management’s representation that the Company’s consolidated financial statements have been prepared with integrity and objectivity and in conformity with United States generally accepted accounting principles, and on the report of the Company’s independent registered public accounting firm, KPMG LLP, with respect to the Company’s consolidated financial statements.
The Audit Committee held five meetings during fiscal year 2015.2017. At each of these meetings, the Audit Committee met with senior members of the Company’s financial management team, the Company’s President and Chief Executive Officer and the Company’s independent registered public accounting firm. The Audit Committee has reviewed and discussed the audited financial statements with management. The Audit Committee held private sessions with KPMG LLP as required, at which discussions of financial management, accounting and internal controls took place. The Audit Committee reviewed with KPMG LLP the overall scope and plans for their audit, the results of the audit examinations, the effectiveness of the Company’s internal controls and the quality of the Company’s financial reporting.
The Audit Committee also discussed with representatives of KPMG LLP the matters required to be communicated by the statement on Auditing Standards No. 16 “Communication1301 “Communications with Audit Committees” as adopted by the PCAOB. The PCAOB requires the Company’s independent registered public accounting firm to provide the Audit Committee with additional information regarding the scope and results of its audit of the Company’s consolidated financial statements with respect to:
Its responsibility under professional standards;standards, including the overall audit strategy, timing of the audit, and significant risks;
Significant accounting policies;policies and practices;
Critical accounting policies and practices;
Critical accounting estimates;
Significant unusual transactions;
Qualitative aspects of accounting practices;
Significant management judgments and accounting estimates;
Uncorrected and corrected misstatements;
Disagreements with management;
55
Management’s consultation with other accountants;
Difficult or contentious matters for which it consulted:
Significant issues discussed, or subject to correspondence with management;
Significant difficulties encountered during the audit;
Other significant findings or issues; and
Confirmation of audit independence.independence; and
Its audit report.
The Audit Committee discussed with KPMG LLP its independence. KPMG LLP provided the Audit Committee with the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence to the effect that, in its professional judgment, KPMG LLP is independent of the Company under PCAOB Rule 3520 and all other relevant professional and regulatory standards. The Audit Committee also discussed with KPMG LLP that the provision of non-audit services was compatible with KPMG LLP maintaining its independence.
Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved and recommended, that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015,2017, for filing with the SEC.
THE AUDIT COMMITTEE
Michael T. Smith,Chair
Catherine A. Halligan
Angus L. Macdonald
Steven E. Wynne
| 2018 PROXY STATEMENT | FLIR | 53 |
| DATES FOR SUBMISSION OF SHAREHOLDER PROPOSALS FOR 2019 ANNUAL MEETING OF SHAREHOLDERS | |
56
DATES FOR SUBMISSION OF SHAREHOLDER PROPOSALS FOR 20162019 ANNUAL MEETING OF
SHAREHOLDERS
Pursuant to Rule 14a-8 under the Exchange Act, some shareholder proposals may be eligible for inclusion in the Company’s Proxy Statement for the 20162019 Annual Meeting of Shareholders. Any such proposal must be received by the Company not later than November 7, 2016.9, 2018. Alternatively, under the Company’s Bylaws, a proposal or nomination that a shareholder does not seek to include in the Company’s proxy statement pursuant to Rule 14a-8 may be delivered to the Corporate Secretary of the Company not less than 90 days (i.e., not after January 22, 2017)20, 2019) nor more than 120 days (i.e., not before December 23, 2016)21, 2018) prior to the anniversary date of the prior year’s annual meeting; provided, however, that in
the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder must be received not later than the close of business on the 10th10th day following the day on which notice of the date of the annual meeting was mailed or public disclosure of an annual meeting date was made. A shareholder’s submission must include certain specified information concerning the proposal or nominee, as the case may be, and information as to the shareholder’s ownership of Common Stock of the Company. Proposals or nominations not meeting these requirements will not be entertained at the Annual Meeting.
As of the date of this Proxy Statement, the Board of Directors does not know of any other matters to be presented for action by the shareholders at the Annual Meeting. If, however, any other matters not now known are properly brought before the
Annual Meeting, the persons named in the accompanying proxy will vote such proxy in accordance with the determination of a majority of the Board of Directors.
The cost of soliciting proxies will be borne by the Company. Officers, other employees and directors may solicit proxies personally or by telephone without any addition to their regular compensation. Upon request, we will reimburse the
reasonable costs incurred by brokers, banks, or other nominees for mailing proxy materials and annual shareholder reports to the beneficial owners of the shares they hold of record.
| 54 | FLIR | 2018 PROXY STATEMENT |
| ADDITIONAL INFORMATION | | |
A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20152017 accompanies this Proxy Statement. The Company is required to file an Annual Report on Form 10-K for its fiscal year ended December 31, 20152017 with the SEC. Shareholders may obtain, free of charge, a copy of the Form 10-K (without exhibits) by writing to Investor Relations, FLIR Systems, Inc., 27700 SW Parkway Avenue, Wilsonville, Oregon 97070.
Shareholders Sharing the Same Last Name and Address “(Householding)”
If you own your shares through a broker, bank or other nominee, the Company is sending only one Proxy Statement or notice of availability of proxy materials to you if you share a single address with another shareholder unless we received instructions to the contrary from you. This practice, known as “householding,” is designed to eliminate duplicate mailings, conserve natural resources and reduce the Company’s printing and mailing costs. If you received only one copy of this Proxy Statement or a notice of availability of proxy materials and wish to receive a separate copy for each shareholder at your household, or if, at any time, you wish to resume receiving separate proxy statements or notices of availability of proxy materials, or if you are receiving multiple proxy statements or notices of availability of proxy materials and wish to receive only one, please notify your
57
broker if your shares are held in a brokerage account or us if you hold registered shares. You can notify us by sending a written request to Investor Relations, FLIR Systems, Inc., 27700 SW Parkway Avenue, Wilsonville, Oregon 97070 or calling Investor Relations at (503) 498-3547, and we will promptly deliver additional materials or refrain from delivering additional materials, as requested.
Electronic Delivery of Proxy Materials and Annual Report
This Proxy Statement and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20152017 are available on the Company’s website at www.flir.com/investor. If you own your shares through a broker, bank or other nominee, instead of receiving paper copies in the mail of next year’s proxy statement and annual report or a notice of availability of proxy materials, you can elect to receive an e-mail message that will provide a link to these documents by contacting the institution that holds your shares. By opting to access your proxy materials online, you will reduce the amount of mail you receive, help conserve natural resources and reduce the Company’s printing and mailing costs.
By Order of the Board of Directors |
|
Earl R. Lewis |
Chairman of the Board of Directors |
Wilsonville, Oregon
March 9, 20162018
58
Appendix A
SIXTH AMENDMENT
TO
SECOND RESTATED ARTICLES OF INCORPORATION
OF
FLIR SYSTEMS, INC.
ARTICLE V of the Second Restated Articles of Incorporation, as amended, of FLIR Systems, Inc., an Oregon corporation (the “Corporation”) is hereby amended in its entirety as follows:
A. The number of directors of the Corporation shall be not less than five nor more than twelve, and within such limits, the exact number shall be fixed and increased or decreased from time to time by resolution of the Board of Directors. At each annual meeting of shareholders beginning in 2014, directors shall be elected annually for one-year terms expiring at the next succeeding annual meeting of shareholders.
B. Any director may be removed only for cause at a meeting of shareholders called expressly for that purpose, by the vote of a majority of the shares then outstanding. At any meeting of shareholders at which one or more directors are removed, a majority of the shares then outstanding for the election of directors may fill any vacancy created by such removal. If any vacancy created by removal of a director is not filled by the shareholders at the meeting at which the removal is effected, such vacancy may be filled by a majority vote of the remaining directors.
Shareholder action was required to adopt the amendment, which was duly adopted on [ ], 2016. The vote was as follows:
| 55 | |||||||||||||||
Appendix A: Unaudited Reconciliation ofNon-GAAP Adjusted Financial Measures
| Year Ended December 31, 2017 | ||||
Earnings from operations: | ||||
GAAP earnings from operations | $ | 289,961 | ||
Amortization of acquired intangible assets | 27,391 | |||
Purchase accounting adjustments | 1,992 | |||
Restructuring charges | 625 | |||
Acquisition related expenses | 2,014 | |||
Loss on net assets held for sale | 23,588 | |||
Executive transition costs | 13,524 | |||
Other | 4,389 | |||
Adjusted earnings from operations | $ | 363,484 | ||
Operating margin: | ||||
GAAP operating margin | 16.1 | % | ||
Cumulative effect of non-GAAP Adjustments | 4.1 | % | ||
Adjusted operating margin | 20.2 | % | ||
Net earnings: | ||||
GAAP net (loss) earnings | $ | 107,223 | ||
Amortization of acquired intangible assets | 27,391 | |||
Purchase accounting adjustments | 1,992 | |||
Restructuring charges | 625 | |||
Acquisition related expenses | 2,014 | |||
Loss on net assets held for sale | 23,588 | |||
Executive transition costs | 13,524 | |||
Other | 3,680 | |||
Estimated tax effect of non-GAAP adjustments | (18,480 | ) | ||
Discrete tax items, net | 101,015 | |||
Adjusted net earnings | $ | 262,572 | ||
Earnings Per Diluted Share: | ||||
GAAP (loss) earnings per diluted share | $ | 0.77 | ||
Cumulative effect of non-GAAP Adjustments | 1.11 | |||
Adjusted earnings per diluted share | $ | 1.88 | ||
Weighted average shares outstanding: | 139,646 | |||
Explanation ofNon-GAAP Financial Measures
We report our financial results in accordance with United States generally accepted accounting principles (GAAP). As a supplement to our GAAP financial results, this document contains some or all of the followingnon-GAAP financial measures: (i) adjusted operating income, (ii) adjusted operating margin (defined as adjusted operating income divided by revenue), (iii) adjusted net earnings/income, and (iv) adjusted earnings per diluted share (EPS). Thesenon-GAAP measures of financial performance are not prepared in accordance with GAAP, and computational methods may differ from those used by other companies. Additionally, thesenon-GAAP measures should not be considered a substitute for any other performance measure determined in accordance with GAAP, and the Company cautions investors and potential investors to consider these measures in addition to, not as a substitute for, its consolidated financial results as presented in accordance with GAAP. Each of thenon-GAAP measures is adjusted from GAAP results and is outlined in the “ Unaudited Reconciliation ofNon-GAAP Adjusted Financial Measures” tables included within this appendix.
In calculatingnon-GAAP financial measures, we exclude certain items (including gains and losses) to facilitate a review of the comparability of our core operating performance on aperiod-to-period basis. The excluded items represent amortization of acquired intangible assets, purchase accounting adjustments, restructuring charges, acquisition related expenses, loss on net assets held for sale, executive transition costs, discrete tax items, and other items we do not consider to be directly related to our core operating performance. We usenon-GAAP measures internally to evaluate the core operating performance of our business, for comparison with forecasts and strategic plans, for calculating return on investment, and as a factor for determining compensation for our executive officers and other employees. Accordingly, supplementing GAAP financial results with thesenon-GAAP financial measures enables the comparison of our ongoing operating results in a manner consistent with the metrics reviewed by management. We believe that thesenon-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by facilitating:
| • | the comparability of our ongoing operating results over the periods presented; |
the ability to identify trends in our underlying business; and | |||||
| the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results withnon-GAAP financial measures. |
The following are explanations of each type of adjustment that we incorporate intonon-GAAP financial measures:
Amortization of acquired intangible assets. GAAP accounting requires that intangible assets are recorded at fair value as of the date of acquisition and amortized over their estimated useful lives. The timing and magnitude of our acquisition transactions and maturities of the businesses acquired will cause our operating results to vary from period to period, making comparison to past performance difficult for investors. |
Purchase accounting adjustments.Included in our GAAP financial measures are purchase accounting adjustments, required by GAAP to adjust inventory balances to fair value at the time of acquisition. Thesenon-cash charges are not reflective of our ongoing operations and can vary significantly in any given period driven by variability in our acquisition activity. |
Acquisition related expenses. Included in our GAAP financial measures are acquisition related expenses, consisting of external expenses resulting directly from acquisition related activities, including due diligence, legal, valuation, tax and audit services. The timing and nature of our acquisition activity can vary significantly from period to period impacting comparability of operating results from one period to another. These transaction-specific costs can vary significantly in amount and timing and are not indicative of our core operating performance. |
| • | Restructuring charges. Included in our GAAP financial measures are restructuring charges which are primarily for employee compensation resulting from reductions in employee headcount and facilities exit and lease termination costs in connection with Company reorganization and restructuring activities. We believe that excluding these costs provides greater visibility to the underlying performance of our business operations, facilitates comparison of our results with other periods, and facilitates comparison with the results of other companies in our industry. |
A-1
| • | Loss on net assets held for sale. We recognized a loss in the fourth quarter of 2017 as a result of our planned divestiture of the retail and SMB portion of the Security segment. We have excluded this loss for purposes of calculating certainnon-GAAP measures. This adjustment facilitates an alternative evaluation of our current operating performance and comparisons to past operating results consistent with the metrics reviewed by management. |
| • | Executive transition costs.Executive transition costs include costs associated with separation agreements of the Company’s former CEO and COO, professional services expenses associated with the transition of the former CEO and CFO including recruitment fees, legal services and other related costs, as well assign-on cash bonus payments to the current CEO and CFO, partially offset by benefits associated with stock compensation reversals for share-based awards forfeited upon the departures of the former CEO, COO and CFO. |
| • | Other. Other charges include product remediation charges associated with certain SkyWatch™ surveillance towers, gains or losses on cost-basis investments, and a loss on extinguishment of debt. |
| • | Estimated tax effect ofnon-GAAP adjustments. This amount adjusts the provision for income taxes to reflect the effect of the previously listednon-GAAP adjustments onnon-GAAP net income. We estimate the tax effect of the adjustment items by applying the Company’s overall estimated effective tax rate, excluding significant discrete items, to the pretax amount. |
| • | Discrete tax items, net. Included in our GAAP financial measures are income tax expenses and benefits related to discrete events or transactions that are not representative of the Company’s estimated tax rate related to ongoing operations. These discrete tax items can vary significantly from period to period impacting the comparability of our earnings from one period to another. Discrete tax items include charges related to the enactment of new tax legislation, charges and reversals of provisions associated with certain unrecognized tax benefits, benefits associated with the reversal of previously recorded valuation allowances against certain deferred tax assets, and other discrete items not included in the annual effective tax rate associated with our ongoing operations. |
FLIR SYSTEMS, INC.
27700 SW PARKWAY AVENUE
WILSONVILLE, OR 97070
ATTENTION: HEATHER CHRISTIANSEN
VOTE BY INTERNET -INTERNET—www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up untilinformation. Vote by 11:59 p.m. Eastern Time the day before the cut-off date or meeting date.P.M. ET on 04/19/2018. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
FLIR Systems, Inc. 27700 SW Parkway Avenue If you would like to reduce the costs incurred by our company in mailing proxy materials, Wilsonville, OR 97070 you can consent to receiving all future proxy statements, proxy cards and annual reports Attention: Heather Christiansen electronically viae-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - PHONE—1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up untilinstructions. Vote by 11:59 p.m. Eastern Time the day before the cut-off date or meeting date.P.M. ET on 04/19/2018. Have your proxy card in hand when you callaccess the web site and then follow the instructions.
instructions to obtain your records and to create an electronic voting instruction form. 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 Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
|
| |||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Form10-K is/are available at www.proxyvote.com . FLIR SYSTEMS, INC. Annual Meeting of Stockholders April 20, 2018 9:00 AM This proxy is solicited by the Board of Directors The shareholder(s) hereby appoint(s) Todd M. DuChene and Heather F. Christiansen, or either of them, as proxies, each with the power to appoint their substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of FLIR SYSTEMS, INC. that the shareholder(s) is/are entitled to vote at the Annual Meeting of Shareholders to be held at 9:00 AM, PDT on April 20, 2018, at FLIR Systems, Inc., 27700 SW Parkway Avenue, Wilsonville, OR 97070, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the recommendations of the Board of Directors. Address change/comments: . 17 . 1 . 0 R1 _ 2 0000351941 (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side
| ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
