Notice of At & T inc. 2019 Annual Meeting Of Stockholders and Proxy Statement.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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Securities Exchange Act of 1934
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AT&T Inc.
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Notice of At & T inc. 2019 Annual Meeting Of Stockholders and Proxy Statement.
TO OUR STOCKHOLDERS
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CEO and
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Dear Stockholders:
It’s a pleasure to invite you to our 2019 Annual Meeting of Stockholders. I hope you can join us on Friday, April 26, 2019, at 9:00 a.m., at the Moody Performance Hall, 2520 Flora Street, Dallas, Texas 75201.
At this year’s meeting, we will discuss our strategy to become a modern media company and deliver on our mission to inspire human progress through the power of communication and entertainment.
You’ll hear about how we’re executing on that strategy by building on the solid performance of our communications business, standing up a revolutionary advertising business and continuing to create great entertainment. Most important, we’ll discuss our plans to grow free cash flow and pay down our debt – all while continuing to invest in growth and maintain a solid, steady dividend for you, our owners.
In recent years, you have seen us transform our company in big and dramatic ways. But one thing has not – and will not – change. That’s our goal of delivering strong results for you and sustainable, long-term growth and success for AT&T. On behalf of the Board and our management team, thank you for your continued support.
Sincerely,
Randall Stephenson
| Letter from the Lead Director |
Dear Stockholders:
In my second term as your company’s Independent Lead Director, I want you to know how proud I am to reaffirm AT&T’s lasting commitment to thoughtful and effective governance.
The Board’s role is to keep our company focused on the long-term and protect the interests of our stockholders. We take a disciplined,hands-on approach to discharging that duty – questioning assumptions, offering alternative points of view and assessing every decision through the lens of building stockholder value.
We have worked hard to recruit and maintain a Board with deep experience and varied backgrounds. In a rapidly evolving marketplace, that diversity of perspectives is crucial to our success in serving our customers and creating value for you.
I hope to see you at our 2019 Annual Meeting. Until then, please accept the gratitude of our entire Board for your enduring confidence in AT&T.
Sincerely,
Matthew Rose
| AT&T Inc. One AT&T Plaza Whitacre Tower 208 S. Akard Street Dallas, TX 75202 |
NOTICE OF 20162019 ANNUAL MEETING
OF STOCKHOLDERS AND PROXY STATEMENT
To the holders of Common Stock of AT&T Inc.:
The 2016 annual meeting2019 Annual Meeting of stockholdersStockholders of AT&T Inc. will be held as follows:
When: | 9:00 a.m. local time, Friday, April | |
Where: |
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The purpose of the annual meeting is to consider and take action on the following:
| 1. | Election of Directors |
| 2. | Ratification of Ernst & Young LLP as independent auditors |
| 3. | Advisory approval of executive compensation |
| 4. |
| Any other business that may properly come before the meeting, including |
Holders of AT&T Inc. common stock of record at the close of business on March 1, 2016,February 27, 2019, are entitled to vote at the meeting and any adjournment of the meeting. Please sign, date, and return your proxy card or submit your proxy and/or voting instructions by telephone or through the Internet promptly so that a quorum may be represented at the meeting. Any person giving a proxy has the power to revoke it at any time, and stockholders who are present at the meeting may withdraw their proxies and vote in person.
By Order of the Board of Directors.
Stacey Maris
Senior Vice President – Assistant General Counsel
and Secretary
March 11, 20162019
YOUR VOTEIS IMPORTANT | ||
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Please sign, date and return your proxy card or submit your proxy and/or voting instructions by telephone or through the Internet promptly so that a quorum may be represented at the meeting. Any person giving a proxy has the power to revoke it at any time, and stockholders who are present at the meeting may withdraw their proxies and vote in person.
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ATTENDINGTHE MEETING | ||
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 | Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on April 26, 2019: The proxy statement and annual report to security holders are available at www.edocumentview.com/att |
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GUIDE TO AT&T’S PROXY STATEMENT
This summary highlights information contained elsewhere in this Proxy Statement. It does not contain all the information you should consider. You should read the entire Proxy Statement carefully before voting.GENERAL
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| Agenda and Voting Recommendations | ||||||
| Item | Description | Board Recommendation | Page | |||
| 1 | Election of Directors | FOR each nominee | 16 | |||
| 2 | Ratification of Ernst & Young LLP as auditors for 2016 | FOR | 23 | |||
| 3 | Advisory approval of executive compensation | FOR | 23 | |||
| 4 | Approve 2016 Incentive Plan | FOR | 24 | |||
| 5 | Stockholder Proposal: Political Spending Report | AGAINST | 27 | |||
| 6 | Stockholder Proposal: Lobbying Report | AGAINST | 29 | |||
| 7 | Stockholder Proposal: Independent Board Chairman | AGAINST | 31 | |||
| Current Board Members* | ||||||||
| Name | Age | Director Since | Principal Occupation | Committees | ||||
Randall L. Stephenson | 55 | 2005 | Chairman, CEO, and President, AT&T Inc. | Executive | ||||
Samuel A. Di Piazza, Jr. | 65 | 2015 | Retired Global Chief Exec. Officer of PricewaterhouseCoopers Int. Limited | Audit | ||||
Richard W. Fisher | 66 | 2015 | Former President and Chief Exec. Officer of Federal Reserve Bank of Dallas | Corp. Dev. and Finance | ||||
Scott T. Ford | 53 | 2012 | Member and Chief Executive Officer, Westrock Group, LLC | Corp. Dev. and Finance, Executive, Human Resources | ||||
Glenn H. Hutchins | 60 | 2014 | Co-Founder, Silver Lake | Corp. Dev. and Finance, Public Policy and Corp. Reputation | ||||
William E. Kennard | 59 | 2014 | Former United States Ambassador to the European Union and former Chairman of the FCC | Corp. Gov. and Nominating, Public Policy and Corp. Reputation | ||||
Jon C. Madonna** | 72 | 2005 | Retired Chairman and CEO, KPMG | Audit, Corp. Gov. and Nominating, Executive | ||||
Michael B. McCallister | 63 | 2013 | Retired Chairman and CEO, Humana Inc. | Audit, Public Policy and Corp. Reputation | ||||
John B. McCoy** | 72 | 1999 | Retired Chairman and CEO, Bank One Corporation | Corp. Gov. and Nominating, Executive, Human Resources | ||||
Beth E. Mooney | 61 | 2013 | Chairman and Chief Executive Officer, KeyCorp | Corp. Dev. and Finance, Public Policy and Corp. Reputation | ||||
Joyce M. Roché | 68 | 1998 | Retired President and CEO, Girls Inc. | Corp. Gov. and Nominating, Executive, Human Resources | ||||
Matthew K. Rose | 56 | 2010 | Chairman and CEO, Burlington Northern Santa Fe, LLC | Corp. Gov. and Nominating, Human Resources | ||||
Cynthia B. Taylor | 54 | 2013 | President and CEO, Oil States International, Inc. | Audit, Public Policy and Corp. Reputation | ||||
Laura D’Andrea Tyson | 68 | 1999 | Professor of Business Admin. and Econ., Haas School of Business, Univ. of California at Berkeley | Audit, Executive, Public Policy and Corp. Reputation | ||||
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Information About the Meeting and Voting
General
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of AT&T Inc. (AT&T, theCompany, orwe) for use at the 20162019 Annual Meeting of Stockholders of AT&T. The meeting will be held at 9:00 a.m. local time on Friday, April 29, 2016,26, 2019, at the Northern Hotel, Grand Ballroom, 19 North Broadway, Billings, MT 59101.Moody Performance Hall, 2520 Flora Street, Dallas, Texas 75201.
The purposes of the meeting are set forth in the Notice of Annual Meeting of Stockholders (see page i). This Proxy Statement and form of proxy are being sent or made available beginning March 11, 2016,2019, to stockholders who were record holders of AT&T’s common stock, $1.00 par value per share, at the close of business on March 1, 2016.February 27, 2019. These materials are also available at www.edocumentview.com/att. Each share entitles the registered holder to one vote. As of January 31, 2016,2019, there were 6,148,501,7887,290,236,907 shares of AT&T common stock outstanding.
To constitute a quorum to conduct business at the meeting, stockholders representing at least 40% of the shares of common stock entitled to vote at the meeting must be present or represented by proxy.
Voting
| TABLE OF CONTENTS | INDEX OF FREQUENTLY ACCESSED INFORMATION |
Stockholders of RecordAcronyms Used
Stockholders whose shares are registered in their name on the Company records, “stockholders of record,” will receive either a proxy card by which they may indicate their voting instructions or a notice on how they may obtain a proxy. Instead of submitting a signed proxy card, stockholders may submit their proxies by telephone or through the Internet. Telephone and Internet proxies must be used in conjunction with, and will be subject to, the information and terms contained on the form of proxy. Similar procedures may also be available to stockholders who hold their shares through a broker, nominee, fiduciary or other custodian.
All shares represented by proxies will be voted by one or more of the persons designated on the form of proxy in accordance with the stockholders’ directions. If the proxy card is signed and returned or the proxy is submitted by telephone or through the Internet without specific directions with respect to the matters to be acted upon, it will be treated as an instruction to vote such shares in accordance with the recommendations of the Board of Directors. Any stockholder giving a proxy may revoke it at any time before the proxy is voted at the meeting by giving written notice of revocation to the Secretary of AT&T, by submitting a later-dated proxy, or by attending the meeting and voting in person. The Chairman of the Board will announce the closing of the polls during the Annual Meeting. Proxies must be received before the closing of the polls in order to be counted.
A stockholder may designate a person or persons other than those persons designated on the form of proxy to act as the stockholder’s proxy by striking out the name(s) appearing on the proxy card, inserting the name(s) of another person(s) and delivering the signed card to that person(s). The person(s) designated by the stockholder must present the signed proxy card at the meeting in order for the shares to be voted.
CAM | Career Average Minimum | |
CCO | Chief Compliance Officer | |
CDP | Cash Deferral Plan | |
CEO | Chief Executive Office | |
CSR | Corporate Social Responsibility | |
DOJ | U.S. Department of Justice | |
EBITDA | Earnings Before Interest, Taxes, Depreciation, and Amortization | |
EPS | Earnings Per Share | |
EY | Ernst & Young LLP | |
FCF | Free Cash Flow |
MCB | Management Cash Balance | |
NEO | Named Executive Officer | |
NYSE | New York Stock Exchange | |
ROIC | Return on Invested Capital | |
RSU | Restricted Stock Unit | |
SEC | Securities and Exchange Commission | |
SERP | Supplemental Employee Retirement Plan | |
SRIP | Supplemental Retirement Income Plan | |
SPDP | Stock Purchase and Deferral Plan | |
SRIP | Supplemental Retirement Income Plan | |
TSR | Total Stockholder Return |
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Shares Held Through a Bank, Broker or Other Custodian
WhereThis summary highlights information contained elsewhere in this Proxy Statement. Please read the stockholder is not the record holder, such as where the shares are held through a broker, nominee, fiduciary or other custodian, the stockholder must provide voting instructions to the record holder of the shares in accordance with the record holder’s requirements in order to ensure the shares are properly voted.
Shares Held on Your Behalf under Company Benefit Plans
The proxy card, or a proxy submitted by telephone or through the Internet, will also serve as voting instructions to the plan administrator or trustee for any shares held on behalf of a participant under any of the following employee benefit plans: the AT&T Savings and Security Plan, the AT&T Puerto Rico Retirement Savings Plan, the AT&T Retirement Savings Plan, the BellSouth Savings and Security Plan, and the DIRECTV 401(k) Savings Plan. Subject to the trustee’s fiduciary obligations, shares in each of the above employee benefit plans (excluding the DIRECTV 401(k) Savings Plan) for which instructions are not received will not be voted; shares in the DIRECTV 401(k) Savings Plan for which voting instructions are not received may be voted by the trustees in the same proportion as the shares for which voting instructions are received. To allow sufficient time for voting by the trustees and/or administrators of the plans, your voting instructions must be received by April 26, 2016.
In addition, the proxy card or a proxy submitted by telephone or through the Internet will constitute voting instructions to the plan administrator under The DirectSERVICE Investment Program sponsored and administered by Computershare Trust Company, N.A. (AT&T’s transfer agent) for shares held on behalf of plan participants.
If a stockholder participates in the plans listed above and/or maintains stockholder accounts under more than one name (including minor differences in registration, such as with or without a middle initial), the stockholder may receive more than one set of proxy materials. To ensure that all shares are voted, please submit proxies for all of the shares you own.entire Proxy Statement carefully before voting.
Attending the Meeting
Only AT&T stockholders may attend the meeting.
Stockholders of Record(shares are registered in your name)
An admission ticket is attached to your proxy card or Annual Meeting Notice and Admission Ticket. of Stockholders
If you plan to attend the annual meeting in person, please retainbring the admission ticket and bring it with you(attached to the meeting. A stockholderproxy card or the Notice of record who doesInternet Availability of Proxy Materials) to the Annual Meeting. If you do not have an admission ticket will be admitted upon presentation of photo identification at the door.
Other Stockholders(or if you hold your shares are held in the name of a bank, broker, or other institution)
Youinstitution, you may obtain admission to the meeting by presenting proof of your ownership of AT&T common stock. To be able
Agenda and Voting Recommendations
Item
| Description
| Board Recommendation
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MANAGEMENT PROPOSALS: | ||||||
1
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Election of Directors
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FOR each nominee
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5
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2
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Ratification of Ernst & Young LLP as auditors for 2019
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FOR
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13
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3
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Advisory Approval of Executive Compensation
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FOR
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14
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STOCKHOLDER PROPOSAL:
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4
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Independent Chair
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AGAINST
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15
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Corporate Governance Highlights
We are committed to vote atgood corporate governance, which promotes the meeting, you will need the bank, broker, or record holder to give you a proxy.
Voting Results
The voting resultslong-term interests of the annual meeting will be published no later than four business days after the annual meeting on a Form 8-K filed with the Securitiesstockholders, strengthens Board and Exchange Commission, which will be availablemanagement accountability, and helps build public trust in the investor relations area ofCompany. The Corporate Governance section beginning on page 16 describes our website at www.att.com.governance framework, which includes the following highlights:
Independent Lead Director | Proxy access | Stockholder right to call special meetings | ||||||
11 independent Director nominees | Independent Audit, Human Resources, and Corporate Governance and Nominating Committees | Directors required to hold shares until they leave the Board | ||||||
Demonstrated Board refreshment and diversity | Robust Board, Committee, and Director evaluation process | Clawback policy | ||||||
Annual election of Directors by majority vote | Long-standing commitment to sustainability | Regular sessions of non-management Directors |
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Common Stock Ownership
Certain Beneficial Owners
The following table lists the beneficial ownership of each person holding more than 5% of AT&T’s outstanding common stock as of December 31, 2015 (based on a review of filings made with the Securities and Exchange Commission on Schedules 13D and 13G).Current Directors*
Our Directors exhibit an effective mix of skills, experience, diversity, and | ||||
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Directors and Officers
The following table lists the beneficial ownership of AT&T common stock and non-voting stock units as of December 31, 2015, held by each Director, nominee, and officer named in the “Summary Compensation Table” on page 61. As of that date, each Director and officer listed below, and all Directors and executive officers as a group, owned less than 1% of our outstanding common stock. Except as noted below, the persons listed in the table have sole voting and investment power with respect to the securities indicated. 
Senior leadership/Ceo experience global business/ affairs finance/public accounting government/ regulatory industry/ technology investment/private equity
Name of Beneficial Owner | Total AT&T Ownership (including options) (1) | Non-Voting Stock Units (2) | Name of Beneficial Owner | Total AT&T Beneficial Ownership (including options) (1) | Non-Voting Stock Units (2) | |||||||||||||||||||||
Name
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Director Since
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Randall L. Stephenson
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58
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2005
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Chairman, CEO, and President, AT&T Inc.
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Samuel A. Di Piazza, Jr. | 26,790 | 27,187 | Laura D’Andrea Tyson | 0 | 106,176 |
68
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2015
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Retired Global CEO, PricewaterhouseCoopers International Limited
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Richard W. Fisher | 0 | 0 | Randall L. Stephenson | 1,975,568 | 195,873 |
69
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2015
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Former President and CEO, Federal Reserve Bank of Dallas
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Scott T. Ford | 66,319 | 20,579 | Rafael de la Vega | 539,485 | 247,213 |
56
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2012
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Member and CEO, Westrock Group, LLC
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Glenn H. Hutchins | 103,322 | 8,212 | John J. Stephens | 466,860 | 65,952 |
63
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2014
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Chairman, North Island andCo-Founder, Silver Lake
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William E. Kennard | 0 | 4,450 | John T. Stankey | 462,500 | 49,058 |
62
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2014
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Former United States Ambassador to the European Union and former Chairman of the Federal Communications Commission
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Jon C. Madonna | 14,573 | 55,287 | John Donovan | 221,545 | 9,489 | |||||||||||||||||||||
Michael B. McCallister | 28,048 | 13,578 |
66
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2013
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Retired Chairman and CEO, Humana Inc.
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John B. McCoy | 31,584 | 192,544 | All executive officers and Directors as a group (consisting of 23 persons, including those named above) | 4,325,424 | 1,237,751 | |||||||||||||||||||||
Beth E. Mooney | 12,600 | 13,954 |
64
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2013
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Chairman and CEO, KeyCorp
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Joyce M. Roché | 6,328 | 143,091 | ||||||||||||||||||||||||
Joyce M. Roché**
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71
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1998
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Retired President and CEO, Girls Incorporated
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Matthew K. Rose | 91,000 | 47,896 |
59
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2010
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Chairman and CEO, Burlington Northern Santa Fe, LLC
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Cynthia B. Taylor | 5,718 | 9,006 | All executive officers and Directors as a group (consisting of 23 persons, including those named above) |
57
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2013
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President and CEO, Oil States International, Inc.
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Laura D’Andrea Tyson
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71
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1999
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Distinguished Professor of the Graduate School, Haas School of Business, and Chair of the Blum Center for Developing Economies Board of Trustees at the University of California, Berkeley
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Geoffrey Y. Yang
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60
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2016
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Founding Partner and Managing Director, Redpoint Ventures
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* All Directors are independent, except for Mr. Stephenson
** Retiring effective April 26, 2019
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PROXY STATEMENT SUMMARYRelated Person Transactions
Under
Executive Compensation Highlights
2019 Program Enhancement
The Committee has approved the rulesuse ofNet-Debt-to-Adjusted-EBITDA as a new performance metric with a 20% weighting for determining 2019 short-term incentive awards (payable 2020) for all Executive Officers.
The narrative on pages 40-60 more fully describes how the Committee, with the input of its consultant, has designed and evolved our Executive Officer compensation and benefits program using the Committee’s guiding pay principles as the pillars of the SEC, public issuers, such as AT&T, must disclose certain “Related Person Transactions.” These are transactions in which the Company is a participant where the amount involved exceeds $120,000,program. We also outline how we establish pay targets and a Director, executive officer or holder of more than 5% of our common stock has a direct or indirect material interest.
AT&T has adopted a written policy requiring that each Director or executive officer involved in such a transaction notify the Corporate Governance and Nominating Committee and that each such transaction be approved or ratified by the Committee.
In determining whether to approve a Related Person Transaction, the Committee will consider the following factors, among others, to the extent relevant to the Related Person Transaction:
A Related Person Transaction entered into without the Committee’s pre-approval will not violate this policy, or be invalid or unenforceable, so long as the transaction is brought to the Committee as promptly as reasonably practical after it is entered into or after it becomes reasonably apparent that the transaction is covered by this policy. During 2015, no individual requested approval of a related party transaction.
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The Role of the Board
The Board of Directors is responsible for oversight of management and strategic direction and for establishing broad corporate policies. In addition, the Board of Directors and various committees of the Board regularly meet to receive and discuss operating and financial reports presented by the Chairman of the Board and Chiefhow actual Executive Officer andpay is determined. Finally, we provide a description of other members of management as well as reports by experts and other advisors. Corporate review sessions are also offered to Directors to give them more detailed views of our businesses and matters that affect our businesses, corporate opportunities, technology, and operations.benefits.
Assessing and managing risk is the responsibility of the management of AT&T. The Board of Directors oversees and reviews certain aspects of the Company’s risk management efforts. Annually, the Board reviews the Company’s strategic business plans, which includes evaluating the competitive, technological, economic and other risks associated with these plans.
In addition, under its charter, the Audit Committee reviews and discusses with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. This includes, among other matters, evaluating risk in the context of financial policies, counterparty and credit risk, and the appropriate mitigation of risk, including through the use of insurance where appropriate. Members of the Company’s finance, internal audit and compliance organizations are responsible for managing risk in their areas and reporting regularly to the Audit Committee.
The Company’s senior internal auditing executive and Chief Compliance Officer each meet annually in executive session with the Audit Committee. The senior internal auditing executive and Chief Compliance Officer review with the Audit Committee each year’s annual internal audit and compliance risk assessment, which is focused on significant financial, operating, regulatory and legal matters. The Audit Committee also receives regular reports on completed internal audits of these significant risk areas.
Members of the Board are expected to attend Board meetings in person, unless the meeting is held by teleconference. The Board held eight meetings in 2015. All of the Directors attended at least 75% of the total number of meetings of the Board and Committees on which each served. Directors are also expected to attend the Annual Meeting of Stockholders. All Directors were present at the 2015 Annual Meeting.
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Board Leadership Structure
The non-management members of the Board of Directors meet in executive session (without management Directors or management personnel present) at least four times per year. The Lead Director, who is appointed for a two-year term, presides over these sessions. Joyce M. Roché currently serves as Lead Director; her term is scheduled to expire January 31, 2017.
Responsibilities of the Lead Director include:
In addition, the Lead Director may:
Randall Stephenson currently serves as both Chairman of the Board and Chief Executive Officer. The Board believes that having Mr. Stephenson serve in both capacities is in the best interests of AT&T and its stockholders because it enhances communication between the Board and management and allows Mr. Stephenson to more effectively execute the Company’s strategic initiatives and business plans and confront its challenges. The Board believes that the appointment of a strong independent Lead Director and the use of regular executive sessions of the non-management Directors, along with the Board’s strong committee system and substantial majority of independent Directors, allow it to maintain effective oversight of management.
Communicating with the Board
Interested persons may contact the Lead Director or the non-management Directors by sending written comments through the Office of the Secretary of AT&T Inc., 208 S. Akard Street, Suite 3241, Dallas, Texas 75202. The Office will either forward the original materials as addressed or provide Directors with summaries of the submissions, with the originals available for review at the Directors’ request.
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Criteria and Process for Nominating Directors
The Corporate Governance and Nominating Committee is responsible for identifying candidates who are eligible under the qualification standards set forth in our Corporate Governance Guidelines to serve as members of the Board. The Committee is authorized to retain search firms and other consultants to assist it in identifying candidates and fulfilling its other duties. The Committee is not limited to any specific process in identifying candidates and will consider candidates whom stockholders suggest. Candidates are recommended to the Board after consultation with the Chairman of the Board.
In recommending Board candidates, the Committee considers a candidate’s:
The Committee also gives consideration to a candidate’s judgment, competence, anticipated participation in Board activities, experience, geographic location, and special talents or personal attributes. Although the Committee does not have a formal diversity policy, it believes that diversity is an important factor in determining the composition of the Board. Stockholders who wish to suggest qualified candidates should write to the Senior Vice President and Secretary, AT&T Inc., 208 S. Akard Street, Suite 3241, Dallas, Texas 75202, stating in detail the qualifications of the persons proposed for consideration by the Committee.
Composition of the Board
Under our Bylaws, the Board of Directors has the authority to determine the size of the Board and to fill vacancies. Currently, the Board is comprised of 14 Directors, one of whom is an executive officer of AT&T. We have included biographical information about each continuing Director beginning on page 17. Holdings of AT&T common stock by AT&T Directors are shown on the table on page 5. Under AT&T’s Corporate Governance Guidelines, a Director will not be nominated for re-election if the Director would be 72 or older at the time of the election.
The Board of Directors has nominated the 12 persons listed in this Proxy Statement, beginning on page 16, for election as Directors. Each of the nominees is an incumbent Director of AT&T recommended for re-election by the Corporate Governance and Nominating Committee. Jon C. Madonna and John B. McCoy will not stand for re-election at the 2016 Annual Meeting. The Board has voted to reduce its size to 12 Directors effective immediately before the meeting. There are no vacancies on the Board.
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Board Committees
From time to time the Board establishes permanent standing committees and temporary special committees to assist the Board in carrying out its responsibilities. The Board has established six standing committees of Directors, the principal responsibilities of which are described below. The charters for each of these committees may be found on our website at www.att.com.
| Standing Committees | ||||||||||||
| Audit | Corporate Development and Finance | Corporate Governance and Nominating | Executive | Human Resources | Public Policy and Corporate Reputation | |||||||
Meetings in 2015 | 12 | 5 | 7 | 0 | 8 | 3 | ||||||
Committee Member | ||||||||||||
Randall L. Stephenson | C | |||||||||||
Samuel A. Di Piazza, Jr. | ● n | |||||||||||
Richard W. Fisher | ● | |||||||||||
Scott T. Ford | C | ● | ● | |||||||||
Glenn H. Hutchins | ● | ● | ||||||||||
William E. Kennard | ● | ● | ||||||||||
Jon C. Madonna* | C n | ● | ● | |||||||||
Michael B. McCallister | ● | ● | ||||||||||
John B. McCoy* | C | ● | ● | |||||||||
Beth E. Mooney | ● | ● | ||||||||||
Joyce M. Roché | ● | ● | C | |||||||||
Matthew K. Rose | ● | ● | ||||||||||
Cynthia B. Taylor | ● n | ● | ||||||||||
Laura D’Andrea Tyson | ● | ● | C | |||||||||
PAYAND PERFORMANCEATA GLANCE* |
2018 Corporate Short Term Awards
| Metric | Type of Metric | Metric Weight | Attainment | Payout% | ||||
2018 EPS | Quantitative | 60% | 92% | 81% | ||||
2018 FCF | Quantitative | 30% | 98% | 98% | ||||
Collaboration | Qualitative | 10% | n/a | 100% | ||||
| Weighted Average Payout | 88% |
| * | See performance adjustments beginning on page 45 |
Long Term Award – Performance Share Component
2016-2018 Performance Period
| Metric | Metric Weight | Attainment | Payout% | |||
3-Year ROIC | 75% | 7.56% | 101% | |||
3-Year Relative TSR | 25% | Level 6 | 0% | |||
Weighted Average Payout | 76% |
|
| |||||||
✓Multiple Performance Metrics and
✓Dividend Equivalents:Paid at the end of performance period on earned Performance Shares. ✓Annual Compensation-Related Risk Review:Performed annually to confirm that our programs do not encourage excessive risk taking and are not reasonably likely to have a material adverse effect on the Company. ✓Clawback Policy:Provides for ✓Severance Policy:Limits payments to 2.99 times salary and |
✘No TaxGross-Ups:No excise taxgross-up payments; no other tax gross-ups, except in extenuating circumstances. ✘No Credit for ✘No Repricing orBuy-Outof underwater stock options. ✘No Hedging or Short Salesof AT&T stock. ✘No Supplemental Executive Retirement Benefitsfor ✘No Guaranteed Bonuses:The Company does not guarantee bonus payments. ✘No Excessive Dilution:Our annual
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Independence of Directors
Our Corporate Governance Guidelines require that a substantial majority of our Board of Directors consist of independent Directors. In addition, the New York Stock Exchange (NYSE) Listing Standards require a majority of the Board and every member of the Audit Committee, Human Resources Committee, and Corporate Governance and Nominating Committee to be independent. For a Director to be “independent” under the NYSE standards, the Board must affirmatively determine that the Director has no material relationship with AT&T, either directly or as a partner, shareholder or officer of an organization that has a relationship with AT&T, other than in his or her capacity as a Director of AT&T. In addition, the Director must meet certain independence standards specified by the NYSE as well as the additional standards referenced in our Corporate Governance Guidelines (found at www.att.com).
Using these standards for determining the independence of its members, the Board has determined that the following Directors are independent: Samuel A. Di Piazza, Jr., Richard W. Fisher, Scott T. Ford, Glenn H. Hutchins, William E. Kennard, Jon C. Madonna, Michael B. McCallister, John B. McCoy, Beth E. Mooney, Joyce M. Roché, Matthew K. Rose, Cynthia B. Taylor, and Laura D’Andrea Tyson. In addition, each member of the Audit Committee, the Corporate Governance and Nominating Committee, and the Human Resources Committee is independent.
In determining the independence of the Directors, the Board considered the following commercial relationships between AT&T and companies at which our Directors serve as officers: payments by AT&T for the use of rights of way and facilities at Burlington Northern Santa Fe, LLC, where Mr. Rose serves as CEO; and interest paid from participation in a structured finance program through KeyCorp, where Ms. Mooney serves as CEO. In addition, each of the foregoing companies as well as each of the entities where Mr. Ford and Ms. Taylor serve as executive officers purchased communications services from subsidiaries of AT&T. In each case for the year 2015:
Compensation of Directors
The compensation of Directors is determined by the Board with the advice of the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee is composed entirely of independent Directors. None of our employees serve on this Committee. The Committee’s current members are John B. McCoy (Chairman), William E. Kennard, Jon C. Madonna, Joyce M. Roché, and Matthew K. Rose. Under its charter (available on our website at www.att.com), the Committee annually reviews the compensation and benefits provided to Directors for their service and makes recommendations to the Board for changes. This includes not only Director retainers and fees, but also Director compensation and benefit plans.
The Committee’s charter authorizes the Committee to employ independent compensation and other consultants to assist in fulfilling its duties. From time to time, the Committee engages a compensation consultant to advise the Committee and to provide information regarding director compensation paid
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by other public companies, which may be used by the Committee to make compensation recommendations to the Board. In addition, the Chief Executive Officer may make recommendations to the Committee or the Board about types and amounts of appropriate compensation and benefits for Directors.
Directors who are employed by us or one of our subsidiaries receive no separate compensation for serving as Directors or as members of Board committees. Non-employee Directors receive an annual retainer of $95,000, together with $2,000 for each Board meeting or corporate strategy session attended. Committee members receive $1,700 for each committee meeting attended, except that members of the Audit and Human Resources Committees receive $2,000 for each meeting attended in person. The Chairman of each committee receives an additional annual retainer of $15,000, except for the Chairmen of the Audit and Human Resources Committees, each of whom receives an additional annual retainer of $25,000. The Lead Director receives an additional annual retainer of $60,000.
Under the Non-Employee Director Stock and Deferral Plan, beginning with grants in 2016, each non-employee Director annually receives a grant of deferred stock units that will have a grant date value of $170,000 after reflecting an illiquidity discount. Each deferred stock unit is equivalent to a share of AT&T stock and earns dividend equivalents in the form of additional deferred stock units. The annual grants are fully earned and vested at issuance and are distributed beginning in the calendar year after the Director leaves the Board. Deferred stock units are paid in cash in a lump sum or in up to 15 annual installments. At distribution, the units are converted to cash based on the price of AT&T stock at that time.
Because of the delay in the distribution of the vested deferred stock units, an illiquidity discount is applied to the valuation of the units granted to Directors. To apply the discount and determine the number of units granted to a Director annually, we first calculate the nominal value of the award. The nominal value is the value of AT&T stock that after applying the illiquidity discount would result in a fair value of $170,000 using FASB ASC 718. We use the average remaining tenure of the non-employee Directors as the discount period. We then divide the nominal value by the price of AT&T stock on the date of grant to determine the number of deferred stock units granted. For grants in 2015, we used a value of $150,000 to determine the number of deferred stock units issued to each Director without using an illiquidity discount.
Additionally, Directors may defer the receipt of their meeting fees and all or part of their retainers into either additional deferred stock units or into a cash deferral account under the plan. Directors purchase the deferred stock units at the fair market value of AT&T common stock. Deferrals into the cash deferral account under the plan earn interest during the calendar year at a rate equal to the Moody’s Long-Term Corporate Bond Yield Average for September of the preceding year (Moody’s Rate). Directors may annually choose to convert their cash deferral accounts into deferred stock units at the fair market value of our stock at the time of the conversion. Directors may also use all or part of their retainers to purchase AT&T stock at fair market value under the Non-Employee Director Stock Purchase Plan.
Upon our acquisition of BellSouth Corporation on December 29, 2006, certain of the former BellSouth Directors joined our Board. (In 2015, Mr. Anderson and Mr. Kelly were the only remaining directors from BellSouth. Mr. Anderson and Mr. Kelly retired April 24, 2015). These Directors had previously made cash- and stock-based deferrals under the BellSouth Corporation Directors’ Compensation Deferral Plan, which was no longer offered after 2006. These deferrals are paid out in accordance with the Directors’ elections. Cash deferrals earn a rate of interest equal to Moody’s Monthly Average of Yields of AA Corporate Bonds for the previous July, while earnings on deferrals in the form of stock units are reinvested in additional deferred stock units at the fair market value of the underlying stock.
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In addition, under the BellSouth Nonqualified Deferred Compensation Plan (which was offered to BellSouth Directors prior to its acquisition), Directors were permitted to make up to five annual deferrals of up to 100% of their compensation. For deferrals made for the 1995 and 1996 plan years, the plan returned the original deferred amount in the 7th year after the deferral year. Interim distributions were not made with respect to deferrals in subsequent periods. For deferrals made for the 1995 through 1999 plan years, Directors received fixed interest rates of 16%, 12.7%, 12.8%, 12.4% and 11.8%, respectively. Distributions are made at times elected by the Directors. BellSouth discontinued offering new deferrals beginning in 2000.
To the extent earnings on cash deferrals under the Non-Employee Director Stock and Deferral Plan, the BellSouth Corporation Directors’ Compensation Deferral Plan or the BellSouth Nonqualified Deferred Compensation Plan exceed the interest rate specified by the Securities and Exchange Commission (SEC) for disclosure purposes, they are included in the “Director Compensation” table on page 14 under the heading “Nonqualified Deferred Compensation Earnings.”
Following our acquisition of DIRECTV on July 24, 2015, Mr. Di Piazza, a former DIRECTV Director, joined our Board. Mr. Di Piazza previously participated in the DIRECTV Deferred Compensation Plan for Non-Employee Directors (which was offered to DIRECTV Directors prior to the acquisition). Under the plan, a Director could elect to contribute cash or stock compensation to the deferral plan. Mr. Di Piazza made cash contributions that converted into restricted stock units based on the closing market price of DIRECTV common stock on the date of contribution. Mr. Di Piazza’s restricted stock units were converted to a cash sum based on the fair market value of AT&T stock on the conversion date and paid out in January 2016.
Non-employee Directors may receive communications equipment and services pursuant to the AT&T Board of Directors Communications Concession Program. The equipment and services that may be provided to a Director, other than at his or her primary residence, may not exceed $25,000 per year. All concession services must be provided by AT&T affiliates, except that the Director may use another provider for the Director’s primary residence if it is not served by an AT&T affiliate.
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The following table contains information regarding compensation provided to each person who served as a Director during 2015 (excluding Mr. Stephenson, whose compensation is included in the Summary Compensation Table and related tables and disclosure).
| Director Compensation | ||||||||||||||||||||
| Name | Fees Earned ($) | Stock Awards ($) | Nonqualified ($) | All Other ($) | Total ($) | |||||||||||||||
Reuben V. Anderson (5) | 62,767 | 0 | 83,129 | 250,034 | 395,930 | |||||||||||||||
Jaime Chico Pardo (5) | 45,067 | 0 | 0 | 265,026 | 310,092 | |||||||||||||||
Samuel A. Di Piazza, Jr. (5) | 68,900 | 0 | 0 | 10,043 | 78,943 | |||||||||||||||
Richard W. Fisher (5) | 74,817 | 0 | 0 | 51 | 74,868 | |||||||||||||||
Scott T. Ford | 149,600 | 150,000 | 0 | 102 | 299,702 | |||||||||||||||
Glenn H. Hutchins | 124,900 | 150,000 | 0 | 33,034 | 307,934 | |||||||||||||||
James P. Kelly (5) | 48,467 | 0 | 0 | 250,034 | 298,501 | |||||||||||||||
William E. Kennard | 132,267 | 150,000 | 0 | 15,102 | 297,369 | |||||||||||||||
Jon C. Madonna | 171,800 | 150,000 | 0 | 14,907 | 336,707 | |||||||||||||||
Michael B. McCallister | 140,000 | 150,000 | 0 | 102 | 290,102 | |||||||||||||||
John B. McCoy | 155,000 | 150,000 | 0 | 10,102 | 315,102 | |||||||||||||||
Beth E. Mooney | 126,600 | 150,000 | 0 | 15,102 | 291,702 | |||||||||||||||
Joyce M. Roché | 217,700 | 150,000 | 0 | 15,098 | 382,798 | |||||||||||||||
Matthew K. Rose | 140,000 | 150,000 | 0 | 11,100 | 301,100 | |||||||||||||||
Cynthia B. Taylor | 141,700 | 150,000 | 0 | 102 | 291,802 | |||||||||||||||
Laura D’Andrea Tyson | 148,650 | 150,000 | 4,842 | 102 | 303,594 | |||||||||||||||
| Director | Deferred Stock Units Purchased in 2015 | Director | Deferred Stock Units Purchased in 2015 | |||||||
Reuben V. Anderson | 1,556 | John B. McCoy | 4,572 | |||||||
Glenn H. Hutchins | 3,686 | Beth E. Mooney | 2,338 | |||||||
James P. Kelly | 503 | Matthew K. Rose | 4,130 |
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Each share of AT&T common stock represented at the Annual Meeting is entitled to one vote on each matter properly brought before the meeting. All matters, except as provided below, are determined by a majority of the votes cast, unless a greater number is required by law or our Certificate of Incorporation for the action proposed. A majority of votes cast means the number of votes cast “for” a matter exceeds the number of votes cast “against” such matter.
If the proxy is submitted and no voting instructions are given, the person or persons designated on the card will vote the shares for the election of the Board of Directors’ nominees and in accordance with the recommendations of the Board of Directors on the other subjects listed on the proxy card and at their discretion on any other matter that may properly come before the meeting.
The Board of Directors is not aware of any matters that will be presented at the meeting for action on the part of stockholders other than those described in this Proxy Statement.
Election of Directors:Directors
In the election of Directors, each Director is elected by the vote of the majority of the votes cast with respect to that Director’s election. Under our Bylaws, if a nominee for Director is not elected and the nominee is an existing Director standing forre-election (orincumbent Director), the Director must promptly tender his or her resignation to the Board, subject to the Board’s acceptance. The Corporate Governance and Nominating Committee will make a recommendation to the Board as to whether to accept or reject the tendered resignation or whether other action should be taken. The Board will act on the tendered resignation, taking into account the Corporate Governance and Nominating Committee’s recommendation, and publicly disclose (by a press release, a filing with the SEC, or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. The Corporate Governance and Nominating Committee in making its recommendation and the Board of Directors in making its decision may each consider any factors or other information that they consider appropriate and relevant. Any Director who tenders his or her resignation as described above will not participate in
the recommendation of the Corporate Governance and Nominating Committee or the decision of the Board of Directors with respect to his or her resignation.
If the number of persons nominated for election as Directors as of ten days before the record date for determining stockholders entitled to notice of or to vote at such meeting shall exceed the number of Directors to be elected, then the Directors shall be elected by a plurality of the votes cast. Because no persons other than the incumbent Directors have been nominated for election at the 20162019 Annual Meeting, each nominee must receive athe majority of the votes cast for that nominee to be elected to the Board.vote provisions will apply.
Advisory Vote on Executive Compensation:Compensation
The advisory vote on executive compensation isnon-binding, and the preference of the stockholders will be determined by the choice receiving the greatest number of votes.
Approval of 2016 Incentive Plan: NYSE listing standards require listed companies to seek stockholder approval of plans that provide for the distribution of company stock to employees. When such approval is sought, the standards require that abstentions count as votes against approval of the proposal. These NYSE listing standards apply only to approval of the 2016 Incentive Plan at the Annual Meeting.
All Other Matters:Matters to be Voted Upon
All other matters at the 20162019 Annual Meeting will be determined by a majority of the votes cast. Shares
Abstentions
Except as noted above, shares represented by proxies marked “abstain” with respect to the proposals described on the proxy card and by proxies marked to deny discretionary authority on other matters will not be counted in determining the vote obtained on such matters. If the proxy is submitted and no voting instructions are given, the person or persons designated on the card will vote the shares for the election of the Board of Directors’ nominees and in accordance with the recommendations of the Board of Directors on the other subjects listed on the proxy card and at their discretion on any other matter that may properly come before the meeting.
Broker Non-Votes:Non-Votes
Under the rules of the NYSE, on certain routine matters, brokers may, at their discretion, vote shares they hold in “street name” on behalf of beneficial owners who have not
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returned voting instructions to the brokers. On all other matters, brokers are prohibited from voting uninstructed shares. In instances where brokers are prohibited from exercising discretionary authority (so-called(so-calledbrokernon-votes), the shares they hold are not included in the vote totals.
At the 20162019 Annual Meeting, brokers will be prohibited from exercising discretionary authority with respect to each of the matters submitted other than the ratification of the auditors. As a result, for each of the matters upon which the brokers are prohibited from voting, the brokernon-votes will have no effect on the results.
| 4 | |
Item No. 1 - Election of Directors
Under our Bylaws, the Board of Directors has the authority to determine the size of the Board and to fill vacancies. Currently, the Board is comprised of 13 Directors, one of whom is an Executive Officer of AT&T. There are no vacancies on the Board. Under AT&T’s Corporate Governance Guidelines, a Director will not be nominated by the Board forre-election if the Director would be 72 or older at the time of the election.
Joyce M. Roché will retire at the 2019 Annual Meeting and will not stand for re-election. Accordingly, the Board has voted to reduce its size to 12 Directors effective immediately before the meeting.
The Board of Directors is not aware of any matters that will be presented athas nominated the meeting for action on the part of stockholders other than those described in this Proxy Statement.
Management Proposals (Item Nos. 1 through 4)
The following12 persons each of whom is currently a Director of AT&T, have been nominated by the Board of Directors on the recommendation of the Corporate Governance and Nominating Committeelisted below for election as Directors toone-year terms of office that would expire at the 20172020 Annual Meeting. Each of the nominees is an incumbent Director of AT&T recommended forre-election by the Corporate Governance and Nominating Committee. In making these nominations, the Board reviewed the background of the nominees (each nominee’s biography is set out below)can be found beginning on the next page) and determined to nominate each of the current Directors forre-election, other than the retiring Directors.Director.
The Board believes that each nominee has valuable individual skills, attributes, and experiences that, taken together, provide us with the variety and depth of knowledge, judgment and vision necessary to provide effective oversight of a large and varied enterprise like AT&T. As indicated in the following biographies, the nominees have significant leadership skills and extensive experience in a variety of fields, including telecommunications, technology, public accounting, health care, education, economics, financial services, law, consumer marketing, transportation andoperations, logistics, government service, public policy, academic research, and consulting, and nonprofit organizations, each of which the Board believes provides valuable knowledge about important elements of AT&T’s business. A number of the nominees also have extensive experience in international business and affairs, which the Board believes affords it an important global perspective in its deliberations.
If one or more of the nominees should at the time of the meeting be unavailable or unable to serve as a Director, the shares represented by the proxies will be voted to elect the remaining nominees and any substitute nominee or nominees designated by the Board. The Board knows of no reason why any of the nominees would be unavailable or unable to serve.
| The Board recommends you voteFOR each of the following candidates: |
| ||
Name
| Age
|
Director Since
| Principal Occupation
| |||
Randall L. Stephenson
|
58
|
2005
|
Chairman, CEO, and President, AT&T Inc.
| |||
Samuel A. Di Piazza, Jr.
|
68
|
2015
|
Retired Global CEO, PricewaterhouseCoopers International Limited
| |||
Richard W. Fisher
|
69
|
2015
|
Former President and CEO, Federal Reserve Bank of Dallas
| |||
Scott T. Ford
|
56
|
2012
|
Member and CEO, Westrock Group, LLC
| |||
Glenn H. Hutchins
|
63
|
2014
|
Chairman, North Island andCo-Founder, Silver Lake
| |||
William E. Kennard
|
62
|
2014
|
Former United States Ambassador to the European Union and former Chairman of the Federal Communications Commission
| |||
Michael B. McCallister
|
66
|
2013
|
Retired Chairman and CEO, Humana Inc.
| |||
Beth E. Mooney
|
64
|
2013
|
Chairman and CEO, KeyCorp
| |||
Matthew K. Rose
|
59
|
2010
|
Chairman and CEO, Burlington Northern Santa Fe, LLC
| |||
Cynthia B. Taylor
|
57
|
2013
|
President and CEO, Oil States International, Inc.
| |||
Laura D’Andrea Tyson
|
71
|
1999
|
Distinguished Professor of the Graduate School, Haas School of Business, and Chair of the Blum Center for Developing Economies Board of Trustees at the University of California, Berkeley
| |||
Geoffrey Y. Yang
|
60
|
2016
|
Founding Partner and Managing Director, Redpoint Ventures
| |||
All Director nominees are independent, except for Mr. Stephenson.
|
VOTING ITEMS
|
|
Age 58 Director since 2005 | |||||||||||||||
| Mr. Stephenson is Chairman of the Board, Chief President of AT&T Inc.
| |||||||||||||||
| ||||||||||||||||
| ||||||||||||||||
Executive (Chair) Past Directorships The Boeing Emerson Electric Co. (2006-2017) | ||||||||||||||||
|
| |||||||||||||||
| ||||||||||||||||
| Senior Leadership/Chief Executive Officer Experience |  | Extensive Knowledge of the Company’s Business and/or Industry | |||||||||||||
| High Level of Financial Experience |  | Public Company Board Service and Governance Experience | |||||||||||||
Samuel A. Di Piazza, Jr. |
| |||||||||||||||
| Mr. Di Piazza served as Global Chief Executive Officer of PricewaterhouseCoopers International Limited (an international professional services firm) from 2002 until his retirement in 2009. Mr. Di Piazza began his36-year career with PricewaterhouseCoopers
| |||||||||||||||
|
AT&T Board Committees
Public Policy and Corporate Reputation Other Public Company Directorships Jones Lang LaSalle Incorporated; ProAssurance Corporation; Regions Financial Corporation Past Directorships DIRECTV (2010-2015) |
| |||||||||||||||
| |||||||||||||
| Senior Leadership/Chief Executive Officer Experience | | Extensive Knowledge of the Company’s Business and/or Industry | ||||||||||
| High Level of Financial Experience |
| Global Business/Affairs Experience | ||||||||||
| 6 | |
VOTING ITEMS
Richard W. Fisher |
| |||||||||||
| Mr. Fisher served as President and Chief Executive Officer of the Federal Reserve Bank of Dallas from 2005 until March 2015. He has been Senior Advisor to Barclays PLC (a financial services provider) since 2015. From 2001 to 2005, Mr. Fisher was Vice Chairman and Managing Partner of Kissinger McLarty Associates (a strategic advisory firm). From 1997 to 2001, Mr. Fisher served as Deputy U.S. Trade Representative with the rank of Ambassador. Previously, he served as Managing Partner of Fisher Capital Management and Fisher Ewing Partners LP (investment advisory firms) and prior to that was Senior Manager of Brown Brothers Harriman & Co. (a private banking firm). He is an Honorary Fellow of Hertford College, Oxford University, and a Fellow of the American Academy of Arts and Sciences. Mr. Fisher received his B.A. in economics from Harvard University and earned his M.B.A. from Stanford University.
| |||||||||||
AT&T Board Committees
Other Public Company Directorships PepsiCo, Inc.; Tenet Healthcare |
| |||||||
| ||||||||||||
| Senior Leadership/Chief Executive Officer Experience |  | Government/Regulatory Expertise | |||||||||
| High Level of Financial Experience |  | Global Business/Affairs Experience | |||||||||
Scott T. Ford |
| |||||||||||
| Mr. Ford founded Westrock Group, LLC (a private investment firm in Little Rock, Arkansas) in 2013,
| |||||||||||
Corporate Development and Finance (Chair); Executive; Human Resources Past Directorships Bear State Financial, Inc. | ||||||||||||
|
|
| |||||||
| ||||||||||||
 | Senior Leadership/Chief Executive Officer Experience | | Extensive Knowledge of the Company’s Business and/or Industry | |||||||||
| Public Company Board Service and Governance Experience |  | Investment/Private Equity Experience | |||||||||
| 7 |
VOTING ITEMS
Glenn H. Hutchins |
| |||||||||||
| Mr. Hutchins is
| |||||||||||
AT&T Board Committees
Other Public Company Directorships Virtu Financial, Inc. Past Directorships Nasdaq, Inc. (2005-2017) |
| |||||||
| ||||||||||||
| Senior Leadership/Chief Executive Officer Experience | | Government/Regulatory Expertise | |||||||||
| Technology Expertise | | Investment/Private Equity Experience | |||||||||
William E. Kennard |
| |||||||||||
| Mr. Kennard served as the United States Ambassador to the European Union from 2009 to 2013. From 2001 to 2009, Mr. Kennard was Managing Director of The Carlyle Group
| |||||||||||
AT&T Board Committees Corporate Governance and Nominating; Public Policy and Corporate Reputation Other Duke Energy Corporation; Ford Motor Company; MetLife, Inc. | ||||||||||||
| ||||||||
Mr. Kennard’s qualifications to serve on our Board include his expertise in the telecommunications industry, his understanding of public policy, and his international perspective, as well as his background and experience in law and regulatory matters, all strong attributes for the Board of AT&T.
| ||||||||||||
| Senior Leadership/Chief Executive Officer Experience | | Government/Regulatory Expertise | |||||||||
| Extensive Knowledge of the
|  |
| |||||||||
| |
VOTING ITEMS
Michael B. McCallister |
| |||||||||||
| Mr. McCallister served as Chairman of Humana Inc. (a health care company in Louisville, Kentucky) from 2010 to 2013,
| |||||||||||
AT&T Board Committees Audit; Human Resources Other Fifth Third Bancorp; Zoetis Inc.
| ||||||||||||
|
| |||||||
| ||||||||||||
| Senior Leadership/Chief Executive Officer Experience | | Public Company Board Service and Governance Experience | |||||||||
| Healthcare Expertise |  | High Level of Financial Experience | |||||||||
Beth E. Mooney |
| |||||||||||
| Ms. Mooney is Chairman and Chief Executive Officer of KeyCorp (a bank holding company in Cleveland, Ohio) and has served in
| |||||||||||
|
AT&T Board Committees
Other Public Company Directorships KeyCorp |
| |||||||
| ||||||||||||
|
| | Government/Regulatory Expertise
| |||||||||
| High Level of Financial Experience | | Public Company Board Service and Governance Experience | |||||||||
| 9 |
VOTING ITEMS
|
| |||||||||||
| Mr. Rose is Chairman of the Board and Chief Executive Officer of Burlington Northern Santa Fe, LLC
| |||||||||||
| ||||||||||||
| ||||||||||||
AT&T Board Committees Corporate Governance and Nominating (Chair); Executive; Human Resources
Other BNSF Railway Company; Burlington Northern Santa Fe, LLC; Fluor Corporation |
| |||||||||||
Mr. Rose’s qualifications to serve on the Board include his extensive experience in the executive oversight of a large, complex and highly-regulated organization, his considerable knowledge of operations management and logistics, and his experience and skill in managing complex regulatory and labor issues comparable to those faced by AT&T. | ||||||||||||
| Senior Leadership/Chief Executive Officer Experience | | Government/Regulatory Expertise | |||||||||
| Labor Experience |
| Operations/Logistics Experience | |||||||||
| ||||||||||||
Age 57 Director since 2013
|
is President, Chief Executive Officer and a Director of Oil States International, Inc.
| |||||||
| ||||||||||||
| ||||||||||||
AT&T Board Committees Audit; Public Policy and Corporate Reputation Other Oil States International, Inc. Past Directorships Tidewater Inc. (2008-2017) | Qualifications, Attributes, Skills, and Experience | |||||||||||
Ms. Taylor’s qualifications to serve on the Board include her executive leadership skills in the oversight of a large, publicly traded company, her vast experience in finance and public accounting, and her experience in international business and affairs, all of which bring a broad spectrum of management experience to our Board. | ||||||||||||
| Senior Leadership/Chief Executive Officer Experience | | Global Business/Affairs Experience | |||||||||
| High Level of Financial Experience |  | Operations/Logistics Experience | |||||||||
| 10 | |
VOTING ITEMS
|
Age 71 Director since 1999 | |||||||||||
| Dr. Tyson is a Distinguished Professor of
| |||||||||||
Other Public Company Directorships CBRE Group, Inc. Past Directorships Morgan Stanley (1997-2016); Silver Spring Networks, Inc. (2009-2018) | ||||||||||||
| ||||||||||||
| ||||||||||||
| Senior Leadership/Chief Executive Officer Experience | | Government/Regulatory Expertise | |||||||||
| High Level of Financial Experience
|
| Public Company | |||||||||
|
VOTING ITEMS
Geoffrey Y. Yang | Age 60 Director since 2016 | |||||||||||
| Mr. Yang is a founding partner and Managing Director of Redpoint Ventures (a global private equity and venture capital firm based in Menlo Park, California) and has served in this capacity since 1999. Prior to founding Redpoint, Mr. Yang was a General Partner with Institutional Venture Partners (a private equity investment firm in Menlo Park, California), which he joined in 1987. Mr. Yang has over 30 years of experience in the venture capital industry and has helped found or served on the boards of a variety of consumer media, internet, and infrastructure companies. Mr. Yang holds a B.S.E. in engineering from Princeton University and an M.B.A. from Stanford University. | |||||||||||
AT&T Board Committees Corporate Development Other Public Company Directorships Franklin Resources, Inc. | Qualifications, Attributes, Skills, and Experience | |||||||||||
Mr. Yang’s qualifications to serve on the Board include his extensive experience in technology and emerging forms of media and entertainment, his decades of experience and expertise in venture capital, his strong strategic focus, as well as his vast experience in serving on the boards of private and public technology companies, all of which enable him to provide valuable contributions to AT&T’s financial and strategic planning and industry competitiveness. | ||||||||||||
| Senior Leadership/Chief Executive Officer Experience | | Global Business/Affairs Experience | |||||||||
| Investment/Private Equity Experience |  | Technology Expertise | |||||||||
| 12 |
|
VOTING ITEMS
Item 2.No. 2 - Ratification of the Appointment of Ernst & Young LLP as Independent Auditors
This proposal would ratify the Audit Committee’s appointment of Ernst & Young LLP (EY)to serve as independent auditors of AT&T for the fiscal year ending December 31, 2016.2019. The Audit Committee’s decision tore-appoint our independent auditor was based on the following considerations:
quality and performance of the lead audit partner and the overall engagement team,
knowledge of the telecommunications, industrymedia and enternainment, and technology industries and company operations,
global capabilities and technical expertise,
auditor independence and objectivity, and
the potential impact of rotating to another independent audit firm.
The Audit Committee’s oversight of EY includes regular private sessions with EY, discussions about audit scope and business imperatives, and—as described above—a comprehensive annual evaluation to determine whether tore-engage EY. Considerations concerning auditor independence include:
Limits onnon-audit services: The Audit Committee preapproves audit and permissiblenon-audit services provided by EY in accordance with itspre-approval policy.
Audit partner rotation:EY rotates the lead audit partner and other partners on the engagement consistent with independence requirements. The Audit Committee oversees the selection of each new lead audit partner.
EY’s internal independence process: EY conducts periodic internal reviews of its audit and other work and assesses the adequacy of partners and other personnel working on the Company’s account.
Strong regulatory framework: EY, as an independent registered public accounting firm, is subject to PCAOB inspections, “Big 4” peer reviews and PCAOB and SEC oversight.
Based on these considerations, the Audit Committee believes that the selection of Ernst & Young LLP is in the best interest of the company and its stockholders. Therefore, the Audit Committee recommends that stockholders ratify the appointment of Ernst & Young LLP. If stockholders do not ratify the appointment, the Committee will reconsider its decision. One or more members of Ernst & Young LLP are expected to be present at the Annual Meeting, will be able to make a statement if they so desire, and will be available to respond to appropriate questions.
 | The Board recommends you voteFOR this | | ||||||
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VOTING ITEMS
Item 3.No. 3 - Advisory Approval of Executive Compensation
This proposal would approve the compensation of executive officersExecutive Officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the accompanying narrative disclosures (see pages 3640 through 74)75). These sections describe our executive compensation program.
The Human Resources Committee is responsible for executive compensation and works to structure a balanced program that addresses the dynamic, global marketplace in which AT&T competes for talent. The Committee believes this programcompensation structure includespay-for-performance and equity-based incentive programs and rewardsseeks to reward executives for results that are consistent with stockholder interests. The Committee asks that our stockholders approve the program.attaining performance goals.
AT&T has implementedsubmits this proposal to stockholders on an annual basis. While this is a numbernon-binding, advisory vote, the Committee intends to take into account the outcome of changesthe vote when considering future executive compensation arrangements. AT&T is providing this vote as required pursuant to its compensation and benefits program in recent years to better serve its stockholders and is implementing additional changes in its 2016 program. For more information onSection 14A of the 2016 changes and our best practices, please see pages 40 to 41 in the Compensation Discussion and Analysis.Securities Exchange Act.
Guiding Pay Principles (discussed in detail on page 44)
GUIDING PAY PRINCIPLES | ||||||
(discussed in detail on page 40) | ||||||
Alignment with Stockholders | ||||||
Provide compensation elements and set performance targets that closely align executives’ interests with those of stockholders. For example, approximately 69% of target pay for NEOs is tied to stock price performance. In addition, we have executive stock ownership guidelines and stock holding requirements, as described on page 60. Each of the NEOs exceeds the minimum stock ownership guidelines. | ||||||
Competitive and Market | ||||||
Evaluate all components of our compensation and benefits program in light of appropriate | ||||||
Pay for | ||||||
Tie a significant portion of compensation to the achievement of | ||||||
Balanced Short- and Long-Term | ||||||
Ensure that the compensation | ||||||
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Alignment with Generally Accepted | |||||||
Provide policies and programs that fit within the framework of generally accepted approaches adopted by leading major U.S. companies. | |||||||
AT&T submits this proposal to stockholders on an annual basis. While this is a non-binding, advisory vote, the Committee intends to take into account the outcome of the vote when considering future executive compensation arrangements. AT&T is providing this vote as required pursuant to Section 14A of the Securities Exchange Act.
| The Board | | ||||||
Item 4. Approval of 2016 Incentive Plan
Your Board of Directors has adopted the 2016 Incentive Plan (Incentive Plan) for the purpose of replacing the 2011 Incentive Plan, previously approved by our stockholders in 2011. The Incentive Plan, like the prior plan, permits AT&T to compensate eligible managers with equity and cash awards. New awards will not be made under the Incentive Plan until stockholder approval is obtained for the Plan.
The Incentive Plan provides your Directors with the flexibility to compensate managers through a variety of possible awards. These awards may be tied to the financial or operational performance of the Company as well as to the performance of the stock. Because of the key role the Incentive Plan plays in the compensation of your executives, your Directors urge you to vote for approval of the Incentive Plan, including its performance standards.
The terms of the Incentive Plan are summarized below. In addition, the full text of the Incentive Plan is set forth in Appendix A to this Proxy Statement. The following summary is qualified in its entirety by reference to the text of the Incentive Plan.
Summary of the Incentive Plan
Performance Awards. The Incentive Plan allows certain committees of your Directors (each, aPlan Committee) to issue “performance shares” and “performance units.” These are contingent incentive awards that are converted into stock and/or cash and paid out to the participant only if specific performance goals are achieved over performance periods of not less than one year. If the performance goals are not achieved, the awards are forfeited or reduced. Performance shares are each equivalent in value to a share of common stock (payable in cash and/or stock), while performance units are equal to a specific amount of cash. In any calendar year, no participant may receive performance shares having a potential payout (whether in the form of cash and/or stock) exceeding 1% of the shares approved for issuance under the Incentive Plan. Similarly, no participant may receive performance units having a potential payout exceeding an amount equivalent to 1% of the approved shares as of the date of the grant. Unless otherwise provided by the Plan Committee, participants receive dividend equivalents on performance shares.
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VOTING ITEMS
Performance Goals. The performance goals set by the Plan Committee include payout tables, formulas or other standards to be used in determining the extent to which the performance goals are met and, if met, the number of performance shares and/or performance units that would be converted into stock and/or cash (or the rate of such conversion) and distributed to participants. The performance goals may include, or be offset by, any of the following criteria or any combination thereof:
Except to the extent otherwise provided by the Plan Committee, if the matters making up one of the following categories exceeds certain limits, the category (as well as any related effects on cash flow, if applicable) shall be disregarded in determining whether or the extent to which performance goals are met: (1) changes in accounting principles; (2) changes in Federal tax law; (3) changes in the tax laws of the states; (4) expenses caused by natural disasters, including but not limited to floods, hurricanes, and earthquakes; (5) expenses resulting from intentionally caused damage to property of the business; (6) and non-cash accounting write-downs of goodwill, other intangible assets, and fixed assets. A category shall be disregarded if the net impact of matters in the category on net income, after taxes and available and collectible insurance, exceed $500 million. In addition, where the net impact of matters in a category (calculated as in the above) exceed $200 million but not $500 million, then each such category shall also be excluded but only if the combined net effect of events in all such categories exceeds $500 million.
Gains and losses related to the assets and liabilities from pension plans and other post- retirement benefit plans (and any associated tax effects) shall be disregarded in determining whether or the extent to which a performance goal has been met.
Unless otherwise provided by the Committee at any time, no such adjustment shall be made for a current or former executive officer to the extent such adjustment would cause an award to fail to satisfy the performance based exemption of Section 162(m) of the Code.
Stock Options. The Incentive Plan permits the Plan Committee to issue nonqualified stock options to managers, which directly link their financial success to that of AT&T’s stockholders. Incentive Stock Options, which are more costly for a company to issue, are not permitted under the Incentive Plan. The Plan Committee shall determine the number of shares subject to options and all other terms and
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conditions of the options, including vesting requirements. In no event, however, may the exercise price of a stock option be less than 100% of the fair market value of AT&T common stock on the date of the stock option’s grant, nor may any option have a term of more than ten years. During any calendar year, no single employee may receive options on shares representing more than 1% of the shares authorized for issuance under the Incentive Plan. Except for adjustments based on changes in the corporate structure or as otherwise provided in the Incentive Plan, the terms of an Option may not be amended to reduce the exercise price nor may Options be cancelled or exchanged for cash, other awards or Options with an exercise price that is less than the exercise price of the original Options.
Restricted Stock. The Incentive Plan also permits the Plan Committee to grant restricted stock awards. Each share of restricted stock shall be subject to such terms, conditions, restrictions, and/or limitations, if any, as the Plan Committee deems appropriate, including, but not by way of limitation, restrictions on transferability and continued employment. Holders of shares of restricted stock may vote the shares and receive dividends on such shares. In order to qualify a restricted stock grant under Section 162(m) of the Code, the Plan Committee may condition vesting of the award on the attainment of performance goals, using the same performance criteria as that used for performance shares and units. The vesting period for restricted stock shall be determined by the Committee, which may accelerate the vesting of any such award. The Plan Committee may also grant restricted stock units, which have substantially the same terms as restricted stock, except that units have no voting rights, may or may not receive dividend equivalents, and may be paid in cash or stock. The Plan Committee may also grant unrestricted stock under this provision. No manager may receive in any calendar year restricted stock (including restricted stock units and stock without restrictions) representing more than 1% of the shares authorized to be issued under the Incentive Plan.
Eligible for Participation. Management employees of AT&T or its Subsidiaries are eligible to be selected to participate in the Incentive Plan. Currently, there are approximately 103,000 managers who are eligible to participate in the plan; however, the Company expects participation to be generally limited to 7,000 mid-level and above managers. Actual selection of any eligible manager to participate in the Incentive Plan is within the sole discretion of the Plan Committee.
Available Shares. The Incentive Plan authorizes the issuance, over a 10-year period, of up to 90 million shares of common stock to participants, net of lapsed awards. In the event of a stock split, stock dividend, or other change in the corporate structure of the Company, as described in the Plan, affecting the shares that may be issued under the Plan, an adjustment shall be made in the number and class of shares which may be delivered under the Plan (including but not limited to individual grant limits) as may be determined by the Human Resources Committee.
After April 30, 2026, no further awards may be issued under the Incentive Plan.
Federal Income Tax Matters Relating to Stock Options. The following is a summary of the principal U.S. Federal income tax consequences under present law of the issuance and exercise of stock options granted under the Incentive Plan. This summary is not intended to be exhaustive and, among other things, does not describe state or local tax consequences.
A participant will not be deemed to have received any income subject to tax at the time a nonqualified stock option is granted, nor will AT&T be entitled to a tax deduction at that time. However, when a nonqualified stock option is exercised, the participant will be deemed to have received an amount of ordinary income equal to the excess of the fair market value of the shares of common stock purchased over the exercise price. AT&T will be allowed a tax deduction in the year the option is exercised in an amount equal to the ordinary income which the participant is deemed to have received.
Other Information. The Incentive Plan may be amended in whole or in part by the Board of Directors or the Human Resources Committee. In the event of a Change in Control (as defined in the Incentive Plan), the payout of performance units and performance shares shall be determined exclusively by the
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attainment of the performance goals established by the Plan Committee, which may not be modified after the Change in Control, and AT&T shall not have the right to reduce the awards for any other reason unless the holder of the award is terminated for Cause.
For certain high level employees, the receipt of an award under the Incentive Plan will constitute an agreement that they will not participate in activities that would constitute engaging in competition with AT&T or engaging in conduct disloyal to AT&T. These provisions, including definitions of terms, are contained in Section 10.3 of the Plan.
In addition, a recipient of an award shall be required to repay the Company for any amount received under an award or an award may be cancelled, in each case to the extent required under any policy adopted by the Company at any time pursuant to any applicable stock exchange listing standards established under Section 10D of the Securities Exchange Act of 1934. This does not limit the Company’s right to seek recovery or cancellation of an award for any other reason including but not limited to misconduct.
The closing price of AT&T’s common stock reported on the New York Stock Exchange for February 1, 2016, was $36.18 per share.
Stockholder Proposals (Item Nos. 5 through 7)
Certain stockholders havestockholder has advised the Company that they intendhe intends to introduce at the 20162019 Annual Meeting the proposalsproposal set forth below. The namesname and addressesaddress of, and the number of shares owned by, each such stockholder will be provided upon request to the Senior Vice President and Secretary of AT&T.
Political Spending Report
Resolved, that the shareholders of AT&T (“Company”) hereby request that the Company provide a report, updated semi-annually, disclosing the Company’s:
Indirect monetary and non-monetary expenditures used for political purposes, i.e., to participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, and used in any attempt to influence the general public, or segments thereof, with respect to elections.
The report shall include:
This proposal does not encompass payments used for lobbying.
The report shall be presented to the board of directors’ audit committee or other relevant oversight committee and posted on the Company’s website.at 208 S. Akard Street, Suite 2954, Dallas, Texas 75202.
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Supporting Statement
As long-term AT&T shareholders, we support transparency and accountability in corporate spending on political activities. Disclosure is consistent with the best interest of the Company and its shareholders. Indeed, the Supreme Court said in its 2010 Citizens Uniteddecision: “[D]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”
Our Company discloses a policy on corporate political spending and its contributions to state-level candidates, parties and committees on its website. We believe this is deficient, however, because AT&T will not disclose the following expenditures made for the political purposes defined above:
Information on indirect political engagement through trade associations and 501(c)(4) groups cannot be obtained by shareholders unless the Company discloses it. Disclosure of all of AT&T’s indirect political spending would bring our Company in line with leading companies, including Microsoft, CenturyLink and Qualcomm that present this information on their websites. Forty one percent of the S&P 500 (204 companies) currently disclose some level of payments to trade associations, or say they instruct trade associations not to use these payments on election-related activities (CPA-Zicklin Index of Corporate Political Disclosure and Accountability).
Indirect political spending presents unique risks that are not addressed by AT&T’s current policies. Opacity allows trade associations and other tax exempt entities to use AT&T funds for purposes that may conflict with AT&T’s policies and best interests. Disclosure permits oversight and accountability.
| The Board recommends you voteAGAINST this |
For the reasons discussed below, the Board believes that the reports requested in this proposal are duplicative of the Company’s existing practices and are unnecessary. AT&T received a nearly identical proposal for its 2015 Annual Meeting, and approximately three fourths of the votes cast at the meeting were against the proposal.
Political contributions, where permitted, are an important part of the regulatory and legislative process. AT&T is in a highly regulated industry, and its operations are significantly affected by the actions of elected officials at the local, state and national levels, including rates it can charge customers, its profitability and even how it must provide services to competitors. It is important that the Company actively participate in the electoral and legislative processes in order to protect your interests as stockholders. The Public Policy and Corporate Reputation Committee of the Board, composed entirely of independent directors, reviews corporate political contributions and Company-sponsored political action committees (PACs).
Additionally, as discussed in the AT&T Political Engagement Report, which is available on the Company’s website (at http://about.att.com/content/dam/csr/PoliticalEngagementReports/ATT_Political EngagementReport_2015_Jan-Jun.pdf) and currently covers January through June of 2015. The Company participates in various industry associations to further its business interests. These memberships not only provide valuable industry expertise, but they also advocate positions on behalf of the communications industry or that impact the communications and other industries. These industry associations include, for example, the United States Telecom Association, the Cellular Telephone Industry Association and the Future of Privacy Forum.
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AT&T is committed to adhering to the highest ethical standards when engaging in any political activities. AT&T’s policies and procedures with respect to political contributions are clearly set forth on the Company’s website in the Corporate Governance section (available at http://www.att.com/gen/investor-relations?pid=7726). In making political contributions the Company is committed to complying with campaign finance laws, including the laws requiring public disclosure of political contributions. The amount of the Company’s political expenditures is an insignificant portion of its total annual expenses. Each year, the Board authorizes a maximum amount of political contributions that can be made by the Company, as permitted by, and in strict compliance with, applicable law, for the purposes of supporting or opposing any party, committee, candidate for public office, or ballot measure, or for any other political purpose. For 2015, this amount is $6.0 million. Also, for calendar years 2015-2016, the Board authorized contributions or expenditures by the Company, as permitted by, and in strict compliance with, applicable law, relating to the 2016 presidential nominating conventions and ensuing inaugural activities, in the amount of $24.4 million. This amount includes in-kind services. These contributions also provide valuable advertising opportunities for the Company’s services and products.
Except for contributions for ballot measures, no expenditure over $1,000 may be made unless approved by the Chief Executive Officer. Additionally, expenditures must be submitted to the Company’s attorneys to confirm that each contribution is lawful.
AT&T already publicly discloses its participation in the legislative process. AT&T publishes the AT&T Political Engagement Report, referenced above, semiannually; it is an itemized list of corporate contributions and employee PAC contributions to candidates and candidate committees; national, state, and local party committees and other groups; and PACs and other committees. Federal political activity is subject to comprehensive regulation by the federal government, including detailed disclosure requirements. AT&T’s federal PACs file regular reports of receipts and disbursements with the Federal Election Commission (the “FEC”) which are disclosed to the public in the reports filed with the FEC and include identification of all individuals who contributed $200 or more as well as all candidates or committees that received a political contribution. AT&T complies with all obligations with regard to its state and local political activities, including reporting and disclosure requirements. Additionally, under the Lobbying Disclosure Act of 1995, as amended, the Company files semi-annual reports with the Secretary of the U.S. Senate (available athttp://www.senate.gov/legislative/Public_Disclosure/LDA_reports.htm) and Clerk of the U.S. House of Representatives (available athttp://disclosures.house.gov/ld/ldsearch.aspx).
The Board believes that spending further corporate funds to generate additional reports would not be a productive use of corporate resources. The Board therefore recommends that you vote against this proposal.
Whereas, we believe in full disclosure of our company’s direct and indirect lobbying activities and expenditures to assess whether our company’s lobbying is consistent with AT&T’s expressed goals and in the best interests of shareholders.
Resolved, the shareholders of AT&T request the preparation of a report, updated annually, disclosing;
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For purposes of this proposal, a “grassroots lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which AT&T is a member.
Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels.
The report shall be presented to the Audit Committee or other relevant Board oversight committees and posted on AT&T’s website.
Supporting Statement
As stockholders, we encourage transparency and accountability in AT&T’s use of corporate funds to influence legislation and regulation, both directly and indirectly. AT&T spent $30.1 million in 2013 and 2014 on federal lobbying activities (opensecrets.org). This figure does not include lobbying expenditures to influence legislation in states where AT&T also lobbies, but disclosure is uneven or absent. For example, AT&T spent $1.6 million lobbying in California in 2014 (http://cal-access.ss.ca.gov/).
AT&T sits on the board of the Chamber of Commerce, which has spent over $1 billion on lobbying since 1998. AT&T does not disclose its memberships in, or payments to, trade associations, or the portions of such amounts used for lobbying. Absent a system of accountability, company assets could be used for objectives contrary to AT&T’s long-term interests. For example, AT&T recognizes climate change is a serious concern that warrants meaningful action, yet the Chamber is publicly attacking the EPA on its new Clean Power Plan addressing climate change.
And AT&T does not disclose its membership in tax-exempt organizations that write and endorse model legislation, such as AT&T’s sitting on Private Enterprise Council of the American Legislative Exchange Council (ALEC). ALEC has promoted legislation to repeal state renewable energy standards and undermine the EPA’s Clean Power Plan. AT&T’s ALEC membership has drawn press scrutiny that may affect the company’s reputation adversely (“T-Mobile Ditches ALEC,”The Hill, Apr. 8, 2015). More than 100 companies, including Emerson Electric, General Electric, Google, Sprint, and T-Mobile, have publicly left ALEC.
For the reasons discussed below, the Board believes that the rigor of the Company’s current practices provides its shareholders and the public with ample transparency and accountability with respect to lobbying activities and that the preparation and publication of the report called for by this proposal is neither necessary nor an efficient use of the Company’s resources. AT&T received a nearly identical shareholder proposal for its 2015 Annual Meeting, and approximately two-thirds of the votes cast at the meeting were against the proposal.
AT&T is in a highly regulated industry; therefore, public policy decisions at the local, state, and national levels significantly affect the Company’s operations, strategy, and stockholder value. Accordingly, the Company exercises its responsibility to actively participate in the legislative processes in order to protect and further stockholders’ interests by contributing prudently to lobbying organizations that constructively advocate positions which advance the Company’s business objectives and stockholders’ interests. Similarly, the Company belongs to industry associations and coalitions, where it benefits from the general business, technical, and industry standard-setting expertise these organizations provide.
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AT&T is committed to adhering to the highest ethical standards when engaging in any political activities. AT&T’s policies and procedures with respect to political contributions are clearly set forth on the Company’s website in the Corporate Governance section (available atwww.att.com/gen/investor-relations?pid=7726).
AT&T publishes the AT&T Political Engagement Report semiannually; it is an itemized list of corporate contributions and employee PAC contributions to candidates and candidate committees; national, state, and local party committees and other groups; and PACs and other committees. This report is available on the Company’s website (athttp://about.att.com/content/dam/csr/PoliticalEngagementReports/ ATT_PoliticalEngagementReport_2015_Jan-Jun.pdf) and currently covers January through June 2015).
In addition to the AT&T Political Engagement Report, the Company is required to file other reports with various state and federal agencies. Pursuant to the federal Lobby Disclosure Act, the Company files federal lobbying reports quarterly with the Office of the Clerk of the U.S. House of Representatives and the Secretary of the U.S. Senate. These reports are publicly available and disclose corporate expenditures related to lobbying and issues lobbied. Publicly available contribution and lobbying data can be found at the below sources:
AT&T has a robust review process for contributions to industry associations and coalitions. The proposal seeks unnecessary line-item disclosure of lobbying expenditures. AT&T fully complies with all disclosure requirements pertaining to lobbying expenditures under federal, state, and local laws. The proposal would impose requirements on the Company that are not dictated by law and that are not standard among other companies. Any new requirements should be addressed by lawmakers and uniformly imposed on all entities.
The Board is confident that the Company’s lobbying activities are aligned with its stockholders’ long-term interests. As described above, the Company already makes available information concerning its political and lobbying activities to its stockholders and the public. The Board believes that an additional report beyond the Company’s current disclosures is neither necessary nor an efficient use of Company resources.
For these reasons, the Board recommends that you vote against this proposal.
Proposal 7 — Independent Board Chairman
Shareholders request ourYour Board of Directors to adopt as policy, and amend our governing documents as necessary, to require the Chair of the Board of Directors, whenever possible, to be an independent member of the Board. The Board would have the discretion to phase in this policy for the next CEO transition, implemented so it does not violate any existing agreement. If the Board determines that a Chair who was independent when selected is no longer independent, the Board shall select a new Chair who satisfies the requirements of the policy within a
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reasonable amount of time. Compliance with this policy is waived if no independent director is available and willing to serve as Chair. This proposal requests that all the necessary steps be taken to accomplish the above.
This proposal topic won 50%-plus support at 5 major U.S. Companies in 2013 including 73%-support at Netflix. It also won 43% support at our company.
It is the responsibility of the Board of Directors to protect shareholders’ long-term interests by providing independent oversight of management. By setting agendas, priorities and procedures, the Chairman is critical in shaping the work of the Board.
A board of directors is less likely to provide rigorous independent oversight of management if the Chairman is the CEO, as is the case with our Company. Having a board chairman who is independent of the Company and its management is a practice that will promote greater management accountability to shareholders and lead to a more objective evaluation of management.
According to the Millstein Center for Corporate Governance and Performance (Yale School of Management), ‘The independent chair curbs conflicts of interest, promotes oversight of risk, manages the relationship between the board and CEO, serves as a conduit for regular communication with shareowners, and is a logical next step in the development of an independent board.” (Chairing the Board: The Case for Independent Leadership in Corporate North America, 2009).
An NACD Blue Ribbon Commission on Directors’ Professionalism recommended that an independent director should be charged with “organizing the board’s evaluation of the CEO and provide ongoing feedback; chairing executive sessions of the board; setting the agenda and leading the board in anticipating and responding to crises.” A blue-ribbon report from The Conference Board echoed that position.
A number of institutional investors said that a strong, objective board leader can best provide the necessary oversight of management. Thus, the California Public Employees’ Retirement System’s Global Principles of Accountable Corporate Governance recommends that a company’s board should be chaired by an independent director, as does the Council of Institutional Investors.
An independent director serving as chairman can help ensure the functioning of an effective board. Please vote to enhance shareholder value:
Independent Board Chairman – Proposal 7
For the reasons discussed below, the Board believes that the CompanyAT&T and its stockholders are best served by one person servinghaving Mr. Stephenson serve as both Chairman and CEO, and it therefore recommends that you vote againstCEO.
At this proposal. This issue was considered by stockholders most recently at thejuncture in our Company’s 2013 Annual Meeting, when stockholders rejected a similar proposal with approximately three quarters of the votes cast being against the proposal.
The Board believes that a single person, acting in the capacities of Chairman and CEO, serves as a bridge between the Board and management and provides critical leadership for carrying out the Company’s strategic initiatives and confronting its challenges. In short, thehistory, your Board believes that the Company can more effectively execute its strategy and business plans to maximize stockholder value if the Chairman of the Board is also responsible for the Company’s operations on a memberdaily basis. At the same time, the Board believes that, as a matter of the management team.
In addition,sound corporate governance, it is important to pair its Chairman with an independent Lead Director who is vested with substantial responsibility for all Board matters, including its oversight of management. To that end, the Board has taken several steps to ensure that the Board effectively carries out its responsibility for the oversight of management. The Board hasagain appointed aan independent Lead Director (currently, Joyce M. Roché, an independent member of the Board)Matthew K. Rose) who presides over regular executive sessions of the non-management members of the Board. Members of management do not attend these
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sessions. The Lead Director is also responsible for approving the agenda for each Board meeting, presiding at Board meetings at which the Chairman is not present, and acting as the principal liaison between the Chairman and CEO and the non-management Directors, among other things.nonmanagement Directors. For a complete description of the Lead Director’s responsibilities, please see page 8. In recognition18.
As CEO, Mr. Stephenson is the only Director that is also a member of management. As a result, each committee of the significant role assigned toBoard other than the Lead Director, the Lead Director receives an additional annual retainerExecutive Committee is made up solely of $60,000.independent Directors. The appointment of a strongan independent Lead Director and the use of executive sessions of the Board, along with the Board’s strong committee system and substantial majority of independent Directors, allow the Board to maintain effective oversight of management.
Finally, the Board notes that Mr. Stephenson is the only Director who is a member of management. In addition, each committee, other than the Executive Committee, is made up solely of independent Directors.
For these reasons, the Board does not support an inflexible policy that the CEO and Chairman roles should never be held by the same person. Instead, the Board has established what it believes to be an appropriate balance for AT&T based on the adoptionbest interests of AT&T’s stockholders and recommends a policy requiring thatvote against this proposal.
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Table of Contents
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THE ROLEOFTHE BOARD |
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ETHICSAND COMPLIANCE PROGRAM
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RISK OVERSIGHT |
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ANNUAL MULTI-STEP BOARD EVALUATION | |||
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BOARD STRUCTURE |
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COMMUNICATINGWITH YOUR BOARD | |||
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DIRECTOR NOMINATION PROCESS |
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AVAILABILITYOF CORPORATE GOVERNANCE DOCUMENTS | |||
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BOARD COMPOSITIONAND REFRESHMENT |
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HOWTO SUBMITA STOCKHOLDER PROPOSAL | |||
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DIRECTOR INDEPENDENCE |
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RELATED PERSON TRANSACTIONS | |||
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BOARD COMMITTEES |
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DIRECTOR COMPENSATION | |||
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PUBLIC POLICY ENGAGEMENT
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COMMON STOCK OWNERSHIP | |||
AT&T is committed to strong corporate governance principles. Effective governance protects the long-term interests of our stockholders, promotes public trust in AT&T, and strengthens management accountability. AT&T regularly reviews and updates its corporate governance practices to reflect evolving corporate governance principles and concerns identified by stockholders and other stakeholders.
Key Responsibilities of the Board | ||||||||
Strategy Oversight | Risk Oversight | Succession Planning | ||||||
Ö The Board oversees and monitors strategic planning. | Ö The Board oversees risk management. | Ö The Board oversees succession planning and talent development for senior executive positions. | ||||||
Ö Business strategy is a key focus at the Board level and is embedded in the work of Board committees. | Ö Board committees, which meet regularly and report back to the full Board, play significant roles in carrying out the risk oversight function. | Ö The Human Resources Committee, which meets regularly and reports back to the Board, has primary responsibility for developing succession plans for the CEO position. | ||||||
Ö Company management is charged with executing business strategy and provides regular performance updates to the Board. | Ö Company management is charged with managing risk, through robust internal processes and effective internal controls. | Ö The CEO is charged with preparing and reviewing with the Human Resources Committee talent development plans for senior executives and their potential successors. | ||||||
The Board of Directors is responsible for oversight of management and strategic direction and for establishing broad corporate policies. In addition, the Board of Directors and various committees of the Board regularly meet to review and discuss operational and financial reports presented by the Chairman of the Board and Chief Executive Officer and other members of management as well as reports by experts and other advisors. Corporate review sessions are also offered to Directors to give them more detailed views of our businesses, such as corporate opportunities, technology, and operations.
Members of the Board are expected to attend Board meetings in person, unless the meeting is held by teleconference. The Board held 10 meetings in 2018. Directors are also expected to attend the Annual Meeting of Stockholders. All Directors were present at the 2018 Annual Meeting. In 2018, all Directors attended at least 75% of the total number of meetings of the Board and of the Committees on which each served.
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CORPORATE GOVERNANCE
The Board is responsible for overseeing our policies and procedures for assessing and managing risk. Management is responsible for assessing and managing our exposures to risk on aday-to-day basis, including the creation of appropriate risk management policies and procedures. Management also is responsible for informing the Board of our most significant risks and our plans for managing those risks. Annually, the Board reviews the Company’s strategic business plans, which includes evaluating the competitive, technological, economic and other risks associated with these plans.
In addition, under its charter, the Audit Committee reviews and discusses with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies, as well as overseeing our compliance program, compliance with legal and regulatory requirements and associated risks. This includes, among other matters, evaluating risk in the context of financial policies, counterparty and credit
risk, and the appropriate mitigation of risk, including through the use of insurance where appropriate. Members of the Company’s finance, internal audit, and compliance organizations are responsible for managing risk in their areas and reporting regularly to the Audit Committee.
The Company’s senior internal auditing executive and Chief Compliance Officer each meet annually in executive session with the Audit Committee. The senior internal auditing executive and Chief Compliance Officer review with the Audit Committee each year’s annual internal audit and compliance risk assessment, which is focused on significant financial, operating, regulatory and legal matters. The Audit Committee also receives regular reports on completed internal audits of these significant risk areas.
In addition, the Audit Committee, as well as the Board of Directors, receive reports from responsible officers on cybersecurity. The AT&T Chief Security Office establishes policy and requirements for the security of AT&T’s computing and networking environments.
Risk Assessment Responsibilities and Processes | ||||||||
THE BOARD The full board has primary responsibility for risk oversight. The Board executes its oversight duties through: • Assigning specific oversight duties to the Board committees • Periodic briefing and informational sessions by management on risk identification, mitigation, and control | MANAGEMENT Management is primarily responsible for: • Identifying risk and risk controls related to significant business activities • Mapping the risks to company strategy • Developing programs and recommendations to determine the sufficiency of risk identification, the balance of potential risk to potential reward, and the appropriate manner in which to manage risk With respect to the risk assessment of the company’s compensation programs, management is primarily responsible for: • Reviewing all significant compensation programs, focusing on programs with variable payouts • Assessing the company’s executive and broad-based compensation and benefits programs to determine whether the programs’ provisions and operation create undesired or unintentional material risk. | |||||||
| BOARD COMMITTEES | ||||||||
¯ Audit Oversees issues related to financial, compliance, ethics, and operational risks. | ¯ Human Resources Oversees issues related to risk in the Company’s compensation programs, including the Board’s conclusion that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company. | |||||||
| 17 |
CORPORATE GOVERNANCE
Thenon-management members of the Board of Directors meet in executive session (without management Directors or management personnel present) at least four times per year. The Lead Director, who is appointed for aone-year term, presides over these sessions. Matthew K. Rose currently serves as Lead Director; his term is scheduled to expire January 31, 2020.
Chairman of the Board and CEO: Randall L. Stephenson
Lead Director: Matthew K. Rose
Audit, Human Resources, Corporate Governance and Nominating, Corporate Development and Finance, and Public Policy and Corporate Reputation Committees composed entirely of independent Directors
Duties and Responsibilities |
Chairman of the Board
Presides over meetings of the Board
Presides over meetings of stockholders
Prepares the agenda for each Board meeting
Prepares the agenda for each stockholder meeting
Chief Executive Officer
In general charge of the affairs of the Company, subject to the overall direction and supervision of the Board and its committees
Consults and advises the Board and its committees on the business and affairs of the Company
Performs such other duties as may be an independentassigned by the Board
Lead Independent Director
| ✓ | Presides at meetings of the Board at which the Chairman is not present; |
| ✓ | Presides at executive sessions of thenon-management Directors; |
| ✓ | Prepares the agenda for the executive sessions of thenon-management Directors; |
| ✓ | Acts as the principal liaison between thenon-management Directors and the Chairman and Chief Executive Officer; |
| ✓ | Coordinates the activities of thenon-management Directors when acting as a group; |
| ✓ | Approves the agenda for each Board meeting; |
| ✓ | Approves meeting schedules to ensure there is sufficient time for discussion of all agenda items; |
| ✓ | Advises the Chairman and Chief Executive Officer as to the quality, quantity and timeliness of the flow of information from management, including the materials provided to Directors at Board meetings; |
| ✓ | If requested by major stockholders, ensures that he or she is available for consultation and direct communication and acts as a contact for other interested persons; |
| ✓ | Shares with other Directors, as he or she deems appropriate, letters and other contacts that he or she receives; and |
In addition, the Lead Director may:
| ✓ | call meetings of thenon-management Directors in addition to the quarterly meetings, and |
| ✓ | require information relating to any matter be distributed to the Board. |
Randall Stephenson currently serves as both Chairman of the Board and Chief Executive Officer. The Board believes that having Mr. Stephenson serve in both capacities is in the best interests of AT&T and its stockholders because it enhances communication between the Board and management and allows Mr. Stephenson to more effectively execute the Company’s stockholdersstrategic initiatives and therefore recommendsbusiness plans and confront its challenges. The Board believes that you vote against the proposal.appointment of a strong independent Lead Director and the use of regular executive sessions of thenon-management Directors, along with the Board’s strong committee system and substantial majority of independent Directors, allow it to maintain effective oversight of management.
|
CORPORATE GOVERNANCE
DIRECTOR NOMINATION PROCESS
The Board of Directors believes that the Company benefits from having experienced Directors who bring a wide range of skills and backgrounds to the Boardroom. The Corporate Governance and Nominating Committee is responsible for identifying eligible candidates based on our Corporate Governance Guidelines. The Committee considers a candidate’s:
general understanding of elements relevant to the success of a large publicly traded company in the current business environment;
understanding of our business;
educational and professional background;
judgment, competence, anticipated participation in Board activities;
experience, geographic location, and special talents or personal attributes.
Although the Committee does not have a formal diversity policy, it believes that diversity is an important factor in determining the composition of the Board and considers it in making nominee recommendations.
Stockholders who wish to suggest qualified candidates should write to the Senior Vice President—Assistant General Counsel and Secretary, AT&T Inc., 208 S. Akard Street, Suite 2954, Dallas, Texas 75202, stating in detail the qualifications of the persons proposed for consideration by the Committee.
BOARD COMPOSITIONAND REFRESHMENT*
Blend of Experiences and
Qualifications of Our Directors
Blend of experiences and Qualifications Senior leadership/Ceo experience global business/ affairs finance/public accounting government/ regulatory industry/ technology investment/private equity Other: law, marketing, labor, operations and logistics, healthcare
Director Tenure and Age
Diversity
*Includes Joyce Roché, who is not standing forre-election at the 2019 Annual Meeting.
| 19 |
CORPORATE GOVERNANCE
Our Corporate Governance Guidelines require that a substantial majority of our Board of Directors consist of independent Directors. In addition, the NYSE Listing Standards require a majority of the Board and every member of the Audit Committee, Human Resources Committee, and Corporate Governance and Nominating Committee to be independent. For a Director to be “independent” under the NYSE standards, the Board must affirmatively determine that the Director has no material relationship with AT&T, either directly or as a partner, stockholder or officer of an organization that has a relationship with AT&T, other than in his or her capacity as a Director of AT&T. In addition, the Director must meet certain independence standards specified by the NYSE as well as the additional standards referenced in our Corporate Governance Guidelines (found at www.att.com).
Using these standards for determining the independence of its members, the Board has determined that the following Directors are independent:
Samuel A. Di Piazza, Jr. | Beth E. Mooney | |
Richard W. Fisher | Joyce M. Roché | |
Scott T. Ford | Matthew K. Rose | |
Glenn H. Hutchins | Cynthia B. Taylor | |
William E. Kennard | Laura D’Andrea Tyson | |
Michael B. McCallister | Geoffrey Y. Yang |
In determining the independence of the Directors, the Board considered the following commercial relationships between AT&T and companies at which our Directors serve as Executive Officers: payments by AT&T for the use of rights of way and facilities at Burlington Northern Santa Fe, LLC, where Mr. Rose serves as CEO; and interest paid from participation in a structured finance program through KeyCorp, where Ms. Mooney serves as CEO. In addition, each of the foregoing companies as well as each of the entities where Mr. Ford, Ms. Taylor, and Mr. Yang serve as executive officers purchased communications services from subsidiaries of AT&T. In each case for the year 2018:
The relevant products and services were provided by AT&T or to AT&T on terms determined on anarm’s-length basis that were comparable to the terms provided to or by similarly situated customers or suppliers;
The transactions were made in the ordinary course of business of each company; and
The total payments by AT&T to the Director’s company (for rights of way or for interest) or to AT&T by the Director’s company (for communications services) were each substantially less than 1% of the consolidated gross revenues of each of AT&T and the other company. This level is significantly below the maximum amount permitted under the NYSE listing standards for director independence (i.e., 2% of consolidated gross revenues).
| 20 | |
CORPORATE GOVERNANCE
From time to time the Board establishes permanent standing committees and temporary special committees to assist the Board in carrying out its responsibilities. The Board has established six standing committees of Directors, the principal responsibilities of which are described below. The charters for each of these committees may be found on our website at www.att.com.
Audit Committee
| ||||
Meetings in Fiscal 2018: 13 Samuel A. Di Piazza, Jr., Chair∎ Michael B. McCallister Cynthia B. Taylor∎ Laura D. Tyson ∎ – Financial Expert Consists of four independent Directors. | • Oversees: - the integrity of our financial statements - the independent auditor’s qualifications and independence - the performance of the internal audit function and independent auditors - our compliance with legal and regulatory matters. • Responsible for the appointment, compensation, retention and oversight of the work of the independent auditor. • The independent auditor audits the financial statements of AT&T and its subsidiaries. | |||
Corporate Governance and Nominating Committee | ||||
Meetings in Fiscal 2018: 4 Matthew K. Rose, Chair Richard W. Fisher William E. Kennard Beth E. Mooney Joyce M. Roché* Consists of five independent Directors. | • Responsible for recommending candidates to be nominated by the Board for election by the stockholders, or to be appointed by the Board of Directors to fill vacancies, consistent with the criteria approved by the Board, and recommending committee assignments. • Periodically assesses AT&T’s Corporate Governance Guidelines and makes recommendations to the Board for amendments and also recommends to the Board the compensation of Directors. • Takes a leadership role in shaping corporate governance and oversees an annual evaluation of the Board. | |||
* Retiring effective April 26, 2019
Human Resources Committee | ||||
Meetings in Fiscal 2018: 6 Joyce M. Roché, Chair* Scott T. Ford Michael B. McCallister Matthew K. Rose Geoffrey Y. Yang Consists of five independent Directors. | • Oversees the compensation practices of AT&T, including the design and administration of employee benefit plans. • Responsible for: - establishing the compensation of the Chief Executive Officer and the other Executive Officers - establishing stock ownership guidelines for officers and developing a management succession plan. | |||
* Retiring effective April 26, 2019
| 21 |
CORPORATE GOVERNANCE
| ||||||
Meetings in Fiscal 2018: 5 Scott T. Ford, Chair Richard W. Fisher Glenn H. Hutchins Beth E. Mooney Geoffrey Y. Yang Consists of five independent Directors. | • Assists the Board in its oversight of our finances, including recommending the payment of dividends and reviewing the management of our debt and investment of our cash reserves. • Reviews mergers, acquisitions, dispositions and similar transactions; reviews corporate strategy and recommends or approves transactions and investments. • Reviews and makes recommendations about the capital structure of the Company, and the evaluation, development and implementation of key technology decisions. | |||||
Public Policy and Corporate Reputation Committee | ||||||
Meetings in Fiscal 2018: 6 Laura D. Tyson, Chair Samuel A. Di Piazza, Jr. Glenn H. Hutchins William E. Kennard Cynthia B. Taylor Consists of five independent Directors. | • Assists the Board in its oversight of policies related to corporate social responsibility including public policy issues affecting AT&T, its stockholders, employees, customers, and the communities in which it operates. • Oversees the Company’s management of its brands and reputation. • Recommends to the Board the aggregate amount of contributions or expenditures for political purposes, and the aggregate amount of charitable contributions to be made to the AT&T Foundation. • Consults with the AT&T Foundation regarding significant grants proposed to be made by the Foundation. | |||||
Executive Committee | ||||
Randall L. Stephenson, Chair Samuel A. Di Piazza, Jr. Scott T. Ford Joyce M. Roché* Matthew K. Rose Laura Consists of the Chairman of the Board and the Chairmen of our five other standing committees. | • Established to assist the Board by acting upon urgent matters when the Board is not available to meet. No meetings were held in 2018. • Has full power and authority of the Board to the extent permitted by law, including the power and authority to declare a dividend or to authorize the issuance of common stock. | |||
* Retiring effective April 26, 2019
ACTIVE ONGOING STOCKHOLDER ENGAGEMENT
AT&T has a long tradition of engaging with our stockholders. We believe it is important for our governance process to have meaningful engagement with our stockholders and understand their perspectives on corporate governance, executive compensation, and other issues that are important to them. The Company meets with institutional investors throughout the year, both in person and by teleconference. We share the feedback from this
engagement with the Board and incorporate it into our policies and practices. The Company also provides online reports designed to increase transparency on issues of importance to our investors, including sustainability, diversity, political contributions, transparency, and the Proxy Statement and Annual Report.
| 22 | |
CORPORATE GOVERNANCE
We participate in public policy dialogues around the world related to our industry and business priorities, our more than 268,000 employees, our stockholders, and the communities we serve.
In the U.S., the Company and our affiliated political action committees comply with applicable laws and other requirements regarding contributions to: political organizations, candidates for federal, state and local public office, ballot measure campaigns, political action committees, and trade associations. We engage with organizations and individuals to make our views clear and uphold our commitment to help support the communities in which we operate. We base our U.S. political contributions on many considerations, supporting candidates who take reasonable positions on policies that promote economic growth as well as affect our long-term business objectives.
The Public Policy and Corporate Reputation Committee of our Board of Directors reviews our advocacy efforts, including political contributions. Additional information about our public policy engagement efforts, including our Political Contributions Policy and a report of U.S. political contributions from our Company and from AT&T’s Employee Political Action Committees, can be viewed on our website at www.att.com.
Find more online.
Our Political Contributions Policy and the AT&T Political Engagement Report are available on our website at www.att.com.
ETHICSAND COMPLIANCE PROGRAM
The Board has adopted a written Code of Ethics applicable to Directors, officers, and employees that outlines our corporate values and standards of integrity and behavior and is designed to foster a culture of integrity, drive compliance with legal and regulatory requirements and protect and promote the reputation of our Company. The full text of the Code of Ethics is posted on our website at www.att.com.
Our Chief Compliance Officer has responsibility to implement and maintain an effective ethics and compliance program. He also has responsibility to provide updates on our ethics and compliance programs to the Audit Committee.
Find more online.
Our Code of Ethics is available on our website at www.att.com.
| 23 |
CORPORATE GOVERNANCE
ANNUAL MULTI-STEP BOARD EVALUATIONS
Each year, the Corporate Governance and Nominating Committee and the Lead Director lead the Board through three evaluations: a Board self-evaluation, Committee self-evaluations, and peer evaluations. Through this process, Directors provide feedback,
assess performance, and identify areas where improvement can be made. We believe this approach supports the Board’s effectiveness and continuous improvement.
One-on-One Director Peer Evaluations | Committee Self-Evaluations | |||
Members discuss the performance of other members of the Board including, their: • Understanding of the business • Meeting attendance • Preparation and participation in Board activities • Applicable skill set to current needs of the business Responses are discussed with the individual Director if applicable | Candid open discussion to review the following: • Committee process and substance • Committee effectiveness, structure, composition, and culture • Overall Committee dynamics • Committee Charter | |||
Ongoing Feedback | Board Self-Evaluation Survey | |||
Directors provide ongoing, real-time feedback outside of the evaluation process. Lines of communication between our directors and management are always open. | Evaluation survey (reviewed annually by the Corporate Governance and Nominating Committee) addresses key topics such as those below, among other things: • Process and substance • Effectiveness, structure, composition, culture, and overall Board dynamics • Performance in key areas • Specific issues which should be discussed in the future • Responses are discussed and changes and improvements are implemented, if applicable | |||
| 24 | |
CORPORATE GOVERNANCE
Interested persons may contact the Lead Director or thenon-management Directors by sending written comments through the Office of the Secretary of AT&T Inc., 208 S. Akard Street, Suite 2954, Dallas, Texas 75202. The Office will either forward the original materials as addressed or provide Directors with summaries of the submissions, with the originals available for review at the Directors’ request.
AVAILABILITYOF CORPORATE GOVERNANCE DOCUMENTS
A copy of AT&T’s Annual Report to the SEC onForm 10-K for the year 2018 may be obtained without charge upon written request to AT&T Stockholder Services, 208 S. Akard, Room 1830, Dallas, Texas 75202. AT&T’s Corporate Governance Guidelines, Code of Ethics, and Committee Charters for the following committees may be viewed online at www.att.com and are also available in print to anyone who requests them (contact the Senior Vice President and Secretary of AT&T at 208 S. Akard, Suite 2954, Dallas, Texas 75202): Audit Committee, Human Resources Committee, Corporate Governance and Nominating Committee, Corporate Development and Finance Committee, Public Policy and Corporate Reputation Committee, and Executive Committee.
HOWTO SUBMITA PROPOSALFOR NEXT YEAR
If a stockholder wishes to present a proposal or nominate a person for election as a Director at the 2020 Annual Meeting of Stockholders without such proposal or nomination being included in the Company’s proxy materials, such proposal or nomination must be received by the Senior Vice President and Secretary of AT&T at 208 S. Akard, Suite 2954, Dallas, Texas 75202 not less than 90 days nor more than 120 days before the anniversary of the prior Annual Meeting of Stockholders. Since the Annual Meeting of Stockholders will be held on April 26, 2019, written notice of any such proposal or nomination must be received by the Company no earlier than December 28, 2019 and no later than January 27, 2020. In addition, such proposal or nomination must meet certain other requirements and provide such additional information as provided in the Company’s Bylaws. A copy of the Company’s Bylaws may be obtained without charge from the Senior Vice President and Secretary of AT&T. Special notice provisions apply under the Bylaws if the date of the Annual Meeting is more than 30 days before or 70 days after the anniversary date.
Stockholder proposals intended to be included in the proxy materials for the 2020 Annual Meeting must be received by November 12, 2019. Such proposals should be sent in writing by courier or certified mail to the Senior Vice President and Secretary of AT&T at 208 S. Akard Street, Suite 2954, Dallas, Texas 75202.Stockholder proposals that are sent to any other person or location or by any other means may not be received in a timely manner.
Nominations for a Director intended for inclusion in the Company’s proxy materials for the 2020 Annual Meeting must be made in accordance with the proxy access provisions of the Company’s Bylaws and such nomination must be received by the Senior Vice President and Secretary of AT&T at 208 S. Akard, Suite 2954, Dallas, Texas 75202 not less than 120 days nor more than 150 days before the anniversary of the date that the Company mailed its Proxy Statement for the prior year’s Annual Meeting of Stockholders. Written notice of any such nomination must be received by the Company no earlier than October 13, 2019 and no later than November 12, 2019.
| 25 |
CORPORATE GOVERNANCE
Under the rules of the SEC, public issuers, such as AT&T, must disclose certain “Related Person Transactions.” These are transactions in which the Company is a participant where the amount involved exceeds $120,000, and a Director, Executive Officer, or holder of more than 5% of our common stock has a direct or indirect material interest.
AT&T has adopted a written policy requiring that each Director or Executive Officer involved in such a transaction notify the Corporate Governance and Nominating Committee and that each such transaction be approved or ratified by the Committee.
In determining whether to approve a Related Person Transaction, the Committee will consider the following factors, among others, to the extent relevant to the Related Person Transaction:
whether the terms of the Related Person Transaction are fair to the Company and on the same basis as would apply if the transaction did not involve a related person,
whether there are business reasons for the Company to enter into the Related Person Transaction,
whether the Related Person Transaction would impair the independence of an outside director, and
whether the Related Person Transaction would present an improper conflict of interest for any of our Directors or Executive Officers, taking into account the size of the transaction, the
overall financial position of the Director, Executive Officer or other related person, the direct or indirect nature of the Director’s, Executive Officer’s or other related person’s interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the Committee deems relevant. |
A Related Person Transaction entered into without the Committee’spre-approval will not violate this policy, or be invalid or unenforceable, so long as the transaction is brought to the Committee as promptly as reasonably practical after it is entered into or after it becomes reasonably apparent that the transaction is covered by this policy.
The employment of the following persons was approved by the Corporate Governance and Nominating Committee under the Company’s Related Party Transactions Policy. The rate of pay for each of these employees is similar to those paid for comparable positions at the Company. During 2018, asister-in-law of John Stankey, Chief Executive Officer, Warner Media, LLC, was employed by a subsidiary with an approximate rate of pay, including commissions, of $132,530. Also during 2018, a brother of John Donovan, Chief Executive Officer, AT&T Communications, LLC, was employed by a subsidiary with an approximate rate of pay, including commissions, of $197,376. In addition, during 2018, a son of William Blase, Senior Executive Vice President – Human Resources, was employed by a subsidiary with an approximate rate of pay, including commissions, of $127,943.
The compensation of Directors is determined by the Board with the advice of the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee is composed entirely of independent Directors. None of our employees serve on this Committee. The Committee’s current members are Matthew K. Rose (Chair), Richard W. Fisher, William E. Kennard, Beth E. Mooney and Joyce M. Roché. Under its charter, the Committee annually reviews the compensation and benefits provided to Directors for their service and makes recommendations to the Board for changes. This includes not only Director retainers, but also Director compensation and benefit plans.
The Committee’s charter authorizes the Committee to employ independent compensation and other consultants to assist in fulfilling its duties. From time to time, the Committee engages a compensation consultant to advise the Committee and to provide information regarding director compensation paid by other public companies, which may be used by the Committee to make compensation recommendations to the Board. In addition, the Chief Executive Officer may make recommendations to the Committee or the Board about types and amounts of appropriate compensation and benefits for Directors. Directors who are employed by us or one of our subsidiaries receive no separate compensation for serving as directors or as members of Board committees.
| 26 | |
CORPORATE GOVERNANCE
The Company offers Directors both cash and equity compensation. Cash compensation comes in the form of an annual cash retainer that may be deferred and earn interest at the election of a Director. Equity is offered both as an annual grant and as an opportunity to defer the cash compensation into deferred stock units. The value of deferred stock units is based on the stock price and is converted to a cash payout after retiring from the Board.
| 2018 Compensation | Amount ($) | |||
Annual Retainer | 140,000 | |||
Lead Director Retainer | 60,000 | |||
Chair Retainer | ||||
Audit Committee | 25,000 | |||
Human Resources Committee | 25,000 | |||
Corporate Development and Finance Committee | 15,000 | |||
Corporate Governance and Nominating Committee | 15,000 | |||
Public Policy and Corporate Reputation Committee | 15,000 | |||
Annual Award | 170,000 | |||
Communications Equipment and Services | up to 25,000 | |||
Under theNon-Employee Director Stock and Deferral Plan (theDirector Plan) eachnon-employee Director annually receives a grant of deferred stock units. Each deferred stock unit is equivalent to a share of AT&T stock and earns dividend equivalents in the form of additional deferred stock units. The annual grants are fully earned and vested at issuance and are distributed beginning in the calendar year after the Director leaves the Board. At distribution, the deferred stock units are converted to cash based on the then price of AT&T stock and are paid either in a lump sum or in up to 15 annual installments. Beginning in 2016, the deferred stock units had a grant date value of $170,000. To determine the number of deferred stock units granted, we calculate the nominal value of the award, which is the value that would yield the grant date value after applying an illiquidity discount. We
use the average remaining tenure of the non-employee Directors as the discount period. We then divide the nominal value by the price of AT&T stock on the grant date to determine the number of deferred stock units issued. The nominal value of the award before application of the discount was $231,924 in 2018. Beginning in 2019, the Company will annually issue Directors $220,000 in deferred stock units without an illiquidity discount and the Chair Retainers will increase by $5,000 for the Audit, Corporate Governance and Nominating, and Corporate Development and Finance Committees.
Additionally, Directors may defer the receipt of their retainers into either additional deferred stock units or into a cash deferral account under the Director Plan. Directors purchase the deferred stock units at the fair market value of AT&T common stock. Deferrals into the cash deferral account under the plan earn interest during the calendar year at a rate equal to the Moody’s Long-Term Corporate Bond Yield Average for September of the preceding year (Moody’s Rate). Directors may annually choose to convert their cash deferral accounts into deferred stock units at the fair market value of our stock at the time of the conversion. Directors may also use all or part of their retainers to purchase AT&T stock at fair market value under theNon-Employee Director Stock Purchase Plan.
To the extent earnings on cash deferrals under the Director Plan exceed the interest rate specified by the SEC for disclosure purposes, they are included in the “Director Compensation” table on page 28 under the heading “Nonqualified Deferred Compensation Earnings.”
Non-employee Directors may receive communications equipment and services pursuant to the AT&T Board of Directors Communications Concession Program. The equipment and services that may be provided to a Director, other than equipment at his or her primary residence, may not exceed $25,000 per year. All concession services must be provided by AT&T affiliates, except that the Director may use another provider for the Director’s primary residence if it is not served by an AT&T affiliate.
| 27 |
CORPORATE GOVERNANCE
2018 DIRECTOR COMPENSATION TABLE
The following table contains information regarding compensation provided to each person who served as a Director during 2018 (excluding Mr. Stephenson, whose compensation is included in the Summary Compensation Table and related tables and disclosure).
| Name | Fees Earned (a) | Stock (b) | Nonqualified ($) (c) | All Other (d) | Total ($) | |||||||||||||||
Samuel A. Di Piazza, Jr.
|
|
$ 165,000
|
|
|
$ 170,000
|
|
|
$ 0
|
|
|
$ 15,000
|
|
$
|
350,000
|
| |||||
Richard W. Fisher
|
|
$ 140,000
|
|
|
$ 170,000
|
|
|
$ 982
|
|
|
$ 0
|
|
$
|
310,982
|
| |||||
Scott T. Ford
|
|
$ 155,000
|
|
|
$ 170,000
|
|
|
$ 0
|
|
|
$ 0
|
|
$
|
325,000
|
| |||||
Glenn H. Hutchins
|
|
$ 140,000
|
|
|
$ 170,000
|
|
|
$ 0
|
|
|
$ 0
|
|
$
|
310,000
|
| |||||
William E. Kennard
|
|
$ 140,000
|
|
|
$ 170,000
|
|
|
$ 0
|
|
|
$ 0
|
|
$
|
310,000
|
| |||||
Michael B. McCallister
|
|
$ 140,000
|
|
|
$ 170,000
|
|
|
$ 0
|
|
|
$ 14,655
|
|
$
|
324,655
|
| |||||
Beth E. Mooney
|
|
$ 140,000
|
|
|
$ 170,000
|
|
|
$ 0
|
|
|
$ 0
|
|
$
|
310,000
|
| |||||
Joyce M. Roché
|
|
$ 165,000
|
|
|
$ 170,000
|
|
|
$ 0
|
|
|
$ 17,700
|
|
$
|
352,700
|
| |||||
Matthew K. Rose
|
�� |
$ 215,000
|
|
|
$ 170,000
|
|
|
$ 0
|
|
|
$ 14,113
|
|
$
|
399,113
|
| |||||
Cynthia B. Taylor
|
|
$ 140,000
|
|
|
$ 170,000
|
|
|
$ 0
|
|
|
$ 23,145
|
|
$
|
333,145
|
| |||||
Laura D’Andrea Tyson
|
|
$ 155,000
|
|
|
$ 170,000
|
|
|
$ 5,153
|
|
|
$ 30,000
|
|
$
|
360,153
|
| |||||
Geoffrey Y. Yang
|
|
$ 140,000
|
|
|
$ 170,000
|
|
|
$ 0
|
|
|
$ 15,000
|
|
$
|
325,000
|
| |||||
Note (a). Fees Earned or Paid in Cash
The table below shows the number of deferred stock units purchased in 2018 by each Director with their retainers under theNon-Employee Director Stock and Deferral Plan.
| Director | Deferred Stock Units Purchased in 2018 | |
Samuel A. Di Piazza, Jr. | 4,998 | |
Scott T. Ford | 4,695 | |
Glenn H. Hutchins | 4,241 | |
Beth E. Mooney | 4,241 | |
Joyce M. Roché | 2,499 | |
Matthew K. Rose | 6,512 |
In addition, the table below shows the number of shares of AT&T common stock purchased in 2018 by each Director with their retainers under theNon-Employee Director Stock Purchase Plan.
| Director | Shares Purchased in 2018 | |
Michael B. McCallister | 2,119 | |
Geoffrey Y. Yang | 4,238 |
Note (b). Stock Awards
Amounts in this column represent the annual grant of deferred stock units that are immediately vested but are not distributed until after the retirement of the Director. The grant date value was determined by applying an illiquidity discount of 26.7%. The illiquidity discount was determined by taking the average expected remaining tenure of the Directors (8.2 years) and then using that average to calculate the illiquidity discount under FASB ASC Topic 718. The nominal value of each award (before applying the discount) was $231,924. The deferred stock units will be paid out in cash in the calendar year after the Director ceases his or her service with the Board, at the times elected by the Director. The aggregate number of stock awards outstanding at December 31, 2018, for each Director can be found in the “Common Stock Ownership” section beginning on page 29.
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CORPORATE GOVERNANCE
Note (c). Nonqualified Deferred Compensation Earnings
Amounts shown represent the excess earnings, if any, based on the actual rates used to determine earnings on deferred compensation over the market interest rates determined pursuant to SEC rules.
Note (d). All Other Compensation
Amounts in this column include personal benefits for Directors that in the aggregate equal or exceed $10,000, which for 2018 consisted of communications equipment and services provided under the AT&T Board of Directors Communications Concession Program (described on page 27) and gifts, as follows: Mr. McCallister ($13,397 and $1,258, respectively), Mr. Rose ($13,305 and $808, respectively), and Ms. Taylor ($12,337 and $808, respectively).
All Other Compensation also includes charitable matching contributions of up to $15,000 per year made by the AT&T Foundation on behalf of Directors and employees under the AT&T Higher Education/Cultural Matching Gift Program. Charitable contributions were made on the Directors’ behalf under this program as follows:
| Name | Matching Gifts | |
Samuel A. Di Piazza, Jr. | $15,000 | |
Joyce M. Roché* | $17,700 | |
Cynthia B. Taylor | $10,000 | |
Laura D’Andrea Tyson* | $30,000 | |
Geoff Y. Yang | $15,000 |
| * | For Ms. Roché and Dr. Tyson, $3,000 and $15,000, respectively, relate to contributions made in 2017. |
Certain Beneficial Owners
The following table lists the beneficial ownership of each person holding more than 5% of AT&T’s outstanding common stock as of December 31, 2018 (based on a review of filings made with the Securities and Exchange Commission on Schedules 13D and 13G).
| Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||
BlackRock, Inc. 55 East 52nd St., New York, NY 10055
| 454,818,785(1) | 6.2% | ||
The Vanguard Group 100 Vanguard Blvd., Malvern, PA 19355 | 548,446,423(2) | 7.53% | ||
| 1. | Based on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on February 4, 2019, which reported the following: sole voting power of 389,628,303 shares; shared voting power of 0 shares; sole dispositive power of 454,818,785 shares, and shared dispositive power of 0 shares. |
| 2. | Based on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 11, 2019, which reported the following: sole voting power of 8,439,370 shares; shared voting power of 1,688,764 shares; sole dispositive power of 538,488,124 shares, and shared dispositive power of 9,958,299 shares. |
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CORPORATE GOVERNANCE
The following table lists the beneficial ownership of AT&T common stock andnon-voting stock units as of December 31, 2018, held by each Director, nominee, and officer named in the “Summary Compensation Table” on page 62. As of that date, each Director and officer listed below, and all Directors and Executive Officers as a group, owned less than 1% of our outstanding common stock. Except as noted below, the persons listed in the table have sole voting and investment power with respect to the securities indicated.
Beneficial Owner | | Total AT&T Beneficial Ownership options) (1) |
| | Non-Voting Stock Units (2) |
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Samuel A. Di Piazza, Jr. | 34,480 | 33,961 | ||||||
Richard W. Fisher | 10,000 | 19,462 | ||||||
Scott T. Ford | 81,319 | 52,757 | ||||||
Glenn H. Hutchins (3) | 167,651 | 41,369 | ||||||
William E. Kennard | 0 | 24,687 | ||||||
Michael B. McCallister | 41,221 | 35,403 | ||||||
Beth E. Mooney | 28,700 | 46,805 | ||||||
Joyce M. Roché | 11,860 | 192,400 | ||||||
Matthew K. Rose | 208,050 | 92,675 | ||||||
Cynthia B. Taylor | 5,718 | 30,035 | ||||||
Laura D’Andrea Tyson | 0 | 145,736 | ||||||
Geoffrey Y. Yang | 205,530 | 13,320 | ||||||
Randall L. Stephenson | 2,253,739 | 402,639 | ||||||
John J. Stephens | 667,836 | 78,212 | ||||||
John M. Donovan | 343,518 | 14,608 | ||||||
David R. McAtee II | 35,677 | 18,763 | ||||||
John T. Stankey | 591,643 | 47,605 | ||||||
All Executive Officers and Directors as a group (consisting of 21 persons, including those named above) | 5,207,952 | 1,353,895 |
Note 1.
The table to the left includes presently exercisable stock options as well as stock options that became exercisable within 60 days of the date of this table. The following Executive Officers held the following numbers of options:
| Beneficial Owner | Number of Stock Options Held | |||
Randall L. Stephenson | 474,444 | |||
John J. Stephens | 122,174 | |||
John T. Stankey | 10,098 | |||
All Executive Officers | 608,820 |
In addition, of the shares shown in the table to the left, the following persons share voting and investment power with other persons with respect to the following numbers of shares:
| Beneficial Owner | Number of Shared Voting and Investment Power Shares | |||
John M. Donovan | 251,844 | |||
Glenn H. Hutchins | 167,651 | |||
Michael B. McCallister | 33,290 | |||
David R. McAtee II | 32,736 | |||
Beth E. Mooney | 28,700 | |||
Matthew K. Rose | 208,050 | |||
Randall L. Stephenson | 1,772,935 | |||
John T. Stankey | 573,787 | |||
John J. Stephens | 376,502 | |||
Cynthia B. Taylor | 196 | |||
Geoffrey Y. Yang | 131,035 |
Note 2.
Represents number of vested stock units held by the Director or Executive Officer, where each stock unit is equal in value to one share of AT&T stock. The stock units are paid in stock or cash depending upon the plan and the election of the participant at times specified by the relevant plan. None of the stock units listed may be converted into common stock within 60 days of the date of this table. As noted under “Compensation of Directors,” AT&T’s plans permitnon-employee Directors to acquire stock units (also referred to as deferred stock units) by deferring the receipt of retainers into stock units and through a yearly grant of stock units. Officers may acquire stock units by participating in stock-based compensation deferral plans. Stock units carry no voting rights.
Note 3.
Mr. Hutchins disclaims beneficial ownership of 3,322 shares held in trust for his siblings.
| 30 | |
CORPORATE SOCIAL RESPONSIBILITY
 | Governance | AT&T’s commitment to CSR means integrating it into every aspect of our business, starting with governance. | ||
| CSR INTEGRATION |
Our corporate social responsibility (CSR) approach is based on the foundational belief in the interconnection of our long-term business success with the strength of our communities and the world. CSR oversight rests with the Public Policy and Corporate Reputation Committee of the AT&T Board of Directors. Our CSR Governance Council is led by our Chief Sustainability Officer and comprises senior executives representing business areas linked to CSR topics we and our stakeholders deem important. Our Code of Business Conduct puts our values into action and details our commitments to ethics, diversity, privacy, the environment, and our communities. Our Principles of Conduct for Suppliers outlines expectations for working with AT&T, including environmental stewardship, diversity, conflict minerals, ethics, labor, and human rights – and every new supplier contract requires acknowledgement. In addition, as members of the Joint Audit Cooperation, we work with other telecoms to ensure suppliers uphold our values, and we audit and measure progress regularly.
| OUR NETWORK | |||
Our 8 Security Operations Centers are monitored 24/7/365 – addressing approximately 110 billion potential vulnerability probes on an average business day.
| We are using the power of our network to build a better tomorrow, and foundationally that means maintaining strong governance systems to manage network reliability and the security of our customers’ data. Connecting millions of devices, we continually enhance our network to drive service improvements – investing more than $105 billion in the last 5 years alone. | |||
We safeguard data using approaches such as encryption, anonymization, and other security controls, as well as maintaining strict privacy and security policies and systems.
 | Environment | AT&T is demonstrating corporate leadership on climate change by setting strong goals and taking purposeful action in and outside our company. | ||
| CLIMATE CHANGE |
On top of our continuous improvements in network energy efficiency, last year we signed agreements to purchase 820MW of wind power annually, making AT&T one of the largest corporate purchasers of renewable energy in the U.S. In 2019, we plan to build on our leadership in renewable energy as well as take steps to improve our company’s climate resiliency.
| AT&T’s wind projects are expected to reduce greenhouse gas emissions equivalent to taking more than 530,000 cars off the road or providing electricity for more than 372,000 homes per year. |
| CUSTOMER SOLUTIONS |
AT&T has a goal to enable carbon savings 10x the footprint of our own operations by 2025. We will reach that goal by enhancing the efficiency of our network and delivering sustainable customer solutions. To highlight progress on how our customers are using our technology to reduce carbon emissions, we are developing a portfolio of 10x Case Studies, available atatt.com/10x.
| OPERATIONAL IMPACTS |
Striving to better manage our operational impacts, including energy, water and waste, is a key focus. We are taking proactive measures to reduce our footprint and be a better steward of the environment.
In 2018 we set a goal to achieve “zero waste”1 at 100 | ||
| Headquarters in Dallas – by the end of 2020. This includes strategies to reduce waste and increase recycling and composting, with a goal of diverting 90% or more of our waste from landfills. | |
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CORPORATE SOCIAL RESPONSIBILITY
Progress Toward 2020 Goals2
60% energy intensity reduction 75% of goal completed |
30% fleet emissions reduction 66% of goal completed |
Refurbish, reuse or recycle 200m devices 73% of goal completed | ||||||
 | Social | AT&T is focused on issues important to our business and our communities, including safety, education, diversity and inclusion, and the welfare of our fellow citizens. | ||||
| RESPONSIBLE USE |
One of our top priorities is empowering customers to use our products and services in a safe and responsible manner.
| Since inception, our It Can Wait® campaign has generated more than 33 million pledges to never drive distracted. |
The AT&T Digital You® website includes a collection of resources that educate customers about online safety. Our #LaterHaters movement helps teens find positive reinforcement and the tools they need to boost positivity online and offline. We’re working to elevate the gaming experience through technology, and in doing so, our new #GreatGame campaign encourages good sportsmanship among gamers. And in 2018 we launched ScreenReady, an online safety pilot program, in our greater New York City retail stores.
| EDUCATION AND UPSKILLING |
We are building a stronger business and a more dynamic workforce for all companies as we prepare individuals for the workforce demands of tomorrow.
$450 million | In 2018, we celebrated 10 years of our Aspire program, through which we’ve provided more than $450M toward student success and career readiness, with an emphasis on STEM-related fields. |
Internally, we invested approximately $200 million and 16 million hours training our employees last year, and we contributed $23 million to their tuition aid.
Through the end of 2018, 60 percent of AT&T’s management workforce had enrolled in reskilling programs provided or subsidized by the company. And more than 50,000 learners worldwide, including more than 5,000 AT&T employees, had enrolled in nanodegree credential programs, a new pathway to higher education pioneered by Udacity and AT&T.
| DIVERSITY AND INCLUSION |
Our efforts to create a culture in which all employees can learn and grow are led by the Chairman’s Diversity Council and our Chief Diversity Officer.
AT&T U.S. workforce diversity:
| AT&T’s 24 Employee Resource Groups and Employee Networks help advance our professional development and represent cultures, genders, generations, veterans, individuals with disabilities, and members of the LGBTQ+ community. Our ERG and EN membership totals more than 133,000. Additionally, in 2018 WarnerMedia announced a new Diversity & Inclusion Policy that is an industry-pioneering commitment to give more opportunities to more | |||
women and people of color – both in front of and behind the cameras. This is aided by WarnerMedia’s OneFifty initiative, a platform that disrupts the way content is developed and places diverse storytellers in the spotlight. | ||||
| COMMUNITY ENGAGEMENT |
AT&T employees donated $29 million to more than 30,000 charities in 2018 to help make our communities stronger and have pledged to give $27.8 million in 2019. Our culture of giving provides resources to support employees’ charitable interests through AT&T Foundation grants, resulting in an additional $4.4 million in 2018. Employees also donated time in their communities, volunteering more than 1 million hours valued at more than $25 million.
1AT&T utilizes the 90% threshold standard for “zero waste” as defined by the Zero Waste International Alliance,http://zwia.org/standards/zw-business-principles/b/
2Represents progress through end of year 2017
3Represents total U.S. workforce numbers, excluding WarnerMedia, through end of year 2018
| 32 | |
AT&T has a separately designated standing Audit Committee. The Audit Committee oversees the integrity of AT&T’s financial statements, the independent auditors’ qualifications and independence, the performance of the internal audit function and independent auditors, and AT&T’s compliance with legal and regulatory matters. The members of the Audit Committee are Mr. Madonna (Chairman), Mr. Di Piazza, Mr. McCallister, Ms. Taylor, and Dr. Tyson, each of whom was appointed by the Board of Directors.
The Board has adopted a written charter for the Audit Committee, which may be viewed on the Company’s web site at www.att.com. The Audit Committee performs a review and reassessment of its charter annually. The Audit Committee oversees the integrity of AT&T’s financial statements, the independent auditors’ qualifications and independence, the performance of the internal audit function and independent auditors, and AT&T’s compliance with legal and regulatory matters.
The Audit Committee is composed entirely of independent Directors in accordance with the applicable independence standards of the New York Stock Exchange and AT&T. The members of the Audit Committee are Mr. Di Piazza (Chairman), Mr. McCallister, Ms. Taylor, and Dr. Tyson, each of whom
was appointed by the Board of Directors. The Board of Directors has determined that Mr. Di Piazza Mr. Madonna, and Ms. Taylor are “audit committee financial experts” and are independent as defined in the listing standards of the New York Stock Exchange and in accordance with AT&T’s additional standards. Although the Board of Directors has determined that these individuals have the requisite attributes defined under the rules of the SEC, their responsibilities are the same as those of the other Audit Committee members. They are not AT&T’s auditors or accountants, do not perform “field work” and are not full-time employees. The SEC has determined that an audit committee member who is designated as an audit committee financial expert will not be
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deemed to be an “expert” for any purpose as a result of being identified as an audit committee financial expert.
PRIMARY RESPONSIBILITIES
The Audit Committee is responsible for oversight of management in the preparation of AT&T’s financial statements and financial disclosures. The Audit Committee relies on the information provided by management and the independent auditors. The Audit Committee does not have the duty to plan or conduct audits or to determine that AT&T’s financial statements and disclosures are complete and accurate. AT&T’s Audit Committee charter provides that these are the responsibility of management and the independent auditors.
Principal Accountant Fees
Independent Auditor Oversight
The Audit Committee has oversight of the Company’s relationship with the independent auditor and Servicesis directly responsible for the annual appointment, compensation and retention of the independent auditor. The independent auditor reports directly to the Audit Committee.
Financial Reporting Review
The Audit Committee reviews and discusses with management and the independent auditor:
the annual audited financial statements and quarterly financial statements;
any major issues regarding accounting principles and financial statement presentations; and
earnings press releases and other financial disclosures.
Internal Audit Oversight
The Audit Committee oversees the activities of the Company’s senior internal auditing executive, including internal audit’s assessment of operational and financial risks and associated internal controls. Significant internal audit reports and corrective action status are regularly discussed with the Audit Committee.
Risk Review
The Audit Committee reviews and discusses with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. This includes, among other matters, evaluating risk in the context of financial policies, counterparty and credit risk, and the appropriate mitigation of risk, including through the use of insurance where appropriate.
Compliance Oversight
The Audit Committee meets with the Company’s Chief Compliance Officer (CCO) regarding the CCO’s assessment of the Company’s compliance and ethics risks, the effectiveness of the Company’s Corporate Compliance Program, and any other compliance related matters that either the Committee or the CCO deems appropriate. The Audit Committee oversees the administration and enforcement of the Company’s Code of Business Conduct, Code of Ethics, and Corporate Compliance Program.
| 33 |
PRINCIPAL ACCOUNTANT FEESAND SERVICES
Ernst & Young LLP acts as AT&T’s principal auditor and also provides certain audit-related, tax and other services. The Audit Committee has established apre-approval policy for services to be performed by Ernst & Young. Under this policy, the Audit Committee approves specific engagements when the engagements have been presented in reasonable detail to the Audit Committee before services are undertaken.
This policy also allows for the approval of certain services in advance of the Audit Committee being presented details concerning the specific service to be undertaken. These services must meet service definitions and fee limitations previously established by the Audit Committee. Additionally, engagements exceeding $500,000 must receive advance concurrence from the Audit Committee Chairman. After an auditor is engaged under this authority, the services must be described in reasonable detail to the Audit Committee at the next meeting.
Allpre-approved services must commence, if at all, within 14 months of the approval.
The fees for services provided by Ernst & Young (all of which werepre-approved by the Audit Committee) to AT&T in 20152018 and 20142017 are shown below.
| Principal Accountant Fees(dollars in millions) | Principal Accountant Fees(dollars in millions) | Principal Accountant Fees (dollars in millions) |
| |||||||||||||
| Item | 2015 | 2014 | 2018 | 2017 (e) | ||||||||||||
Audit Fees | $ | 29.6 | $ | 23.3 | $ | 49.3 | $ | 37.3 | ||||||||
Audit Related Fees | 5.2 | 4.4 | 5.6 | 3.5 | ||||||||||||
Tax Fees | 10.5 | 8.0 | 10.1 | 9.3 | ||||||||||||
All Other Fees | 0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
Included in this category are fees for the annual financial statement audit, quarterly financial statement reviews, audits required by Federal and state regulatory bodies, statutory audits, and comfort letters.
Note (b). Audit Related Fees.
These fees, which are for assurance and related services other than those included in Audit Fees, include charges for employee benefit plan audits, due diligence associated with acquisition and disposition activity, control reviews of AT&T service organizations, and consultations concerning financial accounting and reporting standards.
Note (c). Tax Fees.
These fees include charges for various Federal, state, local and international tax compliance and research projects, as well as tax services for AT&T employees working in foreign countries.
Note (d). All Other Fees.
No fees were incurred in 2018 or 2017 for services other than audit, audit related and tax.
Note (e). Time Warner Inc. Principal Accountant Fees for 2017.
Time Warner Inc. disclosed the following principal accountant fees for 2017 (dollars in millions), which are not included in this column: Audit - $19.6; Audit Related - $0.5; Tax - $1.8; and All Other - $0.0. 2017 was the last full calendar year prior to AT&T’s acquisition of Time Warner Inc.
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AUDIT COMMITTEE
AUDIT COMMITTEE REPORT
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Compensation Discussion and Analysis
The Based on | ||||
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February 13, 2019 | The Audit Committee | |||
Samuel A. Di Piazza, Jr., Chairman | ||||
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COMPENSATION DISCUSSION AND ANALYSIS
Table of Contents
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41 | ||
41 | ||
42 | ||
43 | ||
44 | ||
44 | ||
45 | Determination of Award Payouts for Performance Periods Ending December 31, 2018 | |
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57 | ||
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58 | ||
60 | ||
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Acronyms Used
CAM | Career Average Minimum
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CDP | Cash Deferral Plan | |
CEO | Chief Executive Officer | |
DOJ | U.S. Department of Justice | |
EBITDA | Earnings Before Interest, Taxes, Depreciation, and Amortization | |
EPS | Earnings Per Share | |
EY | Ernst & Young LLP | |
FCF | Free Cash Flow | |
MCB | Management Cash Balance | |
NEO | Named Executive Officer | |
NYSE | New York Stock Exchange | |
ROIC | Return on Invested Capital | |
RSU | Restricted Stock Unit | |
SEC | Securities and Exchange Commission | |
SERP | Supplemental Employee Retirement Plan | |
SRIP | Supplemental Retirement Income Plan | |
SPDP | Stock Purchase and Deferral Plan | |
SRIP | Supplemental Retirement Income Plan | |
TSR | Total Stockholder Return |
| 36 | |
COMPENSATION DISCUSSION AND ANALYSIS
AT&T’sOur Human Resources Committee (Committee) takes great care in the developmentto develop and refinement ofrefine an executive compensation program that recognizes its stewardship responsibility to AT&T’sour stockholders while simultaneously ensuring the availability of talent to leadsupport a culture of growth, innovation, and performance in an organizationextraordinarily large and complex organization.
In this section, we summarize the size and complexityelements of AT&T.
During 2015, we continued to execute on our strategic goals as shown below. We believecompensation program, how our senior leaders’program supports pay reflects this strongfor performance, and closely aligns the interests of our management with those of stockholders.key performance achievements.
Key Fiscal 2015 Business Results
| Topic | Overview | More Information | ||||
The foundation of our program | Our Committee believes that our programs should: | Page 40 | ||||
– be aligned with stockholder interests, | ||||||
– be competitive and market-based, | ||||||
– pay for performance, | ||||||
– balance both short- and long-term focus, and | ||||||
– be aligned with generally accepted approaches. | ||||||
To that end, we incorporate many best practices in our compensation program and avoid ones that are not aligned with our guiding pay principles. | ||||||
| Stockholder Engagement | Each year, we engage with large stockholders to understand their views on executive compensation. In light of their feedback, results of the stockholder advisory vote on our executive compensation program, and market trends, the Committee adjusts our compensation program periodically as it determines to be appropriate. | Page 41 | ||||
Our compensation program elements and percentage of pay tied to performance and stock price | – Our program includes a number of different elements, from fixed compensation (base salaries) to performance-based variable compensation (short- and long-term incentives), to key benefits, which minimize distractions and allow our executives to focus on our success. | Page 42 | ||||
– Each element is designed for a specific purpose, with an overarching goal of encouraging a high level of sustainable individual and Company performance well into the future. | ||||||
– For NEOs, the combination of short- and long-term incentives ranges from 86% to 93% of target pay. Payouts are formula-driven for: • 90% of short-term incentives; and • 100% of Performance Shares (which represent 75% of the long-term incentive). | ||||||
– All long-term grants are tied to our stock price performance. | ||||||
– Our Committee retains the authority to increase or decrease final award payouts, after adjustment for financial performance, to ensure pay is aligned with performance. | ||||||
| How we make compensation decisions | The starting point for determining Executive Officer compensation is an evaluation of market data. Our consultant compiles compensation information for our Peer Group companies and then presents this information to our Committee for it to consider when making compensation decisions. Our Peer Group companies were chosen based on their similarity to AT&T on a number of factors, including alignment with our business, scale, and/or complexity. | Page 43 | ||||
Our executive officers make decisions every day that shape the future of our Company. The impact of these decisions can be seen both in our current results as well as in our long-term performance.
AT&T is investing to be the premier integrated communications company in the world, delivering on our mission to connect people with their world everywhere they live, work and play — and do it better than anyone else.
Strategic Execution
In 2015, AT&T focused on building a strategic advantage by investing in three key areas. The Company closed the acquisition of DIRECTV, allowing it to offer unique integrated video, mobile and broadband solutions across the United States. It also expanded into Mexico with plans to create a North American Mobile Service Area covering 400 million people and businesses. And AT&T continued to invest in its networks — through the acquisition of a near nationwide block of high-quality wireless spectrum to support mobile video growth, global leadership in the transition to software-defined networks and the introduction of innovative new services. We financed our DIRECTV and spectrum purchases at very attractive rates. As a result, we exited 2015 with a strong balance sheet and dividend coverage that is consistent with our historical norms. Highlights for the year include:
DIRECTV Acquisition – With the DIRECTV addition, AT&T is the largest pay-TV provider in the United States and the world with:
International Expansion – Following the combination of Iusacell and Nextel Mexico, AT&T is expanding high speed mobile Internet across Mexico while significantly enhancing the customer experience for wireless customers there. In Mexico, AT&T:
Network Excellence – AT&T expanded its network leadership position as it completed one of the largest network build cycles in Company history, invested $18 billion to acquire a near-nationwide
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block of spectrum in the AWS-3 auction and led the transformation to software-defined networks. AT&T’s network:
Business Results
While investing in the future, AT&T’s executives also drove strong results in the Company’s four business segments.
Business Solutions – AT&T is the premier business services provider in the United States. The Company provides services to more than 3.5 million businesses — including virtually all of the Fortune 1000 — and operates on six continents. In 2015:
Entertainment Group – AT&T significantly enhanced its entertainment business with the acquisition of DIRECTV and the creation of the AT&T Entertainment Group. In 2015, AT&T:
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Consumer Mobility – Despite intense competition, AT&T delivered solid wireless performance in 2015, including best-ever full-year EBITDA service margins across the total wireless business. In addition, in 2015, AT&T’s Consumer Mobility segment:
International – AT&T entered the wireless market in Mexico in early 2015 and has turned around operations that were previously losing subscribers and revenues. In the fourth quarter of 2015, AT&T added 593,000 subscribers in Mexico — reflecting significant progress in customer adoption and retention.
Financial Performance and Stockholder Returns
Impressive market performance and a relentless focus on operating efficiencies translated to solid financial performance and stockholder returns in 2015 with:
1-Year Total Stockholder Returns
AT&T | DJIA | S&P 500 | S&P 100 | |||
8.3% | 0.2% | 1.4% | 2.6% |
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Compensation Philosophy and Best Practices
AT&T’s executive compensation philosophy serves as the starting point for the development and evaluation of our pay programs. The foundational elements of this philosophy, as established by the Committee, include paying for performance, ensuring that our programs are competitive, balancing focus on both short- and long-term goals, and aligning executive officer compensation with both stockholder interests and competitive approaches in the marketplace.
The Committee periodically reviews and adjusts our compensation and benefits program to ensure alignment with current market practices. By continuing to evaluate and modify our programs as necessary and by designing our program around the following best practices, the Committee has shown its commitment to paying for performance and aligning executive pay with stockholder interests.
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2016 Compensation Program Enhancements
Based on input from stockholders, we are further modifying our executive compensation plans effective beginning in 2016. This chart describes those enhancements, and how they align with stockholder interests.
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Payouts are capped at 90% of the target award if absolute AT&T TSR is negative,
regardless of relative performance.
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Impact of Performance Results on Executive Officer Compensation
In order to further its pay-for-performance goal, the Committee delivers a significant portion of executive officer compensation as performance-based compensation, including both short- and long-term incentives. The following charts depict how the Committee targets each element of compensation for the CEO and collectively for the other Named Executive Officers (NEOs).
When designing these incentives, the Committee employs a variety of metrics to ensure a strong link between executive compensation and performance. These metrics include earnings per share, free cash flow, revenue, and return on invested capital, which connect compensation to Company performance while total stockholder return aligns executive pay with performance relative to peer companies.
An explanation of the individual pay elements of our executive officer compensation program and the impact of performance on each element is provided below. We believe that the greatest pay opportunities should exist for executives who demonstrate high levels of performance over a sustained period of time. A discussion of each named executive officer’s 2015 performance may be found on pages 49 through 51.
Base Salary
When determining whether or not to grant a base salary increase, the Committee considers the executive officer’s individual performance and business results for the prior year, as well as his or her base salary compared to the market value for his or her job. Executive officers’ salaries are set based on past and expected future contributions to the Company’s long-term success. For more information on the base pay component of compensation, please see page 47.
Short-Term Incentives
At the beginning of the 2015 annual performance period, the Committee established three Company performance metrics, which serve as a threshold trigger to qualify executive officers for the payment of any short-term awards. The qualification criteria are tied to overall Company performance because the Committee believes that each executive officer is ultimately responsible for attainment of the Company’s strategic objectives.
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If any of the established performance thresholds are met, the Committee then conducts an assessment of additional qualitative and quantitative factors, as they determine appropriate for each executive officer, in order to determine specific award payouts, which will not exceed a maximum amount approved by the Committee at the beginning of the performance period. These factors may include an assessment of the executive’s ongoing individual performance; his or her contribution to overall Company results; and attainment of business unit goals, including financial, customer service, and growth targets. The Committee also considers other factors such as innovation, ability to grow the business, and leadership.
2018 COMPANY PERFORMANCE HIGHLIGHTS
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Long-Term Incentives
To appropriately focus our executives’ attention on the long-term impacts of their decisions and to more closely align their interests with those of our stockholders, the majority of our executive compensation package is in the form of long-term incentives, which are comprised of 50% performance shares and 50% restricted stock units. For more information on our long-term compensation program, please refer to the section beginning on page 52.
The actual cash payout value for performance shares is based on two criteria: the attainment of predetermined performance metrics (which determines how many of the shares are actually payable) and our stock price. Restricted stock units are paid in stock.
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STRATEGIC EXECUTION | ||
• Successfully defended our acquisition of Time Warner in U.S. v. AT&T, • Closed the acquisitions of Time Warner, now WarnerMedia, and AppNexus, creating a modern media company built around premium content, direct-to-consumer relationships, advertising technology, and high-speed wireless and wireline networks. | • Revenues of $170.8 billion, up 6.4%. • Reported diluted EPS was $2.85, down 40.1% from $4.76 in 2017 (2017 impacted by tax reform remeasurement). Adjusted diluted EPS of $3.52, up 15.4% from 2017.1 • Strong Cash from Operations of $43.6 billion with record FCF of $22.4 billion.1 • Dividend increased for 35th consecutive year. • Full-year dividend payout ratio of 60%.2 • Ranked #1 among telecom companies in the 2018Fortune Most Admired Companies rankings and among the 50 Most Admired Companies across any industry. | |
OPERATIONAL ACCOMPLISHMENTS | ||
AT&T Communications • Returned to revenue growth in Mobility, with full-year total revenues up 2.1% and service revenues up 0.9%, both on a comparable basis. • Recognized as having the best wireless network video streaming quality, quickest loading times and best voice retainability by Global Wireless Solutions, America’s biggest test.3 • First to introduce standards-based mobile 5G service, ending 2018 with 5G in parts of 12 cities. • Ended the year 6 months ahead of schedule on the FirstNet deployment and with more than 425,000 FirstNet subscribers across 5,250 agencies. • Covered more than 11 million customer locations with our fiber network. • Extended the company’s high-speed fiber network to nearly 2.2 million U.S. business customer locations. Xandr • Acquired AppNexus, bringing expertise in automation, engineering and advanced advertising to Xandr. • Including AppNexus, revenues grew by 26.7%. | WarnerMedia • Continued CNN’s run as the #1 digital news destination.4 • Had 3 of the top 5 ad-supported cable networks— TNT, TBS, and Adult Swim—in primetime among adults 18-49 for the full year. • Saw Warner Bros. films gross more than $5.5 billion in global box office receipts, making 2018 the studio’s biggest year ever, led by hits includingAquaman, Crazy Rich Asians, Fantastic Beasts, The Crimes of Grindelwald, Ready Player One, and A Star is Born. AT&T Latin America • Vrio, a leader in the Latin America prepaid video segment, grew subscribers by 1.5%. • Added 3.2 million wireless subscribers in Mexico to reach a total of 18.3 million, up 21.3% year over year. AT&T has added more subscribers in Mexico than any other wireless provider each of the last 10 quarters. | |
Notes 1 See Annex A for EPS and FCF reconciliation. 2 FCF dividend payout ratio is dividends divided by FCF. 3 Based on OneScore Sept. 2018 report. Excludes crowdsourced studies. 4 Based on multiplatform unique visitors and video starts for the 12th and 15th consecutive quarters, respectively. | ||
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COMPENSATION DISCUSSION AND ANALYSIS
SUMMARYOF INCENTIVE PAYOUTS
2018 CORPORATE SHORT TERM AWARDS*
| Metric | Type of Metric | Metric Weight | Attainment | Payout% | ||||||
2018 EPS | Quantitative | 60% | 92% | 81% | ||||||
2018 FCF | Quantitative | 30% | 98% | 98% | ||||||
Collaboration | Qualitative | 10% | n/a | 100% | ||||||
Weighted Average Payout | 88% |
* Mr. Donovan’s Award payout is based on a mix of corporate and business unit performance attainment. Please see page 45 for more information.
LONG TERM AWARD – PERFORMANCE SHARE COMPONENT
2016-2018 PERFORMANCE PERIOD
| Metric | Metric Weight | Attainment | Payout% | |||||
3-Year ROIC | 75% | 7.56% | 101% | |||||
3-Year Relative TSR | 25% | Level 6 | 0% | |||||
Weighted Average Payout | 76% |
After the impact of change in stock price over the 2016 – 2018 performance period, our NEOs received approximately 64% of their original Performance Share grant value.
2019 PROGRAM ENHANCEMENT
The Committee has approved the use ofNet-Debt-to-Adjusted-EBITDA as a performance metric with a 20% weighting for determining 2019 short-term incentive awards (payable 2020) for all Executive Officers.
The narrative on the following pages more fully describes how the Committee, with the input of its consultant, has designed AT&T’s executive officerand evolved our Executive Officer compensation and benefits program using the Committee’s guiding pay principles as the pillars of the program. The narrativeWe also outlinesoutline how we establish pay targets and how actual executive officerExecutive Officer pay is determined. Finally, we provide a description of our benefits including personalother benefits.
| 39 |
COMPENSATION DISCUSSION AND ANALYSIS
The Human Resources Committee and Its RoleROLEOFTHE HUMAN RESOURCES COMMITTEE
The Committee is responsible for overseeing our management compensation practices. Annually, the Committee approves the base salaries, short-term incentive targets, and long-term incentive grant levels as well as short- and long-term award payouts for the Named Executive Officers. The Committee recommends new benefit plans to the Board and acts as the administrator of certain of the Company’s compensation and benefit plans.
The Committee’s charter is available on our web sitewebsite at www.att.com. No AT&T employee serves on thisOur Committee which is composed entirely of independent Directors. The current members of the Committee are: Ms. Roché (Chairman), Mr. Ford, Mr. McCoy,McCallister, Mr. Rose, and Mr. Rose.Yang. Our Committee is responsible for:
| Compensation-related Tasks | Organizational Tasks | |
–Determining the compensation for our Executive Officers, including salary and short- and long-term incentive opportunities; –Reviewing, approving, and administering our executive compensation plans, including our stock plans; –Establishing performance objectives under our short- and long-term incentive compensation plans; –Determining the attainment of those performance objectives and the awards to be made to our Executive Officers; –Evaluating Executive Officer compensation practices to ensure that they remain equitable and competitive; and –Approving employee benefit plans, as needed. | – Evaluating the performance of the CEO; – Reviewing the performance and capabilities of the other Executive Officers, based on input from the CEO; and – Reviewing succession planning for Executive Officer positions including the CEO’s position. |
Guiding Pay PrinciplesGUIDING PAY PRINCIPLES
The
Our Committee continually evaluates AT&T’shas designed an executive compensation program that encourages our leaders to produce outstanding financial and operational results, create sustainable long-term value for our stockholders, and lead the company with ethics and integrity. Our guiding pay principles are:
Alignment with Stockholders
Provide compensation elements and set performance targets that closely align executives’ interests with those of stockholders. For example, approximately 69% of target pay for NEOs is tied to stock price performance. In addition, we have executive stock ownership guidelines and stock holding requirements, as described on page 60.
Competitive and Market Based
Evaluate all components of our compensation and benefits program in light of market and governance trends. Balancing these trends, the needappropriate peer company practices to ensure we are able to attract and retain world-class talent with the leadership abilities and experience necessary to develop and execute business strategies, obtain superior results, and build long-term stockholder value in an organization as large and complex as AT&T.
Tie a significant portion of compensation to the achievement of predetermined goals and recognize individual accomplishments that contribute to our success. For example, in 2018, 93% of the CEO’s target compensation (and, on average, 89% for other NEOs) was variable and tied to short- and long-term performance incentives, including stock price performance.
Balanced Short- and Long-Term Focus
Ensure that the compensation program provides an appropriate balance between the achievement of short- and long-term performance objectives, with a focusclear emphasis on delivering value for our stockholders,managing the Committee has designed AT&T’s executive compensation program aroundsustainability of the following guiding pay principles:business and mitigating risk.
Alignment with Generally Accepted Approaches
Provide policies and programs that fit within the framework of generally accepted approaches adopted by leading major U.S. companies.
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COMPENSATION DISCUSSION AND ANALYSIS
These guiding pay principles serve as the pillars of our compensation and benefits program and any potential changes to the program are evaluated in light of their ability to help us meet these goals.
CHECKLISTOF COMPENSATION PRACTICES
Our compensation program is designed around the following market-leading practices:
| PRACTICES WE USE | PRACTICES WE DON’T USE | |||
✓Pay for Performance: Tie compensation to performance by setting clear and challenging performance goals. The vast majority of Executive Officer compensation is tied to performance metrics and/or stock price performance. ✓Multiple Performance Metrics and Time Horizons:Use multiple performance metrics and multi-year vesting timeframes to discourage unnecessary short-term risk taking. ✓Stock Ownership and Holding Period Requirements:NEOs must comply with stock ownership guidelines and hold the equivalent of 25% of post-2015 stock award distributions until retirement. ✓Regular Engagement with Stockholders: We engage with large stockholders no less than annually regarding executive compensation matters. ✓Dividend Equivalents: Paid at the end of the performance period on earned Performance Shares. ✓Compensation-Related Risk Review: Performed annually to confirm that our programs do not encourage excessive risk taking and are not reasonably likely to have a material adverse effect on the Company. ✓Clawback Policy: Provides for the recovery of previously paid executive compensation for any fraudulent or illegal conduct. ✓Severance Policy: Limits payments to 2.99 times salary and target bonus. | ûNo “Single Trigger” Change in Control Provisions:No accelerated vesting of equity awards upon a change in control. ûNo TaxGross-Ups: No excise taxgross-up payments; no other taxgross-ups, except in extenuating circumstances. ûNo Credit for Unvested Shares when determining compliance with stock ownership guidelines. û No Repricing orBuy-Out of underwater stock options. ûNo Hedging or Short Sales of AT&T stock. û No Supplemental Executive Retirement Benefits for officers promoted/hired after 2008. ûNo Guaranteed Bonuses. û No Excessive Dilution: Our annual equity grants represent less than 1% of the total outstanding Common Stock each year. As of July 31, 2018, our total dilution was 1.4% of outstanding Common Stock. |
The Committee has taken into account feedback from our annual outreach to large stockholders when evaluating our program. Of the votes cast at the 2018 Annual Meeting of Stockholders, over 90% were in favor of the advisory vote on executive compensation.
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COMPENSATION DISCUSSION AND ANALYSIS
The Committee has reviewed the Company’s say on pay vote results and will continue engaging in dialogues with stockholders to understand their viewpoints on pay. The Committee will continue to review our compensation programs in light of this feedback.
Compensation DesignELEMENTSOF 2018 COMPENSATION
Executive Compensation Program
It is in theour stockholders’ long-term interest that theour compensation program be structured in a way that makesto make attraction, retention, and motivation of the highest quality talent a reality. With that goal in mind, AT&T’sOur executive compensation and benefits program includes a number of different elements, from fixed compensation (base salaries) to performance-based variable compensation (short- and long-term incentives), as well as key personal benefits which minimize distractions and allow our executives to focus on the success of the Company. Each of the elements shown below is designed for a specific purpose,different purposes, with an overarching goal to encourage a high level of sustainable individual and Company performance well into the future:
| Current Year Performance |
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| + | Multi-Year Performance | + | Attraction & Retention | |||||||||||||
Salary and Short-Term Incentives | Long-Term Incentives (75% Performance Shares and 25% Restricted Stock Units) | Retirement, Deferral/Savings
Personal Benefits |
Incentive Compensation – A Balanced ApproachThe chart below more fully describes the three elements of total direct compensation and their link to Manage Risk to Stockholdersour business and talent strategies.
We believe in balancing incentive compensation so that officers focus on the attainment of both short- and long-term corporate objectives. By ensuring that a significant portion of compensation is based on the long-term performance of the Company, we reduce the risk that executives will place too much focus on short-term achievements to the detriment of the long-term sustainability of the Company. Further, we structure short-term incentive compensation so that the accomplishment of short-term corporate and business unit goals supports the achievement of long-term corporate goals. Both of these elements work together for the benefit of the Company and its stockholders.
| Weightings | ||||||||||||||||||||||||||||||||||
| Reward Element | Form | Link to Business and Talent Strategies | CEO | Average for Other NEOs | ||||||||||||||||||||||||||||||
Base Salary
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Cash
| • | Provides compensation to |
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7% |
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11% |
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A portion may be contributed to AT&T stock and cash deferral plans. | ||||||||||||||||||||||||||||||||||
Fixed Pay | • | Pay level recognizes experience, skill, and performance, with the goalof being market-competitive.
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| • | Adjustments may be made based on individual performance, pay relative to other executives, and | |||||||||||||||||||||||||||||||||
pay relative to market. | ||||||||||||||||||||||||||||||||||
Cash
| • | Aligns pay with the achievement of short-term objectives.
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A portion may be contributed to AT&T stock and cash deferral plans. | ||||||||||||||||||||||||||||||||||
Short-Term Incentives (see page 45)
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| • | Payouts based on achievement of goals, with potential for upward or downward adjustment by the Committee to align pay with performance. |
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23% |
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24% |
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At Risk Pay | ||||||||||||||||||||||||||||||||||
Stock
| 70% | 65% | ||||||||||||||||||||||||||||||||
Long-Term Incentives (see page 48) |
75% Performance Shares (paid 34% in stock, 66% in cash)
25% Restricted Stock Units (paid in stock) | • | Motivates and rewards the achievement of long-term performance.
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| • | Aligns executive and stockholder interests. | |||||||||||||||||||||||||||||||||
| 42 | |
Each year, the Committee also reviews an analysis prepared by management of the Company’s compensation policies and practices in order to evaluate whether they create unintended risks. This analysis includes the steps AT&T takes to mitigate risk in our compensation plans, including: the use of multiple metrics in determining award payouts; the use of payout tables to provide partial payouts for partial performance attainment, payout caps, and/or budget maximums; and cross-functional department review and/or approval of all payouts (which includes Committee approval of all executive officer payouts). The Compensation Consultant has also reviewed our programs and advised the Committee that the programs did not encourage risk-taking reasonably likely to have a material adverse effect on AT&T. Based on this analysis, for 2015, the Committee determined that the Company’s compensation policies and practices were not reasonably likely to have a material adverse effect on the Company.
COMPENSATION DISCUSSION AND ANALYSIS
Evaluation of Market to Determine Competitive Pay Levels
DETERMINING 2018 TARGET COMPENSATION
The starting point for determining Executive Officer compensation levels begins with an evaluation of market data. The consultant compiles data for the Peer Group companies from both proxy and third-party compensation survey data from third party sources for companies in the comparator groups (selected by the Committee and discussed below). The use of multiple sources of information and comparator groups ensures the availability of sufficient data to accurately reflect the competitive market and provides for the annual development of reliable market values by the consultant.surveys.
How the Peer Group was chosen | ||
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Our comparator companies are selected based on:
Following are the comparator groups used by the consultant in making 2015 market value recommendations for officer positions.
• similarity to
• ability of the company to compete with AT&T for talent, and | ||
• similarity to jobs at AT&T in terms of complexity and | ||
Executive officers’ base salaries are generally targetedFollowing is the Peer Group our consultant used to the market 50th percentile. With the support of the Committee’s consultant, total target cashassess market-based compensation (the sum of base pay and short-term incentive target) and long-term grants are targeted to the market 62nd percentile. These pay targets emphasize our pay-for-performance strategy and are consistent with our market leadership position as one of the nation’s largest companies based on revenue and market capitalization.
In making the market value recommendations to present to the Committee, the consultant reviews both the proxy and the survey compensation data. The consultant applies his judgment and experience to this data in order to determine preliminary market value recommendations for each executive officer position. Prior to presenting the market values to the Committee, the consultant obtains input from members of management and the CEO (for officers other than the CEO) to obtain their views on the relative value of each position at AT&T and differences in responsibilities between AT&T jobs and those in the comparator groups. Based on this detailed analysis, AT&T-specific market values(AT&T Market Values) are presented to the Committee for each executive officer position. The AT&T Market Values are used as a reference point for the Committee’s determination of actual compensation levels and include components for base salary and short- and long-term incentive target awards.
Determining Target Compensation Levels
Annually, the Committee meets to set base salary and target short- and long-term incentive compensation levels for Executive Officers with the advice of the consultant. In setting compensation levels, the Committee reviews the AT&T Market Values provided by the consultant along with the CEO’s compensation recommendations for the other executive officers. Once the Committee has received this input, they apply their judgment and experience to set compensation for the coming year. The Committee may determine that executives with significant experience and responsibilities, who demonstrate exemplary performance, have higher target compensation, while less experienced executives may have lower target compensation. To determine the compensation for the CEO, the Committee again uses its judgment of his skills, experience, responsibilities, achievements, and current compensation, along with the consultant’s AT&T Market Value recommendation.
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Base Salaries
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In 2015, the Named Executive Officers received a salary increase of 5.5%, on average.
Short-Term Incentives
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2015 Targets
Each year the Committee establishes a short-term target award for each executive officer. The key performance objectives adopted by the Committee include the three performance metrics and related target ranges shown in the following table. The Company must achieve results in at least one of the ranges for the executive officers to receive any portion of the target awards.2018.
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• 21st Century Fox • Alphabet • Amazon • Apple • Boeing • CBS | • Charter • Chevron • Cisco • Comcast • Exxon Mobil • General Electric | • Intel • IBM • Microsoft • Oracle • Sprint
| • Verizon Communications • Viacom • Wal-Mart • Walt Disney | |||||||||
Note: These same 22 companies are also used to determine our relative TSR performance for the 2018 Performance Share | ||||||||||||
In determiningThe consultant reviewed the final payoutsmarket data for short-term awards,the Peer Group with members of management and the CEO (for Executive Officers other than himself) to confirm the job matches and scoping of market data based on the relative value of each position and differences in responsibilities between our jobs and those in the comparator groups. After completing this review, the consultant presented the market data to the Committee.
The Committee used the market data and the CEO’s compensation recommendations for the other Executive Officers and then applied its judgment and experience to set Executive Officer compensation for the coming year. When setting compensation, the Committee considers the achievement of the three metrics, the overallmay determine that Executive Officers with significant experience and responsibilities or who demonstrate exemplary performance of the Company, business unit performance, and thehave higher target compensation, while other Executive Officers may have lower target compensation.
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COMPENSATION DISCUSSION AND ANALYSIS
AT&T is a global leader in telecommunications, media, entertainment, and technology. We are transforming into a truly modern media company that will work to create the best entertainment and communications experiences in the world. 2018 was a transformational year as we completed the acquisition of Time Warner, and we continued to successfully execute on our strategic goals.
To put in perspective the scale, scope, and complexity of our business as compared to our 22 compensation benchmark companies (as shown on page 43), below is a comparison of market cap, revenues, and net income:
Comparison of Scope and Scale
AT&T and Peer Group1($M)
For more information on our financial and operational performance, please see our Annual Report at www.att.com.
We continue to deliver positive returns to our stockholders over the long-term and have a long history of increasing dividends.
—Years— Consecutive Increase in Quarterly Dividend
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individual performance of each executive officer. Under this program, payouts may range from 0% to 200% of the target award. In evaluating executive officers that report to the CEO, the Committee also gives weight to the CEO’s recommendations.
The following table compares short-term award payouts for the CEO to corporate formula-based awards paid to other employees for the award years 2008 – 2014. The Committee has historically tempered the CEO’s payout relative to payouts for other employees. On average, the CEO has received a payout that is 17 percentage points less than other employees in the past 8 years.
| Award Year | CEO Payout | Non-Officer Corporate Formula-Based Payouts | ||
2015 | 100% | 123% | ||
2014 | 82% | 86% | ||
2013 | 94% | 96% | ||
2012 | 120% | 122% | ||
2011 | 75% | 112% | ||
2010 | 100% | 125% | ||
2009 | 121% | 120% | ||
2008 | 0% | 45% | ||
Average: | 87% | 104% |
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—Percent— Increase in Quarterly 2015 PayoutsThe Committee determined that in 2015 the Company’s results were above or within the target ranges for each of the 2015 performance metrics, permitting payout of the short-term awards. The Committee then reviewed the Company’s accomplishments as shown on pages 37 to 39, business unit performance, and the individual achievements of each of the Named Executive Officers, as described below:
RANDALL L. STEPHENSONDividend in 2018Chairman, CEO, and President, AT&T Inc.2015 Accomplishments:• Through key acquisitions and continued network investments, established AT&T’s leadership as the premier integrated communications company in the world – able to deliver growth through a unique set of assets across networks, geographies, products, and revenue streams• Acquired DIRECTV, making AT&T the largest pay-TV provider in the U.S. and the world; combined with AT&T’s nationwide mobility business and high-speed Internet service to 57 million U.S. locations, DIRECTV gives AT&T assets like no one else and the opportunity to provide customers unique integrated video, mobile and broadband solutions• Acquired Iusacell and Nextel Mexico, giving AT&T access to the Mexican wireless market and the ability to build a unique, seamless, cross-border North American 4G LTE wireless network covering 355 million people and businesses in the U.S. and Mexico• Acquired a near-nationwide block of spectrum in the U.S. government’s auction of wireless airwaves, enhancing AT&T’s industry-best portfolio of this valuable resource• Launched some of the industry’s most innovative security and on-demand bandwidth products for businesses—AT&T’s largest customer segment—and expanded the Company’s global leadership in connecting the Internet of Things• Achieved low postpaid churn and best-ever, full-year wireless EBITDA service margins, and added prepaid mobility customers faster than any competitor• Led the transformation of the network from hardware-based to a more efficient and flexible software-based platform, moving AT&T toward an industry-leading cost structure• Grew revenues, expanded margins and increased earnings in one of the most transformative years in our Company’s history, all contributing to the Company’s 32nd consecutive annual quarterly dividend increase• Achieved a 1-year Total Stockholder Return for 2015 of 8.3%, compared to 0.2% for the Dow Jones Industrial Average, 2.6% for the S&P 100, and 1.4% for the S&P 500AT&T 2016 Proxy Statement44 | 49 |
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COMPENSATION DISCUSSION AND ANALYSIS
DETERMINATIONOF AWARD PAYOUTSFOR PERFORMANCE PERIODS ENDING DECEMBER 31, 2018
2018 Short-Term Incentive Plan Metrics and Performance Attainment
After reviewing our business plan and determining the business metrics on which our Executive Officers should focus, the Committee established the following performance targets applicable to payment of short-term awards for 2018:
2018 SHORT-TERM INCENTIVE PLAN METRICS
Mr. Stephenson, Mr. McAtee, Mr. Stankey, and Mr. Stephens | Mr. Donovan | |||||||
| Metric | Weight | Metric | Weight | |||||
EPS | 60% |
EPS | 10% | |||||
FCF | 30% | Collaboration | 10% | |||||
Collaboration | 10% | AT&T Communications FCF | 40% | |||||
AT&T Communications Operating Contribution | 40% | |||||||
AT&T Communications Revenue Kicker (see below) | 0 to + 75% | |||||||
2018 SHORT TERM INCENTIVE AWARD PAYOUT STRUCTURE
| Name/(Metric Set) | Performance Metrics | Relevance of Metric | Threshold Performance Payout% | Target Performance Payout% | Maximum Performance Payout% 1 | |||||
Mr. Stephens Mr. McAtee Mr. Stankey Mr. Donovan (EPS only) (Corporate) | EPS | Indicator of profitability and a window into our long-term sustainability |
80% of target | 100% | Performance achievement of 120% of target results in a 150% payout | |||||
| FCF | Important to continue to invest, pay down debt, and | |||||||||
Mr. Donovan (AT&T Communications) | AT&T | dividends to our stockholders | No payout for performance below 80% of target | |||||||
AT&T Communications Operating Contribution | Incorporates a focus on revenues and expense control/reduction | |||||||||
| Top and bottom line growth of largest subsidiary to
| Potential for up to an additional 75% payout for revenue growth in excess of 1.25% and | ||||||||
All NEOs | Collaboration | Leverage robust portfolio of assets to benefit stockholders | Qualitative assessment by the Committee | |||||||
| 1 | In each case, an overall payout cap of 125% applies to the final, weighted payout before any applicable AT&T Communications Revenue Kicker (Mr. Donovan only). |
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COMPENSATION DISCUSSION AND ANALYSIS
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The following charts show the performance goals, actual performance attainment and payout percentage for each short-term performance metric.
Short-Term Incentive Performance Goals and Attainment Corporate Financial Metrics Earnings Per Share 60% Weighting Free Cash Flow 30% Weighting Payout %125% 100% 75% 50% 25% 0%Payout 81% $3.50 $3.21 92% of Goal Performance Goal Attainment (after performance adjustments) 1Payout 98% $21.5B $21.1B98% of Goal Performance Goal Attainment (after performance adjustments) 2 1. EPS results were adjusted as follows: Reported EPS Adjustments per per-established award terms: M&A Pension Plan Gains/Losses Tax Reform Discretionary Reductions: Asset Revaluation EPS for Compensation $2.85 .94(.43)(.10)(.05) $3.21 2. Free Cash Flow is net cash from operating activities minus capital expenditures. Free Cash Flow results were adjusted as follows: Reported Free Cash Flow Adjustments per pre-established award terms: M&A Excess Benefit Plan Contributions Free Cash Flow for Compensation $22.4B (1.6) 0.4 $21.1B
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COMPENSATION DISCUSSION AND ANALYSIS
Based
Short-Term Incentive Performance Goals and Attainment AT&T Communications Financial Metrics Free Cash Flow 40% Weighting Operating Contribution 40% Weighting Payout %125% 100% 75% 50% 25% 0% Payout 78% $24.5B $22.2B91% of Goal Performance Goal Attainment Payout 87% $34.5B $32.3B 94% of Goal Performance Goal Attainment Mr. Donovan was also eligible for an AT&T Communications 2018 Revenue Kicker. This kicker provided for a potential payout of up to an additional 75% of Mr. Donovans short-term target. However, AT&T Communications revenue and operating contribution did not meet the criteria for a payout.
Collaboration - 10% Weighting
The Committee reviewed the ways the executive team and four operating entities worked together to leverage AT&T assets to drive results that benefit stockholders. The Committee determined that each of the NEO’s earned a payout of 100% based on the Company achievements and the abovefollowing accomplishments the Committee determined to pay Named Executive Officers 100% – 132% of their respective target awards. Payouts of 2015 awards were as follows:(among others):
| 2015 Short-Term Payouts | ||||||||
| Name | Target Award ($) | Actual Award ($) | ||||||
Randall Stephenson | 5,500,000 | 5,500,000 | ||||||
John Stephens | 1,740,000 | 2,100,000 | ||||||
Rafael de la Vega | 1,820,000 | 2,100,000 | ||||||
John Donovan | 1,520,000 | 2,000,000 | ||||||
John Stankey | 1,830,000 | 2,100,000 | ||||||
Our merger synergies remain on target to achieve a $2.5B billion run rate by the end of 2021.
Launch of the first, large-scale integrated marketing campaign between WarnerMedia and AT&T Communications.
More relevant advertising across Turner’s TV networks, through the combined efforts of Xandr, AT&T Communications, and WarnerMedia.
Creation of the WarnerMedia Innovation Lab that will combine emerging technologies such as AT&T’s 5G services, Xandr’s advanced ad tech platform capabilities, and content from WarnerMedia to create new and innovative business and consumer experiences.
Deployment of a low cost Direct to Consumer Video service in AT&T Latin America that delivered 85+ live channels, Video on Demand, and multi-language capabilities, with the assistance of Turner’s iStreamPlanet.
Because of the Time Warner acquisition, AT&T was able to launch WatchTV, a 30+ channel, live-TV streaming service.
Long-Term IncentivesFinal Award Determination
The NEOs whose awards are based on corporate performance metrics each received a performance-adjusted award payout of 88%, and Mr. Donovan’s performance-adjusted award payout was 84%. The Committee maintains the ability to make adjustments to the formula-driven payout as it deems appropriate in order to ensure alignment of Executive Officer pay with performance.
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COMPENSATION DISCUSSION AND ANALYSIS
Long-Term Incentive Plan Metrics and Performance Attainment –Performance/Restriction Periods Ending in 2018
The following chart describes the structure and terms of long-term awards with performance or restriction periods ending in 2018 or early 2019:
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| Performance Metrics and
| Description | |||
| Performance Shares Granted in 2016 | 50% | 3-year performance
Performance
– 25% Relative TSR Payout value based on combination of
| •Each • •Because awards are based on a •Dividend equivalents are paid at the end of the performance period, based on the number of | |||
RSUs Granted in 2015 | 50% | 4-year restriction period
| We structure RSUs to be paid in stock at the end of | |||
ROIC Payout Table and Actual Performance Attainment – 2016-2018 Performance Period
| Performance Below Target Range | |
We established a performance target range of 6.50% to 7.50% at the beginning of the3-year performance period. This target range does not reward or penalize Executive Officers for performance achievement within close proximity to the | No payout is earned if less than 65% of the performance target range is achieved. Achievement below the target range results in decreasing levels of award payout. The payout drops to 0% of the Performance Shares tied to this metric if less than 65% of the low end of the target range is achieved.
Performance Within Target Range 100% payout if performance falls within the target range. Performance Above Target Range Maximum payout of 150% is earned if 137% or more of the performance target range is achieved. Achievement above the target range provides for
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Actual Performance | ||
After conclusion of the performance period, the Committee determined (using the ROIC payout table) that we achieved 7.56%, which was above the ROIC target range, and 181 basis points above the cost of capital we established based on input from banks.As a result, the Committee directed that 101% of the related Performance Shares be distributed in accordance with the payout table as follows. Our actual performance attainment is also shown: | ||
Because
| 48 | |
COMPENSATION DISCUSSION AND ANALYSIS
ROIC Performance metric (2016-2018 performance period) Performance adjustments used in ROIC calculation Adjustments per pre-established award terms: Reported amount Net Income Plus Interest Expense was adjusted as follows: $ 67.2B 1. M&A Transaction Costs $ 10.5B 2. Asset Abandonments and Impairments (Gains)/Losses$ 2.3B 3. Natural Disasters $ 0.4B 4. Pension Remeasurementc (Gains)/Losses $ 0.3B 5. Changes in Accounting Principle$ (2.9)B 6. Tax Reform $ (20.3)B Adjusted Net Income Plus Interest Expense $ 57.4B Performance Range For100% Payout ACTUAL PERFORMANCE Weighted Average Cost of Capital 8.00% 7.75% 6.75% 6.00%
TSR Payout Table and Actual Performance Attainment – 2016-2018 Performance Period
At the beginning of the performance period, the Committee established the following table for determining payout of the Performance Shares tied to the TSR metric.
Our actual performance attainment is also shown:
TSR Performance metric (2015-2017 performance period) AT&T values long-term performance, and to ensure that our compensation program does not incent executives to take excessive risks in pursuitReturn vs. S&P 100 Index Payout %* If AT&T is top company 200% Level 1 (82-99.99%) 150% Level 2 (63-81.99%) 125% Level 3 (44-62.99%) 100% Level 4 (25-43.99%) 50% Level 5 (<25%) 0% * Payouts are capped at 90% of short-term results, long-term incentives are a significant partthe target award if absolute AT&T 3-year TSR is negative, regardless of an officer’s compensation package.relative performance. Our 3-year TSR of 35.15% ranks us at the 54th percentile of the S&P 100 Index
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2015 Grants
In 2015,TSR was measured relative to the Committee grantedfollowing 37 companies, as determined when the Named Executive Officers long-term incentivesgrant was established in the form of 50% performance shares and 50% restricted stock units. Target grant values were set using the AT&T Market Values as a guideline. Following is more detail on our 2015 long-term grants.2016*:
The performance shares granted in 2015 are for the 2015-2017 performance period. The Committee determined that the performance measure for 75% of the Performance Shares would be Return on Invested Capital and the measure for the remaining 25% would be based on a comparison of AT&T’s Total Stockholder Return to the Standard and Poor’s 100 Index (S&P 100).
Amazon Apple Boeing CenturyLink Charter Communications Chevron Cisco Coca-Cola Comcast | Exxon Mobil General Electric Gilead Sciences Hewlett Packard Home Depot Honeywell IBM Intel | Johnson & Johnson Johnson Controls Lockheed Martin Merck Microsoft Oracle PepsiCo Pfizer Phillip Morris Intl | Procter & Gamble Qualcomm Twenty-First Century Fox United Technologies Verizon Walt Disney Wal-Mart Sprint T-Mobile |
*Time Warner Inc. was included in this group; AT&T completed its acquisition of Time Warner Inc. in 2018.
PERCENT OF GRANT VALUE REALIZED – 2016 PERFORMANCE SHARE GRANT (2016-2018 PERFORMANCE PERIOD)
As a result of the combined ROIC and TSR performance attainment, each NEO received 76% of the number of shares granted.
75% of Performance Shares Granted | Ó | Payout Percentage of 101% for ROIC | 25% of Performance Shares Granted | Ó | Payout Percentage of 0% for TSR | = | 76% of Shares to | |||||||||||||||||||||||||||||||
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However, the Performance Shares were also subject to stock price fluctuation over the3-year performance period as another element of our long-term incentivepay-for-performance design. Based on the $5.47 decrease in our stock price from $35.53 at grant to $30.06 at payout, the value of the shares actually payable decreased 15.4% over the3-year performance period.
Ending Stock Price of $30.06* | - | Beginning Stock Price of $35.53** | ÷ | Beginning Stock Price of $35.53** | = | 15.4% Decline in Stock Price | ||||||||||||||||||||||||
As a result of both ROIC and relative TSR performance and the absolute change in our stock price, our NEOs realized approximately 64% of their original performance share grant value.
NEOs Received 64% of Original Grant Value |
Return
PERCENT OF GRANT VALUE REALIZED – 2015 RSUs
Our 2015 RSUs had a4-year vesting period and were paid in early 2019. The final value delivered from these awards was based on Invested Capital (our stock price. Over the4-year restriction period, the stock price decreased $2.26 per share, delivering 93% of the original grant value.
Ending Stock Price of $30.70* | - | Beginning Stock Price of $32.96** | ÷ | Beginning Stock Price of $32.96** | = | 6.9% Decline in Stock Price | ||||||||||||||||||||||||
NEOs Received 93% of Original Grant Value |
| * | Stock price when award payout is approved for Performance Shares (typically the first Committee meeting after the end of the performance period), or the stock price on the last date of the restriction period for RSU grants. |
ROIC) Performance Measure** Stock price used to determine the number of shares to be granted (target award value is divided by this stock price).
We chose
| 50 | |
COMPENSATION DISCUSSION AND ANALYSIS
NAMED EXECUTIVE OFFICER COMPENSATION
In this section we detail how each NEO’s compensation was impacted by performance attainment. The following tables summarize the compensation our NEOs realized in 2018. The long-term values below do not align to what is reported in the 2018 Summary Compensation Table (SCT) because the SCT reflects long-term grant values for 2018 whereas these tables show the values of the long-term distributions for awards with performance/restriction periods ending in 2018 or early 2019.
AT&T’s 2018 performance highlights are summarized on page 38.
Randall Stephenson Chairman of the Board, Chief Executive Officer, and President | ||||
| Mr. Stephenson has served as Chairman of the Board, Chief Executive Officer, and President since 2007. Throughout his career at the Company, he has held a variety of high-level finance, operational, and marketing positions, including serving as Chief Operating Officer from 2004 until his appointment to Chief Executive Officer in 2007, and as Chief Financial Officer from 2001 to 2004. He began his career with the Company in 1982. | |||
Element of Compensation | Compensation Amount | Rationale | ||
2018 Base Salary | $1,800,000 | Mr. Stephenson’s salary did not increase in 2018. | ||
2018 STIP | Target Award = $5,900,000 Final Award Paid = $5,192,000 88% of target award value realized | Mr. Stephenson’s STIP payout was based on: • A formulaic payout of 78% of his target award based on EPS and FCF performance attainment, plus 100% of the qualitative collaboration goal. • The Committee did not make any discretionary adjustment to the formulaic results. | ||
Performance Share Payout (2016-2018 Performance Period) | Target Award = $7,750,000 Final Award Paid = $4,983,219 64% of grant value realized | Mr. Stephenson’s performance share payout was based on: • A formulaic payout of 76% of the 218,126 shares granted, based on the Company’s performance achievement for ROIC and relative TSR, plus • The company’s stock price change over the3-year performance period, which decreased the value of the shares earned by 15.4%. Performance Shares were paid in cash. | ||
RSU Payout (2015 Grant) | Target Award = $7,375,000 223,756 shares paid; valued at $6,869,309 93% of grant value realized | The company’s stock price change over the4-year vesting period decreased the value of the units granted by 6.9%. RSUs were paid in stock. | ||
Total Realized Compensation | $18,844,528 | |||
| 51 |
COMPENSATION DISCUSSION AND ANALYSIS
John Stephens Senior Executive Vice President and Chief Financial Officer | ||||
| John Stephens has 26 years of service with the Company. Mr. Stephens was appointed to his current position in 2011. He has responsibility for financial planning, corporate development, accounting, tax, auditing, treasury, investor relations, corporate real estate and shared services. Prior to his current position, Mr. Stephens held a series of successive positions in the finance department. Before joining the Company, Mr. Stephens held a variety of roles in public accounting. | |||
2018 Realized Compensation | ||||
| Element of Compensation | Compensation Amount | Rationale | ||
Commensurate with the close of the Time Warner merger, the Committee increased Mr. Stephens’ compensation to reflect the expanded scope and complexity of his position after the merger. In addition, the Committee determined that Mr. Stephens’ unique skills and experience are critical to executing the Company’s post-close strategic plan. In setting his compensation, the Committee used data provided by its independent consultant for comparable positions in the marketplace. | ||||
2018 Base Salary | $1,096,875 | Mr. Stephens received a base salary increase to $1,100,000 effective March 1, 2018. Effective June 16, 2018, Mr. Stephens received an increase to $1,125,000 to reflect the increased scope and complexity of his role following the merger with Time Warner. | ||
2018 STIP | Target Award = $2,338,542 Final Award Paid = $2,057,917 88% of target award value realized | Mr. Stephens’ target STIP was increased to $2,000,000 effective January 1, 2018, and to $2,625,000 effective June 16, 2018. His award targets were applied to the associated time periods and the resulting weighted STIP target award for 2018 was $2,338,542. Mr. Stephens’ STIP payout was based on: • A payout of 78% of his target award based on formulaic performance attainment of EPS and FCF goals, plus 100% of the qualitative collaboration goal. • No discretionary adjustment was made by the Committee. | ||
Performance Share Payout (2016-2018 Performance Period) | Target Award = $2,575,000 Final Award Paid = $1,655,712 64% of grant value realized | Mr. Stephens’ performance share payout was based on: • A formulaic payout of 76% of the 72,474 shares granted, based on the Company’s performance achievement for ROIC and relative TSR, plus • The company’s stock price change over the3-year performance period, which decreased the value of the shares earned by 15.4%. Performance Shares were paid in cash. | ||
RSU Payout (2014 Grant) | Target Award = $2,350,000 71,299 shares paid; valued at $2,188,879 93% of grant value realized | The company’s stock price change over the4-year vesting period decreased the value of the units granted by 6.9%. RSUs were paid in stock. | ||
Merger Completion Bonus | $2,000,000 | The Committee awarded Mr. Stephens a cash payment in recognition of his significant contributions that led to the structure and completion of the merger. As Chief Financial Officer and head of corporate development, Mr. Stephens effectively managed the company’s balance sheet to provide for a successful merger close despite a protracted close date due to litigation. | ||
Total Realized Compensation | $8,999,383 | |||
| 52 | |
COMPENSATION DISCUSSION AND ANALYSIS
John Donovan Chief Executive Officer, AT&T Communications, LLC | ||||
| John Donovan joined the Company 10 years ago, and is the head of AT&T Communications, LLC, where he is responsible for the AT&T Business, Mobility/Entertainment, and Technology & Operations groups, providing mobile, broadband, and video services to U.S. consumers, including nearly 3.5 million businesses. Until August 1, 2017, he was Chief Strategy Officer and Group President, overseeing corporate strategy and our Technology and Operations groups. Prior to joining the Company, Mr. Donovan was Executive Vice President of Product, Sales, Marketing, and Operations at Verisign, Inc. From 2000 to 2006 he was Chairman and CEO of inCode Telecom Group, Inc.; prior to that he was a partner with Deloitte Consulting. | |||
2018 Realized Compensation | ||||
| Element of Compensation | Compensation Amount | Rationale | ||
2018 Base Salary | $1,175,000 | Mr. Donovan did not receive a base salary increase in 2018. | ||
2018 STIP | Target Award = $2,750,000 Final Award Paid = $2,410,000 88% of target award value realized | Mr. Donovan’s target STIP did not increase in 2018. Mr. Donovan’s STIP payout was based on: • A payout of 74% of his target award based on formulaic performance attainment of corporate EPS and AT&T Communications FCF and Operating Income, plus 100% of the qualitative collaboration goal. • The Committee also made a $100,000 discretionary award to recognize 2018 accomplishments, including being ahead of schedule on our FirstNet deployment, a return to revenue growth in Mobility, and extending our high-speed fiber network to an additional 500,000 U.S. business locations. | ||
Performance Share Payout (2016-2018 Performance Period) | Target Award = $2,100,000 Final Award Paid = $1,350,289 64% of grant value realized | Mr. Donovan’s performance share payout was based on: • A formulaic payout of 76% of the 59,105 shares granted, based on the Company’s performance achievement for ROIC and relative TSR, plus • The company’s stock price change over the3-year performance period, which decreased the value of the shares earned by 15.4%. Performance Shares were paid in cash. | ||
RSU Payout (2015 Grant) | Target Award = $1,950,000 59,163 shares paid; valued at $1,816,304 93% of grant value realized | The company’s stock price change over the4-year vesting period decreased the value of the units granted by 6.9%. RSUs were paid in stock. | ||
Total Realized Compensation | $6,751,593 | |||
| 53 |
COMPENSATION DISCUSSION AND ANALYSIS
David McAtee Senior Executive Vice President and General Counsel | ||||
| David McAtee has served at AT&T’s General Counsel since 2015. He has responsibility for all legal matters affecting AT&T, including the Company’s litigation, regulatory, and compliance matters before various judicial and regulatory agencies, as well as all merger agreements, dispositions ofnon-strategic assets, commercial agreements, and labor contracts. In 2018, Mr. McAtee and his team successfully managed thousands of litigation matters involving AT&T, including approximately 80 appeals to various federal and state courts of appeal and the U.S. Supreme Court. Mr. McAtee joined the company in 2012 as Senior Vice President and Assistant General Counsel after 18 years in government and private practice. | |||
2018 Realized Compensation | ||||
| Element of Compensation | Compensation Amount | Rationale | ||
Commensurate with the close of the Time Warner merger, the Committee increased Mr. McAtee’s compensation to reflect the expanded scope and complexity of his position after the merger. In addition, the Committee determined that Mr. McAtee’s unique skills and experience are critical to executing the Company’s post-close strategic plan. In setting his compensation, the Committee used data provided by its independent consultant for comparable positions in the marketplace. | ||||
2018 Base Salary | $1,058,333 | Mr. McAtee received a base salary increase from $800,000 to $900,000 effective March 1, 2018. Effective July 1, 2018, Mr. McAtee’s base salary was increased from $900,000 to $1,250,000 to reflect the increased scope and complexity of his role following the merger with Time Warner. | ||
2018 STIP | Target Award = $1,925,000 Final Award Paid = $1,694,000 88% of target award value realized | Mr. McAtee’s target STIP was increased to $1,600,000 effective January 1, 2018, and to $2,250,000 effective July 1, 2018. Mr. McAtee’s award targets were applied to the associated time periods and the resulting weighted STIP target award for 2018 was $1,925,000. Mr. McAtee’s STIP payout was based on: • A payout of 78% of his target award based on formulaic performance attainment of EPS and FCF goals, plus 100% of the qualitative collaboration goal. • The Committee did not make any discretionary adjustment to formulaic results. | ||
Performance Share Payout (2016-2018 Performance Period) | Target Award = $1,625,000 Final Award Paid = $1,044,866 64% of grant value realized | Mr. McAtee’s Performance Share payout was based on: • A formulaic payout of 76% of the 45,736 shares granted, based on the Company’s performance achievement for ROIC and relative TSR, plus • The company’s stock price change over the3-year performance period, which decreased the value of the shares earned by 15.4%. Performance Shares were paid in cash. | ||
RSU Payout (2014 Grant) | Target Award = $1,000,000 30,339 shares paid; valued at $931,407 93% of grant value realized | Mr. McAtee was granted 8,343 RSUs in January 2015 and received a supplemental grant of 21,996 units in August 2015 upon his promotion to Executive Officer. The company’s stock price change over the vesting period decreased the value of the units granted, on a combined basis, by 6.9%. RSUs were paid in stock. | ||
Merger Completion Bonus | $5,000,000 | The Committee awarded Mr. McAtee a cash payment in recognition of his significant contributions that led to the completion of the merger. Mr. McAtee led the legal strategy and litigation teams that diligently prepared for litigation and successfully defended our acquisition of Time Warner against the DOJ’s antitrust lawsuit, which was a departure from decades of antitrust precedent. After conducting a full and fair trial on the merits, the U.S. District Court categorically rejected the government’s lawsuit to block our merger with Time Warner. The transaction also received regulatory and competition approvals in 20 jurisdictions outside the United States. | ||
Total Realized Compensation | $9,728,606 | |||
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COMPENSATION DISCUSSION AND ANALYSIS
John Stankey Chief Executive Officer, Warner Media, LLC | ||||
| John Stankey leads WarnerMedia, whose HBO, Turner, and Warner Bros. divisions are leaders in creating premium content, operate the world’s largest TV and film studio, and own a world-class library of entertainment. Mr. Stankey has held various roles during his 33 years of service with the Company, includingCEO-AT&T Entertainment Group; Chief Strategy Officer; President and CEO of AT&T Business Solutions; President and CEO of AT&T Operations; Group President-Telecom Operations; Chief Technology Officer; and Chief Information Officer. | |||
2018 Realized Compensation | ||||
| Element of Compensation | Compensation Amount | Rationale | ||
Commensurate with the close of the Time Warner merger, the Committee increased Mr. Stankey’s compensation to reflect his new responsibility for all of AT&T’s content-related assets, including each of Time Warner’s businesses. In addition, the Committee determined that Mr. Stankey’s unique skills and experience are critical to executing the Company’s post-close strategic plan. In setting his compensation, the Committee used data provided by its independent consultant for comparable positions in the market. Mr. Stankey’s target compensation pay mix was adjusted to be more consistent with pay mixes in the media industry. | ||||
2018 Base Salary | $2,058,333 | Mr. Stankey received a base salary increase to $1,100,000 effective March 1, 2018. Effective June 16, 2018, Mr. Stankey’s base salary was increased from $1,100,000 to $2,900,000 to reflect the increased scope and complexity of his new role as CEO of WarnerMedia. | ||
2018 STIP | Target Award = $4,970,833 Final Award Paid = $4,374,333 88% of target award value realized | Mr. Stankey’s target STIP was increased to $2,100,000 effective January 1, 2018, and to $7,400,000 effective June 16, 2018. Mr. Stankey’s award targets were applied to the associated time periods and the resulting weighted STIP target award for 2018 was $4,970,833. Mr. Stankey’s STIP payout was based on: • A payout of 78% of his target award based on formulaic performance attainment of EPS and FCF goals, plus 100% of the qualitative collaboration goal. • The Committee did not make any discretionary adjustment to the formulaic results. | ||
Performance Share Payout (2016-2018 Performance Period) | Target Award = $2,837,500 Final Award Paid = $1,824,495 64% of grant value realized | Mr. Stankey’s performance share payout was based on: • A formulaic payout of 76% of the 79,862 shares granted, based on the Company’s performance achievement for ROIC and relative TSR, plus • The company’s stock price change over the3-year performance period, which decreased the value of the shares earned by 15.4%. Performance Shares were paid in cash. | ||
RSU Payout (2015 Grant) | Target Award = $2,662,500 80,780 shares paid; valued at $2,479,946 93% of grant value realized | The company’s stock price change over the4-year vesting period decreased the value of the units granted by 6.9%. RSUs Units were paid in stock. | ||
Merger Completion Bonus | $2,000,000 | The Committee awarded Mr. Stankey a cash payment in recognition of his significant contributions that led to the completion of the merger. Mr. Stankey played a key role in assisting the legal strategy and litigation teams with the antitrust lawsuit defense. In addition, he led both merger integration planning and strategy development, roles that were unexpectedly extended due to the DOJ’s antitrust lawsuit. | ||
Total Realized Compensation | $12,737,107 | |||
| 55 |
COMPENSATION DISCUSSION AND ANALYSIS
Our previous sections detailed compensation paid in 2018 and/or compensation for grants with performance or restriction periods ending in 2018 or early 2019. This section addresses the long-term grants we made in 2018.
The forms of long-term compensation granted to NEOs in 2018 were:
Forms of Grants | Weight | Performance Metrics | Vesting Period | |||
Performance Shares | 75% | Performance Metrics - 100% ROIC Payout Modifier - Relative TSR Modifier | 3-year performance period | |||
RSUs | 25% | Payout value based on stock price performance only | 4-year restriction period |
Grant values for these awards were as follows:
2018 LONG TERM INCENTIVE TARGET GRANT VALUES FOR NEOS
Name | Performance Shares ($)(1) | RSUs ($)(1) | ||||||||
Randall Stephenson | 13,725,000 | 4,575,000 | ||||||||
John Stephens(2) | 6,750,000 | 2,250,000 | ||||||||
John Donovan | 8,531,250 | 2,843,750 | ||||||||
David McAtee(2) | 3,750,000 | 1,250,000 | ||||||||
John Stankey(2) | 5,531,250 | 1,843,750 | ||||||||
(1) These amounts represent the rounded value of the awards on February 1, 2018, the date the Committee authorized the awards; however, the final terms of the Performance Share grants were not determined until March 29, 2018, which is the grant date for valuation of the awards in the Summary Compensation Table.
(2) Target value includes the value of supplemental long-term grants made upon the Time Warner merger close. The grants made were in the same form (weight 75% Performance Shares and 25% Restricted Stock Units) and subject to the same terms and conditions as the primaryannual grants.
2018 Performance Share Grants
The Performance Shares granted in 2018 are for the 2018-2020 performance period. The Committee determined that the Performance Shares would be tied to a ROIC performance metric applicablewith a payout modifier based on a comparison of AT&T’s TSR to performance share grants for a number of reasons, including the fact that it is a prevalent market practice that encourages our managers to focus not only22-company Peer Group (as shown on net income but also on effectively employing capital and creating stockholder value.page 43).
ROIC Performance Metric
We calculate ROIC for the 2018-2020 performance period by averaging over the three-year performance period: (1) our annual reported net income plusafter-tax interest expense minus minority interest, divided by (2) the total of the average debt and average stockholder equity for the relevant year. For mergers and acquisitions over $2.0 billion, we exclude the dilutive impacts of intangible amortization, asset write-offs, accelerated depreciation, and transaction and restructuring costs so that the impact of certain significant transactions, including those which may not have been contemplated in the determination of a performance metric, will not have an impact on the performance results. We also exclude the net impact of certain of the following items after taxes and available collectible insurance, if they exceed, individually or in certain combinations, $500 million in a calendar year and satisfy other conditions:conditions; changes in tax laws, changes in accounting principles (except for the impacts of Revenue Recognition under ASC 606, “Revenue from Contracts with Customers”), expenses caused by natural disasters or intentionally caused damage to the Company’s property, andnon-cash accounting write-downs of goodwill, other intangible assets and fixed assets. Additionally, we disregard the net dilutive impact of mandatory changes resulting from the Patient Protection and Affordable Care Act of 2010 as well as gains and losses related to the assets and liabilities of pension and other post-retirement benefit plans (and associated tax effects).
At the end of the performance period, the number of performance shares to be paid out, if any, will be determined by comparing the actual performance of the Company against the predetermined performance objectives, which are set forth as a range of results. The ROIC target range for the 2015-20172018-2020 performance period was set 100 basis points above our cost of capital;capital, a target that we believe to be challenging, but attainable. For performance above or below the performance target range, the number of performance sharesPerformance Shares are increased or reduced, respectively. Potential payouts range from 0% to 150% of the number of performance sharesPerformance Shares granted.
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COMPENSATION DISCUSSION AND ANALYSIS
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Total Stockholder Return (TSR) Performance MeasureModifier
The TSRThis measure compares AT&T’sour TSR (stock appreciation plus reinvestment of dividends) relative to that of the 22 companies in the S&P 100.our Peer Group. We believe that TSR is an important measure because it helps ensure that our executives remain focused on the value they are delivering to our stockholders.
The following chart shows the potential payouts based on AT&T’s TSR relative to companies in the S&P 100. In order to further align our executive officer pay with stockholder interests, if AT&T’s TSR is negative, the payout percentage is capped at 90%.
| TSR PERFORMANCE MODIFIER | |||
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AT&T | Payout Modifier | ||
| Add 10 Percentage Points to Final ROIC Payout Percentage | ||
Quartile 3 | No Adjustment to ROIC Payout Percentage | ||
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TSR Peer Group
Award payouts will be determined based on our TSR performance relative to our22-company Peer Group shown on page 43. These companies are the same ones that comprise the Peer Group used to assess market- based compensation for 2018. TSR performance will be measured over the entire performance period.
At the end of the performance period, the number of Performance Shares to be paid out, if any, will be determined by comparing the actual performance of the Company against the predetermined performance objective for ROIC, and modifying the award for relative TSR achievement, if applicable. Performance Shares, if earned, are paid 34% in stock, 66% in cash.
2018 Restricted Stock Units
Restricted stock unitsRSUs granted in 20152018 vest 100% after four years or upon retirement eligibility, whichever occurs earlier, but do not pay out until the scheduled distribution date. These unitsRSUs receive quarterly dividend equivalents, paid in cash, at the time regular dividends are paid on AT&T’sour stock. Restricted stock unitsRSUs pay 100% in stock to further tie executive and stockholder interests.
The following table shows restricted stock unit grants made
By ensuring that a significant portion of compensation is based on our long-term performance, we reduce the risk that executives will place too much focus on short-term achievements to the Named Executive Officersdetriment of our long-term sustainability. Our short-term incentive compensation is structured so that the accomplishment of short-term goals supports the achievement of long-term goals. These elements work together for the benefit of AT&T and our stockholders and to reduce risk in 2015:our incentive plans.
In addition to the risk moderation actions, we intend, in appropriate circumstances, to seek restitution of any bonus, commission, or other compensation received by an employee as a result of such employee’s intentional or knowing fraudulent or illegal conduct, including the making of a material misrepresentation in our financial statements.
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The performance measure applicable to 75% of the 2013 performance share grants was ROIC. The performance measure for the other 25% of the grant was AT&T’s TSR, measured against the 100 companies that comprise the S&P 100 Index at the end of the performance period.
Return on Invested Capital Performance Metric
For the 2013-2015 performance period, the Committee established ROIC performance objectives, with the target range (which would result in a 100% payout) set at 6.75% to 8.25%. The threshold for the target range was set so that it exceeded our cost of capital by 75 basis points that we determined based on input from banks, ensuring a reasonable return is delivered to stockholders before executive officers are eligible for the target award. The number of performance shares tied to the ROIC performance metric are paid out at the target award level if the Company performs within the performance goal range. Achievement above the target range provides for higher levels of award payout, up to a maximum payout of 150% of the performance
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shares granted. Achievement below the target range results in decreasing levels of award payout, down to 0% of the performance shares granted if less than 67% of the low end of the ROIC target range is achieved.
Total Stockholder Return Performance Metric
For the 2013-2015 performance period, the Committee established the following relative TSR payout table:
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The payout of the performance shares that are subject to TSR will be capped at 90% if AT&T’s TSR is negative (applies to performance at the 44th percentile or higher).
Performance Attainment
After conclusion of the performance period, the Committee determined, using the payout table established at the beginning of the performance period that the Company achieved a 9.1% return on invested capital, which was above the ROIC target range, and 310 basis points above the cost of capital we establish based on input from banks, and directed that 109% of the related performance shares be distributed. In accordance with the terms of the grant, the following items were excluded: merger related non-cash activities, the impacts from the implementation of federal health care reform legislation, non-cash accounting writedowns of goodwill and other intangible assets, losses related to the assets and liabilities from pension plans and other post retirement benefit plans.
Using the TSR payout table, the Committee determined that AT&T’s relative TSR performance did not qualify for a payout for the portion of the awards tied to TSR.
As shown below, the number of performance shares actually paid was 82% of the target number of shares, based on combined performance results for ROIC and TSR. The realized value of executive officer long-term compensation also includes the impact of changes in stock price (which also impacts our stockholders), making the final value of the performance share payout equal to 84% of the target grant value.
2013 Performance Share Grant and Payout Values (Half of the Long-Term Granted to Executive Officers in 2013) | ||||||||||||||
| Name | Performance Measure(s) | Value at Grant ($) | Performance Payout % | % Change in Stock Price (1) | Value at Payout ($) | Approx. % of Grant Value Realized | ||||||||
Stephenson | 75% ROIC 25% TSR | 6,825,000 | 82% | 2% | 5,715,538 | 84% | ||||||||
Stephens | 1,910,000 | 1,599,519 | ||||||||||||
de la Vega | 2,362,500 | 1,978,443 | ||||||||||||
Donovan | 1,250,000 | 1,046,806 | ||||||||||||
Stankey | 2,362,500 | 1,978,443 | ||||||||||||
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The following table compares performance share award payouts for the CEO to awards paid to other employees for the award years 2008-2013. As the results show, the NEOs (including the CEO) have received, on average, award payouts that are 21 percentage points lower than other performance share recipients.
| Grant Year | NEO Payout (ROIC and Relative TSR) | Other Employee Payout (ROIC Only) | ||
2013 (paid 2016) | 82% | 109% | ||
2012 (paid 2015) | 85% | 113% | ||
2011 (paid 2014) | 75% | 100% | ||
2010 (paid 2013) | 110% | 120% | ||
2009 (paid 2012) | 96% | 119% | ||
2008 (paid 2011) | 88% | 100% | ||
Average | 89% | 110% |
The restricted stock units that were granted to executive officers in 2012 vested in 2016 (or at the executive officer’s earlier retirement eligibility). These restricted stock units paid out in stock in January of 2016.
Benefits and Personal Benefits
Benefits are an important tool to maintain the market competitiveness of our overall compensation package. AT&T providesWe provide personal benefits to its executive officersour Executive Officers for three main reasons:
To effectively compete for talent: We must have a program that is robust and competitive enough to attract and retain key talent.
To support Executive Officers in meeting the needs of the business:We require thearound-the-clock commitment and availability of our Executive Officers. Therefore, we provide benefits that allow us to have greater access to them. These benefits should not be measured solely in terms of any incremental financial cost, but rather the value they bring to us through maximized productivity and availability.
TheseTo provide for the safety, security, and personal health of executives:We provide Executive Officers certain personal benefits to provide for their safety and personal health.
Benefits for our Executive Officers are outlined below. We continueThe Committee continues to evaluate our personal benefits based on needs of the business and market practices/trends.
Benefits
WarnerMedia employees did not participate in the following plans in 2018:
Deferral Opportunities
Tax-qualified 401(k) Plans
Our 401(k) plans offer substantially all employees, including each of the Named Executive Officers,NEOs, the opportunity to defer income and atreceive company matching contributions. Substantially all of our plans provide our employees the same time,ability to invest in AT&T stock.or other investments. We match 80% of employee contributions, limited to the first 6% of cash compensation (only base salary is matched for officers). DIRECTV employees are covered by the DIRECTV 401(k) Savings Plan, which is substantially equivalent to the AT&T plans in the aggregate. Employees hired externally on or after January 1, 2015, (other than DIRECTV employees), do not receive a pension, and to account for the lack of a pension benefit, we increased the 401(k) match to 100% of the first 6% of eligible contributions for these employees.
|
Nonqualified Plans
We providemid-level and above managers the opportunity fortax-advantaged savings through two nonqualified plans. We useplans:
• Stock Purchase and Deferral Plan
This is our principal nonqualified deferral planprogram, which we use as a way to encourage our managers to invest in and hold AT&T stock on atax-deferred basis.
also receive “makeup”makeup matching deferred AT&T share units to replace the match that is not available in the 401(k) because of their participation in AT&T’sour nonqualified deferral plans or because they exceeded the IRS compensation limits for 401(k) plans. Officers do not receive the makeup match on the contribution of their short-term awards.
Through this plan, eligible managers may also defer cash compensation in the form of salaries and bonuses. The plan pays interest at the Moody’s Long-Term Corporate Bond Yield Average, reset annually, which is a common index used by companies for deferral plans. The SEC requires disclosure in the “Summary Compensation Table” of any earnings on deferred compensation that exceed an amount set by the SEC.
These plans are described more fully on page 72.74.
Pension Benefits
We offer atax-qualified group pension plan to substantially all of our managers. However, new management hiresmanagers hired externally on or after January 1, 2015, (other than DIRECTV employees), who would otherwise be eligible to participate in the pension plan will instead receive an enhanced match in the 401(k) plan.
We also provide supplemental retirement benefits under nonqualified pension plans, or SERPs, to employees who became officers before 2009. Additional information on pension benefits, including these plans, maybemay be found beginning on page 67,68, following the “Pension Benefits” table.
| 58 | |
COMPENSATION DISCUSSION AND ANALYSIS
Personal Benefits
We provide our executive officersExecutive Officers with other limited and market-based personal benefits, including automobile benefits, which are a common recruiting and retention tool; Company-owned club memberships (in some cases we allow personal use, but do not pay country club fees or dues for executive officers), which afford our executives the opportunity to conduct business in a more informal environment; home security for the safety and security of our executives; tax preparation, estate planning, and financial counseling, which allow our executives to focus more on business responsibilities; and executive disability benefits. The financial counseling benefit provides financial counselors to executives, which helps the Company by ensuring that our executives understand and comply with plan requirements. We also provide our executives communications, broadband/TV and related products and services, which are offered by AT&T at little or no incremental cost.
The CEO is required to reimburse the incremental Company cost of personal usage of Company aircraft. Other executive officers are also required to reimburse the incremental cost of their personal usage unless the CEO decides otherwise on a case-by-case basis. Reimbursements will not be made where prohibited by law. We also provide executive death benefits. More information on death benefits may be found beginning on page 70.as follows:
| Description | Rationale | ||||
Financial Counseling | Includes tax preparation, estate planning, and | Allows our executives to focus more on business responsibilities by providing financial counselors to help with their personal financial affairs and tax filings. | ||||
Health Coverage | A consumer-driven health plan for certain executives, who must pay a portion of the premiums. | Maintains executives’ health and welfare, helping to ensure business continuity. | ||||
Executive Physical | Annual physical for executives who do not receive the health coverage shown above.
| |||||
Communications | AT&T products and services provided at little or no incremental cost to the Company. | Provides 24/7 connectivity and a focus on services customers purchase. | ||||
Automobile | Includes allowance, fuel, and maintenance. | Recruiting and retention tool. | ||||
Executive Disability | Provides compensation during a leave of absence due to illness or injury. | Provides security to executives’ family members. | ||||
Home Security | Residential security system and monitoring. | |||||
Executive Life Insurance | See page 72. | |||||
Company-Owned Club Memberships | In some cases we allow personal use, but do not pay country club fees or dues for Executive Officers. | Affords executives the opportunity to conduct business in a more informal environment. | ||||
Personal Use of Company Aircraft | Messrs. Stephenson, Donovan, Stankey, and Stephens are required to reimburse the incremental Company cost of personal usage, other than for travel to outside board meetings. Other Executive Officers are also required to reimburse the incremental cost of their personal usage unless the CEO decides otherwise on acase-by-case basis. Reimbursements will not be made where prohibited by law. | Provides for safety, security, and reduced travel time so executives may focus on their responsibilities. |
Officers promoted or hired after March 23, 2010, are eligible for an annual executive physical, subject to certain limits. We provide other officers, including our current executive officers, with a supplemental health plan for which they pay a portion of the premiums. The plan acts in conjunction with the Company’s management health plan, a consumer-driven plan that encourages all employees to be cost-conscious consumers of health care services.
Certain of these benefits are also offered as post-retirement benefits to officers who meet age and service requirements. Additional information on these post-retirement benefits can be found beginning on page 70.71.
| 59 |
COMPENSATION DISCUSSION AND ANALYSIS
Equity Retention and Hedging PolicyEQUITY RETENTIONAND HEDGING POLICY
Stock Ownership Guidelines
The Committee has established stock ownership guidelines for all officers,Executive Officers, as follows. We include vested shares held in Companyour benefit plans in determining attainment of these guidelines.
| Level | Ownership | |
CEO | 6X Base Salary | |
Executive Officers | Lesser of 3X Base Salary or 50,000 Shares | |
| ||
| ||
Holdings of the NamedAll Executive Officers are given 5 years from assuming their position to achieve compliance.
NEO stock holdings as of December 31, 2015,2018, can be found in the “Common Stock Ownership” section beginning on page 5.29. As of December 31, 2015,2018, Randall Stephenson held 1,333,7292,175,574 vested shares of AT&T stock, a multiple of 2634 times his base salary, well exceeding his
6X requirement. In addition, Mr. Stephenson also holds 824,170633,226 shares of vested Restricted Stock UnitsRSUs, which are still subject to a retention period, making his total vested shares a multiple of 4244 times his base pay.
Retention of Awards
Executive officersOfficers are required to hold shares equivalent, in aggregate, to 25% of the AT&T shares they receive (after taxes and exercise costs) from an incentive, equity, or option award granted to them after January 1, 2012, until one year after they leave the Company.terminate employment with AT&T.
Hedging Policy
Executive officers are prohibited from hedging their AT&T stock and awards. The prohibition will continueor stock based awards, including through trading in publicly-traded options, puts, calls, or other derivative instruments related to apply to stock issued from Company awards for one year after they leave the Company.AT&T stock.
|
Limit on Deductibility of Certain Compensation
Federal income tax law prohibits publicly held companies, such as AT&T, from deducting certain compensation paid to a Named Executive Officer that exceeds $1 million during the tax year. To the extent that compensation is based upon the attainment of performance goals set by the Committee pursuant to plans approved by the stockholders, the compensation is not included in the limit. The Committee intends, to the extent feasible and where it believes it is in the best interests of AT&T and its stockholders, to attempt to qualify executive compensation as tax deductible where it does not adversely affect the Committee’s development and execution of effective compensation plans. For example, to enable short- and long-term compensation to be deductible, the Committee strives to make these awards under stockholder-approved incentive plans.
Similarly, gains on stock option exercises may be deductible if granted under a stockholder-approved plan since they are tied to the performance of the Company’s stock price. Salaries and other compensation that are not tied to performance are not deductible to the extent they exceed the $1 million limit.
The Company intends, in appropriate circumstances, to seek restitution of any bonus, commission, or other compensation received by an employee as a result of such employee’s intentional or knowing fraudulent or illegal conduct, including the making of a material misrepresentation contained in the Company’s financial statements.
Employment Contracts and Change in Control Severance Plan
We have employment contracts with Messrs. de la Vega and Stankey. The material provisions of these contracts are discussed on pages 65-66.
Our executive officers are eligible to participate in the Change in Control Severance Plan, which is more fully described on pages 73-74. We believe this type of plan is necessary to ensure that participants receive certain double-trigger benefits in the event of a change in control of the Company, and to allow the participating officers to focus on their duties during an acquisition. The plan is not intended to replace other compensation elements.
|
The Committee is authorized by its charter to employ independent compensation consultants and other advisors. The Committee has selected Total Rewards StrategiesFrederic W. Cook & Co., Inc. (FW Cook) to serve as its independent consultant. The consultant reports directly to the Committee. Total Rewards StrategiesOther than advising the Corporate Governance and Nominating Committee on director compensation, FW Cook provides no other services to AT&T.
The Committee reviewed the following six independence factors, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, when evaluating the consultant’s independence:
Other services provided to the CompanyAT&T
Percentage of the consultant’s revenues paid by the CompanyAT&T
Consultant’s policies to prevent conflicts of interest
Other relationships with compensation committee members
AT&T stock owned by the consultant
Other relationships with executive officersExecutive Officers
Based on its evaluation of the consultant and the six factors listed above, the Committee has determined that itsthe consultant meetsmet the criteria for independence.
Following is a description of theThe consultant’s duties:duties include:
Attends all Committee meetings;
Regularly updates the Committee on market trends, changing practices, and legislation pertaining to executive compensation and benefits;
Reviews the Company’s executive compensation strategy and program to ensure appropriateness and market-competitiveness;
Makes recommendations on the design of the compensation program and the balance ofpay-for-performance elements;
Provides market data and makes recommendations for establishing the market rates for jobs held by senior leaders;
Analyzes compensation from other companies’ proxy and financial statements for the Committee’s review when making compensation decisions;
Assists the Committee in making pay determinations for the Chief Executive Officer; and
Advises the Committee on the appropriate comparator groups for compensation and benefits as well as the appropriate peer group against which to measure long-term performance.
|
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee Report
The Human Resources Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussions, the Human Resources Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Annual Report on Form10-K and Proxy Statement for filing with the SEC. |
February 12, 2019 | The Human Resources Committee | |||
Joyce M. Roché, Chairman | ||||
Scott T. Ford | ||||
Michael B. McCallister | ||||
Matthew K. Rose | ||||
Geoffrey Y. Yang | ||||
|
|
The table below contains information concerning the compensation provided to the Chief Executive Officer, the Chief Financial Officer, and the three other most highly compensated executive officersExecutive Officers of AT&T (theNamed Executive Officers). Compensation information is provided for the years each person in the table was a Named Executive Officer since 2013.2016.
SUMMARY COMPENSATION TABLE
| Summary Compensation Table | ||||||||||||||||||||||||||||||||||||
| Name and Principal Position | Year | Salary (1) ($) | Bonus ($) | Stock Awards (2) ($) | Option Awards ($) | Non- Equity Incentive Plan Compen- sation (1) ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings (3) ($) | All Other Compen- sation (4) ($) | Total ($) | |||||||||||||||||||||||||||
| R. Stephenson | 2015 | 1,741,667 | 0 | 14,623,014 | 0 | 5,500,000 | 2,728,138 | 553,095 | 25,145,914 | |||||||||||||||||||||||||||
| Chairman, CEO | 2014 | 1,691,667 | 0 | 14,248,893 | 0 | 4,350,000 | 3,206,277 | 487,478 | 23,984,315 | |||||||||||||||||||||||||||
| and President | 2013 | 1,633,333 | 0 | 13,441,558 | 0 | 5,000,000 | 2,650,073 | 522,203 | 23,247,167 | |||||||||||||||||||||||||||
| J. Stephens | 2015 | 837,500 | 0 | 4,659,568 | 0 | 2,100,000 | 1,565,671 | 435,942 | 9,598,681 | |||||||||||||||||||||||||||
| Sr. Exec. Vice | 2014 | 765,833 | 0 | 4,294,312 | 0 | 1,425,000 | 3,733,775 | 492,177 | 10,711,097 | |||||||||||||||||||||||||||
| Pres. and CFO | 2013 | 713,333 | 0 | 3,761,679 | 0 | 1,500,000 | 1,413,393 | 484,681 | 7,873,086 | |||||||||||||||||||||||||||
| R. de la Vega | 2015 | 940,000 | 0 | 5,279,175 | 0 | 2,100,000 | 1,334,308 | 433,219 | 10,086,702 | |||||||||||||||||||||||||||
| Vice Chairman, | 2014 | 911,667 | 0 | 7,099,287 | 0 | 1,425,000 | 178,814 | 459,479 | 10,074,247 | |||||||||||||||||||||||||||
| AT&T Inc. and | 2013 | 891,667 | 0 | 4,652,818 | 0 | 1,560,000 | 1,193,413 | 506,210 | 8,804,108 | |||||||||||||||||||||||||||
| CEO, AT&T | ||||||||||||||||||||||||||||||||||||
| Business Solutions | ||||||||||||||||||||||||||||||||||||
| and AT&T | ||||||||||||||||||||||||||||||||||||
| International, LLC | ||||||||||||||||||||||||||||||||||||
| J. Donovan | 2015 | 808,333 | 0 | 4,871,764 | 0 | 2,000,000 | 1,817,204 | 241,105 | 9,738,406 | |||||||||||||||||||||||||||
| Chief Strategy | ||||||||||||||||||||||||||||||||||||
| Officer and Group | ||||||||||||||||||||||||||||||||||||
| President-AT&T | ||||||||||||||||||||||||||||||||||||
| Technology & | ||||||||||||||||||||||||||||||||||||
Operations | ||||||||||||||||||||||||||||||||||||
| J. Stankey | 2015 | 941,667 | 0 | 5,279,175 | 0 | 2,100,000 | 1,501,718 | 218,250 | 10,040,810 | |||||||||||||||||||||||||||
| CEO-AT&T | 2014 | 920,000 | 0 | 5,085,374 | 0 | 1,665,000 | 2,301,109 | 218,680 | 10,190,163 | |||||||||||||||||||||||||||
| Entertainment | 2013 | 891,667 | 0 | 4,652,818 | 0 | 1,695,000 | 183,197 | 239,898 | 7,662,580 | |||||||||||||||||||||||||||
| Group | ||||||||||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary (1) ($) | Bonus ($) | Stock Awards (2) ($) | Option Awards ($) | Non- Equity Incentive Plan Compen- sation (1) ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings (3) ($) | All Other Compen- sation (4) ($) | Total ($) | |||||||||||||||||||||||
R. Stephenson Chairman, CEO and President | 2018 |
| 1,800,000 |
|
| 0 |
|
| 17,069,774 | 0 |
| 5,192,000 |
| 3,517,806 |
| 1,538,538 |
| 29,118,118 |
| |||||||||||||
2017 |
| 1,800,000 |
|
| 0 |
|
| 16,699,980 | 0 |
| 5,310,000 |
| 3,420,059 |
| 1,490,681 |
| 28,720,720 |
| ||||||||||||||
2016 |
| 1,791,667 |
|
| 0 |
|
| 16,063,344 | 0 |
| 5,700,000 |
| 3,474,304 |
| 1,404,401 |
| 28,433,716 |
| ||||||||||||||
J. Stephens Sr. Exec. Vice Pres. and CFO | 2018 |
| 1,096,875 |
|
| 2,000,000 |
|
| 8,542,439 | 0 |
| 2,057,917 |
| 1,324,399 |
| 620,674 |
| 15,642,304 |
| |||||||||||||
2017 |
| 979,167 |
|
| 0 |
|
| 6,999,984 | 0 |
| 1,710,000 |
| 3,574,285 |
| 629,371 |
| 13,892,807 |
| ||||||||||||||
2016 |
| 870,833 |
|
| 0 |
|
| 5,337,167 | 0 |
| 1,840,000 |
| 2,942,086 |
| 591,854 |
| 11,581,940 |
| ||||||||||||||
J. Donovan CEO-AT&T Communications, LLC | 2018 |
| 1,175,000 |
|
| 100,000 |
|
| 10,610,326 | 0 |
| 2,310,000 |
| 50,211 |
| 340,330 |
|
| 14,585,867 |
| ||||||||||||
2017 |
| 1,035,833 |
|
| 0 |
|
| 9,202,738 | 0 |
| 1,965,000 |
| 2,666,182 |
| 323,947 |
| 15,193,700 |
| ||||||||||||||
2016 |
| 858,333 |
|
| 0 |
|
| 4,352,640 | 0 |
| 1,650,000 |
| 2,388,147 |
| 259,190 |
| 9,508,310 |
| ||||||||||||||
D. McAtee Sr. Exec. Vice Pres. and | 2018 |
| 1,058,333 |
|
| 5,000,000 |
|
| 4,731,281 | 0 |
| 1,694,000 |
| 100,295 |
| 265,367 |
|
| 12,849,276 |
| ||||||||||||
2017 |
| 791,667 |
| 0 |
|
| 3,699,987 | 0 |
| 1,350,000 |
| 166,390 |
| 216,501 |
| 6,224,545 |
| |||||||||||||||
J. Stankey CEO – Warner Media, LLC | 2018 |
| 2,058,333 |
|
| 2,000,000 |
|
| 6,889,708 | 0 |
| 4,374,333 |
| 574,835 |
| 655,696 |
| 16,552,905 |
| |||||||||||||
2017 |
| 995,000 |
|
| 0 |
|
| 6,999,984 | 0 |
| 1,800,000 |
| 3,356 |
| 296,243 |
| 10,094,583 |
| ||||||||||||||
2016 |
| 965,833 |
|
| 0 |
|
| 5,881,237 | 0 |
| 1,930,000 |
| 3,730,962 |
| 257,263 |
| 12,765,295 |
| ||||||||||||||
Realized Pay
Mr. Stephenson’s realized pay for 2018 was $18,844,528. A summary of realized pay for each of the NEOs is provided on pages 51-55.
Note 1.
Each of the NEOs deferred portions of their 2018 salary and/ornon-equity incentive awards into the Stock Purchase and Deferral Plan to make monthly purchases of Company stock in the form of stock units based on the price of the underlying AT&T stock as follows: Mr. Stephenson—$5,472,400, Mr. Stephens—$2,282,521, Mr. Donovan—$352,500, Mr. McAtee—$579,438, and Mr. Stankey—$118,750. Each unit that the employee purchases is paid out in the form of a share of AT&T stock at the time elected by the employee, along with applicable matching shares. The value of the matching contributions made during the relevant year is included under “All Other Compensation.” A description of the Stock Purchase and Deferral Plan may be found on page 74.
Note 2.
Amounts in the Stock Awards column for 2018 represent the grant date values of Performance Shares and Restricted Stock Units. The grant date values were determined pursuant to FASB ASC Topic 718. Assumptions used for determining the value of the stock awards reported in these columns are set forth in the relevant AT&T Annual Report to Stockholders in Note 15 to Consolidated Financial Statements, “Share-Based Payments.” The grant date values of Performance Shares included in the table for 2018 were: Mr. Stephenson—$12,494,790, Mr. Stephens—$6,284,996, Mr. Donovan—$7,766,566, Mr. McAtee—$3,477,876, and Mr. Stankey—$5,045,456. The number of Performance Shares distributed at the end of the performance period is dependent upon the achievement of performance goals. Depending upon such achievement, the potential payouts range from 0% of the target number of Performance Shares to a maximum payout of 160% of the target number of Performance Shares. The value of the awards (Performance Shares and Restricted Stock Units) will be further affected by the price of AT&T stock at the time of distribution.
|
|
EXECUTIVE COMPENSATION TABLES
Note 3.
Under this column, we report earnings on deferrals of salary and incentive awards to the extent the earnings exceed a market rate specified by SEC rules. For the NEOs, these amounts are as follows for 2018: Mr. Stephenson—$131,143, Mr. Stephens—$0, Mr. Donovan—$50,211, Mr. McAtee—$0, and Mr. Stankey—$1,910. Other amounts reported under this heading represent an increase, if any, in pension actuarial value during the reporting period. Mr. Donovan’s actuarial change in pension was ($94,372); the amount reported is $0 pursuant to the SEC rules.
Note 4.
This column includes personal benefits, Company-paid life insurance premiums, Company matching contributions to deferral plans, and state and local income tax reimbursements made in connection with business travel (Mr. Stankey). AT&T does not provide other tax reimbursements to Executive Officers except under the Company’s relocation plan.
In valuing personal benefits, AT&T uses the incremental cost of the benefits to the Company. To determine the incremental cost of aircraft usage, we multiply the number of hours of personal flight usage (including “deadhead” flights) by the hourly cost of fuel (Company average) and the hourly cost of maintenance (where such cost is based on hours of use), and we add per flight fees such as landing, ramp and hangar fees, catering, and crew travel costs. Mr. Stephenson reimburses the Company for the incremental cost of his personal use of Company aircraft. Messrs. Donovan, Stankey, and Stephens are also required to reimburse the Company for the incremental cost of the personal usage of corporate aircraft, other than for travel to outside board meetings. Other Executive Officers may be required by the CEO to reimburse the incremental cost of their personal usage on acase-by-case basis. Reimbursements will not be made where prohibited by law.
| Grants of Plan-Based Awards | ||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) |
|
| Estimated Future Payouts Under Equity Incentive Plan Awards (2) |
|
| All Other Stock Awards: Number of Shares of Stock or Units (3) (#) |
| All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) |
| Grant Date Fair Value of Stock and Option ($) |
| ||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||
Stephenson | 01/29/2015 | 0 | 5,500,000 | 11,000,000 | 111,878 | 223,756 | 363,604 | 223,756 | 14,623,014 | |||||||||||||||||||||||||||||
Stephens | 01/29/2015 | 0 | 1,740,000 | 3,480,000 | 35,650 | 71,299 | 115,861 | 71,299 | 4,659,568 | |||||||||||||||||||||||||||||
de la Vega | 01/29/2015 | 0 | 1,820,000 | 3,640,000 | 40,390 | 80,780 | 131,268 | 80,780 | 5,279,175 | |||||||||||||||||||||||||||||
Donovan | 01/29/2015 | 0 | 1,520,000 | 3,040,000 | 29,582 | 59,163 | 96,140 | 59,163 | 3,866,450 | |||||||||||||||||||||||||||||
| 12/17/2015 | 29,542 | (4) | 1,005,314 | |||||||||||||||||||||||||||||||||||
Stankey | 01/29/2015 | 0 | 1,830,000 | 3,660,000 | 40,390 | 80,780 | 131,268 | 80,780 | 5,279,175 | |||||||||||||||||||||||||||||
| Stephenson | Stephens | Donovan | McAtee | Stankey | ||||||||||||||||
Personal Benefits | ||||||||||||||||||||
Financial counseling (includes tax preparation and estate planning) |
| 22,074 |
|
| 11,500 |
|
| 14,000 |
|
| 12,318 |
|
| 14,000 |
| |||||
Auto benefits |
| 27,213 |
|
| 16,176 |
|
| 14,261 |
|
| 16,562 |
|
| 13,736 |
| |||||
Personal use of Company aircraft |
| 0 |
|
| 0 |
|
| 31,233 |
|
| 0 |
|
| 13,223 |
| |||||
Health coverage |
| 52,152 |
|
| 50,064 |
|
| 50,064 |
|
| 50,064 |
|
| 50,064 |
| |||||
Club membership |
| 2,877 |
|
| 0 |
|
| 0 |
|
| 2,793 |
|
| 2,793 |
| |||||
Communications |
| 6,037 |
|
| 3,149 |
|
| 4,427 |
|
| 8,007 |
|
| 7,245 |
| |||||
Home security |
| 7,866 |
|
| 50 |
|
| 344 |
|
| 50 |
|
| 1,453 |
| |||||
Total Personal Benefits |
| 118,219 |
|
| 80,939 |
|
| 114,330 |
|
| 89,794 |
|
| 102,514 |
| |||||
Company matching contributions to deferral plans |
| 1,202,860 |
|
| 442,800 |
|
| 126,581 |
|
| 148,588 |
|
| 118,750 |
| |||||
Life insurance premiums applicable to the employees’ death benefit |
| 217,459 |
|
| 96,935 |
|
| 99,419 |
|
| 26,985 |
|
| 365,790 |
| |||||
State and Local Income tax reimbursements in connection with business travel |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 68,642 |
| |||||
Total |
| 1,538,538 |
|
| 620,674 |
|
| 340,330 |
|
| 265,367 |
|
| 655,696 |
| |||||
|
|
EXECUTIVE COMPENSATION TABLES
| Outstanding Equity Awards at December 31, 2015 | ||||||||||||||||||||||||||||||||
| Option Awards (1) | Stock Awards | |||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexer- cisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (2) (#) | Market Value of Shares or Units of Stock That Have Not Vested (2) ($) | Equity Plans Number Unearned Shares, or Other That Have Not Vested (3) (#) | Equity Payout Value of Unearned Shares, Vested (3) ($) | ||||||||||||||||||||||||
| Stephenson | 15,102 | — | 37.23 | 2/15/17 | ||||||||||||||||||||||||||||
| 98,764 | — | 40.28 | 6/15/17 | |||||||||||||||||||||||||||||
| 14,720 | — | 37.88 | 2/15/18 | |||||||||||||||||||||||||||||
| 230,102 | — | 36.17 | 6/16/18 | |||||||||||||||||||||||||||||
| 30,472 | — | 23.22 | 2/17/19 | |||||||||||||||||||||||||||||
| 14,627 | — | 24.63 | 6/15/19 | |||||||||||||||||||||||||||||
| 20,664 | — | 25.32 | 2/16/20 | |||||||||||||||||||||||||||||
| 379,336 | — | 25.54 | 6/15/20 | |||||||||||||||||||||||||||||
| 29,345 | — | 28.24 | 2/15/21 | |||||||||||||||||||||||||||||
| 2014-2016 Perf. Shares | — | — | 353,260 | 12,155,677 | ||||||||||||||||||||||||||||
| 2015-2017 Perf. Shares | — | — | 195,787 | 6,737,031 | ||||||||||||||||||||||||||||
| Stephens | 4,026 | — | 37.23 | 2/15/17 | ||||||||||||||||||||||||||||
| 14,589 | — | 40.28 | 6/15/17 | |||||||||||||||||||||||||||||
| 3,348 | — | 37.88 | 2/15/18 | |||||||||||||||||||||||||||||
| 16,241 | — | 36.17 | 6/16/18 | |||||||||||||||||||||||||||||
| 6,656 | — | 23.22 | 2/17/19 | |||||||||||||||||||||||||||||
| 16,973 | — | 24.63 | 6/15/19 | |||||||||||||||||||||||||||||
| 8,454 | — | 25.32 | 2/16/20 | |||||||||||||||||||||||||||||
| 38,069 | — | 25.54 | 6/15/20 | |||||||||||||||||||||||||||||
| 9,730 | — | 28.24 | 2/15/21 | |||||||||||||||||||||||||||||
| 39,919 | — | 30.35 | 6/15/21 | |||||||||||||||||||||||||||||
| 2,373 | — | 29.87 | 2/15/22 | |||||||||||||||||||||||||||||
2014-2016 Perf. Shares | — | — | 106,465 | 3,663,461 | ||||||||||||||||||||||||||||
2015-2017 Perf. Shares | — | — | 62,387 | 2,146,737 | ||||||||||||||||||||||||||||
| de la Vega | 12,397 | — | 24.63 | 6/15/19 | ||||||||||||||||||||||||||||
| 6,251 | — | 25.32 | 2/16/20 | |||||||||||||||||||||||||||||
| 22,160 | — | 25.54 | 6/15/20 | |||||||||||||||||||||||||||||
| 6,838 | — | 28.24 | 2/15/21 | |||||||||||||||||||||||||||||
| 17,971 | — | 30.35 | 6/15/21 | |||||||||||||||||||||||||||||
| 1,068 | — | 29.87 | 2/15/22 | |||||||||||||||||||||||||||||
2014-2016 Perf. Shares | — | — | 126,077 | 4,338,310 | ||||||||||||||||||||||||||||
2015-2017 Perf. Shares | — | — | 70,683 | 2,432,202 | ||||||||||||||||||||||||||||
2014 Restricted Stock | 57,971 | 1,994,782 | — | — | ||||||||||||||||||||||||||||
| Donovan | 908 | — | 24.63 | 6/15/19 | ||||||||||||||||||||||||||||
| 1,283 | — | 25.32 | 2/16/20 | |||||||||||||||||||||||||||||
| 914 | — | 25.54 | 6/15/20 | |||||||||||||||||||||||||||||
| 1,301 | — | 28.24 | 2/15/21 | |||||||||||||||||||||||||||||
2014-2016 Perf. Shares | — | — | 76,742 | 2,640,692 | ||||||||||||||||||||||||||||
2015-2017 Perf. Shares | — | — | 51,768 | 1,781,337 | ||||||||||||||||||||||||||||
2014 Restricted Stock | 56,673 | 1,950,118 | — | — | ||||||||||||||||||||||||||||
2015 Restricted Stock | 29,542 | 1,016,540 | — | — | ||||||||||||||||||||||||||||
GRANTSOF PLAN-BASED AWARDS
| Name | Grant Date | Date of Action by |
Estimated Possible Payouts UnderNon-Equity Incentive | Estimated Future Payouts Under Equity Incentive Plan Awards (1) | All Other Stock Awards: Number of Shares of Stock or Units (2) (#) | All Other Option Awards: Number of Securities Underlying (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stephenson
|
3/29/18
|
|
2/1/18
|
|
| 2,655,000
|
|
|
5,900,000
|
|
|
7,375,000
|
|
|
140,194
|
|
|
350,485
|
|
|
560,776
|
|
|
12,494,790
|
| |||||||||||||||||||||||||||||||||||
2/1/18
|
|
2/1/18
|
|
|
116,828
|
|
|
4,574,984
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
Stephens
|
3/29/18
|
|
2/1/18
|
|
|
900,000
|
|
|
2,000,000
|
|
|
2,500,000
|
|
|
55,541
|
|
|
138,853
|
|
|
222,165
|
|
|
4,950,109
|
| |||||||||||||||||||||||||||||||||||
2/1/18
|
|
2/1/18
|
|
|
46,284
|
|
|
1,812,481
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
6/15/18
|
|
9/28/17
|
|
| 152,344
|
|
|
338,542
|
|
| 423,178
|
| ||||||||||||||||||||||||||||||||||||||||||||||||
6/28/18
|
|
6/28/18
|
|
|
16,588
|
|
|
41,469
|
|
|
66,350
|
|
|
13,823
|
|
|
1,779,849
|
| ||||||||||||||||||||||||||||||||||||||||||
Donovan
|
3/29/18
|
|
2/1/18
|
|
| 1,237,500
|
|
|
2,750,000
|
|
|
5,500,000
|
|
|
87,142
|
|
|
217,856
|
|
|
348,570
|
|
|
7,766,566
|
| |||||||||||||||||||||||||||||||||||
2/1/18
|
|
2/1/18
|
|
|
72,619
|
|
|
2,843,760
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
McAtee
|
3/29/18
|
|
2/1/18
|
|
|
720,000
|
|
|
1,600,000
|
|
|
2,000,000
|
|
|
32,176
|
|
|
80,439
|
|
|
128,702
|
|
|
2,867,650
|
| |||||||||||||||||||||||||||||||||||
2/1/18
|
|
2/1/18
|
|
|
26,813
|
|
|
1,049,997
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
7/1/18
|
|
6/28/18
|
|
| 146,250
|
|
|
325,000
|
|
| 406,250
|
| ||||||||||||||||||||||||||||||||||||||||||||||||
6/28/18
|
|
6/28/18
|
|
|
7,583
|
|
|
18,957
|
|
|
30,331
|
|
|
6,319
|
|
|
813,634
|
| ||||||||||||||||||||||||||||||||||||||||||
Stankey
|
3/29/18
|
|
2/1/18
|
|
|
945,000
|
|
|
2,100,000
|
|
| 2,625,000
|
|
|
55,541
|
|
|
138,853
|
|
|
222,165
|
|
|
4,950,109
|
| |||||||||||||||||||||||||||||||||||
2/1/18
|
|
2/1/18
|
|
|
46,284
|
|
|
1,812,481
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||
6/15/18
|
|
9/28/17
|
|
| 1,291,875
|
|
|
2,870,833
|
|
| 3,588,541
|
| ||||||||||||||||||||||||||||||||||||||||||||||||
6/28/18
|
|
6/28/18
|
|
|
1,185
|
|
|
2,962
|
|
|
4,739
|
|
|
987
|
|
|
127,118
|
| ||||||||||||||||||||||||||||||||||||||||||
Note 1.
Represents Performance Share awards, discussed beginning on page 56.
Note 2.
Represents Restricted Stock Unit grants, discussed on page 57. The units granted in 2018 are scheduled to vest and distribute in January 2022. Units will also vest upon an employee becoming retirement eligible; however, they are not distributed until the scheduled distribution date. All of the NEOs except for Mr. McAtee were retirement eligible as of the grant date.
|
|
EXECUTIVE COMPENSATION TABLES
| Outstanding Equity Awards at December 31, 2015 | ||||||||||||||||||||||||||||||||
| Option Awards (1) | Stock Awards | |||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexer- cisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (2) (#) | Market Value of Shares or Units of Stock That Have Not Vested (2) ($) | Equity Plans Number Unearned Shares, or Other That Have Not Vested (3) (#) | Equity Payout Value of Unearned Shares, Vested (3) ($) | ||||||||||||||||||||||||
| Stankey | 1,337 | — | 37.23 | 2/15/17 | ||||||||||||||||||||||||||||
| 794 | — | 40.28 | 6/15/17 | |||||||||||||||||||||||||||||
| 1,234 | — | 37.88 | 2/15/18 | |||||||||||||||||||||||||||||
| 1,073 | — | 36.17 | 6/16/18 | |||||||||||||||||||||||||||||
| 2,073 | — | 23.22 | 2/17/19 | |||||||||||||||||||||||||||||
| 1,675 | — | 24.63 | 6/15/19 | |||||||||||||||||||||||||||||
| 2,366 | — | 25.32 | 2/16/20 | |||||||||||||||||||||||||||||
| 1,658 | — | 25.54 | 6/15/20 | |||||||||||||||||||||||||||||
| 2,326 | — | 28.24 | 2/15/21 | |||||||||||||||||||||||||||||
2014-2016 Perf. Shares | — | — | 126,077 | 4,338,310 | ||||||||||||||||||||||||||||
2015-2017 Perf. Shares | — | — | 70,683 | 2,432,202 | ||||||||||||||||||||||||||||
| Option Exercises and Stock Vested During 2015 | ||||||||||||||||
| Option Awards | Stock Awards (1) | |||||||||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||
Stephenson | 213,806 | 1,692,436 | 384,621 | 13,090,536 | ||||||||||||
Stephens | 40,376 | 316,642 | 116,318 | 3,949,534 | ||||||||||||
de la Vega | 0 | 0 | 136,464 | 4,640,952 | ||||||||||||
Donovan | 0 | 0 | 227,671 | 7,456,656 | ||||||||||||
Stankey | 2,595 | 16,408 | 136,464 | 4,640,952 | ||||||||||||
|
|
| Pension Benefits (Estimated for December 31, 2015) | ||||||||
| Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefits (1) ($) | Payments During Last Fiscal Year ($) | ||||
Stephenson | Pension Benefit Plan—Nonbargained Program | 33 | 1,522,264 | 0 | ||||
| Pension Benefit Make Up Plan | 15 | 7,117 | 0 | |||||
| SRIP | 22 | 2,326,681 | 0 | |||||
| SERP | 30 | 47,022,214 | 0 | |||||
Stephens | Pension Benefit Plan—Nonbargained Program | 23 | 1,178,658 | 0 | ||||
| Pension Benefit Make Up Plan | 8 | 51,508 | 0 | |||||
| SRIP | 12 | 337,747 | 0 | |||||
| SERP | 23 | 12,915,641 | 0 | |||||
de la Vega | Pension Benefit Plan—Mobility Program | 12 | 177,301 | 0 | ||||
| BellSouth SERP | 36 | 15,414,455 | 0 | |||||
| SERP | 40 | 8,170,212 | 0 | |||||
Donovan | Pension Benefit Plan—MCB Program | 6 | 119,129 | 0 | ||||
| SERP | 7 | 9,068,112 | 0 | |||||
Stankey | Pension Benefit Plan—Nonbargained Program | 30 | 1,317,852 | 0 | ||||
| SRIP | 19 | 418,056 | 0 | |||||
| SERP | 30 | 23,770,119 | 0 | |||||
Employment ContractsMessrs. Donovan, Stankey, and Stephens
There are no employment agreements with any ofBoth the Named Executive Officers, except for2011 Incentive Plan and the following:
Rafael de la Vega
Mr. de la Vega has an employment contract2016 Incentive Plan provide that provides for his continued participation in the BellSouth Corporation Supplemental Executive Retirement Plan (BellSouth SERP) while he is employed by AT&T Mobility (formerly Cingular) and provides for certain benefits in the event an employee retires while retirement eligible under the plan, an award of his terminationPerformance Shares will be prorated based on the number of employment withmonths worked during the performance period. AT&T Mobility. In connection with his transfer from BellSouthhas provided that Performance Shares granted after September 28, 2017, to what was then CingularMessrs. Donovan, Stankey, or Stephens will not be prorated if they remain employed through December 30, 2020. Further, the Company has agreed that their Performance Shares shall not be prorated if (a) they report to an officer or employee of the Company or any of its affiliates other than the Chief Executive Officer of AT&T Inc.; or (b) if the Company creates a higher-level position (e.g., Vice Chairman or Chief Operating Officer of AT&T Inc.) and they are not placed in 2003, BellSouth agreed to maintain that role or an equivalent role.
Mr. de la Vega in the BellSouth SERP while
|
Mr. de la Vega was employed by Cingular. In addition, if Mr. de la Vega was terminated from Cingular for any reason, BellSouth agreed to hire him back. If BellSouth failed to rehire Mr. de la Vega in a comparable position, or in the event Mr. de la Vega died or terminated employment because of disability before returning to BellSouth, Mr. de la Vega or his beneficiary, as applicable, would receive a lump sum payment equal to two times his salary and target bonus. Mr. de la Vega’s supplemental retirement benefits are discussed more fully beginning on page 68.
John Stankey
Following the acquisition of DIRECTV, AT&T has entered into an agreement with Mr. Stankey, whose responsibilities includeincluded the oversight of DIRECTV operations. The Company agreed to reimburse him for state and local income taxes that he incursincurred while on business travel outside of Texas (Texas is his primary work location and residence) as well as the income taxes owed on the reimbursement of such state and local income taxes. Amounts reimbursed will beare reported annually in the Summary Compensation Table under All Other Compensation. Upon Mr. Stankey being reassigned to oversee merger integration planning for our acquisition of WarnerMedia on August 1, 2017, this agreement no longer applied to subsequent compensation.
Qualified Upon closing of the acquisition of WarnerMedia, Mr. Stankey was appointed CEO of WarnerMedia. Subsequently, as part of his new position, he is expected to engage in extensive business travel, which will require him to file state and local income tax returns in a number of jurisdictions. AT&T has agreed to reimburse Mr. Stankey for any legal fees he incurs in the defense of his state and local income tax returns.
| 65 |
EXECUTIVE COMPENSATION TABLES
OUTSTANDING EQUITY AWARDSAT DECEMBER 31, 2018
| Option Awards (1) | Stock Awards | |||||||||||||||||||||||||||||||
| Name | | Number of Securities Underlying Unexercised Options Exercisable (#) |
| | Number of Securities Underlying Unexercised Options Unexer- cisable (#) |
| | Option Exercise Price ($) |
| | Option Expiration Date |
| | Number of Shares or Units of Stock That Have Not Vested (2) (#) |
| | Market Value of Shares or Units of Stock That Have Not Vested (2) ($) |
| | Equity Incentive Plans Awards: Number of Unearned Shares, Units or Other Vested (3) (#) |
| | Equity Incentive Plans Awards: Market or Payout Value of Unearned Shares, Units Vested (3) ($) |
| ||||||||
Stephenson |
| 30,472 |
|
| 23.22 |
|
| 2/17/19 |
| |||||||||||||||||||||||
| 14,627 |
|
| — |
|
| 24.63 |
|
| 6/15/19 |
| |||||||||||||||||||||
| 20,664 |
|
| — |
|
| 25.32 |
|
| 2/16/20 |
| |||||||||||||||||||||
| 379,336 |
|
| — |
|
| 25.54 |
|
| 6/15/20 |
| |||||||||||||||||||||
| 29,345 |
|
| — |
|
| 28.24 |
|
| 2/15/21 |
| |||||||||||||||||||||
2017-2019 Perf. Shares |
| — |
|
| — |
|
| 269,870 |
|
| 7,702,090 |
| ||||||||||||||||||||
2018-2020 Perf. Shares |
| — |
|
| — |
|
| 315,437 |
|
| 9,002,572 |
| ||||||||||||||||||||
Stephens |
| 6,656 |
|
| — |
|
| 23.22 |
|
| 2/17/19 |
| ||||||||||||||||||||
| 16,973 |
|
| — |
|
| 24.63 |
|
| 6/15/19 |
| |||||||||||||||||||||
| 8,454 |
|
| — |
|
| 25.32 |
|
| 2/16/20 |
| |||||||||||||||||||||
| 38,069 |
|
| — |
|
| 25.54 |
|
| 6/15/20 |
| |||||||||||||||||||||
| 9,730 |
|
| — |
|
| 28.24 |
|
| 2/15/21 |
| |||||||||||||||||||||
| 39,919 |
|
| — |
|
| 30.35 |
|
| 6/15/21 |
| |||||||||||||||||||||
| 2,373 |
|
| — |
|
| 29.87 |
|
| 2/15/22 |
| |||||||||||||||||||||
2017-2019 Perf. Shares |
| — |
|
| — |
|
| 113,119 |
|
| 3,228,416 |
| ||||||||||||||||||||
2018-2020 Perf. Shares |
| — |
|
| — |
|
| 124,968 |
|
| 3,566,587 |
| ||||||||||||||||||||
2018-2020 Perf. Shares
|
| 37,322
|
|
| 1,065,170
|
| ||||||||||||||||||||||||||
Donovan | ||||||||||||||||||||||||||||||||
2014 Restricted Stock |
| 56,673 |
|
| 1,617,447 |
|
| — |
|
| — |
| ||||||||||||||||||||
2015 Restricted Stock |
| 29,542 |
|
| 843,129 |
|
| — |
|
| — |
| ||||||||||||||||||||
2017-2019 Perf. Shares |
| — |
|
| — |
|
| 113,119 |
|
| 3,228,416 |
| ||||||||||||||||||||
2017-2019 Perf. Shares
|
| —
|
|
| —
|
|
| 38,085
|
|
| 1,086,946
|
| ||||||||||||||||||||
2018-2020 Perf. Shares |
| 196,070 |
|
| 5,595,838 |
| ||||||||||||||||||||||||||
McAtee | ||||||||||||||||||||||||||||||||
2014 Restricted Stock Units |
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||||||||||||
2015 Restricted Stock Units |
| 8,343 |
|
| 238,109 |
|
| — |
|
| — |
| ||||||||||||||||||||
2015 Restricted Stock Units
|
| 21,996
|
|
| 627,766
|
|
| —
|
|
| —
|
| ||||||||||||||||||||
2016 Restricted Stock Units |
| 45,736 |
|
| 1,305,305 |
|
| — |
|
| — |
| ||||||||||||||||||||
2017 Restricted Stock Units |
| 22,145 |
|
| 632,018 |
|
| — |
|
| — |
| ||||||||||||||||||||
2018 Restricted Stock Units |
| 26,813 |
|
| 765,243 |
| ||||||||||||||||||||||||||
2018 Restricted Stock Units |
| 6,319 |
|
| 180,344 |
| ||||||||||||||||||||||||||
2017-2019 Perf. Shares |
| — |
|
| — |
|
| 59,792 |
|
| 1,706,464 |
| ||||||||||||||||||||
2018-2020 Perf. Shares |
| — |
|
| — |
|
| 72,395 |
|
| 2,066,153 |
| ||||||||||||||||||||
2018-2020 Perf. Shares |
| 17,061 |
|
| 486,921 |
| ||||||||||||||||||||||||||
Stankey |
| 2,073 |
|
| — |
|
| 23.22 |
|
| 2/17/19 |
| ||||||||||||||||||||
| 1,675 |
|
| — |
|
| 24.63 |
|
| 6/15/19 |
| |||||||||||||||||||||
| 2,366 |
|
| — |
|
| 25.32 |
|
| 2/16/20 |
| |||||||||||||||||||||
| 1,658 |
|
| — |
|
| 25.54 |
|
| 6/15/20 |
| |||||||||||||||||||||
| 2,326 |
|
| — |
|
| 28.24 |
|
| 2/15/21 |
| |||||||||||||||||||||
2017-2019 Perf. Shares |
| — |
|
| — |
|
| 113,119 |
|
| 3,228,416 |
| ||||||||||||||||||||
2018-2020 Perf. Shares |
| — |
|
| — |
|
| 124,968 |
|
| 3,566,587 |
| ||||||||||||||||||||
2018-2020 Perf. Shares
|
| —
|
|
| —
|
|
| 2,666
|
|
| 76,088
|
| ||||||||||||||||||||
| 66 | |
EXECUTIVE COMPENSATION TABLES
Note 1.
Stock options were granted based upon the amount of stock purchased bymid-level and above managers under the Stock Purchase and Deferral Plan, described on page 74. Stock options are not currently offered under the plan. Options were vested at issuance but were not exercisable until the earlier of the first anniversary of the grant or the termination of employment of the option holder. Options expire ten years after the grant date; however, option terms may be shortened due to termination of employment of the holder.
Note 2.
Mr. Donovan’s 2014 and 2015 Restricted Stock grants vest in 2019 and 2020, respectively.
Note 3.
Performance Shares are paid after the end of the performance period shown for each award. The actual number of shares paid out is dependent upon the achievement of the related performance objectives and approval of the Committee. In this column, we report
the number of outstanding Performance Shares and their theoretical value based on the price of AT&T stock on December 31, 2018. In calculating the number of Performance Shares and their value, we are required by SEC rules to compare the Company’s performance through 2018 for each outstanding Performance Share grant against the threshold, target, and maximum performance levels for the grant and report in this column the applicable potential payout amount. If the performance is between levels, we are required to report the potential payout at the next highest level. For example, if the previous fiscal year’s performance exceeded target, even if it is by a small amount and even if it is highly unlikely that we will pay the maximum amount, we are required by SEC rules to report the awards using the maximum potential payouts. The performance measure for the 2017 and 2018 grants is ROIC with a payout adjustment for relative TSR achievement. As of the end of 2018, the ROIC achievement for each of the 2017 and 2018 grants was at target while the TSR performance was in the bottom quartile of the peer group. As a result, the grants were reported at the target for ROIC reduced for TSR performance.
OPTION EXERCISESAND STOCK VESTED DURING 2018
Option Awards | Stock Awards (1) | |||||||||||||||||||
Name | | Number of Shares Acquired on Exercise (#) |
| | Value Realized on Exercise ($) |
| | Number of Shares Acquired on Vesting (#) |
| | Value Realized on Vesting ($) | |||||||||
Stephenson |
| 0 |
|
| 0 |
|
| 282,604 |
| 9,558,204 | ||||||||||
Stephens |
| 0 |
|
| 0 |
|
| 115,187 |
| 3,913,156 |
| |||||||||
Donovan |
| 0 |
|
| 0 |
|
| 117,539 |
| 4,194,049 |
| |||||||||
McAtee |
| 0 |
|
| 0 |
|
| 42,630 |
| 1,339,557 |
| |||||||||
Stankey |
| 2,307 |
|
| 4,910 |
|
| 107,966 |
| 3,668,748 |
| |||||||||
Note 1.
Included in the above amounts are Restricted Stock Units that vested in 2018. Restricted Stock Units vest at the earlier of the scheduled vesting date or upon the employee becoming retirement eligible. If the units vest because of retirement eligibility, they are not distributed until the scheduled vesting date.
Restricted Stock Units granted in 2018 to the following NEOs vested at grant because of their retirement eligibility but will not be distributed until 2022: Mr. Stephenson—116,828, Mr. Stephens—60,107, Mr. Donovan—72,619, and Mr. Stankey—47,271. Mr. McAtee is not retirement eligible and his 2014 Restricted Stock Units (7,871) vested and were distributed on the scheduled distribution date in 2018.
| 67 |
EXECUTIVE COMPENSATION TABLES
PENSION BENEFITS (ESTIMATEDFOR DECEMBER 31, 2018)
| Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefits (1) ($) | Payments During Last Fiscal Year ($) | |||||||||||||||||||||||
Stephenson | Pension Benefit Plan—Nonbargained Program | 36 | 1,797,231 | 0 | |||||||||||||||||||||||
Pension Benefit Make Up Plan | 15 | 6,671 | 0 | ||||||||||||||||||||||||
SRIP | 22 | 2,416,985 | 0 | ||||||||||||||||||||||||
SERP | 30 | 56,303,088 | 0 | ||||||||||||||||||||||||
Stephens | Pension Benefit Plan—Nonbargained Program | 26 | 1,441,770 | 0 | |||||||||||||||||||||||
Pension Benefit Make Up Plan | 8 | 60,536 | 0 | ||||||||||||||||||||||||
SRIP | 12 | 425,232 | 0 | ||||||||||||||||||||||||
SERP | 26 | 20,396,786 | 0 | ||||||||||||||||||||||||
Donovan | Pension Benefit Plan—MCB Program | 9 | 163,540 | 0 | |||||||||||||||||||||||
SERP | 10 | 13,857,440 | 0 | ||||||||||||||||||||||||
McAtee | Pension Benefit Plan—MCB Program | 6 | 80,041 | 0 | |||||||||||||||||||||||
Pension Benefit Make Up Plan | 6 | 401,457 | 0 | ||||||||||||||||||||||||
Stankey | Pension Benefit Plan—Nonbargained Program | 33 | 1,811,692 | 0 | |||||||||||||||||||||||
SRIP | 19 | 438,355 | 0 | ||||||||||||||||||||||||
SERP | 33 | 27,327,212 | 0 | ||||||||||||||||||||||||
Note 1.
Pension benefits reflected in the above table were determined using the methodology and material assumptions set forth in the 2018 AT&T Annual Report to Stockholders in Note 14 to Consolidated Financial Statements, “Pension and Postretirement Benefits,” except that, as required by SEC regulations, the assumed retirement age is the specified normal retirement age in the plan unless the plan provides a younger age at which benefits may be received without a discount based on age, in which case the younger age is used. For the Nonbargained Program under the AT&T Pension Benefit Plan and the Pension Benefit Make Up Plan, the assumed retirement age is the date a participant is at least age 55 and meets the “modified
rule of 75,” which requires certain combinations of age and service that total at least 75. For the Management Cash Balance Program under the AT&T Pension Benefit Plan, the assumed retirement age for the cash balance formula is age 65. For the AT&T SRIP and its successor, the 2005 SERP, the assumed retirement age is the earlier of the date the participant reaches age 60 or has 30 years of service (the age at which an employee may retire without discounts for age).
The SRIP/SERP benefits are reduced for benefits available under the qualified plans and by a specified amount that approximates benefits available under other nonqualified plans included in the table.
| 68 | |
EXECUTIVE COMPENSATION TABLES
QUALIFIED PENSION PLAN
We offer post-retirement benefits, in various forms, to nearly all our managers. The AT&T Pension Benefit Plan, a “qualified pension plan” under the Internal Revenue Code, covers nearly all of our employees hired before 2015, including each of the Named Executive Officers.NEOs. The applicable benefit accrual formula depends on the subsidiaries that have employed the participant. DIRECTVEffective January 1, 2015, no new management employees are covered byeligible for a separate plan, which is not included in the description below.pension. However, they do receive an enhanced 401(k) benefit.
Nonbargained Program
Each of the Named Executive Officers, except for Mr. de la VegaStephenson, Mr. Stephens, and Mr. Donovan, isStankey are covered by the Nonbargained Program of the AT&T Pension Benefit Plan, which is offered to most of ourpre-2007 management employees. Participants in the Nonbargained Program receive the greater of the benefit determined under the Career Average Minimum (CAM) formula or the cash balance formula, each of which is described below. Eligible managers employed by AT&T Corp. or BellSouth prior to January 1, 2007, or AT&T Mobility prior to January 1, 2006, are covered by cash balance formulas determined under their legacy pension programs, and after those dates, by an age graded cash balance formula under the Management Cash Balance Program of the AT&T Pension Benefit Plan. Generally, managers hired or rehired on or after January 1, 2015, are not eligible for a pension under the plan but are eligible for an enhanced company match in the 401(k) plan.
CAM Formula
EachFor each of the Named Executive Officers, except for Mr. de la VegaStephenson, Mr. Stephens, and Mr. Donovan, are covered byStankey the greater benefit comes from the CAM formula.formula, which is reported in the Pension Benefits table. The CAM formula provides an annual benefit equal to 1.6% of the participant’s average pension-eligible compensation (generally, base pay, commissions, and annual bonuses, but not officer bonuses paid to individuals promoted to officer level before January 1, 2009) for the five years ended December 31, 1999, multiplied by the number of years of service through the end of the December 31, 1999, averaging period, plus 1.6% of the participant’s pension-eligible compensation thereafter. Employees who meet the “modified rule of 75” and are at least age 55 are eligible to retire without age or service discounts. The “modified rule of 75” establishes retirement eligibility when certain combinations of age and service total at least 75.
Cash Balance Formula
The cash balance formula was frozen, except for interest credits, on January 14, 2005. The cash balance formula provided an accrual equal to 5% of pension-eligible compensation plus monthly interest credits on the participant’s cash balance account. The interest rate is reset quarterly and is
|
equal to the published average annual yield for the30-year Treasury Bond as of the middle month of the preceding quarter. The planprogram permits participants to take the benefit in various actuarially equivalent forms, including various forms of life annuities or, for participants terminating on or after May 25, 2018 and receiving their benefit on or after June 1, 2018, this program permits participants to take the benefit in a regular annuity or, to a limited extent, afull lump sum calculated as the present value of the annuity.
MobilityManagement Cash Balance Program
Mr. de la Vega isDonovan and Mr. McAtee are covered by the Mobility Program, which is also part of the tax-qualified AT&T Pension Benefit Plan. This program covers employees of AT&T Mobility that were hired prior to 2006. The Mobility Program is the qualified pension plan previously offered by AT&T Mobility that was merged into the AT&T Pension Benefit Plan. Participants in the Mobility Program are generally entitled to receive a cash balance benefit equal to the monthly basic benefit credits of 5% of the participant’s pension-eligible compensation (generally, base pay, commissions, and group incentive awards, but not individual awards) plus monthly interest credits on the participant’s cash balance account. The interest rate for cash balance credits is reset quarterly and is equal to the published average annual yield for the 30-year Treasury Bond as of the middle month of the preceding quarter. The plan permits participants to take the benefit in various actuarially equivalent forms, including an annuity or a lump sum calculated as the greater of the cash balance account balance, or the present value of the grandfathered pension benefit annuity.
Management Cash Balance Program
Mr. Donovan is covered by the Management Cash Balance (MCB) Program of the AT&T Pension Benefit Plan, which is offered to our management employees hired on or after January 1, 2007 (January 1, 2006 for AT&T Mobility). This program was closed to new hires or rehires on or after and before January 1, 2015. After completing one year of service, participants in the MCB Program are entitled to receive a cash balance benefit equal to the monthly credit of an age graded basic credit formula ranging from 1.75% to 4% of the participant’s pension-eligible compensation and a 2% supplemental credit for eligible compensation in excess of Social Security Wage Base plus monthly interest credit at an effective annual rate of 4.5% to the participant’s cash balance account. This program permits participants to take the benefit in various actuarially equivalent forms, including an annuity or a lump sum.
Nonqualified Pension Plans
| 69 |
EXECUTIVE COMPENSATION TABLES
NONQUALIFIED PENSION PLANS
To the extent the Internal Revenue Code places limits on the amounts that may be earned under a qualified pension plan, managers instead receive these amounts under the nonqualified Pension Benefit Make Up Plan but only for periods prior to the person becoming a participant in the SRIP/SERP, described below. The Pension Benefit Make Up Plan benefit is paid in the form of a10-year annuity or in a lump sum if the present value of the annuity is less than $50,000.
In addition, we offer our executive officersExecutive Officers and other officers (who became officers prior to 2005) supplemental retirement benefits under the Supplemental Retirement Income Plan (SRIP) and, for those serving as officers between 2005-2008, its successor, the 2005 Supplemental Employee Retirement Plan (SERP,), as additional retention tools. As a result of changes in the tax laws, beginning December 31, 2004, participants ceased accruing benefits under the SRIP, the original supplemental plan. After December 31, 2004, benefits are earned under the SERP. Participants make separate distribution elections (annuity or lump sum) for benefits earned and vested before 2005 (under the SRIP) and for benefits accrued during and after 2005 (under the SERP). Elections for the portion of the pension that accrued in and after 2005, however, must have been made when the officer first
|
participated in the SERP. Vesting in the SERP requires five years of service (including four years of participation in the SERP). Each of the Named Executive Officerseligible NEOs is vested in the SERP. Regardless of the payment form, no benefits under the SERP are payable until six months after termination of employment. An officer’s benefits under these nonqualified pension plans are reduced by: (1) benefits due under qualified AT&T pension plans and (2) a specific amount that approximates the value of the officer’s benefit under other nonqualified pension plans, determined generally as of December 31, 2008.These supplemental benefits are neither funded by nor are a part of the qualified pension plan.
Each of the Named Executive OfficersNEOs, except for Mr. McAtee, is eligible to receive theseSRIP/SERP benefits.However, the Committee Since January 1, 2009, no new officer has determined to no longer allow new officersbeen permitted to participate in these supplemental retirement benefits, but may do so if it deems it necessary to attract or retain key talent or for other appropriate business reasons.the SERP.
Calculation of Benefit
Under the SRIP/SERP, the target annual retirement benefit is stated as a percentage of a participant’s annual salary and annual incentive bonus averaged over a specified period described below. The percentage is increased by 0.715% for each year of actual service in excess of, or decreased by 1.43% (0.715% formid-career hires) for each year of actual service below, 30 years of service. In the event the participant retires before reaching age 60, a discount of 0.5% for each month remaining until the participant attains age 60 is applied to reduce the amount payable under this plan, except
for officers who have 30 years or more of service at the time of retirement. Of the Named Executive OfficersNEOs currently employed by the Company, only Messrs.Mr. Stephenson de la Vega, and Mr. Stankey are eligible to retire without either an age or service discount under this plan. These benefits are also reduced by any amounts participants receive under AT&T qualified pension plans and by a frozen, specific amount that approximates the amount they receive under our other nonqualified pension plans, calculated as if the benefits under these plans were paid in the form of an immediate annuity for life.
For all but Mr. Stephenson and Mr. de la Vega (see below), theThe salary and bonus used to determine theirthe SRIP/SERP benefit amount is the average of the participant’s salary and actual annual incentive bonuses earned during the36-consecutive-month period that results in the highest average earnings that occurs during the 120 months preceding retirement. In some cases, the Committee may require the use of the target bonus, or a portion of the actual or target bonus, if it believes the actual bonus is not appropriate. Effective September 1, 2017, for Mr. Donovan and effective June 16, 2018, for Messrs. Stephens and Stankey, the annual earnings used in the SERP’s “highest average earnings” is fixed at $3.0 million.
The target annual retirement percentage for the Chief Executive Officer is 60%, and for other Named Executive OfficersNEOs the target percentage ranges from 50% to 60%. Beginning in 2006, the target percentage was limited to 50% for all new participants (see note above on limiting new participants after 2008). If a benefit payment under the plan is delayed by the Company to comply with Federal tax rules,law, the delayed amounts will earn interest at the rate the Company uses to accrue the present value of the liability, and the interest will be included in the appropriate column(s) in the “Pension Benefits” table.
Mr. Stephenson’s Benefit
Mr. Stephenson’s SERP benefit was modified in 2010. For purposes of calculating his SERP benefit, the Company froze his compensation as of June 30, 2010. He stopped accruing age and service credits as of December 31, 2012, at which time his benefit was determined as a lump sum amount, which thereafter earns interest. The discount rate for calculating the lump sum as well as the interest crediting rate is 5.8%.
Mr. de la Vega’s Benefit
In 2008, participants in the SERP nonqualified pension plan made elections to take their distributions either as an annuity or as a lump sum. In 2014, the Company permitted certain officers who had elected the lump sum option to freeze their benefit as if they had retired at the end of 2014. In
|
|
EXECUTIVE COMPENSATION TABLES
exchange, the electing officers gave up credits under the plan for all future compensation, service, and if applicable, age. The frozen benefit will earn a fixed rate of interest equal to 4.3% which represents the discount rate used to determine lump sum benefits for participants who retired in 2014. This change will, for the electing officers, eliminate the impact of fluctuations in the interest rate used to calculate the value of their lump sum benefit. Of the Named Executive Officers, Mr. de la Vega elected this option, effective December 30, 2014.
While Mr. de la Vega participates in the AT&T SERP, he is also a participant in the BellSouth SERP, which acts as an offset to his AT&T SERP benefit. Because his BellSouth SERP benefit will never exceed the AT&T SERP benefit, his total benefit is determined using the AT&T SERP calculation. Mr. de la Vega’s SERP benefit was also reduced for distribution from the Southeast Program of the AT&T Pension Benefit Plan when he transferred to AT&T Mobility in 2003 (then known as Cingular) and began accruing benefits under what is now the Mobility Program.
In addition, the BellSouth SERP also provides a lump sum death benefit payable to the participant’s beneficiaries equal to his annual base pay rate as of December 31, 2005, plus two times his standard target bonus as of December 31, 2005. As a result, Mr. de la Vega’s death benefit will be paid in the amount of $1.86 million.
Forms of Payment
Annuity
Participants may receive benefits as an annuity payable for the greater of the life of the participant or ten years. If the participant dies within ten years after leaving the Company, then payments for the balance of the ten years will be paid to the participant’s beneficiary. Alternatively, the participant may elect to have the annuity payable for life with 100% or 50% payable upon his or her death to his or her beneficiary for the beneficiary’s life. The amounts paid under each alternative (and the lump sum alternative described below) are actuarially equivalent. As noted above, separate distribution elections are made forpre-2005 benefits and 2005 and later benefits.
Lump Sum
Participants may elect that upon retirement at age 55 or later to receive the actuarially determined net present value of the benefit as a lump sum, rather than in the form of an annuity. To determine the net present value, we use the discount rate used for determining the projected benefit obligation at December 31 of the second calendar year prior to the year of retirement. Participants may also elect to take all or part of the net present value over a fixed period of years elected by the participant, not to exceed 20 years, earning interest at the same discount rate. A participant is not permitted to receive more than 30% of the net present value of the benefit before the third anniversary of the termination of employment, unless he or she is at least 60 years old at termination, in which case the participant may receive 100% of the net present value of the benefit as early as six months after the termination of employment. Eligible participants electing to receive more than 30% of the net present value of the benefit within 36 months of their termination must enter into a written noncompetition agreement with us and agree to forfeit and repay the lump sum if they breach that agreement.
Other Post-Retirement Benefits
Named Executive OfficersOTHER POST-RETIREMENT BENEFITS
The NEOs who retire after age 55 with at least five years of service or who are retirement eligible under the “modified rule of 75” continue to receive the benefits shown in the following table after retirement, except that of the NEOs, only Mr. Stephenson is entitled to receive supplementalexecutive health benefitscoverage after retirement. Benefits that are available generally to managers are omitted from the table. All Named Executive Officersthe NEOs except for Mr. McAtee are currently retirement eligible.
|
Financial counseling benefits will be made available to the executive officersExecutive Officers for 36 months following retirement. We do not reimburse taxes on personal benefits for executive officers,Executive Officers, other than certainnon-deductible relocation costs, which along with the tax reimbursement, we make available to nearly all management employees. The supplementalThrough December 31, 2017,
the executive health benefit is in addition tocoverage supplemented the group health planplan. Effective January 1, 2018, the executive health coverage is the primary and sole health coverage for eligible participants. The coverage is provided to Mr. Stephenson for lifepost-employment based on eligibility provisions that existed before he became CEO. During their employment, officers are subject to an annual deductible on health benefits,co-insurance, and must pay a portion of the premium. Officers who are eligible to receive the supplemental benefitexecutive health coverage in retirement have no annual deductible orco-insurance, but they must pay larger premiums. In addition, we also provide communications, broadband/TV and related services and products; however, to the extent the service is provided by AT&T, it is typically provided at little or no incremental cost. These benefits are subject to amendment.
OTHER POST-RETIREMENT BENEFITS
| Personal Benefit | Estimated Amount (valued at our incremental cost) | |
Financial counseling | Maximum of $14,000 per year for 36 months | |
| Financial counseling provided in connection with retirement | ||
Estate planning | ||
Communication benefits | Average of | |
(Mr. Stephenson only) |
| 71 |
EXECUTIVE COMPENSATION TABLES
In the event of the officer’s termination of employment due to death, the officer’s unvested restricted stock unitsRestricted Stock Units and restricted stock,Restricted Stock, if any, will vest, and outstanding performance sharesPerformance Shares will pay out at 100% of target. As a result, if a Named Executive Officeran NEO had died at the end of 2015,2018, the amounts of performance shares, restricted stock units,Performance Shares, Restricted Stock Units, and/or restricted stock,Restricted Stock, as applicable, that would have vested and been distributed are: Mr. Stephenson—$15,179,868,18,560,732, Mr. Stephens��Stephens—$4,707,839, Mr. de la Vega—$7,444,156,8,733,525, Mr. Donovan—$6,627,504,13,473,049, Mr. McAtee—$8,481,603 and Mr. Stankey—$5,449,374.7,634,536.
In the event of termination of employment due to disability, unvested restricted stock unitsRestricted Stock Units and restricted stock,Restricted Stock, if any, will vest; however, restricted stock unitsRestricted Stock Units will not pay out until their scheduled vesting distribution times. As a result, if such an event had occurred to a Named Executive Officeran NEO at the end of 2015, the following amounts of restricted stock2018, Mr. Donovan’s Restricted Stock ($2,460,576) and Mr. McAtee’s Restricted Stock Units ($3,748,786) would have vested: Mr. de la Vega—$1,994,782 and Mr. Donovan—$2,966,658.vested. Conversely, performance sharesPerformance Shares will not be accelerated in the event of a termination due to disability but will be paid without proration, based solely based on the achievement of the pre-determined performance goals.
We pay recoverable premiums on split-dollar life insurance that provides a specified death benefit to beneficiaries of each Named Executive Officer.NEO. The benefit is equal to one times salary during his or herthe officer’s employment, except for the Chief Executive OfficerCEO who receives two times salary. After retirement, for officers who first participated
beginning in 1998, the death benefit remains one times salary until he or she reaches age 66; the benefit is then reduced by 10% each year until age 70, when the benefit becomesone-half of his or her final salary. For officers who participated prior to 1998, including Messrs. Stephenson and Stephens, the post-retirement death benefit is one times salary. In addition, managers who were officers prior to 1998 are entitled to additional one times salary death benefit while employed and during retirement.
In addition to the foregoing, Mr. Stephenson, Mr. Stephens, Mr. Donovan, and Mr. Stankeyeach of the NEOs purchased optional additional split-dollar life insurance coverage equal to two times salary, which is subsidized by the Company. If the policies are not fully funded upon the retirement of the officer, we continue to pay our portion of the premiums until they are fully funded.
|
The officer’s premium obligation ends at age 65.
Mr. Stephens elected to take his death benefits in the form of a ten-year Company-paid annuity payable after death, using an 11% discount rate based on 185% of the value of the death benefits. The increase in the value of the death benefits is to offset the income taxes that will result from the Company-paid benefit that would not be applicable in the case of insurance payments. This alternative payment method was available only to officers who elected the annuity before 1998. If Mr. Stephens had passed away at the end of 2015,2018, his annual death benefit for ten years would have been $1,053,292.$1,398,839.
Basic death benefits payable to Mr. de la Vega under the AT&T plan are reduced by $900,000, which represents the sum of death benefits provided by (1) a BellSouth policy with a face amount of $400,000 that was transferred to Mr. de la Vega in 2007, and (2) two BellSouth policies with a combined face amount of $500,000 owned by Mr. de la Vega. Under the latter policies, the Company and Mr. de la Vega shared the payment of premiums (the final payments were made in 2013), and the policies provide either a death benefit to Mr. de la Vega’s beneficiary(ies) or an accumulated cash value available to Mr. de la Vega. The Company does not recover any of its premium payments under Mr. de la Vega’s policies. Currently, the $900,000 of coverage from BellSouth policies completely offsets any basic death benefit provided by the AT&T plan.
We also provide death benefits in connection with Mr. de la Vega’s BellSouth SERP (described on page 69).
| Nonqualified Deferred Compensation | ||||||||||||||||||||||
| Name | Plan (1) | Executive in Last FY (2) ($) | Registrant in Last FY (2) ($) | Aggregate Last FY (2)(3) ($) | Aggregate Distributions ($) | Aggregate Last FYE (2) ($) | ||||||||||||||||
Stephenson | Stock Purchase and Deferral Plan | 521,875 | 175,155 | 489,632 | 924,800 | 6,739,991 | ||||||||||||||||
Cash Deferral Plan | 5,002,292 | — | 848,475 | — | 20,911,710 | |||||||||||||||||
Stephens | Stock Purchase and Deferral Plan | 1,604,063 | 348,143 | 105,912 | 2,180,189 | 2,269,426 | ||||||||||||||||
de la Vega | Stock Purchase and Deferral Plan | 1,635,375 | 363,123 | 568,029 | 641,241 | 8,506,608 | ||||||||||||||||
| Cash Deferral Plan | 469,375 | — | 227,510 | 89,871 | 5,541,359 | |||||||||||||||||
| BellSouth Nonqualified Deferred Income Plan | — | — | 59,210 | 33,685 | 413,915 | |||||||||||||||||
| AT&T Mobility Cash Deferral Plan | — | — | 32,516 | — | 773,188 | |||||||||||||||||
| AT&T Mobility 2005 Cash Deferral Plan | — | — | 420,700 | — | 10,003,842 | |||||||||||||||||
Donovan | Stock Purchase and Deferral Plan | 241,250 | 74,130 | 13,103 | 277,232 | 326,548 | ||||||||||||||||
| Cash Deferral Plan | 855,000 | — | 122,119 | — | 2,986,442 | |||||||||||||||||
Stankey | Stock Purchase and Deferral Plan | 56,450 | 43,730 | 125,427 | 224,272 | 1,688,109 | ||||||||||||||||
| Cash Deferral Plan | — | — | 9,911 | 131,758 | 206,273 | |||||||||||||||||
|
EXECUTIVE COMPENSATION TABLES
NONQUALIFIED DEFERRED COMPENSATION
| Name | Plan (1) | Executive Contributions in Last FY (2) ($) | | Registrant Contributions in Last FY (2) ($) |
| | Aggregate Earnings in Last FY (2)(3) ($) |
| | Aggregate Withdrawals/ Distributions ($) |
| | Aggregate Balance at Last FYE (2) ($) | |||||||
Stephenson |
Stock Purchase and Deferral Plan
|
5,584,500
|
|
1,190,100
|
|
|
(3,041,236)
|
|
|
6,785,671
|
|
|
11,491,345
|
| ||||||
Cash Deferral Plan
|
900,000
|
|
—
|
|
|
613,007
|
|
|
7,163,963
|
|
|
15,031,614
|
| |||||||
Stephens |
Stock Purchase and Deferral Plan
|
1,952,000
|
|
429,600
|
|
|
(538,956)
|
|
|
2,341,411
|
|
|
2,232,179
|
| ||||||
Donovan |
Stock Purchase and Deferral Plan
|
352,500
|
|
113,700
|
|
|
(63,581)
|
|
|
402,547
|
|
|
416,937
|
| ||||||
Cash Deferral Plan
|
1,375,500
|
|
—
|
|
|
234,522
|
|
|
—
|
|
|
6,331,583
|
| |||||||
McAtee |
Stock Purchase and Deferral Plan
|
493,438
|
|
135,388
|
|
|
(112,688)
|
|
|
544,345
|
|
|
535,499
|
| ||||||
Stankey |
Stock Purchase and Deferral Plan
|
118,750
|
|
105,550
|
|
|
(350,287)
|
|
|
105,888
|
|
|
1,358,666
|
| ||||||
Cash Deferral Plan
|
—
|
|
—
|
|
|
8,918
|
|
|
—
|
|
|
233,100
|
|
Note 1.
Amounts attributed to the Stock Purchase and Deferral Plan or to the Cash Deferral Plan also include amounts from their predecessor plans. No further contributions are permitted under the predecessor plans.
Note 2.
Of the amounts reported in the contributions and earnings columns and also included in the aggregate balance column in the table above, the following amounts are reported as compensation for 2018 in the “Summary Compensation Table”: Mr. Stephenson—$2,761,243, Mr. Stephens—$757,100, Mr. Donovan—$516,411, Mr. McAtee—$291,325, and Mr. Stankey— $226,210. Of the amounts reported in the aggregate balance column, the following aggregate amounts were previously reported in the “Summary Compensation Table” for 2017 and 2016, combined: Mr. Stephenson—$7,474,620, Mr. Stephens—$1,624,500, Mr. Donovan—$2,656,808, Mr. McAtee—$337,500, and Mr. Stankey—$6,456.
Note 3.
Aggregate Earnings include interest, dividend equivalents, and stock price appreciation/depreciation. The “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the “Summary Compensation Table” includes only the interest that exceeds the SEC market rate, as shown in footnote 3 to the “Summary Compensation Table”.
| 73 |
EXECUTIVE COMPENSATION TABLES
Stock Purchase and Deferral Plan
STOCK PURCHASEAND DEFERRAL PLAN (SPDP)
Under the SPDP and its predecessor plan,mid-level managers and above may annually elect to defer up to 30% of their salary and annual bonus. Officers, including the Named Executive Officers,NEOs, may defer up to 95% of their short-term award, which is similar to, and paid in lieu of, the annual bonus paid to other management employees. In addition, the Committee may approve other contributions to the plan. These contributionsContributions are made through payroll deductions and are used to purchase AT&T deferred share units (each representing the right to receive a share of AT&T stock) at fair market value on atax-deferred basis. Participants receive a 20% match in the form of additional deferred share units; however, with respect to short-term awards, officer level participants receive the 20% match only on the purchase of deferred share units that represent no more than their target awards. In addition, the Company provides “makeup” matching contributions in the form of additional deferred share units in order to generally offset the loss of match in the 401(k) plan caused by participation in the SPDP and the CDP, and to provide match on compensation that exceeds Federal compensation limits for 401(k) plans. The makeup match is an 80% match on contributions from the first 6% of salary and bonus (the same rate as used in the Company’s principal 401(k) plan),reduced by the amount of matching contributions the employee is eligible to receive (regardless of actual participation) in the Company’s 401(k) plan. (For managers hired after January 1, 2015, the 401(k) match and SPDP makeup match is 100% on contributions from the first 6% of salary.) Officer level employees do not receive a makeup match on the contribution of their short-term awards. Deferrals are distributed in AT&T stock at times elected by the participant. For salary deferrals prior to 2011 and bonus deferrals prior to 2012, in lieu of the 20% match, participants received two stock options for each deferred share unit acquired. Each stock option had an exercise price equal to the fair market value of the stock on the date of grant.
Cash Deferral Plan (CDP)
Managers who defer at least 6% of salary in the SPDP may also defer up to 50% (25% in the case of mid-level managers) of salary into the CDP. Similarly, managers that defer 6% of bonuses in the SPDP may also defer bonuses in the CDP, subject to the same deferral limits as for salary; however, officer level managers may defer up to 95% of their short-term award into the CDP without a corresponding SPDP deferral. In addition, the Committee may approve other contributions to the plan. We pay interest at the Moody’s Long-Term Corporate Bond Yield Average for the preceding September (theMoody’s rate), a common index used by companies. Pursuant to the rules of the SEC, we include in the “Summary Compensation Table” under “Change in Pension Value and Nonqualified Deferred Compensation Earnings” any earnings on deferred compensation that exceed a rate determined in accordance with SEC rules. Deferrals are distributed at times elected by the participant. Similarly, under its predecessor plan, managers could defer salary and incentive compensation to be paid at times selected by the participant. No deferrals were permitted under the prior plan after 2004. Account balances in the prior plan are credited with interest at a rate determined annually by the Company, which will be no less than the prior September Moody’s rate.
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EXECUTIVE COMPENSATION TABLES
Other Nonqualified Deferred Compensation Plans
Certain of the Named Executive Officers also participated in deferred compensation plans that are now closed to additional contributions and are described below.
AT&T Mobility Cash Deferral Plan
Mr. de la Vega has a balance in the AT&T Mobility Cash Deferral Plan, a nonqualified executive deferred compensation plan. The plan permitted officers and senior managers to defer between 6% and 50% of their base pay and between 6% and 75% of their annual bonus and long-term compensation awards into the plan. The Company provided a match equal to 80% of 6% of the salary and annual bonus deferred by the participant. The plan also provided an additional match when a participant’s salary and annual bonus exceeded Internal Revenue Code qualified plan limits. Benefits under the plan are unfunded. Account balances earn interest at a rate that is reset each calendar year based on the Moody’s rate for the prior September. Distributions occur according to employee elections. AT&T Mobility adopted a successor plan, known as the AT&T Mobility 2005 Cash Deferral Plan, having substantially the same terms as the original plan except with respect to the timing of deferral and distribution elections. No new deferrals were permitted after 2008.
BellSouth Nonqualified Deferred Income Plan
Mr. de la Vega also made contributions from his BellSouth compensation to this nonqualified deferred compensation plan. Under Schedule A of the plan, senior managers were permitted to make up to two annual deferrals of up to 25% of their salary and bonus. Beginning with the 7th year after the deferral, the plan returned the original deferral to the participant in one to three annual installments, depending on the year of the deferral. Mr. de la Vega’s deferrals under Schedule A receive fixed rates of 17.0% and 17.5% for his 1991 and 1993 deferrals, respectively. The balance is paid in 15 annual installments beginning at age 65. Under Schedule B, participants were able to defer up to 10% of their salary and bonus; distributions are made at the election of the participant. Mr. de la Vega’s deferrals under Schedule B receive fixed rates of 11.0% for his 1994 deferral and 10% for his 1995 deferral. No new deferrals were permitted under this plan after 1998.
AT&T Severance PolicySEVERANCE POLICY
The AT&T Severance Policy generally limits severance payments for executive officersExecutive Officers to 2.99 times salary and bonus. Under the AT&T Severance Policy, the Company will not provide severance benefits to an executive officerExecutive Officer that exceed 2.99 times the officer’s annual base
salary, plus target bonus, unless the excess payment receives prior stockholder approval or is ratified by stockholders at a regularly scheduled annual meeting within the following 15 months.
Potential Payments Upon
POTENTIAL PAYMENTS UPON CHANGEIN CONTROL
Change in Control
Change in Control
An acquisition in our industry can take a year or more to complete, and during that time it is critical that the Company have continuity of its leadership. If we are in the process of being acquired, our officers may have concerns about their employment with the new company. Our Change in Control Severance Plan offers benefits so that our officers may focus on the Company’s business without the
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distraction of searching for new employment. The Change in Control Severance Plan covers our officers, including each of the Named Executive Officers. Amounts under this plan payable to Mr. de la Vega would be offset by any payments Mr. de la Vega would receive under his agreement described on pages 65-66, providing for the payment of benefits upon his termination of employment.NEOs.
Description of Change in Control Severance Plan
The Change in Control Severance Plan provides an officer who is terminated or otherwise leaves our Company for “good reason” after a change in control a payment equal to 2.99 times the sum of the executive’s most recent salary and target bonus. The Company is not responsible for the payment of excise taxes (or taxes on such payments). In 2014, the Company eliminated health, life insurance and financial counseling benefits from the plan.
“Good reason” means, in general, assignment of duties inconsistent with the executive’s title or status; a substantial adverse change in the nature or status of the executive’s responsibilities; a reduction in pay; or failure to pay compensation or continue benefits. For the CEO, we eliminated a provision that defined “good reason” to include a good faith determination by the executive within 90 days of the change in control that he or she is not able to discharge his or her duties effectively.
Under the plan, a change in control occurs if:occurs: (a) if anyone (other than one of our employee benefit plans) acquires more than 20% of AT&T’s common stock, (b) if within a
two-year period, the Directors at the beginning of the period (together with any new Directors elected or nominated for election by atwo-thirds majority of Directors then in office who were Directors at the beginning of the period or whose election or nomination for election was previously so approved) cease to constitute a majority of the Board, (c) upon consummation of a merger where AT&T Inc. is one of the merging entities and where persons other than the AT&T stockholders immediately before the merger hold more than 50% of the voting power of the surviving entity, or (d) upon our stockholders’ approval of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets.
If a change in control and a subsequent termination of employment of the Named Executive OfficersNEOs had occurred at the end of 20152018 in accordance with the Change in Control Severance Plan, the following estimated severance payments would have been paid in a lump sum:sum.
POTENTIAL CHANGEIN CONTROL SEVERANCE PAYMENTS
ASOF DECEMBER 31, 2018
| Name | Severance ($) | |||
Stephenson | 23,023,000 | |||
Stephens | | 10,355,900 | ||
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Donovan | | 11,735,750 | ||
McAtee | 9,493,250 | |||
Stankey | | 23,533,791 |
None of the Named Executive OfficersNEOs hold stock awards that would be subject to automatic vesting in connection with a change in control.
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Stockholders of Record
Stockholders whose shares are registered in their name on the Company records (also known as “stockholders of record”) will receive either a proxy card by which they may indicate their voting instructions or a notice on how they may obtain a proxy. Instead of submitting a signed proxy card, stockholders may submit their proxies by telephone or through the Internet. Telephone and Internet proxies must be used in conjunction with, and will be subject to, the information and terms contained on the form of proxy. Similar procedures may also be available to stockholders who hold their shares through a broker, nominee, fiduciary or other custodian.
All shares represented by proxies will be voted by one or more of the persons designated on the form of proxy in accordance with the stockholders’ directions. If the proxy card is signed and returned or the proxy is submitted by telephone or through the Internet without specific directions with respect to the matters to be acted upon, it will be treated as an instruction to vote such shares in accordance with the recommendations of the Board of Directors. Any stockholder giving a proxy may revoke it at any time before the proxy is voted at the meeting by giving written notice of revocation to the Secretary of AT&T, by submitting a later-dated proxy, or by attending the meeting and voting in person. The Chairman of the Board will announce the closing of the polls during the Annual Meeting. Proxies must be received before the closing of the polls in order to be counted.
A stockholder may designate a person or persons other than those persons designated on the form of proxy to act as the stockholder’s proxy by striking out the name(s) appearing on the proxy card, inserting the name(s) of another person(s), and delivering the signed card to that person(s). The person(s) designated by the stockholder must present the signed proxy card at the meeting in order for the shares to be voted.
Shares Held Through a Bank, Broker, or Other Custodian
Where the stockholder is not the record holder, such as where the shares are held through a broker, nominee, fiduciary or other custodian, the stockholder must provide voting instructions to the record holder of the shares in accordance with the record holder’s requirements in order to ensure the shares are properly voted.
Shares Held on Your Behalf under Company Benefit Plans or under The DirectSERVICE Investment Program
The proxy card, or a proxy submitted by telephone or through the Internet, will also serve as voting instructions to the plan administrator or trustee for any shares held on behalf of a participant under any of the following employee benefit plans: the AT&T Savings and Security Plan; the AT&T Puerto Rico Retirement Savings Plan; the AT&T Retirement Savings Plan; the BellSouth Savings and Security Plan and the Warner Media, LLC Savings Plan (WM Plan). Subject to the trustee’s fiduciary obligations, shares in each of the above employee benefit plans (other than the WM Plan) for which instructions are not received will not be voted. Shares in the WM Plan for which voting instructions are not received will be voted in the same proportion as shares for which voting instructions are received, except that if the WM Plan shares are attributable to accounts transferred from the Time Incorporated Payroll-Based Employee Stock Ownership Plan or the WCI Employee Stock Ownership Plan, then uninstructed shares will not be voted. To allow sufficient time for voting by the trustees and/or administrators of the plans, your voting instructions must be received by April 23, 2019.
In addition, the proxy card or a proxy submitted by telephone or through the Internet will constitute voting instructions to the plan administrator under The DirectSERVICE Investment Program sponsored and administered by Computershare Trust Company, N.A. (AT&T’s transfer agent) for shares held on behalf of plan participants.
If a stockholder participates in the plans listed above and/or maintains stockholder accounts under more than one name (including minor differences in registration, such as with or without a middle initial), the stockholder may receive more than one set of proxy materials. To ensure that all shares are voted, please submit proxies for all of the shares you own.
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Other InformationOTHER INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
Only AT&T’s executive officers&T stockholders may attend the meeting.
Stockholders of Record (shares are registered in your name)
An admission ticket is attached to your proxy card or Annual Meeting Notice and DirectorsAdmission Ticket. If you plan to attend the Annual Meeting, please retain the admission ticket and bring it with you to the meeting. A stockholder of record who does not have an admission ticket will be admitted upon presentation of photo identification at the door.
Other Stockholders (shares are required underheld in the Securities Exchange Actname of 1934a bank, broker, or other institution)
You may obtain admission to file reportsthe meeting by presenting proof of transactions and holdings inyour ownership of AT&T common stock with the SEC and the NYSE. Based solely on a review of the filed reports and written representations that no other reports are required, AT&T believes that during the preceding year all executive officers and Directors were in compliance with all filing requirements applicablephoto identification. To be able to such executive officers and Directors.
Availability of Corporate Governance Documents
A copy of AT&T’s Annual Report to the SEC on Form 10-K for the year 2015 may be obtained without charge upon written request to AT&T Stockholder Services, 208 S. Akard, Room 2710.14, Dallas, Texas 75202. AT&T’s Corporate Governance Guidelines, Code of Ethics, and Committee Charters for the following committees may be viewed online at www.att.com and are also available in print to anyone who requests them (contact the Senior Vice President and Secretary of AT&Tvote at the address below): Audit Committee, Human Resources Committee, Corporate Governance and Nominating Committee, Corporate Development and Finance Committee, Public Policy and Corporate Reputation Committee, and Executive Committee.meeting, you will need the bank, broker, or record holder to give you a proxy.
Stockholder Proposals and Director NomineesHOUSEHOLDING INFORMATION
Stockholder proposals intended to be included in the proxy materials for the 2017 Annual Meeting must be received by November 11, 2016. Such proposals should be sent in writing by courier or certified mail to the Senior Vice President and Secretary of AT&T at 208 S. Akard Street, Suite 3241, Dallas, Texas 75202.Stockholder proposals that are sent to any other person or location or by any other means may not be received in a timely manner.
Stockholders who intend to submit proposals at an Annual Meeting but whose proposals are not included in the proxy materials for the meeting and stockholders who intend to submit nominations for Directors at an Annual Meeting are required to notify the Senior Vice President and Secretary of AT&T (at the address above) of their proposal or nominations and to provide certain other information not less than 90 days, nor more than 120 days, before the anniversary of the prior Annual Meeting of Stockholders, in accordance with AT&T’s Bylaws. Special notice provisions apply under the Bylaws if the date of the Annual Meeting is more than 30 days before or 70 days after the anniversary date.
Householding Information
No more than one annual report and Proxy Statement will be sent to multiple stockholders sharing an address unless AT&T has received contrary instructions from one or more of the stockholders at that address. Stockholders may request a separate copy of the most recent annual report and/or the Proxy Statement by writing the transfer agent at: Computershare Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078, or by calling(800) 351-7221. Stockholders calling from outside the United States may call(781) 575-4729. Requests will be responded to promptly. Stockholders sharing an address who desire to receive multiple copies, or who wish to receive only a single copy, of the annual report and/or the Proxy Statement may write or call the transfer agent at the above address or phone numbers to request a change.
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CostThe voting results of Proxy Solicitationthe Annual Meeting will be published no later than four business days after the annual meeting on a Form8-K filed with the Securities and Exchange Commission, which will be available in the investor relations area of our website at www.att.com.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
AT&T’s Executive Officers and Directors are required under the Securities Exchange Act of 1934 to file reports of transactions and holdings in AT&T common stock with the SEC and the NYSE. Based solely on a review of the filed reports made during or with respect to the preceding year, AT&T believes that all Executive Officers and Directors were in compliance with all filing requirements applicable to such Executive Officers and Directors.
COSTOF PROXY SOLICITATION
The cost of soliciting proxies will be borne by AT&T. Officers, agents and employees of AT&T and its subsidiaries and other solicitors retained by AT&T may, by letter, by telephone or in person, make additional requests for the return of proxies and may receive proxies on behalf of AT&T. Brokers, nominees, fiduciaries and other custodians will be requested to forward soliciting material to the beneficial owners of shares and will be reimbursed for their expenses. AT&T has retained D. F. King & Co., Inc. to aid in the solicitation of proxies at a fee of $23,500, plus expenses.
Equity Compensation Plan Information
The following table provides information as of December 31, 2015, concerning shares of AT&T common stock authorized for issuance under AT&T’s existing equity compensation plans.
| Equity Compensation Plan Information | ||||||||||||
| Plan Category | Number of securities to (a) | Weighted average (b) | Number of securities reflected in column (a)) (c) | |||||||||
Equity compensation plans approved by security holders | 37,509,360 (1) | $30.07 | 108,836,269 (2) | |||||||||
Equity compensation plans not approved by security holders | 0 | 0 | 0 | |||||||||
Total | 37,509,360 (3) | $30.07 | 108,836,269 (2) | |||||||||
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OTHER INFORMATION
We determined the pay ratio by dividing the total 2018 compensation of the CEO as disclosed in the Summary Compensation Table by the total 2018 compensation of the median employee, using the same components of compensation as used in the Summary Compensation Table for the CEO.
Our median employee for 2018 was determined using the compensation of employees who were actively employed on October 1, 2018 (theMeasurement Date). We used their cash compensation for the first three quarters of the year to determine the median employee.
Determination of Number of Employees for Selection of Median Employee
Step 1 - As of the Measurement Date, our total number of active global employees was 233,993, excluding the CEO and 31,618 employees of companies acquired during 2018 as follows: WarnerMedia (30,208), AppNexus (1,054), and AlienVault (356). | ||
Number of Employees: | 233,993 | |
Step 2 -
Of the above referenced 233,993 active global employees, 44,892 werenon-U.S. employees. We included in our calculation only the employees in the five foreign countries that held our largest foreign employee populations as follows: Mexico (20,214), Argentina (4,177), Slovakia (3,295), Colombia (3,064) and India (2,885). We excluded 11,257 employees in 56 other foreign countries as follows: Australia (266), Austria (12), Barbados (2), Belgium (125), Brazil (2,151), Bulgaria (101), Canada (440), Chile (467), China (78), Costa Rica (242), Curacao (17), Czech Republic (1,251), Denmark (58), Ecuador (379), El Salvador (1), Finland (19), France (183), Germany (289), Greece (3), Guatemala (2), Hong Kong (216), Hungary (2), Indonesia (2), Iraq (1), Ireland (31), Israel (308), Italy (137), Japan (124), Korea (28), Lithuania (1), Malaysia (694), Netherlands (219), New Zealand (16), Norway (11), Pakistan (2), Panama (3), Peru (272), Philippines (64), Poland (13), Portugal (2), Romania (2), Russian Federation (2), Singapore (314), Slovenia (2), South Africa (4), Spain (99), Sweden (43), Switzerland (52), Taiwan (20), Thailand (8), Trinidad (110), Turkey (3), United Arab Emirates (4), United Kingdom (1,066), Uruguay (199), and Venezuela (1,097).
Number of Employees: | (11,257) | |
Result - After exclusions, we used 189,101 U.S. employees and 33,635non-U.S. employees for the determination of the median employee. | ||
Total Number of Employees | 222,736 | |
The total compensation of our median employee, $95,814, was determined using the same methodology we used for Mr. Stephenson in the Summary Compensation Table and we included the cost of group health and welfare benefits. The total compensation of the CEO Randall L. Stephenson was $29,118,118, which includes the value of Mr. Stephenson’s health benefits. The final pay ratio calculation is 304:1.
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The following tables reconcile our free cash flow(FCF) and earnings per share(EPS) metrics, discussed on page 38, to the most comparable GAAP metrics.
Free cash flow is defined as cash from operations minus capital expenditures. We believe this metric provides useful information to our investors because management views free cash flow as an important indicator of how much cash is generated by routine business operations, including capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to stockholders.
FREE CASH FLOW
| Dollars in millions | Twelve Months Ended December 31, 2018 | |
Net cash provided by operating activities | $43,602 | |
Less: Capital expenditures | (21,251) | |
Free Cash Flow | 22,351 |
Adjusted diluted EPS is calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs (referred to as “Adjusting Items”). Management believes that this measure provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusting items include revenues and costs we consider nonoperational in nature, such as items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans.
ADJUSTED DILUTED EPS
| Twelve Months Ended December 31, 2018 | ||
Diluted EPS | $ 2.85 | |
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Merger integration and other items1 | 0.26 | |
(Gain) loss on sale of assets, impairments and other adjustments2 | 0.05 | |
Actuarial (gain) loss3 | (0.38) | |
Tax-related items | (0.07) | |
Adjusted EPS | $ 3.52 |
| 1. | Includes combined merger integration items and merger-related interest income and expense, and redemption premiums. |
AT&T Inc.
2016 Incentive Plan
Article 1. Establishment and Purpose.
| 2. | Includes gains on transactions, natural disaster adjustments and charges, and employee-related and other costs. |
| 3. | Includes adjustments for actuarial gains or losses associated with |
Article 2. Definitions.
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AT&T Corporate Social Responsibility 2025 Goals |
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Our Network & Our Customers | ||||
Our Supply Chain |
Our Communities | |||
AT&T will enable carbon savings 10 times the footprint of our operations by enhancing the efficiency of our network and delivering sustainable customer solutions. | ||||
We will work with our industry peers to develop and promote adoption of sustainability metrics that will transform the environmental and social impact of technology supply chains. | We will invest resources, develop initiatives, and collaborate with stakeholders to close the skills gap by increasing the number of Americans with high-quality, post-secondary degrees or credentials to 60%. | |||
For purposes of this Plan only, Term of Employment shall have the same meaning as in the AT&T Pension Benefit Plan – Nonbargained Program (“Pension Plan”), as that may be amended from time to time, except that service with a Participant’s employer shall be counted as though the employer were a “Participating Company” under the Pension PlanAwards, Ratings, and the Employee was a participant in the Pension Plan.Rankings
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Article 3. Administration.
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For more information and for a complete list of external recognition, visitatt.com/csr
Article 4. Shares Subject to the Plan.
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Article 5. Eligibility and Participation.
Article 6. Stock Options.
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Article 7. Restricted Stock.
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Article 8. Performance Units and Performance Shares.
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Categories:
(1) changes in accounting principles;
(2) changes in Federal tax law;
(3) changes in the tax laws of the states;
(4) expenses caused by natural disasters, including but not limited to floods, hurricanes, and earthquakes;
(5) expenses resulting from intentionally caused damage to property of the Company or its Subsidiaries taken as a whole;
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(6) non-cash accounting write-downs of goodwill, other intangible assets, and fixed assets.
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Article 9. Beneficiary Designation.
Article 10. Employee Matters.
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“Confidential Information” means all information belonging to, or otherwise relating to the business of the Company, which is not generally known, regardless of the manner in which it is stored or conveyed to Participant, and which the Company has taken reasonable measures under the circumstances to protect from unauthorized use or disclosure. Confidential Information includes trade secrets as well as other proprietary knowledge, information, know-how, and non-public intellectual property rights, including unpublished or pending patent applications and all related patent rights, formulae, processes, discoveries, improvements, ideas, conceptions, compilations of data, and data, whether or not patentable or copyrightable and whether or not it has been conceived, originated, discovered, or developed in whole or in part by Participant. For example, Confidential Information includes, but is not limited to, information concerning the Company’s business plans, budgets, operations, products, strategies, marketing, sales, inventions, designs, costs, legal strategies, finances, employees, customers, prospective customers, licensees, or licensors; information received from third parties under confidential conditions; or other valuable financial, commercial, business, technical or marketing information concerning the Company, or any of the products or services made, developed or sold by the Company. Confidential Information does not include information that (i) was generally known to the public at the time of disclosure; (ii) was lawfully received by Participant from a third party; (iii) was known to Participant prior to receipt from the Company; or (iv) was independently developed by Participant or independent third parties; in each of the foregoing circumstances, this exception applies only if such public knowledge or possession by an independent third party was without breach by
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Participant or any third party of any obligation of confidentiality or non-use, including but not limited to the obligations and restrictions set forth in this Agreement.
then the Committee may, in its sole and absolute discretion, impose an Award Termination, Rescission, and/or Recapture with respect to any or all of the Participant’s Awards, including any Shares or cash associated therewith, or any proceeds thereof. For purposes of this Agreement, the term “Restricted Business” means the business of providing communications or connectivity services, including both wireless and wire-lined telephone, messaging, Internet, data, and related services; the term “Restricted Territory” shall mean the state in which the Participant maintained his or her principal office with the Company on the date the Award was granted; and the term “Contact” means interaction between the Participant and the nonclerical employee during performance of Participant’s job responsibilities on behalf of the Company.
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Article 11. Amendment and Termination of Plan or Awards.
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Article 12. Withholding.
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Article 13. Successors.
Article 14. Legal Construction.
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Online Go towww.envisionreports.com/att or scan the QR code – login details are located in the shaded bar below. | ||||||||
| Phone Call toll free 1-800-652-VOTE (8683) within the USA, US territories and Canada | |||||||
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Using ablack inkpen, mark your votes with anXas shown in this example. Please do not write outside the designated areas. | |||||||
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| A | Election of Directors | |||||||||||||||||||||||||||||||||||
| 1. | Nominees: | For | Against | Abstain | For | Against | Abstain | For | Against | Abstain | + | |||||||||||||||||||||
| 01 - Randall L. Stephenson |
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| 06 - William E. Kennard |
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02 - Samuel A. Di Piazza, Jr. | ☐ | ☐ | ☐ | 07 - Michael B. McCallister | ☐ | ☐ | ☐ | 12 - Geoffrey Y. Yang | ☐ | ☐ | ☐ | |||||||||||||||||||||
| 03 - Richard W. Fisher | ☐ | ☐ | ☐ | 08 - Beth E. Mooney | ☐ | ☐ | ☐ | |||||||||||||||||||||||||
| 04 - Scott T. Ford | ☐ | ☐ | ☐ | 09 - | ☐ | ☐ | ☐ | |||||||||||||||||||||||||
| 05 - Glenn H. Hutchins | ☐ | ☐ | ☐ | 10 - | ☐ | ☐ | ☐ | |||||||||||||||||||||||||
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| B | Management Proposals — The Board of Directors recommends a voteFORItems 2 | |||||||||||||||||||||||||||||||||||
| For | Against | Abstain | For | Against | Abstain | |||||||||||||||||||||||||||
| 2. | Ratification of appointment of independent auditors. | ¨ | ¨ | ¨ | 3. | Advisory approval of executive compensation. | ¨ | ¨ | ¨ | |||||||||||||||||||||||
| 4. | Approval of 2016 Incentive Plan. | ¨ | ¨ | ¨ | ||||||||||||||||||||||||||||
| For | Against | Abstain | For | Against | Abstain | |||||||||||||||||||
| 2. | Ratification of appointment of independent auditors. | ☐ | ☐ | ☐ | 3. | Advisory approval of executive compensation. | ☐ | ☐ | ☐ | |||||||||||||||
| C | Stockholder Proposals —The Board of Directors recommends a voteAGAINST Item 4. | |||||||||||||||||||||||||||||||||||
| For | Against | Abstain | ||||||||||||||||||||||||||||||||||||||
| 4. | Independent Chair. |
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| AT&T Inc. | Admission Ticket |
Friday, April | Upon arrival, please present this admission ticket and photo ID at the registration desk. | ||
| Doors open at | |||
| Meeting begins at 9:00 a.m. local time | |||
Directions: Complimentary parking is available
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| Help the environment by consenting to receive electronic | ||||
| delivery, sign up at www.envisionreports.com/att |
q To vote by using the proxy card below, fold along the perforation, detach and return the bottom portion in the enclosed envelope.IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE . q
This proxy is solicited on behalf of the Board of Directors for the Annual Meeting on April 29, 2016.
| This proxy is solicited on behalf of the Board of Directors for the Annual Meeting on April 26, 2019. | ||||||||||
The undersigned hereby appoints Randall L. Stephenson and John J. Stephens, and each of them, proxies, with full power of substitution, to vote all common shares of the undersigned in AT&T Inc. at the Annual Meeting of Stockholders to be held on April | ||||||||||
| that may properly come before the meeting.If specific voting directions arenot given with respect to the matters to be acted upon and the signed card is returned, it will be treated as an instruction to vote such shares in accordance with the Directors’recommendations on the matters listed on the reverse side of this card and at the discretion of the proxies on any other matters that may properly come before the meeting. | + | |||||||||
Please sign below and return promptly in the enclosed envelope or, if you choose, you can submit your proxy by telephone, through the Internet or mail it to Computershare, PO Box 43115, Providence RI 02940.
02940. This proxy card, when signed and returned, or your telephone or Internet proxy, will also constitute voting instructions to the (a) plan administrator for shares held on your behalf pursuant to The DirectSERVICE Investment Program (dividend reinvestment plan) and (b) plan administrator or trustee for shares held on your behalf under any of the following employee benefit plans: the AT&T Savings and Security Plan,Plan; the AT&T Puerto Rico Retirement Savings Plan,Plan; the AT&T Retirement Savings Plan,Plan; the BellSouth Savings and Security Plan,Plan; and the DIRECTV 401(k)Warner Media, LLC Savings Plan.Plan (WM Plan). Shares in the employee benefit plans, excluding the DIRECTV 401(k) Savings Plan, for which voting instructions are not received (uninstructed shares) will not be voted, subject to the trustee’s fiduciary obligations. Sharesobligations; however, uninstructed shares in the DIRECTV 401(k) SavingsWM Plan for which voting instructions are not received, subject to the trustee’s fiduciary obligations, will be voted by the trustees in the same proportionproportions as the shares for which voting instructions are receivedreceived. Uninstructed shares attributable to accounts transferred to the WM Plan from other participants in the plan.Time Incorporated Payroll-Based Employee Stock Ownership Plan or the WCI Employee Stock Ownership Plan will not be voted. To allow sufficient time for voting by the trustees and/or administrators of the employee benefit plans, your voting instructions must be received by April 26, 2015.23, 2019.
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