UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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DARLING INGREDIENTS INC.
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March 31, 201628, 2018
Dear Fellow Stockholders:
I hope you will join us at the 20162018 Annual Meeting of Stockholders of Darling Ingredients Inc. The attached Notice of Annual Meeting of Stockholders and Proxy Statement will serve as your guide to the business to be conducted.
As you reviewIn 2017, we continued our practice of conducting a robust stockholder outreach and engagement process. In this regard, we routinely interact with stockholders throughout the Proxy Statement you will noteyear about executive compensation and other matters. In addition, we continue to maintain our focus on key governance practices that we understand are important to stockholders. Among other things, we continually focus on ensuring that the Board is composed of high-integrity, highly capable Directors to represent the long-term interests of stockholders. Refreshing our Board with new perspectives and new ideas is critical to a forward-looking and strategic Board. Ensuring diverse perspectives, including a mix of skills, experience and backgrounds, and healthy turnover are also key to representing the interests of shareowners effectively. Notably, almost three-fourths of our directors have redesignedjoined our Board in the Proxy Statementpast five years and we expanded our gender diversity representation on the Board in order to make it more effective in guiding you through the matters that you will be voting on at the meeting. In addition, our Compensation Discussion and Analysis section has been revamped to include new charts and disclosures that we believe more clearly support our performance-based compensation programs and better explain the linkage between our performance and pay.2017.
In stewarding this Company, our Board seeks to achieve long-term, sustainable performance and create value through the right business strategies, prudent risk management, effective compensation programs and a well-functioning management team. Fiscal 2015 presented a challenging operating environment, as our businesses continued to experience the impacts of a prolonged deflationary commodity cycle within the agriculture and energy sectors. Despite these challenging conditions,fiscal 2017, we continued to execute on our strategy to achieve operationalof deleveraging the company and financial improvements aimed at offsetting the impacts of lower pricing and grow profitabilitygrowing in businesses and geographic areas where sustainable and predictable margins can be achieved.
Over In this regard, we paid down $112.5 million in debt, completedbolt-on acquisitions of a rendering company and a used cooking oil collection company in the last few years, we have spent a significant amount of time talking to stockholders about executive compensation. AtUnited States, completed major expansion projects at our 2015 Annual Meeting, following four years of positive voting results, for the first time stockholders did not provide majority support forrendering facility in Poland and our executive compensation program. In reaction, our compensation committee conducted an even more in-depth analysisgelatin facility in Spain, continued work on major expansion projects at two of our compensation and governance practices, including an enhanced stockholder outreach processrendering facilities in the United States, continued construction of a new digester facility in Belgium and a thorough review of all aspects of our compensation strategiesnew blood processing facility in Germany, and program. This analysis resultedbegan construction on a new rendering facility in significant changes to our compensation programs. These changes further enhance the link between pay and performance and continue to align our executive compensation program with stockholders’ long-term interests. We encourage you to read the Compensation Discussion and Analysis section of the Proxy Statement beginning on page 20 for details of our executive compensation program and these recent enhancements.
United States. In December 2015, long-time Board member O. Thomas Albrecht passed away. The Board would like to acknowledge Mr. Albrecht’s many contributions to the Company over the 13 years during which he servedaddition, construction continued on the Board. We also wantexpansion of Diamond Green Diesel’s (DGD’s) production facility to thank John D. March, oneincrease annual production capacity from 160 million gallons of our experienced and effective directors who is retiring from the Board after eight years of service. His advice and guidance over his eight years of service on the Board has been very beneficialrenewable diesel to the Company and its stockholders. The Board is recommending two new nominees, Cynthia Pharr Lee and Gary W. Mize, for election to the Board at the meeting. As further described275 million gallons, with an anticipated completion date in the Proxy Statement, both Ms. Pharr Leesecond quarter of 2018, and Mr. Mize possess skillswe began evaluating a project to further expand DGD’s annual production capacity to 550 million gallons. DGD is our joint venture with Valero Energy Corporation, that converts animal fats, recycled greases, used cooking oil, inedible corn oil, soybean oil, or other feedstocks that become economically and experiencecommercially viable into renewable diesel, a biomass-based fuel that complement and enhance those of our existing Board members.is interchangeable with petroleum-based diesel fuel but has a carbon lifecycle low enough to meet the most stringentlow-carbon fuel standards.
Thank you for your continued trust and for your investment in our business.
| Randall C. Stuewe | Charles Macaluso | |
| Chairman and CEO | Lead Director |
251 O’Connor Ridge Boulevard, Suite 300
Irving, Texas 75038
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 20168, 2018
To the Stockholders of Darling Ingredients Inc.:
An Annual Meeting of Stockholders of Darling Ingredients Inc. (the “Company”) will be held on Tuesday, May 10, 2016,8, 2018, at 10:00 a.m., local time, at the Four Seasons Resort and Club, 4150 N. MacArthur Blvd., Irving, Texas 75038, for the following purposes (which are more fully described in the accompanying Proxy Statement):
| 1. | To elect as directors of the Company the |
| 2. | To ratify the selection of KPMG LLP, independent registered public accounting firm, as the Company’s independent registered public accountant for the fiscal year ending December |
| 3. | To vote to approve, on an advisory basis, executive compensation (Proposal 3); and |
| 4. | To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof in accordance with the provisions of the Company’s bylaws. |
The Board of Directors recommends that you vote to approve Proposals 1, 2 and 3.
The Board has fixed the close of business on March 16, 2016,14, 2018, as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and any adjournment or postponement thereof.
This year we will again seek to conserve natural resources and reduce annual meeting costs by electronically disseminating annual meeting materials as permitted under rules of the Securities and Exchange Commission. Many stockholders will receive a Notice of Internet Availability of Proxy Materials containing instructions on how to access annual meeting materials via the Internet. Stockholders can also request mailed paper copies if preferred.
Your vote is important. You are cordially invited to attend the Annual Meeting. However, whether or not you expect to attend the Annual Meeting, please vote your proxy promptly so your shares are represented. You can vote by Internet, by telephone or by signing, dating and mailing the enclosed proxy.
A copy of our Annual Report for the year ended January 2, 2016December 30, 2017 is enclosed or otherwise made available for your convenience.
By Order of the Board,
John F. Sterling
Secretary
Irving, Texas
March 31, 201628, 2018
This summary highlights selected information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider in deciding how to vote. You should read the Proxy Statement carefully before voting. This Proxy Statement and the enclosed proxy is first being sent or made available to stockholders on or about March 31, 2016.28, 2018.
20162018 ANNUAL MEETING OF STOCKHOLDERS
Time and Date:
10:00 a.m., local time, Tuesday, May 10, 20168, 2018
Place:
Four Seasons Resort and Club,
4150 N. MacArthur Blvd., Irving, Texas 75038
Record Date:March 16, 201614, 2018
VOTING INFORMATION
Who is Eligible to Vote
You are entitled to vote at the 20162018 Annual Meeting of Stockholders (the “Annual Meeting”) if you were a
stockholder of record as of the
Record Date. On the Record Date, there were 164,567,041164,619,524 shares of our company’s common stock outstanding and eligible to vote at the Annual Meeting. Each share of common stock is entitled to one vote on each matter properly brought before the Annual Meeting.
How to Vote
To make sure that your shares are represented at the Annual Meeting, please cast your vote as soon as possible by one of the following methods:
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Visit the applicable voting website:
| Within the United States, U.S. Territories and Canada, call toll-free:
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your proxy card in the self-addressed envelope provided. | For instructions on attending the Annual Meeting in person, please see the Question and Answer section beginning on page | |||||||
HOW YOU CAN ACCESS THE PROXY MATERIALS ONLINE
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May
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MEETING AGENDA AND VOTING RECOMMENDATIONS
| PROPOSAL | PROPOSAL | BOARD RECOMMENDATION | PAGE | PROPOSAL | BOARD RECOMMENDATION | PAGE | ||||||||||||
| 1. | The election of the nine nominees identified in this Proxy Statement as directors, each for a term of one year (“Proposal 1”) | FOR | 12 | The election of the ten nominees identified in this Proxy Statement as directors, each for a term of one year (“Proposal 1”) | FOR | 12 | ||||||||||||
| 2. | The ratification of the selection of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2016 (“Proposal 2”) | FOR | 65 | The ratification of the selection of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 29, 2018 (“Proposal 2”) | FOR | 63 | ||||||||||||
| 3. | An advisory vote to approve executive compensation (“Proposal 3”) | FOR | 66 | An advisory vote to approve executive compensation (“Proposal 3”) | FOR | 64 | ||||||||||||
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BOARD HIGHLIGHTS
All of our current directors have been nominated again by the Board for reelection at the Annual Meeting, except for John D. March who will retire as a director immediately following the Annual Meeting and will therefore not stand for re-election in 2016. The Board thanks Mr. March for his contributions and dedication toMeeting. We believe that our company over his eight years of service as a Board member. In addition, our nominating and corporate governance committee has identified, and our Board has approved, two new director nominees Cynthia Pharr Leeexhibit an effective mix of skills, experience and Gary W. Mize, for electionfresh perspective. With respect to our Board at the Annual Meeting. Both Ms. Pharr Lee and Mr. Mize possess skills and experience that complement and enhance thoserefreshment, seventy percent (70%) of our existingcurrent directors have served on the Board members.for less than five years. For more information on all of the director nominees, see page 12 of this Proxy Statement.
COMPANY HIGHLIGHTS
Our company is a global developer and producer of sustainable natural ingredients from edible and inediblebio-nutrients, creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, technical, fuel, bioenergy, and fertilizer industries. Our long-term strategy is to be recognized as the global leader in the production, development and value-adding of sustainable animal and nutrient recovered ingredients. In the last several years, we have used key acquisitions and a joint venture project to transform our platform and build future value through segment and product diversification and global expansion.
20152017 PERFORMANCE HIGHLIGHTS
Fiscal 20152017 presented a challenging operating environment, as our business continued to experience the impacts of a continued deflationary cycle within the agriculture sector and continued pricing pressure from increased global supplies of grains, proteins and oilseeds. Despite these challenging operating conditions, we continued to execute on our strategy tode-lever and to achieve operational and financial improvements intended to stabilize and grow profitability in businesses and geographic areas where sustainable and predictable margins can be achieved, as exemplified by the following:
Key Operating Accomplishments
| Improved working capital (inventory, receivables, prepaids, accounts payable and accrued expenses) by |
| Diminished the impact of declining finished product prices on margins by appropriately adjusting raw material pricing globally. |
| Increased our total system raw material volumes |
Growth Achievements
| Continued construction on the expansion of |
| ∎ | Completed expansion of rendering facility in Poland and gelatin facility in Spain. |
| ∎ | Completedbolt-on acquisitions of a rendering business and a used oil collection business in the United States and purchased remaining minority interest in our Sonac China blood business. |
| ∎ | Approved and began greenfield construction on new rendering plants in Grapeland, Texas, and Wahoo, Nebraska, and a new collagen peptide facility in Angoulême, France. |
PROXY SUMMARY
| ∎ | Approved and began construction on our first full scale black soldier fly protein conversion facility in EnviroFlight, LLC, our joint venture with Intrexon Corporation. |
| ∎ | Continued construction on a new digester facility in Dunderleuw, Belgium and a new blood processing facility in Meering, Germany, as well as major expansions at our rendering facilities in Los Angeles, California, and Wahoo, Nebraska. |
Realigned Capital Structure for Operating Conditions and Future Growth
| Successfully |
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PROXY SUMMARY
EXECUTIVE COMPENSATION HIGHLIGHTS
General.Pay for Performance. Our compensation committee has designed our executive compensation program to deliver pay in alignment with corporate, business unit and individual performance. A large portion of our executives’ total targetdirect compensation is “at-risk”“at-risk” through long-term equity awards and annual cash incentive awards. These awards are linked to actual performance and include a significant portion of equity.
Pay for Performance. Our compensation committee has designed our executive compensation program to deliver pay in alignment with corporate, business unit and individual performance primarily based on the following twothree factors, which in turn are expected to align executive pay with returns to stockholders over time:
Pricing of our finished products is heavily influenced by global grain and oilseed supplies, livestock production trends, crude oil pricing and foreign currency. While we have diversified our business significantly during the last few years, the recent deflationary cycle within the global commodity markets has had a significant impact on the price of our common stock. While we remain a growth-oriented company focused on creating long-term value for its stockholders, our stock price is impacted by commodity price swings.
| ∎ | Our effectiveness in deploying capital when compared to our Performance Peer Group (as defined on page 30 of this Proxy Statement); and |
| ∎ | The total shareholder return of our company as compared to our Performance Peer Group. |
As such, we believe that the current best indicator of our long-term performance versus our Performance Peer Group is a comparison of how competitively we deploy capital versus our Performance Peer Group as measured by a return on capital standard. The other primary factor in aligning our pay and performance is whether or not we have remained a growth-oriented company during the relevant performance period. To measure growth, we look at our earnings before interest, taxes, depreciation and amortization (“EBITDA”), which is also the numerator for return on capital.
Performance against pre-established EBITDA goals is a key element of our 2015 annual incentive plan. In the last several years, we have used key acquisitions and a joint venture project to transform our platform and build future value through segment and product diversification and global expansion. Consistent EBITDA growth will result in greater annual incentive plan payouts, while shortfalls in EBITDA will result in below target payouts. As demonstrated by the chart appearing on page 23 of this Proxy Statement, our CEO’s total realizable compensation is well-aligned with our EBITDA performance.
We have used a return on capital standard as the performance measure under our long-term incentive (“LTI”) program since 2010. In 2015, we used return on gross investment (“ROGI”) as the return on capital performance measure for our LTI program, and we achieved performance for fiscal 2015 in the 66th percentile relative to our Performance Peer Group. For 2016, as part of the significant changes made to our compensation program, we have switched to return on capital employed (“ROCE”) as the performance metric for our LTI program. Our compensation committee believes, given the substantial growth of our company over the last ten years, that ROCE more appropriately measures our ongoing operating performance against peers by excluding goodwill from the calculation and thereby better focusing on the value of a particular asset and the working capital needed to run that asset. Our return on capital targets are set to reflect the median historical performance levels for our Performance Peer Group, which is a challenging performance standard in the current deflationary cycle within the global commodity markets. Given the shift from ROGI to ROCE as the return on capital measure and the addition of a relative total shareholder return (“TSR”) modifier for 2016, the following chart shows, that by
PROXY SUMMARY
aligning designing our executive compensation with EBITDA and capital deployment performance,program based on these factors, the realizable pay levels provided by our executive compensation program to our CEO are aligned to our stock price performance over the long-term:
| INDEX YEAR | INDEX YEAR | INDEX YEAR | ||||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||||||||||
| 2012 | 2012 | 2013 | 2014 | * | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||
| CEO Pay Measure: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Realizable Pay 1-Year | $ | 5,334 | $ | 5,966 | $ | 5,504 | $ | 8,463 | $ | 3,609 | $ | 5,504 | $ | 8,463 | $ | 3,609 | $ | 7,148 | $ | 8,183 | ||||||||||||||||||||||||||||
| % Change | 12 | % | -8 | % | 54 | % | -57 | % | 54 | % | -57 | % | 98 | % | 14 | % | ||||||||||||||||||||||||||||||||
| Realizable Pay 1-Year (excl. Special) | $ | 5,334 | $ | 5,966 | $ | 5,504 | $ | 6,647 | $ | 3,609 | $ | 5,504 | $ | 6,647 | $ | 3,609 | $ | 7,148 | $ | 8,183 | ||||||||||||||||||||||||||||
| % Change | 12 | % | -8 | % | 21 | % | -46 | % | 21 | % | -46 | % | 98 | % | 14 | % | ||||||||||||||||||||||||||||||||
| TSR Index Measure: | ||||||||||||||||||||||||||||||||||||||||||||||||
| 1-Year TSR Indexed to 2010=100 | 100.0 | 100.1 | 117.0 | 156.4 | 136.7 | 79.2 | ||||||||||||||||||||||||||||||||||||||||||
| 1-Year TSR Indexed to 2012=100 | 100.0 | 133.7 | 116.9 | 67.7 | 83.1 | 116.7 | ||||||||||||||||||||||||||||||||||||||||||
| 1-Year TSR % | 0.1 | % | 16.9 | % | 33.7 | % | -12.6 | % | -42.1 | % | 33.7 | % | -12.6 | % | -42.1 | % | 22.7 | % | 40.4 | % | ||||||||||||||||||||||||||||
NOTES:
Total Shareholder Return (TSR) performance is indexed to 2010,2012, where 20102012 equals 100 on the Index.
Realizable pay reflects the actual cash and intrinsic value of equity incentives awarded in a given year, using the stock price at the end of the year. For example, for 2015,2017, realizable pay equals base salary plus annual incentives earned for 20152017 performance plus shares and options granted on March 7, 2016 basedFebruary 6, 2017 and shares to be issued in the first quarter of 2020, assuming target PSU performance for 2017 to 2019 for PSUs awarded on performance ending in 2015 (actual results for 2013 to 2015 ROGI)February 6, 2017, plus the reported Summary Compensation Table values for Change in Pension Value andNon-Qualified Deferred Compensation Earnings and All Other Compensation.
| * | In 2014, the figures above also show the potential realizable value based on the December 31, 2014 stock price of a |
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PROXY SUMMARY
Our compensation committee believes that our executive compensation program effectively aligns pay with performance based on the key factors discussed above, thereby aligning executive pay with returns to stockholders and creating a growth–oriented, long-term value proposition for our stockholders. For more information, see “Compensation Discussion and Analysis – Executive Overview – Pay for Performance” included in the Proxy Statement.
PROXY SUMMARY
Fiscal 2015 Compensation Program Enhancements. Our company has undergone a major transformation in its business over the last several years, especially with the completion in January 2014 of the acquisition of the VION Ingredients business from VION Holding, N.V. that now operates under the name Darling Ingredients International. These recent transformations necessitate ongoing review of our compensation practices and policies. Changes made by our compensation committee to our 2015 executive compensation program included the following:
We believe that these changes improved upon good governance and best practices for 2015. See Fiscal 2015 Compensation Program Improvements at page 26 in this Proxy Statement.
Response to 2015 Say On Pay Advisory Vote Results and Stockholder Engagement Process. We have conducted a stockholder engagement process for the past several years and routinely interact with stockholders throughout the year about executive compensation and other matters. Stockholders are also provided an annual opportunity to provide feedback through an advisory say on pay vote on executive compensation. For 2016, our executive compensation program was significantly redesigned in response to stockholder feedback and say on pay results. At our 20152017 Annual Meeting, following fourapproximately 98.6% of the votes cast were in favor of the advisory vote to approve executive compensation. Stockholder engagement and the outcome of the say on pay vote results will continue to inform future compensation decisions.
Compensation Program Enhancements. Over the last several years, of positive voting results, for the first time stockholders did not provide majority support for our NEOs’ compensation. In reaction, our compensation committee intensified its ongoing stockholder outreach efforts to ensure stockholder perspectives and concerns were heard and well understood by the compensation committee and the full Board. Specifically, the compensation committee conducted an in-depth analysis of our compensation and governance practices and engaged Pearl Meyer as its new independent compensation consultant. In addition, members of the compensation committee and certain members of management reached out to stockholders representing over 80% of our outstanding shares at the time of outreach, to better understand the reasons for the vote outcome. We held direct conversations with every
stockholder who responded to our engagement request, with the chairman of our compensation committee leading most of the discussions. We also met with two different proxy advisory firms. These meetings occurred in the second half of 2015, while the compensation committee was considering changes to our executive pay program, to ensure that our 2016 pay decisions reflected the committee’s consideration of our stockholders’ comments. The primary focus of these meetings was to seek specific feedback on our compensation program and review potential changes to our compensation program. The feedback received from our stockholders was tremendously valuable and was incorporated into the full compensation committee’s discussion and determination of compensation program changes for 2016 discussed below.
Fiscal 2016 Compensation Program Improvements. The compensation committee and the Board significantly changed our compensation program after reviewing trends in executive compensation andpay-related governance policies and in response to the results of our 2015 say on pay voteresults and stockholder feedback, including each of the following:
PROXY SUMMARY
feedback. We notebelieve that these changes, will not be reflectedwhich included the changes shown in the compensation disclosed in this Proxy Statement because they were not made until after the 2015chart below, significantly enhanced our compensation program was in place; however, compensation related to these changes will be comprehensively covered in our 2017 Proxy Statement, where the compensation-related tables will reflect these changes. The compensation committee believes these changes will sharpenby sharpening alignment between executive compensation and the interestinterests of our stockholders, and support the achievement of our strategic and financial goals. For a more detailed discussion of these changes, please see “Fiscal 2016 Changes to Our Executive Compensation Program” on page 45 of this Proxy Statement.stockholders.
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PROXY SUMMARY
GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY HIGHLIGHTS
Our company has a history of strong corporate governance. By evolving our governance approach in light of best practices, our Board drives sustained stockholder value and best serves the interests of our stockholders.
| WHAT WE DO | WHAT WE DON’T DO | |||||
| Majority voting for directors | x | No supermajority voting requirements in bylaws or charter | ||||
| 100% independent board committees | x | No poison pill | ||||
| 100% directors owning stock | x | No supplemental executive retirement plans | ||||
| Annual election of directors | x | No change in control excise taxgross-ups | ||||
| Compensation recoupment (clawback) policy | x | No discounted stock options, reload stock options or stock optionre-pricing without stockholder approval | ||||
| Right to call special meeting threshold set at 10% | x | |||||
| Provide a majority of compensation in performance-based compensation | x | No short-term trading, short sales, transactions involving derivatives, hedging or pledging transactions for executive officers | |||
| Pay for performance based on measurable goals for both annual and long-term awards | ||||||
| Balanced mix of awards tied to annual and long-term performance | ||||||
| Stock ownership and retention policy |
Corporate Social Responsibility/Sustainability
In addition, for us, respect for the environment and a commitment to the development of sustainable natural ingredients are the foundation on which our company is built. In this regard, we continuously look for new and better ways to optimize nutrition and health—for both people and animals—and to minimize our environmental impact, all while creating value for our stockholders. Our commitment to social responsibility goes beyond compliance. We operate in ways that, wherever possible, leave a positive impact on the environment, food and feed safety and people’s communities and work places. For more information, please see our Corporate Social Responsibility webpage (www.closingtheloops.info)(https://commitment.darlingii.com/).
5
251 O’Connor Ridge Boulevard, Suite 300
Irving, Texas 75038
FOR AN ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 20168, 2018
This Proxy Statement is provided to the stockholders of Darling Ingredients Inc. (“Darling,” “we” or “our company”) in connection with the solicitation of proxies by our Board of Directors (the “Board”) to be voted at an Annual Meeting of Stockholders to be held at the Four Seasons Resort and Club, 4150 N. MacArthur Blvd., Irving, Texas 75038, at 10:00 a.m., local time, on Tuesday, May 10, 2016,8, 2018, and at any adjournment or postponement thereof (the “Annual Meeting”).
This Proxy Statement and the enclosed proxy is first being sent or made available to stockholders on or about March 31, 2016.28, 2018. This Proxy Statement provides information that should be helpful to you in deciding how to vote on the matters to be voted on at the Annual Meeting.
We are asking you to elect the nineten nominees identified in this Proxy Statement as directors of Darling until the next annual meeting of stockholders, to ratify our selection of KPMG LLP as our registered public accounting firm for our fiscal year ending December 31, 201629, 2018, and to vote to approve, on an advisory basis, our executive compensation.
 |
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In accordance with the General Corporation Law of the State of Delaware, our restated certificateRestated Certificate of incorporation,Incorporation, as amended, and our amendedAmended and restated bylaws,Restated Bylaws, our business, property and affairs are managed under the direction of the Board.
The Board has determined that each of its current non-employee directors, D. Eugene Ewing, Mary R. Korby, Charles Macaluso, John D. March, Justinus J.G.M. Sanders and Michael Urbut, as well as each ofUnder the new director nominees, Gary W. Mize and Cynthia Pharr Lee, meet the independence requirementscorporate governance listing standards of the New York Stock Exchange (the “NYSE”) and our company’s Corporate Governance Guidelines, the Board must consist of a majority of independent directors. In making independence determinations, the Board observes NYSE and Securities and Exchange Commission (the “SEC”(“SEC”). criteria and considers all relevant facts and circumstances. The Board, in coordination with its nominating and corporate governance committee, annually reviews all relevant business relationships any director nominee may have with our company. As a result of its annual review, the Board has determined that, with the exception of Dirk Kloosterboer, each of its othernon-employee directors who served during the fiscal year ended December 30, 2017, Charles Adair, D. Eugene Ewing, Linda Goodspeed, Mary R. Korby, Cynthia Pharr Lee, Charles Macaluso, Gary W. Mize and Michael E. Rescoe, meet the independence requirements of the NYSE and the SEC. Mr. Kloosterboer served as our Chief Operating Officer until his retirement effective October 1, 2017. As a result, he will not be eligible to meet the independence requirements of the NYSE until at least October 1, 2020. Even though Mr. Kloosterboer is not currently determined to be independent, he contributes greatly to the Board and our company through his wealth of experience, expertise and judgment, particularly with respect to our international operations.
During the fiscal year ended January 2, 2016,December 30, 2017, the Board held five regular meetings and ninetwo special meetings. Each of the servingthen-serving directors attended at least 75% of all meetings held by the Board and all meetings of each committee of the Board on which the applicable director served during the fiscal year ended January 2, 2016.December 30, 2017.
Stockholders and other interested parties who wish to communicate with the Board as a whole, or with individual directors, may direct any correspondence to the following address: c/o Secretary, Darling Ingredients Inc., P.O. Box 141481, Irving, Texas 75014-1481. All communications sent to this address will be shared with the Board, or the Lead Director or any other specific director or group of directors, if so addressed.
It is a policy of the Board to encourage directors to attend each annual meeting of stockholders. The Board’s attendance allows for direct interaction between stockholders and members of the Board. All of our directors attended our 20152017 annual meeting of stockholders.
Under our Board’s current leadership structure, we have a combined Chairman of the Board and Chief Executive Officer, an independent Lead Director, Board committees comprised entirely of independent directors and active engagement by all directors. Randall C. Stuewe, our Chief Executive Officer, serves as our Chairman of the Board pursuant to his employment agreement.agreement and subject to his continued election to the Board by stockholders. Because the Chairman of the Board is also the Chief Executive Officer, the Board has designated an independent director with robust, well-defined duties to serve as Lead Director to enhance the Board’s ability to fulfill its responsibilities independently. We believe that the combined role of Chairman and Chief Executive Officer, together with an empowered independent Lead Director, is at the current time the optimal Board structure to provide independent oversight and hold management accountable while ensuring that our company’s strategic plans are pursued to optimize long-term shareholderstockholder value.
| BOARD LEADERSHIP STRUCTURE |
∎ Chairman of the Board and CEO: Randall C. Stuewe ∎ Independent Lead Director: Charles Macaluso ∎ All Board committees comprised exclusively of independent directors ∎ Active engagement by all directors |
Duties and Responsibilities of Lead Director
Our company has an empowered independent Lead Director who is elected annually by our Board. The Board has most recently appointed Mr. Macaluso as lead director.Lead Director. Our Corporate Governance Guidelines establish well-defined duties for the Lead Director. The Lead Director’s role includes:
| convening and chairing meetings of the independent andnon-employee directors as necessary from time to |
| ∎ | approving Board meeting agendas after conferring with the Chairman of the Board and other members of the Board, as appropriate, and may add agenda items at his or her discretion; |
| approving agendas for executive sessions, the information sent to the Board and Board meeting schedules (to assure that there is sufficient time for discussion of all agenda items); |
| ∎ | coordinating the work and meetings of the standing committees of the |
| 2018 Proxy Statement 7 |
CORPORATE GOVERNANCE
Board Leadership Structure
| acting as liaison between directors, committee chairs and management; |
| serving as an information resource for other directors; |
| ∎ | assisting the Chairman and Chief Executive Officer in the recruitment and orientation of new directors; and |
| participating, as appropriate, in meetings with company stockholders. |
This list of duties of the Lead Director does not fully capture Mr. Macaluso’s active role in serving as our Board’s Lead Director. Among other things, Mr. Macaluso encourages and facilitates active participation of all directors, regularly speaks with our Chief Executive Officer regarding the business and affairs of our company, generally attends meetings of all Board committees and meets with other members of management from time to time.
Leadership Structure – Details and Rationale
Our Lead Director’s responsibilitiesBoard is committed to objective, independent leadership for our Board and authorities are more specifically describedeach of its committees. Our Board views the objective, independent oversight of management as central to effective Board governance, to serving the best interests of our company and our stockholders, and to executing our strategic objectives and creating long-term value. This commitment is reflected in our company’s governing documents, our Amended and Restated Bylaws, our Corporate Governance Guidelines.Guidelines, and the governing documents of each of the Board’s committees.
Our Board believes that its optimal leadership structure may change over time to reflect our company’s evolving needs, strategy, and operating environment; changes in our Board’s composition and leadership needs; and other factors, including the perspectives of stockholders and other stakeholders. Accordingly, each year the Board reviews and discusses the appropriate Board leadership structure, including the considerations described above. Based on that assessment and stockholder feedback, our Board believes that the existing structure, with Mr. Stuewe as Chief Executive Officer and Chairman and Mr. Macaluso as Lead Director, is the optimal leadership framework at this time. As a highly regulated global ingredients company for food, feed and fuel, we and our stockholders benefit from an executive Chairman with deep experience in and knowledge of the ingredients industry, our company, and its businesses, and a strong Lead Director with robust, well-defined duties. Our Chairman, as Chief Executive Officer, serves as the primary voice to articulate our strategy of long-term responsible growth, while our Lead Director, together
with the other experienced, independent directors, instills objective independent Board leadership, and effectively engages and oversees management, including by helping to establish our long-term strategy and regularly assessing its effectiveness.
The Board’s Role in Risk Oversight
The Board and each of its committees are involved in overseeing risk associated with our company. In its oversight role, the Board annually reviews our company’s strategic plan, which addresses, among other things, the risks and opportunities facing our company. While the Board has the ultimate oversight responsibility for the risk management process, it has delegated certain risk management oversight responsibilities to the Board committees. One of the primary purposes of the audit committee, as set forth in its charter, is to act on behalf of the Board in fulfilling its responsibilities to oversee company processes for the management of business/financial risk and for compliance with applicable legal, ethical and regulatory requirements. Accordingly, as part of its responsibilities as set forth in its charter, the audit committee is charged with (i) inquiring of management and our company’s outside auditors about significant risks and exposures and assessing the steps management has taken or needs to take to minimize such risks and (ii) overseeing our company’s policies with respect to risk assessment and risk management, including the development and maintenance of an internal audit function to provide management and the audit committee with ongoing assessments of our company’s risk management processes and internal controls. In connection with these risk oversight responsibilities, the audit committee has regular meetings with our company’s management, internal auditors and independent, outside auditors. The nominating and corporate governance committee annuallyperiodically reviews our company’s corporate governance guidelinesCorporate Governance Guidelines and their implementation, as well as evaluating regularly new and continuing directors for election to the Board. The compensation committee considers risks related to the attraction and retention of talented senior management and other employees as well as risks relating to the design of compensation programs and arrangements. Each committee provides the Board with regular, detailed reports regarding committee meetings and actions. In addition, our company employs Michael Rath as our Senior Vice President – Fats, Hides, EnergyCommodities and Chief Risk Officer. Mr. Rath reports directly to our CEO with respect to risk management and provides regular updates and reports to our CEO and Board regarding all of our company’s commodity risk positions.
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CORPORATE GOVERNANCE
Committees of the Board
The Board has a standing nominating and corporate governance committee, audit committee and compensation committee, each of which has a charter setting forth its responsibilities.
| NOMINATING AND CORPORATE GOVERNANCE COMMITTEE |
The nominating and corporate governance committee currently consists of Messrs. Macaluso (Chairman)
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| AUDIT COMMITTEE |
The audit committee currently consists of Messrs.
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CORPORATE GOVERNANCE
Stock Ownership Guidelines
The Board has determined in its own business judgment that all members of the audit committee are financially literate and have financial management expertise. The Board has designated Mr. Urbut, an independent director,each of Messrs. Ewing and Rescoe as an audit“audit committee financial expertexpert” in accordance with the requirements of the NYSE and the SEC.
Please see page 6462 of this Proxy Statement for the “Report of the Audit Committee.”
| COMPENSATION COMMITTEE |
The compensation committee currently consists of
∎ examining from time to time the overall compensation program for directors, including an evaluation of the status of our Board’s compensation in relation to comparable U.S. companies (in terms of size, business sector, etc.), and reporting its findings to the nominating and corporate governance committee;
The compensation committee may also, by a resolution approved by a majority of the compensation committee, form and delegate any of its responsibilities to a subcommittee so long as such subcommittee is solely comprised of one or more members of the compensation committee and such delegation is not otherwise inconsistent with law and the applicable rules and regulations of the SEC, NYSE or other securities exchange. |
Please see page 4641 of this Proxy Statement for the “Compensation Committee Report.”
The Board has adopted a Code of Conduct to which all officers, directors and employees, who for purposes of the Code of Conduct are collectively referred to as employees, are required to adhere in addressing the legal and ethical issues encountered in conducting their work. The Code of Conduct requires that all employees avoid conflicts of interest, comply with all laws, rules and regulations, conduct business in an honest and fair manner, and otherwise act with integrity. Employees are required to report any violations of the Code of Conduct and may do so anonymously by contacting Darling’s independent ombudsman.through our global Internet and telephone information and reporting service. The Code of Conduct includes specific provisions applicable to Darling’s principal executive officer and senior financial officers.
The Code of Conduct also addresses our company’s procedures with respect to the review and approval of “related party transactions” that are required to be disclosed pursuant to SEC regulations. The Code of Conduct provides that any transaction or activity, in which Darling is involved, with a “related party” (which is defined as an employee’s child, stepchild, parent, stepparent, spouse, sibling,mother-in-law,father-in-law,son-in-law,daughter-in-law,brother-in-law, orsister-in-law, or any person (other than a tenant or employee) sharing the household of an employee of ours, or any entity that is either wholly or substantially owned or controlled by an employee of ours or any of the foregoing persons and any trust of which an employee of ours is a trustee or beneficiary) shall be subject to review by our general counsel so that appropriate measures can be put into place to avoid either an actual conflict of interest or the appearance of a conflict of interest. Any waivers of this conflict of interest policy must be in writing and bepre-approved by our general counsel.
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CORPORATE GOVERNANCE
Committees of the Board
Stock Ownership Guidelines
Stock Ownership Guidelines; Prohibition on Short-Term and Speculative Trading and Pledging
The Board has adopted stock ownership guidelines to further align the interests of ournon-employee directors and officers with those of our stockholders, by requiring the following minimum investment in Darling common stock:
| ROLE | MINIMUM OWNERSHIP | |
Chief Executive Officer | 5x base salary | |
President, Executive Vice Presidents and Named Executive Officers | 2.5x base salary | |
Senior Vice Presidents (or equivalents) | 1x base salary | |
Non-Employee Directors | 5x annual retainer |
Each person to whom the stock ownership guidelines apply must hold at least 75% of shares received by such person through incentive awards (after sales for the payment of taxes and shares withheld to cover the exercise price of stock options) until such person is in compliance with the stock ownership guidelines referred to above. In determining whether the required investment levels have been met, shares will be valued using the closing price of Darling common stock on the date(s) acquired; however, shares held on March 23, 2011 (the date that the stock ownership guidelines were adopted) will be valued at the closing price of Darling common stock on such date. In addition, under the Company’s policy on securities transactions, each person subject to the stock ownership guidelines is prohibited from engaging in (i) short-term trading (generally defined as selling Company securities within six months following the purchase), (ii) short sales, (iii) transactions involving derivatives or (iv) hedging transactions. Furthermore, our Chief Executive Officer, ournon-employee directors and each other officer who is subject to the requirements of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is prohibited from holding Company securities in a margin account or pledging Company securities as collateral for a loan.
Copies of the Corporate Governance Guidelines, the Board committee charters and the Code of Conduct are available on our website at http://ir.darlingii.com/Documents.corporate-governance. Stockholders may request copies of these documents free of charge by writing to Darling Ingredients Inc., 251 O’Connor Ridge Blvd., Suite 300, Irving, Texas 75038, Attn: Investor Relations.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended January 2, 2016,December 30, 2017, Messrs. Ewing, MarchAdair and Sanders, as well as former director O. Thomas Albrecht,Mize and Mses. Korby, Goodspeed and Pharr Lee served on the compensation committee. Mr. Albrecht passed away on December 4, 2015. No compensation committee member (i) was an officer or employee of Darling, (ii) was formerly an officer of Darling or (iii) had any relationship requiring disclosure under the SEC’s rules governing disclosure of related person transactions. During the fiscal year ended January 2, 2016,December 30, 2017, we had no “interlocking” relationships in which (i) an executive officer of Darling served as a member of the compensation committee of another entity, one of whose executive officers served on the compensation committee of Darling, (ii) an executive officer of Darling served as a director of another entity, one of whose executive officers served on the compensation committee of Darling, or (iii) an executive officer of Darling served as a member of the compensation committee of another entity, one of whose executive officers served as a director of Darling.
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ELECTION OF DIRECTORS |
Our current Board consists of eightten members. One of our current directors, John D. March, will retire as a director immediately following the Annual Meeting and will therefore not stand for reelection in 2016. The nominating and corporate governance committee recommended and the Board approved the nomination of the following nineten nominees for election as directors at the Annual Meeting: Charles Adair, D. Eugene Ewing, Linda Goodspeed, Dirk Kloosterboer, Mary R. Korby, Cynthia Pharr Lee, Charles Macaluso, Gary W. Mize, Justinus J.G.M. Sanders,Michael E. Rescoe and Randall C. Stuewe and Michael Urbut.Stuewe. Each of the director nominees currently serves on the Board and was elected by the stockholders at our 20152017 Annual Meeting of Stockholders, except for Mr. Mize and Ms. Pharr Lee who were nominated by the Board in March 2016 to stand for election at the Annual Meeting. Both Mr. Mize and Ms. Pharr Lee were identified as potential directors by the nominating and corporate governance committee, who determined that they were qualified under the committee’s criteria. Ms. Pharr Lee was recommended as a potential Board candidate through Mr. Macaluso and Mr. Mize was recommended as a potential Board candidate to the nominating and corporate governance committee through the National Association of Corporate Directors.Stockholders.
At the Annual Meeting, the nominees for director are to be elected to hold office until the next annual meeting of stockholders and until their successors have been elected and qualified. Each of the nominees has consented to serve as a director if elected. If any of the nominees become unable or unwilling to stand for election as a director (an event not now anticipated by the Board), proxies will be voted for a substitute as designated by the Board. The following sets forth information regarding the age, gender and tenure of the Board nominees as a whole.
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PROPOSAL 1 – ELECTION OF DIRECTORS
Nominees
Set forth below is the age, principal occupation and certain other information for each of the nominees for election as a director.
 | Randall C. Stuewe
Director since 2003
Age: |
Mr. Stuewe has served as our Chairman and Chief Executive Officer since February 2003. From 1996 to 2002, Mr. Stuewe worked for ConAgra Foods, Inc. (ConAgra) as executive vice president and then as president of Gilroy Foods. Prior to serving at ConAgra, he spent twelve years in management, sales and trading positions at Cargill, Incorporated.
Skills and Qualifications
Mr. Stuewe brings a seasoned set of management and operating skills to Darling’s Board. The Company believes Mr. Stuewe’s 2530 plus years of experience at various agriculture processing businesses qualifies him to be both Chairman and Chief Executive Officer.
 | Charles Adair Director since 2017 Age: 66 Compensation Committee |
Mr. Adair retired as Vice Chairman at BMO Capital Markets, a financial services provider, in August 2016. While at BMO Capital Markets Mr. Adair was responsible for initiating and negotiating investment banking transactions in the Food & Agribusiness sectors. Before joining BMO Capital Markets, he was Senior Vice President and manager of the Harris Capital Markets Group, also a financial services provider, which became the nucleus of the BMO Capital Markets Chicago office. Prior to BMO, Mr. Adair was Director of North American Mergers and Acquisitions for the Australian based agribusiness firm Elders Grain, Inc. where he initiated and executed acquisitions. Early in his career, Mr. Adair held senior positions in domestic and export cash grain trading, futures trading, and transportation logistics with Consolidated Grain and Barge Co. Mr. Adair currently serves as a director of Aryzta AG, a public global bakery business based in Zurich Switzerland where he serves as chairman of the remuneration committee.
Skills and Qualifications
With over 36 years of experience in the global Food & Agribusiness marketplace, advising and consolidating poultry, pork, beef andby-product recycling companies, in addition to other related sectors, Mr. Adair brings specific industry expertise and financial markets knowledge relevant to Darling’s global business.
| 2018 Proxy Statement 13 |
PROPOSAL 1 – ELECTION OF DIRECTORS
Nominees
 | D. Eugene Ewing
Director since 2011
Age:
Audit
- Chairman
Nominating and Corporate Governance Committee |
Mr. Ewing has been the managing member of Deeper Water Consulting, LLC, a private wealth and business consulting company since March, 2004. Previously, Mr. Ewing was with the Fifth Third Bank. Prior to that, Mr. Ewing was a partner in Arthur Andersen LLP. Mr. Ewing currently serves as a director of Compass Diversified Holdings, where he serves as chairman of the audit committee and as a member of the compensation committee.and nominating/corporate governance committees. Mr. Ewing is on the advisory board for the Von Allmen School of Accountancy at the University of Kentucky. Mr. Ewing is also a director of a private trust company located in Wyoming and a private consulting company located in California.Wyoming.
Skills and Qualifications
As a former partner with a respected independent registered accounting firm and with over 30 years of business planning and transaction experience in a wide variety of industries and circumstances, Mr. Ewing brings to our Board a substantial level of experience with and understanding of complex accounting, reporting and taxation issues, SEC filings and corporate merger and acquisition transactions. Mr. Ewing also serves asEwing’s financial certification and education along with his current and past experiences qualify him to be the Chairman of our audit committee and to serve as one of its financial experts.
 | Linda Goodspeed Director since 2017 Age: 56 Compensation Committee |
Ms. Goodspeed is the retired Chief Operating Officer and a Managing Partner at WealthStrategies Financial Advisors, a registered investment advisory firm, positions she held from 2007 until her retirement in 2017, and currently serves as a member of the board of directors of each of the following companies: American Electric Power Company, Inc., where she serves on the nuclear oversight, audit and policy committees; AutoZone, Inc., where she serves on the audit and compensation committees; and Global Power Equipment Group Inc., where she serves as chair of the compensation committee and brings a thorough understandingmember of compensation systems necessarythe audit committee. She had served as Senior Vice President and Chief Information Officer of The ServiceMaster Company, a provider of home services, from 2011 to retain2014. From 2008 to September 2011, Ms. Goodspeed served as Vice President, Information Systems and attract talent,Chief Information Officer for Nissan North America, Inc., a subsidiary of Nissan Motor Company, a global manufacturer of vehicles. From 2001 to 2008, Ms. Goodspeed served as wellExecutive Vice President at Lennox International Inc., a global manufacturer of air conditioning, heating and commercial refrigeration equipment. During the past five years, Ms. Goodspeed also served as a focus ondirector of the Columbus McKinnon Corp.
Skills and Qualifications
Ms. Goodspeed’s extensive experience in long-term succession issues for corporate management.management roles and as a member of the board of directors of public companies makes her well qualified to serve as a director on our Board. She has held multiple key strategic and operational roles with several large global companies and in information technology and currently serves on three other boards of public companies. Ms. Goodspeed is also a registered investment advisor.
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PROPOSAL 1 – ELECTION OF DIRECTORS
Nominees
 | Dirk Kloosterboer
Director since 2014
Age: |
Mr. Kloosterboer has served as our Chief Operating Officer sincefrom January 2014.2014 until his retirement in October 2017. He served as chief operations officer and a director and vice chairman of the board of VION N.V. from 2008 until we acquired VION Ingredients in January 2014, which is now known as Darling Ingredients International. From September 2012 to April 2013, Mr. Kloosterboer served as chief executive officer of VION N.V.
Skills and Qualifications
Under Mr. Kloosterboer’s leadership, VION Ingredients made more than ten acquisitions, expanding into the gelatin and casings businesses and extending VION Ingredients’ geographic presence to China, Brazil, the United States, Japan and Australia. Mr. Kloosterboer is a highly seasoned international business executive and, through his long tenure at VION Ingredients, Mr. Kloosterboer brings extensive experience in the international animalby-products industry to our Board.
 | Mary R. Korby
Director since 2014
Age: Compensation Committee - Chairman Nominating and Corporate Governance Committee |
Ms. Korby retired as a partner of the law firm of K&L Gates LLP, after having practiced law for more than 19 years as a partner at the law firms of K&L Gates LLP and previously, Weil Gotshal & Manges.Manges LLP. During her legal practice, Ms. Korby advised boards of directors and companies regarding securities law compliance, stock exchange listings, disclosure issues and corporate governance, as well as tender offers, joint ventures and mergers and acquisitions, including complex cross-border public and private transactions in diverse industries such as chemicals, defense, recycling, green energy, aviation, and manufacturing.
Skills and Qualifications
As a former partner at two major, global law firms, Ms. Korby brings to our Board a substantial level of experience with andan understanding of complex merger and acquisition transactions, securities law compliance, governance and other Board relatedBoard-related matters. Ms. Korby also serves as Chairman of our compensation committee, where she utilizes her extensive experience in counseling companies on governance and other corporate matters, including executive compensation issues.
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PROPOSAL 1 – ELECTION OF DIRECTORS
Nominees
 | Cynthia Pharr Lee
Director
Age: Audit Committee Compensation Committee |
Ms. Pharr Lee has served as president and CEOis chairman of C. Pharr & Company,Dala Communications, a marketing communications firm since 1996.firm. From 1989 to 1996, Ms. Pharr Lee was CEO of Tracy-Locke/Pharr Public Relations, a division of Tracy-Locke which is a subsidiary of Omnicom.Omnicom (NYSE:OMC). During her lengthy career as a communications executive and corporate board member, Ms. Pharr Lee has counseled diverse companies regarding reputation and risk management; marketing, branding and digital communications; strategy; corporate social responsibility; media relations and investor relations in diverse industries ranging from food and beverage, construction, financial services, technology, transportation, energy, manufacturing and petrochemicals.relations. Ms. Pharr Lee has served as a director of Behringer Harvard OpportunityLightstone Value Plus REIT IIV and its predecessor since 2007, where she serves on the audit and nominating committees. In November 2015, she joined the board of Auto Club Enterprises (AAA). From 1994 to 2014,Previously, she has served on the boardboards of CEC Entertainment where she served on the auditEnterprises (NYSE:CEC) and compensation committees. From 1991 to 1999, she served on the board of Spaghetti Warehouse.Warehouse (NASDAQ). In 2008, Ms. Pharr Lee co-founded Texas Women Ventures, a private equity firm, where she continues to serve on the investment committee. In 2007, she earned a certificate of Director Education from the National Association of Corporate Directors (NACD) andFor NACD, Ms. Pharr Lee is a board memberdirector emeritus of NACD’sthe North Texas Chapter. In 2007, shechapter and has earned NACD’s designation of Board Leadership Fellow and also completed its CERT Cybersecurity Oversight Certification. She has also completed Harvard University’s Executive Education Compensation Committee Institute. In 2015, sheInstitute and earned certification in digital marketing from Harvard’sits Division of Continuing Education.
Skills and Qualifications
As an experienced public company board member and communications executive, Ms. Pharr Lee brings to our Board substantial experience with marketing, branding and communications, reputation and risk management, strategy and other relevant Board matters.
 | Charles Macaluso
Director since 2002
Age:
Lead Director
Nominating and Corporate Governance Committee - Chairman |
Since 1998, Mr. Macaluso has been a principal of Dorchester Capital, LLC, a management consulting and corporate advisory service firm focusing on operational assessment, strategic planning and workouts. From 1996 to 1998, he was a partner at Miller Associates, Inc., a workout, turnaround partnership focusing on operational assessment, strategic planning and crisis management. Mr. Macaluso currently serves as a director of the following companies: GEO Specialty Chemicals, where he serves as the chairman of the board; Global Power Equipment Group Inc., where he serves as chairman of the board; Woodbine Acquisition Corp., where he serves on the audit and compensation committees; and Pilgrim’s Pride Corporation, where he serves on the audit committee. During the past five years, Mr. Macaluso also served as a director of the Elder Beerman Stores Corp., Global Crossing Limited and Woodbine Acquisition Corporation.
Skills and Qualifications
Mr. Macaluso brings substantial experience from both private equity and public company exposure. His extensive experience serving on the boards of directors of numerous public companies brings to our Board valuable experience in dealing with the complex issues facing boards of directors today and makes him duly qualified to serve as our Lead Director.
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PROPOSAL 1 – ELECTION OF DIRECTORS
Nominees
 | Gary W. Mize
Director
Age: Audit Committee Compensation Committee |
Since October 2009, Mr. Mize has held the position of partner and owner at MR & Associates, since October 2009.a provider of consulting and advisory services to agricultural based businesses. Mr. Mize served as President of Rawhide Energy LLC, an ethanol company, from April 2007 to April 2009. He also served asnon-executive Chairman at Ceres Global AG, a Canadian public company that serves as a vehicle for agribusiness investments, from December 2007 to April 2010, and has served as an independent director of Ceres Global AG and a membersince October 2013, where he currently serves as the chairman of itsthe audit committee since October 2013.and the nominating and corporate governance committee. Mr. Mize has also served as a director of Gevo, Inc. since 2011, where he currently serves as the audit committee chairman.chairman and as a member of the compensation committee. In addition, Mr. Mize served Noble Group, Hong Kong, as Global Chief Operating Officer and Executive Director from July 2003 to December 2005 andNon-Executive Director from December 2005 to December 2006. Previously, he was President of the Grain Processing Group at ConAgra Foods, Inc., President and Chief Executive Officer of ConAgra Malt and held various positions at Cargill, Incorporated.
Skills and Qualifications
Mr. Mize brings international business experience to the Board having previously held expatriate positions in Switzerland, Brazil and Hong Kong. His international experience, coupled with more than 35 years of experience in agribusiness make him a valuable addition to our Board.
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Director since
Age:
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Mr. Sanders has been employedRescoe served as executive vice-president and chief financial officer of Travelport Ltd. (travel services), a privately held company controlled by The Blackstone Group (BX), from November 2006 until October 2009. He served as executive vice president and chief financial officer of the Tennessee Valley Authority, a federal corporation that is the nation’s largest public power provider, from July 2003 until November 2006. Mr. Rescoe was a senior officer and the chief financial officer of 3Com Corporation, a global technology manufacturing company specializing in Internet connection technology for both voice and data applications, from April 2000 until November 2002. During 1999 and 2000, Mr. Rescoe was associated with Forstman Little & Company, a varietyleveraged buyout firm. Prior thereto, Mr. Rescoe was chief financial officer of executive positions throughout his career. Most recently,PG&E Corporation, a power and natural gas energy holding company, from 1997. For over a dozen years prior to that Mr. Rescoe was a senior investment banker with Kidder, Peabody & Co. and a senior managing director of Bear Stearns specializing in strategy and structured financing. Mr. Rescoe currently serves as a member of the board of directors of Global Power Equipment Group Inc. From May 2011 until February 2014, Mr. Rescoe served on our Board, where he was employed from 2010 to June 2014 as the Chief Executive Officer of PSV NV Eindhoven, a professional European soccer team. In addition, since 2008 he has served as a private consultant to various businesses. From 1992 to 2008, he was employed in various managerial capacities by Campina BV, an international dairy cooperative with revenues in excessmember of $5 billion in consumer productsthe audit and ingredients, including servingcompensation committees, and from December 2003 until October 2011, Mr. Rescoe served as the Chief Executive Officer from June 2000 to 2008. Prior to that, from 1988 to 1992,a director of Global Crossing Ltd., where he served as chairman of the Chief Financial Officer of HCS Technology NV, a listed company in the Netherlands involved in automation and office equipment, and from 1980 to 1988 he served in various managerial functions at Mars Incorporated in Europe and in Australia.audit committee.
Skills and Qualifications
Mr. Sanders brings extensive international experienceRescoe’s strong financial background provides financial expertise to the Board, including a deep understanding of financial statements, corporate finance, accounting and capital markets and qualifies him to serve as one of the financial experts of the audit committee. His prior service on our Board. AsBoard gives him a former Chief Executive Officer, Mr. Sanders provides extensive knowledge in all aspectsthorough understanding of operating an internationalour feed ingredients business. In addition, his experience in the agricultural and consumer product manufacturing industries is an attribute to our Board.
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PROPOSAL 1 – ELECTION OF DIRECTORS
Nominees
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Mr. Urbut served as a director of FSB Global Holdings, Inc. or its predecessor Fresh Start Bakeries, Inc. from 1999 until 2010, during which time he served as chair of its audit committee. Previous to 1999, Mr. Urbut worked in various management capacities at several foodservice-related companies.
Skills and Qualifications
Mr. Urbut brings extensive experience as an executive in the foodservice and rendering industries. In addition, Mr. Urbut has spent a significant portion of his professional career as a financial executive. Mr. Urbut’s financial certification and education along with his current and past experiences as a Chief Financial Officer qualify him to be the Chairman of our audit committee and to serve as its financial expert.
The Board is responsible for approving nominees for election as directors. To assist in this task, the nominating and corporate governance committee is responsible for reviewing and recommending nominees to the Board. This committee is comprised solely of independent directors as defined by the rules of the NYSE and the SEC.
The Board has a policy of considering director nominees recommended by our stockholders. A stockholder who wishes to recommend a prospective board nominee for the nominating and corporate governance committee’s consideration can write to the Nominating and Corporate Governance Committee, c/o Secretary, Darling Ingredients Inc., P.O. Box 141481, Irving, Texas 75014-1481. In addition to considering nominees recommended by stockholders, our nominating and corporate governance committee also considers prospective board nominees recommended by current directors, management and other sources. Our nominating and corporate governance committee evaluates all prospective board nominees in the same manner regardless of the source of the recommendation.
As part of the nomination process, our nominating and corporate governance committee is responsible for reviewing with the Board periodically the appropriate skills and characteristics required of directors in the context of the currentmake-up of the Board. This
assessment includes issues of judgment, diversity, experience and skills. In evaluating prospective nominees, including nominees recommended by stockholders, our nominating and corporate governance committee looks for the following minimum qualifications, qualities and skills:
| highest personal and professional ethics, integrity and values; |
| outstanding achievement in the individual’s personal career; |
| breadth of experience; |
| ability to make independent, analytical inquiries; |
| ability to contribute to a diversity of viewpoints among board members; |
| willingness and ability to devote the time required to perform board activities adequately (in this regard, the committee will consider the number of other boards of directors on which the individual serves); and |
| ability to represent the total corporate interests of our company (a director will not be selected to, nor will he or she be expected to, represent the interests of any particular group). |
As set forth above, our nominating and corporate governance committee considers diversity as one of a number of factors in identifying nominees for director. It does not, however, have a formal policy in this regard. The committee views diversity
broadly to include diversity of experience, skills and viewpoint as well as traditional diversity concepts such as race, national origin and gender. The committee considers its current practice to be effective in identifying nominees for director who are able to contribute to the Board from diverse points of view.
Stockholders who wish to submit a proposal for inclusion of a nominee for director in our proxy materials must also comply with the deadlines and requirements of our bylawsAmended and Restated Bylaws and of Rule14a-8 of the Exchange Act promulgated by the SEC. Please see “Additional Information” in this Proxy Statement for more information regarding the procedures for submission by a stockholder of a director nominee or other proposals.
To be elected, each nominee for director must receive a majority of all votes cast (assuming a quorum is present) with respect to that nominee’s election. Abstentions and broker “non-votes”“non-votes” will not be counted as a vote cast with respect to a nominee.
 | The Board recommends that stockholders vote “FOR” each of the nominees set forth in Proposal 1. |
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Executive Officers and Directors
Our executive officers and directors, their ages and their positions as of March 16, 2016,14, 2018, are as follows. Our executive officers serve at the discretion of the Board.
| NAME | AGE | POSITION | ||||
| Randall C. Stuewe | Chairman of the Board and Chief Executive Officer | |||||
| Executive Vice President – Chief Financial Officer | ||||||
| John O. Muse | 69 | Executive Vice President – Chief Administrative Officer | ||||
| Rick A. Elrod | Executive Vice President – | |||||
| Jan van der Velden | Executive Vice President – | |||||
| John Bullock | 61 | Executive Vice President – Specialty Ingredients and Chief Strategy Officer | ||||
| Jos Vervoort | 59 | Executive Vice President – | ||||
| John F. Sterling | Executive Vice President – General Counsel and Secretary | |||||
| Director | ||||||
| Director | ||||||
| Linda Goodspeed(2) | 56 | Director | ||||
| Dirk Kloosterboer | 63 | Director | ||||
| Mary R. Korby(2) (3) | 73 | Director | ||||
| Cynthia Pharr Lee(1) (2) | 69 | Director | ||||
| Charles Macaluso(3) | Director | |||||
| Director | ||||||
| Michael | Director | |||||
| 1. | Member of the audit committee. |
| 2. | Member of the compensation committee. |
| 3. | Member of the nominating and corporate governance committee. |
| 4. | In accordance with requirements of the SEC and the NYSE listing requirements, the Board has designated |
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OUR MANAGEMENT
Executive Officers and Directors
For a description of the business experience of Messrs. Stuewe, Adair, Ewing, Kloosterboer, Ewing,Macaluso, Mize and Rescoe and Mses. Goodspeed, Korby Macaluso, Sanders and Urbut,Pharr Lee, see “Proposal 1 – Election of Directors.”
Brad Phillips has served as our Executive Vice President – Chief Financial Officer since January 2018. He has served in a number of different capacities for the Company since 1988. Most recently he served as our Vice President – Treasurer since May 2014. Previously, he held the positions of Treasurer from January 1993 to May 2014, Assistant Treasurer from January 1991 to January 1993, and Assistant Controller from October 1988 to January 1991. Prior to that, he was the Corporate Accounting Manager at Republic Health Corporation from 1984 to 1988, and from 1982 to 1984 he served in the audit group at Arthur Andersen.
John O. Muse has served as Executive Vice President—President – Chief FinancialAdministrative Officer since December 8, 2014.January 1, 2018. Prior to that, he served as our Chief Financial Officer from December 2014 to March 2017, our Chief Synergy Officer sincefrom January 2014 to December 2014, our Executive Vice President—President – Chief Administrative Officer from September 2012 to December 2013, our Executive Vice President—President – Finance and Administration from February 2000 to September 2012 and Vice President and Chief Financial Officer from October 1997 to February 2000. Prior to that, he was Vice President and General Manager at Consolidated Nutrition, L.C. from 1994 to 1997. He also held the position of Vice President of Premiere Technologies, a wholly-owned subsidiary of Archer-Daniels Midland Company from 1992 to 1994. From 1971 to 1992, Mr. Muse was Assistant Treasurer and Assistant Secretary at Central Soya Company, Inc.
Rick A. Elrod has served as our Executive Vice President – Dar Pro U.S.A.Darling U.S. Rendering Operations since April 2015. He has extensive experience in raw material procurement and plant operations, having served the Company in various managerial capacities since joining our subsidiary, Griffin Industries, in 1984. Most recently, he has served as the Company’s Senior Vice President – Eastern Region from January 2011 to April 2015. Mr. Elrod is involved in several state associations within the industry as well as the National Chicken Council, the U.S. Poultry Protein Council and the National Renderers Association.
Jan van der Velden has served as our Executive Vice President – ERSInternational Rendering and Specialties since January 2014.October 2017. He has served in a number of different capacities for Darling Ingredients International (formerly known as VION Ingredients) since June 1989. Most recently, he has served as the Executive Vice President – ERS from January 2014 to October 2017, Managing Director of ERS for VION Ingredients sincefrom March 2012 to January 2014, and the Vice President Raw Materials & Logistics for VION Ingredients sincefrom January 2001.2001 to March 2012. From May 2005 to March 2012, he also served as the managing director of VION Ingredients Germany. He also served as a member of the board of VION Ingredients.
John Bullock has served as our Executive Vice President – Chief Strategy Officer since January 2014.2014 and has been in charge of our U.S. Specialty Ingredients businesses since 2015. Prior to that, he served as our Senior Vice President – Business Development from May 2012 to December 2013. Mr. Bullock began his career at General Mills, Inc. in 1978 in ingredient purchasing and risk management. From 1991 to 2004, Mr. Bullock worked for ConAgra Foods Inc., where he led the mergers and acquisitions group of the ConAgra Trading and Processing Companies, with responsibility for leading the company’s growth initiatives and acquiring numerous businesses throughout the world. From 2004 to May 2012, Mr. Bullock operated JBULL INC., a boutique consulting firm he formed specializing in enhancing margin opportunities for agricultural business expansions and developing renewable fuels, during which time he consulted on numerous projects for our company, including its effort in the development and construction of the Diamond Green Diesel Facility.facility.
Jos Vervoort has served as our Executive Vice President – Rousselot since May 2017. He has served in a number of different capacities for Darling Ingredients International (formerly known as VION Ingredients) since March 2006. Most recently, he served as Vice President of Rousselot from November 2015 to May 2017. From January 2008 to November 2015, he served as Managing Director of Rousselot EMEA. He also served as a member of the board of VION Ingredients.
John F. Sterling has served as our Executive Vice President – General Counsel and Secretary since August 2007. From 1997 to July 2007, Mr. Sterling worked for Pillowtex Corporation, where he served as Vice President, General Counsel and Secretary since 1999. Mr. Sterling began his career with the law firm of Thompson & Knight LLP, where he was a member of the firm’s corporate and securities practice area.
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Compensation Discussion and Analysis
| EXECUTIVE OVERVIEW | 21 | |||
| 27 | ||||
| USE OF PEER COMPANIES IN SETTING EXECUTIVE COMPENSATION AND MEASURING PERFORMANCE | 29 | |||
| MIX OF SALARY AND INCENTIVE AWARDS (AT TARGET) | 31 | |||
| COMPONENTS OF FISCAL | 32 | |||
| OTHER FEATURES OF OUR COMPENSATION PROGRAM | ||||
| 39 | ||||
The following discussion and analysis contains statements regarding future individual and company performance targets and goals. These targets and goals are disclosed in the limited context of our company’s compensation programs and shouldare not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
Our Compensation Discussion and Analysis describes the key features of our executive compensation program and the compensation committee’s (the “committee’s”) approach in deciding fiscal 20152017 compensation for our named executive officers (also referred to as our NEOs):
| NAME | TITLE | |
| Randall C. Stuewe | Chairman and Chief Executive Officer | |
| John | Executive Vice President — | |
| Rick A. Elrod | Executive Vice President — | |
| Jan van der Velden | Executive Vice President — International Rendering and Specialties | |
| Patrick C. Lynch | Former Executive Vice President — Chief Financial Officer | |
| John O. Muse | Executive Vice President — Chief Administrative Officer and Former Executive Vice President — Chief Financial Officer | |
| Dirk Kloosterboer | Former Chief Operating Officer |
All of our NEOs are based in the United States, except for Mr. van der Velden, who is, and Mr. Kloosterboer, who iswas, based in Europe at our corporate offices in Son, the Netherlands. Mr.Messrs. van der Velden’s and Kloosterboer’s compensation is denominated in Euroseuros and translated into U.S. dollars for reporting purposesherein at the average exchange rate during 20152017 of 1.1095141.128369 dollars per euro. Mr. Muse ceased to be an executive officer of our company on March 2, 2017, when Mr. Lynch replaced him as our Chief Financial Officer. Effective January 1, 2018, Mr. Muse once again became an executive officer of our company with his appointment as our Executive Vice President and Chief Administrative Officer. Mr. Kloosterboer retired as an employee of our company on October 1, 2017. Mr. Lynch’s employment with our company ended on December 14, 2017.
COMPANY PERFORMANCE HIGHLIGHTS
Our Business
Our company is a global developer and producer of sustainable natural ingredients from edible and inediblebio-nutrients, creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, technical,industrial, fuel, bioenergy, and fertilizer industries. With operations on five continents, the company collects and transforms all aspects of animalby-product streams into broadly usable and specialty ingredients, such as gelatin, edible fats, feed-grade fats, animal proteins and meals, plasma, pet food ingredients, organic fertilizers, yellow grease, fuel feedstocks, green energy, natural casings and hides. The company also recovers and converts usedrecycled oils (used cooking oil and commercial bakery residualsanimal fats) into valuable feed and fuel ingredients, and collects and processes residual bakery products into feed ingredients. In addition, the company provides environmental services, such as grease trap collection and disposal services to food service establishments environmentaland disposal services tofor waste solids from the wastewater treatment
| 2018 Proxy Statement 21 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
systems of industrial food processors and sells restaurant cooking oil delivery and collection equipment.processing plants. Our operations are organized into three segments, Feed Ingredients, Fuel Ingredients and Food Ingredients.
Our long-term strategy is to be recognized asFuel Ingredients segment includes our share of the global leaderresults of our equity investment in the production, development and value-adding of sustainable animal and nutrient recovered ingredients. In this regard, we will build, acquire and develop businesses where we believe we can achieve a sustainable top 3 market position within 5 years. In the last several years, we have used key acquisitions andDiamond Green Diesel Holdings LLC (“DGD”), a joint venture projectwith Valero Energy Corporation, to transform our platformconvert animal fats, recycled greases, used cooking oil, inedible corn oil, soybean oil, or other feedstocks that become economically and build future value through segment and product diversification and global expansion, as further described incommercially viable into renewable diesel, a biomass-based fuel that is interchangeable with petroleum-based diesel fuel but has a carbon lifecycle low enough to meet the charts below.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
most stringent Darling is a worldwide provider of a full-range of ingredients and services...low-carbon
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...with a platform that has been transformed by recent acquisitions/JVs to build
future value through segment and product diversification and global expansion
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This diversification and expansion strategy has increased our company’s size and scale, with net sales and pro forma adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) (including our Diamond Green Diesel (“DGD”) joint venture) increasing from $1.8 billion and $308.1 million, respectively, in fiscal 2013 to $3.4 billion and $558.3 million, respectively, in fiscal 2015, and has helped to temper (but not eliminate) our company’s exposure to commodity pricing, particularly in our Feed and Fuel Segments which are more susceptible to commodity price swings. In this regard, during the 2014 and 2015 eight quarter period, while prices declined on a $/metric ton basis 58% for crude spot (Cushing, OK), 47% for meat and bone meal (protein) ruminant (Illinois) and 35% for yellow grease (Illinois), our company’s pro forma adjusted EBITDA (including our DGD joint venture) in our Feed and Fuel Segments decreased only 19% over the same period. See Appendix A for a reconciliation of pro forma adjusted EBITDA to GAAP. fuel standards.
20152017 Business Highlights
Fiscal 20152017 presented a challenging operating environment, as our business continued to experience the impacts of a continued deflationary cycle within the agriculture sector and continued pricing pressure from increased global supplies of grains, proteins and oilseeds. Despite these challenging operating conditions, we continued to execute on our strategy tode-lever and to achieve operational and financial improvements intended to stabilize and grow profitability in businesses and geographic areas where sustainable and predictable margins can be achieved, as exemplified by the following:
20152017 PERFORMANCE HIGHLIGHTS
Key Operating Accomplishments
| Improved working capital (inventory, receivables, prepaids, accounts payable and accrued expenses) by |
| Diminished the impact of declining finished product prices on margins by appropriately adjusting raw material pricing globally. |
| Increased our total system raw material volumes |
Growth Achievements
| Continued construction on the expansion of |
| ∎ | Completed expansion of rendering facility in Poland and gelatin facility in Spain. |
| ∎ | Completedbolt-on acquisitions of a rendering business and a used oil collection business in the United States and purchased remaining minority interest in our Sonac China blood business. |
| ∎ | Approved and began greenfield construction on new |
| ∎ | Approved and began construction on our first full scale black soldier fly protein conversion facility in EnviroFlight, LLC, our joint venture with Intrexon Corporation. |
| ∎ | Continued construction on a new digester facility in Denderleeuw, Belgium and a new blood processing facility in Meering, Germany, as well as major expansions at our rendering facilities |
Realigned Capital Structure for Operating Conditions and Future Growth
| Successfully |
Pay for Performance
The committee has designed our executive compensation program to deliver pay in alignment with corporate, business unit and individual performance primarily based on the following twothree factors, which in turn are expected to align executive pay with returns to stockholders over time:
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
| ∎ | The total shareholder return of our company as compared to our Performance Peer Group. |
Pricing of our finished products is heavily influenced by global grain and oilseed supplies, livestockmeat production trends, crude oil pricing and foreign currency. While wecurrency values. We have diversified our business significantly during the last few years the recent deflationary cycle within the global commodity markets has had a significant impact on the price of our common stock. While weand remain a growth-oriented company focused on creating long-term value for its stockholders, our stockholders. However, deflationary cycles within the global commodity markets can have a significant impact on the price of our common stock, price is impacted by commodity price swings.as it did in 2015. As such, we believe that the current best indicator of our
| 22 2018 Proxy Statement |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
long-term performance versus our Performance Peer Group is a comparison of how competitively we deploy capital versus our Performance Peer Group as measured by a return on capital standard. The other primary factor in aligning our pay and performance is whether or not we have remained a growth-oriented company during the relevant performance period. To measure growth, we look at ouras measured by EBITDA, which is also the numerator for return on capital.
Performance againstpre-established EBITDA goals iswas a key element of our 20152017 annual incentive plan.plan. In the last several years, we have used key acquisitions and a joint venture project to transform our platform and build future value through segment and product diversification and global expansion. Consistent EBITDA growth will result in greater annual incentive plan payouts, while shortfalls in EBITDA will result in below target payouts. As the chart below indicates, our CEO’s total realizable compensation is well-aligned with our EBITDA performance.
| YEAR | 2011 | 2012 | 2013 | 2014 | 2015 | |||||||||||||||
| CEO Pay Measure: | ||||||||||||||||||||
| Realizable Pay 1-Year | $ | 5,334 | $ | 5,966 | $ | 5,504 | $ | 8,463 | $ | 3,609 | ||||||||||
| % Change | 12 | % | -8 | % | 54 | % | -57 | % | ||||||||||||
| Realizable Pay 1-Year (excl. Special) | $ | 5,334 | $ | 5,966 | $ | 5,504 | $ | 6,647 | $ | 3,609 | ||||||||||
| % Change | 12 | % | -8 | % | 21 | % | -46 | % | ||||||||||||
| Absolute Performance Measure: | ||||||||||||||||||||
| Proforma Adjusted Combined EBITDA (non-GAAP) | $ | 392.5 | $ | 314.5 | $ | 308.1 | $ | 594.2 | $ | 558.3 | ||||||||||
| * | For comparison purposes, 2016 Proforma Adjusted Combined EBITDA(non-GAAP) is also shown using 2014 exchange rates for the comparative period to enhance the visibility of the underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations. Our company had no material foreign operations prior to fiscal 2014, which is the year that our company acquired our Darling Ingredients International businesses from VION Holding, N.V. |
| ** | For comparison purposes, 2017 Proforma Adjusted Combined EBITDA(non-GAAP) is also shown using 2014 exchange rates, which results in an increase of $50.8 million in EBITDA, and including $92.9 million in EBITDA attributable to DGD and our North American biofuel operations that relates to 2017 performance. The $92.9 million in EBITDA relates to U.S. blenders tax credits for which DGD and our company are eligible, which for fiscal 2017 were not retroactively approved by Congress until February 2018. Although this $92.9 million in EBITDA is not included in the company’s or DGD’s 2017 financial statements, since it directly related to 2017 performance and was included in the company’s internal 2017 operating plan, in accordance with the annual incentive plan it was included for purposes of determining the achievement level of adjusted EBITDA used to calculate the payouts under the 2017 annual incentive plan. For more information, see “Components of Fiscal 2017 Executive Compensation Program – Annual Incentive Compensation – 2017 Performance Results and Award Payouts” contained later in this Compensation Discussion and Analysis section of the Proxy Statement beginning on page 35. |
| YEAR | 2013 | 2014* | 2015 | 2016 | 2017 | |||||||||||||||
| CEO Pay Measure: | ||||||||||||||||||||
| Realizable Pay1-Year | $ | 5,504 | $ | 8,463 | $ | 3,609 | $ | 7,148 | $ | 8,183 | ||||||||||
| % Change | 54 | % | -57 | % | 98 | % | 14 | % | ||||||||||||
| Realizable Pay1-Year (excl. Special) | $ | 5,504 | $ | 6,647 | $ | 3,609 | $ | 7,148 | $ | 8,183 | ||||||||||
| % Change | 21 | % | -46 | % | 98 | % | 14 | % | ||||||||||||
| Absolute Performance Measure: | ||||||||||||||||||||
| Reported Proforma Adjusted Combined EBITDA(non-GAAP) | $ | 308.1 | $ | 594.2 | $ | 558.3 | $ | 531.6 | $ | 476.4 | ||||||||||
NOTES:
EBITDA includes our Diamond Green DieselDGD joint venture, but excludes transaction related costs and foreign currency exchange impact on EBITDA. See Appendix A for a reconciliation to GAAP.
Realizable pay reflects the actual cash and intrinsic value of equity incentives awarded in a given year, using the stock price at the end of the year. For example, for 2015,2017, realizable pay equals base salary plus annual incentives earned for 20152017 performance plus shares and options granted on March 7, 2016 basedFebruary 6, 2017 and
| 2018 Proxy Statement 23 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
shares to be issued in the first quarter of 2020, assuming target PSU performance for 2017 to 2019 for PSUs awarded on performance ending in 2015 (actual results for 2013 to 2015 ROGI)February 6, 2017, plus the reported Summary Compensation Table values for Change in Pension Value andNon-Qualified Deferred Compensation Earnings and All Other Compensation.
In 2014, the figures above also show the potential realizable value based on the December 31, 2014 stock price of a special award of performance share units awarded at the closing of the acquisition of VION Ingredients. The one-third of the award relating to 2014 performance was earned and vested, the one-third of the award relating to 2015 performance was not earned and was forfeited and the remaining one-third of the award may be earned based on 2016 performance results. The committee does not consider this special award to be part of the ongoing compensation program.
| * | ||
| In 2014, the figures above also show the potential realizable value based on the December 31, 2014 stock price of a special award of performance share units awarded at the closing of the acquisition of VION Ingredients.One-third of the award relating to 2014 performance was earned and vested; the remainingtwo-thirds of the award relating to 2015 and 2016 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
We have used a return on capital standard, as defined, as the performance measure under ourlong-term incentive (“LTI”) program since 2010. In 2015,As in 2016, for 2017, we used return on gross investment (“ROGI”) as the return on capital performance measure for our LTI program, and we achieved performance for fiscal 2015 in the 66th percentile relative to our Performance Peer Group. For 2016, as part of the significant changes made to our compensation program, we have switched to return on capital employed (“ROCE”) as the performance metric for our LTI program.program, together with a relative total shareholder return (“TSR”) modifier. Our compensation committee believes, given the substantial growth of our company over the last ten years, that ROCE moremost appropriately measures our ongoing operating performance against peers by excludingbecause it excludes goodwill from the calculation and thereby better focusingfocuses on the value of a particular asset and the working capital needed to runoperate that asset. Our return on capital targets are set to reflect the median historical performance levels for our Performance Peer Group, which is a challenging performance standard in the current deflationary cycle within the global commodity markets. Given the shift from ROGI to ROCE as the return on capital measure and the addition of a relative total shareholder return (“TSR”) modifier for 2016, theGroup. The following chart shows that by aligning our executive compensation with EBITDA and capital deployment performance, with a TSR modifier, the realizable pay levels provided by our executive compensation program to our CEO are aligned to our stock price performance over the long-term:
| INDEX YEAR | INDEX YEAR | INDEX YEAR | ||||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||||||||||||||||||||||||||||
| 2012 | 2012 | 2013 | 2014 | * | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||
| CEO Pay Measure: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Realizable Pay 1-Year | $ | 5,334 | $ | 5,966 | $ | 5,504 | $ | 8,463 | $ | 3,609 | $ | 5,504 | $ | 8,463 | $ | 3,609 | $ | 7,148 | $ | 8,183 | ||||||||||||||||||||||||||||
| % Change | 12 | % | -8 | % | 54 | % | -57 | % | 54 | % | -57 | % | 98 | % | 14 | % | ||||||||||||||||||||||||||||||||
| Realizable Pay 1-Year (excl. Special) | $ | 5,334 | $ | 5,966 | $ | 5,504 | $ | 6,647 | $ | 3,609 | $ | 5,504 | $ | 6,647 | $ | 3,609 | $ | 7,148 | $ | 8,183 | ||||||||||||||||||||||||||||
| % Change | 12 | % | -8 | % | 21 | % | -46 | % | 21 | % | -46 | % | 98 | % | 14 | % | ||||||||||||||||||||||||||||||||
| TSR Index Measure: | ||||||||||||||||||||||||||||||||||||||||||||||||
| 1-Year TSR Indexed to 2010=100 | 100.0 | 100.1 | 117.0 | 156.4 | 136.7 | 79.2 | ||||||||||||||||||||||||||||||||||||||||||
| 1-Year TSR Indexed to 2012=100 | 100.0 | 133.7 | 116.9 | 67.7 | 83.1 | 116.7 | ||||||||||||||||||||||||||||||||||||||||||
| 1-Year TSR % | 0.1 | % | 16.9 | % | 33.7 | % | -12.6 | % | -42.1 | % | 33.7 | % | -12.6 | % | -42.1 | % | 22.7 | % | 40.4 | % | ||||||||||||||||||||||||||||
NOTES:
Total Shareholder Return (TSR) performance is indexed to 2010,2012, where 20102012 equals 100 on the Index.
Realizable pay reflects the actual cash and intrinsic value of equity incentives awarded in a given year, using the stock price at the end of the year. For example, for 2015,2017, realizable pay equals base salary plus annual incentives earned for 20152017 performance plus shares and options granted on March 7, 2016 basedFebruary 6, 2017 and shares to be issued in the first quarter of 2020, assuming target PSU performance for 2017 to 2019 for PSUs awarded on performance ending in 2015 (actual results for 2013 to 2015 ROGI)February 6, 2017, plus the reported Summary Compensation Table values for Change in Pension Value andNon-Qualified Deferred Compensation Earnings and All Other Compensation.
In 2014, the figures above also show the potential realizable value based on the December 31, 2014 stock price of a special award of performance share units awarded at the closing of the acquisition of VION Ingredients. The one-third of the award relating to 2014 performance was earned and vested, the one-third of the award relating to 2015 performance was not earned and was forfeited and the remaining one-third of the award may be earned based on 2016 performance results. The committee does not consider this special award to be part of the ongoing compensation program.
| * | In 2014, the figures above also show the potential realizable value based on the December 31, 2014 stock price of a special award of performance share units awarded at the closing of the acquisition of VION Ingredients.One-third of the award relating to 2014 performance was earned and vested; the remainingtwo-thirds of the award relating to 2015 and 2016 annual performance results were not earned and were forfeited. The committee does not consider special award programs to be part of the ongoing compensation program. |
| 24 |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The committee believes that our executive compensation program effectively aligns pay with performance based on the key factors discussed above, thereby aligning executive pay with returns to stockholders and creating a growth–oriented, long-term value proposition for our stockholders.
SAY ON PAY ADVISORY VOTE RESULTS AND STOCKHOLDER ENGAGEMENT PROCESS
We have conducted a stockholder engagement process for the past several years and routinely interact with stockholders throughout the year about executive compensation and other matters. Stockholders are also provided an annual opportunity to provide feedback through an advisory say on pay vote on executive compensation. For 2016, our executive compensation program was significantly redesigned in response to stockholder feedback and say on pay results. At our 2017 Annual Meeting, approximately 98.6% of the votes cast were in favor of the advisory vote to approve executive compensation. Additionally, in 2017, members of the committee and management reached out to stockholders representing over 82% of our outstanding shares and held direct conversations with every stockholder who responded to our engagement request. Overall, we spoke with stockholders representing approximately 14% of our outstanding shares, with the chairman of our compensation committee leading the discussions. In the past three years, as part of our stockholder engagement process, the chairman of our compensation committee, together with members of senior management, has spoken with stockholders representing approximately 62% of our outstanding shares, and has spoken with two different proxy advisory firms. These discussions, together with the 2017 say on pay results, indicated strong support for our significantly redesigned executive compensation program and influenced the committee’s decision to maintain a consistent overall approach for 2017 and 2018. Stockholder engagement and the outcome of the say on pay vote results will continue to inform future compensation decisions.
BEST PRACTICES AND GOOD GOVERNANCE
Compensation Program Enhancements
Over the last several years, the committee and our Board significantly changed our compensation program after reviewing trends in executive compensation andpay-related governance policies and in response to say on pay results and stockholder feedback. We believe that these changes, which included the changes shown in the chart below, significantly enhanced our compensation program by sharpening alignment between executive compensation and the interests of our stockholders.
| 2018 Proxy Statement 25 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Ongoing Best Practices
The committee believes that our executive compensation program, as adjusted for these actions, continues to follow best practices aligned to long-term stockholder interests, as summarized below:
| ✓ | WHAT WE DO | |||
| ✓ | Significant portion of compensation is provided in the form of performance-based incentives | Consistent with goal of creating a performance-oriented environment. For CEO, 80% of annual target total direct compensation is performance-based. | ||
| ✓ | Alignment of pay and performance based on measurable goals for both annual and long-term awards | Annual incentive awards are based on internal EBITDA goals and the committee’s review of strategic, operational and personal goals. PSUs are earned based on three-year average ROCE goals relative to peer companies, with a relative TSR modifier. | ||
| ✓ | Balanced mix of awards tied to annual and long-term performance | For CEO, target annual incentive award opportunity and target long-term incentive award opportunity represent 20% and 60% of annual target total direct compensation, respectively. 100% of annual and long-term awards for NEOs are performance-based. | ||
| ✓ | Targeted Pay at 50th percentile of peers | Committee targets total direct compensation at the 50th percentile of peers for commensurate performance. | ||
| ✓ | Benchmark peers of similar revenues and business complexities | Committee benchmarks our executive compensation program and reviews the composition of our peer groups annually with the assistance of the independent compensation consultant. | ||
| ✓ | Maximum payout caps for annual cash incentive compensation and performance stock unit awards | Committee establishes a maximum limit on the number of PSUs and the amount of annual cash incentive that can be earned. | ||
| ✓ | Include “double trigger” change in control provisions in equity awards | Award agreements provide for vesting following a change in control only if there is also an involuntary termination of employment (double-trigger). | ||
| ✓ | Robust stock ownership and retention policy | CEO must hold at least 5x base salary in company stock; other NEOs must hold at least 2.5x. Executives are also required to hold at least 75% ofafter-tax shares until the ownership requirement is met. | ||
| ✓ | Compensation recoupment (clawback) policy | Recovery of annual or long-term incentive compensation based on achievement of financial results that were subsequently restated due to misconduct. | ||
| ✓ | Retention of an independent compensation consultant to advise the committee | Compensation consultant (Pearl Meyer) provides no other services to the company. | ||
| X | WHAT WE DON’T DO | |||
| x | No guaranteed annual salary increases or bonuses | For NEOs, annual salary increases are based on evaluations of individual performance, market data and economic conditions, while their annual cash incentives are tied to corporate and individual performance. | ||
| x | No supplemental executive retirement plans | Consistent with focus on performance-oriented environment; reasonable and competitive retirement programs are offered. | ||
| x | No change in control excise taxgross-ups | Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests. | ||
| x | No dividends on unearned PSUs | Dividend equivalents are accrued but not paid on PSUs until the performance conditions are satisfied and the PSUs vest after the performance measurement period. | ||
| x | No excessive perquisites | We offer only limited benefits as required to remain competitive and to attract and retain highly talented executives. | ||
| x | No discounted stock options, reload stock options or stock optionre-pricing without stockholder approval | Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests. | ||
| x | No short-term trading, short sales, transactions involving derivatives, hedging or pledging transactions for executive officers | Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests. | ||
| 26 2018 Proxy Statement |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
EXECUTIVE COMPENSATION HIGHLIGHTSBEST PRACTICES AND GOOD GOVERNANCE
The committee has designed our executive compensation program to deliver pay in alignment with corporate, business unit and individual performance. A large portion of total direct compensation is “at-risk” through long-term equity awards and annual cash incentive awards. These awards are linked to actual performance and include a significant portion of equity. The mix of total direct compensation for 2015 for our CEO and the average of our other NEOs is shown in the chart below.Compensation Program Enhancements
Ongoing Monitoring of Compensation Best Practices and Programs in a Dynamic Environment—Overview
Our company has undergone a major transformation in its business overOver the last several years, especially with the completion in January 2014 of the acquisition of the VION Ingredients business from VION Holding, N.V. that now operates under the name Darling Ingredients International. These recent transformations necessitate ongoing review of our compensation practices and policies. Following the transaction in 2014, the compensation committee evaluated then current practices and policies. While it found that the company’s programs continued to be appropriate and effective in driving stockholder value creation, and financial performance for compensation decisions, it nonetheless made limited changes to further improve upon good governance and best practices for decisions made in 2015 (discussed below under Fiscal 2015 Compensation Program Improvements at page 26).
In addition, in response to our 2015 say on pay vote (discussed in further detail below under Response to 2015 Say on Pay Advisory Vote and Stockholder Engagement Process at page 26), the committee conducted an even more in-depth analysis of our compensation and governance practices, including an enhanced stockholder outreach process and a thorough review of all aspects of our compensation strategies and program. This analysis resulted in significant changes to our compensation programs for fiscal 2016 and forward. These changes will impact 2016 compensation to be discussed in the proxy statement and corresponding tables filed in 2017.
Fiscal 2015 Compensation Actions at a Glance
The following summarizes the key compensation decisions for the NEOs for fiscal 2015:
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
These compensation decisions are discussed in more detail in this Compensation Discussion and Analysis and shown in the Summary Compensation Table and Grants of Plan-Based Awards Table that follows.
Fiscal 2015 Compensation Program Improvements
Summary of Changes to 2015 Compensation Program
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RESPONSE TO 2015 SAY ON PAY ADVISORY VOTE AND STOCKHOLDER ENGAGEMENT PROCESS
The Engagement Process
At our 2015 Annual Meeting, following four years of positive voting results, for the first time stockholders did not provide majority support for our NEOs’ compensation. In reaction, the committee intensified its ongoing stockholder outreach efforts to ensure stockholder perspectives and concerns were heard and well understood by the committee and the full Board. Specifically, the
committee conducted an in-depth analysis of our compensation and governance practices and engaged Pearl Meyer as its new independent compensation consultant. In addition, members of the committee and certain members of management reached out to stockholders representing over 80% of our outstanding shares at the time of outreach, to better understand the reasons for the vote outcome. We held direct conversations with every stockholder who responded to our engagement request, with the chair-
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
man of our compensation committee leading most of the discussions. We also met with two different proxy advisory firms. These meetings occurred in the second half of 2015, while the committee was considering changes to our executive pay program, to ensure that our 2016 pay decisions reflected the committee’s consideration of our stockholders’ comments. The primary focus of
these meetings was to seek specific feedback on our compensation program and review potential changes to our compensation program. The feedback received from our stockholders was tremendously valuable and was incorporated into the full committee’s discussion and determination of compensation program changes for 2016.
Fiscal 2016 Compensation Program Improvements
The committee and the Board significantly changed our compensation program after reviewing trends in executive compensation andpay-related governance policies and in response to the results of our 2015 say on pay voteresults and stockholder feedback, as summarized below.feedback. We notebelieve that some of these changes, will not be reflectedwhich included the changes shown in the compensation disclosed in this proxy statement because they were not made until after the 2015chart below, significantly enhanced our compensation program was in place. The committee believes these changes will sharpenby sharpening alignment between executive compensation and the interestinterests of our stockholders,stockholders.
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EXECUTIVE COMPENSATION
Compensation Discussion and support the achievement ofAnalysis
Ongoing Best Practices
The committee believes that our strategic and financial goals. For a more detailed discussion ofexecutive compensation program, as adjusted for these changes, please see “Fiscal 2016 Changesactions, continues to Our Executive Compensation Program” below.
Significant Actions Taken in Responsefollow best practices aligned to 2015 Say on Pay Votelong-term stockholder interests, as summarized below:
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| Consistent with goal of creating a performance-oriented environment. For CEO, 80% of annual target total direct compensation is performance-based. | |||
| ✓ | Alignment of pay and performance based on measurable goals for both annual and long-term awards | Annual incentive awards are based on internal EBITDA goals and the committee’s review of strategic, operational and personal goals. PSUs | ||
| ✓ | Balanced mix of awards tied to annual and long-term performance | For CEO, target annual incentive award opportunity and target long-term incentive award opportunity represent 20% and 60% of annual target total direct compensation, respectively. 100% of annual and long-term awards for NEOs are performance-based. | ||
| ✓ | Targeted Pay at 50th percentile of peers | Committee targets total direct compensation at the | ||
| ✓ | Benchmark peers of similar revenues and business complexities | Committee benchmarks our | ||
| ✓ | ||||
| Committee establishes a maximum limit on the number of PSUs and the amount of annual cash incentive that can be earned. | ||||
| ✓ | Include “double trigger” change in control provisions in equity awards | Award agreements provide for vesting following a change in control only if there is also an involuntary termination of employment (double-trigger). | ||
| ✓ | Robust stock ownership and retention policy | CEO must hold at least 5x base salary in company stock; other NEOs must hold at least 2.5x. Executives are also required to hold at least 75% ofafter-tax shares until the ownership requirement is met. | ||
| ✓ | Compensation recoupment (clawback) policy | Recovery of annual or long-term incentive compensation based on achievement of financial results that were subsequently restated due to misconduct. | ||
| ✓ | Retention of an independent compensation consultant to advise the committee | Compensation consultant (Pearl Meyer) provides no other services to the company. | ||
| X | WHAT WE DON’T DO | |||
| x | No | For NEOs, annual salary increases are based on evaluations of individual performance, market data and economic conditions, while their annual cash incentives are tied to corporate and individual performance. | ||
| x | No supplemental executive retirement plans | Consistent with focus on performance-oriented environment; reasonable and competitive retirement programs are offered. | ||
| x | No change in control excise taxgross-ups | Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests. | ||
| x | No dividends on unearned PSUs | Dividend equivalents are accrued but not paid on PSUs until the performance conditions are satisfied and the PSUs vest after the performance measurement period. | ||
| x | No excessive perquisites | We offer only limited benefits as required to remain competitive and to attract and retain highly talented executives. | ||
| x | No discounted stock options, reload stock options or stock optionre-pricing without stockholder approval | Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests. | ||
| x | No short-term trading, short sales, transactions involving derivatives, hedging or pledging transactions for | Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests. | ||
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We intend to continue to solicit stockholder feedback on our executive compensation program by holding an advisory say on pay vote on an annual basis
EXECUTIVE COMPENSATION
Compensation Discussion and will continue to consider the results of this process in evaluating the program and making future compensation decisions for the NEOs. We intend to seek an advisory vote on the frequency of our say on pay vote at the Annual Meeting to be held in 2017 and, taking into account the feedback from that vote, we will re-evaluate the frequency of the say on pay vote at that time.Analysis
BEST PRACTICES AND GOOD GOVERNANCE
The significant changes madeCompensation Program Enhancements
Over the last several years, the committee and our Board significantly changed our compensation program after reviewing trends in executive compensation andpay-related governance policies and in response to the 2015 say on pay vote also follow several years ofresults and stockholder feedback. We believe that these changes, which included the changes shown in the chart below, significantly enhanced our compensation program by sharpening alignment between executive compensation program enhancements byand the committee as summarized in the table below.interests of our stockholders.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Recent Updates
Executive Compensation and Governance Changes
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Ongoing Best Practices
The committee believes that our executive compensation program, as adjusted for these actions, continues to follow best practices aligned to long-term stockholder interests, as summarized below:
| WHAT WE DO | ||||
| Consistent with goal of creating a performance-oriented environment. For CEO, 80% of annual target total direct compensation is | ||||
| Alignment of pay and performance based on measurable goals for both annual and long-term awards | ||||
| Balanced mix of awards tied to annual and long-term performance | For CEO, target annual incentive award opportunity and target long-term incentive award opportunity | |||
| Committee targets total direct compensation at the 50th percentile of peers for commensurate performance. | ||||
| ✓ | Benchmark peers of similar revenues and business complexities | Committee benchmarks our executive compensation program and reviews the composition of our peer groups annually with the assistance of the independent compensation consultant. | ||
| ✓ | Maximum payout caps for annual cash incentive compensation and performance stock unit awards | Committee establishes a maximum limit on the number of PSUs and the amount of annual cash incentive that can be earned. | ||
| ✓ | Include “double trigger” change in control provisions in equity awards | Award agreements provide for vesting following a change in control only if there is also an involuntary termination of employment (double-trigger). | ||
| ✓ | Robust stock ownership and retention policy | CEO must hold at least 5x base salary in company stock; other NEOs must hold at least 2.5x. Executives are also required to hold at least 75% ofafter-tax shares until the ownership requirement is | ||
| Compensation recoupment (clawback) policy | Recovery of annual or long-term incentive compensation based on achievement of financial results that were subsequently restated due to | |||
| Retention of an independent compensation consultant to advise the committee | Compensation consultant (Pearl Meyer) provides no other services to the | |||
| WHAT WE DON’T DO | ||||
| x | No guaranteed annual salary increases or bonuses | For NEOs, annual salary increases are based on evaluations of individual performance, market data and economic conditions, while their annual cash incentives are tied to corporate and individual performance. | ||
| x | No supplemental executive retirement plans | Consistent with focus on performance-oriented environment; reasonable and competitive retirement programs | ||
| x | No change in control excise taxgross-ups | Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder | ||
| x | No | |||
| x | No excessive perquisites | We offer only limited benefits as required to remain competitive and to attract and retain highly talented executives. | ||
| x | No discounted stock options, reload stock options or stock optionre-pricing without stockholder approval | Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder | ||
| x | No short-term trading, short sales, transactions involving derivatives, hedging or pledging transactions for executive officers | Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder | ||
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
EXECUTIVE COMPENSATION HIGHLIGHTS
The committee has designed our executive compensation program to deliver pay in alignment with corporate, business unit and individual performance. A large portion of total direct compensation is“at-risk” through long-term equity awards and annual cash incentive awards. These awards are linked to actual performance and include a significant portion of equity. See charts on page 31 for more information regarding the target annual compensation mix for our CEO and other NEOs.
Fiscal 2017 Compensation Actions at a Glance
With the exception of Mr. Muse, a substantial amount of the NEOs’ fiscal 2017 compensation was in the form of annual and long-term incentives, providing, as in prior years, a strong incentive to increase stockholder value. From 60% to 80% of the NEOs’ total direct compensation was performance-based. Mr. Muse did not participate in our fiscal 2017 incentive programs (annual or long-term) due to the planned cessation of his duties as an executive officer of our company in March 2017. The following summarizes the key compensation decisions for the NEOs for fiscal 2017:
| ◾ | Base salary: The committee approved base salary increases in 2017 for each of our NEOs, except for Mr. Lynch who was not employed in 2016. Excluding Mr. van der Velden, who was not an NEO in 2016, these increases averaged 6.88%. This represents the first base salary increase in three years for Mr. Stuewe and in two years for Messrs. Bullock, Elrod and Muse. |
| ◾ | Annual Incentive Bonus: In fiscal 2017, the Company achieved global adjusted EBITDA of approximately 111.8% of target, and each of our NEOs achieved substantially all of their strategic, operational and personal (“SOP”) goals. As a result, Mr. Stuewe earned a 2017 annual incentive bonus equal to about 175% of his target and the other NEOs earned payouts ranging from about 141% to 200% of target. |
| ◾ | Long-Term Incentive (LTI) Awards: As in the prior year, LTI awards had a target grant date value of from 40% to 60% of the NEO’s annual target total compensation, through a target value mix of performance share units (PSUs) (60%) tied to three-year, forward looking performance and stock options (40%). |
These compensation decisions are discussed in more detail in this Compensation Discussion and Analysis and shown in the Summary Compensation Table and Grants of Plan-Based Awards Table that follow.
Compensation Program Objectives and Philosophy
The committee has designed our executive compensation program to serve several key objectives:
| attract and retain superior employees in key positions, with compensation opportunities that are competitive relative to the compensation paid to similarly-situated executives at companies similar to |
| reward the achievement of specific annual, long-term and strategic goals; and |
| align the interests of our NEOs with those of our stockholders by placing a significant portion of total direct compensation at risk (80% for our CEO), and rewarding performance that exceeds that of our peer companies, through the use of equity-based LTI awards and a share ownership and retention policy, with the ultimate objective of improving stockholder value over |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In the chart below, we have summarized how the 20152017 executive compensation program supports these executive compensation program objectives.
| OBJECTIVE | HOW WE MET THIS OBJECTIVE IN | |
| Attract and retain superior employees in key positions, with compensation opportunities that are competitive relative to the compensation |
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| Reward the achievement of specific annual, long-term and strategic |
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| Align the interests of our NEOs with those of our stockholders by rewarding performance that exceeds that of our peer companies, through the use of equity-based LTI awards and a share ownership and retention policy, with the ultimate objective of improving stockholder value over |
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∎ Included a holding period requirement for the PSUs, such that vested and earned PSUs (net of shares needed to pay taxes) will be subject to a holding period (restriction on sale) for two years after the end of the performance period. | ||
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
ROLES OF COMPENSATION COMMITTEE, MANAGEMENT AND INDEPENDENT CONSULTANTS
Compensation Committee
The committee has primary responsibility for overseeing our executive compensation program. The Board appoints the members of the committee. Each member of the committee is an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code. Additionally, the Board has determined that each member of the committee meets the applicable requirements for independence established by applicable SEC rules and the listing standards of the NYSE. The committee:
| oversees our various compensation plans and programs and makes appropriate design decisions, |
| retains responsibility for monitoring our executive compensation plans and programs to ensure that they continue to adhere to our company’s compensation philosophy and objectives, and |
| determines the appropriate compensation levels for all executives, including the NEOs. |
The committee meets on a regular basis and generally without members of management present. The committee’s duties and responsibilities are described in its charter, which can be found on our website at http://ir.darlingii.com/Documents.corporate-governance. The committee and the Board periodically review and, as appropriate, revise the charter.
As provided by its charter and discussed in greater detail below, the committee engages an independent compensation consultant to advise it on the design of our executive compensation program. TheAs in the prior year, the committee engaged Aon HewittPearl Meyer to advise it in connection with the 20152017 executive compensation program. In August 2015, the committee engaged Pearl Meyer as its new independent compensation consultant. To determine the appropriate compensation levels, the committee
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
considers, in conjunction with recommendations from its independent compensation consultant:
| Total compensation paid to the NEOs, including retirement and post-retirement benefits and fringe benefits. |
| Our company’s long-term and short-term strategic and financial objectives. |
| Our company’s performance, the |
| How to balance short-term and long-term compensation to provide fair near-term compensation, to align executive pay with long-term stockholder value, and to avoid structures that would encourage excessive risk taking. |
The committee periodically reviews our executive compensation program to ensure that it remains competitive and provides the proper balance between cash and equity, and between short-term and long-term incentive compensation. The committee’s regular analysis and refinement of the compensation program ensures continuing alignment of the elements of the compensation program with our company’s business strategy and stockholder interests. During this process, the committee:
| Evaluates the design of our compensation program to align pay and performance; |
| Evaluates the executive compensation policies to ensure a continued nexus between executive compensation and the creation of stockholder value; |
| Seeks to ensure that our company’s compensation programs remain competitive, including comparing the total direct compensation paid by our company with that of our |
| Considers feedback received from our stockholders during |
| Consults as needed with its independent compensation consultant to review and refine the elements of our compensation programs to ensure that our executive compensation meets our stated objectives and is consistent with the company’s compensation philosophy; and |
| Takes into consideration appropriate corporate acquisitions and material investments, if any, and the resulting impact on the size and complexity of our company’s business. |
In addition to its responsibilities for executive compensation plans and programs, the committee also reviews and evaluates and makes recommendationsfrom time to the Board regardingtime our management and director compensation plans, policies and programs and reports its findings to the nominating and corporate governance committee, and reviews compensation and benefit plans, policies and programs for management and other employees.employees, as appropriate.
Role of Chief Executive Officer
The committee annually evaluates the performance of the Chief Executive Officer who, in turn, on an annual basis, reviews the performance of his direct reports, which include each of the NEOs other than himself. The Chief Executive Officer presents his conclusions and recommendations with respect to performance and pay, including recommendations with respect to base salary adjustments and incentive award amounts, to the committee. The committee considers this information and then exercises its judgment in adopting or modifying any recommended adjustments or awards to be made to the NEOs.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Use of an Independent Compensation Consultant
The committee’s charter allows the committee to engage an independent compensation consultant to advise the committee on the design of our executive compensation. For part ofAs in the prior year, for fiscal 2015,2017, the committee engaged Aon Hewitt,Pearl Meyer, an independent global human resourcesexecutive compensation consulting firm, to counsel the committee on various factors relating to the development of our 20152017 executive compensation program, including the selection criteria for our peer groups. In August 2015, in connection with its in-depth analysis of our compensation and governance practices, the committee engaged Pearl Meyer, an independent executive compensation consulting firm, as its new independent compensation consultant. In this capacity, Pearl Meyer assisted us in our stockholder outreach program following our 2015 Annual Meeting and counseled the committee on various factors relating to the changes to our compensation program for 2016.program.
Aon Hewitt was, and Pearl Meyer is engaged directly by, and is fully accountable to, the committee. The committee has determined, after considering independence factors provided by the SEC and the NYSE, that neither Aon Hewitt nor Pearl Meyer hasdoes not have any conflicts of interest that would prevent them from being objective. In reaching this determination, the committee considered:
Use of Peer Companies in Setting Executive Compensation and Measuring Performance
Purpose
The committee uses peer groups for the following purposes:
| To assess the company’s performance with respect to annual and long-term incentive plans; and |
| To assess executive compensation |
We use different peer groups to evaluate the competitiveness of pay levels and to establish performance standards. The committee believes that it is appropriate to use companies that are generally similar in size to our company for pay comparisons (the “Pay
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Levels Peer Group”). For performance comparisons, however, the committee believes it is appropriate to use a broader peer group that is not limited by size or location to set the standards for long-term incentive plan performance, as company size and location do not materially influence performance comparisons (the “Performance Peer Group”). Although the committee is referencing two different peer groups, there is a substantial overlap of 14 companies as shown in the table that follows.
The committee uses competitive pay information derived from the Pay Levels Peer Group to generally inform its compensation decisions, but does not formulaically benchmark based on this data. The committee generally sets target levels of annual total direct compensation for the NEOs at or near the 50th percentile of target total compensation paidlevels offered to similarly-situated executives at the peer companies. This approach of using the competitive 50th percentile of total compensation as a reference point was continued in 2014 when setting 2015 pay levels. Variations from the 50th percentile level may occur due to the experience level of the individual and
market factors, as well as performance that is significantly above or below goals.
As discussed in more detail below, ourOur company has a unique variety of product offering that makesofferings and derives income from disparate industries. Therefore, it is difficult
to establish a group of peer companies for checkingmeasuring the competitiveness of our compensation opportunities and for measuring our relative business performance. Given the significant changes to our business in recent years, the committee, with input from our independent compensation consultant at the time of our annual review process, Aon Hewitt, re-visited our approach to our Pay Levels and Performance Peer Groups for fiscal 2015.
In particular, the compensation committee recognized the challenge of identifyingit is challenging to identify appropriate peers for our business performance among companies in our S&P8-digit and6-digit Global Industry Classification Standard (GICS) codes. Manycodes, as many of the companies in those GICS codes that are of roughly similar size manufacture, market, and distribute food for human consumption. These companies typically use agricultural commodities as ingredients in their products, and as a result these companies would typically experience reduced performance when these commodity prices rise. In contrast, our products are ingredients that our customers use in their products, and are not generally for human consumption and ourconsumption. Our product prices generally track the performance of an identified group of agricultural commodities. As those agricultural commodities prices rise, our financial performance will generally improve, and conversely, as those commodities prices fall, our financial performance will generally be negatively impacted. As a result, our company tends to operate in opposite economic cycles from many of the other food or agricultural-related companies in our general GICS codes.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Based on its review and inIn light of these challenges, the committee determined thatbegan using two new peer groups would be used foras of fiscal 2015 and going-forward—going forward – one to assess the company’s performance with respect to annual and long-term incentive plans (the Performance Peer Group) and a second to assess executive compensation opportunities (the Pay Levels Peer Group), of which. Notably, 70% of the companies in the Pay Levels Peer Group were also members of the Performance Peer Group. The committee reviews the peer groups annually to determine whether any changes should be made to the members of the peer groups. Since 2015, the committee has determined that no such changes were needed to the original peer groups, except for the removal in fiscal 2017 of E. I. du Pont de Nemours and Company from the Performance Peer Group due to its merger into Dow Chemical Co. and the removal in fiscal 2016 of Penford Corporation from the Performance Peer Group due to its acquisition by another member of the Performance Peer Group, Ingredion Incorporated. Members of the Performance Peer Group and Pay Levels Peer Group are listed below.
| PERFORMANCE PEER GROUP ONLY | OVERLAP IN BOTH PEER GROUPS | PAY LEVELS PEER GROUP ONLY | ||
Aceto Corp. Archer-Daniels-Midland Company Bunge Limited Cal-Maine Foods, Inc. Casella Waste Systems Inc.
FutureFuel Corp. Innophos Holdings Inc Koninklijke DSM N.V. Pacific Ethanol, Inc.
Potash Corp. of Saskatchewan, Inc.* REX American Resources Corporation Sanderson Farms, Inc. SunOpta Inc. Tyson Foods, Inc. Waste Management, Inc. | Celanese Corporation Clean Harbors, Inc. Covanta Holding Corporation FMC Corp. Green Plains Inc. Ingredion Incorporated International Flavors & Fragrances Inc. Renewable Energy Group, Inc. Republic Services, Inc. Seaboard Corp. Sensient Technologies Corporation Stepan Company The Andersons, Inc. The Mosaic Company | Colfax Corporation Graphic Packaging Holding Company Meritor, Inc. PolyOne Corporation Sonoco Products Co. The Valspar |
| * | On January 1, 2018, Potash Corp. of Saskatchewan, Inc. and Agrium Inc. completed a merger and were then acquired by Nutrien Ltd. (traded in both TSX and NYSE). |
| ** | Acquired by The Sherwin-Williams Company effective June 1, 2017. |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Performance Peer Group
To better reflect the company’s go-forward operating segments of Feed, Food, and Fuel and who we compete with for employee talent and capital, the Performance Peer Group was established for purposes of evaluating our performance under the company’s incentive programs. In selecting the Performance Peer Group constituents, the committee considered the following criteria: (i) industry, (ii) business operations similar to those of the company, focused on Feed, Food, and/or Fuel, (iii) the extent to which operations were global, (iv) company size, as measured by revenues and market capitalization, and (v) availability of publicly-disclosed financial information.
Pay Levels Peer Group
The committee also re-assessedIn establishing the approachPay Levels Peer Group and in order to peer companies used in setting compensation opportunities for the company’s NEOs. To create as much overlap with the Performance Peer Group as possible, the
committee first identified those companies within the Performance Peer Group that (i) were U.S.-based companies and (ii) were similar in size to us, as measured by revenues using the parameters of betweenone-third and three-timesthree times our estimated fiscal 2014 revenues. As fourteen companies from the Performance Peer Group met those size criteria, in order to ensure that the peer group was of sufficient size to perform compensation comparisons that were not overly influenced by any one company, the committee worked with Aon Hewittits independent compensation consultant at the time to identify six other companies that were U.S.-based, similar in size and industry, and subject to similar cyclicality and volatility as the company. The committee believes that this peer group is a reasonable peer group that is comprised ofsimilarly-sized companies with operations similar to those of Darlingour company and/or influenced by similar cyclicality and volatility.
As part of its in-depth analysis of our compensation program for 2016, the committee reviewed both the Performance Peer Group and the Pay Levels Peer Group and determined them both to still be appropriate.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Mix of Salary and Incentive Awards (at Target)
The following charts illustrate the mix of total direct compensation elements for our NEOs at target performance. These charts demonstrate our executive compensation program’s focus on variable, performance-drivenperformance driven cash and equity-based compensation, a large portion of which is “at-risk”“at-risk” through long-term equity awards and annual cash incentive awards.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Components of Fiscal 20152017 Executive Compensation Program
For fiscal 2015,2017, the compensation for the NEOs included the following components:components (except for Mr. Muse who did not participate in our fiscal 2017 incentive programs (annual or long-term) due to the planned cessation of his duties as an executive officer of our company in March 2017):
Fiscal 20152017 Compensation Components at a Glance
COMPENSATION COMPONENT |
DESCRIPTION | |
| Base Salary |
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| Annual Incentive Bonus |
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– Mr. Stuewe: 100% of base salary | ||
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– EBITDA based on overall company performance for Messrs. Stuewe | ||
– For Messrs. Bullock, Elrod, Kloosterboer and | ||
– Payouts range from 0% to | ||
| Long-Term Incentive Compensation |
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– Mr. Stuewe: 300% of base salary | ||
– Other NEOs: 100%—150% of base salary | ||
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– For all NEOs, | ||
∎ Annual, overlapping PSU grants are tied to three-year, forward-looking performance on | ||
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∎ Vested and | ||
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∎ Annual stock option grant vests | ||
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| Retirement and Health and Welfare Benefits |
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Our executive compensation program is designed to deliver pay in alignment with corporate, business unit and individual performance, with a large portion of total direct compensation“at-risk” through long-term equity awards and annual cash incentive awards. See chart on page 31 for more information regarding the target annual compensation mix.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Fiscal 20152017 Compensation Components—Details
BASE SALARY
Our company provides NEOs with a base salary to compensate them for services rendered during each fiscal year. Base salary ranges for NEOs are determined for each executive based on his position and responsibility by using market data supplied by the committee’s independent compensation consultant. Base salary is designed to be competitive when compared with the Pay Levels Peer Group. The committee periodically reviews base salaries of senior executives, including the NEOs, to determine if adjustment is necessary based on competitive practices and economic conditions. Base salary for senior executives will also be reviewed and adjustment may be made based on individual performance and the individual’s skills, experience and background.background, or in connection with a promotion or other change in responsibilities. Mr. Kloosterboer’s base salary iswas originally set based on the terms of his employment agreement with the company entered into as part of the VION Ingredients acquisition and includesincluded a holiday allowance customary for European employees. For 2017, the committee conducted an extensive review of the base salaries of each of the NEOs, including market data supplied by Pearl Meyer, the committee’s independent compensation consultant. Based on this review, each of the NEOs received an increase in base salary for 2017 (except for Mr. Lynch who was not employed by our company in 2016). This increase represents the first base salary increase in three years for Mr. Stuewe and in two years for Messrs. Bullock, Elrod and Muse. In the case of Mr. van der Velden, it should also be noted that his increase took into account
For fiscal 2015, Messrs. Stuewe, Muse and Elrod’s annual ratethe additional responsibilities he assumed with the retirement of base salary were not adjusted and remained the same as the prior year, while Messrs.Mr. Kloosterboer and Bullock received cost-of-living increases to their annual rate of base salary that were in line with rate increases received by other salaried employees during 2015. October 2017.
The chart below summarizes how fiscal 20142017 base salaries compare to fiscal 20152016 base salaries for each of our NEOs.
| EXECUTIVE | FISCAL 2014 ANNUAL SALARY | FISCAL 2015 ANNUAL SALARY | PERCENTAGE INCREASE | FISCAL 2016 ANNUAL SALARY | FISCAL 2017 ANNUAL SALARY | PERCENTAGE INCREASE | ||||||||||||||||||
| Mr. Stuewe | $ | 1,000,000 | $ | 1,000,000 | 0 | % | $ | 1,000,000 | $ | 1,100,000 | 10.0 | % | ||||||||||||
| Mr. Bullock | $ | 384,500 | $ | 425,000 | 10.5 | % | ||||||||||||||||||
| Mr. Elrod | $ | 425,000 | $ | 450,000 | 5.9 | % | ||||||||||||||||||
| Mr. van der Velden 1 | $ | 332,869 | $ | 394,929 | 18.6 | % (2) | ||||||||||||||||||
| Mr. Lynch | N/A | $ | 525,000 | N/A | ||||||||||||||||||||
| Mr. Muse | $ | 500,000 | $ | 500,000 | 0 | % | $ | 500,000 | $ | 525,000 | 5.0 | % | ||||||||||||
| Mr. Kloosterboer1 | $ | 871,886 | $ | 745,982 | 2.5 | % | $ | 744,507 | $ | 781,419 | 3.0 | % (2) | ||||||||||||
| Mr. Bullock | $ | 375,000 | $ | 384,500 | 2.5 | % | ||||||||||||||||||
| Mr. Elrod | $ | 425,000 | $ | 425,000 | 0 | % | ||||||||||||||||||
| 1. | Mr. van der Velden is, and Mr. Kloosterboer |
| 2. | Percentage increase for Messrs. van der Velden and Kloosterboer is calculated using their base salaries for 2016 and 2017 as denominated in |
ANNUAL INCENTIVE COMPENSATION
Overview
To motivate performance, each of our NEOs, except Mr. Muse, was provided with an annual incentive award opportunity for fiscal 20152017 tied to (i) global and/or regionalregional/business line EBITDA goals and (ii) the performance of the individual with respect to key strategic, operational and personal (SOP)SOP goals. The range of award payouts that an executive could earn (0% to 200% of target), as well as the performance goals, were established at the beginning of the year. Mr. Muse did not participate in our fiscal 2017 annual incentive program due to the planned cessation of his duties as an executive officer of our company in March 2017. Additional detail with respect to the design of the fiscal 20152017 annual incentive program is provided below.
Annual Incentive Award Formula
In determining payouts under the fiscal 20152017 annual incentive program, the committee used the following formula for the NEOs:
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Annual Incentive Award Opportunities
The chart below summarizes the target annual incentive award opportunities for the NEOs for fiscal 2015:2017:
Fiscal 20152017 Target Bonus Opportunities
| EXECUTIVE | PERCENT OF BASE SALARY | IN DOLLARS | PERCENT OF BASE SALARY | IN DOLLARS | ||||||||||||
| Mr. Stuewe | 100 | % | $ | 1,000,000 | 100 | % | $ | 1,100,000 | ||||||||
| Mr. Bullock | 60 | % | $ | 255,000 | ||||||||||||
| Mr. Elrod | 60 | % | $ | 270,000 | ||||||||||||
| Mr. van der Velden | 60 | % | $ | 236,957 | ||||||||||||
| Mr. Lynch | 70 | % | $ | 367,500 | ||||||||||||
| Mr. Muse | 65 | % | $ | 325,000 | — | — | ||||||||||
| Mr. Kloosterboer | 50 | % | $ | 372,991 | 50 | % | $ | 390,710 | ||||||||
| Mr. Bullock | 60 | % | $ | 230,700 | ||||||||||||
| Mr. Elrod | 50 | % | $ | 212,500 | ||||||||||||
Annual Incentive Plan Performance Metrics and Range of Performance
For fiscal 20152017 (as in fiscal 2014)2016), the committee continued to measure financial performance based on a targeted level of EBITDA compared to the Performance Peer Group. The committee believed that the use of EBITDA was the most appropriate approach to measuring the company’s performance following its transformative acquisitions in 2014. The committee continued to balance the financial objectives of the organization with strategic, operational and personal objectives. These objectives that are closely tied to the company’s performance in other key areas of the business that drive stockholder value creation and focus executives on areas over which they have the most direct impact. Additional detail with respect to the performance metrics and range of performance is provided below.
EBITDA(65% weighting): 65% of each NEO’s payout was tied to a targeted level of EBITDA performance for fiscal 2015.2017. Depending on the NEO’s responsibilities, EBITDA was measured at the global and/level or regional level.in a mix of global and regional/business line results.
The committee selected global and/or regionalregional/business line EBITDA as the sole annual financial performance metric because (i) EBITDA is one element of ROGI,ROCE, which is a performance metric that is well understood internally, (ii) incenting the achievement of a targeted level of EBITDA is closely aligned with continued stockholder value creation, and (iii) it continues to provideprovides a separate metric from that used in our long-term incentive plans,plan, while continuing to motivate performance that is tied to shareholderstockholder value creation. Based on those factors, the committee concluded that a targeted level of EBITDA was the most appropriate annual financial performance metric.
To focus executives on areas over which they have the most direct impact and motivate controllable performance, EBITDA was measured as follows:
| Corporate and other executives who have a significant impact on global performance (Messrs. Stuewe |
| ∎ | Region/business line executives (Messrs. Bullock, Elrod, van der Velden and Kloosterboer): 65% based on region/business line performance and 35% based on global performance or, in the case of Mr. van der Velden, international performance. |
Thepre-defined calculation of EBITDA is subject to adjustment by the committee for certainone-time, unusual or extraordinary items in order to more fairly assess our company’s performance for executive compensation purposes. These adjustments for compensation purposes may differ from the adjustments included in the company’s reported adjusted EBITDA. For fiscal 2015,2017, these committee adjustments included integrationconsisted of approximately $1.5 million in severance expense, primarily related expenses.to a reduction in workforce in connection with the restructuring of our operations in Hurlingham, Argentina. In addition, the adjusted EBITDA includes our company’s portion of the EBITDA from our DGD joint venture.venture, which is treated as an unconsolidated subsidiary in our financial statements but is a high performing asset and considered an important part of our strategy by providing a significant market and enhanced margins for our fats and oils and thereby a hedge to offset commodity exposure in our Feed Ingredients segment. Financial performance measures are adjusted to reflect budgeted levels of currency exchange in order to properly measure job performance, as our company is an operating company and not in the business of trading currencies.
In developing the fiscal 20152017 annual EBITDA goals, target level performance was set by determining the committee consideredEBITDA that would be achieved assuming ROCE performance for the following factors: anticipated performance based on forecasted economic conditions, historic performance, performanceprior fiscal year at the 50th percentile relative to theour Performance Peer Group,Group. These goals generally require a high level of performance to be achieved over theone-year period. Threshold and the expectations of our investors with respect to our returns on invested capital. The performance goals weremaximum levels are set inas a way such that the achievementpercentage of target and are designed to provide a smaller award for lower levels of acceptable performance was difficult, but still attainable, and beyond target(threshold) as well as to reward exceptional levels of performance the goal was intended to be very challenging. In this regard, the North American target EBITDA was derived from the 55th percentile ROGI (up from 50th percentile in 2014) of the Performance Peer Group, converted to EBITDA. The fiscal 2015 performance curve for the global EBITDA goal is summarized below.(maximum).
Fiscal 20152017 Global EBITDA Performance Goals (In Millions)
| ACHIEVEMENT | CORPORATE | AWARD PAYOUT OF TARGET) | GLOBAL | AWARD PAYOUT OF TARGET) | ||||||||||||
| Below Threshold | Below $ | 533.7 | 0 | % | Below $ | 425.4 | 0 | % | ||||||||
| Threshold | $533.7 | 25 | % | $425.4 | 25 | % | ||||||||||
| Target | $628.3 | 100 | % | $500.4 | 100 | % | ||||||||||
| Maximum or Above | $798.3 | 300 | % | $575.5 | 200 | % | ||||||||||
Strategic, Operational and Personal Goals(35% weighting): Each of our NEOs also had SOP goals for fiscal 20152017 that were tied to short- and long-term strategic objectives within the company. The SOPs were a blend of quantitative and qualitative goals for each NEO set at the beginning of the performance period, with a varying number of goals and weighting of those goals for each executive. The SOPs with respect to fiscal 2015 addressed items such as:
Payouts with respect to approved by the SOPs generally could range from 0% to 300% of target, with a payout equal to 100% of target for achieving target level performance.committee. The CEO makes
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
recommendations to the committee on the SOPs for NEOs other than himself. The SOPs with respect to fiscal 2017 addressed items such as:
| ∎ | growing the core business; |
2015
| ∎ | achieving SG&A goals; |
| ∎ | achieving safety goals; and |
| ∎ | other specific business development goals and projects. |
At the end of the fiscal year, the CEO submits to the committee a performance self-assessment and conducts a final review with each of the other NEOs and rates their performance. The CEO then submits to the committee a performance assessment for each of the other NEOs. These assessments consider completion of objectives and the quality of work performed, and incorporate an element of judgment on behalf of the committee in assigning individual levels of achievement. A maximum payout of 200% of the target for the SOP component is possible for exceptional performance.
2017 Performance Results and Award Payouts
For fiscal 2015,2017, we achieved global adjusted EBITDA of approximately $549.1$559.3 million, which was approximately 87%111.8% of the target EBITDA and which resulted in award payouts equal to about 38%approximately 178% of target payout on the global EBITDA portion of the performance goal. As noted above, Mr. Kloosterboer’sfurther explained below, this amount includes $92.9 million in EBITDA attributable to DGD and Mr. Elrod’s EBITDA payoutour North American biofuel operations that relates to 2017 performance and was also impacted by regional performance, whichincluded in the case of Mr. Kloosterboercompany’s internal 2017 operating plan, but was significantly above target andnot included in the casecompany’s or DGD’s financial statements until the first quarter of Mr. Elrod2018. As a biodiesel blender, DGD, as well as the company’s own North American biodiesel operations, are eligible to receive a U.S. blenders tax credit. Although the blenders tax credits expired on December 31, 2016, in February 2018 they were retroactively reinstated by Congress for calendar year 2017. As a result, in the first quarter of 2018, DGD booked approximately $160.6 million in EBITDA (our company’s share of which was below target.$80.3 million) and our company booked approximately $12.6 million in EBITDA related to the blenders tax credit for fiscal year 2017. This $92.9 million in EBITDA will not be included in the adjusted EBITDA used to calculate the annual incentive payouts, if any, for fiscal 2018.
In addition, eachbased on the committee’s review of the performance assessments of our NEOs, achieved on averagethe following achievement percentages were assigned for the SOPs: 95% for Mr. Stuewe; 99% for Mr. Bullock; 98% for Mr. Elrod; 100% for Mr. van der Velden; 84% for Mr. Lynch; and 93% of their applicable SOP goals for fiscal 2015.Mr. Kloosterboer. For Mr. Stuewe, the committee noted that he had substantially met each ofthe following achievements with respect to his stated SOP goals as follows:goals:
| GOAL | RESULT | |
| Achieve Cost Control Measures |
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| Continue to Drive Growth in the Core Businesses | ∎ Continued construction on the expansion of DGD’s production facility to increase annual production capacity from 160 million gallons to 275 million gallons of renewable diesel and announced the evaluation of a project to further expand DGD’s annual production capacity to 550 million gallons.
∎ Approved and began construction on our first full scale black soldier fly protein conversion facility in EnviroFlight, LLC, our joint venture with Intrexon Corporation. ∎ Continued construction on a new digester facility in Dunderleuw, Belgium and a new blood processing facility in
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| 2018 Proxy Statement |
Accordingly, with respect to the SOPs, Mr. Stuewe earned approximately 95% of target. The other NEOs earned between approximately 81%
EXECUTIVE COMPENSATION
Compensation Discussion and 100% of target on the SOP portion.Analysis
The chart below provides a summary of the awards earned for fiscal 2017 EBITDA and SOP performance by each NEO.NEO, except for Mr. Muse who did not participate in the 2017 annual incentive plan. As noted above, the EBITDA payout for Messrs. Bullock, Elrod, van der Velden and Kloosterboer was also impacted by strong regional/business line performance.
Award Payouts Based on Actual Performance
| EXECUTIVE | FISCAL 2015 TARGET BONUS OPPORTUNITY | EBITDA PAYOUT (65% WEIGHTING) | SOP PAYOUT (35% WEIGHTING) | TOTAL AIP PAYOUT | TOTAL PAYOUT AS A PERCENT OF TARGET | FISCAL 2017 TARGET BONUS OPPORTUNITY | EBITDA PAYOUT (65% WEIGHTING) | SOP PAYOUT (35% WEIGHTING) | TOTAL AIP PAYOUT | TOTAL PAYOUT AS A PERCENT OF TARGET | ||||||||||||||||||||||||||||||
| Mr. Stuewe | $ | 1,000,000 | $ | 246,201 | $ | 332,500 | $ | 578,701 | 57.9 | % | $ | 1,100,000 | $ | 1,276,175 | $ | 652,813 | $ | 1,928,988 | 175.4 | % | ||||||||||||||||||||
| Mr. Muse | $ | 325,000 | $ | 80,015 | $ | 113,750 | $ | 193,765 | 59.6 | % | ||||||||||||||||||||||||||||||
| Mr. Kloosterboer | $ | 372,991 | $ | 206,250 | $ | 117,492 | $ | 323,742 | 86.8 | % | ||||||||||||||||||||||||||||||
| Mr. Bullock | $ | 230,700 | $ | 56,798 | $ | 65,404 | $ | 122,202 | 53.0 | % | $ | 255,000 | $ | 319,020 | $ | 169,632 | $ | 488,652 | 191.6 | % | ||||||||||||||||||||
| Mr. Elrod | $ | 212,500 | $ | 40,533 | $ | 73,532 | $ | 114,065 | 53.7 | % | $ | 270,000 | $ | 337,785 | $ | 177,337 | $ | 515,122 | 190.8 | % | ||||||||||||||||||||
| Mr. van der Velden | $ | 236,957 | $ | 308,045 | $ | 165,870 | $ | 473,915 | 200.0 | % | ||||||||||||||||||||||||||||||
| Mr. Lynch 1 | $ | 367,500 | $ | 409,687 | $ | 184,753 | $ | 594,440 | 161.8 | % | ||||||||||||||||||||||||||||||
| Mr. Kloosterboer 2 | $ | 390,710 | $ | 366,599 | $ | 182,595 | $ | 549,194 | 140.6 | % | ||||||||||||||||||||||||||||||
| 1. | In accordance with the terms of his Senior Executive Termination Benefits Agreement with our company, the amount of Mr. Lynch’s award payout was prorated based on his last day of employment with our company (December 14, 2017). | |
| The amount of Mr. Kloosterboer’s award payout was prorated based on his last day of employment with our company (September 30, 2017). |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
LONG-TERM INCENTIVE COMPENSATION
Overview
EachWith the exception of Mr. Muse who did not participate in our fiscal 2017 incentive programs (annual or long-term) due to the planned cessation of his duties as an executive officer of our company in March 2017, each of our NEOs was provided with long-term incentive award opportunities for fiscal 20152017 that were tied to our performance. The principal objectives of the LTI design are to (i) motivate our NEOs to drive sustained long-term stockholder value creation, (ii) grant award opportunities that are based on the competitive market, but then adjusted for our performance, and (iii) provide the NEOs with equity ownership opportunities that will further enhance their alignment with our stockholders’ interests.interests and (iv) serve as an important retention tool. The committee believes that providing long-term equity-based awards incentivizes executives to balance short- and long-term decisions, which helps to mitigate excessive risk-taking by our executives. Under our LTI program first put in place in 2016, grants are generally made in the first quarter of each year; however, in limited, special situations, equity awards may be granted at other times to attract new executives and to retain existing executives. During 2017, one such grant was made in the form of aone-time grant to Mr. Lynch of 100,000 shares of restricted stock as part of his employment package, 33,333 shares of which vested immediately on the grant date, 33,333 shares of which were to vest on the first anniversary date of the grant date and 33,334 shares of which were to vest on the second anniversary of the grant date. This grant was made to help attract Mr. Lynch to our company and to compensate him in part for the value of equity awards he was forfeiting at his prior employer. In accordance with the terms of the underlying grant document, the remaining unvested shares of this award vested upon Mr. Lynch’s separation from our company on December 14, 2017.
For 2015,2016 and beyond, after reviewing trends in executive compensation andpay-related governance policies and in response to the results of our say on pay votes and stockholder feedback, the committee continuedmade significant changes to evaluate the appropriateness of the company’s LTI program. As illustrated in the charts below, under our current LTI program, participants receive (i) annual, overlapping grants of PSUs tied to three-year, forward-looking performance based on average return on capital employed (ROCE) relative to our Performance Peer Group and determined(ii) annual stock option grants that atvest33-1/3% on the time1st, 2nd and 3rd anniversaries of grant. LTI target level performance for the program was being implemented, it was effectively driving stockholder value creationPSUs is based upon achievement of 50th percentile ROCE performance relative to our Performance Peer Group, subject to adjustment by a total shareholder return (TSR) modifier that reduces (or increases) the number of PSUs earned if TSR relative to our Performance Peer Group ranks near the bottom (or near the top). In addition, PSUs issued to NEOs and financial performance,other executives in fiscal 2016 and was well understood by participants. In an ongoing effort2017 contain a holding requirement, such that vested and earned PSUs (net of shares needed to promote continuing improvement and fairly accountpay taxes) will be subject to a holding period (restriction on sale) for recent acquisitions,two years after the committee modified the following aspectsend of the LTI program effective for fiscal 2015 for all of our NEOs, as well as our other corporate and North America-based executives:performance period.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
For performance between the 30th and 80th percentiles, the number of PSUs earned will be interpolated between threshold-target and target-maximum.
The committee views these modificationsthis program to be aligned with the objectives of motivating and rewarding executives for performance inon key financial metrics based on performance targets that are stretch, but attainable. Thelong-term measures, while also promoting retention of executive talent, and the program is well-designed to drive shareholderstockholder value creation and focus executives on areas over which they have the most direct impact.
Additional detail with respect to the design of the long-term incentive program is provided below.
Mix of Equity Awards
Under the 20122017 Omnibus Plan, the committee may grant various types of equity-based awards. Consistent withAs in the prior years,year, the committee continued to provideprovided long-term incentives for fiscal 20152017 to the NEOs, other than Mr. Muse (given the planned cessation of his duties as an executive officer of our company in March 2017), through performance-based restricteda target value mix of stock options (40%) and performance-basedPSUs (60%). The committee, with input from its independent compensation consultant, believes that this mix is consistent with market practice for these types of awards.
Stock Options.Stock option awards reflect the pay for performance principles of our executive compensation program by directly linking long-term incentives to stock options. Withprice appreciation. Stock options require stock price appreciation to deliver value to an executive. We determined the February 2017 grant of nonqualified stock options by converting 40% of the target LTI value for each NEO (other than Mr. Muse) to a number of stock options using an estimated Black-Scholes option value. Stock options were granted to each NEO (other than Mr. Muse), and other eligible management employees, and the exercise price of such options was established on February 6, 2017. All of the options granted to our NEOs are nonqualified stock options withten-year terms that vest inone-third increments on the first three anniversaries of the grant date. Information regarding the grant date fair value and the number of stock options awarded in 2017 under the 2017 LTI program to each of our NEOs (other than Mr. Muse) is set forth in the Grants of Plan-Based Awards Table on page 44.
Performance Share Unit Awards.PSUs are tied to our company’s long-term performance to ensure that our NEOs’ pay is directly linked to the achievement of sustained long-term operating performance. Reflective of the desire to balance prudent use of capital and returns to our stockholders, the committee has determined that awards will be earned based on our ROCE relative to our Performance Peer Group for a three-year, forward-looking cycle. Awards based on ROCE are also subject to potential adjustment based on our TSR relative to the Performance Peer Group over the same period. Dividend equivalent units related to PSUs will be accrued and paid in company stock at the same time as PSUs, but only if and to the extent PSUs are earned.
As in the prior year, for purposes of the 2017 executive compensation program, ROCE was determined as follows:
| ROCE | = | earnings before interest, taxes, depreciation, and amortization (EBITDA) | ÷ | CAPITAL EMPLOYED | where | CAPITAL EMPLOYED | = | the sum of (i) current assets (excluding cash) less current liabilities (excluding the current portion of any long-term debt), plus (ii) gross property, plant and equipment (including gross intangibles but excluding goodwill), plus (iii) equity in nonconsolidated subsidiaries |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In addition, under our executive compensation program, the committee adjusts the ROCE performance results (or components thereof) to exclude the impact of extraordinary, unusual or unanticipated events, such as acquisitions, divestitures or mergers, stock splits or stock dividends or other similar material circumstances affecting or with respect to those awards,our company or any member of the target value was provided usingPerformance Peer Group during the following mix:performance period. The committee determines whether any such adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the PSUs with the goal of fairly comparing our company’s performance with the performance of the companies in the Performance Peer Group over the performance period.
TSR is defined for purposes of the PSUs as follows:
| TSR | = | cumulative amount of dividends for the performance period, assuming dividend reinvestment | + | the increase or decrease in the Average Stock Price from the first day of the performance period to the last day of the performance period | ÷ | the Average Stock Price determined as of the first day of the performance period | where | Average Stock Price is the average of the closing transaction prices of a share of our common stock, as reported on the NYSE, for 20 trading days immediately preceding the date for which the average stock price is being determined |
The committee selected ROCE and TSR as the performance measures for the PSUs because they:
| Capture both income and balance sheet impacts, including capital management actions. |
| ∎ | Take into effect long-term stockholder value. |
In addition, the committee believes that, given the substantial growth of our company over the last ten years, the use of ROCE is the most appropriate measure of our company’s operating performance against its peers, since it excludes goodwill from the calculation and thereby better focuses on the value of a particular asset and the working capital needed to operate that asset.
For NEOs (other than Mr. Muse) and other executives, as in the prior year, for fiscal 2017, the committee included a holding period requirement for the PSUs, such that vested and earned PSUs (net of shares needed to pay taxes) will be subject to a holding period (restriction on sale) for two years after the end of the performance period.
ROCE Performance Levels
PERFORMANCE LEVEL | 2017-2019 AVERAGE ROCE VS. PERFORMANCE PEERS | PAYOUT % OF TARGET # OF PSUs | ||
| Below Threshold | At or less than30th percentile | 0% | ||
| Target | At50th percentile | 100% | ||
| Maximum | Above80th percentile | 225% |
For performance between the 30th and 80th percentiles, the number of PSUs earned will be interpolated between threshold-target and target-maximum.
TSR Modifier
The number of PSUs determined to be earned based on ROCE as provided above shall be further adjusted in accordance with the schedule set forth below, based on our company’s TSR relative to the TSR of the companies in the Performance Peer Group during the three-year performance period:
COMPANY’S TSR VS. PERFORMANCE PEERS | VESTING ADJUSTMENT | |
| At or less than30th percentile | 30% reduction in shares eligible for vesting | |
| Greater than30th percentile (but less than or equal to80th percentile) | No adjustment | |
| Above80th percentile | 30% increase in shares eligible for vesting, subject to a maximum vesting percentage of 225% of the |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Approach to Granting2017 Long-Term IncentivesIncentive Awards
The chart below summarizes the approaches used byAs previously mentioned, the committee in granting LTI awards for fiscal 2015decided to our NEOs. Additional details with respect to the approaches are provided below.
At the beginningdeliver 60% of the year, the committee establishes a set dollar award opportunity for each NEO. That dollar award opportunity is then converted to a target number of performance-based stock options and performance-based restricted shares using the mix describedLTI value in the section “Mix of Equity Awards.”
For the NEOs, the number of performance-based stock options and performance-based restricted shares granted in early 2016 for fiscal 2015 performance was based on the target number of awards adjusted for ROGI derived from our average ROGI performance for the most recently completed three years (2013—2015) compared to the Performance Peer Group (as described in additional detail below).
Once the size of the grant is approved by the committee based on actual performance results, 25% of the awards vest at grant and the remaining 75% of awards vest in three equal installments on the 1st, 2nd, and 3rd anniversaries of the date of grant.
Long-Term Incentive Award Opportunities
PSUs. The chart below summarizes the target LTI award opportunitiesawards for the NEOs for fiscal 2015, which2017. Information regarding the fair market value and number of PSUs that the NEOs may earn at the end of the 2017-2019 performance period, subject to the performance metrics described above, is shown in the Grants of Plan-Based Awards Table on page 44. The starting value for the award, however, does not represent the actual compensation the NEOs will realize. These awards are intended to focus the same as a percent of base salary with those in fiscal 2014. SeeNEOs on future company performance, and the section entitled “2015 Performance Results and Performance-Based Grants—LTI” for detail with respect to actual awards granted basedvalue realized by an NEO will depend on our performance results.over time and the NEO’s continued employment with our company.
Fiscal 20152017 Target Long-Term Incentive Award OpportunitiesAwards
| EXECUTIVE | PERCENT OF BASE SALARY | IN DOLLARS | TARGET NUMBER OF PERFORMANCE-BASED STOCK OPTIONS | TARGET NUMBER OF PERFORMANCE-BASED RESTRICTED SHARES | PERCENT OF BASE SALARY | IN DOLLARS | TARGET NUMBER OF PSUs | NUMBER OF STOCK OPTIONS | ||||||||||||||||||||||||
| Mr. Stuewe | 300 | % | $ | 3,000,000 | 177,843 | 112,322 | 300 | % | $ | 3,300,000 | 180,000 | 304,147 | ||||||||||||||||||||
| Mr. Kloosterboer | 100 | % | $ | 856,070 | * | 21,749 | 48,078 | |||||||||||||||||||||||||
| Mr. Muse | 100 | % | $ | 500,000 | 12,703 | 28,080 | ||||||||||||||||||||||||||
| Mr. Bullock | 100 | % | $ | 384,500 | 9,769 | 21,594 | 125 | % | $ | 531,250 | 28,977 | 48,963 | ||||||||||||||||||||
| Mr. Elrod | 100 | % | $ | 425,000 | 10,798 | 23,868 | 125 | % | $ | 562,500 | 30,682 | 51,843 | ||||||||||||||||||||
| Mr. van der Velden | 125 | % | $ | 462,000 | * | 25,200 | 42,581 | |||||||||||||||||||||||||
| Mr. Lynch | 150 | % | $ | 787,500 | 42,955 | 72,581 | ||||||||||||||||||||||||||
| Mr. Muse | — | — | — | — | ||||||||||||||||||||||||||||
| Mr. Kloosterboer | 100 | % | $ | 731,302 | * | 39,889 | 67,401 | |||||||||||||||||||||||||
| * | The target number of |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Long-Term Incentive Program Performance Metrics and Range of Performance
Except for the switch in the performance metric for our NEOs from a 5-year average ROGI to a 3-year average ROGI, the design of the fiscal 2015 LTI program was generally similar to the design that was in place for fiscal 2014. The key design features of the LTI program for our NEOs are described below:
The committee believes that the 2015 design of the LTI program continued to motivate long-term ROGI performance that exceeds the median long-term performance of our Performance Peer Group, which we believe is likely to lead to stockholder value creation. For this purpose:
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The committee also believes that the 3-year performance measurement period is consistent with the committee’s objective to measure how we perform against a long-term standard for ROGI performance. This approach also recognizes that we are subject to commodity price fluctuation that may impact financial performance positively or negatively. Thus, the committee believed it was appropriate to compare our performance to that of other cyclical and/or volatile companies whose financial performance is influenced, either up or down, by external conditions such as changes in commodity prices. In determining the fiscal 2015 grant, the committee considered our past performance vs. the Performance Peer Group.
In establishing the ROGI performance goals, competitive levels of ROGI performance are determined based on a blended ROGI derived from (i) ROGI for the Performance Peer Group over a 3-year period and (ii) for our recently acquired Darling Ingredients International and Rothsay businesses, targeted levels of ROGI. That competitive assessment served as the basis for establishing the performance goals at threshold, target and maximum levels of performance for fiscal 2015. The fiscal 2015 ROGI performance curve, which applies to all NEOs, is summarized below:
Fiscal 2015 Long-Term Incentive Program for NEOs
| ACHIEVEMENT | PERFORMANCE PEER GROUP PERCENTILE RANK | REQUIRED LEVEL OF ROGI PERFORMANCE | AWARD PAYOUT (PERCENTAGE OF TARGET) | |||
| Below Threshold | Below 25th Percentile | Below 9.5% | 25% | |||
| Threshold | 25th Percentile | 9.5% | 25% | |||
| Target | 50th Percentile | 13.4% | 100% | |||
| Maximum or Above | 75th Percentile | 17.6% | 200% |
For 2015, the design again included a minimum award payout of 25% of the target award level for performance below threshold. The committee viewed this portion of the award as an effective retention award, because payout of the award remains conditioned on continued employment through the applicable vesting period. The committee believed that having a minimum, but significantly reduced, payout for the long-term incentive compensation opportunity in 2015 continued to directly link the compensation results for the NEOs to our performance, but appropriately balanced that goal with the need to create longer-term retention of key management. As part of its comprehensive re-design of the executive compensation program for 2016 and in response to feedback from our stockholders, the committee has eliminated this feature from our executive compensation program going forward. See “Fiscal 2016 Changes to Our Executive Compensation Program” below.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
2015 Performance Results and Performance-Based Grants-LTI
We achieved 3-year ROGI performance for fiscal 2015 equal to 14.8%, which equated to 66th percentile performance relative to our Performance Peer Group. This performance resulted in awards under the LTI program at 165.7% of target for the NEOs. As a result, the following number of performance-based stock options and restricted shares were granted in March 2016.
| PERFORMANCE-BASED STOCK OPTIONS | PERFORMANCE-BASED RESTRICTED STOCK | |||||||||||||||
| EXECUTIVE | TARGET NUMBER | ACTUAL NUMBER GRANTED BASED ON PERFORMANCE | TARGET NUMBER | ACTUAL NUMBER GRANTED BASED ON PERFORMANCE | ||||||||||||
| Mr. Stuewe | 177,843 | 294,686 | 112,322 | 186,117 | ||||||||||||
| Mr. Muse | 12,703 | 21,049 | 28,080 | 46,529 | ||||||||||||
| Mr. Kloosterboer | 21,749 | 36,039 | 48,078 | 79,665 | ||||||||||||
| Mr. Bullock | 9,769 | 16,187 | 21,594 | 35,781 | ||||||||||||
| Mr. Elrod | 10,798 | 17,892 | 23,868 | 39,550 | ||||||||||||
2013 SPECIAL AWARD TO MR. BULLOCK
In August 2013, the committee granted Mr. Bullock a special restricted stock award under the 2012 Omnibus Plan of 24,000 shares. This award recognized Mr. Bullock’s efforts in helping the company execute upon its renewable fuels strategy, including the negotiation of the DGD joint venture with Valero Energy Corporation and the successful completion and startup of the DGD facility. The award was designed to encourage both the successful operation of the DGD facility and Mr. Bullock’s continued retention. The first 8,000 shares of the award were vested upon grant. The remaining 16,000 shares became vested in equal installments during fiscal 2014 and fiscal 2015 because the DGD joint venture attained a specified level of trailing 12-month EBITDA in each of those years, as reflected in the financial statements for Diamond Green Diesel LLC prepared in accordance with generally accepted accounting principles.
Other Features of Our Compensation Program
2014 SPECIAL PERFORMANCE SHARE UNIT AWARDS2016-2017 PSU Award Determinations
In January 2014, the NEOs, other than Messrs. Muse and Elrod, received an award of PSUs under the 2012 Omnibus Plan at the closing of the acquisition of VION Ingredients. The awards were designed with two objectives: (i) to encourage the NEOs and other participants to successfully integrate Darling Ingredients International as demonstrated by achieving pre-determined levels of EBITDA, both globally and for Darling Ingredients International, over 2014 through 2016 and (ii) to create a dual focus for NEOs and other participants of balancing EBITDA performance at Darling Ingredients International with overall company performance to align with stockholder value creation. The following chart summarizes the target award amounts granted to our NEOs:
| EXECUTIVE | TARGET NUMBER OF PSUs | FULLY VESTED SHARES AT CLOSING | TOTAL | |||||||
| Mr. Stuewe | 100,000 | 0 | 100,000 | |||||||
| Mr. Kloosterboer | 112,500 | 37,500 | 150,000 | |||||||
| Mr. Bullock | 100,000 | 0 | 100,000 | |||||||
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The PSUs will vest in three equal installments on the first, second and third anniversaries of the closing of the VION Ingredients acquisition (i.e., January 7, 2014) based on attainment of specified levels of adjusted EBITDA globally and for Darling Ingredients International for fiscal years 2014, 2015 and 2016, respectively. To earn the installment for a vesting date, the target level of adjusted EBITDA both globally and for Darling Ingredients International must be achieved for the immediately preceding fiscal year, although for Mr. Kloosterboer for 2014 only, performance was measured based solely on adjusted EBITDA for Darling Ingredients International. If the target levels of adjusted EBITDA for the fiscal year are not achieved both globally and for Darling Ingredients International, the installment for the related vesting date will be forfeited. If the target level of adjusted EBITDA for the fiscal year either globally or for Darling Ingredients International is achieved, but is not achieved for the other entity, a portion of the installment for the related vesting date may be earned as follows:
| PERCENTAGE OF PERFORMANCE GOAL ACHIEVED | ||||
| GLOBAL TARGET GOAL ACHIEVED, DARLING INGREDIENTS INTERNATIONAL GOAL ACHIEVED AT FOLLOWING PERCENTAGE OF TARGET | DARLING INGREDIENTS INTERNATIONAL TARGET GOAL ACHIEVED, GLOBAL GOAL ACHIEVED AT FOLLOWING PERCENTAGE OF TARGET | PERCENTAGE OF INSTALLMENT VESTING ON THE VESTING DATE | ||
| 98% | 99% | 90% | ||
| 96% | 98% | 80% | ||
| 94% | 97% | 70% | ||
| Below 94% | Below 97% | 0% | ||
Providing for partial awards if the EBITDA goal for one entity is narrowly missed (as long as the EBITDA goal for the other entity is achieved) maintains a pay-for-performance culture and avoids an incentive to take unnecessary risk in order to receive any payout under this compensation program. To the extent an award is vested on a vesting date, the award will be settled by delivery of fully vested shares of our common stock, subject to any applicable tax withholding requirements.
The requisite performance target goals for fiscal 2014 were exceeded, and, therefore, the first one-third of the PSU awards became vested on January 7, 2015 and was paid in March 2015 after performance results were certified by the committee. However, the requisite performance target goals were not met for fiscal 2015, so therefore the second one-third of the PSU award opportunity was forfeited by each of the participants. The committee believes that this award outcome represents strong alignment between pay and performance. The program is functioning as designed because no payout was made on the second installment for performance below the requisite target level.
The full grant date fair value of the special PSU awards is included in the Summary Company Table on page 47 as 2014 compensation, in accordance with SEC rules. The committee, however, views the special PSU awards as a one-time grant linked to the closing of the VION Ingredients acquisition that becomes earned only to the extent we achieve sustainable EBITDA performance goals. Accordingly, the committee does not view the special PSU award as part of the regular total direct compensation opportunity of the NEOs. Moreover, in response to its shareholder engagement process, the committee has reinforced its philosophy to strictly limit the use of special awards and we do not currently anticipate a need for special awards in the future, other than one-time transition PSUs which are being granted as part of the re-designed 2016 executive compensation program to facilitate the major shift from a backward-looking to a forward-looking plan design.design that was part of the significant changes implemented in our 2016 executive compensation program, a small portion (15%, or one quarter of the 60% weight on PSUs) of fiscal 2016 LTI value was granted in the form ofone-time,non-incremental transition PSUs. The terms of the transition PSUs were identical to the terms described above for the regular PSUs, except that these grants were tied to atwo-year, forward-looking performance period (2016-2017), instead of a three-year, forward-looking performance period. Following the end of a PSU performance cycle, the committee reviews and certifies the performance attained based on our reported audited financial statements, subject to the potential adjustments described above. Each PSU that vests is settled with a share of our common stock.
In February 2018, the committee reviewed and certified achievement of the performance metrics for the transitional PSUs granted in February 2016 for the 2016-2017 performance period. Relative ROCE for this2-year performance cycle was at the 55th percentile. In addition, relative TSR for this same period was at the 86th percentile. Consequently, 157.6% of the target number of transitional PSUs granted in February 2016 were earned. The committee made no adjustments fornon-recurring charges orone-time events. The performance scale and TSR modifier for the 2016-2017 cycle at threshold, target and maximum levels was the same as for the 2017-2019 cycle shown above. The value and number of PSUs that the NEOs earned for the 2016-2017 performance period are shown in the “Stock Awards” columns of the Option Exercises and Stock Vested Table on page 49.
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EXECUTIVE COMPENSATION
Other Features of Our Compensation Discussion and Analysis
RETIREMENT BENEFITS AND PERQUISITES
Retirement Benefits
We do not provide special or supplemental retirement benefits to our NEOs.
Our company offers a 401(k) plan to all of its eligible U.S.-based salaried employees. The 401(k) plan includes an employer contribution ranging from 3% to 6% of a participant’s base salary, based on age, and a matching contribution of 25% of a participant’s contributions up to 6% of a participant’s base salary. Our company also maintains a Salaried Employees’ Retirement Plan
which was frozen effective December 31, 2011 and no future benefit will accrue after such date. Prior to December 31, 2011, participants accrued a benefit calculated on “average monthly pay” based upon the highest 60 consecutive months of the latest 120 months (and subject to certain limitations) and the years of service completed.
Mr.Messrs. Kloosterboer participatesand van der Velden participate in a pension arrangement for which all Darling Ingredients International Dutch employees in the Netherlands are eligible. The pension arrangement consists of both a defined benefit and a defined contribution
| 2018 Proxy Statement 39 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
arrangement. Participation in the pension arrangement is compulsory for all covered employees.employees in the Netherlands. All covered employees contributeone-third to the overall pension arrangement costs as a fixed percentage of their salary. See the Pension Benefits Table included elsewhere inon page 50 of this proxy statement for additional details on the defined benefit portion of the arrangement.
We do not provide special or supplemental retirement benefits to our NEOs.
Perquisites and Other Personal Benefits
Our company provides NEOs with modestminimal perquisites and other personal benefits, generally in the form of a company automobile (or related allowance) and certain club dues, all as reflected in the All Other Compensation column in the Summary Compensation Table included elsewhere inon page 42 of this Proxy Statement. The committee believes these benefits are reasonable and consistent with our overall executive compensation program to better enable our company to attract and retain superior employees for key positions. The committee periodically reviews the levels of perquisites and other personal benefits provided to NEOs.NEOs to ensure they are reasonable and in line with market practices.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Our company previously entered into an employment agreement with Mr. Stuewe, and this agreement remains in effect. Mr. Stuewe agreed to an amendment to this employment agreement in March 2015 that made two key changes for the benefitsbenefit of long-term stockholders and consistent with the agreements for other NEOs:
| Elimination of an excise taxgross-up related to potential change in control “parachute” payments; and |
| Elimination of a “modified single trigger” severance provision that would have allowed him to resign, without good reason, during a period following a change in control and still be entitled to severance payments. |
Our company has entered into Senior Executive Termination Benefits Agreements with Messrs. Muse, Bullock, Elrod and ElrodMuse that provide for, among other things, potential payments and other benefits upon termination of employment for a variety of reasons. We entered into an employment agreementagreements with Mr.Messrs. van der Velden and Kloosterboer in connection with the VION Ingredients acquisition that includesinclude certain notice period requirements for any termination of employment.
Historically, Mr. Kloosterboer’s employment agreement terminated upon his retirement on October 1, 2017. Mr. Lynch also had a Senior Executive Termination Benefits Agreement that provided him severance and certain other benefits upon his separation from our company’scompany on December 14, 2017. In addition, in accordance with the terms of the underlying grant documents, the stock options issued to Mr. Lynch as part of the 2017 LTI program vested in full upon his separation from our company and he remains eligible to earn a prorated portion (up to the date of his separation) of the PSUs awarded to him as part of the 2017 LTI program, based on actual performance, as certified by the committee following the end of the performance period.
Our company has no outstanding equity compensation awards have includedaward agreements that include provisions automatically accelerating vesting upon a change in control (sometimes referred to as “single-trigger” vesting). For equity awards granted beginning in 2015 (for 2014 performance), the award agreements no longer include automatic single-trigger vesting. Instead, the award agreements provide for vesting following a change in control only if there is also an involuntary termination (either by the company without cause or by the executive for good reason) within a stated period following the change in control, provided that the awards are assumed or replaced by the acquiring company. This is often referred to as “double-trigger” vesting, as it requires both a change in control (the first trigger) and a subsequent involuntary termination (the second trigger).
See “Employment Agreements” and “Potential Payments upon Termination orChange-in-Control” included elsewhere in this Proxy Statement for a description of these agreements, including the severance benefits thereunder.
The committee believes that these severance arrangements are an important part of overall compensation for our NEOs and an important recruitment and retention tool as most of our competitors have implemented similar arrangements for their senior employees. Certain of these agreements include committee approved change of control provisions to provide reasonable personal protection to our senior executives in the context of an actual or potential change of control of our company. The committee views these arrangements as preventing management distraction during the critical periods prior to and immediately following a change of control.
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EXECUTIVE COMPENSATION
Compensation DiscussionIn connection with the retirement of Mr. Kloosterboer in fiscal 2017, and Analysisin consideration for his long-time service of 36 years and substantial contributions to our company, during fiscal 2017 the committee approved the accelerated vesting of 48,605 time-vested restricted shares issued to Mr. Kloosterboer under our 2014 and 2015 LTI programs. In addition, the committee accelerated the vesting of the unvested stock options awarded to Mr. Kloosterboer under the 2014 and 2015 LTI programs, with such options to remain outstanding for a period of three years from his retirement date. Furthermore, the committee provided that Mr. Kloosterboer shall remain eligible to earn a prorated portion (up to the date of their retirement) of the PSUs awarded to him under the 2016 LTI program, based on actual performance, as certified by the committee following the end of the performance period. These actions are consistent with how other long-term, retiring employees of our company have been treated in the past. Beginning in fiscal 2017, the PSU and stock option award agreements used in our LTI program were amended to treat retirement eligible employees consistent with the foregoing actions.
STOCK OWNERSHIP AND RETENTION POLICY
Our company has stock ownership guidelines to further align the interests of ournon-employee directors and NEOs with those of our stockholders. The guidelines require our NEOs and
| 40 2018 Proxy Statement |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
non-employee directors to maintain an investment in our common stock at the following levels:
| Chief Executive Officer: |
| Other NEOs: 2.5 times his or her annual base salary; and |
| Non-employee Directors: |
Each of the NEOs andnon-employee directors must retain at least 75% of any shares of our common stock received in connection with incentive awards (after sales for the payment of taxes and shares withheld to cover the exercise price of stock options) until such person is in compliance with the stock ownership guidelines. In determining whether the required investment levels have been met, shares will be valued using the closing price of our common stock on the later of (i) the date(s) acquired, or (ii) March 23, 2011 (the date that the stock ownership guidelines were adopted).
POLICY AGAINST HEDGING AND PLEDGING COMPANY STOCK
The stock ownership guidelines prohibitcompany has a policy that prohibits each NEO andnon-employee director from (A) engaging in (i) short-term trading (generally defined as selling company securities within six months following the purchase), (ii) short sales, (iii) transactions involving derivatives, (iv) hedging transactions or (v) any other contractual derivative transactions, such as total return swaps and (B) holding company securities in a margin account or pledging company securities as collateral for a loan.
COMPENSATION RECOVERY (CLAWBACKS)(CLAWBACK)
During 2014, based in part on feedback from meetings with key stockholders, we adoptedWe maintain a compensation recovery policy that goes beyond the policies currently required by law. Specifically, the policy requires each executive officer to reimburse the company for all or a portion of any annual or long-term incentive compensation paid to the executive officer based on achievement of financial results that were subsequently the subject of a restatement due to the executive’s misconduct, to the extent determined by the Board of Directors. The Board of Directors may also determine to forfeitrequire the forfeiture of unvested awards, reduce future compensation or take other disciplinary actions (including termination of employment). The committee believes that this compensation
recovery policy enhances our governance practices by creating direct financial costs to NEOs whose misconduct leads to a material financial restatement.
In addition, as required by the Sarbanes-Oxley Act of 2002, upon restatement of our company’s financial statements, the Chief Executive Officer and Chief Financial Officer would be required to reimburse us for any (i) bonuses, (ii) other incentive or equity-based compensation, and/or (iii) profits from stock sales, received in the 12 month12-month period following the filing of financial statements that were later required to be restated due to thetheir misconduct. Our company will also implement the incentive compensation “clawback” provisions mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 in accordance with the requirements of that Act as the method of their implementation becomes finalized by the stock exchanges.
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly-held corporations for annual compensation over $1,000,000 paid to certain executives“covered employees” of that corporation. ThePrior to 2018, the Internal Revenue Code generally excludesexcluded from the $1,000,000 limitation, anyperformance-based compensation, paid based on the attainment of pre-established, objective performance goals established under a stockholder-approved plan.assuming applicable regulatory requirements were satisfied. The committee uses,has historically used, where practical, compensation policies and programs that were designed to preserve the tax deductibility of executive compensation; however, the committee, at its sole discretion, mayretained authority to approve paymentpayments of nondeductible compensation from time to time if the committee determinesdetermined that it iswas in the best interest of our company to do so.
Effective for tax years beginning after December 31, 2017, U.S. tax law changes will expand the definition of covered employees under Section 162(m) to, include among others, the Chief Financial Officer and certain former executive officers, and eliminate the performance-based compensation exception beginning in 2018, except with respect to certain grandfathered arrangements. The committee will continue to view the tax deductibility of executive compensation as one of many factors to be considered in the context of its overall compensation philosophy, and will consider the tax law changes.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Fiscal 2016 Changes to Our Executive Compensation Program
As a continuing process of evaluating the company’s executive compensation program in light of current trends and best governance practices and in response to its stockholder engagement process, the committee implemented significant changes to the executive compensation program effective for NEOs for fiscal 2016 as summarized below. Compensation related to these changes will be comprehensively covered in our 2017 proxy statement, where the compensation-related tables will reflect these changes.
Annual Incentive Plan (AIP)
Long-Term Incentives (LTI)
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
For purposes of the 2016 executive compensation program, ROCE will be determined as follows:
The committee believes that, given the substantial growth of our company over the last ten years, the use of ROCE will more appropriately measure our company’s operating performance against its peers by excluding goodwill from the calculation and thereby better focusing on the value of a particular asset and the working capital needed to run that asset.
The compensation committee of the Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of RegulationS-K with management and, based on that review and those discussions, the compensation committee recommends to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
THE COMPENSATION COMMITTEE
D. Eugene Ewing,Mary R. Korby, Chairman
John D. MarchCharles Adair
Justinus J.G.M. SandersLinda Goodspeed
Cynthia Pharr Lee
Gary W. Mize
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to the total compensation paid or earned by each of our named executive officers for our fiscal years 2015, 20142017, 2016 and 2013.2015.
| NAME AND PRINCIPAL POSITION | YEAR | SALARY | BONUS | STOCK AWARDS | OPTION AWARDS | NON-EQUITY INCENTIVE PLAN COMPEN- SATION(4) | CHANGE IN SATION | ALL OTHER SATION | TOTAL | |||||||||||||||||||||||||||
Randall C. Stuewe
Chairman and Chief Executive Officer | 2015 | $1,000,000 | — | $2,253,877 | (1) | $1,284,595 | (1) | $578,701 | — | $72,091 | (6) | $5,189,264 | ||||||||||||||||||||||||
| 2014 | 1,000,000 | — | 5,297,582 | (2) | 1,692,608 | (2) | 1,031,159 | 45,681 | 69,491 | 9,136,521 | ||||||||||||||||||||||||||
| 2013 | 850,000 | — | 3,213,863 | (3) | 545,611 | (3) | 1,737,002 | 0 | 60,151 | 6,406,627 | ||||||||||||||||||||||||||
John O. Muse(11)
Executive Vice President – Chief Financial | 2015 | 500,000 | — | 563,466 | (1) | 91,757 | (1) | 193,765 | — | 151,301 | (7) | 1,500,289 | ||||||||||||||||||||||||
| 2014 | 1,700,000 | — | 412,545 | (2) | — | — | 49,272 | 119,053 | 2,280,870 | |||||||||||||||||||||||||||
|
| 2013
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| 500,000 | — | 1,429,478 | (3) | 192,567 | (3) | 670,070 | 0 | 61,956 | 2,854,071 | ||||||||||||||||||||||||
Dirk Kloosterboer(12)
Chief Operating Officer | 2015 | 745,982 | — | 964,743 | (1) | 157,101 | (1) | 323,742 | — | 124,350 | (8) | 2,315,918 | ||||||||||||||||||||||||
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| 2014
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| 871,886 | — | 3,648,030 | (2) | 88,768 | (2) | 398,321 | 1,110,049 | 137,114 | 6,254,168 | ||||||||||||||||||||||||
John Bullock
Executive Vice President – Chief Strategy Officer | 2015 | 384,500 | — | 433,308 | (1) | 70,562 | (1) | 122,202 | — | 102,154 | (9) | 1,112,726 | ||||||||||||||||||||||||
| 2014 | 375,000 | — | 2,614,069 | (2) | 90,675 | (2) | 243,964 | — | 37,702 | 3,361,410 | ||||||||||||||||||||||||||
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| 2013
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| 309,000 | — | 810,282 | (3) | 59,503 | (3) | 279,172 | — | 20,767 | 1,478,724 | ||||||||||||||||||||||||
Rick A. Elrod(13)
Executive Vice President – Dar Pro U.S.A.
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| 2015 | 425,000 | — | 478,951 | (1) | 77,995 | (1) | 114,065 | — | 33,910 | (10) | 1,129,921 | |||||||||||||||||||||||||
| NAME AND PRINCIPAL POSITION | YEAR | SALARY | BONUS | STOCK AWARDS | OPTION AWARDS | NON-EQUITY INCENTIVE PLAN COMPEN- SATION(2) | CHANGE IN SATION | ALL OTHER SATION | TOTAL | |||||||||||||||||||||||||||
Randall C. Stuewe
Chairman and Chief Executive Officer | 2017 | $1,100,000 | — | $1,980,000 | (1) | $1,319,998 | (1) | $1,928,988 | $45,184 | $69,407 | (4) | $6,443,577 | ||||||||||||||||||||||||
| 2016 | 1,000,000 | — | 1,791,163 | 1,200,420 | 976,600 | 21,004 | 65,300 | 5,054,487 | ||||||||||||||||||||||||||||
| 2015 | 1,000,000 | — | 2,253,877 | 1,284,595 | 578,701 | — | 72,091 | 5,189,264 | ||||||||||||||||||||||||||||
John Bullock
Executive Vice President – Specialty Ingredients and Chief Strategy Officer | 2017 | 425,000 | — | 318,747 | (1) | 212,499 | (1) | 488,652 | — | 60,356 | (5) | 1,505,254 | ||||||||||||||||||||||||
| 2016 | 384,500 | — | 229,567 | 153,855 | 263,399 | — | 56,503 | 1,087,824 | ||||||||||||||||||||||||||||
| 2015 | 384,500 | — | 433,308 | 70,562 | 122,202 | — | 102,154 | 1,112,726 | ||||||||||||||||||||||||||||
Rick A. Elrod
Executive Vice President – Darling U.S. Rendering Operations | 2017 | 450,000 | — | 337,502 | (1) | 224,999 | (1) | 515,122 | — | 34,147 | (6) | 1,561,770 | ||||||||||||||||||||||||
| 2016 | 425,000 | — | 253,749 | 170,061 | 201,020 | — | 33,385 | 1,083,215 | ||||||||||||||||||||||||||||
| 2015 | 425,000 | — | 478,951 | 77,995 | 114,065 | — | 33,910 | 1,129,921 | ||||||||||||||||||||||||||||
Jan van der Velden(11)
Executive Vice President – International Rendering and Specialties | ||||||||||||||||||||||||||||||||||||
| 2017 | 394,929 | — | 277,200 | (1) | 184,802 | (1) | 473,915 | (19,180 | ) | 87,798 | (7) | 1,399,464 | ||||||||||||||||||||||||
Patrick C. Lynch(12)
Former Executive Vice President – Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
| 2017 | 525,000 | — | 1,687,505 | (1) | 315,002 | (1) | 594,440 | — | 32,660 | (8) | 3,154,607 | |||||||||||||||||||||||||
John O. Muse(13)
Executive Vice President – Chief Administrative Officer; Former Executive Vice President – Chief Financial Officer | 2017 | 525,000 | — | — | — | — | 80,029 | 96,595 | (9) | 701,624 | ||||||||||||||||||||||||||
| 2016 | 500,000 | — | 298,525 | 200,069 | 317,395 | 30,317 | 156,643 | 1,502,949 | ||||||||||||||||||||||||||||
| 2015 | 500,000 | — | 563,466 | 91,757 | 193,765 | — | 151,301 | 1,500,289 | ||||||||||||||||||||||||||||
Dirk Kloosterboer(14)
Former Chief Operating Officer | 2017 | 586,064 | — | 505,329 | (1) | 292,520 | (1) | 549,194 | (71,925 | ) | 105,940 | (10) | 1,967,122 | |||||||||||||||||||||||
| 2016 | 744,507 | — | 437,218 | 293,018 | 453,598 | 516,011 | 107,953 | 2,552,305 | ||||||||||||||||||||||||||||
| 2015 | 745,982 | — | 964,743 | 157,101 | 323,742 | — | 124,350 | 2,315,918 | ||||||||||||||||||||||||||||
| 1. | In the case of the stock awards column, represents the aggregate full grant date fair value computed in accordance with FASB ASC Topic 718 of the |
| 2. |
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EXECUTIVE COMPENSATION
Summary Compensation Table
| The amounts reported in theNon-Equity Incentive Plan Compensation column reflect the amounts earned and payable to each named executive officer for fiscal |
| 42 2018 Proxy Statement |
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EXECUTIVE COMPENSATION
Summary Compensation Table
| 3. | The item for fiscal |
| 4. | Represents $24,000 in auto allowance, $10,392 in club dues paid by our company, $14,765 in group life and $20,250 in employer contributions and employer discretionary contributions to our company’s 401(k) plan. |
| 5. | Represents $12,000 in auto allowance, $4,806 in club dues paid by our company, $20,600 in group life and $22,950 in employer contributions and employer discretionary contributions to our company’s 401(k) plan. |
| 6. | Represents |
| 7. | Represents |
| 8. | Represents $11,275 in |
| Represents |
| 10. | Represents |
| 11. | Mr. |
| 12. | Mr. Lynch was not employed by the company until fiscal 2017. Accordingly, no information is given in this table for fiscal years prior to fiscal 2017. Mr. Lynch ceased to be an executive officer and employee of our company effective as of December 14, 2017. |
| 13. | Mr. Muse ceased to be an executive officer of our company effective as of March 2, 2017. On January 1, 2018, he once again became an executive officer of our company with his appointment as our Executive Vice President and Chief Administrative Officer. |
| 14. | Mr. Kloosterboer ceased to be an executive officer and employee of our company effective as of October 1, 2017. Mr. Kloosterboer is paid in euros, and his annual base salary in fiscal |
| Additionally, Mr. |
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EXECUTIVE COMPENSATION
Grants of Plan-Based Awards
The following table sets forth certain information with respect to the plan-based awards granted to the named executive officers during the fiscal year ended January 2, 2016.December 30, 2017.
| NAME | GRANT DATE (1) | ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (2) | ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS | ALL OTHER NUMBER OF SHARES OR UNITS (#) | ALL OTHER AWARDS: UNDERLYING OPTIONS (#)(5) | EXERCISE OR BASE ($/SH) | GRANT STOCK OPTION | GRANT DATE | ESTIMATED FUTURE PAYOUTS UNDERNON-EQUITY INCENTIVE PLAN AWARDS (1) | ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS (2) | ALL OTHER NUMBER OF SHARES OR UNITS (#) | ALL OTHER AWARDS: UNDERLYING OPTIONS (#)(3) | EXERCISE OR BASE AWARDS ($/SH) | GRANT STOCK OPTION AWARDS (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | THRESHOLD (#) | TARGET (#)(3) | MAXIMUM (#) | THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | THRESHOLD (#) | TARGET (#) | MAXIMUM (#) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Randall C. Stuewe | 2/6/15 | $ | 512,500 | $ | 1,000,000 | $ | 3,000,000 | 2/6/17 | $ | 563,750 | $ | 1,100,000 | $ | 2,200,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/15 | 186,117 | $ | 2,253,877 | (4) | 2/6/17 | 9,000 | 180,000 | 405,000 | $ | 1,980,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/15 | 294,686 | $ | 11.97 | $ | 1,284,595 | (6) | 2/6/17 | 304,147 | $ | 12.29 | $ | 1,319,998 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John O. Muse | 2/6/15 | $ | 166,563 | $ | 325,000 | $ | 975,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/15 | 46,529 | $ | 563,466 | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/15 | 21,049 | $ | 11.97 | $ | 91,757 | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dirk Kloosterboer | 2/6/15 | $ | 191,158 | $ | 372,991 | $ | 1,118,973 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/15 | 79,665 | $ | 964,743 | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/15 | 36,039 | $ | 11.97 | $ | 157,101 | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John Bullock | 2/6/15 | $ | 118,234 | $ | 230,700 | $ | 692,100 | 2/6/17 | $ | 130,687 | $ | 255,000 | $ | 510,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/15 | 35,781 | $ | 433,308 | (4) | 2/6/17 | 1,449 | 28,977 | 65,199 | $ | 318,747 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/15 | 16,187 | $ | 11.97 | $ | 70,562 | (6) | 2/6/17 | 48,963 | $ | 12.29 | $ | 212,499 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rick A. Elrod | 2/6/15 | $ | 108,906 | $ | 212,500 | $ | 637,500 | 2/6/17 | $ | 138,375 | $ | 270,000 | $ | 540,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/15 | 39,550 | $ | 478,951 | (4) | 2/6/17 | 1,534 | 30,682 | 69,034 | $ | 337,502 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/15 | 17,892 | $ | 11.97 | $ | 77,995 | (6) | 2/6/17 | 51,843 | $ | 12.29 | $ | 224,999 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jan van der Velden | 2/6/17 | $ | 121,245 | $ | 236,575 | $ | 473,150 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/17 | 1,260 | 25,200 | 56,700 | $ | 277,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/17 | 42,581 | $ | 12.29 | $ | 184,802 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Patrick C. Lynch | 1/15/17 | 100,000 | (5) | $ | 1,215,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/17 | $ | 181,100 | $ | 353,366 | $ | 706,732 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/17 | 2,148 | 42,955 | 96,648 | $ | 472,505 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/17 | 72,581 | $ | 12.29 | $ | 315,002 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John O. Muse | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dirk Kloosterboer | 2/6/17 | $ | 200,239 | $ | 390,710 | $ | 781,419 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/17 | 1,994 | 39,889 | 89,751 | $ | 438,779 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/17 | 67,401 | $ | 12.29 | $ | 292,520 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10/1/17 | 3,799 | (6) | $ | 66,550 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (7 | ) | 48,605 | $ | 851,560 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. | Represents the |
| Represents the range of shares that may be released at the end of the performance |
| 44 2018 Proxy Statement |
|
EXECUTIVE COMPENSATION
Grants of Plan-Based Awards
| 5. | Represents aone-time grant to Mr. Lynch of 100,000 shares of restricted stock on January 15, 2017 under the 2012 Omnibus Plan as part of his employment package, 33,333 shares of which vested immediately on the grant date and the remainder of which vested upon Mr. Lynch’s separation from the Company on December 14, 2017 pursuant to the terms of the award agreement. | |
6. | Represents the prorated amount (from October 1, 2017) of the annual grant of restricted stock units given to our |
EXECUTIVE COMPENSATION
Employment Agreements
| 7. | Represents the number of restricted stock units that were impacted by the modification to Mr. Kloosterboer’s outstanding restricted stock unit awards in 2017 and does not reflect a new equity grant to Mr. Kloosterboer. As noted in the Compensation Discussion and Analysis on page 40, the vesting terms of certain of Mr. Kloosterboer’s equity awards were modified in connection with his retirement from the Company. |
Mr. Stuewe’s Employment Agreement
We are party to an employment agreement with Mr. Stuewe that was amended and restated effective as of January 1, 2009 and amended again in certain respects in March 2015, pursuant to which Mr. Stuewe was employed through December 31, 20152017 with automatic extensions thereafter unless Mr. Stuewe’s employment is terminated earlier (i) by our company without cause (as defined in the agreement and discussed below) on not less than thirty days prior notice to Mr. Stuewe, (ii) by our company for cause (as defined in the agreement and discussed below) or upon Mr. Stuewe’s death or disability or (iii) by Mr. Stuewe for good reason (as defined in the agreement and discussed below). The agreement’s term was automatically extended for 2016.2018.
Mr. Stuewe is employed as our Chairman and Chief Executive Officer. The employment agreement provides for a minimum annual base salary, subject to increases at the discretion of the compensation committee of our Board, and an annual bonus paid pursuant to our company’s employee bonus plan in accordance with personal and company performance targets established annually by our compensation committee in consultation with Mr. Stuewe. The agreement also provides for Mr. Stuewe to receive our standard retirement and welfare benefits for executive officers. Furthermore, under his employment agreement, Mr. Stuewe is entitled to receive an allowance of $2,000 per month for the exclusive purpose of purchasing or leasing a new automobile of his choice.
Cause is defined in Mr. Stuewe’s employment agreement to mean: (i) Mr. Stuewe’s breach of certain covenants in the employment agreement, including covenants in respect of confidentiality,non-competition andnon-solicitation by Mr. Stuewe,
(ii) Mr. Stuewe’s conviction by, or entry of a plea of guilty or no contest in, a court of competent and final jurisdiction for any crime (whether felony or misdemeanor) involving moral turpitude or punishable by imprisonment, (iii) Mr. Stuewe’s commission of any crime, act of fraud, embezzlement or theft upon or against our company in connection with his duties or in the course of his employment with our company or otherwise, or Mr. Stuewe’s commission of any crime, act of fraud, embezzlement or theft upon or against any third party, (iv) Mr. Stuewe’s continuing fail-
urefailure or refusal to perform his duties as required by the employment agreement or (v) gross negligence, insubordination, material violation by Mr. Stuewe of any duty of loyalty to our company or any other material misconduct on the part of Mr. Stuewe. In order to be terminated for the reasons stated in (iv) and (v), Mr. Stuewe must receive written notice from the Board stating the nature of Mr. Stuewe’s failure or refusal to comply with the terms of the employment agreement and must be given an opportunity to correct the act or omission complained of.
Good reason is defined in Mr. Stuewe’s employment agreement to mean the occurrence of any of the following events or actions: (i) any material reduction in Mr. Stuewe’s base salary, (ii) assignment to Mr. Stuewe of substantial duties materially inconsistent with his position as Chief Executive Officer or his experience or his demotion to a lesser position, (iii) our company’s failure to nominate Mr. Stuewe to the Board or removal of Mr. Stuewe from the Board (other than for cause or because of legal requirement), (iv) our company’s failure to pay or provide any amount of compensation or any material benefit that is due pursuant to the employment agreement or any plan, program, arrangement or policy with Mr. Stuewe, (v) a material increase in the indebtedness of our company over Mr. Stuewe’s objections, (vi) any material change in the geographic location at which Mr. Stuewe must principally perform his duties for our company,
| 2018 Proxy Statement 45 |
EXECUTIVE COMPENSATION
Employment Agreements
which, for purposes of the employment agreement, means Mr. Stuewe’s permanent relocation to any office or location which is located outside of the Dallas/Fort Worth metropolitan area or (vii) any action or inaction that constitutes a material breach by our company of the employment agreement, including without limitation, any failure of our company to obtain an agreement from any successor of our company to perform the employment agreement in accordance with the terms of the employment agreement. A finding of good reason pursuant to the above definition is not effective unless Mr. Stuewe provides our company with written notice within sixty calendar days of becoming aware of the facts and circumstances giving cause to the “good reason” and, if the facts and circumstances are capable of being cured, gives our company the opportunity to cure within thirty days of the notice.
Mr. Stuewe’s employment agreement also includes severance arrangements. These severance arrangements are discussed under the heading “Potential Payments upon Termination or Change of Control” beginning on page 54.51.
|
EXECUTIVE COMPENSATION
Employment Agreements
Mr. Kloosterboer’svan der Velden’s Employment Agreement
In connection with the closing of the Vion acquisition, we entered into an employment agreement dated as of February 12, 2014, with Mr. Kloosterboer, pursuant to which Mr. Kloosterboer serves as our Chief Operating Officer.van der Velden. The
employment agreement is governed by the laws of The Netherlands and will continue in effect until the last day of the month during which Mr. Kloosterboervan der Velden reaches the retirement date under his pension scheme (as applicable from time to time), but in any event no later than the date on which he will be eligible for stateold-age pension benefits, subject to earlier termination as provided in the employment agreement. The employment agreement provides for a minimum annual base salary, subject to annual increases at the discretion of the compensation committee of our Board. The employment agreement also provides that Mr. Kloosterboervan der Velden will
participate in our executivethe applicable employee bonus program with his bonus opportunity in fiscal years 2014, 2015 and 2016 being no less than the opportunity under his 2013 long term and short term incentive arrangements, as more fully described in the employment agreement.maintained by our company. The employment agreement also provides for Mr. Kloosterboervan der Velden to receive certain benefits, including, without limitation, participation in pension plans, an expense allowance, use of a company vehicle, vacation and salary continuation in the event of incapacity to work, as more fully described in the employment agreement. The employment agreement also contains certain covenants for the benefit of our company, including, without limitation, relating tonon-competition,non-solicitation of our employees, clawback of bonus awards and protection of our confidential information.
|
|
EXECUTIVE COMPENSATION
Outstanding Equity Awards at FiscalYear-End
Outstanding Equity Awards at FiscalYear-End
The following table sets forth certain information with respect to unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer that are outstanding as of our fiscal year ended January 2, 2016:December 30, 2017:
| OPTION AWARDS | STOCK AWARDS | OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NAME | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE | OPTION EXERCISE PRICE ($) | OPTION EXPIRATION DATE | NUMBER OF (#) | MARKET VESTED ($) | EQUITY PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS THAT HAVE NOT VESTED (#) | EQUITY INCENTIVE PLAN AWARDS: MARKET OR PAYOUT VALUE SHARES, UNITS THAT HAVE NOT VESTED ($) | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE | OPTION EXERCISE PRICE ($) | OPTION EXPIRATION DATE | NUMBER OF (#) | MARKET VESTED (8) ($) | EQUITY PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS THAT HAVE NOT VESTED(9) (#) | EQUITY INCENTIVE PLAN AWARDS: MARKET OR PAYOUT VALUE SHARES, UNITS THAT HAVE NOT VESTED (10) ($) | ||||||||||||||||||||||||||||||||||||||||||||||||
Randall C. Stuewe | 21,581 | — | $ | 8.21 | 03/09/2020 | 251,709 | (4) | $ | 2,647,979 | 33,333 | (6) | $ | 350,663 | 21,581 | — | $ | 8.21 | 03/09/2020 | 140,853 | (5) | $ | 2,553,665 | 370,212 | $ | 6,711,944 | |||||||||||||||||||||||||||||||||||||||
| 36,285 | — | $ | 14.50 | 03/08/2021 | 36,285 | — | $ | 14.50 | 03/08/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 69,484 | — | $ | 16.98 | 03/06/2022 | 69,484 | — | $ | 16.98 | 03/06/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 55,329 | 18,443 | (1) | $ | 16.53 | 03/05/2023 | 73,772 | — | $ | 16.53 | 03/05/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 30,562 | 30,562 | (2) | $ | 19.94 | 03/04/2024 | 61,124 | — | $ | 19.94 | 03/04/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 75,675 | 227,025 | (3) | $ | 14.76 | 03/10/2025 | 227,025 | 75,675 | (1) | $ | 14.76 | 03/10/2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Randall C. Stuewe | 137,156 | 274,313 | (2) | $ | 8.51 | 02/25/2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 147,344 | 147,342 | (3) | $ | 11.97 | 03/07/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 304,147 | (4) | $ | 12.29 | 02/06/2027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6,189 | — | $ | 16.98 | 03/06/2022 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 13,019 | — | $ | 16.53 | 03/05/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 16,180 | — | $ | 19.94 | 03/04/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
3,969 |
|
|
11,906 |
(3) |
$ |
14.76 |
|
|
03/10/2025 |
|
|
26,318 |
(5) | $ | 276,865 | 37,500 | (6) | $ | 394,500 | ||||||||||||||||||||||||||||||||||||||||||||
John Bullock | 7,811 | — | $ | 16.53 | 03/05/2023 | 26,852 | (5) | $ | 486,827 | 53,356 | $ | 967,344 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6,666 | — | $ | 19.94 | 03/04/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 12,162 | 4,054 | (1) | $ | 14.76 | 03/10/2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5,859 | 1,952 | (1) | $ | 16.53 | 03/05/2023 | 38,568 | (4) | $ | 405,735 | 33,333 | (6) | $ | 350,663 | 17,579 | 35,158 | (2) | $ | 8.51 | 02/25/2026 | |||||||||||||||||||||||||||||||||||||||||||||
| 3,334 | 3,332 | (2) | $ | 19.94 | 03/04/2024 | 8,094 | 8,093 | (3) | $ | 11.97 | 03/07/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4,054 | 12,162 | (3) | $ | 14.76 | 03/10/2025 | — | 48,963 | (4) | $ | 12.29 | 02/06/2027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Rick A. Elrod | 3,584 | 1,194 | (1) | $ | 16.53 | 03/05/2023 | 12,528 | (4) | $ | 131,795 | — | $ | — | 4,778 | — | $ | 16.53 | 03/05/2023 | 21,569 | (5) | $ | 391,046 | 57,629 | $ | 1,044,814 | |||||||||||||||||||||||||||||||||||||||
| 2,038 | 2,039 | (2) | $ | 19.94 | 03/04/2024 | 4,077 | — | $ | 19.94 | 03/04/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 811 | 2,434 | (3) | $ | 14.76 | 03/10/2025 | 2,433 | 812 | (1) | $ | 14.76 | 03/10/2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Rick A. Elrod | — | 38,861 | (2) | $ | 8.51 | 02/25/2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8,946 | 8,946 | (3) | $ | 11.97 | 03/07/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 51,843 | (4) | $ | 12.29 | 02/06/2027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4,766 | 1,588 | (1) | $ | 14.76 | 03/10/2025 | 14,093 | (5) | $ | 255,506 | 45,572 | $ | 826,220 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 14,689 | 29,379 | (2) | $ | 8.51 | 02/25/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jan van der Velden | 4,786 | 4,788 | (3) | $ | 11.97 | 03/07/2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 42,581 | (4) | $ | 12.29 | 02/06/2027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 72,581 | — | $ | 12.29 | 03/14/2018 | — | — | 13,688 | $ | 248,163 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
John O. Muse | 6,189 | — | $ | 16.98 | 03/06/2022 | 23,265 | (6) | 421,794 | 31,702 | $ | 574,757 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 13,019 | — | $ | 16.53 | 03/05/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 16,180 | — | $ | 19.94 | 03/04/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 22,859 | 45,719 | (2) | $ | 8.51 | 02/25/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10,524 | 10,525 | (3) | $ | 11.97 | 03/07/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dirk Kloosterboer | 15,875 | — | $ | 14.76 | 03/10/2025 | 3,799 | (7) | $ | 68,876 | 37,056 | $ | 671,825 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 100,438 | — | $ | 8.51 | 02/25/2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 36,039 | — | $ | 11.97 | 03/07/2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 67,401 | — | $ | 12.29 | 02/06/2027 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 Proxy Statement 47 |
EXECUTIVE COMPENSATION
Outstanding Equity Awards at FiscalYear-End
| 1. |
| These stock options were granted on March 10, 2015 and vest in four equal installments, with the first installment vesting immediately upon the grant date and the remaining three installments vesting on the next three anniversary dates of the grant. |
| These |
| 3. | These stock options were granted on March |
| 4. | These stock options were granted on February 6, 2017 and vest in equal installments on the first three anniversary dates of the grant. |
| 5. | These shares are part of |
| 6. | These shares are part of |
| 7. |
| 8. | Value stated is the number of unvested |
| 9. | Reflects unearned PSU awards (at the target performance level) granted on February 25, 2016 and February 6, 2017, pursuant to the long-term incentive components of the 2016 and 2017, respectively, executive compensation programs. For Messrs. Lynch and Kloosterboer, the amount shown reflects the prorated amount of PSUs at target performance level for which they remain eligible following their departures from the Company. |
| 10. | Value stated is the number of unearned PSUs in the 2016 and 2017 performance awards |
| 2016 PSUs | 2017 PSUs | |||||||||||||||
TARGET SHARES | VALUE ($) | TARGET SHARES | VALUE ($) | |||||||||||||
Randall C. Stuewe | 190,212 | $ | 3,448,544 | 180,000 | $ | 3,263,400 | ||||||||||
John Bullock | 24,379 | 441,991 | 28,977 | 525,353 | ||||||||||||
Rick A. Elrod | 26,947 | 488,549 | 30,682 | 556,265 | ||||||||||||
Jan van der Velden | 20,372 | 369,344 | 25,200 | 456,876 | ||||||||||||
Patrick C. Lynch | — | — | 13,688 | 248,163 | ||||||||||||
John O. Muse | 31,702 | 574,757 | — | — | ||||||||||||
Dirk Kloosterboer | 27,084 | 491,033 | 9,972 | 180,792 | ||||||||||||
| These PSUs will be earned over three-year performance periods ending December 29, 2018 and December 28, 2019, respectively. Mr. Kloosterboer remains eligible to vest in a prorated portion (to his retirement date) of his outstanding PSU awards, based on actual performance through the end of the respective performance periods. Mr. Kloosterboer retired from the company on October 1, 2017. In addition, Mr. Lynch remains eligible to earn a prorated portion (up to the |
|
EXECUTIVE COMPENSATION
Option Exercises and Stock Vested
Option Exercises and Stock Vested
The following table lists the number of shares acquired and the value realized as a result of option exercises by the named executive officers during the fiscal year ended January 2, 2016,December 30, 2017, and the value of any restricted stock and PSUs that vested during the fiscal year ended January 2, 2016.December 30, 2017.
| OPTION AWARDS | STOCK AWARDS | OPTION AWARDS(1) | STOCK AWARDS(2) | |||||||||||||||||||||||||||||
| SHARES ACQUIRED ON EXERCISE (#) | VALUE REALIZED ON EXERCISE ($) | SHARES ACQUIRED ON VESTING (#) | VALUE REALIZED ON VESTING ($) | SHARES ACQUIRED ON EXERCISE (#) | VALUE REALIZED ON EXERCISE ($) | SHARES ACQUIRED ON VESTING (#) | VALUE REALIZED ON VESTING ($) | |||||||||||||||||||||||||
Randall C. Stuewe | 82,600 | $ | 838,390 | 194,076 | $ | 3,074,336 | — | — | 228,042 | $ | 3,628,144 | |||||||||||||||||||||
John Bullock | — | — | 34,398 | 538,060 | ||||||||||||||||||||||||||||
Rick A. Elrod | 19,431 | $ | 145,150 | 28,092 | 454,018 | |||||||||||||||||||||||||||
Jan van der Velden | — | — | 19,506 | 318,559 | ||||||||||||||||||||||||||||
Patrick C. Lynch | — | — | 100,000 | 1,497,001 | ||||||||||||||||||||||||||||
John O. Muse | — | — | — | — | — | — | 28,288 | 466,450 | ||||||||||||||||||||||||
Dirk Kloosterboer | — | — | 46,273 | 774,011 | — | — | 98,639 | 1,644,295 | ||||||||||||||||||||||||
John Bullock | — | — | 58,297 | 924,433 | ||||||||||||||||||||||||||||
Rick A. Elrod | — | — | 6,686 | 107,303 | ||||||||||||||||||||||||||||
| 1. | Represents the number of stock options exercised in fiscal 2017. The value realized upon exercise is equal to the number of options exercised multiplied by the difference between the closing price of a share of our common stock on the date of exercise and exercise price. |
| 2. | Represents the number of (i) PSUs for the 2016-2017 performance period that ended on December 30, 2017 and (ii) shares of restricted stock that vested in fiscal 2017. The value realized upon vesting is computed by multiplying the number of PSUs or restricted stock, as the case may be, by the closing stock price on the date of vesting. These PSUs are subject to atwo-year post vesting holding requirement. |
Details regarding the PSUs and restricted stock that vested and the value realized are set forth below:
| 2016-2017 PSUS | RESTRICTED STOCK | |||||||||||||||
| (#) | VALUE ($) | (#) | VALUE ($) | |||||||||||||
Randall C. Stuewe | 99,940 | $ | 1,811,912 | 128,102 | $ | 1,816,232 | ||||||||||
John Bullock | 12,808 | 232,209 | 21,590 | 305,851 | ||||||||||||
Rick A. Elrod | 14,157 | 256,666 | 13,935 | 197,352 | ||||||||||||
Jan van der Velden | 10,704 | 194,064 | 8,802 | 124,496 | ||||||||||||
Patrick C. Lynch | — | — | 100,000 | 1,497,001 | ||||||||||||
John O. Muse | 16,656 | 301,973 | 11,632 | 164,477 | ||||||||||||
Dirk Kloosterboer | 21,345 | 386,985 | 77,294 | 1,257,310 | ||||||||||||
| 2018 Proxy Statement 49 |
EXECUTIVE COMPENSATION
Pension Benefits
The following table shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each named executive officer, under our Salaried Employees’ Retirement Plan determined using interest rate and post-retirement mortality rate assumptions. These values are calculated assuming retirement at age 62, the earliest age at which a participant can receive an unreduced retirement benefit from our Salaried Employees’ Retirement Plan, other than with respect to Mr. Muse, who is age 67.69. Our Salaried Employees’ Retirement Plan was frozen effective December 31, 2011. Information regarding our Salaried Retirement Plan and the terms and conditions of payments and benefits available under the plan can be found under the heading “Other Features of our Compensation Program – Retirement Benefits and Perquisites” on page 43.39.
| NAME | PLAN NAME | NUMBER OF YEARS (#) | PRESENT VALUE OF ACCUMULATED BENEFIT ($) | PAYMENTS DURING ($) | PLAN NAME | NUMBER OF YEARS (#) | PRESENT VALUE OF ACCUMULATED BENEFIT ($) | PAYMENTS DURING ($) | ||||||||||||||||||||
Randall C. Stuewe | Salaried Employees’ Retirement Plan |
|
8.83 |
|
$ |
222,490 |
|
|
– |
| Salaried Employees’ Retirement Plan | 8.83 | $ | 288,678 | – | |||||||||||||
| John Bullock | — | — | — | – | ||||||||||||||||||||||||
| Rick A. Elrod | — | — | — | – | ||||||||||||||||||||||||
Jan van der Velden | Netherlands—SPS Pension Plan | 28.50 | 870,293 | – | ||||||||||||||||||||||||
| Patrick C. Lynch | — | — | — | – | ||||||||||||||||||||||||
John O. Muse | Salaried Employees’ Retirement Plan |
|
14.17 |
|
|
610,842 |
|
|
– |
| Salaried Employees’ Retirement Plan | 14.17 | 721,188 | – | ||||||||||||||
Dirk Kloosterboer | Netherlands—SPS Pension Plan |
|
35.75 |
|
|
3,063,368 |
|
|
– |
| Netherlands—SPS Pension Plan | 37.75 | 3,796,441 | – | ||||||||||||||
| John Bullock | — | — | — | – | ||||||||||||||||||||||||
| Rick A. Elrod | — | — | — | – | ||||||||||||||||||||||||
The present value of accumulated benefits has been calculated as of January 2, 2016,December 30, 2017, which is the measurement date for financial statement reporting purposes. The present value of accumulated benefits has been calculated assuming an age 62 retirement date (the earliest unreduced retirement age under the plan), other than with respect to Mr. Muse, who is age 67,69, and nopre-retirement death, disability, or withdrawal was assumed. All other assumptions used (including a 4.30%3.55% discount rate for Messrs. Stuewe and Muse, a 2.60%2.10% discount rate for Mr.Messrs. van der Velden and Kloosterboer and a projection of thePFG2013-10 MI scale, which scale is based on the RPEC_2014_v2017 model reflecting historical U.S. mortality data to 2015, IRS Prescribed Mortality Static Annuitant,published by the Society of Actuaries in October of 2017, male and female)female, for Messrs. Stuewe and Muse and the Prognosetafel AG 2016 with correction High-Middle for Messrs. van der Velden and Kloosterboer) are consistent with the assumptions used for our company’s audited financial statements for the fiscal year ended January 2, 2016.December 30, 2017. See Note 15 of the consolidated financial statements in our Annual Report for the fiscal year ended January 2, 2016December 30, 2017 for more information regarding the assumptions underlying the valuation of the pension benefits.
Nonqualified Deferred Compensation
| NAME | EXECUTIVE IN LAST FY ($)(1) | COMPANY IN LAST FY ($) | AGGREGATE EARNINGS IN LAST FY ($) | AGGREGATE WITHDRAWALS/ DISTRIBUTIONS ($) | AGGREGATE LAST FY END ($) | |||||||||||||||
Randall C. Stuewe | 1,811,912 | — | — | — | 1,811,912 | |||||||||||||||
John Bullock | 232,209 | — | — | — | 232,209 | |||||||||||||||
Rick A. Elrod | 256,666 | — | — | — | 256,666 | |||||||||||||||
Jan van der Velden | 194,064 | — | — | — | 194,064 | |||||||||||||||
Patrick C. Lynch | — | — | — | — | — | |||||||||||||||
John O. Muse | 301,973 | — | — | — | 301,973 | |||||||||||||||
Dirk Kloosterboer | 386,985 | — | — | — | 386,985 | |||||||||||||||
| 1. | Represents value of the PSUs for the 2016-2017 performance period that were earned based on performance as of December 30, 2017 (as reflected in the Option Exercises and Stock Vested table included elsewhere in this Proxy Statement), but the receipt of |
|
|
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
| which was deferred due to atwo-year post vesting holding requirement. The value is computed by multiplying the number of PSUs earned by the closing stock price on December 29, 2017 ($18.13). Subject to certain limited exceptions, settlement of the vested PSUs shall be effected in the form of issuance of whole shares of our common stock to the recipient, within 90 days following the earlier to occur of (i) December 30, 2019 and (ii) the recipient’s termination of service. The value of these awards is not included in the Summary Compensation table for fiscal 2017 as the aggregate full grant date fair value computed in accordance with FASB ASC Topic 718 was included as compensation in the year the award was granted. Mr. Lynch joined the company on January 15, 2017, and accordingly, did not receive theone-time,non-incremental transition PSUs granted under the company’s 2016 executive compensation program. |
Potential Payments upon Termination or Change of Control
Mr. Stuewe’s employment agreement includes provisions pursuant to which he is entitled to the following severance and other payments upon his termination:
| Termination upon Death: In the event that Mr. Stuewe’s employment with our company terminates as the result of his death, Mr. Stuewe’s designated beneficiary is entitled to receive the following amounts: (i) accrued but unpaid base salary through the date of termination, in a lump sum payment, within thirty days of termination; (ii) earned but unpaid bonus for a completed fiscal year, in a lump sum payment, within thirty days of termination; (iii) business expenses and accrued vacation pay, in a lump sum payment, within thirty days of termination; (iv) amounts to which Mr. Stuewe is entitled pursuant to Mr. Stuewe’s participation in employee benefit plans (the above amounts are collectively referred to as the “Accrued Entitlements” |
| Termination upon Disability: In the event that Mr. Stuewe’s employment with our company terminates as the result of his disability (as defined in his employment agreement), Mr. Stuewe is entitled to receive (i) the Accrued Entitlements and (ii) $10,000 per month until Mr. Stuewe reaches 65 years of age pursuant to a group disability policy maintained at our company’s expense. |
| Termination for Cause; Resignation without Good Reason: If our company terminates Mr. Stuewe for cause (as defined in his employment agreement and discussed in “Employment Agreements – Mr. Stuewe’s Employment Agreement” above) or Mr. Stuewe resigns without good reason (as defined in his |
employment agreement and discussed in “Employment Agreements – Mr. Stuewe’s Employment Agreement” above), Mr. Stuewe is entitled to receive the Accrued Entitlements only. |
| Termination without Cause; Resignation for Good Reason: If our company terminates Mr. Stuewe without cause or Mr. Stuewe resigns for good reason (other than following a change of control), Mr. Stuewe is entitled to receive the following payments, together with certain additional payments that are not, individually or in the aggregate, material: (i) the Accrued Entitlements; (ii) a lump sum payment, within thirty days of the date of termination, equal to two times Mr. Stuewe’s base salary at the highest rate in effect in the preceding twelve months; and (iii) an amount equal to the bonus that he would have been entitled to at year end, but only if our company’s performance to the termination date would entitle him to the bonus. |
| Termination upon a Change of Control of our company: If within twelve months following a change of control, either our company terminates Mr. Stuewe’s employment without cause or Mr. Stuewe resigns for good reason, Mr. Stuewe is entitled to the following payments, among others: (i) the Accrued Entitlements; (ii) a lump sum payment, within thirty days of the date of termination, equal to three times Mr. Stuewe’s base salary at the highest rate in effect in the preceding twelve months; and (iii) an amount equal to the bonus that he would have been entitled to at year end, but only if our company’s performance to the termination date would entitle him to the bonus. |
Pursuant to Mr. Stuewe’s employment agreement, subject to certain exceptions, during Mr. Stuewe’s employment with our company and for a period of (i) two years thereafter in the event of termination without cause, (ii) three years thereafter in the event of termination upon a change of control and (iii) one year thereafter in each other instance (the “Restricted Period”), Mr. Stuewe may not have any ownership interest in, or be an employee, salesman, consultant, officer or director of, any entity that engages in the United States, Canada or Mexico in a business that is similar to that in which our company is engaged in the territory. Subject to certain limitations, Mr. Stuewe’s employment agreement also prohibits him from soliciting our company’s customers, employees or consultants during the Restricted Period. Further, Mr. Stuewe is required by his employment agreement to keep all confidential information in confidence during his employment and at all times thereafter.
Mr. Stuewe’s employment agreement contains a provision that provides that in the event it shall be determined that any payment or distribution by our company to Mr. Stuewe or for his benefit would be subject to the excise tax imposed by Section 4999 (or any successor provisions) of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalty is incurred by Mr. Stuewe with respect to such excise tax, then such payments shall be reduced (but not below zero) if and to the extent that such reduction
| 2018 Proxy Statement 51 |
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
would result in Mr. Stuewe retaining a larger amount, on anafter-tax basis (taking into account federal, state and local income taxes and the imposition of the excise tax), than if Mr. Stuewe received all of such payments. The employment agreement provides that our company shall reduce or eliminate any such payments, by first reducing or eliminating the portion of such payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the determination. Additionally, Mr. Stuewe’s employment agreement contains provisions intended to comply with Section 409A of the Code and the guidance promulgated thereunder.
|
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
As of the end of fiscal 2015,2017, we had in effect Senior Executive Termination Benefits Agreements with each of Messrs. Muse, Bullock and Elrod, which provide that, subject to certain conditions, we must continue to pay the executive upon any termination of his employment (except termination by reason of the voluntary resignation, termination for cause or termination by reason of normal retirement) for one year (or 18 months in the case of Mr. Muse) (i) his annual base salary in effect at the time of his termination or, in the case of Mr. Muse, his annual base salary at the highest rate in effect in the preceding twelve months (the “Termination Payment Amount”), (ii) any accrued vacation pay due but not yet taken at the date of his termination, and (iii) life, disability, health and dental insurance, and certain other similar benefits of our company (or similar benefits provided by our company) in effect immediately prior to the date of termination to the extent allowed under the applicable policies.
These Senior Executive Termination Benefits Agreements contain covenants for the benefit of our company relating to the protection of our confidential information, return of company property,non-solicitation of our employees during employment and for one year thereafter,non-disparagement of our company and its business, continued cooperation in certain matters involving our company and requiring the executive officer to mitigate required payments under the severance agreement by seeking other comparable employment as promptly as practicable after termination and causing any amount earned from any other employment to offset amounts payable under the severance agreement. The employee benefits provided for in these severance agreements terminate when the executive officer obtains other employment.
In addition to the foregoing, as of the end of fiscal 2017, Mr. Muse’s Senior Executive Termination Benefits Agreement also providesprovided that if, within twelve (12) months following a change of control (as defined in Mr. Muse’s agreement), either our company
terminates his employment without cause or he resigns for good reason (as defined in Mr. Muse’s agreement), then in lieu of the Termination Payment Amount (discussed above) and subject to certain conditions, he will receive a lump sum payment within thirty days of the date of termination equal to three times his annual base salary at the highest rate in effect in the preceding twelve months. In either case, any such payment is not subject to the mitigation provision described above with respect to the Termination Payment Amount. Effective as of January 1, 2018, Mr. Muse’s Senior Executive Termination Benefits Agreement was amended and restated so as to remove the provisions relating to a change of control and to reduce the severance benefit described above from 18 months to 12 months.
The tables below reflect the amount of compensation to each of the named executive officers of our company, except for Messrs. Lynch and Kloosterboer, in the event of termination of the executive officer’s employment or upon a change of control. The amount of compensation payable to each such named executive officer upon termination for cause, voluntary resignation, termination without cause or resignation for good reason, termination due to retirement, termination due to death or disability, or upon a change of control is shown below. The amounts shown assume that the termination or change of control was effective as of January 2, 2016,December 30, 2017, and thus include amounts earned through that date and are estimates of the amounts that would be paid to each executive officer listed upon his termination. The actual amounts to be paid can only be determined at the time of the applicable executive officer’s separation from our company. The amounts are in addition to benefits generally available to U.S. salaried employees, such as accrued vacation. Our company has no program, plan or agreement providing benefits or accelerated vesting to the named executive officers triggered by a voluntary resignation, a termination for cause or a change of control alone.
Messrs. Lynch and Kloosterboer are not included in the tables since they were no longer employed by our company on December 30, 2017. In connection with his departure from our company and in exchange for his release of any and all claims against our company, Mr. Lynch received the separation pay and benefits he was entitled to pursuant to his Senior Executive Termination Benefits Agreement with our company, including the continued payment of his base salary for 18 months from his separation date (December 14, 2017). In addition, pursuant to the terms of the underlying grant documents, the vesting of certain of Mr. Lynch’s outstanding equity awards was accelerated. Except for the acceleration of the vesting of certain outstanding equity awards, as further described in the Compensation Discussion and Analysis on page 40 herein, Mr. Kloosterboer did not receive any additional compensation in connection with his retirement from our company.
|
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
BY COMPANY FOR CAUSE | VOLUNTARY RESIGNATION | BY COMPANY RESIGNATION | DEATH OR DISABILITY | CHANGE IN CONTROL (WITHOUT | BY COMPANY WITHOUT CAUSE OR RESIGNATION FOLLOWING A CHANGE OF | BY COMPANY RESIGNATION | RETIREMENT | DEATH OR DISABILITY | BY COMPANY WITHOUT CAUSE OR RESIGNATION FOLLOWING A CHANGE OF | |||||||||||||||||||||||||||||||
Randall C. Stuewe | ||||||||||||||||||||||||||||||||||||||||
Compensation | — | — | $ | 2,000,000 | (1) | — | — | $ | 3,000,000 | (2) | $ | 2,200,000 | (1) | — | — | $ | 3,300,000 | (2) | ||||||||||||||||||||||
Annual Incentive Bonus(3) | — | — | 578,701 | $ | 578,701 | — | 578,701 | 1,928,988 | — | $ | 1,928,988 | 1,928,988 | ||||||||||||||||||||||||||||
Life Insurance Benefits | — | — | — | 2,000,000 | (4) | — | — | — | — | 2,200,000 | (4) | — | ||||||||||||||||||||||||||||
Accrued Vacation(5) | $ | 77,000 | $ | 77,000 | 77,000 | 77,000 | — | 77,000 | ||||||||||||||||||||||||||||||||
Health and Welfare | — | — | 44,000 | (6) | — | — | 64,000 | (7) | 44,000 | (5) | — | — | 65,000 | (6) | ||||||||||||||||||||||||||
Disability Income | — | — | — | 1,099,000 | (8) | — | — | — | — | 981,000 | (7) | — | ||||||||||||||||||||||||||||
Equity Awards | — | — | 2,648,000 | (9) | 2,648,000 | (9) | $ | 1,139,579 | (10) | 2,648,000 | (9) | 11,518,000 | (8) | $ | 2,864,000 | (9) | 11,518,000 | (10) | 14,843,000 | (11) | ||||||||||||||||||||
Pension Accrual(11) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Pension Accrual (12) | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Relocation Expenses | — | — | (12) | — | — | (12) | (13) | — | — | (13) | ||||||||||||||||||||||||||||||
| 1. | Reflects thelump-sum value of the compensation to be paid to Mr. Stuewe in accordance with his employment agreement, which is two times his base salary at the highest rate in effect in the preceding twelve months. |
| 2. | Reflects thelump-sum value of the compensation to be paid to Mr. Stuewe in accordance with his employment agreement, which is three times his base salary at the highest rate in effect in the preceding twelve months. |
| 3. | Reflects amount due Mr. Stuewe under the annual incentive bonus component of the |
| 4. | Reflects thelump-sum proceeds payable to Mr. Stuewe’s designated beneficiary upon his death, which is two times his then-effective base salary from a group life insurance policy (that is generally available to all salaried employees) and a supplemental executive life policy maintained by our company at its sole expense. |
| 5. | Reflects |
| Reflects the estimatedlump-sum present value of all future premiums paid to or on behalf of Mr. Stuewe for medical, dental, life and accidental death and dismemberment, as well as short and long-term disability, which, in accordance with the terms of Mr. Stuewe’s employment agreement, are to continue for a |
| Reflects thelump-sum present value of all future payments that Mr. Stuewe would be entitled to receive under his employment agreement upon disability. Mr. Stuewe would be entitled to receive disability benefits until he reaches age 65. |
| 9. | Reflects the acceleration of vesting of 100% of Mr. Stuewe’s unvested stock options awarded on February 6, 2017. In addition, Mr. Stuewe would remain eligible to vest in a prorated portion of the PSUs awarded under our company’s 2017 executive compensation program, based on actual performance through the end of the performance period. For purposes of calculating the payout of PSUs outstanding at December 30, 2017, we have assumed that target performance was achieved, which leads to a value of $1,088,000 based on the closing price of our common stock on December 29, 2017 of $18.13 per share. The award documents underlying these equity grants define Retirement as a grantee’s termination of service, other than for cause, after the attainment of (i) at least 55 years of age with at least ten years of Service or (ii) at least 65 years of age. |
| 10. | Reflects the acceleration of vesting of (i) 100% of Mr. Stuewe’s (A) unvested stock options awarded on March 10, 2015, February 25, 2016, March 7, 2016 and February 6, 2017 and (B) shares of unvested restricted stock awarded on March |
| 11. | Reflects the acceleration of vesting of (i) 100% of Mr. Stuewe’s (A) unvested stock |
| 2018 Proxy Statement 53 |
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
| 12. | Pursuant to his employment agreement, under certain circumstances Mr. Stuewe is entitled to thelump-sum present value for pension benefits that would have accrued under our company’s salaried employees’ pension plan for the |
| Pursuant to the terms of his employment agreement, if Mr. Stuewe is terminated by our company without cause or resigns for good reason (whether following a change of control or not), we will reimburse him for reasonable relocation expenses, which will be limited to realtor fees and closing costs for the sale of his Texas residence as well as costs of moving from Texas to California. These expenses are not reasonably estimable. |
BY COMPANY RESIGNATION | RETIREMENT | DEATH OR DISABILITY | RESIGNATION FOLLOWING A CHANGE OF | |||||||||||||
John Bullock | ||||||||||||||||
Compensation | $ | 425,000 | (2) | — | — | — | ||||||||||
Life Insurance Benefits | — | — | $ | 1,850,000 | (3) | — | ||||||||||
Health and Welfare | 26,000 | (4) | — | — | — | |||||||||||
Disability Income | — | — | 377,000 | (5) | — | |||||||||||
Executive Outplacement | 10,000 | (6) | — | — | — | |||||||||||
Equity Awards | 1,644,000 | (7) | — | 1,644,000 | (8) | 2,142,000 | (9) | |||||||||
Rick A. Elrod | ||||||||||||||||
Compensation | 450,000 | (2) | — | — | — | |||||||||||
Life Insurance Benefits | — | — | 1,850,000 | (3) | — | |||||||||||
Health and Welfare | 19,000 | (4) | — | — | — | |||||||||||
Disability Income | — | — | 766,000 | (5) | — | |||||||||||
Executive Outplacement | 10,000 | (6) | — | — | — | |||||||||||
Equity Awards | 1,637,000 | (7) | $ | 488,000 | (10) | 1,637,000 | (8) | 2,170,000 | (9) | |||||||
| 1. | All benefits payable to Messrs. Bullock and Elrod upon termination without cause may end or be reduced due to their obligations to seek other employment as required by their respective severance agreements. |
| 2. | Payable only in the case of a termination by our company without cause and reflects 12 months of compensation based on the noted executive officer’s base salary at December 30, 2017, to be paid to the noted executive officer in accordance with the terms of his severance agreement. |
| 3. | Reflects thelump-sum proceeds payable to the noted executive officer’s designated beneficiary upon his death, which is two times his then-effective base salary, capped at $350,000, from a group life insurance policy that is generally available to all Darling salaried employees and is maintained by our company at its sole expense, plus, an additional amount equal to three times his then-effective base salary, capped at $1,500,000, from a supplemental executive life policy maintained by our company at its sole expense. |
| 4. | Payable only in the case of a termination by our company without cause and reflects thelump-sum present value of all future premiums paid to or on behalf of the applicable executive officer for medical, dental, life and accidental death and dismemberment insurance, as well as short and long-term disability insurance, which, in accordance with the terms of the severance agreement, are to continue for up to one year following termination. |
| 5. | Reflects thelump-sum present value of all future payments that the noted executive would be entitled to receive upon disability under a long-term disability policy maintained by our company at its sole expense. The noted executive would be entitled to receive up to 60% of his base salary annually, with the monthly benefit limited to no greater than $10,000, until the age of 65. |
| 6. | Payable only in the case of a termination by our company without cause and reflects the present value of outplacement fees to be paid by our company to assist the executive officer in obtaining employment following termination. |
| 7. | With respect to a termination by the company without cause, reflects the acceleration of vesting of 100% of (A) unvested stock options awarded on March 10, 2015, February 25, 2016, March 7, 2016 and February 6, 2017 and (B) shares of unvested restricted stock awarded on March 10, 2015 and March 7, 2016 to each of Messrs. Bullock and Elrod, with the value in each case based on the closing price of our common stock on December 29, 2017 of $18.13 per share. In addition, in the event of either a termination by the company without cause or a resignation for good reason, Messrs. Bullock and Elrod would remain eligible to vest in a prorated portion of the PSUs awarded under our company’s 2016 and 2017 executive compensation programs, based on actual performance through the end of the respective performance periods. For purposes of calculating the payout of PSUs outstanding at December 30, 2017, we have assumed that target performance was achieved, which leads to a value of $470,000 for Mr. Bullock and $511,000 for Mr. Elrod based on the closing price of our common stock on December 29, 2017 of $18.13 per share, which would be the only amount payable to Messrs. Bullock and Elrod with respect to equity awards following a resignation for good reason outside the context of a change of control. |
| 8. | Reflects the acceleration of vesting of (i) 100% of (A) unvested stock options awarded on March 10, 2015, February 25, 2016, March 7, 2016 and February 6, 2017 and (B) shares of unvested restricted stock awarded on March 10, 2015 and March 7, 2016, and (ii) a prorated portion of the target level amount of the PSUs awarded under our company’s 2016 and 2017 executive compensation programs, with the value in each case based on the closing price of our common stock on December 29, 2017 of $18.13 per share. |
|
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
| 9. | Reflects the acceleration of vesting of (i) 100% of (A) unvested stock options awarded on March 10, 2015, February 25, 2016, March 7, 2016 and February 6, 2017 and (B) shares of unvested restricted stock awarded on March 10, 2015 and March 7, 2016, and (ii) the target level amount of the PSUs awarded under our company’s 2016 and 2017 executive compensation programs, with the value in each case based on the closing price of our common stock on December 29, 2017 of $18.13 per share. It should be noted that the amount of the PSUs that vest would be increased in the event that the compensation committee determines that, at the time of the change of control, the projected level of performance through the end of the performance period is greater than target level. |
| 10. | Reflects the acceleration of vesting of 100% of Mr. Elrod’s unvested stock options awarded on February 6, 2017. In addition, Mr. Elrod would remain eligible to vest in a prorated portion of the PSUs awarded under our company’s 2017 executive compensation program, based on actual performance through the end of the performance period. For purposes of calculating the payout of PSUs outstanding at December 30, 2017, we have assumed that target performance was achieved, which leads to a value of $185,000 for Mr. Elrod based on the closing price of our common stock on December 29, 2017 of $18.13 per share. The award documents underlying these equity grants define Retirement as a grantee’s termination of service, other than for cause, after the attainment of (i) at least 55 years of age with at least ten years of Service or (ii) at least 65 years of age. |
BY COMPANY RESIGNATION | RETIREMENT | DEATH OR DISABILITY | RESIGNATION FOR GOOD CHANGE OF CONTROL | |||||||||||||
Jan van der Velden | ||||||||||||||||
Compensation | $ | 868,844 | (1) | — | $ | 98,732 | (2) | — | ||||||||
Life Insurance Benefits | — | — | $ | 394,929 | (3) | — | ||||||||||
Disability Income | — | — | $ | 789,858 | (4) | — | ||||||||||
Equity Awards | 1,220,000 | (5) | — | 1,220,000 | (6) | $ | 1,648,000 | (7) | ||||||||
| 1. | Payable only in the case of a termination by our company without cause and reflects amount based on a court formula pursuant to case law of the Netherlands, which would equal Mr. van der Velden’s base salary plus the amount due Mr. van der Velden under the annual incentive bonus component of the 2017 executive compensation program. |
| 2. | Reflects three (3) months of compensation based on Mr. van der Velden’s base salary at December 30, 2017. |
| 3. | Reflects thelump-sum proceeds payable to Mr. van der Velden from a group life insurance policy that is generally available to all Darling Ingredients International salaried employees and is maintained by our company at its sole expense. |
| 4. | Reflects amount owed to Mr. van der Velden pursuant to the laws of the Netherlands and his employment agreement, as well as thelump-sum proceeds payable to Mr. van der Velden from a group disability policy that is generally available to all Darling Ingredients International salaried employees and is maintained by our company at its sole expense. |
| 5. | With respect to a termination by the company without cause, reflects the acceleration of vesting of 100% of Mr. van der Velden’s (A) unvested stock options awarded on March 10, 2015, February 25, 2016, March 7, 2016 and February 6, 2017 and (B) shares of unvested restricted stock awarded on March 10, 2015 and March 7, 2016, with the value in each case based on the closing price of our common stock on December 29, 2017 of $18.13 per share. In addition, in the event of either a termination by the company without cause or a resignation for good reason, Mr. van der Velden would remain eligible to vest in a prorated portion of the PSUs awarded under our company’s 2016 and 2017 executive compensation programs, based on actual performance through the end of the respective performance periods. For purposes of calculating the payout of PSUs outstanding at December 30, 2017, we have assumed that target performance was achieved, which leads to a value of $399,000 based on the closing price of our common stock on December 29, 2017 of $18.13 per share, which would be the only amount payable to Mr. van der Velden with respect to equity awards following a resignation for good reason outside the context of a change of control. |
| 6. | Reflects the acceleration of vesting of (i) 100% of Mr. van der Velden’s (A) unvested stock options awarded on March 10, 2015, February 25, 2016, March 7, 2016 and February 6, 2017 and (B) shares of unvested restricted stock awarded on March 10, 2015 and March 7, 2016, and (ii) a prorated portion of the target level amount of the PSUs awarded under our company’s 2016 and 2017 executive compensation programs, with the value in each case based on the closing price of our common stock on December 29, 2017 of $18.13 per share. |
| 7. | Reflects the acceleration of vesting of (i) 100% of Mr. van der Velden’s (A) unvested stock options awarded on March 10, 2015, February 25, 2016, March 7, 2016 and February 6, 2017 and (B) shares of unvested restricted stock awarded on March 10, 2015 and March 7, 2016, and (ii) the target level amount of the PSUs awarded under our company’s 2016 and 2017 executive compensation programs, with the value in each case based on the closing price of our common stock on December 29, 2017 of $18.13 per share. It should be noted that the amount of the PSUs that vest would be increased in the event that the compensation committee determines that, at the time of the change of control, the projected level of performance through the end of the performance period is greater than target level. |
| 2018 Proxy Statement 55 |
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
BY COMPANY FOR CAUSE | VOLUNTARY RESIGNATION | BY COMPANY WITHOUT CAUSE (1) | DEATH OR DISABILITY | CHANGE IN CONTROL (WITHOUT TERMINATION) | BY COMPANY WITHOUT CAUSE OR RESIGNATION FOLLOWING A CHANGE OF CONTROL(2) | |||||||||||||||||||
John O. Muse | ||||||||||||||||||||||||
Compensation | — | — | $ | 750,000 | (3) | — | — | $ | 1,500,000 | (4) | ||||||||||||||
Life Insurance Benefits | — | — | — | $ | 1,850,000 | (5) | — | — | ||||||||||||||||
Accrued Vacation(6) | $ | 38,000 | $ | 38,000 | 38,000 | 38,000 | — | 38,000 | ||||||||||||||||
Health and Welfare | — | — | 38,000 | (7) | — | — | 74,000 | (8) | ||||||||||||||||
Disability Income | — | — | — | — | — | — | ||||||||||||||||||
Executive Outplacement | — | — | 10,000 | (9) | — | — | 10,000 | (9) | ||||||||||||||||
Equity Awards | — | — | — | — | — | — | ||||||||||||||||||
BY COMPANY RESIGNATION | RETIREMENT | DEATH OR DISABILITY | BY COMPANY WITHOUT CAUSE OR RESIGNATION FOR GOOD CHANGE OF CONTROL(2) | |||||||||||||
John O. Muse | ||||||||||||||||
Compensation | $ | 787,500 | (3) | — | — | $ | 1,575,000 | (4) | ||||||||
Life Insurance Benefits | — | — | $ | 1,850,000 | (5) | — | ||||||||||
Health and Welfare | 46,000 | (6) | — | — | 90,000 | (7) | ||||||||||
Disability Income | — | — | — | — | ||||||||||||
Executive Outplacement | 10,000 | (8) | — | — | 10,000 | (8) | ||||||||||
Equity Awards | 1,310,000 | (9) | — | 1,310,000 | (10) | 1,501,000 | (11) | |||||||||
| 1. | All benefits payable to Mr. Muse upon termination by our company without cause (unless the termination follows a change of control) may end or be reduced due to his obligation to seek other employment as required by his severance agreement. |
| 2. | Resignation must be within twelve (12) months following a change of control and must be for “good reason,” as such term is defined in Mr. Muse’s severance agreement. |
| 3. |
| 4. | Reflects thelump-sum value of the compensation to be paid to Mr. Muse in accordance with his severance agreement, which is equal to three times his base salary at the highest rate in effect in the preceding twelve months. |
| 5. | Reflects thelump-sum proceeds payable to Mr. Muse’s designated beneficiary upon his death, which is two times his then-effective base salary, capped at $350,000, from a group life insurance policy that is generally available to all salaried employees and is maintained by our company at its sole expense, plus an additional amount equal to three times his then-effective base salary, capped at $1,500,000, from a supplemental executive life policy maintained by our company at its sole expense. |
| 6. |
| Reflects the estimatedlump-sum present value of all future premiums paid to or on behalf of Mr. Muse for medical, dental, life and accidental death and dismemberment insurance, as well as short and long-term disability insurance, which, in accordance with the terms of his 2017 severance agreement, are to continue for a |
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EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
BY COMPANY FOR CAUSE | VOLUNTARY RESIGNATION | BY COMPANY WITHOUT CAUSE(1) | DEATH OR DISABILITY | CHANGE IN CONTROL (WITHOUT | RESIGNATION FOLLOWING A CHANGE OF | |||||||||||||||||||
John Bullock | ||||||||||||||||||||||||
Compensation | — | — | $ | 384,000 | (3) | — | — | — | ||||||||||||||||
Life Insurance Benefits | — | — | — | $ | 1,850,000 | (4) | — | — | ||||||||||||||||
Accrued Vacation(5) | $ | 22,000 | $ | 22,000 | 22,000 | 22,000 | — | $ | 22,000 | |||||||||||||||
Health and Welfare (6) | — | — | 24,000 | — | — | — | ||||||||||||||||||
Disability Income | — | — | — | 571,000 | (7) | — | — | |||||||||||||||||
Executive Outplacement | — | — | 10,000 | (8) | — | — | — | |||||||||||||||||
Equity Awards | — | — | 406,000 | (9) | 406,000 | (9) | $ | 122,916 | (10) | 406,000 | (9) | |||||||||||||
Rick A. Elrod | ||||||||||||||||||||||||
Compensation | — | — | 425,000 | (3) | — | — | — | |||||||||||||||||
Life Insurance Benefits | — | — | — | 1,850,000 | (4) | — | — | |||||||||||||||||
Accrued Vacation(5) | 33,000 | 33,000 | 33,000 | 33,000 | — | 33,000 | ||||||||||||||||||
Health and Welfare(6) | — | — | 11,000 | — | — | — | ||||||||||||||||||
Disability Income | — | — | — | 914,000 | (7) | — | — | |||||||||||||||||
Executive Outplacement | — | — | 10,000 | (8) | — | — | — | |||||||||||||||||
Equity Awards | — | — | 132,000 | (9) | 132,000 | (9) | 75,197 | (10) | 132,000 | (9) | ||||||||||||||
| Reflects the acceleration of vesting of (i) 100% of Mr. Muse’s (A) unvested stock options awarded on February 25, 2016 and March 7, 2016 and (B) shares of unvested restricted stock awarded on March |
| Reflects the acceleration of vesting of (i) 100% of Mr. Muse’s (A) unvested stock options awarded on February 25, 2016 and March 7, 2016 and (B) shares of unvested restricted stock awarded on March |
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EXECUTIVE COMPENSATION
Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are providing the following disclosure about the relationship of the annual total compensation of an employee identified as the median compensated individual to the annual total compensation of Mr. Stuewe, our Chief Executive Officer. We strive to create a global compensation program, which is competitive in terms of both the position and the geographic location in which the employee is located. Accordingly, our pay structures vary amongst employees based on position and geographic location.
Ratio
For 2017,
| ∎ | The median of the annual total compensation of all of our employees, other than Mr. Stuewe, was $47,375. |
| ∎ | Mr. Stuewe’s annual total compensation, as reported in the Total column of the 2017 Summary Compensation Table on page 42, was $6,443,577. |
| ∎ | Based on this information, the ratio of the annual total compensation of Mr. Stuewe to the median of the annual total compensation of all employees is estimated to be 136 to 1. |
Identification of Median Employee
We selected December 31, 2017 as the date on which to determine our median employee. For purposes of identifying the median employee, we considered base salary, overtime and bonus payments over the12-month period ended December 31, 2017.
Using this methodology, we determined that our median employee was a full-time, hourly employee working in the United States. In determining the annual total compensation of the median employee, we calculated such employee’s compensation in accordance with Item 402(c)(2)(x) of RegulationS-K as required pursuant to SEC executive compensation disclosure rules. This calculation is the same calculation used to determine total compensation for purposes of the 2017 Summary Compensation Table with respect to each of the named executive officers. The ratio represents a reasonable estimate calculated in a manner consistent with Item 402(u) of RegulationS-K.
| 2018 Proxy Statement 57 |
EXECUTIVE COMPENSATION
Compensation of Directors
The following table sets forth certain information regarding the fees earned or paid in cash and stock awards granted to each outside director who did not serve as an employee of our company during the fiscal year ended January 2, 2016.December 30, 2017.
| NAME | FEES EARNED ($) | STOCK ($)(1) | OPTION ($)(2) | TOTAL ($) | FEES EARNED ($) | STOCK ($)(1) | OPTION ($)(2) | TOTAL ($) | ||||||||||||||||||||||||
O. Thomas Albrecht(3) | $ | 105,500 | $ | 90,000 | — | $ | 195,500 | |||||||||||||||||||||||||
Charles Adair | $ | 58,390 | $ | 110,000 | — | $ | 168,390 | |||||||||||||||||||||||||
D. Eugene Ewing | 94,000 | 90,000 | — | 184,000 | 114,695 | 110,000 | — | 224,695 | ||||||||||||||||||||||||
Linda Goodspeed | 57,890 | 110,000 | — | 167,890 | ||||||||||||||||||||||||||||
Mary R. Korby | 96,000 | 90,000 | 186,000 | 110,066 | 110,000 | — | 220,066 | |||||||||||||||||||||||||
Cynthia Pharr Lee | 93,178 | 110,000 | — | 203,178 | ||||||||||||||||||||||||||||
Charles Macaluso | 121,000 | 90,000 | — | 211,000 | 171,520 | 110,000 | — | 281,520 | ||||||||||||||||||||||||
John D. March | 94,500 | 90,000 | — | 184,500 | ||||||||||||||||||||||||||||
Justinus J.G.M. Sanders | 68,000 | 107,260 | — | 175,260 | ||||||||||||||||||||||||||||
Michael Urbut | 114,000 | 90,000 | — | 204,000 | ||||||||||||||||||||||||||||
Gary W. Mize | 94,178 | 110,000 | — | 204,178 | ||||||||||||||||||||||||||||
Michael E. Rescoe | 58,390 | 110,000 | — | 168,390 | ||||||||||||||||||||||||||||
| 1. | The aggregate number of stock awards outstanding at |
| 2. | The aggregate number of option awards outstanding at |
| 3. | Mr. |
Ournon-employee directors receive an annual compensation package composed of an annual retainer paid in quarterly installments,per-meeting fees and an annual grant of restricted stock units. In addition, our lead director and the chairman of each of the audit, compensation, and nominating and corporate governance committees receive an additional annual retainer for such additional service paid in quarterly installments. In accordance with its written charter as in effect at the time, the nominating and corporate governance committee was charged with evaluating annually the status of the Board’s compensation in relation to comparable U.S. companies and reporting its findings to the Board. Based on its review of relevant market data, the nominating and corporate governance committee recommended to the Board certain changes to our company’s compensation program for itsnon-employee directors. Consistent with these recommendations, effective May 9, 2017, the Board approved changes to the annual retainer and the lead director and committee chairman retainers, as further described below. In addition, the Board increased the dollar value of the annual grant of restricted stock units tonon-employee directors from $90,000 to $110,000.
During fiscal 2015, 2017,non-employee members of the Board were paid aan annual retainer equal to $60,000, annual retainer.which amount was increased to $90,000 effective May 9, 2017. Each outsidenon-employee director also received $1,500 for each board or committee meeting attended in person or by video where minutes were taken or $1,000 if attended by telephone. The lead director and chairman
of each of the audit, compensation, and nominating and corporate governance committees received an additional $12,000, $7,500 and $5,000, respectively, as an annual retainer in the following amounts: Lead Director—$15,000, increased to $95,000 effective May 9, 2017; Audit—$12,000, increased to $19,000 effective May 9, 2017; Compensation—$7,500, increased to $12,750 effective May 9, 2017; and the lead director of the Board received an additional $15,000 annual retainer.Nominating and Corporate Governance—$5,000, increased to $10,000 effective May 9, 2017. As an additional element of annualnon-employee director compensation, pursuant to the 20122017 Omnibus Plan, eachnon-employee director also now receives $90,000$110,000 (previously $90,000) of restricted stock units immediately following our annual meeting of stockholders at which such directors are elected.
Accordingly, following our annual meeting of stockholders on May 12, 2015,9, 2017, eachnon-employee director received a grant of $90,000$110,000 in value of restricted stock units, with the number of units granted being determined using the closing price of our common stock on May 12, 2015. In addition,9, 2017. Upon becoming anon-employee director on October 1, 2017, Mr. SandersKloosterboer received $17,260 wortha prorated grant of $66,550 in value of restricted stock units, upon his appointment towith the Boardnumber of units granted being determined using the closing price of our common stock on February 27, 2015, representing a prorated amount of the annual grant.October 1, 2017. In the aggregate, 46,91060,575 restricted stock units were granted tonon-employee directors during the fiscal year ended January 2, 2016.December 30, 2017.
Employee directors receiveMr. Stuewe received no additional compensation for serving on the Board.
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EXECUTIVE COMPENSATION
Equity Compensation Plans
The following table sets forth certain information as of January 2, 2016 with respect to our equity compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance, aggregated by (i) all compensation plans previously approved by our security holders, and (ii) all compensation plans not previously approved by our security holders. The table includes:
| PLAN CATEGORY | NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS | WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS | NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE (EXCLUDING SECURITIES REFLECTED IN COLUMN (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 1,462,927 | (1) | $ | 17.19 | 8,004,569 | |||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 1,462,927 | $ | 17.19 | 8,004,569 | ||||||||
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BENEFICIAL OWNERS AND MANAGEMENT |  |
Security Ownership of Certain Beneficial Owners
The following table and notes set forth certain information with respect to the beneficial ownership of shares of our common stock based on Schedule 13G or Schedule 13D filings, as the case may be, as of December 31, 2015,30, 2017, by each person or group within the meaning of Rule13d-3 under the Exchange Act who is known to our management to be the beneficial owner of more than five percent of our outstanding common stock and is based upon information provided to us by those persons.
NAME AND ADDRESS OF BENEFICIAL OWNER | AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP | PERCENT OF CLASS | ||||||
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Blackrock, Inc. 55 East 52nd Street, New York, NY 10055 | ||||||||
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The Vanguard Group, Inc. 100 Vanguard Blvd., Malvern, PA 19355 | % | |||||||
SouthernSun Asset Management LLC 175 Toyota Plaza, Suite 800, Memphis, TN 38103 | 14,754,441 | (3) | 8.96 | % | ||||
FMR LLC 245 Summer Street Boston, MA 02210 | (4) | 8.76 | % | |||||
Dimensional Fund Advisors LP Building One, 6300 Bee Cave Road Austin, TX 78746 | 13,908,432 | (5) | % | |||||
| 1. | BlackRock, Inc. is a parent holding company in accordance with Rule13d-1 (b)(1)(ii)(G) of the Exchange Act and has dispositive power with respect to all of the above shares and sole voting power with respect to 20,593,386 of the above shares. |
| 2. | The Vanguard Group, Inc. (“Vanguard”) is an investment adviser in accordance withSection 240.13d-1 (b)(1)(ii)(E) of the Exchange Act and has sole power to vote or direct votes with respect to 179,954 of the above shares and sole dispositive power with respect to 15,412,731 of the above shares. Vanguard has shared power to vote or direct votes with respect to 22,071 of the above shares and shared dispositive power with respect to 188,875 of the above shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 166,804 of the shares as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 35,221 of the shares as a result of its serving as investment manager of Australian investment offerings. |
| 3. | SouthernSun Asset Management, LLC is an investment adviser registered under Section 203 of the Investment Advisers Act of 1940 and has sole dispositive power with respect to all of the above shares and sole voting power with respect to |
| 4. |
| Reflects the securities beneficially owned, or that may be deemed to be beneficially owned, by FMR LLC, certain of its subsidiaries and affiliates, and other |
| 5. | Dimensional Fund Advisors LP is an investment advisor in accordance withSection 240.13d-1 (b)(1)(ii)(E) of the Exchange Act and has dispositive power with respect to all of the above shares and sole voting power with respect to 13,595,365 of the above shares. |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management
Security Ownership of Management
The following table and notes set forth certain information with respect to the beneficial ownership of shares of our common stock, as of March 16, 2016,14, 2018, by each director, each nominee for director, each named executive officer and by all directors and executive officers as a group:
NAME OF BENEFICIAL OWNER | COMMON STOCK OWNED | UNEXERCISED PLAN OPTIONS (2) | COMMON STOCK BENEFICIALLY OWNED (3) | PERCENT OF COMMON STOCK OWNED | COMMON STOCK OWNED | UNEXERCISED PLAN OPTIONS (2) | COMMON STOCK BENEFICIALLY OWNED (3) | PERCENT OF COMMON STOCK OWNED | ||||||||||||||||||||||||
Randall C. Stuewe | 1,312,526 | 471,987 | 1,784,513 | 1.1 | % | 1,319,946 | 1,161,655 | 2,481,601 | 1.50 | % | ||||||||||||||||||||||
Charles Adair | 7,097 | 0 | 7,097 | * | ||||||||||||||||||||||||||||
John Bullock | 126,969 | 24,966 | 151,935 | * | 114,488 | 94,313 | 208,801 | * | ||||||||||||||||||||||||
Rick A. Elrod | 61,972 | 13,930 | 75,902 | * | 70,633 | 62,231 | 132,864 | * | ||||||||||||||||||||||||
D. Eugene Ewing | 20,586 | (1) | 0 | 20,586 | * | 33,886 | (1) | 0 | 33,886 | * | ||||||||||||||||||||||
Linda Goodspeed | 7,097 | (1) | 0 | 7,097 | * | |||||||||||||||||||||||||||
Dirk Kloosterboer | 64,338 | 16,948 | 81,286 | * | 151,858 | (1) | 219,753 | 371,611 | * | |||||||||||||||||||||||
Mary R. Korby | 9,558 | (1) | 0 | 9,558 | * | 22,858 | (1) | 0 | 22,858 | * | ||||||||||||||||||||||
Cynthia Pharr Lee | 200 | 0 | 200 | * | 13,500 | (1) | 0 | 13,500 | * | |||||||||||||||||||||||
Charles Macaluso | 56,832 | (1) | 12,000 | 68,832 | * | 74,132 | (1) | 8,000 | 82,132 | * | ||||||||||||||||||||||
John D. March | 33,146 | (1) | 12,000 | 45,146 | * | |||||||||||||||||||||||||||
Patrick C. Lynch(4) | 0 | 0 | 0 | * | ||||||||||||||||||||||||||||
Gary W. Mize | 0 | 0 | 0 | 0 | 13,300 | (1) | 0 | 13,300 | * | |||||||||||||||||||||||
John O. Muse | 174,543 | 40,650 | 215,193 | * | 58,627 | 96,892 | 155,519 | * | ||||||||||||||||||||||||
Justinus J.G.M. Sanders | 17,550 | (1) | 0 | 17,550 | * | |||||||||||||||||||||||||||
Michael Urbut | 94,832 | (1) | 12,000 | 106,832 | * | |||||||||||||||||||||||||||
All executive officers and directors as a group (15 persons) | 2,225,129 | 658,277 | 2,883,406 | 1.75 | % | |||||||||||||||||||||||||||
Michael E. Rescoe | 7,097 | (1) | 0 | 7,097 | * | |||||||||||||||||||||||||||
Jan van der Velden | 43,069 | 55,517 | 98,586 | * | ||||||||||||||||||||||||||||
All executive officers and directors as a group (17 persons) | 2,225,314 | 1,838,511 | 4,063,825 | 2.44 | % | |||||||||||||||||||||||||||
| * | Represents less than one percent of our common stock outstanding. |
| 1. | Represents stock owned, as well as |
| 2. | Represents options that are or will be vested and exercisable within 60 days of March |
| 3. | Except as otherwise indicated in the column “Unexercised Plan Options” and footnote 1 and for unvested shares of restricted stock for which recipients have the right to vote but not dispositive power, the persons named in this table have sole voting and investment power with respect to all shares of capital stock shown as beneficially owned by them. |
| 4. | Mr. Lynch ceased to be an executive officer and employee of our company effective as of December 14, 2017. |
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TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS | |
Our Code of Conduct addresses our company’s procedures with respect to the review and approval of “related party transactions” that are required to be disclosed pursuant to SEC regulations. The Code of Conduct provides that any transaction or activity, in which Darling is involved, with a “related party” (which is defined as an employee’s child, stepchild, parent, stepparent, spouse, sibling,mother-in-law,father-in-law,son-in-law,daughter-in-law,brother-in-law, orsister-in-law, or any person (other than a tenant or employee) sharing the household of an employee of ours, or any entity that is either wholly or substantially owned or controlled by an employee of ours or any of the foregoing persons and any trust of which an employee of ours is a trustee or beneficiary) shall be subject to review by our general counsel so that appropriate measures can be put into place to avoid either an actual conflict of interest or the appearance of a conflict of interest. Any waivers of this conflict of interest policy must be in writing and bepre-approved by our general counsel.
Since January 1, 2015,2017, no transaction has been identified as a reportable related person transaction.
Section 16(a) of the Exchange Act requires our directors and executive officers and any persons who own more than ten percent of our common stock to file with the SEC various reports as to ownership of the common stock. These persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on our review of the copies of the reports furnished to us, the aforesaid Section 16(a) filing requirements were met on a timely basis during fiscal 2015,2017, except that, due to an inadvertent administrative errors,error, a required FormsForm 4 werewas not filed on a timely basis to report the prorated annual grant of restricted stock units to each of our Mr. Kloosterboer upon his becoming anon-employee directors (Messrs. Albrecht, Ewing, Macaluso, March, Sanders and Urbut and Ms. Korby). In each such case, director; however, the reports wereForm 4 was promptly filed after becoming aware of the error.
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The following report of the audit committee shall not be deemed to be soliciting material or to be filed with the SEC under the Securities Act or the Exchange Act or incorporated by reference in any document so filed.
Under the guidance of a written charter adopted by the Board, the audit committee oversees our management’s conduct of the financial reporting process on behalf of our Board. A copy of our audit committee charter can be found on our website at http://ir.darlingii.com/Documents.corporate-governance. The audit committee also appoints the accounting firm to be retained to audit our company’s consolidated financial statements, and once retained, the accounting firm reports directly to the audit committee. The audit committee is responsible for approving both audit andnon-audit services to be provided by the independent auditors.
Management is responsible for our company’s financial reporting process, including the system of internal controls, and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States. Our company’s independent auditors are responsible for auditing those consolidated financial statements and expressing an opinion on the conformity of those consolidated financial statements with accounting principles generally accepted in the United States. The audit committee’s responsibility is to monitor and review these processes. It is not the audit committee’s duty or responsibility to conduct auditing or accounting reviews.
The audit committee met with management periodically during fiscal 20152017 to consider the adequacy of our company’s internal controls, and discussed these matters and the overall scope and plans for the audit of our company with our independent auditors, KPMG LLP. The audit committee met with the independent auditors, with and without management present, to discuss the results of their examination, their evaluation of our internal controls and the overall quality of our financial reporting.
The audit committee also discussed with senior management and KPMG LLP our company’s disclosure controls and procedures and the certifications by our Chief Executive Officer and Chief Financial Officer, which are required by the SEC under the Sarbanes-Oxley Act of 2002 for certain of our company’s filings with the SEC.
In fulfilling its oversight responsibilities, the audit committee reviewed and discussed the audited financial statements in the Annual Report on Form10-K for the fiscal year ended January 2, 2016December 30, 2017 with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.
The audit committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States, their judgments as to the quality, not just the acceptability, of our company’s accounting principles and other matters as are required to be discussed with the audit committee under auditing standards generally accepted in the United States. In addition, the audit committee has discussed with the independent auditors the auditors’ independence from our company and our management, including the matters in the written disclosures and letter which were received by the audit committee from the independent auditors as required by the applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”) regarding the independent accountant’s communications with the audit committee concerning independence, and considered the compatibility ofnon-audit services with the auditor’s independence. The audit committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 16, “Communications with Audit Committees,” as amended.the applicable requirements of the PCAOB.
In reliance on the reviews and discussions referred to above, the audit committee recommended to the Board, and the Board approved, that the audited financial statements be included in our Annual Report on Form10-K for the fiscal year ended January 2, 2016December 30, 2017 for filing with the SEC.
THE AUDIT COMMITTEE
Michael Urbut, Chairman
D. Eugene Ewing, Chairman
John D. MarchCynthia Pharr Lee
Gary W. Mize
Michael E. Rescoe
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RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT | |
The audit committee has selected KPMG LLP to serve as our company’s independent auditors for the fiscal year ending December 31, 2016.29, 2018. KPMG LLP has served as our company’s independent registered public accountants for fiscal year 2015since 1989. In order to assure continuing auditor independence, the audit committee periodically considers whether the annual audit of the company’s financial statements should be conducted by another firm. The lead audit partner on the company’s engagement serves no more than five consecutive years in that role, in accordance with SEC rules. Our audit committee chair and reported onmanagement have direct input into the selection of the lead audit partner.
The members of the audit committee and the board believe that the continued retention of KPMG LLP to serve as our company’s consolidated financial statements for that year. Weindependent registered public accounting firm is in the best interest of the company and its stockholders. Consequently, we are asking our stockholders to ratify our company’s selection of KPMG LLP as our independent registered public accountants at the Annual Meeting. Although ratification is not required by our amendedAmended and restated bylawsRestated Bylaws or otherwise, the Board is submitting the selection of KPMG LLP to our stockholders for ratification as a matter of good corporate practice. If the selection is not ratified, the audit committee will consider whether it is appropriate to select another registered public accounting firm. Even if the selection is ratified, the audit committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of our company and our stockholders.
One or more representatives of KPMG LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement and will be available to respond to appropriate questions.
In addition to performing the audit of our consolidated financial statements, KPMG LLP provided various other services during fiscal 20152017 and 2014.2016. The aggregate fees billed for fiscal 20152017 and 20142016 for each of the following categories of services are set forth below:
Audit Fees. The aggregate fees billed or to be billed for professional services rendered by KPMG LLP during the years ended January 2,December 30, 2017 and December 31, 2016 and January 3, 2015 for the audit of our financial statements as well as for the audit of our internal controls over financial reporting required by the Sarbanes-Oxley Act of 2002 and the review of our interim financial statements for the years ended January 2,December 30, 2017 and December 31, 2016 were $4,920,000 and January 3, 2015 were $4,904,000 and $4,500,000,$4,688,000, respectively.
Audit-Related Fees. The aggregate fees billed or to be billed for professional services rendered by KPMG LLP during the years ended January 2,December 30, 2017 and December 31, 2016 were $42,000 and January 3, 2015 were $50,000 and $627,000,$85,000, respectively, for services related to the company’s implementation of a new enterprise resource planning system.specific audit compliance procedures.
Tax Fees. The aggregateThere were no fees billed or to be billed for tax compliance, advice and planning services rendered by KPMG LLP for the years ended January 2, 2016December 30, 2017 and January 3, 2015 were $117,000 and $9,000, respectively.December 31, 2016.
All Other Fees. There were noThe aggregate fees billed or to be billed for professional services rendered by KPMG LLP during the years ended January 2,December 30, 2017 and December 31, 2016 and January 3, 2015 for services other than those described above as “Audit Fees,” “Audit-Related Fees” and “Audit-Related“Tax Fees”. were $140,000 and $305,000, respectively, related to evaluation and assessment services for the implementation of new accounting standards.
The audit committee is required topre-approve the audit andnon-audit services to be performed by the independent auditor in order to assure that the provision of these services does not impair the auditor’s independence.
All audit services, audit-related services, tax services and other services provided by KPMG LLP werepre-approved by the audit committee, which concluded that the provision of these services by KPMG LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions, and no services provided by KPMG LLP to us for the year ended January 2, 2016 were non-audit related services.functions. The audit committee charter provides forpre-approval of any audit ornon-audit services provided to us by our independent auditors. The audit committee may delegate to its chairmanpre-approval authority with respect to all permitted audit andnon-audit services, provided that any servicespre-approved pursuant to this delegated authority will be presented to the full audit committee at a subsequent committee meeting.
Ratification of KPMG LLP as our company’s independent registered public accountant for the fiscal year ending December 31, 201629, 2018 requires the affirmative vote of a majority of the outstanding shares of the common stock of the company present in person or represented by proxy and entitled to vote on the matter (assuming a quorum is present). Abstentions will have the same effect as a vote against the proposal, and brokers holding shares will be entitled to vote those shares at their discretion.
Recommendation of the Board and the Audit Committee
| The Audit Committee and the Board recommends that the stockholders |
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ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION |
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) enables our stockholders to vote to approve, on an advisory(non-binding) basis, the compensation of our named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of RegulationS-K under the Securities Act and the Exchange Act, including the Compensation Discussion and Analysis, the Summary Compensation Table and related tables and disclosure, commonly known as a “say on pay” proposal. At our 20112017 annual meeting, our stockholders supported an annual frequency for this advisory vote. As such, the Board has determined that our company will hold this advisory vote on the compensation of our named executive officers each year. We intend to seek an advisory vote on the frequency of our say on pay vote at the annual meeting to be held in 2017 and, taking into account the feedback from that vote, we will re-evaluate the frequency of the say on pay vote at that time.
As described in detail under the heading “Executive Compensation—Compensation – Compensation Discussion and Analysis,” our executive compensation program is designed to reward the achievement of specific annual, long-term and strategic goals and to align executives’ interests with those of our stockholders by rewarding performance above established goals with the ultimate objective of improving stockholder value. Stockholders are encouraged to read the Compensation Discussion and Analysis section of this Proxy Statement, beginning on page 20,21, for a more detailed discussion of our executive compensation program, including information about fiscal year 20152017 compensation of our named executive officers.NEOs.
At our 2015 Annual Meeting, following four years of positive voting results, for the first time stockholders did not provide majority support for our NEOs’ compensation. In reaction, our compensation committee intensified its ongoing stockholder outreach efforts to ensure stockholder perspectives and concerns were heard and well understood by the compensation committee and the full Board, asAs more fully described under “Response to 2015 Say“Say On Pay Advisory Vote Results and Stockholder Engagement Process” on page 2625 of this Proxy Statement.Statement, we have conducted a stockholder engagement process for the past several years and routinely interact with stockholders throughout the year about executive compensation and other matters. The feedback received from our stockholders was tremendously valuable and was incorporated into the full compensation committee’s discussion and determinationdesign of compensation program changes for 2016, as more fully described under “Fiscal 2016 Changes to Our Executive Compensation Program” on page 45 of this Proxy Statement. We note that these changes are not reflected in the compensation disclosed in this Proxy Statement because they were not made until after the 2015 compensation program was in place; however, compensation related to these changes will be comprehensively covered in our 2017 Proxy Statement. We would also like to highlight for our stockholders that, independent from the process to enhance our compensation programs for fiscal year 2016, certain
improvements were also made to our 2015current compensation program, as more fully described under “Fiscal 2015in the Compensation Program Improvements”Discussion and Analysis beginning on page 2621 of this Proxy Statement. At our 2017 Annual Meeting, our stockholders showed strong support of the program, as approximately 98.6% of the votes cast were in favor of the advisory vote to approve executive compensation.
We are asking our stockholders to once again indicate their support for our named executive officer compensation as described in this Proxy Statement. This say on pay proposal gives our stockholders the opportunity to express their views on the compensation of our named executive officers. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers. Accordingly, we will ask our stockholders to vote “FOR” adoption of the following resolution at the Annual Meeting:
“RESOLVED, that the stockholders of Darling Ingredients Inc. approve, on an advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with Item 402 of RegulationS-K under the Exchange Act, including the Compensation Discussion and Analysis, the Summary Compensation Table and related tables and disclosure.”
Approval of the above resolution requires the affirmative vote of a majority of the outstanding shares of the common stock of the company present in person or represented by proxy and entitled to vote on the matter (assuming a quorum is present). Abstentions will have the same effect as a vote against the proposal. Brokers will not have discretionary authority to vote on this proposal, and therefore such broker “non-votes”“non-votes” will have no effect on the outcome.
The say on pay vote is advisory and therefore not binding on our company, the compensation committee or the Board. However, the compensation committee and the Board value the opinions of our stockholders and will carefully consider the outcome of the vote and take into consideration any concerns raised by stockholders when determining future compensation arrangements.
| The Board recommends that the stockholders vote “FOR” Proposal 3. |
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Why am I receiving these materials?
Our records indicate that you owned your shares of Darling common stock at the close of business on the Record Date (March 16, 2016)14, 2018). You have been sent this Proxy Statement and the enclosed proxy card because the Board of Directors of Darling is soliciting your proxy to vote your shares of common stock at the Annual Meeting on the proposals described in this Proxy Statement.
What am I voting on?
There are three matters scheduled for a vote:
| the election of the |
| the ratification of the selection of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December |
| an advisory vote to approve executive compensation (Proposal 3). |
Who is entitled to vote at the Annual Meeting?
All owners of our common stock as of the close of business on the Record Date are entitled to vote their shares of common stock at the Annual Meeting and any adjournment or postponement thereof. As of the Record Date, a total of 164,567,041164,619,524 shares of common stock arewere outstanding and eligible to vote at the Annual Meeting. Each share of common stock is entitled to one vote on each matter properly brought before the Annual Meeting. The Notice of Internet Availability of Proxy Materials, enclosed proxy card (if you received your proxy materials by mail) or voting instruction card shows the number of shares you are entitled to vote at the Annual Meeting.
STOCKHOLDER OF RECORD: SHARES REGISTERED IN YOUR NAME
If on the Record Date your shares were registered directly in your name with Darling, then you are a stockholder of record. As a stockholder of record, you may vote in person at the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, to ensure your vote is counted, Darling encourages you to vote either by Internet, by telephone or by filling out and returning the enclosed proxy card.card (if you received your proxy materials by mail).
BENEFICIAL OWNER: SHARES REGISTERED IN THE NAME OF A BROKER OR BANK
If on the Record Date your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual
Meeting. As the beneficial owner, you have the right to direct your broker or other agent on how to vote the shares in your account.
How do I vote?
Your shares may only be voted at the Annual Meeting if you are present in person or are represented by proxy. Whether or not you plan to attend the Annual Meeting, we encourage you to vote by proxy to ensure that your shares will be represented. ToIf you received your proxy materials by mail, to vote by proxy, complete the enclosed proxy card and mail it in the postage-paid envelope provided, or youprovided. You may also vote by using the telephone or the Internet in accordance with the instructions provided on the enclosed proxy card.card (if you received your proxy materials by mail) or on the Notice of Internet Availability of Proxy Materials. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to vote their shares and to confirm that their instructions have been properly recorded.
You may revoke your proxy at any time before it is exercised by timely submission of a written revocation to our Secretary at our principal executive offices located at 251 O’Connor Ridge Boulevard, Suite 300, Irving, Texas 75038, submission of a properly executed later-dated proxy or by timely voting by ballot at the Annual Meeting. Voting by proxy will in no way limit your right to vote at the Annual Meeting if you later decide to attend in person. Attendance at the Annual Meeting will not by itself constitute a revocation of your proxy – you must vote at the Annual Meeting.
If your shares are held in the name of a brokerage firm, bank, dealer or other similar organization that holds your shares in “street name,” you will receive instructions from that organization that you must follow in order for your shares to be voted.
All shares that you are entitled to vote and that are represented by a properly-completed proxy received prior to the Annual Meeting and not revoked will be voted at the Annual Meeting in accordance with the instructions on the proxy. If you properly deliver your proxy but fail to indicate how your shares should be voted, the shares represented by your proxy will be voted FOR Proposal 1, FOR Proposal 2 and FOR Proposal 3 and in the discretion of the persons named in the proxy as proxy appointees as to any other matter that may properly come before the Annual Meeting.
Who may attend the Annual Meeting?
All stockholders that were stockholders of Darling as of the Record Date, or their authorized representatives, may attend the Annual Meeting. If your shares are held in the name of a brokerage firm, bank, dealer or other similar organization that holds your shares in “street name” and you plan to attend the Annual Meeting, you should bring proof of ownership to the Annual Meeting, such as a current bank or brokerage account statement, to ensure your admission.
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QUESTIONS AND ANSWERS ABOUT VOTING AND THE ANNUAL MEETING
How will votes be counted?
How will votes be counted?
The Annual Meeting will be held if a quorum, consisting of a majority of the outstanding shares entitled to vote, is represented in person or by proxy. Brokers will be counted as present and entitled to vote for purposes of determining a quorum, although brokers will not have discretionary authority to vote on certain matters. A broker “non-vote”“non-vote” occurs when a nominee, such as a bank or broker, holding shares for a beneficial owner, does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner. Under the rules of the NYSE, absent instructions from the beneficial owners, banks and brokers who hold shares in street name for beneficial owners have the authority to vote only on “routine” corporate matters. The ratification of the selection of our independent registered public accounting firm is considered to be a routine matter, while the election of directors and the advisory vote to approve executive compensation are not.
PROPOSAL 1. With respect to the nominees for director listed under “Proposal 1 – Election of Directors,” to be elected, each nominee must receive a majority of all votes cast (assuming a quorum is present) with respect to that nominee’s election. A majority of votes cast means that the number of votes cast for a nominee’s election must exceed the number of votes cast against such nominee’s election. Each nominee receiving more votes for his election than votes against his election will be elected. In the election of directors, you may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to each nominee. If you elect to abstain in the election of directors, the abstention will not impact the election of directors. In tabulating the voting results for the election of directors, only “FOR” and “AGAINST” votes are counted. Broker “non-votes”“non-votes” will not be counted as a vote cast with respect to a nominee and will therefore not affect the outcome of the vote on Proposal 1.
PROPOSAL 2.With respect to Proposal 2 – “Ratification of Selection of Independent Registered Public Accountant,” the affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote is required for approval of this item. You may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain from voting, it will have the same effect as a vote against this item. Your broker (or another organization that holds your shares for you) may exercise its discretionary authority to vote your shares in favor of or against Proposal 2.
PROPOSAL 3. With respect to Proposal 3 – “Advisory Vote to Approve Executive Compensation,” the affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote is required for approval of this item. You may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain from voting, it will have the same effect as a vote against this item. Your broker (or another organization that holds your shares for you) does not have discretionary authority to vote your shares with regard to Proposal 3. Therefore, if your shares are held in the name of a brokerage firm, bank, dealer or similar organization that provides a proxy to us, and the organization has not received your instructions as to how to vote your shares on this proposal, a broker “non-vote”“non-vote” will occur and your shares will have no impact on the outcome.
Although the advisory vote on Proposal 3 isnon-binding, as provided by law, our Board will review the results of the vote and will take it into account in making future decisions regarding executive compensation.
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QUESTIONS AND ANSWERS ABOUT VOTING AND THE ANNUAL MEETING
Who will count the votes?
Who will count the votes?
Our transfer agent, Computershare Investor Services, will tally the vote and will serve as inspector of election at the Annual Meeting.
Why did I receive in the mail a Notice of Internet Availability of Proxy Materials rather than a full set of proxy materials?
SEC rules allow companies to provide stockholders with access to proxy materials over the Internet rather than mailing the materials to stockholders. To conserve natural resources and reduce costs, we are sending to many of our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”). The Notice provides instructions for accessing the proxy materials on the website referred to in the Notice or for requesting printed copies of the proxy materials. The Notice also provides instructions for requesting the delivery of the proxy materials for future annual meetings in printed form by mail or electronically by email.
How are proxies being solicited and who will pay for the solicitation of proxies?
We will bear the expense of the solicitation of proxies. In addition to the solicitation of proxies by mail, solicitation may be made by our directors, officers and employees by other means, including telephone, over the Internet or in person. No special compensation will be paid to our directors, officers or employees for the solicitation of proxies. To solicit proxies, we will also request the assistance of banks, brokerage houses and other custodians, nominees or fiduciaries, and, upon request, will reimburse these organizations or individuals for their reasonable expenses in forwarding soliciting materials to beneficial owners and in obtaining authorization for the execution of proxies. We will also use the services of the proxy solicitation firm of Georgeson Inc. to assist in the solicitation of proxies. For these services, we will pay a fee that is not expected to exceed $10,000, plusout-of-pocket expenses.
Who can help answer my other questions and to whom should I send a request for copies of certain material?
If you have more questions about voting, wish to obtain another proxy card or wish to receive a copy of our Annual Report on Form10-K for the fiscal year ended January 2, 2016December 30, 2017 without charge, you should contact:
Brad Phillips
TreasurerChief Financial Officer
Darling Ingredients Inc.
251 O’Connor Ridge Boulevard, Suite 300
Irving, Texas 75038
Telephone: 972.717.0300 Fax: 972.281.4449
E-mail: ir@darlingii.com
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 10, 20168, 2018 The Proxy Statement and the 20152017 Annual Report to security holders are available atwww.proxydocs.com/DAR
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Our management is not aware of any other matters to be presented for action at the Annual Meeting; however, if any matters are properly presented for action, it is the intention of the persons named in the enclosed form of proxy to vote in accordance with their best judgment on these matters.
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The SEC has adopted rules that permit companies and intermediaries (e.g., banks, brokers, trustees or other nominees) to satisfy the delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. Each stockholder who participates in householding will continue to receive a separate proxy card.card (if the proxy materials are received by mail).
A number of brokers with account holders who are our stockholders will be “householding” our proxy materials. A single proxy statement report will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement, please notify your bank, broker, trustee or other nominee and direct a written request to Darling Ingredients Inc., Attn: Investor Relations, 251 O’Connor Ridge Boulevard, Suite 300, Irving, Texas 75038 or make an oral request by telephone at(972) 717-0300. If any stockholders in your household wish to receive a separate copy of this Proxy Statement, they may call or write to Investor Relations and we will promptly provide additional copies. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their bank, broker, trustee or other nominee.
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We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC website at www.sec.gov. You also may obtain free copies of the documents we file with the SEC, including this Proxy Statement, by going to the Investors page of our corporate website at www.darlingii.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this Proxy Statement, and therefore is not incorporated herein by reference.
Any person, including any beneficial owner, to whom this Proxy Statement is delivered may request copies of proxy statements or other information concerning us, without charge, by written or telephonic request directed to Darling Ingredients Inc., 251 O’Connor Ridge Boulevard, Suite 300, Irving, Texas 75038, Attn: Investor Relations or by telephone at(972) 717-0300, or by email to ir@darlingii.com; or from our proxy solicitor, Georgeson Inc., by telephone toll-free at1-800-790-6795. Such information is also available from the SEC through the SEC website at the address provided above.
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
A PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT TO VOTE YOUR SHARES OF THE COMPANY’S COMMON STOCK
AT THE ANNUAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT
IS DATED MARCH 31, 2016.28, 2018. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS
PROXY STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
Stockholder Proposals for 20172019
If you wish to submit a proposal for possible inclusion in our 20172019 Proxy Statement and form of proxy card for next year’s Annual Meeting of Stockholders, expected to be held in May 2017,2019, we must receive your notice, in accordance with the rules of the SEC, on or before December 1, 2016.November 28, 2018. The SEC rules set forth standards as to what stockholder proposals are required to be included in a Proxy Statement.proxy statement. If you wish to submit a proposal at the 20172019 annual meeting (but not seek inclusion of the proposal in our proxy materials), we must receive your notice, in accordance with our company’s bylaws, no earlier than January 10, 20178, 2019 (120 days prior to the first anniversary of the date of the 20162018 Annual Meeting) and no later than February 9, 20177, 2019 (90 days prior to the first anniversary of the date of the 20162018 Annual Meeting). Notices should be sent to our Secretary at our principal executive offices located at 251 O’Connor Ridge Boulevard,
Suite 300, Irving,
Texas 75038. To submit a stockholder proposal, a stockholder must be a stockholder of record of our company at the time of the above notice of proposal, must be entitled to vote at the 20172019 Annual Meeting and must comply with the notice procedures set forth in our company’s bylaws.
By Order of the Board,
John F. Sterling
Secretary
Irving, Texas
March 31, 201628, 2018
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Non-GAAP Reconciliations
Adjusted EBITDA is presented in the Proxy Statement not as an alternative to net income, but rather as a measure of the Company’s operating performance and is not intended to be a presentation in accordance with GAAP. Since EBITDA (generally, net income plus interest expenses, taxes, depreciation and amortization) is not calculated identically by all companies, this presentation may not be comparable to EBITDA or adjusted EBITDA presentations disclosed by other companies. Adjusted EBITDA is calculated in this presentation and represents, for any relevant period, net income/(loss) plus depreciation and amortization, goodwill and long-lived asset impairment, interest expense, (income)/loss from discontinued operations, net of tax, income tax provision, other income/(expense) and equity in net (income)/loss of unconsolidated subsidiary. Management believes that Adjusted EBITDA is useful in evaluating the Company’s operating performance compared to that of other companies in its industry because the calculation of Adjusted EBITDA generally eliminates the effects of financing income taxes and certainnon-cash and other items that may vary for different companies for reasons unrelated to overall operating performance.
As a result, the Company’s management uses Adjusted EBITDA as a measure to evaluate performance and for other discretionary purposes. However, Adjusted EBITDA is not a recognized measurement under GAAP, should not be considered as an alternative to net income as a measure of operating results or to cash flow as a measure of liquidity, and is not intended to be a presentation in accordance with GAAP. In addition, the Company evaluates the impact of foreign exchange on operating cash flow, which is defined as segment operating income (loss) plus depreciation and amortization.
Reconciliation of Net Income to(Non-GAAP) Adjusted EBITDA and(Non-GAAP) Pro Forma Adjusted EBITDA
| 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||
| Net Income DII | 78,531 | 64,215 | 108,967 | 130,770 | 169,418 | 44,243 | 128,468 | 102,313 | 78,531 | 64,215 | 108,967 | 130,770 | ||||||||||||||||||||||||||||||||||||
| Depreciation & amortization | 269,904 | 269,517 | 98,787 | 85,371 | 78,909 | 31,908 | 302,100 | 289,908 | 269,904 | 269,517 | 98,787 | 85,371 | ||||||||||||||||||||||||||||||||||||
| Interest expense | 105,530 | 135,416 | 38,108 | 24,054 | 37,163 | 8,737 | 88,926 | 94,187 | 105,530 | 135,416 | 38,108 | 24,054 | ||||||||||||||||||||||||||||||||||||
| Income tax expense | 13,501 | 13,141 | 54,711 | 76,015 | 102,876 | 26,100 | ||||||||||||||||||||||||||||||||||||||||||
| Income tax expense/(benefit) | (69,154 | ) | 15,315 | 13,501 | 13,141 | 54,711 | 76,015 | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency loss/(gain) | 4,911 | 13,548 | (28,107 | ) | — | — | — | 6,898 | 1,854 | 4,911 | 13,548 | (28,107 | ) | — | ||||||||||||||||||||||||||||||||||
| Other expense/(income), net | 6,839 | (299 | ) | 3,547 | (1,760 | ) | 2,955 | 3,382 | 5,293 | 3,866 | 6,839 | (299 | ) | 3,547 | (1,760 | ) | ||||||||||||||||||||||||||||||||
| Equity in net (income)/loss of unconsolidated subsidiaries | (73,416 | ) | (65,609 | ) | (7,660 | ) | 2,662 | 1,572 | — | (28,504 | ) | (70,379 | ) | (73,416 | ) | (65,609 | ) | (7,660 | ) | 2,662 | ||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 6,748 | 4,096 | — | — | — | — | 4,886 | 4,911 | 6,748 | 4,096 | — | — | ||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA (non-gaap) | 412,548 | 434,025 | 268,353 | 317,112 | 392,893 | 114,370 | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA(non-GAAP) | 438,913 | 441,975 | 412,548 | 434,025 | 268,353 | 317,112 | ||||||||||||||||||||||||||||||||||||||||||
| Non-cash inventory step-up associated with Vion acquisition | — | 49,803 | — | — | — | — | — | — | — | 49,803 | — | — | ||||||||||||||||||||||||||||||||||||
| Acquisition and integration-related expenses | 8,299 | 24,667 | 23,271 | — | — | — | — | 401 | 8,299 | 24,667 | 23,271 | — | ||||||||||||||||||||||||||||||||||||
| Darling Ingredients International—13th week | 4,100 | — | — | — | — | — | — | — | 4,100 | — | — | |||||||||||||||||||||||||||||||||||||
| Pro forma Adjusted EBITDA (non-gaap) | 420,847 | 512,595 | 291,624 | 317,112 | 392,893 | 114,370 | ||||||||||||||||||||||||||||||||||||||||||
| Pro forma Adjusted EBITDA(non-GAAP) | 438,913 | 442,376 | 420,847 | 512,595 | 291,624 | 317,112 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency exchange impact | 48,961 | — | — | — | — | — | (5,682 | ) | 1,980 | 48,961 | — | — | — | |||||||||||||||||||||||||||||||||||
Pro forma Adjusted EBITDA to Foreign Currency (non-gaap) | 469,808 | 512,595 | 291,624 | 317,112 | 392,893 | 114,370 | ||||||||||||||||||||||||||||||||||||||||||
Pro forma Adjusted EBITDA to Foreign Currency (non-GAAP) | 433,231 | 444,356 | 469,808 | 512,595 | 291,624 | 317,112 | ||||||||||||||||||||||||||||||||||||||||||
| DGD Joint Venture EBITDA | 88,494 | 81,639 | 16,490 | (2,662 | ) | (374 | ) | — | 43,198 | 87,224 | 88,494 | 81,639 | 16,490 | (2,662 | ) | |||||||||||||||||||||||||||||||||
| Pro forma Adjusted Combined EBITDA (non-gaap) | 558,302 | 594,234 | 308,114 | 314,450 | 392,519 | 114,370 | ||||||||||||||||||||||||||||||||||||||||||
| Pro forma Adjusted Combined EBITDA(non-GAAP) | 476,429 | (1) | 531,580 | (2) | 558,302 | 594,234 | 308,114 | 314,450 | ||||||||||||||||||||||||||||||||||||||||
| 1. | This amount does not include an additional (i) $92.9 million in EBITDA related to blenders tax credits for 2017, $80.3 million of which was booked by DGD and $12.6 million of which was booked by our company in the first quarter of 2018 and (ii) $50.8 million in EBITDA when currency adjusted using 2014 exchange rates. Our company had no material foreign operations prior to fiscal 2014, which is the year that our company acquired our Darling Ingredients International businesses from VION Holding, N.V. |
| 2. | This amount does not include an additional $52.1 million in EBITDA when currency adjusted using 2014 exchange rates. |
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DARLING INGREDIENTS INC.
251 O’CONNOR RIDGE BLVD.
SUITE 300
IRVING, TX 75038
ATTN: BRAD PHILLIPS
VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically viae-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||||
| E42718-P02213 | KEEP THIS PORTION FOR YOUR RECORDS | |||
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
| The Board of Directors recommends a voteFOR all the nominees andFOR Proposals 2 and 3. | ||||||||||||||||||||||||||||||||
1. Election of Directors:
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For | Against | Abstain |
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1a. Randall C. Stuewe | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||
1b. Charles Adair | ☐ | |||||||||||||||||||||||||||||||
1c. D. Eugene Ewing | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||
1d. Linda Goodspeed | ☐ | |||||||||||||||||||||||||||||||
1e. Dirk Kloosterboer | ☐ | ☐ | ☐ | |||
1f. Mary R. Korby | ☐ | ☐ | ☐ | |||
1g. Cynthia Pharr Lee | ☐ | ☐ | ☐ | |||
1h. Charles Macaluso | ☐ | ☐ | ☐ | |||
| For address changes and/or comments, please check this box and write them on the back where indicated. | ☐ | |||||
Please sign exactly as name(s) appear(s) hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
| For | Against | Abstain | |||||||||||||||
1i. Gary W. Mize | ☐ | ☐ | ☐ | ||||||||||||||
1j. ��� Michael E. Rescoe | ☐ | ☐ | ☐ | ||||||||||||||
2. Proposal to ratify the selection of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December | |||||||||||||||||
3. Advisory vote to approve executive | ☐ | ||||||||||||||||
4. In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the Annual Meeting. | |||||||||||||||||
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| Signature [PLEASE SIGN WITHIN BOX] | Date | |||||||||
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON 05/10/16 FOR DARLING INGREDIENTS INC. THE FOLLOWING MATERIAL IS AVAILABLE ATWWW.INVESTORVOTE.COM/DARThe Notice and Proxy Statement and 2017 Annual Report are available at www.proxyvote.com
PROXY STATEMENT AND ANNUAL REPORT— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. qE42719-P02213
Proxy — Darling Ingredients Inc.
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Proxy for Annual Meeting of Stockholders
MAY 10, 20168, 2018
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENTS, that the undersigned stockholder of DARLING INGREDIENTS INC., a Delaware corporation (the “Company”), does hereby constitute and appoint John F. Sterling and Brad Phillips, or either one of them, with full power to act alone and to designate substitutes, the true and lawful proxies of the undersigned for and in the name and stead of the undersigned, to vote all shares of Common Stock of the Company which the undersigned would be entitled to vote if personally present at the Annual Meeting of Stockholders to be held at the Four Seasons Resort and Club at 4150 N. MacArthur Blvd., Irving, Texas 75038, on May 10, 20168, 2018 at 10:00 a.m., local time, and at any and all adjournments and postponements thereof (the “Annual Meeting”), on all matters that may come before such Annual Meeting. Said proxies are instructed to vote on the following matters in the manner herein specified.
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF COMMON STOCK COVERED HEREBY WILL BE VOTED AS SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE, SUCH SHARES WILL BE VOTED “FOR” PROPOSALS 1, 2 AND 3 AND AS THE PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
The undersigned hereby revokes all previous Proxies.
Important notice regarding the availability of proxy materials for the Annual Meeting:
The Notice and Proxy Statement and 2015 Annual Report are available at www.investorvote.com/DAR
(CONTINUED AND TO BE MARKED, DATED AND SIGNED ON THE OTHER SIDE)
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
