UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant ☒ Filed by a Party Other than the Registrant ☐
Check the Appropriate Box
☐ | Preliminary Proxy Statement | |
☐ | Confidential for Use of the Commission only (as permitted by Rule 14a-6(e)(2)). | |
☒ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
☐ | Soliciting Material Pursuant to § 240.14a-12. |
NOW Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Persons(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
☒ | No fee | |||
☐ | Fee computed on table below per Exchange Act Rules 14-a6(i)(1) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies:
| |||
(2) | Aggregate number of securities to which the transaction applies;
| |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined.)
| |||
4) | Proposed maximum aggregate value of transaction:
| |||
5) | Total fee paid:
| |||
☐ | Fee paid previously with preliminary materials. | |||
☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
1) | Amount Previously Paid:
| |||
2) | Form, Schedule or Registration Statement No.:
| |||
3) | Filing Party:
| |||
4) | Date Filed:
|
1 | ||||
PROXY STATEMENT | ||||
5 | ||||
Proposal No. 3 – Approval of the Compensation of our Named Executive Officers | ||||
OF STOCKHOLDERS
Wednesday, May, 24, 201723, 2018
10:00 a.m. (Houston time)
NOW INC.
7402 N. Eldridge Parkway
Houston, Texas 77041
The 20172018 annual meeting of stockholders of NOW Inc. will be held at the Company’s corporate headquarters located at 7402 N. Eldridge Parkway, Houston, Texas on Wednesday, May 24, 2017,23, 2018, at 10:00 a.m. local time, for the following purposes:
The Board of Directors recommends that you vote “FOR” the election of the three nominees for director (Proposal 1), “FOR” the proposal to ratify the appointment of Ernst & Young LLP as Independent Auditorsindependent auditors of the Company for 20172018 (Proposal 2), and “FOR” the approval of the compensation of our named executive officers (Proposal 3).
The Board of Directors has set April 6, 20174, 2018 as the record date for the annual meeting of the stockholders (“Annual Meeting”). If you were a stockholder of record at the close of business on April 6, 2017,4, 2018, you are entitled to vote at the Annual Meeting. A complete list of these stockholders will be available for examination at the Annual Meeting and during ordinary business hours at our offices at 7402 N. Eldridge Parkway, Houston, Texas 77041 for a period of ten days prior to the Annual Meeting.
You are cordially invited to join us at the Annual Meeting. However, to ensure your representation, we request that you return your signed proxy card at your earliest convenience, whether or not you plan to attend the Annual Meeting. You may revoke your proxy at any time if you wish to attend and vote in person.
By Order of the Board of Directors | ||
/s/ Raymond Chang | ||
Raymond Chang | ||
Vice President, General Counsel and Secretary |
Houston, Texas
April 14, 201713, 2018
NOW INC.
7402 N. Eldridge Parkway
Houston, Texas 77041
PROXY STATEMENT
Except as otherwise specifically noted in this Proxy Statement, “NOW”, the “Company,” “we,” “our,” “us,” and similar words in this Proxy Statement refer to NOW Inc.
ANNUAL MEETING: | Date: Wednesday, May Time: 10:00 a.m. (Houston time) Place: DistributionNOW 7402 N. Eldridge Parkway Houston, Texas 77041 | |
AGENDA: | Proposal 1: To elect three nominees as directors of the Company for a term of three years.
Proposal 2: To ratify the appointment of Ernst & Young LLP as independent auditors of the Company.
Proposal 3:To approve, on an advisory basis, the compensation of our named executive officers.
The Board of Directors recommends that you vote “FOR” the election of the three nominees for director (Proposal 1), “FOR” the proposal to ratify the appointment of Ernst & Young LLP as | |
RECORD DATE/ WHO CAN VOTE: | All stockholders of record at the close of business on April | |
PROXIES SOLICITED BY: | Your vote and proxy is being solicited by the Board of Directors for use at the Annual Meeting. This Proxy Statement and enclosed proxy card is being sent on behalf of the Board of Directors to all stockholders beginning on or about April | |
PROXIES: | If your properly executed proxy does not indicate how you wish to vote your common stock, the persons named on the proxy card will vote FOR election of the three nominees for director (Proposal 1), FOR the ratification of the appointment of Ernst & Young LLP as independent auditors (Proposal 2), and FOR the approval of the compensation of our named executive officers (Proposal 3). |
REVOKING YOUR PROXY: | You can revoke your proxy at any time prior to the time that the vote is taken at the meeting by: (i) filing a written notice revoking your proxy; (ii) filing another proxy bearing a later date; or (iii) casting your vote in person at the Annual Meeting. Your last vote will be the vote that is counted. | |
QUORUM: | As of April | |
VOTE REQUIRED FOR APPROVAL: | For the proposal to elect the three director nominees (Proposal 1), our bylaws require that each director nominee be elected by the majority of votes cast with respect to such nominee (i.e., the number of shares voted “for” a director nominee must exceed the number of shares voted “against” that nominee). For additional information regarding our majority voting policy, see page 6 of the proxy statement. You cannot abstain in the election of directors and brokernon-votes are not counted.Brokers are not permitted to vote your shares on the election of directors in the absence of your specific instructions as to how to vote. Please provide your broker with voting instructions so that your vote can be counted.
Approval of the proposal to ratify the appointment of Ernst & Young LLP as independent auditors (Proposal 2), and the proposal to approve the compensation of our named executive officers (Proposal 3), will require the affirmative vote of a majority of the shares of our common stock entitled to vote and present in person or by proxy. An abstention will have the same effect as a vote “against” such proposal.With respect to Proposal 3, brokers are not permitted to vote your shares in the absence of your specific instructions as to how to vote. Please provide your broker with voting instructions so that your vote can be counted. | |
MULTIPLE PROXY CARDS: | If you receive multiple proxy cards, this indicates that your shares are held in more than one account, such as two brokerage accounts, and are registered in different names. You should vote each of the proxy cards to ensure that all of your shares are voted. | |
HOUSEHOLDING: | The U.S. Securities and Exchange Commission, or SEC, has adopted rules that permit companies and intermediaries, such as brokers, to satisfy the delivery requirements for proxy statements with respect to |
two or more stockholders sharing the same address by delivering a copy of these materials, other than the Proxy Card, to those stockholders. This process, which is commonly referred to as “householding,” can mean extra convenience for stockholders and cost savings for the Company. Beneficial stockholders can request information about householding from their banks, brokers, or other holders of record. Through householding, stockholders of record who have the same address and last name will receive only one copy of our Proxy Statement and Annual Report, unless one or more of these stockholders notifies us that they wish to continue receiving individual copies. This procedure will reduce printing costs and postage fees.
Stockholders who participate in householding will continue to receive separate Proxy Cards. If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of Proxy Statements and Annual Reports, or if you hold stock in more than one account and wish to receive only a single copy of the Proxy Statement or Annual Report for your household, please contact Broadridge Householding Department, in writing, at 51 Mercedes Way, Edgewood, New York 11717, or by phone at (800)542-1061. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate Proxy Statement and Annual Report, please notify your broker if you are a beneficial stockholder. | ||
COST OF PROXY SOLICITATION: | We have retained InvestorCom, Inc. to solicit proxies from our stockholders at an estimated fee of $5,500, plus expenses. This fee does not include the costs of preparing, printing, assembling, delivering and mailing the Proxy Statement. The Company will pay for the cost of soliciting proxies. Some of our directors, officers and employees may also solicit proxies personally, without any additional compensation, by telephone or mail. Proxy materials also will be furnished without cost to brokers and other nominees to forward to the beneficial owners of shares held in their names. |
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on Wednesday,
May 24, 2017.23, 2018.
The Company’s 20172018 Proxy Statement and the Annual Report to Stockholders for the year ended 20162017 are also available at:
http://www.proxyvote.com
For directions to the Annual Meeting, please contact investor relations at281-823-4700.
PLEASE VOTE — YOUR VOTE IS IMPORTANT
PROPOSAL NO. 1 ON THE PROXY CARD
The Board of Directors of NOW Inc. (the “Board”) is divided into three classes, each class serving a term of three years. Directors whose terms expire this year include: Richard Alario, Rodney Eads,Terry Bonno, Galen Cobb, and Merrill A. Miller, Jr.James Crandell.
Richard Alario, Rodney Eads,Terry Bonno, Galen Cobb, and Merrill A. Miller, Jr.James Crandell are nominees for directors for a three-year term expiring at the Annual Meeting in 2020,2021, or when their successors are elected and qualified. We believe each of the nominees will be able to serve if elected. However, if any nominee is unable to serve, the remaining members of the Board have authority to nominate another person, elect a substitute, or reduce the size of the Board. Directors whose terms expire in 20182019 and 20192020 will continue to serve in accordance with their prior election or appointment. Proxies cannot be voted for a greater number of persons than the number of nominees named.
Vote Required for Approval
NOW’s Bylaws require that each director be elected by the majority of votes cast with respect to such director in uncontested elections (the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee). In a contested election (a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors would be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. Whether an election is contested or not is determined as of a date that is 14 days in advance of when we file our definitive proxy statement with the SEC. This year’s election was determined to be an uncontested election, and the majority vote standard will apply.If a nominee who is serving as a director is not elected at the annual meeting, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” However, under our Bylaws and Corporate Governance Guidelines, each director must submit an advance, contingent, irrevocable resignation that the Board may accept if the director fails to be elected through a majority vote. In that situation, the Nominating/Corporate Governance Committee would make a recommendation to the Board about whether to accept or reject the resignation, or whether to take other action. The Board will act on the Nominating/Corporate Governance Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date the election results are certified. If a nominee who was not already serving as a director fails to receive a majority of votes cast at the annual meeting, Delaware law provides that the nominee does not serve on the Board as a “holdover director.” In 2017,2018, all director nominees are currently serving on the Board.
Brokers are not permitted to vote your shares on the election of directors in the absence of your specific instructions as to how to vote. Please provide your broker with voting instructions so that your vote can be counted.
Information Regarding Nominees for Director for Terms Expiring in 2017:2018:
Name | Age | Expiration Date of Current Term | Biography | Year First Became Director | ||||
Richard Alario | 62 | 2017 | Mr. Alario has been a director of the Company since May 2014. Mr. Alario served as Chief Executive Officer and director of Key Energy Services, Inc., a provider of a complete range of well intervention services, since 2004 until his retirement in March 2016. Prior to joining Key Energy Services, Mr. Alario was employed by BJ Services Company, an oilfield services company, where he served as Vice President from 2002 after OSCA, Inc. was acquired by BJ Services. Prior to joining BJ Services, Mr. Alario had over 21 years of service in various capacities with OSCA, an oilfield services company, most recently having served as its Executive Vice President. He currently serves asex-officio chairman and executive committee member of the National Ocean Industries Association. He is also a director of Kirby Corporation, serving as its presiding director and chairman of its Corporate Governance Committee. | 2014 | ||||
Rodney Eads | 66 | 2017 | Mr. Eads has been a director of the Company since May 2014. Mr. Eads has served as President of Eads Holdings, LLC, a wholly owned private investment firm since 2009. Mr. Eads previously served as Chief Operating Officer and Executive Vice President of Pride International Inc. from 2006 until 2009, where he was responsible for its worldwide offshore operations and South American and Eastern Hemisphere land assets. He served as Senior Vice President of Worldwide Operations for Diamond Offshore Drilling Inc. from 1997 until 2006. From 1977 to 1997, he served in several executive and operations management positions with Exxon Corporation, primarily in international assignments. | 2014 |
Name | Age | Expiration | Biography | Year First Became Director | ||||
Terry Bonno | 60 | 2018 | Ms. Bonno has been a director of the Company since May 2014. Ms. Bonno has served as a Senior Vice President of Industry and Community Relations for Transocean Ltd since 2017. Ms. Bonno previously served as Senior Vice President of Marketing for Transocean Ltd since 2011 and Vice President of Marketing since 2008 with oversight of Transocean’s marketing in 14 countries. Additionally, her role included managing Turnkey/Project Management Organization (Applied Drilling Technology UK) from 2013 until its recent disposition and sale to private equity. Prior to this role she served in various Director and Management roles at Transocean Ltd leading the Marketing and Contracts efforts for West Africa and the Americas from 2001 until 2008. Prior to being acquired by Transocean Ltd., she served in a Director Marketing and Contracts role for Turnkey Drilling with RBFalcon and Global Marine (a wholly owned subsidiary of Applied Drilling Technology Inc. (ADTI)) from 1993 until 2001. During her time with Global Marine from 1982 to 1999 she served in various Accounting Management roles. | 2014 | ||||
Galen Cobb | 64 | 2018 | Mr. Cobb has been a director of the Company since May 2014. Mr. Cobb has served as Vice President Industry Relations for Halliburton since 2002, and is responsible for Halliburton’s industry relations global activities, energy trade policy issues, executive client relations, and trade organization oversight. He has worked for Halliburton for over forty years serving in various executive management positions in operations, marketing, sales and business development. From 1991 to 1994, he was Director CIS and China with oversight in establishing Halliburton’s presence and operations in these emerging markets. Later he was named Director Executive Sales and Business Development with expanded responsibilities for the worldwide development and promotion of Halliburton’s services and products. | 2014 |
Name | Age | Expiration Date of Current Term | Biography | Year First Became Director | Age | Expiration | Biography | Year First Became Director | ||||||||
Merrill Miller | 66 | 2017 | Mr. Miller has been a director of the Company and its Chairman of the Board since May 2014. Mr. Miller was elected Executive Chairman of the Company in February 2014. Mr. Miller served as a director of National Oilwell Varco from May 2001, and Chairman of its Board from July 2005, until the Company’sspin-off from National Oilwell Varco in May 2014. Mr. Miller served as Executive Chairman of National Oilwell Varco from February 2014 until May 2014. He also served as Chief Executive Officer of National Oilwell Varco from May 2001 until February 2014, and as President from November 2000 until December 2012. Mr. Miller serves as a director of Chesapeake Energy Corporation, a company engaged in the development, acquisition, production, exploration, and marketing of onshore oil and natural gas properties in the United States. Mr. Miller is also on the board of directors of Transocean Ltd., a company that provides offshore contract drilling services for energy companies. | 2014 | ||||||||||||
James Crandell | 64 | 2018 | Mr. Crandell has been a director of the Company since May 2014. Mr. Crandell served as Managing Director of Cowen and Company from 2013 to 2016. Mr. Crandell served as Managing Director of Dahlman Rose from 2011 until its acquisition by Cowen and Company in 2013. Previously, he served as Managing Director at Barclays Capital plc from 2008 until 2011. Mr. Crandell was Managing Director for Lehman Brothers starting in 1999 until its acquisition by Barclays Capital in 2008. From 1981 until 1998, he held various posts at Salomon Brothers, including managing director, senior oil services analyst and director of U.S. equity research, before his promotion to global coordinator of equity research in 1994. Mr. Crandell has more than 30 years of experience as a Wall Street analyst focusing on oilfield services & equipment. He currently serves as a director of Independence Contract Drilling, Inc. | 2014 |
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
ELECTION OF THE THREE NOMINEES FOR DIRECTOR.
Information Regarding Continuing Directors:
Name | Age | Expiration Date of Current Term | Biography | Year First Became Director | ||||
Terry Bonno | 59 | 2018 | Ms. Bonno has been a director of the Company since May 2014. Ms. Bonno has served as a Senior Vice President of Marketing for Transocean Ltd since 2011 and Vice President Marketing since 2008 with oversight of Transocean’s marketing in 14 countries. Additionally, her role included managing Turnkey/Project Management Organization (Applied Drilling Technology UK) from 2013 until its recent disposition and sale to private equity. Prior to this role she served in various Director and Management roles at Transocean Ltd leading the Marketing and Contracts efforts for West Africa and the Americas from 2001 until 2008. Prior to being acquired by Transocean Ltd., she served in a Director Marketing and Contracts role for Turnkey Drilling with RBFalcon and Global Marine (a wholly owned subsidiary of Applied Drilling Technology Inc. (ADTI)) from 1993 until 2001. During her time with Global Marine from 1982 to 1999 she served in various Accounting Management roles. | 2014 | ||||
Galen Cobb | 63 | 2018 | Mr. Cobb has been a director of the Company since May 2014. Mr. Cobb has served as Vice President Industry Relations for Halliburton since 2002, and is responsible for Halliburton’s industry relations global activities, energy trade policy issues, executive client relations, and trade organization oversight. He has worked for Halliburton for over forty years serving in various executive management positions in operations, marketing, sales and business development. From 1991 to 1994, he was Director CIS and China with oversight in establishing Halliburton’s presence and operations in these emerging markets. Later he was named Director Executive Sales and Business Development with expanded responsibilities for the worldwide development and promotion of Halliburton’s services and products. | 2014 | ||||
James Crandell | 63 | 2018 | Mr. Crandell has been a director of the Company since May 2014. Mr. Crandell served as Managing Director of Cowen and Company from 2013 to 2016. Mr. Crandell served as Managing Director of Dahlman Rose from 2011 until its acquisition by Cowen and Company in 2013. Previously, he served as Managing Director at Barclays Capital plc from 2008 until 2011. Mr. Crandell was Managing Director for Lehman Brothers starting in 1999 until its acquisition by Barclays Capital in 2008. From 1981 until 1998, he held various posts at Salomon Brothers, including managing director, senior oil services analyst and director of U.S. equity research, before his promotion to global coordinator of equity research in 1994. Mr. Crandell has more than 30 years of experience as a Wall Street analyst focusing on oilfield services & equipment. He currently serves as a director of Independence Contract Drilling, Inc. | 2014 |
Name | Age | Expiration | Biography | Year First Became Director | ||||
Richard Alario | 63 | 2020 | Mr. Alario has been a director of the Company since May 2014. Mr. Alario served as Chief Executive Officer and director of Key Energy Services, Inc., a provider of a complete range of well intervention services, since 2004 until his retirement in March 2016. Prior to joining Key Energy Services, Mr. Alario was employed by BJ Services Company, an oilfield services company, where he served as Vice President from 2002 after OSCA, Inc. was acquired by BJ Services. Prior to joining BJ Services, Mr. Alario had over 21 years of service in various capacities with OSCA, an oilfield services company, most recently having served as its Executive Vice President. He currently serves asex-officio chairman and executive committee member of the National Ocean Industries Association. He is also a director of Kirby Corporation, serving as its presiding director and chairman of its Corporate Governance Committee. | 2014 | ||||
Paul Coppinger | 57 | 2020 | Mr. Coppinger has been a director of the Company since December 2017. Mr. Coppinger has served as Division President of Weir Oil & Gas, which is part of Weir Group PLC, a publicly traded company listed on the London Stock Exchange, since 2014. From 2012 to 2014, Mr. Coppinger served as President, Pressure Pumping, for the Weir Group, and from 2011 to 2012 as President Weir SPM. Prior to that, Mr. Coppinger was Group President of the Energy Segment of CIRCOR International, Inc. from 2001 to 2011. Mr. Coppinger has served on the board of directors of Petroleum Equipment & Services Association (PESA) since 2007. | 2017 |
Name | Age | Expiration Date of Current Term | Biography | Year First Became Director | Age | Expiration | Biography | Year First Became Director | ||||||||
Rodney Eads | 67 | 2020 | Mr. Eads has been a director of the Company since May 2014. Mr. Eads has served as President of Eads Holdings, LLC, a wholly owned private investment firm since 2009. Mr. Eads provides advisory and due diligence services for numerous private equity entities, and served as a director from 2010 to 2015 for private equity owned Nautronix UK Limited. Mr. Eads previously served as Chief Operating Officer and Executive Vice President of Pride International Inc. from 2006 until 2009, where he was responsible for operations and regulatory compliance for offshore operations and South American and Eastern Hemisphere land assets operating in 15 countries. He also managed a public companyspin-off in 2009 of Seahawk Drilling Company. He served as Senior Vice President of Worldwide Operations for Diamond Offshore Drilling Inc. from 1997 until 2006, with responsibility for operations and regulatory compliance in 12 countries. From 1977 to 1997, he served in several executive and operations management positions with Exxon Corporation, primarily in international assignments spanning 11 countries. | 2014 | ||||||||||||
Michael Frazier | 67 | 2019 | Mr. Frazier has been a director of the Company since May 2014. Mr. Frazier has been with Simmons & Company International, an independent investment bank specializing in the energy industry, since 1992, and has served as its President and Chief Executive Officer since 2002 and 2005, respectively, and as its Chairman since 2009, until its acquisition by Piper Jaffray Companies in February 2016. He serves on the board of Energy Opportunities Capital Management. Prior to joining Simmons, Mr. Frazier was actively involved in the exploration and production of oil and gas as an independent operator. Mr. Frazier also serves as a director of Piper Jaffray Companies, a leading investment bank and asset management firm. | 2014 | 68 | 2019 | Mr. Frazier has been a director of the Company since May 2014. Mr. Frazier has been with Simmons & Company International, an independent investment bank specializing in the energy industry, since 1992, and has served as its President and Chief Executive Officer since 2002 and 2005, respectively, and as its Chairman since 2009, until its acquisition by Piper Jaffray Companies in February 2016. He serves on the board of Energy Opportunities Capital Management. Prior to joining Simmons, Mr. Frazier was actively involved in the exploration and production of oil and gas as an independent operator. Mr. Frazier also serves as a director of Piper Jaffray Companies, a leading investment bank and asset management firm. | 2014 | ||||||||
J. Wayne Richards | 57 | 2019 | Mr. Richards has been a director of the Company since May 2014. Mr. Richards has served as President and Chief Executive Officer of GR Energy Services, Inc., an oilfield products and services company focused primarily on onshore production and downhole completion services in North America, since 2013. Previously, he was President and Chief Executive Officer of Global Oilfield Services, a privately held oilfield products and services company focused on the artificial lift sector, from 2008 until 2011 when it was purchased by Halliburton. Mr. Richards served as Vice President of Artificial Lift for Halliburton from 2011 to 2013. Earlier in his career, Mr. Richards spent 25 years in various senior operational and sales and marketing positions at Schlumberger. | 2014 | ||||||||||||
Robert Workman | 48 | 2019 | Mr. Workman has been a director of the Company since May 2014. Mr. Workman was elected President and Chief Executive Officer of the Company in February 2014. Mr. Workman served as National Oilwell Varco’s President – Distribution Services from January 2001 until the Company’sspin-off in May 2014. He previously served National Oilwell Varco starting in 1991 in various managerial positions with the distribution business group. He also previously served as the Chairman of the Petroleum Equipment Suppliers Association. | 2014 |
Name Age Expiration Biography Year First J. Wayne Richards Robert Workman
Date of
Current
Term
Became
Director 58 2019 Mr. Richards has been a director of the Company since May 2014, and has served as the Company’s independent Chairman of the Board since August 2017. Mr. Richards has served as President and Chief Executive Officer of GR Energy Services, Inc., an oilfield products and services company focused primarily on onshore production and downhole completion services in North America, since 2013. Previously, he was President and Chief Executive Officer of Global Oilfield Services, a privately held oilfield products and services company focused on the artificial lift sector, from 2008 until 2011 when it was purchased by Halliburton. Mr. Richards served as Vice President of Artificial Lift for Halliburton from 2011 to 2013. Earlier in his career, Mr. Richards spent 25 years in various senior operational and sales and marketing positions at Schlumberger. 2014 49 2019 Mr. Workman has been a director of the Company since May 2014. Mr. Workman was elected President and Chief Executive Officer of the Company in February 2014. Mr. Workman served as National Oilwell Varco’s President – Distribution Services from January 2001 until the Company’sspin-off in May 2014. He previously served National Oilwell Varco starting in 1991 in various managerial positions with the distribution business group. He also previously served as the Chairman of the Petroleum Equipment Suppliers Association. 2014
COMMITTEES AND MEETINGS OF THE BOARD
Committees
The Board of Directors appoints committees to help carry out its duties. The Board of Directors has the following standing committees: Audit, Compensation, and Nominating/Corporate Governance. Last year, the Board of Directors met 4 times and the committees met a total of 12 times. Mr. Miller and Mr. Workman dodoes not serve on any committees. The following table sets forth the committees of the Board of Directors and their members as of the date of this proxy statement, as well as the number of meetings each committee held during 2016:2017:
Director | Audit Committee | Compensation Committee | Nominating/Corporate Governance Committee | Audit Committee | Compensation Committee | Nominating/Corporate Governance Committee | ||||||
Merrill Miller, Jr. | ||||||||||||
Robert Workman | ||||||||||||
Richard Alario | + | • | + | • | ||||||||
Terry Bonno | • | • | ||||||||||
Galen Cobb | • | • | ||||||||||
Paul Coppinger | • | • | ||||||||||
James Crandell | • | • | • | • | ||||||||
Rodney Eads | + | + | ||||||||||
Michael Frazier | • | + | • | + | ||||||||
J. Wayne Richards | • | • | ||||||||||
Number of Meetings Held in 2016 | 8 | 2 | 2 | |||||||||
Number of Meetings Held in 2017 | 8 | 2 | 2 |
(+) | Denotes Chair |
Attendance at Meetings
Each incumbent director attended at least 75% of the meetings of the Board and committees of which that director was a member.member in 2017, except for Paul Coppinger who joined the Board of Directors on December 27, 2017.
Audit Committee
Messrs. Eads (Chairman), Cobb, Richards and Ms. Bonno are the current members of the Audit Committee. All members of this committee are “independent” within the meaning of the rules governing audit committees by the New York Stock Exchange, or NYSE.
The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Committee’s primary duties and responsibilities are to:
A copy of the Audit Committee Charter is available on the Company’s website,www.distributionnow.com, under the Investor Relations/Corporate Governance section.
Audit Committee Financial Expert
The Board of Directors has determined that all members of the Audit Committee meet the NYSE standard of having accounting or related financial management expertise and meet the SEC’s criteria of an Audit Committee Financial Expert.
Compensation Committee
Messrs. Alario (Chairman), Coppinger, Crandell and Frazier are the current members of the Compensation Committee. All members of the Compensation Committee are independent as defined by the applicable NYSE listing standards.
The Compensation Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Committee’s primary duties and responsibilities are to:
A copy of the Compensation Committee Charter is available on the Company’s website,www.distributionnow.com, under the Investor Relations/Corporate Governance section.
Compensation Committee Interlocks and Insider Participation
Messrs. Alario, Coppinger, Crandell, and Frazier served on the Compensation Committee during 2016.2017. None of these members is a former or current officer or employee of the Company or any of its subsidiaries, is involved in a relationship requiring disclosure as an interlocking executive officer/director, or had any relationship requiring disclosure under Item 404 of RegulationS-K.
Nominating/Corporate Governance Committee
Messrs. Frazier (Chairman), Alario, Coppinger and Crandell are the current members of the Nominating/Corporate Governance Committee. All members of the Nominating/Corporate Governance Committee are independent as defined by the applicable NYSE listing standards.
The Nominating/Corporate Governance Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Committee’s primary duties and responsibilities are to:
A copy of the Nominating/Corporate Governance Committee Charter is available on the Company’s website,www.distributionnow.com, under the Investor Relations/Corporate Governance section.
Director Nomination Process and Diversity Considerations
The Nominating/Corporate Governance Committee has the responsibility of identifying candidates for election as directors, reviewing background information relating to candidates for director, and recommending to the Board of Directors nominees for directors to be submitted to stockholders for election. It is the policy of the Committee to consider director candidates recommended by stockholders. Nominees to be evaluated by the Nominating/Corporate Governance Committee are selected by the Committee from candidates recommended by multiple sources, including other directors, management, stockholders, and candidates identified by independent search firms (which firms may be paid by the Company for their services), all of whom will be evaluated based on the same criteria. As of April 7, 2016,4, 2018, we had not received any recommendations from stockholders for potential director candidates. All of the current nominees for director are standing members of the Board that are proposed by the entire Board forre-election. Written suggestions for nominees should be sent to the Secretary of the Company at the address listed below.
The Board of Directors believes that nominees should reflect the following characteristics:
The Board considers diversity in identifying nominees for director. The Board seeks to achieve a mix of directors that represents a diversity of background and experience, including with respect to gender and race. The Board considers diversity in a variety of different ways and in a fairly expansive manner. The Board not only considers diversity concepts such as race and gender, but also diversity in the sense of differences in viewpoint, professional experience, education, skill and other qualities and attributes that contribute to board heterogeneity. Also considered as part of the diversity analysis is whether the individual has work experience in the Company’s industry, or in the broader energy or industrial market. The Company believes the Board can benefit from different viewpoints and experiences by having a mix of members of the Board who have experience in its industry and those who may not have such experience.
The Nominating/Corporate Governance Committee reviews Board composition annually to ensure that the Board reflects the knowledge, experience, skills, expertise, and diversity required for the Board to fulfill its duties. There are currently no directorship vacancies to be filled on the Board. If and when the need arises for the Company to add a new director to the Board, the Nominating/Corporate Governance Committee will take every reasonable step to ensure that diverse candidates (including, without limitation, women and minority candidates) are in the pool from which nominees are chosen and strive to obtain diverse candidates by searching in traditional corporate environments, as well as government, academia, andnon-profit organizations.
Director Qualifications
The Company believes that each member of its Board of Directors possess the basic attributes of being a director of the Company, namely having a reputation for integrity, honesty, candor, fairness and discretion. Each director has also become knowledgeable in major aspects of the Company’s business and
operations, which has allowed the Board to provide better oversight functions to the Company. In addition to the experience, qualifications, and skills of each director set forth in their biographies starting on page 7 of this proxy statement, the Company also considered the following factors in determining that the board member should serve on the Board:
Mr. Alario has served as the chief executive officer and chairman of a publicly traded company for 12 years, prior to his retirement. Mr. Alario has extensive experience in the oil service business, having worked in that industry for over 30 years. Mr. Alario has gained valuable board experience from his tenure as a director of Kirby Corporation, including from his service on its audit committee, as the chairman of its nominating/corporate governance committee, and as presiding director. Through service in these roles, Mr. Alario has gained extensive experience in assessing the risks associated with various energy industry cycles.
Ms. Bonno provides valuable service and experience to the Audit Committee, due to her past and current experience serving on the financial committee, enterprise risk management committee, and disclosure committee at Transocean Ltd. Ms. Bonno has extensive experience in the oil service industry and a background in accounting with approximately 30 years of being a certified public accountant and experience overseeing the Sox Compliance Global Marketing Function. Ms. Bonno has dealt with all facets of potential risk areas for a global energy company and brings that experience and perspective to the Board.
Mr. Cobb provides valuable service and experience to the Audit Committee, due to his over 40 years of serving in various management positions for Halliburton. Mr. Cobb has developed experience and expertise in warehouse management and distribution, international operations, especially in emerging markets, as well as marketing and business development in a large corporate environment. As a result of this extensive experience, Mr. Cobb is very familiar with the strategic and project planning processes that impact the Company’s business and continued development for growth.
Mr. Coppinger has over 33 years of experience in the petroleum equipment and service, process equipment and flow control businesses, as well as experience in the industrial markets and manufacturing, and has held various positions of increasing responsibility, including managing domestic and international operations. Mr. Coppinger has extensive operational and strategic planning experience from his long career in manufacturing and distribution. Mr. Coppinger also has extensive mergers and acquisitions experience of over 20 years on a global basis. Mr. Coppinger has dealt with all facets of potential risk areas for a global energy service company, and brings that experience to the Company.
Mr. Crandell has over 30 years of experience as a Wall Street analyst focusing on oilfield services and equipment. He has held positions of increasing importance at multiple investment firms, including serving as managing director of global oilfield services equity research. Given Mr. Crandell’s extensive experience as an analyst covering the oilfield services sector, he is able to provide the Company useful and impactful information from a shareholder perspective. As such, Mr. Crandell’s experience as an analyst of the energy industry helps provide a different perspective for the Company.
Mr. Eads provides valuable service and experience to the Audit Committee, due to his MBA degree and 40 years of experience in the energy industry and in his previous roles in senior executive management where he worked to help mitigate risk. Mr. Eads has also been an active member of the National Association of Corporate Directors (NACD) since 2010, achieving the NACD’s Governance Fellow recognition, the highest standard of credentialing for directors and governance professionals. Mr. Eads’ significant international experience and deep expertise in drilling, supply chain management and construction projects, together with his 12 years of experience as an executive officer of two public companies, makes him well qualified to serve as a director of the Company.
Mr. Frazier has over 35 years of experience in investment banking specializing in the energy industry. He has served as president and chief executive officer of a private investment firm focused on the energy sector. Mr. Frazier has gained valuable outside board experience from serving on the boards of Simmons & Company International, Simmons & Company International Limited, and Energy Opportunities Capital Management.
Mr. Miller has been an officer of a publicly traded company since 1996, occupying positions of increasing importance from business group president, to COO, to CEO, to Executive Chairman. Mr. Miller has extensive experience with the CompanyManagement, and the oilfield service industry. Mr. Miller has an MBA degree, and is a graduate of the US Military Academy, West Point. Mr. Miller has also gained valuable outside board experience from his current tenure as a director of Chesapeake Energy Corporation and Transocean Ltd.Piper Jaffray Companies.
Mr. Richards provides valuable service and experience to the Audit Committee, due to his over 30 years of experience in the oilfield products and services industry. Mr. Richards’ experience serving as the chief executive officer of several companies and his experience in growing energy companies organically and through acquisitions, makes him well qualified to serve as a director of the Company. Mr. Richards has dealt with many facets of potential risk areas for an energy service company, as a current and former chief executive officer, and brings that experience and perspective to the Board.
Mr. Workman has been an officer of a publicly traded company since 2001. Mr. Workman’s23-year27-year career in the distribution business includes positions of increasing importance, from sales manager, to Vice President, to Business Group President. Mr. Workman has extensive experience with the Company and the oil service industry. Mr. Workman’s extensive experience in the Company’s business and the industry, his MBA degree, and his unparalleled knowledge of the Company makes him uniquely and well qualified to serve as a director of the Company.
The responsibilities of the Audit Committee include providing oversight to the Company’s financial reporting process through periodic combined and separate meetings with the Company’s independent auditors and management to review accounting, auditing, internal controls, and financial reporting matters. The management of the Company is responsible for the preparation and integrity of the financial reporting information and related systems of internal controls. Composition
The Audit Committee in carrying out its role, relies on the Company’s senior management, including senior financial management,is currently comprised of four members: Rodney Eads, Committee Chairman, Terry Bonno, Galen Cobb and its independent auditors.
Wayne Richards. The Board of Directors has determined that all of the members of the Audit Committee are independent based on the guidelines set forth by the NYSE and SEC rules for the independence of Audit Committee members. The Board of Directors has also determined that all members of the Audit Committee meet the NYSE standard of having accounting or related financial management expertise and meet the SEC’s criteria of an Audit Committee Financial Expert.
Oversight Responsibilities
Under the Audit Committee Charter, which is available for review on the Company’s website atwww.distributionnow.com, under the Investor Relations/Corporate Governance section, the Audit Committee’s primary purpose is to assist the Board of Directors in fulfilling its oversight responsibilities. In that regard, the Audit Committee’s primary purposes and functions are: (i) monitoring the integrity of the Company’s financial statements, financial reporting processes, systems of internal controls regarding finance, and disclosure controls and procedures; (ii) selecting and appointing the Company’s independent auditors,pre-approving all audit andnon-audit services to be provided, consistent with all applicable laws, to the Company by the Company’s independent auditors, and establishing the fees and other compensation to be paid to the independent auditors; (iii) monitoring the independence and performance of the Company’s independent auditors and internal audit function; (iv) establishing procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls, disclosure or auditing matters, and providing an avenue of communication among the independent auditors, management, the internal audit function and the Board; and (v) monitoring the Company’s compliance with legal and regulatory requirements. Specifically, with respect to oversight of accounting, internal controls and disclosure matters, as well as oversight of the Company’s compliance with various legal and regulatory requirements, the Audit Committee, as appropriate, but at least on a quarterly basis, reviews all reports generated by the Company’s independently administered employee hotline and other corporate governance hotline systems. The Audit Committee also reviews on a quarterly basis reports from the Company’s enterprise risk management system and cybersecurity monitoring system.
Notwithstanding the foregoing, it is not the Audit Committee’s duty to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles (“GAAP”) or to conduct audits. Our management is responsible for establishing a system of internal controls, assessing such controls and for preparing our consolidated financial statements in accordance with GAAP. Management is also responsible for assuring compliance with laws and regulations and the Company’s corporate policies. Our independent registered public accountants are responsible for auditing our consolidated financial statements and the effectiveness of our internal control over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (the “PCAOB”) and issuing their reports based on those audits.
The Audit Committee, in carrying out its role, relies on the Company’s senior management, including senior financial management. However, the Audit Committee, at each regularly scheduled quarterly meeting in 2016,2017, met separately in executive session with both the internal audit director and the independent audit partner, without management being present.
Oversight of Independent Auditor
In connection with the selection and appointment of the independent auditors, each year the Audit Committee reviews and evaluates the qualifications, performance and independence of the independent auditors and lead partner, including taking into account the opinions of management and our internal auditor. In doing so, the Audit Committee considers a number of factors including, but not limited to: quality of services provided; technical expertise and knowledge of the industry; effective communication; objectivity; independence; and the potential impact of changing independent auditors. Based on this evaluation, the Audit Committee has retained Ernst & Young LLP (“EY”) as our independent auditors for 2018. EY has been our independent auditors since 2013, and the current lead partner has been engaged since 2014 and will rotate off after completion of the 2018 audit.
The Audit Committee and Board of Directors believe that it is in the best interests of the Company and its stockholders to continue retention of EY to serve as our independent auditors. Although the Audit Committee has the sole authority to appoint the independent auditors, the Audit Committee will continue to recommend that the Board of Directors request the stockholders, at the Annual Meeting, to ratify the appointment of the independent auditors.
Further, the Audit Committee reviews in advance andpre-approves audit andnon-audit services provided to us by our independent auditors. The Audit Committee is also directly responsible for reviewing with the independent registered public accountants the plans and scope of the audit engagement and providing an open venue of communication between our management, the internal audit function, the independent registered public accountants and the Board.
2017 Audited Financial Statements
The Audit Committee reviewed and discussed with senior management the audited financial statements included in the Company’s Annual Report on Form10-K. Management has confirmed to the Audit Committee that such financial statements have been prepared with integrity and objectivity and in conformity with generally accepted accounting principles (“GAAP”).GAAP.
The Audit Committee discussed with Ernst & Young LLP,EY, the Company’s independent auditors, the matters required to be discussed under the Public Company Accounting Oversight Board (“PCAOB”)PCAOB standards.
The Audit Committee has received the written disclosures and the letter from Ernst & YoungEY required by applicable requirements of PCAOB regarding Ernst & Young’sEY’s communication with the Audit Committee concerning independence and has discussed Ernst & Young’sEY’s independence with Ernst & Young.EY.
Based on the foregoing, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s 20162017 Annual Report on Form10-K.
Notwithstanding the foregoing, the Audit Committee’s charter clarifies that it is not the Audit Committee’s duty to conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with GAAP. Management is responsible for the Company’s financial reporting process, including its system of internal controls, and for the preparation of financial statements in accordance with GAAP. Management is also responsible for assuring compliance with laws and regulations and the Company’s corporate policies, subject to the Audit Committee’s oversight in the areas covered by the Audit Committee’s charter. The independent auditors are responsible for expressing opinions on those financial statements and on the effectiveness of the Company’s internal control over financial reporting.
Members of the Audit Committee
Rodney Eads, Committee Chairman
Terry Bonno
Galen Cobb
Wayne Richards
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
PROPOSAL NO. 2 ON THE PROXY CARD
Information Regarding our Independent Auditors
The Audit Committee of the Board of Directors has reappointed Ernst & Young LLP as independent auditors for 2017.2018. Stockholders are being asked to vote upon the ratification of the appointment. Representatives of Ernst & Young will attend the Annual Meeting, where they will be available to respond to appropriate questions and have the opportunity to make a statement if they desire.
Vote Required for Approval
The proposal to ratify the appointment of Ernst & Young LLP as independent auditors will require approval of a majority of the shares of our common stock entitled to vote and present in person or by proxy. In accordance with NYSE rules, a proposal to ratify independent auditors is considered to be a “discretionary” item. This means that brokerage firms may vote in their discretion on this matter on behalf of beneficial owners who have not furnished voting instructions within the time period specified in the voting instructions submitted by such brokerage firms. Abstentions, which will be counted as votes present for the purpose of determining a quorum, will have the effect of a vote against the proposal. Your shares will be voted as you specify on your proxy. If your properly executed proxy does not specify how you want your shares voted, we will vote them for the ratification of the appointment of Ernst & Young LLP as independent auditors.
Audit Fees
The Audit Committeepre-approves all services provided by the Company’s independent auditors to the Company and its subsidiaries. Consideration and approval of such services generally occurs in the regularly scheduled quarterly meetings of the Audit Committee. The Audit Committee has delegated the Chairman of the Audit Committee topre-approve allowednon-audit services, subject to review by the full committee at the next regularly scheduled meeting. The Audit Committee has considered whether the provision of all services other than those rendered for the audit of the Company’s financial statements is compatible with maintaining Ernst & Young’s independence and has concluded that their independence is not compromised.
The following table sets forth Ernst & Young LLP’s fees for services rendered during 20152016 and 2016.2017. All services provided by Ernst & Young LLP werepre-approved by the Audit Committee.
2016 | 2015 | 2017 | 2016 | |||||||||||||
Audit Fees | $ | 1,882,825 | $ | 1,974,714 | $ | 2,080,990 | $ | 1,882,825 | ||||||||
Audit Related Fees(1) | $ | 87,000 | $ | 86,995 | $ | 87,000 | $ | 87,000 | ||||||||
Tax Fees | $ | 114,000 | $ | 69,167 | $ | 122,262 | $ | 114,000 | ||||||||
All Other Fees | — | — | — | — | ||||||||||||
|
|
|
| |||||||||||||
Total | $ | 2,083,825 | $ | 2,130,876 | $ | 2,290,252 | $ | 2,083,825 |
(1) | Consists primarily of fees for audits of employee benefit plans. |
Your Board of Directors recommends that you vote “FOR” the proposal to ratify the appointment of Ernst & Young LLP.
APPROVAL OF COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS – PROPOSAL
NO. 3 ON THE PROXY CARD
A proposal will be presented at the meeting asking stockholders to approve on an advisory basis the compensation of the Company’s named executive officers as described in this proxy statement.
Why You Should Approve our Executive Compensation Program
The Company’s compensation philosophy is designed to attract and retain executive talent and emphasize pay for performance, including the creation of stockholder value. The Company encourages its stockholders to read the Executive Compensation section of this proxy statement, including the compensation tables, as well as the Compensation Discussion and Analysis (CD&A) section of this proxy statement, for a more detailed discussion of our compensation programs and policies. The Company believes its compensation programs and policies are appropriate and effective in implementing its compensation philosophy and in achieving its goals and that they are aligned with stockholder interests and worthy of stockholder support.
We believe that stockholders should consider the following in determining whether to approve this proposal:
Compensation Program is Closely Linked to Stockholder Value
An important and significant portion of each executive’s compensation at the Company is in the form of long-term incentive awards, which are directly linked to the Company’s performance and the creation of stockholder value. The Company’s long-term incentive awards, starting with its first annual grant in 2015, consists of: stock options, time-based restricted stock and performance-based share awards. We believe this mix appropriately motivates long-term performance and rewards executives for absolute gains in share price, performance against designated metrics and relative financial performance against a designated peer group.
StrongPay-for-Performance Orientation
The Company’s annual and long-term incentive programs established in 2015, the Company’s first full year in existence, pay its named executive officers only if certain performance metrics (absolute and/or relative) are achieved. Thus, two of the three components of an executives’ pay at the Company are based on performance.
Compensation Program Has Appropriate Long-term Orientation
Minimum three-year vesting for equity awards: The Company encourages a long-term orientation by its executives through the use of three-year vesting requirements for annual grants of stock options, restricted stock and performance-based awards.
Summary of Good Governance and Risk Mitigating Factors
• | Limited Bonus payouts: Bonus awards cannot exceed 200% of target, limiting excessive awards for short-term performance. |
• | Balanced pay mix: The mix of pay is balanced between annual and long-term compensation. |
• | Multiple year vesting of long-term incentives: Long-term incentive awards do not fully vest until a minimum of three years after the grant. |
• | CEO Pay:CEO base salary level |
• | Clawback Policy:Awards of long-term equity compensation and compensation under the Company’s annual cash incentive plan can be terminated by the Compensation Committee if it determines that the recipient of such award has engaged in material misconduct. |
In 2016, more than2017, approximately 94% of the votes cast on oursay-on-pay proposal were in favor of our executive compensation program and policies.
The Company’s compensation program for its named executive officers has been thoughtfully designed to support the Company’s long-term business strategies and drive creation of stockholder value. The program does not encourage excessive risk-taking by management. It is aligned with the competitive market for talent, and highly sensitive to Company performance. The Company believes its program will deliver reasonable pay that is strongly linked to Company performance over time.
The following resolution will be submitted for a stockholder vote at the 20172018 annual meeting:
“RESOLVED, that the stockholders of the Company approve, on an advisory basis, the compensation of the Company’s named executive officers listed in the 20162017 Summary Compensation Table included in the proxy statement for this meeting, as such compensation is disclosed pursuant to Item 402 ofRegulation S-K in this proxy statement under the section entitled “Executive Compensation”, including the compensation tables and other narrative executive compensation disclosures set forth under that section, as well as the section in the proxy statement entitled “Compensation Discussion and Analysis.”
This advisory vote on the compensation of the Company’s named executive officers gives stockholders another mechanism to convey their views about the Company’s compensation programs and policies. Although your vote on executive compensation is not binding on the Company, the Board values the views of stockholders. The Board and Compensation Committee will review the results of the vote and take them into consideration in addressing future compensation policies and decisions.
Your Board of Directors recommends that you vote “FOR” the proposal to approve the
compensation of our named executive officers.
NOW’s Board of Directors is committed to promoting transparency in reporting information about the Company, complying with the spirit as well as the literal requirements of applicable laws, rules and regulations, and corporate behavior that conforms to corporate governance standards that substantially exceed the consensus view of minimum acceptable corporate governance standards. The Board of Directors adopted Corporate Governance Guidelines which established provisions for the Board’s composition and function, Board committees and committee membership, evaluation of director independence, the roles of the independent Chairman of the Board and the Chief Executive Officer, and the Lead Director, the evaluation of the Chief Executive Officer, regular meetings ofnon-employee directors, board conduct and review, selection and orientation of directors, director compensation, access to management and independent advisors, and annual review of the Corporate Governance Guidelines. A copy of the Corporate Governance Guidelines is available on the Company’s website,www.distributionnow.com, under the Investor Relations/Corporate Governance section. The Company will furnish print copies of the Corporate Governance Guidelines, as well as its Committee charters, to interested stockholders without charge, upon request. Written requests for such copies should be addressed to: Raymond Chang, Secretary, NOW Inc., 7402 N. Eldridge Parkway, Houston, Texas 77041.
Highlights
We maintain a strong and proactive approach to corporate governance, as follows:
Director Independence
The Corporate Governance Guidelines address, among other things, standards for evaluating the independence of the Company’s directors. The Board undertakes an annual review of director independence and considers transactions and relationships during the prior year between each director or any member of his or her immediate family and the Company and its affiliates, including those reported under “Certain Relationships and Related Transactions” in this Proxy Statement. In February 2017,2018, as a result of this annual review, the Board affirmatively determined that a majority of the members of the Board of Directors are independent of the Company and its management under the standards set forth in the Corporate Governance Guidelines. The following directors were affirmed as independent: Richard Alario, Terry Bonno, Galen Cobb, Paul Coppinger, James Crandell, Rodney Eads, Michael Frazier, and J. Wayne Richards.
Board Leadership – Independent Chairman of the Board
Currently, the roles of Chairman of the Board and Chief Executive Officer are not combined at the Company. The Company believes that effective corporate governance, including the independent oversightcurrent leadership structure delineates the separate roles of management, does not require thatmanagers and directors. Our Chief Executive Officer sets the strategic direction for the Company, working with the Board, and providesday-to-day leadership. Our independent Chairman of the Board be anleads the Board in the performance of its duties and serves as the principal liaison between the independent director. The Company believes that its stockholders are best served by a Board that has the flexibility to establish a leadership structure that fits the needs of the Company at a particular point in time.
The Board believes that our current Executive Chairman is best situated to serve as Chairman because he is the director most familiar with our business and most capable of effectively identifying strategic priorities and leading the discussion and execution of our strategy. The Board also believes that the role of Executive Chairman facilitates information flow between managementdirectors and the Board.Chief Executive Officer.
To assist with providing independent oversight of management and the Company’s strategy, thenon-employee members of the Board of Directors have appointed J. Wayne Richards, an independent director, as Lead Director. Thethe independent Chairman of the Board and Lead Director (the “Independent Chair”). The Independent Chair is responsible for: (1) chairing all meetings of the Board at which the Chair is present, (2) working with the Chief Executive Officer on the scheduling of Board meetings and the preparation of agendas and materials for Board meetings, (3) define the quality, quantity and timeliness of the flow of information between senior management and the Board, (4) approve, in consultation with the other directors, the retention of consultants who report directly to the Board, (5) developing the agenda for, and presiding over the executive sessions of, the Board’snon-management directors, (2)(6) facilitating communications among the Chairman of the Board, the Chief Executive Officer and other members of the Board, (3)(7) coordinating, with the Chairman and the Chief Executive Officer, the assessment of the committee structure, organization, and charters, and evaluating the need for any changes, (4)(8) acting as principal liaison between thenon-management directors and the Chief Executive Officer on matters dealt with in executive session, and (5)(9) assuming such further tasks as the independent directors may determine.
The Board also holds executive sessions on a quarterly basis at which onlynon-employee directors are present. In addition, the committees of the Board provide independent oversight of management. Each of the committees of the Board is composed entirely of independent directors.
The Board has concluded that this structure is in the best interest of stockholders because it provides an appropriate balance between our independent Chairman’s ability to lead the Board and the Company and the ability of our independent directors, under the leadership of our Lead Director, to provide independent objective oversight of our management.management, and the Chief Executive Officer’s ability to provide strategic direction for the Company and lead the Company on aday-to-day basis.
Board Role in Risk Oversight
The Board of Directors and its committees help conduct certain risk oversight functions for the Company. The Board is periodically advised on the status of various factors that could impact the business and operating results of the Company, including oil and gas prices. The full Board is also responsible for reviewing the Company’s strategy, business plan, and capital expenditure budget at least annually. Through these various functions, the Board is able to monitor these risks and assist the Company in determining whether certain mitigating actions, if any, need to be taken.
The Audit Committee serves an important role in providing risk oversight, as further detailed in its charter. One of the Audit Committee’s primary duties and responsibilities is to monitor the integrity of the Company’s financial statements, financial reporting processes, systems of internal controls regarding finance, and disclosure controls and procedures. The Audit Committee is also responsible for establishing procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls, disclosure or auditing matters, and providing an avenue of communication among the independent auditors, management, and the internal audit function and the Board. In addition, the Audit Committee monitors the Company’s compliance with legal and regulatory requirements.requirements, as well as the Company’s cybersecurity risks (which the Audit Committee considers at each quarterly meeting and at other times on an as needed basis). The Company considers the Audit Committee an important part of the risk management process, and senior management works closely with the Audit Committee on these matters in managing material risks to the Company.
The other committees of the Board also assist in the risk oversight function. The Nominating/Corporate Governance Committee is responsible for ensuring that the Board and its committees are appropriately constituted so that the Board and its directors may effectively meet their fiduciary obligations to stockholders and the Company. The Nominating/Corporate Governance Committee is also responsible
for monitoring and evaluating on an annual basis the effectiveness of the Board and management of the Company, including their effectiveness in implementing the policies and principles of the Corporate Governance Guidelines. The Compensation Committee is responsible for compensation of the Company’s directors and executive officers. These various responsibilities of these committees allow them to work with the Company to make sure these areas do not pose undue risks to the Company.
Risk Assessment in Compensation Programs
Consistent with SEC disclosure requirements, the Company, its Compensation Committee and the Compensation Committee’s independent compensation consultant assess the Company’s compensation programs on an annual basis and have determined that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. On an annual basis, Company management, the Compensation Committee and the Compensation Committee’s compensation consultant will assess the Company’s executive and broad-based compensation programs to determine if the programs’ provisions and operations create undesired or unintentional risk of a material nature.
The Company’s variable forms of compensation, namely the annual cash incentive bonus program and long-term equity incentives, have structural limitations and other mitigating controls which are designed to prevent the Company from being exposed to unexpected or unbudgeted materially adverse events. For example, bonus payments to an executive under the annual cash incentive bonus program are capped at a certain percentage of the executive’s base salary, and the number of shares of restricted stock and stock options granted under the Company’s long-term equity incentive plan are fixed amounts of shares.
The Company, the Compensation Committee, and the Compensation Committee’s consultant believe that the Company’s compensation policies and practices do not create inappropriate or unintended significant risk to the Company as a whole. The Company and the Compensation Committee also believe that the Company’s incentive compensation arrangements provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage significant risks and are supported by the oversight and administration of the Compensation Committee with regard to executive compensation programs.
Policies on Business Ethics and Conduct
The Company has a long-standing Business Ethics Policy. The Board adopted the Code of Business Conduct and Ethics For Members of the Board of Directors and Executive Officers and the Code of Ethics for Senior Financial Officers. These codes are designed to focus the Board and management on areas of ethical risk, provide guidance to personnel to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct and help to foster a culture of honesty and accountability. As set forth in the Corporate Governance Guidelines, the Board may not waive the application of the Company’s policies on business ethics and conduct for any Director or Executive Officer. Copies of the Code of Business Conduct and Ethics For Members of the Board of Directors and Executive Officers and the Code of Ethics for Senior Financial Officers, as well as the code of ethics applicable to employees of the Company, are available on the Company’s website,www.distributionnow.com, under the Investor Relations/Corporate Governance section. The Company will furnish print copies of these Codes to interested stockholders without charge, upon request. Written requests for such copies should be addressed to: Raymond Chang, Secretary, NOW Inc., 7402 N. Eldridge Parkway, Houston, Texas 77041.
Communications with Directors
The Board has provided a process for interested parties to communicate with ournon-employee directors. Parties wishing to communicate confidentially with ournon-employee directors may do so by calling1-866-880-2773. This procedure is described on the Company’s website,www.distributionnow.com, in the
Investor Relations/Corporate Governance section. Calls to this number will be answered by an independent, automated system 24 hours a day, 365 days a year. A transcript of the call will be delivered to a member of the Audit Committee. Parties wishing to send written communications to the Board, other than sales-related communications, should send a letter addressed to the member or members of the Board to whom the communication is directed, care of the Secretary, NOW Inc., 7402 N. Eldridge Parkway, Houston, Texas, 77041. All such communications will be forwarded to the Board member or members specified.
Director Attendance at Annual Meetings
The Company does not have a formal policy with respect to director attendance at annual stockholder meetings. In 2016,2017, all members of the Board were in attendance at the annual meeting.
NYSE Corporate Governance Matters
As a listed company with the NYSE, our Chief Executive Officer, as required under Section 303A.12(a) of the NYSE Listed Company Manual, must certify to the NYSE each year whether or not he is aware of any violation by the Company of NYSE Corporate Governance listing standards as of the date of the certification. On June 7, 2016,14, 2017, the Company’s Chief Executive Officer submitted such a certification to the NYSE which stated that he was not aware of any violation by the Company of the NYSE Corporate Governance listing standards.
On February 15, 2017,14, 2018, the Company filed its 20162017 Annual Report on Form10-K with the SEC, which included as Exhibits 31.1 and 31.2 the Chief Executive Officer and Chief Financial Officer certifications required under Section 302 of the Sarbanes-Oxley Act of 2002.
The following persons are our current executive officers. The executive officers of the Company serve at the pleasure of the Board of Directors and are subject to annual appointment by the Board of Directors. None of the executive officers, directors, or nominees for director has any family relationships with each other.
Name | Age | Position | Biography | |||
Robert Workman | ||||||
President and Chief Executive Officer | Mr. Workman has been a director of the Company since May 2014. Mr. Workman has served as President and Chief Executive Officer of the Company since February 2014. Mr. Workman served as National Oilwell Varco’s President – Distribution Services from January 2001 until the Company’sspin-off in May 2014. He previously served National Oilwell Varco starting in 1991 in various managerial positions with the distribution business group. He also previously served as the Chairman of the Petroleum Equipment Suppliers Association. | |||||
David Cherechinsky | 54 | Senior Vice President and Chief Financial Officer | Mr. Cherechinsky has served as Senior Vice President and Chief Financial Officer since February 2018. Mr. Cherechinsky previously served as the Company’s Vice President, Corporate Controller and Chief Accounting Officer from February 2014 until February 2018. Mr. Cherechinsky served as Vice President—Finance for National Oilwell Varco’s distribution business group from 2003, and as Vice President—Finance for National Oilwell Varco’s Distribution & Transmission business segment from 2011, until the Company’sspin-off in May 2014. He previously served National Oilwell Varco starting in 1989 in various corporate roles, including internal auditor, credit management and business analyst, and is a CPA. |
Name | Age | Position | Biography | |||
Daniel Molinaro | Mr. Molinaro has served as Executive Vice President since February 2018. Mr. Molinaro previously served as the Company’s Senior Vice President and Chief Financial Officer | |||||
Raymond Chang | Vice President, General Counsel and Secretary | Mr. Chang has served as the Company’s Vice President and General Counsel since February 2014. Mr. Chang served as National Oilwell Varco’s Vice President, Assistant General Counsel and Assistant Secretary from 2009 until the Company’sspin-off in May 2014. He previously served National Oilwell Varco starting in 2001 in various positions within its legal department. Prior to joining National Oilwell Varco, he was an associate at the law firm of Baker & McKenzie from 1997 until 2001. | ||||
Mark Johnson | Vice President, Corporate Controller and Chief Accounting Officer | Mr. |
Security Ownership of Certain Beneficial Owners
Based on information filed with the SEC as of the most recent practicable date, this table shows the number and percentage of shares beneficially owned by owners of more than five percent of the outstanding shares of the common stock of the Company at December 31, 2016.2017. The number and percentage of shares of common stock beneficially owned is based on 109,639,438109,519,665 shares outstanding as of December 31, 2016. 2017.
No. of | Percent | |||||||||||||||
5% Owners | Shares | of Class | No. of Shares | Percent of Class | ||||||||||||
Baillie Gifford & Co.(1) | 13,192,445 | 12.03 | % | 12,686,073 | 11.58 | % | ||||||||||
Calton Square | ||||||||||||||||
1 Greenside Row | ||||||||||||||||
Edinburgh EH1 3AN | ||||||||||||||||
Scotland | ||||||||||||||||
UK | ||||||||||||||||
BlackRock, Inc.(2) | 10,651,081 | 9.71 | % | 11,255,905 | 10.28 | % | ||||||||||
55 East 52ndStreet | ||||||||||||||||
New York, NY 10055 | ||||||||||||||||
The Vanguard Group(3) | 8,047,861 | 7.34 | % | 9,232,217 | 8.43 | % | ||||||||||
100 Vanguard Blvd. | ||||||||||||||||
Malvem, PA 19355 | ||||||||||||||||
First Eagle Investment Management, LLC(4) | 7,680,951 | 7.01 | % | |||||||||||||
Clearbridge Investments, LLC(4) | 8,274,837 | 7.56 | % | |||||||||||||
620 8th Avenue | ||||||||||||||||
New York, NY 10018 | ||||||||||||||||
First Eagle Investment Management, LLC(5) | 7,871,637 | 7.19 | % | |||||||||||||
1345 Avenue of the Americas | ||||||||||||||||
New York, NY 10105 | ||||||||||||||||
Wellington Management Group LLP(5) | 7,038,608 | 6.42 | % | |||||||||||||
280 Congress Street | ||||||||||||||||
Boston, MA 02210 | ||||||||||||||||
Clearbridge Investments, LLC(6) | 6,508,472 | 5.94 | % | |||||||||||||
620 8thAvenue | ||||||||||||||||
New York, NY 10018 | ||||||||||||||||
Massachusetts Financial Services Company(6) | 5,594,088 | 5.11 | % | |||||||||||||
111 Huntington Avenue | ||||||||||||||||
Boston, MA 02199 |
(1) | Shares owned at December 31, |
(2) | Shares owned at December 31, |
(3) | Shares owned at December 31, |
(4) | Shares owned at December 31, |
(5) | Shares owned at December 31, 2017, as reflected in Amendment No. 3 to Schedule 13G filed with the SEC on February 8, 2018, by First Eagle Investment Management, LLC (“FEIM”). |
Shares owned at December 31, |
Security Ownership of Management
This table shows the number and percentage of shares of the Company’s common stock beneficially owned as of April 6, 20174, 2018 by each of our current directors and executive officers and by all current directors and executive officers as a group. The number and percentage of shares of common stock beneficially owned is based on 109,639,438109,790,782 shares outstanding as of April 6, 2017.4, 2018. Beneficial ownership includes any shares as to which the director or executive officer has the right to acquire within 60 days of April 6, 20174, 2018 through the exercise of any stock option, warrant or other right. Each stockholder has sole voting and investment power, or shares these powers with hishis/her spouse, with respect to the shares beneficially owned.
Shares Beneficially Owned | Shares Beneficially Owned | |||||||||||||||||||||||
Name of Individual | Number of Common Shares(1) | Outstanding 60 Days | Percent of Class* | Number of Common Shares(1) | Outstanding Options Exercisable Within 60 Days | Percent of Class* | ||||||||||||||||||
Richard Alario | 15,782 | 0 | * | 22,562 | 0 | * | ||||||||||||||||||
Terry Bonno | 18,182 | 0 | * | 24,962 | 0 | * | ||||||||||||||||||
Raymond Chang | 124,125 | 76,524 | * | 141,715 | 115,510 | * | ||||||||||||||||||
David Cherechinsky | 88,294 | 75,687 | * | 110,415 | 98,679 | * | ||||||||||||||||||
Galen Cobb | 15,782 | 0 | * | 22,562 | 0 | * | ||||||||||||||||||
Paul Coppinger | 5,000 | 0 | * | |||||||||||||||||||||
James Crandell | 15,782 | 0 | * | 27,562 | 0 | * | ||||||||||||||||||
Rodney Eads | 21,046 | 0 | * | 27,826 | 0 | * | ||||||||||||||||||
Michael Frazier | 42,083 | 0 | * | 48,863 | 0 | * | ||||||||||||||||||
Merrill Miller Jr | 743,749 | 1,356,053 | 1.9 | % | ||||||||||||||||||||
Mark Johnson | 11,904 | 26,949 | * | |||||||||||||||||||||
Daniel Molinaro | 159,892 | 154,687 | * | 183,225 | 205,396 | * | ||||||||||||||||||
J. Wayne Richards | 15,782 | 0 | * | 22,562 | 0 | * | ||||||||||||||||||
Robert Workman | 501,548 | 407,744 | * | 606,905 | 579,231 | 1.1 | % | |||||||||||||||||
All current directors and executive officers as a group (12 persons) | 1,762,047 | 2,070,695 | 3.5 | % | ||||||||||||||||||||
All current directors and executive officers as a group | 1,256,063 | 1,025,765 | 2.1 | % |
* | Less than 1 percent. |
(1) | Includes shares deemed held by executive officers and directors in the Company’s 401(k) plans and deferred compensation plans. |
COMPENSATION DISCUSSION AND ANALYSIS
General Overview
NOW Inc.’s executive compensation program is administered by the Compensation Committee of the Board of Directors. The Compensation Committee establishes specific compensation levels for the Company’s executive officers and administers the Company’s long-term incentive award plans. The Compensation Committee’s objective regarding executive compensation is to design and implement a compensation program that will attract and retain the best available individuals to serve on the Company’s executive team and properly incentivize those executives to achieve the Company’s short-term and long-term financial and operational goals. To this end, the Compensation Committee strives to provide compensation packages for key executives that generally offer compensation opportunities in the median range of the companies in its designated peer group as described below. Data sources reviewed by the Compensation Committee and its independent compensation consultants include industry survey groups, national survey databases, proxy disclosures and general trend data, which are updated annually. The Compensation Committee reviews all elements of executive compensation both separately and in the aggregate.
Major components of the executive compensation program for 20162017 are base salary, participation in the Company’s annual cash incentive (bonus) plan and the grant ofnon-qualified stock options, restricted stock and performance-based restricted stock awards (long-term incentives).
20162017 Performance Overview
In 2016,2017, the Company had the following highlights:
Participants
The following is a list of our named executive officers by name and position, as of December 31, 2016:2017:
Name | Position | |
| ||
Robert Workman | President and Chief Executive Officer | |
Daniel Molinaro | Senior Vice President and Chief Financial Officer | |
Raymond Chang | Vice President, General Counsel and Secretary | |
David Cherechinsky | Vice President and Chief Accounting Officer | |
Mark Johnson | Vice President – Finance and Assistant Corporate Controller |
Good Pay Practices
Our compensation program and policies include key features that are designed to align the interests of our executives and stockholders and to mitigate compensation-related risks. The table below highlights our practices:
What We Do | What We Do Not Do | |||||
☑ | Pay for Performance | ☒ | Nogross-up payments to cover excise taxes or perquisites | |||
☑ | Long-term incentives linked to stock price appreciation and company financial performance | ☒ | No Guaranteed Annual or Multi-Year Bonuses | |||
☑ | Annual Cash Incentive and Long-Term Incentives are subject to the Company’s clawback policy | ☒ | No Repricing of Underwater Stock Options | |||
☑ | Bonus payments to executives under the annual cash incentive program are capped at a certain percentage of the executive’s base salary | ☒ | No significant compensation in the form of perquisites for executives | |||
☑ | Long-term incentive awards do not fully vest until a minimum of three years after the grant | ☒ | No pledging of our shares by executive officers or directors | |||
☑ | Varied performance metrics under short-term and long-term incentive plans | |||||
☑ | Double Trigger Provisions for Change in Control | |||||
☑ | Independent Consultant Reports Directly to the Compensation Committee | |||||
☑ Fully independent Compensation Committee | ||||||
☑ | ||||||
| Benchmark pay relative to the market and review the designated peer group used for market benchmarking on an annual basis | |||||
☑ | Mitigate Undue Risk in Compensation Programs |
In 2016, more than2017, approximately 94% of the votes cast on oursay-on-pay proposal were in favor of our executive compensation program and policies.
Compensation Philosophy
The Company believes it is important for each executive to have a fixed amount of cash compensation, in the form of base salary, that is not dependent on the performance or results of the Company. The Company recognizes that a certain amount of financial certainty must be provided to its executives as part of their compensation.
While the Company believes a competitive base salary is needed to attract and retain talented executives, the Company’s compensation program also places a strong emphasis on performance driven annual and long-term incentives to align the executive’s interests with stockholder value. The annual and long-term incentives are calculated and paid based primarily on financial measures of profitability and stockholder value creation. Executives of the Company are incentivized to increase the Company’s profitability and stockholder return and to optimize the Company’s financial performance in order to earn a major portion of their compensation package.
The Company seeks to structure a balance between achieving strong short-term annual results and ensuring the Company’s long-term success and viability. The Company wants each of its executives to
balance his or her focus between the Company’sday-to-day operational performance and the Company’s long-term goals and strategies. To reinforce the importance of balancing these perspectives, the Company’s executives are provided both short and long-term incentives.
Base salary is designed to compensate the executive for his or her performance of normal, everyday job functions. The Company’s annual cash incentive (bonus) plan and long-term incentives are designed to reward the executive for executing business plans that will benefit the Company in the short and long-term. The Company believes that the mix of short and long-term incentives allows the Company to deliver results aligned with the interests of stockholders. Stock options create a focus on share price appreciation, while the annual cash incentive (bonus) and performance-based restricted stock awards emphasize financial performance, both absolute and relative.
Components of NOW’s Compensation Program
Total Compensation | ||||
Components of Compensation | Purpose | |||
Fixed Pay | Base Salary | • Fixed level of compensation to attract and retain executive talent • Salary level based on tenure, expertise, scope of responsibility and individual performance | ||
Annual Incentives (Cash) | • Incentivize and reward executives for achieving the Company’s profitability goals • Encourage prudent deployment of capital • Attract, motivate, and retain high quality management talent | |||
Stock Options | • Link significant portion of executive compensation to the enhancement of stockholder value • Focus executives on share price appreciation and reward for creating long-term stockholder value | |||
“At Risk” Pay | Performance Shares | • Recognizes the Company’s total shareholder performance relative to industry peers • Encourage positive financial results on the income statement and balance sheet • Links the Company’s performance to long-term stockholder value creation • Provides a long-term incentive vehicle tied to a three-year performance goal | ||
Restricted Stock | • Aligns interests of executives with shareholders by providing long-term stock ownership • Requires three-year cliff vesting, thus serves as a retention tool |
Given the inherent nature of these forms of compensation and the cyclical nature of the industry in which we operate, the Company understands that its annual cash incentives and long-term compensation will result in varying compensation for its executives each year. Because of this, the Company has tried to design its annual cash incentives and long-term compensation program in such a way to provide
meaningful financial rewards to its executives during times when the Company’s financial and operational performance is strong, while motivating executives to stay with the Company during more challenging economic times when the Company’s performance may not be as strong.
There are no compensation policy differences among the individual executives, except that the more senior officers, such as the chief executive officer, receive higher compensation consistent with their increased responsibilities. These differences are reviewed and considered in connection with the compensation analysis performed by the Compensation Committee’s independent consultant.
Competitive Positioning
Because of these goals and objectives for executive compensation, the Company believes each element of compensation should be properly designed, as well as competitive with the marketplace, to incentivize its executives in the manner stated above. The Company believes it is also important that executive compensation be properly designed to attract and retain talented executives.
As part of its process to establish compensation levels for the Company’s named executive officers, the Compensation Committee compares each of the major elements of compensation (base salary, annual bonus and long-term incentives) for each of its named executive officers against the median compensation provided to comparable executive officers at companies in a designated peer group. When analyzing peer group data, the Compensation Committee does not establish a specific numeric range around the median data points, which it considers reasonable or acceptable. Rather, in setting compensation for any particular named executive officer, the Compensation Committee considers any variance from the median, taking into account other factors as discussed below, and determines whether such variance is appropriate. If the Compensation Committee determines that any variance is unwarranted, the Compensation Committee will make appropriate adjustments to the compensation levels.
In November 2016,2017, the Compensation Committee requested that its independent compensation consultant, Longnecker & Associates (“L&A”), review its designated peer group against which the Company’s named executive officers compensation is compared, and provide recommendations on the ongoing peer group framework. The designated peer group, developed in 2014, was comprised of companies of similar size, companies in the equipment and services industry with emphasis on serving the energy industry, and companies in the peer group of its closest competitors, as well as companies for which the Company competes for management talent. Two companies in the original peer group, Rosetta Resources and Dresser-Rand, were acquired by other companies since the establishment of the designated peer group. As a result, those two companies were removed from the designated peer group, reducing the designated peer group to fourteen companies.
L&A reviewed each designated peer company’s revenue, assets, market capitalization and enterprise value in relation to the Company. L&A indicated that an ideal size for the designated peer group of the Company would be between 12 to 18 companies, and that the current designated peer group size of 14 companies would still be reasonable and proper. L&A also indicated that in order for the Company to maintain its stated philosophy related to peer selection criteria (peer companies should generally fall within reasonable size parameters of 0.5 to 2.0 times the Company’s revenues, assets, EBITDA and/or market capitalization), L&A recommended that W.W. Grainger, Inc. (the largest peer member) be removed from the peer group and that Oceaneering International, Inc. (a company of comparable size to the Company) be added in its place. Such recommendation was approved by the Company and the Compensation Committee.
After reviewing the peer group and L&A’s analysis and recommendations, the Compensation Committee approved the following peer group of 14 companies to form the Company’s designated peer group:
| WESCO International Inc. | KBR, Inc. | ||
MRC Global Inc. | Flowserve Corp. | Superior Energy Services, Inc. | ||
MasTec, Inc. | Fastenal Company | DXP Enterprises, Inc. | ||
MSC Industrial Direct Co. Inc. | McDermott International Inc. | Applied Industrial Technologies, Inc. | ||
Anixter International Inc. | Forum Energy Technologies, Inc. |
The Compensation Committee recognized that the designated peer group was within reasonable size parameters (generally 0.5 times to 2 times the Company’s revenues, assets, EBITDA and/or market capitalization) and were generally similar to the Company in terms of industry and/or operations.
The Compensation Committee then engaged L&A in November 20162017 to conduct its annual competitive review of executive compensation for the Company’s top five executives relative to its peer companies, as well as to analyze internal pay equity based on the peer group approved by the Compensation Committee. L&A analyzed and compared each position’s responsibilities and job title to develop competitive market data. Its executive compensation review covered the following elements of compensation: base salaries, annual bonuses, and equity compensation. L&A generated data on the components of the Company’s compensation program compared to the market 25th percentile, market 50th percentile, and market 75th percentile of the designated peer group.
Based on the compiled data and the comparisons prepared by L&A, the Compensation Committee, in consultation with the Company and L&A, determined that the total direct compensation for the Company’s named executive officers relative to the designated peer group was generally positioned between the 25th percentile and 50th percentile range of the peer group.
Components of Compensation
The following describes the elements of the Company’s compensation program for 2016,2017, why they were selected, and how the amounts of each element were determined.
Base Salary
Base salaries provide executives with a fixed level of monthly cash income. While the Compensation Committee is aware of competitive levels, actual salary levels are based on factors including tenure, individual performance, and level and scope of responsibility. The Company does not give specific weights to these factors. The Compensation Committee determines median base salary levels by having L&A conduct a comprehensive review of information provided in proxy statements filed by our peer companies. Generally, each executive is reviewed by the Compensation Committee individually on an annual basis. Salary adjustments are based on the individual’s experience and background, the individual’s performance during the prior year, the general movement of salaries in the marketplace, our financial position and, for each executive other than the chief executive officer, the recommendations of our executive chairman and chief executive officer. The Compensation Committee does not establish specific individual goals for the Company’s named executive officers, other than the chief executive officer (see “Compensation of the Chief Executive Officer” below for a discussion of the chief executive
officer’s goals). The Compensation Committee’s analysis of the individual performance of any particular named executive officer is subjective in nature and takes into account the recommendations of the executive chairman and the chief executive officer (other than with respect to him). As a result of these factors, an executive’s base salary may be above or below the targeted median at any point in time.
In November 2014, the Compensation Committee reviewed with L&A the base salaries of the named executive officers. The Compensation Committee considered each named executive officer’s base salary relative to his peers and found that overall, the Company’s executives are generally aligned below the market 25th percentile. Based on L&A’s analysis, the CEO was further behind the market than the other
executives. The Compensation Committee also considered that there had been no adjustments to the Company’s named executive officers’ base salary since the Company’sspin-off from National Oilwell Varco in May 2014.
L&A recommended to the Compensation Committee that it adopt a philosophy of targeting base salaries near the market 50th percentile of the Company’s designated peer group. Given that many of the executives were not near the market 50th percentile, and to allow the executives to mature into their current roles, L&A recommended that increases to base salaries to achieve near the market 50th percentile be made over a period of three years, so as to limit the amount of any increases over a one year period and to allow the Compensation Committee to review and make any further adjustments on an annual basis. In November 2014, the Compensation Committee agreed to the staged increases in base salary pay over a three year period, subject to an annual cap that would allow the Company to maintain fiscal responsibility and better manage pay for performance alignment while salaries adjust to the market median (“Original Three Year Base Pay Plan”).
In November 2015, the Compensation Committee conducted its annual review with L&A of the base salaries of the named executive officers. The Compensation Committee considered each named executive officer’s base salary relative to his peers and found that the Company’s chief executive officer was below the market 25th percentile and the other executives were generally aligned between the market 25th percentile and the market 50th percentile. The results of such review were consistent with the analysis conducted in 2014, and were to be addressed by the Compensation Committee’s approval and implementation of the Three Year Base Pay Plan.
However, given the difficult and severe market conditions during 2015, Company management requested that the Compensation Committee suspend the previously approved Original Three Year Base Pay Plan, and maintain each executive’s base salary at current levels, even though such existing base salary levels were all below median levels of their designated peers (and in the case of the chief executive officer, below the market 25th percentile). The Compensation Committee, in consultation with the Company and L&A, reviewed the Company’s request. While the Compensation Committee found the Three Year Base Pay Plan to still be fully supported by market data, it agreed to honor the Company’s request and suspend implementation of the previously approved base salary adjustments for the Company’s executive officers per the Three Year Base Pay Plan, and agreed to take such actions taken by Company management into consideration when compensation was reviewed again in 2016.
In November 2016, the Compensation Committee conducted its annual review with L&A of the base salaries of the named executive officers. The Compensation Committee considered each named executive officer’s base salary relative to his peers and found that the Company’s chief executive officer was still below the market 25th percentile and the other executives were generally aligned between the market 25th percentile and the market 50th percentile. Given the continued difficult and severe market conditions during 2016, Company management requested that the Compensation Committee continue to suspend the previously approved Original Three Year Base Pay Plan, and maintain each executive’s base salary at current levels, even though such existing base salary levels were all below median levels of their designated peers (and in the case of the chief executive officer, below the market 25th percentile). The Compensation Committee, in consultation with the Company and L&A, reviewed the Company’s request. While the
Compensation Committee found the Original Three Year Base Pay Plan to still be fully supported by market data, it agreed to honor the Company’s request and continue to suspend implementation of the previously approved base salary adjustments for the Company’s executive officers per the Original Three Year Base Pay Plan, and agreed to take such actions taken by Company management into consideration when compensation was reviewed again in 2017.
BasedOn February 21, 2017, the Compensation Committee agreed to implement the previously approved base salary increase for Mr. David Cherechinsky, the Company’s Chief Accounting Officer, to $300,000, noting that such base salary increase still put Mr. Cherechinsky’s base salary below the median market base salary level of his peers.
In November 2017, the Compensation Committee conducted its annual review with L&A of the base salaries of the named executive officers. The Compensation Committee considered each named executive officer’s base salary relative to his peers and found that the Company’s chief executive officer was still below the market 25th percentile and the other executives were generally aligned between the market 25th percentile and the market 50th percentile. Given that market conditions during 2017 had improved and the Company’s performance had improved as well, and also given that the Company’s executive officers had not had any base salary adjustments for three years (and the executives’ base salary levels have remained below median levels since the Company wasspun-off in 2014), the Compensation Committee requested that L&A review and update the Original Three Year Base Pay Plan, in an effort to come up with a long-term plan to align executive base salary pay to market median levels. After such review and analysis, L&A recommended that increases to base salaries to achieve near the market 50th percentile be made over a period of three years, so as to limit the amount of any increases over a one year period and to allow the Compensation Committee to review and make any further adjustments on these factors,an annual basis. The Compensation Committee agreed to the staged increases in base salary pay over a three year period, subject to an annual cap that would allow the Company to maintain fiscal responsibility and better manage pay for performance alignment while salaries adjust to the market median, starting in 2018 (“Updated Three Year Base Pay Plan”).
The Company’s named executive officers other than its Executive Chairman (who continues to voluntarily receive $1 in annual base salary), had the following base salaries in 2016 (which have continued into 2017):at the end of 2017:
Name | 2016 Base Salary | |||
Robert Workman | $ | 600,000 | ||
Daniel Molinaro | $ | 425,000 | ||
Raymond Chang | $ | 368,000 | ||
David Cherechinsky | $ | 253,000 |
The Executive Chairman has voluntarily agreed to effectively forego cash compensation ($1 in annual base salary and no annual incentive compensation) and could only be compensated in long-term incentives.
Name | 2017 Base Salary | |||
Robert Workman | $ | 600,000 | ||
Daniel Molinaro | $ | 425,000 | ||
Raymond Chang | $ | 368,000 | ||
David Cherechinsky | $ | 300,000 | ||
Mark Johnson | $ | 168,000 |
Annual Incentive Award
The objectives of the Company’s annual cash incentive plan are to incent performance to achieve the Company’s corporate growth and profitability goals, encourage smart investments and prudent employment of capital, incent efficient and optimal cash flow management, and provide competitive compensation packages to attract and retain management talent.
The Company’s annual incentive plan has two independent,pre-determined and equally weighted metrics to measure the Company’s success and payouts under such plan: (1) working capital as a percentage of revenue (“Working Capital”) and (2) EBITDA percentage (“EBITDA”). Working capital is defined as current assets (excluding cash) less current liabilities (excluding short-term borrowings). Substantially all corporate exempt employees of the Company, including executive officers, are eligible to participate in the Company’s annual incentive plan in 2016,2017, aligning a portion of each employee’s cash compensation with Company performance.
Each participant is assigned a target level percentage bonus (target incentive opportunity), which ranges from 5% to 100% of salary, depending on the level of the participant. There are three performance metric result multiplier levels of the target level percentage bonus set under the incentive plan for each of the two performance metrics – minimum (50%), target (100%) and maximum (200%) (the “performance result multiplier”metric result”). Entry level is the “minimum” level of EBITDA and Working Capital for which the Company
provides an annual incentive payout. If the Company’s EBITDA is less than the entry level threshold, then there is no payout in that fiscal year for the EBITDA portion of the annual incentive. If the Company’s Working Capital is less than the entry level threshold, then there is no payout in that fiscal year for the Working Capital portion of the annual incentive. If the Company achieves the entry level threshold for a performance metric, the “minimum” level payout of 50% of the target level percentage bonus is earned. For the EBITDA portion of the annual incentive plan, the target multiplier level (100% of the participant’s applicable percentage of base salary) is earned when the target EBITDA level is reached by the Company. For the Working Capital portion of the annual incentive plan, the target multiplier level (100% of the participant’s applicable percentage of base salary) is earned when the target Working Capital level is reached by the Company. For the EBITDA portion of the annual incentive plan, for the “maximum” level multiplier of 200% of the target level percentage bonus to occur, the Company’s EBITDA must equal or
exceed the maximum EBITDA goal that was set for the incentive plan. For the Working Capital portion of the annual incentive plan, for the “maximum” level multiplier of 200% of the target level percentage bonus to occur, the Company’s Working Capital must equal or exceed the maximum Working Capital goal that was set for the incentive plan. Results falling between the stated thresholds of minimum, target and maximum will result in an interpolated, or sliding scale payout.
For 2016,2017, the chief executive officer’s participation level was 100%, the chief financial officer’s participation level was 80%, and the other executive officers’ participation levels were between75-80%50-80%. These participation level percentages are based on each executive’s level of responsibility for the Company’s financial performance. Mr. Miller, the Company’s Executive Chairman, has voluntarily waived his right to participate in the Company’s annual incentive plan.
The Compensation Committee believes the use of two separate metrics, EBITDA and Working Capital, as the designated performance objectives under the annual incentive plan best align the interests of the Company’s stockholders and the Company’s executive officers. The “target” objective is set at a level that the Company believes is challenging to meet but achievable if the Company properly executes its operational plan and market conditions are positive and favorable during the year. The “minimum” and “maximum” level of operating profitEBITDA and Working Capital under the incentive plan are set based off of the “target” objective. The Compensation Committee believes this objective, formulaic measure allows the “minimum” objective to be set at a level that the Company can achieve even if market conditions are not as favorable and/or the Company’s operational plan is not executed as efficiently as planned. The “minimum” objective serves to motivate the Company’s executives to continue to work towards executing the Company’s operational plan if market conditions, which are generally outside the control of the Company, are not as favorable. The Compensation Committee believes this objective, formulaic measure allows the “maximum” objective to be set at a level that would be extremely challenging for the Company to achieve. The Compensation Committee believes that, for the “maximum” objective to be achieved, a combination of market conditions being much more favorable than initially forecasted and the Company executing its operational plan in a highly efficient manner would need to occur.
Payouts are calculateddetermined by multiplying (A)metric under the sum of (1)Company’s annual incentive plan using the performance result multiplier with respect to EBITDA performance, divided by two, and (2) the performance result multiplier with respect to Working Capital performance, divided by two, by (B) the participant’s base salary, by (C) the participant’s designated participation level percentage.following formula:
The following examples calculate an annual incentive award payment for Mr. Workman assuming (1) the Company’s 20162017 EBITDA and Working Capital were each equal to the entry level set under the incentive
plan, (2) the Company’s 2017 EBITDA and Working Capital were each equal to the target set under the incentive plan, and (2)(3) the Company’s 20162017 EBITDA and Working Capital each exceeded the maximum set under the incentive plan:
EBITDA Metric | Base Salary | Target Incentive Opportunity | Performance Metric Weight | Performance Metric Result | Award Amount | |||||||||||||||
Entry | $ | 600,000 | 100 | % | 50 | % | 50 | % | $ | 150,000 | ||||||||||
Target | $ | 600,000 | 100 | % | 50 | % | 100 | % | $ | 300,000 | ||||||||||
Maximum | $ | 600,000 | 100 | % | 50 | % | 200 | % | $ | 600,000 |
WC/R Metric | Base Salary | Target Incentive Opportunity | Performance Metric Weight | Performance Metric Result | Award Amount | |||||||||||||||
Entry | $ | 600,000 | 100 | % | 50 | % | 50 | % | $ | 150,000 | ||||||||||
Target | $ | 600,000 | 100 | % | 50 | % | 100 | % | $ | 300,000 | ||||||||||
Maximum | $ | 600,000 | 100 | % | 50 | % | 200 | % | $ | 600,000 |
If the Target level were reached in a given performance period for both metrics for Mr. Workman, the total award in this example would sum to $600,000 ($300,000 earned in the EBITDA metric and $300,000 earned in the Working Capital (WC/R) metric).
The Company’s annual incentive plan is designed to reward its executives in line with the financial performance of the Company on an annual basis. When the Company is achieving strong financial results, its executives will be rewarded well through its annual incentive plan. The Company believes this structure helps keep the executives properly motivated to continue helping the Company achieve these strong results. While the executives’ financial benefit is reduced during times when the Company’s performance is not as strong, other forms of the Company’s compensation program, namely its long-term incentive compensation as well as base salary, help motivate its executives to remain with the Company to help it achieve strong financial and operational results, thereby benefiting the executive, the Company and its stockholders.
Market conditions in 2016 were extremely2017 improved but remained challenging. The Company’s operating results were heavily impacted by the declines in both rig count and the price of WTI and natural gas starting in 2015 through 2016,levels during 2017, resulting in the Company not achieving the entry level (“minimum”) of EBITDA under its annual cash incentive plan. However, becauseplan, but not the target level. The Company was able to manage its balance sheet very efficiently and well during such difficultan improving 2017 market, conditionsresulting in 2016, the Company nearly achievedachieving better than the targetmaximum level of Working Capital under its annual cash inventive plan.
Thus, based on the Company’s financial results in 2016,2017, bonus payments were made to the Company’s named executive officers, as follows: Mr. Workman - $288,344;$789,653; Mr. Molinaro - $163,395;$447,470; Mr. Chang - $141,481; and$387,456; Mr. Cherechinsky - $99,118.$296,120; and Mr. Johnson - $110,551.
Long-Term Incentive Compensation
The primary purpose of the Company’s long-term incentive compensation is to focus its executive officers on a longer-term perspective in their managerial responsibilities. This component of an executive officer’s compensation directly links the officers’ interests with those of the Company’s stockholders. In addition, long-term incentives encourage management to focus on the Company’s long-term development and prosperity in addition to profitability and optimal cash flow. This program helps balance long-term versus short-term business objectives, reinforcing that one should not be achieved at the expense of the other. The Company’s long-term incentive compensation program also serves to help the Company attract and retain management talent.
In November 2014, the Compensation Committee, the Company and L&A discussed establishing a long-term incentive plan structure for the Company. L&A conducted a market study to determine what types of grants were used by the Company’s peers, as well as the type of grants the employees of the Company were accustomed to receiving during their employment with National Oilwell Varco before thespin-off.
In January 2015, the Compensation Committee agreed that equity grants to be made to the Company’s executives under the Company’s long-term incentive plan would consist of, in equal portions by value, stock options, time-based restricted stock and performance-based share awards. The Compensation Committee, the Company and L&A believed it was important that a portion of the equity grants included a grant based on the satisfaction of a specified performance condition to determine vesting of that particular grant. After consultation with Company management and L&A, the Compensation Committee established three separate performance metrics to be used for vesting of the performance share awards for executives. The Compensation Committee believed that the performance measures they established would serve to motivate the Company’s executives to deliver results aligned with the interests of Company stockholders.
The performance share awards can be earned by the executives only by performance against established goals and vest three years from the grant date. The performance share awards are divided into three equal, independent parts that are subject to these three separate performance metrics: 33 1/3% with a TSR (total shareholder return) goal, 33 1/3% with an EBITDA goal and 33 1/3% with a working capital as a percentage of revenue goal (working capital).
Performance against the TSR goal is determined by comparing the performance of the Company’s TSR with the TSR performance of the members of the Company’s designated peer group for the three year performance period of the performance share awards. The Compensation Committee believes that the members of the Company’s designated peer group are an appropriate benchmark against which to compare the Company’s TSR performance. The following table summarizes the relationship between the Company’s TSR performance when compared with the TSR performance of the members of its
designated peer group and the associated payout levels for the performance achieved for the TSR portion of the award:
Level | Percentile Rank vs. Designated Peer Group | |||||
Maximum | 200 | % | 200% earned when the Company is at the 75th percentile or greater | |||
Target | 100 | % | 100% earned when the Company is at the 50th percentile | |||
Minimum | 50 | % | 50% earned when the Company is at the 25th percentile | |||
No Payout | 0 | % | 0% earned when the Company is below the 25th percentile |
Results falling between the stated thresholds of minimum, target and maximum will result in an interpolated, or sliding scale payout.
Performance against the EBITDA percentage goal is determined by comparing the performance of the Company’s actual EBITDA percentage performance average for each of the three years of the performance period against the EBITDA goal set by the Compensation Committee. The following table summarizes the payout levels on the EBITDA portion of the award based on the Company’s EBITDA percentage performance against the EBITDA percentage goal:
Level | Actual EBITDA Performance | |||||
Maximum | 200 | % | 200% earned when EBITDA achievement is 3% or higher | |||
Target | 100 | % | 100% earned when EBITDA achievement is 1% | |||
Minimum | 50 | % | 50% earned when EBITDA achievement is 0% | |||
No Payout | 0 | % | 0% earned when EBITDA achievement is less than 0% |
Due to the negative market conditions existing throughout 2015 and continuing into 2016, the Compensation Committee adjusted the EBITDA metrics from 3% for the minimum threshold, 5% for the target threshold and 7% for the maximum threshold, to 0%, 1% and 3%, respectively. The Compensation Committee believed these revised thresholds better reflected existing market conditions and provided more reasonable thresholds as a result.
Results falling between the stated thresholds of minimum, target and maximum will result in an interpolated, or sliding scale payout.
Performance against the working capital as a percentage of revenue goal is determined by comparing the performance of the Company’s actual working capital as a percentage of revenue performance average for each of the three years of the performance period against the working capital as a percentage of revenue goal set by the Compensation Committee. The following table summarizes the payout levels on the working capital as a percentage of revenue portion of the award based on the Company’s working capital as a percentage of revenue performance against the working capital goal (WC):
Level | Actual Working Capital Performance | |||||
Maximum | 200 | % | 200% earned when WC achievement is 25% or lower | |||
Target | 100 | % | 100% earned when WC achievement is 30% | |||
Minimum | 50 | % | 50% earned when WC achievement is 35% | |||
No Payout | 0 | % | 0% earned when WC achievement is greater than 35% |
Results falling between the stated thresholds of minimum, target and maximum will result in an interpolated, or sliding scale payout. Working capital for purposes of this calculation will exclude cash.
The Compensation Committee implemented this performance award structure to provide for long-term incentives comparable to those awards used by the Company’s peers, such as:
The Company grants stock options, time-based restricted stock and performance-based share awards to the Company’s key executives based on competitive grants within the industry and based on the level of long-term incentives appropriate for the competitive long-term compensation component of total compensation. Such executives are eligible to receive stock options, restricted stock and performance share awards annually with other key managers being eligible on a discretionary basis. Eligibility for an award does not ensure receipt of an award.
Options are granted with an exercise price per share equal to the fair market value of the Company’s common stock on the date of grant and generally vest in equal annual installments over a three-year period, and have a seven-year term subject to earlier termination. Option grants, restricted stock award grants and performance award grants must be reviewed and approved by the Compensation Committee.
The Company’s long-term incentive compensation program is focused on employees who will have a greater impact on the direction and long-term results of the Company by virtue of their roles and responsibilities.
Based on the foregoing, on February 19, 2016,21, 2017, the Compensation Committee approved the grant of stock options to its executive officers pursuant to the NOW Inc. Long-Term Incentive Plan, as follows:
Name | Securities Underlying Options (#) | |
Robert Workman | ||
Daniel Molinaro | ||
Raymond Chang | ||
David Cherechinsky | ||
Mark Johnson | 13,000 |
The exercise price of the stock options is $13.71$20.64 per share, which was the closing stock price of NOW Inc. common stock on the date of grant. The stock options have a term of seven years from the date of grant and vest in three equal annual installments beginning on the first anniversary of the date of the grant.
On February 19, 2016,21, 2017, the Compensation Committee approved the grant of time-based restricted stock to its executive officers pursuant to the NOW Inc. Long-Term Incentive Plan, as follows:
Name | Shares of Restricted Stock (3 | |
Robert Workman | ||
Daniel Molinaro | ||
Raymond Chang | ||
David Cherechinsky | ||
Mark Johnson | 2,175 |
The restricted stock awards granted by the Company to its executive officers vest 100% on the third anniversary of the date of grant.
On February 19, 2016,21, 2017, the Compensation Committee approved the grant of performance share awards to its executive officers pursuant to the NOW Inc. Long-Term Incentive Plan, as follows:
Name | Performance Awards (Target # of Shares) | |
Robert Workman | ||
Daniel Molinaro | ||
Raymond Chang | ||
David Cherechinsky | ||
Mark Johnson | — |
The performance share awards can be earned by the executives only by performance against established goals and vest three years from the grant date. The performance share awards are divided into three equal, independent parts that are subject to three separate performance metrics: 33 1/3% with a TSR (total shareholder return) goal, 33 1/3% with an EBITDA percentage goal, and 33 1/3% with a working capital as a percentage of revenue goal (working capital).
The Compensation Committee also designated an annual 20162017 equity grant for Mr. Miller, the Company’s Executive Chairman, in the form of stock options, time-based restricted stock and performance share awards. Mr. Miller voluntarily requested that he be allowed to decline receiving such grant and waive his right to it. While the size of his grant was fully supported by market data, as confirmed by L&A, the Compensation Committee respected Mr. Miller’s wishes and allowed him to decline receiving such proposed grant. Mr. Miller retired from the Company on October 1, 2017.
The goal of the stock option program is to provide a compensation program that is competitive within the industry while directly linking a significant portion of the executive’s compensation to the enhancement of stockholder value. The ultimate value of any stock option is based solely on the increase in value of the shares of the Company’s common stock over the grant price. Accordingly, stock options have value only if the Company’s stock price appreciates from the date of grant. Additionally, the option holder must remain employed during the period required for the option to “vest”, thus providing an incentive for an option holder to remain employed by the Company. Thisat-risk component of compensation focuses executives on the creation of stockholder value over the long-term and is therefore inherently performance-based compensation.
The goal of the performance-based share award program is to provide a compensation program that is also competitive within the industry while directly linking a significant portion of the executive’s compensation to the financial performance of the Company. The performance-based share awards received by the executives have value only if the Company’s designated financial performance objectives are met and exceeded. Additionally, the holder must also remain employed during the period required for the award to “vest”, thus providing an additional incentive for the award holder to remain employed by the Company. Thisat-risk component of compensation focuses executives on achieving strong financial performance for the Company over the long-term.
The goal of time-based restricted stock award grants is to serve as a key retention tool for the Company to retain its executives and key employees. The restricted stock awards will have value to the executive even if the Company’s stock price falls below the price on the date of grant, provided that the executive remainremains employed during the period required for the award to “vest”.
The Company believes that its equity incentive grants must be sufficient in size and duration to provide a long-term performance and retention incentive for executives and to increase their interest in the
appreciation of the Company’s stock and achievement of positive financial results, both in absolute terms and relative to its peers. The Company believes that stock option, restricted stock and performance award grants at a competitive level, with certain vesting requirements, are an effective way of promoting the long-term nature of its business.
Compensation of the Chief Executive Officer
The Compensation Committee determines the compensation of the chief executive officer based on competitive peer group data, leadership, meeting operational goals, executing the Company’s business plan, and achieving certain financial results. Components of Mr. Workman’s compensation for 20162017 are consistent with those for executive officers as described above and included base salary, participation in the annual incentive plan and the grant of stock options, restricted stock and performance awards.
In considering Mr. Workman’s base salary level, the Compensation Committee, generally on an annual basis, reviews the compensation level of chief executive officers of each of the companies in the designated peer group and considers Mr. Workman’s individual performance and success in achieving the Company’s strategic objectives.
The Compensation Committee establishes goals and objectives for Mr. Workman for each fiscal year. For 2016,2017, Mr. Workman’s performance will bewas measured in four key areas of the Company: (1) financial performance, (2) formulation and implementation of Company strategy, (3) operational performance, and (4) management and employee development. The specific goals within these four areas were set based on a determination of prioritizing Mr. Workman’s efforts on those specific areas and responsibilities that would have the greatest impact on the Company, and included the following:
Retirement, Health and Welfare Benefits
The Company offers retirement, health and welfare programs to all eligible employees. The Company’s executive officers generally are eligible for the same benefit programs on the same basis as the rest of the Company’s employees. The health and welfare programs cover medical, pharmacy, dental, vision, life, business travel accident, accidental death and dismemberment and disability insurance.
The Company offers retirement programs that are intended to supplement the employee’s personal savings. The programs include the NOW Inc. 401(k) and Retirement Savings Plan (“401k Plan”) and NOW Inc. Supplemental Savings Plan (“Supplemental Plan”). The Company’s U.S. employees, including its executives, are generally eligible to participate in the 401k Plan. Employees of the Company who are eligible based on guidelines established by the Company’s benefits plan administrative committee may participate in the Supplemental Plan. Participation in the 401k Plan and Supplemental Plan are voluntary.
The Company established the 401k Plan to allow employees to save for retirement through atax-advantaged combination of employee and Company contributions and to provide employees the opportunity to directly manage their retirement plan assets through a variety of investment options. The 401k Plan allows eligible employees to elect to contribute a portion of their eligible compensation into the
401k Plan. Wages and salaries from the Company are generally considered eligible compensation. After one year of service, employee contributions are matched in cash by the Company at the rate of $1.00 per $1.00 employee contribution for the first 4% of the employee’s salary. In addition, the Company makes cash contributions for all eligible employees between 2.5% and 5.5% of their salary depending on the employee’s full years of service with the Company. Such contributions vest immediately. The 401k Plan offers 26 different investment options, for which the participant has sole discretion in determining how both the employer and employee contributions are invested. The 401k Plan provides the Company’s employees the option to invest directly in the Company’s stock. The 401k Plan offersin-service withdrawals, loans and hardship distributions.
The Company established the Supplemental Plan, anon-qualified plan, to
Compensation which may be deferred into the Supplemental Plan includes wages and salaries from the Company and bonus payments made under a Company incentive plan. Supplemental Plan participants may elect to defer a percentage of their base pay and bonus payments received under a Company incentive plan into the Supplemental Plan. Contributions in the Supplemental Plan vest immediately. The investment options offered in the Supplemental Plan are similar to the investment options offered in the 401k Plan (except Company stock is not offered).
U.S. Income Tax Limits on Deductibility
Section 162(m) of the Internal Revenue Code imposes a $1 million limitation on the deductibility of certain compensation paid to our chief executive officer and the next fourthree highest paid executives excluding the chief financial officer (“covered employees”). ExcludedPursuant to the 2017 Tax Cuts and Jobs Act, signed into law on December 22, 2017 (the “Tax Act”), for fiscal years beginning after December 31, 2017, the compensation of the chief financial officer is also subject to the deduction limitation. For fiscal years beginning on or before December 31, 2017, Section 162(m) excluded compensation from thethis limitation is compensation that is qualified as “performance based.” For compensation to be performance based, it must meet certain criteria, including being based on predetermined objective standards approved by stockholders. Although the Compensation Committee takes the requirements of Section 162(m) into account in designing executive compensation, there may be circumstances when it is appropriate to pay compensation to our covered employees that does not qualify as “performance based compensation” and thus is not deductible by us for federal income tax purposes. Our stock option and performance-based share award grants arehave been designed to be “performance based compensation.” Bonuscompensation” and, for periods prior to January 1, 2018, bonus payments to our executives under the Company’s Annual Incentive Plan should also qualify as performance based and therefore be excluded from this limitation. Pursuant to the Tax Act, subject to certain transition rules, for fiscal years beginning after December 31, 2017, the performance-based compensation exception to the deduction limitations under Section 162(m) will no longer be available. As a result, for fiscal years beginning after December 31, 2017, any compensation in excess of $1,000,000 million paid to our executive officers may not be deductible. Although the Compensation Committee takes the requirements of Section 162(m) into account in designing executive compensation, the Compensation Committee believes that the potential deductibility of the compensation payable under our executive compensation plans and arrangements should be only one of a number of relevant factors taken into consideration in establishing those compensation plans and arrangements for our executive officers and not the sole governing factor. For that reason, for the 2018 fiscal year, the Compensation Committee intends to structure our compensation plans and arrangements in a manner similar to the 2017 fiscal year, acknowledging that a portion of those compensation payments may not be deductible under Section 162(m), in order to assure appropriate levels of total compensation for our executive officers based on the Company’s performance.
Option Grant Practices
Historically, the Company has granted stock options to its key employees, including executives, in the first quarter of the year. The Company does not have any program, plan or practice to time its option grants to its executives in coordination with the release of materialnon-public information, and has not timed its release of materialnon-public information for the purposes of affecting the value of executive compensation. The Company does not set the grant date of its stock option grants to new executives in coordination with the release of materialnon-public information.
The Compensation Committee has the responsibility of approving any Company stock option grants. The Compensation Committee does not delegate material aspects of long-term incentive plan administration to
any other person. The Company’s senior executives in coordination with the Compensation Committee set a time for the Committee to meet during the first quarter of the year to review and approve stock option grants proposed by the senior executives. The specific timing of the meeting during the quarter is dependent on committee member schedules and availability and the Company finalizing its stock option grant proposal. If approved by the Compensation Committee, the grant date for the stock option grants is the date the Committee meets and approves the grant, with the exercise price for the option grant being based on the Company’s closing stock price on the date of grant.
Recoupment Policy and Other Considerations
“Clawback” Policy Regarding the Adjustment or Recovery of Compensation
The Company’s Long-Term Incentive Plan allows the Compensation Committee, at its sole discretion, to terminate any award if it determines that the recipient of such award has engaged in material misconduct. For purposes of this provision, material misconduct includes conduct adversely affecting the Company’s financial condition or results of operations, or conduct which constitutes fraud or theft of Company assets, any of which require the Company to make a restatement of its reported financial statements. If any material misconduct results in any error in financial information used in the determination of compensation paid to the recipient of any award and the effect of such error is to increase the payment amount pursuant to such award, the Compensation Committee may also require the recipient to reimburse the Company for all or a portion of such increase in compensation provided in connection with any such award. In addition, if there is a material restatement of the Company’s financial statements that affects the financial information used to determine the compensation paid to the recipient of an award, then the Compensation Committee may take whatever action it deems appropriate to adjust such compensation.
Prohibition on Hedging and Pledging
The Company has had a policy in place since its inception in 2014 prohibiting the Company’s executives from engaging in pledging activities with respect to the Company’s shares. The Company also has a policy in place prohibiting the Company’s executives from engaging in various hedging activities with respect to the Company’s shares, including prohibitions against making any short sales of any shares of the Company as well as prohibitions against the Company’s executives buying or selling puts, calls or options in respect of the Company’s shares.
Compensation Consultant Independence
In furtherance of maintaining the independence of the Compensation Committee’s compensation consultant, the Compensation Committee has the sole authority to retain or terminate L&A.
In connection with its engagement of L&A, the Compensation Committee considered various factors bearing upon L&A’s independence including, but not limited to, the amount of fees received by L&A from the Company as a percentage of L&A’s total revenue, L&A’s policies and procedures designed to prevent conflicts of interest, and the existence of any business or personal relationship that could impact L&A’s independence. After reviewing these and other factors, the Compensation Committee determined that L&A was independent and that its engagement did not present any conflicts of interest. L&A also determined that it was independent from management and confirmed this to the Compensation Committee.
Recent Developments
In May 2016,2017, our stockholders overwhelmingly approved, on an advisory basis, the compensation of our named executive officers, with approximately 94% of stockholder votes cast in favor of oursay-on-pay resolution. As a result, the Compensation Committee decided to maintain our general approach to executive compensation, with an emphasis on short and long-term incentive compensation that rewards our executives when they achieve the Company’s financial and operational goals and deliver value for our stockholders.
On February 21, 2017,20, 2018, the Compensation Committee approved the terms and structure of the 20172018 NOW Inc. Annual Incentive Plan (the “2016 Incentive Plan”). The terms of the 2017 Incentive Plan are consistent with those described under “Annual Incentive Award” above.Plan.
On February 21, 2017,20, 2018, the Compensation Committee approved the terms and structure of the 20162018 Long-Term Incentive grants to the Company’s executives. The terms of such grants are consistent with those described under “Long-Term Incentive Compensation” above, except as otherwise set forth below.
Further to the above, the Compensation Committee approved the following specific grants to the Company’s executive officers:
On February 21, 2017,20, 2018, the Compensation Committee approved the grant of stock options to its executive officers pursuant to the NOW Inc. Long-Term Incentive Plan, as follows:
Name | Securities Underlying Options (#) | |||
Robert Workman | 447,761 | |||
David Cherechinsky | 123,881 | |||
Daniel Molinaro | 123,881 | |||
Raymond Chang | 93,284 | |||
| 47,015 |
The exercise price of the stock options is $20.64$9.90 per share, which was the closing stock price of NOW Inc. common stock on the date of grant. The stock options have a term of seven years from the date of grant and vest in three equal annual installments beginning on the first anniversary of the date of the grant.
On February 21, 2017,20, 2018, the Compensation Committee approved the grant of time-based restricted stock to its executive officers pursuant to the NOW Inc. Long-Term Incentive Plan, as follows:
Name | Shares of Restricted Stock (3 | |||
Robert Workman | 76,220 | |||
David Cherechinsky | 21,087 | |||
Daniel Molinaro | 21,087 | |||
Raymond Chang | 15,879 | |||
| 8,003 |
The restricted stock awards granted by the Company to its executive officers vest 100% on the third anniversary of the date of grant.
On February 21, 2017,20, 2018, the Compensation Committee approved the grant of performance share awards to its executive officers pursuant to the NOW Inc. Long-Term Incentive Plan, as follows:
Name | Performance Awards (Target # of Shares) | |||
Robert Workman | 76,220 | |||
David Cherechinsky | 21,087 | |||
Daniel Molinaro | 21,087 | |||
Raymond Chang | 15,879 | |||
| 8,003 |
The performance share awards can be earned by the executives only by performance against established goals and vest three years from the grant date. The performance share awards are divided into three equal, independent parts that are subject to three separate performance metrics: 33 1/3% with a TSR (total shareholder return) goal, 33 1/3% with an EBITDA.
TheEBITDA goal, and 33 1/3% with a working capital as a percentage of revenue goal (working capital). With respect to the EBITDA performance metric, the Compensation Committee approved increasing the EBITDA performance metrics to 2%, 2.5% and 4.5% for the minimum, target and maximum levels, respectively. With respect to the working capital metric, the Compensation Committee also wantedapproved increasing the working capital metrics to provide an annual 2017 equity grant30%, 25% and 20% for Mr. Miller, the Company’s Executive Chairman, in the form of stock options, time-based restricted stockminimum, target and performance share awards. Mr. Miller voluntarily requested that he be allowed to decline receiving such grant and waive his right to it. While such grant was fully supported by market data, as confirmed by L&A,maximum levels, respectively.
Effective January 1, 2018, the Compensation Committee, respected Mr. Miller’s wishesin connection with its annual review of executive compensation and allowed himperformance, after consulting with L&A, approved the following base salary increases for the Company’s executive officers: Robert Workman – from $600,000 to decline receiving such grant.$700,000; Daniel Molinaro – from $425,000 to $450,000; Raymond Chang – from $368,000 to $400,000; and David Cherechinsky – from $300,000 to $305,000. These base salary adjustments were the result of the Compensation Committee approving the Updated Three Year Base Pay Plan, as a result of their following findings: (1) the Company’s chief executive officer was still below the market 25th percentile in base salary pay and the other executives were generally aligned between the market 25th percentile and the market 50th percentile, (2) market conditions during 2017 had improved and the Company’s performance had improved as well, and (3) the Company’s executive officers had not had any base salary adjustments for three years. The Updated Three Year Base Pay Plan was designed to address the above concerns, taking into further consideration that the executives’ base salary levels have remained below median levels since the Company wasspun-off in 2014, and the implementation of this new plan was designed to bring executive compensation closer to the market 50th percentile over a three year period.
On February 21, 2017,20, 2018, the Compensation Committee, agreed to implementafter consulting with L&A, approved the previously approvedfollowing base salary increaseincreases for Mr.the Company’s executive officers: David Cherechinsky – from $305,000 to $405,000 and Mark Johnson – from $168,000 to $243,000. Increases in base salary for these executive officers were approved, effective February 16, 2018, as a result of such executive’s promotions to new positions at the Company and each of their increased responsibilities (Mr. Cherechinsky becoming the Company’s Chief Financial Officer and Mr. Johnson becoming the Company’s Chief Accounting Officer, to $300,000, noting that sucheffective February 16, 2018). While each of their new base salary increasesalaries are still put Mr. Cherechinsky’s base salary below the median market base salary level of his peers.comparable salaries offered by the Company’s industry peers, it moves their prior salaries to a level closer to the median level and allows the Company to bring their compensation closer to the market 50th percentile over a period of time.
The responsibilities of the Compensation Committee, which are set forth in the Compensation Committee Charter adopted by the Board of Directors, include approving and evaluating all compensation of directors and executive officers, including salaries, bonuses, and compensation plans, policies and programs of the Company.
We have reviewed and discussed with senior management the Compensation Discussion &and Analysis section included in this proxy statement. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion &and Analysis be included in the Company’s 20172018 Proxy Statement.
Members of the Compensation Committee
Richard Alario, Committee Chairman
Paul Coppinger
James Crandell
Michael Frazier
Employment Contracts and Termination of Employment andChange-in-Control Arrangements
Miller
The Company entered into an employment agreement on May 30, 2014 with Mr. Miller. Under the employment agreement, Mr. Miller is provided a base salary, currently set at one dollar ($1.00), as Mr. Miller has voluntarily waived his right to receive a base salary from the Company. The employment agreement also entitles him to receive an annual bonus and to participate in the Company’s incentive, savings and retirement plans. The agreement has a term of three years and is automatically extended on an annual basis. The agreement provides for a base salary, participation in employee incentive plans, and employee benefits as generally provided to all employees.
In addition, the agreement contains certain termination provisions. If the employment relationship is terminated by the Company for any reason other than
or if the employment relationship is terminated by the employee for Good Reason, as defined below, Mr. Miller is entitled to receive three times the amount of his current base salary, 3 times the amount equal to the total of the employer matching contributions under the Company’s 401k Plan and Supplemental Plan, and continual participation in the Company’s welfare and medical benefit plans. Mr. Miller will have the right, during the60-day period after such termination, to elect to surrender all or part of any stock options held by him at the time of termination, whether or not exercisable, for a cash payment equal to the spread between the exercise price of the option and the highest reported per share sales price during the60-day period prior to the date of termination. Any option not so surrendered will remain exercisable until the earlier of one year after the date of termination or the stated expiration date of the specific option grant.
Under the agreement, termination by Mr. Miller for “Good Reason” means
The agreement also contains restrictions on competitive activities and solicitation of our employees for three years following the date of termination. After any such termination of employment, Mr. Miller will also have the option to participate in the Company’s welfare and medical benefit plans at employee rates and will be entitled to receive outplacement services valued at not more than 15% of base salary.
Workman
The Company entered into an employment agreement on May 30, 2014 with Mr. Workman. Under the employment agreement, Mr. Workman is provided a base salary, currently set at $600,000.salary. The employment agreement also entitles him to receive an annual bonus and to participate in the Company’s incentive, savings and retirement plans. The agreement has a term of one year and is automatically extended on an annual basis. The agreement provides for a base salary, participation in employee incentive plans, and employee benefits as generally provided to all employees.
In addition, the agreement contains certain termination provisions. If the employment relationship is terminated by the Company for any reason other than
or if the employment relationship is terminated by the employee for Good Reason, as defined below, Mr. Workman is entitled to receive three times the amount of his current base salary, an amount equal to the total of the employer matching contributions under the Company’s 401k Plan and Supplemental Plan, and continual participation in the Company’s welfare and medical benefit plans. Further, any restricted stock held by Mr. Workman, not already vested, will be 100% vested.
Under the agreement, termination by Mr. Workman for “Good Reason” means
The agreement also contains restrictions on competitive activities and solicitation of our employees for one year following the date of termination. After any such termination of employment, Mr. Workman will also have the option to participate in the Company’s welfare and medical benefit plans at employee rates and will be entitled to receive outplacement services valued at not more than 15% of base salary.
Molinaro, Chang, and Cherechinsky
The Company entered into employment agreements on May 30, 2014 with Messrs. Molinaro, Chang and Cherechinsky. Under the employment agreements, Messrs. Molinaro, Chang, and Cherechinsky are provided base salary. The agreements have aone-year term and are automatically extended on an annual basis. The agreements also provide for participation in employee incentive plans, and employee benefits as generally provided to all employees. If the employment relationship is terminated by the Company for any reason other than
or if the employment relationship is terminated by the employee for Good Reason, the employee is entitled to receive 2.5 times his current base salary (with the exception of Mr. Cherechinsky who would be entitled to receive 1.5 times his current base salary) and an amount equal to the total of the employer matching contributions under the Company’s 401k Plan and Supplemental Plan, and continual participation in the Company’s welfare and medical benefit plans. Further, any restricted stock held by the executive, not already vested, will be 100% vested.
Under the agreements, termination by Messrs. Molinaro, Chang, and/or Cherechinsky for “Good Reason” means:
The agreements also contain restrictions on competitive activities and solicitation of our employees for one year following the date of termination. After any such termination of employment, the executive will also have the option to participate in the Company’s welfare and medical benefit plans at employee rates and will be entitled to receive outplacement services valued at not more than 15% of the executive’s base salary.
Additionally, the Company’s stock option agreements, restricted stock agreements, and performance award agreements provide for full vesting of unvested outstanding options, restricted stock and performance awards, respectively, in the event of a change of control of the Company and a change in the holder’s responsibilities following a change in control of the Company (a “double trigger”).
The Company’s employment agreements with its executives do not contain any “gross up” provisions for excise tax that could be imposed under Section 4999 of the Internal Revenue Code as a result of any payment or benefits provided to an executive under his employment agreement.
Potential Payments Upon Termination or Change in Control
The Company has entered into certain agreements and maintains certain plans that will require the Company to provide compensation to the named executive officers in the event of a termination of employment or change in control of the Company.
The Company’s Compensation Committee believes the payment and benefit levels provided to its named executive officers under their employment agreements and/or change of control plans upon termination or change of control should correspond to the level of responsibility and risk assumed by the named executive officer. Thus, the payment and benefit levels for Mr. Miller, Mr. Workman, Mr. Molinaro, Mr. Chang, Mr. Cherechinsky and Mr. CherechinskyJohnson are based on their levels of responsibility and market considerations at the time the Company entered into the relevant agreements. The Compensation Committee recognizes that it is not likely that the Company’s named executive officers would be retained by an acquirer in the event of a change of control. As a result, the Compensation Committee believes that a certain amount of cash compensation, along with immediate vesting of all unvested equity compensation, is an appropriate and sufficient incentive for the named executive officers to remain employed with the Company, even if a change of control were imminent. It is believed that these benefit levels should provide the Company’s named executive officers with reasonable financial security so that they could continue to make strategic decisions that impact the future of the Company.
The amount of compensation payable to each named executive officer in each situation is listed in the tables below.
The following table describes the potential payments upon termination or change in control of the Company as of December 31, 20162017 for Merrill Miller, Jr.,Robert Workman, the Company’s President and Chief Executive Chairman.Officer.
Executive Benefits and Payments Upon Termination (1) | Involuntary Not for Cause Termination (2) | Involuntary Not for Cause Termination (2) | ||||||
Base Salary (3 times) | $ | 3 | $ | 1,800,000 | ||||
Continuing medical benefits | $ | 265,159 | $ | 344,829 | ||||
Retirement Contribution and Matching | $ | 0 | $ | 80,178 | ||||
Value of Unvested Stock Options | $ | 0 | $ | 0 | ||||
Value of Unvested Restricted Stock | $ | 10,929,628 | $ | 4,311,936 | ||||
Outplacement Services (3) | $ | 0 | ||||||
| ||||||||
Value of Unvested Performance Awards (3) | $ | 1,546,351 | ||||||
Outplacement Services (4) | $ | 90,000 | ||||||
Total: | $ | 11,194,790 | $ | 8,173,294 | ||||
|
(1) | For purposes of this analysis, we assumed the Executive’s compensation is as follows: base salary as of December 31, |
(2) | Assumes the employment relationship is terminated by the Company for any reason other than voluntary termination, termination for cause, death, or disability, or if the employment relationship is terminated by the executive for “Good Reason”, as of December 31, |
In the event of:
no extra benefits are payable by the Company to Mr. Miller as a result of any such events, other than accrued obligations and benefits owed by the Company to Mr. Miller (such as base salary through the date of termination and his outstanding balance in the Company’s 401k Plan and Supplemental Plan). In the event termination is not for cause, Mr. Miller would also be entitled to receive an amount equal to 50% of his base salary.
The following table describes the potential payments upon termination or change in control of the Company as of December 31, 2016 for Robert Workman, the Company’s President and Chief Executive Officer.
Executive Benefits and Payments Upon Termination (1) | Involuntary Not for Cause Termination (2) | |||
Base Salary (3 times) | $ | 1,800,000 | ||
Continuing medical benefits | $ | 289,832 | ||
Retirement Contribution and Matching | $ | 80,178 | ||
Value of Unvested Stock Options | $ | 0 | ||
Value of Unvested Restricted Stock | $ | 7,770,637 | ||
Value of Unvested Performance Awards (3) | $ | 2,090,601 | ||
Outplacement Services (4) | $ | 90,000 | ||
|
| |||
Total: | $ | 12,121,248 | ||
|
|
(3) | For purposes of this analysis, we have assumed that the performance share awards vest at target (100%). |
(4) | Executive also entitled to outplacement services valued at not more than 15% of base salary. For purposes of this analysis, we valued the outplacement services at 15% of base salary. |
In the event of:
no extra benefits are payable by the Company to Mr. Workman as a result of any such events, other than accrued obligations and benefits owed by the Company to Mr. Workman (such as base salary through the date of termination and his outstanding balance in the Company’s 401k Plan and Supplemental Plan). In the event termination is not for cause, Mr. Workman would also be entitled to receive an amount equal to 50% of his base salary.
The following table describes the potential payments upon termination or change in control of the Company as of December 31, 20162017 for Daniel Molinaro, the Company’s Senior Vice President and Chief Financial Officer.
Executive Benefits and Payments Upon Termination (1) | Involuntary Not for Cause Termination (2) | Involuntary Not for Cause Termination (2) | ||||||
Base Salary (2.5 times) | $ | 1,062,500 | $ | 1,062,500 | ||||
Continuing medical benefits | $ | 223,526 | $ | 193,842 | ||||
Retirement Contribution and Matching | $ | 59,948 | $ | 59,948 | ||||
Value of Unvested Stock Options | $ | 0 | $ | 0 | ||||
Value of Unvested Restricted Stock | $ | 2,883,957 | $ | 1,618,112 | ||||
Value of Unvested Performance Awards (3) | $ | 627,180 | $ | 459,841 | ||||
Outplacement Services (4) | $ | 63,750 | $ | 63,750 | ||||
| ||||||||
Total: | $ | 4,920,861 | $ | 3,457,993 | ||||
|
(1) | For purposes of this analysis, we assumed the Executive’s compensation is as follows: base salary as of December 31, |
(2) | Assumes the employment relationship is terminated by the Company for any reason other than voluntary termination, termination for cause, death, or disability, or if the employment relationship is terminated by the executive for “Good Reason”, as of December 31, |
(3) | For purposes of this analysis, we have assumed that the performance share awards vest at target (100%). |
(4) | Executive also entitled to outplacement services valued at not more than 15% of base salary. For purposes of this analysis, we valued the outplacement services at 15% of base salary. |
In the event of:
no extra benefits are payable by the Company to Mr. Molinaro as a result of any such events, other than accrued obligations and benefits owed by the Company to Mr. Molinaro (such as base salary through the
date of termination and his outstanding balance in the Company’s 401k Plan and Supplemental Plan). In the event termination is not for cause, Mr. Molinaro would also be entitled to receive an amount equal to 50% of his base salary.
The following table describes the potential payments upon termination or change in control of the Company as of December 31, 20162017 for Raymond Chang, the Company’s Vice President and General Counsel.
Executive Benefits and Payments Upon | Involuntary Not for Cause Termination (2) | Involuntary Not for Cause Termination (2) | ||||||
Base Salary (2.5 times) | $ | 920,000 | $ | 920,000 | ||||
Continuing medical benefits | $ | 1,040,048 | $ | 991,821 | ||||
Retirement Contribution and Matching | $ | 43,712 | $ | 43,712 | ||||
Value of Unvested Stock Options | $ | 0 | $ | 0 | ||||
Value of Unvested Restricted Stock | $ | 2,322,035 | $ | 1,317,125 | ||||
Value of Unvested Performance Awards (3) | $ | 477,852 | $ | 352,287 | ||||
Outplacement Services (4) | $ | 55,200 | $ | 55,200 | ||||
| ||||||||
Total: | $ | 4,858,847 | $ | 3,680,145 | ||||
|
(1) | For purposes of this analysis, we assumed the Executive’s compensation is as follows: base salary as of December 31, |
(2) | Assumes the employment relationship is terminated by the Company for any reason other than voluntary termination, termination for cause, death, or disability, or if the employment relationship is terminated by the executive for “Good Reason”, as of December 31, |
(3) | For purposes of this analysis, we have assumed that the performance share awards vest at target (100%). |
(4) | Executive also entitled to outplacement services valued at not more than 15% of base salary. For purposes of this analysis, we valued the outplacement services at 15% of base salary. |
In the event of:
no extra benefits are payable by the Company to Mr. Chang as a result of any such events, other than accrued obligations and benefits owed by the Company to Mr. Chang (such as base salary through the date of termination and his outstanding balance in the Company’s 401k Plan and Supplemental Plan). In
the event termination is not for cause, Mr. Chang would also be entitled to receive an amount equal to 50% of his base salary.
The following table describes the potential payments upon termination or change in control of the Company as of December 31, 20162017 for David Cherechinsky, the Company’s Vice President and Chief Accounting Officer:
Executive Benefits and Payments Upon | Involuntary Not for Cause Termination (2) | Involuntary Not for Cause Termination (2) | ||||||
Base Salary (1.5 times) | $ | 379,500 | $ | 450,000 | ||||
Continuing medical benefits | $ | 530,056 | $ | 558,333 | ||||
Retirement Contribution and Matching | $ | 36,748 | $ | 39,575 | ||||
Value of Unvested Stock Options | $ | 0 | $ | 0 | ||||
Value of Unvested Restricted Stock | $ | 1,660,997 | $ | 928,969 | ||||
Value of Unvested Performance Awards (3) | $ | 288,709 | $ | 209,746 | ||||
Outplacement Services (4) | $ | 37,950 | $ | 45,000 | ||||
| ||||||||
Total: | $ | 2,933,960 | $ | 2,231,623 | ||||
|
(1) | For purposes of this analysis, we assumed the Executive’s compensation is as follows: base salary as of December 31, |
(2) | Assumes the employment relationship is terminated by the Company for any reason other than voluntary termination, termination for cause, death, or disability, or if the employment relationship is terminated by the executive for “Good Reason”, as of December 31, |
(3) | For purposes of this analysis, we have assumed that the performance share awards vest at target (100%). |
(4) | Executive also entitled to outplacement services valued at not more than 15% of base salary. For purposes of this analysis, we valued the outplacement services at 15% of base salary. |
In the event of: