Corporate Governance and Compensation Committees receive an additional annual retainer of $15,000, and the Chairs of the Audit/Finance Committee and Value Enhancement Committee receive an additional annual retainer of $20,000, all paid in cash in quarterly installments. Our Board Chair receives no additional retainers for serving on any of our committees.See“LEADERSHIP STRUCTURETABLE OF THE BOARD OF DIRECTORS”in this proxy statement for more information on the Chair and Vice Chair of the Board.CONTENTS
Newnon-employee directors receive a grant of restricted stock units (RSUs) equal in value to $32,500, which is 50% of the annual cash retainer for directors other than the Board Chair and Vice Chair, if any. Upon election to the Board, thenon-employee directors’ RSUs vest in equal installments on each of the first three anniversaries of the date of grant. Shares of our common stock and RSUs granted tonon-employee directors are issued under our Second Amended and Restated 2010 Stock Incentive Plan (Second A&R 2010 Plan).
In 2014, the Board adopted a policy that permits a director age 65 or older to elect to receive all of his or her retainer in cash, provided they continuously meet the stock ownership guidelines described in the following paragraph.
Stock Ownership Guidelines. Since 2006, we have maintained stock ownership guidelines for ournon-employee directors. We expect our directors to accumulate shares equal to five times their annual cash retainer within five years from their initial appointment or election as a director, or to be making progress towards meeting the guidelines. For our Board Chair that equates to a value of $600,000, for our Vice Chair, if any, that equates to a value of $500,000, and for the other directors, it equates to a value of $325,000. All of ournon-employee directors currently comply with these ownership guidelines, with the exception of Peter Mainz who joined the Board within the last three years.
Deferred Compensation Plan.Pursuant to the Company’s Amended and Restated Executive Deferred Compensation Plan dated January 1, 2012, ournon-employee directors are eligible to participate in that plan, and may defer up to 100% of any director fees and 100% of any shares of common stock that he or she anticipates receiving into a nonqualified account.
2017MORE INFORMATION ABOUT OUR DIRECTORS
2023 Director Compensation Table (for all
non-employee Directors)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Director Compensation | |
Name | | Fees
Earned
or Paid
in Cash
($) | | | Stock
Awards
($) (18) | | | Option
Awards
($) (19) | | | Non-Equity
Incentive Plan
Compensation
($) | | | Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($) | | | All Other
Compensation
($) | | | Total
($) | |
Kirby Dyess (1)(2)(3) | | | 74,000 | | | | 99,849 | | | | — | | | | — | | | | — | | | | — | | | | 173,849 | |
Jon Eliassen (4) | | | 90,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 90,000 | |
Charles Gaylord (5) | | | 40,000 | | | | 49,965 | | | | — | | | | — | | | | — | | | | — | | | | 89,965 | |
Thomas Glanville (6) | | | 85,000 | | | | 99,849 | | | | — | | | | — | | | | — | | | | — | | | | 184,849 | |
Frank M. Jaehnert (1)(7) | | | 86,500 | | | | 99,849 | | | | — | | | | — | | | | — | | | | — | | | | 186,349 | |
Jerome Lande (8)(9)(10)(11) | | | 85,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 85,000 | |
Timothy Leyden (8)(12)(13) | | | 97,500 | | | | 99,849 | | | | — | | | | — | | | | — | | | | — | | | | 197,349 | |
Peter Mainz (1)(9)(10) | | | 81,500 | | | | 99,849 | | | | — | | | | — | | | | — | | | | — | | | | 181,349 | |
Daniel Pelino (1)(2)(14) | | | 74,000 | | | | 99,849 | | | | — | | | | — | | | | — | | | | — | | | | 173,849 | |
Gary Pruitt (8)(9) | | | 85,000 | | | | 99,849 | | | | — | | | | — | | | | — | | | | — | | | | 184,849 | |
Diana D. Tremblay (9)(15) | | | 90,000 | | | | 99,849 | | | | — | | | | — | | | | — | | | | — | | | | 189,849 | |
Lynda Ziegler (16)(17) | | | 115,000 | | | | 124,805 | | | | — | | | | — | | | | — | | | | — | | | | 239,805 | |
Mary C. Hemmingsen(1) | | | 85,000 | | | 203,003 | | | — | | | — | | | — | | | — | | | 288,003 |
Frank M. Jaehnert(2)(8) | | | 105,000 | | | 165,025 | | | — | | | — | | | — | | | — | | | 270,025 |
Jerome J. Lande(1)(3)(4) | | | — | | | 165,025 | | | — | | | — | | | — | | | — | | | 165,025 |
Timothy M. Leyden(5) | | | 182,500 | | | 82,303 | | | — | | | — | | | — | | | — | | | 264,803 |
Sanjay Mirchandani(1)(6) | | | 36,535 | | | 74,838 | | | — | | | — | | | — | | | — | | | 111,373 |
Santiago Perez(7)(8) | | | 90,000 | | | 165,025 | | | — | | | — | | | — | | | — | | | 255,025 |
Gary E. Pruitt(1)(9) | | | 125,000 | | | — | | | — | | | — | | | — | | | — | | | 125,000 |
Diana D. Tremblay(10) | | | 130,000 | | | 210,043 | | | — | | | — | | | — | | | — | | | 340,043 |
Lynda L. Ziegler(7)(11) | | | 271,875 | | | 55(13) | | | — | | | — | | | — | | | — | | | 271,930 |
(1)
| Member of the Compensation Committee.
|
(2) | Member of the Corporate Governance Committee.
|
(3) | Ms. Dyess joined the Corporate Governance Committee at the 2017 Annual Meeting and served as a member of that committee for the remainder of the year.
|
(4) | Mr. Eliassen did not stand forre-election at the 2017 Annual Meeting and retired effective May 12, 2017.
|
(5) | Mr. Gaylord did not stand forre-election at the 2017 Annual Meeting and retired effective May 12, 2017.
|
(6) | Chair of the Audit/Finance Committee.
|
(7) | Chair of the Corporate Governance Committee.
|
(8) | Member of the Audit/Finance Committee. |
(9)(2)
| MemberChair of the Value EnhancementCompensation Committee.
|
(10)(3)
| Messrs.Mr. Lande and Mainz werewas initially appointed to the Board pursuant to a cooperation agreement with Coppersmith Capital Management, LLC, Scopia Management, Inc., and Jerome J. Lande, and Peter Mainz.
Lande. |
(11)(4)
| Mr. Lande waived equity grants and hisLande's cash retainers were paid directly to Scopia Capital Management LP. |
(12)(5)
| Chair of the Value EnhancementAudit/Finance Committee. |
(13)(6)
| Mr. Leyden leftMirchandani was appointed to the Corporate GovernanceBoard of Directors effective July 18, 2023 and became a member of the Audit/Finance Committee at the 2017 Annual Meeting. effective September 29, 2023. |
(14)(7)
| Mr. Pelino joined the Corporate Governance Committee at the 2017 Annual Meeting.
|
(15) | ChairMember of the Compensation Committee.
|
(16)(8)
| Ms. Ziegler served as a memberMember of the Nominating and Corporate Governance Committee, but wasCommittee.
|
(9)
| Mr. Pruitt did not compensatedstand for her service on that committee.re-election at the 2023 annual meeting and retired effective May 11, 2023. |
(11)
| Chair of the Board.Nominating and Corporate Governance Committee. |
(18)(12)
| The amounts in this column reflect the aggregate grant date fair value of the awards determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”). Quarterly retainer grants to directors vest immediately. Mr. Eliassen |
(13)
| Represents one share awarded to Ms. Ziegler on April 3, 2023 to correct a shortfall in the award granted to her for the second quarter of 2022. Ms. Ziegler elected to receive his retainerall of her compensation for 2023 service in cash. Ms. Dyess, Mr. Jaehnert, and Mr. Mainz elected to defer their equity grants for 2017. As of December 31, 2017, the following directors had the following RSUs outstanding: F. Jaehnert – 304; J. Lande – 313; T. Leyden – 289; P. Mainz – 608; D. Tremblay – 304. |
Stock Ownership Guidelines
Since 2006, we have maintained stock ownership guidelines for our non-employee directors. We expect our directors to accumulate shares equal to five times their annual cash retainer within five years from their initial appointment or election as a director, or to be making progress towards meeting the guidelines. Based on 2023 director compensation, for our Board Chair that equates to a value of $650,000, for our Board Vice Chair it equates to a value of $575,000, and for the other directors, it equates to a value of $375,000. All of our non-employee directors currently comply with these ownership guidelines.
Deferred Compensation Plan
Pursuant to the Company’s Amended and Restated Executive Deferred Compensation Plan dated January 1, 2012, our non-employee directors are eligible to participate in that plan and may defer into a nonqualified account up to 100% of any director fees and 100% of any shares of common stock that he or she anticipates receiving.
(19)2024 PROXY STATEMENT | No options were granted tonon-employee directors in 2017. As of December 31, 2017, the following directors had the following options outstanding: K. Dyess – 4,099; J. Eliassen – 1,000; C. Gaylord – 3,486; T. Glanville – 2,102; G. Pruitt – 3,486.
ITRON, INC. | 17 |
LEADERSHIP STRUCTURETABLE OF THE BOARD OF DIRECTORSCONTENTS
Leadership Structure of the Board of Directors The leadership of our Board is managed by our Board Chair. Our
Corporate Governance
Guiding Principles
(Governance Principles)generally require the role of Board Chair to be held by an independent director who meets the independence requirements of
NASDAQ.the Nasdaq Stock Market. The Board believes having separate roles of Board Chair and CEO allows for a more balanced workload between the Board Chair and the CEO, especially in light of the current duties and responsibilities of the Board Chair, which include the following:
| ◾ | | Preside over all meetings of the Board (including executive sessions of the Board) and meetings of the shareholders;
|
| ◾ | | Review the agendas of each Board and committee meeting;
|
| ◾ | | Prepare agendas as needed for executive sessions of the independent directors;
|
| ◾ | | Serve as a liaison between the independent directors and the CEO;
|
| ◾ | | In consultation with the CEO, make recommendations to the Corporate Governance Committee as to membership of Board committees and appointment of Board committee Chairs; and
|
| ◾ | | Perform such other duties as the Board may require.
|
Preside over all meetings of the Board (including executive sessions of the Board) and meetings of the shareholders;
Review the agendas of each Board and committee meeting;
Prepare agendas as needed for executive sessions of the independent directors;
Serve as a liaison between the independent directors and the CEO;
In consultation with the CEO, make recommendations to the Nominating and Corporate Governance Committee as to membership of Board committees and appointment of Board committee Chairs; and
Perform such other duties as the Board may require.
Pursuant to
theour Governance Principles, the Board Chair must be an independent director unless the Board determines that the best interests of shareholders would otherwise be better served. The Board Chair is elected by
a majority of the members of the Board following the annual meeting of shareholders (or at such other time as a vacancy for the role of Board Chair may occur). The Board Chair serves for a term of three years (provided such director is
re-elected by shareholders if his or her term as a director does not coincide with his or her term as Board Chair). The Board Chair may not serve more than two consecutive terms unless the Board approves an extended term. Our current Chair,
Lynda L. Zeigler,Diana D. Tremblay, is serving her first
term that will expire at the 2019 annual meeting.term.
If the Board determines that it is in the best interests of the shareholders to combine the roles of CEO and Board Chair, the Board will appoint a Lead Independent Director with the duties set forth in
theour Governance Principles.
Since February 2015, our Governance Principles have provided for the role of Vice Chair, to be held by an independent director who meets the independence requirements of NASDAQ, unless the Board determines that the best interests of shareholders would otherwise be better served. As stated in the Governance Principles, the Vice Chair is appointed by the members of the Board and serves for a term to be determined by the Board (provided such director isre-elected by shareholders if his or her term as a director does not coincide with his or her term as Vice Chair). At the 2016 annual meeting after the elevation of Lynda L. Zeigler from Vice Chair to Chair, the Board chose to leave the position of Vice Chair vacant.
The Vice Chair, who like the Board Chair may serve on Board committees, has the following duties and responsibilities:
| ◾ | | Attend all meetings of the Board (including executive sessions of the Board) and meetings of the shareholders;
|
| ◾ | | Review the agendas of each Board and committee meeting and assist in the preparation of agendas as needed for executive sessions of the independent directors;
|
| ◾ | | Serve with the Board Chair as a liaison between the independent directors and the CEO;
|
| ◾ | | In consultation with the Board Chair and the CEO, make recommendations to the Corporate Governance Committee as to membership of Board committees and appointment of Board committee Chairs;
|
| ◾ | | Perform all duties of the Board Chair in the event the Board Chair is unavailable or unable to perform his or her duties; and
|
| ◾ | | Perform such other duties as the Board Chair or the Board may require.
|
The current Governance Principles, as amended, may be found online atwww.itron.com by selecting “Investors” and then “Corporate Governance.”
See “CORPORATE GOVERNANCE” in this proxy statement for additional information on our Board.
PROPOSAL 2 – ADVISORY APPROVAL OF EXECUTIVE COMPENSATION(Say-on-Pay)
We are asking our shareholders to approve anon-binding advisory resolution on the Company’s executive compensation programs for our Named Executive Officers (NEOs) (commonly known as“say-on-pay”) as we have described them in this proxy statement. Although this advisory vote isnon-binding, the Board and the Compensation Committee will take into account the outcome of the vote when considering future compensation decisions for our executives. As discussed in the Compensation Discussion and Analysis (CD&A) section of this proxy statement, we believe our compensation programs are reasonable, competitive and strongly focused onpay-for-performance principles that will result in the creation of long-term shareholder value. Some of the features of our compensation programs that illustrate our philosophy are:
| ◾ | | A significant portion of an NEO’s compensation isat-risk or performance-based and subject to the Company’s operating and financial performance. We consider annual cash-based incentives, equity long-term incentives, and stock options to be performance-based, because each of these three elements is valuable to the executive only if performance goals are achieved and/or our share price improves. In fiscal year 2017, the executive compensation package (base salary and short- and long-term incentives at target) included 84% ofat-risk compensation for the CEO and an average of 71% ofat-risk compensation for the other NEOs. Our long-term incentive plan (LTIP) for equity awards granted under our Amended and Restated 2010 Stock Incentive Plan (A&R 2010 Plan) or Second A&R 2010 Plan, as applicable has three-year performance periods, withone-year averages determined each year for measurement purposes, to encourage NEOs to make decisions that align our long-term goals with shareholder interests and to discourage excessive risk taking.
|
| ◾ | | Stock ownership guidelines require executive officers to acquire and hold certain amounts of Itron stock to further strengthen alignment of management’s interest with those of our shareholders.
|
| ◾ | | We have established an Incentive Repayment (Clawback) Policy that covers awards under all of our incentive programs, and provides that if a bonus or equity award is paid that is conditional on meeting certain financial metrics, and subsequently, there is a required material financial restatement, which had the correct information been known at the time would have resulted in a lower award, then the Board (or its delegated committee) has the right to demand repayment of the excess amount of the award, net of taxes. If the Board (or its delegated committee) determines that fraud has resulted in a material financial restatement, it is required that the Board demand repayment of the full award, net of taxes.
|
| ◾ | | We maintain our long-standing commitment to strong corporate governance by continuing our policies of (i) separate Board Chair and CEO roles, (ii) majority voting for directors, (iii) all independent Board members (except our CEO) and all independent committee members, (iv) executive sessions of independent directors after each quarterly Board meeting, and (v) prohibition on hedging or pledging of Itron stock by our executives.
|
| ◾ | | The compensation of our NEOs varies depending upon the achievement ofpre-established performance goals determined by the Compensation Committee (or the independent members of the Board, for the CEO), which are intended to serve as incentives for our executives. When performance does not meet thepre-established target goals, as was the case in prior years, then the amount of compensation paid to our executives is correspondingly reduced or eliminated. Conversely, when the Company’s operating and financial performance meets or exceeds thepre-established performance metrics, as was the case in fiscal year 2017, then the amount of compensation paid to our executives increases.See “The 2017 Executive Compensation Program in Detail” in the CD&A.
|
We believe our executive compensation policies have enabled us to retain and attract exceptional senior executives whose talent and experience have helped Itron become a leader in our industry. Our Compensation Committee (and the independent members of the Board for CEO compensation), which provides overall direction for our compensation programs, believes the fiscal year 2017 compensation paid to our NEOs is reasonable and appropriate and adequately reflects the Company’s overall performance in 2017.
Shareholders are encouraged to read the full details of our executive compensation programs as described in the Executive Compensation section of this proxy statement.
For the reasons provided above, we recommend that the shareholders vote in favor of the following resolution:
RESOLVED, that the shareholders approve, on anon-binding advisory basis, the compensation of the Company’s NEOs, as disclosed in the Executive Compensation section of the Company’s proxy statement for the 2018 Annual Meeting of Shareholders (which disclosure includes the Compensation Discussion and Analysis (CD&A), the Executive Compensation Tables, and the accompanying footnotes and narratives within the CD&A section of the proxy statement).
THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR THE APPROVAL OF THE EXECUTIVE COMPENSATION OF OUR NEOs.
PROPOSAL 3 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
The Board, upon the recommendation of its Audit/Finance Committee, has selected Deloitte & Touche LLP to serve as the Company’s independent registered public accountant for the 2018 fiscal year, subject to ratification by our shareholders. Although not required to do so, the Board is submitting the selection of Deloitte & Touche LLP for ratification by the Company’s shareholders for their views on the Company’s independent registered public accountant and as a matter of good corporate practice. Deloitte & Touche LLP has advised the Company that it has no direct, nor any material indirect, financial interest in the Company or any of its subsidiaries. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting, will have the opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions.
In the event that our shareholders fail to ratify the selection, it will be considered as a direction to the Board and the Audit/Finance Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit/Finance Committee in its discretion may select a different independent registered public accounting firm, subject to ratification by the Board, at any time during the year if it determines that such a change would be in the best interest of the Company and our shareholders.
THE BOARD RECOMMENDS THAT YOU VOTEFOR THE RATIFICATION
OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTANT FOR THE 2018 FISCAL YEAR.
CORPORATE GOVERNANCE
Corporate Governance Guiding Principles
The Company’s Governance Principles are available on the Company’s website,
www.itron.com, by selecting “Investors” and then
“Corporate“Sustainability and Governance.”
Board Matters – Meeting Attendance
Our business, property, and affairs are managed under the
directionoversight of our Board. Members of our Board are kept informed of our business through discussions with our CEO and other officers, by reviewing materials provided to them, by visiting our offices, and by participating in meetings of the Board and its committees.
In accordance with our Governance Principles, directors are expected to attend the Company’s annual meeting of shareholders. All
but one of our directors
attendedserving at the
2017time of the 2023 annual meeting of shareholders
in person or by telephone.attended the meeting. During
2017,2023, the Board met
sixteenseven times. All
of the directors attended at least 75% of the meetings of the Board and committees on which he or she served.
Also, in accordance with our Governance Principles, our independent directors meet in an executive session as often as necessary, but no less than fourtwo times annually.
Our common stock is listed on the NASDAQ stock exchange.Nasdaq Global Select Market (Nasdaq). Under the Nasdaq listing rules, of NASDAQ, independent directors must comprise a majority of a listed company’s board of directors. In addition, the Nasdaq listing rules of NASDAQ require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance committees be independent. Under the Nasdaq listing rules, of NASDAQ, a director will only qualify as an “independent director” if that company’s board of directors determines that the person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
18 | ITRON, INC. | 2024 PROXY STATEMENT |
TABLE OF CONTENTS
As recommended by the
Nominating and Corporate Governance Committee, the Board has determined that a majority of our Board are independent directors as defined under the
Nasdaq listing rules
of NASDAQ and the SEC
rules, with Mr.
MezeyDeitrich serving as the sole
non-independent director. As Mr.
MezeyDeitrich does not
sitserve on any committees, and as recommended by the
Nominating and Corporate Governance Committee, the Board has determined that all members of Itron’s committees are independent under SEC rules and
NASDAQNasdaq listing
standards.rules. In addition, as recommended by the
Nominating and Corporate Governance Committee, the Board has determined that all members of our Audit/Finance Committee are independent under Rule
10A-3 of the
Securities Exchange
Act.Act of 1934, as amended (Exchange Act).
We have fourthree committees to assist the Board in fulfilling its responsibilities: Nominating and Corporate Governance, Audit/Finance, Value Enhancement, and Compensation. Each of the fourthree current committees operates under a written charter that has been approved by the Board. The committee charters are reviewed annually and are updated as necessary to reflect changes in regulatory requirements and evolving oversight practices. In 2017, with the exception of the Value Enhancement Committee, all of the committee charters were amended, as described below, and all fourAll of the current committee charters are available on our websitewww.itron.com, by selecting “Investors” and then “Corporate Governance.”
at http://investors.itron.com/corporate-governance-0. The following table shows the currentbelow provides membership of each committee at the end of fiscal 2017:
year 2023, followed by a description of each committee’s responsibilities.Director
Mary C. Hemmingsen | | Compensation
Committee | | Corporate Governance
Committee | | Audit/Finance
Committee | | Value
Enhancement
Committee | |
Kirby A. Dyess
| | X | | X | | | | |
Thomas S. Glanville
| | | | | | Chair | | |
Frank M. Jaehnert | | X | | Chair | | | | | |
Jerome J. Lande | | | | | | X | | X | |
Timothy M. Leyden | | | | | | X | | Chair | |
Peter Mainz
Sanjay Mirchandani | | X | | | | | | X | |
Daniel S. Pelino
Santiago Perez | | X | | X | | | | | |
Gary E. Pruitt
| | | | | | X | | X |
Diana D. Tremblay | | Chair | | | | | | X | |
Lynda L. Ziegler | | | | X | | | | | |
Thomas L. Deitrich | | | | | | | | | |
Our sole employee director, Philip C. Mezey, does not sit on any committees.
| | | Committee Member | | | | | | Committee Chair |
Nominating and Corporate Governance Committee
. The Nominating and Corporate Governance Committee (CGC)(NCGC) is primarily responsible for for:
developing and implementing our Governance Principles,Principles;
overseeing the process for evaluating the performance of our Board Chair of the Board and the CEO, as well as the other directors and the Board as a whole, soliciting recommendations for candidates for the Board, whole;
determining the qualificationqualifications of the directors serving on the Board, making recommendations to the Board regarding the independence of the directors serving on the Board, including their independence;
recommending candidates to serve on the Board,Board; and
reviewing and making recommendations to the Board with respect to candidates for directors proposed by shareholders.
To assist the
committeeNCGC in its identification of qualified director candidates, it
has historically engagedmight engage an outside search
firm and may do so in the future.firm. The
CGCNCGC also reviews the compensation paid to our directors and makes recommendations to the Board on director fees and other compensation payable to the Board members.
The Board amended the CGC’s charter in December 2017 to remove the responsibility of reviewing succession plans for the CEO and key executives as this is done by the full Board.
All of the members of the CGCNCGC are independent under SEC rules and NASDAQNasdaq listing standards. The CGC held five meetings during 2017. rules.
2024 PROXY STATEMENT | ITRON, INC. | 19 |
TABLE OF CONTENTS
The Audit/Finance Committee (AFC) monitorsis primarily responsible for:
overseeing our borrowingsaccounting and capital structure, accounting policies, internal controls over financial reporting processes and the audit of our financial results, and reviews at least quarterly our business financial risks to determine if management and our internal controls are identifying and mitigating risks associated with our business operations. In addition, the AFC determinesstatements;
approving the compensation of our independent auditors,auditors;
reviewing with management our business financial risks and makes recommendations to the Board to retainprocess by which management assesses and manages such financial risks;
selecting, retaining, or terminateterminating our independent auditors. auditors; and
monitoring compliance with our code of conduct.
The Board has determined that all members of the AFC are independent under SEC rules and
NASDAQNasdaq listing
standards,rules, including Rule
10A-3 of the Exchange Act.
The Board amended the AFC’s charter in 2017 to reorganize current functions to reflect order of importance and added a periodic review of critical accounting policies to the AFC’s responsibilities. The CGCNCGC has determined that all of the current members of the Audit/Finance CommitteeAFC are financially literate in accordance with the Standards of NASDAQNasdaq Rule 5605(c)(2)(A)(iv), and “audit committee financial experts” as defined in Item 407(d)(5) of RegulationS-K. The AFC held eight meetings during 2017.
The Compensation Committee (CC) is primarily responsible for making recommendationsfor:
recommending to the Board for our CEO’s total annual and long-term incentive compensation, and for compensation;
setting compensation levels for our other executive officers. The CC also overseesofficers; and
overseeing the administration of various incentive compensation and benefit plans, which includes an annual evaluation of our compensation plans and policies.
The CC, when appropriate, may form and delegate authority to subcommittees and may delegate authority to one or more designated members of the Board or to Company officers.
The Board amended the CC’s charter in December 2017 to remove the responsibility of reviewing executive and management development plans. The Board has determined that all members of the CC are independent under SEC rules and NASDAQNasdaq listing standards.rules. In addition, all CC members are“non-employee “non-employee directors” underSection 16b-3 of the Exchange Act and “outside directors” for the purposes of Section 162 (m) of the U.S. Internal Revenue Code. The CC held nine meetings during 2017.Act. See “EXECUTIVE COMPENSATION – CD&ACompensation Discussion and Analysis” in this proxy statement for more information on the CC’s responsibilities regarding the compensation of our executives.
Value Enhancement Committee. The Value Enhancement Committee (VEC) reviews, studies and develops potential initiatives and transactions designed to create durable, sustainable long-term shareholder value. The VEC is charged with making recommendations to the Board regarding actions to be considered in furtherance of the committee’s purpose. The Board has determined that all members of the VEC are independent under SEC rules and NASDAQ listing standards. The VEC held six meetings in 2017.
executive officers.
Compensation Committee Interlocks and Insider Participation
No member of our Board’s Compensation Committee has served as an officer or employee of the Company. None of our executive officers serve as a member of the compensation committee of any other company that has an executive officer serving as a member of our Board. None of our executive officers serve as a member of the board of directors of any other company that has an executive officer serving as a member of our Board’s Compensation Committee.
Transactions with Related Persons
There were no related person transactions required to be disclosed pursuant to Item 404(a) of Regulation
S-K in fiscal year
2017.2023. In order to determine this, the Board requires our executive officers, directors
orand director nominees to disclose certain information regarding related person transactions.
AGenerally, a “related person transaction”
generally is a transaction (including any indebtedness or a guarantee of indebtedness) that involves the Company’s directors, executive officers, director nominees, 5% or more beneficial owners of the Company’s common stock, immediate family members of these persons, or entities in which one of these persons has a direct or indirect material interest. The current threshold required to be disclosed under SEC regulations is $120,000. Under its charter, the
Corporate GovernanceAudit/Finance Committee of the Board has been delegated with the responsibility of reviewing and approving any related person
transactions.transactions and the Nominating and Corporate Governance Committee also provides input in that regard.
Our Board’s Role in Risk Oversight
The Board has overall responsibility for risk oversight, including, as part of regular Board and committee meetings, general oversight of our executives’ management of risks relevant to the Company. The Board routinely determines, directly or through Board committees, that:whether: (i) there are adequate processes designed and implemented by Company management such that risks have been identified and are being managed; (ii) the risk management processes are intended to ensure that Company risks are taken into account in corporate decision-making; and (iii) the risk management processes and procedures ensure that material risks to the Company are brought to the attention of the Board or an appropriate committee of the Board. Each of the
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Company’s risk management processes are reviewed periodically (but at least once a year) by either the Board or an appropriate committee to which the Board has delegated specific oversight responsibility, as described below. Throughout the year, the Board and each committee spend a portion of their time reviewing and discussing specific risk topics. Committee Chairs regularly report to the full Board on actions taken at committee meetings. At least annually, the Board conducts a review of our long-term strategic plans, and at each of our quarterly meetings, our General Counsel updates the Board on material legal and regulatory matters.
The Audit/Finance Committee is responsible for reviewing our major financial risk exposures, financial reporting, internal controls, credit and liquidity risk, compliance risk, and key operational risks. It meets regularly with our independent auditors and in executive session to facilitate a full and candid discussion of risk and other issues. Our Compensation Committee is responsible for overseeing compensation risks, including assessing
possible risks from our compensation plans and policies for our executives and ensuring that our executive compensation is aligned with Company performance. The Compensation Committee reviews a summary and assessment of such risks annually and in connection with discussions of various compensation elements and benefits throughout the year. Our Corporate Governance Committee oversees risks related to our overall corporate governance, including Board and committee composition, Board size and structure, and our director independence. The Corporate Governance Committee reviews our Governance Principles annually pursuant to its charter.
• | | | Overall responsibility for risk oversight, including cybersecurity risks | | | • | | | Responsible for overseeing compensation risks, including assessing possible risks from our compensation plans and policies for our executives and ensuring that our executive compensation is aligned with Company performance | | | • | | | Oversees our overall corporate governance, including Board and committee composition, Board size and structure, and our director independence | | | • | | | Responsible for reviewing our major financial risk exposures, financial reporting, and monitoring our credit and liquidity risk, and compliance risk |
• | | | Assesses directly, through Board committees or through established processes and procedures, risks relevant to the Company | |
| | • | | | Reviews our Governance Principles annually pursuant to its charter | |
| | • | | | Meets regularly with our independent auditors and in executive session to facilitate a full and candid discussion of risk and other issues |
| | • | | | Reviews a summary and assessment of such risks annually and in connection with discussions of various compensation elements and benefits throughout the year | |
| | | | | | | | | | | | | | | | | | | | | |
Following a review of the Company’s current risk management systems and processes, the Board has concluded that the current allocation of oversight responsibilities between the Board and its committees is adequate, provided that the committees continue to coordinate their risk oversight responsibilities, share information appropriately with the other Board members, and provide timely and adequate reports to the full Board. The Board continually evaluates its risk oversight role.
The Company has adopted a Code of Conduct that applies to all directors, officers, and employees of the Company and any subsidiary of the Company and is available on the Company’s website,
www.itron.com, by selecting “Investors” and then
“Corporate“Sustainability and Governance.” In addition, we have adopted policies and procedures for reporting and investigating suspected violations of the Code of Conduct. The Company intends to satisfy any future disclosure requirement under Item 5.05 of Form
8-K regarding an amendment to or waiver from application of
the code of ethics or provisions of the Code of Conduct, that applies to the CEO or the CFO, by posting such information on our website,
www.itron.com.
The Company has adopted an Anti-Hedging Policy that prohibits our directors, officers, and employees from entering into transactions involving our securities that are designed to hedge or offset any decrease in the market value of Itron securities.
See “
EXECUTIVE COMPENSATION – CD&ACompensation Discussion and Analysis – Anti-Hedging Policy” in this proxy statement for more information on this policy.
Incentive Repayment (Clawback) PolicyThe Company has adoptedDirector Term Limit and Retirement Guidelines
Our Governance Principles include a repayment or “clawback” policy, which provides that ifterm limit provision to encourage Board refreshment. Non-executive directors are not eligible to stand for re-election after serving as a bonus or equity award (Award) is paid that is conditioneddirector for five full terms on meeting certain financial metrics, and, subsequently, there is a required financial restatement, which had the correct information been known at the time would have resulted in a lower Award, then the Board, haswith limited exceptions. Additionally, directors may not be nominated or appointed after age 75, unless the right to demand repaymentBoard determines that it would be in the best interests of the excess amountCompany’s shareholders to extend the director’s period of the Award, net of taxes, from an executive officer who has received an Award. If the Board (or its delegated committee) determines that fraud has resulted in a material financial restatement, it is required that the Board demand repayment from the executive officer engaged in the fraud of the full Award, net of taxes.eligible service.
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Director Nominations by Shareholders
In accordance with the Company’s Amended and Restated Bylaws, in order to nominate a director for election to the Board at an annual meeting of shareholders, a shareholder must deliver written notice of such nomination to the Corporate Secretary of the Company at the Company’s executive offices no fewer than
6090 days nor more than
90120 days prior to the date of the annual meeting (or if less than 60 days’ notice or prior public disclosure of the date of such annual meeting is given or made to the shareholders, not later than the tenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure was made). The notice of a shareholder’s intention to nominate a director must include:
| ◾ | | the name and address of the shareholder;
|
| ◾ | | a representation that the shareholder is entitled to vote at the meeting at which directors will be elected;
|
| ◾ | | a statement of the number of shares of the Company that are beneficially owned by the shareholder;
|
| ◾ | | a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;
|
the name and address of the shareholder;
a representation that the shareholder is entitled to vote at the meeting at which directors will be elected;
a statement of the number of shares of the Company that are beneficially owned by the shareholder; and
a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;
and the following information with respect to the person nominated by the shareholder:
| ◾ | | other information regarding such nominee as would be required in a proxy statement filed pursuant to applicable SEC rules;
|
| ◾ | | a description of any arrangements or understandings between the shareholder and the nominee and any other persons (including their names), pursuant to which the nomination is made; and
|
| ◾ | | the consent of such nominee to serve as a director, if elected.
|
name and address;
other information regarding such nominee as would be required in a proxy statement filed pursuant to applicable SEC rules;
a description of any arrangements or understandings between the shareholder and the nominee and any other persons (including their names), pursuant to which the nomination is made; and
the consent of such nominee to serve as a director, if elected.
Any notice of director nomination submitted to Itron must include the additional information required by Rule 14a-19(b) under the Exchange Act.
Other directors and senior management of the Company may also recommend director nominees for consideration by the
Nominating and Corporate Governance Committee. The
Nominating and Corporate Governance Committee evaluates director nominees, including nominees that are submitted to the Company by a shareholder, taking into consideration the qualification criteria set forth under “
ELECTION OF DIRECTORS – Director and Director Nominee Qualifications” in this proxy statement. In the event of a shareholder recommendation, the
Nominating and Corporate Governance Committee screens and evaluates the person recommended in the same manner as other candidates. In addition, the
Nominating and Corporate Governance Committee determines if the proposed director nominee will have sufficient time available to
effectively carry out his or her Board duties and
responsibilities effectively.responsibilities. The
Nominating and Corporate Governance Committee may then recommend the director candidate to the Board for its consideration, if deemed appropriate.
Shareholder Communications with the Board
The Company’s Board provides a process whereby shareholders may contact the Board or any committee as a group or any committee Chair or individual director, by email addressed to
boardofdirectors@itron.com. Shareholders should clearly specify in each communication the name of the director to whom the communication is addressed. Shareholders may also write to the Board or any committee as a group or any committee Chair or individual director by sending the communication to: Itron, Inc., Attn: Corporate Secretary, 2111 N. Molter Road, Liberty Lake, WA 99019. Communications may also be submitted through our website at
www.itron.com by selecting “Investors,”
“Corporate“Sustainability and Governance,” and then “Contact the Board.”
Shareholder communications are delivered directly to the Corporate Secretary of the Company, who then determines whether to forward such communications to the specified director addressees. You can access a description of the process that the Corporate Secretary uses for determining whether to forward shareholders’ communications to directors at our website,
www.itron.com, by selecting “Investors,”
“Corporate“Sustainability and Governance,” and then “Contact the Board.”
Shareholders wishing to submit proposals for inclusion in the proxy statement relating to the 20192025 annual shareholders meeting should follow the procedures specified under “SHAREHOLDER PROPOSALS FOR THE 20192025 ANNUAL MEETING”MEETING” in this proxy statement. Shareholders wishing to nominate directors should follow the procedures specified under “CORPORATE GOVERNANCE –Director Nominations by Shareholders”Shareholders” in this proxy statement.
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Environmental, Social and Governance Our
Purpose | | | At Itron, we create a more resourceful world to protect tomorrow’s water and power, today. We are dedicated to making the most of the resources we have and to ensuring they are managed in the best way possible. Through our lens of resourcefulness, we seek out and develop creative, innovative and determined ways to solve the challenges facing our industry with a fresh perspective. Itron’s commitment to creating a more resourceful world is both foundational to our success and the driving force behind the dedication of our global workforce. |
Our
Approach
to ESG | | | Itron is a purpose-driven company and has been since its inception. Our commitment to sustainability and environmental, social and governance (ESG) practices is core to how we create a more resourceful world. It is intrinsic to our strategy and allows us to address the evolving expectations of our customers, shareholders, employees, communities, regulators and other stakeholders. Simply stated, we strive to uphold these practices because it’s the right thing to do. |
ESG
Oversight | | | Itron’s ESG governance starts at the top, with oversight of our efforts from our Board. The Board is comprised of individuals with wide-ranging experience in governance, manufacturing, supply chain and risk management topics. The Board and its committees receive regular updates from management on environmental and social topics. Each strategic pillar is sponsored by a member of Itron’s executive leadership team, and our Vice President of Global Marketing, ESG and Public Affairs oversees our ESG strategy and disclosures. Ultimately, responsibility and accountability extend down to the grass-roots level, where our ESG principles are embedded into our operations, our employees’ day-to-day activities and our culture. |
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Topic Prioritization & Stakeholder Engagement Itron periodically examines its priority ESG objectives to account for changes to our business, the regulatory environment and stakeholder expectations. We review peer disclosures, ESG ratings (e.g., Institutional Shareholder Services, MSCI and Sustainalytics), investor stewardship priorities, ESG standards and frameworks (e.g., Sustainability Accounting Standards Board, Task Force on Climate-Related Financial Disclosures, United Nations Global Compact and the United Nations’ Sustainable Development Goals), and the perspectives of our leadership and other internal stakeholders. We use the results of this assessment to inform our strategy, pillars and disclosures. We also conduct ongoing engagement with customers, employees, shareholders and community stakeholders to discuss our ESG priorities.
Our Strategic Pillars
and Highlights
Our ESG strategy is centered around four key pillars. These encompass topics our leadership has determined are strategic priorities within the environmental, social and governance
dimensions:
• Operating with Integrity – How we strive to do the right thing. Always.
• Providing Sustainable Solutions – How we help our customers succeed, including helping them achieve their environmental goals and business objectives.
• Improving Our Environmental Impact – How we run our company with an eye toward sustainability.
• Supporting Our People & Communities – How we uphold our commitment to employees and communities across the globe.
These pillars allow us to focus on and execute Itron’s ESG strategy across a diverse and ever-changing landscape of opportunities, both internally and externally. Collectively, they help us achieve our goals and commitments to our stakeholders.
| | |
| Operating
with
Integrity | | | | Supporting
Our People and Communities |
| | 89% independent board of directors
33% female board of directors
Signatory to the United Nations Global Compact
Target 100% code of conduct training completion
Follows International Organization for Standardization (ISO) and National Institute of Standards and Technology (NIST) cybersecurity standards | | | Comprehensive health & safety program
Continuously monitoring the health, perspectives and concerns of our global employee population through ongoing initiatives
Competitive compensation packages and comprehensive benefits to all employees in every region where we operate
Inclusion and Diversity efforts lead by I&D business council
|
| | | Improving Our
Environmental
Impact | | | Corporate social responsibility focused on corporate philanthropy, employee giving and volunteerism and educational outreach initiatives |
| | Environmental policy formalizes our commitment to environmental stewardship | | | | Providing
Sustainable
Solutions |
| | Manufacturing facilities aligned with international operating standards
| | | Itron solutions enable customers to avoid greenhouse gas emissions |
| | Climate related targets in place to: | | | |
More Information
For more information we encourage you to read our 2022 ESG Report at itron.com/esg.
Content on our Company website is not, and shall not be deemed to be, part of this proxy statement or incorporated herein or into any of our other filings with the SEC. | | | » Reduce Scope 1 and Scope 2 GHG emissions >50% reduction by 2028
» Make operations carbon neutral by 2035
» Achieve net zero emissions by 2050
Supplier code of conduct includes ESG expectations
| | | Working with customers to address sustainability related changes
Solutions enable increased operational efficiencies and higher consumer engagement |
| | | | | |
24 | ITRON, INC. | 2024 PROXY STATEMENT |
TABLE OF CONTENTSPROPOSAL 2 – ADVISORY APPROVAL OF EXECUTIVE COMPENSATION (SAY-ON-PAY) We are asking our shareholders to approve a non-binding advisory resolution on the Company’s executive compensation programs for our named executive officers (NEOs) (commonly known as “say-on-pay”) as we have described them in this proxy statement. Although this advisory vote is non-binding, the Board and the Compensation Committee will take into account the outcome of the vote when considering future compensation decisions for our executives. As discussed in the Compensation Discussion and Analysis (CD&A) section of this proxy statement, we believe our compensation programs are reasonable, competitive and strongly focused on pay-for-performance principles that will result in the creation of long-term shareholder value. Some of the features of our compensation programs that illustrate our philosophy are:
A significant portion of an NEO’s compensation is at-risk or performance-based and subject to the Company’s operating and financial performance. We consider annual cash-based incentives, equity long-term incentives, and stock options to be performance-based, because each of these three elements is valuable to the executive only if performance goals are achieved and/or our share price improves. In fiscal year 2023, the executive compensation package (base salary and short- and long-term incentives at target) included 87% of at-risk compensation for the CEO and an average of 72% of at-risk compensation for the other NEOs. Our long-term incentive plan (LTIP) for equity awards granted under our Amended and Restated 2010 Stock Incentive Plan (A&R 2010 Plan) or Second Amended and Restated 2010 Stock Incentive Plan (Second A&R 2010 Plan), as applicable, has three-year performance periods, with one-year averages determined each year for measurement purposes, to encourage NEOs to make decisions that align our long-term goals with shareholder interests and to discourage excessive risk taking.
Stock ownership guidelines require executive officers who are NEOs to acquire and hold certain amounts of Itron stock to further strengthen alignment of management’s interest with those of our shareholders.
The Board has adopted the 2023 Incentive Compensation Recovery Policy in accordance with Rule 10D-1 under Section 10D of the Securities Exchange Act of 1934, as amended and the corresponding Nasdaq Listing Rule 5608. This policy applies to our current and former executive officers as defined in Rule 10D-1, including the NEOs. In the event we are required to prepare an accounting restatement to correct a material noncompliance with any financial reporting requirement under the securities laws, including restatements that correct an error in previously issued financial statements that is material to the previously issued financial statements or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, the policy provides for the recovery of erroneously awarded incentive-based compensation received by its executive officers on or after the policy’s effective date. In addition, we have established an Incentive Compensation Recovery (Clawback) Policy, which will continue to apply to incentive-based compensation received prior to December 1, 2023. Under that policy, in the event of a restatement of the Company’s financial results, the Compensation Committee, as designated by the Board, may review all cash or equity incentive awards that were based in whole or in part on the achievement of certain financial results. If the Compensation Committee, as designated by the Board, determines that fraud has resulted in a material financial restatement, the Board is required to demand repayment of the full award, net of taxes.
We maintain our long-standing commitment to strong corporate governance by continuing our policies of (i) separate Board Chair and CEO roles, (ii) majority voting for directors, (iii) all independent Board members (except our CEO) and all independent committee members, (iv) executive sessions of independent directors, and (v) prohibition on hedging or pledging of Itron stock by our executive officers.
| • | The compensation of our NEOs varies depending upon the achievement of pre-established performance goals determined by the Compensation Committee (or the independent members of the Board, for the CEO), which are intended to serve as incentives for our NEOs. When performance does not meet the pre-established target goals then the amount of compensation paid to our executives is correspondingly reduced or eliminated. Conversely, when the Company’s operating and financial performance meets or exceeds the pre-established performance metrics, then the amount of compensation paid to our executives increases. See “The 2023 Executive Compensation Program in Detail” in the CD&A. |
We believe our executive compensation policies have enabled us to retain and attract exceptional senior executives whose talent and experience have helped Itron become a leader in our industry. Our Compensation Committee (and for the CEO compensation, also the independent members of the Board), which provides overall direction for our compensation programs, believes the fiscal year 2023 compensation paid to our NEOs is reasonable and appropriate and adequately reflects the Company’s overall performance in 2023.
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PROPOSAL 2 – ADVISORY APPROVAL OF EXECUTIVE COMPENSATION (Say-on-Pay)
Shareholders are encouraged to read the full details of our executive compensation programs as described in the “EXECUTIVE COMPENSATION” section of this proxy statement.
Our shareholders approved a proposal by the Board at the May 2023 annual meeting of shareholders to hold our advisory vote on executive compensation annually, and the Board has adopted a policy consistent with this determination. Unless the Board modifies this policy, including as a result of votes cast in connection with Proposal No. 3 in this proxy statement, the next say-on-pay vote will be held at our 2025 annual meeting of shareholders.
For the reasons provided above, we recommend that the shareholders vote in favor of the following resolution:
RESOLVED, that the shareholders approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis section of the Company’s proxy statement for the Annual Meeting, which disclosure includes the Executive Compensation Tables, and the accompanying footnotes and narrative disclosures within the proxy statement.
| | | | | | The Board recommends that shareholders vote
“FOR” the approval of the compensation paid to
our named executive officers in fiscal year 2023. |
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Compensation Discussion &and Analysis
This Compensation Discussion and Analysis (CD&A)
This CD&A explains our executive compensation program for our named executive officers (NEOs)NEOs listed below. The CD&A also describes the process followed by the Compensation Committee of the Board (referred to as the Compensation Committee or the Committee in this CD&A) for making pay decisions, as well as its rationale for specific decisions related to 2017.
2023. Name
Thomas L. Deitrich | | Title
|
Philip C. Mezey
| | President and CEO |
Thomas L. Deitrich
| | Executive Vice President and Chief Operating Officer (COO)
|
Robert H.A. Farrow*
| | Interim CFO and Vice President, Treasury and Strategic Planning
|
Joan S. Hooper*Hooper | | | Senior Vice President and CFO |
Michel C. Cadieux
Donald L. Reeves | | | Senior Vice President, Human ResourcesOutcomes |
Shannon M. Votava
John F. Marcolini | | | Senior Vice President, General Counsel and Corporate SecretaryNetworked Solutions |
W. Mark Schmitz*
Justin K. Patrick | | Former Executive Vice President and Chief Financial Officer (CFO)
|
* | Effective March 28, 2017, Mr. Schmitz stepped down from his position as Itron’s CFO and as an employee. For information about the 2017 compensation for which he was eligible, please refer to the “Summary Compensation Table.” From March 28, 2017 until June 5, 2017, Mr. Farrow, the Company’s Vice President, Treasury and Strategic Planning, served as interim CFO. On June 5, 2017, Ms. Hooper joined the Company as
Senior Vice President, and CFO, and Mr. Farrow remained as Vice President, Treasury and Strategic Planning.Device Solutions |
Business Performance
In 2017,
Business performance steadily improved throughout 2023 producing strong financial results. Fewer component constraints and reduced volatility of our supply environment enabled much greater manufacturing utilization, and accelerated deliveries to our customers. These developments are underpinned by Itron’s culture of continuous improvement and price/cost actions resulting in revenue growth, margin expansion and free cash flow in excess of the Company’s initial expectations.
The convergence of megatrends affecting the way society generates, transmits and consumes power and water also accelerated during 2023. According to the Federal Energy Regulatory Commission, grid planners expect U.S. electricity demand to grow 4.7% over the next five years, an increase from 2022 estimates which called for 2.6% growth. These trends are present across the globe. Itron’s innovative platform approach to providing its customers with opportunities to modernize and digitize their assets while meeting growing demand help us meet our goal of creating a more resourceful world and creates strategic and competitive advantages which we improvedbelieve will benefit our shareholders.
Consistent with these trends, additions to our backlog of $2.16 billion during 2023 were aligned with our expectations and reflect our customers desires to install, maintain, and modernize new capabilities to utilize digital technology and data to ensure grid stability and security without compromising affordability of resources to the end consumer.
Itron is committed to innovation and investment in new products and solutions that enable our customers to manage increasingly dynamic and complex operating conditions. We are also committed to refining our business, results comparedincreasing our operating efficiency, and positioning Itron for the opportunities of the future as our customer needs change. Through this combination of forward-looking technology leadership and a relentless, disciplined approach to 2016 driven by higher sales ofmanaging our smart solutionsbusiness we expect to maintain strategic advantages over our competitors and continued focus onto create value for our Company objectives for improved predictability, profitability, and growth. We exceeded Company targets forshareholders.
Itron’s 2023 revenue, non-GAAP earnings per diluted share
(1)(2) (EPS)(non-GAAP diluted EPS),
while annual revenue remained roughly the same. We incurred higher costs in the second half of 2017 as we implemented changes in our supply chain, and
we fell short on ouradjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA)
(1)(2)(3) management target. These measurements are
all strongly embedded in our executive compensation program: | ◾ | | Total Company consolidated revenue of $2.0 billion was roughly flat to 2016;
|
| ◾ | | Total Company Adjusted EBITDA of $227.9 million improved by 9% percent over 2016; and
|
| ◾ | | Non-GAAP EPS of $3.06 increased by 20% over 2016.
|
as follows (compared with 2022): Revenue of approximately $2.2 billion increased 21%;
Non-GAAP diluted EPS of $3.36 increased approximately 197%; and
Adjusted EBITDA of approximately $226 million increased approximately 137%.
(1)
| A schedule reconciling non-GAAP diluted EPS to net income (loss) attributable to Itron, Inc. and Adjusted EBITDA to net income andnon-GAAP EPS(loss) attributable to net incomeItron, Inc. is available on page 41pages 43-46 of our 20172023 Annual Report on Form10-K. 10-K and is also shown below. |
(2)
| We define non-GAAP diluted EPS as non-GAAP net income divided by the weighted average shares, on a diluted basis, outstanding during each period. |
(3)
| We define Adjusted EBITDA as net income (loss) (a) minus interest income, (b) plus interest expense, depreciation and amortization, restructuring, loss on sale of intangible assets, restructuring, acquisition related expense,businesses, strategic initiative expenses, software project impairment, Russian currency translation write-off, goodwill impairment, acquisition and integration related expenses, and (c) excluding theincome tax expenseprovision or benefit. |
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These financial results reflect our continued operational transformation, including the implementation of global sourcing projects. The transition of our global supply chain will provide long-term flexible capacityTABLE OF CONTENTS
EXECUTIVE COMPENSATION
Compensation Discussion and lower costs, while driving our core business objectives of predictability, profitability,Analysis
NON-GAAP NET INCOME & DILUTED EPS | | | | | | |
GAAP net income (loss) attributable to Itron, Inc. | | | $96,923 | | | $(9,732) |
Amortization of intangible assets | | | 18,918 | | | 25,717 |
Amortization of debt placement fees | | | 3,489 | | | 3,323 |
Restructuring | | | 43,989 | | | (13,625) |
Loss on sale of businesses | | | 667 | | | 3,505 |
Strategic initiative | | | (5) | | | 675 |
Software project impairment | | | — | | | 8,719 |
Russian currency translation write-off | | | — | | | 1,885 |
Goodwill impairment | | | — | | | 38,480 |
Acquisition and integration | | | 144 | | | 506 |
Income tax effect of non-GAAP adjustments (1) | | | (10,339) | | | (8,466) |
Non-GAAP net income attributable to Itron, Inc. | | | $153,786 | | | $50,987 |
| | | | | | |
Non-GAAP diluted EPS | | | $3.36 | | | $1.13 |
| | | | | | |
Non-GAAP weighted average common shares outstanding — Diluted | | | 45,836 | | | 45,305 |
| | | | | | |
ADJUSTED EBITDA | | | | | | |
GAAP net income (loss) attributable to Itron, Inc. | | | $96,923 | | | $(9,732) |
Interest income | | | (9,314) | | | (2,633) |
Interest expense | | | 8,349 | | | 6,724 |
Income tax (benefit) provision | | | 29,068 | | | (6,196) |
Depreciation and amortization | | | 55,763 | | | 66,763 |
Restructuring | | | 43,989 | | | (13,625) |
Loss on sale of businesses | | | 667 | | | 3,505 |
Strategic initiative | | | (5) | | | 675 |
Software project impairment | | | — | | | 8,719 |
Russian currency translation write-off | | | — | | | 1,885 |
Goodwill impairment | | | — | | | 38,480 |
Acquisition and integration | | | 144 | | | 506 |
Adjusted EBITDA | | | $225,584 | | | $95,071 |
(1)
| The income tax effect of non-GAAP adjustments is calculated using the statutory tax rates for the relevant jurisdictions if no valuation allowance exists. If a valuation allowance exists, there is no tax impact to the non-GAAP adjustment. |
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EXECUTIVE COMPENSATION
Compensation Discussion and growth. During this time, our executive leadership team also remained focused on the Company’s strategic vision to be a leading partner with utilities in the resourceful delivery and use of energy and water. The Company took additional steps to invest in the internet of things (IoT) and networking capabilities to reduce operating expenses and create new revenue opportunities. The 2017 acquisitions of Comverge, Inc. and Silver Spring Networks, Inc. were of significance —Analysis
further advancing our strategy of delivering highly-secure, value-generating solutions for utilities, smart cities, and the broader industrial IoT sector. These achievements demonstrate our executive leadership’s balanced approach to driving long-term growth in addition to near-term financial improvements at a time when our industry dynamics are changing.
Our executive compensation program has three primary elements: base salary, annual cash incentives (as part of our Executive ManagementItron Incentive Plan (EMIP)(IIP)), and long-term equity incentives (as part of our Long-Term Incentive Plan (LTIP)). Each of these compensation elements serves a specific purpose in our compensation strategy. Base salary is an essential component to any market-competitive compensation program. Annual incentives reward the achievement of short-term goals, while long-term incentives drive our NEOs to focus on long-term sustainable shareholder value creation.
Below are key highlights of the executive compensation decisions the Compensation Committee made for fiscal year 2023:
| • | Salary: Approved base salary increases for all the NEOs, ranging from 1.9% to 16.9%. See “Base Salary” in this CD&A for details. |
IIP:
| ○ | Approved IIP financial targets based on initial projections for 2023; and |
| ○ | Continued to prioritize financial performance focused on profitability and revenue growth, and added a non-financial component to drive results linked to the Company’s strategic goals. The mix of metrics for 2023 is as follows: |
Financial (80%)
Maximum payout:
150% of target | | | Adjusted EBITDA | | |
|
| | Revenue | | | |
Non-Financial (20%)
Maximum payout:
100% of target | | | Quantitative
Strategic Goals(1)
• New product introductions (NPI) revenue
• Reduction in greenhouse gas (GHG) emissions | | |
|
Total | | | | | | 100% |
(1)
| See “Annual Cash Incentives: The Itron Incentive Plan (IIP)” in this CD&A for details regarding these measures. |
LTIP:
| ○ | Increased target award opportunities to continue to improve competitive positioning relative to market; |
| ○ | Continued to strengthen alignment with shareholders by increasing the emphasis on performance-based equity for the CEO by changing the annual LTIP award mix for his award to 68% performance-based restricted stock units (PRSUs) and 32% time-vested restricted stock units (RSUs). The annual LTIP awards for all other NEOs continue to be comprised of 50% PRSUs and 50% RSUs; |
| ○ | Consistent with our peer group and market practices, increased the payout maximum from 160% of target to 200% of target beginning with the 2023 portion (tranche three) of the 2021-2023 performance cycle of the PRSUs. This change also applies to the 2023 tranche (tranche two) of the 2022-2024 performance cycle and future performance cycles; and |
| ○ | Beginning with the 2023 grant, changed the vesting for RSUs so that they vest 1/3 on the first anniversary of the grant date and quarterly thereafter for two years instead of 1/3 per year over three years. |
| See “Long-Term Incentives” in this CD&A for details. |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Incentive Award Payouts Based on our strong performance in 2023, Adjusted EBITDA and non-GAAP diluted EPS exceeded performance levels for purposes of generating award payouts under the incentive plans. Based on our performance and consistent with the design of our program,results, the Compensation Committee made the following executive compensationincentive plan payout decisions for fiscal 2017:2023: | • | ◾ | | None of
IIP: Actual award payouts to the NEOs received base salary adjustments in 2017, except that Mr. Farrow received additional compensation for each month he served as interim CFOranged between 133% and a merit based increase. See “Base Salary”in this CD&A for details. |
| ◾ | | EMIP: 2017 financial and strategic objectives resulted in an overall attainment percentage154% of 84.80%. This overall attainment result is a combination of achievement of specific total Company consolidated revenue and Adjusted EBITDA goals and strategic objectives.target. See “Annual Cash Incentives: The Executive ManagementItron Incentive Plan (EMIP)(IIP)”in this CD&A for details.
|
| • | ◾ | | LTIP: Under the LTIP, NEOs receive 50% of their grant in the form of performance-based restricted stock units (PRSUs). Consistent with the terms of the LTIP, theThe NEOs earned 111.07%85.31% of their target PRSUs for the 2015-20172021-2023 performance cycle. This attainment is the combination of an averagenon-GAAP diluted EPS target attainment of 90.67%100.36% and a total shareholder return (TSR) multiplier of 123%.0.85. See “Long TermLong-Term Incentives –— A Closer Look at Performance-Based Restricted Stock Units (PRSUs)PRSUs” in this CD&A for details. |
These payouts are aligned with the Company’s business performance in 2017. The Compensation Committee believes that the design and structure of the Company’s incentive program provide a direct link between Company performance and pay outcomes for the executives, as described in greater detail in the following section.
Linking CEO Pay and Performance
A key component of our executive compensation philosophy is the link between compensation and overall business results and shareholder value creation. We strive to clearly communicate this to our shareholders and believe that looking at realizable pay in
the following different contexts can illustrate this point effectively:
| ◾ | | Realizable pay versus pay opportunity
|
| ◾ | | Realizable pay for performance relative to peers
|
Realizable pay versus pay opportunity; and
Realizable pay for performance relative to peers.
CEO Realizable Pay versus Pay Opportunity.
Many of the required disclosures concerning CEO compensation discuss pay elements or opportunities that may be earned by the CEO. Realizable pay, on the other hand, more closely considers actual compensation earned (or earnable) based on performance. To illustrate the differences, we compared pay opportunity to realizable pay on ayear-by-year basis over the past three years; for this purpose, we use the following definitions:
Pay opportunity
represents: | ◾ | | The sum of base salary and target EMIP opportunity for each fiscal year; and
|
| ◾ | | The grant date fair value of stock options, RSUs and PRSUs granted in each fiscal year.
|
The sum of base salary and target IIP opportunity for each fiscal year; and
The grant date fair value of stock options, RSUs and PRSUs granted in each fiscal year.
Realizable pay
represents: | ◾ | | The sum of base salary and actual EMIP paid for each fiscal year;
|
| ◾ | | The “in the money” value of any stock options granted in each fiscal year, valued as of December 31 of each year;
|
| ◾ | | The value of RSUs granted in each fiscal year valued at their vesting date, or if unvested, as of December 31 of each year;
|
| ◾ | | The number of PRSUs actually earned based on performance, valued as of December 31 of each year; and
|
| ◾ | | For outstanding PRSUs (uncompleted performance cycles), the estimated number of PRSUs based on performance to date, valued as of December 31 of each year.
|
The sum of base salary and actual IIP paid for each fiscal year;
The “in the money” value of any stock options granted in each fiscal year, valued as of their vesting date, or if unvested, as of December 31, 2023;
The value of RSUs granted in each fiscal year valued at their vesting date, or if unvested, as of December 31, 2023;
The number of PRSUs actually earned based on performance, valued as of December 31, 2023; and
For outstanding PRSUs (uncompleted performance cycles), the estimated number of PRSUs based on performance to date, valued as of December 31, 2023.
The chart below illustrates Mr. Mezey’sDeitrich’s realizable pay compared to his pay opportunity,opportunities, as well as the correspondingyear-end stock price for the last three years.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
CEO Realizable Pay for Performance Relative to Peer Group.
To provide another perspective, it is also helpful to understand the degree of alignment between CEO realizable pay andperformance relative to our peer companies.companies. See
“Our Decision MakingDecision-Making Process –— The Role of Peer Companies”Companies” in this CD&A for a list of the peer companies. To evaluate this alignment, we analyzed the relationship between realizable total direct compensation (TDC) for the CEO over 2014-20162020-2022 for the peer companies and for the Company, and TSR for the three years ended December 31, 2016. This2022. Note that this time period was selected because it was most closely aligned withis different than used in the chart above since disclosed compensation information available for our peer group companies forwas only available through 2022 at the years that Mr. Mezey has been our CEO.time of the analysis.
For this purpose, realizable TDC is defined as the sum of:
| ◾ | | Actual base salaries paid over the three-year period;
|
| ◾ | | Actual annual incentives (bonuses) paid over the three-year period;
|
| ◾ | | “In-the-money” value as of December 31, 2016 of any stock options granted over the three-year period;
|
| ◾ | | The value as of December 31, 2016 of any restricted shares granted (including vested and unvested shares) over the three-year period; and
|
| ◾ | | Cash-based long-term incentives awarded during the period, and the value as of December 31, 2016 of any performance shares granted over the three-year period (assuming target performance for cycles not completed).
|
Actual base salaries paid over the three-year period;
Actual annual incentives (bonuses) paid over the three-year period;
“In-the-money” value as of December 31, 2022 of any stock options granted over the three-year period;
The value as of December 31, 2022 of any restricted shares granted (including vested and unvested shares) over the three-year period; and
Cash-based long-term incentives awarded during the period, and the value as of December 31, 2022 of any performance shares granted over the three-year period (assuming target performance for cycles not completed).
The chart below illustrates the percentile ranking of our three-year TSR and
Mr. Mezey’sItron CEOs’ realizable TDC relative to our peer companies. As the chart indicates, during the three-year period, our TSR performance was
abovebelow the median of the peer companies and
Mr. Mezey’sour CEOs’ realizable TDC was
also abovebelow the median.
Mr. Mezey’sItron CEO realizable TDC was within an “alignment corridor” representing a strong correlation between compensation and performance.
Best Compensation Practices & Policies
We also believe the
followingCompany’s practices and policies promote sound compensation governance and are in the best interests of our shareholders and executives:
What We Do | | | | | | What We Don’t Do |
| |
☑
| Heavy emphasis on variable compensation | | ☒
| | | | | | | No employment agreements |
| |
☑ 50%
| Significant portion of annual long-term incentives are performance based | | ☒
| | | | | | | No “single trigger”change-in-control cash payments |
| |
☑
| Rigorous stock ownership guidelines | | ☒
| | | | | | | No tax gross upsgross-ups in ourchange-in-control agreements |
| |
☑
| Incentive Repayment (Clawback) Policy | | ☒
| | | | | | | No option backdating or repricing |
| |
☑
| Independent compensation consultant | | ☒
| | | | | | | No hedging or pledging |
| |
☑
| Annual risk assessments | | ☒
| | | | | | | No special perquisites |
2024 PROXY STATEMENT | ITRON, INC. | 31 |
2017TABLE OF CONTENTS
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
2023 Say-On-Pay & Shareholder Engagement
Each year, we carefully consider the results of our shareholdersay-on-pay vote from the preceding year. We also take into accountconsider the feedback we receive from our major shareholders, which is solicited by the Board Chair of the Board, and the Chair of the Compensation Committee, either in person or via telephone.
In 2017,2023, approximately 95%92% of the votes cast supported our executive compensation decisions. Since 2012, theThe Board has regularly conductedconducts proactive outreach meetings with the company’sCompany’s largest shareholders. During 2017,2023, the Company offered meetings to shareholders representing 45%in excess of shares outstanding, and directors met with shareholders representing 15% of80% shares outstanding to discussinvite them to have discussions with our directors on topics including Company strategy and performance, governance, and executive compensation. Overall,Of those to whom we reached out, investors representing over a quarter of shares outstanding accepted our offer to meet. During these meetings, our shareholders are highlycontinued to be supportive of our approach to executive compensation, and we are committed to keeping our program aligned with our business strategy and its direction. Basedinvestor expectations. Specifically, our shareholders believe performance measures should primarily focus on the positive feedback we received fromprofitability and revenue growth, as our major shareholders, in additionIIP does, but also noted that they generally like to see non-financial goals included as a component to add accountability for driving results linked to the vote resultCompany’s strategic goals. To this end, in 2017,2023 we did not make substantive changes to the structureadded non-financial goals as a weighted component of our program. IIP. See “Annual Cash Incentives: The Itron Incentive Plan (IIP)” in this CD&A for details.
We will continue to keep an open dialogue with our shareholders to help ensure that we have a regular pulse on investor perspectives.
Our Compensation Philosophy & Objectives
The philosophy underlying our executive compensation program is to employ the best leaders in our industry to ensure we execute on our business goals, promote both
short-and long-term profitable growth of the Company, and create long-term
sustainable shareholder value, all grounded in the following guiding principles:
| | |
Pay for Performance | | | A significant portion of an executive’s total compensation should be variable (“at risk”at-risk”) and dependent upon the attainment of certain specific and measurable annual and long-term businessfinancial and strategic performance objectives. |
| | | |
Shareholder Alignment | | | Executives should be compensated through pay elements (base salaries and annual-(annual and long-term incentives) designed to createalign executive compensation to the creation of long-term value for our shareholders, as well as foster a culture of ownership.shareholders. |
| | | |
Competitiveness | | | Target compensation should be set at the median of market to ensure that compensation is at a level that is competitive with that being offered to individuals holding comparable positions at other companies with which we compete for business and leadership talent. |
| | | |
Attraction and Retention | | | The executive compensation program should enable the Company to attract highly-talentedhighly talented people with exceptional leadership capabilities and to retain high-caliber talent. When required, the Company may adjust individual elements of compensation to accomplish this goal. |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The Principal Elements of Pay: Total Direct Compensation (TDC)
Our compensation philosophy is supported by the following principal pay elements:
| | | | |
Pay Element | | | How ItsIt’s Paid | | | What It Does | | | | How It Links to Performance |
| | | | |
Base Salary | | Cash
(Fixed)
| Cash
(Fixed) | | | Provides a competitive fixed rate of pay relative to similar positions in the market, and enables the Company to attract and retain critical executive talent | | | | Based on job scope, level of responsibilities, individual performance, experience, and market levels |
Itron Incentive Plan (IIP) | | | Cash (Variable) | |
Annual Cash Incentive (EMIP) | | Cash
(Variable)
| | Focuses executives on achieving annual financial and strategic goals that drive long-term shareholder value | | | • | ◾
| | Financial metrics: Adjusted EBITDA and Revenue |
| | | | | ○ | | | Payouts: 0% to 180%150% of target based on financial results and strategic goalperformance attainment against pre-established pre-determined goals, ◾ Financial subject to the achievement of a threshold Adjusted EBITDA goal
|
| | • | | | Non-financial metrics: Total Company consolidatedQuantitative Strategic Goals, including NPI revenue and Adjusted EBITDA◾ Strategic goals: tied to specific strategic objectives
reduction in GHG emissions |
| | | | | ○ | | | Payouts: 0% to 100% of target |
| | • | | | The Committee retains discretion to further adjust the award based on its assessment of individual and/or business unit performance |
Long-Term
Incentive Plan
(LTIP) | | Equity
(Variable)
| Equity (Variable) | | | Provides incentives for executives to execute on longer-term financial/strategic growth goals that drive shareholder value creation and support the Company’s retention strategy | | | | See below |
| | | |
50% of LTIP Grant:
Performance- Based
Performance-Based Restricted Stock Units (PRSUs) | | | Rewards achievement of financial goals measured over a three-year performance period | | | • | ◾
| | Financial metrics: Non-GAAP diluted EPS and relative TSR
|
| | • | | | Payouts: 0% to 200% of a target based on results against pre-established pre-determined financial goals, andmodified +/- 25% based on relative TSR performance ◾ Financial metrics:Non-GAAP EPS and relative TSR
|
| | • | | | Paid in Itron shares once earned |
25% of LTIP Grant:
Time-Vested Restricted Stock OptionsUnits (RSUs) | | Rewards for stock price appreciation | Supports retention | | | ◾ Exercise price: 100% of fair market value on the grant date
◾
• | | | Vesting: 1/3 per year on the first anniversary of the grant date ◾ Exercise term: 10 and quarterly thereafter for two years
|
| | • | | |
25% of LTIP Grant:
Time-Vested Restricted Stock Units (RSUs)
| | Supports retention | | | | ◾ Vesting: 1/3 per year on the anniversary of the grant date
◾
Paid in Itron shares at vesting |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The charts below show the target
annual TDC of our CEO,
Mr. Deitrich, and our other NEOs for fiscal
2017.year 2023. These charts illustrate that a majority of NEO TDC is variable
(84%(87% for our CEO and an average of
71%72% for our other NEOs).
These charts do not include any one-time equity grants or awards outside of target annual TDC, if any.
Note: Figures may not add up to 100% due to rounding.
Our
Decision MakingDecision-Making Process
The Role of the Compensation Committee
The Compensation Committee oversees the executive compensation program for our NEOs. The Committee is comprised of independent,
non-employee members of the Board. The Committee works very closely with its independent consultant and management to examine the effectiveness of the Company’s executive compensation program throughout the year. Details of the Committee’s authority and responsibilities are specified in the
Compensation Committee’s charter, which may be accessed at our website,
www.itron.com, by
clickingselecting “Investors,” and then
“Corporate“Sustainability and Governance.”
The Committee makes all final compensation and equity award decisions regarding our NEOs, except for the CEO, whose compensation is determined by the independent members of the full Board, based upon recommendations of the Committee.
Members of our management team attend regular
Compensation Committee meetings where executive compensation, Company and individual performance, and competitive compensation levels and practices are discussed and evaluated. Only the Committee members
are allowed tocan vote on decisions regarding NEO compensation.
The CEO reviews his recommendations pertaining to
the compensation of the other
executives(non-NEO) payNEOs with the Committee providing
management input, transparency, and oversight.
Decisions onnon-NEO payApprovals of NEO compensation other than CEO compensation are made by the
CEO.Committee. The CEO does not participate in the deliberations of the Committee regarding his own compensation. Independent members of the Board make all final determinations regarding CEO compensation.
The Role of the Independent Consultant
The Committee engages an independent compensation consultant to provide expertise on competitive pay practices, program design, and an objective assessment of any inherent risks of any programs. Pursuant to authority granted to it under its charter, the Committee has hired F.W. Cook as its independent consultant. F.W. Cook reports directly to the Committee and does not provide any additional services to management. The Committee has conducted an independence assessment of F.W. Cook in accordance with SEC rules.rules and concluded that F.W. Cook is independent.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The Role of Peer Companies
For some of our direct competitors who are not publicly held, or are smaller business units within a conglomerate, there is limited compensation information available. As a result, our peer companies for purposes
of benchmarking executive compensation (Peer Companies) generally consist of direct competitors for which public information is available or companies that compete for our talent, who are part of the same broad Standard & Poor’s (S&P) industry classifications of technology hardware and equipment or in software and services, and who are similar in size and scope of global operations as Itron. The Committee reviews the Peer Companies on an annual basis.
For the purposes of setting
20172023 compensation, and with the support of F.W. Cook, the Committee
did not make any changes to the Peer Companies. Note that due to acquisition by MicroChip technology in April 2016, Atmel Corporation was eliminated. | | | | | | | | | | | | | | |
Peer Companies | | Peer Data as of12-31-2016 | |
Ametek Inc. | | OSI Systems, Inc | | | | | | | $ Millions | |
Ciber, Inc.* | | Roper Technologies Inc. | | | Percentile | | | | Revenue | | | | Market Cap | |
Diebold Nixdorf, Inc. | | Teradyne Inc. | | | 25th | | | | $1,156 | | | | $1,782 | |
EPAM Systems, Inc.* | | Trimble Inc. | | | 50th | | | | $2,058 | | | | $3,905 | |
ESCO Technologies Inc. | | Unisys Corporation* | | | 75th | | | | $3,623 | | | | $7,887 | |
FLIR Systems, Inc. | | Watts Water Technologies, Inc | | | | | | | | | | | | |
Juniper Networks, Inc.* | | Xylem Inc. | | | Itron | | | | $2,013 | | | | $2,405 | |
Mueller Water Products, Inc. | | Zebra Technologies Corp* | | | Percentile Rank | | | | 50% | | | | 41% | |
EnerSys | | | Teradata Corporation |
F5 Networks, Inc. | | | Teradyne Inc. |
ITT Inc. | | | Trimble Inc. |
Mueller Water Products, Inc. | | | Unisys Corporation |
National Instruments Corporation | | | Vontier Corporation |
NetScout Systems, Inc. | | | Watts Water Technologies, Inc |
PTC Inc. | | | Xylem Inc. |
Percentile | | | Revenue | | | Market Cap |
25th | | | $1,555 | | | $2,848 |
50th | | | $1,980 | | | $4,371 |
75th | | | $3,162 | | | $9,615 |
| | | | | | |
Itron | | | $1,796 | | | $2,288 |
Percentile Rank | | | 33% | | | 19% |
For each of the Peer Companies, data regarding base salaries, annual incentives, and long-term incentives was obtained from their annual proxy
statements and reviewed by the Committee’s compensation consultant, Pearl Meyer.statements. This data was supplemented with survey data prepared by Radford Survey & Consulting (Radford Survey), which provides compensation market information on more than 700 technology companies, aggregated, and presented anonymously. The Radford Survey data was narrowed to those technology companies with revenues between $1 billion and $3 billion, similar to Itron.
With the support of F.W. Cook, the Committee evaluates this data for informational purposes when establishing a range of competitive compensation for our NEOs. For each NEO, the Committee determines the salary range, annual incentive target, and long-term incentive taking into consideration market data for the position being evaluated. However, market data is not the sole determinant of the Company’s practices or executive compensation levels. The Committee also takes into accountconsiders the experience, performance, responsibilities, and contributions to the Company by each NEO when making its decisions. For the CEO, the Committee makes a recommendation to the full Board, and the independent members of the Board review and approve the CEO’s compensation.
The 20172023 Executive Compensation Program in Detail
Base salary represents annual fixed compensation and is a standard element of compensation necessary to attract and retain executive leadership talent. In making base salary decisions, the Committee considers the CEO’s recommendations
for NEO compensation (other than the CEO), as well as each NEO’s position and level of responsibility within the Company. The Committee
takes into accountconsiders factors such as relevant market data as well as individual performance and contributions.
TheAfter its annual review, the Committee
approvedincreased base salaries for all the
CEO recommended annualNEOs to better align pay with the market. Mr. Marcolini’s increase was to continue a multi-year strategy to improve his competitive pay positioning relative to the market. Annual base salary
rate, and the independent members of the Board approved the CEO annual base salary raterates for 2023 were as follows:
| | | | | | | | | | |
NEO | | 2016 | | | 2017 | | | % Increase |
Philip C. Mezey | | $ | 800,000 | | | $ | 800,000 | | | 0% |
Thomas L. Deitrich | | $ | 550,000 | | | $ | 550,000 | | | 0% |
Robert H.A. Farrow* | | $ | 293,000 | | | $ | 300,000 | | | 2.4% |
Joan S. Hooper** | | $ | NA | | | $ | 485,000 | | | NA |
Michel C. Cadieux | | $ | 400,000 | | | $ | 400,000 | | | 0% |
Shannon M. Votava | | $ | 400,000 | | | $ | 400,000 | | | 0% |
W. Mark Schmitz | | $ | 475,000 | | | $ | 475,000 | | | 0% |
Thomas L. Deitrich | | | $830,000 | | | $875,000 | | | 5.4% |
Joan S. Hooper | | | $530,000 | | | $540,000 | | | 1.9% |
Donald L. Reeves | | | $425,000 | | | $460,000 | | | 8.2% |
John F. Marcolini | | | $385,000 | | | $450,000 | | | 16.9% |
Justin K. Patrick* | | | $370,000 | | | $400,000 | | | 8.1% |
*
| Mr. Farrow’s annual base salary as interim CFOPatrick was $293,300. He also received an additional payment of $7,000not a NEO for each month he served as interim CFO. Mr. Farrow received a merit increase bringing his salary to $300,000 on July 3, 2017. 2022. |
**2024 PROXY STATEMENT | Ms. Hooper’s annual base salary as CFO was set at $485,000 when she was hired on June 5, 2017.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Annual Cash Incentives: The
Executive ManagementItron Incentive Plan
(EMIP)(IIP)
The 2017 EMIP2023 IIP provided our NEOs the opportunity to earn a performance-based annual cash bonus. Actual bonus payouts depend on the achievement ofpre-established pre-determined financial and non-financial performance objectives. Financial objectives are subject to the achievement of a threshold Adjusted EBITDA goal and payouts can range from 0% to 180%150% of target award amounts. Non-financial objectives are based on Quantitative Strategic Goals and payouts can range between 0% and 100% of target award amounts. The Committee also retains discretion to apply a modifier to payouts under the IIP to either reduce or increase the payout based on its assessment of individual and/or business unit performance. As discussed below under “2023 Individual Performance,” the Committee applied this discretion for 2023 payouts.
2023 Target Annual Bonus Opportunities. Target annual bonus opportunities are expressed as a percentage of base salary and were established by the NEO’s level of responsibility and his or her ability to impact overall results. The Committee also considers market data in setting target award amounts. 2017The Committee increased Messrs. Reeves’, Marcolini’s, and Patrick’s target awardannual bonus opportunities from 70% in 2022 to 75% in 2023 to better align with those of their business unit peers. All other NEO target annual bonus opportunities remained unchanged from 20162022. As a result, target awardannual bonus opportunities andfor 2023 were as follows: NEO
| | 2023 Target EMIP
IIP
(as a % of Base Salary) |
Philip C. Mezey
| | 125% |
Thomas L. Deitrich | | 100% | 125% |
Robert H.A. Farrow*
| | 50% |
Joan S. Hooper | | | 75% |
Michel C. Cadieux
Donald L. Reeves | | | 75% |
Shannon M. Votava
John F. Marcolini | | 65% | 75% |
W. Mark Schmitz
Justin K. Patrick | | | 75% |
* | Mr. Farrow’s target EMIP opportunity was 50% of his base salary for 2017 only (to reflect his role as Interim CFO).
|
20172023 Performance Objectives.
An individual NEO’s EMIPIIP award is based on a combinationthe following mix of financial and strategic objectives.non-financial objectives:
Performance ObjectivesFinancial
(80%)
Maximum payout:
150% of target | | Metrics & Metrics Weighting | Adjusted
EBITDA | EMIP Weighting | | | | | Focuses on profitable growth, while continuing to provide strong accountability for returns.
Adjusted EBITDA provides a more useful illustration of our financial performance and the ongoing operations of our business, since the adjustments exclude certain expenses that are not indicative of our recurring core operating results. This facilitates better comparisons to our historical performance and our competitors’ operating results. |
Financial | Revenue | Total Company Consolidated Revenue (30%) | | 24% | | | Ensures we are delivering an appropriate level of top-line growth. |
Non-Financial
(20%)
Maximum payout:
100% of target | | Total Company Adjusted EBITDA (70%) | Quantitative
Strategic Goals
• NPI revenue • Reduction in GHG emissions | 56% | | | | | Adds accountability for driving results linked to the Company’s strategic goals. |
Strategic Total | | Strategic Objectives | | 20% |
Total | | 100% | | 100% | |
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In 2017, we used total Company consolidated revenue
EXECUTIVE COMPENSATION
Compensation Discussion and Adjusted EBITDA asAnalysis
2023 Financial Performance Levels & Results. The following table shows the financial performance metrics in the EMIP because we believe it is importantnecessary to focus on both top line growth (revenue)achieve threshold (0% payout), as well as profitability. Total Company Adjusted EBITDA provides a more useful illustration of our financialtarget (100% payout), and maximum (150% payout) bonus amounts, along with actual results for 2023:
Adjusted EBITDA | | | $74.0 | | | $105.0 | | | $116.0 | | | $225.6 |
Revenue | | | $1,755.0 | | | $1,950.0 | | | $2,145.0 | | | $2,173.6 |
Note: Payouts are linearly interpolated for performance
between threshold and
the ongoing operations of our business, since the adjustments exclude certain expenses that are not indicative of our recurring core operating results. This facilitates better comparisons to our historical performance and our competitors’ operating results. To continue our focus on profits and sales performance, the weighting of the financial performance objectives (which represent 80% of a NEO’s EMIP award) for 2017 was 70% total Company Adjusted EBITDA and 30% total Company consolidated revenue. A schedule reconciling Adjusted EBITDA to net income andnon-GAAP EPS to GAAP EPS is available on page 41 of our 2017 Annual Report on Form10-K.maximum.
Each year, the Committee reviews the financial performance and considers adjustments for items that are not reflective of normal operating performance for that year. These adjustments are items that the Committee believes are fair to both participants and shareholders, encourage appropriate actions that foster the long-term health of the business, and are consistent with the objectives underlying our
predeterminedpre-determined performance goals. Such exclusions may consist of the costs and financial effects of restructuring, acquisitions, and dispositions, selected legal costs and settlements,
pandemics, and the effects of foreign currency translation.
2017 Financial Performance Levels & Results. The following table shows the performance necessary to achieve threshold, target and maximum bonus payout amounts, along with actual results for 2017:
| | | | | | | | | | | | | | | | |
| | Threshold | | | Target | | | Maximum | | | Actual
Results | |
Total Company Consolidated Revenue
| | $ | 1,846 M | | | $ | 2,052 M | | | $ | 2,257 M | | | $ | 2,018 M | |
Total Company Adjusted EBITDA
| | $ | 204 M | | | $ | 232 M | | | $ | 260 M | | | $ | 228 M | |
Note: Payouts are linearly interpolated for performance between threshold, target and maximum.
2017 Strategic Goals & Achievements. The strategic goals for the NEOs, as determined No adjustments were made in consultation with the CEO and reviewed with the Committee, generally encompass objectives as they relate to both the individual business segments and the entire Company. For 2017, they were developed to continue to strengthen our operational results through objectives that align to predictability, profitability, and growth.
Approved strategic goals included meeting return on invested capital targets, growth in Software and Services revenue and margin, cost ofnon-quality targets, improvement in predictability of quarterly financial results, and new hire goals focused on diversifying and broadening our organizational talent capabilities. The Company achieved partial results on goals relating to predictability in results and diversifying and refreshing organizational talent. The Company missed the goal related to growth in Software and Services revenue and margin, but fully achieved specific strategic goals relating to return on invested capital and cost ofnon-quality.
2017 EMIP Results and Payouts.The following table summarizes the financial and strategic performance results for 2017:
| | | | | | | | |
| Performance Objectives | | Weighting | | | Percentage of
Attainment | | Overall Weighted
Attainment |
| Total Company Consolidated Revenue | | | 24% | | | 87.79% | | 21.07% |
| Total Company Adjusted EBITDA | | | 56% | | | 89.70% | | 50.23% |
| Strategic Objectives | | | 20% | | | 67.50% | | 13.50% |
| Total: | | | | | | | | 84.80% |
Based on the above financial performance results, the following table listsportion of the 2023 IIP payout linked to the financial objectives was earned at 150% of each NEO’s applicable target.
2023 Non-Financial Performance Levels and Results. For 2023, the metrics for the IIP were modified to include non-financial objectives focused on two equally weighted Quantitative Strategic Goal categories:
NPI revenue. NPI refers to the need to deliver new products to market on time and ahead of our competition to achieve or maintain a leadership position in the markets we serve. NPI revenue refers to the revenues from new products launched within the last three years.
| • | Reduction in GHG emissions. Itron has committed to achieving a >50% reduction (from the 2019 baseline) in Scope 1 and Scope 2 greenhouse gas emissions by 2028. Scope 1 includes direct emissions from Company-owned and controlled (leased) sources; Scope 2 emissions include those indirect emissions associated with the purchase of electricity, heat, steam or cooling. |
The Committee selected these categories and their respective metrics and goals at the beginning of the year intentionally to reflect the Company’s business strategy and commitment to Environmental, Social and Governance (ESG) (please see page 23 of this Proxy Statement). The Quantitative Strategic Goals are binary, equally weighted and scored independently. Any related payouts are limited to 100% of target. The specific metrics and goals in each category that were approved by the Compensation Committee for 2023, as well as the actual awardsachievement results for 2023, are outlined below:
NPI Revenue | | | NPI Revenue of >15% | | | Achieved |
Reduction in GHG Emissions | | | >25% reduction from 2019 level Scope 1 + Scope 2 | | | Achieved |
Based on the above non-financial performance results, the portion of the 2023 IIP payout linked to the Quantitative Strategic Goals was earned at 100% of each NEO’s applicable target.
2023 Individual Performance. The IIP includes an Individual Performance Factor (IPF) that may be applied at the Committee’s discretion based on the NEO’s individual and/or business unit’s performance. The Committee may decide to adjust each NEO’s IIP payout upward or downward by applying a multiplier in the range of 0% to 150% against the initially-calculated payout based on the financial and bonusesnon-financial results. An IPF multiplier of 100% is equivalent to no adjustment to the initially-calculated payout. For 2023, the CEO recommended, and the Compensation Committee approved, adjustments for Messrs. Reeves, Marcolini and Patrick, as shown in the table below.
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TABLE OF CONTENTS
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
2023 IIP Results and Payouts. The actual IIP awards paid to the NEOs in 2017: | | | | | | | | | | | | |
NEO | | Target
(as a % of Base Salary) | | | Actual Payout
(as a % of Salary) | | | Actual Cash Payout
($) | |
Philip C. Mezey | | | 125 | % | | | 106.01 | % | | $ | 848,040 | |
Thomas L. Deitrich | | | 100 | % | | | 84.80 | % | | $ | 466,422 | |
Robert H.A. Farrow | | | 50 | % | | | 42.40 | % | | $ | 127,206 | |
Joan S. Hooper* | | | 75 | % | | | 36.59 | % | | $ | 177,465 | |
Michel C. Cadieux | | | 75 | % | | | 63.60 | % | | $ | 254,412 | |
Shannon M. Votava | | | 65 | % | | | 55.12 | % | | $ | 220,490 | |
W. Mark Schmitz** | | | 75 | % | | | 0 | % | | $ | 0 | |
* | Ms. Hooper’s payout waspro-rated at 57.53% based on her start date of June 5, 2017.
|
** | Mr. Schmitz’s awards were forfeited upon his stepping down from his position as CFO.
|
for 2023 were as follows:
Thomas L. Deitrich | | | 125% | | | $1,093,750 | | | 150% | | | 100% | | | 100% | | | $1,531,250 | | | 140% |
Joan S. Hooper | | | 75% | | | $405,000 | | | 150% | | | 100% | | | 100% | | | $567,000 | | | 140% |
Donald L. Reeves | | | 75% | | | $345,000 | | | 150% | | | 100% | | | 95% | | | $458,850 | | | 133% |
John F. Marcolini | | | 75% | | | $337,500 | | | 150% | | | 100% | | | 110% | | | $519,750 | | | 154% |
Justin K. Patrick | | | 75% | | | $300,000 | | | 150% | | | 100% | | | 110% | | | $462,000 | | | 154% |
Long-Term
IncentivesEquity Incentive: The Long-Term Incentive Plan (LTIP)
The NEOs are eligible for long-term incentives, all of which were issued under the terms of our A&R 2010 Plan or Second A&R 2010 Plan. For fiscal year 2017,The Compensation Committee considers a mix of equity vehicles when granting long-term incentives were grantedand uses PRSUs and RSUs as follows:
PRSUs reward the achievement of financial goals over a three-year performance period.
RSUs support retention; they vest 1/3 on the first anniversary of the grant date and quarterly thereafter for two years.
The Compensation Committee decided to increase the emphasis on performance-based equity for the CEO by using an annual LTIP award mix of 68% PRSUs and 32% RSUs, as compared to 62.5% PRSUs and 37.5% RSUs in 2022. The annual LTIP awards for all other NEOs are comprised of 50% PRSUs and 50% RSUs. In addition, consistent with our peer group and market practices, the Compensation Committee increased the payout maximum from 160% of target to 200% of target beginning with the 2023 portion (tranche three) of the 2021-2023 performance cycle of the PRSUs. This change also applies to the 2023 tranche (tranche two) of the 2022-2024 performance cycle and future performance cycles.
38 | ITRON, INC. | 2024 PROXY STATEMENT |
TABLE OF CONTENTS
2017EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
2023 Target Long-Term Incentive Award Grants.
After its annual review, the Committee increased Mr. Deitrich’s, Ms. Hooper’s and Messrs. Reeves' and Marcolini’s target annual long-term incentive awards by $700,000, $100,000, and $150,000, respectively, to continue to improve competitive positioning relative to the market. The table below shows the long-term incentivetarget annual LTIP award values granted for fiscal 2017year 2023 for each of the NEOs, which remained unchanged from 2016 values, except with respect to Ms. Votava who received an additional $50,000 in value as a result of benchmarking compensation data provided by F.W. Cook: | | | | | | | | | | | | | | | | |
NEO | | PRSUs**
(at Target) | | | Stock
Options* | | | RSUs** | | | Total Value | |
Philip C. Mezey | | $ | 1,600,000 | | | $ | 800,000 | | | $ | 800,000 | | | $ | 3,200,000 | |
Thomas L. Deitrich | | $ | 1,000,000 | | | $ | 500,000 | | | $ | 500,000 | | | $ | 2,000,000 | |
Robert H.A. Farrow† | | $ | 70,000 | | | $ | 35,000 | | | $ | 35,000 | | | $ | 140,000 | |
Joan S. Hooper | | $ | 500,000 | | | $ | 250,000 | | | $ | 250,000 | | | $ | 1,000,000 | |
Michel C. Cadieux | | $ | 400,000 | | | $ | 200,000 | | | $ | 200,000 | | | $ | 800,000 | |
Shannon M. Votava | | $ | 300,000 | | | $ | 150,000 | | | $ | 150,000 | | | $ | 600,000 | |
W. Mark Schmitz†† | | $ | 500,000 | | | $ | 250,000 | | | $ | 250,000 | | | $ | 1,000,000 | |
Thomas L. Deitrich | | | $3,196,000 | | | $1,504,000 | | | $4,700,000 |
Joan S. Hooper | | | $800,000 | | | $800,000 | | | $1,600,000 |
Donald L. Reeves | | | $300,000 | | | $300,000 | | | $600,000 |
John F. Marcolini | | | $300,000 | | | $300,000 | | | $600,000 |
Justin K. Patrick | | | $275,000 | | | $275,000 | | | $550,000 |
*
| Individual award amounts were calculated based on Black-Scholes values.
|
** | Award amounts for PRSUs and RSUs were determined based on the closing price of our common stock on the date of grant on February 23, 2017 for all other NEOs, except that award values for Ms. Hooper were determined based on the closing price of our common stock on June 20, 2017 in connection with her new hire. 2023, which was $55.59. |
† | In conjunction with Mr. Farrow’s role as interim CFO, he also received aone-time, special grant of RSUs with a grant date fair market value of $140,000, which is not included in the table above. This award amount was determined based on the closing price of our common stock on the date of the grant on March 28, 2017. This award was granted under the A&R 2010 Plan and will vest 100% on the second anniversary of the grant.
|
†† | Mr. Schmitz’s awards were forfeited upon his stepping down from his position as CFO.
|
A Closer Look at
Performance-Based Restricted Stock Units (PRSUs).PRSUs. The actual number of PRSUs that are earned and vested areis based on the achievement of specific financial performancenon-GAAP diluted EPS goals and relative TSR results. Specifically, actual awards are linked to a three-year performance period that consists of three annual performance cycles. The performance result used to determine the actual award earned is calculated at the end of the three-year performance period by averaging the results of the three annual performance cycles, then is adjusted +/-25% based on performance relative to TSR as compared to the Russell 3000 Index.
2017
2023 Performance
Metrics:Metrics. Non-GAAP Diluted EPS
& Relative TSR. PRSUs are driven by the achievement ofnon-GAAP diluted EPS and relative TSR performance targets. | • | ◾ | | Non-GAAP Diluted EPS:Non-GAAP diluted EPS targets are set by the Committee at the beginning of each annual performance cycle. Payout levels can range from 50%0% to 160%200% of target for each year in the performance cycle. No PSRUs are earned for performance below the threshold. The following table shows the thresholds, targets and maximums fornon-GAAP EPS set by the Committee at the beginning of each annual performance cycle and our actualnon-GAAP EPS results used for calculating PRSUs earned for 2015, 2016 and 2017:depend on performance results.
|
| | | | | | | | | | | | | | | | |
Year | | Threshold
50% | | | Target
100% | | | Maximum
160% | | | Results | |
2015 | | $ | 1.60 | | | $ | 1.85 | | | $ | 2.15 | | | $ | 0.73 | |
2016 | | $ | 1.95 | | | $ | 2.25 | | | $ | 2.48 | | | $ | 2.54 | |
2017 | | $ | 2.58 | | | $ | 3.00 | | | $ | 3.30 | | | $ | 3.06 | |
Note: Thenon-GAAP EPS results shown are based on financial results as reported for 2015, 2016, and 2017 (as reported in our Annual Report on Form10-K for the year ended December 31, 2017). Performance for levels achieved between threshold, target, and maximum are linearly interpolated.
| • | ◾ | |
Relative TSR:At the end of the three-year performance period, thenon-GAAP diluted EPS attainment results for each of the annual performance cycles are averaged. The averagenon-GAAP diluted EPS attainment is then adjusted +/-25% based on the achievement by the Company of TSR relative to the Russell 3000 index for the same three-year performance cycle as follows: |
If relative TSR attainment is...is: | | | Then the average non-GAAP diluted EPS attainment is...is: |
At or below
Below the 25th percentile | | | Adjusted down by 25% |
At 50
Between the 25th and 75th percentile | | | No adjustment |
At or above
Above the 75th Percentile | | | Increased by 25% |
Note: Adjustments for levels achieved between the 25th, 50th, and 75th percentiles are linearly interpolated.
For the 2017 PRSUs granted in 2023, the TSR targets and point multipliers were all established in December 2022, and approved in February 20172023, by the Compensation Committee and by the independent members of the full Board for the CEO.
2024 PROXY STATEMENT | ITRON, INC. | 39 |
