UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
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ARTHUR J. GALLAGHER & CO.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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March 19, 2021
Dear Fellow Stockholder,
On behalf of our Board of Directors, I invite you to attend our 2021 Annual Meeting of Stockholders. We will be conducting our Annual Meeting virtually again this year. If you are not able to attend, we encourage you to vote by proxy. These proxy materials contain detailed information about the matters on which we are asking you to vote. We hope you will read these materials and then vote in accordance with the Board’s recommendations. Your vote is very important to us.
2020 was a tumultuous year that challenged all of our key stakeholders: clients, employees, carrier partners and the communities in which we live and work. The pandemic tested everything from our physical health to our mental state of mind. It brought personal hardship and loss and imposed stresses and challenges that none of us would have predicted a year ago. Despite these challenges, we finished 2020 as a stronger company, poised to do great things as we reemerge from the pandemic here in 2021. I am proud of the extraordinary efforts of my colleagues around the globe and the resolve and resiliency they demonstrated during the past year.
When the pandemic hit, we acted swiftly and purposefully to reduce costs, yet never lost our focus on maintaining high quality and responsive client service. Then, throughout the pandemic, we persevered and executed on our long-term operating priorities: growing both organically and through acquisitions, improving our productivity and quality, and maintaining our bedrock culture. Our professionals found creative ways to service our clients, seek out new ones, engage with our carrier partners, stay involved in our communities and connect with other Gallagher colleagues.
I believe our unique Gallagher culture was the source of our success in 2020. As a result, our core brokerage and risk management segments combined to grow adjusted revenue1 5.9% to $6.0 billion and adjusted EBITDAC1 was up 21.0% to over $1.8 billion. I am extremely proud of our financial performance in 2020, but I am even more proud of how we came together and worked as a team even while physically apart. As further testament to our team and our culture, earlier this year we were pleased to be recognized by the Ethisphere Institute for the 10th consecutive year as one of the World’s Most Ethical Companies®.
I would especially like to thank our clients for their continued trust, and our colleagues around the globe for being flexible, working hard and never losing focus on the job at hand – to deliver the very best insurance, risk management and consulting solutions for our clients. I am confident that we can deliver tremendous value for all our stakeholders in the years to come and truly believe we are just getting started!
On behalf of our Board of Directors, thank you for your continued support. We look forward to welcoming you at our 2021 Annual Meeting.
Sincerely,
 |
J. Patrick Gallagher, Jr. Chairman of the Board, President and Chief Executive Officer |
| 1 | See Annex A for reconciliations of non-GAAP measures. |
Arthur J. Gallagher & Co.
2850 Golf Road
Rolling Meadows, Illinois 60008-4050
Notice of 20202021 Annual Meeting of Stockholders
Dear Stockholder:
We are pleased to invite you to the 20202021 Annual Meeting of Stockholders of Arthur J. Gallagher & Co., which will be held as a virtual meeting, conducted via live audio webcast, on May 12, 2020,11, 2021, at 9:00 AM CDT, at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050.CDT. At the meeting, stockholders will vote on each item described below and we will transact such other business that properly comes before the meeting.
Voting Items | Board Recommendations | |
• Elect each of the | FOR each nominee | |
• Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, | FOR | |
• Approve, on an advisory basis, the compensation of our named executive officers (Item 3) | FOR | |
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Stockholders of record at the close of business on March 20, 202015, 2021 are entitled to notice of and to vote at the Annual Meeting. The applicable voting standard and the treatment of abstentions and “brokernon-votes” for each of these items are set forth on page 38 of the Proxy Statement. Stockholders may vote shares prior to the meeting by visiting www.proxyvote.com.
Stockholders who wish to attendOn the day of the Annual Meeting, stockholders of record as of the close of business on March 15, 2021, the record date, are entitled to participate in person should bring a driver’s license, passport or other formand vote at the Annual Meeting. To participate in the Annual Meeting, including to vote, ask questions, and view the list of government-issued identification to verify their identities. In addition, if you hold your shares through a broker, you will need to bring either (1) a letter from your broker stating that you held Gallagher sharesregistered stockholders as of the record date during the meeting, stockholders of record should go to the meeting website at www.virtualshareholdermeeting.com/AJG2021, enter the 16-digit control number found on your proxy card or (2) a copyNotice of Internet Availability of Proxy Materials, and follow the noticeinstructions on the website. If your shares are held in street name and your voting instruction form or Notice of Internet Availability of Proxy Materials indicates that you may vote those shares through the http://www.proxyvote.com website, then you may access, participate in, and vote at the Annual Meeting document you received in the mail.
We are actively monitoring the public health and travel safety concerns relating to the coronavirus (COVID-19) and the advisories or mandates that federal, state, and local governments, and related agencies, may issue. In the event it is not possible or advisable to hold our Annual Meeting as currently planned, we will announce any additional or alternative arrangements for the meeting, which may include a change in venue or holding the meeting solely by means of remote communication. Please monitor our press releases, available at www.ajg.com/ir, and our filings with the SEC for updated information. If you are planning16-digit access code indicated on that voting instruction form or Notice of Internet Availability of Proxy Materials. Otherwise, stockholders who hold their shares in street name should contact their bank, broker or other nominee (preferably at least 5 days before the annual meeting) and obtain a “legal proxy” in order to be able to attend, ourparticipate in or vote at the Annual Meeting, please check www.ajg.com/ir the week of the meeting. As always, we encourage youMeeting.
Stockholders are encouraged to vote your shares priorlog in to the Annual Meeting.Meeting website before the Annual Meeting begins. Online check-in will be available approximately 10 minutes before the meeting starts. Additional information regarding the rules and procedures for participating in the virtual Annual Meeting will be set forth in our meeting rules of conduct, which stockholders will be able to view during the meeting.
An electronic list of the stockholders of record as of the record date will be available for examination by stockholders at the Annual Meeting website during the meeting. For information on how to access the stockholder list from May 1, 2021 until the meeting, please contact our VP – Investor Relations, whose contact information is at www.ajg.com/ir.
We urge you to read the Proxy Statement for additional information concerning the matters to be considered at the Annual Meeting and then vote in accordance with the Board’s recommendations. Your vote is very important to us.
By Order of the Board of Directors
WALTER D. BAY
SECRETARY
March 23, 202019, 2021
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders
to Be Held on May 12, 2020:11, 2021:
We are making this Notice of Annual Meeting, this Proxy Statement, our 20192020 Annual Report, and the Notice of Internet Availability of Proxy Materials available on the Internet at www.materials.proxyvote.com/363576 and mailing copies of these proxy materials to certain stockholders on or about March 23, 2020.19, 2021.
Proxy Statement
| CORPORATE GOVERNANCE | ||||
| 1 | ||||
Security Ownership by Certain Beneficial Owners and Management | ||||
| AUDIT MATTERS | ||||
| EXECUTIVE COMPENSATION | ||||
Item 3: Advisory Vote to Approve the Compensation of Our Named Executive Officers | ||||
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| QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING | ||||
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| B-1 | ||||
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Corporate Governance
Item 1 – Election of Directors
Evaluation Process for Director Candidates
The Nominating/Governance Committee considers director candidates suggested by stockholders, management or other members of the Board and may hire consultants or search firms to help identify and evaluate potential director candidates. For information regarding how stockholders can submit a director candidate for consideration by the Nominating/Governance Committee, as well as for information regarding “proxy access,” see page 40.39.
The Nominating/Governance Committee evaluates director candidates by considering their judgment, qualifications, attributes, skills, integrity, gender, racial/ethnic diversity, international business or other experience relevant to our global activities, and other factors it deems appropriate. The Committee looks for candidates who are leaders in the organizations with which they are affiliated and have experience in positions with a high degree of responsibility. The Committee seeks candidates free from relationships or conflicts of interest that could interfere with the director’s duties to Gallagher or our stockholders. The Committee also evaluates candidates’ independence and takes into account applicable requirements under Securities and Exchange Commission (SEC) rules and New York Stock Exchange (NYSE) listing standards.
Board Diversity
Our Board of Directors reflects diversity of gender, race/ethnicity, nationality, age, professional background and professional background.viewpoints. Of our tennine directors, two are women and one is racially/ethnically diverse. We are committed to maintaining a diverse and inclusive Board. OurIn 2020, our Board adopted the “Rooney Rule” for director searches. Under this policy, our Governance Guidelines provide that, when recruiting director candidates, the Nominating/Governance Committee includes, and requests that any search firm it engages include, qualified women and racially/ethnically diverse persons in the pool from which new director nominees are chosen. The Committee actively seeks Board members from diverse backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity.
Board Nominees and Vote Required
Upon the recommendation of the Nominating/Governance Committee, the Board has nominated our Chairman and CEO and each of the nineeight individuals listed below to hold office until the next annual meeting and the election and qualification of their successors or, if earlier, until their resignation, death or removal. Each of the nominees currently serves on the Board and has consented to serve for a new term if elected. However, if any nominee should become unable or unwilling to serve, the Board may nominate another person to stand for election or reduce the numbersize of directors.the Board.
Each director nominee who receives more “FOR” votes than “AGAINST” votes at the Annual Meeting will be elected. Any incumbent director nomineesnominee who receivereceives a greater number of votes “AGAINST” election than votes “FOR” election areis required to tender theiran offer of resignation for consideration by the Nominating/Governance Committee in accordance with our Governance Guidelines.
Independent Director Qualifications
The table below summarizes the key qualifications and areas of experience that led our Board to conclude that each independent director nominee is qualified to serve on our Board, but is not intended to be an exhaustive list of their qualifications or contributions.
Independent Directors | CEO
| Finance /
| Legal / Regulatory
| Risk Governance
| Sales and
| International
| Insurance
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Sherry S. Barrat |
| X |
| X |
| X |
| X |
| X | ||||||||||||||||||||||||||||||||
William L. Bax |
| X |
| X | ||||||||||||||||||||||||||||||||||||||
D. John Coldman |
| X |
| X |
| X |
| X | ||||||||||||||||||||||||||||||||||
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David S. Johnson |
| X |
| X |
| X |
| X | ||||||||||||||||||||||||||||||||||
Kay W. McCurdy |
| X |
| X |
| X | ||||||||||||||||||||||||||||||||||||
Christopher C. Miskel |
| X |
| X |
| X | ||||||||||||||||||||||||||||||||||||
Ralph J. Nicoletti |
| X |
| X |
| X | ||||||||||||||||||||||||||||||||||||
Norman L. Rosenthal |
| X |
| X |
| X | ||||||||||||||||||||||||||||||||||||
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ITEM 1: ELECTION OF DIRECTORS
 | THE BOARD RECOMMENDS THAT YOU VOTEFOR THE ELECTION OF EACH OF THE DIRECTOR NOMINEES LISTED BELOW |
Sherry S. Barrat
Age: Director Since: 2013
Independent
Committee Memberships: Compensation (Chair) Nominating/Governance Risk and Compliance
Public Company Boards: 2 | Ms. Barrat retired in 2012 as Vice Chairman of Northern Trust Corporation, a global financial holding company headquartered in Chicago, Illinois. She assumed the role of Vice Chairman in March 2011. From 2006 to 2011, Ms. Barrat served as Global President of Northern Trust’s personal financial services business, which provides asset management, fiduciary, estate and financial planning, and private banking services to individuals and families around the world. During her22-year career at Northern Trust, Ms. Barrat served in various other leadership roles and as a member of the Northern Trust Management Committee. Since 1998, Ms. Barrat has served as a director of NextEra Energy, Inc., one of the largest publicly traded electric power companies in the United States, where she serves as lead director and on the compensation and
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Skills and Qualifications
Ms. Barrat’s qualifications to serve on our Board and chair our Compensation Committee include her executive management, operational and financial experience, in particular her deep understanding of the financial services industry and her experience leading a global client service and sales organization.
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William L. Bax
Age: Director Since: 2006
Independent
Committee Memberships: Audit Risk and Compliance (Chair)
Public Company Boards: 1 | Mr. Bax was Managing Partner of the Chicago office of PricewaterhouseCoopers (PwC), an international accounting, auditing and consulting firm, from 1997 until his retirement in 2003, and was a partner in the firm for 26 years. Mr. Bax previously served as a director of Sears, Roebuck & Co., a publicly traded retail company, from 2003 to 2005; Andrew Corporation, a publicly traded communications products company, from 2006 to 2007; and mutual fund companies Northern Funds/Northern Institutional Funds, from 2006 to 2018.
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Skills and Qualifications
Mr. Bax’s qualifications to serve on our Board and
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D. John Coldman, OBE
Age: Director Since: 2014
Independent
Committee Memberships: Compensation
Public Company Boards: 1 | Mr. Coldman began his career at WT Greig, a reinsurance broker. In 1988, he became Managing Director and in 1996 was appointed Chairman of The Benfield Group, the world’s leading independent reinsurance and risk intermediary, until its acquisition by Aon Corporation in 2008. From 2001 to 2006, Mr. Coldman served as Deputy Chairman and a Member of Council of Lloyd’s of London. He is also a past Chairman of Brit PLC, a publicly traded global specialty insurer and reinsurer, from 1996 to 2000, and Omega Insurance Holdings Limited, a publicly traded insurance and reinsurance group, from 2010 to 2012. Mr. Coldman served as thenon-executive Chairman of Roodlane Medical Ltd., a privately held healthcare services provider, from 2007 to 2011. A U.K. citizen, Mr. Coldman was appointed an Officer of the Order of the British Empire (OBE) in the Queen’s Birthday Honours List 2017, for “services to business, young people, and charity.”
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Skills and Qualifications
Mr. Coldman’s qualifications to serve on our Board include his international insurance industry knowledge, his experience within the Lloyd’s and London marketplaces, and his experience with public company matters and mergers and acquisitions. | ||||||
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ITEM 1: ELECTION OF DIRECTORS
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J. Patrick Gallagher, Jr.
Age: Director Since: 1986
Chairman of the Board Since: 2006
Public Company Boards: 1 | Mr. Gallagher has spent his entire career with Arthur J. Gallagher & Co. in a variety of management positions, starting as a Production Account Executive in 1974, then serving as Vice President of Operations from 1985 to 1990, as President and Chief Operating Officer from 1990 to 1995, and as President and Chief Executive Officer since 1995. From 2011 to 2019, Mr. Gallagher served on the board of directors of InnerWorkings, Inc., a global, publicly traded provider of managed print, packaging and promotional solutions, where he was appointed to its compensation and nominating/governance committees. He serves on the Board of Trustees of the American Institute for Chartered Property Casualty Underwriters and on the Board of Founding Directors of the International Insurance Foundation.
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Skills and Qualifications
Mr. Gallagher is the only member of management serving on the Board. His
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David S. Johnson
Age: Director Since: 2003
Independent Lead Director
Committee Memberships: Compensation Nominating/Governance Risk and Compliance
Public Company Boards: 1 | Mr. Johnson
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Skills and Qualifications
Mr. Johnson’s qualifications to serve on our Board and as Lead Director include his experience as a senior executive of global businesses and his knowledge of corporate governance and executive compensation best practices. | ||||||
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ITEM 1: ELECTION OF DIRECTORS
Kay W. McCurdy
Age: Director Since: 2005
Independent
Committee Memberships: Compensation Nominating/Governance (Chair) Risk and Compliance
Public Company Boards: 1 | Ms. McCurdy practiced corporate and finance law from 1975 to 2019 at the law firm of Locke Lord LLP, where she was a partner from 1983 to 2012 and Of Counsel from 2012 to 2019. She served on the firm’s Executive Committee from 2004 to 2006. During her career as a corporate and finance attorney, Ms. McCurdy represented numerous companies on a wide range of matters, including financing transactions, mergers and acquisitions, securities offerings, executive compensation and corporate governance. Ms. McCurdy served as a director of Trek Bicycle Corporation, a leading bicycle manufacturer, from 1998 to 2007. In recognition of her ongoing commitment to director education and boardroom excellence, the National Association of Corporate Directors (NACD) has named Ms. McCurdy a NACD Governance Fellow every year since 2010. She is also a director and secretary of the Chicago chapter of NACD.
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Skills and Qualifications
Ms. McCurdy’s qualifications to serve on our Board and chair the Nominating/Governance Committee include her experience advising companies regarding legal, public disclosure, corporate governance, mergers and acquisitions and executive compensation issues. Ms. McCurdy is also NACD Directorship Certified.
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| 2021 PROXY STATEMENT | 3 |
ITEM 1: ELECTION OF DIRECTORS
Christopher C. Miskel
Age: Director Since: 2020
Independent
Committee Memberships: Audit
Public Company Boards: 1 | Since 2017, Mr. Miskel has served as President and Chief Executive Officer of Versiti, Inc., one of the largest independent blood products supply companies in the United States. From 2013 to 2017, Mr. Miskel served in senior management roles at Baxter International Inc., a publicly traded healthcare company, Baxalta Incorporated, which spun off from Baxter in July 2015, and Shire plc, which acquired Baxalta in June 2016. During this period, Mr. Miskel served as Vice President, U.S. BioScience National Accounts from 2013 to 2014, as Vice President, Plasma Strategy and New Product Development from 2014 to 2015, and as Head – Global Immunology from 2015 to 2017. Prior to 2013, he served in roles of increasing responsibility at Eli Lilly and Company, a publicly traded healthcare company. His tenure at Lilly included management experience in Australia and New Zealand. Mr. Miskel also currently serves as a member of the Medical College of Wisconsin Board of Trustees, the Board of Directors of the Milwaukee Regional Medical Center, and on the Executive Committee of the Board of Blood Centers of America.
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Skills and Qualifications
Mr. Miskel’s qualifications to serve on our Board include his senior executive experience, his involvement in setting strategy for large businesses such as Lilly, Baxter, Baxalta and Shire, his extensive sales and marketing experience, and his knowledge of the healthcare industry and related privacy and cybersecurity issues.
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Ralph J. Nicoletti
Age: Director Since: 2016
Independent
Committee Memberships: Audit (Chair)
Public Company Boards: 1 | Mr. Nicoletti has served as Senior Vice President and Chief Financial Officer of The AZEK Company,
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Skills and Qualifications
Mr. Nicoletti’s qualifications to serve on our Board and chair our Audit Committee include his experience as a senior executive of global businesses, his deep financial management expertise, capital markets experience and his experience managing privacy and cybersecurity issues.
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ITEM 1: ELECTION OF DIRECTORS
Norman L. Rosenthal,
Age: Director Since: 2008
Independent
Committee Memberships: Audit
Public Company Boards: 1 | Since 1996, Dr. Rosenthal has been President of Norman L. Rosenthal & Associates, Inc., a management consulting firm that specializes in the property and casualty insurance industry. He is also an affiliated partner of Lindsay Goldberg LLC, a private equity firm. Dr. Rosenthal served on the board and as a member of the compensation committee of National Interstate Corporation, a publicly traded insurance company specializing in commercial transportation exposures, from June 2015 until it was acquired by another insurance company in November 2016. He currently serves on the board of The Plymouth Rock Company, a privately held group of auto and homeowners’ insurance companies, as well as that of its subsidiary, Plymouth Rock Management Company of New Jersey. Prior to 1996, Dr. Rosenthal spent 15 years practicing in the property and casualty insurance industry at Morgan Stanley & Co., finishing his tenure there as Managing Director. Dr. Rosenthal holds a Ph.D. in Business and Applied Economics, with an insurance focus, from the Wharton School of the University of Pennsylvania.
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Skills and Qualifications
Dr. Rosenthal’s qualifications to serve on our Board include his extensive experience in the insurance and finance industries and his experience as an investment
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CORPORATE GOVERNANCE
Pat Gallagher currently serves as Chairman of the Board and CEO. With the exception of the Chairman, all Board members are independent and actively oversee the activities of the Chairman and other members of the senior management team. We believe that our Board leadership structure allows us to take advantage of Pat Gallagher’s extensive experience and knowledge of our business, which enriches the Board’s decision making. Pat Gallagher’s role as Chairman and CEO also enhances communication and coordination between management and the Board on critical issues.
David Johnson has served as our independent Lead Director since 2016. The duties and responsibilities of the independent Lead Director are set forth below.
Independent Lead Director Duties & Responsibilities
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Act as a liaison between the Chairman and the independent directors
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Be available for consultation and communication with stockholders as appropriate
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Call and preside over executive sessions of the independent directors without the Chairman or other members of management present
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Consult with the Chairman and approve Board meeting agendas and schedules
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Consult with the Chairman and approve information provided to the Board
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Consult with committee chairs with respect to agendas and information needs relating to committee meetings
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Work closely with and act as an advisor to the Chairman; be available to discuss with other directors concerns about the company or the Board and relay those concerns, where appropriate, to the Chairman or other members of the Board; and be familiar with corporate governance best practices
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Provide leadership to the Board if circumstances arise in which the role of the Chairman may be, or may be perceived to be, in conflict
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Perform such other duties and responsibilities as the Board may determine
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The independent directors meet regularly in executive sessions. Executive sessions are held at the beginning and at the end of each regularly scheduledin-person or telephonic Board meeting. Other executive sessions may be called by the Lead Director at his discretion or at the request of the Board. The committees of the Board also meet regularly in executive sessions. Executive sessions are chaired by our independent Lead Director. The Board believes that its leadership structure as described above provides an effective framework for addressing the risks facing our company.
The Board has conducted its annual review of the independence of each director nominee under NYSE standards and the independence standards set forth in Appendix A of our Governance Guidelines (available on our website located at www.ajg.com/ir, under the heading “Corporate Governance”). Based upon its review, the Board has concluded in its business judgment that, with the exception of Pat Gallagher, each of the other director nominees (Sherry S. Barrat, William L. Bax, D. John Coldman, Frank E. English, Jr., David S. Johnson, Kay W. McCurdy, Christopher C. Miskel, Ralph J. Nicoletti, and NormalNorman L. Rosenthal) is independent.independent and that Frank E. English, Jr. was independent during the portion of 2020 when he served on the Board.
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CORPORATE GOVERNANCE
Board CommitteesBoard’s Role in Risk Oversight
The Board currently has Audit, Compensationdelegated primary responsibility for risk oversight at Gallagher to the Risk and Nominating/Governance Committees, allCompliance Committee. However, the Board retains overall responsibility for risk oversight and reviews significant risk matters at the full-Board level when appropriate. For example, during 2020, the Board dedicated several meetings to the company’s management of risks related to cybersecurity and the COVID-19 pandemic. With respect to the pandemic, the Board reviewed steps taken by the company to strengthen our liquidity profile, manage expenses, and ensure the wellbeing of our employees during the crisis, among other things.
The Risk and Compliance Committee oversees enterprise risk management (ERM) and compliance with laws and regulations. Among other things, the Committee regularly reviews our major risk exposures and management’s activities to monitor and mitigate such exposures, reviews our business continuity and crisis management framework, including our incident response plans, reviews and discusses with management the risk appetite statements that are included in the risk register, monitors the effectiveness of management’s process to identify the laws and regulations applicable to us in the jurisdictions in which we operate and receives reports and presentations as appropriate from outside advisors, such as the independent auditors, compensation consultant or legal counsel, regarding risks facing us and our risk management and ethics and compliance programs. Our Global Chief Compliance Officer and our Global Chief Information Officer attend each meeting of the membersCommittee and report on significant compliance, data privacy and cybersecurity issues. The company also has a management-level ERM Committee consisting of which are independent.a Chair and senior personnel representing functional and business areas within the company, with broad oversight of ERM. The Chair of the ERM Committee attends each meeting of the Risk and Compliance Committee and reports on the company’s most significant risk exposures and other ERM matters. See page 8, below, for additional information regarding the responsibilities and activities of the Risk and Compliance Committee.
The other committees of the Board oversee the management of risks within their areas of responsibility. The Risk and Compliance Committee coordinates and communicates with these other committees as appropriate. In addition, to facilitate coordination and communication between the committees with respect to risk matters, the Risk and Compliance Committee includes at least one member from each other committee. The Risk and Compliance Committee (and each other committee as appropriate) reports regularly to the Board regarding our major risks and steps undertaken to monitor and mitigate such risks.
For each committee of the Board, the tables below set forth theits primary responsibilities, membersincluding certain key matters relating to risk oversight, as well as its membership, independence, and the number of meetings held in 2019 for each committee.2020.
Audit Committee
Met 5 times in
Committee Members: Ralph J. Nicoletti (Chair) William L. Bax
Christopher C.
Norman L. Rosenthal
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The Audit Committee’s responsibilities include general oversight of the integrity of our financial statements; firm; and, in coordination with the Risk and Compliance Committee, enterprise risk assessment and management. The Audit Committee manages our relationship with our independent registered public accounting firm and is responsible for the appointment, retention, termination and compensation of the independent auditor. Internal Audit The Committee oversees an internal audit department, the head of which reports directly to the Committee (on matters other than day-to-day operations). The internal audit department is independent from management and the Committee defines its responsibilities. Among other things, the purpose of the department is to bring a systematic and disciplined approach to evaluating and improving the effectiveness of our risk management, control and governance processes. The internal audit department evaluates the effectiveness of our risk management processes, performs consulting and advisory services for us related to risk management, and reports significant risk exposures to the Audit Committee or Risk and Compliance Committee, as appropriate.
Independence and Audit Committee Financial Experts
Each member of the Audit Committee meets the additional heightened independence and other requirements of the NYSE listing standards and SEC rules. In addition, the Board has determined that each of Mr. Bax and Mr. Nicoletti qualifies as an “audit committee financial expert” under SEC rules. |
6 | 2021 PROXY STATEMENT |
CORPORATE GOVERNANCE
Compensation
Met
Committee Members: Sherry S. Barrat (Chair) D. John Coldman David S. Johnson Kay W. McCurdy |
The Compensation Committee’s responsibilities include reviewing and approving compensation arrangements for our executive officers, including our CEO; reviewing the company’s strategies and policies related to human capital management; administering our equity compensation and other benefit employees (see “Compensation Risk Oversight” below). The Compensation Committee engaged a compensation consultant to assist it in carrying out its duties and Workforce Diversity Oversight The Compensation Committee reviews the company’s strategies and policies related to human capital management, including diversity and inclusion, workplace environment and culture, and talent development and retention. The Committee receives annual reports on diversity and inclusion from the company’s Chief Human Resources Officer. Compensation Risk Oversight The Committee reviews our overall compensation policies and practices to determine whether our program provides incentives for executive officers and other employees to take excessive risks. Based upon an analysis conducted by management and discussions between management and the Committee, the Committee has determined that our compensation policies and practices do not present risks that are likely to have a material adverse effect on us or our business. In reaching this determination, the Committee and management noted the following: (i) no single business unit bears a disproportionate share of our overall risk profile; (ii) no single business unit is significantly more profitable than the other business units; (iii) our compensation practices are substantially consistent across all business units both in the amount and types of compensation awarded; (iv) substantially all of our revenue-producing employees are sales professionals whose compensation is tied to the amount of revenue received by the company; (v) our annual cash incentive program caps payouts at 200% of target awards; and (vi) our performance share units are capped at 200% of target awards and are based on average performance over a three-year measurement period. In addition, a significant portion of our senior executives’ compensation is deferred and invested in Gallagher stock through our Deferred Equity Participation Plan and our senior executives own significant amounts of Gallagher stock. Stock options vest on the third, fourth and fifth anniversaries of the grant date and restricted stock units vest on the fifth anniversary of the grant date. Based on the above, the Committee believes that our compensation practices help ensure that no single year’s results and no single corporate action has a disproportionate effect on executive officers’ annual compensation, and encourage steady and consistent long-term performance by our executive officers.
Independence
Each member of the Compensation Committee meets the additional heightened independence and other requirements of the NYSE listing standards.
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| 2021 PROXY STATEMENT | 7 |
CORPORATE GOVERNANCE
Nominating/ Governance Committee
Met
Committee Members: Kay W. McCurdy (Chair) Sherry S. Barrat David S. Johnson |
The Nominating/Governance Committee’s responsibilities include identifying qualified Board and Board committee candidates; recommending changes to the Board’s size and composition; reviewing and making recommendations to the Board with respect to outside director compensation; recommending director independence standards and governance guidelines; governance, including the company’s political contributions and lobbying activities. The Committee also Board Diversity and Succession Planning As part of succession planning for the Board and key Board and committee leadership roles,
Independence
Each member of the Nominating/Governance Committee is independent under NYSE standards.
|
Met 2 times in 2020* Committee Members: William L. Bax (Chair) Kay W. McCurdy Sherry S. Barrat David S. Johnson *Committee met for the first time in July 2020. | The Risk and Compliance Committee’s responsibilities include reviewing the company’s risk management program, including risk identification, risk tolerance, risk assessment and risk mitigation; reviewing management’s approach to identify and prioritize the company’s most significant risk exposures and discussing with management the steps that have been taken to monitor and control such exposures; reviewing the company’s management of risks related to cybersecurity and information security; receiving regular reports from the company’s Global Chief Information Officer and Global Chief Information Security Officer regarding the overall status of the company’s information security program; reviewing the company’s business continuity and crisis management framework, including the company’s incident response plans; and reviewing the company’s ethics and compliance program, including the company’s Global Standards of Business Conduct and significant legal and regulatory compliance matters. Cybersecurity Risk Oversight On a quarterly basis, the company’s Global Chief Information Officer and Global Chief Information Security Officer update the Committee on the company’s cybersecurity program. As part of this update, they provide the Committee with a written report. The Chair of the Committee informs the Board of any key updates during quarterly reports to the Board. When appropriate, the full Board also receives updates and reports from the Global Chief Information Officer and Global Chief Information Security Officer with respect to these topics. Climate Risk Oversight Our management-level ERM Committee identifies climate risks facing the company, which are reviewed and discussed by senior management and the Risk and Compliance Committee, including a discussion of potential mitigation strategies. Please see the Risk Factors section of our Annual Report on Form 10-K for a discussion of these risks. Independence Each member of the Risk and Compliance Committee is independent under NYSE standards. |
8
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|
|
CORPORATE GOVERNANCE
Board’s Role in Risk Oversight
Overview.The Board is responsible for oversight and monitoring of our enterprise risk management program. In carrying out this responsibility, the Board has designated the Audit Committee with primary responsibility for overseeing enterprise risk management.1 The other committees of the Board also oversee the management of risks within their areas of responsibilities. The Board receives periodic reports from each committee and from management on our major risks and steps undertaken to monitor and mitigate such risks.
Audit Committee.At each regularly scheduled meeting, the Audit Committee monitors management’s risk management function. It does this by discussing, among other things, guidelines and policies regarding risk assessment and risk management, our major risk exposures, including marketplace, regulatory, cybersecurity and other risks, and steps taken by management to monitor and control such exposures. Our Global Chief Compliance Officer attends each Committee meeting and reports on significant risk and compliance issues. In addition, the Committee oversees an internal audit department, the head of which reports directly to the Committee (on matters other thanday-to-day operations). The internal audit department is independent from management and the Committee defines its responsibilities. Among other things, the purpose of the department is to bring a systematic and disciplined approach to evaluating and improving the effectiveness of our risk management, control and governance processes. The internal audit department evaluates the effectiveness of our risk management processes, performs consulting and advisory services for us related to risk management, and reports significant risk exposures to the Committee. The Committee periodically reports to the full Board a summary of its activities and any key findings that arise from its risk oversight and monitoring functions.
Compensation Committee.The Compensation Committee reviews our overall compensation policies and practices to determine whether our program provides incentives for executive officers and other employees to take excessive risks. Based upon an analysis conducted by management and discussions between management and the Committee, the Committee has determined that our compensation policies and practices do not present risks that are likely to have a material adverse effect on us or our business. In reaching this determination, our Committee and management noted the following: (i) no single business unit bears a disproportionate share of our overall risk profile; (ii) no single business unit is significantly more profitable than the other business units; (iii) our compensation practices are substantially consistent across all business units both in the amount and types of compensation awarded; (iv) substantially all of our revenue-producing employees are sales professionals whose compensation is tied to the amount of revenue received by the company; (v) our annual cash incentive program caps payouts at 200% of target awards; and (vi) our performance share units are capped at 200% of target awards and are based on average performance over a three-year measurement period. A significant portion of our senior executives’ compensation is deferred and invested in Gallagher stock through our Deferred Equity Participation Plan and our senior executives own significant amounts of Gallagher stock. In addition, stock options vest on the third,
fourth and fifth anniversaries of the grant date and restricted stock units vest on the fifth anniversary of the grant date. Based on the above, we believe that our compensation practices help ensure that no single year’s results and no single corporate action has a disproportionate effect on executive officers’ annual compensation, and encourage steady and consistent long-term performance by our executive officers.
Nominating/Governance Committee.The Nominating/Governance Committee reviews risks related to our corporate governance structure and processes, including those related to succession planning for the Board and key leadership roles on the Board and its committees. The Committee also reviews related person transactions to evaluate whether our directors and executive officers have conflicts of interest that could interfere with their ability to carry out their duties to the company.
Attendance. The Board expects each director to attend and participate in all Board and applicable committee meetings and annual meetings of stockholders. Each director is expected to prepare for meetings in advance and to dedicate the time necessary to discharge properly his or her responsibilities at each meeting and to ensure other commitments do not materially interfere with his or her service on the Board. During 2019,2020, the Board met ten16 times. All of the nominees attended 75% or more of the aggregate meetings of the Board and the committees on which they served during 2019.2020. In addition, all nineten directors then serving on the Board attended the 20192020 Annual Meeting.
Stockholder Communications with the Board. A stockholder or other party interested in communicating with the Board, any of its committees, the Chairman, the Lead Director, thenon-management directors as a group or any director individually may do so by writing to their attention at our principal executive offices, Arthur J. Gallagher & Co., c/o Corporate Secretary, 2850 Golf Road, Rolling Meadows, Illinois 60008-4050. Where appropriate,appro-
priate, our Lead Director is available for consultation and communication with stockholders.
Corporate Governance Materials. We are committed to sound and effective corporate governance. To that end, the Board has adopted Governance Guidelines that set forth principles to assist it in determining director independence and other important corporate governance matters. The Board has also adopted Global Standards of Business Conduct (the Global Standards) that apply to all directors, executive officers and employees. The Global Standards, along with our Governance Guidelines and the charters of the Audit, Compensation, Nominating/Governance and Nominating/GovernanceRisk and Compliance Committees, are available at www.ajg.com/ir, under the heading “Corporate Governance.” We will provide a copy of the Global Standards or Governance Guidelines without charge to any person who requests a copy by writing to our Corporate Secretary at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050. We intend to satisfy the disclosure requirements of Item 5.05 of Form8-K regarding any amendment to, or waiver from, the Global Standards with respect to any of our directors or executive officers by posting such information on our website.
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| 9 |
CORPORATE GOVERNANCE
The Board sets the amount and form of non-employeedirector compensation based upon recommendations made by the Nominating/Governance Committee. In 2019,2020, the Nominating/Governance Committee engaged Pearl Meyer to assessassessed the competitiveness of our director pay program against the same peer group that is used to assess the competitiveness of our executive compensation program and also in reference to an industry survey. Pearl MeyerThe Committee found that total pay levels for our Board were at the median of the identified benchmarks.our peers.
Pat Gallagher receives no additional compensation for his service as a director. A substantial portion of eachnon-employee director’s total annual compensation consists of equity grants, in the form of restricted stock units. In 2019, theThe annual cash retainer was increased from $100,000 tois $105,000 and the target value of the annual equity grant was increased from $145,000 tois $150,000.
On May 14, 2019,12, 2020, eachnon-employee director was granted 1,8501,860 restricted stock units that vest on the first anniversary of the date of grant (or immediately upon a director’s departure from the Board). Committee Chairs receive additional annual fees as follows: $25,000 for the Audit Committee, $20,000 for each of the Compensation Committee and Risk and Compliance Committee, and $15,000 for the Nominating/Governance Committee. The Lead Director receives an additional annual fee of $30,000. Directors are reimbursed for travel and accommodation expenses incurred in connection with attending Board and committee meetings.
In May 2020, due to uncertainty surrounding the COVID-19 pandemic and its potential impact on our business, the Nominating/Governance Committee voted to reduce the cash retainer portion of director compensation by 20% through the end of 2020. The annual cash retainer portion of director compensation reverted to $105,000 for 2021.
Under our stock ownership guidelines, directors with at least five years of service are expected to own an amount of our common stock with a value equal to five times the cash portion of the annual director retainer. All of our directors with five or more years of service meet these guidelines.
Directors may elect to defer all or a portion of their annual cash retainer or restricted stock units under our Deferral Plan for Nonemployee Directors. Deferred cash retainers and restricted stock units are converted to notional stock units, which are credited to individuals’ accounts along with dividend equivalents when dividends are paid on our common stock. Deferred restricted stock units are distributed in the form of common stock, and deferred cash retainers and accrued dividend equivalents are distributed in cash, at a date specified by each director or upon such director’s departure from the Board.
Name
| Fees Earned or Paid in Cash ($)
| Stock Awards ($)(2)
| Total ($)
| Fees Earned or Paid in Cash ($)
| Stock Awards ($)(3)
| All Other
| Total ($)
| ||||||||||||||||||||||||||||
Sherry S. Barrat
|
|
123,750
|
|
|
152,588
|
|
|
276,338
|
|
|
117,125
|
|
|
161,876
|
|
|
—
|
|
|
279,001
|
| ||||||||||||||
William L. Bax
|
|
128,750
|
|
|
152,588
|
|
|
281,338
|
|
|
119,625
|
|
|
161,876
|
|
|
20,748
|
(4)
|
|
302,249
|
| ||||||||||||||
D. John Coldman
|
|
103,750
|
|
|
152,588
|
|
|
256,338
|
|
|
97,125
|
|
|
161,876
|
|
|
—
|
|
|
259,001
|
| ||||||||||||||
Frank E. English, Jr.
|
|
103,750
|
|
|
152,588
|
|
|
256,338
|
| ||||||||||||||||||||||||||
Elbert O. Hand(1)
|
|
25,000
|
|
|
—
|
|
|
25,000
|
| ||||||||||||||||||||||||||
Frank E. English, Jr.(1)
|
|
97,125
|
|
|
161,876
|
|
|
—
|
|
|
259,001
|
| |||||||||||||||||||||||
David S. Johnson
|
|
133,750
|
|
|
152,588
|
|
|
286,338
|
|
|
127,125
|
|
|
161,876
|
|
|
—
|
|
|
289,001
|
| ||||||||||||||
Kay W. McCurdy
|
|
118,750
|
|
|
152,588
|
|
|
271,338
|
|
|
112,125
|
|
|
161,876
|
|
|
—
|
|
|
274,001
|
| ||||||||||||||
Christopher C. Miskel(2)
|
|
70,875
|
|
|
161,876
|
|
|
—
|
|
|
232,751
|
| |||||||||||||||||||||||
Ralph J. Nicoletti
|
|
103,750
|
|
|
152,588
|
|
|
256,338
|
|
|
115,875
|
|
|
161,876
|
|
|
—
|
|
|
277,751
|
| ||||||||||||||
Norman L. Rosenthal
|
|
103,750
|
|
|
152,588
|
|
|
256,338
|
|
|
97,125
|
|
|
161,876
|
|
|
—
|
|
|
259,001
|
| ||||||||||||||
| (1) | Mr. |
| (2) | Mr. Miskel joined the Board of Directors on March 12, 2020. |
| (3) | This column represents the full grant date fair value of restricted stock units granted in |
| (4) | In May 2020, in light of safety concerns during the COVID-19 pandemic, the company chartered one flight for Mr. Bax and his wife for non-business related travel. |
|
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|
CORPORATE GOVERNANCE
Certain Relationships and Related Person Transactions
How We Review and Approve Related Person Transactions
We review all relationships and transactions exceeding $120,000 in which the company participates and in which any related person (our directors and executive officers or their immediate family members and any persons owning 5% or more of our common stock) had or will have a direct or indirect material interest. The company’s legal staff is primarily responsible for reviewing such relationships and transactions based on the facts and circumstances, and for developing and implementing processes and controls for obtaining and evaluating information about related person transactions. As required by SEC rules, we disclose in this Proxy Statement all such transactions that are determined to be directly or indirectly material to a related person. In addition, the Nominating/Governance Committee reviews and approves, ratifies or disapproves any such related person transaction. In the course of reviewing and determining whether or not to approve or ratify a disclosable related person transaction, the Committee considers the following factors:
Nature of the related person’s interest in the transaction
Material transaction terms, including the amount involved
Whether the transaction is on terms no less favorable than could have been reached with an unrelated third party
For employment arrangements, whether compensation is commensurate with that of other employees with equivalent qualifications and responsibilities and holding similar positions
Importance and potential benefits of the transaction to the related person and to the company
Whether the transaction would impair a director or executive officer’s judgment to act in the company’s best interest
Whether the transaction was undertaken in the ordinary course of business
Any other matters the Committee deems appropriate, including the conflicts of interest and corporate opportunity provisions of our Global Standards of Business Conduct.
Related Person Transactions for 20192020
In 2019,2020, the following relatives of Pat Gallagher were employed with us: (i) his sister is head of a specialty sales unit within our brokerage segment, and received compensation of $913,542;$949,180; (ii) hisbrother-in-law is vice president of practice group strategy within our brokerage segment, and received compensation of $175,000 plus aone-time cash payment of $1,150,000 in lieu of all future equity and bonus payments; (iii) one of his sons leads our Latin American and Canadian brokerage operations for the Americas, and received compensation of $1,323,897; (iv)$1,694,430; (iii) another son is a branch manager within our brokerage segment, and received compensation of $857,665;$833,057; and (v)(iv) a third son is a leader within our brokerage segment in Australia, and received compensation of $363,927.$398,223. A son of Tom Gallagher is a producer within our brokerage segment, and received compensation of $253,656. In addition, the partner of Joel Cavaness, one of our executive officers, is a client service leader within our brokerage segment and she received compensation of $422,493.$458,684. The compensation (salary, bonus, and the grant value of equity and cash awards) of each related person described above was commensurate with that of other employees with equivalent qualifications and responsibilities and holding similar positions.
Tom Gallagher, one of our named executive officers, is a brother of our CEO. His compensation is disclosed in the20192020 Summary Compensation Table below.
|
| 11 |
CORPORATE GOVERNANCE
Security Ownership by Certain Beneficial Owners and Management
The table below presents information concerning beneficial ownership of our common stock by: (i) each person we know to be the beneficial owner of more than 5% of our outstanding shares of common stock (as of December 31, 2019)2020); (ii) each of our named executive officers, directors and director nominees (as of March 20, 2020)15, 2021); and (iii) all of our executive officers and directors as a group (as of March 20, 2020)15, 2021). The percentage calculations in this table are based on a total of 189,607,499195,186,329 shares of our common stock outstanding as of the close of business on March 20, 2020.15, 2021. Unless otherwise indicated below, to our knowledge, the individuals and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned by them, subject to community property laws where applicable. In addition, unless otherwise indicated, the address for all persons named below is c/o Arthur J. Gallagher & Co., 2850 Golf Road, Rolling Meadows, Illinois 60008-4050.
| Common Stock Issuable Within 60 Days of March 20, 2020 | Common Stock Issuable Within 60 Days of March 20, 2020 | |||||||||||||||||||||||||||||||||||||||
Name | Shares of Common | Stock Options | Restricted Stock Units (2) | Total Beneficial Ownership | Percent of Common Stock Outstanding | Shares of Common | Stock Options | Restricted Stock Units (2) | Total Beneficial Ownership | Percent of Common Stock Outstanding | ||||||||||||||||||||||||||||||
5% Stockholders | 5% Stockholders |
| 5% Stockholders |
| ||||||||||||||||||||||||||||||||||||
The Vanguard Group (3) 100 Vanguard Blvd. Malvern, PA 19355 | 21,387,625 | N/A | N/A | 21,387,625 | 11.5% | 21,066,109 | N/A | N/A | 21,066,109 | 10.8% | ||||||||||||||||||||||||||||||
BlackRock, Inc. (4) 55 East 52nd Street New York, NY 10055 | 20,241,439 | N/A | N/A | 20,241,439 | 10.8% | 20,229,733 | N/A | N/A | 20,229,733 | 10.4% | ||||||||||||||||||||||||||||||
Named executive officers, directors and nominees | Named executive officers, directors and nominees |
| Named executive officers, directors and nominees |
| ||||||||||||||||||||||||||||||||||||
Pat Gallagher | 911,108 | (5) | 183,068 | — | 1,094,176 | * | 957,897 | (5) | 126,169 | — | 1,084,066 | * | ||||||||||||||||||||||||||||
Doug Howell | 232,639 | (6) | 124,702 | — | 357,341 | * | 255,866 | (6) | 49,669 | — | 305,535 | * | ||||||||||||||||||||||||||||
Tom Gallagher | 440,841 | (7) | 90,535 | — | 531,376 | * | 548,947 | (7) | 72,769 | — | 621,716 | * | ||||||||||||||||||||||||||||
Scott Hudson | 36,277 | (8) | 111,568 | — | 147,845 | * | 46,039 | (8) | 91,318 | — | 137,357 | * | ||||||||||||||||||||||||||||
Walt Bay | 20,422 | 31,668 | — | 52,090 | * | 29,946 | (9) | 24,669 | — | 54,615 | * | |||||||||||||||||||||||||||||
Sherry S. Barrat | 17,258 | — | 1,850 | 19,108 | * | 19,108 | — | 1,860 | 20,968 | * | ||||||||||||||||||||||||||||||
William L. Bax | 40,570 | — | 1,850 | 42,420 | * | 42,420 | — | 1,860 | 44,280 | * | ||||||||||||||||||||||||||||||
D. John Coldman | 7,997 | — | 1,850 | 9,847 | * | 9,292 | — | 1,860 | 11,152 | * | ||||||||||||||||||||||||||||||
Frank E. English, Jr. | 7,150 | — | 1,850 | 9,000 | * | |||||||||||||||||||||||||||||||||||
David S. Johnson | 48,328 | — | 1,850 | 50,178 | * | 45,498 | — | 1,860 | 47,358 | * | ||||||||||||||||||||||||||||||
Kay W. McCurdy | 30,232 | — | 1,850 | 32,082 | * | 30,252 | — | 1,860 | 32,112 | * | ||||||||||||||||||||||||||||||
Christopher C. Miskel | — | — | — | — | * | — | — | 1,860 | 1,860 | * | ||||||||||||||||||||||||||||||
Ralph J. Nicoletti | 8,317 | — | 1,850 | 10,167 | * | 10,167 | — | 1,860 | 12,027 | * | ||||||||||||||||||||||||||||||
Norman L. Rosenthal | 32,125 | (9) | — | 1,850 | 33,975 | * | 33,975 | (10) | — | 1,860 | 35,835 | * | ||||||||||||||||||||||||||||
All directors and executive officers as a group (18 people) | 1,977,355 | 655,178 | 14,800 | 2,647,333 | 1.4% | 2,209,564 | 464,336 | 14,880 | 2,688,780 | 1.4% | ||||||||||||||||||||||||||||||
| * | Less than 1% |
| (1) | Includes “notional stock units” held under our Supplemental Plan (see page |
|
|
|
CORPORATE GOVERNANCE
| (2) | Allnon-employee director unvested restricted stock units vest immediately upon a director’s departure from the Board, and are included because a director could depart the Board at his or her discretion and acquire rights to the underlying stock within 60 days. |
12 | 2021 PROXY STATEMENT |
CORPORATE GOVERNANCE
| (3) | Share total obtained from a Schedule 13G/A filed on February |
| (4) | Share total obtained from a Schedule 13G/A filed on |
| (5) | Includes |
| (6) | Includes |
| (7) | Includes |
| (8) | Includes |
| (9) | Includes 2,881 notional stock units (see footnote (1) above) and 121 shares held in his 401(k) account. |
| (10) | Includes 2,500 shares held in a joint brokerage account with Caryl G. Rosenthal and 2,000 shares held in a joint brokerage account with Marisa F. Rosenthal. These are both margin securities accounts with no loans outstanding. Dr. Rosenthal has shared voting and investment power with respect to these shares. |
|
| 13 |
CORPORATE GOVERNANCE
Equity Compensation Plan Information
The following table provides information as of December 31, 2019,2020, regarding the number of shares of our common stock that may be issued under our equity compensation plans.
| (a) | (b) | (c) | (a) | (b) | (c) | |||||||||||||||||||
Plan Category | Number of securities to be issued upon exercise of warrants and rights | Weighted-average exercise price of warrants and rights | Number of securities remaining available for future issuance | Number of securities to be issued upon exercise of warrants and rights | Weighted-average exercise price of warrants and rights | Number of securities remaining available for future issuance | ||||||||||||||||||
Equity compensation plans approved by security holders |
| 10,125,238 | (1) |
| 56.40 | (2) |
| 19,642,213 | (3) |
| 9,682,724 | (1) |
| 65.09 | (2) |
| 17,378,611 | (3) | ||||||
Equity compensation plans not approved by security holders |
| 8,000 | (4) |
| — |
|
| — |
|
| 8,000 | (4) |
| — |
|
| — |
| ||||||
Total |
| 10,133,238 |
|
| 56.40 | (2) |
| 19,642,213 |
|
| 9,690,724 |
|
| 65.09 | (2) |
| 17,378,611 |
| ||||||
| (1) | This amount includes the following: |
7,945,8367,470,244 shares that may be issued in connection with outstanding stock options;
238,075234,295 shares that may be issued in connection with earned performance share units, and unearned performance share units valued at target levels; and
1,941,3271,978,185 unvested restricted stock units.
| (2) | Indicates the weighted average exercise price of the outstanding stock options included in column (a). |
| (3) | This amount includes the following: |
13,235,41611,395,893 shares available under the 2017 Long-Term Incentive Plan; and
6,406,7975,982,718 shares available under our Employee Stock Purchase Plan.
| (4) | This amount represents deferred restricted stock units under the Restricted Stock Plan, an equity compensation plan not approved by stockholders under which we have outstanding awards. All of our directors, officers and employees were eligible to receive awards under the plan, which provided for the grant of contingent rights to receive shares of our common stock. Awards under the plan were granted at the discretion of the Compensation Committee. Each award granted under the plan represents the right of the holder of the award to receive shares of our common stock, cash or a combination of shares and cash, subject to the holder’s continued employment with us for a period of time after the grant date of the award. The Compensation Committee determined each recipient of an award under the plan, the number of shares of common stock subject to such an award and the period of continued employment required for the vesting of such award. The last year we made awards under this plan was 2009. |
|
|
|
Audit Matters
Item 2 – Ratification of Appointment of Independent Auditor
The Audit Committee has considered the qualifications of Ernst & Young LLP and has appointed Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020.2021. As a matter of good governance, the Board is submitting the appointment of Ernst & Young LLP to our stockholders for ratification. If the appointment of Ernst & Young LLP is not ratified, the Audit Committee will consider the outcome of this vote in its future deliberations regarding the selection of our independent registered public accounting firm.
Principal Accountant Fees and Services
The following is a summary of Ernst & Young LLP’s fees for professional services rendered to us for the fiscal years ended December 31, 20192020 and 2018:2019:
2019 | 2018 | 2020 | 2019 | |||||||||||||
Audit Fees(1) | $ | 4,590,000 |
| $ | 4,653,000 |
| $ | 4,723,000 |
| $ | 4,590,000 |
| ||||
Audit-Related Fees(2) |
| 1,251,000 |
|
| 853,000 |
|
| 1,420,000 |
|
| 1,251,000 |
| ||||
Tax Compliance Fees(3) |
| 873,000 |
|
| 938,000 |
|
| 1,022,000 |
|
| 873,000 |
| ||||
Tax Advisory Fees(4) |
| 1,810,000 |
|
| 3,554,000 |
|
| 525,000 |
|
| 1,810,000 |
| ||||
All Other Fees(5) |
| 24,000 |
|
| 34,000 |
|
| 7,000 |
|
| 24,000 |
| ||||
Totals | $ | 8,548,000 |
| $ | 10,032,000 |
| $ | 7,697,000 |
| $ | 8,548,000 |
| ||||
| (1) | Audit fees include fees associated with the annual audit of our company and our subsidiaries and the effectiveness of internal control over financial reporting, the review of our Quarterly Reports on Form10-Q and Annual Report on Form10-K, and statutory audits required internationally. |
| (2) | Audit-related fees principally include due diligence in connection with acquisitions, issuance of service auditor reports (SOC 1 and SOC 2) related to operations at one of our subsidiaries and advisory work related to our compliance with foreign statutory requirements. |
| (3) | Tax compliance fees include fees associated with the preparation of our annual Federal, state and |
| (4) | Tax advisory fees include tax advice and tax planning related to Federal, state and international tax matters. |
| (5) | All other fees principally include fees for access to an online accounting |
Audit and audit-related fees were higher in 20192020 due in part to an increase in audit fees and scope of services. Tax compliance fees were higher in 2020 due to an increase in scope of services. Tax advisory fees were lower in 20192020 due to a reduction in scope of services.
Audit CommitteePre-Approval Policies and Procedures
All audit services, audit-related services, tax services and other services for fiscal years 2020 and 2019 and 2018 werepre-approved by the Audit Committee. It is the policy of the Audit Committee topre-approve the engagement of Ernst & Young LLP before we engage such firm to render audit or other permittednon-audit services. The Audit Committee has adopted procedures forpre-approving all audit and permittednon-audit services provided by Ernst & Young LLP. The Audit Committee annuallypre-approves a list of specific services and categories of services, subject to a specified cost level. Part of this approval process includes making a determination as to whether permittednon-audit services are consistent with the SEC’s rules on auditor independence. The Audit Committee has delegatedpre-approval authority to the Chairman of the Audit Committee for the types of services that Ernst & Young LLP has historically been retained to perform related to integrated audit and other recurring services, subject to reporting any such approvals at the next Audit Committee meeting.
A representative of Ernst & Young LLP is expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement if the representative so desires.
| THE BOARD RECOMMENDS THAT YOU VOTEFORRATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, |
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| 15 |
The Audit Committee represents and assists the Board in fulfilling its responsibilities for general oversight of the integrity of the company’s financial statements, risk assessment and risk management, and compliance with legal and regulatory requirements. The Audit Committee manages the company’s relationship with and is responsible for the appointment, retention, termination and compensation of Ernst & Young LLP. Ernst & Young LLP has served as the company’s auditor since 1973. The Audit Committee reviews Ernst & Young LLP’s independence, capabilities, expertise, performance and fees in deciding whether to retain its services.
The company’s management is responsible for the preparation, presentation and integrity of its consolidated financial statements, accounting and financial reporting principles, and internal controls designed to assure compliance with accounting standards and applicable laws and regulations. Ernst & Young LLP is responsible for auditing the company’s consolidated financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles and for auditing the effectiveness of the company’s internal controls over financial reporting. The Audit Committee monitors the financial reporting process and reports its findings to the Board.
The Audit Committee carried out its duties and responsibilities, including the following specific actions:
| • | Reviewed and discussed with management and Ernst & Young LLP the company’s audited consolidated financial statements as of and for the fiscal year ended December 31, |
| • | Reviewed and discussed with Ernst & Young LLP all matters required to be discussed by applicable standards of the Public Company Accounting Oversight Board (PCAOB) and the SEC; and |
| • | Obtained the written disclosures and letter from Ernst & Young LLP regarding its communications with the Audit Committee concerning Ernst & Young LLP’s independence as required by the PCAOB, including the requirements under PCAOB Rule 3526, and has discussed with Ernst & Young LLP its independence. |
Based on these reviews and discussions with management and Ernst & Young LLP, the Audit Committee recommended to the Board that the company’s audited consolidated financial statements be included in its Annual Report on Form10-K for the fiscal year ended December 31, 2019,2020, for filing with the SEC. The Audit Committee believes that the retention of Ernst & Young LLP to serve as the company’s independent registered public accounting firm is in the best interests of the company.
AUDIT COMMITTEE
William L. BaxRalph J. Nicoletti (Chair)
Frank E. English, Jr.William L. Bax
Ralph J. NicolettiChristopher C. Miskel
Norman L. Rosenthal
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|
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Compensation Discussion and Analysis
This Compensation Discussion and Analysis discusses the compensation of the following named executive officers: | ||
• Pat Gallagher | Chairman, President and Chief Executive Officer | |
• Doug Howell | Chief Financial Officer | |
• Tom Gallagher | President – Global P/C Brokerage | |
• Scott Hudson | President – Risk Management | |
• Walt Bay
| General Counsel and Secretary
| |
Non-GAAP financial measures. See Annex A for additional information regarding thenon-GAAP financial measures referred to in this Proxy Statement (adjusted revenue, adjusted EBITDAC, and adjusted EBITDAC per share, as defined for our annual cash incentive and performance share unit programs, and adjusted EBITDAC margin and organic revenue growth), including required reconciliations to the most directly comparable GAAP financial measures.
| ||
Overview of Our Executive Compensation Program
The Compensation Committee believes that our executive compensation program is reasonable and balanced and promotes the long-term interests of the company and its stockholders. We reward performance by emphasizing a balance of short- and long-term compensation vehicles. The key principles and features of the program are set forth below.
Principle
| Program Features
| |
Pay for Performance | • Our program emphasizesat-risk incentive award opportunities tied to key financial measures.
• Maximum award opportunities under our annual cash incentive program are determined based on achievement of adjusted revenue and adjusted EBITDAC growth goals set by the Committee. Final award determinations reflect the Committee’s consideration of additional factors including organic revenue growth, adjusted EBITDAC margin, divisional performance and individual achievement.
• Performance share units, representing 75% of our CEO’s and a significant portion of other executive officers’ long-term incentive compensation, are tied to three-year growth in adjusted EBITDAC per share. | |
Stockholder Alignment | • Performance share units, stock options, restricted stock units and Deferred Equity Participation Plan (DEPP) awards encourage executive officers to pursue the growth of our business in a way that benefits stockholders over the long term.
• Collectively, our executive officers own significant amounts of Gallagher stock and are subject to rigorous stock ownership guidelines (six times salary for CEO, four times for CFO and three times for other executive officers). All of our executive officers meet these guidelines.
| |
Attract and Retain | • Compensation elements and award opportunities enable us to compete effectively for executive talent.
• The Compensation Committee engages a compensation consultant to conduct a market assessment to ensure that our program is highly competitive.
• High performers are awarded above-target pay when company performance goals are exceeded.
• DEPP awards encourage retention over the long term by requiring executives to remain employed with us through at least age 62 in order to vest in their awards. | |
Committee Discretion | • While annual incentive awards are determined primarily based on achievement of company performance objectives, the Committee exercises discretion when necessary to adjust awards based on factors such as individual or division performance, changes in accounting standards, economic or business conditions, adherence to our cultural values or similar matters. | |
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| 17 |
COMPENSATION DISCUSSION AND ANALYSIS
Key Pay and Governance Practices
The Compensation Committee continually evaluates emerging best practices related to executive compensation and governance and considers modifications to our executive compensation program that support our strategic objectives, provide an appropriate balance of risk and reward for our named executive officers, and align their compensation with the long-term interests of the company. The following charts summarize certain of our key pay and governance practices.
What We Do
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Double-triggerchange-in-control agreements
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Our 2017 Long-Term Incentive Plan requires the Board to approve any accelerated payouts on a change in control (i.e., not single-trigger)
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Performance share units (PSUs) with three-year performance period
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Minimum vesting requirements for equity awards under our plans. In practice, PSUs cliff vest in three years, stock options vest ratably over years three through five, and RSUs cliff vest in five years
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Stock ownership guidelines for executive officers and directors
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Clawback policy for equity and cash incentive
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Ourby-laws provide for proxy access (3% ownership / 3 years / group of up to 20 / greater of 20% of Board seats or 2 directors)
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What We Don’t Do
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No single-triggerchange-in-control payments in our 2017 Long-Term Incentive Plan or our change in control agreements
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No guaranteed incentive awards for senior executives
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No employment agreement with any of our named executive officers
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No pledging of common stock by executive officers and directors without prior approval
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No hedging of common stock by directors, executive officers or employees
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No excessive perquisites or related taxgross-ups
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No new excise taxgross-ups upon change in control
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No stock option repricing, stock option cash buyouts, or liberal share recycling in equity plans
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Stockholder Views
When making determinations regarding corporate governance and executive compensation, our Board of Directors pays close attention to the views of our stockholders, including the 92.9%93.0% approval rate received for our “say on pay” proposal in 2019.2020. In light of this strong level of support, the Compensation Committee did not make any changes to our executive compensation program as a result of the 20192020 “say on pay” proposal.
In addition, during the year, members of our management team and one of our Board members engaged with certain of our large stockholders to discuss corporatevarious environmental, social and governance (ESG) and executive compensation matters andmatters. We communicated stockholder views arising from these discussions to our Board of Directors. Based in part on feedback from our stockholders, in January 2020, the Board adopted a “proxy access”by-law amendment and approved changes to its Governance Guidelines formalizing a diversity search policy for Board nominees. In addition, in August 2020, we released a sustainability report including ESG-related disclosures aligned with applicable standards of the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD).
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COMPENSATION DISCUSSION AND ANALYSIS
Components of Compensation for Named Executive Officers
Compensation Element
| Objective
| Key Features
| ||||
Base Salary |
Recognize the experience and expertise of our named executive officers and compensate them for fulfilling the duties and responsibilities of their positions
|
Base salaries reflect internal pay equity considerations and may be increased from time to time based on job performance, promotion into a new role, expansion of duties, or market conditions | ||||
Annual Cash Incentives |
Reward strong operational and financial performance that further short-term strategic objectives |
Maximum annual cash incentive opportunities are tied to significant growth in adjusted revenue and adjusted EBITDAC. Final awards are subject to the Committee’s discretion and are determined by the Committee based on various factors, including the company’s organic revenue growth, divisional financial performance and individual achievement
See page
| ||||
Long-Term Incentives
Performance share units (PSUs), stock options and restricted stock units |
Tie a significant portion of compensation to our long-term performance, promote retention of named executive officers and align the financial interests of named executive officers with those of stockholders |
PSUs, stock options and restricted stock units each tie named executive officers’ long-term wealth to the performance of our stock while multi-year vesting requirements reinforce sustainable value creation and promote retention of key executives
Long-term incentive opportunities are greater for named executive officers with a greater direct impact on long-term company performance
See pages
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Deferred Equity Participation Plan (DEPP) |
Promote retention of named executive officers and align their financial interests with those of stockholders |
Vesting of awards is delayed until named executive officers reach age 62, and forone-year increments after such age
Each named executive officer has made irrevocable elections to invest their awards in a fund representing our common stock
See page
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| 19 |
COMPENSATION DISCUSSION AND ANALYSIS
Annual Cash Incentives
In 2019,2020, the Compensation Committee approved maximum award opportunities under our annual cash incentive program, to be determined as follows: (i) target award opportunities of 150%200% of base salary for our CEO and 100% of base salary for our other named executive officers, multiplied by (ii) a percentage determined by the combination of adjusted revenue growth and adjusted EBITDAC growth set forth in the table below. While there is no specified performance threshold under this program, the Compensation Committee retains discretion to reduce awards for performance that does not meet its objectives.
Adjusted Revenue Growth*
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0% to 2.49%
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2.5% to 4.99%
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5% to 7.49%
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7.5% to 9.99%
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> 10% | ||||||||
Adjusted EBITDAC Growth* |
0% to 4.99%
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100%
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100%
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100%
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100%
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100%
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5% to 9.99%
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100%
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100%
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125%
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125%
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150%
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10% to 13.99%
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100%
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125%
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150%
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150%
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175%
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14% to 19.99%
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100%
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125%
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150%
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175%
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200%
| |||||||
>20%
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100%
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150%
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175%
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200%
|
200%
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| * | We define “adjusted revenue” the same here as we do in our other filings (i.e., revenue for the brokerage segment and revenue before reimbursements for the risk management segment excluding gains on sales of books of business and adjusted to remove the effect of foreign currency translation). However, we define “adjusted EBITDAC” for our annual cash incentives and performance share units as follows: EBITDAC for the brokerage and risk management segments excluding (i) gains on sales of books of business, (ii) lease abandonment and workforce termination charges, and (iii) the effect of foreign currency translation. Unlike adjusted EBITDAC as presented in our most recent earnings release, in this context the measure doesnot exclude acquisition integration costs and other acquisition-related adjustments. |
For the annual cash incentive program, the Compensation Committee uses adjusted revenue growth and adjusted EBITDAC growth as defined because it believes these measures:
incentivize our executives to make business decisions that align with the long-term interests of our stockholders,
hold our executives accountable for acquisition-related expenses associated with our merger and acquisition activity, and
provide strong line of sight between operating decisions and the annual cash incentives earned by our executives.
In 2019,Despite the difficult operating environment resulting from the COVID-19 pandemic, in 2020, we achieved adjusted revenue growth of 13.9%5.9% and adjusted EBITDAC growth of 15.9%20.9%. Based on this performance, as highlighted in the table above, each named executive officer qualified for a maximum award opportunity of 200%175% of his target award. Final awards for each named executive officer, discussed under20192020 Compensation Actions, were determined in the discretion of the Committee taking into account achievements of the company, the applicable division and each individual, among other factors. The Committee did not modify performance objectives or grant discretionary awards in response to the pandemic.
Long-Term Incentives
In 2019,2020, the Compensation Committee determined a target long-term incentive award value (as a percentage of base salary) for each named executive officer. The Committee based this target value upon a number of factors including retention considerations, internal pay equity, our historical practices and external market data (see discussion of pay comparison groups on page 24). For our CEO and named executive officers who lead an operating division (Tom Gallagher and Scott Hudson), the target award value was allocated between PSUs and stock options. For Doug Howell and Walt Bay, who lead our financial and legal operations, respectively, the Committee allocated the target award value among PSUs, stock options and restricted stock units. PSUs make up the largest portion of each named executive officer’s award due to the Committee’s commitment to drive business performance and align executive interests with stockholder interests.
For the PSUs, the Compensation Committee uses a three-year average of adjusted EBITDAC per share growth as defined(as defined) because it believes this measure:
incentivizes our executives to make business decisions that align with the long-term interests of our stockholders,
holds our executives accountable for acquisition-related expenses associated with our merger and acquisition activity,
provides strong line of sight between operating decisions and the annual cashlong-term incentives earned by our executives, and
by calculating it on a per-share basis, ensures that we maintain an optimal capital structure and act as effective stewards of our stockholders’ investment.
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COMPENSATION DISCUSSION AND ANALYSIS
Set forth below is the target award value and allocation between award types for each named executive officer.
Named Executive Officer | Target Percent of Salary | Target Grant Amount | Performance Share Units | Stock Options | Restricted Stock Units
| Target Percent of Salary | Target Grant Amount | Performance Share Units | Stock Options | Restricted Stock Units
| ||||||||||||||||||
Pat Gallagher
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225%
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$
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2,812,500
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75%
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25%
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—
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315%
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$
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3,937,500
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75%
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25%
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—
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Doug Howell
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125%
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$
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1,125,000
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60%
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20%
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20
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%
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125%
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$
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1,125,000
|
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60%
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20%
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20
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%
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Tom Gallagher
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125%
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$
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1,125,000
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60%
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40%
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—
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125%
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$
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1,125,000
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60%
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40%
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—
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Scott Hudson
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125%
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$
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875,000
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60%
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40%
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—
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125%
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$
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875,000
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60%
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40%
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—
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Walt Bay
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125%
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$
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843,750
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40%
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30%
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30
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%
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125%
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$
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843,750
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50%
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30%
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20
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%
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Performance Share Units (PSUs). PSUs are granted on a provisional basis and are earned based on our average annual growth in “adjusted EBITDAC” per share (see the definition of “adjusted EBITDAC” underAnnual Cash Incentives) over a three-year period. None of theThe award is earned with lowerforfeited for growth less than 4% growth;; 4-9% growth results in a number of earned PSUs interpolated on a straight-line basis between 50% and 100%;9-14% growth results in a number of earned PSUs interpolated on a straight-line basis between 100% and 200%; and growth above 14% results in named executive officers earning 200% of their original award amounts. Earned PSUs vest on the third anniversary of the grant date and settle in shares. For 2019,2020, ourone-year growth in adjusted EBITDAC per share was 15.9%17.7%. PSUs granted in 2020 and earned on the basis of average 2020-2022 performance will vest on March 12, 2023 and PSUs granted in 2019 and earned on the basis of average 2019-2021 performance will vest on March 14, 2022 and PSUs granted in 2018 and earned on the basis of average 2018-2020 performance will vest on March 15, 2021.2022. Based on 2017-20192018-2020 average annual growth in adjusted EBITDAC per share of 12.6%14.4%, named executive officers earned 172%200% of PSUs granted in 2017. 100% of PSUs provisionally awarded in 2016 (the year before we implemented a three-year performance period) were earned based on our 2016 performance and those PSUs vested and settled on March 17, 2019.2018. See20192020 Option Exercises and Stock Vested for more information.
Stock Options and Restricted Stock Units. Stock options vestone-third on each of the third, fourth and fifth anniversaries of the grant date and restricted stock units cliff vest on the fifth anniversary of the grant date. SeeOutstanding Equity Awards at 20192020 Year-End and20192020 Option Exercises and Stock Vested for information regarding vesting and exercise activity in 20192020 for these awards.
Perquisites
In light of travel safety concerns during the COVID-19 pandemic, the Board of Directors determined that named executive officers should use chartered aircraft for business travel, as well as for personal travel when approved by our CEO. The company does not provide tax gross-ups on perquisites, including with respect to the imputed income from personal use of chartered aircraft. See footnote 5 to the 2020 Summary Compensation Table for information about any such expenses for named executive officers in 2020.
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| 21 |
COMPENSATION DISCUSSION AND ANALYSIS
20192020 Compensation Actions
Pat Gallagher – Chairman and CEO
| ||
Performance
| Compensation | |
In addition, the Committee recognized the following aspects of Mr. Gallagher’s performance:
Organic growth. The company achieved
Mergers and acquisitions.The company completed
Quality and productivity. The company increased its adjusted EBITDAC margin
Capital management.The company returned
Culture. Despite the vast majority of our colleagues working apart from one another due to the pandemic, Mr. Gallagher | Based on Pat Gallagher’s and the company’s performance, the Compensation Committee made the following compensation decisions for
Base salary – remained the same, at $1,250,000.
Annual cash incentive –
Stock option award –
DEPP award – At the beginning of 2020, the Compensation Committee approved an increase in Pat Gallagher’s 2020 target annual cash incentive award from 150% to 200% of base salary and an increase in his 2020 target long-term incentive award from 225% to 315% of base salary. In early 2021, the Compensation Committee continued to refine certain elements of Pat Gallagher’s compensation to reward the company’s consistently strong financial performance over recent years and better align his compensation with the compensation of similarly situated CEOs in our peer group. The Committee increased his base salary from $1,250,000 to $1,300,000 and his target long-term incentive award from 315% to 360% of base salary. These changes will be discussed in greater detail in the 2022 Proxy Statement.
Over the past three years, our total return to stockholders (including dividends) was The Compensation Committee believes that, with | |
Doug Howell – Chief Financial Officer
| ||
Performance
| Compensation | |
The Committee evaluated Doug Howell’s performance in light of the company’s overall performance as described above for Pat Gallagher. In addition, the Committee considered the following items:
• his contributions as a member of the senior management team to the company’s strong overall financial performance;
• in response to the pandemic, his leadership of significant expense saving initiatives
•
• successful execution and financing of our acquisition program using primarily cash and debt; and
• | Based on Doug Howell’s and the company’s performance, the Compensation Committee made the following compensation decisions for
Base salary – remained the same, at $900,000.
Annual cash incentive –
Stock option award –
Restricted stock unit award –
DEPP award – | |
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COMPENSATION DISCUSSION AND ANALYSIS
Tom Gallagher – President, Global P/C Brokerage
| ||
Performance
| Compensation | |
In evaluating Tom Gallagher’s performance in
• his contributions as a member of the senior management team to the company’s strong overall financial performance;
• the strong financial performance of our global P/C brokerage business, including
• completion by our global P/C brokerage business of
• | Based on Tom Gallagher’s and the company’s performance, the Compensation Committee made the following compensation decisions for
Base salary – remained the same, at $900,000.
Annual cash incentive –
Stock option award –
DEPP award – | |
Scott Hudson – President, Risk Management
| ||
Performance
| Compensation | |
In evaluating Scott Hudson’s performance in
• his contributions as a member of the senior management team to the company’s strong overall financial performance;
• in response to challenges caused by the
•
| Based on Scott Hudson’s and the company’s performance, the Compensation Committee made the following compensation decisions for
Base salary – remained the same, at $700,000.
Annual cash incentive – $1,225,000, 175% of his target award.
Stock option award –
DEPP award – | |
Walt Bay – General Counsel and Secretary
| ||
Performance
| Compensation | |
In evaluating Walt Bay’s performance in
• his contributions as a member of the senior management team to the company’s strong overall financial performance;
• strong leadership of the company’s legal and compliance departments;
• successful management of the company’s legal and reputational risks, including the ransomware incident disclosed in our most recent Annual Report on Form 10-K,litigation, mergers and acquisitions and regulatory compliance issues; and
• his role as a strategic advisor to our Board, CEO and executive management team on key legal and business matters. | Based on Walt Bay’s and the company’s performance, the Compensation Committee made the following compensation decisions for
Base salary – remained the same, at $675,000.
Annual cash incentive –
2019 target PSU award –
Stock option award –
Restricted stock unit award –
DEPP award – | |
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| 23 |
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Decision-Making Process
The Compensation Committee is responsible for determining compensation opportunities for our named executive officers, establishing the annual total value to be transferred through our equity plans, setting thresholds, targets and maximum awards for incentive compensation, establishing performance measures and approving final award amounts. To determine compensation opportunities for our named executive officers, the Committee takes into account the compensation objectives noted earlier underComponents of Compensation for Named Executive Officers, compensation data for our comparison groups, trends in the financial service and insurance brokerage sectors and the strategic value of a given role, among other factors.
Tally Sheets
The Compensation Committee also considers the data compiled in a tally sheet prepared by management for each named executive officer. Tally sheets provide:
This information provides a comprehensive context in which the Committee can determine the appropriate type and amount of compensation for each named executive officer.
Role of the CEO
At the beginning of each year, Pat Gallagher proposes performance objectives for the company and himself. The Compensation Committee and the Board review these objectives with Mr. Gallagher and make modifications as necessary. Following this review and discussion, the Compensation Committee and the Board finalize and approve the objectives for Mr. Gallagher and the company. The objectives include both quantitative financial measurements and qualitative strategic and operational considerations that focus on factors Mr. Gallagher and the Board believe create long-term stockholder value. Mr. Gallagher reviews and discusses preliminary considerations regarding his own compensation with the Compensation Committee but does not participate in the Committee’s final determination of his compensation. Mr. Gallagher also reviews the performance of each other named executive officer and presents a summary of these performance reviews to the Committee, along with preliminary recommendations regarding salary adjustments, if any, and annual award amounts.
Role of the Compensation Consultant
The Compensation Committee retained Pearl Meyer & Partners, LLC (Pearl Meyer) as its independent executive compensation consultant. In connection with its engagement, Pearl Meyer reviewed 20192020 proxy season results and implications for our pay practices; assisted in the review and confirmation of our peer group for executive compensation and performance review purposes; provided updates on emerging executive compensation trends, including proxy advisory firm and regulatory developments; and reviewed and assessed all elements of our pay programs for executive officers, including the competitiveness of pay levels and incentive program design. The Committee assessed Pearl Meyer’s independence pursuant to SEC and NYSE rules and concluded that no conflict of interest exists that would prevent Pearl Meyer from serving as an independent consultant to the Committee.
Tax Considerations
Section 162(m) of the Internal Revenue Code limits the deductibility for Federal income tax purposes of compensation payable in a taxable year to our named executive officers to the extent that such compensation exceeds $1 million. In 2019, all of our named executive officers received compensation in excess of $1 million and, therefore, that portion of the compensation expense wasnon-deductible.
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|
|
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee reviews compensation data from two different comparison groups as a market reference for its named executive officer compensation decisions.
Proxy Comparison Group
The Compensation Committee uses the Proxy Comparison Group as a reference point for our compensation plan structure, pay mix, general equity granting practices and individual pay levels.
This group is focused on our direct competitors for executive talent. Its members are selected from insurance brokers and carriers and from professional and financial services companies that may compete with us for executive talent or in specific lines of business.
The companies listed below under “Insurance Brokers” are of particular interest for the Compensation Committee. Although Aon, Marsh & McLennan and Willis Towers Watson are larger than we are on several size dimensions, the Committee believes it is important to understand their compensation programs given that they compete with us the most directly. Additionally, we aresimilarly-sized to themedian-sized company in the broader peer group.
The Compensation Committee used the companies set forth below were used for the 20192020 analysis. The onlyThere were no changes compared to 2018 were: (i) the removal of XL Group Ltd. following its acquisition by AXA and (ii) the addition of Alleghany Corporation and The Hanover Insurance Group in order to increase the size of the comparison group.from 2019.
Insurance Brokers
|
Aon plc
|
Brown & Brown, Inc.
|
Marsh & McLennan Companies, Inc.
|
Willis Towers Watson plc
|
Insurance Carriers
|
Alleghany Corporation
|
American Financial Group Inc.
|
Arch Capital Group Ltd.
|
Axis Capital Holdings Ltd.
|
W.R. Berkley Corp.
|
CNA Financial Corp.
|
The Hanover Insurance Group
|
Markel Corp.
|
Old Republic International Corp.
|
Unum Group
|
Professional / Financial Services Firms
|
Fidelity National Financial, Inc.
|
Raymond James Financial, Inc.
|
Survey Comparison Group
The Compensation Committee also uses a Survey Comparison Group as a reference point for individual pay levels for certain executive positions.
This group consists of insurance and general industry companies similar to us in total assets, revenue or number of employees. In 2019,2020, the Compensation Committee reviewed pay data from twoa published surveys,Executive Compensation Surveysurvey conducted by Mercer andTop Management Industry Compensation Survey conducted by Willis Towers Watson.Aon-Hewitt.
Results of the Comparative Market Assessment
For 2019,2020, the Compensation Committee examined the total direct compensation opportunity (base salary, annual cash incentives and long-term incentives) for each named executive officer, as well as each individual element of compensation. Data from the Proxy Comparison Group and Survey Comparison Group were used as a market reference for compensation decisions. The Compensation Committee does not target total compensation to a specific percentile of comparison group compensation.
The comparative market assessment showed that total direct compensation for both Pat Gallagher and our named executive officer group was generally competitive with the Proxy Comparison Group. However, the assessment showed that Pat Gallagher’s total direct compensation was below the median for similarly situated CEOs in the Proxy Comparison Group.
Pay for Performance Assessment
As Pay for Performance is a key principle of our executive compensation program, the Compensation Committee works with Pearl Meyer to assess the degree to which we are able to effectively align compensation with our performance. Within this assessment, the Compensation Committee relies on a performance assessment framework that is most relevant to understanding our relative performance against our closest competitors and a realizable pay definition that reflects our market for executive talent and is consistent with our other compensation benchmarking processes. Based on that assessment which occurred in the Fall of 2019, our Compensation Committee concluded that for the 3-year and 5-year periods ending 2018, pay for our CEO was conservative relative to our company’s performance. As a result, the Compensation Committee increased Pat Gallagher’s target annual cash incentive award andlong-term incentive award as described above under “2019 Compensation Actions.”
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| 25 |
The Compensation Committee oversees the company’s compensation program for named executive officers on behalf of the Board. In fulfilling its oversight responsibilities, the Compensation Committee reviewed and discussed with management the Compensation Discussion and Analysis set forth above.
Based on the review and discussion referred to above, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the company’s 20202021 Proxy Statement and incorporated by reference in its 20192020 Annual Report on Form10-K, which it files with the SEC.
COMPENSATION COMMITTEE
Sherry S. Barrat(Chair)
D. John Coldman
David S. Johnson
Kay W. McCurdy
|
|
|
20192020 Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Stock Awards ($) (1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | Year | Salary ($) | Stock Awards ($) (1) | Option Awards ($) (2) | Non-Equity Incentive Plan Compensation ($) (3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (4) | All Other Compensation ($) (5) | Total ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pat Gallagher Chairman, President and | 2019 | 1,250,000 | 2,103,166 | 471,776 | 3,750,000 | 120,475 | 1,265,199 | 8,960,616 | 2020 | 1,250,000 | 2,953,046 | 684,815 | 4,375,000 | 98,106 | 1,816,494 | 11,177,460 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 1,250,000 | 1,902,906 | 383,778 | 3,281,250 | 5,001 | 1,240,019 | 8,062,954 | 2019 | 1,250,000 | 2,103,166 | 471,776 | 3,750,000 | 120,475 | 1,265,199 | 8,960,616 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 1,250,000 | 1,856,479 | 665,786 | 2,812,500 | 87,165 | 1,214,561 | 7,886,491 | 2018 | 1,250,000 | 1,902,906 | 383,778 | 3,281,250 | 5,001 | 1,240,019 | 8,062,954 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Doug Howell Chief Financial Officer | 2019 | 900,000 | 897,377 | �� | 151,011 | 1,800,000 | 3,849 | 671,219 | 4,423,456 | 2020 | 900,000 | 983,200 | 171,129 | 1,575,000 | 3,566 | 716,222 | 4,349,116 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 900,000 | 916,083 | 138,123 | 1,575,000 | — | 656,068 | 4,185,274 | 2019 | 900,000 | 897,377 | 151,011 | 1,800,000 | 3,849 | 671,219 | 4,423,456 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 850,000 | 841,528 | 226,116 | 1,275,000 | 2,630 | 580,302 | 3,775,576 | 2018 | 900,000 | 916,083 | 138,123 | 1,575,000 | — | 656,068 | 4,185,274 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tom Gallagher President – Global P/C Brokerage | 2019 | 900,000 | 672,536 | 302,022 | 1,800,000 | 96,662 | 549,991 | 4,321,211 | 2020 | 900,000 | 674,711 | 313,087 | 1,575,000 | 79,381 | 657,767 | 4,199,945 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 900,000 | 686,178 | 276,246 | 1,575,000 | — | 1,073,473 | 4,510,897 | 2019 | 900,000 | 672,536 | 302,022 | 1,800,000 | 96,662 | 549,991 | 4,321,211 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 800,000 | 594,187 | 425,966 | 1,200,000 | 69,973 | 1,042,191 | 4,132,317 | 2018 | 900,000 | 686,178 | 276,246 | 1,575,000 | — | 1,073,473 | 4,510,897 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Scott Hudson President – Risk | 2019 | 700,000 | 523,304 | 234,549 | 1,225,000 | — | 526,225 | 3,209,078 | 2020 | 700,000 | 524,775 | 243,456 | 1,225,000 | — | 557,362 | 3,250,593 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 700,000 | 534,087 | 215,064 | 1,225,000 | — | 506,754 | 3,180,905 | 2019 | 700,000 | 523,304 | 234,549 | 1,225,000 | — | 526,225 | 3,209,078 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 700,000 | 534,087 | 215,064 | 1,225,000 | — | 506,754 | 3,180,905 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Walt Bay General Counsel and Secretary | 2019 | 675,000 | 614,833 | 169,754 | 1,350,000 | — | 478,840 | 3,288,427 | 2020 | 675,000 | 616,115 | 176,124 | 1,181,250 | — | 528,205 | 3,176,694 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 675,000 | 626,049 | 155,736 | 1,181,250 | — | 467,033 | 3,105,068 | 2019 | 675,000 | 614,833 | 169,754 | 1,350,000 | — | 478,840 | 3,288,427 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 675,000 | 626,049 | 155,736 | 1,181,250 | — | 467,033 | 3,105,068 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | This column includes the full grant date fair value of PSUs and restricted stock units granted during each fiscal year. The amounts reported in this column have been calculated in accordance with FASB ASC Topic 718,Compensation – Stock Compensation. The amounts reported in this column for PSUs granted during each fiscal year represent the value of each award at the grant date based upon the probable outcome of the performance conditions under the program, determined in accordance with FASB ASC Topic 718. In accordance with SEC rules, any estimate for forfeitures is excluded from, and does not reduce, such amounts. Maximum payouts for the PSU awards as of the date of grant were as follows: Pat Gallagher – |
| (2) | This column represents the full grant date fair value of stock option awards granted during each fiscal year. The amounts reported in this column have been calculated in accordance with FASB ASC Topic 718. In accordance with SEC rules, any estimate for forfeiture is excluded from, and does not reduce, such amounts. For additional information on the valuation assumptions with respect to option grants, refer to Note 10 to our consolidated financial statements in the Annual Report on Form10-K for the year ended December 31, |
| (3) | This column represents annual performance-based cash incentive awards related to services rendered in |
| (4) | The amounts shown in this column represent the aggregate change in actuarial present value of each named executive officer’s benefits under our pension plan, except where such change is a negative value. When that is the case, SEC rules require that a zero be included in this table. In 2018, such figures were as follows: Doug Howell – $(922) and Tom Gallagher – $(27,308). Scott Hudson and Walt Bay do not have any accrued benefits under our pension plan. |
|
| 27 |
EXECUTIVE COMPENSATION TABLES
| (5) | For |
| Named Executive Officer | DEPP Awards* ($) | Supplemental Plan Match** ($) | 401(k) Match*** ($) | Corporate Auto & Insurance ($) | Financial Advisory Services ($) | Club Memberships Not Exclusively For Business Use, Cell Phone Allowance, Non- Employee Travel, Corporate Event Tickets ($) | DEPP Awards* ($) | Supplemental Plan Match** ($) | 401(k) Match*** ($) | Corporate Auto & Insurance ($) | Financial Advisory Services ($) | Chartered Aircraft**** ($) | Club Memberships Not Exclusively For Business Use, Cell Phone Allowance, Corporate Event Tickets ($) | |||||||||||||||||||||||||||||||||||||||
Pat Gallagher | 1,000,000 | 212,563 | 14,000 | 8,664 | — | 29,972 | 1,500,000 | 235,750 | 14,250 | 8,664 | — | 31,850 | 25,980 | |||||||||||||||||||||||||||||||||||||||
Doug Howell | 500,000 | 109,750 | 14,000 | 8,664 | 16,155 | 22,650 | 550,000 | 120,750 | 14,250 | 8,664 | 11,112 | — | 11,446 | |||||||||||||||||||||||||||||||||||||||
Tom Gallagher | 450,000 | 75,000 | 14,000 | 5,064 | — | 5,927 | 500,000 | 120,000 | 14,250 | 5,064 | — | 14,570 | 3,883 | |||||||||||||||||||||||||||||||||||||||
Scott Hudson | 400,000 | 82,250 | 14,000 | 13,820 | 16,155 | — | 450,000 | 82,000 | 14,250 | — | 11,112 | — | — | |||||||||||||||||||||||||||||||||||||||
Walt Bay | 350,000 | 78,813 | 14,000 | 8,664 | 16,155 | 11,208 | 400,000 | 85,000 | 14,250 | 8,664 | 11,112 | — | 9,179 | |||||||||||||||||||||||||||||||||||||||
*Deferred Equity Participation Plan (DEPP)
Deferred cash awards under the DEPP are nonqualified deferred compensation awards under Section 409A of the Internal Revenue Code. Each named executive officer has made an irrevocable election to have such awards deemed invested in a fund representing shares of our common stock. Awards under the DEPP do not vest until participants reach age 62 (or theone-year anniversary of the date of grant for participants over the age of 61, which applies to Pat Gallagher and Tom Gallagher). Accordingly, amounts in the plan are subject to forfeiture in the event of a voluntary termination of employment prior to age 62 (or the minimumone-year vesting period). Awards deemed invested in our common stock provide an incentive for our named executive officers to manage our company for earnings growth and total shareholder return. In addition, the deferred realization of these awards encourages retention of our named executive officers until a normal retirement age, and forone-year increments after such age.
**Supplemental Savings and Thrift Plan (Supplemental Plan) Match
The Supplemental Plan allows certain highly compensated employees (those with compensation greater than an amount set annually by the IRS) to defer up to 80% of their base salary and annual cash incentive payment. We match any deferrals of salary and annual cash incentive payments on adollar-for-dollar basis up to the lesser of (i) the amount deferred or (ii) 5% of the employee’s regular earnings minus the maximum contribution that we could have matched under the 401(k) Plan. All such cash deferrals and match amounts may be deemed invested, at the employee’s election, in a number of investment options that include various mutual funds, an annuity product and a fund representing our common stock. Such employees may also defer restricted stock units and PSUs, but these deferrals are not subject to company matching. Amounts held in the Supplemental Plan accounts are payable as of the employee’s termination of employment, or at such other time as the employee elects in advance of the deferral, subject to certain exceptions set forth in IRS regulations.
***401(k) Match
Under our 401(k) Savings and Thrift Plan (401(k) Plan), a tax qualified retirement savings plan, participating employees, including our named executive officers, may contribute up to 75% of their earnings on abefore-tax orafter-tax basis into their 401(k) Plan accounts, subject to limitations imposed by the Internal Revenue Service (IRS). Under the 401(k) Plan,For fiscal 2020, we matchmatched an amount equal to one dollar for every dollar an employee contributescontributed on the first 5% of his or her regular earnings.earnings, subject to standard IRS compensation limits. The 401(k) Plan has other standard terms and conditions.
****Chartered Aircraft
Amounts in this column represent the incremental cost to the company of personal use of aircraft chartered by the company. See page 21 for additional information. The incremental cost is calculated as the actual cost billed to the company for the applicable chartered flight. Where more than one executive officer was on the same flight, the cost was allocated proportionally between them. The imputed income attributable to such flights was taxable income and the associated taxes were not reimbursed or paid by the company.
|
|
|
EXECUTIVE COMPENSATION TABLES
20192020 Grants of Plan-Based Awards
Name | Plan | Grant Date |
Estimated Future Payouts UnderNon-Equity |
Estimated Future Payouts Under Equity | All Other Stock Awards: Number of Shares of Stock or Units (#)
| All Other Option Awards: Number of Securities Underlying Options (#)
| Exercise or Base Price of Option Awards ($/sh)
| Grant Date Fair Value of Stock and Option Awards ($)
| Plan | Grant Date |
Estimated Future Payouts |
Estimated Future Payouts | All Other (#)
| All Other
| Exercise
| Grant
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Threshold | Target ($) | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pat Gallagher | LTIP | (1) | 3/14/19 | — | — | — | — | — | — | — | 44,050 | 79.59 | 471,776 | LTIP | (1) | 3/12/20 | — | — | — | — | — | — | — | 68,550 | 86.17 | 684,790 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LTIP | (3) | 3/14/19 | — | — | — | 13,213 | 26,425 | 52,850 | — | — | — | 2,103,166 | LTIP | (3) | 3/12/20 | — | — | — | 17,135 | 34,270 | 68,540 | — | — | — | 2,953,046 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ANNUAL | (4) | N/A | N/A | 1,875,000 | 3,750,000 | — | — | — | — | — | — | N/A | ANNUAL | (4) | N/A | N/A | 2,500,000 | 5,000,000 | — | — | — | — | — | — | N/A | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Doug Howell | LTIP | (1) | 3/14/19 | — | — | — | — | — | — | — | 14,100 | 79.59 | 151,011 | LTIP | (1) | 3/12/20 | — | — | — | — | — | — | — | 17,130 | 86.17 | 171,123 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LTIP | (2) | 3/14/19 | — | — | — | — | — | — | 2,825 | — | — | 224,842 | LTIP | (2) | 3/12/20 | — | — | — | — | — | — | 2,850 | — | — | 245,585 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LTIP | (3) | 3/14/19 | — | — | — | 4,225 | 8,450 | 16,900 | — | — | — | 672,536 | LTIP | (3) | 3/12/20 | — | — | — | 4,280 | 8,560 | 17,120 | — | — | — | 737,616 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ANNUAL | (4) | N/A | N/A | 900,000 | 1,800,000 | — | — | — | — | — | — | N/A | ANNUAL | (4) | N/A | N/A | 900,000 | 1,800,000 | — | — | — | — | — | — | N/A | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tom Gallagher | LTIP | (1) | 3/14/19 | — | — | — | — | — | — | — | 28,200 | 79.59 | 302,022 | LTIP | (1) | 3/12/20 | — | — | — | — | — | — | — | 31,340 | 86.17 | 313,076 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LTIP | (3) | 3/14/19 | — | — | — | 4,225 | 8,450 | 16,900 | — | — | — | 672,536 | LTIP | (3) | 3/12/20 | — | — | — | 3,915 | 7,830 | 15,660 | — | — | — | 674,711 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ANNUAL | (4) | N/A | N/A | 900,000 | 1,800,000 | — | — | — | — | — | — | N/A | ANNUAL | (4) | N/A | N/A | 900,000 | 1,800,000 | — | — | — | — | — | — | N/A | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Scott Hudson | LTIP | (1) | 3/14/19 | — | — | — | — | — | — | — | 21,900 | 79.59 | 234,549 | LTIP | (1) | 3/12/20 | — | — | — | — | — | — | — | 24,370 | 86.17 | 243,448 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LTIP | (3) | 3/14/19 | — | — | — | 3,288 | 6,575 | 13,150 | — | — | — | 523,304 | LTIP | (3) | 3/12/20 | — | — | — | 3,045 | 6,090 | 12,180 | — | — | — | 524,775 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ANNUAL | (4) | N/A | N/A | 700,000 | 1,400,000 | — | — | — | — | — | — | N/A | ANNUAL | (4) | N/A | N/A | 700,000 | 1,400,000 | — | — | — | — | — | — | N/A | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Walt Bay | LTIP | (1) | 3/14/19 | — | — | — | — | — | — | — | 15,850 | 79.59 | 169,754 | LTIP | (1) | 3/12/20 | — | — | — | — | — | — | — | 17,630 | 86.17 | 176,117 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LTIP | (2) | 3/14/19 | — | — | — | — | — | — | 3,500 | — | — | 278,565 | LTIP | (2) | 3/12/20 | — | — | — | — | — | — | 2,250 | — | — | 193,882 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LTIP | (3) | 3/14/19 | — | — | — | 2,113 | 4,225 | 8,450 | — | — | — | 336,268 | LTIP | (3) | 3/12/20 | — | — | — | 2,450 | 4,900 | 9,800 | — | — | — | 422,233 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ANNUAL | (4) | N/A | N/A | 675,000 | 1,350,000 | — | — | — | — | — | — | N/A | ANNUAL | (4) | N/A | N/A | 675,000 | 1,350,000 | — | — | — | — | — | — | N/A | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | Stock options under our 2017 Long-Term Incentive Plan, vestingone-third on each of the third, fourth and fifth anniversaries of the grant date. |
| (2) | Restricted stock units under our 2017 Long-Term Incentive Plan, vesting on the fifth anniversary of the grant date. |
| (3) | The amounts represent the range of possible |
| (4) | The amounts in this line represent the range of possible annual cash incentive award the named executive officer was eligible to receive in |
|
|
EXECUTIVE COMPENSATION TABLES
Outstanding Equity Awards at 2019 FiscalYear-End
Name | Option Awards(1)
| Stock Awards
| ||||||||||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#)
Exercisable | Number of Securities Underlying Unexercised Options (#)
Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or That Have Not | Market Value That Have Not | Equity or Other
| Equity
| |||||||||||||||||||||||||||||||||
Pat Gallagher | 35,700 | 0 | 39.17 | 3/13/20 | — | — | — | — | ||||||||||||||||||||||||||||||||
| 70,700 | 0 | 46.87 | 3/12/21 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 34,001 | 16,999 | 46.17 | 3/11/22 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 20,967 | 41,933 | 43.71 | 3/17/23 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 58,300 | 56.86 | 3/16/24 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 41,400 | 70.74 | 3/15/25 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 44,050 | 79.59 | 3/14/26 | — | — | — | — | |||||||||||||||||||||||||||||||||
|
| 56,158
|
|
| 5,347,926
|
|
| 53,325
|
|
| 10,156,280
|
| |||||||||||||||||||||||||||||
Doug Howell | 20,000 | 0 | 39.17 | 3/13/20 | — | — | — | — | ||||||||||||||||||||||||||||||||
| 61,200 | 0 | 46.87 | 3/12/21 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 12,734 | 6,366 | 46.17 | 3/11/22 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 8,901 | 17,799 | 43.71 | 3/17/23 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 19,800 | 56.86 | 3/16/24 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 14,900 | 70.74 | 3/15/25 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 14,100 | 79.59 | 3/14/26 | — | — | — | — | |||||||||||||||||||||||||||||||||
|
| 38,167
|
|
| 3,634,643
|
|
| 18,150
|
|
| 3,456,849
|
| |||||||||||||||||||||||||||||
Tom Gallagher | 21,300 | 0 | 39.17 | 3/13/20 | — | — | — | — | ||||||||||||||||||||||||||||||||
| 27,700 | 0 | 46.87 | 3/12/21 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 17,867 | 8,933 | 46.17 | 3/11/22 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 11,801 | 23,599 | 43.71 | 3/17/23 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 37,300 | 56.86 | 3/16/24 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 29,800 | 70.74 | 3/15/25 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 28,200 | 79.59 | 3/14/26 | — | — | — | — | |||||||||||||||||||||||||||||||||
|
| 17,974
|
|
| 1,711,664
|
|
| 18,150
|
|
| 3,456,849
|
| |||||||||||||||||||||||||||||
Scott Hudson | 15,100 | 0 | 39.17 | 3/13/20 | — | — | — | — | ||||||||||||||||||||||||||||||||
| 13,300 | 0 | 46.87 | 3/12/21 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 35,068 | 17,532 | 46.17 | 3/11/22 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 10,234 | 20,466 | 43.71 | 3/17/23 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 30,300 | 56.86 | 3/16/24 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 23,200 | 70.74 | 3/15/25 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 21,900 | 79.59 | 3/14/26 | — | — | — | — | |||||||||||||||||||||||||||||||||
|
| 17,670
|
|
| 1,682,714
|
|
| 14,125
|
|
| 2,690,248
|
| |||||||||||||||||||||||||||||
|
|
29
|
EXECUTIVE COMPENSATION TABLES
Name | Option Awards(1)
| Stock Awards
| ||||||||||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#)
Exercisable | Number of Securities Underlying Unexercised Options (#)
Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or That Have Not | Market Value That Have Not | Equity or Other
| Equity
| |||||||||||||||||||||||||||||||||
Walt Bay | 8,401 | 4,199 | 46.17 | 3/11/22 | — | — | — | — | ||||||||||||||||||||||||||||||||
| 5,901 | 11,799 | 43.71 | 3/17/23 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 21,800 | 56.86 | 3/16/24 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 16,800 | 70.74 | 3/15/25 | — | — | — | — | |||||||||||||||||||||||||||||||||
| 0 | 15,850 | 79.59 | 3/14/26 | — | — | — | — | |||||||||||||||||||||||||||||||||
|
| 29,824
|
|
| 2,840,140
|
|
| 9,075
|
|
| 1,728,425
|
| |||||||||||||||||||||||||||||
Outstanding Equity Awards at 2020 Fiscal Year-End
Name | Option Awards (1)
| Stock Awards
| ||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#)
Exercisable | Number of Securities Underlying Unexercised Options (#)
Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or That Have Not | Market Value That Have Not | Equity or Other
| Equity
| |||||||||||||||||||||||||
Pat Gallagher | 51,000 | 0 | 46.17 | 3/11/22 | — | — | — | — | ||||||||||||||||||||||||
| 41,934 | 20,966 | 43.71 | 3/17/23 | — | — | — | — | |||||||||||||||||||||||||
| 19,434 | 38,866 | 56.86 | 3/16/24 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 41,400 | 70.74 | 3/15/25 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 44,050 | 79.59 | 3/14/26 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 68,550 | 86.17 | 3/12/27 | — | — | — | — | |||||||||||||||||||||||||
| 53,800 | 6,655,598 | 60,695 | 15,017,157 | |||||||||||||||||||||||||||||
Doug Howell | 1,200 | 0 | 46.87 | 3/12/21 | — | — | — | — | ||||||||||||||||||||||||
| 19,100 | 0 | 46.17 | 3/11/22 | — | — | — | — | |||||||||||||||||||||||||
| 17,801 | 8,899 | 43.71 | 3/17/23 | — | — | — | — | |||||||||||||||||||||||||
| 6,601 | 13,199 | 56.86 | 3/16/24 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 14,900 | 70.74 | 3/15/25 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 14,100 | 79.59 | 3/14/26 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 17,130 | 86.17 | 3/12/27 | — | — | — | — | |||||||||||||||||||||||||
| 37,375 | 4,623,661 | 17,010 | 4,208,614 | |||||||||||||||||||||||||||||
Tom Gallagher | 27,700 | 0 | 46.87 | 3/12/21 | — | — | — | — | ||||||||||||||||||||||||
| 26,800 | 0 | 46.17 | 3/11/22 | — | — | — | — | |||||||||||||||||||||||||
| 23,601 | 11,799 | 43.71 | 3/17/23 | — | — | — | — | |||||||||||||||||||||||||
| 12,434 | 24,866 | 56.86 | 3/16/24 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 29,800 | 70.74 | 3/15/25 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 28,200 | 79.59 | 3/14/26 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 31,340 | 86.17 | 3/12/27 | — | — | — | — | |||||||||||||||||||||||||
| 19,400 | 2,399,974 | 16,280 | 4,027,998 | |||||||||||||||||||||||||||||
Scott Hudson | 6,650 | 0 | 46.87 | 3/12/21 | — | — | — | — | ||||||||||||||||||||||||
| 52,600 | 0 | 46.17 | 3/11/22 | — | — | — | — | |||||||||||||||||||||||||
| 20,467 | 10,233 | 43.71 | 3/17/23 | — | — | — | — | |||||||||||||||||||||||||
| 10,101 | 20,199 | 56.86 | 3/16/24 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 23,200 | 70.74 | 3/15/25 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 21,900 | 79.59 | 3/14/26 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 24,370 | 86.17 | 3/12/27 | — | — | — | — | |||||||||||||||||||||||||
| 15,100 | 1,868,021 | 12,665 | 3,133,574 | |||||||||||||||||||||||||||||
30 | 2021 PROXY STATEMENT |
EXECUTIVE COMPENSATION TABLES
Name | Option Awards (1)
| Stock Awards
| ||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#)
Exercisable | Number of Securities Underlying Unexercised Options (#)
Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or That Have Not | Market Value That Have Not | Equity or Other
| Equity
| |||||||||||||||||||||||||
Walt Bay | 11,801 | 5,899 | 43.71 | 3/17/23 | — | — | — | — | ||||||||||||||||||||||||
| 7,267 | 14,533 | 56.86 | 3/16/24 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 16,800 | 70.74 | 3/15/25 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 15,850 | 79.59 | 3/14/26 | — | — | — | — | |||||||||||||||||||||||||
| 0 | 17,630 | 86.17 | 3/12/27 | — | — | — | — | |||||||||||||||||||||||||
| 29,350 | 3,630,889 | 9,125 | 2,257,708 | |||||||||||||||||||||||||||||
| (1) | Stock options vest or vested in accordance with the following vesting schedules: |
Expiration Date
| One-third vests on each of:
| |
|
| |
3/12/21 | March 12, 2017, March 12, 2018 and March 12, 2019 | |
3/11/22 | March 11, 2018, March 11, 2019 and March 11, 2020 | |
3/17/23 | March 17, 2019, March 17, 2020 and March 17, 2021 | |
3/16/24 | March 16, 2020, March 16, 2021 and March 16, 2022 | |
3/15/25 | March 15, 2021, March 15, 2022 and March 15, 2023 | |
3/14/26 | March 14, 2022, March 14, 2023 and March 14, 2024 | |
3/12/27 | March 12, 2023, March 12, 2024 and March 12, 2025 | |
| (2) | The following table provides information with respect to the vesting of each named executive officer’s unvested restricted stock units and earned performance share units as of December 31, |
Vesting Date | Type of award | Pat Gallagher | Doug Howell | Tom Gallagher | Scott Hudson | Walt Bay | Type of award | Pat Gallagher | Doug Howell | Tom Gallagher | Scott Hudson | Walt Bay | |||||||||||||||||||||||||||
3/11/20 | Restricted Stock Units* | — | 3,950 | — | 3,050 | 3,050 | |||||||||||||||||||||||||||||||||
3/17/21 | Restricted Stock Units* | — | 5,350 | — | — | 5,350 | Restricted Stock Units* | — | 5,350 | — | — | 5,350 | |||||||||||||||||||||||||||
3/16/22 | Restricted Stock Units* | — | 3,700 | — | — | 4,550 | Restricted Stock Units* | — | 3,700 | — | — | 4,550 | |||||||||||||||||||||||||||
3/15/23 | Restricted Stock Units* | — | 3,250 | — | — | 4,000 | Restricted Stock Units* | — | 3,250 | — | — | 4,000 | |||||||||||||||||||||||||||
3/14/24 | Restricted Stock Units* | — | 2,825 | — | — | 3,500 | Restricted Stock Units* | — | 2,825 | — | — | 3,500 | |||||||||||||||||||||||||||
3/16/20 | Performance Share Units** | 56,158 | 19,092 | 17,974 | 14,620 | 9,374 | |||||||||||||||||||||||||||||||||
3/12/25 | Restricted Stock Units* | — | 2,850 | — | — | 2,250 | |||||||||||||||||||||||||||||||||
3/15/21 | Performance Share Units** | 53,800 | 19,400 | 19,400 | 15,100 | 9,700 | |||||||||||||||||||||||||||||||||
Total | 56,158 | 38,167 | 17,974 | 17,670 | 29,824 | 53,800 | 37,375 | 19,400 | 15,100 | 29,350 | |||||||||||||||||||||||||||||
| * | Granted in |
| ** | Granted in |
|
| 31 |
EXECUTIVE COMPENSATION TABLES
| (3) | The amounts in this column are based on a closing stock price of |
| (4) | The following table provides information with respect to the vesting of each named executive officer’s unearned unvested performance share units as of December 31, |
Vesting Date | Type of award | Pat Gallagher | Doug Howell | Tom Gallagher | Scott Hudson | Walt Bay | Type of award | Pat Gallagher | Doug Howell | Tom Gallagher | Scott Hudson | Walt Bay | |||||||||||||||||||||||||||||||||||||
3/15/21
|
Performance Share Units*
|
|
26,900
|
|
|
9,700
|
|
|
9,700
|
|
|
7,550
|
|
|
4,850
|
| |||||||||||||||||||||||||||||||||
3/14/22
|
Performance Share Units**
|
|
26,425
|
|
|
8,450
|
|
|
8,450
|
|
|
6,575
|
|
|
4,225
|
|
Performance Share Units*
|
|
26,425
|
|
|
8,450
|
|
|
8,450
|
|
|
6,575
|
|
|
4,225
|
| |||||||||||||||||
3/12/23
|
Performance Share Units**
|
|
34,270
|
|
|
8,560
|
|
|
7,830
|
|
|
6,090
|
|
|
4,900
|
| |||||||||||||||||||||||||||||||||
Total
|
|
53,325
|
|
|
18,150
|
|
|
18,150
|
|
|
14,125
|
|
|
9,075
|
|
|
60,695
|
|
|
17,010
|
|
|
16,280
|
|
|
12,665
|
|
|
9,125
|
| |||||||||||||||||||
|
Granted in 2019, to be earned on the basis of 2019-2021 performance. See page |
| ** | Granted in 2020, to be earned on the basis of 2020-2022 performance. See page 21 for more information. |
| (5) | The amounts in this column are based on a closing stock price of |
20192020 Option Exercises and Stock Vested
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
Name | Number of (#) | Value ($) | Number of (#) (1) | Value ($) (1) | Number of (#) | Value ($) | Number of (#) (1) (2) | Value ($) (1) | ||||||||||||||||||||||||||||
Pat Gallagher | 34,600 | 1,540,738 | 18,850 | 1,513,278 | 106,400 | 7,231,574 | 56,158 | 4,541,949 | ||||||||||||||||||||||||||||
Doug Howell | 13,600 | 592,348 | 10,700 | 858,996 | 80,000 | 5,231,150 | 23,042 | 1,939,470 | ||||||||||||||||||||||||||||
Tom Gallagher | — | — | 7,100 | 569,988 | 21,300 | 1,487,273 | 17,974 | 1,453,702 | ||||||||||||||||||||||||||||
Scott Hudson | 10,200 | 441,462 | 6,150 | 493,722 | 21,750 | 1,459,030 | 17,670 | 1,487,705 | ||||||||||||||||||||||||||||
Walt Bay | 67,100 | 3,147,438 | 3,550 | 284,994 | 12,600 | 920,595 | 12,424 | 1,061,963 | ||||||||||||||||||||||||||||
| (1) | These columns reflect the vesting of restricted stock units and performance share units, as applicable. |
| (2) | Pursuant to the terms of the Supplemental Plan (see page |
20192020 Pension Benefits
Name | Plan Name | Number Credited | Present Value of Accumulated Benefit ($) | Plan Name | Number Credited | Present Value of Accumulated Benefit ($) | ||||||||||||||||||
Pat Gallagher | Arthur J. Gallagher & Co. Employees’ Pension Plan | 25 | 900,529 | Arthur J. Gallagher & Co. Employees’ Pension Plan | 25 | 998,634 | ||||||||||||||||||
Doug Howell | Arthur J. Gallagher & Co. Employees’ Pension Plan | 1 | 27,772 | Arthur J. Gallagher & Co. Employees’ Pension Plan | 1 | 31,337 | ||||||||||||||||||
Tom Gallagher | Arthur J. Gallagher & Co. Employees’ Pension Plan | 25 | 569,578 | Arthur J. Gallagher & Co. Employees’ Pension Plan | 25 | 648,959 | ||||||||||||||||||
Scott Hudson | Arthur J. Gallagher & Co. Employees’ Pension Plan | — | — | Arthur J. Gallagher & Co. Employees’ Pension Plan | — | — | ||||||||||||||||||
Walt Bay | Arthur J. Gallagher & Co. Employees’ Pension Plan | — | — | Arthur J. Gallagher & Co. Employees’ Pension Plan | — | — | ||||||||||||||||||
| (1) | The last year of credited service was 2005. Total years of actual service were as follows at December 31, |
We maintain the Arthur J. Gallagher & Co. Employees’ Pension Plan (the Pension Plan) which is qualified under the Internal Revenue Code and which historically covered substantially all domestic employees. In 2005, we amended the Pension Plan to freeze the accrual
32 | 2021 PROXY STATEMENT |
EXECUTIVE COMPENSATION TABLES
of future benefits for all domestic employees effective July 1, 2005. Benefits under the Pension Plan are based upon the employee’s
|
|
|
EXECUTIVE COMPENSATION TABLES
highest average annual earnings for a five calendar-year period with us and are payable after retirement in the form of an annuity or a lump sum. The maximum amount of annual earnings that may be considered in calculating benefits under the Pension Plan is $210,000 (the maximum amount of annual earnings allowable by law in 2005, the last year that benefits accrued under the Pension Plan).
Benefits under the Pension Plan are calculated as an annuity equal to 1% of the participant’s highest annual average earnings multiplied by years of service, and commencing upon the participant’s retirement on or after age 65. The maximum benefit under the pension plan upon retirement would be $53,318 per year, payable at age 65 in accordance with IRS regulations. Participants also may elect to commence their pensions anytime on or after attaining age 55 if they retire prior to age 65, with an actuarial reduction to reflect the earlier commencement date, ranging from 54% at age 55 to no reduction at age 65. All of our named executive officers with accumulated benefits under the plan are eligible to take this early retirement option. For additional information on the valuation assumptions with respect to pensions, refer to Note 13 to our consolidated financial statements in the Annual Report on Form10-K for the year ended December 31, 2019.2020.
20192020 Nonqualified Deferred Compensation
Name | Plan Name | Executive Contributions in Last Fiscal Year ($) (1) | Registrant Contributions in Last Fiscal Year ($) (2) | Aggregate Earnings in Last Fiscal Year ($) (3) | Aggregate Withdrawals/ Distributions in Last Fiscal Year ($) (4) | Aggregate End | Plan Name | Executive Contributions in Last Fiscal Year ($) (1) | Registrant Contributions in Last Fiscal Year ($) (2) | Aggregate Earnings in Last Fiscal Year ($) (3) | Aggregate Withdrawals/ Distributions in Last Fiscal Year ($) (4) | Aggregate End ($) (4)(5) | ||||||||||||||||||||||||||||||
Pat Gallagher | DEPP | — | 1,000,000 | 2,727,980 | 55,121 | 11,600,074 | DEPP | — | 1,500,000 | 4,430,041 | 54,977 | 17,475,138 | ||||||||||||||||||||||||||||||
Supplemental Plan |
|
453,125 |
|
|
212,563 |
|
|
2,361,953 |
|
|
— |
|
|
15,740,579 |
|
Supplemental Plan |
|
500,000 |
|
|
235,750 |
|
|
2,868,696 |
|
|
— |
|
19,345,025 | |||||||||||||
Doug Howell | DEPP | — | 500,000 | 3,769,291 | — | 15,801,964 | DEPP | — | 550,000 | 5,364,812 | — | 21,716,776 | ||||||||||||||||||||||||||||||
Supplemental Plan |
|
1,239,529 |
|
|
109,750 |
|
|
3,414,346 |
|
|
— |
|
|
16,689,705 |
|
Supplemental Plan |
|
1,582,128 |
|
|
120,750 |
|
|
4,078,095 |
|
|
— |
|
22,470,677 | |||||||||||||
Tom Gallagher | DEPP | — | 450,000 | 3,386,292 | — | 14,196,591 | DEPP | — | 500,000 | 2,085,041 | 16,055,760 | 725,872 | ||||||||||||||||||||||||||||||
Supplemental Plan |
|
75,000 |
|
|
75,000 |
|
|
321,381 |
|
|
— |
|
|
1,994,771 |
|
Supplemental Plan |
|
120,000 |
|
|
120,000 |
|
|
315,831 |
|
|
997,119 |
|
1,553,483 | |||||||||||||
Scott Hudson | DEPP | — | 400,000 | 1,548,598 | — | 6,556,723 | DEPP | — | 450,000 | 2,326,217 | — | 9,332,940 | ||||||||||||||||||||||||||||||
Supplemental Plan |
|
96,250 |
|
|
82,250 |
|
|
49,308 |
|
|
— |
|
|
656,850 |
|
Supplemental Plan |
|
110,250 |
|
|
82,000 |
|
|
212,246 |
|
|
— |
|
1,061,346 | |||||||||||||
Walt Bay | DEPP | — | 350,000 | 1,685,337 | — | 7,107,368 | DEPP | — | 400,000 | 2,481,918 | — | 9,989,286 | ||||||||||||||||||||||||||||||
Supplemental Plan |
|
80,000 |
|
|
78,813 |
|
|
324,505 |
|
|
— |
|
|
2,660,175 |
|
Supplemental Plan |
|
85,000 |
|
|
85,000 |
|
|
(234,464 |
) |
|
— |
|
2,595,711 | |||||||||||||
| (1) | Amounts in this column include amounts reported in the “Salary” and/or“Non-Equity Incentive Plan Compensation” columns in the |
| (2) | These amounts are included in the “All Other Compensation” column of the |
| (3) | Amounts in this column are not included in the |
| (4) | For Pat Gallagher, this amount reflects an accelerated distribution under the DEPP to cover applicable taxes on vested awards. Tom Gallagher reached the age of 62 and vested and received a distribution in accordance with a prior election under the DEPP. He also received a distribution under the Supplemental Plan in accordance with a prior election. |
| (5) | The DEPP amounts include the following amounts also reported as compensation in this and prior years’ Summary Compensation Tables (as applicable): Pat Gallagher - |
|
| 33 |
EXECUTIVE COMPENSATION TABLES
20192020 Potential Payments upon Termination or Change in Control
Change-in-Control Agreements
We provide our named executive officers withchange-in-control agreements, which we believe are an important part of their overall compensation. In addition to helping secure their continued dedication to stockholder interests prior to or following a change in control, the Compensation Committee also believes these agreements are important for recruitment and retention, as all or nearly all of our competitors for talent have similar agreements in place for their senior employees. In general, compensation levels under these agreements are separate and unrelated to named executive officers’ overall compensation decisions for a given year.
Double Trigger
Each named executive officer’schange-in-control agreement provides for payments if there is a “Termination” of the individual within 24 months after a “Change in Control” (commonly referred to in combination as a “double trigger”).
AChange in Control occurs (i) if a person or group is or becomes the beneficial owner, directly or indirectly, of our securities representing 50% or more of the voting power to elect directors, (ii) if there is a change in the composition of the Board such that within a period of two consecutive years, individuals who at the beginning of suchtwo-year period constitute the Board and any new directors elected or nominated by at leasttwo-thirds of the directors who were either directors at the beginning of thetwo-year period or were so elected or nominated, cease for any reason to constitute at least a majority of the Board, or (iii) our stockholders approve the sale of all or substantially all of our assets or any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in (i) or (ii) above. A substantially similarchange-in-control definition is used under our equity plans, the DEPP and the Supplemental Plan, except that our equity plans and the DEPP do not include subsection (iii) above.
ATermination means either (i) a termination of employment by us for any reason other than death, physical or mental incapacity or “cause” (defined as gross misconduct or willful and material breach of thechange-in-control agreement) or (ii) resignation upon the occurrence of (1) a material change in the nature or scope of the individual’s authorities, powers, functions or duties, (2) a reduction in total compensation, (3) any relocation of the individual’s principal place of employment more than 35 miles from his or her location prior to the Change in Control, (4) a breach of thechange-in-control agreement by us or (5) a good faith determination by the individual that as a result of the Change in Control, his or her position is materially affected.
Payments upon Double Trigger
Under thechange-in-control agreements, each named executive officer subject to Termination within 24 months after a Change in Control is entitled to receive:
Severance – two-times salary, bonus and annual cash incentive. A lump sum severance payment equal to salary, bonus and annual cash incentive compensation payments for a24-month period on the basis of a salary rate not less than his annual salary prior to the termination, or if greater, the salary at the time of the Change in Control and the bonus and annual cash incentive payment prior to termination or, if greater, the bonus and annual cash incentive payment prior to the Change in Control. The severance payment would be made in a lump sum not more than seven days after the date of termination.
No new excise taxgross-up payments. Ourchange-in-control agreements entered into prior to 2008 provide that the named executive officer would be eligible to receive an excise tax“gross-up” payment as defined in Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended, relating toso-called “excess parachute payments.” However, ourchange-in-control agreements entered into after 2008 do not contain excise taxgross-ups, and it is our policy not to enter into newchange-in-control agreements that contain excise taxgross-ups, or amend existingchange-in-control agreements without removing these provisions.
Participation in benefit plans. Thechange-in-control agreements also provide for continued participation in welfare benefit plans, including medical, dental, life and disability insurance, on the same basis and at the same cost as prior to the Termination, for the shorter of atwo-year period or until the individual becomes covered by a different plan with coverage or benefits equal to or greater than the plan provided by us. The agreements also provide for the payment of any unpaid salary and a lump sum cash payment for accumulated but unused vacation.
|
|
|
EXECUTIVE COMPENSATION TABLES
Other Termination andChange-in-Control Payments
The table below shows potential incremental payments, benefits and equity award accelerations upon termination of our named executive officers. The amounts are determined under existing agreements and plans for various termination scenarios. The amounts assume that the trigger events for all such payments occurred on December 31, 20192020 and use the closing price of our common stock on that date of $95.23.$123.71. The amounts in the table below do not include the amount of pension or deferred compensation our named executive officers would receive under each termination scenario becausescenario. Instead, these amounts are reflected in the20192020 Pension Benefits and20192020 Nonqualified Deferred Compensation tables presented above.
Stock options. All of our named executive officers have outstanding stock options, which they are eligible to exercise upon termination of employment. If they are terminated for cause they are eligible to exercise all options that are vested at the time of termination, subject to the restrictive covenant and clawback provisions in their award agreements. Because our named executive officers have all reached the age of 55, upon a voluntary resignation or termination without cause, their stock options would not be subject to forfeiture if their departure from the company is at least two years after the date of grant. If a named executive officer is terminated due to death or disability, all stock options vest and remain outstanding through their original expiration date. Upon a change in control, stock options granted prior to the approval of our 2017 Long-Term Incentive Plan vest immediately and may be exercised through their original expiration date. For stock options granted after the approval of our 2017 Long-Term Incentive Plan, accelerated vesting at a change in control requires Board approval.
Restricted stock units. Doug Howell Scott Hudson and Walt Bay have outstanding restricted stock units. Upon a termination for cause, all unvested restricted stock units would lapse. Because they have reached the age of 55, upon a voluntary resignation or termination without cause, their restricted stock units would not be subject to forfeiture if their departure from the company is at least two years after the date of grant, although vesting and distribution will still occur in accordance with the original schedule. If they terminate because of death or disability the awards vest immediately. Upon a change in control, all restricted stock units granted prior to the approval of our 2017 Long-Term Incentive Plan vest immediately. For restricted stock units granted after the approval of our 2017 Long-Term Incentive Plan, accelerated vesting at a change in control requires Board approval.
| • | PSUs. All of our named executive officers have outstanding PSUs. Upon a termination for cause, all unvested PSUs would lapse. Because our named executive officers have all reached the age of 55, upon a voluntary resignation or termination without cause, the earned portion of PSUs would not be subject to forfeiture if their departure from the company is at least two years after the date of grant, although vesting and distribution will still occur in accordance with the original schedule. If they terminate because of death or disability the awards vest immediately at target. Upon a change in control, all earned PSUs granted prior to the approval of our 2017 Long-Term Incentive Plan vest immediately and the performance conditions for unearned PSUs are deemed satisfied at target levels or, if greater, on apro rata basis based on actual achievement as of the date of the change in control. For PSUs granted after the approval of our 2017 Long-Term Incentive Plan, Board approval is required at a change in control both for accelerated vesting and for the deemed satisfaction of performance conditions described in the prior sentence. |
DEPP. All of our named executive officers participate in the DEPP. Amounts in this plan vest on the earliest to occur of (1) the date the participant turns 62 (or theone-year anniversary of the date of grant for participants over 61), (2) death, (3) termination of employment because of disability, (4) termination in a manner that grants the person severance pay under our Severance Plan (filed as an exhibit to our Exchange Act filings) and (5) a change in control. Accordingly, vesting would accelerate under all of the termination scenarios other than a voluntary resignation or a termination for cause.
| • | Termination for Cause. Where applicable, termination “for cause” under our plans generally means a termination of employment based upon the good faith determination of the company that one or more of the following events has occurred: (i) the participant has committed a dishonest or fraudulent act to the material detriment of the company; (ii) the participant has been convicted (or pleaded guilty ornolo contendere) for a crime involving moral turpitude or for any felony; (iii) material and persistent insubordination on the part of the participant; (iv) the loss by the participant, for any reason, of any license or professional registration without the company’s written consent; (v) the diversion by the participant of any business or business opportunity of the company for the benefit of any party other than the company; (vi) material violation of the company’s Global Standards of Business Conduct by the participant; or (vii) the participant has engaged in illegal conduct, embezzlement or fraud with respect to the assets, business or affairs of the company. |
No LiberalChange-in-Control Definitions in Equity Plans or DEPP. None of our equity plans or the DEPP has a “liberal”change-in-control definition (i.e., they do not provide for buyout thresholds lower than 50%, and a change in control is deemed to occur upon completion, rather than stockholder approval, of a transaction).
|
| 35 |
EXECUTIVE COMPENSATION TABLES
Executive Benefits and Payments | Voluntary Resignation | Death or Disability | Termination with Cause | Termination without Cause | Change in Control(1) | Termination without Cause or Resignation for Good Reason Following Change in Control | Executive Benefits and Payments Upon Separation | Voluntary Resignation | Death or Disability | Termination with Cause | Termination without Cause | Change in Control (1) | Termination without Cause or Resignation for Good Reason Following Change in Control | |||||||||||||||||||||||||||||||||||||||||||||
Pat Gallagher | Severance Pay | $ | — |
| $ | — |
| $ | — |
| $ | 1,250,000 |
| $ | — |
| $ | 10,000,000 |
| Severance Pay | $ | — | $ | — | $ | — | $ | 1,250,000 | $ | — | $ | 11,250,000 | ||||||||||||||||||||||||||
Stock Options (2) |
| 13,400,033 |
|
| 15,102,861 |
|
| 8,168,703 |
|
| 13,400,033 |
|
| 15,102,861 |
|
| 15,102,861 |
| Stock Options (2) |
| 15,076,853 |
| 19,593,706 |
| 8,608,423 |
| 15,076,853 |
| 19,593,706 |
| 19,593,706 | |||||||||||||||||||||||||||
Restricted Stock Units |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| Restricted Stock Units |
| — |
| — |
| — |
| — |
| — |
| — | |||||||||||||||||||||||||||
PSUs(3) |
| 4,912,630 |
|
| 16,316,559 |
|
| — |
|
| 4,912,630 |
|
| 16,316,559 |
|
| 16,316,559 |
| PSUs (3) |
| 5,869,049 |
| 16,774,582 |
| — |
| 5,869,049 |
| 16,774,582 |
| 16,774,582 | |||||||||||||||||||||||||||
DEPP (4) |
| 10,393,751 |
|
| 11,600,074 |
|
| 10,393,751 |
|
| 11,600,074 |
|
| 11,600,074 |
|
| 11,600,074 |
| DEPP (4) |
| 15,297,523 |
| 17,475,138 |
| 15,297,523 |
| 17,475,138 |
| 17,475,138 |
| 17,475,138 | |||||||||||||||||||||||||||
Benefit Plan Participation (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 62,787 |
| Benefit Plan Participation (5) |
| — |
| — |
| — |
| — |
| — |
| 61,558 | |||||||||||||||||||||||||||
Excise TaxGross-Up |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 8,774,907 |
| Excise Tax Gross-Up |
| — |
| — |
| — |
| — |
| — |
| 13,353,328 |
| ||||||||||||||||||||||||||
Total | $ | 28,706,414 |
| $ | 43,019,494 |
| $ | 18,562,454 |
| $ | 31,162,737 |
| $ | 43,019,494 |
| $ | 61,857,188 |
| Total | $ | 36,243,425 | $ | 53,843,426 | $ | 23,905,946 | $ | 39,671,040 | $ | 53,843,426 | $ | 78,508,312 |
| ||||||||||||||||||||||||||
Doug Howell | Severance Pay | $ | — |
| $ | — |
| $ | — |
| $ | 553,846 |
| $ | — |
| $ | 5,400,000 |
| Severance Pay | $ | — | $ | — | $ | — | $ | 588,462 | $ | — | $ | 4,950,000 | ||||||||||||||||||||||||||
Stock Options (2) |
| 7,153,188 |
|
| 7,738,613 |
|
| 5,164,142 |
|
| 7,153,188 |
|
| 7,738,613 |
|
| 7,738,613 |
| Stock Options (2) |
| 5,822,105 |
| 7,087,257 |
| 3,438,579 |
| 5,822,105 |
| 7,087,257 |
| 7,087,257 | |||||||||||||||||||||||||||
Restricted Stock Units |
| 878,702 |
|
| 1,865,013 |
|
| — |
|
| 878,702 |
|
| 1,865,013 |
|
| 1,865,013 |
| Restricted Stock Units |
| 1,556,258 |
| 2,270,889 |
| — |
| 1,556,258 |
| 2,270,889 |
| 2,270,889 | |||||||||||||||||||||||||||
PSUs(3) |
| 1,670,144 |
|
| 5,576,509 |
|
| — |
|
| 1,670,144 |
|
| 5,576,509 |
|
| 5,576,509 |
| PSUs (3) |
| 2,114,163 |
| 5,303,672 |
| — |
| 2,114,163 |
| 5,303,672 |
| 5,303,672 | |||||||||||||||||||||||||||
DEPP |
| — |
|
| 15,801,964 |
|
| — |
|
| 15,801,964 |
|
| 15,801,964 |
|
| 15,801,964 |
| DEPP |
| — |
| 21,716,776 |
| — |
| 21,716,776 |
| 21,716,776 |
| 21,716,776 | |||||||||||||||||||||||||||
Benefit Plan Participation (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 63,904 |
| Benefit Plan Participation (5) |
| — |
| — |
| — |
| — |
| — |
| 56,480 | |||||||||||||||||||||||||||
Excise TaxGross-Up |
| — |
|
| — |
|
| — |
|
| — |
|
| 5,064,380 |
|
| 8,146,271 |
| Excise Tax Gross-Up |
| — |
| — |
| — |
| — |
| 5,341,965 |
| 8,166,179 |
| ||||||||||||||||||||||||||
Total
| $
| 9,702,034
|
| $
| 30,982,099
|
| $
| 5,164,142
|
| $
| 26,057,844
|
| $
| 36,046,479
|
| $
| 44,592,274
|
| Total
| $
| 9,492,526
|
| $
| 36,378,594
|
| $
| 3,438,579
|
| $
| 31,797,763
|
| $
| 41,720,559
|
| $
| 49,551,253
|
| |||||||||||||||||||||
Tom Gallagher | Severance Pay | $ | — |
| $ | — |
| $ | — |
| $ | 900,000 |
| $ | — |
| $ | 5,400,000 |
| Severance Pay | $ | — | $ | — | $ | — | $ | 900,000 | $ | — | $ | 4,950,000 | ||||||||||||||||||||||||||
Stock Options (2) |
| 7,103,467 |
|
| 8,274,317 |
|
| 4,018,193 |
|
| 7,103,467 |
|
| 8,274,317 |
|
| 8,274,317 |
| Stock Options (2) |
| 9,532,045 |
| 13,531,239 |
| 6,925,833 |
| 9,532,045 |
| 13,531,239 |
| 13,531,239 | |||||||||||||||||||||||||||
Restricted Stock Units |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| Restricted Stock Units |
| — |
| — |
| — |
| — |
| — |
| — | |||||||||||||||||||||||||||
PSUs(3) |
| 1,572,343 |
|
| 5,380,531 |
|
| — |
|
| 1,572,343 |
|
| 5,380,531 |
|
| 5,380,531 |
| PSUs (3) |
| 2,116,349 |
| 5,212,378 |
| — |
| 2,116,349 |
| 5,212,378 |
| 5,212,378 | |||||||||||||||||||||||||||
DEPP |
| — |
|
| 14,196,591 |
|
| — |
|
| 14,196,591 |
|
| 14,196,591 |
|
| 14,196,591 |
| DEPP |
| — |
| 725,872 |
| — |
| — |
| 725,872 |
| 725,872 | |||||||||||||||||||||||||||
Benefit Plan Participation (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 53,523 |
| Benefit Plan Participation (5) |
| — |
| — |
| — |
| — |
| — |
| 47,945 | |||||||||||||||||||||||||||
Excise TaxGross-Up |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4,269,560 |
| Excise Tax Gross-Up |
| — |
| — |
| — |
| — |
| — |
| 4,331,118 |
| ||||||||||||||||||||||||||
Total
| $
| 8,675,810
|
| $
| 27,851,439
|
| $
| 4,018,193
|
| $
| 23,772,401
|
| $
| 27,851,439
|
| $
| 37,574,522
|
| Total
| $
| 11,648,394
|
| $
| 19,469,488
|
| $
| 6,925,833
|
| $
| 12,548,394
|
| $
| 19,469,488
|
| $
| 28,798,551
|
| |||||||||||||||||||||
Scott Hudson | Severance Pay | $ | — |
| $ | — |
| $ | — |
| $ | 181,731 |
| $ | — |
| $ | 3,850,000 |
| Severance Pay | $ | — | $ | — | $ | — | $ | 269,231 | $ | — | $ | 3,850,000 | ||||||||||||||||||||||||||
Stock Options (2) |
| 6,814,525 |
|
| 7,725,209 |
|
| 3,737,386 |
|
| 6,814,525 |
|
| 7,725,209 |
|
| 7,725,209 |
| Stock Options (2) |
| 10,300,049 |
| 12,181,127 |
| 6,902,202 |
| 10,300,049 |
| 12,181,127 |
| 12,181,127 | |||||||||||||||||||||||||||
Restricted Stock Units |
| 304,658 |
|
| 304,658 |
|
| — |
|
| 304,658 |
|
| 304,658 |
|
| 304,658 |
| Restricted Stock Units |
| — |
| — |
| — |
| — |
| — |
| — | |||||||||||||||||||||||||||
PSUs(3) |
| 1,278,939 |
|
| 4,298,162 |
|
| — |
|
| 1,278,939 |
|
| 4,298,162 |
|
| 4,298,162 |
| PSUs (3) |
| 1,647,261 |
| 4,055,980 |
| — |
| 1,647,261 |
| 4,055,980 |
| 4,055,980 | |||||||||||||||||||||||||||
DEPP |
| — |
|
| 6,556,723 |
|
| — |
|
| 6,556,723 |
|
| 6,556,723 |
|
| 6,556,723 |
| DEPP |
| — |
| 9,332,940 |
| — |
| 9,332,940 |
| 9,332,940 |
| 9,332,940 | |||||||||||||||||||||||||||
Benefit Plan Participation (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 58,229 |
| Benefit Plan Participation (5) |
| — |
| — |
| — |
| — |
| — |
| 60,162 | |||||||||||||||||||||||||||
Excise TaxGross-Up |
| — |
|
| — |
|
| — |
|
| — |
|
| 2,740,768 |
|
| 4,946,229 |
| Excise Tax Gross-Up |
| — |
| — |
| — |
| — |
| — |
| — | |||||||||||||||||||||||||||
Total
| $
| 8,398,122
|
| $
| 18,884,752
|
| $
| 3,737,386
|
| $
| 15,136,576
|
| $
| 21,625,520
|
| $
| 27,739,210
|
| Total
| $
| 11,947,310
|
| $
| 25,570,046
|
| $
| 6,902,202
|
| $
| 21,549,481
|
| $
| 25,570,046
|
| $
| 29,538,145
|
| |||||||||||||||||||||
Walt Bay | Severance Pay | $ | — |
| $ | — |
| $ | — |
| $ | 311,538 |
| $ | — |
| $ | 4,050,000 |
| Severance Pay | $ | — | $ | — | $ | — | $ | 337,500 | $ | — | $ | 3,712,500 | ||||||||||||||||||||||||||
Stock Options (2) |
| 2,366,526 |
|
| 3,025,852 |
|
| 716,173 |
|
| 2,366,526 |
|
| 3,025,852 |
|
| 3,025,852 |
| Stock Options (2) |
| 3,763,226 |
| 5,124,358 |
| 1,429,879 |
| 3,763,226 |
| 5,124,358 |
| 5,124,358 | |||||||||||||||||||||||||||
Restricted Stock Units |
| 1,263,341 |
|
| 1,993,881 |
|
| — |
|
| 1,263,341 |
|
| 1,993,881 |
|
| 1,993,881 |
| Restricted Stock Units |
| 1,756,553 |
| 2,481,738 |
| — |
| 1,756,553 |
| 2,481,738 |
| 2,481,738 | |||||||||||||||||||||||||||
PSUs(3) |
| 820,026 |
|
| 2,758,104 |
|
| — |
|
| 820,026 |
|
| 2,758,104 |
|
| 2,758,104 |
| PSUs (3) |
| 1,058,174 |
| 2,729,373 |
| — |
| 1,058,174 |
| 2,729,373 |
| 2,729,373 | |||||||||||||||||||||||||||
DEPP |
| — |
|
| 7,107,368 |
|
| — |
|
| 7,107,368 |
|
| 7,107,368 |
|
| 7,107,368 |
| DEPP |
| — |
| 9,989,286 |
| — |
| 9,989,286 |
| 9,989,286 |
| 9,989,286 | |||||||||||||||||||||||||||
Benefit Plan Participation (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 56,211 |
| Benefit Plan Participation (5) |
| — |
| — |
| — |
| — |
| — |
| 57,937 | |||||||||||||||||||||||||||
Excise TaxGross-Up |
| — |
|
| — |
|
| — |
|
| — |
|
| 2,255,051 |
|
| 5,524,641 |
| Excise Tax Gross-Up |
| — |
| — |
| — |
| — |
| 3,413,540 |
| 5,534,049 |
| ||||||||||||||||||||||||||
Total
| $
| 4,449,893
|
| $
| 14,885,205
|
| $
| 716,173
|
| $
| 11,868,799
|
| $
| 17,140,256
|
| $
| 24,516,057
|
| Total
| $
| 6,577,953
|
| $
| 20,324,755
|
| $
| 1,429,879
|
| $
| 16,904,739
|
| $
| 23,738,295
|
| $
| 29,629,241
|
| |||||||||||||||||||||
| (1) | For stock options, restricted stock units and PSUs granted after 2017, assumes Board approval of accelerated payouts at a change in control. |
| (2) | A substantial portion of the values shown represent fully vested amounts, which are disclosed above underOutstanding Equity Awards at |
| (3) | For purposes of this table we assume that unearned PSUs are valued at |
| (4) | The participant has reached age 62, which means that substantially all award balances under the plan are vested. |
| (5) | Represents the lump sum present value of two years of benefits as described above underParticipation in benefit plans. |
|
|
|
Item 3 – Advisory Vote to Approve the Compensation of Our Named Executive Officers
Pursuant to Section 14A of the Exchange Act, we are asking our stockholders to vote, on anon-binding, advisory basis, to approve the compensation of our named executive officers, as described in the Compensation Discussion and Analysis, compensation tables and related narrative discussion in this Proxy Statement. This proposal, commonly known as“say-on-pay”, gives our stockholders the opportunity to express their views on the compensation of our named executive officers. Our stockholders are given the opportunity to vote, on anon-binding, advisory basis, onsay-on-pay proposals annually. Our stockholders will have the next opportunity to vote on such a proposal at the 20212022 Annual Meeting.
We believe that our compensation program for named executive officers is structured in the best manner possible to support our company and business objectives, as well as to support our culture and traditions developed since our founding in 1927. We believe our program strikes the appropriate balance between using responsible, measured pay practices and effectively motivating our executives to dedicate themselves fully to value creation for our stockholders.
We encourage you to read our Compensation Discussion and Analysis on pages 1617 to 2425 of this Proxy Statement and our Executive Compensation tables on pages 2627 to 35.36.
Resolution and Recommendation
The Board strongly endorses the company’s compensation program for named executive officers and recommends that stockholders vote in favor of the following resolution:
RESOLVED, that the compensation of the named executive officers of Arthur J. Gallagher & Co., as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the executive compensation tables and the related narrative in this Proxy Statement, is hereby APPROVED.
| THE BOARD RECOMMENDS THAT YOU VOTEFORTHE ADVISORY RESOLUTION APPROVING THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS |
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of RegulationS-K, we are providing the ratio of the annual total compensation of Pat Gallagher, our CEO, to the annual total compensation of the median compensated of all our other employees who were employed as of December 31, 2019.2020. For 2019,2020, Pat Gallagher’s total compensation was $8,960,616$11,177,460 and the annual total compensation of our median compensated employee was $56,067.$62,398. The ratio between these two amounts was 160179 to 1.
This pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) and the methodology described below. Because the SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
As of December 31, 2019,2020, our total employee population consisted of approximately 35,09032,811 employees. As permitted by the rule, we excluded approximately 9061,031 non-U.S. employees, or less than 3%4% of our total U.S. andnon-U.S. employee population, from the followingnon-U.S. jurisdictions: Colombia (181)(187), Chile (101)(109), Guernsey (97)(106), Peru (84), Bermuda (77), Jersey (74)(67), Peru (73)Sweden (64), Jamaica (56)(57), Singapore (50), Barbados (50)(43), Singapore (47), Sweden (44), Bermuda (37)Sri Lanka (29), Gibraltar (25)(24), Isle of Man (22)(21), Cayman Islands (21), Switzerland (19), Malta (18)(17), Norway (17), Switzerland (12), Saint Lucia (11), Brazil (5), Saint Vincent and the Grenadines (5)(4), Dominica (3), Grenada (3)(4), Antigua and Barbuda (3), Ireland (2)Grenada (3), United Arab Emirates (3), Saint Kitts and Nevis (2), Ireland (2), Belgium (1), and the United Arab Emirates (2)Trinidad and Tobago (1). We also excluded approximately 1,938835 employees of the businesses we acquired during 2019,2020, which are identified in Note 4 to our consolidated financial statements in the Annual Report on Form10-K for the year ended December 31, 2019.2020. After giving effect to these two adjustments, our employee population consisted of approximately 32,24630,945 individuals.
We used 20192020 gross taxable income as set forth in our payroll data to determine our “median employee,” which we annualized for all permanent employees who did not work for the entire year. Once identified, we calculated the annual total compensation of our “median employee” for 20192020 in accordance with the requirements of Item 402(c)(2)(x) of RegulationS-K. With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of the20192020 Summary Compensation Table included in this Proxy Statement.
|
|
Item 4 – Stockholder Proposal: Diversity Search Policy
The Comptroller of the City of New York, One Centre Street, 8th Floor North, New York, N.Y. 10007-2341, on behalf of the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Police Pension Fund and the New York City Fire Pension Fund (the “Proponents”), which Proponents are the beneficial owners of 286,178 shares of Arthur J. Gallagher & Co. common stock, has notified the company that it intends to present the following proposal at the Annual Meeting:
Resolved: Shareholders request that the Board of Directors of Arthur J. Gallagher & Co. (“Arthur J. Gallagher”) adopt a policy for improving board and top management diversity (the “Policy”) requiring that the initial lists of candidates from which new management-supported director nominees and chief executive officers (“CEOs”) recruited from outside the company are chosen by the board or relevant committee (each, an “Initial List”) should include qualified female and racially/ethnically diverse candidates. The Policy should provide that any third-party consultant asked to furnish an Initial List will be requested to include such candidates.
Supporting Statement
Arthur J. Gallagher appears to have no people of color among its directors and CEO.
A growing body of empirical research indicates a significant positive relationship between firm value and the percentage of women and minorities in leadership. A 2012 Credit Suisse Research Institute study found that companies with one or more women directors delivered higher average returns on equity, better average growth and higher price/book value multiples.1 A 2015 McKinsey study found that corporate leadership in the top quartile for racial and ethnic diversity were 35 percent more likely to have financial returns above their national industry median.2
Adopting a policy that requires consideration of women and minority candidates for every open director seat and external CEO search would assist the board in developing a diverse board and executive team. According to a 2016Harvard Business Review study, including more than one woman or member of a racial minority in a finalist pool helps combat unconscious bias among interviewers and increases the likelihood of a diverse hire.3 We believe that all of our portfolio companies should have a robust diversity search policy in place to institutionalize the board’s commitment to achieving and maintaining racial and gender diversity over the long term, including beyond the terms of the incumbent directors and CEO.
The proposed rule resembles the Rooney Rule in the National Football League (NFL), which requires teams to interview minority candidates for head coaching and senior football operations openings and was recently expanded to include general manager jobs and equivalent front office positions. It does not dictate who should be hired, but instead widens the talent pool and requires a diverse set of candidates for consideration. While corporate boards may face differing circumstances, it is difficult to ignore the positive impact of the Rooney Rule on diversity. In the twelve years before the Rule was implemented, the NFL had four minority head coaches and one minority general manager. Twelve years after, the NFL had sixteen minority head coaches and eight minority general managers.4
The Policy described in this Proposal would apply to only those CEO searches that consider candidates from outside Arthur J. Gallagher. We do not intend for the Policy to be a substitute for robust internal succession planning, and we encourage Arthur J. Gallagher to maintain and disclose a process for fostering a diverse talent pipeline for executive management.
We urge shareholders to vote for this Proposal.
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37
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ITEM 4: STOCKHOLDER PROPOSAL: COMPTROLLER OF THE CITY OF NEW YORK
Board of Directors’ Statement in Opposition to Item 4
Our Board of Directors reflects diversity of gender, race/ethnicity, nationality, age and professional background. After careful consideration, the Board opposes the proposal as unnecessary in light of its established record on diversity, as well as additional actions it has taken that further enhance Board and management diversity.
On January 29, 2020, the Board amended our Governance Guidelines to provide that “[w]hen recruiting director candidates, the [Nominating/Governance] Committee includes, and requests that any search firm it engages include, qualified women and racially/ethnically diverse persons in the pool from which new director nominees are chosen.” The Nominating/Governance Committee has always sought Board members from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity, and the Nominating/Governance Committee has also used a search firm to help it identify highly qualified and diverse candidates. As such, in adopting this “Rooney Rule” policy the Board has simply formalized a policy it has been adhering to in practice.
Moreover, not only have we had two women on our Board for substantially the past 14 years, an additional diverse candidate joined the Board effective March 12, 2020. As described in greater detail in “Item 1—Election of Directors,” among other things, our new director’s qualifications to serve on our Board include his senior executive experience, his knowledge of the healthcare industry and related privacy and cybersecurity issues, and his extensive global sales and marketing experience. This appointment is consistent with the Board’s strong commitment to diversity as well as the Nominating/Governance Committee’s focus on candidates who are leaders in the organizations with which they are affiliated and have experience in positions with a high degree of responsibility.
The proposal seeks to extend the Rooney Rule policy to CEOs recruited from outside our company, ostensibly in order to improve “top management diversity.” However, we have a long-standing CEO succession plan focused on the development of internal candidates. As such, that portion of the proposal is inapplicable to our company since our succession plan does not contemplate conducting a search for outside candidates. Furthermore, we promote “top management diversity” – the essential objective behind the part of the proposal that addresses CEO succession – through various internal diversity and inclusion initiatives and programs. For instance, we have programs in place to increase the hiring, development and promotion of diverse talent across our organization. To increase awareness of the importance of diversity and inclusion, our company was a Gold Sponsor of a global festival for diversity and inclusion within the insurance industry (Dive In), which included sponsoring, planning or presenting at events in six cities around the world where we have operations. In addition, in April 2019, our CEO signed the “CEO ACT!ON for Diversity & Inclusion” pledge, the largestCEO-driven business commitment to advance diversity and inclusion in the workplace. We believe that our commitment to Board and management diversity and our adoption of the Rooney Rule policy for Board nominations have addressed the fundamental issues raised by the proposal.
For the reasons set forth above, the Board unanimously recommends that our stockholders vote “AGAINST” this stockholder proposal.
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Questions & Answers About the Annual Meeting
What is the quorum requirement for holding the Annual Meeting?
The holders of a majority of the stock issued and outstanding and entitled to vote at a meeting of the stockholders, present in person or deemed to be present or represented by proxy, shall constitute a quorum for purposes of any Annual Meeting of Stockholders. Brokernon-votes and abstentions are counted for purposes of determining the presence of a quorum at this Annual Meeting. If a quorum is not present at the scheduled time of the Annual Meeting, the stockholders entitled to vote thereat, present in person, deemed to be present or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present, deemed to be present or represented.
What are brokernon-votes?
If you are the beneficial owner of shares held in the name ofA “broker non-vote” occurs with respect to a proposal when a broker, trustee, or other nominee and do not provide that broker, trusteehas discretionary authority to vote on one or other nominee with voting instructions, your shares may constitute “brokernon-votes.” Generally, brokernon-votes occurmore proposals to be voted on at a matter when a brokermeeting of stockholders but is not permitted to vote on that matterother proposals without instructions from the beneficial owner and instructions are not given.the beneficial owner fails to provide the nominee with such instructions. Under the rules of the NYSE, brokers, trustees or other nominees may generally vote on routine matters but cannot vote onnon-routine matters. Only the ratification of the appointment of our independent auditor is considered a routine matter. The other proposals are not considered routine matters, and without your instructions, your broker cannot vote your shares.
Will any matters other than those identified in this Proxy Statement be decided at the Annual Meeting?
As of the date of this Proxy Statement, we are not aware of any matters to be raised at the Annual Meeting other than those described in this Proxy Statement. If any other matters are properly presented at the Annual Meeting for consideration, the people named as proxy holders on the proxy card will vote your proxy on those matters in their discretion. If any of our nominees are not available as a candidate for director, the proxy holders will vote your proxy for any other candidate the Board may nominate or the Board may choose to decrease the size of the Board or leave a vacancy on the Board.
Who can vote, and how do I vote?
Only holders of our common stock at the close of business on the record date of March 20, 202015, 2021 are entitled to notice of and to vote at the Annual Meeting. We have no other outstanding securities entitled to vote, and there are no cumulative voting rights for the election of directors. At the close of business on the record date, we had 189,607,499195,186,329 shares of common stock outstanding and entitled to vote. Each holder of our common stock on that date will be entitled to one vote for each share held on all matters to be voted upon at the Annual Meeting.
“Record holders” may vote (1) by completing and returning a proxy card, (2) on the Internet, or (3) using a toll-free telephone number. Please see the proxy card for specific instructions on how to vote using one of these methods. The telephone and Internet voting facilities for record holders will close at 11:59 p.m.
Eastern Daylight Time on May 11, 2020.10, 2021. “Beneficial owners” will
receive instructions from their broker or other intermediary (or should contact their broker or other intermediary for instructions) describing the procedures and options for voting. Shares held in the Arthur J. Gallagher & Co. Employees’ 401(k) Savings and Thrift Plan must be voted by 5:00 p.m. Eastern Daylight Time on May 6, 2021.
What is the voting standard and the treatment of abstentions and brokernon-votes for each item on the proxy card?
Voting Item | Voting Standard | Treatment of Abstentions & Broker Non-Votes | ||
Election of | Majority of votes cast | Not counted as votes cast and therefore no effect | ||
Auditor | Majority of stock having voting power and present | Abstentions treated as votes against. Brokernon-votes not applicable (routine matter, so brokers can vote) | ||
Say-on-pay | Majority of stock having voting power and present | Abstentions treated as votes against. Brokernon-votes have no effect | ||
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What is the difference between a “record holder” and a “beneficial owner”?
If your shares are registered directly in your name, you are considered the “record holder” of those shares. If, on the other hand, your shares are held in a brokerage account or by a bank or other intermediary, you are considered the “beneficial owner” of shares held in street name, and a Notice of Internet Availability of Proxy Materials (Internet Availability Notice) was forwarded to you automatically from your broker or other intermediary. As a beneficial owner, you have the right to instruct your broker or other intermediary to vote your shares in accordance with your wishes. You are also invited to attend the Annual Meeting. Because a beneficial owner is not the record holder, you may not vote your shares in person at the meeting unless you obtain a “legal proxy” from your broker or other intermediary. Your broker or other intermediary has provided you with an explanation of how to instruct it regarding the voting of your shares. If you do not provide your broker or other intermediary with voting instructions, your broker or other intermediary will not be allowed to vote your shares at the Annual Meeting for any matter other than ratification of the appointment of our independent auditor.
If you provide specific instructions with regard to certain items, your shares will be voted as you instruct on such items. If you are a record holder and sign the proxy card without giving specific instructions, your shares will be voted in accordance with the recommendations of the Board (FOR all of our nominees to the Board, FOR ratification of the appointment of our independent registered public accounting firm, and FOR the approval of the compensation of our named executive officers, and AGAINST the stockholder proposal relating to policy on Board and top management diversity)officers).
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QUESTIONS & ANSWERS ABOUT THE ANNUAL MEETING
What is “householding”?
Householding is a procedure approved by the SEC whereby multiple stockholders of record who share the same last name and address will receive only one Internet Availability Notice or one set of proxy materials. Each stockholder of record will continue to receive a separate proxy card. We have undertaken householding to reduce printing costs and postage fees. A stockholder must affirmatively consent to householding. Record holders who wish to begin or discontinue householding may contact Broadridge Investor Communication Solutions, Inc. (Broadridge) by calling1-800-542-1061, or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Broadridge will undertake the necessary steps to continue or discontinue householding upon such request of a record holder. Beneficial owners who wish to begin or discontinue householding should contact their broker or other intermediary. You can also request prompt delivery of a copy of the Proxy Statement and Annual Report by contacting our Corporate Secretary at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050 (telephone number:630-773-3800).
What should I do if I receive more than one Internet Availability Notice or proxy card?
If you own some shares of common stock directly as a record holder and other shares indirectly as a beneficial owner, or if you own shares of common stock through more than one broker or other intermediary, you may receive multiple Internet Availability Notices or, if you request proxy materials to be delivered to you by mail, you may receive multiple proxy cards. It is necessary for you to vote, sign and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the Internet Availability Notices you receive in order to vote all of the shares you own. If you request proxy materials to be delivered to you by mail, each proxy card you receive will come with its own prepaid return envelope. If you vote by mail, please make sure you return each proxy card in the return envelope that accompanied the proxy card.
May I change my vote after I return my proxy?
Yes. If you are a record holder, even after you have submitted your proxy, you may revoke your proxy at any time before it is exercised by delivering a written notice of revocation to our Corporate Secretary at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050. You may also revoke your proxy and change your vote at any time by timely mailing a proxy card that is properly signed and dated with a later date than your previous vote, by casting a later dated proxy via the Internet or telephone, or by voting in personon the Internet at the virtual Annual Meeting.
If you are a beneficial owner of shares held in street name, you must contact the holder of record to revoke a previously authorized proxy. Beneficial owners must have a “legal proxy” from their broker to vote in person at the Annual Meeting. Attendance at the Annual Meeting will not, by itself, revoke a proxy.
Who will pay the costs of soliciting these proxies?
We will pay the costs of soliciting proxies to be voted at the Annual Meeting. After the Internet Availability Notices are initially distributed, we and our agents may also solicit proxies by mail, electronic mail, telephone or in person. We will also reimburse
brokers and other intermediaries for their expenses in sending
Internet Availability Notices to beneficial owners. In addition, we have hired Morrow Sodali LLC, 470 West Ave., Stamford, CT 06902, to assist us in soliciting proxies, for which we will pay a fee of $10,000 plus their reasonableout-of-pocket expenses.
What is the deadline for submitting a director nominee under our “proxy access” by-law or a stockholder proposal under Rule 14a-8 to be included in the 20212022 Proxy Statement?
Pursuant to Rule14a-8, if a stockholder wants the company to consider a proposal for inclusion in our proxy materials for presentation at our 20212022 Annual Meeting, the proposal should be addressed to our Corporate Secretary at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050, must comply with all relevant SEC requirements, and must be received by us not later than close of business on November 23, 2020.19, 2021.
Ourby-laws permit a stockholder, or a group of up to 20 stockholders, owning 3% or more of the company’s outstanding common stock continuously for at least three years to nominate and include in the company’s proxy materials directors constituting up to the greater of two or 20% of board seats, if the stockholder(s) and the nominee(s) meet the requirements in ourby-laws. Notice of director nominations submitted under these proxy access by-law provisions must be delivered to our Corporate Secretary at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050, no earlier than the close of business on October 24, 202020, 2021 and no later than the close of business on November 23, 2020.19, 2021. For these purposes, “close of business” means 5:00 p.m. CDT. If the date of the Annual Meeting is more than 30 days before or after May 12, 2021,11, 2022, a notice under our proxy access by-law must be so delivered not earlier than the close of business on the 150th day prior to the 20212022 Annual Meeting and not later than the close of business on the later of the 120th day prior to the 20212022 Annual Meeting or the 10th day following the date the 20212022 Annual Meeting date is publicly announced. Director nominations submitted pursuant to the proxy access provisions of ourby-laws must comply with all of the requirements of ourby-laws.
How do I submit a proposal regarding a director nomination or other item of business to be presented directly at the 20212022 Annual Meeting?
Under ourby-laws, notice of any matter that is not submitted for inclusion in our Proxy Statement and proxy card for the 20212022 Annual Meeting under Rule14a-8, but that a stockholder instead wishes to present directly at the Annual Meeting, including director nominations outside of our proxy access by-law and other items of business, must be delivered to our Corporate Secretary at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050, not later than the close of business on February 11, 202110, 2022 and not earlier than the close of business on January 12, 2021.11, 2022. If the date of the 20212022 Annual Meeting is more than 30 days before or after May 12, 2021,11, 2022, notice of any such matter must be delivered not earlier than the close of business on the 120th day prior to the date of the 20212022 Annual Meeting and not later than the close of business on the later of the 90th day prior to the 20212022 Annual Meeting or the 10th day following the date the 20212022 Annual Meeting date is publicly announced. For these purposes, “close of business” means 5:00 p.m. CDT. We will not entertain any nominations or other items of business at the 20212022 Annual Meeting that do not meet the requirements in our by-laws. If we do not receive notice of a matter by February 10, 2022 (or the applicable deadline if the 2022 Annual Meeting is more than 30 days
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| 39 |
QUESTIONS & ANSWERS ABOUT THE ANNUAL MEETING
that do not meet the requirements in ourby-laws. If we do not receive notice of a matter by February 11, 2021 (or the applicable deadline if the 2021 Annual Meeting is more than 30 days before or after May 12, 2021)11, 2022), SEC rules permit the people named as proxy holders on the proxy card to vote proxies in their discretion when and if the matter is raised at the 20212022 Annual Meeting. Any stockholder proposal relating to a director nomination should set forth all information relating to such person required to be disclosed in solicitations of proxies for contested director elections under Regulation 14A of the Exchange Act, including, among other things, the particular experience, qualifications, attributes or skills of the nominee that, in light of our business and structure, led to the stockholder’s conclusion that the nominee should serve on the Board. The proposal should also include the director nominee’s written consent to be named in our Proxy Statement as a nominee and to serve as a director if elected. Stockholders are also advised to review ourby-laws, which contain additional disclosure and other requirements regarding the information to be included in the advance notices of stockholder proposals and director nominations.
How do I recommend a proposed director nominee to the Board for consideration?
Any stockholder who wishes to propose director nominees for consideration by the Board’s Nominating/Governance Committee, but does not wish to present such proposal at an annual meeting, may do so at any time by directing a description of each nominee’s name and qualifications for Board membership to the Chair of the Nominating/Governance Committee, c/o our Corporate Secretary at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050. The recommendation should contain all of the information regarding the nominee described in the question and answer above and in our by-laws relating to director nominations brought before an annual meeting. The Nominating/Governance Committee evaluates nominee proposals submitted by stockholders in the same manner in which it evaluates other nominees.
Where can I find the voting results of the Annual Meeting?
An automated system administered by Broadridge will tabulate the votes. Voting results will be reported in a Current Report on Form8-K that we will file with the SEC within four business days following the Annual Meeting.
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Annex A: Information RegardingNon-GAAP Measures
For 2019,2020, the executive compensation performance measures used by the Compensation Committee were adjusted EBITDAC, adjusted EBITDAC per share, and adjusted revenue, in each case for our combined brokerage and risk management segments. The Committee believes that these measures align with the key components of our long-term strategy and drive our long-term stock price performance. Please see page 19[ ] in the body of this Proxy Statement for detailed information regarding these measures. In the context of 20192020 compensation decisions, the Committee also considered our adjusted EBITDAC margin and organic revenue performance. For these measures, definitions and GAAP reconciliations are set forth below.
The measures discussed below are not in accordance with, or an alternative to, the GAAP information provided in this Proxy Statement. We believe that these presentations provide useful information to management, analysts and investors regarding financial and business trends relating to Gallagher’s results of operations and financial condition. Our industry peers may provide similar supplementalnon-GAAP information related to adjusted EBITDAC margin and organic revenues, although they may not use the same or comparable terminology and may not make identical adjustments. Thenon-GAAP information we provide should be used in addition to, but not as a substitute for, the GAAP information provided in this Proxy Statement. Certain reclassifications have been made to the prior year amounts in order to conform them to the current year presentation.
Adjusted EBITDAC Margin – adjusted EBITDAC margin is presented to improve the comparability of our results between periods by eliminating the impact of items that have a high degree of variability.
EBITDAC – We define this measure as net earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables.
Adjusted EBITDAC – We define this measure as EBITDAC adjusted to exclude net gains or losses on divestitures, acquisition integration costs, workforce related charges,and lease termination related charges, acquisition-related adjustments and the period-over-period impact of foreign currency translation, as applicable. The amounts excluded with respect to foreign currency translation are calculated by applying current year foreign exchange rates to the same periods in the prior year.
Please note that “adjusted EBITDAC” as defined on page 1920 in the context of annual cash incentives and performance share units is the same as this definition, except that it does not exclude acquisition integration costs and other acquisition-related adjustments.
Adjusted EBITDAC margin – We define this measure as adjusted EBITDAC divided by total adjusted revenues (for the brokerage segment) and total adjusted revenues before reimbursements (for the risk management segment). See table on the next page.
Organic Revenues – For the brokerage segment, organic change in base commission and fee revenues, supplemental revenues and contingent revenues exclude the first twelve months of such revenues generated from acquisitions and such revenues related to divested operations and program repricing in each year presented. These revenues are excluded from organic revenues in order to help interested persons analyze the revenue growth associated with the operations that were a part of Gallagher in both the current and prior period.periods. In addition, organic change in base commission and fee revenues, supplemental revenues and contingent revenues excludeexcludes the period-over-period impact of foreign currency translation. For the risk management segment, organic change in fee revenues excludes the first twelve months of fee revenues generated from acquisitions and the fee revenues related to operations disposed of in each year presented. In addition, change in organic growth excludes the period-over-period impact of foreign currency translation to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability or are due to the limited-time nature of these revenue sources.
These revenue items are excluded from organic revenues in order to determine a comparable,but non-GAAP, measurement of revenue growth that is associated with the revenue sources that are expected to continue in the current year and beyond. Gallagher hasWe have historically viewed organic revenue growth as an important indicator when assessing and evaluating the performance of itsour brokerage and risk management segments. GallagherWe also believesbelieve that usingthis non-GAAP measure allows readers of our financial statements to measure, analyze and compare the growth from itsour brokerage and risk management segments in a meaningful and consistent manner.
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A-1
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ANNEX A: INFORMATION REGARDINGNON-GAAP MEASURES
All figures are unaudited and in millions except percentages
ADJUSTED REVENUE AND ADJUSTED EBITDAC MARGIN
ADJUSTED REVENUE
| 2019
| 2018
| 2020
| 2019
| ||||||||||||||
Brokerage – Revenue | $ | 4,901.5 | $ | 4,246.9 | $5,167.1 | $4,901.5 | ||||||||||||
Net gains on divestitures | (75.3 | ) | (10.2 | ) | ||||||||||||||
Net gains (losses) on divestitures | 5.8 | (75.3 | ) | |||||||||||||||
Levelized foreign currency translation
|
| —
|
|
| (50.8
| )
| — | (5.5 | ) | |||||||||
Brokerage – Adjusted Revenue
| $
| 4,826.2
|
| $
| 4,185.9
|
| $5,172.9 | $4,820.7 | ||||||||||
Risk Management – Revenue before reimbursements | $ | 838.5 | $ | 798.3 | $ 821.7 | $ 838.5 | ||||||||||||
Levelized foreign currency translation
|
| —
|
|
| (9.1
| )
| — | (0.5 | ) | |||||||||
Risk Management – Adjusted Revenue before Reimbursements
| $
| 838.5
|
| $
| 789.2
|
| $ 821.7 | $ 838.0 | ||||||||||
Brokerage and Risk Management – Adjusted Revenue
| $
| 5,664.7
|
| $
| 4,975.1
|
| $5,994.6 | $5,658.7 | ||||||||||
EBITDAC – Brokerage
| 2019
| 2018
| 2020
| 2019
| ||||||||||||||
Net earnings | $ | 717.3 | $ | 573.2 |
| $ 866.0 |
| $ 717.3 | ||||||||||
Provision for income taxes | 229.2 | 191.0 |
| 276.3 |
| 229.2 | ||||||||||||
Depreciation | 66.6 | 60.9 |
| 73.5 |
| 66.6 | ||||||||||||
Amortization | 329.1 | 286.9 |
| 411.3 |
| 329.1 | ||||||||||||
Change in estimated acquisition earnout payables
|
| 16.9
|
|
| 14.3
|
|
| (29.7 | ) |
| 16.9 | |||||||
EBITDAC
| $
| 1,359.1
|
| $
| 1,126.3
|
|
| $1,597.4 |
| $1,359.1 | ||||||||
EBITDAC – Risk Management | 2019
| 2018
| 2020
| 2019
| ||||||||||||||
Net earnings | $ | 66.2 | $ | 70.4 |
| $ 66.9 |
| $ 66.2 | ||||||||||
Provision for income taxes | 22.2 | 25.3 |
| 22.5 |
| 22.2 | ||||||||||||
Depreciation | 46.2 | 38.7 |
| 49.4 |
| 46.2 | ||||||||||||
Amortization | 4.9 | 4.3 |
| 6.0 |
| 4.9 | ||||||||||||
Change in estimated acquisition estimated payables |
| (1.6
| )
|
| (4.7
| )
|
| (3.2 | ) |
| (1.6 | ) | ||||||
EBITDAC | $
| 137.9
|
| $
| 134.0
|
|
| $141.6 |
| $137.9 | ||||||||
EBITDAC – Brokerage and Risk Management | 2019
| 2018
| 2020
| 2019
| ||||||||||||||
Net earnings | $ | 783.5 | $ | 643.6 |
| $ 932.9 |
| $ 783.5 | ||||||||||
Provision for income taxes | 251.4 | 216.3 |
| 298.8 |
| 251.4 | ||||||||||||
Depreciation | 112.8 | 99.6 |
| 122.9 |
| 112.8 | ||||||||||||
Amortization | 334.0 | 291.2 |
| 417.3 |
| 334.0 | ||||||||||||
Change in estimated acquisition estimated payables |
| 15.3
|
|
| 9.6
|
|
| (32.9 | ) |
| 15.3 | |||||||
EBITDAC | $
| 1,497.0
|
| $
| 1,260.3
|
|
| $1,739.0 |
| $1,497.0 | ||||||||
ADJUSTED EBITDAC | 2019
| 2018
| 2020
| 2019
| ||||||||||||||
Brokerage – EBITDAC | $ | 1,359.1 | $ | 1,126.3 |
| $1,597.4 |
| $1,359.1 | ||||||||||
Net gains on divestitures | (62.3 | ) | (10.2 | ) | ||||||||||||||
Net gains (loss) on divestitures |
| 5.8 |
| (62.3 | ) | |||||||||||||
Acquisition integration | 20.4 | 3.4 |
| 25.1 |
| 20.4 | ||||||||||||
Workforce and lease termination | 44.8 | 38.7 |
| 43.9 |
| 44.8 | ||||||||||||
Acquisition related adjustments | 16.8 | 14.2 |
| 19.2 |
| 16.8 | ||||||||||||
Levelized foreign currency translation |
| —
|
|
| (7.9
| )
|
| — |
| (3.7 | ) | |||||||
Brokerage – Adjusted EBITDAC | $
| 1,378.8
|
| $
| 1,164.5
|
|
| $1,691.4 |
| $1,375.1 | ||||||||
Risk Management – EBITDAC | $ | 137.9 | $ | 134.0 |
| $ 141.6 |
| $ 137.9 | ||||||||||
Workforce and lease termination | 7.9 | 4.7 |
| 7.9 |
| 7.9 | ||||||||||||
Levelized foreign currency translation |
| —
|
|
| (2.3
| )
|
| — |
| 0.2 | ||||||||
Risk Management – Adjusted EBITDAC | $
| 145.8
|
| $
| 136.4
|
|
| $ 149.5 |
| $ 146.0 | ||||||||
Brokerage and Risk Management – Adjusted EBITDAC | $
| 1,524.6
|
| $
| 1,300.9
|
|
| $1,840.9 |
| $1,521.1 | ||||||||
Brokerage and Risk Management – Adjusted Revenue | $
| 5,664.7
|
| $
| 4,975.1
|
|
| $5,994.6 |
| $5,658.7 | ||||||||
Brokerage and Risk Management – Adjusted EBITDAC Margin |
| 26.9%
|
|
| 26.1%
|
|
| 30.7% |
|
| 26.9% |
| ||||||
A-2
|
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ANNEX A: INFORMATION REGARDINGNON-GAAP MEASURES
ORGANIC REVENUE GROWTH
Brokerage – Organic Revenue Growth | 2019 | 2018 | 2020 | 2019 | ||||||||||||||
Commissions and fees, as reported | $ | 4,394.8 | $ | 3,879.2 |
| $4,728.8 |
| $4,394.8 | ||||||||||
Less commission and fees from acquisitions | (382.8 | ) | — |
| (234.9 | ) |
| — | ||||||||||
Less divested operations | — | (31.0 | ) | |||||||||||||||
Less divested operations and program repricing |
| — |
| (29.6 | ) | |||||||||||||
Levelized foreign currency translation | — | (45.1 | ) |
| — |
| (4.8 | ) | ||||||||||
Organic base commissions and fees | $ | 4,012.0 | $ | 3,803.1 |
| $4,493.9 |
| $4,360.4 | ||||||||||
Supplemental revenues, as reported | $ | 210.5 | $ | 189.9 |
| $ 221.9 |
| $ 210.5 | ||||||||||
Less supplemental revenues from acquisitions | (13.5 | ) | — |
| (3.5 | ) |
| — | ||||||||||
Levelized foreign currency translation | — | (2.4 | ) |
| — |
| (0.2 | ) | ||||||||||
Organic supplemental revenues | $ | 197.0 | $ | 187.5 |
| $ 218.4 |
| $ 210.3 | ||||||||||
Contingent revenues, as reported | $ | 135.6 | $ | 98.0 |
| $ 147.0 |
| $ 135.6 | ||||||||||
Less contingent revenues from acquisitions | (18.4 | ) | — |
| (4.9 | ) |
| — | ||||||||||
Levelized foreign currency translation | — | (0.3 | ) |
| — |
| (0.2 | ) | ||||||||||
Organic contingent revenues | $ | 117.2 | $ | 97.7 |
| $ 142.1 |
| $ 135.4 | ||||||||||
Organic base commissions and fees, supplemental revenues and contingent revenues | $ | 4,326.2 | $ | 4,088.3 |
| $4,854.4 |
| $4,706.1 | ||||||||||
Organic change in base commissions and fees, supplemental revenues and contingent revenues | 5.8% |
|
| 3.2% |
|
| ||||||||||||
Risk Management – Organic Revenue Growth | 2019 | 2018 | 2020 | 2019 | ||||||||||||||
Fees | $ | 833.7 | $ | 789.3 | $815.3 | $833.7 | ||||||||||||
International performance bonus fees | 3.2 | 8.5 |
| 5.7 |
| 3.2 | ||||||||||||
Fees as reported | 836.9 | 797.8 |
| 821.0 |
| 836.9 | ||||||||||||
Less fees from acquisitions | (13.6 | ) | — |
| (7.4 | ) |
| — | ||||||||||
Levelized foreign currency translation | — | (9.1 | ) |
| — |
| (0.6 | ) | ||||||||||
Organic fees | $ | 823.3 | $ | 788.7 |
| $813.6 |
| $836.3 | ||||||||||
Organic change in fees | 4.4% |
| -2.7% |
| ||||||||||||||
Combined Brokerage and Risk Management – Organic Revenue Growth | 2019 | 2018 | 2020 | 2019 | ||||||||||||||
Combined organic revenue | $ | 5,149.5 | $ | 4,877.0 |
| $5,668.0 |
| $5,542.4 | ||||||||||
Organic change in revenue | 5.6% |
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| 2.3% |
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Annual Meeting | ||
Proxy Statement | www.ajg.com/ir > Financial Reports > | |
Annual Report | www.ajg.com/ir > Financial Reports > | |
Board of Directors | ||
Board of Directors | www.ajg.com/ir > Corporate Governance > Board of Directors | |
Board Committee Members | www.ajg.com/ir > Corporate Governance > Committee Members | |
Audit Committee Charter | www.ajg.com/ir > Corporate Governance > Audit Committee Charter | |
Compensation Committee Charter | www.ajg.com/ir > Corporate Governance > Compensation Committee Charter | |
Nominating/Governance Committee Charter | www.ajg.com/ir > Corporate Governance > Nominating/Governance Committee Charter | |
Risk and Compliance Committee Charter | www.ajg.com/ir > Corporate Governance > Risk and Compliance Committee Charter | |
Governance Documents | ||
By-laws | www.ajg.com/ir > Corporate Governance >By-laws | |
Governance Guidelines | www.ajg.com/ir > Corporate Governance > Governance Guidelines | |
Global Standards of Business Conduct | www.ajg.com/ir > Corporate Governance > Global Standards of Business Conduct | |
Other Resources | ||
The Gallagher Way | www.ajg.com/about-us/the-gallagher-way/ | |
| www.ajg.com/about-us/ | |
| * | The inclusion of our website address in this Proxy Statement does not include or incorporate by reference the information on our website, including the documents referenced above, into this Proxy Statement. |
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ARTHUR J. GALLAGHER & CO.
2850 GOLF ROAD
ROLLING MEADOWS, IL 60008-4050
VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up untilinformation. Vote by 11:59 P.M. Eastern Daylight Time on May 11, 2020.10, 2021 (other than with respect to shares held in The Arthur J. Gallagher & Co. Employees’ 401(k) Savings and Thrift Plan). Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
During The Meeting - Go to www.virtualshareholdermeeting.com/AJG2021 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up untilinstructions. Vote by 11:59 P.M. Eastern Daylight Time on May 11, 2020.10, 2021 (other than with respect to shares held in The Arthur J. Gallagher & Co. Employees’ 401(k) Savings and Thrift Plan). Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If The Arthur J. Gallagher & Co. Employees’ 401(k) Savings and Thrift Plan Vote by 5:00 P.M. Easter n Daylight T ime on May 6, 2021 for shares held in The Arthur J. Gallagher & Co. Employees’ 401(k) Savings and Thrift Plan. Have your proxy card in hand when you would like to reduceaccess the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cardsweb site and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internetobtain your records and when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
create an electronic voting instruction form. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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D38442-P51250 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY ARTHUR J. GALLAGHER & CO. Company Proposals The Board of Directors recommends you vote FOR each of the nominees listed in proposal 1 below: 1. Election of Directors For Against Abstain 1a. Sherry S. Barrat 1b. William L. Bax !! ! ! ! ! The Board of Directors recommends you vote FOR proposals 2 and 3. For Against Abstain 1c. D. John Coldman ! ! ! 2. Ratification of the Appointment of Ernst & Young LLP as our Independent Auditor for the fiscal year ending December 31, 2021. 1d. J. Patrick Gallagher, Jr. ! ! ! 3. Approval, on an Advisory Basis, of the Compensation of our Named Executive Officers. ! ! ! 1e. David S. Johnson ! ! ! 1f. Kay W. McCurdy ! ! ! 1g. Christopher C. Miskel ! ! ! 1h. Ralph J. Nicoletti ! ! ! 1i. Norman L. Rosenthal ! ! ! Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice of 20202021 Annual Meeting and Proxy Statement and 20192020 Annual Report are available at
www.proxyvote.com.
For directions to www.materials.proxyvote.com/363576. We will be conducting our 2021 Annual Meeting of Stockholders virtually at www.virtualshareholdermeeting.com/AJG2021. D38443-P51250 ARTHUR J. GALLAGHER & CO. Annual Meeting of Stockholders May 11, 2021 9:00 AM CDT This proxy is solicited by the meeting, please contact:
Corporate Secretary c/oBoard of Directors The undersigned hereby appoints J. Patrick Gallagher, Jr. and Walter D. Bay, each of whom is an officer of Arthur J. Gallagher & Co., 2850 Golf Road, Rolling Meadows, IL 60008-4050.
Ator either of them, as proxies, each with the entrancepower to appoint his substitute, and hereby authorizes them to represent and to vote all of the meeting, you will be requested to show a driver’s license, passport or other formshares of
government-issued identification and evidence you are Common Stock of ARTHUR J. GALLAGHER & CO. that the undersigned is entitled to vote at the meeting. Please seeAnnual Meeting of Stockholders to be held at 9:00 AM, CDT on May 11, 2021, virtually at www.virtualshareholdermeeting.com/AJG2021, and any adjournment or postponement thereof. In their discretion, the Proxy
Statementproxies are authorized to vote upon such other business as may properly come before the Annual Meeting of Stockholders or any adjournment or postponement thereof (including, if applicable, on any matter which the Board of Directors did not know would be presented at the Annual Meeting of Stockholders by a reasonable time before the proxy solicitation was made or for more information.
We are actively monitoring the public health and travel safety concerns relatingelection of a person to the coronavirus (COVID-19) andBoard of Directors if any nominee named in Proposal 1 becomes unable to serve or for good cause will not serve). This proxy, when properly executed, will be voted in the advisories or mandates that federal, state, and local governments, and related agencies, may issue. Inmanner directed herein. If the event itproxy is not possible or advisable to hold our Annual Meeting as currently planned, weproperly executed but no such direction is made, this proxy will announce any additional or alternative arrangements for the meeting, which may include a changebe voted in venue or holding the meeting solely by means of remote communication. Please monitor our press releases, available atwww.ajg.com/ir, and our filingsaccordance with the SECBoard of Directors’ recommendations. For participants in The Arthur J. Gallagher & Co. Employees’ 401(k) Savings and Thrift Plan, if you do not provide voting instructions, the trustee will vote the shares that are deemed to be in the account in The Arthur J. Gallagher & Co. Employees’ 401(k) Savings and Thrift Plan in the same proportion as The Arthur J. Gallagher & Co. Employees’ 401(k) Savings and Thrift Plan shares of other participants for updated information. If you are planningwhich the trustee has received proper voting instructions. The votes by The Arthur J. Gallagher & Co. Employees’ 401(k) Savings and Thrift Plan participants must be received no later than by 5:00 P.M. Eastern Daylight Time on May 6, 2021. Continued and to attend our Annual Meeting, please checkwww.ajg.com/ir the week of the meeting. As always, we encourage you to vote your shares prior to the Annual Meeting.be signed on reverse side
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