SPARK ENERGY, INC.
3. To approve, on an advisory basis, the compensation of the Company’s Named Executive Officers.
These proposals are described in the accompanying proxy materials. You will be able to vote at the Annual Meeting if you held shares of the Company’s Class A common stock, par value $0.01 per share (the “Class A common stock”), or Class B common stock, par value $0.01 per share (the “Class B common stock” and, together with the Class A common stock, the “Common Stock”), at the close of business on March 31, 2016.25, 2021. Holders of shares of our 8.75% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”) generally have no voting rights and, accordingly, are not entitled to vote on any matters at the Annual Meeting.
An automated system that Broadridge Financial Solutions administers will tabulate the votes. Brokers who hold shares in street name for customers are required to vote shares in accordance with instructions received from the beneficial owners. Brokers are permitted to vote on discretionary items if they have not received instructions from the beneficial owners, but they are not permitted to vote (a “broker non-vote”) on non-discretionary items absent instructions from the beneficial owner. Broker non-votes generally occur because the broker does not receive voting instructions from the beneficial owner and lacks discretionary authority to vote the shares. Brokers do not have discretionary voting authority with respect to Proposal ONE.ONE or THREE. For Proposal TWO, ratification of the appointment of our independent registered public accountant, brokers will have discretionary authority in the absence of timely instructions from their customers. Abstentions (i.e., if you or your broker marks “ABSTAIN” on a proxy) and broker non-votes will count in determining whether a quorum is present at the Annual Meeting. However, broker non-votes and abstentions will not have any effect on the outcome of Proposal ONE and abstentionsor THREE. Abstentions will have the effect of votes cast against Proposal TWO.TWO and Proposal THREE, but will not have any effect on the outcome of Proposal ONE.
3
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors has nominated the following individualsW. Keith Maxwell III and Kenneth M. Hartwick for election as Class III directors to serve for a three year term beginning immediately following the Annual Meeting and expiring at the Annual Meeting of Shareholders of Spark Energy, Inc. to be held in 2019,2024, or until their successors aresuch director’s successor is elected and qualified or upon the earlier of such director’s death, disability, resignation or removal:
Nathan Kroeker
Nick W. Evans, Jr.removal.
Mr. Kroeker isMaxwell and Mr. Hartwick are currently serving as a Class II director. Mr. Evans is a new nominee for election to the Board as a Class II director. The Board of Directors has determined to nominate Mr. Evans to the Class II directorship position currently held by John Eads, which expires at the Annual Meeting, due to scheduling conflicts. Assuming Mr. Evans is elected by the shareholders, Mr. Evans’s term will commence immediately following the Annual Meeting and Mr. Eads’s term will end immediately following the Annual Meeting.
Potential candidates to replace Mr. Eads’ as a Class II director were solicited from members of the Board and our executives. The Board interviewed several solicited candidates who were evaluated based on the established criteria for persons to be nominated, as described in this Proxy Statement. The Board believes Mr. Evans meets the established criteria and he is the best qualified candidate for election to the Board. His nomination was approved by the Board at their meeting on March 21, 2016.
I directors. The Board of Directors has no reason to believe that any of its nomineeseither Mr. Maxwell or Mr. Hartwick will be unable or unwilling to serve if elected. If a nomineeeither Mr. Maxwell or Mr. Hartwick becomes unable or unwilling to accept a nomination orfor election, either the number of our directorswe will be reducednot hold a vote for his election or the persons acting under the proxy will vote for the election of a substitute nominee that the Board of Directors recommends. Biographical information for each nominee,Mr. Maxwell and Mr. Hartwick, as well as our other current directors and executive officers, is contained in the “Directors and Executive Officers” section below.
Required Vote
The election of the directors in this proposal requires the affirmative vote of the holders of a plurality of the shares of Common Stock present and entitled to be votedvotes validly cast at the Annual Meeting. Neither abstentions nor broker non-votes will have any effect on the outcome of voting on director elections.
Recommendation
The Board of Directors unanimously recommends that shareholders vote FOR the election of each of the nominees.
DIRECTORS AND EXECUTIVE OFFICERSOFFICER
After the Annual Meeting, assuming the shareholders elect the nominees offor the Board of Directors as set forth in “Proposal ONE—Election of Directors” above, our Board of Directors will be, and our executive officers are:
|
| | | | | | | |
Name | Age | Position |
W. Keith Maxwell III (1) | 5156 | Chief Executive Officer, Chairman of the Board of Directors, Director |
Nathan KroekerJames G. Jones II | 42 | Director, President and Chief Executive Officer |
Jason Garrett | 47 | Executive Vice President, Retail |
Georganne Hodges | 5052 | Chief Financial Officer |
Gil MelmanBarbara Clay | 50 | Vice President,Acting General Counsel and Corporate Secretary |
James G. Jones IIAmanda E. Bush (1)(2)(2*)(3) | 4740 | Director |
Kenneth M. Hartwick (1)(1*)(2)(3) | 5358 | Director |
Nick W. Evans, Jr.(1)(2)(3)(3*) | 6772 | Director |
(1) Member of the Compensation Committee.
| |
(1) | Member of the Compensation Committee. Mr. Eads also currently serves on the Compensation Committee. |
| |
(2) | Member of the Audit Committee. Mr. Eads also currently serves on the Audit Committee. |
| |
(3) | Mr. Evans will become a member of the Audit Committee and the Compensation Committee if elected to the Board. |
(2) Member of the Audit Committee.
(3) Member of the Nominating and Corporate Governance Committee.
* Chair of specified committee
Our Board of Directors currently consists of fivefour members. Our directors are divided into three classes serving staggered three-year terms. Each year, the directors of one class stand for re-election as their terms of office expire. Mr. Evans is designated as a Class II director, and his term of office will expire at our Annual Meeting of Shareholders in 2022. Ms. Bush is designated as a Class III director, and her term of office will expire at our Annual Meeting of Shareholders in 2023. Messrs. Maxwell and Hartwick are designated as Class I directors or director, and their terms of office expire in 2018. Mr. Jones is a Class III director, and his term of office will expire in 2017. Messrs. Kroeker and Eads are designated as Class II directors and, assuming his election to the Board of Directors, Mr. Evans will replace Mr. Eads as a Class II director. Assuming the shareholders re-elect Mr. Kroeker and elect Mr. Evans to the Board, their terms of office will expire at our Annual Meeting of Shareholders in 2019.2024, if elected.
Set forth below is biographical information about each of our executive officers, directors and nominees for director.the director nominees.
W. Keith Maxwell III. Mr. Maxwell serveshas served as our Chief Executive Officer since November 2020, and as a director and the non-executive Chairman of the Board of Directors and was appointedsince August 2014. Mr. Maxwell served as interim Chief Executive Officer from March 2020 to this position in August 2014 and re-elected in May 2015.November 2020. Mr. Maxwell serves as the Chief Executive Officer of NuDevco Partners, LLC, Retailco, LLC, a Texas limited liability company (“Retailco”), Retailco Services, LLC and National Gas & Electric, LLC, each of which is affiliated with us. Mr. Maxwell served on the Board of Directors of Azure Midstream Partners GP, LLC, the general partner of a midstream energy company, from February 2015 until February 2016. Prior to that time, he served as Chairman of the Board of Marlin Midstream GP, LLC (formerly Marlin Midstream Partners, LP). Prior to founding the predecessor of Spark Energy in 1999, Mr. Maxwell was a founding partner in Wickford Energy, an oil and natural gas services company, in 1994. Wickford Energy was sold to Black Hills Utilities in 1997. Prior to Wickford Energy, Mr. Maxwell was a partner in Polaris Pipeline, a natural gas producer, services and midstream company sold to TECO Pipeline in 1994. In 2010, Mr. Maxwell was named Ernst & Young Entrepreneur of the Year in the Energy, Chemicals and Mining category. A native of Houston, Texas, Mr. Maxwell earned a Bachelor’s Degree in Economics from the University of Texas at Austin in 1987. Mr. Maxwell has several philanthropic interests, including the Special Olympics, Child Advocates, Salvation Army, Star of Hope and Helping a Hero. We believe that Mr. Maxwell’s extensive energy industry background, leadership experience developed while serving in several executive positions and strategic planning and oversight brings important experience and skill to our board of directors.
Nathan KroekerJames G. Jones II. Mr. Kroeker serves as a director and also serves as our President and Chief Executive Officer. Mr. Kroeker has served as President since April 2012, and was appointed as our Chief Executive Officer in April 2014. Prior to serving as our President and Chief Executive Officer, Mr. Kroeker served as our Chief Financial Officer from July 2010 to April 2012 and as the Chief Financial Officer of Marlin Midstream Partners, L.P., a midstream energy company that is affiliated with us, from July 2010 to January 2012. Prior to his employment by Spark Energy and Marlin Midstream, Mr. Kroeker was Senior Vice President, Finance, for Macquarie Energy, the
global energy supply, trading and logistics division of Macquarie Bank, from December 2009 to July 2010 and was employed as the Chief Financial Officer of the retail business division of Direct Energy, a retail energy service provider, from March 2006 to August 2009, and in various other management roles in Direct Energy’s finance group from March 2004 until March 2006. Mr. Kroeker holds a Bachelor of Commerce degree from the University of Manitoba and is a licensed Chartered Accountant in Canada and a Certified Public Accountant in the state of Texas. Mr. Kroeker was selected to serve as a director because of his management expertise and his extensive financial background in the retail energy business.
Jason Garrett. Mr. Garrett serves as our Executive Vice President, Retail, a position he has held since August 2015. Prior to joining Spark Energy, Mr. Garret served as Executive Vice President of Continuum Energy, an integrated energy products and services company, from January 2013 through July 2015. Mr. Garrett also served as Senior Vice President of Just Energy Group, Inc., a retail natural gas and electricity provider, from 2011 until July 2013. Mr. Garrett holds a Bachelor of Business Administration in Finance and a Masters of Business Administration from the University of New Orleans.
Georganne Hodges. Ms. HodgesJones serves as our Chief Financial Officer, a position she has held since November 2013. Prior to joining Spark Energy, she served as the Chief Financial Officer for Direct Energy’s retail energy business from August 2009 to October 2012 and in various other senior financial managerial roles at Direct Energy from January 2006 to July 2009. Ms. Hodges holds a Bachelor of Business Administration in Accounting from Baylor University and is a licensed certified public accountant in the state of Texas.
Gil Melman. Mr. Melman serves as our Vice President, General Counsel and Corporate Secretary, a position he has held since February 2014.June 2019. From August 2014 through June 2019, Mr. Jones served as a director. Mr. Jones was a partner at Weaver Tidwell LLP, a regional certified public accounting firm with over 500 professionals, from August 2016 until November 2018. Prior to joining Spark Energy,Weaver Tidwell, LLP, Mr. Melman served asJones was a partner in the General CounselHouston office of Padgett Stratemann & Co., a certified public accounting firm, from May 2014 to Madagascar Oil Limited, an oil and gas exploration and production company, from August 2008 to October 2013.2016. Prior to joining Madagascar Oil Limited, Mr. Melman acted as general counsel and in-house counsel to several energy companies and a regional private equity fund. Mr. Melman began his career practicing corporate law with the law firm of VinsonPadgett Stratemann & Elkins LLP, where he represented public and private companies, investment funds and investment banking firms in mergers and acquisitions and capital markets transactions, primarily in the energy industry. Mr. Melman holds a Bachelor of Business Administration degree in Accounting from The University of Texas at Austin and a Doctor of Jurisprudence from the University of Texas at Austin School of Law.
James G. Jones II.Co., Mr. Jones was appointed to our Board of Directors in August 2014. Mr. Jones has been a partner at the accounting firm of Padgett Strateman & Company since April 2014. Mr. Jones worked at Ernst & Young LLP and worked there from 1998 to March 2014, where he served as a tax partner beginning in July 2011.2014. Mr. Jones holds a
Doctor of Jurisprudence from Louisiana State University and a Bachelor of Science in Accounting from the University of Louisiana at Monroe. Mr. Jones
Barbara Clay. Ms. Clay has served as our Acting General Counsel since January 2020. Most recently, Ms. Clay was Chief Legal Officer of Crius Energy, a retail natural gas and electricity company, from 2012 to 2019, where she was responsible for managing all legal matters, including litigation, compliance, and regulatory. Prior to joining Crius Energy, Ms. Clay was Vice President, Senior Counsel for MasterCard Worldwide, an American multinational financial services corporation, from 2007 to 2012, where she supported that company in finance and treasury, international and domestic mergers & acquisitions, SEC matters and board advisory matters. Earlier in her career, Ms. Clay was Counsel for Boies, Schiller & Flexner, where she represented energy, communication, and financial industry clients in connection with private and public mergers and acquisitions, joint ventures, and complex contract matters. Ms. Clay graduated with honors from Rutgers University, where she earned a B.S. and a M.S. in Environmental Sciences. She also earned a Juris Doctor from Pace University School of Law, where she was a managing editor of the Pace University Environmental Law Review, and an MBA from Massachusetts Institute of Technology, Sloan School of Management. Ms. Clay brings to Spark Energy over two decades of energy and compliance experience for highly regulated industries.
Amanda E. Bush. Ms. Bush has served as a director since August 2019. Ms. Bush currently serves as the Chief Financial Officer of Azure Midstream Energy, LLC, a midstream energy company. Prior to joining Azure Midstream Energy, LLC, she was the Chief Financial Officer at Marlin Midstream Partners, LP, a midstream energy company, from April 2013 to June 2017. Ms. Bush served as Chief Financial Officer of Spark Energy, Inc. from May 2012 to April 2013, and prior to that held positions in various other finance roles with Spark Energy, Inc. Ms. Bush began her career in public accounting with PwC. Ms. Bush has a master’s degree in accounting from the University of Houston and is a Texas certified public accountant. Ms. Bush was selected to serve as a director because of hisher extensive taxfinancial expertise and financial background, as well as his management expertise.knowledge of the retail natural gas and electricity business.
Kenneth M. Hartwick. Mr. Hartwick was appointed to our Board of Directors inhas served as a director since August 2014 and re-elected in May 2015.2014. Mr. Hartwick currently serves as Chief Executive Officer and previously as the Senior Vice President and Chief Financial Officer of Ontario Power Generation, Inc., an electricity producer, a position he has held since April 2019. Previously, Mr. Hartwick served as Senior Vice President and Chief Financial Officer of Ontario Power Generation, Inc., from March 2016.2016 to April 2019. Mr. Hartwick also serves as a director of MYR Group, Inc., an electrical contractor specializing in transmission, distribution, and substation projects, a position he has held since 2015. Mr. Hartwick served as the Chief Financial Officer of Wellspring Financial Corporation, a sales financing company, from February 2015 until March 2016. Mr. Hartwick also served as the interim Chief Executive Officer of Atlantic Power Corporation, a power generation plant operator, from September 2014 until January 2015 and as a director of Atlantic Power Corporation from October 2004 until March 2016. He has served in various roles for Just Energy Group Inc., most recently serving as President and Chief Executive Officer from 2004 to February 2014. Mr. Hartwick also served as President forof Just Energy Group Inc. from 2006 to 2008, as Chief Financial Officer from 2004 to 2006, and as a director from 2008 to February 2014. Mr. Hartwick also served as the Chief Financial Officer of Hydro One, Inc., an energy distribution company, from 2002 to 2004. Mr. Hartwick holds an Honours of Business Administration degree from Trent University. Mr. Hartwick was selected to serve as a director because of his extensive knowledge of the retail natural gas and electricity business and his leadership and management expertise.
Nick W. Evans, Jr. The Board of Directors has nominated Mr. Evans to servehas served as a director.director since May 2016. Mr. Evans began his career at the Georgia Railroad Bank and then joined Abitibi Southern Corporation. He began his television career in sales at WATU-TV and WRDW-TV in Augusta and then moved to WNEP-TV, Wilkes-Barre/Scranton, Pennsylvania. He returned to WAGT-TV in Augusta and eventually became president and general manager. From 1987 to 2000, he was President and CEO of Spartan Communications, Inc., headquartered in Spartanburg, South Carolina. He currently serves as chairman of ECP Benefits and ECP/Trinity, partner of Toast Wine & Beverage, and is involved in business development for Group CSE in Atlanta. Mr. Evans is a former board member of numerous civic, community, business and industry organizations. While a Rotarian he was selected as a Paul Harris Fellow. Currently, he holds board positions with Wells Fargo (Augusta Advisory Board), Forest Hills Golf Association, Azalea Capital (Advisory Board) and Coca-Cola Bottling Company United, Inc. Mr. Evans served as a director of Marlin Midstream GP, LLC, the general partner of Marlin Midstream Partners, LP, each of which is affiliated with us, from September 2013 through
February 2015. Mr. Evans holds a B.B.AB.B.A. degree from Augusta College. Mr. Evans was selected to serve as a director because of his leadership and management expertise.
Status as a Controlled Company
Because W. Keith W. Maxwell, III, through his indirect ownership of NuDevco Retail, LLC, a Texas limited liability company (“NuDevco Retail”) and Retailco, LLC, a Texas limited liability company (“Retailco”), controls more than 50% of our outstanding voting power, we qualify as a “controlled company” as that term is defined under the corporate governance rules of the NASDAQ Global Select Market (“NASDAQ”). As a controlled company, we may elect not to comply with certain NASDAQ corporate governance requirements, including (i) the requirement that a majority of the boardour Board of directorsDirectors consist of independent directors, (ii) the requirement to have a nominating/corporate governance committee composed entirely of independent directors and a written charter addressing the committee’s purpose and responsibilities, (iii) the requirement to have a compensation committee composed entirely of independent directors and a written charter addressing the committee’s purpose and responsibilities, and (iv) the requirement of an annual performance evaluation of the nominating/corporate governance and compensation committees.
In light of our status as a controlled company,Although our Board of Directors consists of a majority of independent directors and has determined to take partial advantage of the controlled company exemption. Our Board of Directors has determined not to haveestablished a nominating and corporate governance committee and that our Compensation Committee will not consist entirelya compensation committee of independent directors. As a result,directors, it may appoint non-independent directors and determine to eliminate these committees at any time. In such a case, you may among other things, appoint future membersnot have the same protections afforded to shareholders of our Boardcompanies that are subject to all of Directors, resolveNASDAQ’s corporate governance issues, establish salaries, incentives and other forms of compensation for officers and other employees and administer our incentive compensation and benefit plans.requirements.
Meetings and Committees of Directors
The Board of Directors held foursix meetings during 2015,2020, and itsour independent directors met in executive session four times during 2015.2020. The Board of Directors currently has twothree standing committees: the Audit Committee, the Compensation Committee and the CompensationNominating and Corporate Governance Committee. The Audit Committee held foursix meetings in 2015 and2020, the Compensation Committee held two meetings in 2015.2020, and the Nominating and Corporate Governance Committee held two meetings in 2020. During 2015,2020, each of our directors attended at least 75% of the meetings of the Board of Directors and the meetings of the committees of the Board of Directors on which that director served.
Audit Committee
The Audit Committee is a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee is comprised of three directors who meet the independence and other requirements of the NASDAQ and the SEC. The Audit Committee currently consists of Ms. Bush and Messrs. Jones, EadsEvans and Hartwick. Mr. JonesMs. Bush currently serves as the ChairmanChair of the Audit Committee. As described above, the Board of Directors has nominated Mr. Evans as a Class II director and Mr. Eads has not been nominated for re-election. If the shareholders elect Mr. Evans to the Board of Directors, he will replace Mr. Eads on the Audit Committee.
The SEC requires that we disclose whether or not our Audit Committee has an “audit committee financial expert” as a member. An “audit committee financial expert” is defined as a person who, based on his or her experience, possesses the attributes outlined in such rules. We have determined that each of Messrs. JonesMs. Bush and Mr. Hartwick satisfies the definition of “audit committee financial expert.” Additionally, each of the current members of
the Audit Committee Messrs. Jones, Eads Hartwick, and our director nominee, Mr. Evans, meets the requirements of financial literacy under the requirements of the NASDAQ and SEC rules and regulations.
The Audit Committee assists the Board of Directors in its oversight of the integrity of our financial statements and our compliance with legal and regulatory requirements and corporate policies and controls. The Audit Committee has the sole authority to retain and terminate our independent registered public accountant, approve all auditing services and related fees and the terms thereof, and pre-approve any non-audit services to be rendered by our independent registered public accountant. The Audit Committee is also responsible for confirming the independence and objectivity of our independent registered public accountant. Our independent registered public accountant is given unrestricted access to the Audit Committee. More information regarding the functions performed by the Audit Committee and its membership is set forth in the “Audit Committee Report” included herein and also in the “Audit Committee Charter” that is posted on the Company’s website at www.sparkenergy.com.
Compensation Committee
Our Compensation Committee currently consists of three directors who are “independent” as such term is defined under the rules of the SEC and the NASDAQ, as well as one director who does not satisfy the definition of “independent.”NASDAQ. Our Compensation Committee currently consists of Ms. Bush and Messrs. Maxwell, Jones, EadsEvans and Hartwick. Mr. Hartwick currently serves as the ChairmanChair of the Compensation Committee. As described above, the Board of Directors has nominated Mr. Evans as a Class II director and Mr. Eads has not been nominated for re-election. If the shareholders elect Mr. Evans to the Board of Directors, he will replace Mr. Eads on theThe Compensation Committee.
This committeeCommittee establishes salaries, incentives and other forms of compensation for officers and, in certain circumstances, for other employees. Our Compensation Committee also administers our incentive compensation plans.
The Compensation Committee is delegated all authority of the Board of Directors as may be required or advisable to fulfill the purposes of the Compensation Committee. The Compensation Committee may form and delegate some or all of its authority to subcommittees when it deems appropriate. Meetings may, at the discretion of the Compensation Committee, include members of the Company’s management, other members of the Board of Directors, consultants or advisors, and such other persons as the Compensation Committee or its chairperson may determine in an informational or advisory capacity.
Our Chief Executive Officer annually reviews the competitive pay position and the performance of each member of senior management other than himself. Our Chief Executive Officer’s conclusions and recommendations, including those for base salary adjustments and award amounts for the current year, are presented to the Compensation Committee. The Compensation Committee makes all compensation decisions and approves all share-based awards for the Named Executive Officers. The Compensation Committee may exercise its discretion in modifying any compensation adjustment or awards to any executive officer, including reducing or increasing the payment amount for one or more components of such awards.
Our Board of Directors annually considers the performance of our Chief Executive Officer. The Compensation Committee determines all components of our Chief Executive Officer’s compensation and meets outside the presence of all of our executive officers to consider appropriate compensation for our Chief Executive Officer.
The Compensation Committee has the sole authority to retain, amend the engagement with, and terminate any compensation consultant to be used to assist in the evaluation of director, Chief Executive Officer or officer compensation, including employment contracts and change in control provisions. The Compensation Committee has sole authority to approve the consultant’s fees and other retention terms and has authority to cause the Company to pay the fees and expenses of such consultants. As of the date of this Proxy Statement we have not engaged a compensation consultant.
More information regarding the functions performed by the Compensation Committee and its membership is in the “Compensation Committee Charter” that is posted on the Company’s website at www.sparkenergy.com.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee currently consists of three directors who are “independent” as such term is defined under the rules of the SEC and the NASDAQ. Our Nominating and Corporate Governance Committee currently consists of Ms. Bush and Messrs. Evans and Hartwick. Mr. Evans currently serves as the Chair of the Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee identifies individuals qualified to become directors, consistent with criteria approved by the Board, recommends to the Board the director nominees for annual meetings of shareholders; reviews and recommends to the Board the corporate governance policies applicable to the Company; oversees the evaluation of the Board and its committees; and performs such other functions as the Board may assign it from time to time.
The Nominating and Corporate Governance Committee is delegated all authority of the Board as may be required or advisable to fulfill the purposes of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee may retain and determine funding for executive search firms, legal counsel, consultants, as well as other experts and advisers. The Nominating and Corporate Governance
Committee may form and delegate some or all of its authority to subcommittees when it deems appropriate. Meetings may, at the discretion of the Nominating and Corporate Governance Committee, include members of the Company’s management, other members of the Board of Directors, consultants or advisors, and such other persons as the Nominating and Corporate Governance Committee or its chairperson may determine in an informational or advisory capacity.
More information regarding the functions performed by the Nominating and Corporate Governance Committee and its membership is set forth in the “Nominating and Corporate Governance Committee Charter” that is posted on the Company’s website at www.sparkenergy.com. See also “Identification of Director Candidates” included herein for more information regarding the Nominating and Corporate Governance Committee’s role in selecting director nominees.
Director Independence
We have reviewed the independence of our current non-management directors and our director nominee using the independence standards of the NASDAQ and, based on this review, determined that three of our current directors, Ms. Bush and Messrs. Jones, EadsEvans and Hartwick and our director nominee, Mr. Evans, are independent. In connection with this assessment, the Board of Directors also determined that our current directors,Ms. Bush and Messrs. Jones, EadsEvans and Hartwick and our director nominee, Mr. Evans, are independent within the meaning of the NASDAQ standards currently in effect and Rule 10A-3 of the Exchange Act applicable to members of the Audit Committee and Compensation Committee.
Attendance at Annual Meetings
The Board of Directors encourages all directors to attend the annual meetingsAnnual Meetings of shareholders,Shareholders, if practicable. All of our directors then serving attended the 2020 Annual Meeting by phone or in person. We anticipate that all of our directors will attend the 20162021 Annual Meeting.
Compensation Committee Interlocks and Insider Participation
During the last completed fiscal year, our Compensation Committee consisted of Messrs. Maxwell, Jones, Eads and Hartwick. Mr. Maxwell served as our Chief Executive Officer through April 2014. Mr. Maxwell is party to certain related party transactions with us, as describedMeeting by phone or in this Proxy Statement under “Transactions with Related Persons.”person.
During the last completed fiscal year, none of our executive officers serve on the board of directors or Compensation Committee of a company that has an executive officer that serves on our Board or Compensation Committee. No member of our Board is an executive officer of a company in which one of our executive officers serves as a member of the board of directors or Compensation Committee of that company.
Code of Conduct and Financial Code of Ethics
Our Board of Directors has adopted a codeCode of conductConduct applicable to our employees, directors and officers, and a Financial Code of Ethics applicable to our Chief Executive Officer, Chief Financial Officer and other senior financial officers in accordance with applicable U.S. federal securities laws and the corporate governance rules of NASDAQ. Any waiver of this codethe Code of Conduct and Financial Code of Ethics may be made only by our Board of Directors and will be promptly disclosed as required by applicable U.S. federal securities laws and the corporate governance rules of NASDAQ. The Code of Conduct and Financial Code of Ethics are posted on our website at www.sparkenergy.com.
CORPORATE GOVERNANCE
Corporate Governance Guidelines
The Board of Directors believes that sound governance practices and policies provide an important framework to assist it in fulfilling its duty to shareholders. The Company’s Corporate Governance Guidelines cover the following principal subjects:
EXECUTIVE COMPENSATION
Overview
We are currently considered an emerging growth company for purposes•role and functions of the SEC’s executive Board of Directors and its Chairman;
•qualifications and independence of directors;
•size of the Board of Directors and director selection process;
•shareholder communications with directors;
•committee functions and independence of committee members;
•meetings of independent directors;
•annual performance evaluation of the committees;
•compensation disclosure rules. In accordanceof the Board of Directors;
•director access to senior management and to independent advisors;
•annual performance evaluation of the management; and
•review of governance policies and any other corporate governance issues.
The “Corporate Governance Guidelines” are posted on the Company’s website at www.sparkenergy.com. The Board of Directors reviews the Corporate Governance Guidelines periodically to reassess their adequacy and approve any proposed changes.
Board Leadership Structure
W. Keith Maxwell III currently serves as our Chief Executive Officer and as Chairman of the Board of Directors. The Board has no policy with such rules, we are required to provide a Summary Compensation Table and an Outstanding Equity Awards at Fiscal Year End Table, as well as limited narrative disclosures. Further, our reporting obligations extend onlyrespect to the individuals servingseparation of the offices of Chairman of the Board and Chief Executive Officer.
Our independent directors have also determined that it is optimal for the Board to have a “lead director,” whose responsibilities include, among others, presiding over executive sessions of the independent directors and establishing the agenda for each meeting of the independent directors. All of these principles are set forth in the Company’s Corporate Governance Guidelines. Currently, the Board of Directors selects a lead independent director on a meeting-by-meeting basis, as our principalneeded, to preside over scheduled meetings of the independent directors based upon the topic of the meeting and relevant experience.
Additionally, the Board of Directors regularly meets in executive officersession without the presence of the Chairman of the Board, Chief Executive Officer or other members of management. The lead director presides at these meetings and our two other most highly compensated executive officers. For fiscal year 2015, our named executive officers (the “Named Executive Officers” or “NEOs”) were Nathan Kroeker, ourprovides the Board of Directors’ guidance and feedback to the President and Chief Executive Officer Georganne Hodges,and the Company’s management team. Further, the Board of Directors has complete access to the Company’s management team.
Communications with the Board of Directors
Shareholders or other interested parties can contact the Board, any committee of the Board, or any director in particular by writing to: Spark Energy, Inc., 12140 Wickchester Ln., Suite 100, Houston, Texas 77079, Attention:
legal department. Shareholders or other interested parties should mark the envelope containing each communication as “Stockholder Communication with Directors” and clearly identify the intended recipient(s) of the communication. Our legal department will review and forward each communication, as expeditiously as reasonably practicable, to the addressee(s) if (1) the communication complies with the requirements adopted by the Board relating to the subject matter of the communication; and (2) the communication falls within the scope of matters generally considered by the Board. To the extent the subject matter of a communication relates to matters that have been delegated by the Board to a committee or to an executive officer, then the legal department may forward the communication to the chairman of the appropriate committee or the appropriate executive officer.
Oversight of Risk Management
Except as discussed below, the Board of Directors as a whole oversees our assessment of major risks and the measures taken to manage such risks. For example, the Board of Directors:
•has approved the risk management policies related to our wholesale portfolio and hedging activities; and
•reviews management’s capital spending plans, approves our capital budget and requires that management present for Board review significant departures from those plans.
The Audit Committee is responsible for overseeing our assessment and management of financial reporting and internal control risks. In consultation with management, our independent registered public accountant and, if applicable, the officer or employee responsible for the internal audit function, the Audit Committee annually reviews and assesses the adequacy and integrity of our financial reporting process and internal controls, and discusses significant financial risk, exposures and any remedial steps management has taken.
We have formed a risk committee. The risk committee has control and authority over all our risk management activities and establishes and oversees the execution of the Company’s credit risk management policy and commodity risk policy. The risk management policies are reviewed at least annually, and the risk committee typically meets quarterly to assure that we have followed our policies. The risk committee also seeks to assure the application of our risk management policies to new products that we may offer.
The risk committee is comprised of our Chief Executive Officer and our Chief Financial Officer who meet on a regular basis as to the status of the risk management activities and Gil Melman,positions. Commodity positions are typically reviewed and updated daily based on information from our Vicecustomer databases and pricing information sources. The risk policy sets volumetric limits on intraday and end of day long and short positions in natural gas and electricity. With respect to specific hedges, we have documented a formal delegation of authority delegating product type, volumetric, tenor and timing transaction limits to the energy supply managers. Any hedging transactions that exceed these delegated transaction limits are reported to the risk committee.
COMPENSATION DISCUSSION AND ANALYSIS
In this section, we describe our compensation philosophy, the factors the Compensation Committee considered in developing our compensation packages, and the decision-making process it followed in setting compensation for our Named Executive Officers for the year ended December 31, 2020. You should read this section in conjunction with the tables and accompanying narratives that follow. We believe our compensation program is effective, appropriate and strongly aligned with the long-term interests of our stockholders and that the total compensation package provided to our Named Executive Officers is reasonable and not excessive.
Our “Named Executive Officers” as defined under the SEC’s rules for the year ended December 31, 2020 were:
| | | | | |
Name | Position |
W. Keith Maxwell III | Chief Executive Officer |
James G. Jones II | Chief Financial Officer |
Barbara Clay | Acting General Counsel and Secretary |
Kevin McMinn | Former Chief Operating Officer |
Nathan Kroeker | Former President and Chief Executive Officer |
On June 13, 2019, Mr. Jones resigned from the Board. On June 14, 2019, the Board appointed Mr. Jones to serve as our Chief Financial Officer. While serving as a director, Mr. Jones received the standard compensation package for non-employee directors. The compensation that Mr. Jones’s received as a director is not included in his compensation as a Named Executive Officer.
On March 19, 2020, Mr. Kroeker entered into a Transition and Resignation Agreement and Mutual Release of Claims (the “Kroeker Transition Agreement”), pursuant to which Mr. Kroeker resigned from all positions of employment (including as President, Chief Executive Officer and as a director). Because he served during part of the year ended December 31, 2020 as Chief Executive Officer, he is included as a Named Executive Officer.
On August 27, 2020, we entered into an engagement letter with Good Counsel Legal Services, LLC (“Good Counsel”), pursuant to which Ms. Clay agreed to fulfill the role of Acting General Counsel and Corporate Secretary.Secretary to the Company. The terms of the engagement letter are described below. Because Ms. Clay is engaged through Good Counsel pursuant to an engagement letter, she does not participate in our compensation programs on the same basis as other Named Executive Officers unless noted below.
On April 2, 2021, Mr. McMinn entered into a Transition and Resignation Agreement and Mutual Release of Claims (the “McMinn Transition Agreement”), pursuant to which Mr. McMinn resigned from all positions of employment (including as Chief Operating Officer). Because he was serving at December 31, 2020, he is included as a Named Executive Officer.
Objective and Focus
Our principal business strategy is to maintain stable cash flows and to grow our business by adding customers and optimizing our existing customer base. We believe that executing this business strategy will translate directly into increased stockholder value. The objective of our compensation program is to reward performance that contributes to the achievement of our business strategy on both a short-term and long-term basis. Accordingly, a significant portion of our executive compensation is related to factors that directly and indirectly relate to our business strategy and performance, and influence stockholder value.
While the Compensation Committee intends to continue its strategy of using programs that emphasize performance-based compensation with a goal to achieve an appropriate balance between our short and long-term performance and between our performance and stockholder return, we value the opinion of our stockholders and welcome the communication regarding our executive compensation policies and practices. Our Compensation Committee and Board will thoughtfully consider the results of the non-binding advisory vote regarding our Named
Executive Officer’s compensation and whether to implement any desired change to our compensation, policies and procedures as a result of such vote.
Elements of Executive Compensation
The compensation of our Named Executive Officers consists of base salaries, annual cash bonuses, long-term incentive awards, and other in-service and post-employment benefits and perquisites.
Base Salary
We pay base salaries to provide a fixed amount of compensation for our Named Executive Officer’s regular work. Base salaries are generally set at levels deemed necessary to attract and retain individuals with superior talent commensurate with their relative expertise and experience. The Compensation Committee reviews the base salaries of the Named Executive Officers annually at the beginning of each fiscal year, and usually makes percentage increases based on several factors, including its view of the cost of living and competitive conditions for executive talent, an evaluation of our performance, the individual’s performance, years of service, responsibilities, experience, leadership abilities, increases or changes in duties and responsibilities, our future growth plans, industry conditions, and our current ability to pay.
Incentive Bonuses
As discussed below, COVID-19 and the February 2021 Texas winter storm had a material impact on incentive bonuses for the year ended December 31, 2020. We have historically paid annual incentive cash bonuses to motivate and reward our executives. Our Named Executive Officers have historically had the potential to receive a meaningful cash bonus if annual operational, financial and other objectives and goals are met and the Compensation Committee approves the bonus. Unless otherwise determined, annual cash bonuses have historically been subject to an individual’s continued employment through the date of payment.
In determining the annual cash bonuses earned, the Compensation Committee has historically given substantial weight to achievement of pre-set goals and objectives, which are historically adopted by the Compensation Committee at the beginning of the year. An annual cash bonus based on percentage of base salary is established as a target award. Upon completion of a year, the Compensation Committee reviews actual performance to the pre-determined goals and objectives to determine the actual amount of the annual cash bonus. However, the Compensation Committee and the Board maintain complete discretion on the final determination of annual cash bonuses for the Named Executive Officers in order to address unusual and infrequent events like the COVID-19 pandemic and the February 2021 Texas winter storm.
In February 2020, prior to the start of the COVID-19 pandemic and the February 2021 Texas winter storm, the Compensation Committee initially adopted the metrics of Mass Market RCE Count; Operating Expense to Gross Margin; Free Cash Flow to Common Shareholders, and a discretionary component that would allow our Named Executive Officers to earn a percentage of their base salary, consistent with prior years.
Mass Market RCE Count represents the residential customer equivalents (“RCEs”) in the Company’s residential and small commercial book. An RCE is an industry standard measure of natural gas or electricity usage with each RCE representing annual consumption of 100 MMBtu of natural gas or 10 MWh of electricity. Operating Expense to Gross Margin is calculated as general and administrative costs (calculated as total general and administrative costs (including bad debt expense), less non-cash compensation expense, broker fees, and lead generation costs) divided by gross margin (calculated as total retail gross margin, less broker fees). We define retail gross margin as operating income (loss) plus (i) depreciation and amortization expenses and (ii) general and administrative expenses, less (iii) net asset optimization revenues (expenses), (iv) net gains (losses) on non-trading derivative instruments, and (v) net current period cash settlements on non-trading derivative instruments. Free Cash Flow to Common Shareholders represents cash flows generated by the Company available to pay dividends, reduce debt, and pursue growth opportunities. Free Cash Flow to Common Shareholders is calculated as Adjusted EBITDA less interest, preferred stock dividends, tax payments (including payments made under the Company’s Tax Receivable Agreement that
terminated in July 2019), cash paid for acquisitions, capital expenditures, mandatory loan repayments, and earnout payments.
The Compensation Committee monitored the rapid spread of COVID-19 throughout 2020. In March 2021, the Compensation Committee, noting COVID-19’s impact on the Compensation Committee’s pre-determined metrics, particularly customer growth and retention, and that the lack of customer acquisition spending on financial metrics, as well as the expected impact of the February 2021 Texas winter storm on the Company’s quarterly results for the first quarter of 2021, exercised its discretion to not pay bonuses under the annual cash bonus plan to Named Executive Officers for the year ended December 31, 2020.
Long-Term Equity Awards
We pay long-term equity awards because we believe that long-term equity-based incentive compensation is an important component of our overall compensation program because it:
•balances short- and long-term objectives;
•aligns our Named Executive Officers’ interests with the long-term interests of our stockholders and the creation of stockholder value;
•makes our compensation program competitive from a total remuneration standpoint;
•encourages retention of our Named Executive Officers; and
•gives Named Executive Officers the opportunity to share in our long-term value creation.
The Board originally adopted the Spark Energy, Inc. Long Term Incentive Plan on July 21, 2014 in connection with our initial public offering. The incentive plan was amended and restated on September 1, 2016 to expand the sources of Class A common stock that may be used to settle awards granted under the Incentive Plan. At our 2019 annual meeting of shareholders, shareholders approved an amendment and restatement of our incentive plan to increase the number of shares of Class A common stock reserved under the plan (such plan, as amended and restated, the “Incentive Plan”).
Our Incentive Plan provides for grants of cash payments, stock options, stock appreciation rights, restricted stock or units, bonus stock, dividend equivalents, and other stock-based awards. Historically, our Named Executive Offers have only received restricted stock units (“RSUs”), rather than any other type of awards. RSUs represent a right to receive stock, cash or a combination thereof at the end of a specified deferral or vesting period. The RSUs may also provide for dividend equivalent rights (“DERs”) which, rather than paying dividends on RSUs in cash, credits additional RSUs to an awards based on the dividend paid, which are subject to the same vesting schedule as the underlying grant.
Annual Incentive Awards
As discussed below, COVID-19 and the February 2021 Texas winter storm also had a material impact on annual incentive awards for the year ended December 31, 2020. Similar to its process for determining annual cash bonuses, the Compensation Committee gives substantial weight to achievement of pre-set goals and objectives, which are historically adopted by the Compensation Committee at the beginning of the year, in determining the number of RSUs to grant to our Named Executive Officers following completion of that year. A dollar amount of RSUs based on percentage of base salary is established as a target award. Upon completion of a year, the Compensation Committee reviews actual performance to the pre-determined goals and objectives to determine the dollar amount of RSUs to be issued as an award. However, the Compensation Committee and the Board maintain complete discretion on the final determination of the number of RSUs to be granted to the Named Executive Officers. After the RSUs are earned and granted, they are subject to an additional service based vesting period.
In March 2020, the Compensation Committee adopted the metrics of Embedded Gross Margin and Relative Total Shareholder Return to determine the number of RSUs to be granted in 2021 based on performance for the year ended December 31, 2020.
Embedded Gross Margin is defined as a rolling five-year measure of management’s estimate of future contracted Retail Gross Margin. The Embedded Gross Margin is the difference between existing customer contract prices and the cost of supply for the remainder of the term, with appropriate assumptions for customer attrition and renewals. It is assumed that expiring contracts will be renewed at target margin and renewals rates.
Relative Total Shareholder Return is calculated as the percentile ranking against the peer group based on the increase or decrease in the volume-weighted average price (“VWAP”) of the companies’ stock for the last ten trading days of the current year compared to the VWAP of the stock for the last ten trading days of the previous year, plus dividends earned during the current year. Relative Total Shareholder Return is measured according to a peer group of companies selected by the Compensation Committee. The peer group of companies was selected based on industry and relative size.
In March 2020, the Compensation Committee approved a peer group for purposes of Relative Total Shareholder Return consisting of:
| | | | | |
Company | Ticker |
Genie Energy LTD | GNE |
Atlantic Power Corporation | AT |
Just Energy Group Inc. | JE.TO |
Chesapeake Utilities Corporation | CPK |
Unitil Corporation | UTL |
RGC Resources, Inc. | RGCO |
Suburban Propane Partners, L.P. | SPH |
MarineMax, Inc. | HZO |
Russel 2000 Index | ^RUT |
Covanta Holding Corporation | CVA |
Superior Plus Corp. | SPB.TO |
Mistras Group, Inc. | MG |
FuelCell Energy Inc. | FCEL |
Jones Energy, Inc. | JONE |
The peer group was the same as the prior year, except Crius Energy Trust and Global Brass and Copper Holdings, Inc., both of which were acquired in 2019, were removed and Covanta Holding Corporation was added as a replacement. The Compensation Committee is permitted to exercise discretion to exclude companies from the peer group, as well as the measurement period for which Relative Total Stockholder Return is calculated at the end of the performance period.
Each metric allows a Named Executive Officer to earn a weighted percentage of his base salary. For the year ended December 31, 2020 and prior to reduction, our Named Executive Officers could have earned a percentage of their base salary as follows for the following metrics, prior to weighting:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Metric | Target | Eligible Grant as a % of Base Salary |
80% | 85% | 90% | 95% | 100% | 125% | 150% |
Embedded Gross Margin | $403.4 million | 80% | 85% | 90% | 95% | 100% | 110% | 125+% |
Relative Total Shareholder Return | 70th Percentile | 50th | 55th | 60th | 65th | 70th | 80th | 90th |
Each of the above metrics is weighted 50%.
The Compensation Committee monitored the rapid spread of COVID-19 throughout 2020, noting its impact on the Compensation Committee’s pre-determined metrics for annual incentive awards. Noting the lack of cash bonus awards, the Compensation Committee determined it would grant RSUs to incentivize Named Executive Officers with long-term strategic goals to grow the customer book, explore new markets to expand our geographical diversity, and continue to provide positive returns for our shareholders. The Compensation Committee exercised its discretion to determine the amount of the awards. For Mr. Maxwell, the Compensation Committee also considered the amount of awards typically given to chief executive officers of the list of peer group companies, and that Mr. Maxwell received a base salary of $1.
The following table shows the maximum percentages of base salary that the Named Executive Officers could have received in RSUs that were based upon metrics approved by the Compensation Committee in March 2020, the percentage of base salary actual earned and the dollar amount of the actual awards to be issued.
| | | | | | | | | | | |
Name | Maximum Long Term Incentive Award Value as Percentage of Base Salary | Percentage of Base Salary Actually Earned | Dollar Amount of Award(1) |
Mr. Maxwell | 150% | NM | $2,010,054 |
Mr. Jones | 150% | 167% | $500,004 |
Ms. Clay | -- | -- | -- |
Mr. McMinn | 150% | -- | -- |
(1)The dollar amount of awards are calculated using the December 31, 2020 closing stock price of $9.57. The awards are expected to be granted on May 18, 2021.
The grants of RSUs to Mr. Jones vest ratably over four years beginning on May 18, 2022. The grants to Mr. Maxwell consist of 52,521 RSU that vest on May 18, 2021, and 157,563 RSUs that vest ratably over four years beginning on May 18, 2022. The percentage of base salary actually earned is not shown for Mr. Maxwell because his base salary is $1, so the amount is not meaningful. Mr. McMinn did not receive a grant of RSUs pursuant to the McMinn Transition Agreement.
The incentive awards issued during the year ended December 31, 2020 are reported in the “Stock Awards” column of the Summary Compensation Table. Please see our proxy statement for our 2020 annual meeting of shareholders for a discussion of the calculation of those awards.
In-Service and Post-Employment Benefits
In addition to the elements of compensation discussed above, we also provide other benefits to our Named Executive Officers, including retirement benefits to match competitive practices in our industry and that are comparable to those provided at other companies of our size. They are designed to provide certain basic quality of life benefits and protections to our employees and at the same time enhance our attractiveness as an employer.
401(k) Retirement Plan
We sponsor a 401(k) retirement plan. During the year ended December 31, 2019, the plan was available to all of our employees immediately upon employment. The Named Executive Officers participate on the same basis as all other employees. Eligible employees may contribute 90% of their salary up to the Internal Revenue Service maximum contribution to the plan through payroll deductions. We match 100% of an employee’s contribution up to 4% of his or her salary. Our Class A common stock is not an investment option under the plan.
Other Benefit Plans
We provide other benefits such as medical, dental, vision, flexible spending accounts, paid time off, life insurance and disability coverage, which are also provided to all other eligible employees.
Perquisites
We provide certain perquisites to our Named Executive Officers. We provide a cellular allows for Mr. Jones. We also provided club membership fees for Mr. Kroeker. The payment of club membership encouraged entertainment of business colleagues and customers, engaging in social interaction with peers from other companies, local leadership in the community, and holding business meetings at a convenient offsite location. The cellular allowance ensures that our Named Executive Officers have a way to communicate with the Company and company personnel. More detail on our perquisites may be found in the narrative following the Summary Compensation Table, below.
Tax and Accounting Considerations
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) eliminated the “performance-based compensation” deduction limitation under Section 162(m) of the Internal Revenue Code of 1986, as amended (referred to as the “Code”). Given that we have not historically granted compensation that would be considered “performance-based compensation,” all taxable compensation paid to our Named Executive Officers, including compensation expense generated in connection with restricted stock units is not exempt from the Section 162(m) deduction limit. We may from time to time in the future pay compensation amounts to our executive officers that are not deductible. Although we consider tax deductibility in the design and administration of our executive compensation plans and programs, we believe that our interests are best served by providing competitive levels of compensation to our Named Executive Officers even if it results in the non-deductibility of certain amounts under the Code.
Restricted stock unit awards to our employees, including Named Executive Officers, have been granted and reflected in our consolidated financial statements, based upon the applicable accounting guidance, at fair market value on the grant date in accordance with ASC Topic 718. Restricted stock unit awards to our directors have been granted and reflected in our consolidated financial statements based upon applicable accounting guidance, at fair market value as of the reporting period ending date in accordance with ASC Topic 718.
Clawback Policy
We currently do not have a recovery, or “clawback” policy applicable to our Named Executive Officers of any annual cash bonuses or equity compensation awards other than those required under Section 304 of the Sarbanes-Oxley Act. The Compensation Committee will continue to evaluate the need to adopt such a policy.
The Role of Management
Our Chief Executive Officer annually reviews the competitive pay position and the performance of each member of senior management other than himself. Our Chief Executive Officer’s conclusions and recommendations, including those for base salary adjustments and award amounts for the current year, are presented to the Compensation Committee. The Compensation Committee makes all compensation decisions and approves all share-based awards for the Named Executive Officers.
Our Board of Directors annually considers the performance of our Chief Executive Officer. The Compensation Committee determines all components of our Chief Executive Officer’s compensation and meets outside the presence of all of our executive officers to consider appropriate compensation for our Chief Executive Officer.
Compensation Committee Interlocks and Insider Participation
During the last completed fiscal year, our Compensation Committee consisted of Ms. Bush and Messrs. Evans and Hartwick. Our Compensation Committee consists solely of members who are “independent” as defined by NASDAQ Rule 5605(c). Ms. Bush served as our Chief Financial Officer from May 2012 through April 2013.
During the last completed fiscal year, none of our executive officers served on the board of directors or Compensation Committee of a company that has an executive officer that served on our Board or Compensation Committee. No member of our Board is an executive officer of a company in which one of our executive officers served as a member of the board of directors or Compensation Committee of that company.
Stock Ownership Guidelines
The Board believes that it is in the best interest of the Company and its stockholders to align the financial interests of the officers of the Company and non-employee members of the Board with those of the Company’s stockholders. In this regard, the Board enforces minimum stock ownership guidelines.
For Named Executive Officers, other than Mr. Maxwell who owns approximately 66.1% of our outstanding Common Stock and Ms. Clay, the stock ownership guidelines are found in their respective employment agreements, and provide for a guidelines of two times annual base salary on and after April 1, 2023.
For independent directors, we encourage stock ownership through an informal policy that the independent directors own Class A common stock at least equal to two times their annual retainer of $75,000 prior to selling any shares of Class A common stock.
All shares of Class A common stock held by our Named Executive Officers (including (i) shares purchased on the open market or (ii) shares held indirectly by the Named Executive Officer (a) under any retirement or deferred compensation plan or (b) held by a spouse or other immediate family member residing in the same household or (c) in a trust for the benefit of Named Executive Officer or his family (whether held individually or jointly)) and all shares of Class A common stock underlying awards granted under the Incentive Plan and that can be settled in Class A common stock (whether vested or unvested, exercised or unexercised, or settled or unsettled) count towards the stock ownership requirements. Any performance awards held count towards the stock ownership requirements at the target level of such awards until settled.
To the extent a Named Executive Officer falls below the stock ownership requirement after his applicable date, the Named Executive Officer will be required to retain 100% of shares obtained through the Incentive Plan until the stock ownership requirement is met. In the event of a drop in the share price of the Class A common stock from the beginning of each fiscal year through the end of such year commencing with fiscal year 2022, and for each fiscal year thereafter of more than twenty-five percent (25%), the Named Executive Officer will be entitled to an additional twelve month period commencing on April 1 of the next year to comply with the stock ownership requirement. Failure to satisfy the stock ownership requirement may impact the Named Executive Officer’s eligibility to receive future cash and equity incentive compensation awards.
Compliance with this policy by each officer is reviewed by the Nominating and Governance Committee on an annual basis, and the Nominating and Governance Committee may exercise its discretion in response to any violation of this policy and the Compensation Committee will take into account compliance with the requirements in determining grants of awards. To date, the Nominating and Governance Committee has not found any violations under the policy.
Hedging and Pledging
Our insider trading policy, which applies to our officers (including our Named Executive Officers), directors, employees and consultants, strongly discourages hedging and pledging.
Risk Management
The Compensation Committee has reviewed our compensation policies as generally applicable to our employees and believes that our policies do not encourage excessive and unnecessary risk-taking, and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on the Company. The Compensation Committee performs this assessment annually.
Although portion of the compensation provided to Named Executive Officers is based on our performance, we believe our compensation programs do not encourage excessive and unnecessary risk-taking by our Named Executive Officers (or other employees) because these programs are designed to encourage employees to remain focused on both our short-term and long-term operational and financial goals. We set performance goals that we believe are reasonable in light of our past performance and market conditions.
2021 Executive Compensation Decisions
For the year ending December 31, 2021, Mr. Jones will receive a base salary of $300,000, which is unchanged from the year ended December 31, 2019. Mr. Maxwell in his position as Chief Executive Officer will receive a salary of $1 for his services.
In March 2021, the Compensation Committee adopted the following metrics to be used in determining the payment of annual cash bonus for the year ended December 31, 2021: Mass Market RCE Count; Operating Expense to Gross Margin; Free Cash Flow to Common Shareholders, and Discretionary. In addition, the Compensation Committee adopted the metrics of Embedded Gross Margin and Relative Total Shareholder Return to determine the number of RSUs to be granted in 2022.
Director Compensation
The Compensation Committee is charged with recommending all cash and non-cash compensation of our non-employee directors. Our non-employee directors, other than Mr. Maxwell, received cash fees for their service on the Board and its committees during the year ended December 31, 2020 as set forth below:
| | | | | |
Fee | Amount($) |
Annual Retainer | 75,000 |
Audit Committee Chair | 10,000 |
Compensation Committee Chair | 10,000 |
Nominating and Corporate Governance Committee Chair | 10,000 |
Special Committee Chair(1) | 10,000 |
Each Special Committee Meeting attended(1) | 1,000 |
_______________
(1) The Special Committee is formed from time to time to review certain related party transactions.
Directors who are also our employees do not receive any additional compensation for their service on our Board of Directors. As the Chairman of the Board of Directors, Mr. Maxwell is paid annual director fees of $250,000. Non-employee directors receive an annual grant of RSUs having a dollar value of $75,000, or beginning January 1, 2020, in cash if the informal stock ownership guidelines have been met. The annual grants have a vesting period of one year. In addition, each director is reimbursed for: (i) travel and miscellaneous expenses to attend meetings and activities of our Board or its committees; (ii) travel and miscellaneous expenses related to such director’s participation in general education and orientation program for directors; and (iii) travel and miscellaneous expenses for each director’s spouse who accompanies a director to attend meetings and activities of our Board of Directors or any of our committees.
More information about the actual compensation paid to non-employee directors is set forth in the Director Compensation table, below.
EXECUTIVE COMPENSATION TABLES
SummaryDirector Compensation Table
The following table summarizes the compensation amounts expensed by us for our NEOs for the fiscal years ended December 31, 2014 and December 31, 2015.
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| | | | | | | | | |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards(1) ($) | All Other Compensation ($) | Total ($) |
Nathan Kroeker President and Chief Executive Officer | 2014 2015 | 412,000 416,000 | 150,000 300,000 | 912,020 280,538 |
| 18,522 21,785 | (2) (2) | 1,492,542 1,018,323 |
|
| | | | | | | |
Georganne Hodges Chief Financial Officer | 2014 2015 | 260,000 270,000 | 100,000 170,000 | 456,010 176,629
|
| 11,600 18,269 | (3) (3) | 827,610 634,898 |
|
| | | | | | | |
Gil Melman(4) Vice President, General Counsel and Corporate Secretary | 2,015 | 265,000 | 160,000 | 170,390 |
| 13,530 | (5) | 608,920 |
|
| |
(1) | The amounts reflected in this column represent the grant date fair value of restricted stock unit awards and dividend equivalent rights granted to the Named Executive Officers pursuant to our long-term incentive plan, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 718. See Note 10 to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for additional detail regarding assumptions underlying the value of these equity awards. |
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(2) | Includes $10,600 of matching contributions to the Company’s 401(k) plan made by the Company for Mr. Kroeker’s benefit, $8,185 of insurance premiums paid by the Company on insurance policies for Mr. Kroeker’s benefit and $3,000 of club membership fees for Mr. Kroeker’s benefit in 2015. Includes $10,400 of matching contributions to the Company’s 401(k) plan made by the Company for Mr. Kroeker’s benefit and $8,122 of insurance premiums paid by the Company on insurance policies for Mr. Kroeker’s benefit in 2014. |
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(3) | Includes $10,600 of matching contributions to the Company’s 401(k) plan made by the Company for Ms. Hodges’s benefit, $6,469 of insurance premiums paid by the Company on insurance policies for Ms. Hodges’s benefit and a $1,200 cellular telephone allowance in 2015. Includes $10,400 of matching contributions to the Company’s 401(k) plan made by the Company for Ms. Hodges’s benefit and a $1,200 cellular telephone allowance in 2014. |
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(4) | Mr. Melman first became a Named Executive Officer for the year ended December 31, 2015. |
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(5) | Includes $10,600 of matching contributions to the Company’s 401(k) plan made by the Company for Mr. Melman’s benefit, $1,730 of insurance premiums paid by the Company on insurance policies for Mr. Melman’s benefit and a $1,200 cellular telephone allowance in 2015. |
Narrative Disclosure to the Summary Compensation Table
For 2015, the principal elements of compensation provided to the NEOs were base salaries, annual cash bonuses, restricted stock unit awards, and retirement, health, welfare and additional benefits.
Base Salary
. Base salaries are generally set at levels deemed necessary to attract and retain individuals with superior talent commensurate with their relative expertise and experience.
Annual Cash Bonuses. Annual cash incentive awards are used to motivate and reward our executives. Annual cash incentive awards are determined on a discretionary basis and are generally based on individual and company performance. Unless otherwise determined, awards have historically been subject to an individual’s continued employment through the date of payment of the award.
RSU Awards.Restricted stock units represent a right to receive stock, cash or a combination thereof at the end of a specified deferral or vesting period. We use restricted stock units to motivate and retain our executives. The restricted stock units may also provide for dividend equivalent rights which, rather than be paid in cash, are deemed invested in additional restricted stock units which are subject to the same vesting schedule as the underlying grant.
In connection with our initial public offering in August 2014, each of our Named Executive Officers received a grant of restricted stock units pursuant to our long-term incentive plan. Each such restricted stock unit grant vests based upon continued service with us and our affiliates ratably over a four-year period commencing on May 4, 2015, and includes dividend equivalent rights. On May 4, 2015, the initial tranche of restricted stock units vested, resulting in the vesting of 13,036, 6,518 and 5,215 restricted stock units for Mr. Kroeker, Ms. Hodges and Mr. Melman, respectively.
On May 18, 2015, Mr. Kroeker received a grant of 15,000 restricted stock units, and each of Ms. Hodges and Mr. Melman received a grant of 10,000 restricted stock units. Each such restricted stock unit grant vests based upon continued service with us and our affiliates ratably over a four-year period commencing on May 18, 2016, and includes dividend equivalent rights.
The Compensation Committee has not made any grantsis charged with recommending all cash and non-cash compensation of our non-employee directors. Our non-employee directors, other than Mr. Maxwell, received cash fees for their service on the Board and its committees during 2016 to the Named Executive Officers as of the date of this Proxy Statement, but is in the process of reviewing information for potential awards at its May 2016 meeting.
All Other Compensation. In addition to the compensation discussed above, we also provide other benefits to the NEOs, including the following:
retirement benefits to match competitive practices in our industry, including participation in a 401(k) plan; and
benefits, including medical, dental, vision, flexible spending accounts, paid time off, life insurance and disability coverage, which are also provided to all other eligible employees.
Outstanding Equity Awards at 2015 Year End
The following table reflects information regarding outstanding restricted stock unit awards held by our Named Executive Officers as ofyear ended December 31, 2015. None of our Named Executive Officers hold any option awards.
2020 as set forth below:
11
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Name
| Stock Awards |
Number of Shares That Have Not Vested (#)(1) | Value of Shares of Stock That Have Not Vested ($)(2) |
Nathan Kroeker | 57,923 | $959,952 |
Georganne Hodges | 31,638 | $516,336 |
Gil Melman | 27,451 | $442,147 |
| | | | | |
(1)Fee | Reflects the number of outstanding restricted stock units, including dividend equivalent rights, held by the Named Executive Officers as of December 31, 2015. The restricted stock units shown in the table above represent the August 2014 grant and the May 2015 grant and corresponding dividend equivalent rights. The restricted stock units and corresponding dividend equivalent rights granted in August 2014 in connection with our initial public offering vest ratably over a four-year period with the first vesting date having occurred on May 4, 2015. The restricted stock units and corresponding dividend equivalent rights granted in May 2015 vest ratably over a four-year period with the first vesting date commencing on May 18, 2016. |
| Amount($) |
(2)Annual Retainer | Based on the grant date fair value of each award.75,000 |
Audit Committee Chair | 10,000 |
Compensation Committee Chair | 10,000 |
Nominating and Corporate Governance Committee Chair | 10,000 |
Special Committee Chair(1) | 10,000 |
Each Special Committee Meeting attended(1) | 1,000 |