The following table sets forth information as to the beneficial ownership of our common stock and Class A common stock as of July 16, 2014,29, 2016, unless otherwise indicated, by:
The Board of Directors has designated Adolphus B. Baker, Timothy A. Dawson, Letitia C. Hughes, Sherman L. Miller, James E. Poole and Steve W. Sanders as nominees for election as directors of the Company at the 2016 Annual Meeting of Stockholders (each a “Nominee”). Each Nominee is currently a Directordirector of the Company.Company and has consented to being named as a nominee in this proxy statement and to serve as a director if elected. If elected, each Nominee will serve until the expiration of his/her term at the next annual meeting of shareholders in 2015stockholders and until his/her successor is elected and qualified or until his/her earlier death, resignation or removal from office.
The Board unanimously recommends a vote “FOR” the six Nominees.
The following information sets forth the name, age, principal occupation and business experience during the last five years of each of the current executive officers of the Company. The executive officers including the named executive officers, serve at the pleasure of the Board. For information regarding ownership of the Company’s common stock and Class A common stock by the executive officers of the Company, see “Ownership of Voting Securities by Certain Beneficial Owners and Management” on page 5.
Our Board of Directors holds regularly scheduled quarterly meetings. Occasionally,Normally, committee meetings occur the day of the Board meeting. In addition to the quarterly meetings, typically there are some special meetings each year. At each quarterly Board meeting, time is set aside for the independent directors to meet without management present. Our Board met seven timesheld four regularly scheduled quarterly meetings and one special meeting during fiscal year 2014.2016. All of our directors attended 75% or more of the aggregate of all Board of Directors meetings and meetings of the committees on which they served during the last fiscal year. Directors are encouraged to attend the Annual Meeting of Shareholders. AllStockholders, and all six directors attended the 20132015 Annual Meeting.
Director | Audit | Compensation | Executive | Long-Term Incentive Plan | Nominating |
Adolphus B. Baker | | Chair | Chair | | Chair |
Timothy A. Dawson | | | Member | | |
Letitia C. Hughes | Chair | Member | | Member | Member |
Sherman L. Miller | | | Member | | |
James E. Poole | Member | Member | | Chair | Member |
Steve W. Sanders | Member | Member | | Member | Member |
Audit Committee: The Audit Committee, which is composed of three directors who are independent directors,in accordance with applicable NASDAQ listing standards and SEC rules, including the enhanced criteria with respect to audit committee members, meets with management, internal auditors, and the Company’s independent registered public accounting firm to determine the adequacy of internal controls, to recommendrecommends a registered public accounting firm for the Company to select, evaluates and otheroversees an internal auditor for the Company, reviews annual audited and quarterly financial statements and recommends whether such statements should be included in the Company’s annual reports on Form 10-K and quarterly reports on Form 10-Q, and oversees financial matters. The Audit Committee held four meetings in fiscal year 2016.
Compensation Committee: The Compensation Committee establishesdischarges the responsibilities of the Board of Directors relating to compensation of the Company’s executive officers by establishing goals and reviewsreviewing general policy matters relating to compensation and benefits of employees of the Company, including the issuance of stock options and restricted stock to the Company’s officers, employees and directors. It reviews and recommends to the Board of Directorsapproves the compensation and benefits of officers who are members of the Executive Committee and of the Chairman Emeritus.Emeritus, and makes recommendations to the Board of Directors and members of the Long-Term Incentive Plan Committee with respect to the Company’s incentive compensation plans and equity-based plans. For more information on the Compensation Committee processes and procedures, see “Compensation Discussion and Analysis” below. The Compensation Committee held two meetings in fiscal year 2016.
Executive Committee: The Executive Committee may exercise all of the powers of the full Board of Directors, except for certain major actions, such as the adoption of an agreement of merger or consolidation, the recommendation to stockholders of the disposition of substantially all of the Company’s assets or a dissolution of the Company, and the declaration of a dividend or authorization of an issuance of stock. In addition, it may not authorize single capital expenditure projects in excess of $10 million. The Executive Committee did not hold any formal meetings in fiscal year 2016, but worked closely together and took action by written consent six times.
Long-Term Incentive Plan Committee: The Long-Term Incentive Plan Committee, which is composed of three independent directors, administers the Cal-Maine Foods, Inc. 2012 Omnibus Long-Term Incentive Plan, including selectingwhich role includes selection of the persons to whom awards may be made, determining the types of awards, determining the times at which awards will be made and other terms and conditions relating to awards.awards, all in accordance with plan documents. The Long-Term Incentive Plan Committee held three meetings in fiscal year 2016.
Nominating Committee: The Nominating Committee considers potential nominees for directors proposed by committee members, other members of the Board of Directors, management or our stockholders. Any stockholder desiring to submit a director candidate for consideration should submit the candidate’s name, address and detailed background information to the Secretary of the Company at the Company’s address shown above under “General Matters.” The Secretary will forward such information to the Nominating Committee for its consideration. The Nominating Committee held one meeting in fiscal year 2016.
Consideration of Director Nominees; Diversity
In recommending nominees for the Board, the Nominating Committee considers any specific criteria the Board may request from time to time and such other factors as it deems appropriate. These factors may include any special training or skill, experience with businesses and other organizations of comparable size and type, experience or knowledge with businesses that are particularly relevant to the Company’s current or future business plans, financial expertise, the interplay of the candidate’s experience with the experience of the other directors, sufficient time to devote to the responsibilities of a director, freedom from conflicts of interest or legal issues and the extent to which, in the Nominating Committee’s opinion, the candidate would be a desirable addition to the Board.
Diversity is taken into account when determining how the candidates’ qualities and attributes would complement the other directors’ backgrounds. Type of advanced studies and certification, type of industry experience, area of corporate experience and gender, among other factors, are taken into consideration. The Nominating Committee believes that the different
business and educational backgrounds of the directors of the Board contribute to the overall insight necessary to evaluate matters coming before the Board.
Each candidate brought to the attention of the Nominating Committee, regardless of who recommended such candidate, will be considered on the basis of the criteria set forth above.
ShareholderStockholder Communications
ShareholdersStockholders may send communications to the Board by directing them to the Secretary in the same manner as described on page 2 of this proxy statement.above under “General Matters.” The Secretary will forward to all members of the Board any such communications he receives which, in his reasonable judgment, he deems to be not spurious and to be sent in good faith.
Risk Oversight
The Board takes its oversight role in the Company’s risk management very seriously. The Company’s Executive Committee is primarily responsible for managing the day-to-day risks of the Company’s business, and is best equipped to assess and manage those risks. The Audit Committee also plays a prominent role in assessing and addressing risks faced by the Company with respect to financial and accounting controls, internal audit functions, pending or threatened legal matters, insurance coverage and the Company’s “whistleblower” hotline policy, among other matters. The Board and the Audit Committee receive reports on the Company’s exposure to risk and its risk management practices from members of the Executive Committee as well as other members of the Company’s
management and legal counsel, including reports on the Company’s information technology standards and safeguards, financial and accounting controls and security measures, environmental compliance, human resources, litigation and other legal matters, grain purchasing strategies, and customer concentration and product mix, among other things. The Board regularly receives updates about and reassesses the management of these risks throughout the year. In addition, the Board and the Audit Committee review the Company’s risk disclosures in its draft periodic reports before they are filed and have the opportunity to question management and outside advisers about those risks.the risks presented. The Board’s role in risk oversight of the Company is consistent with the Company’s leadership structure, with the CEO and other members of senior management having responsibility for assessing and managing the Company’s risk exposure on a day-to-day basis, and the Board and its committees providing oversight in connection with those efforts.
The Board’s oversight of risk ofrisks affecting the Company has not specifically affected the Board’s leadership structure. The Board believes that its current leadership structure is conducive of and appropriate for its risk oversight function. If in the future the Board believes that a change in its leadership structure is required to, or potentially could, improve the Board’s risk oversight function, it may make any change it deems appropriate.
Report of the Audit CommitteeStock Ownership Guidelines
The Audit Committee overseesBoard adopted stock ownership guidelines applicable to the Company’s financial reporting process on behalfnon-employee directors during fiscal year 2016. Under the guidelines, each non-employee director is encouraged to maintain ownership of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the Committee reviewed and discussed the audited financial statements in the Annual Report with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.
The Committee also reviewed with Frost, PLLC, the Company’s independent registered public accounting firm,company stock valued at two times his or her annual retainer, which is responsible for expressing an opinion oncurrently $35,000. As of May 28, 2016, all non-employee directors exceeded their target ownership levels. Under the conformity of those audited financial statements with generally accepted accounting principles, its judgment asstock ownership guidelines, new directors are expected to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussedcomply with the Committee under generally accepted auditing standards. In addition, the Committee has discussed with Frost, PLLC that firm’s independence from managementstock ownership target within five years of appointment.
Board Independence and the Company including the matters in the written disclosures and letter from Frost, PLLC required by Public Company Accounting Oversight Board rules and considered the compatibilityImpact of nonaudit services with Frost, PLLC’s independence.
The Committee discussed with our internal auditors and our independent registered public accounting firm the overall scope and plans for their respective audits. The Committee meets with the internal auditors and our independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of our internal controls, and the overall quality of our financial reporting.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2014, for filing with the Securities and Exchange Commission.
The Board of Directors has determined that all members of the Audit Committee are “audit committee financial experts” and independent directors “Controlled Company” Statuswithin the meaning of Securities and Exchange Commission regulations.
Letitia C. Hughes, Audit Committee — Chairperson
James E. Poole, Audit Committee Member
Steve W. Sanders, Audit Committee Member
Certain Corporate Governance Matters
The NASDAQ stock market qualitative listing standards require that a majority of a listed company’s directors be independent and that a compensation committee and nominating committee of the Board composed solely of independent directors be established. These standards are not applicable to any company where more than 50% of the voting power is held by one individual or group. Mr. Adams, founder and Chairman Emeritus of the Company, Mr. Adam’s spouse, Mr. Baker and hisMr. Baker’s spouse own in the aggregate capital stock of the Company entitling them to 52.6%66.4% of the total voting power. Accordingly, the Company is a “controlled company” and thus exempt from those NASDAQ listing standards. However, aAs executive officers of the Company, Messrs. Baker, Dawson and Miller do not qualify as independent pursuant to the NASDAQ listing standards. Additionally, Mr. Baker serves as chair of each of the Compensation and Nominating Committees.
The Company is, however, subject to the NASDAQ listing standards requiring that the Audit Committee (i) be composed solely of independent directors; (ii) be directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm, which must report directly to the audit committee; (iii) establish procedures to receive, retain, and treat complaints regarding accounting, internal accounting controls and auditing matters, and for employees’ confidential, anonymous submissions of concerns regarding questionable accounting or auditing matters; (iv) have the authority to engage independent counsel and other advisors when the
committee determines such outside advice is necessary; and (v) be adequately funded by the Company. Our Audit Committee is in compliance with these standards.
Executive Sessions
NASDAQ’s listing standard requiring the independent directors of the Board to have regularly scheduled meetings at which only independent directors are present is also applicable to the Company. Such meetings were held following theeach regular meetingsmeeting of the Board during the fiscal year ended May 31, 2014. 2016.
Code of Ethics
NASDAQ qualitative listing standards require companies to adopt a code of business conduct and ethics applicable to all directors, officers and employees that is in compliance with certain
provisions inof the Sarbanes-Oxley Act of 2002. The Board of Directors adopted such a code in 2004. Our Code of Ethics is posted on the “Investors—Corporate Governance” page of our website at www.calmainefoods.com.
The listing standards also require that certain related-party transactions to which the Company’s directors or officers are parties be reviewed for potential conflicts of interests on an ongoing basis by, and all such transactions be approved by, the Company’s Audit Committee or another independent committee of the Board of Directors. During the fiscal year ended May 31, 2014, no reportable related-party transactions took place.
Additional NASDAQ listing standards require that the Audit Committee (i) be composed solely of independent directors; (ii) be directly responsible for the appointment, compensation, retention and oversight of the independent auditor, which must report directly to the audit committee; (iii) establish procedures to receive, retain, and treat complaints regarding accounting, internal accounting controls and auditing matters, including procedures for employees’ confidential, anonymous submissions of concerns regarding questionable accounting or auditing matters; (iv) have the authority to engage independent counsel and other advisors when the committee determines such outside advice is necessary; and (v) be adequately funded by the Company. Our Audit Committee is in compliance with these standards.
The Board of Directors has a Nominating Committee. Mr. Baker, Ms. Hughes, Mr. Poole and Mr. Sanders are the members of the Nominating Committee. As a “controlled company,” the independence requirements of NASDAQ Rule 4350(c) do not apply to the Company.Leadership Structure
Mr. Baker, our President and Chief Executive Officer, serves as Chairman of the Board. The Company has not named a lead independent director. The Board recognizes that the leadership structure and combinationthe decision to combine or separationseparate the roles of the Chief Executive Officer and Chairman of the Board roles isare prompted by the Company’s needs at any point in time. The Company’s leadership structure has varied over time and has included combining and separating these roles. As a result, the Board has not established a firm policy requiring combination or separation of these leadership roles and the Company’s governing documents do not mandate a particular structure. This provides the Board with flexibility to establish the most appropriate structure for the Company at any given time.
The Board has determined that the Company is currently best served by having one person serve as Chairman of the Board and Chief Executive Officer as it promotes communication between management and the Board of Directors and provides essential leadership for addressing the Company’s strategic initiatives and challenges. Mr. Baker’s service as Chairman of the Board aids the Board’s decision-making process because he has firsthand knowledge of the Company’s operations and the major issues facing the Company, and he chairs the Board meetings where the Board discusses strategic and business issues.
The Board of Directors also considers the above structuresstructure appropriate due to the Company’s status as a “controlled company.” Further, due to the relatively small size of the Board of Directors and the fact that one-half of the members of the Board of Directors are independent directors, the Board of Directors has not felt it necessary to designate a lead independent director.
Chairman Emeritus
Mr. Adams, the former Chairman of the Board, has been designated Chairman Emeritus of the Company. Under the Company’s bylaws, Chairman Emeritus is an advisory position. Although the Chairman Emeritus may be invited to participate in Board of Director and committee meetings, the Chairman Emeritus is not counted for quorum purposes and has no director voting rights. The Chairman Emeritus provides such advisory services to the Board of Directors as it requests.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, such as the common stock, to file with the Securities and Exchange CommissionSEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Such persons are also required to furnish us with copies of all forms they file under this regulation.Section 16(a). To our knowledge, based solely on a review of the copies of such reports and amendments thereto furnished to us and representations that no other reports were required, for the fiscal year ended May 31, 2014, the following persons were directors, officerswe believe that no director, executive officer or greater than 10% or more beneficial owners whostockholder failed to file on a timely filebasis the reports required by Section 16(a) ofduring fiscal 2016, except for the Exchange Act during the most recent fiscal year or prior fiscal years. For each such person, the number of late reports, the number of transactions that were not reportedfollowing: (1) Jean Morris Adams inadvertently failed to file on a timely basis a Form 3 with respect to her initial status as a beneficial owner of the Company, and any known failureForms 4 to report 10 subsequent gifting transactions, although all but one of these transactions were timely reported by her husband, Fred R. Adams, Jr., on his Forms 4; and (2) Charles J. Hardin inadvertently failed to file on a requiredtimely basis a Form are set forth by their name.4 for one transaction.
Leticia C. Hughes: One transaction for which a Form 4 was filed late
James E. Poole: One transaction for which a Form 4 was filed late
The Company has not received any information from 10% shareholders indicating that they have not complied with filing requirements.
Related-Party Transactions
We are the largest producer and marketer of shell eggs in the United States. We spend hundreds of millions of dollars for third-party goods and services from third parties annually. We have approximately 2,645 employees andannually, with the authority to purchase such goods and services is widely dispersed. Because of these far-reaching activities,dispersed among many different officers and managers across the United States. Consequently, there may be transactions and business arrangements with businesses and other organizations in which one of our directors executive officers, or nominees, for director,executive officers, or their immediate families, or a greater than 5% owner of either class of our capital stock, may also be a director, executive officer, or investor, or have some other direct or indirect material interest. We may refer to these relationships generally as related-party transactions.
Related-party transactions have the potential to create actual or perceived conflicts of interest between the Company and its directors and executive officers or their immediate family members. The Company’s Code of Ethics prohibits directors, officers and employees of the Company from engaging in transactions which may create or appear to create a conflict of interest without disclosing all relevant facts and circumstances to, and obtaining the prior written approval of, the Company’s General Counsel. The General Counsel reports annually to the Audit Committee concerning any such disclosures. The NASDAQ listing standards require that related-party transactions be reviewed for potential conflicts of interest on an ongoing basis by the Company’s Audit Committee or another independent committee of the Board of Directors. The Audit Committee reviews and approves such transactions. While the Audit Committee has no specific written policy and procedures for review and approval of related-party transactions, in the past if a related-party transaction involved a director, executive officer, or their immediate family members, in evaluating such transaction the Audit Committee has considered, among other factors:
•the goods or services provided by or to the related party,
•the nature of the transaction and the costs to be incurred by the Company or payments to the Company,
•the benefits associated with the proposed transaction and whether alternative goods or services are available from unrelated parties,
•the advantages the Company would gain by engaging in the transaction,
•whether the terms of the transaction are fair to the Company and arms-length in nature,
•the materiality of the transaction to the Company and to the related party, and
•management’s determination that the transaction is in the best interests of the Company.
During fiscal year 2014 noNo reportable related-party transactions took place.have taken place since the beginning of fiscal year 2016, and none are currently proposed.
COMPENSATION DISCUSSION AND ANALYSIS
This compensation discussion and analysis describes and analyzes our executive compensation philosophy and program in the context of the compensation paid during the last fiscal year to our named executive officers. Our named executive officers for fiscal year 2016 are:
•Adolphus B. Baker, Chairman of the Board, President, and Chief Executive Officer,
•Timothy A. Dawson, Vice President – Chief Financial Officer, Treasurer, and Secretary,
•Sherman L. Miller, Vice President – Chief Operating Officer,
•Charles J. Hardin, Vice President – Sales, and
•Robert L. Holladay, Jr., Vice President – General Counsel.
Compensation Philosophy and Process
We believe we are the only publicly held company in the United States insofar as we can determine, whose primary business is the commercial production, processing, and sale of shell eggs. Accordingly, there is little, if any, public information available relative toregarding the compensation paid by our competitors. It is our intent to compensate our employees at a level that will appropriately reward them for their performance, minimize the number of employees leaving our employment because of inadequate compensation, issues, and enable us to attract neededsufficient talent as our business expands. Even though we have not lost many management level employees to our competitors, we believe our management is not the highest paid management group in the egg business.
As stock representing more than 50% of the voting power for the election of our voting stockdirectors is owned by Mr. Adams, our founder, and members of Mr. Adams’his family, we are a controlled company as defined in Rule 4350(c)(5)5615(c)(1) of the NASDAQ Rules.listing rules. As such, we are not required to have the compensation of our named executive officers determined by a majority of our independent directors or a Compensation Committee composed entirely of independent directors. However, our independent directors, who constituteare three of the four members of the Compensation Committee, do play a significant role in determining the compensation of certain of our named executive officers. We divide our executive officers into two categories for compensation purposes. The first are members of the Executive Committee of our Board of Directors, which during fiscal 2014year 2016 was composed of Messrs. Baker, Dawson and Miller. The compensation of the members of the Executive Committee is primarily determinedapproved by the Compensation Committee, after recommendation by the Executive Committee which submits its recommendation to
the Compensation Committee for approval.Committee. The compensation for other executives orexecutive officers, including named executive officers who are not members of the Executive Committee (which, for fiscal 2014, included Messrs. Hardin, Holladay and Self), is determined by the Executive Committee pursuant tobased on the overall compensation goals and guidance established by the Compensation Committee.
Elements of Compensation
Except as otherwise noted, our total compensation package provided to each of our named executive officers consists of a base salary, a cash bonus, Finally, incentive awards, including equity compensation, automobiles and company paid insurance. Additionally, certain ofawards, are approved by the named executive officers participate in deferred compensation plans, are eligible for an enhanced health plan and receive payment of country club dues.Long-Term Incentive Plan Committee.
Compensation Practices and Risks
We do not thinkbelieve any risks arise from the Company’s compensation policies and practices that are likely to have a material adverse effect on the Company. No single officer
Elements of Compensation
During fiscal 2016, our executive compensation program had the following primary components: base salary, an annual cash bonus and equity compensation in the form of restricted stock awards. Our named executive officers also received certain perquisites and certain of our named executive officers participate in our deferred compensation plan. The tables that follow give details as to the compensation of each of our named executive officers for fiscal year 2016.
Base Salary
We believe that base salaries, which provide fixed compensation, should meet the objective of attracting and retaining the executive officers needed to manage our business successfully. Base salary adjustments, if any, are approved in December of each year and become effective January 1st of the following calendar year. After consideration of the review of peer company compensation prepared by Mercer (US) Inc. (“Mercer”), a compensation consulting firm, which review indicated that the base salaries of our executive officers continue to lag behind the peer group, the Compensation Committee approved base salary increases for the members of the Executive Committee as follows: Mr. Baker – 6.3%, Mr. Dawson – 8.8% and Mr. Miller – 13.5%. Based on the same analysis, the Executive Committee approved base salary increases for our other named executive officers as follows: Mr. Hardin - 5% and Mr. Holladay – 5.4%. See “Benchmarking of Compensation” below for information regarding the Mercer report.
Annual Cash Bonus
Executive Committee Members and General Counsel Bonus Programs
For members of our Executive Committee and Mr. Holladay, our General Counsel, the bonus program is essentially subjective, rather than utilizing objective criteria. The Executive Committee recommends bonuses for its members, which are presented and these recommendations are given to the Compensation Committee for final approval. Our Chief Executive Officer determines Mr. Holladay’s bonus. Although these bonus awards are not based on objective goals, the most significant item in determining the amount of the Executive Committee members’ and Mr. Holladay’s bonuses has compensation structured so that it would likely resulthistorically been the profitability of our Company. Mr. Hardin has historically participated in such officer subjecting the Companybonus program applicable to unusual or extraordinary risks.our other employees.
Bonus Plans
General Bonus Program
During fiscal 2014, our named executive officers, with the exception of the members of the Executive Committee, wereyear 2016, Mr. Hardin was covered by our general bonus program. TheUnder this program, the amount of bonus whichthat could be earned by such named executive officers is an amount equal to 50% of the total of theirthe officer’s base salary plus such officer’s prior year’s bonus. We pay annual cash incentives to our named executive officers for the purpose of rewarding both company and individual performance during the year.
Of the potential bonus that can be earned by a named executive officer, 50% is based on our profitability, subject to the discretion of the Chief Executive Officer, and in the case of the Chief Executive Officer, subject to the discretion of the Compensation Committee. If we earn a minimum profit, on a pre-tax basis, of five cents per dozen eggs produced, each named executive officer will earn the full portion of his bonus attributable to our profitability, subject to
adjustment at the discretion of the Chief Executive Officer or Compensation Committee, as applicable. If our profit is less than five cents per dozen eggs produced, the officer’s bonus is reduced by a corresponding percentage.
The remaining bonus that can be earned by a named executive officer is based on such officer’s performance as evaluated by our Chief Executive Officer in his discretion.
There is constant contact and interplay among our Chief Executive Officer and the various named executive officers. This contact gives our Chief Executive Officer an ongoing opportunity to be aware of the overall efficiency, cooperativeness, enthusiasm, judgment and attitude that each named executive officer brings to the performance of his duties. Our Chief Executive Officer’s observation of these elements forms the basis of his opinion as to how such named executive officer is performing.
However, in addition to the direct observation and interplay between our Chief Executive Officer and the named executive officers, other criteria are also utilized in evaluating a named executive officer’s entitlement to the individual performance sectionportion of the bonus.
The General Managers underIn addition to customary bonuses, for fiscal year 2016 the supervisionExecutive Committee, focusing on the record earnings of the named executive officers also have a bonus program. This bonus program has 17 elements that can be considered by the named executive officer in determining the bonus of his General Managers. All 17 elements are not utilized each year. Typically at the beginning of eachCompany during fiscal year the named executive officer will confer with his General Managers2016, recommended and of the available criteria, they will select six or seven elements upon which they will concentrate in evaluating the General Manager’s performance and bonus eligibility.
An example of some, but not all, of the 17 elements considered by the named executive officer are the profitability of the segment under the General Manager’s control, the efficiency of the flocks under the General Manager as to feed conversion, livability, the status of accounts receivable, percent of eggs hatched, percent of Grade A eggs produced, environmental and other regulatory compliance, and other operational criteria. The significance or importance of the criteria available for evaluation will vary from location to location. Inasmuch as a General Manager’s performance is the responsibility of a specific named executive officer, how the General Managers perform under their performance program and in meeting the established criteria is a significant element considered by our Chief Executive Officer in evaluating the individual performance segment of a named executive officer’s bonus.
Executive Committee Members and General Counsel Bonus Programs
For members of our Executive Committee and Mr. Holladay, our Vice President – General Counsel, the bonus program is essentially subjective, rather than utilizing objective criteria. The Executive Committee determines recommended bonuses for its members and these recommendations are given to the Compensation Committee approved a special 2016 bonus for final approval. Our Chief Executive Officer determines Mr. Holladay’s bonus. Normally,substantially all officers and directors of the Compensation Committee acceptsCompany. The special bonuses were subject to the Executive Committee’s recommendation. discretion, based generally on the recipient’s performance and contributions to the Company during the year.
Equity Compensation
The most significant item in determining the amount of the Executive Committee members’ and Mr. Holladay’s bonusesCompany believes it is the profitability of our Company.
Year-to-year variations in the level of compensation foressential to provide our named executive officers result primarily from changes in bonuses and other compensation such as stock options and stock appreciation rights rather than base salary. Their salaries remain relatively fixed with modest increases from time to time. A primary variable factor in the named executive officers’ compensation is the value of the shares of our stock in relation to which the officer has options, rights or grants.
The tables which follow give details as to the compensation of each of our named executive officers for fiscal 2014.
General Matters Regarding Compensation
Employment Agreements
None of our named executive officers has an employment contract.
Deferred Compensation Arrangements
Messrs. Baker, Dawson and Hardin currently participate in the 2006 deferred compensation plan (the “Deferred Compensation Plan”) described below.
In 2006 our Board adopted a Deferred Compensation Plan in which all our officers are eligible to participate. The Plan will establish an account for each officer selected by the Board. Each year the Board may elect to make a contribution for each participant ranging from zero to whatever the Board determines. Each participant’s account will be credited with investment earnings equal to a fund selected by the Board to serve as an index. Currently, the index fund selected by the Board is the Vanguard 500 Index Fund Admiral Shares. At the time of initial participation, each participant must elect how he wishes his account to be distributed to him. Participants may elect to receive their distribution in a lump sum or in annual installments. All of the named executive officers participating in this Deferred Compensation Plan have elected the lump sum distribution alternative. All contributions to each officer’s account will vest when made. The Board determines what contributions, if any, will normally be made during December of each year. During the last fiscal year the contributions made to our named executive officers under the 2006 plan are reflected in the “Nonqualified Deferred Compensation – Under 2006 Plan” table in the “Compensation Tables” section below.
Mr. Self (now deceased) participated in an older individual deferred compensation plan in which he earned a stipulated deferred compensation amount for each year worked after a designated date. Some participants in these individual plans have earned their maximum deferred compensation while others (including Mr. Self until his death) continue to accrue such benefit. Mr. Self had earned 30 years of compensation at the time of his death. The deferred compensation payments are made monthly, beginning immediately after the officer’s 65th birthday, unless the officer elects to defer receipt of such payments. The agreement provides that once payments begin or have been earned, any remaining payments will continue to be made to a participant’s estate after his or her death.
Long-Term Equity Incentive Compensation
Our named executive officers participate in our 2012 Omnibus Long-Term Incentive Plan (“2012 Plan”), our 2005 Incentive Stock Option Plan and/or the Cal-Maine Foods, Inc. Stock Appreciation Rights Plan.
Prior to the adoption of the 2012 Plan, the Company had almost exhausted grants available under the Company’s existing equity plans. The Compensation Committee believed it was essential to provide the named executive officers and other employees of the Company with a long-term equity component of compensation in order to better align their interests with those of the Company’s stockholders. As a result, the Company adopted the
Our named executive officers participate in our 2012 Omnibus Long-Term Incentive Plan which was approved at the (“2012 annual shareholder meeting.
Plan”). The 2012 Plan is administered by the Long-Term Incentive Plan Committee of the Board (“LTIP Committee”). On December 13, 2013,11, 2015, the LTIP Committee authorized grants of restricted stock to a broad base of employees of the
Company, including the named executive officers. All of such restricted stock awards (“RSAs”) were made effective January 15, 2014,2016, and each award vests fully on the third anniversary of the date of grant, January 15, 2017.2019. The type of award, the level of RSAs awarded to each named executive officer, and the vesting structure of such RSAs waswere based in large part on the recommendations of Mercer, (US) Inc., a compensation consulting firm engaged by the Compensation Committee of the Company and comparisons to the Company’s peer group. See the “Benchmarking of Compensation” and “Compensation Consultants” sections below.
The LTIP Committee anticipates that it will make similar levels of grants of similar RSAs to employees on an annual basis, but it reserves the right to not do so, to defer doing so, or to alter the levels of shares awarded and terms and conditions of any such awards in its discretion. While the LTIP Committee has not developed formal policies concerning the timing of grants, setting of exercise prices and other matters, its practice has been to authorize grants of restricted shares annually in mid-December, with the grants to be made effective the following mid-January.January. Since such grants do not involve setting exercise prices, no practice or policy has yet been established regarding setting exercise prices of options.
SeveranceDeferred Compensation Arrangements
Messrs. Baker, Dawson and Change-in-Control PaymentsHardin currently participate in the deferred compensation plan (the “Deferred Compensation Plan”) described below.
NoIn 2006 our Board adopted the Deferred Compensation Plan, in which all of our officers are eligible to participate. Under the Deferred Compensation Plan, the Company will establish an account for each officer, and each year the Board may elect to make a contribution for each participant. Each participant’s account will be credited with investment earnings equal to a fund selected by the Board. Currently, the index fund selected by the Board is the Vanguard 500 Index Fund Admiral Shares. Participants may elect to receive their distribution in a lump sum or in annual installments. Each of the named executive officer is entitledofficers participating in this Deferred Compensation Plan has elected the lump sum distribution alternative. All contributions to receiveeach officer’s account are immediately vested. The Board determines which contributions, if any, severance or change-in-control payment; however, their existing grantswill be made during December of restricted stock do vest on death, disability or change-in-control andeach year. The contributions made for our named executive officers under the LTIP committeeDeferred Compensation Plan are reflected in its sole discretion may determine that such grants will vest partially orthe “Nonqualified Deferred Compensation” table in full as of retirement. See the “Potential Payments Upon Termination or Change in Control”“Compensation Tables” section on page 26.below.
Employee Benefits and Perquisites
WeWhile we do not havemaintain a pension plan, but we do havemaintain the Cal-Maine Foods, Inc. KSOP (“KSOP”), which is a combination 401(k) and employee stock ownership plan. We currently contribute an amount not less than 3% of theeach participant’s base salary and bonus to the KSOP each year, subject to statutory limitations. The KSOP was recently created by merging the Company’s existing 401(k) plan into its existing employee stock ownership plan. All full time employees 21 years of age or older with at least one year of service, and who meet minimum age requirements, including our named executive officers, are members of the
KSOP. Within the KSOP, weWe also sponsor an elective 401(k) component within the KSOP, but we make no contributions directly to the 401(k) component on behalf of the participants. For additional information regarding the KSOP, see “Compensation Plans – Cal-Maine Foods, Inc. KSOP” below.
Each of our named executive officers participates in an enhanced health plan pursuant to which we reimburse the participating officer for any eligible health expense not covered by our primary health plan, up to $10,000 per calendar year.
We In addition, we have a plan under which officers who meet minimum tenure qualifications will be provided health coverage after their retirement. The coverage we provide is secondary to their Medicare coverage.
Each of our named executive officers is provided one automobile for which we pay the operating and maintenance costs. We also pay country club dues on behalf of certain of our named executive officers as determined by the Board of Directors.
Certain officers are provided individual life insurance policies, the premiums of which are paid by the Company. Historically, the Executive Committee has made the determination of which officers would be provided such benefit on a case-by-case basis. In fiscal year 2013, the Compensation Committee authorized the Company to implement a split-dollar life insurance arrangement with Mr. Baker as to two life insurance policies, which was accomplished in fiscal year 2014. This replaced two existing term life insurance policies for Mr. Baker being funded by the Company, the premiums for which were duescheduled to materially escalate. The premiums paid on behalf of the named executive officers and the imputed income relating to the split-dollar life insurance policies onfor Mr. Baker’s lifeBaker are set forth in the “All Other Compensation Table” in the “Compensation Tables” section below.
General Matters Regarding Executive Compensation Plans
Cal-Maine Foods, Inc. KSOPEmployment Agreements and Severance and Change-in-Control Arrangements
During 2012, our defined contribution savings and retirement plan established in 1985, which was designed to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code, was merged into our Employee Stock Ownership Plan (“ESOP”) established in 1976. The name of the ESOP was changed to the “Cal-Maine Foods, Inc. KSOP”.
The KSOP combines an employee stock ownership plan and a 401(k) plan. All full time employees over age 21 with one or more years of service, are eligible to participate in the KSOP. The employee stock ownership component of the KSOP currently consists primarily of common stock of the Company and is managed by a trustee designated by the Board of Directors. Contributions by us may be made in cash or shares of common stock, as determined by the Board of Directors. Company contributions generally may not exceed 15% of the aggregate annual compensation of participating employees. Currently, the Company contributes an amount not less than 3% of the participant’s base salary and bonus to the KSOP subject to statutory limitations. Contributions are allocated to the accounts of participating employees in the proportion which each employee’s compensation for the calendar year bears to the total compensation for the calendar year (up to $255,000, as indexed, per employee), of all participating employees for such calendar year. Company contributions vest immediately upon the commencement of an employee’s participation in the KSOP.
Shares of common stock held in an employee’s account are voted by the KSOP trustee in accordance with the employee’s instructions. Our contributions to the accounts in the KSOP amounted to approximately $1,969,579 in calendar year 2013. For fiscal year 2014, our contributions to the KSOP on behalf of eachNone of our named executive officers are listedhas an employment agreement with the Company. In addition, no named executive officer is entitled to receive any severance or change-in-control payment; however, existing grants of restricted stock do vest on death, disability or change-in-control, and the LTIP Committee in its sole discretion may determine that such grants will vest partially or in full as of retirement. See the All Other Compensation Table.“Potential Payments Upon Termination or Change in Control” section below.
Stock Ownership Guidelines The 401(k) component of the KSOP permits participants to contribute upBoard adopted stock ownership guidelines applicable to the maximum allowed byCompany’s executive officers during fiscal year 2016. Under the IRS regulations. Participating employeesguidelines, the chief executive officer is required to maintain ownership of company stock valued at five times his or her base salary, the chief financial officer is required to maintain ownership of company stock valued at three times his or her base salary and each other executive officer is required to maintain ownership of company stock valued at two times his or her base salary. Under the stock ownership guidelines, executive officers are 100% vested in their 401(k) account balances in the KSOP. The KSOP is intendedexpected to comply with the Employee Retirement Income Security Actstock ownership target within five years of 1974, as amended. Benefits under the KSOP are paid at the time of a participant’s death, retirement, disability, termination of employment, and, under limited circumstances, may be withdrawn prior to the employee’s termination of service.
2005 Incentive Stock Option Plan
Our 2005 Incentive Stock Option Plan was adopted by our Board of Directors on August 15, 2005, and ratified by our shareholders on October 13, 2005. Under the 2005 Plan, 500,000 shares of common stock were reserved for issuance upon the exercise of options that could be granted under the 2005 plan.
All options to be granted are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code. The options vest at the rate of 20% per year.
The exercise price per share for any options granted may not be less than 100% of the fair market value of the common stock onApril 1, 2016, the date of grant. The number of shares of common stock subject to an option and the exercise price may be adjusted in certain circumstances to prevent dilution. The method of payment of the exercise price will be as prescribed by the Board of Directorsguidelines were adopted, or in the individual stock option agreements.
The options outstanding under the 2005 plan, ascase of July 16, 2014, all of which are held by officers of the Company and are fully vested, totaled 13,000. The options were granted on August 17, 2005, for an exercise price of $5.93.
Shares of common stock subject to the 2005 Plan have been registered under the Securities Act of 1933.
Cal-Maine Foods, Inc. Stock Appreciation Rights Plan
The Cal-Maine Foods Stock Appreciation Rights Plan (the “SARs Plan”) was adopted by our Board of Directors on August 15, 2005, and ratified by our shareholders on October 13, 2005. The SARs Plan covers 1,000,000 shares of common stock and is administered by the Executive Committee of the Board of Directors.
The SARs Plan continues for a period of 10new executives, within five years from August 15, 2005, unless earlier terminated. SARs vest at the rate of 20% per year, are non-transferable and contain anti-dilution provisions. Upon exercise, the Company will pay the holder of the SARs an amount in cash equal to the difference between the fair market value on the date of grant and the fair market value as of the date of exercise.their appointment.
As of July 16, 2014, employees and directors held a total of 6Compensation Plans,300 SARs with a base price of $5.93 per share, and 12,000 SARs with a base price of $6.93 per share, all of which are fully vested. Shares of common stock are not issued under the SARs Plan, but only serve as the measure for determining the amount to be paid by the Company.
Shares of common stock covered by the SARs Plan are registered under the Securities Act of 1933. The settlement of awards in cash resulted from an amendment to the SARs Plan on August 24, 2006, as permitted by its terms.
2012 Omnibus Long-Term Incentive Plan
Our 2012 Plan was adopted by our Board of Directors and ratified by our shareholders in 2012. It will expire on October 5, 2022, except with respect to awards then outstanding, and no further awards may be granted thereafter. The maximum number of shares of common stock that are available for awards under the 2012 Plan (subject to certain adjustments upon changes in capitalization of the Company) is 500,000 shares. Options, SARs, restricted shares and stock units may be granted under the 2012 Plan. Options may be either “incentive stock options,” as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonstatutory stock options. Awards may be granted under the 2012 Plan to any employee, any non-employee member of the Board of Directors, and any consultant who is a natural person and provides services to us or a subsidiary (except for incentive stock options which may be granted only to our employees). The Long-Term Incentive Plan Committee of the Board of Directors, in its discretion, selects the persons to whom awards may be granted, determines the type of awards, determines the times at which awards will be made, determines the number of shares subject to each such award, and determines the other terms and conditions relating to the awards.
The 2012 Plan provides that no participant may (i) be awarded options or SARs in any 12-month period to purchase more than 100,000 shares of common stock or (ii) earn restricted shares or stock unit awards that are intended to be performance-based compensation under Section 162(m) of the Code with respect to more than 50,000 restricted shares or 50,000 stock units for each 12 months in the vesting or performance period.
The 2012 Plan includes provisions permitting us to grant awards that will qualify as “performance-based compensation” under applicable federal tax rules, thus enhancing our ability to deduct compensation amounts paid to certain of our executive officers. To ensure our ability to deduct compensation amounts related to restricted shares and stock unit awards granted to certain executive officers, these tax rules will require among other things that we grant such awards subject to vesting only upon pre-specified performance conditions. The performance conditions that might be used for this purpose under the 2012 Plan are: earnings (before or after taxes); earnings per share; earnings before interest, taxes, depreciation and amortization; total stockholder return; stockholders’ equity or return on equity or average stockholders’ equity; return on assets, investments or capital employed; operating income; gross margin; operating margin; margin per dozen; net operating income (before or after taxes); income per dozen, return on operating revenue; specified levels or changes in sales or revenue; expense or cost reduction; working capital; economic value added; market share; cash flow; operating cash flow; cash flow per share; share price; debt reduction; customer satisfaction; contract awards or backlog; or, to the extent that an award is not intended to qualify as “performance-based compensation” under federal tax rules, other measures of performance as specified by the Long-Term Incentive Plan Committee. The performance goals also may be based solely by reference to our performance or the performance of one or more of our subsidiaries, divisions, business segments or business units, or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies. To the extent consistent with the Code Section 162(m), the Long-Term Incentive Plan Committee may also exclude under the terms of the performance goals the impact of an event or occurrence which the Long-Term Incentive Plan Committee determines should appropriately be excluded, including (i) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges, (ii) an event either not directly related to our operations or not within the reasonable control of our management, or (iii) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles.
Thus far, the LTIP Committee has only authorized time-vested restricted stock grants from the 2012 Plan. Such grants have been structured thus far to vest 100% on the third anniversary of the date of grant, conditioned upon continued employment of the grantee. The holders of such restricted stock grants will have the rights of a stockholder from the date of grant of their award, including the right to vote the shares of common stock and the right to receive cash dividends and share and property distributions on the shares.
As of July 16, 2014, employees and directors held a total of 122,600 restricted shares granted under the 2012 Plan. Such existing grants were made on January 15, 2013 and January 15, 2014.
Shares of common stock subject to the 2012 Plan have been registered under the Securities Act of 1933.
Benchmarking of Compensation
In fiscal year 2013 the Compensation Committee engaged the consulting firm of Mercer (US) Inc. (“Mercer”) to provide compensation analysis and consulting services regarding executive and director compensation. Part of this engagement involved benchmarking the Company’s executive pay against a peer group and published compensation surveys. Mercer has provided the Compensation Committee with annual updates of its prior analysis, including the benchmarking. The most current peer group consisted of 1716 companies, all of which are publicly traded. The peer group was selected based on research by Mercer and input from management. The peer groupmanagement and consisted of the following companies based on size (as measured by revenues), industry focus and geographic location:market capitalization:
(2) The amount listed represents the aggregate grant date fair value of time-vested restricted stock grants computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 – Compensation – Stock Compensation (“FASB ASC Topic 718”).
