CF Industries Holdings Inc
For the period ended Apr 18, 2024. Filed Mar 7, 2024.
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Apr 18, 2024 · Filed Mar 7, 2024
Contents
Key Elements of NEO Compensation Program
Key Elements of NEO Compensation Program
| | Component | | | Key Characteristics and Rationale | |
|---|---|---|---|---|---|
| | Salary | | | • We seek to pay salaries in line with individual performance and contribution to company goals. • In the aggregate, base salaries of our NEOs are targeted at the median of the peer group companies in our Industry Reference Group and the overall general industry market data from the outside compensation consultant’s market assessment. Individual performance and potential, relative criticality of the individual position in relation to achievement of the company’s goals, and business affordability are also considered in determining base salaries. • To maintain our desired market position, we conduct annual salary reviews. | |
| | Short-Term Incentives | | | • Variable compensation component that provides executive officers and other employees with the opportunity to earn additional annual cash compensation beyond base salary. • The role of short-term incentives is to reward and encourage the achievement of annual financial results and other specified corporate performance goals. • Short-term incentives are also targeted at the market median, and achievement of these awards depends on attaining corporate performance goals. • Adjusted EBITDA has been a cornerstone of our annual short-term incentive program, comprising a 50% weighting of the performance metric in 2016, a 75% weighting in 2017 — 2020, an 80% weighting in 2021 and 2022 and a 60% weighting in 2023. • The 2023 short-term incentive program also included a clean energy metric comprising 20%, a sustainability initiative metric comprising 10%, and a process safety metric comprising 10%. | |
| | Long-Term Incentives | | | • Variable compensation component that focuses on enterprise value creation and employee retention. Long-term incentives are provided through annual stock-based awards. • Participation is extended to executive officers and other key employees. Eligibility guidelines with award ranges reflecting position responsibility levels and competitive market practices are updated annually. The guidelines allow for individual variation in long-term incentives based on performance level, potential contribution, and value to the business. • In general, long-term incentives for our executive officers are targeted at the market median with the opportunity to receive above market awards for excellent performance. • Long-term incentive awards granted to our NEOs in connection with setting target compensation are based on a specified cash value, which amount since 2018 has been split among two different award types — 60% PRSUs and 40% RSUs. • PRSUs awards are subject to three-year vesting criteria based on: ◦ Average return on net assets (RONA) over three one-year periods ◦ A modifier pursuant to which the number of shares earned based on RONA performance may be increased or decreased by up to 20% based on our three-year TSR performance against a threshold, target, and maximum level of performance | |
Compensation Metrics Tie to Business Strategy
The compensation and management development committee selects performance metrics for our incentive compensation programs that align executive interests with those of our shareholders. Executives are focused on achieving top performance across metrics that are directly tied to shareholder value creation and our core strategic objectives, as indicated below:
| | Annual Incentives | | |||
|---|---|---|---|---|---|
| | Metric | | | Alignment | |
| | Adjusted EBITDA | | | Adjusted EBITDA is the primary metric by which we measure our profitability and by which investors measure our performance | |
| | Completion of specified clean energy milestones | | | Aligns with the company’s focus on decarbonizing its existing ammonia production network, creating low-carbon ammonia capacity and supporting and accelerating the global transition to a clean energy economy | |
| | Completion of specified process, technology and reporting capabilities milestones | | | Relates to key initiatives that continue to advance efforts to streamline, automate and integrate process, technology and reporting capabilities for our long-term growth and sustainability | |
| | Timely Completion Percentage for Inspections and MOCs, Subject to Behavioral Safety Practices | | | Underscores our focus on safely operating our facilities, our commitment to CF Industries’ “Do It Right” culture, and our constant efforts to drive workplace safety. Operating in a safe and responsible manner is a core value and an integral part of what sets CF Industries apart to all our stakeholders | |
| | Long-Term Incentives | | |||
|---|---|---|---|---|---|
| | Metric | | | Alignment | |
| | Return on Net Assets (RONA) | | | RONA is correlated with long-term TSR performance and is viewed as an indicator of the results of management’s operating decisions | |
| | Total Shareholder Return | | | Explicitly links executive incentives with shareholder value creation | |
Our Metrics Defined
As described above, our annual incentive plan uses Adjusted EBITDA as its primary performance metric and our long-term incentive program uses average return on net assets, or RONA, for the PRSU three-year performance criteria.
EBITDA is defined as net earnings attributable to common stockholders plus interest expense (income)-net, income tax provision (benefit) and depreciation and amortization.
Adjusted EBITDA is defined under the annual incentive plan as EBITDA as adjusted for certain items, including: (i) unrealized mark to market losses (gains) on hedges; (ii) unrealized and realized losses (gains) associated with foreign exchange on intercompany loan activity or foreign denominated payables and receivables; (iii) acquisition or disposition related transaction costs or fees; (iv) integration costs for
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