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| | Executive pay leveraged more to performance and long-term incentives Align executive’s pay with long term interests of stockholders | |
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Our executive compensation program’s primary objective is aligning our executives’ pay with the long-term interests of our stockholders. Cash bonuses and long-term equity incentives are the elements of our executive compensation program that are “at risk”, and are designed to reward performance and align with stockholders in creating long-term value. Overall, we target to reward short and long-term financial, strategic and operational performance, while facilitating the Company’s need to attract, motivate, develop and retain highly-qualified executives who are critical to our long-term success.
Our executive compensation philosophy is to:
| ■ | Align the long-term interests of our executives with those of the stockholders; |
| ■ | Attract, motivate, reward, and retain the top contributors upon whom, in large part, our success depends; |
| ■ | Be competitive with compensation programs for companies of similar size and complexity with whom we compete for talent, including direct competitors; |
| ■ | Provide compensation based upon the short-term and long-term performance of both the individual executive and the Company; and |
| ■ | Strengthen the relationship between pay and performance by emphasizing variable, at-risk compensation that is dependent upon the successful achievement of specified corporate and individual goals. |
In structuring our executive compensation arrangements, our CC considers how each compensation element fits within our overall philosophy of long-term shareholder value. Our compensation program is comprised of three elements:
| ■ | Base Salary – primarily intended to attract and retain top contributors. We believe that in order to attract and retain top executives, we need to provide our executive officers with compensation levels that reward their continued service and are competitive; |
| ■ | Annual Cash Bonus – primarily intended to motivate the NEOs to achieve our short-term performance objectives; and |
| ■ | Long-Term Equity-Based Incentive Compensation – primarily intended to align our NEOs’ long-term interests with stockholders’ long-term interests. |
Our Annual Cash Bonus pool is generally formula-driven and has historically been funded based on the product of earnings, an organic growth factor, and a days sales outstanding factor. From time to time, the formula can adopt other qualitative factors to recognize changing strategic goals and other conditions. Certain of our business units may have unit-specific bonus pools based on earnings and other performance-related metrics for their unit only.
*can adopt other qualitative factors to recognize changing strategic goals and other conditions
Bonus Pool = (25% of earnings > 6% of revenue) x (Organic Growth Factor) x (DSO Factor)
| ■ | Earnings – expressed as the Company’s operating earnings before interest, taxes, depreciation and amortization, other non-cash or non-operating expenses, and bonus. |
| ■ | Organic Growth Factor – expressed as organic revenue growth year-over-year. The organic growth factor is defined as one plus/minus 2x the organic growth rate. |
| o | For example, if organic revenue growth is 20%, the organic growth factor would be 1+(2 x 0.2) = 1.40. If organic revenue growth rate was negative 20%, the organic growth rate factor would be 1+(2 x -0.2) = 0.60 |
| ■ | Days Sales Outstanding (DSO) Factor – is calculated based on a mid-point of 70 days and is expressed as one minus the percentage lower or higher than 70 days. |
| o | For example, if the DSO was 65 days, the DSO would be 1-((65-70)/70) = 1.07. If the DSO was 85 days, the DSO factor would be 1-((85-70)/70) = 0.79. |
Our long-term equity-based incentive plan permits us to award various types of incentive awards, including incentive or nonqualified options, stock appreciation rights, stock bonuses, restricted stock, stock units, performance stock, phantom stock, dividend equivalents and other forms of awards.
In fiscal year 2022, in conjunction with the 2022 Pearl Meyer Study, we adopted Pearl Meyer’s recommendation that long-term equity awards should be comprised of a combination of performance-based and time-based equity awards in order to motivate and retain our key executives.
Performance goals are established for purposes of measuring performance and dictate the vesting thresholds for performance-based equity awards, and are pre-established and approved by the Board prior to the beginning of the performance period. These goals are fixed and are not changed over the performance period of the award.
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| | Adjusted Burn Rate Aligning with Industry PeersOur three-year average adjusted burn rate continues to decrease and align to the threshold of our industry peers | |
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While they are employed with us, we provide our NEOs with retirement benefits under our 401(k) Plan, participation in our medical, dental and insurance programs and vacation and other holiday pay, all in accordance with the terms of such plans and programs in effect from time to time and substantially on the same terms as those generally offered to our other employees.
We also have provided, in some cases, automobile allowances to our executive officers, including the NEOs.
