For a description of the business experience of Messrs. Stuewe, Kloosterboer, Ewing, Korby, Macaluso, Sanders and Urbut, see Proposal 1 Election of
Directors.
All of our NEOs are based in the United States, except for Mr. Kloosterboer, who is based in Europe at our corporate offices in Son,
the Netherlands. Mr. Kloosterboers compensation is denominated in Euros and translated into U.S. dollars for reporting purposes at the average exchange rate during 2015 of 1.109514 dollars per euro.
Our company is a global
developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients, creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, technical, fuel,
bioenergy, and fertilizer industries. With operations on five continents, the company collects and transforms all aspects of animal by-product streams into broadly usable and specialty ingredients, such as gelatin, edible fats, feed-grade fats,
animal proteins and meals, plasma, pet food ingredients, organic fertilizers, yellow grease, fuel feedstocks, green energy, natural casings and hides. The company also recovers and converts used cooking oil and commercial bakery residuals into
valuable feed and fuel ingredients. In addition, the company provides grease trap services to food service establishments, environmental services to food processors and sells restaurant cooking oil delivery and collection equipment. Our operations
are organized into three segments, Feed Ingredients, Fuel Ingredients and Food Ingredients.
Our long-term strategy is to be recognized as the global leader in the
production, development and value-adding of sustainable animal and nutrient recovered ingredients. In this regard, we will build, acquire and develop businesses where we believe we can achieve a sustainable top 3 market position within 5 years. In
the last several years, we have used key acquisitions and a joint venture project to transform our platform and build future value through segment and product diversification and global expansion, as further described in the charts below.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Darling is a worldwide provider of a full-range of ingredients and services...
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FEED
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FUEL
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FOOD
1
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Proteins
Canada, Belgium,
Germany,
Netherlands, Poland, US
Fats
Canada, Belgium, Germany,
Netherlands, Poland, US
Bakery Feeds
US
Organic Fertilizers
Netherlands, US
Hides
Germany, US
Wet Pet Food Ingredients
Netherlands, US
Grease Trap
Services
Canada, US
Industrial Residuals
US
Blood Products
1
US, Australia, China, Germany,
Italy, Netherlands, Poland
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Biodiesel
Canada, US
Renewable Diesel
1
US
Green Gas
1
Netherlands
Green Electricity
1
Netherlands
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Gelatin & Hydrolized Peptides
Argentina, Belgium, Brazil, China,
France, Spain, US
Casings
China, Netherlands, Portugal
Functional Proteins
Brazil, France, Germany, Italy,
Netherlands, US
Food Grade Fats
Belgium, Germany, Netherlands
Heparin
Netherlands
Bone
Netherlands, UK
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DARLING
TODAY
DAR is uniquely positioned to provide ingredients and
services from animal and bakery by-products due to its:
Geographic diversity
Product line diversity
Vertical supply chain integration
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1. Activities shown in green represent new
additions during DARs recent transformation.
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...with a platform that has been transformed by recent acquisitions/JVs to build
future value through segment and product diversification and global expansion
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2016 Proxy
Statement
21
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This diversification and expansion strategy has increased our companys size and scale, with net sales and pro forma adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) (including our Diamond Green Diesel (DGD) joint venture) increasing from $1.8 billion and $308.1 million, respectively, in fiscal 2013 to $3.4 billion and $558.3 million, respectively,
in fiscal 2015, and has helped to temper (but not eliminate) our companys exposure to commodity pricing, particularly in our Feed and Fuel Segments which are more susceptible to commodity price swings. In this regard, during the 2014 and 2015
eight quarter period, while prices declined on a $/metric ton basis 58% for crude spot (Cushing, OK), 47% for meat and bone meal (protein) ruminant (Illinois) and 35% for yellow grease (Illinois), our companys pro forma adjusted EBITDA
(including our DGD joint venture) in our Feed and Fuel Segments decreased only 19% over the same period. See Appendix A for a reconciliation of pro forma adjusted EBITDA to GAAP.
2015 Business Highlights
Fiscal
2015 presented a challenging operating environment, as our business continued to experience the impacts of a deflationary cycle within the agriculture sector and continued pricing pressure from increased global supplies of grains and oilseeds.
Despite these challenging operating conditions, we continued to execute on our strategy and to achieve operational and financial improvements intended to stabilize and grow profitability in businesses and geographic areas where sustainable and
predictable margins can be achieved, as exemplified by the following:
2015 PERFORMANCE HIGHLIGHTS
Key Operating Accomplishments
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Reduced selling, general and administrative (SG&A) expenses year-over-year by $52.0 million, including through headcount management.
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Improved working capital (inventory, receivables, prepaids, accounts payable and accrued expenses) by $31.3 million year-over-year, against a target of $20 million.
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Managed capex outflows to business conditions, including a $43.0 million reduction in spending from 2015 operating plan amount.
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n
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Generated free cash flow of $191.0 million and paid down debt by a total of $118.2 million in 2015, against a target of $100 million.
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n
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Increased production at our DGD joint venture while maintaining strong margins.
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n
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Diminished the impact of declining finished product prices on margins by appropriately adjusting raw material pricing globally.
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Increased raw material volumes in our Feed segment by 4.8% year-over-year, thereby increasing the amount of our finished product for sale.
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Exceeded global safety goals with year-over-year improvement, including for lost time accidents and fleet accidents.
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Growth Achievements
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Expanded our premium wet pet food business through construction and commissioning of two new production facilities in Ravenna, Nebraska and Paducah, Kentucky to produce wet pet food, a premium, value added product that
is sold to pet food manufacturers and generally commands premium prices.
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n
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Completed construction and commissioning of new Bakery Feed facility in Bryan, Texas.
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n
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Completed major expansion/upgrade of gelatin processing facility in Dubuque, Iowa.
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Continued construction of two new U.S. rendering facilities, on schedule and on budget, to be completed and commissioned in the third and fourth quarter of 2016.
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Realigned Capital Structure for Operating Conditions and Future Growth
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Successfully amended the companys senior secured credit facility to provide more flexibility going forward.
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n
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Successfully completed the refinancing of a portion of our senior secured debt through the sale of
515 million in aggregate principal amount of 4.75% unsecured
notes.
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Repurchased $5.9 million of the companys common stock pursuant to the stock repurchase program announced in August 2015.
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Pay for Performance
The committee has designed our executive compensation program to deliver pay in alignment with corporate, business unit and individual performance primarily based on the
following two factors, which in turn are expected to align executive pay with returns to stockholders over time:
n
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Our effectiveness in deploying capital when compared to our Performance Peer Group; and
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Whether we are expanding as a company, as our scale creates the platform for future growth and influences the stability of our companys earnings.
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22
2016 Proxy Statement
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Pricing of our finished products is heavily influenced by global grain and oilseed supplies, livestock production trends, crude oil pricing and foreign currency. While we
have diversified our business significantly during the last few years, the recent deflationary cycle within the global commodity markets has had a significant impact on the price of our common stock. While we remain a growth-oriented company focused
on creating long-term value for its stockholders, our stock price is impacted by commodity price swings. As such, we believe that the current best indicator of our long-term performance versus our Performance Peer Group is a comparison of how
competitively we deploy capital versus our Performance Peer Group as measured by a return on capital standard. The other primary factor in aligning our pay and performance is whether or not we have remained a growth-oriented company during the
relevant performance period. To measure growth, we look at our EBITDA, which is also the numerator for return on capital.
Performance against pre-established EBITDA
goals is a key element of our 2015 annual incentive plan. In the last several years, we have used key acquisitions and a joint venture project to transform our platform and build future value through segment and product diversification and global
expansion. Consistent EBITDA growth will result in greater annual incentive plan payouts, while shortfalls in EBITDA will result in below target payouts. As the chart below indicates, our CEOs total realizable compensation is well-aligned with
our EBITDA performance.
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YEAR
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2011
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2012
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2013
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2014
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2015
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CEO Pay Measure:
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Realizable Pay 1-Year
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$
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5,334
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$
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5,966
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$
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5,504
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$
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8,463
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$
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3,609
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% Change
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12
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%
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-8
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%
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54
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%
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-57
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%
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Realizable Pay 1-Year (excl. Special)
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$
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5,334
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$
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5,966
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$
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5,504
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$
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6,647
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$
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3,609
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% Change
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12
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%
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-8
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%
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21
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%
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-46
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%
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Absolute Performance Measure:
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Proforma Adjusted Combined EBITDA (non-GAAP)
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$
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392.5
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$
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314.5
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$
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308.1
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$
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594.2
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$
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558.3
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NOTES:
EBITDA includes our Diamond Green Diesel joint
venture, but excludes transaction related costs and foreign currency exchange impact on EBITDA. See Appendix A for a reconciliation to GAAP.
Realizable pay reflects
the actual cash and intrinsic value of equity incentives awarded in a given year, using the stock price at the end of the year. For example for 2015, realizable pay equals base salary plus annual incentives earned for 2015 performance plus shares
and options granted on March 7, 2016 based on performance ending in 2015 (actual results for 2013 to 2015 ROGI) plus the reported Summary Compensation Table values for Change in Pension Value and Non-Qualified Deferred Compensation Earnings and All
Other Compensation.
In 2014, the figures above also show the potential realizable value based on the December 31, 2014 stock price of a special award of performance
share units awarded at the closing of the acquisition of VION Ingredients. The one-third of the award relating to 2014 performance was earned and vested, the one-third of the award relating to 2015 performance was not earned and was forfeited and
the remaining one-third of the award may be earned based on 2016 performance results. The committee does not consider this special award to be part of the ongoing compensation program.
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2016 Proxy
Statement
23
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
We have used a return on capital standard as the performance measure under our long-term incentive (LTI) program since 2010. In 2015, we used return on gross
investment (ROGI) as the return on capital performance measure for our LTI program, and we achieved performance for fiscal 2015 in the 66th percentile relative to our Performance Peer Group. For 2016, as part of the significant changes
made to our compensation program, we have switched to return on capital employed (ROCE) as the performance metric for our LTI program. Our compensation committee believes, given the substantial growth of our company over the last ten
years, that ROCE more appropriately measures our ongoing operating performance against peers by excluding goodwill from the calculation and thereby better focusing on the value of a particular asset and the working capital needed to run that asset.
Our return on capital targets are set to reflect the median historical performance levels for our Performance Peer Group, which is a challenging performance standard in the current deflationary cycle within the global commodity markets. Given the
shift from ROGI to ROCE as the return on capital measure and the addition of a relative total shareholder return (TSR) modifier for 2016, the following chart shows that by aligning our executive compensation with EBITDA and capital
deployment performance, the realizable pay levels provided by our executive compensation program to our CEO are aligned to our stock price performance over the long-term:
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INDEX YEAR
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2010
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2010
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2011
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2012
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2013
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2014
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2015
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CEO Pay Measure:
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Realizable Pay 1-Year
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$
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5,334
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$
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5,966
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$
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5,504
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$
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8,463
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$
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3,609
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% Change
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12
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%
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-8
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%
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54
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%
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-57
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%
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Realizable Pay 1-Year (excl. Special)
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$
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5,334
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$
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5,966
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$
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5,504
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$
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6,647
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$
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3,609
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% Change
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12
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%
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-8
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%
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21
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%
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-46
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%
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TSR Index Measure:
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1-Year TSR Indexed to 2010=100
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100.0
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100.1
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117.0
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156.4
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136.7
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79.2
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1-Year TSR %
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0.1
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%
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16.9
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%
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33.7
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%
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-12.6
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%
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-42.1
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%
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NOTES:
Total Shareholder Return (TSR) performance is
indexed to 2010, where 2010 equals 100 on the Index.
Realizable pay reflects the actual cash and intrinsic value of equity incentives awarded in a given year, using
the stock price at the end of the year. For example for 2015, realizable pay equals base salary plus annual incentives earned for 2015 performance plus shares and options granted on March 7, 2016 based on performance ending in 2015 (actual results
for 2013 to 2015 ROGI) plus the reported Summary Compensation Table values for Change in Pension Value and Non-Qualified Deferred Compensation Earnings and All Other Compensation.
In 2014, the figures above also show the potential realizable value based on the December 31, 2014 stock price of a special award of performance share units awarded at
the closing of the acquisition of VION Ingredients. The one-third of the award relating to 2014 performance was earned and vested, the one-third of the award relating to 2015 performance was not earned and was forfeited and the remaining one-third
of the award may be earned based on 2016 performance results. The committee does not consider this special award to be part of the ongoing compensation program.
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24
2016 Proxy Statement
|
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The committee believes that our executive compensation program effectively aligns pay with performance based on the key factors discussed above, thereby aligning
executive pay with returns to stockholders, creating a growthoriented, long-term value proposition for our stockholders.
EXECUTIVE
COMPENSATION HIGHLIGHTS
The committee has designed our executive compensation program to deliver pay in alignment with corporate, business unit and
individual performance. A large portion of total direct compensation is at-risk through long-term equity awards and annual cash incentive awards. These awards are linked to actual performance and include a significant portion of equity.
The mix of total direct compensation for 2015 for our CEO and the average of our other NEOs is shown in the chart below.
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*
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Consists of performance based restricted stock and performance based stock options.
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**
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The fixed LTI portion of our executive compensation program has been eliminated for fiscal 2016 and beyond.
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Ongoing
Monitoring of Compensation Best Practices and Programs in a Dynamic EnvironmentOverview
Our company has undergone a major transformation in its business
over the last several years, especially with the completion in January 2014 of the acquisition of the VION Ingredients business from VION Holding, N.V. that now operates under the name Darling Ingredients International. These recent transformations
necessitate ongoing review of our compensation practices and policies. Following the transaction in 2014, the compensation committee evaluated then current practices and policies. While it found that the companys programs continued to be
appropriate and effective in driving stockholder value creation, and financial performance for compensation decisions, it nonetheless made limited changes to further improve upon good governance and best practices for decisions made in 2015
(discussed below under Fiscal 2015 Compensation Program Improvements at page 26).
In addition, in response to our 2015 say on pay vote (discussed in further detail
below under Response to 2015 Say on Pay Advisory Vote and Stockholder Engagement Process at page 26), the committee conducted an even more in-depth analysis of our compensation and governance practices, including an enhanced stockholder outreach
process and a thorough review of all aspects of our compensation strategies and program. This analysis resulted in significant changes to our compensation programs for fiscal 2016 and forward. These changes will impact 2016 compensation to be
discussed in the proxy statement and corresponding tables filed in 2017.
Fiscal 2015 Compensation Actions at a Glance
The following summarizes the key compensation decisions for the NEOs for fiscal 2015:
¡
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Base salary:
The annual rate of base salary for Messrs. Stuewe, Muse and Elrod were not adjusted and remained the same as the prior year. Messrs. Kloosterboer and Bullock
received cost-of-living increases (2.5%) to their annual rate of base salary that were in line with rate increases received by other salaried employees during 2015.
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|
2016 Proxy
Statement
25
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
¡
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Annual Incentive Bonus
:
In fiscal 2015, the Company achieved global adjusted EBITDA of approximately 87.4% of target, and each of our NEOs achieved on average 93%
of their of strategic, operational and personal (SOP) goals. As a result, Mr. Stuewe earned a 2015 annual incentive bonus equal to about 57.9% of his target and the other NEOs earned payouts ranging from about 53% to 86.8% of
target.
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¡
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Long-Term Incentive (LTI) Awards
:
For all NEOs, including Mr. Stuewe, 3-year average ROGI performance relative to our Performance Peer Group was
between target and maximum performance. As a result, the 2015 performance-based equity awards were granted at about 165.7% of target. As in the prior year, for Mr. Stuewe, the awards were provided 53% in restricted stock and 47% in stock
options, and for the other NEOs, the awards were provided 80% in restricted stock and 20% in stock options. Mr. Stuewes LTI mix places heavier emphasis on stock options, which require share price growth above the option exercise price, to
further motivate Mr. Stuewe to create stockholder value above current levels over a multi-year period.
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¡
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Special Acquisition-Related Equity Awards:
With respect to the long-term incentive award granted in the form of performance share units to certain of the NEOs and other
participants in connection with our companys acquisition of VION Ingredients in January 2014, the requisite performance target for fiscal 2015 was not met, so therefore the one-third portion of the award based on 2015 performance did not vest
and was forfeited by the NEOs and other participants. The performance goals for these acquisition-related awards have been set at challenging levels to make sure that superior post-acquisition performance is delivered for shareholders before the
special equity awards can be earned.
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These compensation decisions are discussed in more detail in this Compensation Discussion and Analysis and shown
in the Summary Compensation Table and Grants of Plan-Based Awards Table that follows.
Fiscal 2015 Compensation Program Improvements
Summary of Changes to 2015 Compensation Program
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ACTION
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DESCRIPTION
|
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REASON
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Changes to Peer Groups
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n
Established new peer groups for purposes of evaluating our performance under the companys incentive programs and for setting compensation levels for our NEOs
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Better align compensation opportunities with competitive market for executives with similar responsibilities at similarly-sized companies with similar business complexities
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Change in Percentile used to Establish North American Target EBITDA for Annual Incentive Bonus
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n
Derived North American target EBITDA from 55th percentile ROGI from the Performance Peer Group as opposed to 50th percentile used in 2014
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Raises the bar for target level performance
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Change in Mix of Performance Measures used to Determine Annual Incentive Bonus
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n
65% of payout of annual incentive bonus is now tied to a targeted level of EBITDA and 35% is tied to achievement of SOP goals (change from prior 75%/25% split)
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Increase in SOP weight allows better focus on critical goals within each executives control that are strategic priorities for the year, such as growth and cost savings
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Change to LTI Metric for NEOs and Other North America-Based Executives
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n
Change in performance period over which ROGI is measured for comparing the company to peer companies from five years to three years
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Continues to drive long-term performance, but better aligns the performance period with market practice and more efficiently connects recent financial performance with compensation
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Change to how LTI Target is Established
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n
Established LTI target for all NEOs using a blend of relative return on gross investment (ROGI) compared to our Performance Peer Group and targeted performance for recently
acquired Darling Ingredients International and Rothsay businesses
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Takes into account impact on ROGI of multiple paid for newly acquired businesses by transitioning the performance standard for these businesses up to our normal target levels (vs. our
Performance Peer Group) over several years
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RESPONSE TO 2015 SAY ON PAY ADVISORY VOTE AND STOCKHOLDER ENGAGEMENT PROCESS
The Engagement Process
At our
2015 Annual Meeting, following four years of positive voting results, for the first time stockholders did not provide majority support for our NEOs compensation. In reaction, the committee intensified its ongoing stockholder outreach efforts
to ensure stockholder perspectives and concerns were heard and well understood by the committee and the full Board. Specifically, the
committee conducted an in-depth analysis of our compensation and governance practices and engaged Pearl Meyer as its new independent compensation consultant. In addition, members of the committee
and certain members of management reached out to stockholders representing over 80% of our outstanding shares at the time of outreach, to better understand the reasons for the vote outcome. We held direct conversations with every stockholder who
responded to our engagement request, with the chair-
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26
2016 Proxy Statement
|
|
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
man of our compensation committee leading most of the discussions. We also met with two different proxy advisory firms.
These meetings occurred in the second half of 2015, while the committee was considering changes to our executive pay program, to ensure that our 2016 pay decisions reflected the committees consideration of our stockholders comments. The
primary focus of
these meetings was to seek specific feedback on our compensation program and review potential changes to our compensation program. The feedback received from our stockholders was tremendously
valuable and was incorporated into the full committees discussion and determination of compensation program changes for 2016.
Fiscal 2016 Compensation Program Improvements
The committee and the Board significantly changed our compensation program after reviewing trends in executive compensation and pay-related governance policies
and in response to the results of our 2015 say on pay vote and stockholder feedback, as summarized below. We note that some of these changes will not be reflected in the compensation disclosed in this proxy statement because they were not made until
after the 2015 compensation program was in place. The committee believes these changes will sharpen alignment between executive compensation and the interest of our stockholders, and support the achievement of our strategic and financial goals. For
a more detailed discussion of these changes, please see Fiscal 2016 Changes to Our Executive Compensation Program below.
Significant Actions Taken in Response to 2015 Say on Pay Vote
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WHAT WE
HEARD
|
|
ACTIONS
TAKEN
|
|
EFFECTIVE
STARTING
|
Special Awards
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|
Special awards should be reserved for limited circumstances
|
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n
The committee reinforced its philosophy to strictly limit the use of special awards. We do not currently anticipate a need for
special awards in the future. One-time Transition PSUs were granted in 2016 in connection with the significant changes implemented in our 2016 executive compensation program only to facilitate the major shift from a backward-looking to a
forward-looking plan design.
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|
FY 2015
|
Plan Design
|
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No payout under LTI for performance below threshold
|
|
n
We eliminated the minimum award payout of 25% for performance below threshold
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FY 2016
|
No immediate vesting of equity awards under LTI
|
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n
We eliminated the immediate vesting of 25% of equity awards under our LTI
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Market preference toward forward-looking performance measurement for LTI
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n
We have shifted from a backward-looking/trailing performance measurement to a forward-looking performance measurement for our
LTI
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Market preference toward some consideration of total shareholder return (TSR) in performance metric
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n
We added a TSR modifier to our LTI
|
|
Continued refinement of performance metric that can be easily reconciled to peers and aligns pay for performance vs. peer group
|
|
n
We have changed the LTI performance metric from return on gross investment (ROGI) to return on capital employed (ROCE), which
excludes goodwill from the calculation. Given the substantial growth of our company over the last ten years, ROCE more appropriately measures our operating performance against peers by focusing on the value of a particular asset and the working
capital needed to run that asset. See page 46 for more information on how ROCE will be calculated.
|
|
Proxy Design
|
|
|
|
|
Provide an executive summary in the proxy statement
|
|
n
We have included both a proxy summary at the beginning of the proxy statement and an executive summary at the beginning of the
Compensation Discussion and Analysis section of the proxy statement.
|
|
FY 2016
|
We intend to continue to solicit stockholder feedback on our executive compensation program by holding an advisory say on pay vote on an
annual basis and will continue to consider the results of this process in evaluating the program and making future compensation decisions for the NEOs. We intend to seek an advisory vote on the frequency of our say on pay vote at the Annual Meeting
to be held in 2017 and, taking into account the feedback from that vote, we will re-evaluate the frequency of the say on pay vote at that time.
BEST PRACTICES AND GOOD GOVERNANCE
The significant
changes made in response to the 2015 say on pay vote also follow several years of executive compensation program enhancements by the committee as summarized in the table below.
|
|
|
|
|
2016 Proxy
Statement
27
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Recent Updates
Executive Compensation and
Governance Changes
|
|
|
FISCAL 2015
|
|
FISCAL 2014
|
n
Mr. Stuewe agreed to an amendment to his employment agreement to eliminate excise tax gross-ups and a modified
single trigger provision regarding change in control severance benefits that had been in his agreement for a number of years.
n
We changed our equity compensation grant practices going forward to eliminate automatic single-trigger vesting of equity awards upon a change in control.
|
|
n
We adopted separate metrics for our annual incentive bonus and LTI programs.
n
We re-evaluated our peer group to better align with our company following the completion of significant acquisitions.
n
We expanded our compensation recovery (clawback) policy to go beyond the minimum legal requirements and to authorize recovery
of annual or long-term incentive awards in the case of a material financial restatement resulting from executive misconduct.
n
We expanded our stock ownership guidelines to prohibit stock pledging, as well as hedging, transactions.
|
Ongoing Best Practices
The committee believes
that our executive compensation program, as adjusted for these actions, continues to follow best practices aligned to long-term stockholder interests, as summarized below:
|
|
|
|
|
ü
|
|
WHAT WE DO
|
|
|
ü
|
|
Majority of compensation is provided in the form of performance-based incentives
|
|
Consistent with goal of creating a performance-oriented environment. For CEO, 80% of annual target total direct compensation is performance-based
|
ü
|
|
Alignment of pay and performance based
on measurable goals for both annual and long-term awards
|
|
Based on internal EBITDA goals and ROGI goals relative to peer companies; annual incentive awards also based on review of strategic and operational goals
|
ü
|
|
Balanced mix of awards tied to annual and long-term performance
|
|
For CEO, target annual incentive award opportunity and target long-term incentive award opportunity represents 20% and 60% of annual target total direct compensation, respectively. For 2016,
100% of long-term awards for NEOs are performance-based
|
ü
|
|
Stock ownership and retention policy
|
|
CEO must hold at least 5x base salary in company stock; other NEOs must hold at least 2.5x. Executives are also required to hold at least 75% of after-tax shares until the ownership
requirement is met
|
ü
|
|
Compensation recoupment (clawback) policy
|
|
Recovery of annual or long-term incentive compensation based on achievement of financial results that were subsequently restated due to misconduct
|
ü
|
|
Retention of an independent compensation consultant to advise the committee
|
|
Compensation consultant (Pearl Meyer) provides no other services to the company
|
|
x
|
|
WHAT WE DONT DO
|
|
|
x
|
|
No supplemental executive retirement plans for NEOs
|
|
Consistent with focus on performance-oriented environment; reasonable and competitive retirement programs offered
|
x
|
|
No change in control excise tax gross-ups
|
|
Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests; CEO agreement amended in 2015 to remove excise tax
gross-up
|
x
|
|
No automatic single-trigger vesting of equity compensation upon a change in control
|
|
Beginning 2015, award agreements provide for vesting following a change in control only if there is also an involuntary termination of employment (double-trigger)
|
x
|
|
No discounted stock options, reload stock options or stock option re-pricing without stockholder approval
|
|
Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests
|
x
|
|
No short-term trading, short sales, transactions involving derivatives, hedging or pledging transactions for executive officers
|
|
Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests
|
|
|
|
28
2016 Proxy Statement
|
|
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Compensation Program Objectives and Philosophy
The
committee has designed our executive compensation program to serve several key objectives:
n
|
|
attract and retain superior employees in key positions, with compensation opportunities that are competitive relative to the compensation paid to similarly-situated executives at companies similar to us;
|
n
|
|
reward the achievement of specific annual, long-term and strategic goals;
|
n
|
|
align the interests of our NEOs with those of our stockholders by rewarding performance that exceeds that of our peer companies, through the use of equity-based LTI awards and a share ownership and retention policy,
with the ultimate objective of improving stockholder value over time; and
|
n
|
|
generally set target levels of annual total direct compensation opportunity for the NEOs at or near the 50th percentile of total compensation paid to similarly situated executives at an identified group of peer
companies.
|
In the chart below, we have summarized how the 2015 executive compensation program supports these executive compensation program objectives.
|
|
|
OBJECTIVE
|
|
HOW WE MET THIS OBJECTIVE IN 2015
|
Attract and retain superior employees in key positions, with compensation opportunities that are competitive relative to the compensation paid to similarly-situated executives at companies
similar to us
|
|
n
Determined that the compensation opportunities for each of our NEOs as adjusted in 2014 to reflect the significantly greater size, scope of operations, and complexity as a
result of the VION Ingredients acquisition continued to be competitive relative to the compensation paid to similarly situated executives at companies similar to ours.
|
Reward the achievement of specific annual, long-term and strategic goals
|
|
n
Provided at least 60% of annual target total compensation in performance-based incentive awards tied to the achievement of annual, long-term, and strategic goals.
|
|
n
Provided sufficiently challenging upside opportunities on annual and long-term incentive compensation for exceeding target goals, balanced with reductions from target opportunities for performance below target goals.
|
|
n
Tied payouts under the annual incentive plan to corporate and/or regional objectives, as well as strategic, operational and personal goals, to focus executives on areas over which they have the most direct impact, while continuing to motivate
decision-making that is in the best interests of our company as a whole.
|
|
|
n
Based annual and LTI awards primarily on quantifiable performance goals established by the committee at the beginning of the fiscal year, with payouts determined only after
the committee reviews and certifies performance results.
|
Align the interests of our NEOs with those of our stockholders by rewarding performance that exceeds that of our peer companies, through the use of equity-based LTI awards and a
share ownership and retention policy, with the ultimate objective of improving stockholder value over time
|
|
n
Designed the fiscal 2015 LTI award program for all of our NEOs based on blended ROGI derived from our 3-year trailing ROGI performance compared to the composite ROGI performance of our new Performance Peer Group. See Fiscal 2016 Changes
to Our Executive Compensation Program below for a discussion about modifications to the program for fiscal 2016.
|
|
n
Continued our stock ownership policy with guidelines of 5x annual base salary (for the CEO) and 2.5x annual base salary (for the other NEOs)
|
|
n
Continued our stock retention policy whereby each NEO must retain at least 75% of any shares of our common stock received in connection with incentive awards (after sales for
the payment of taxes and shares withheld to cover the exercise price of the stock options) until the NEO is in compliance with our stock ownership guidelines.
|
|
|
|
|
|
2016 Proxy
Statement
29
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
ROLES OF COMPENSATION COMMITTEE, MANAGEMENT AND INDEPENDENT CONSULTANTS
Compensation Committee
The
committee has primary responsibility for overseeing our executive compensation program. The Board appoints the members of the committee. Each member of the committee is an outside director within the meaning of Section 162(m) of the
Internal Revenue Code. Additionally, the Board has determined that each member of the committee meets the applicable requirements for independence established by applicable SEC rules and the listing standards of the NYSE. The committee:
n
|
|
oversees our various compensation plans and programs and makes appropriate design decisions,
|
n
|
|
retains responsibility for monitoring our executive compensation plans and programs to ensure that they continue to adhere to our companys compensation philosophy and objectives, and
|
n
|
|
determines the appropriate compensation levels for all executives, including the NEOs.
|
The committee meets on a regular
basis and generally without members of management present. The committees duties and responsibilities are described in its charter, which can be found on our website at http://ir.darlingii.com/Documents. The committee and the Board
periodically review and, as appropriate, revise the charter.
As provided by its charter and discussed in greater detail below, the committee engages an independent
compensation consultant to advise it on the design of our executive compensation program. The committee engaged Aon Hewitt to advise it in connection with the 2015 executive compensation program. In August 2015, the committee engaged Pearl Meyer as
its new independent compensation consultant. To determine the appropriate compensation levels, the committee considers, in conjunction with recommendations from its independent compensation consultant:
n
|
|
Total compensation paid to the NEOs, including retirement and post-retirement benefits and fringe benefits.
|
n
|
|
Our companys long-term and short-term strategic and financial objectives.
|
n
|
|
Our companys performance, the industry in which we operate, the current operating environment, our relative total shareholder return performance and market compensation for similarly-situated executives.
|
n
|
|
How to balance short-term and long-term compensation to provide fair near-term compensation, to align executive pay with long-term stockholder value, and to avoid structures that would encourage excessive risk taking.
|
The committee periodically reviews our executive compensation program to ensure that it remains competitive and provides
the proper balance between cash and equity and between short-term and long-term incentive compensation. The committees regular analysis and refinement of the compensation program ensures continuing alignment of the elements of the compensation
program with our companys business strategy and stockholder interests. During this process, the committee:
n
|
|
Evaluates the design of our compensation program to align pay and performance;
|
n
|
|
Evaluates the executive compensation policies to ensure a continued nexus between executive compensation and the creation of stockholder value;
|
n
|
|
Seeks to ensure that our companys compensation programs remain competitive, including comparing the total direct compensation paid by our company with that of our pay levels peer group;
|
n
|
|
Considers feedback received from our stockholders during the committees stockholder outreach efforts;
|
n
|
|
Consults as needed with its independent compensation consultant to review and refine the elements of our compensation programs to ensure that our executive compensation meets our stated objectives and is consistent with
the companys compensation philosophy; and
|
n
|
|
Takes into consideration appropriate corporate acquisitions and the resulting impact on the size and complexity of our companys business.
|
In addition to its responsibilities for executive compensation plans and programs, the committee also evaluates and makes recommendations to the Board regarding our
management and director compensation plans, policies and programs, and reviews benefit plans for management and other employees.
Role of Chief Executive Officer
The committee evaluates the performance of the Chief Executive Officer who, in turn, on an annual basis reviews the performance of his direct reports, which
include each of the NEOs other than himself. The Chief Executive Officer presents his conclusions and recommendations with respect to performance and pay, including recommendations with respect to base salary adjustments and incentive award amounts,
to the committee. The committee considers this information and then exercises its judgment in adopting or modifying any recommended adjustments or awards to be made to the NEOs.
|
|
|
30
2016 Proxy Statement
|
|
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Use of an Independent Compensation Consultant
The committees charter
allows the committee to engage an independent compensation consultant to advise the committee on the design of our executive compensation. For part of fiscal 2015, the committee engaged Aon Hewitt, an independent global human resources consulting
firm, to counsel the committee on various factors relating to the development of our 2015 executive compensation program, including the selection criteria for our peer groups. In August 2015, in connection with its in-depth analysis of our
compensation and governance practices, the committee engaged Pearl Meyer, an independent executive compensation consulting firm, as its new independent compensation consultant. In this capacity, Pearl Meyer assisted us in our stockholder outreach
program following our 2015 Annual Meeting and counseled the committee on various factors relating to the changes to our compensation program for 2016.
Aon Hewitt was, and Pearl Meyer is, engaged directly by, and is fully accountable to, the committee. The committee has
determined that neither Aon Hewitt nor Pearl Meyer has any conflicts of interest that would prevent them from being objective. In reaching this determination, the committee considered:
n
|
|
neither Aon Hewitt (or its affiliate, Aon Corporation) nor Pearl Meyer, provides any services to our company outside of the scope of executive compensation as described above;
|
n
|
|
the amount of fees received by Aon Hewitt and Pearl Meyer from us as a percentage of their respective total revenues;
|
n
|
|
Aon Hewitts and Pearl Meyers policies and procedures designed to prevent conflicts of interest;
|
n
|
|
no member of the committee has a business or personal relationship with the consultants from either firm rendering compensation advice;
|
n
|
|
no consultant at either firm advising the committee regarding compensation matters owns any of our companys stock; and
|
n
|
|
none of our executive officers have any business or personal relationship with any consultant from either firm advising the committee with regard to compensation matters.
|
Use of Peer Companies in
Setting Executive Compensation and Measuring Performance
Purpose
The committee uses peer
groups for the following purposes:
n
|
|
To assess the companys performance with respect to annual and long-term incentive plans; and
|
n
|
|
To assess executive compensation opportunities
|
We use different peer groups to evaluate the competitiveness of pay levels
and to establish performance standards. The committee believes that it is appropriate to use companies that are generally similar in size to our company for pay comparisons (the Pay Levels Peer Group). For performance comparisons,
however, the committee believes it is appropriate to use a broader peer group that is not limited by size or location to set the standards for long-term incentive plan performance, as company size and location do not materially influence performance
comparisons (the Performance Peer Group). Although the committee is referencing two different peer groups, there is a substantial overlap of 14 companies as shown in the table that follows.
The committee uses competitive pay information derived from the Pay Levels Peer Group to generally inform its compensation decisions, but does not formulaically benchmark
based on this data. The committee generally sets target levels of annual total direct compensation for the NEOs at or near the 50th percentile of total compensation paid to similarly-situated executives at the peer companies. This approach of using
the competitive 50th percentile of total compensation as a reference point was continued in 2014 when setting 2015 pay levels. Variations from the 50th percentile level may occur due to the experience level of the individual and
market factors, as well as performance that is significantly above or below goals.
As discussed in more detail
below, our company has a unique product offering that makes it difficult to establish a group of peer companies for checking the competitiveness of our compensation opportunities and for measuring our relative business performance. Given the
significant changes to our business in recent years, the committee, with input from our independent compensation consultant at the time of our annual review process, Aon Hewitt, re-visited our approach to our Pay Levels and Performance Peer Groups
for fiscal 2015.
In particular, the compensation committee recognized the challenge of identifying appropriate peers for our business performance among companies in
our S&P 8-digit and 6-digit Global Industry Classification Standard (GICS) codes. Many of the companies in those GICS codes that are of roughly similar size manufacture, market, and distribute food for human consumption. These companies
typically use agricultural commodities as ingredients in their products, and as a result these companies would typically experience reduced performance when these commodity prices rise. In contrast, our products are not generally for human
consumption and our product prices generally track the performance of an identified group of agricultural commodities. As those agricultural commodities prices rise, our financial performance will generally improve, and conversely, as those
commodities prices fall, our financial performance will generally be negatively impacted. As a result, our company tends to operate in opposite economic cycles from many of the other food or agricultural-related companies in our general GICS codes.
|
|
|
|
|
2016 Proxy
Statement
31
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Based on its review and in light of these challenges, the committee determined that two new peer groups would be used for fiscal 2015 and going-forwardone to assess
the companys performance with respect to annual and long-term incentive plans (the Performance Peer Group) and a second to assess executive compensation opportunities (the Pay Levels Peer Group), of which 70% of the companies were also members
of the Performance Peer Group. Members of the Performance Peer Group and Pay Levels Peer Group are listed below.
|
|
|
|
|
PERFORMANCE PEER GROUP ONLY
|
|
OVERLAP IN BOTH PEER GROUPS
|
|
PAY LEVELS PEER GROUP ONLY
|
Aceto Corp.
Archer-Daniels-Midland Company
Bunge Limited
Cal-Maine Foods, Inc.
Casella Waste Systems Inc.
E. I. du Pont de Nemours and Company
FutureFuel Corp.
Innophos Holdings Inc
Koninklijke DSM N.V.
Pacific Ethanol, Inc.
Penford Corporation
Potash Corp. of Saskatchewan, Inc.
REX American Resources
Corporation
Sanderson Farms, Inc.
SunOpta Inc.
Tyson Foods, Inc.
Waste Management, Inc.
|
|
Celanese Corporation
Clean Harbors, Inc.
Covanta Holding Corporation
FMC Corp.
Green Plains Inc.
Ingredion Incorporated
International Flavors &
Fragrances Inc.
Renewable Energy Group, Inc.
Republic
Services, Inc.
Seaboard Corp.
Sensient Technologies
Corporation
Stepan Company
The Andersons, Inc.
The Mosaic Company
|
|
Colfax Corporation
Graphic Packaging Holding Company
Meritor, Inc.
PolyOne Corporation
Sonoco Products Co.
The Valspar Corporation
|
Performance Peer Group
To better
reflect the companys go-forward operating segments of Feed, Food, and Fuel and who we compete with for employee talent and capital, the Performance Peer Group was established for purposes of evaluating our performance under the companys
incentive programs. In selecting the Performance Peer Group constituents, the committee considered the following criteria: (i) industry, (ii) business operations similar to those of the company, focused on Feed, Food, and/or Fuel,
(iii) the extent to which operations were global, (iv) company size, as measured by revenues and market capitalization, and (v) availability of publicly-disclosed financial information.
Pay Levels Peer Group
The
committee also re-assessed the approach to peer companies used in setting compensation opportunities for the companys NEOs. To create overlap with the Performance Peer Group, the committee identified those companies within the Performance Peer
Group that (i) were U.S.-based companies and (ii) were similar in size to us, as measured by revenues using the parameters of between one-third and three-times our estimated fiscal 2014 revenues. As fourteen companies from the Performance
Peer Group met those size criteria, in order to ensure that the peer group was of sufficient size to perform compensation comparisons that were not overly influenced by any one company, the committee worked with Aon Hewitt to identify six other
companies that were U.S.-based, similar in size and industry, and subject to similar cyclicality and volatility as the company. The committee believes that this peer group is a reasonable peer group that is comprised of similarly-sized companies
with operations similar to those of Darling and/or influenced by similar cyclicality and volatility.
As part of its in-depth analysis of our compensation program for
2016, the committee reviewed both the Performance Peer Group and the Pay Levels Peer Group and determined them both to still be appropriate.
|
|
|
32
2016 Proxy Statement
|
|
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Mix of Salary and Incentive Awards (at Target)
The
following charts illustrate the mix of total direct compensation elements for our NEOs at target performance. These charts demonstrate our executive compensation programs focus on variable, performance-driven cash and equity-based
compensation, a large portion of which is at-risk through long-term equity awards and annual cash incentive awards.
|
*
|
Consists of performance based restricted stock and performance based stock options.
|
|
**
|
The fixed LTI portion of our executive compensation program has been eliminated for fiscal 2016 and beyond.
|
|
|
|
|
|
2016 Proxy
Statement
33
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Components of Fiscal 2015 Executive Compensation Program
For fiscal 2015, the compensation for the NEOs included the following components:
Fiscal 2015 Compensation Components at a Glance
|
|
|
COMPENSATION
COMPONENT
|
|
DESCRIPTION
|
Base Salary
|
|
n
Fixed compensation component
|
|
n
Periodically reviewed by the committee and adjusted based on competitive practices and economic conditions
|
Annual Incentive
Bonus
|
|
n
Short-term variable compensation component, performance-based, and payable in cash
|
|
n
Each NEO has a target award expressed as a percentage of salary (50% to 100% of base salary):
|
|
Mr. Stuewe: 100% of base salary
|
|
Messrs. Muse, Kloosterboer, Bullock and Elrod: 50%65% of base salary
|
|
n
Payouts based on (i) 2015 global and/or regional EBITDA goals (65% weighting) and (ii) individual SOP goals (35% weighting)
|
|
EBITDA based on overall company performance for Messrs. Stuewe, Muse, and Bullock
|
|
For Messrs. Kloosterboer and Elrod, the EBITDA portion is based 65% on their respective regional performance and 35% on
overall company performance
|
|
Payouts range from 0% to 300% of target
|
Long-Term Incentive Compensation
|
|
n
Long-term variable compensation component, performance-based grants settled in company stock
|
|
n
Each NEO has a target award expressed as a percentage of salary (ranging from 100% to 300% of base salary):
|
|
Mr. Stuewe: 300% of base salary
|
|
Other NEOs: 100% of base salary
|
|
n
For all NEOs, award amount is based on ROGI derived from our 3-year trailing ROGI performance, with target level ROGI derived from (i) trailing 3-year average ROGI in the U.S. relative to our Performance Peer Group and (ii) for our recently
acquired Darling Ingredients International and Rothsay businesses, targeted levels of ROGI
|
|
n
Earned awards provided in combination of restricted stock and stock options
|
|
For Mr. Stuewe, weighted 53% restricted stock and 47% stock options
|
|
For the other NEOs, weighted 80% restricted stock and 20% stock options
|
|
n
Between 25% and 200% of the target number of awards will be granted based on performance
|
|
n
Time-based vesting over a 3-year period after the completion of the performance period
|
Retirement and
Health and Welfare Benefits
|
|
n
For U.S. based NEOs, 401(k) plan and frozen pension plan
|
|
n
Group health, life and other standard welfare plan benefits
|
|
n
Benefits for Mr. Kloosterboer are per his employment agreement and customary for a Europe-based executive
|
|
n
Termination/severance benefits per employment/severance agreement
|
|
|
|
34
2016 Proxy Statement
|
|
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Fiscal 2015 Compensation ComponentsDetails
BASE SALARY
Our company provides NEOs with a base
salary to compensate them for services rendered during each fiscal year. Base salary ranges for NEOs are determined for each executive based on his position and responsibility by using market data supplied by the committees independent
compensation consultant. Base salary is designed to be competitive when compared with the Pay Levels Peer Group. The committee periodically reviews base salaries of senior executives, including the NEOs, to determine if adjustment is necessary based
on competitive practices and economic conditions. Base salary for senior executives will also be reviewed and adjustment may be made based on individual performance and the individuals skills, experience and background.
Mr. Kloosterboers base salary is set based on the terms of his employment agreement with the company entered into as part of the VION Ingredients acquisition and includes a holiday allowance customary for European employees.
For fiscal 2015, Messrs. Stuewe, Muse and Elrods annual rate of base salary were not adjusted and remained the same
as the prior year, while Messrs. Kloosterboer and Bullock received cost-of-living increases to their annual rate of base salary that were in line with rate increases received by other salaried employees during 2015. The chart below summarizes how
fiscal 2014 base salaries compare to fiscal 2015 base salaries for each of our NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
EXECUTIVE
|
|
FISCAL 2014
ANNUAL
SALARY
|
|
|
FISCAL 2015
ANNUAL
SALARY
|
|
|
PERCENTAGE
INCREASE
|
|
Mr. Stuewe
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
|
0
|
%
|
Mr. Muse
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
|
0
|
%
|
Mr. Kloosterboer
1
|
|
$
|
871,886
|
|
|
$
|
745,982
|
|
|
|
2.5
|
%
|
Mr. Bullock
|
|
$
|
375,000
|
|
|
$
|
384,500
|
|
|
|
2.5
|
%
|
Mr. Elrod
|
|
$
|
425,000
|
|
|
$
|
425,000
|
|
|
|
0
|
%
|
|
1.
|
Mr. Kloosterboer is based in the Netherlands and paid in euros. Accordingly, the amount shown in this table, as well as all other non-equity related amounts elsewhere in this Proxy Statement for
Mr. Kloosterboer, represent data converted from euros. For 2015, compensation was converted at the average exchange rate during 2015 of 1.109514 dollars per euro. His annual base salary in fiscal 2014 was
655,849, and his annual base salary in fiscal 2015 was
672,300, a 2.5% increase over 2014. The amount shown in the table above is in U.S.
dollars and appears lower for 2015 due to the weakening of the euro against the U.S. dollar in 2015 as compared to 2014.
|
ANNUAL INCENTIVE COMPENSATION
Overview
To motivate performance, each of our NEOs was provided
with an annual incentive award opportunity for fiscal 2015 tied to (i) global and/or regional EBITDA goals and (ii) the performance of the individual with respect to key strategic, operational and personal (SOP) goals. The range of award
payouts that an executive could earn, as well as the performance goals, were established at the beginning of the year. Additional detail with respect to the design of the fiscal 2015 annual incentive program is provided below.
Annual Incentive Award Formula
In determining payouts under the fiscal 2015
annual incentive program, the committee used the following formula for the NEOs:
|
|
|
|
|
2016 Proxy
Statement
35
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Annual Incentive Award Opportunities
The chart below summarizes the target annual incentive award opportunities for the NEOs for fiscal 2015:
Fiscal 2015 Target Bonus Opportunities
|
|
|
|
|
|
|
|
|
EXECUTIVE
|
|
PERCENT OF
BASE SALARY
|
|
|
IN
DOLLARS
|
|
Mr. Stuewe
|
|
|
100
|
%
|
|
$
|
1,000,000
|
|
Mr. Muse
|
|
|
65
|
%
|
|
$
|
325,000
|
|
Mr. Kloosterboer
|
|
|
50
|
%
|
|
$
|
372,991
|
|
Mr. Bullock
|
|
|
60
|
%
|
|
$
|
230,700
|
|
Mr. Elrod
|
|
|
50
|
%
|
|
$
|
212,500
|
|
Annual Incentive Plan Performance Metrics and Range of Performance
For fiscal 2015 (as in fiscal 2014), the committee continued to measure financial performance based on a targeted level of EBITDA compared to the Performance Peer Group.
The committee believed that the use of EBITDA was the most appropriate approach to measuring the companys performance following its transformative acquisitions in 2014. The committee continued to balance the financial objectives of the
organization with strategic, operational and personal objectives that are closely tied to the companys performance in other key areas of the business that drive stockholder value creation and focus executives on areas over which they have the
most direct impact. Additional detail with respect to the performance metrics and range of performance is provided below.
EBITDA
(65% weighting):
65% of each NEOs payout
was tied to a targeted level of EBITDA performance for fiscal 2015. Depending on the NEOs responsibilities, EBITDA was measured at the global and/or regional level.
The committee selected global and/or regional EBITDA as the sole annual financial performance metric because (i) EBITDA is one element of ROGI, which is a
performance metric that is well understood internally, (ii) incenting the achievement of a targeted level of EBITDA is closely aligned with continued stockholder value creation, and (iii) it continues to provide a separate metric from that
used in our long-term incentive plans, while continuing to motivate performance that is tied to shareholder value creation. Based on those factors, the committee concluded that a targeted level EBITDA was the most appropriate performance metric.
To focus executives on areas over which they have the most direct impact and motivate controllable performance, EBITDA was measured as follows:
n
|
|
Corporate executives (Messrs. Stuewe, Muse and Bullock): 100% based on global EBITDA performance
|
|
|
Region executives (Messrs. Kloosterboer and Elrod): 65% based on region performance and 35% based on global performance
|
The calculation of EBITDA is subject to adjustment by the committee for certain one-time, unusual or extraordinary items in
order to more fairly assess our companys performance for executive compensation purposes. These adjustments for compensation purposes may differ from the adjustments included in the companys reported adjusted EBITDA. For fiscal 2015,
these adjustments included integration related expenses. In addition, the adjusted EBITDA includes our companys portion of the EBITDA from our DGD joint venture. Financial performance measures are adjusted to reflect budgeted levels of
currency exchange in order to properly measure job performance, as our company is an operating company and not in the business of trading currencies.
In developing
the fiscal 2015 EBITDA goals, the committee considered the following factors: anticipated performance based on forecasted economic conditions, historic performance, performance relative to the Performance Peer Group, and the expectations of our
investors with respect to our returns on invested capital. The performance goals were set in a way such that the achievement of target performance was difficult, but still attainable, and beyond target performance, the goal was intended to be very
challenging. In this regard, the North American target EBITDA was derived from the 55th percentile ROGI (up from 50th percentile in 2014) of the Performance Peer Group, converted to EBITDA. The fiscal 2015 performance curve for the global EBITDA
goal is summarized below.
Fiscal 2015 EBITDA Performance (In Millions)
|
|
|
|
|
|
|
|
|
ACHIEVEMENT
|
|
CORPORATE
|
|
|
AWARD
PAYOUT
(PERCENTAGE
OF TARGET)
|
|
Below Threshold
|
|
Below $
|
533.7
|
|
|
|
0
|
%
|
Threshold
|
|
|
$533.7
|
|
|
|
25
|
%
|
Target
|
|
|
$628.3
|
|
|
|
100
|
%
|
Maximum or Above
|
|
|
$798.3
|
|
|
|
300
|
%
|
Strategic, Operational and Personal Goals
(35% weighting):
Each of our NEOs also had SOP goals for fiscal 2015 that were tied to short- and long-term strategic
objectives within the company. The SOPs were a blend of quantitative and qualitative goals for each NEO set at the beginning of the performance period, with a varying number of goals and weighting of those goals for each executive. The SOPs with
respect to fiscal 2015 addressed items such as:
|
|
growing the core business;
|
|
|
achieving safety goals; and
|
|
|
other specific business development goals and projects.
|
Payouts with respect to the SOPs generally could range from 0% to
300% of target, with a payout equal to 100% of target for achieving target level performance.
|
|
|
36
2016 Proxy Statement
|
|
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
2015 Performance Results and Award Payouts
For fiscal 2015, we achieved global
adjusted EBITDA of approximately $549.1 million, which was approximately 87% of the target EBITDA and which resulted in award payouts equal to about 38% of target payout on the global EBITDA portion of the performance goal. As noted above,
Mr. Kloosterboers and Mr. Elrods EBITDA payout was also impacted by regional performance, which in the case of Mr. Kloosterboer was significantly above target and in the case of Mr. Elrod was below target.
In addition, each of our NEOs achieved on average 93% of their applicable SOP goals for fiscal 2015. For Mr. Stuewe, the committee noted that he had substantially
met each of his stated SOP goals as follows:
|
|
|
GOAL
|
|
RESULT
|
Achieve Cost Control Measures
|
|
n
Paid down debt by a total of $118. 2 million in 2015
n
Reduced SG&A expenses year-over year by $52.0 million
n
Improved working capital (inventory, receivables, prepaids, accounts payable and accrued expenses) by $31.3 million year-over-year
n
Managed capex outflows to business conditions
|
Continue to Drive Growth
in the Core Businesses
|
|
n
Increased raw material volumes in our Feed segment by 4.8% year-over-year, thereby increasing the amount of our finished
product for sale
n
Expanded our premium wet pet food business (a value added product line) through construction and commissioning of two new productions facilities
n
Completed construction of new Bakery Feed facility
n
Completed major expansion/upgrade of gelatin processing facility in Dubuque, Iowa
n
Continued construction of two new U.S. rendering facilities, on schedule and budget, to be completed in the second half of 2016
|
Achieve Global Safety Goals
|
|
n
Exceeded the Companys global safety goals, including those for lost time accidents and fleet accidents
|
Execute Global Brand Building and Communications
|
|
n
Completed development and rollout of new global branding and communications program, including new website and point of sale materials
|
Develop Global Succession Plan
|
|
n
Completed formation of succession planning team and implementation of new succession planning tools
|
Accordingly, with respect to the SOPs, Mr. Stuewe earned approximately 95% of target. The other NEOs earned between approximately 81%
and 100% of target on the SOP portion.
The chart below provides a summary of the awards earned for EBITDA and SOP performance by each NEO.
Award Payouts Based on Actual Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXECUTIVE
|
|
FISCAL 2015
TARGET BONUS
OPPORTUNITY
|
|
|
EBITDA PAYOUT
(65% WEIGHTING)
|
|
|
SOP PAYOUT
(35% WEIGHTING)
|
|
|
TOTAL AIP
PAYOUT
|
|
|
TOTAL PAYOUT
AS A PERCENT
OF TARGET
|
|
Mr. Stuewe
|
|
$
|
1,000,000
|
|
|
$
|
246,201
|
|
|
$
|
332,500
|
|
|
$
|
578,701
|
|
|
|
57.9
|
%
|
Mr. Muse
|
|
$
|
325,000
|
|
|
$
|
80,015
|
|
|
$
|
113,750
|
|
|
$
|
193,765
|
|
|
|
59.6
|
%
|
Mr. Kloosterboer
|
|
$
|
372,991
|
|
|
$
|
206,250
|
|
|
$
|
117,492
|
|
|
$
|
323,742
|
|
|
|
86.8
|
%
|
Mr. Bullock
|
|
$
|
230,700
|
|
|
$
|
56,798
|
|
|
$
|
65,404
|
|
|
$
|
122,202
|
|
|
|
53.0
|
%
|
Mr. Elrod
|
|
$
|
212,500
|
|
|
$
|
40,533
|
|
|
$
|
73,532
|
|
|
$
|
114,065
|
|
|
|
53.7
|
%
|
|
|
|
|
|
2016 Proxy
Statement
37
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
LONG-TERM INCENTIVE COMPENSATION
Overview
Each of our NEOs was provided with long-term incentive award
opportunities for fiscal 2015 that were tied to our performance. The principal objectives of the LTI design are to (i) motivate our NEOs to drive sustained long-term stockholder value creation, (ii) grant award opportunities that are based
on the competitive market, but then adjusted for our performance, and (iii) provide the NEOs with equity ownership opportunities that will further enhance their alignment with our stockholders interests. The committee believes that
providing long-term equity-based awards incentivizes executives to balance short- and long-term decisions, which helps to mitigate excessive risk-taking by our executives.
For 2015, the committee continued to evaluate the appropriateness of the companys LTI program and determined that at the time the program was being implemented, it
was effectively driving stockholder value creation and financial performance, and was well understood by participants. In an ongoing effort to promote continuing improvement and fairly account for recent acquisitions, the committee modified the
following aspects of the LTI program effective for fiscal 2015 for all of our NEOs, as well as our other corporate and North America-based executives:
n
|
|
LTI target level performance was based upon a blended ROGI derived from (i) performance against the Performance Peer Group and (ii) for our recently acquired Darling Ingredients International and Rothsay
businesses, targeted levels of ROGI that are designed to take into account the impact on ROGI of the multiple paid for these businesses. The ROGI performance standard for these businesses will be transitioned to our normal target levels (vs. our
Performance Peer Group) over a five-year period. Therefore, management will still be held accountable for the investment by requiring achievement of target performance levels that are stepped up each year for these businesses.
|
n
|
|
The ROGI performance period was changed from five to three years. The companys three-year ROGI is compared to the Performance Peer Group companies in setting the ROGI target levels. The committee believes this
change continues to drive long-term performance, but better aligns the performance period with market practice and more efficiently connects recent financial performance with compensation.
|
The committee views these modifications to be aligned with the objectives of motivating performance in key financial metrics based on performance targets that are
stretch, but attainable. The program is well-designed to drive shareholder value creation and focus executives on areas over which they have the most direct impact.
Additional detail with respect to the design of the long-term incentive program is provided below.
Mix of Equity Awards
Under the
2012 Omnibus Plan, the committee may grant various types of equity-based awards. Consistent with prior years, the committee continued to provide long-term incentives for fiscal 2015 through performance-based restricted stock and performance-based
stock options. With respect to those awards, the target value was provided using the following mix:
n
|
|
Mr. Stuewes awards were weighted 53% as performance-based restricted stock and 47% as performance-based stock options, which is a heavier weighting towards stock options than used for the other NEOs. As noted
below, as in the prior year, Mr. Stuewes target LTI award opportunity was 300% of base salary, with a significant portion of this opportunity being in the form of performance-based stock options in order to further motivate
Mr. Stuewe to create stockholder value above current levels over a multi-year period.
|
n
|
|
For the other NEOs, the awards were weighted 80% as performance-based restricted stock and 20% as performance-based stock options, consistent with the weighting used in prior fiscal years.
|
|
|
|
38
2016 Proxy Statement
|
|
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Approach to Granting Long-Term Incentives
The chart below summarizes the
approaches used by the committee in granting LTI awards for fiscal 2015 to our NEOs. Additional details with respect to the approaches are provided below.
At the beginning of the year, the committee establishes a set dollar award opportunity for each NEO. That dollar award
opportunity is then converted to a target number of performance-based stock options and performance-based restricted shares using the mix described in the section Mix of Equity Awards.
n
|
|
The target number of performance-based stock options is determined by dividing the target dollar value to be provided in performance-based stock options by a Black-Scholes value for a performance-based stock option
determined as of the beginning of the fiscal year.
|
n
|
|
The target number of performance-based restricted shares is determined by dividing the target dollar value to be provided in performance-based restricted stock by an adjusted per share value for our stock as of the
beginning of the fiscal year that reflects potential forfeiture events and performance conditions.
|
For the NEOs, the number of performance-based stock options and performance-based restricted shares granted in early 2016
for fiscal 2015 performance was based on the target number of awards adjusted for ROGI derived from our average ROGI performance for the most recently completed three years (20132015) compared to the Performance Peer Group (as described in
additional detail below).
Once the size of the grant is approved by the committee based on actual performance results, 25% of the awards vest at grant and the
remaining 75% of awards vest in three equal installments on the 1
st
, 2
nd
, and 3
rd
anniversaries of the date of grant.
Long-Term Incentive Award Opportunities
The chart below summarizes the target LTI award opportunities for the NEOs for fiscal 2015, which are the same as a percent of base salary with those in fiscal 2014. See
the section entitled 2015 Performance Results and Performance-Based GrantsLTI for detail with respect to actual awards granted based on our performance results.
Fiscal 2015 Target Long-Term Incentive Award Opportunities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXECUTIVE
|
|
PERCENT OF
BASE SALARY
|
|
|
IN DOLLARS
|
|
|
TARGET NUMBER OF
PERFORMANCE-BASED
STOCK OPTIONS
|
|
|
TARGET NUMBER OF
PERFORMANCE-BASED
RESTRICTED SHARES
|
|
Mr. Stuewe
|
|
|
300
|
%
|
|
$
|
3,000,000
|
|
|
|
177,843
|
|
|
|
112,322
|
|
Mr. Kloosterboer
|
|
|
100
|
%
|
|
$
|
856,070
|
*
|
|
|
21,749
|
|
|
|
48,078
|
|
Mr. Muse
|
|
|
100
|
%
|
|
$
|
500,000
|
|
|
|
12,703
|
|
|
|
28,080
|
|
Mr. Bullock
|
|
|
100
|
%
|
|
$
|
384,500
|
|
|
|
9,769
|
|
|
|
21,594
|
|
Mr. Elrod
|
|
|
100
|
%
|
|
$
|
425,000
|
|
|
|
10,798
|
|
|
|
23,868
|
|
|
*
|
The target number of performance-based stock options and restricted shares were calculated for Mr. Kloosterboer using this dollar amount, which was the amount of his base salary in U.S. dollars using the exchange
rate at September 30, 2014 of 1.27325 dollars per euro.
|
|
|
|
|
|
2016 Proxy
Statement
39
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Long-Term Incentive Program Performance Metrics and Range of Performance
Except
for the switch in the performance metric for our NEOs from a 5-year average ROGI to a 3-year average ROGI, the design of the fiscal 2015 LTI program was generally similar to the design that was in place for fiscal 2014. The key design features of
the LTI program for our NEOs are described below:
n
|
|
LTI awards are substantially performance-based, except for minimum award payout of 25% of the target award level for retention purposes (which feature has been eliminated for 2016 and going forward as further discussed
below).
|
n
|
|
Performance is based on our average ROGI performance for the most recently completed three years (20132015) compared to the Performance Peer Group
|
n
|
|
Once an award is granted following the completion of the performance period, there are additional time-vesting requirements to enhance retention
|
The committee believes that the 2015 design of the LTI
program continued to motivate long-term ROGI performance that exceeds the median long-term performance of our Performance Peer Group, which we believe is likely to lead to stockholder value creation. For this purpose:
|
|
|
|
|
|
|
|
|
ROGI
|
|
=
|
|
earnings before interest, taxes, depreciation, and amortization
(EBITDA)
|
|
÷
|
|
the sum of total assets plus accumulated depreciation minus other liabilities (other than those incurred to financing institutions, indebtedness issued to
institutional investors and indebtedness registered under the Securities Act of 1933)
|
The committee also believes that the 3-year performance measurement period is consistent with the committees objective to measure
how we perform against a long-term standard for ROGI performance. This approach also recognizes that we are subject to commodity price fluctuation that may impact financial performance positively or negatively. Thus, the committee believed it was
appropriate to compare our performance to that of other cyclical and/or volatile companies whose financial performance is influenced, either up or down, by external conditions such as changes in commodity prices. In determining the fiscal 2015
grant, the committee considered our past performance vs. the Performance Peer Group.
In establishing the ROGI performance goals, competitive levels of ROGI
performance are determined based on a blended ROGI derived from (i) ROGI for the Performance Peer Group over a 3-year period and (ii) for our recently acquired Darling Ingredients International and Rothsay businesses, targeted levels of
ROGI. That competitive assessment served as the basis for establishing the performance goals at threshold, target and maximum levels of performance for fiscal 2015. The fiscal 2015 ROGI performance curve, which applies to all NEOs, is summarized
below:
Fiscal 2015 Long-Term Incentive Program for NEOs
|
|
|
|
|
|
|
ACHIEVEMENT
|
|
PERFORMANCE PEER GROUP
PERCENTILE RANK
|
|
REQUIRED LEVEL OF
ROGI PERFORMANCE
|
|
AWARD PAYOUT
(PERCENTAGE OF TARGET)
|
Below Threshold
|
|
Below 25th Percentile
|
|
Below 9.5%
|
|
25%
|
Threshold
|
|
25th Percentile
|
|
9.5%
|
|
25%
|
Target
|
|
50th Percentile
|
|
13.4%
|
|
100%
|
Maximum or Above
|
|
75th Percentile
|
|
17.6%
|
|
200%
|
For 2015, the design again included a minimum award payout of 25% of the target award level for performance below threshold. The committee
viewed this portion of the award as an effective retention award, because payout of the award remains conditioned on continued employment through the applicable vesting period. The committee believed that having a minimum, but significantly reduced,
payout for the long-term incentive compensation opportunity in 2015 continued to directly link the compensation results for the NEOs to our performance, but appropriately balanced that goal with the need to create longer-term retention of key
management. As part of its comprehensive re-design of the executive compensation program for 2016 and in response to feedback from our stockholders, the committee has eliminated this feature from our executive compensation program going forward. See
Fiscal 2016 Changes to Our Executive Compensation Program below.
|
|
|
40
2016 Proxy Statement
|
|
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
2015 Performance Results and Performance-Based Grants-LTI
We achieved 3-year
ROGI performance for fiscal 2015 equal to 14.8%, which equated to 66th percentile performance relative to our Performance Peer Group. This performance resulted in awards under the LTI program at 165.7% of target for the NEOs. As a result, the
following number of performance-based stock options and restricted shares were granted in March 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERFORMANCE-BASED STOCK OPTIONS
|
|
|
PERFORMANCE-BASED RESTRICTED STOCK
|
|
EXECUTIVE
|
|
TARGET NUMBER
|
|
|
ACTUAL NUMBER
GRANTED BASED
ON PERFORMANCE
|
|
|
TARGET NUMBER
|
|
|
ACTUAL NUMBER
GRANTED BASED
ON PERFORMANCE
|
|
Mr. Stuewe
|
|
|
177,843
|
|
|
|
294,686
|
|
|
|
112,322
|
|
|
|
186,117
|
|
Mr. Muse
|
|
|
12,703
|
|
|
|
21,049
|
|
|
|
28,080
|
|
|
|
46,529
|
|
Mr. Kloosterboer
|
|
|
21,749
|
|
|
|
36,039
|
|
|
|
48,078
|
|
|
|
79,665
|
|
Mr. Bullock
|
|
|
9,769
|
|
|
|
16,187
|
|
|
|
21,594
|
|
|
|
35,781
|
|
Mr. Elrod
|
|
|
10,798
|
|
|
|
17,892
|
|
|
|
23,868
|
|
|
|
39,550
|
|
2013 SPECIAL AWARD TO MR. BULLOCK
In
August 2013, the committee granted Mr. Bullock a special restricted stock award under the 2012 Omnibus Plan of 24,000 shares. This award recognized Mr. Bullocks efforts in helping the company execute upon its renewable fuels
strategy, including the negotiation of the DGD joint venture with Valero Energy Corporation and the successful completion and startup of the DGD facility. The award was designed to encourage both the successful operation of the DGD facility and
Mr. Bullocks continued retention. The first 8,000 shares of the award were vested upon grant. The remaining 16,000 shares became vested in equal installments during fiscal 2014 and fiscal 2015 because the DGD joint venture attained a
specified level of trailing 12-month EBITDA in each of those years, as reflected in the financial statements for Diamond Green Diesel LLC prepared in accordance with generally accepted accounting principles.
Other Features of Our Compensation Program
2014 SPECIAL PERFORMANCE SHARE UNIT AWARDS
In January 2014, the NEOs, other than Messrs. Muse and Elrod, received an award of PSUs under the 2012 Omnibus Plan at the
closing of the acquisition of VION Ingredients. The awards were designed with two objectives: (i) to encourage the NEOs and other participants to successfully integrate Darling Ingredients International as demonstrated by achieving
pre-determined levels of EBITDA, both globally and for Darling Ingredients International, over 2014 through 2016 and (ii) to create a dual focus for NEOs and other participants of balancing EBITDA performance at Darling Ingredients
International with overall company performance to align with stockholder value creation. The following chart summarizes the target award amounts granted to our NEOs:
|
|
|
|
|
|
|
|
|
|
|
EXECUTIVE
|
|
TARGET
NUMBER
OF PSUs
|
|
|
FULLY
VESTED
SHARES
AT CLOSING
|
|
TOTAL
|
|
Mr. Stuewe
|
|
|
100,000
|
|
|
0
|
|
|
100,000
|
|
Mr. Kloosterboer
|
|
|
112,500
|
|
|
37,500
|
|
|
150,000
|
|
Mr. Bullock
|
|
|
100,000
|
|
|
0
|
|
|
100,000
|
|
|
|
|
|
|
2016 Proxy
Statement
41
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The PSUs will vest in three equal installments on the first, second and third anniversaries of the closing of the VION Ingredients acquisition (i.e., January 7,
2014) based on attainment of specified levels of adjusted EBITDA globally and for Darling Ingredients International for fiscal years 2014, 2015 and 2016, respectively. To earn the installment for a vesting date, the target level of adjusted EBITDA
both globally and for Darling Ingredients International must be achieved for the immediately preceding fiscal year, although for Mr. Kloosterboer for 2014 only, performance was measured based solely on adjusted EBITDA for Darling Ingredients
International. If the target levels of adjusted EBITDA for the fiscal year are not achieved both globally and for Darling Ingredients International, the installment for the related vesting date will be forfeited. If the target level of adjusted
EBITDA for the fiscal year either globally or for Darling Ingredients International is achieved, but is not achieved for the other entity, a portion of the installment for the related vesting date may be earned as follows:
|
|
|
|
|
PERCENTAGE OF PERFORMANCE GOAL ACHIEVED
|
|
|
GLOBAL TARGET GOAL ACHIEVED,
DARLING INGREDIENTS
INTERNATIONAL GOAL ACHIEVED AT
FOLLOWING PERCENTAGE OF TARGET
|
|
DARLING INGREDIENTS
INTERNATIONAL TARGET GOAL
ACHIEVED, GLOBAL GOAL ACHIEVED AT
FOLLOWING PERCENTAGE OF TARGET
|
|
PERCENTAGE OF
INSTALLMENT VESTING
ON THE VESTING DATE
|
98%
|
|
99%
|
|
90%
|
96%
|
|
98%
|
|
80%
|
94%
|
|
97%
|
|
70%
|
Below 94%
|
|
Below 97%
|
|
0%
|
Providing for partial awards if the EBITDA goal for one entity is narrowly missed (as long as the EBITDA goal for the other
entity is achieved) maintains a pay-for-performance culture and avoids an incentive to take unnecessary risk in order to receive any payout under this compensation program. To the extent an award is vested on a vesting date, the award will be
settled by delivery of fully vested shares of our common stock, subject to any applicable tax withholding requirements.
The requisite performance target goals for
fiscal 2014 were exceeded, and, therefore, the first one-third of the PSU awards became vested on January 7, 2015 and was paid in March 2015 after performance results were certified by the committee. However, the requisite performance target
goals were not met for fiscal 2015, so therefore the second one-third of the PSU award opportunity was forfeited by each of the participants. The committee believes that this award outcome represents strong alignment between pay and performance. The
program is functioning as designed because no payout was made on the second installment for performance below the requisite target level.
The full grant date fair value of the special PSU awards is included in the Summary Company Table on page 47 as 2014
compensation, in accordance with SEC rules. The committee, however, views the special PSU awards as a one-time grant linked to the closing of the VION Ingredients acquisition that becomes earned only to the extent we achieve sustainable EBITDA
performance goals. Accordingly, the committee does not view the special PSU award as part of the regular total direct compensation opportunity of the NEOs. Moreover, in response to its shareholder engagement process, the committee has reinforced its
philosophy to strictly limit the use of special awards and we do not currently anticipate a need for special awards in the future, other than one-time transition PSUs which are being granted as part of the re-designed 2016 executive compensation
program to facilitate the major shift from a backward-looking to a forward-looking plan design.
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42
2016 Proxy Statement
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
RETIREMENT BENEFITS AND PERQUISITES
Retirement Benefits
Our company offers a 401(k) plan to all of its eligible
U.S.-based salaried employees. The 401(k) plan includes an employer contribution ranging from 3% to 6% of a participants base salary, based on age, and a matching contribution of 25% of a participants contributions up to 6% of a
participants base salary. Our company also maintains a Salaried Employees Retirement Plan which was frozen effective December 31, 2011 and no future benefit will accrue after such date. Prior to December 31, 2011, participants
accrued a benefit calculated on average monthly pay based upon the highest 60 consecutive months of the latest 120 months (and subject to certain limitations) and the years of service completed.
Mr. Kloosterboer participates in a pension arrangement for which all Darling Ingredients International Dutch employees in the Netherlands are eligible. The pension
arrangement consists of both a defined benefit and a defined contribution arrangement. Participation in the pension arrangement is compulsory for all covered employees. All covered employees contribute one-third to the overall pension arrangement
costs as a fixed percentage of their salary. See the Pension Benefits Table included elsewhere in this proxy statement for additional details on the defined benefit portion of the arrangement.
We do not provide special or supplemental retirement benefits to our NEOs.
Perquisites and Other Personal Benefits
Our company provides NEOs with modest
perquisites and other personal benefits, generally in the form of a company automobile (or related allowance) and certain club dues, all as reflected in the All Other Compensation column in the Summary Compensation Table included elsewhere in this
Proxy Statement. The committee believes these benefits are reasonable and consistent with our overall executive compensation program to better enable our company to attract and retain superior employees for key positions. The committee periodically
reviews the levels of perquisites and other personal benefits provided to NEOs.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Our company previously entered into an employment agreement with Mr. Stuewe, and this agreement remains in effect. Mr. Stuewe agreed to an amendment to this
employment agreement in March 2015 that made two key changes for the benefits of long-term stockholders and consistent with the agreements for other NEOs:
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Elimination of an excise tax gross-up related to potential change in control parachute payments; and
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Elimination of a modified single trigger severance provision that would have allowed him to resign, without good reason, during a period following a change in control and still be entitled to severance
payments.
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Our company has entered into Senior Executive Termination Benefits Agreements with Messrs. Muse, Bullock and Elrod that provide for, among
other things, potential payments and other benefits upon termination of employment for a variety of reasons. We entered into an employment agreement with Mr. Kloosterboer in connection with the VION Ingredients acquisition that includes certain
notice period requirements for any termination of employment.
Historically, our companys equity compensation awards have included provisions automatically
accelerating vesting upon a change in control (sometimes referred to as single-trigger vesting). For equity awards granted beginning in 2015 (for 2014 performance), the award agreements no longer include automatic single-trigger vesting.
Instead, the award agreements provide for vesting following a change in control only if there is also an involuntary termination (either by the company without cause or by the executive for good reason) within a stated period following the change in
control, provided that the awards are assumed or replaced by the acquiring company. This is often referred to as double-trigger vesting, as it requires both a change in control (the first trigger) and a subsequent involuntary termination
(the second trigger).
See Employment Agreements and Potential Payments upon Termination or Change-in-Control included elsewhere in this Proxy
Statement for a description of these agreements, including the severance benefits thereunder.
The committee believes that these severance arrangements are an
important part of overall compensation for our NEOs and an important recruitment and retention tool as most of our competitors have implemented similar arrangements for their senior employees. Certain of these agreements include committee approved
change of control provisions to provide reasonable personal protection to our senior executives in the context of an actual or potential change of control of our company. The committee views these arrangements as preventing management distraction
during the critical periods prior to and immediately following a change of control.
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2016 Proxy
Statement
43
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
STOCK OWNERSHIP AND RETENTION POLICY
Our company has stock ownership guidelines to further align the interests of our non-employee directors and NEOs with those of our stockholders. The guidelines require
our NEOs and non-employee directors to maintain an investment in our common stock at the following levels:
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Chief Executive Officer: five times his annual base salary;
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Other NEOs: 2.5 times his or her annual base salary; and
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Non-employee Directors: five times his or her annual cash retainer.
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Each of the NEOs and non-employee directors must
retain at least 75% of any shares of our common stock received in connection with incentive awards (after sales for the payment of taxes and shares withheld to cover the exercise price of stock options) until such person is in compliance with the
stock ownership guidelines. In determining whether the required investment levels have been met, shares will be valued using the closing price of our common stock on the later of (i) the date(s) acquired, or (ii) March 23, 2011 (the
date that the stock ownership guidelines were adopted).
POLICY AGAINST HEDGING AND PLEDGING COMPANY STOCK
The stock ownership guidelines prohibit each NEO and non-employee director from (A) engaging in (i) short-term trading (generally defined as selling company
securities within six months following the purchase), (ii) short sales, (iii) transactions involving derivatives, (iv) hedging transactions or (v) any other contractual derivative transactions, such as total return swaps and
(B) holding company securities in a margin account or pledging company securities as collateral for a loan.
COMPENSATION RECOVERY (CLAWBACKS)
During 2014, based in part on feedback from meetings with key stockholders, we adopted a compensation recovery policy that goes beyond the policies currently required by
law. Specifically, the policy requires each executive officer to reimburse the company for all or a portion of any annual or long-term incentive compensation paid to the executive officer based on achievement of financial results that were
subsequently the subject of a restatement due to the executives misconduct, to the extent determined by the Board of Directors. The Board of Directors may also determine to forfeit unvested awards, reduce future compensation or take other
disciplinary actions (including termination of employment). The committee believes that this compensation recovery policy enhances our governance practices by creating direct financial costs to NEOs whose misconduct leads to a material financial
restatement.
In addition, as required by the Sarbanes-Oxley Act of 2002, upon restatement of our companys financial statements, the Chief Executive Officer and
Chief Financial Officer would be required to reimburse us for any (i) bonuses, (ii) other incentive or equity-based compensation, and/or (iii) profits from stock sales, received in the 12 month period following the filing of financial
statements that were later required to be restated due to the misconduct. Our company will also implement the incentive compensation clawback provisions mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 in
accordance with the requirements of that Act as the method of their implementation becomes finalized by the stock exchanges.
TAX
CONSIDERATIONS
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly-held corporations for annual compensation
over $1,000,000 paid to certain executives of that corporation. The Internal Revenue Code generally excludes from the $1,000,000 limitation, any compensation paid based on the attainment of pre-established, objective performance goals established
under a stockholder-approved plan. The committee uses, where practical, compensation policies and programs that preserve the tax deductibility of executive compensation; however, the committee at its sole discretion may approve payment of
nondeductible compensation from time to time if the committee determines that it is in the best interest of our company to do so.
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44
2016 Proxy Statement
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Fiscal 2016 Changes to Our Executive Compensation Program
As a continuing process of evaluating the companys executive compensation program in light of current trends and best governance practices and in response to its
stockholder engagement process, the committee implemented significant changes to the executive compensation program effective for NEOs for fiscal 2016 as summarized below. Compensation related to these changes will be comprehensively covered in our
2017 proxy statement, where the compensation-related tables will reflect these changes.
Annual Incentive Plan (AIP)
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Maximum payout reduced from 300% to 200% of target
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Metrics will continue to be EBITDA (65%) and SOP goals (35%) with fiscal 2016 SOP goals specifically focused on growth, cost controls and personal strategic achievements
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Long-Term Incentives (LTI)
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LTI value mix adjusted to 40% stock options (SOs) and 60% Performance Share Units (PSUs)
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Eliminate immediate 25% vesting. Instead, SO vesting will be 33-1/3% on the 1st, 2nd, and 3rd anniversaries of grant
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PSUs shift from backward-looking to forward-looking performance measurement
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Annual, overlapping grants will be tied to three-year, forward-looking performance based on Average ROCE relative to Performance Peer Group, as follows:
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PERFORMANCE
LEVEL
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2016-2018 AVERAGE ROCE
VS. PERFORMANCE PEERS
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PAYOUT %
OF TARGET # OF PSUs
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Below Threshold
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At or less than
30
th
percentile
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0%
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Target
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At
50
th
percentile
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100%
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Maximum
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Above
80
th
percentile
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225%
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¨
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For performance between the 30
th
and 80
th
percentiles, the number of PSUs earned will be interpolated between
threshold-target and target-max
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Cliff vesting for PSUs based on three-year performance from 2016 to 2018; earned award to be determined within the first quarter of 2019
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Transition grants will be made in the year of the switch to forward-looking PSUs. Target value for PSUs in 2016 will be split between
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Regular PSUs (75% of target award); and
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2.
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One-time Transition PSUs (25% of target award) with cliff vesting based on two-year performance from 2016 to 2017; earned award to be determined within the first quarter of 2018 by applying the same payout curve to
2016-2017 Average ROCE vs. Performance Peer Group
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No guaranteed vesting; if performance is below threshold, no PSUs will be earned.
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Holding periods: Vested and earned PSUs (net of shares needed to pay taxes) will be subject to a holding period (restriction on sale) for two years after the end of the performance period
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TSR Collar: Reduce (or increase) the number of PSUs earned if TSR relative to the Performance Peers ranks near the bottom (or near the top)
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1.
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30% reduction in number of PSUs eligible for vesting if TSR is at or less than 30
th
percentile of the Performance Peer Group
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2.
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No change if TSR is greater than 30
th
percentile, but less than or equal to 80
th
percentile
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3.
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30% increase in number of PSUs eligible for vesting if TSR is above the 80
th
percentile (but not to exceed 225% of target number of PSUs)
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4.
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TSR is measured over three years for Regular PSUs and over two years for one-time Transition PSUs using a 20-day average for the starting and ending price points
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2016 Proxy
Statement
45
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
For purposes of the 2016 executive compensation program, ROCE will be determined as follows:
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ROCE
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=
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earnings
before interest, taxes, depreciation, and amortization (EBITDA)
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÷
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CAPITAL EMPLOYED
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where
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CAPITAL EMPLOYED
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=
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the sum of (i) current assets (excluding cash) less current
liabilities (excluding the current portion of any long-term debt), plus (ii) gross property, plant and equipment (including gross intangibles but excluding goodwill), plus (iii) equity in nonconsolidated subsidiaries
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The committee believes that, given the substantial growth of our company over the last ten years, the use of ROCE will more appropriately
measure our companys operating performance against its peers by excluding goodwill from the calculation and thereby better focusing on the value of a particular asset and the working capital needed to run that asset.