|
|
|
|
|
|
|
|
|
|
Brown |
Fontenot |
Frost |
Garcia |
Greer |
J. Morris |
Roach |
Traynor |
Skills and Experience |
|
|
|
|
|
|
|
|
Executive Leadership |
✓ |
✓ |
✓ |
✓ |
|
✓ |
✓ |
|
Financial/Accounting |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
Human Resources/Compensation |
✓ |
✓ |
✓ |
|
|
✓ |
✓ |
✓ |
Strategic Planning/Oversight |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
✓ |
Innovation/Technology/Cybersecurity |
|
|
|
✓ |
|
|
|
✓ |
Enterprise Risk Management |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
Corporate Governance and Sustainability |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
Marketing/Sales |
✓ |
|
|
|
✓ |
✓ |
|
✓ |
Tenure and Independence |
|
|
|
|
|
|
|
|
Tenure (years)(1) |
8 |
7 |
7 |
13 |
1 |
18 |
16 |
3 |
Independence |
✓ |
✓ |
|
✓ |
✓ |
✓ |
✓ |
✓ |
Gender Identity |
|
|
|
|
|
|
|
|
Male |
✓ |
|
|
✓ |
✓ |
✓ |
✓ |
✓ |
Female |
|
✓ |
✓ |
|
|
|
|
|
Demographics |
|
|
|
|
|
|
|
|
Age |
59 |
69 |
52 |
66 |
58 |
48 |
72 |
54 |
African American or Black |
|
|
|
|
✓ |
|
|
|
Hispanic |
|
|
|
✓ |
|
|
|
|
White |
✓ |
✓ |
✓ |
|
|
✓ |
✓ |
✓ |
__________
1.Board tenure reflects service on the Board since the Company’s initial public offering in 2005.
Board Meetings
The Board held five meetings during 2022. Each director serving on the Board in 2022 attended at least 75% of the total number of meetings of the Board and committees on which he or she served. Under the Company’s corporate governance guidelines, each director is expected to devote the time necessary to appropriately discharge his or her responsibilities and to rigorously prepare for, attend and participate in all Board meetings and meetings of Board committees on which he or she serves.
Annual Meetings of Shareholders
The Company’s directors are encouraged to attend our annual shareholder meetings, but we do not currently have a policy relating to directors’ attendance at these meetings. Six of our then nine directors, Mr. J. Morris, Mr. Brown, Ms. Fontenot, Ms. Frost, Mr. Greer and Mr. Roach, attended our 2022 annual meeting of shareholders, either in person or by teleconference.
Audit Committee
The Audit Committee currently consists of Mr. Garcia (Chair), Mr. Brown, Ms. Fontenot, Mr. J. Morris and Mr. Roach. The Audit Committee oversees our accounting and financial reporting processes and the audits of the Company’s financial statements. The functions and responsibilities of the Audit Committee include:
•reviewing, monitoring and assessing the Company’s policies and compliance procedures with respect to business practices, including the adequacy of the Company’s internal controls over accounting and financial reporting;
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•engaging the Company’s independent registered public accounting firm and conducting an annual review of the independence of that firm;
•pre-approving and approving any non-audit engagements with the Company’s independent registered public accounting firm;
•reviewing the annual audited financial statements and quarterly financial information with management and the independent registered public accounting firm, including disclosures regarding internal controls;
•reviewing with the independent registered public accounting firm the scope and the planning of the annual audit;
•reviewing and discussing with management the findings and recommendations of the independent registered public accounting firm;
•discussing with the independent registered public accounting firm the conduct of the annual audit, including management’s response;
•overseeing compliance with applicable legal and regulatory requirements and the Company’s Code of Conduct, including obtaining applicable reports and assurances;
•reviewing with the Company’s internal auditor the plans and scope of audit activities and the annual report of audit activities, examinations and related results;
•establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters;
•establishing procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;
•reviewing the appointment and replacement of the Company’s internal audit officer and any third party internal audit service provider;
•discussing risk assessment and management policies and the Company’s financial risk exposure;
•discussing with the Company’s general counsel any legal matters that may have a material impact on the Company’s financial statements or compliance policies;
•approving related party transactions exceeding $50,000 in aggregate value;
•reviewing the adequacy of the Audit Committee charter on an annual basis; and
•preparing the Audit Committee report to be included in our annual proxy statement.
The Audit Committee met seven times during 2022. Our independent registered public accounting firm reports directly to the Audit Committee. Each member of the Audit Committee has the ability to read and understand fundamental financial statements, and the Board has also determined that Mr. Brown, Ms. Fontenot, Mr. Garcia, Mr. J. Morris and Mr. Roach each meet the requirements of an “audit committee financial expert” as defined by SEC rules. The Board has determined that each member of the Audit Committee is “independent” as defined in the Nasdaq listing requirements and SEC requirements relating to the independence of audit committee members. The Audit Committee has the authority to engage independent counsel and other advisors as the Committee deems necessary to carry out its duties.
Compensation Committee
The Compensation Committee currently consists of Mr. Brown (Chair), Mr. Garcia, Mr. Greer, Mr. J. Morris and Mr. Traynor. The Compensation Committee has sole authority for establishing, administering and reviewing the Company’s policies, programs and procedures for compensating our executive officers and the members of the Board. The Compensation Committee may delegate its responsibilities to a subcommittee comprised of Compensation Committee members. The functions and responsibilities of the Compensation Committee include:
•reviewing, determining and approving, at least annually, corporate goals and objectives relevant to the compensation of the Company’s executive officers;
17
•evaluating the performance of and determining the compensation for the Company’s executive officers, including its chief executive officer;
•administering and making recommendations to the Board with respect to the Company’s equity and incentive compensation plans;
•performing a risk assessment of the Company’s compensation plans and policies;
•overseeing regulatory compliance with respect to compensation matters;
•reviewing and approving employment or severance arrangements with the Company’s executive officers;
•overseeing the Company’s policies and practices relating to human capital and workforce diversity matters;
•reviewing director compensation policies and making recommendations to the Board;
•engaging, and determining the independence of, any compensation consultant;
•reviewing compliance with the Company’s stock ownership guidelines by our executive officers;
•reviewing the adequacy of the Compensation Committee charter on an annual basis; and
•reviewing and approving the Compensation Discussion and Analysis and the Compensation Committee Report to be included in our annual proxy statement.
The Compensation Committee met seven times during 2022. The Board has determined that each member of the Compensation Committee is independent under the Nasdaq listing requirements.
The Compensation Committee has the sole authority to retain and terminate compensation consultants to assist in the evaluation of director or executive officer compensation and the sole authority to approve the fees and other retention terms of such compensation consultants. The committee may also retain independent counsel and other independent advisors to assist it in carrying out its responsibilities. For more information regarding the role of our executive officers and the Compensation Committee’s independent compensation consultant in determining or recommending the amount or form of executive and director compensation, see “Compensation Discussion and Analysis” below.
Nominating and Corporate Governance Committee
The NCG Committee currently consists of Mr. Roach (Chair), Ms. Fontenot, Mr. J. Morris and Mr. Traynor. The functions and responsibilities of the NCG Committee include:
•developing and recommending corporate governance principles and procedures applicable to the Board and the Company’s employees;
•recommending committee composition and assignments;
•identifying individuals qualified to become directors;
•recommending director nominees;
•recommending whether incumbent directors should be nominated for re-election to the Board;
•reporting, at least annually, on succession planning, including appropriate contingencies in case our Chief Executive Officer retires, resigns or is incapacitated;
•reviewing any possible conflicts of interest of directors or management;
•providing oversight of the Company’s policies, strategies and programs related to environmental, social and corporate governance matters relevant to the Company, in coordination with the Company’s other committees as appropriate;
•reviewing the adequacy of the NCG Committee charter on an annual basis; and
•overseeing, at least annually, an evaluation of the performance of the Board and the Company’s management in relation to the Company’s corporate governance guidelines.
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The NCG Committee met four times during 2022. The Board has determined that each member of the NCG Committee is independent under the Nasdaq listing requirements.
The NCG Committee has the sole authority to retain and terminate any search firm to assist in the identification of director candidates and the sole authority to set the fees and other retention terms of such search firms. The committee may also retain independent counsel and other independent advisors to assist it in carrying out its responsibilities.
Qualifications for Director Nominees. In considering director nominees, the NCG Committee considers a number of factors, including the following:
•whether the nominee is “independent” as determined in accordance with the rules promulgated by the SEC, the Nasdaq listing requirements and the Company’s corporate governance guidelines;
•the ability and willingness to participate in Board activities, including attendance at, and active participation in, Board and committee meetings;
•the ability and willingness to represent the best interests of all of the Company’s shareholders;
•personal and professional qualities, characteristics, attributes, accomplishments and reputation in the business community, insurance industry and otherwise;
•increasing the diversity of viewpoints, backgrounds and experiences in addition to those of existing directors and other nominees;
•consistent demonstration of integrity;
•the ability to exercise sound business judgment;
•current knowledge and relationships in the markets and regions in which the Company does business and in the insurance industry and other industries relevant to the Company’s business;
•reputation in a particular field or area of expertise; and
•the skills and personality of the nominee and how the committee perceives the nominee will be a fit with existing directors and other nominees in maintaining a Board that is collegial and responsive to the needs of the Company and its shareholders.
The NCG Committee will also consider other criteria for director candidates included in its committee charter, the Company’s corporate governance guidelines or as may be established from time to time by the Board. The NCG Committee has not adopted a separate policy pertaining to the consideration of diversity in the selection of nominees to the Board; however, as noted above, diversity is one factor considered by the NCG Committee in evaluating director candidates. The NCG Committee will identify nominees based upon recommendations by committee members or other Board members, members of the Company’s management or, as discussed below, by shareholders of the Company. Upon identifying a potential nominee, members of the NCG Committee will interview the candidate, and based upon that interview, make a recommendation to the Board.
Shareholder Recommendations. The Company has adopted a policy regarding shareholder recommended director candidates, a copy of which is available on the Investors section of the Company’s website. Consistent with this policy, the NCG Committee will evaluate director candidates recommended by a shareholder according to the same criteria as a candidate identified by the NCG Committee.
Shareholders may recommend candidates at any time, but to be considered by the NCG Committee for inclusion in the Company’s proxy statement for the next annual meeting of shareholders, recommendations must be submitted in writing no later than 150 calendar days before the first anniversary of the date on which the Company first mailed its proxy materials for the prior year’s annual meeting of shareholders. A shareholder’s notice must contain the following:
•the name of the shareholder recommending the director candidate for consideration, the name of the director candidate, and the written consent of the shareholder and the director candidate to be publicly identified;
19
•a written statement by the director candidate agreeing to be named in the Company’s proxy materials and to serve as a member of the Board (and any committee of the Board to which the director candidate is assigned to serve by the Board) if nominated and elected;
•a written statement by the shareholder and the director candidate agreeing to make available to the NCG Committee all information reasonably requested in connection with the NCG Committee’s consideration of the director candidate; and
•the director candidate’s name, age, business and residential address, principal occupation or employment, number of shares of the Company’s common stock and other securities beneficially owned, a resume or similar document detailing personal and professional experiences and accomplishments and all other information relating to the director candidate that would be required to be disclosed in a proxy statement or other filing made in connection with the solicitation of proxies for the election of directors pursuant to the Exchange Act, SEC rules and the listing requirements and other criteria established by Nasdaq.
The shareholder’s notice must be signed by the shareholder recommending the director candidate for consideration and sent to the following address: AMERISAFE, Inc., 2301 Highway 190 West, DeRidder, Louisiana 70634, Attn: Corporate Secretary (Nominating and Corporate Governance Committee Communication/Director Candidate Recommendation).
Risk Committee and Risk Management
The Board views risk management as one of its primary oversight responsibilities. The Board initially formed the Risk Committee in 2010. The Risk Committee’s charter provides that all members of the Board are members of the Risk Committee. Mr. J. Morris serves as chair of the Risk Committee and establishes the agenda for the meetings. Risk Committee members periodically receive presentations on risk-related topics from the Company’s management. The Committee provides oversight in the areas described below. In performing this oversight function, at least annually and more frequently as may be appropriate, the committee meets with Company management to review these operational areas:
•Underwriting. Review the strategies, processes, and controls pertaining to the underwriting of insurable risks and the pricing of such risks, including new insurance products or lines of business that are likely to have a positive or negative material impact on the Company’s risk profile.
•Claims. Review the strategies, processes, and controls relating to the settlement of claims.
•Investment Operations. Review the strategies, processes, and controls pertaining to the Company’s investment operations. This review includes long-term strategy, the Company’s investment policy & guidelines, investment performance and liquidity, compliance with applicable laws and regulations, any changes to investment accounting methods and the approval of the hiring of external investment managers, if any.
•Retention Levels and Reinsurance. Review the strategies, processes, and controls pertaining to the Company’s determination of appropriate levels of retention of insured risk and appropriate levels and types of reinsurance for its insurance subsidiaries, as well as the financial strength of the reinsurers with whom they conduct business;
•Risk and Information Services. Oversee the implementation, execution, and performance of the Company’s enterprise risk management program;
•Business Continuity Plan. Review the strategies, processes, and controls pertaining to business continuity and executive crisis management for the Company and its business operations; and
•Cybersecurity Practices. Review the Company’s strategies, governing and management framework, security principles, training and evaluations for cybersecurity threats;
The Committee also coordinates with the Company’s other committees regarding risks stemming from matters over which these other committees have primary oversight responsibility, including risks stemming from the ESG-related matters. Further, on an ad hoc basis, and as otherwise directed by the Board, the Committee reviews specific operational segments of the Company that may pose unusual and significant risks that could have a material impact on the risk profile of the Company.
20
The Risk Committee met four times in 2022. The Risk Committee has the authority to select, retain, terminate, and approve the fees and other terms of retention of special counsel, experts and consultants. This Committee also has direct access to all Company employees.
In addition to the activities of the Risk Committee, the Board monitors risks arising from financial reporting and controls through its Audit Committee and risks related to compensation through its Compensation Committee.
Succession Planning
Our Board considers the evaluation of management and succession planning to be one of its most important responsibilities. The Board’s goal is to have a long-term program for effective senior leadership and development, with appropriate contingencies in case our chief executive officer, or any of our other executive officers, retires, resigns or is incapacitated.
In the Board’s succession planning program, internal candidates for the executive positions, including the chief executive officer, are identified and evaluated based on criteria considered predictive of success at the senior management level. This program incorporates 360 reviews and related evaluations for each individual. The assessment includes a development plan, including executive coaching, for each individual.
Our Corporate Governance Guidelines provides that the NCG Committee report to the Board on succession planning at least annually. The chief executive officer is responsible for advising the Board regarding her recommendations and evaluations of potential successors, together with a review of any development plans for these individuals. The Board, with the assistance of the NCG Committee, evaluates potential successors to the CEO, as well as other members of senior management.
Communications with the Board
Any shareholder or other interested party who wishes to communicate directly with the Board or any of its members may do so by writing to: Board of Directors, c/o AMERISAFE, Inc., 2301 Highway 190 West, DeRidder, Louisiana 70634, Attn: Corporate Secretary. The mailing envelope should clearly indicate whether the communication is intended for the Board as a group, the non-employee directors or a specific director.
21
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis, or CD&A, is designed to provide shareholders with an understanding of the Company’s compensation philosophy and objectives, as well as the analysis that the Compensation Committee (referred to in this CD&A as the “Committee”) performed in setting executive compensation. It discusses the determination of how and why, in addition to what, actions were taken by the Committee with respect to compensation for each of our executive officers during 2022. Those individuals are:
•G. Janelle Frost, President and Chief Executive Officer
•Anastasios Omiridis, Executive Vice President and Chief Financial Officer (as of September 2022)
•Vincent J. Gagliano, Executive Vice President and Chief Risk Officer
•Andrew B. McCray, Executive Vice President and Chief Underwriting Officer
•Kathryn H. Shirley, Executive Vice President, Chief Administrative Officer and Secretary
•Neal A. Fuller, Former Executive Vice President and Chief Financial Officer (until September 2022)
Executive Summary
Recent Company Performance
We are a holding company that markets and underwrites workers’ compensation insurance through our insurance subsidiaries in 27 states. The Company had solid operating performance during 2022, in a declining premium environment, with net income of $55.6 million and a combined ratio of 83.6%. Our earnings per diluted share were $2.88 and our return on average equity was 15.5% compared with $3.39 and 15.7% in 2021. Total shareholder return was 6.4% in 2022, compared to the P&C Small-Cap Index of -9.2% and the P&C Mid-Cap Index of -2.5%. The Company’s average annual total shareholder return for the three-year and five-year periods ended December 31, 2022 was 0.7% and 4.7%, respectively. The P&C Small Cap Index average annual return for the three and five-year periods ended December 31, 2022 was 2.1% and 4.3%, respectively. The P&C Mid-Cap Index average annual return for the three-year and five-year periods ended December 31, 2022 was 4.8% and 7.2%, respectively.
The Company also measures its performance by tracking its growth in book value per share plus dividends paid to shareholders. In 2022, this growth was $1.19 compared to a starting book value per share of $20.62, for a change of 5.8%. For the three years ended in 2022, this growth was $9.26 off a starting book value of $22.29, for a compounded average annual change of 12.3%. For the five years ended in 2022, this growth was $18.33 off a starting book value of $22.10, for a compounded average annual change of 12.8%.
In 2022, the Company paid regular quarterly dividends of $1.24 per share in the aggregate and an extraordinary dividend of $4.00 per share, or total dividends of $5.24 per share. Effective February 2023, the Board of Directors increased the regular quarterly dividend from $0.31 per share to $0.34 per share, an increase of 9.7%. Although the Board presently intends to pay a regular quarterly dividend, dividends are considered each quarter for approval.
Executive Transition
In September 2022, Mr. Fuller relinquished the role of Chief Financial Officer and fully retired from the Company in December 2022. Mr. Omiridis was appointed our new Chief Financial Officer in September 2022.
Compensation Best Practices
The Committee annually reviews and periodically modifies our executive compensation program to retain and attract top executive talent to the Company and ensure that our program is both aligned with
22
the interests of our shareholders and meets evolving governance standards. The following highlights some of the compensation and governance best practices that are part of our program:
•Performance-Based Annual Incentive Plan—Our annual incentive compensation plan rewards our executives for achievement of pre-established individual performance goals.
•LTIP Awards are Performance-Based—Since 2017, 100% of the awards under our long-term incentive program for executive management are in the form of performance awards that reward exceptional financial performance relative to a peer group of property and casualty insurers.
•No Tax “Gross-Ups”—We do not provide any tax “gross-up” payments in connection with compensation or other benefits provided by the Company.
•Clawback Policy—Both our annual and long-term incentive awards are subject to a compensation recoupment policy that permits the Committee to seek recovery of incentive awards paid if there is a restatement of the Company’s financial statements.
•Independent Compensation Consultant—The Committee engages an independent compensation consultant to prepare surveys of executive officer and director compensation based on a peer group comprised of publicly traded companies.
•Double Trigger Severance Payments—The employment agreements with our executive officers do not provide for single trigger cash payments upon a change in control; our executives are entitled to severance only upon certain circumstances as the result of a termination of employment, and these payments are the same whether or not the termination is related to a change in control.
•Double Trigger Vesting—Awards under our long-term incentive program only vest in connection with a change in control if the executive experiences a qualifying termination of employment.
•Risk Review—The Committee conducts an annual risk review of the Company’s executive compensation program, policies and practices.
•Oversight of 10b5-1 Plans—The Board adopted 10b5-1 policies and procedures, which include Board oversight of 10b5-1 plan transactions.
•Independent Advisors—The Committee helps ensure the independence of all Committee advisors by limiting the advisors ability to perform other services for the Company.
•Anti-Hedging and Anti-Pledging Policies—The Company prohibits its executives, directors and employees from hedging or pledging Company securities.
•Stock Ownership and Holding Requirements—Our executive officers are required to maintain certain levels of ownership of Company securities and are required to hold all shares received as compensation until the applicable guideline amount is achieved (net of shares used or sold to pay the exercise price or tax withholding). After meeting the applicable guideline, our executive officers are required to hold 20% of the shares received as compensation (net of shares used or sold to pay the exercise price or tax withholding).
23
2022 Program Changes
For 2022, the Committee reviewed a compensation survey prepared by its independent compensation consultant, which concluded that the base salaries of our executives were below the median of our compensation peer group described below. As discussed in more detail below, after reviewing this report and the base salaries and target annual and long-term incentive compensation of our executive officers, the Committee:
•Approved base salary increases for each of our executive officers in order to bring our executives’ base salaries closer to the median of our peers and remain competitive while maintaining a range commensurate with Company increases overall. These increases also had the effect of increasing our executives’ target annual and long-term incentive opportunities, which are expressed as a percentage of base salary.
•Revised the performance metrics under our 2022 long-term incentive program awards to (i) increase the weight of direct premiums written to align with Company performance objectives, and (ii) eliminate the relative shareholder return modifier previously in place, given that our peer group does not consistently use the measure in their compensation programs; the peer group primarily consisted of multi-line publicly traded companies that are not representative of the performance of a mono-line workers’ compensation carrier like the Company; and the structure of the long-term incentive plan limited the effect of the total shareholder return modifier.
Compensation Program Objectives
Our compensation program is intended to attract, retain and motivate the key people necessary to enable our Company to operate effectively and profitably over the long-term. The Committee believes that executive compensation should align the interests of the Company’s executives and other key employees with those of the Company and its shareholders. Our compensation program is also designed to differentiate compensation based upon individual contribution, performance and experience with our Company.
In establishing compensation, the Committee seeks to provide employees, including our executive officers, with a competitive total compensation package. The Committee sets compensation in this manner to ensure that our compensation practices do not put the Company at a disadvantage in attracting and retaining executives and other employees, while also ensuring a competitive cost structure for our Company.
Compensation Processes
Our compensation program for executives is designed and implemented under the direction of the Committee, which is currently comprised of the following five independent directors: Mr. Brown (chair), Mr. Garcia, Mr. Greer, Mr. J. Morris, and Mr. Traynor.
2022 Advisory Vote on Executive Compensation
At our annual meeting of shareholders in June 2022, more than 99% of the votes cast on the say-on-pay proposal were in support of our executive compensation program. The Committee considered the results of this advisory vote and believes the results affirm shareholder approval of the Board’s approach to the Company’s executive compensation program. As noted above the Committee is continually evaluating our executive compensation and has made changes in the past few years to further align the program with our shareholders’ interests and to take into consideration the results of market surveys and other information prepared by the Committee’s compensation consultant.
Role of Compensation Consultant
Since early 2012, the Committee has engaged McLagan, an AON Hewitt Company, as its independent compensation consultant. Pursuant to Company policy, McLagan does not provide services to the Company other than the consulting services it provides to the Committee. The Committee is solely responsible for the appointment, compensation and oversight of the compensation consultant.
24
McLagan attends Committee meetings, when requested by the Committee, prepares executive compensation surveys, and generally advises on executive compensation matters including the peer group composition for purposes of the surveys, pay levels and pay composition, and annual and long-term incentive plan design. McLagan also provides market data, analysis, and advice regarding the CEO and executive officer compensation to the Committee as well as director compensation surveys and advice. As required by SEC rules, the Committee assessed the independence of McLagan and concluded that McLagan’s work did not raise any conflicts of interest.
Compensation Surveys
McLagan conducted the most recent executive compensation survey in 2021. The “2021 Survey”, reviewed by the Committee in the fall of 2021, was used in setting compensation for 2022.
The 2021 Survey compared the compensation for our executive officers against a peer group of 15 publicly traded insurance companies. The 2021 Survey also included a review of the Company’s annual and long-term incentive compensation plan design. McLagan used Company target compensation for 2021 and peer group compensation data for 2020 in its preparation of the 2021 Survey. The Committee reviewed the 2021 Survey results in assessing the level of salary and annual and long-term target award opportunities to our executives and approving changes to the target compensation levels and annual and long-term compensation plan design for our executive officers in 2022.
Peer Group Construction. The Committee used a rigorous process to select peer companies for comparing executive pay in the 2021 Survey, which included ranking the companies by premiums written, total revenue, combined ratio, lines of insurance business, multi-line versus mono-line property-casualty insurer, number of states doing business in, and investment mix. With the assistance of McLagan, the Committee selected the following 15 publicly traded companies as its peer group for the 2021 Survey. Compared to the peer group used in the 2019 survey, three prior companies have been removed and two new companies were added based on the selection criteria.
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•Kingstone Companies, Inc. |
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•Kinsale Capital Group, Inc. |
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•Employers Holdings, Inc. |
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•Global Indemnity Limited |
•Protective Insurance Corporation |
•Hallmark Financial Services |
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•Heritage Insurance Holdings, Inc. |
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•James River Group Holdings |
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The results of the 2021 Survey indicated that (1) the Company’s aggregate executive officer 2020 target compensation was below the market median for each pay element, (2) the average total target direct compensation for each of the named executive officers was below the market median, and (3) while pay levels for named executive officers were low compared to the market median, the mix of pay is generally aligned with that of the market. The Committee uses survey data as a market reference to assess the competitiveness of our compensation programs and does not mandate target ranges for our named executive officers' salaries, annual incentive opportunities, long-term incentive opportunities, or total direct compensation levels as compared to the peer group. The Committee uses external comparisons as only one point of reference and is mindful of the value and limitations of comparative data.
Role of Management
Our chief executive officer, Ms. Frost, makes recommendations with respect to changes in base salary for our executive officers, other than for herself. She also makes recommendations regarding the level of achievement of individual performance goals under our annual incentive compensation plan by each executive officer other than herself. Although the Committee considers the recommendations of Ms. Frost, the Committee makes all final determinations regarding executive compensation. Ms. Frost is not present when the Committee discusses or determines her compensation.
25
Risk Assessment
The Committee annually considers the risk to the Company of the design and objectives of its executive compensation plans through review of the compensation surveys provided by McLagan. The primary risk is weighting the premium growth factor too heavily in the annual and long-term incentive plans. Growing premium too rapidly could result in poor underwriting results and ultimately affect the financial strength of the Company.
The Committee recognizes that the design and objectives of the executive compensation plans are based on assumptions that may later be determined to be inaccurate which could present a risk of loss of key personnel resulting in disruption of our operations and adverse effects on our business. We have determined that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. The Committee believes the current relative weighting of the metrics in the annual and long-term incentive plans are appropriately balanced to attract, retain and motivate key employees as well as align with shareholder interests.
Overview of Executive Compensation Program
The principal components of our executive compensation program provide for a combination of fixed and variable compensation. In addition to the principal components, we also provide our executive officers with broad-based employee benefits, certain severance benefits and limited perquisites. For 2022, the principal components, which we refer to as our named executive officers’ total direct compensation, are summarized as follows:
2022 Executive Compensation Program at a Glance
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Compensation Element |
Characteristics |
Base Salary |
•Reviewed annually, and upon promotion or upon a change in job responsibilities •Used in determining target awards for incentive compensation |
Annual Incentive Compensation |
•Annual variable cash compensation based on pre-established individual qualitative leadership objectives •Target award is a percentage of base salary—for 2022, these percentages are 60% for our CEO, 35% for our former CFO, 60% for our new CFO and 30% for each of our other executive officers •Maximum payout is 150% of target award |
Long-Term Equity-Based Compensation (LTIP) |
•Target LTIP award is a percentage of base salary—110% for our CEO and 55% for each of our other executive officers (other than Mr. Omiridis, who did not participate in the LTIP for 2022) •100% of performance awards are payable in shares of common stock after a three-year performance period •Applicable metrics: combined ratio (60% of award) and direct premiums written (40% of award) measured against a peer group of predominately property and casualty insurance companies •Maximum payout is capped at 150% of target award |
26
The table below summarizes our named executive officers’ target direct compensation approved for 2022 as well as the percentage of total target direct compensation represented by each component. As noted, over 60% of our chief executive officer’s total target direct compensation is at-risk and based on achievement of individual and Company performance objectives. The actual base salary received, the actual annual incentive compensation award earned for 2022 and the grant date value of LTIP awards, as well as certain other compensation amounts, are reflected in “Executive Compensation—Summary Compensation Table.”
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2022
Base Salary |
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2022 Target
AIP Award |
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2022 Target
LTIP Award |
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2022 |
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Executive |
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$ |
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% of
Total |
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$ |
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% of
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|
$ |
|
|
% of
Total |
|
Total Target
Compensation |
|
G. Janelle Frost |
|
$ |
701,000 |
|
|
37% |
|
$ |
420,600 |
|
|
22% |
|
$ |
771,100 |
|
|
41% |
|
$ |
1,892,700 |
|
Anastasios G. Omiridis(1) |
|
$ |
450,000 |
|
|
63% |
|
$ |
270,000 |
|
|
37% |
|
$ |
— |
|
|
0% |
|
$ |
720,000 |
|
Vincent J. Gagliano |
|
$ |
331,000 |
|
|
54% |
|
$ |
99,300 |
|
|
16% |
|
$ |
182,050 |
|
|
30% |
|
$ |
612,350 |
|
Andrew B. McCray |
|
$ |
297,000 |
|
|
54% |
|
$ |
89,100 |
|
|
16% |
|
$ |
163,350 |
|
|
30% |
|
$ |
549,450 |
|
Kathryn H. Shirley |
|
$ |
305,000 |
|
|
54% |
|
$ |
91,500 |
|
|
16% |
|
$ |
167,750 |
|
|
30% |
|
$ |
564,250 |
|
Neal A. Fuller(2) |
|
$ |
447,000 |
|
|
53% |
|
$ |
156,450 |
|
|
18% |
|
$ |
245,850 |
|
|
29% |
|
$ |
849,300 |
|
__________
1.Mr. Omiridis joined the Company as our Executive Vice President and Chief Financial Officer effective September 1, 2022. In connection with his appointment, the Committee approved an initial base salary of $450,000 and a 2022 target annual incentive plan award of $270,000 (60% of base salary). The amounts in the table above do not reflect his special initial award of restricted stock units with a targeted grant date value of $1,100,000.
2.Mr. Fuller relinquished the role of Chief Financial Officer in September 2022 and fully retired from the Company in December 2022.
Base Salary. Base salaries are determined on the basis of management responsibilities and level of experience, as well as internal and market comparisons. In setting base salaries for our executive officers, the Committee seeks to provide a reasonable level of fixed compensation that we believe is competitive with base salaries for comparable positions at our peer companies.
Based on the 2021 Survey, the following adjustments were made to the annual base salaries of the named executive officers in March 2022 to bring our executives’ base salaries closer to the market median.
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
2022
Base Salary |
|
|
2021
Base Salary |
|
|
Percentage
Increase |
G. Janelle Frost |
|
$ |
701,000 |
|
|
$ |
681,000 |
|
|
2.9% |
Anastasios G. Omiridis(1) |
|
$ |
450,000 |
|
|
$ |
— |
|
|
0.0% |
Vincent J. Gagliano |
|
$ |
331,000 |
|
|
$ |
322,000 |
|
|
2.8% |
Andrew B. McCray |
|
$ |
297,000 |
|
|
$ |
291,000 |
|
|
2.1% |
Kathryn H. Shirley |
|
$ |
305,000 |
|
|
$ |
297,000 |
|
|
2.7% |
Neal A. Fuller |
|
$ |
447,000 |
|
|
$ |
435,000 |
|
|
2.8% |
__________
1.Mr. Omiridis joined the Company in September 2022.
Annual Incentive Compensation. The Committee believes that annual incentive compensation is an important element of the total compensation of each executive officer. Similar to the structure of the program in 2021, in 2022, the Committee implemented an annual incentive plan based on achievement of individual performance goals instead of Company-focused performance metrics.
2022 Annual Incentive Compensation. In February 2022, the Committee approved target award opportunities under our annual incentive compensation plan for each executive officer employed at the time equal to a percentage of each executive’s base salary, which percentages were consistent with those used in the 2021 program. In September 2022, in connection with his joining the Company, the Committee approved the target award opportunity for Mr. Omiridis based on market information reviewed as part of the Chief Financial Officer recruitment process.
As in 2021, the Committee believed it was important to focus each executive on key individual objectives for the year. Further, given that the payout of our long-term incentive compensation awards is
27
driven by key metrics tracking Company performance (combined ratio, direct premiums written), the Committee determined that structuring the annual incentive program around individual performance goals continues to be appropriate. In 2022, the individual performance goals established were both qualitative and quantitative for all of the executives, including Ms. Frost, to focus management’s goals on improving Company performance in a declining rate environment. The quantitative goal established was designed to support the long-term objective of policy growth. Ms. Frost also was evaluated on leadership of the senior management team. For our other executive officers, individual goals were focused on completion of individual special projects.
The following table sets forth the target award opportunity for each named executive officer for 2022.
|
|
|
|
|
|
Executive |
|
Target Value of
Annual
Incentive
Opportunity |
|
Target Annual Incentive
Opportunity
(% of Base Salary) |
G. Janelle Frost |
|
$ |
420,600 |
|
60% |
Anastasios G. Omiridis (1) |
|
$ |
270,000 |
|
60% |
Vincent J. Gagliano |
|
$ |
99,300 |
|
30% |
Andrew B. McCray |
|
$ |
89,100 |
|
30% |
Kathryn H. Shirley |
|
$ |
91,500 |
|
30% |
Neal A. Fuller |
|
$ |
156,450 |
|
35% |
__________
1.Mr. Omiridis joined the Company in September 2022. As part of Mr. Omiridis's onboarding package, 50% of his target annual incentive opportunity for 2022 was guaranteed.
Each executive officer could earn between 0% and 150% of the target individual goals based on the level of achievement of the applicable goals. The committee evaluated each executive’s performance against his or her performance goals to determine the achievement levels under the 2022 annual incentive plan, considering the recommendations of Ms. Frost for the executives other than herself. For 2022, the quantitative goal of policy growth was not achieved, which impacted the percentage target award earned for each executive and represented half of Ms. Frost’s annual incentive goal.
The total annual incentive award payouts for our named executive officers for 2022 were as follows:
|
|
|
|
|
|
|
|
|
|
Executive |
|
|
Total Award (Individual Performance) |
|
|
|
Percent of Target
Award Earned |
|
G. Janelle Frost |
|
|
$ |
199,995 |
|
|
|
48% |
|
Anastasios G. Omiridis |
|
|
$ |
337,500 |
|
|
|
125% |
|
Vincent J. Gagliano |
|
|
$ |
74,475 |
|
|
|
75% |
|
Andrew B. McCray |
|
|
$ |
41,580 |
|
|
|
47% |
|
Kathryn H. Shirley |
|
|
$ |
80,063 |
|
|
|
88% |
|
Neal A. Fuller |
|
|
$ |
195,563 |
|
|
|
125% |
|
Long-Term Incentive Compensation. Under our current program, the Committee makes LTIP awards on an annual basis, but may adjust the performance factors, the weighting of those factors, and other aspects of the LTIP each year as it evaluates the effectiveness of the program over time. The following principles and objectives guide the Committee in implementing our LTIP each year:
•The program should be performance-based and compare the Company’s operating performance to a peer group of companies engaged in the workers’ compensation insurance industry.
•The performance period should reflect the long-term nature of the workers’ compensation claims development process.
•Increased rigor should apply in order to receive maximum payout under the performance awards, given the Company’s outstanding operating performance and the fact that the
28
Company has outperformed the workers’ compensation industry on a combined ratio basis over the past several years.
In 2022, the Committee removed the relative shareholder return modifier previously in place, given that the peer group did not consistently use the measure in their compensation programs; the peer group primarily consisted of multi-line publicly traded companies that are not representative of the performance of a mono-line workers’ compensation carrier like the Company; and the structure of the long-term incentive plan limited the effect of the total shareholder return modifier.
Under the LTIP, target awards are established annually for each named executive officer based on a percentage of the executive’s base salary. The target award value is generally delivered to each participating executive solely in the form of a performance-based award. The performance award is payable in shares of common stock, with the number of shares earned determined based on the Company achievement of certain quantitative targets measured over a three-year performance period. These performance awards are tied directly to the performance of the Company and better align executive management compensation and shareholder interests.
The compensation surveys continue to reaffirm the importance of the LTIP in making the Company’s executive compensation program competitive with peers. Awards under the LTIP for 2022 were made pursuant to our shareholder-approved equity incentive plans.
2022 Long-Term Incentive Compensation Awards. For the 2022 LTIP awards, the Committee set a target value, which was a percentage of base salary as set forth below, which percentages were consistent with those used in the 2021 program, for each participating named executive officer. The target for Ms. Frost was competitive with the market median and the target for the other executive officers was slightly below the market median for the long-term compensation component of pay as reflected in the 2021 Survey. This target value was then awarded to each executive in the form of a performance award.
|
|
|
|
|
|
|
Executive |
|
Target
Value of
2022 LTIP
Awards (1) |
|
|
Target Value as a
Percentage of
2022 Base Salary |
G. Janelle Frost |
|
$ |
771,100 |
|
|
110% |
Anastasios G. Omiridis (2) |
|
$ |
— |
|
|
0% |
Vincent J. Gagliano |
|
$ |
182,050 |
|
|
55% |
Andrew B. McCray |
|
$ |
163,350 |
|
|
55% |
Kathryn H. Shirley |
|
$ |
167,750 |
|
|
55% |
Neal A. Fuller (3) |
|
$ |
245,850 |
|
|
55% |
__________
1.Following completion of the three-year performance period, the earned performance awards will be payable in shares of our common stock. These awards are further described under “Executive Compensation—Grants of Plan Based Awards.”
2.Mr. Omiridis joined the Company in September 2022 and did not participate in our 2022 LTIP, although he did receive an onboarding award of restricted stock units described further below under “- Special Award to Chief Financial Officer.”
3.Mr. Fuller's long-term incentive awards granted in 2021 and 2022 were forfeited as a result of his stepping down as Chief Financial Officer in September 2022 and subsequent retirement from the Company in December 2022.
29
Description of 2022 Performance Awards. The performance awards provide a target dollar amount that may be earned by the executive, which amount will be paid in shares of our common stock, subject to certain limited exceptions. The amount earned under the performance award will be between 0% and 150% of the award’s target value. The amount earned, if any, is dependent on the Company’s operating performance over a three-year period beginning on January 1, 2022 and ending December 31, 2024, relative to the performance of a designated peer group of insurance companies selected by the Committee. In 2021, the Committee reviewed the peer group selected for the performance awards in 2019 and confirmed that the companies selected continued to be significant competitors of the Company in the workers’ compensation markets in which it operates. The following 22 companies comprise the performance peer group for the 2022 performance awards under the LTIP:
|
|
• Accident Fund Group |
• Employers Insurance Group |
|
|
• ACUITY |
• FCCI Mutual Insurance Company |
|
|
• Alaska National Insurance Co. |
• Federated Mutual Insurance Company |
|
|
• Amerisure Mutual Insurance Company |
• FFVA Mutual Insurance Company |
|
|
• BITCO General Insurance Company |
• Great West Casualty Company |
|
|
• BITCO National Insurance Group |
• Louisiana Workers Compensation Corp. |
|
|
• Builders Insurance |
• National American Insurance Company |
|
|
• Builders Mutual Insurance Company |
• National Interstate Corporation |
|
|
• Cincinnati Financial Corporation |
• Protective Insurance Corporation |
|
|
• Donegal Insurance Group |
• Sentry Insurance |
|
|
• Eastern Insurance Holdings |
• West Bend Mutual Insurance Company |
Consistent with the 2021 awards, the Committee selected the following two metrics to measure the Company’s operating performance under the 2022 performance-based awards: combined ratio (“CR”), and direct premiums written (“DPW”), each determined on the basis of statutory accounting principles used by insurance companies (including the Company) in filings made with state regulatory authorities. The Committee selected these measures as they were deemed to be significant performance comparisons for insurance companies, including the Company. However, for the 2022 awards, the Committee slightly altered the weight of each metric, reducing the weight of CR by 10% and correspondingly increasing the weight of DPW by the same percentage placing an increased emphasis on the growth of direct written premiums. The Committee also eliminated the total shareholder return adjustment factor, which was used for long-term incentive awards granted prior to 2022 and is further described below.
|
|
|
LTIP Metrics |
Weighting |
Description |
Combined Ratio |
60% |
Defined as standard industry profitability measure and is calculated as the sum of: (1) incurred losses divided by net premiums earned; (2) underwriting expenses divided by net premiums written; and (3) dividends to policyholders divided by net premiums earned. |
Direct Premiums Written |
40% |
Defined as gross premiums written minus assumed premiums written (for mandatory pooling arrangements) |
30
Calculation of Earned Amounts under the 2022 Performance Awards. Following the end of the applicable three-year performance period, the Committee will determine the percentage of the target award earned (the “Earned Value”) as follows:
Step 1: Application of Threshold Basis Points Concept to Calculation of Awards. In designing the performance-based award under the LTIP, the Committee recognized that the Company had demonstrated outstanding operating performance and consistently outperformed the workers’ compensation industry, including the peer companies listed above. As a consequence, the Committee’s award design considered this historical performance when determining the level of performance that would result in maximum payout under the performance-based awards. The Committee incorporated the concept of threshold basis points (“TBP”) into the calculation of the Earned Value. TBP is the amount by which the Company’s performance for each measure must exceed the results of the performance peer group for the payout of that measure to equal two times the target level (as noted above, the overall award is limited to 150% of the target award value). TBP is expressed in basis points (“BP”). The first step in the calculation of the Earned Value is to compare the performance of the Company over the performance period to that of the 22 companies in the peer group for the applicable performance and to determine whether the TBP level for each measure has been achieved. The TBP for each measure in the 2022 performance awards were as follows:
|
|
|
|
|
|
|
Metric |
Form |
Threshold
Points |
Threshold |
Target |
Maximum |
Limits |
Statutory Combined Ratio |
Relative to 22 peers |
1200 |
1200 BP < or = to peer
group |
Results
= peer
group |
1200 BP >
or = to peer group = 2x target |
Payout factor
cannot be <-1 |
Statutory Growth in Direct Premiums Written |
Relative to 22 peers |
500 |
500 BP <
or = to peer
group |
Results
= peer
group |
500 BP >
or = to peer group = 2x target |
Payout factor
cannot be <-1 |
Total sum of metric results |
|
|
zero |
100%
of target |
150% of target award |
|
Step 2: Conversion of Earned Value to Shares of Common Stock. After determination of the Earned Value under each performance award, payment is made in shares of common stock (rounded to the nearest whole share) equal to (a) the Earned Value under the award divided by (b) the volume weighted trading price per share of common stock for the 10 trading days immediately preceding the date the value of the award is approved by the Committee (after the expiration of the three-year performance period).
Payout of the 2019-2021 Performance Awards. The 2019-2021 performance award payouts were calculated by determining the payout level based on CR and DPW metrics, and whether the payout was to be reduced if the total shareholder return ("TSR") of the Company was more than 500 basis points lower than the total shareholder return of 50% of the S&P Property Casualty Insurance Small Cap Index and 50% of the S&P Property & Casualty Insurance Mid Cap Index over the three-year period. The TSR measure could not increase payouts under the awards, but was only used to reduce the payout if the Company TSR lagged the index by more than 500 basis points and could be further reduced if the payout factor was then subject to a 1.5 times target compensation cap. For the 2019-2021 awards, the TSR measure operated as a third metric in the award design and reduced the uncapped payout factor by 37.5 basis points for every 500 basis points of under-performance in the TSR factor, subject to a maximum 25% reduction in the uncapped payout factor. As reflected in the tables below the TSR measure resulted in a reduction in the payout of the 2019-2021 performance awards.
31
The following table sets forth the weighting of performance measures established under the performance awards for the 2019 - 2021 performance period, and the results achieved. The shares of common stock earned under this award were issued in May 2022.
|
|
|
|
|
|
|
|
|
|
|
Metric |
Weighting of Metric |
|
Threshold
BP |
|
Peer Result |
Company
Result |
Company/Peer
BP Difference |
Calculated
Payout
Factor (1) |
|
Payout
Factor
Used |
Statutory Combined Ratio |
80% |
|
1,200 |
|
91.7% |
78.8% |
(1,284) |
2.070 |
|
2.070 |
Statutory Growth in Direct Premiums Written |
20% |
|
500 |
|
(1.8)% |
(7.6)% |
(580) |
(0.161) |
|
(0.161) |
Total Shareholder Return (2) |
(37.5)% |
|
500 |
|
37.4% |
19.5% |
(1,785) |
(2.570) |
|
(2.570) |
__________
1.For each executive, the total performance award is calculated using the weighting applied of each metric to the applicable payout factor.
2.TSR reduces the payout factor by 37.5 basis points for every 500 basis points of underperformance, capped at a negative 25% of the uncapped award before applying the 1.5 times award cap.
The following table sets forth the applicable target values, as well as the final payout, under the performance award for the 2019-2021 performance periods for each named executive officer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
Target Value of
Performance
Award |
|
|
Bonus
Factor (2) |
|
|
Award Value as of
May 19, 2022 |
|
|
Number of
Common
Shares (3) |
|
G. Janelle Frost |
|
$ |
731,500 |
|
|
|
1.374 |
|
|
$ |
1,004,860 |
|
|
|
20,899 |
|
Andrew G. Omiridis (1) |
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
Vincent J. Gagliano |
|
$ |
173,250 |
|
|
|
1.374 |
|
|
$ |
237,993 |
|
|
|
4,947 |
|
Andrew B. McCray |
|
$ |
136,373 |
|
|
|
1.374 |
|
|
$ |
187,335 |
|
|
|
3,894 |
|
Kathryn H. Shirley |
|
$ |
159,500 |
|
|
|
1.374 |
|
|
$ |
219,105 |
|
|
|
4,554 |
|
Neal A. Fuller |
|
$ |
233,750 |
|
|
|
1.374 |
|
|
$ |
321,102 |
|
|
|
6,675 |
|
__________
1.Mr. Omiridis joined the Company in September 2022; therefore, he did not receive a 2019-2021 performance award.
2.The bonus factor is the sum of the weighting of each performance measure applied to the applicable payout factor. Combined ratio (2.070 x .80) + Direct Premiums Written ((0.161) x .20) – Total Shareholder Return (0.250) = 1.374.
3.Based on the volume weighted trading price per share for the 10 trading days immediately preceding the date the value of the award is approved by the Committee.
32
Current Estimates of Potential Payout Value of Outstanding Performance Awards. The following table shows the estimated potential payout of the performance-based awards granted in 2020, 2021 and 2022 as of September 30, 2022, which is the most current information available to the Company. These estimated values are presented for information purposes only, as the actual payout values will be determined following the end of the respective performance periods and will be impacted by the Company’s performance during the remainder of the performance periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
Target Value of
Performance
Award |
|
|
Current
Performance
Factor
Estimate (1) |
|
|
Estimated
Award Value
as of 9/30/2022 |
|
G. Janelle Frost |
|
|
|
|
|
|
|
|
|
2020-2022 Performance Period |
|
$ |
749,100 |
|
|
|
1.259 |
|
|
$ |
943,343 |
|
2021-2023 Performance Period |
|
$ |
749,100 |
|
|
|
1.163 |
|
|
$ |
871,268 |
|
2022-2024 Performance Period |
|
$ |
771,100 |
|
|
|
1.140 |
|
|
$ |
879,345 |
|
|
|
|
|
|
|
|
|
|
|
Vincent J. Gagliano |
|
|
|
|
|
|
|
|
|
2020-2022 Performance Period |
|
$ |
177,100 |
|
|
|
1.259 |
|
|
$ |
223,022 |
|
2021-2023 Performance Period |
|
$ |
177,100 |
|
|
|
1.163 |
|
|
$ |
205,983 |
|
2022-2024 Performance Period |
|
$ |
182,050 |
|
|
|
1.140 |
|
|
$ |
207,606 |
|
|
|
|
|
|
|
|
|
|
|
Andrew McCray |
|
|
|
|
|
|
|
|
|
2020-2022 Performance Period |
|
$ |
160,050 |
|
|
|
1.259 |
|
|
$ |
201,551 |
|
2021-2023 Performance Period |
|
$ |
160,050 |
|
|
|
1.163 |
|
|
$ |
186,152 |
|
2022-2024 Performance Period |
|
$ |
163,350 |
|
|
|
1.140 |
|
|
$ |
186,281 |
|
|
|
|
|
|
|
|
|
|
|
Kathryn H. Shirley |
|
|
|
|
|
|
|
|
|
2020-2022 Performance Period |
|
$ |
163,350 |
|
|
|
1.259 |
|
|
$ |
205,707 |
|
2021-2023 Performance Period |
|
$ |
163,350 |
|
|
|
1.163 |
|
|
$ |
189,990 |
|
2022-2024 Performance Period |
|
$ |
167,750 |
|
|
|
1.140 |
|
|
$ |
191,298 |
|
|
|
|
|
|
|
|
|
|
|
Neal A. Fuller (2) |
|
|
|
|
|
|
|
|
|
2020-2022 Performance Period |
|
$ |
239,250 |
|
|
|
1.259 |
|
|
$ |
301,288 |
|
__________
1.The performance factor estimate for each award as of September 30, 2022 is based upon (a) actual Company data from the beginning of the applicable performance period through September 30, 2022, and (b) actual peer company data from the beginning of the applicable performance period through December 31, 2021 and an estimate of peer company data for the first nine months of 2022. Because of the timing of when information becomes available regarding the peer group performance, the Committee expects that the payout value of the awards for the 2020-2022 performance period will be determined late in the second quarter of 2023. Regardless of performance, the performance factor estimate is capped at 1.5 times target compensation.
2.Mr. Fuller's long-term incentive awards granted in 2021 and 2022 were forfeited as a result of his relinquishment of the role of Chief Financial Officer in September 2022 and subsequent retirement from the Company in December 2022.
Special Award to Chief Financial Officer. In connection with Mr. Omiridis' commencement of employment in September 2022, the Committee approved a grant to Mr. Omiridis of restricted stock units with a target value of $1,100,000. This award was not part of our regular LTIP. The award vests in four annual installments of 35%, 15%, 20%, and 30%, on each of the first four anniversaries of the grant date, respectively. This award serves as a retention tool due to the extended vesting period established in the award and provides an immediate alignment with stockholder interests. The award also compensated Mr. Omiridis for compensation forfeited from his prior employer. This award is reflected below under “Executive Compensation – Grants of Plan Based Awards.”
33
Employee Benefits. We do not provide our executives or other employees with defined benefit pensions, supplemental retirement benefits, post-retirement payments or deferred compensation programs. We do provide a 401(k) defined contribution plan that is available to all employees. We match 50% of employee contributions up to 6% of compensation for participating employees, subject to limitations under applicable law. Our executives and other employees are fully vested in Company contributions under this plan after five years. We also provide health, life and other insurance benefits to our executives on the same basis as our other full-time employees.
Severance and Change-in-Control Benefits. We have employment agreements with each of our executive officers. These employment agreements provide each executive officer with severance compensation consisting of cash payments paid in monthly installments and continued health benefits for a period of 12 months (18 months for our chief executive officer), in the event that an executive’s employment is terminated by us without cause or by the executive under certain qualifying circumstances. The cash severance payment for the covered executives (other than our chief executive officer) is an amount equal to the officer’s then current annual base salary plus the average of the three most recent annual incentive bonuses received by the executive. For our chief executive officer, the cash severance payment is one and one-half times the amount described in the preceding sentence. These employment agreements also provide that the terminated executive will not engage in activities that are competitive with our business for 12 months (18 months for our chief executive officer). For additional information regarding the employment agreements with our executives, see “Executive Compensation – Employment Agreements” below.
Performance-based LTIP awards partially vest upon death, disability, retirement or a termination of employment without cause or for good reason following a change in control of the Company. These awards do not vest solely upon a change in control and with respect to the performance awards, the partial vesting remains conditioned upon the achievement of the performance measures. To qualify for partial vesting upon retirement, an executive officer must be at least age 60, have 10 or more years of service with the Company and not have accepted a substantial employment or consulting arrangement with another company engaged in the workers’ compensation insurance industry.
The Committee believes that these benefits are necessary and appropriate in order to attract and retain qualified executive officers as these benefits are generally made available by other companies. In addition, the Committee recognizes that it may be difficult for our executive officers to find comparable employment in a short period of time. Therefore, these benefits, particularly the severance payments, address a valid concern, making an executive position with our Company more attractive. These issues are particularly significant to us, given that our corporate headquarters is not located in a major metropolitan area and it is unlikely that our executives could secure comparable employment without relocating to another city. The Company does not provide excise tax gross-ups under any change in control arrangement.
In connection with Mr. Fuller's departure from the Company in December 2022, the Board determined that he would remain eligible to receive a payout with respect to his 2020-2022 performance-based LTIP award based on actual performance for the full performance period. Mr Fuller forfeited all other unvested equity awards that he held as of his separation date. Additionally, the Board determined Mr. Fuller would remain eligible to receive the payout with respect to his 2022 annual incentive plan award.
Executive Perquisites. We also provide a limited number of perquisites that the Committee believes enhance our ability to attract and retain qualified executives. These perquisites include car allowances, disability insurance and reimbursement for annual medical examinations. Our executive officers are also permitted to accrue up to 300 hours of vacation, a limit slightly higher than the 240 hour maximum available to employees with more than 15 years of service. The Committee believes that this policy is appropriate given that the management responsibilities of our executive officers often do not permit them the flexibility to use their vacation time on an annual basis. During 2022, the Company also provided a cash payment to Mr. Omiridis for expenses associated with his move to our corporate headquarters. The Company does not provide tax gross-ups on these perquisites or additional benefits. For additional information regarding perquisites provided to our executives, see “Executive Compensation—Summary Compensation Table – All Other Compensation.”
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Compensation-Related Policies
Clawback Policy. The Committee has adopted a formal policy regarding recovery of incentive awards for fiscal years for which the Company is required to file a restatement of its financial statements with either the SEC or any state insurance authority. This policy is incorporated in both the annual and long-term incentive compensation award agreements with each of the Company’s executive officers, and permits the Committee to seek recovery of incentive awards granted after adoption of the policy if there is a restatement of the Company’s financial statements. Under this policy, the Committee will consider any financial statement restatement in exercising its discretion in connection with determining the payout of incentive and other compensation awards for executives in the periods following such a financial statement restatement. We are currently working to update our clawback policy to incorporate the additional requirements reflected in the new Nasdaq listing standards, which were mandated by the Dodd Frank Act and are expected to become effective later in 2023.
Stock Ownership Guidelines. The Committee has approved stock ownership guidelines for our executive officers. The target ownership for our chief executive officer is a dollar amount equal to three times her average base salary and annual incentive bonus for the three immediately preceding calendar years. The target ownership for each of our other executive officers is a dollar amount equal to two times their average base salary for the three immediately preceding calendar years (or, if less, all complete calendar years employed by the Company). All forms of Company outstanding equity, whether vested or unvested, including common stock, restricted stock and restricted stock units, are counted for purposes of determining compliance with the ownership guidelines. The value of outstanding performance awards is not counted for purposes of the guidelines. In determining whether an executive meets the applicable guideline, the value of shares of common stock, including restricted stock, restricted stock units and shares purchased by executives in the open market, is based on the closing price of our common stock on the last trading day of the most recent calendar year.
Until an executive officer meets the ownership target provided under the guidelines, he or she is required to retain all shares received under the Company’s compensation plans, except for shares used to satisfy tax obligations. After an executive meets the applicable guideline, he or she is required to retain 20% of any shares obtained as the result vesting of a restricted stock award or payout of an LTIP performance award, net of shares sold to satisfy tax obligations.
The following table sets forth for each current executive officer the applicable stock ownership guideline and equity ownership as of December 31, 2022, measured in dollars, using the guideline methodology described above. As noted in the table, each of our current executive officers exceeds his or her ownership guideline except Mr. McCray, who joined the Company in May 2019.
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|
|
|
|
|
|
|
|
|
|
Executive |
|
|
|
Ownership |
|
|
Stock Ownership
Guideline |
|
G. Janelle Frost |
|
|
|
$ |
4,201,930 |
|
|
$ |
2,823,222 |
|
Anastasios G. Omiridis |
|
|
|
$ |
1,186,267 |
|
|
$ |
900,000 |
|
Vincent J. Gagliano |
|
|
|
$ |
1,024,381 |
|
|
$ |
650,000 |
|
Andrew B. McCray |
|
|
|
$ |
486,439 |
|
|
$ |
586,000 |
|
Kathryn H. Shirley |
|
|
|
$ |
719,265 |
|
|
$ |
599,333 |
|
Impact of Prior Awards on Future Grants. The Committee does not have a specific policy addressing the cumulative value of prior equity awards in making future awards. However, our Committee intends to continue to make appropriate executive compensation decisions annually, so that our executives receive a total compensation package that is both competitive and has a significant portion of compensation at risk. The Committee is mindful that payment under long-term performance awards is tied to the Company meeting or exceeding quantitative performance objectives and the increase in the value of our common stock (for restricted stock awards), with unvested awards also conditioned on continued employment. As a result, the Committee believes, as a general matter, that positive results with respect to prior incentive awards should not negatively impact future compensation decisions.
35