Directors who are employees of the Company
receive no additional compensation for their duties as directors. During 2018, nonemployee directors’ annual compensation
included an annual retainer fee of $75,000 each, payable quarterly, for their service on the Company’s Board of Directors
and its committees. The Lead Director received an additional $25,000 annual retainer, the Audit Committee Chairman and Compensation
Committee Chairman each received an additional $20,000 annual retainer, the Executive Committee Chairman received an additional
$5,000 annual retainer and the remaining committee chairmen received an additional $15,000 annual retainer, each payable quarterly,
for this additional service. Additionally, each nonemployee director will receive $2,000 for each Board of Directors meeting attended
in excess of six in-person meetings per year. The directors did not receive additional meeting fees in 2018.
In 2018, nonemployee directors were also
entitled to an annual award of restricted stock units under the 2014 Incentive Plan, the restrictions on which lapse the date
the nonemployee director leaves the Board of Directors, with a targeted award value at grant date of $230,000. The restricted
stock units are paid cash dividend equivalents in the amount of the cash dividend paid on our outstanding Common Stock from the
date of grant through the date the restrictions lapse. In 2018, these directors each received 9,900 restricted stock units, except
for Mr. Delaney, appointed on August 30, 2018, who received a pro-rata targeted award value at grant date of $77,507 resulting
in a grant of 3,210 shares.
Board members may participate in the Nonemployee
Director Deferred Compensation Plan, which provides each nonemployee director an opportunity to elect each year to take any, or
all, of the director’s annual cash retainer and additional fees for serving as lead director or as a committee chairman
in restricted stock units, valued at the closing price of the Common Stock on the date specified in the plan, in lieu of a quarterly
cash payment of such amounts. The terms of the restricted stock units are the same as those issued annually. All directors were
also reimbursed for travel expenses incurred for attending Board and committee meetings. For more information on director compensation,
see “Director Compensation Table” below.
It is the policy of the Board of Directors
that, unless determined otherwise, a director shall retire at the annual meeting following his or her 73
rd
birthday.
It is also the policy of the Board of Directors that a retiring CEO of the Company shall simultaneously retire from service on
the Board, unless the Board determines otherwise. One director, Mr. Kelley, reached his 73
rd
birthday during 2018. Upon
consideration of the policy, the Board determined that, due to the recent retirements under
the policy, resulting in over half of the incumbent directors having been appointed in the last three years, an additional year
of service by Mr. Kelley would enhance the continuity and stability of the Board and the continued integration of the newest members.
As a result, in February 2019, the Board determined that Mr. Kelley would be nominated to serve until the annual meeting in 2020.
Information on Standing Committees of the Board of Directors
Information on each of the Board’s
standing committees as of the date hereof is discussed below. The charters of each of the Board committees can be found on the
Company’s website.
Committees
|
Independent?
|
2018
Meetings
|
Dinges
|
Ables
|
Best
|
Boswell
|
Brock
|
Delaney
|
Kelley
|
Ralls
|
Watts
|
Corporate Governance
|
Yes
|
4
|
|
|
|
|
|
|
|
|
|
Audit
|
Yes
|
4
|
|
|
|
|
|
|
|
|
|
Compensation
|
Yes
|
4
|
|
|
|
|
|
|
|
|
|
Safety & Environmental
|
Yes
|
4
|
|
|
|
|
|
|
|
|
|
Executive
|
No
|
0
|
|
|
|
|
|
|
|
|
|
– Chairman of
committee
– Member of
committee
Corporate
Governance and Nominations Committee.
The function of the CGN Committee is to assist the Board in fulfilling its
responsibility to the stockholders by:
•
|
Identifying qualified individuals to become Board members and assisting the Board in determining the composition of the Board and its committees;
|
|
|
•
|
Assessing Board and committee effectiveness;
|
|
|
•
|
Developing and implementing the Company’s corporate governance guidelines; and
|
|
|
•
|
Taking a leadership role in shaping the corporate governance of the Company.
|
In accordance with its charter, the CGN Committee
has adopted minimum criteria for Board membership, which are discussed in more detail at “Director Nominations and Qualifications”
above.
Audit Committee.
The function of the Audit Committee is to assist the Board in overseeing:
•
|
The integrity of the financial statements of the Company;
|
|
|
•
|
The compliance by the Company with legal and regulatory requirements;
|
|
|
•
|
The independence, qualifications, performance and compensation of the Company’s independent auditors; and
|
|
|
•
|
The performance of the Company’s internal audit function.
|
It is the policy of the Audit Committee to
pre-approve all audit, review or attest engagements and permissible non-audit services, including the fees and terms thereof, to
be performed by the independent auditors, subject to, and in compliance with, the
de minimis
exception for non-audit services
described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934 and the applicable rules and regulations of the SEC. The
Audit Committee has delegated to each member of the Audit Committee authority to pre-approve permissible services to be performed
by the independent auditors. Decisions of a member to pre-approve permissible services must be reported to the full Audit Committee
at its next scheduled meeting.
Each member of the Audit Committee satisfies
the financial literacy and independence requirements of the NYSE listing standards. The Board has determined that Ms. Ables meets
the requirements of an “audit committee financial expert” as defined by the SEC.
|
- 2019 Proxy Statement
|
29
|
Compensation
Committee.
The function of the Compensation Committee is to:
•
|
Review and approve corporate goals and objectives relevant to the CEO’s compensation, evaluate the CEO’s performance in light of those goals and objectives, and determine, subject to ratification by the Board, the CEO’s compensation level based on this evaluation;
|
|
|
•
|
Provide counsel and oversight of the evaluation and compensation of management of the Company, including base salaries, incentive compensation and equity-based compensation;
|
|
|
•
|
Discharge any duties imposed on the Compensation Committee by the Company’s incentive compensation and equity-based compensation plans, including making grants;
|
|
|
•
|
Evaluate the independence of, and retain or replace any compensation consultant engaged to assist in evaluating the compensation of the Company’s directors, CEO and other officers and to approve such consultant’s fees and other terms of retention; and
|
|
|
•
|
Review the annual compensation of the directors.
|
During 2018, no member of the Compensation
Committee was an officer or employee of the Company or any of its subsidiaries, or formerly an officer of the Company or any of
its subsidiaries. During 2018, the Company had no compensation committee interlocks.
Safety and
Environmental Affairs Committee.
The function of the Safety and Environmental Affairs (Safety) Committee is to assist
the Board in providing oversight and support of the Company’s safety and environmental policies, programs and initiatives.
Among other things, the Safety Committee reviews our compliance with environmental, health and safety laws and regulations, pending
legislative and regulatory initiatives, training initiatives and, as needed, consults with outside and internal advisors regarding
the management of the Company’s safety and environmental policies, programs and initiatives.
Executive
Committee.
The function of the Executive Committee is to exercise all power and authority of the Board of Directors
in the event action is needed between regularly scheduled Board meetings and a meeting of the full Board is deemed unnecessary,
except as limited by the Company’s bylaws or applicable law. The Executive Committee did not meet during 2018.
|
- 2019 Proxy Statement
|
30
|
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
This Compensation Discussion and Analysis
(“CD&A”) provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices
in place during 2018, as well as the factors considered by our Compensation Committee of the Board of Directors (the “Committee”)
in making compensation decisions for 2018. This CD&A focuses on the compensation of our Chief Executive Officer, our Chief
Financial Officer and our three other most highly compensated officers for 2018 (the “NEOs”), namely:
Dan O. Dinges
|
Chairman, President & Chief Executive Officer
|
Scott C. Schroeder
|
Executive Vice President & Chief Financial Officer
|
Jeffrey W. Hutton
|
Senior Vice President, Marketing
|
Phillip L. Stalnaker
|
Senior Vice President, North Region
|
Steven W. Lindeman
|
Senior Vice President, South Region and Engineering
|
Our compensation plans and practices are
designed to align the financial interests of our NEOs with the financial interests of our shareholders. To that end, we provide
our NEOs with a competitive base salary, an annual cash bonus opportunity based on the achievement of specific goals aligned with
shareholder value creation and long-term incentives tied to long-term total shareholder return and annual cash flow attainment.
For the NEOs, in 2018 the level of at-risk pay ranged from 78% to 91% of the total annual compensation opportunity, with the CEO
having the highest level of at-risk pay.
2018 Performance Highlights – A
Record Year
2018 was another record year for Cabot in
delivering on its consistent strategy of maximizing returns on capital by developing the assets with the best returns—and
divesting those that do not meet our very high return standards—all within available cash flow. Due to this disciplined investment
strategy, Cabot achieved significant growth in Return on Capital Employed (“ROCE”)
(1)
to 15.9%—a level
never experienced by the Company—placing Cabot in the position of being one of the lowest-cost, highest-returns producers
in the industry. Consistent with our commitment made in 2016, we also returned significant amounts of capital to our shareholders.
Specifically, our accomplishments in 2018 include:
•
|
Free Cash Flow.
Generated free cash flow for the third consecutive year with 2018 free cash flow of $296.6 million, which is more than the previous two years combined.
(1)
|
|
|
•
|
Returns to Shareholders.
Returned approximately $1 billion to shareholders in 2018 through share repurchases of $904.1 million and cash dividends of $111.4 million (an over three-fold increase over 2017 returns to shareholders).
|
|
|
•
|
Production and Reserves Growth.
Grew production by 7% to a record 735 Bcfe and increased total proved reserves to a record 11.6 Tcfe, up 19% over 2017, even after selling assets representing 410 Bcfe of reserves, consisting of our Eagle Ford Shale and remaining East Texas assets.
|
|
|
•
|
Lowest Operating Costs.
Achieved new record lows for all-in finding cost of $0.30 per Mcfe for the 2018 investment program and unit cost, which averaged $1.76 per Mcfe.
|
(1)
|
Neither
ROCE nor free cash flow is a measure calculated in accordance with generally accepted accounting principles (GAAP). Please
see Appendix A for additional information.
|
|
- 2019 Proxy Statement
|
31
|
2018 Compensation Highlights
The following compensation outcomes in 2018
rewarded important near-term operating successes while aligning executives with the same stock price performance results experienced
by our long-term stockholders:
•
|
Total Shareholder Return (“TSR”) Performance Awards vested at 155% of target.
Due to our fifth-place ranking among our compensation peer group, performance shares granted to our executives in 2016 with vesting contingent upon our relative three-year TSR vested at 155% of target. The four peer companies that performed better than Cabot over the most recent performance period are considered oil companies by the investment community as they produce primarily oil, which experienced a more robust commodity price recovery over the period than natural gas, whereas Cabot produces primarily natural gas.
|
|
|
•
|
Annual cash bonus paid out at 160% of target.
Three of the five performance metrics for the 2018 annual cash incentive awards, including ROCE, met or exceeded maximum payout levels and were capped at payouts of 275% of target. Taking into account these successes and the value created from their results, as well as the achievement of significant strategic initiatives, the awards for the NEOs were paid out at 160% of target, including the discretionary strategic component.
|
|
|
•
|
Performance awards based on operating cash flow met target.
Our performance target for our hybrid performance shares of achieving at least $100 million of operating cash flow in 2018 was met, resulting in the annual vesting of hybrid performance shares granted to executives over the last three years.
|
|
|
•
|
Over 98% of shares voted approved executive compensation.
At our most recent annual meeting in May 2018, over 98% of the votes cast supported our executive compensation practices. Due to this high level of support, and our performance in 2018, the Committee continued our 2018 compensation practices substantially unchanged in 2019.
|
Our Pay for Performance Alignment
We have maintained consistent and disciplined
performance-based compensation programs for all of our executives. For many years, the Committee has awarded compensation opportunities
to our CEO and other executives that require meaningful relative stock price and absolute financial performance to deliver targeted
realized compensation levels. The allocation of 2018 compensation among salary, short-term incentives and long-term incentives
for our CEO and the other NEOs, on a weighted average basis, reflects this guiding principle, as show below:
Long-Term Incentives
In 2018, the Committee awarded 60% of each
executive’s long-term incentive opportunity in the form of performance shares payable solely on the basis of our total shareholder
return relative to our industry peer group over a three-year performance period (“TSR performance shares”). This metric
directly aligns the interests of our management team with those of our shareholders. Our TSR performance over the past three years
relative to our peers generated above-target payments for executives from the TSR performance shares. The CEO’s award and
the relative performance achieved for the most recently completed performance period are as follows:
|
- 2019 Proxy Statement
|
32
|
CEO TSR PERFORMANCE SHARE AWARDS
|
Target Value Awarded
|
Peer Rank Achieved
|
Percentage of Target
Achieved
|
Earned Award Value
|
Performance Period Achieved
(1)
|
|
|
|
|
2016–2018
|
$3,900,005
|
5
th
of 17
|
155%
|
$6,593,750
|
(1)
|
This
performance period ended December 31, 2018. Target value awarded is based on the number of performance shares awarded multiplied
by the closing stock price of the Company’s Common Stock on the date of grant, which was $20.49. The earned award value
is based on the closing stock price of the Company’s Common Stock on December 31, 2018, which was $22.35.
|
In 2018, we awarded 40% of each executive’s
long-term incentive value through hybrid performance shares that require threshold achievement based on a financial metric (see
“Hybrid Performance Shares” below). The hybrid performance shares vest on a three-year graduated schedule, with 25%
of the award vesting on each of the first two anniversaries of the date of grant and 50% vesting on the third anniversary. To date,
all the CEO’s hybrid performance share awards have satisfied the required performance criteria at their scheduled vesting
date.
Short-Term Incentive
In 2018, due to a preference expressed by
some investors in our ongoing shareholder outreach, the Committee elected to include ROCE, a financial return metric, in the short-term
incentive program for 2018. While Cabot’s short-term incentive program has always emphasized financial returns by pairing
growth metrics with cost metrics, the Committee undertook to adjust the metrics for 2018 to provide a more direct link between
the Company’s financial returns and rewards to executives by adding a ROCE metric and modifying the operating growth metrics
to further incentivize disciplined economic growth. In addition to this new return metric, we utilize four key performance metrics
for our annual cash bonus that we believe align with the primary value drivers for an exploration and production company and that
we believe can be most directly impacted by executives. The performance metrics are reserve growth per debt-adjusted share, finding
costs, production growth per debt-adjusted share, and unit costs. These metrics were chosen by the Committee because we believe
that reserve and production growth targets, when combined with goals for lowering finding and unit costs, have a high correlation
to increases in stock prices over the long-term, even with volatility in commodity prices in the short-term. The addition of the
“debt-adjusted per share” modifiers on the growth metrics also serve to reward disciplined capital spending. The combination
of operating metrics and financial metrics is designed to produce a focus on economic growth that produces returns to shareholders.
By linking the underlying costs with the related growth metrics, per debt-adjusted share, the Company promotes a focus on returns
on investment and disincentivizes growth without regard to costs and returns. In this way, executives are rewarded in the short-term
for creating long-term value for shareholders.
Effects of Say on Pay and Shareholder
Outreach
In setting 2018 executive compensation, the
Committee considered the outcome of the say-on-pay vote at the three most recent annual meetings as strongly supportive of our
pay practices and incentive programs. Those results were as follows:
•
|
95% in favor of the 2016 annual meeting;
|
|
|
•
|
95% in favor of the 2017 annual meeting; and
|
|
|
•
|
98% in favor of the 2018 annual meeting.
|
Furthermore, our shareholders have supported
our compensation programs since the imposition of the say-on-pay vote, with approval rates of 95% or above since the first vote
in 2011. As a result, the Committee concluded that the 2018 compensation paid to our NEOs and our overall pay practices were well-aligned
with shareholders’ interests and company performance. This conclusion was further affirmed by input received from our top
institutional shareholders during the period after the 2018 annual meeting and preceding the filing of this Proxy Statement.
|
- 2019 Proxy Statement
|
33
|
Overview of Our Compensation Program
Philosophy and Objectives of Our Compensation Program
The Committee oversees an executive compensation
program designed to attract, retain, and engage highly qualified executives and to capture value for shareholders. The primary
objectives of our compensation program are:
•
|
To align executive compensation with our business strategy;
|
|
|
•
|
To encourage management to create sustained value for the shareholders while managing inherent business risks;
|
|
|
•
|
To attract, retain, and engage talented executives; and
|
|
|
•
|
To support a long-term performance-based culture throughout the Company.
|
We achieve these objectives by:
•
|
Assigning in excess of 80% of NEO compensation to at-risk, performance-based incentive opportunities;
|
|
|
•
|
Tying incentive plan metrics and goals to shareholder value principles; and
|
|
|
•
|
Having balanced, open and objective reviews of goals and performance.
|
The Committee believes that each of these
objectives carries an equal amount of importance in our compensation program.
Our Compensation Practices
The following practices and policies ensure
that our executives’ compensation is aligned with shareholders’ interests.
What we do:
|
|
What we don’t do:
|
|
Emphasis on long-term, performance-based equity
compensation
|
|
|
No hedging or pledging of company stock by executive officers or directors
|
|
Short-term incentive compensation based on disclosed
performance metrics (with payout caps)
|
|
|
No excise tax gross-ups for executive officers appointed after 2010
|
|
Substantial stock ownership and retention requirements
for executive officers and directors
|
|
|
No vesting of equity awards after retirement if competing with Company
|
|
Provide for “double trigger” cash payouts in change-of-control agreements
|
|
|
No re-pricing or discounting of options or SARs
|
|
Clawback policy
|
|
|
No performance metrics that would encourage excessive risk-taking
|
|
Hold annual advisory “say-on-pay” vote
|
|
|
No dividend equivalents paid to executive officers on unvested equity awards until vested
|
|
Only independent directors on Compensation Committee
|
|
|
|
|
Use an independent compensation consultant
|
|
|
|
|
- 2019 Proxy Statement
|
34
|
Elements of Our Compensation Program
We use various components of executive compensation,
with an emphasis on variable compensation and long-term incentives. The components of executive compensation are presented in the
table below and discussed in more detail later in this section of the Proxy Statement.
Compensation
Component
|
|
Form/Timing
of Payout
|
|
Purpose
|
|
How We Determine Amount
|
Base Salary
|
|
Paid in cash throughout the year
|
|
Compensate fairly for position, experience, expertise and competencies.
|
|
Base salaries are targeted to approximate the compensation peer group median, taking into account the competitive environment, as well as the experience and accomplishments of each executive.
|
Annual Cash Incentive Bonus
|
|
Paid in cash after the year has ended and performance has been measured
|
|
Motivate and reward performance achievement against a set of business
and individual goals:
• Financial goals (unit costs, finding costs, ROCE)
• Operational goals (specific objectives tied to production
growth and reserve growth on a per debt-adjusted share basis)
• Discretionary objectives aligned with corporate strategy
• Qualitative performance evaluated by the Committee
|
|
Annual bonus opportunities are established as a percentage of
base salary and are targeted to approximate average industry bonus percentage levels for comparable executive positions.
Annual payout is determined by comparing actual performance during
prior year to established thresholds and a strategic component. The Committee retains authority to exercise negative discretion
in determining the total bonus pool.
|
Long-term Incentives
|
|
60% TSR performance shares payable in stock (and cash for achievement
over target)
Cliff vest three years from the grant date
40% hybrid performance shares payable in stock
Vest over three years (25% / 25% / 50%)
|
|
Promotes alignment of executive decisions with shareholder interests
through performance awards where value varies with Company stock performance relative to a peer group over a three-year performance
period.
Encourage executives to achieve multi-year strategic and financial
objectives. Annual vesting contingent upon operating cash flow exceeding $100 million.
|
|
The value of equity awards is generally targeted above the median
of the peer group, although other individual and Company circumstances influence the award amounts. Payout at target levels for
TSRs at median of peer group and up to 200% for top performance.
The value of equity awards is generally targeted above the median
of the peer group, although other individual and Company circumstances influence the award amounts. Annual vesting at target level
for achievement of performance goal in prior year and no vesting if not achieved.
|
2018 Executive Compensation
We believe the following executive compensation
policies and programs effectively serve the interests of the shareholders and the Company. The Committee has worked over the years
to devise, manage and provide an executive compensation program that is designed to meet its intended objectives and contribute
to the Company’s overall success.
|
- 2019 Proxy Statement
|
35
|
2018 Committee Activity
During 2018, the Committee held three regular
meetings, one in each of February, July and October. In addition, the Committee held a meeting in early January 2018 for the purpose
of certifying the results for the TSR performance share awards with a performance period of 2015–2017 that vested on December
31, 2017.
At the time the 2018 awards were granted
and periodically throughout the year, the Committee referenced the Fall 2017 competitive market study of the peer group by Meridian
Compensation Partners, LLC (“Meridian”), the Committee’s independent compensation consultant. Based on the study
and the CEO’s recommendations with respect to the other Company officers, the Committee determined 2018 salaries, bonus payouts
for 2017 performance, certified the 2017 results for payouts of a portion of each of the hybrid performance shares granted from
2015 to 2017, and the annual grant of long-term incentive awards for our officers. A detailed discussion of each item of compensation
can be found below under “2018 Compensation Decisions.”
Also at the February 2018 meeting and prior to making any compensation
decisions, the Committee reviewed a detailed analysis of stock ownership and retention levels for each NEO. Over the course of
the year, the Committee reviews each element of compensation for the NEOs, including elements of total direct compensation and
payments upon severance or change of control, as well as other benefits and perquisites. Lastly, at the February 2018 meeting,
the Committee and the Board of Directors discussed and approved the 2018 performance criteria for the 2018 cash bonus plan.
During 2018, the Committee reviewed an analysis
prepared by Meridian of 2017 executive compensation reported by our peer group. From the available 2017 survey information, the
Committee evaluated its compensation decisions relative to our peer group. The Committee also reviewed an analysis prepared and
presented by Meridian of current compensation issues and trends, including a 2018 competitive market study of executive compensation
among the peer companies. This analysis, along with other data and reports, is utilized in the Committee’s review of all
components of compensation in the following February meeting.
Industry Peer Group
We use one peer group for both compensation
competitive analysis and to measure the relative performance of our TSR performance shares. The Committee chose these companies
because they represent our direct competitors of similar size and scope in the exploration and production sector of the energy
industry, and include several companies that compete in our core areas of operation for both business opportunities and executive
talent. The peer group changes from time to time due to organic changes in the Company or its peers, business combinations, asset
sales and other types of transactions that cause peer companies to no longer exist or to no longer be comparable. The Committee
approves all revisions to the peer group. Based on 2018 year-end closing market prices, the market capitalization of companies
in our industry peer group ranged from approximately $1.9 billion to $22.4 billion. Our market capitalization at 2018 year-end
was approximately $9.5 billion.
The peer group for the two TSR performance
cycles that began in 2017 and 2018 is as follows:
•
|
Antero Resources Corporation
|
•
|
Marathon Oil Corporation
|
•
|
Chesapeake Energy Company
|
•
|
Murphy Oil Corporation
|
•
|
Cimarex Energy Company
|
•
|
Noble Energy Inc.
|
•
|
Concho Resources Inc.
|
•
|
Pioneer Natural Resources Company
|
•
|
Continental Resources Inc.
|
•
|
QEP Resources, Inc.
|
•
|
Devon Energy Corporation
|
•
|
Range Resources Corporation
|
•
|
Encana Corporation
|
•
|
Southwestern Energy Company
|
•
|
EQT Corporation
|
|
|
|
- 2019 Proxy Statement
|
36
|
In February 2019, one company in our 2018
peer group was merged out of existence, while another company announced it is pursuing strategic alternatives. Accordingly, the
Committee selected two replacements to bring our peer group back to our standard size of sixteen companies. Our peer group for
the 2019-2021 performance cycle is as follows (entrants in bold):
•
|
Antero Resources Corporation
|
•
|
EQT Corporation
|
•
|
Apache Corporation
|
•
|
Marathon Oil Corporation
|
•
|
Chesapeake Energy Company
|
•
|
Murphy Oil Corporation
|
•
|
Cimarex Energy Company
|
•
|
Noble Energy Inc.
|
•
|
Concho Resources Inc.
|
•
|
Pioneer Natural Resources Company
|
•
|
Continental Resources Inc.
|
•
|
Range Resources Corporation
|
•
|
Devon Energy Corporation
|
•
|
Southwestern Energy Company
|
•
|
Encana Corporation
|
•
|
WPX Energy, Inc.
|
Role of the Compensation Consultant
The Committee employs the services of an
executive compensation consultant. In 2018, the Committee engaged Meridian as its independent consultant, and Meridian has also
been retained by the Committee for 2019. Meridian is responsible for preparing and presenting a comprehensive competitive market
study of the compensation levels and practices for a group of industry peers. The Committee-approved industry peer group is listed
and described in more detail above at “Industry Peer Group.” Meridian is also responsible for preparing and presenting
an outside director compensation study using the same industry peer group. The Committee relies on Meridian for input on pay philosophy,
current market trends, legal and regulatory considerations and prevalence of benefit and perquisite programs. A representative
of Meridian attends all regular meetings of the Committee and participates in most executive sessions.
In October 2018, the Committee reviewed the
independence of Meridian, and found it to be independent and without conflicts of interest in providing services to the Committee.
In making such determination, the Committee considered the six factors established by the NYSE. Fees paid by the Company to Meridian
account for less than 1% of Meridian’s total annual revenues. The Committee reviewed Meridian’s policies and procedures
designed to prevent conflicts of interest. To the knowledge of Meridian, there are no personal relationships among Meridian partners,
consultants or employees and members of the Committee or the Company’s management. To the knowledge of Meridian, none of
the Meridian partners, consultants or employees providing services the Committee owns Company stock. Meridian works exclusively
for the Committee and performs no services directly for management. Management does not retain the services of a compensation consultant.
Role of Executives in Establishing Compensation
Our Chairman, President and CEO makes recommendations
at least annually, and as new officers are hired, to the Committee with respect to salary, bonus and long-term incentive awards
for all other executive officers. In making recommendations, our CEO considers input from Meridian’s independent competitive
market study, internal pay equity issues, individual performance and Company performance. The CEO’s recommendations are just
one of the factors considered by the Committee, in conjunction with the other factors discussed in this CD&A, in setting compensation
for all executive officers. The Executive Vice President and Chief Financial Officer (“CFO”), who is ultimately responsible
for human resources administration, provides the Committee with survey data from a wider group of companies in the energy sector
than the industry peer group described above, which the Committee uses for evaluation of non-executive compensation trends, and
general administrative support implementing the Committee’s decisions. The CEO and CFO also provide recommendations to the
Committee regarding appropriate bonus metrics, taking into account current industry drivers and Company
|
- 2019 Proxy Statement
|
37
|
strategic objectives, as well as appropriate
performance targets for each year. The CFO and his staff assist the Committee in determining bonus payouts by providing the calculations
of bonus metric achievement, which the Committee takes into account in determining the ultimate bonus payout pool each year. The
CEO and CFO, along with the Vice President and Corporate Secretary, attend the Committee meetings; however, the officers are excused
from the meetings to enable the Committee to meet privately in executive session, both with and without the compensation consultant
also being present. The executives listed above prepare materials and agendas for the Committee meetings and prepare the long-term
equity plans and award agreements, as directed by the Committee, for approval. The terms of all award agreements and the specific
individual awards for executives, however, are all approved by the Committee and, as needed, by the Board of Directors.
2018 Compensation Decisions
There are three major elements of the executive
in-service compensation program: (1) base salary, (2) annual cash incentive bonus and (3) long-term incentive equity awards. Company
perquisites are a minor element of the executive compensation program. This design generally mirrors the pay practices of the exploration
and production industry generally and our selected industry peer group. Our compensation is intentionally weighted toward long-term
equity-based compensation. Each element is described below.
Mr. Dinges, our Chairman, President and CEO,
has a significantly broader scope of responsibilities than the other named executive officers. The difference in compensation for
Mr. Dinges described below primarily reflects these differing responsibilities and, except as described below, does not result
from the application of different policies or decisions with respect to Mr. Dinges.
Base Salary
The Committee believes base salary is a critical
element of executive compensation because it provides executives with a base level of monthly income. The base salary of each executive,
including the NEOs, is reviewed and approved annually by the Committee. The CEO’s salary is established by the Committee
(and ratified by the Board of Directors) and the other executives’ salaries are established jointly by the CEO and the Committee.
Base salary is targeted for all executive positions near the median level of the peer group. Individual salaries take into account
our established salary policies and our current salary budget; the individual’s levels of responsibility, contribution and
value to the Company; individual performance; prior relevant experience; breadth of knowledge; and internal and external pay equity
issues. Base salary increases from 2017 to 2018 for the NEOs were 9% or less.
Name
|
|
Title
|
|
2017 Base Salary
|
|
2018 Base Salary
|
Mr. Dinges
|
|
Chairman, President and Chief Executive Officer
|
|
$
|
975,000
|
|
|
$
|
1,050,000
|
|
Mr. Schroeder
|
|
Executive Vice President and Chief Financial Officer
|
|
$
|
550,000
|
|
|
$
|
600,000
|
|
Mr. Hutton
|
|
Senior Vice President, Marketing
|
|
$
|
385,000
|
|
|
$
|
420,000
|
|
Mr. Stalnaker
|
|
Senior Vice President, North Region
|
|
$
|
385,000
|
|
|
$
|
420,000
|
|
Mr. Lindeman
|
|
Senior Vice President, South Region and Engineering
|
|
$
|
385,000
|
|
|
$
|
420,000
|
|
In 2018, the Committee reviewed two competitive
market studies for compensation of the peer group, prepared by our independent consultant. The Committee noted that Mr. Dinges’
2018 base salary of $1,050,000 was near the 50
th
percentile of the industry peer group for the 2018 competitive data.
The Committee views the CEO salary level as consistent with its philosophy of delivering a relatively higher percentage of CEO
compensation through long-term incentives. The base salary of the CFO was between the 50
th
and 75
th
percentile
and the base salaries of the other NEOs exceeded the 75
th
percentile of the peer group, due to individual experience
in each role and differences in peer
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|
organization management structures relative
to ours. The Committee views these salary levels as consistent with its compensation philosophy, given the long tenure of the current
NEOs in their positions and the breadth of responsibility borne by each of the NEOs, relative to their most comparable positions
at most of the peer companies. The Committee took no additional action to revise base salaries during the year.
Annual Cash Incentive Bonus
The annual cash incentive bonus opportunity
provides the NEOs, as well as other executives and key employees, with an incentive in the form of an annual cash bonus to achieve
overall business goals. The bonus opportunity is stated as a percentage of base salary and is set using the Committee’s philosophy
to target bonus levels (as a percentage of base salary) consistent with the competitive market for executives in similar positions.
Annual bonus opportunities are based on metrics and performance goals that are of primary importance to the Company during the
coming year and motivate executives to achieve those goals.
2018 Performance Metrics and Goals
The bonus plan was designed to emphasize
value-generating metrics, to link related metrics together to take into account the interrelated impacts of such metrics on value
creation, and to increase the overall payout potential for a breakout year, while reducing overall discretion. In response to our
2018 shareholder outreach and continued investor preference for companies in our industry to focus more on financial returns metrics
than operating metrics in setting executive compensation, our Committee undertook an initiative to add a financial returns metric
of Return on Capital Employed (ROCE) to our annual cash incentive bonus for 2018, weighted at 10%, and to reduce the weighting
of the two operating growth metrics accordingly. Additionally, a “per debt-adjusted share” modifier was added to the
reserve and production growth metrics to further incentivize and reward disciplined, economic growth. The resulting 2018 bonus
opportunity metrics and weighting is as follows:
|
Performance
Achievement Range
|
X
|
Conditional Multiplier
of 1.5x
|
X
|
Weighting
Factor
|
=
|
Bonus Achievement Range
(% of Target)
|
Reserve Growth Per Debt-Adjusted Share
|
|
|
Applies if both metrics greater than 100% achievement (subject to 275% maximum)
|
|
20%
|
|
|
0–55%
|
|
Finding Cost
|
|
|
|
15%
|
|
|
0–41.25%
|
|
Production Growth Per Debt-Adjusted Share
|
0-275%
|
|
Applies if both metrics greater than 100% achievement (subject to 275% maximum)
|
|
20%
|
|
|
0–55%
|
|
Unit Cost
|
|
|
15%
|
|
|
0–41.25%
|
|
Return on Capital Employed (ROCE)
|
|
|
No multiplier
|
|
10%
|
|
|
0–27.5%
|
|
Strategic Evaluation
|
|
|
|
20%
|
|
|
0–55%
|
|
Total Bonus Achievement
|
|
|
|
|
|
|
|
0–275%
|
|
|
|
|
|
|
Maximum Bonus Payout 250%
|
|
At the start of each year the bonus metrics
and performance goals are established with the target level of performance (100%) based on the operating budget approved by the
Board of Directors. The performance goals for no payout (0%) and a payout at 200% of target for each metric are also created at
this time. The bonus plan places a cap on the performance achievement for each metric at 275% of target, which allows for some
additional benefit for above-range performance, but removes the potential of one metric creating a disproportionate payout. Additional
parameters for the 2018 annual
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|
cash incentive bonus plan include a weighting
multiplier of 1.5 times for each of two grouped metrics if actual performance on each of the grouped metrics is at target (100%)
or above, up to the 275% maximum performance achievement per metric. The grouped metrics are (1) reserve growth per debt-adjusted
share and finding costs, and (2) production growth per debt-adjusted share and unit costs. The Committee established the weighting
multiplier on the grouped metrics to encourage a balanced approach to achieving operational goals and to discourage over-achievement
of one metric in a manner that adversely affects the grouped metric. For example, excessive spending on a development program could
help achieve the reserve growth per debt-adjusted share metric at levels above target levels, but cause finding costs to increase
to unacceptable levels. By grouping the reserve growth per debt-adjusted share and finding costs metrics together, and using a
weighting multiplier of 1.5 for achieving target or above on both metrics, the Committee is rewarding not only growth, but also
efficiency in operations, which we believe creates long-term shareholder value.
With respect to the strategic evaluation
metric, the Committee evaluates key influences on Company performance not taken into account in the other metrics. These may include
the management of capital spending, rates of return on our capital program, environmental and safety performance, net income performance,
organizational leadership and other factors the Committee deems to have been important in the prior year’s performance, and
may vary from year to year. The Committee follows no set performance targets relating to these factors. In general, the Committee
expects to award the target (100%) level of performance of the strategic evaluation metric in years when the Company meets internal
and external performance expectations with respect to these factors, but could assign no achievement to this metric (0%) up to
the maximum level of 275% of achievement of this metric. The strategic evaluation metric is not a grouped metric so there is no
additional weighting multiplier of 1.5 times on this metric.
The bonus plan has a maximum award payout of 250% of target in
the aggregate.
Determination of Bonus Payout
Upon completion of each fiscal year, the
bonus formula established for the bonus plan for that year, as described above, is calculated using the actual achievement for
each of the bonus metrics from the prior year, and the Committee’s assessment of the strategic evaluation component. The
formula yields a potential overall bonus pool payout, stated as a percentage of target. The CEO makes recommendations to the Committee
for annual bonuses to be paid to each executive officer (other than the CEO), based on the formulaic output for the total bonus
pool, with individual performance adjustments recommended by the CEO. The Committee references both the CEO’s recommendations
and the formula output in determining the bonuses to be paid to the NEOs other than the CEO. The Committee also retains discretion
to take into account the effect on the bonus metrics of unanticipated factors, such as acquisitions and divestitures, which are
not part of establishing the target metrics because the Company cannot budget these activities, when arriving at the approved total
bonus pool. When acquisition or divestiture activity occurs, for example, the Committee assesses its impact and exercises its discretion
to adjust for the impact on the overall bonus pool. The Committee will determine the total bonus pool payout, but individual awards
can vary from the payout, at the discretion of the Committee. The Committee will also take into account the formulaic output in
determining the CEO’s bonus payout, along with Company and individual performance, as discussed further below.
2018 Bonus Opportunity
In 2018 the Committee determined that target
bonus percentages for our NEOs would remain at 2017 levels for all NEOs. During 2018, the bonus opportunity for the NEOs was as
follows:
Executive
|
|
Title
|
|
Target Bonus (% of Salary)
|
|
Target Bonus Value
|
Mr. Dinges
|
|
Chairman, President and Chief Executive Officer
|
|
|
125
|
%
|
|
$
|
1,312,500
|
|
Mr. Schroeder
|
|
Executive Vice President and Chief Financial Officer
|
|
|
100
|
%
|
|
$
|
600,000
|
|
Mr. Hutton
|
|
Senior Vice President, Marketing
|
|
|
75
|
%
|
|
$
|
315,000
|
|
Mr. Stalnaker
|
|
Senior Vice President, North Region
|
|
|
75
|
%
|
|
$
|
315,000
|
|
Mr. Lindeman
|
|
Senior Vice President, South Region and Engineering
|
|
|
75
|
%
|
|
$
|
315,000
|
|
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40
|
In 2018, actual performance under the bonus metrics compared to
the performance goals was as follows:
|
|
* ROCE is not a measure calculated in accordance with generally
accepted accounting principles (GAAP). Please see Appendix A for additional information.
|
Our proved reserves at December 31, 2018
were 11.6 Tcfe, representing reserve growth of 19% over 2017. These reserves were added at a very efficient $0.30 per Mcfe. Production
growth of 7% helped drive down unit costs to the lowest level since 1998. In reaching a conclusion on the strategic evaluation
component of the bonus metrics, the Committee considered the Company’s level of performance in 2018—recording record
levels of production and reserves at a record low “all-in” finding cost—as well as the continued and significant
progress in portfolio rationalization, placing the Company at the top of its peer group in generating the free cash flow required
to consistently return capital to shareholders in the coming years. The Committee found that the strategies that were employed
for long-term value generation for our shareholders remain sound. The result of 2018 performance against all the bonus metrics,
including the strategic evaluation component, was that the total allocation for corporate performance was approved at 160% of target,
prior to adjustment for individual performance.
2018 CEO Payout
Upon completion of each fiscal year, the
Committee determines the CEO’s annual cash incentive bonus based on Company performance, the results of the bonus plan formula
described above and the Board’s annual CEO performance evaluation. The independent directors of the Board discuss and ratify
the CEO’s annual cash incentive bonus payment, considering the factors stated above and any factors relating to performance
that were particularly significant in the year in question.
For 2018, the Committee noted in particular:
•
|
the Company’s record operational and financial achievements, including record reserve levels and record low finding and unit costs, and one of the highest “Returns on Capital Employed” in the industry;
|
|
|
•
|
the generation of $296.6 million in free cash flow for the year, more than the previous two years combined;
|
|
|
•
|
the continued financial strength of the Company, allowing the return of approximately $1 billion to the shareholders; and
|
|
|
•
|
the overall efficiency of the organization, which has become one of the lowest cost producers in the industry with one of the lowest headcounts, highest capital efficiency and lowest capital intensity in the industry.
|
The Committee evaluated these factors and
concluded that they provide Cabot a solid foundation for 2019 and beyond. Based on this evaluation, the Committee approved the
CEO’s bonus payout for 2018 at 160% of target. The bonus payout for the other NEOs was also 160% of target. See “Executive
Compensation–Summary Compensation Table” below for actual bonuses paid to the NEOs.
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Long-Term Incentive Awards
In 2018, the Committee continued its established practice of awarding
two types of performance shares—TSR performance shares and hybrid performance shares—to provide long-term incentives
to our NEOs.
The award allocation to NEOs in 2018 is designed
to provide 60% of the targeted grant-date value from TSR performance shares and 40% from hybrid performance shares, which are time-vested,
subject to a performance condition. The total size of the long-term incentive awards is based on a number of factors, including
peer group and related industry competitive practice, which is used as a point of reference to gauge appropriate total compensation
levels for a company of our size, business complexity and growth profile. The Committee does not typically consider prior period
long-term incentive awards, such as the amount of equity previously granted and outstanding, or the number of shares owned, when
determining annual long-term incentive awards.
All long-term incentives awarded to our NEOs
in 2018 were granted under the 2014 Incentive Plan.
TSR Performance Shares
The Committee believes performance shares
based on the Company’s total shareholder return relative to that of its peers provides a strong link between the performance
of the executives and their pay, whereas other types of equity awards, such as stock options, may not. The Committee also believes
that a relative comparison of performance against peers over a three-year period, as opposed to a single year, provides a better
evaluation of how management performed under changing economic conditions. For these reasons, the Committee believes that our TSR
performance share awards are a good measure of performance versus the peer group and appropriately link stock performance and compensation.
To allow for payouts in excess of target without excessive dilution or the need to reserve shares in excess of target, all payouts
in excess of 100% of target are paid in the cash value of the shares, based on the closing trading price of our Common Stock on
the last day of the performance period. For additional information about the TSR performance shares, see the table “Grants
of Plan-Based Awards” below.
Hybrid Performance Shares
Due to restricted stock share limitations
under the 2014 Incentive Plan and consistent with its focus on performance, in 2018 the Committee again awarded hybrid performance
shares instead of restricted stock. The hybrid performance shares vest over a three-year period from the date of grant, with 25%
vesting in each of the first two years and 50% vesting in the third year, provided the Company has $100 million or more operating
cash flow in the fiscal year prior to the vesting date. Hybrid performance shares have less underlying volatility than traditional
performance shares, and therefore help manage attrition risk by creating a more sustained forfeitable stake in the Company. For
additional information about the hybrid performance shares, see the table “Grants of Plan-Based Awards” below.
Personal Benefits and Perquisites
We provide the NEOs with limited perquisites
and other personal benefits that the Company and the Committee believe are reasonable and consistent with the overall compensation
program to better enable us to attract and retain superior employees for key positions. The Committee periodically reviews the
level of perquisites and other personal benefits provided to the NEOs. In an effort to promote physical and financial health of
the NEOs, they are provided with club membership dues, a Company-paid physical examination for the NEO and his or her spouse, a
financial and tax planning stipend of up to $3,000 annually, life insurance, and spouse travel to certain business meetings. The
NEOs are reimbursed for these expenses only if they are incurred. The aggregate cost to the Company of the perquisites and personal
benefits described above for the NEOs for 2018 are included under “All Other Compensation” in the Summary Compensation
Table below.
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Other Compensation Policies
We offer all our employees, including the NEOs,
industry competitive benefits including medical and dental reimbursement, short-term and long-term disability plans, basic life
and accident insurance and an employee assistance program. We offer a retirement program consisting of both qualified and nonqualified
defined contribution savings plans. See “Elements of Post-Termination Compensation” below for further descriptions
of these programs.
Impact of Regulatory Requirements
Our performance shares, both TSR and hybrid,
granted prior to 2018 were intended to constitute “qualified performance based compensation” as defined under Section
162(m) of the Internal Revenue Code. The effect of that qualification is that compensation paid to covered employees pursuant to
the TSR performance shares and hybrid performance shares granted prior to 2018 should remain fully deductible, subject to the potential
affect of tax reform as described below.
Due to the elimination of the “qualified
performance based compensation” exemption under Section 162(m) by the Tax Cuts and Jobs Act (“Tax Act”) that
was enacted in December 2017, beginning in 2018, the compensation in excess of $1 million per employee paid to our
NEOs pursuant to the TSR performance shares, the hybrid performance shares and our annual cash bonus is no longer deductible by
the Company, except to the extent that the previously granted awards qualify for the grandfathering provisions applicable to binding
written contracts that are in effect on November 2, 2017, and are not materially modified. The Committee considered the effect
of the Tax Act on its 2018 compensation decisions and determined that it did not have a material effect, except that the Committee
did not use a “negative discretion” bonus plan for 2018 and will not use one in the future. The tax deductibility of
executive compensation, while a consideration evaluated by the Company in connection with the design of its compensation arrangements,
has not traditionally outweighed other considerations relating to employee compensation, including providing appropriate incentives
for performance, retention, risk management and other factors. Therefore, the loss of the Section 162(m) deduction is not expected
to have a significant impact on compensation design in 2019 and beyond.
Clawback Policy
In February 2018, our Compensation Committee
adopted a “clawback” policy to allow the Company to recoup paid compensation from current or former executive officers
in the event of a material financial statement restatement if the executive’s intentional misconduct caused, in whole or
in part, the restatement. The amount of compensation recouped would be that which the executive would not have received if the
financials had been properly reported at the time of first public release or filing with the SEC. Both cash and all types of equity
compensation are covered by the policy. Our 2014 Incentive Plan makes any award pursuant to the plan subject to any clawback policy
adopted by the Committee, so by accepting any award under that plan, each executive agrees to be bound by the policy. The Committee
believes that this clawback policy furthers the interests of the Company and shareholders in preventing an executive from being
unjustly enriched through misconduct that results in a financial restatement that harms all shareholders. The Committee will continue
to monitor the actions of the SEC with regard to the proposed regulations implementing the clawback provisions of Section 954 of
the Dodd-Frank Wall Street Consumer Protection Act and will take action to amend the policy to comply with any such regulations,
as necessary, when they are finalized.
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Elements of Post-Termination Compensation
Savings Investment Plan
The savings investment plan is a tax-qualified
retirement savings plan, or 401(k) plan, in which all employees, including the NEOs, may participate. It allows participants to
contribute the lesser of up to 50% of their annual salary, or the limit prescribed by the Internal Revenue Service, on a pre-tax
basis. We match 100% of the first six percent of a participant’s eligible pre-tax contribution. Participants are 100% vested
in the Company’s contributions after five years of service, vesting 20% per year.
During 2018, the Company contributed 10% of salary
and bonus of all eligible employees, including all eligible NEOs, into the 401(k) plan (or into the nonqualified deferred compensation
plan to the extent in excess of the qualified plan limits). Participants are 100% vested in the contributions after five years
of service, vesting 20% per year. The Company’s contribution is approved annually by the Board of Directors.
Deferred Compensation Plan
The nonqualified deferred compensation plan provides
supplemental retirement income benefits for our NEOs, other officers and other key employees, through voluntary deferrals of salary,
bonus and certain long-term incentives. It also allows for the Company to provide its full 6% match and 10% non-elective contribution
when contributions of the matching amount cannot be made to our 401(k) plan due to federal income tax limitations. The plan allows
the officers to defer the receipt and taxation of income until retirement from the Company. We make no additional contributions
to, nor do we pay in excess of market interest rates on, the deferred compensation plan. Amounts deferred by an officer under the
deferred compensation plan are held and invested by the Company in various mutual funds and other investment options selected by
the officer at the time of deferral. For additional information about the deferred compensation plan, including the investment
options and the manner of distributions, see “Nonqualified Deferred Compensation” below.
Retiree Medical Coverage
NEOs are eligible for certain health benefits
for retired employees, including their spouses, eligible dependents and surviving spouses. The health care plans are contributory
with participants’ contributions adjusted annually. Employees become eligible for this benefit if they meet certain age and
service requirements at retirement.
Change in Control Agreements
We have change in control agreements with the
NEOs and the other executive officers that provide for cash payments and certain other benefits in the event that the employee
is actually or constructively terminated within two years of a change in control event. The agreements also provide for accelerated
vesting of all equity awards immediately upon a change in control, subject, in the case of the TSR performance shares, to the level
of the Company’s TSR performance relative to its peers as of the last day of the month immediately preceding the month in
which the change in control event occurs. When approving the plan, the Committee reviewed data regarding similar plans within the
peer group and the Company’s industry generally and applied its judgment to determine whether triggering events and benefit
levels under these agreements were necessary to meet the Committee’s objectives of encouraging such employees to remain with
the Company in the event of a change in control during circumstances suggesting a change in control might occur. The Committee
believes this program is important in recruiting and retaining strong leadership and to encourage retention in these situations
and that the “double-trigger” for cash payouts meets the stockholders’ expectations that employees not be unjustly
enriched upon a change in control.
The cash payments include three times the sum
of base salary and the highest bonus paid in the last three years or targeted to be paid in the year of termination. Benefits include
continued eligibility for medical, dental and life insurance for three years, provided the employee pays the premiums, three years’
service credit in retirement
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plans, limited outplacement assistance and tax
gross-up on excise taxes for agreements that were in place prior to 2010. In 2010, the Committee adopted a policy to exclude excise
tax gross-up provisions for change in control agreements adopted after that date.
The Committee generally views the potential payments
and benefits under the change in control agreements as a separate compensation element because such payments and benefits are not
expected to be paid in a particular year and serve a different purpose for the executive other than elements of compensation. Accordingly,
those payments and benefits do not significantly affect decisions regarding other elements of compensation.
Stock Ownership Guidelines
The CGN Committee and the Board of Directors
have adopted stock ownership guidelines for our officers and directors. Under those guidelines, nonemployee directors must hold
100% of their restricted stock units until they cease to be a director. The Chief Executive Officer and the Chief Financial Officer
and Executive Vice President are expected to hold shares of Cabot Common Stock with a market value equal to a minimum of eight
times their annual base salary. All Senior Vice Presidents and Vice Presidents are expected to hold shares of Cabot Common Stock
with a market value equal to a minimum of five times their annual base salary. All other executive officers are expected to hold
shares of Cabot Common Stock with a market value equal to a minimum of three times their annual base salary.
No sales will be approved
if such sale would cause the officer’s holdings to go below the minimum required shares and the required minimum level of
ownership is expected to be maintained at all times. For newly-appointed or promoted executive officers, there is a five year phase-in
period, during which time they are expected to hold all hybrid performance share vestings and 50% of value, in shares, of the after-tax
shares received upon the vesting of the TSR awards until such time as they have accumulated the required multiple of their base
salaries for their respective positions. Officers are required to maintain the required level of ownership, once achieved.
Each of our NEOs exceeds the stock ownership
required by the guidelines, as illustrated by the following graph:
(1) Based on the closing price of our common stock on February 1, 2019 of $25.07
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Anti-Hedging Policy
We have a policy prohibiting directors and officers
from speculative trading in Company securities, including hedging transactions, short selling, and trading in put options, call
options, swaps or collars. To our knowledge, all directors and executive officers are in compliance with the policy. The Company’s
policy also strongly discourages all other employees from engaging in hedging activities in our stock and any such transaction
requires notice and pre-approval, and will only be considered with a valid justification. We are not aware of any hedging activities
by our employees in 2018.
Executive Compensation Business Risk Review
The ownership stake in the Company provided by
our equity-based compensation, the extended vesting of these awards and our stock ownership guidelines are designed to align the
interests of our NEOs with our shareholders, maximize performance and promote executive retention. At the same time, the Committee
believes, with the concurrence of our independent consultant, that our executive compensation program does not encourage management
to take unreasonable risks related to the Company’s business. The factors that support this conclusion are our focus on long-term
incentive compensation, our use of balanced long-term incentives, metric diversification and capped opportunities in our annual
bonus plan and long-term incentives and our stock ownership guidelines.