Item 11. Executive Compensation
Compensation Discussion and Analysis
This Compensation Discussion and Analysis explains our executive pay program as established for the six individuals listed below, who collectively
constitute our named executive officers for 2016. At times we refer to our named executive officers other than Susan M. Cameron as the other named executive officers, and Joseph P. Fragnito as the new named executive officer. The compensation
for our named executive officers is presented in additional detail in the tables and narratives following this discussion and analysis in accordance with SEC rules.
Named Executive Officers
The table below lists the name, current (or former) title and current (or former) employer of each of our named executive officers for 2016:
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|
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Name
|
|
Title
|
|
Employer
|
Susan M. Cameron
|
|
Executive Chairman of the Board
|
|
RAI
|
Debra A. Crew
|
|
President and Chief Executive Officer
|
|
RAI
|
Andrew D. Gilchrist
|
|
Executive Vice President and Chief Financial Officer
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|
RAI
|
Martin L. Holton III
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|
Executive Vice President, General Counsel and Assistant Secretary
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|
RAI
|
Joseph P. Fragnito
|
|
President and Chief Commercial Officer
|
|
RJR Tobacco
|
Jeffery S.
Gentry
|
|
Former Executive Vice President
|
|
RJR Tobacco
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Transitions Involving Our Named Executive Officers During 2016
During 2016, we experienced a number of transitions involving our named executive officers:
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|
Ms. Cameron retired as President and CEO of RAI on December 31, 2016, and became Executive Chairman of the Board on January 1, 2017.
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|
Ms. Crew served as the President and Chief Operating Officer of RJR Tobacco through October 24, 2016. She became President and CEOElect of RAI on October 24, 2016, and became President and CEO of
RAI on January 1, 2017.
|
|
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|
Mr. Fragnito joined RJR Tobacco as its President and Chief Commercial Officer on October 24, 2016.
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|
In accordance with previously announced plans, Dr. Gentry departed from his role as Executive Vice President of RJR Tobacco on April 30, 2016.
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16
Executive Summary
Announcement of Entry into Agreement and Plan of Merger with BAT
On January 17, 2017, we announced that RAI had entered into an agreement and plan of merger with BAT, our largest shareholder, under which the BAT
Group will acquire the remaining 57.8% of RAI common stock that the BAT Group does not currently own. The transaction is expected to close in the third quarter of 2017, subject to shareholder and regulatory approvals, and other customary closing
conditions.
2016 Business Highlights
2016 was another milestone year for our businesses.
The completion of the integration initiatives for the Lorillard acquisition ahead of
schedule significantly strengthened RJR Tobaccos drive-brand portfolio and operational performance. Efficient execution of our operating companies drive-brand growth strategies resulted in strong performance for our operating
companies key drive brands. The $5 billion sale of NATURAL AMERICAN SPIRITs business outside the U.S. (completed in January 2016) enabled us to accelerate debt repayment and reduce our leverage ratio. Our operating companies
innovative products designed to meet the changing preferences of adult tobacco consumers are providing a solid foundation for long-term commercial success in a rapidly evolving marketplace, while underscoring our commitment to reducing the harm
caused by tobacco.
|
Key Business Highlights for 2016
* Strong growth in net sales and
earnings
* Completion of the
integration initiatives for Lorillard acquisition ahead of schedule
* Market share growth for NEWPORT and NATURAL AMERICAN SPIRIT premium brands
* Market share growth for Total Drive
Brands portfolio (NEWPORT, NATURAL AMERICAN SPIRIT, CAMEL and PALL MALL)
* Launch of RAI Innovations Company to drive
speed-to-market
of leading-edge products
* National launch of VUSE Vibe high volume cartridge and closed tank system as an addition to VUSEs
top-selling
product line in convenience/gas stores
* Sale of the international rights to the NATURAL AMERICAN SPIRIT brand
* Selection to Dow Jones Sustainability
World Index the top performing tobacco company
|
Outstanding total shareholder returns.
Our operating companies continued delivery of excellent
operating performance, including the impact of NEWPORTs successful integration, enabled us to accelerate returns to our shareholders in 2016. RAIs total shareholder return was 26% for 2016, was 151% for the three-year period from
2014-2016, and has significantly outpaced the S&P 500 over the past
one-,
three-, five- and
10-year
periods. We also continued to demonstrate our commitment to
returning value to our shareholders by increasing our quarterly dividend by 28% in 2016, and increasing our target dividend payout ratio to 80% of our adjusted net income.
Total Shareholder Return
(through
December 31, 2016)
Source: Bloomberg
17
Summary of 2016 Executive Compensation Program
Our executive compensation program is designed to help us (1) reward our management for strong performance and the successful execution of our
business plans and strategies, (2) align managements compensation interests with the long-term investment interests of our shareholders, (3) attract, motivate, and help retain exceptional management talent, and (4) provide
adequate pay to overcome the reluctance that some people may have to work in a controversial industry such as the tobacco industry. The Boards Compensation and Leadership Development Committee, sometimes referred to as the Compensation
Committee, is responsible for structuring and administering the program.
The principal components of the 2016 compensation program for our named
executive officers included:
Moderate fixed pay
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Base salary targeted at the revenue
size-adjusted
50
th
percentile of our peer group of food, beverage, tobacco and
non-durable
consumer goods companies.
|
Targeted total compensation amounts
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|
Total compensation opportunity targeted approximately 10% above the revenue
size-adjusted
median of our peer group of food, beverage, tobacco and
non-durable
consumer goods companies. This results from targeting annual cash compensation (base salary + target annual incentive) and stock-based incentives at the midpoint between the
size-adjusted
50
th
and 75
th
percentiles of the peer group. We do this to enhance our ability to compete for
executive talent in our industry.
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Performance-based incentives
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|
Balanced annual incentive program driven by both financial and marketplace performance; and
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Stock-based incentive program based entirely on performance and aligned with shareholder interests through links to stock price, dividend maintenance and financial and marketplace performance.
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2016 Pay Mix
RAI is committed to maintaining a pay for performance environment that strongly aligns compensation with results. The predominant portion of the total
compensation opportunity for our named executive officers is variable or at risk and designed to result in payouts that are directly linked to our actual performance for the respective performance period. The charts below provide a
breakdown of the 2016 pay elements (at target) for RAIs CEO (Ms. Cameron in 2016) and our other named executive officers (NEOs) (on average).
18
Components of 2016 Named Executive Officer Compensation Program
The principal components of compensation for our named executive officers in 2016 were as follows:
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Pay Element
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Purpose
|
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Description
|
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Link to Performance
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Base
salary
|
|
Attract and help retain leadership talent, provide a competitive basis of compensation that rewards core competence in the executive role and recognize the executives
skills, experience and contributions.
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Fixed portion of cash compensation.
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Base salary levels and base salary merit increases are tied to the individuals performance and influenced by peer
group compensation data for other executives in comparable positions.
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Annual
incentive
awards
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Provide executives with clear financial incentive to achieve critical short-term financial and marketplace goals linked to continued corporate growth and shareholder value
creation.
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Annual cash incentive payout based on company performance against
pre-established
corporate financial and operating targets.
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Payout based entirely on company performance on two equally weighted components: financial (adjusted earnings per share)
and marketplace (market share growth or wholesale shipment volume for specific key brand categories).
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Stock-
based
incentive
awards
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Align significant portions of executive compensation to company performance as measured by financial and marketplace performance, dividend maintenance and stock price growth
and promote the retention of executive talent.
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Performance-based awards in the form of performance shares, settled in stock, earned based on company financial and marketplace performance and dividend maintenance over a
three-year or
one-year
period.
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Payout value based entirely on company performance and aligned with shareholder interests through links to stock price,
dividend maintenance and financial and marketplace performance, with dividend equivalents only paid on shares actually earned.
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Retirement,
severance
and other
benefits
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Provide executives with appropriate financial safeguards for individual circumstances or events and meet competitive market practices with regard to such benefits.
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Health and welfare benefits, defined contribution and/or defined benefit retirement plans, life insurance, severance programs and other benefits generally provided to all
employees, and limited perquisites.
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Since these benefits are generally made available to all employees or offered to meet competitive market practices, there
is no specific performance component, but the programs function to help retain key executives.
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19
Pay for Performance
Summary of Key 2016 Compensation
Actions for Ms. Cameron
|
As noted in our prior proxy statements, due to Ms. Cameron rejoining RAI on May 1, 2014, her annual review cycle and related incentive
performance period run from May 1 through April 30. In May 2016, the Compensation and Leadership Development Committee and Board approved the following with respect to Ms. Camerons compensation:
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a merit increase of 6.0% of her base salary, driven by her Exceeds individual performance
rating, using the same review process used for all of our employees. Since Ms. Camerons base salary prior to the merit increase exceeded the market 65th percentile cap, her merit increase was paid to her in a lump sum and her 2016 base
salary remained unchanged;
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a 2015/2016 annual incentive award payout of 140% of her target annual incentive opportunity. The
Compensation and Leadership Development Committee and Board took into consideration the strong performance of RAI and its operating companies against the 2015 underlying performance metrics and her outstanding leadership and achievements on her
other performance goals; and
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|
performance shares granted in 2015 vested and were paid out in shares of RAI stock at 185% of target based
on the Compensation and Leadership Development Committees and Boards consideration of the achievements of RAI and its operating companies on the 2015 annual incentive program (score of 140%), Ms. Camerons outstanding
leadership and achievements on her other performance goals (particularly those related to the closing of the Lorillard transaction, the sale of the international rights to the NATURAL AMERICAN SPIRIT brand and CEO succession planning) and RAIs
satisfaction of the minimum cumulative dividend requirement for the performance period. The value of the performance shares granted to Ms. Cameron increased from $37.86 per share (as adjusted for the
two-for-one
split of RAI common stock effected in August 2015, referred to as the 2015 Stock Split) on the May 7, 2015 grant date to $49.86 per share (as adjusted for the 2015 Stock Split) on the
May 7, 2016 vesting date, the same increase in value experienced by our shareholders over the same time period.
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Summary of Key 2016 Compensation
Actions for Other Named Executive Officers
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The Compensation and Leadership Development Committee approved the following with respect to 2016 compensation for the other named executive
officers (except Mr. Fragnito):
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moderate merit increases in early 2016 of 3.0% to 6.0% of base salary for the other named executive
officers (except Mr. Fragnito), driven by individual performance ratings for the prior year, using the same review process used for all of our employees;
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annual incentive target increase of 5% for Ms. Crew to more closely align the target to
market;
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2016 annual incentive awards payout of 113% of target driven by above target performance on both adjusted
earnings per share and premium brands (NEWPORT and NATURAL AMERICAN SPIRIT) market share growth; and
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2014 performance shares vested and paid out in shares of RAI stock at 128% of target based on
(1) above target financial and marketplace performance over the 2014-2016 performance period, and (2) satisfaction of the minimum cumulative dividend requirement for that three-year performance period. The value of the performance shares
granted increased from $26.65 per share (as adjusted for the 2015 Stock Split) on the March 3, 2014 grant date to $61.39 per share on the March 3, 2017 vesting date, the same increase in value experienced by our shareholders over the same
time period.
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As demonstrated above, and as further illustrated in the analysis that follows, the compensation earned by our named
executive officers for 2016 was directly aligned with both our pay for performance philosophy and our actual performance over the respective performance periods.
20
Summary of Key 2016 Compensation
Actions for New Named Executive Officer
|
As discussed above, Mr. Fragnito joined RJR Tobacco as its President and Chief Commercial Officer in October 2016. RJR Tobacco provided
Mr. Fragnito with a compensation package consistent with its desire to attract exceptional management talent while also rewarding him for performance that aligns with the long-term investment interests of our shareholders. As discussed more
fully below, on October 17, 2016, Mr. Fragnito entered into an offer letter pursuant to which he receives:
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an initial annual base salary of $500,000;
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an initial annual target incentive opportunity of 100% of his annual base salary commencing in
2017;
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an initial target long-term incentive opportunity of 250% of his annual base salary in the form of a grant
of performance shares (subject to a dividend threshold and performance goals determined by the Compensation and Leadership Development Committee), which for 2016 was prorated and has a performance period from October 1, 2016 through
December 31, 2018;
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a retention grant in the form of restricted stock units with a target value of $1,000,000 (50% of which
generally will vest on December 15, 2017, and 50% of which generally will vest on December 15, 2018), which, upon its vesting, will be settled in shares of RAI common stock; and
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a
sign-on
bonus of $350,000.
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In addition, Mr. Fragnito is eligible for the other benefits provided to newly hired executives (including future retirement benefits under
the 401(k) retirement plan and participation in the Executive Severance Plan). The individual features of the compensation package provided to Mr. Fragnito are discussed in greater detail below.
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Executive Compensation and Governance Best Practices
Our Compensation and Leadership Development Committee, comprised entirely of independent directors, regularly monitors and implements best
practices in executive compensation and governance.
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What We
DO
|
✓
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Compensation and Leadership Development Committee directly retains an independent executive compensation consultant
|
✓
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Design compensation programs to align pay with actual performance
|
✓
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Use value-creating measures in incentive programs aligned with shareholder interests
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✓
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Set compensation component levels after consideration of peer group compensation market data
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✓
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Annually assess and design our compensation programs to mitigate compensation-related risks
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✓
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Maintain caps on annual and stock-based incentive awards
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✓
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Include clawback provisions in our incentive agreements allow for recoupment in certain situations
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✓
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Require double trigger equity vesting upon a change in control for 2016 and 2017 stock-based incentive awards
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✓
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Maintain anti-hedging policy applicable to executives and directors
|
✓
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Maintain robust stock ownership guidelines for executives and directors
|
✓
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Perform semi-annual reviews of tally sheets illustrating cumulative effect of compensation decisions
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✓
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Provide limited and modest use of perquisites with no income tax
gross-ups
|
✓
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Provide moderate severance arrangements that gain important protections for our businesses, such as
non-competition
and
non-disclosure
covenants and assistance with future litigation
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What We
DONT DO
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X
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No excise tax
gross-ups
for new executives (since 2009)
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X
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No history of backdating or repricing of stock options (we do not currently grant stock options)
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X
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No dividend equivalents paid on unearned performance shares
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X
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No counting of performance share awards or unvested restricted stock towards stock ownership guidelines
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21
Consideration of 2016
Say-on-Pay
Vote Results
In July 2016, the Compensation and Leadership Development Committee
reviewed the results of our 2016
say-on-pay
vote, in which we received over 93% approval from our shareholders of our named executive officer compensation,
our sixth consecutive year of greater than 92% approval. Given that, the Compensation and Leadership Development Committee continued the philosophy, compensation objectives and governing principles it has used in recent years when making decisions
or adopting policies regarding named executive officer compensation for 2016 and beyond. The Compensation and Leadership Development Committee regularly monitors voting policy changes adopted by our institutional shareholders and their advisors, and
will continue to take those voting policies into account when considering changes to our executive compensation program.
2016 Shareholder Engagement
During 2016, we continued to engage with several large institutional investors regarding our executive compensation program and our corporate governance
policies and practices. The feedback from these shareholders was generally favorable, and no significant concerns were raised.
The following
discussion should be read together with the information presented in the compensation tables, the footnotes and the narratives to those tables and the related disclosures appearing elsewhere in this 2016 Annual Report on Form
10-K.
Compensation Decision-Making Process
Compensation Philosophy and Objectives
Our executive compensation program serves two primary objectives: (1) reward our management for strong performance and successful execution of our
business plans and strategies; and (2) attract, motivate, and retain exceptional management talent. Consistent with these objectives, a meaningful portion of the annual compensation, and all of the long-term or stock-based incentive
compensation, of each named executive officer is variable and at risk in that the receipt or value of that compensation depends upon the attainment of specific performance goals by RAI and its operating companies that drive long-term
value. This compensation structure aligns managements interests with the long-term investment interests of our shareholders by tying a substantial portion of pay to performance.
As noted above, our total compensation opportunity is targeted each year at approximately 10% above the revenue
size-adjusted
median of a peer group of food, beverage, tobacco and
non-durable
consumer goods companies, referred to as the peer group. This is due to the need to
compete with other tobacco companies that tend to pay higher given both the controversial nature of the industry and the decline in the social acceptability of smoking. The Compensation and Leadership Development Committee periodically requests
evidence to support the existence of, and need for, higher executive compensation opportunities in the tobacco industry. The 10% differential is the result of the following process:
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Although we would prefer to compare our compensation program solely to other tobacco companies, there is only one U.S.-based, U.S.-oriented tobacco public company against which to directly compare. Thus, we begin our
benchmarking process with a broader peer group, the companies which we view as most comparable to our businesses and with which we compete for executive talent.
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We target base salaries at the
size-adjusted
median of the peer group. However, to approximate the higher pay of competitor tobacco companies, we target both our annual cash
compensation (base salary + target annual incentive) and our long term or stock-based incentives at the midpoint between the
size-adjusted
50
th
and 75
th
percentiles of what is mostly a
non-tobacco
peer group.
|
The result for 2016 was a pay philosophy approximately 10% higher than the revenue
size-adjusted
50
th
percentile of the peer group. This historically has allowed RAI to compete successfully for executive talent within our industry and in adjacent industries such as food, beverage and consumer
products.
22
Peer Group and Compensation Benchmarking
In evaluating and determining appropriate levels of base salary, annual incentive, and long-term or stock-based incentives for our named executive
officers, the Compensation and Leadership Development Committee annually reviews peer group information showing the compensation paid to executives holding similar positions at those companies in the peer group. In making its determinations about
total and individual component compensation opportunity levels, the Compensation and Leadership Development Committee considers such peer group information, along with factors such as internal equity and specialized job accountabilities. Based on an
analysis performed by Meridian, its independent compensation consultant, the Compensation and Leadership Development Committee approved the use of a peer group consisting of public companies in the food, beverage, tobacco and
non-durable
consumer products industries that were aligned in size with us (and then revenue
size-adjusted)
and provided the necessary data to benchmark our entire executive
population. This comparator peer group consisted of a combination of the only U.S.-based, U.S.-oriented public company that competes directly with our operating companies in the tobacco business Altria Group, Inc. and certain
companies outside the tobacco industry that sell brand-focused consumer products and have annual revenues ranging from approximately
one-half
to six times that of RAI. All peer group data is
size-adjusted
by Meridian through regression analysis using revenues as the independent variable. The peer group provides a useful comparison based, among other things, on their similarity in size, revenues, net
income, market capitalization and scope of operations, and represents those companies that RAI and its subsidiaries were most likely to compete against for their executive talent.
In the fourth quarter of 2015, at the Compensation and Leadership Development Committees direction, Meridian reviewed and confirmed, using
information from Aon Hewitts Total Compensation Measurement Database, compensation data for the same 25 peer companies used for the prior year. RAIs revenues for the prior fiscal year were $10.7 billion, an amount that was
moderately above the peer groups median annual revenues of $9.3 billion.
The peer group used by the Compensation and Leadership
Development Committee for its 2016 compensation decisions consisted of the same 25 peer companies operating in the food, beverage, tobacco or
non-durable
consumer products industries used for the prior year:
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2016 Executive
Compensation Peer Group
|
Altria Group, Inc. (MO)
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The Hershey Company (HSY)
|
Avon Products, Inc. (AVP)
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Hormel Foods Corporation (HRL)
|
Campbell Soup Company (CPB)
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The J. M. Smucker Company (SJM)
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The Clorox Company (CLX)
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Kellogg Company (K)
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The Coca-Cola Company (KO)
|
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Keurig Green Mountain, Inc. (GMCR)
|
Colgate-Palmolive Company (CL)
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Kimberly-Clark Corporation (KMB)
|
ConAgra Foods, Inc. (CAG)
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Kraft Foods Group, Inc. (KRFT)
|
Constellation Brands, Inc. (STZ)
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McCormick & Company, Incorporated (MKC)
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Dean Foods Company (DF)
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Mead Johnson Nutrition Company (MJN)
|
Dr Pepper Snapple Group, Inc. (DPS)
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Molson Coors Brewing Company (TAP)
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Energizer Holdings, Inc. (ENR)
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Mondelez International, Inc. (MDLZ)
|
The Estee Lauder Companies Inc. (EL)
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PepsiCo, Inc. (PEP)
|
General Mills,
Inc. (GIS)
|
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23
Analysis of 2016 Named Executive Officer Compensation Decisions
For 2016, our compensation program was again designed to focus our named executive officers on achieving our short-term and long-term financial and
strategic goals, and increasing shareholder value, while limiting excessive risk taking. In this way, 2016 compensation was tied specifically to our short-term and long-term performance.
Each element of compensation and our decisions regarding each element for 2016 fit within our overall pay philosophy and compensation objectives, and we
considered how each of such decisions affected our decisions on other elements as part of our 2016 executive compensation program review process.
The 2016 named executive officer compensation decisions related to each of these elements are discussed and analyzed below, together with information
about RAIs other compensation policies and practices.
Annual Compensation
Base Salary
The objective of base salary is to provide fixed compensation based on competitive market data. It is designed to reward core competence in the executive
role relative to skills, experience and contributions to the company. We choose to pay base salary because it is a standard element of pay for executive positions and is required to attract and help retain talented executives.
When determining the annual base salary for each of our executive officers when he or she is first hired as, or promoted to become, an executive
officer, we generally provide a market competitive salary targeted at or near the revenue
size-adjusted
50
th
percentile (median) of similarly situated
positions in the peer group, taking into specific consideration the persons responsibilities, experience, performance and, in the case of a new hire, whether such person is employed elsewhere (and, if so, at what base salary rate). Executive
officer base salaries below the
size-adjusted
median for similar positions in the peer group are reviewed annually against the peer group market data, and base salary market adjustments may be made to move
such base salaries towards the median on January 1 of each year.
The Compensation and Leadership Development Committee approves the initial
base salary for all executive officers at the senior vice president level and above, except for RAIs CEO, Chief Financial Officer and General Counsel, and RJR Tobaccos President, the compensation for which positions require the approval
of the independent members of the Board. In addition to any base salary market adjustments, each named executive officer, like all other employees, generally is eligible to receive an annual performance-based merit increase based on his or her
individual performance rating in the same manner and under the same merit increase table applicable to all other employees, as described below.
2016 Base Salary Decisions
.
Market
Data-Based Base Salary Adjustments
. After a review of peer group compensation market data provided by Meridian in December 2015, upon managements recommendation, no market data-based adjustments were made to the base salary of any named
executive officer for 2016. However, see the discussion of annual performance merit increases below.
Annual Individual Performance
Evaluations
. Each of our named executive officers (other than Ms. Cameron) serving with us at the beginning of 2015 established individual qualitative objectives for 2015 that were consistent with our fundamental core values (principled,
creative, dynamic and passionate behavior) and our strategic and operational goals for 2015. At the end of 2015, Ms. Cameron evaluated the performance of the other named executive officers serving with us at that time as to their 2015
individual qualitative objectives. Based on these evaluations, Ms. Cameron assigned each of such other named executive officers a performance rating corresponding to one of the five categories set forth below. In each case, the assigned
performance rating was not the result of any specific formulaic process or mathematical
24
calculation. Instead, Ms. Camerons subjective assessment of each such named executive officers overall achievement against his or her individual qualitative objectives during the
year, rather than a calculated amount for each objective, drove the determination of the subjective performance ratings.
Depending on each such
named executive officers performance rating, the named executive officer was eligible to receive a base salary merit increase, effective April 1, 2016, based on the following merit increase table approved by the Compensation and
Leadership Development Committee:
|
|
|
|
|
Performance
|
|
Rating
|
|
Merit Increase
Factor
|
Consistently and significantly exceeds
expectations
|
|
Exceeds
|
|
2.0 times target
|
Outperforms some expectations and fully meets
remaining expectations
|
|
High Achieves
|
|
1.25 times target
|
Fully meets expectations
|
|
Achieves
|
|
1.0 times target
|
Meets some but not all expectations
|
|
Almost Achieves
|
|
0.5 times target
|
Does not meet
expectations
|
|
Fails to Meet
|
|
0
|
Annual Performance Merit Increases
. Under our performance-based merit increase process, generally all employees,
including the named executive officers, receiving a rating in a particular performance rating category receive the same merit-based percentage increase in base salary for the next year. For 2016, management reviewed a market outlook and projected
2016 merit increase budget data for the food, beverage, tobacco and
non-durable
consumer products industries in general. After reviewing such information and our business outlook for 2016 to gain a general
understanding of the compensation environment, management recommended, and the Compensation and Leadership Development Committee approved, a target merit increase of 3.0% for 2016, an amount consistent with the median data for our peers.
Annual Performance Evaluation for Ms.
Cameron
. As noted above, Ms. Cameron rejoined RAI as its President and CEO on
May 1, 2014. As a result, her annual review cycle runs from May 1 through April 30. Her individual annual performance evaluation for the period from May 2015 through April 2016 was conducted in May 2016. The Compensation and Leadership
Development Committee, with input from the Board, evaluated Ms. Cameron on her individual qualitative objectives for the May 2015 through April 2016 performance period and assigned her a subjective performance rating in the same manner as
described above for the other named executive officers.
2016 Base Salary Decision for New Named Executive Officer
. The annual base salary
for Mr. Fragnito, who became the President and Chief Commercial Officer of RJR Tobacco on October 24, 2016, was determined by taking into specific consideration his responsibilities, experience, performance and base salary at his previous
employer. Upon the recommendation of the Compensation and Leadership Development Committee, the independent members of the Board approved an initial annual base salary of $500,000 for Mr. Fragnito. In the future, the Compensation and Leadership
Development Committee and the Board will evaluate his annual performance in the same manner described above for the other named executive officers.
Each named executive officers 2015 base salary, 2015 performance rating (if applicable), 2016 merit increase factor (expressed as a percentage of
such officers base salary immediately prior to such increase, if applicable), 2016 base salary merit increase (effective April 1, 2016, if applicable, except as otherwise noted below) and 2016 base salary (effective April 1, 2016, if
applicable, except as otherwise noted below), as approved by the Compensation and Leadership Development Committee or the Board (as applicable), are shown in the table below.
25
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Named Executive Officer
|
|
2015
Base Salary
($)
|
|
|
|
|
2015
Performance
Rating
|
|
|
|
2016
Merit
Increase
Factor
(%)
|
|
|
|
2016
Base Salary
Merit
Increase
($)
|
|
|
|
2016
Base Salary
($)
|
|
Susan M. Cameron(1)(2)
|
|
|
1,300,000
|
|
|
|
|
Exceeds
|
|
|
|
6.00
|
|
|
|
78,000
|
|
|
|
|
1,300,000
|
|
Debra A. Crew
|
|
|
766,000
|
|
|
|
|
High Achieves
|
|
|
|
3.75
|
|
|
|
28,700
|
|
|
|
|
794,700
|
|
Andrew D. Gilchrist
|
|
|
700,300
|
|
|
|
|
High Achieves
|
|
|
|
3.75
|
|
|
|
26,300
|
|
|
|
|
726,600
|
|
Martin L. Holton III(2)
|
|
|
606,700
|
|
|
|
|
Exceeds
|
|
|
|
6.00
|
|
|
|
36,400
|
|
|
|
|
635,142
|
|
Joseph P. Fragnito
|
|
|
N/A
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
500,000
|
|
Jeffery S.
Gentry(3)
|
|
|
524,000
|
|
|
|
|
Achieves
|
|
|
|
3.00
|
|
|
|
15,700
|
|
|
|
|
539,700
|
|
(1)
|
As noted above, Ms. Camerons annual performance evaluation for the May 2015 through April 2016 performance period was conducted in May 2016, and her merit increase was effective May 1, 2016.
|
(2)
|
As described in more detail below under
Base Salary Increase Limitations
, all, in the case of Ms. Cameron, and a portion, in the case of Mr. Holton, of the base salary merit
increases were paid in a lump sum to them.
|
(3)
|
Dr. Gentrys employment terminated on April 30, 2016.
|
Base Salary Increase
Limitations
. To ensure that base salary levels do not become too costly and do not escalate above a range that is competitive in the market, we generally impose a cap on the amount of the annual base salary of any salaried employee, including
the named executive officers. If an increase would cause the base salary to exceed the
size-adjusted
65th percentile for those persons in the peer group holding a comparable position, then the employee or
named executive officer receives (in the pay period following the effective date of the increase) the amount of such excess in a lump sum cash payment. Any such lump sum cash payment is not taken into account for purposes of calculating amounts
payable under the annual incentive plan, described below, but is considered in determining benefits under other plans, such as our defined contribution and defined benefit plans.
For 2016, Ms. Camerons base salary prior to her merit increase exceeded the 65
th
percentile cap. As a result, her entire merit increase was paid to her in the form of a lump sum. The 2016 merit increase for Mr. Holton placed him above the 65
th
percentile cap for his
position and, as a result, $7,958 of his merit increase was paid to him in a lump sum.
Annual Incentive Compensation
Overview of Annual Incentive Opportunity for 2016
. The objective of our annual incentive program is to promote the
attainment of critical annual goals that lead to our long-term success. It is designed to reward achievement of specified financial and marketplace goals. We choose to pay this compensation element in order to motivate achievement of annual
performance metrics critical to continued company growth and shareholder value creation.
A significant portion of each named executive
officers annual compensation is linked directly to the attainment of specific corporate financial and operating targets so as to have a material percentage of their annual compensation contingent upon the performance of RAI and its operating
companies. Greater responsibilities drive higher annual cash incentive opportunities.
Each named executive officer is eligible to receive an annual
cash incentive based on a target incentive opportunity expressed as a percentage of base salary, but the actual annual incentive payout may be higher or lower than the targeted amount, as explained in further detail below.
26
Annual Incentive Opportunity for Other Named Executive Officers
. In 2016, the annual
incentive cash opportunity for a specific group of executive officers, including the other named executive officers (except Mr. Fragnito, who was not eligible to participate in the annual incentive award program based on his hire date), was
provided under the shareholder-approved RAI Amended and Restated 2009 Omnibus Incentive Compensation Plan, referred to as the Omnibus Plan, with the intention that it would give us the ability to potentially take advantage of certain tax deductions
for performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, referred to as the Code. See
Deductibility of Compensation
below for additional information about our philosophy
on structuring our executive compensation for tax purposes.
For 2016, our annual incentive program for such other named executive officers involved
a maximum performance metric based on our cash net income results for the year and was designed to be eligible to qualify as performance-based compensation under Section 162(m) of the Code. Achievement of the maximum performance metric established a
maximum limitation on the dollar amount of the annual cash incentive that could be paid to each other named executive officer for the 2016 performance period (specifically by establishing a maximum award pool that could be paid to each such other
named executive officer). As permitted under the Omnibus Plan, the Compensation and Leadership Development Committee, using negative discretion, could then pay an annual incentive amount less than such maximum award pool (subject to any other award
limitations contained in the Omnibus Plan) to each such other named executive officer guided by its review and consideration of the performance of RAI and its operating companies against underlying performance metrics and targets more reflective of
the performance of the companies regarding the specific business goals for the year, as explained in more detail below.
2016 Annual
Incentives for Other Named Executive Officers
.
In February 2016, the Board and the Compensation and Leadership Development Committee approved a performance formula based on RAIs cash net income (a performance metric previously
approved by RAIs shareholders) for determining a maximum annual incentive award pool under the Omnibus Plan for 2016 for each other named executive officer serving at such time. Under the formula, the award pool for each of such other named
executive officers was determined based on the following percentages of RAIs cash net income for the 2016 performance period Ms. Crew: 0.25%; Mr. Gilchrist: 0.25%; Mr. Holton: 0.25%; and
Dr. Gentry: 0.25%. For purposes of determining all incentive award pools described herein, the term cash net income means net income from continuing operations in the consolidated statement of income adjusted to eliminate the
impact of
non-cash
items, such as depreciation, amortization, unrealized gains and losses, intangible asset impairments and other
non-cash
gains/losses included in net
income for a specified period. That period for the 2016 annual incentives was January 1, 2016 through December 31, 2016, as reported in RAIs 2016 Annual Report on Form
10-K.
As discussed above, each such other named executive officers annual cash compensation (base salary + target annual incentive) was targeted at the
midpoint between the revenue
size-adjusted
50
th
and 75
th
percentiles for comparable positions in the
peer group. The target annual incentive was then determined by subtracting the target median base salary from the target annual cash compensation. After the review of peer group compensation market data provided by Meridian in December 2015, the
Board approved a 5% market data-based increase to the target annual incentive opportunity (denominated as a percentage of annual base salary) for Ms. Crew in order to align such target annual incentive with RAIs pay philosophy. In
February 2016, the Board and/or the Compensation and Leadership Development Committee (as applicable) then approved the 2016 target annual incentive opportunity for each of the other named executive officers serving at such time. The target annual
incentive opportunity represented the amount that the Board and the Compensation and Leadership Development Committee generally expected to pay out for target company performance during the performance period. The 2016 target annual incentive
opportunity, expressed as a percentage of annual base salary and a dollar amount, for each of such other named executive officers is set forth below under
2016 Annual Incentive Payouts for Other Named Executive
Officers
.
27
Overview of 2016 Underlying Performance Metrics
. For 2016, the Compensation and Leadership
Development Committee again used annual incentive performance metrics, referred to as the underlying performance metrics, to guide its use of negative discretion to reduce the annual incentive awards determined based on the cash net income maximum
award pools. These performance metrics were chosen because they were reflective of the overall performance of RAI and its operating companies and were believed to have a positive correlation with shareholder returns. This design allowed us to more
closely tie final annual incentive payouts to the actual performance that directly helped us achieve our overall business goals.
2016
Underlying Performance Metrics
. The following table summarizes the 2016 underlying performance metrics, and the performance of RAI and its operating companies against such metrics, considered by the Compensation and Leadership Development
Committee in determining the annual incentive award score for the other named executive officers (except Mr. Fragnito) for 2016.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Metric(1)
|
|
Weighting
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
2016
Performance(6)
|
|
|
Score(6)
|
|
Adjusted Earnings Per Share
|
|
|
50%
|
|
|
|
|
|
$1.80
|
|
|
|
$2.25
|
|
|
|
$2.48
|
|
|
|
$2.31
|
|
|
|
127%
|
|
Market Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Drive Brands Market Share(2)
|
|
|
30%
|
|
|
|
|
|
(5)
|
|
|
|
(5)
|
|
|
|
(5)
|
|
|
|
Below Target
|
|
|
|
91%
|
|
Premium Brands Market Share Growth(3)
|
|
|
10%
|
|
|
|
|
|
(5)
|
|
|
|
(5)
|
|
|
|
(5)
|
|
|
|
Above Target
|
|
|
|
153%
|
|
GRIZZLY Market Share
|
|
|
6%
|
|
|
|
|
|
(5)
|
|
|
|
(5)
|
|
|
|
(5)
|
|
|
|
Below Target
|
|
|
|
57%
|
|
Transformational Leadership(4)
|
|
|
4%
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
At Target
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Score
|
|
|
|
113%
|
|
(1)
|
For additional information on the 2016 underlying performance metrics and scoring, see the narrative under the heading
2016 Annual Incentives
following the 2016 Grants of Plan-Based Awards Table
below.
|
(2)
|
The Total Drive Brands Market Share metric is based on the total market share for the NEWPORT, NATURAL AMERICAN SPIRIT, CAMEL and PALL MALL drive brands.
|
(3)
|
The Premium Brands Market Share Growth metric is based on the combined market share growth for the NEWPORT and NATURAL AMERICAN SPIRIT premium brands.
|
(4)
|
The Transformational Leadership metric is based on the Compensation and Leadership Development Committees subjective evaluation of the performance of RAI and its operating companies on their transforming tobacco
objectives, including VUSE shipments, VUSE market share in measured channels, meeting the FDAs deeming regulation deadlines and the introduction of new product innovations in the marketplace.
|
(5)
|
The specific quantitative 2016 market share goals are not included in this table given the competitively sensitive nature of that information, even on a historical basis. The disclosure of specific market share goals
for specific brands and/or combinations of brands would allow competitors to ascertain a damaging level of insight into our operating companies and brand strategies, and devise counter-strategies, particularly with respect to pricing and promotional
activities, that would be competitively harmful to our operating companies. For additional information on the market share goals and performance against such goals, see
Performance Against 2016 Underlying Performance
Metrics
below.
|
(6)
|
For purposes of evaluating the performance and calculating the score for RAIs adjusted earnings per share, referred to as adjusted EPS, metric, the impact of certain items is excluded from RAIs earnings per
share in accordance with a
pre-approved
process that adjusts for such items and is consistent with the manner in which the targets were established and adjusted EPS results are reported in RAIs earnings
releases. As disclosed in RAIs earnings releases, the following items were excluded for purposes of determining RAIs adjusted EPS performance: gain on divestitures;
mark-to-market
pension/postretirement adjustments; implementation costs; charges for
Engle
progeny cases; and debt and financing costs.
|
28
Rationale for 2016 Underlying Performance Metrics
. As in prior years, the financial and
marketplace components of the annual incentive program were each weighted 50% to balance the two types of performance. All employees of RAI and its subsidiaries (except Ms. Cameron) are rewarded based on the same underlying performance metrics
to focus the entire organization on performance that we believe aligns the annual incentive program with the interests of our shareholders.
The
2016 annual incentive program again placed significant emphasis on RAIs financial performance tied to RAIs overall earnings through the use of the financial metric adjusted EPS. The use of adjusted EPS reflected our continued
focus on increasing profitability in our operating companies, while at the same time providing flexibility in the allocation of our financial resources. Adjusted EPS performance aligns our interests with the interests of our shareholders through its
impact on dividends paid and stock price, while recognizing the efficient use of capital.
The combined weighting of RAIs market share metrics
of 50% reflected our continuing focus on the key strategic growth areas for our operating companies. For 2016, our market share business strategy focused on three key growth performance metrics: (1) Total Drive Brands Market Share consisting of
RJR Tobaccos three drive brands (NEWPORT, CAMEL and PALL MALL) plus Santa Fe Natural Tobacco Companys drive brand (NATURAL AMERICAN SPIRIT), which enabled the operating companies to focus on the overall performance of the portfolio of
drive brands rather than individual brand performance; (2) Premium Brands Market Share Growth for the premium brands NEWPORT and NATURAL AMERICAN SPIRIT which enabled the operating companies to focus on the brands with
the most growth and profitability potential; and (3) GRIZZLY Market Share the key drive brand at American Snuff Company, LLC. The weightings for each of these metrics were established to reflect each metrics relative
importance to their strategic role in the overall portfolio of the operating companies.
In addition, a Transformation Leadership metric was added
for 2016. The inclusion of this metric, which was subjectively assessed by the Compensation and Leadership Development Committee, reflected the strategic importance of RAIs transforming tobacco and innovation objectives, while recognizing and
balancing the difficulties in objectively measuring overall performance in a fluid business environment.
Performance Against 2016 Underlying
Performance Metrics
. The 2016 thresholds, targets and maximums on the scoring grid (shown in the table above) for the 2016 underlying performance metrics were set based on managements 2016 annual operating plan, taking into account the
past performance of RAI and its operating companies, approved by the Board and the Compensation and Leadership Development Committee. Each metric target was set at an amount in the approved business plan based upon the belief that the likelihood of
actual performance at target was the same as the likelihood of actual performance not reaching the target, with the maximum 2016 annual incentive score being limited to two times the target. We believe the foregoing approach strikes a proper
balance, as a particular target should be set high enough so that executives are rewarded for achieving a level of performance that requires considerable collective effort, but not so unrealistically high that the compensation program ceases to be
an effective incentive device.
For 2016, our adjusted EPS target was $2.25 (a 13.6% increase over our actual 2015 adjusted EPS) and the threshold
and maximum for such metric were set at 20% below and 10% above the target, respectively, reflecting the comparative enhanced difficulty and reduced likelihood of achieving above-target results. Although the preceding table does not include 2016
actual market share targets, thresholds and maximums, given the competitively sensitive nature of that information even on a historical basis, the 2016 market share targets for each of the market share metrics Total Drive Brands
Market Share, Premium Brands Market Share Growth and GRIZZLY Market Share were set above the actual market shares for the brands comprising each metric achieved in 2015. As discussed above, the objectives under the Transformation
Leadership metric were subjectively assessed by the Compensation and Leadership Development Committee.
RAIs 2016 adjusted EPS performance of
$2.31, reflecting the exclusions described above, was significantly above target.
Similarly, we exceeded the 2016 market share growth performance target for our Premium Brands Market Share Growth metric, achieving growth significantly above
its growth target. Although the Total Drive Brands Market Share metric achieved market share growth, it fell slightly short of its
29
growth target. The GRIZZLY Market Share metric fell short of its growth target, primarily due to competitive activity. After its review of the performance of RAI and its operating companies on
their transforming tobacco objectives, taking in to account VUSE shipments, VUSE market share leadership in measured channels, the successful meeting of the FDAs deeming regulation deadlines and the introduction of new product innovations in
the marketplace, the Compensation and Leadership Development Committee scored the Transformation Leadership metric at target.
2016 Annual
Incentive Payout Score
. After its annual review of the overall 2016 performance of RAI and its operating companies, the Compensation and Leadership Development Committee approved a 2016 annual incentive award program final payout score of 113%.
2016 Annual Incentive Payouts for Other Named Executive Officers
.
At its February 2017 meeting, the Compensation and
Leadership Development Committee certified the annual incentive award pool generated by the performance formulas established for each other named executive officer (except Mr. Fragnito) based on RAIs 2016 cash net income of
$3.2 billion. These award pools were the absolute maximum limitations on the dollar value of awards earned for the 2016 performance period. The Compensation and Leadership Development Committee then exercised negative discretion to reduce the
amount of the annual cash incentive award for each such other named executive officer and determined (and had approved by the independent members of the Board, as applicable) the actual 2016 annual cash incentive payouts guided by its consideration
of the 2016 performance of RAI and its operating companies against the 2016 underlying performance metrics described above.
The table below shows
each such other named executive officers annual incentive target (expressed as a percentage of his or her April 1, 2016 base salary and in dollars) and the actual annual incentive payout (expressed as a percentage of annual incentive
target, percentage of his or her April 1, 2016 base salary, and in dollars) for 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer(1)
|
|
Annual Incentive
Target as %
of Base Salary
|
|
|
|
Annual Incentive
Target
($)
|
|
|
|
Annual Incentive
Payout as %
of Target
|
|
|
|
Annual Incentive
Payout as %
of Base Salary
|
|
|
|
Annual Incentive
Payout(2)
($)
|
|
|
Debra A. Crew
|
|
120%
|
|
|
|
953,640
|
|
|
|
113%
|
|
|
|
135.6%
|
|
|
|
1,077,613
|
|
|
Andrew D. Gilchrist
|
|
105%
|
|
|
|
762,930
|
|
|
|
113%
|
|
|
|
118.7%
|
|
|
|
862,111
|
|
|
Martin L. Holton III
|
|
100%
|
|
|
|
635,142
|
|
|
|
113%
|
|
|
|
113.0%
|
|
|
|
717,710
|
|
|
Jeffery S.
Gentry(3)
|
|
95%
|
|
|
|
512,715
|
|
|
|
113%
|
|
|
|
35.8%
|
|
|
|
193,123
|
|
|
(1)
|
Mr. Fragnito is not included in this table because he was not eligible to participate in the annual incentive award program based on his hire date.
|
(2)
|
The dollar amount of the 2016 annual incentive paid to each named executive officer is included in the
Non-Equity
Incentive Plan Compensation column of the 2016
Summary Compensation Table below.
|
(3)
|
Dr. Gentrys employment terminated on April 30, 2016. His 2016 Annual Incentive Payout as % of Base Salary and Annual Incentive Payout in this table reflect prorated amounts based
on his four months of employment with RAI in 2016.
|
Annual Incentives for Ms. Cameron
2015/2016 Annual Incentive Payout for Ms. Cameron
. As we noted last year, Ms. Camerons annual
incentive opportunity under the Omnibus Plan for the performance period from May 1, 2015 through April 30, 2016 was designed with the intention that it would be eligible to qualify as performance-based compensation under Section 162(m) of
the Code. Similar to the process described above for the other named executive officers, in May 2016 the Compensation and Leadership Development Committee certified Ms. Camerons cash net income maximum annual incentive award pool
generated by the performance formula established for Ms. Cameron and RAIs April 1, 2015 to March 31, 2016 cash net income of $2.5 billion. For purposes of determining Ms. Camerons award pool, the cash net income
(as defined above) was as reported in RAIs
30
quarterly and annual reports for the period from April 1, 2015 to March 31, 2016. The Compensation and Leadership Development Committee then exercised negative discretion to reduce the
amount of the annual cash incentive award for Ms. Cameron and determined her actual annual cash incentive payout guided by its consideration of the strong performance of RAI and its operating companies against the 2015 underlying performance
metrics (a score of 140% details of which were provided in last years proxy statement) and its subjective consideration of her outstanding leadership and achievements on her other performance goals. After such review, the Compensation
and Leadership Development Committee recommended (and the independent members of the Board approved) a 2016 annual incentive award final payout score of 140% for Ms. Cameron.
The table below shows Ms. Camerons annual incentive target (expressed as a percentage of her 2015 base salary and in dollars) and the actual
annual incentive payout paid to her in May 2016 (expressed as a percentage of annual incentive target, percentage of 2015 base salary, and in dollars) for the May 1, 2015 through April 30, 2016 performance period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Annual Incentive
Target as %
of Base Salary
|
|
|
|
Annual Incentive
Target
($)
|
|
|
|
Annual Incentive
Payout as %
of Target
|
|
|
|
Annual Incentive
Payout as %
of Base Salary
|
|
|
|
Annual Incentive
Payout(1)
($)
|
Susan M.
Cameron
|
|
160%
|
|
|
|
2,080,000
|
|
|
|
140%
|
|
|
|
224.0%
|
|
|
|
2,912,000
|
(1)
|
The dollar amount of the annual incentive paid to Ms. Cameron in 2016 is included in the
Non-Equity
Incentive Plan Compensation column of the 2016 Summary
Compensation Table below.
|
2016/2017 Annual Incentive Opportunity for Ms. Cameron
. Ms. Camerons annual
incentive cash opportunity for the May 1, 2016 through April 30, 2017 performance period again was provided under the Omnibus Plan and was designed with the intention that it would be eligible to qualify as performance-based compensation
under Section 162(m) of the Code. Similar to the process described above for the other named executive officers, the Board and the Compensation and Leadership Development Committee approved a performance formula for determining
Ms. Camerons annual incentive award pool under the Omnibus Plan for the May 1, 2016 to April 30, 2017 performance period of 1.0% of RAIs cash net income for the period from April 1, 2016 to March 31, 2017. For
purposes of determining Ms. Camerons award pool, the cash net income (as defined above) will be as reported in RAIs quarterly and annual reports for the period from April 1, 2016 to March 31, 2017. Following the same
process described above for the other named executive officers, the Board and the Compensation and Leadership Development Committee established and approved a target annual incentive opportunity for Ms. Cameron (expressed as a percentage of her
annual base salary and a dollar amount as set forth in the table below), such amount representing the amount that the Board generally expected to pay out for target performance during such
one-year
performance
period, with the maximum 2016/2017 annual incentive payout being limited to 200% of the target value. At the end of such one year performance period, the Compensation and Leadership Development Committee will certify Ms. Camerons cash net
income maximum award pool and then, guided by its consideration of the performance of RAI and its subsidiaries against the 2016 underlying performance metrics and the achievement of other performance goals established by the Committee, will
determine Ms. Camerons actual annual cash incentive payout for the performance period (which may not exceed her cash net income maximum award pool). The table below shows Ms. Camerons annual incentive target (expressed as a
percentage of her May 1, 2016 base salary and in dollars) for 2016/2017:
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Annual Incentive
Target as %
of Base Salary
|
|
|
|
Annual Incentive
Target
($)
|
|
|
Susan M.
Cameron(1)
|
|
160%
|
|
|
|
2,080,000
|
|
|
(1)
|
Ms. Camerons annual incentive payout for the May 2016 through April 2017 performance period will not be determined until after her
one-year
performance period ends on
April 30, 2017.
|
31
Long-Term or Stock-Based Incentive Compensation
The objective of providing long-term or stock-based incentive compensation is to focus our named executive officers on metrics that lead to increased
shareholder value over the long-term. It is designed to reward achievement of financial and marketplace metrics, dividend maintenance, stock price appreciation and continued employment. We choose to pay this compensation element because it aligns
our executives interests with those of our shareholders and helps in the retention of the management team.
Long-Term Incentive Opportunity
Overview of Long-Term Incentive Opportunity
. An effective executive compensation program should have an appropriate mix between short-term
and long-term incentive compensation. As a result, RAIs general practice has been to award, on an annual basis, long-term incentive grants with a value dependent upon the performance of RAI and its operating companies over a three-year period,
a measurement period commonly used by our peer group companies. This design strongly ties our equity-based compensation to our performance.
The
Compensation and Leadership Development Committee, at its first regularly scheduled meeting of the year, approves long-term incentive grants to key employees (other than Ms. Cameron), and recommends to the Board for approval long-term incentive
grants for RAIs Chief Financial Officer, and General Counsel, and RJR Tobaccos President. The target long-term incentive opportunity for each of these other named executive officers is denominated as a multiple of the executives
annual base salary. The actual grant date of the long-term incentive awards is generally effective in early March of each year, after the public announcement of RAIs financial results and the filing with the SEC of RAIs Annual Report on
Form 10-K
for the prior year.
Long-Term Incentive Opportunity for Other Named Executive
Officers
. The 2016 long-term incentive opportunity for the same group of executive officers described under the annual incentive program, including the other named executive officers (except Mr. Fragnito, who is discussed separately
below), was provided in the form of three-year (2016-2018) performance shares granted under the shareholder-approved Omnibus Plan, with the intention that such awards may be able to qualify as performance-based compensation under Section 162(m)
of the Code. See
Deductibility of Compensation
below for additional information about our philosophy on structuring our executive compensation for tax purposes.
For 2016, as we described above for our annual incentive awards, the long-term incentive program for such other named executive officers involved a
maximum performance metric based on our cash net income results for the 2016-2018 performance period and was designed with the intention that it would be eligible to qualify as performance-based compensation under Section 162(m) of the Code.
Achievement of the maximum performance metric will establish a maximum limitation on the dollar amount of the long-term incentive that can be paid to each such other named executive officer for the 2016-2018 performance period (specifically by
establishing a maximum award pool for the performance shares (and the associated cash dividend equivalent payment) that can be earned by each such other named executive officer). As permitted under the Omnibus Plan, the Compensation and Leadership
Development Committee, using negative discretion, may then reduce that amount to a lesser earned amount of performance shares (subject to any other award limitations contained in the Omnibus Plan) for each such other named executive officer guided
by its consideration of the performance of RAI and its operating companies measured by performance metrics and targets designed to reflect in more detail the degree to which we achieved our specific business goals for the three-year period, as
further discussed below.
2016 Long-Term Incentives for Other Named Executive Officers
.
In February 2016, the Board and
Compensation and Leadership Development Committee approved a performance formula based on RAIs cash net income for determining a maximum award pool for the performance shares (and the associated cash dividend equivalent payment) granted to
each other named executive officer (except Mr. Fragnito, who is discussed separately below) under the Omnibus Plan for 2016. Under the formula, the award pool of performance shares for each of such other named executive officers was determined
based on the following percentages of RAIs cumulative cash net income for the 2016-2018 performance period
32
Ms. Crew: 0.40%; Mr. Gilchrist: 0.40%; Mr. Holton: 0.40%; and Dr. Gentry: 0.40%. These pools will serve as the maximum limitation on the dollar amount of awards that
can be paid to these other named executive officers for the 2016-2018 performance period. The term cash net income is defined the same as for the annual incentive plan, except it is based on the amounts as reported in RAIs Annual
Reports on Form
10-K
for the 2016, 2017 and 2018 fiscal years.
As discussed above, RAIs long-term
incentive opportunity is targeted at the midpoint between the
size-adjusted
50
th
and 75
th
percentiles
for comparable positions in the peer group. In February 2016, the Board and/or the Compensation and Leadership Development (as applicable) then approved the 2016 target long-term incentive opportunity for each of such other named executive officers.
The target long-term incentive opportunity represented the amount the Board and Compensation and Leadership Development Committee generally expected to pay out for target company performance during the 2016-2018 performance period.
2016 Long-Term Incentive Grants to Other Named Executive Officers
. In February 2016, the Board and Compensation and Leadership Development
Committee approved long-term incentive grants under the Omnibus Plan, effective March 1, 2016, to such other named executive officers for the January 1, 2016 to December 31, 2018 performance period. Consistent with prior years, the
2016 long-term incentive grants were granted entirely in the form of performance shares, with the number of performance shares actually earned to be determined at the end of the 2016-2018 performance period.
The table below sets forth the 2016 target long-term incentive opportunity for each such other named executive officer, expressed as (1) a multiple
of annual base salary as of March 1, 2016, (2) a dollar amount and (3) a target number of performance shares.
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2016
Long-Term
Incentive Target
as Multiple
of Base Salary
|
|
|
|
2016
Long-Term
Incentive Target
($)
|
|
|
|
2016
Long-Term
Incentive Target
Number of
Performance
Shares(1)
(#)
|
Debra A. Crew
|
|
3.00X
|
|
|
|
2,298,000
|
|
|
|
46,898
|
Andrew D. Gilchrist
|
|
3.25X
|
|
|
|
2,276,000
|
|
|
|
46,449
|
Martin L. Holton III
|
|
2.50X
|
|
|
|
1,516,800
|
|
|
|
30,955
|
Jeffery S.
Gentry
|
|
2.25X
|
|
|
|
1,179,000
|
|
|
|
24,061
|
(1)
|
The target number of performance shares granted to each such other named executive officer represented his/her target long-term incentive opportunity divided by the average closing price of RAI common stock for the 20
trading days prior to the March 1, 2016 grant date, which was $49.00 per share.
|
(2)
|
Dr. Gentrys employment terminated on April 30, 2016. His 2016 long-term incentive payout will be prorated based on his employment with RAI during 2016.
|
The number of performance shares each such other named executive officer actually will receive, if any, will be determined at the end of the 2016-2018
performance period, as follows. First, the Compensation and Leadership Development Committee will determine the maximum award pool for each such other named executive officer based on the level of achievement of the
pre-established
cash net income formula. Then, the Compensation and Leadership Development Committee may use negative discretion to reduce the number of performance shares actually earned (determined pursuant
to such
pre-established
cash net income formula) to a percentage of target consistent with the average of RAIs annual incentive award program scores for each of the three years of the performance period,
but such score may not be higher than 150% of target. In addition, if RAI fails to pay cumulative dividends for the 2016-2018 performance period of at least $5.04 per share (an amount equal to the dividend paid for the first quarter of the
performance period times the number of quarters in the performance period), then the number of
33
performance shares earned will be further reduced by an amount equal to three times the percentage of the dividend underpayment for the 2016-2018 performance period, up to a maximum performance
share reduction of 50%. Subject to the foregoing, the performance shares actually earned generally will vest on March 1, 2019, and will be settled in shares of RAI common stock as soon as practicable after such date. At the time the performance
share awards vest, each other named executive officer also will receive a cash dividend equivalent payment equal to the aggregate amount of dividends per share declared and paid to RAIs shareholders on RAI common stock during the period from
the beginning of the performance period through the payment of the performance shares, multiplied by the number of performance shares actually earned by such other named executive officer. For more information about the 2016 long-term incentive
grants, see the narrative under the heading
2016 Long-Term Incentives
following the 2016 Grants of Plan-Based Awards Table below.
Awarding long-term incentive compensation entirely in performance shares that are subject to the above conditions aligns the interests of our other
named executive officers with long-term shareholder interests, and strongly ties pay to long-term performance, by:
|
|
|
requiring both performance and retention before payments are made;
|
|
|
|
emphasizing dividend maintenance over the entire 2016-2018 performance period in order to keep a focus on shareholder return;
|
|
|
|
paying the dividend equivalent only on the number of performance shares actually earned at the end of the 2016-2018 performance period;
|
|
|
|
ensuring that the value of the long-term incentive grant throughout the 2016-2018 performance period and upon its payout in shares of RAI common stock is directly tied to the actual stock price; and
|
|
|
|
increasing RAI common stock ownership by management.
|
The use of RAIs annual incentive program
scores, reflecting financial and marketplace performance over the 2016-2018 performance period, as the underlying performance measure for participants in the long-term incentive program, including the executives of RAIs subsidiaries, also
ensures a unified focus on RAIs overall performance.
Stock-Based Incentive Opportunities for New Named Executive
Officer
2016 Long-Term Incentive Opportunity
. In connection with his appointment as President and Chief Commercial
Officer of RJR Tobacco, Mr. Fragnito was provided a long-term incentive opportunity under the Omnibus Plan that also is designed with the intention that it would be eligible to qualify as performance-based compensation under Section 162(m) of
the Code. Following the same process described above for the other named executive officers, the Board and the Compensation and Leadership Development Committee established and approved a target long-term incentive opportunity for Mr. Fragnito
(expressed as a multiple of annual base salary, a dollar amount, and a target number of performance shares in the table below), with the target amount of performance shares representing the amount that the Board generally expected to pay out for
target performance over a
27-month
performance period. Based on such target long-term incentive opportunity, the Board and Compensation and Leadership Development Committee approved the long-term incentive
grant to Mr. Fragnito in the form of performance shares. The number of performance shares Mr. Fragnito actually will receive, if any, will be determined at the end of his respective performance periods based first on the maximum payout
limitation provided by the performance shares award pool generated under his
pre-established
cash net income performance formula. Once the maximum pool is determined at the end of the applicable performance
period, the Compensation and Leadership Development Committee may use negative discretion to reduce the number of performance shares Mr. Fragnito actually earns. A description of Mr. Fragnitos long-term incentive opportunity is set
forth below.
In September 2016, the Board and the Compensation and Leadership Development Committee approved a performance formula for determining
Mr. Fragnitos long-term incentive award pool for performance shares (and the associated cash dividend equivalent payment) under the Omnibus Plan for the October 1, 2016 to December 31, 2018 performance period of 0.40% of
RAIs cash net income for the
34
period from October 1, 2016 to December 31, 2018. For purposes of determining Mr. Fragnitos award pool, the term cash net income is defined the same as for the
other named executive officers 2016 long-term incentive opportunity. Following the same process described above for the other named executive officers, in September 2016, the Board and the Compensation and Leadership Development Committee
established and approved a prorated target long-term incentive opportunity in the form of performance shares for Mr. Fragnito. The Compensation and Leadership Development Committee may use negative discretion to reduce the number of performance
shares he actually earns to an amount consistent with the average of RAIs annual incentive award program scores for 2016, 2017 and 2018, but such score may not be higher than 150%. In addition, if RAI fails to pay cumulative dividends for the
2016-2018 period of at least $5.04 per share (determined in the same manner as the cumulative dividend goal applicable to the other named executive officers), then the number of performance shares earned will be reduced by an amount equal to three
times the percentage of the dividend underpayment for such performance period, up to a maximum performance share reduction of 50%. Subject to the foregoing, Mr. Fragnitos performance share award generally will vest on March 1, 2019,
and will be settled in shares of RAI common stock as soon as practicable after such date.
At the time his performance share awards described above
vest, Mr. Fragnito will receive a cash dividend equivalent payment equal to the aggregate amount of dividends per share declared and paid to RAIs shareholders on RAI common stock during the period from the beginning of his respective
performance period through the payment of the performance shares, multiplied by the number of performance shares he actually earns. For more information about the 2016 long-term incentive grant to Mr. Fragnito, see the narrative under the
heading
Stock-Based Incentive Opportunities for New Named Executive Officer
following the 2016 Grants of Plan-Based Awards Table below.
The table below sets forth the 2016 target long-term incentive opportunity for Mr. Fragnito, expressed as (1) a multiple of his annual base
salary as of October 24, 2016, (2) a dollar amount and (3) a target number of performance shares.
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2016
Long-Term
Incentive Target
as Multiple
of Base Salary
|
|
|
|
2016
Long-Term
Incentive Target(1)
($)
|
|
|
|
2016
Long-Term
Incentive Target
Number of
Performance
Shares
(#)
|
Joseph P.
Fragnito
|
|
2.5X
|
|
|
|
1,007,000
|
|
|
|
21,249
|
(1)
|
Mr. Fragnitos long-term incentive target was prorated for 2016 based on his October 24, 2016 start date. The target number of performance shares granted to Mr. Fragnito represented his target
long-term incentive opportunity divided by the average closing price of RAI common stock for the 20 trading days prior to the October 24, 2016 grant date, which was $47.39 per share.
|
Retention Restricted Stock Units
. In order to induce Mr. Fragnito to join RJR Tobacco, Mr. Fragnito also was awarded a special
long-term incentive equity grant under the Omnibus Plan upon his employment with RJR Tobacco. This additional long-term incentive opportunity also is designed with the intention that it would be eligible to qualify as performance-based compensation
under Section 162(m) of the Code. The Board and Compensation and Leadership Development Committee approved a target long-term incentive opportunity in the form of a retention restricted stock unit grant with a target value of $1,000,000. The target
long-term incentive opportunity established and approved by the Board and the Compensation and Leadership Development Committee represented the amount that the Board generally expected to pay out for target performance over the performance period.
The number of restricted stock units Mr. Fragnito actually will receive, if any, will be determined at the end of the performance period subject to the maximum payout limitation provided by the restricted stock unit award pool generated under
his
pre-established
cash net income performance formula. Once the maximum pool is determined at the end of the performance period, the Compensation and Leadership Development Committee may use negative
discretion to reduce the number of restricted stock units he actually earns.
35
The Board and the Compensation Leadership Development Committee approved a performance formula for
determining Mr. Fragnitos long-term incentive award pools for the retention grant of restricted stock units (and the associated cash dividend equivalent payment) for the October 1, 2016 to September 30, 2018 performance period
(1) for the first 12 months of such performance period of 0.30% of RAIs cash net income for the period from October 1, 2016 through September 30, 2017, and (2) for the last 12 months of such performance period of 0.30% of
RAIs cash net income for the period from October 1, 2017 through September 30, 2018. For purposes of determining Mr. Fragnitos retention grant award pools, the term cash net income is defined the same as for
his 2016 long-term incentive opportunity.
Based on the retention grant target opportunity indicated above, in September 2016, the Board and the
Compensation and Leadership Development Committee approved the retention grant of 21,101 restricted stock units, effective October 24, 2016, to Mr. Fragnito for the October 1, 2016 to September 30, 2018 performance period. To the
extent earned, 50% of such restricted stock units generally will vest on December 15, 2017, and the remaining 50% generally will vest on December 15, 2018. This target number of restricted stock units represented Mr. Fragnitos
target retention grant opportunity divided by the average closing price of RAI common stock for the 20 trading days prior to the October 24, 2016 grant date, which for his retention grant was $47.39 per share.
The payout of the retention restricted stock unit grant is subject to Mr. Fragnitos continued employment with RAI on each applicable vesting
date. Upon vesting, the above grants will be paid in the form of RAI stock, and Mr. Fragnito will receive a cash dividend equivalent payment equal to the aggregate amount of dividends per share declared and paid to RAIs shareholders on
RAI common stock during the period from the beginning of the respective performance period through the date on which the restricted stock units are paid, multiplied by the number of restricted stock units he actually earns. For more information
about the retention restricted stock unit grant to Mr. Fragnito, see the narrative under the heading
Stock-Based Incentive Opportunities for New Named Executive Officer
following the 2016 Grants of Plan-Based Awards Table
below.
Stock-Based Incentive Opportunity for Ms. Cameron
2016 Stock-Based Incentive Grant for Ms. Cameron
. In May of 2016, Ms. Cameron was provided with a stock-based incentive
opportunity under the Omnibus Plan that was designed with the intention that it would be eligible to qualify as performance-based compensation under Section 162(m) of the Code. Following the same process described above for the other named executive
officers, the Board and the Compensation and Leadership Development Committee established and approved a target stock-based incentive opportunity for Ms. Cameron (expressed as a multiple of her annual base salary, a dollar amount, and a target
number of performance shares in the table below), with such amount representing the amount that the Board generally expected to pay out for target performance over a
one-year
performance period. Based on such
target stock-based incentive opportunity, the Board and Compensation and Leadership Development Committee approved a stock-based incentive grant to Ms. Cameron in the form of performance shares. The number of performance shares Ms. Cameron
actually will receive, if any, will be determined at the end of her performance period based first on the maximum payout limitation provided by the performance shares award pool generated under her
pre-established
cash net income performance formulas. Once the maximum pool is determined at the end of the performance period, the Compensation and Leadership Development Committee may use negative discretion
to reduce the number of performance shares Ms. Cameron actually earns. A description of Ms. Camerons stock-based incentive opportunity is set forth below.
In May 2016, the Board and the Compensation and Leadership Development Committee approved a performance formula for determining Ms. Camerons
stock-based incentive award pool of performance shares (and the associated cash dividend equivalent payment) under the Omnibus Plan for the May 1, 2016 to April 30, 2017 performance period of 5.0% of RAIs cash net income for the
period from April 1, 2016 to March 31, 2017. For purposes of determining Ms. Camerons award pool, the term cash net income is defined the same as for her annual incentive opportunity for the same period. Following
the same process described above for the other named executive officers, in May 2016, the Board and the Compensation and Leadership Development Committee established and approved a target stock-based incentive opportunity in the form of performance
shares for Ms. Cameron.
36
The Compensation and Leadership Development Committee may use negative discretion to reduce the number of
performance shares she actually earns after consideration of the level of performance of RAI and its subsidiaries over the performance period against the 2016 underlying performance metrics, her progress on succession planning goals and such other
performance factors as the Compensation and Leadership Development Committee chooses to consider, but such score may not be higher than 200% of target. In addition, if RAI fails to pay cumulative dividends for the performance period of at least
$1.68 per share (an amount equal to the dividend paid for the first quarter of the performance period times the number of quarters in the performance period), then the number of performance shares earned will be reduced by an amount equal to three
times the percentage of the dividend underpayment for the performance period, up to a maximum performance share reduction of 50%. Subject to the foregoing, Ms. Camerons performance share award generally will vest on May 1, 2017, and
will be settled in shares of RAI common stock as soon as practicable after such date.
At the time the respective performance share awards described
above vest, Ms. Cameron will receive a cash dividend equivalent payment equal to the aggregate amount of dividends per share declared and paid to RAIs shareholders on RAI common stock during the period from the beginning of her respective
performance period through the payment of the performance shares, multiplied by the number of performance shares she actually earns. For more information about the 2016 stock-based incentive grant to Ms. Cameron, see the narrative under the
heading
2016 Stock-Based Incentive Grant for Ms.
Cameron,
following the 2016 Grants of Plan-Based Awards Table below.
The table below sets forth the 2016 target stock-based incentive opportunity for Ms. Cameron, expressed as (1) a multiple of her annual base
salary as of May 1, 2016, (2) a dollar amount and (3) a target number of performance shares.
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2016
Stock-Based
Incentive Target
as Multiple
of Base Salary
|
|
|
|
2016
Stock-Based
Incentive Target
($)
|
|
|
|
2016
Stock-Based
Incentive Target
Number of
Performance
Shares(1)
(#)
|
Susan M.
Cameron
|
|
6.25X
|
|
|
|
8,125,000
|
|
|
|
164,841
|
(1)
|
The target number of performance shares granted to Ms. Cameron represented her target stock-based incentive opportunity divided by the average closing price of RAI common stock for the 20 trading days prior to the
May 5, 2016 grant date, which was $49.29 per share.
|
Payouts of
Pre-2016
Long-Term Incentive Grants
As described in our 2016 proxy statement, in March 2016
each of the named executive officers (other than Mmes. Cameron and Crew and Mr. Fragnito) earned long-term incentive payouts for performance share awards that had been granted before 2015. Such payouts consisted of performance shares
originally granted on March 1, 2013 under the Omnibus Plan, referred to as the 2013 LTI performance shares, which vested in accordance with their terms on March 1, 2016. Information regarding the calculation of the number of 2013 LTI
performance shares earned and the satisfaction of the cumulative dividend requirement for the 2013-2016 performance period (and the associated cash dividend equivalent payments) was previously provided in our 2016 proxy statement. Upon their
vesting, the earned 2013 LTI performance shares were settled in shares of RAI common stock. For more information regarding the 2013 LTI performance shares, see footnote 2 to the 2016 Option Exercises and Stock Vested Table below.
37
In addition, each of the named executive officers (except Ms. Cameron and Mr. Fragnito) earned
performance shares originally granted on March 3, 2014 (granted on October 1, 2014 in the case of Ms. Crew) under the Omnibus Plan, referred to as the 2014 LTI performance shares, which vested in accordance with their terms on
March 3, 2017. The number of performance shares each such named executive officer actually earned was based on the performance of RAI and its operating companies over the three-year performance period
(27-month
performance period in the case of Ms. Crew) ended on December 31, 2016. In February 2017, the Compensation and Leadership Development Committee approved the maximum performance share award
pools generated by the
pre-established
performance formula for each of such named executive officers approved in February 2014 based on the percentage established for such named executive officer and
RAIs cumulative 2014-2016 cash net income of $7.3 billion
(27-month
cash net income of $5.9 billion in the case of Ms. Crews
off-cycle
grant).
After its consideration of the three-year average of RAIs annual incentive award scores for the 2014-2016 performance period, which was 128%, and RAIs satisfaction of the three-year cumulative dividend requirement of $8.04 ($4.02 after
the 2015 Stock Split) ($6.03 ($3.015 after the 2015 Stock Split) in the case of Ms. Crews off cycle grant), the Compensation and Leadership Development Committee then exercised negative discretion to pay out (with the approval of the
independent members of the Board, as applicable) an amount of earned performance shares (and the associated cash dividend equivalent payment) that in each case was less than the maximum performance share award pool for each such officer. The final
number of performance shares actually earned was 128% of each such named executive officers target grant. Upon their vesting, the earned performance share awards were settled in shares of RAI common stock. In addition, each such named
executive officer received a cash dividend equivalent payment equal to the aggregate amount of dividends per share declared and paid to RAIs shareholders on RAI common stock from the beginning of the performance period through the payout of
the performance shares, multiplied by the number of performance shares actually earned by such named executive officer. For more information regarding the 2014 LTI performance shares, see footnote 2 and footnote 7, respectively, to the
Outstanding Equity Awards At 2016 Fiscal
Year-End
Table below.
Payout of 2015
Stock-Based Incentive Grant to Ms. Cameron
Ms. Cameron earned performance shares originally granted on May 7, 2015
under the Omnibus Plan, referred to as the Cameron 2015 performance shares, for the May 1, 2015 through April 30, 2016 performance period, which vested in accordance with their terms on May 7, 2016. Such performance shares were
designed with the intention that they would be eligible to qualify as performance-based compensation under Section 162(m) of the Code. In May 2016, the Compensation and Leadership Development Committee approved the maximum performance share award
pool generated by the
pre-established
performance formula for Ms. Cameron approved in May 2015 based on the percentage of cash net income established for her and RAIs cash net income for the period
from April 1, 2015 through March 31, 2016 of $2.5 billion. After its consideration of the strong performance of RAI and its subsidiaries against the 2015 underlying performance metrics (a score of 140%), subjective consideration of
her outstanding leadership and achievements on her other performance goals (particularly those related to the closing of the Lorillard transaction, the sale of the international rights to the NATURAL AMERICAN SPIRIT brand and CEO succession
planning) and RAIs satisfaction of the cumulative dividend requirement of $1.34, the Compensation and Leadership Development Committee then exercised negative discretion to pay out (with the approval of the independent members of the Board) an
amount of earned performance shares (and the associated cash dividend equivalent payment) that was less than the maximum performance share award pool for Ms. Cameron. The final number of performance shares actually earned was 185% of
Ms. Camerons target grant. Upon their vesting, these earned performance share awards were settled in shares of RAI common stock. In addition, Ms. Cameron received a cash dividend equivalent payment equal to the aggregate amount of
dividends per share declared and paid to RAIs shareholders on RAI common stock from the beginning of the performance period through the payout of the performance shares, multiplied by the number of performance shares actually earned by her.
For more information regarding the Cameron 2015 performance shares, see footnote 2 to the 2016 Option Exercises and Stock Vested Table below.
38
2016 Special Incentives
CEOs Award
In special circumstances, the Compensation and Leadership Development Committee may approve a recommendation from RAIs President and CEO to pay a
discretionary cash award, referred to as the CEOs Award, to an executive officer, in addition to the annual incentive compensation described above under
Annual Compensation
, to reward substantial achievement or
significant contributions, particularly when such contributions may not be reflected in RAIs annual performance metrics. In 2016, the Board, upon the recommendation of the Compensation and Leadership Development Committee, approved a special
discretionary cash award of $100,000 to Mr. Holton in connection with his receipt of the CEOs Award for significant contributions to RAIs success. Such cash award was paid to him in February 2016 and is included in the
Bonus column of the 2016 Summary Compensation Table below.
Game Changer Awards
In July 2015, the Compensation and Leadership Development Committee and Board approved a special,
one-time
cash Game Changer cash incentive award program under the Omnibus Plan for all full time employees of RAI and its subsidiaries, including all of the other named executive officers serving at that time (Ms. Cameron requested not to be
included). The Game Changer cash incentive award program was designed to focus all employees on the critical tasks required for the successful and timely integration of the Lorillard acquisition over an
18-month
performance period. Under the Game Changer program, all employees had a target award opportunity equal to the amount of his/her target annual incentive award percentage of base salary, subject to a
maximum target cap of 65% of base salary. Therefore, the target incentive award percentage for each of the participating named executive officers was 65% of base salary. The Compensation and Leadership Development Committee and Board also decided to
limit the maximum payout for the Game Changer incentive awards to 1.25 times the target.
Game Changer Payout Score
. After its
subjective consideration of the overall performance of RAI and its operating companies against the
pre-established
integration plans and financial efficiency, productivity and synergy goals related to the
Lorillard acquisition, the Compensation and Leadership Development Committee approved a Game Changer cash incentive award program payout score of 100% of target.
Game Changer Payouts for Other Named Executive Officers
.
At its February 2017 meeting, the Compensation and Leadership
Development Committee certified the Game Changer incentive award pool generated by the performance formulas established for each other named executive officer (except Mr. Fragnito) based on RAIs cash net income for the July 1, 2015
through December 31, 2016 performance period of $4.6 billion. These award pools were the absolute maximum limitations on the dollar value of awards earned. The Compensation and Leadership Development Committee then exercised negative
discretion to reduce the amount of the Game Changer incentive payout for each such other named executive officer and determined (and had approved by the independent members of the Board, as applicable) the actual Game Changer cash incentive payouts
guided by its subjective consideration of the performance of RAI and its operating companies over the
18-month
performance period against the performance metrics described above.
39
The table below shows each such other named executive officers Game Changer incentive target
(expressed as a percentage of his or her April 1, 2016 base salary and in dollars) and the actual Game Changer incentive payout (expressed as a percentage of Game Changer incentive target, percentage of his or her April 1, 2016 base
salary, and in dollars) for 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer(1)
|
|
Game
Changer
Incentive
Target as %
of Base Salary
|
|
|
|
Game
Changer
Incentive
Target
($)
|
|
|
|
Game
Changer
Incentive
Payout as %
of Target
|
|
|
|
Game
Changer
Incentive
Payout as %
of Base Salary
|
|
|
|
Game
Changer
Incentive
Payout(2)
($)
|
Debra A. Crew(3)
|
|
65%
|
|
|
|
498,528
|
|
|
|
100%
|
|
|
|
65.0%
|
|
|
|
498,528
|
Andrew D. Gilchrist
|
|
65%
|
|
|
|
472,290
|
|
|
|
100%
|
|
|
|
65.0%
|
|
|
|
472,290
|
Martin L. Holton III
|
|
65%
|
|
|
|
412,842
|
|
|
|
100%
|
|
|
|
65.0%
|
|
|
|
412,842
|
Jeffery S.
Gentry(4)
|
|
65%
|
|
|
|
350,805
|
|
|
|
100%
|
|
|
|
36.1%
|
|
|
|
194,892
|
(1)
|
Ms. Cameron and Mr. Fragnito are not included in this table because they did not participate in or receive an award under the Game Changer incentive award program.
|
(2)
|
The dollar amount of the Game Changer incentive paid to each named executive officer is included in the
Non-Equity
Incentive Plan Compensation column of the 2016
Summary Compensation Table below.
|
(3)
|
Ms. Crews Game Changer incentive target and payout were prorated based on three months of her base salary as President and Chief Commercial Officer of RJR Tobacco and 15 months of her base salary as President
and Chief Operating Officer of RJR Tobacco.
|
(4)
|
Dr. Gentrys employment terminated on April 30, 2016. His Game Changer Incentive Payout as % of Base Salary and Game Changer Incentive Payout in this table reflect prorated amounts
based on his four months of employment with RAI in 2016.
|
Perquisites
Our objectives for perquisites have changed over the years resulting in the elimination of most of the perquisites that previously had been offered to
senior management. The two remaining perquisites provided to our executives, including the named executive officers, during 2016 had the following objectives:
|
|
|
to maximize the value of company-provided compensation, we offered to our executive officers the choice of $10,000 in cash plus a comprehensive program of financial planning and counseling services from a third party
provider or $8,000 in cash for the traditional financial planning allowance; and
|
|
|
|
to avoid having personal liability incidents interfere with work responsibilities, we offered personal liability insurance coverage up to $10 million.
|
These perquisites do not reward any particular behavior we choose to provide them to meet the objectives noted above. The value of any of such benefits actually
used was imputed to the executive for income tax purposes and the incremental cost to us of these benefits is included in the All Other Compensation column of the 2016 Summary Compensation Table below.
Severance Benefits
RAI maintains severance arrangements with its executives, including the named executive officers. Such arrangements have the objective of obtaining from
the named executive officers benefits important to the business, including post-employment restrictive covenants (for example,
non-competition
and
non-disclosure
of
confidential information) and their assistance to us with any future litigation. Severance benefits and payments are designed to reward executives for remaining employed with us on a schedule furthering our business objectives. We choose to pay
these severance benefits to maintain a competitive executive compensation program, enhance stability of the executive team during uncertain times, such as in the event of a threatened or pending change in control, and obtain the benefits important
to the business mentioned above.
40
Severance Agreements
Prior to the inception of the Executive Severance Plan (described below under
Executive Severance Plan
), RAI entered into
a standard form of severance agreement, referred to as the severance agreement, with each of Messrs. Gilchrist and Holton.
In general, under the
terms of the severance agreement, if the executives employment is involuntarily terminated other than for cause or if the executive terminates his employment for good reason, then he will receive two years of base
salary plus target bonus, and benefit continuation for an additional three-year period, referred to as the severance period. These amounts were determined to be competitive at the time the severance agreement was approved. The base salary and target
bonus amounts under the severance agreement are payable in a lump sum. No executive is entitled to receive severance benefits if the executive retires or otherwise voluntarily terminates his employment unless such termination satisfies the
agreements definition of good reason.
Pursuant to the severance agreement, each of Messrs. Gilchrist and Holton also is
entitled to certain benefits upon a change of control of RAI. See the Potential Payments Upon Termination or a Change of Control Table below, and related footnotes, for further information about these change of control benefits, and for definitions
of cause, good reason and change of control.
Dr. Gentry also was a party to a standard form of severance
agreement prior to his termination of employment for good reason on April 30, 2016, and he received severance benefits under his severance agreement. For additional information on Dr. Gentrys severance benefits, see the Potential
Payments Upon Termination or a Change of Control Table and related footnotes below.
Executive Severance Plan
All executives hired or promoted into executive level positions after July 1, 2006 are participants in the Executive Severance
Plan, referred to as the ESP, including Mmes. Cameron (during 2016) and Crew and Mr. Fragnito. Ms. Cameron ceased to be a participant in the ESP upon becoming Executive Chairman of the Board on January 1, 2017.
The severance and change in control benefits under the ESP are similar to, but not the same as, the benefits payable under the severance agreements.
Although both serve the same objectives, the ESP was designed to be more consistent on a going-forward basis with prevailing executive compensation practices. RAI also has greater flexibility to amend, if appropriate, the terms of the ESP than the
terms of the severance agreement. Under the terms of the severance agreement, RAI generally is not able to amend such agreement without the consent of the individual executive who is a party to the agreement. In contrast, RAI is free to amend the
ESP without the consent of the participants in the plan, except that any modification to the ESP adopted by RAI during either the
two-year
period after a change in control or the
one-year
period prior to a change in control, and any modification reducing the benefits of an executive already receiving benefits under the ESP, will not be enforceable against a participant, unless he or
she agrees to the modification in writing.
The benefits payable under the ESP generally are less generous than the benefits to which an executive
otherwise would have been entitled to under the severance agreement. Under the ESP, participants are entitled to receive the following:
|
|
|
a multiple of base salary and target bonus, payable in a lump sum, depending on the cause of the termination and the tier as follows:
|
|
|
|
|
|
|
|
Tier
|
|
Named
Executive
Officers Covered
|
|
Qualifying
Termination
Absent
Change in Control
|
|
Qualifying Termination
Following
Change in Control
|
Tier 1
|
|
Cameron (2016)
Crew (2017)
|
|
2.5X
|
|
3X
|
|
|
|
|
|
|
|
Tier 2
|
|
Crew (2016)
Fragnito
|
|
1.5X
|
|
2X
|
41
|
|
|
a prorated amount of annual bonus based on actual performance achieved and the number of months employed during year of termination; and
|
|
|
|
six months of company-subsidized COBRA continuation coverage under our health-care plans.
|
The payment
of benefits to any named executive officer pursuant to the severance agreement or the ESP is conditioned upon the executive complying with certain customary
non-compete,
non-disparagement
and confidentiality obligations owing to RAI and its subsidiaries, and cooperating with RAI and its subsidiaries in the prosecution or defense of any litigation.
The Compensation and Leadership Development Committee periodically reviews the ESP to maintain its competitiveness and adapt it to our needs. Of note,
in 2009, excise tax
gross-ups
were eliminated for all new participants and current participants not currently eligible for such benefit as of February 1, 2009. For further information about the benefits
under the ESP, see the Potential Payments Upon Termination or a Change of Control Table below, and related footnotes.
Retirement Benefits
We provide retirement benefits to all our employees, including our named executive officers, as discussed below. Our objective is to assist our employees
with the accumulation of adequate financial assets for retirement. These retirement benefits are designed to reward continued employment with the company and financially preparing for retirement. We choose to pay retirement benefits to remain
competitive in the marketplace and assist our employees with their financial readiness for retirement.
RAI sponsors a defined contribution plan
which is qualified under Sections 401(a) and 401(k) of the Code, referred to as the 401(k) plan, and which is available generally to eligible employees of RAI and certain of its subsidiaries, including the named executive officers. RAI also
sponsors
non-qualified
excess benefit plans which provide benefits to those employees, including the named executive officers, whose benefits under the 401(k) plan are limited by virtue of certain provisions
of the Code. Under the foregoing plans, RAI provides a matching contribution in an amount equal to either 50% or 100% (depending upon, among other things, whether an individual is eligible to participate in one of RAIs defined benefit plans)
of the first 6% of a participants
pre-tax
and/or Roth contributions. In addition to the matching contribution, RAI contributes on behalf of each eligible participant in the 401(k) plan an amount ranging
from 3% to 9% of such participants annual cash compensation. The eligibility to receive such supplemental contribution and the amount of such contribution depend upon, among other factors, whether an employee participates in certain of our
defined benefit plans and the employees years of service. All of the named executive officers (except Mr. Gilchrist) are eligible to receive RAIs supplemental contribution under the 401(k) plan. See footnote 11 to the 2016
Summary Compensation Table below for additional information regarding RAIs contributions to the accounts of the named executive officers under the foregoing plans.
In addition to such plans, the named executive officers (other than Ms. Crew and Mr. Fragnito) participate (or participated in the case of
Ms. Cameron and Dr. Gentry) in certain noncontributory defined benefit retirement plans maintained by RAI. Subject to certain limited exceptions, employees hired on or after January 1, 2004, are not eligible to participate in these
defined benefit plans. Mr. Gilchrist participated in a B&W retirement plan, the obligations of which, with respect to Mr. Gilchrist and certain other former B&W employees, were assumed by RAI in connection with the B&W business
combination. See
Retirement Benefits
below for more information about the defined benefit plans in which the named executive officers participate. Ms. Cameron and Dr. Gentry participated in, retired under,
and are currently receiving ongoing payments from certain of the noncontributory defined benefit arrangements maintained by RAI, and Ms. Cameron may accumulate incremental benefits under the B&W retirement plan described above as a result
of future eligible earnings during her reemployment.
42
Roles
Role of Compensation Consultant
The Compensation and Leadership Development Committee continued to engage Meridian for 2016 as its independent compensation consultant to provide advice
and counsel and report directly to the Committee. Throughout 2016, at the Compensation and Leadership Development Committees direction, Meridian prepared, presented and made recommendations on peer group data, competitive market pay,
compensation program structure and risk, compensation components, general market trends, legislative and regulatory changes, tally sheets and compensation packages and agreements related to transitions involving our named executive officers, which
recommendations the Committee used in its compensation decision making process, as described above. In addition, management provided materials prepared for Compensation and Leadership Development Committee meetings to Meridian, and discussed the
materials and recommendations with Meridian in advance of each Committee meeting. A representative of Meridian attended each regular meeting of the Compensation and Leadership Development Committee in 2016 and, at each such meeting, met with the
Committee in executive session without management present. The Compensation and Leadership Development Committee has assessed the independence of Meridian, as required under the NYSE listing rules. The Compensation and Leadership Development
Committee also has considered and assessed all relevant factors, including those required by the SEC, that could give rise to a potential conflict of interest with respect to Meridian during 2016. Based on this review, the Compensation and
Leadership Development Committee did not identify any conflict of interest raised by the work of Meridian.
Role of
Management
Management played an important but limited role in the process of setting the 2016 executive compensation for our named
executive officers. Ms. Cameron, our CEO during 2016, with assistance from our Chief Human Resources Officer, and in consultation with Meridian, developed compensation recommendations for the Compensation and Leadership Development
Committees consideration in 2016, including:
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|
|
business performance targets and scoring grids for the annual and long-term or stock-based incentive programs; and
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|
|
|
base salary, target annual bonus and long-term incentive opportunities for executives other than herself.
|
Ms. Cameron also played an indirect role in determining the 2016 base salary merit increase for the other named executive officers (except
Mr. Fragnito) by assigning each of them an individual annual performance rating. As discussed above, the amount of each such named executive officers proposed base salary merit increase for 2016 generally was determined based on her or
his individual performance rating category and the specific merit increase amount for that rating category. The independent members of the Board then approved the proposed base salary increases for such named executive officers. As discussed above,
the compensation of our CEO is determined by the Compensation and Leadership Development Committee, after consultation with Meridian, and recommended to the Board for approval. No executive officer has any determinative role in setting the
compensation of our CEO.
Tally Sheets
In February and September 2016, the Compensation and Leadership Development Committee reviewed tally sheets for each of our named executive officers
serving at such time. These tally sheets, prepared at the direction of the Compensation and Leadership Development Committee by Meridian with assistance from management, summarized for each such named executive officer:
|
|
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the total compensation package for each of the last four years (only for the last three years in the case of Mmes. Cameron and Crew), including the value of each compensation component base salary, annual
bonus (target and actual), long-term or stock-based incentives, benefits and perquisites;
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43
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current ownership of RAI common stock and the value of such stock at various stock prices;
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|
the potential value of existing unvested long-term or stock-based incentives at various stock prices and the realized gains from prior long-term or stock-based incentive awards; and
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|
amounts payable upon the termination of employment under various scenarios.
|
The semi-annual reviews
showed the Compensation and Leadership Development Committee the cumulative effect in value of its various executive compensation decisions from recent years, helped the Committee see how making a change in one compensation program or element
impacted another compensation program or element on a named executive officers overall compensation, and provided perspective on wealth accumulation from our compensation programs and our payment and benefit obligations in the event of
terminations of employment under various scenarios.
Stock Ownership Guidelines
The Board believes that executives, such as the named executive officers, whose business decisions have a profound and direct impact on the operations
and results of RAI and its operating companies, should have a reasonable equity stake in RAI. Further, the greater the responsibilities an executive has, the greater his or her equity stake should be. As a result, the Board has established the
following stock ownership guidelines for the named executive officers and other senior management. (We also maintain stock ownership guidelines for our directors, which are described below under
The Board of
Directors
Equity Ownership Guidelines
.)
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|
|
Named Executive Officer(1)
|
|
Stock Ownership
Requirements
(Annual Base Salary Multiple)
|
Susan M. Cameron
|
|
6X
|
Debra A. Crew(2)
|
|
6X
|
Andrew D. Gilchrist
|
|
3X
|
Martin L. Holton III
|
|
3X
|
Joseph P.
Fragnito
|
|
3X
|
(1)
|
Dr. Gentry is not included in this table due to his termination of employment in April 2016. His stock ownership requirement was 2X during his employment in 2016.
|
(2)
|
As a result of Ms. Crew becoming President and CEO of RAI, effective January 1, 2017, her stock ownership requirement increased from 3X to 6X.
|
The stock ownership guidelines require, until such ownership requirements are met, such executives to retain 50% of all
after-tax
shares earned under the Omnibus Plan, assuming taxes of 50%. Unvested performance share awards, restricted stock units and pledged shares are not counted toward satisfaction of the stock ownership
guidelines. The Compensation and Leadership Development Committee is responsible for approving any amendments to the executive stock ownership guidelines and annually reviews each executives progress towards satisfying the stock ownership
guidelines. For 2016, management reviewed the status of all executive officers in meeting the stock ownership guidelines and certified to the Compensation and Leadership Development Committee that all executive officers already had met or, in the
case of those recently hired or promoted, were making reasonable progress towards meeting, the stock ownership guidelines in a timely manner. If any executive were to fail to satisfy the applicable stock ownership guidelines, then the Compensation
and Leadership Development Committee would consider such failure as one factor in determining the extent to which such executive should receive any stock-based awards in the future.
44
Recoupment
Since 2009, we have included recoupment, or clawback, provisions in our annual and long-term or stock-based incentive programs and related
agreements with our employees, including the named executive officers. These provisions provide that, in the event all or any portion of an award under any of the incentive compensation programs has been computed using financial information or
performance metrics later found to be materially inaccurate, the Compensation and Leadership Development Committee, in its sole discretion, can recoup the excess of the amount paid out over the amount that would have been paid had such financial
information or performance metric been fairly stated at the time the payout was made. Additionally, consistent with statutory requirements, including the Sarbanes-Oxley Act of 2002, and principles of responsible oversight, and depending on the
specific facts of each situation, the Compensation and Leadership Development Committee would review all performance-based compensation where a restatement of our financial results for a prior performance period could affect the factors determining
payment of an incentive award. Our long-term or stock-based incentive agreements also provide that, if we determine that a grantee has violated any of the confidentiality,
non-compete
or assistance obligations
in the agreement, then effective on the date the violation began, any unvested performance shares are forfeited and cancelled, and the Compensation and Leadership Development Committee, in its sole discretion, can recoup any performance shares
previously paid under the agreement. The Compensation and Leadership Development Committee expects to amend our clawback policy again when SEC or NYSE final regulations become available.
Hedging and Pledging Policies
All executive officers and directors, including the named executive officers, are subject to a securities trading policy under which hedging transactions
are prohibited. RAIs Code of Conduct provides that directors and employees may not engage in put or call options, short selling or similar hedging activities involving RAI stock. These prohibitions protect against speculative trading by our
executives. As noted above, pledged shares are not counted towards the satisfaction of the stock ownership guidelines for our executive officers and directors, and no executive officers or directors have pledged any shares of RAI common stock.
Deductibility of Compensation
Section 162(m) of the Code generally disallows a federal income tax deduction to publicly traded companies for compensation paid to certain
executives to the extent such compensation exceeds $1 million per executive in any fiscal year. Compensation that satisfies the Codes requirements for qualified performance-based compensation is not subject to that deduction limitation.
As discussed above, the annual and long-term or stock-based incentive compensation for our named executive officers is intended to meet the requirements for qualified performance-based compensation. However, the Compensation and Leadership
Development Committee may decide from time to time to grant compensation that will not qualify as performance-based compensation for purposes of Section 162(m) of the Code when, in the Committees judgment, those payments or grants
are needed to achieve the Committees overall compensation objectives. Moreover, even if the Compensation and Leadership Development Committee intends to grant compensation that qualifies as performance-based compensation for
purposes of Section 162(m) of the Code, RAI cannot guarantee that such compensation will so qualify or ultimately will be deductible.
Although the
Compensation and Leadership Development Committee plans to continue taking actions intended to limit the impact of Section 162(m) of the Code, the tax deduction is only one of several relevant considerations in setting compensation. Thus, the
tax deduction limitation should not be permitted to compromise RAIs ability to design and maintain executive compensation arrangements that will attract and retain the executive talent to compete successfully. Accordingly, achieving the
desired flexibility in the design and delivery of compensation may result in compensation that in certain cases is not deductible for federal income tax purposes.
45
Compensation Committee Report
The Compensation and Leadership Development Committee has reviewed and discussed the above Compensation Discussion and
Analysis with RAIs management. Based on that review and discussion, the Compensation and Leadership Development Committee recommended to the Board that the Compensation Discussion and Analysis be included in this 2016 Annual Report on Form
10-K.
Respectfully submitted,
Nana Mensah (Chair)
Jean-Marc Lévy
Lionel L. Nowell, III
John J. Zillmer
Compensation-Related Risk Assessment
At the direction of the Compensation and Leadership Development Committee, and with the assistance of Meridian, the
Committees independent compensation consultant, in November 2016 management conducted a comprehensive review and evaluation of the risks arising from the compensation policies and practices applicable to all of our employees, including our
named executive officers. This risk assessment was conducted under our overall enterprise risk management process and included a detailed qualitative and quantitative analysis of the risks related to the compensation architecture for all employees.
Under the enterprise risk management process, each element of our compensation architecture was analyzed for risks related to such element of
compensation, including any links between behaviors and/or decisions driving compensation amounts and changes in RAIs risk profile. Further, each element was reviewed to identify specific controls and/or attributes mitigating or aggravating
such risks.
Risk mitigating controls and attributes identified during the risk assessment included both entity level risk controls (such as our
corporate governance structure, approval authority guidelines and risk authority guidelines) and compensation risk controls and attributes (such as the oversight of the executive compensation programs by the Compensation and Leadership Development
Committee, the mixture of annual and long-term or stock-based incentives, the use of performance-based annual and long-term or stock-based incentives, the use of multiple performance measures in both the annual and long-term or stock-based incentive
programs, the mix of financial and marketplace metrics in the annual incentive program, maximum payout caps on annual and long-term or stock-based incentive awards, stock ownership guidelines, Compensation and Leadership Development Committee
discretion (including negative discretion) regarding targets and payouts, and recoupment, pledging and anti-hedging policies). Finally, the likelihood and potential impact of the compensation risks were assessed during the November 2016 risk
assessment.
The findings of the November 2016 comprehensive compensation risk assessment, including a summary of the extensive risk mitigating
controls and attributes identified in our compensation policies and practices, were reviewed by management with the Compensation and Leadership Development Committee and Meridian in November 2016. Based on the results of this compensation risk
assessment, the Compensation and Leadership Development Committee concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on our company.
46
Summary Compensation Table
The following table shows the compensation paid to or earned by RAIs named executive officers for the fiscal
years ended December 31, 2016, 2015 and 2014, as applicable.
2016 Summary Compensation Table
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|
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|
Name
and
Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)(8)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)(9)
|
|
Change
in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(10)
|
|
All
Other
Compensation
($)(11)
|
|
Total
($)
|
|
Susan M. Cameron
Executive Chairman of
the
Board of RAI(1)
|
|
|
2016
2015
2014
|
|
|
|
1,378,000
1,378,000
904,111
|
|
|
|
0
0
500,000
|
|
|
|
8,169,520
8,227,129
8,351,638
|
|
|
2,912,000
3,328,000
0
|
|
55,289
0
720,470
|
|
651,316
515,409
275,334
|
|
|
13,166,125
13,448,538
10,751,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debra A. Crew
President and Chief
Executive
Officer of RAI(2)
|
|
|
2016
2015
2014
|
|
|
|
787,525
670,950
155,000
|
|
|
|
0
0
525,000
|
|
|
|
2,367,880
1,960,512
8,317,578
|
|
|
1,576,141
1,001,015
213,203
|
|
0
0
0
|
|
196,228
98,877
18,545
|
|
|
4,927,774
3,731,354
9,229,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew D.
Gilchrist
Executive Vice President
and Chief Financial Officer
of RAI
|
|
|
2016
2015
2014
|
|
|
|
720,025
693,975
628,575
|
|
|
|
0
85,000
80,000
|
|
|
|
2,345,210
2,312,367
1,985,585
|
|
|
1,334,401
1,029,441
877,019
|
|
577,957
516,016
684,616
|
|
81,022
70,255
72,412
|
|
|
5,058,615
4,707,054
4,328,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Martin L. Holton III
Executive Vice
President,
General Counsel and
Assistant Secretary of RAI
|
|
|
2016
2015
2014
|
|
|
|
635,990
598,125
568,225
|
|
|
|
100,000
100,000
0
|
(6)
|
|
|
1,562,918
1,508,343
1,528,730
|
|
|
1,130,552
849,380
749,844
|
|
418,339
614,923
751,732
|
|
160,927
146,070
147,879
|
|
|
4,008,725
3,816,841
3,746,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
Joseph P. Fragnito
President and
Chief
Commercial Officer of
RJR Tobacco(3)
|
|
|
2016
|
|
|
|
95,238
|
|
|
|
350,000
|
(7)
|
|
|
2,333,485
|
|
|
0
|
|
0
|
|
8,295
|
|
|
2,787,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffery S.
Gentry
Former Executive Vice
President of RJR Tobacco(4)
|
|
|
2016
2015
2014
|
|
|
|
249,319
520,175
505,875
|
(5)
|
|
|
0
0
0
|
|
|
|
1,214,840
1,206,416
1,224,604
|
|
|
388,015
696,920
633,077
|
|
1,425,146
625,666
937,776
|
|
2,468,789
139,042
143,935
|
|
|
5,746,109
3,188,219
3,445,267
|
|
(1)
|
Ms. Cameron served as President and CEO of RAI during 2016. Effective January 1, 2017, she became Executive Chairman of the Board of RAI.
|
(2)
|
Ms. Crew served as President and Chief Operating Officer of RJR Tobacco during 2016 until October 24, 2016, when she became President and
CEO-Elect
of RAI. Effective
January 1, 2017, she became President and CEO of RAI.
|
(3)
|
Mr. Fragnito joined RJR Tobacco as its President and Chief Commercial Officer effective October 24, 2016.
|
(4)
|
Dr. Gentrys employment terminated on April 30, 2016. For information regarding the payments and benefits Dr. Gentry received in connection with his termination of employment, see
Termination and Change of Control Payments
below.
|
(5)
|
This amount includes base salary for Dr. Gentry paid through April 30, 2016 and a $73,344 lump sum payment for unused vacation.
|
(6)
|
This amount represents a special cash award paid to Mr. Holton in February 2016 representing his receipt of a CEOs Award for significant contributions to RAIs success.
|
(7)
|
This amount represents signing bonus paid to Mr. Fragnito in connection with his hiring on October 24, 2016.
|
47
(8)
|
The amounts shown in this column for 2016 represent the aggregate grant date fair value (calculated in accordance with the Financial Accounting Standards Boards Accounting Standards Codification Topic 718,
referred to as FASC 718) for the stock-based incentive awards that were granted to the named executive officers in 2016 based on the probable outcome of the performance conditions at the time of the grant (and for Mr. Fragnito, this amount also
includes a retention grant in the form of restricted stock units in connection with his hiring). The assumptions upon which these amounts are based are set forth in note 15 to the consolidated financial statements contained in this 2016 Annual
Report on Form
10-K.
For additional information on the performance shares (and restricted stock units in the case of Mr. Fragnito) granted under the Omnibus Plan in 2016, see the footnotes and narrative
following the 2016 Grants of Plan-Based Awards Table below. Assuming that the highest level of performance conditions are achieved, the aggregate grant date fair value of the performance-based awards granted under the Omnibus Plan in 2016 to each
named executive officer would be as follows Ms. Cameron: $16,339,040; Ms. Crew: $3,551,820; Mr. Gilchrist: $3,517,840; Mr. Holton: $2,344,402; Mr. Fragnito: $2,918,922; and Dr. Gentry: $1,822,285.
|
The amounts shown in this column do not equal the actual value that any named executive officer received in 2016 with respect to the
vesting of an equity-based incentive award. The actual value any named executive officer receives at the end of the performance period for such executives award is determined based on the specific terms of the grant documentation for the
award, and such value may differ significantly from the amounts shown in this column. For the value that each of the named executive officers actually received in 2016 in connection with the vesting of equity-based incentive awards (a) made in
2013 to each of the named executive officers (except Mmes. Cameron and Crew and Mr. Fragnito) consisting of performance shares settled with shares of RAI common stock, (b) made in 2015 to Ms. Cameron consisting of performance
shares settled with shares of RAI common stock, and (c) made in 2014 to Ms. Crew consisting of restricted stock units settled in shares of RAI common stock, see the 2016 Option Exercises and Stock Vested Table below.
(9)
|
The amounts in this column for 2016 consist of (1) the standard annual incentive award payments with respect to 2016 performance and (2) the
one-time
Game Changer
special incentive award payments related to the Lorillard integration.
|
The standard annual incentive award payments with respect to
2016 performance were paid to the named executive officers (except Ms. Cameron and Mr. Fragnito, who did not receive an annual incentive payment based on his hire date) in the first quarter of 2017. As noted above, Ms. Cameron
received an annual incentive award payout of $2,912,000 in May 2016 for her 2015/2016 performance period that ended April 30, 2016. The amounts paid to the other named executive officers for the standard annual incentive awards were as
follows Ms. Crew: $1,077,613; Mr. Gilchrist: $862,111; Mr. Holton: $717,710; and Dr. Gentry: $193,123. For information regarding the annual incentives, see
Compensation Discussion and
Analysis
Analysis of 2016 Named Executive Officer Compensation Decisions
Annual Compensation
Annual Incentive Compensation
and
Annual Incentives for Ms.
Cameron
above, and for further information regarding the annual incentive opportunity for each named executive officer, subject to the maximum award payout
limitations established by the Compensation Committee, see the narrative following the 2016 Grants of Plan-Based Awards Table below.
The Game
Changer special incentive award opportunity for each named executive officer (except Ms. Cameron and Mr. Fragnito, both of whom did not participate in the Game Changer program) was granted under the Omnibus Plan for the
18-month
performance period from July 1, 2015 to December 31, 2016. The Game Changer incentive awards for each participating named executive officer were determined by the Compensation Committee and paid
out in early 2017. The amounts paid to the participating named executive officers for the Game Changer special incentive awards were as follows Ms. Crew: $498,528; Mr. Gilchrist: $472,290; Mr. Holton: $412,842; and
Dr. Gentry: $194,892. For more information about the Game Changer special incentive awards, see the disclosure above under
Compensation Discussion and Analysis
2016 Special Incentives
.
(10)
|
The amounts in this column for each named executive officer for 2016 represent only the total change in the actuarial
present value of the executives accumulated benefit under all defined benefit plans, including supplemental plans. For Dr. Gentry, the amount reflects an additional three years of credited service that he received, pursuant to his
severance agreement, at his termination on April 30, 2016. For
|
48
|
additional information regarding the defined benefit plans in which the named executive officers participate, see the 2016 Pension Benefits Table below.
|
(11)
|
The amounts shown in this column for 2016 include, among other items:
|
|
(a)
|
contributions made by RAI to the named executive officers under RAIs qualified defined contribution plan, and amounts credited by RAI to the accounts of the named executive officers in RAIs
non-qualified
excess benefit plans (with such excess benefit plans described in greater detail in the footnotes and narrative following the 2016
Non-Qualified
Deferred
Compensation Table below), as follows:
|
|
|
|
|
|
|
|
Name
|
|
Qualified Plan
Contribution
($)
|
|
Non-Qualified
Plan
Credit
($)
|
|
Ms. Cameron
|
|
23,850
|
|
|
362,250
|
|
Ms. Crew
|
|
17,559
|
|
|
143,410
|
|
Mr. Gilchrist
|
|
7,950
|
|
|
44,534
|
|
Mr. Holton
|
|
23,850
|
|
|
109,833
|
|
Mr. Fragnito
|
|
2,857
|
|
|
|
|
Dr. Gentry
|
|
26,200
|
|
|
60,790
|
|
|
(b)
|
the perquisites described below:
|
|
|
|
in the case of each of Mmes. Cameron and Crew, and Messrs. Gilchrist and Holton and Dr. Gentry, the sum of $20,000 representing (i) a cash payment to such named executive officer in 2016 of $10,000 plus
(ii) the incremental cost of a program of financial planning and counseling services provided to such named executive officer in 2016, which amount was imputed to such named executive officer for income tax purposes;
|
|
|
|
in the case of Mr. Fragnito, the sum of $5,000 representing (i) a cash payment to Mr. Fragnito in 2016 of $2,500 plus (ii) the incremental cost of a program of financial planning and counseling
services provided to Mr. Fragnito in 2016, which amount was imputed to such named executive officer for income tax purposes;
|
|
|
|
in the case of Mmes. Cameron and Crew, the sum of $214,331 and $12,525, respectively, representing the value (based upon the aggregate incremental cost to RJR Tobacco) ascribed to personal flights taken by
Mmes. Cameron and Crew, or their respective guests, on aircraft fractionally owned by RJR Tobacco, which amounts were imputed to them for income tax purposes; and
|
|
|
|
the cost of premiums paid by RAI for certain excess liability insurance covering each of the named executive officers.
|
|
(c)
|
in the case of Ms. Cameron and Messrs. Gilchrist and Holton, the change in value of the accrued postretirement health benefit from December 31, 2015 to December 31, 2016, as follows
Ms. Cameron: $22,646, Mr. Gilchrist: $6,343 and Mr. Holton: $2,836.
|
|
(d)
|
in the case of Dr. Gentry, severance-related payments consisting of the following: (i) $1,079,400 representing an amount equal to two years of his annual base salary; (ii) $1,025,430 representing an amount equal to
two times his target annual incentive under the annual incentive award program; (iii) $23,333 representing an amount equal to the value of the financial planning and counseling services that would have been provided by RAI during the severance
period; (iv) $210,483 representing an amount equal to the matching and retirement enhancement contributions that would have been contributed to the
non-qualified
defined contribution plan by RAI during the
severance period; (v) $2,235 representing an amount equal to the matching contributions related to a postretirement health-savings account that would have been credited by RAI during the severance period; and (vi) $17,576 representing an amount
equal to the premiums paid by RAI on behalf of Dr. Gentry for health-care benefits, life insurance and excess liability insurance during the portion of the severance period in 2016.
|
49
Equity and
Non-Equity
Incentive Awards
The following table sets forth certain information
concerning each grant of an award made to a named executive officer during 2016 under any plan.
2016 Grants of Plan-Based
Awards Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant
Date
|
|
|
Board
or
Committee
Approval
Date
|
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
|
|
Estimated Future Payouts
Under Equity Incentive
Plan Awards(3)
|
|
Grant
Date Fair
Value of
Stock and
Option
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Awards(4)
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
($)
|
Susan M. Cameron
|
|
|
5/5/2016
|
|
|
5/5/2016
|
|
|
|
|
|
|
|
|
|
164,841
|
|
329,682
|
|
8,169,520
|
|
|
|
5/5/2016
|
(1)
|
|
5/5/2016
|
|
|
|
2,080,000
|
|
4,160,000
|
|
|
|
|
|
|
|
|
Debra A. Crew
|
|
|
3/1/2016
|
|
|
2/4/2016
|
|
|
|
|
|
|
|
|
|
46,898
|
|
70,347
|
|
2,367,880
|
|
|
|
2/4/2016
|
(1)
|
|
2/4/2016
|
|
|
|
953,640
|
|
1,907,280
|
|
|
|
|
|
|
|
|
Andrew D. Gilchrist
|
|
|
3/1/2016
|
|
|
2/4/2016
|
|
|
|
|
|
|
|
|
|
46,449
|
|
69,674
|
|
2,345,210
|
|
|
|
2/4/2016
|
(1)
|
|
2/4/2016
|
|
|
|
762,930
|
|
1,525,860
|
|
|
|
|
|
|
|
|
Martin L. Holton III
|
|
|
3/1/2016
|
|
|
2/4/2016
|
|
|
|
|
|
|
|
|
|
30,955
|
|
46,433
|
|
1,562,918
|
|
|
|
2/4/2016
|
(1)
|
|
2/4/2016
|
|
|
|
635,142
|
|
1,270,284
|
|
|
|
|
|
|
|
|
Joseph P. Fragnito
|
|
|
10/24/2016
|
|
|
9/15/2016
|
|
|
|
|
|
|
|
|
|
21,249
|
|
31,874
|
|
1,170,820
|
|
|
|
10/24/2016
|
(2)
|
|
9/15/2016
|
|
|
|
|
|
|
|
|
|
21,101
|
|
|
|
1,162,665
|
Jeffery S. Gentry
|
|
|
3/1/2016
|
|
|
2/4/2016
|
|
|
|
|
|
|
|
|
|
24,061
|
|
36,092
|
|
1,214,840
|
|
|
|
2/4/2016
|
(1)
|
|
2/4/2016
|
|
|
|
512,715
|
|
1,025,430
|
|
|
|
|
|
|
|
|
(1)
|
Amounts shown in this row represent the annual incentive award opportunity for each named executive officer (except Ms. Cameron, who received an annual incentive award opportunity based upon different terms as
described below) under the Omnibus Plan for the 2016 performance period. The amounts shown in the Target column represent the amount that the Compensation Committee generally expected, as of the beginning of the performance period, to
pay to each such named executive officer for target performance during the performance period. The Threshold column shows dashes because the Compensation Committee was permitted to reduce the ultimate value of the 2016 annual incentive
award to essentially zero, so there is no threshold level for the awards. For above-target performance for 2016, the Compensation Committee decided to limit, subject to maximum cash net income award pools, the maximum payout for the 2016 annual
incentive awards to two times the target value, which maximum values for each named executive officer are reflected in the Maximum column. The ultimate annual incentive award for 2016 was determined by the Compensation Committee in early
2017, as more fully described in the narrative under the heading
2016 Annual Incentives
following this table, and the actual payouts made relating to the 2016 annual incentive awards are included in the
Non-Equity
Incentive Plan Compensation column in the 2016 Summary Compensation Table above.
|
Amounts shown in this row for Ms. Cameron represent her annual incentive cash opportunity under the Omnibus Plan for the
one-year
performance period from May 1, 2016 to April 30, 2017. The amount shown in the Target column represents the amount that the Compensation Committee generally expected, as of the
beginning of the performance period, to pay Ms. Cameron for target performance during the performance period. The Threshold column shows a dash because the Compensation Committee is permitted to reduce the ultimate value of her
2016/2017 annual incentive award to essentially zero, so there is no threshold level for the award. The Compensation Committee decided to limit, subject to her maximum cash net income award pool, the maximum payout for Ms. Camerons
2016/2017 annual incentive award to two times the target value, which maximum value for Ms. Cameron is reflected in the Maximum column. The ultimate 2016/2017 annual incentive award for Ms. Cameron will be determined by the
Compensation Committee in May 2017, as more fully described in the narrative under the heading
2016/2017 Annual Incentive Opportunity for Ms.
Cameron
following this table. Ms. Camerons actual annual
incentive payout made relating to her 2015/2016 performance period is included in the
Non-Equity
Incentive Plan Compensation column in the 2016 Summary Compensation Table above.
50
(2)
|
The amount shown in this row represents a retention grant in the form of restricted stock units awarded to Mr. Fragnito in connection with his hiring effective October 24, 2016. This grant is expected to vest
50% on December 15, 2017, and 50% on December 15, 2018. Further details about this retention grant are discussed in footnote 3 below.
|
(3)
|
Amounts shown in these columns represent performance shares granted to each of the named executive officers (except Ms. Cameron and Mr. Fragnito, each of whom received long-term incentive award opportunities
based upon different terms as described below) under the Omnibus Plan for the 2016-2018 performance period. The amounts shown in the Target column represent the number of performance shares initially awarded to each such named executive
officer as his or her long-term incentive award opportunity, and represent the number of performance shares that the Compensation Committee generally expects, as of the beginning of the performance period, to pay to each such named executive officer
for target performance during the performance period. The number of performance shares initially granted to each such named executive officer was determined by dividing the target long-term incentive opportunity, denominated as a multiple of the
executives March 1, 2016 base salary, by $49.00, the average closing price of RAI common stock for the 20 trading days prior to the grant date. The Threshold column shows dashes because the Compensation Committee will be
permitted to reduce the ultimate number of the 2016 performance shares earned to essentially zero, so there is no threshold level for the awards. For above-target performance for the 2016-2018 performance period, the Compensation Committee has
decided to limit, subject to cash net income maximum award pools, the maximum payout of the 2016 performance shares to 150% of each such named executive officers target award opportunity, which maximum numbers of performance shares are
reflected in the Maximum column. The ultimate number of performance shares actually earned by each of such named executive officers for the 2016-2018 performance period will be determined by the Compensation Committee in early 2019, as
more fully described in the narrative under the heading
2016 Long-Term Incentives
following this table.
|
Amounts
shown in these columns for Ms. Cameron represent her stock-based incentive opportunity under the Omnibus Plan for the performance period from May 1, 2016 to April 30, 2017. As described above, the amount shown in the
Target column represents the number of performance shares initially awarded to Ms. Cameron as her 2016 equity-based incentive award opportunity, and represent the number of performance shares that the Compensation Committee
generally expects, as of the beginning of the performance period, to pay to Ms. Cameron for target performance during the performance period. The number of performance shares initially granted to Ms. Cameron was determined by dividing the
target equity-based incentive opportunity, denominated as a multiple of her May 1, 2016 base salary, by $49.29, the average closing price of RAI common stock for the 20 trading days prior to the grant date. The Threshold column
shows dashes because the Compensation Committee will be permitted to reduce the ultimate number of her 2016 performance shares to essentially zero, so there is no threshold level for the awards. For above-target performance for the performance
period, the Compensation Committee has decided to limit, subject to a cash net income maximum award pool, the maximum payout of the 2016 performance shares to 200% of Ms. Camerons target award opportunity, which maximum number of
performance shares is reflected in the Maximum column. The ultimate number of performance shares actually earned by Ms. Cameron for the performance period will be determined by the Compensation Committee in May 2017, as more fully
described in the narrative under the heading
2016 Stock-Based Incentive Grant for Ms.
Cameron
following this table.
Amounts shown in these columns for Mr. Fragnito represent two stock-based incentive opportunities under the Omnibus Plan. The first grant represents
a prorated grant of performance shares for the performance period from October 1, 2016 to December 31, 2018. The amount shown in the Target column represents the prorated number of performance shares awarded to
Mr. Fragnito as his 2016 long-term incentive award opportunity, and represents the number of performance shares that the Compensation Committee generally expected, as of the beginning of the performance period, to pay to Mr. Fragnito for
target performance during the performance period. The prorated number of performance shares initially granted to Mr. Fragnito was determined by dividing the prorated 2016 target long-term incentive opportunity, denominated as a multiple of his
October 24, 2016 base salary, by $47.39, the average closing price of RAI common stock for the 20 trading days prior to the grant date. The Threshold column shows dashes because the Compensation Committee will be permitted
51
to reduce the ultimate number of his 2016 performance shares earned to essentially zero, so there is no threshold level for the award. For above-target performance for the performance period, the
Compensation Committee has decided to limit, subject to his cash net income maximum award pool, the maximum payout of the 2016 performance shares to 150% of Mr. Fragnitos prorated target award opportunity. The ultimate number of
performance shares actually earned by Mr. Fragnito for the performance period will be determined by the Compensation Committee in early 2019, as more fully described in the narrative below under the heading
Stock-Based Incentive
Opportunities for New Named Executive Officer
following this table.
The second grant to Mr. Fragnito represents the retention grant
of restricted stock units granted to Mr. Fragnito in connection with his hiring effective October 24, 2016. This grant is expected to vest 50% on December 15, 2017, and 50% on December 15, 2018. The amount shown in the
Target column represents the number of restricted stock units initially awarded to Mr. Fragnito as the retention grant. The number of restricted stock units initially granted to Mr. Fragnito was determined by dividing the
target long-term retention incentive opportunity of $1,000,000, by $47.39, the average closing price of RAI common stock for the 20 trading days prior to the grant date. The Threshold column shows dashes because the Compensation
Committee will be permitted to reduce the ultimate number of his retention grant of restricted stock units to essentially zero, so there is no threshold level for the awards. The Compensation Committee decided to limit, subject to
Mr. Fragnitos cash net income maximum award pools for this grant, the maximum payout of the retention grant of restricted stock units to the target amount so that number of restricted stock units is reflected in the Maximum
column. The ultimate number of restricted stock units actually earned by Mr. Fragnito will be determined by the Compensation Committee in December 2017 and December 2018, respectively, as more fully described in the narrative below under the
heading
Stock-Based Incentive Opportunities for New Named Executive Officer
following this table.
(4)
|
Amounts shown in this column represent the grant date fair value of the 2016 performance shares award for each named executive officer (other than Ms. Cameron and Mr. Fragnito) and equal the product of $50.49
(the per share closing price of RAI common stock on the grant date of March 1, 2016) multiplied by the target number of performance shares awarded to such named executive officer based on the probable outcome of the performance conditions on
the grant date.
|
The amount shown in this column for Ms. Cameron represents the grant date fair value of her 2016 performance
shares award and equals the product of $49.56 (the per share closing price of RAI common stock on the grant date of May 5, 2016) multiplied by the target number of performance shares awarded to her based on the probable outcome of the
performance conditions on the grant date.
The amounts shown in this column for Mr. Fragnito represent the grant date fair value of his 2016
performance shares award and the retention grant of restricted stock units, and each such amount equals the product of $55.10 (the per share closing price of RAI common stock on the grant date of October 24, 2016), multiplied by the target
number of performance shares or restricted stock units awarded to him, as applicable, based on the probable outcome of the performance conditions on the grant date.
All of these amounts also are disclosed in the Stock Awards column in the 2016 Summary Compensation Table above.
2016 Annual Incentives.
The annual incentive opportunities reflected in the table above were approved in February 2016 for each of the named
executive officers (other than Ms. Cameron and Mr. Fragnito) for the January 1, 2016 to December 31, 2016 performance period. Although such values represented the target and maximum annual incentive award opportunity for each
participating named executive officer for 2016, the ultimate value of the 2016 annual incentive awards was determined by the Compensation Committee at the end of the performance period based first on the annual incentive cash award pool generated
for each of the participating named executive officers under the
pre-established
cash net income performance formula, and then reduced using negative discretion after consideration of the actual performance of
RAI and its operating companies on the underlying performance metrics described in the Compensation Discussion and Analysis.
52
In February of 2016, the Compensation Committee established the underlying financial and marketplace
performance metrics, weightings, targets and scoring grids for 2016. Each metric had a threshold, target and maximum score associated with it. If the threshold score relating to a particular metric was not met, then such metric was assigned a score
of zero in determining the overall score. The maximum score that could be assigned to any metric was 200% of target. In determining the score for any performance metric, the Compensation Committee considered unanticipated, unusual or
non-recurring
events that affected such metric. The score for each metric was multiplied by its applicable percentage weighting; the resulting product yielded a weighted score for the particular metric, which was
then added to all other weighted metric scores (calculated in the same fashion), resulting in an overall score. The Compensation Committee then considered whether any additional adjustment was appropriate; if any such adjustment was approved by the
Committee, the adjustment was applied to the weighted total score resulting in the final payout score.
After the end of the 2016 performance
period, the Compensation Committee approved the annual incentive cash award pools for each participating named executive officer based on RAIs 2016 cash net income of $3.2 billion, and then reviewed the 2016 performance of RAI and its
operating companies as measured by the underlying performance metrics. After consideration of the above results, the Compensation Committee used negative discretion to reduce the amount of the annual incentive cash award for each participating named
executive officer. Each participating named executive officers 2016 annual incentive award was paid out in cash in the first quarter of 2017. For more information about our annual incentive compensation, see the disclosure above under
Compensation Discussion and Analysis
Analysis of 2016 Named Executive Officer Compensation Decisions
Annual Compensation
Annual Incentive Compensation.
2016/2017 Annual Incentive Opportunity for Ms.
Cameron
. The annual incentive opportunity reflected in the table above for
Ms. Cameron was approved in May 2016 for the May 1, 2016 to April 30, 2017 performance period. Although such value represented the target annual incentive award opportunity for Ms. Cameron for 2016, the ultimate value of her 2016
annual incentive award will be determined by the Compensation Committee at the end of the performance period based first on the annual incentive cash award pool generated for Ms. Cameron under her
pre-established
cash net income performance formula, and then may be reduced using negative discretion after consideration of (1) the actual performance of RAI and its operating companies on the 2016
underlying performance metrics as described above and in the Compensation Discussion and Analysis for the other named executive officers and (2) Ms. Camerons performance against other performance goals established by the Compensation
Committee.
After the end of the performance period, the Compensation Committee will approve an annual incentive cash award pool for
Ms. Cameron based on RAIs cash net income for the period from April 1, 2016 to March 31, 2017, and then review the 2016 performance of RAI and its operating companies as measured by the underlying performance metrics and
Ms. Camerons performance against the other performance goals over the performance period. After consideration of the above results, the Compensation Committee may use negative discretion to reduce the amount of the annual incentive cash
award for Ms. Cameron. Ms. Camerons 2016 annual incentive award will be paid out in cash in May 2017. For more information about Ms. Camerons annual incentive compensation, see the disclosure above under
Compensation Discussion and Analysis
Analysis of 2016 Named Executive Officer Compensation Decisions
Annual Compensation
Annual Incentives for
Ms.
Cameron
2016/2017 Annual Incentive Opportunity for Ms.
Cameron
.
2016 Long-Term Incentives.
The performance share awards reflected in the table above were made effective March 1, 2016 to each of the named
executive officers (except Ms. Cameron and Mr. Fragnito) as a target long-term incentive award for the January 1, 2016 to December 31, 2018 performance period. The number of performance shares each participating named executive
officer actually will receive, if any, will be determined at the end of such performance period based first on the maximum payout limitation provided by the performance shares award pool generated for each participating named executive officer under
a
pre-established
cash net income performance formula. Then, the Compensation Committee may use negative discretion to reduce the number of performance shares actually earned to an amount consistent with the
average of RAIs annual incentive award program scores for each of the three years in the
53
performance period, but not higher than 150% of target. For example, if RAIs actual three-year average annual incentive award score equals the 100% target, then each participating named
executive officer may earn 100% of his or her target number of performance shares (subject to reduction using negative discretion and the adjustment described below). If, in the alternative, RAIs actual three-year average score equals or
exceeds the 150% maximum annual incentive award score, then each participating named executive officer may earn a maximum of 150% of his or her target number of performance shares (subject to reduction using negative discretion and the adjustment
described below), and if RAIs actual three-year average score is zero, then the participating named executive officer will not earn any performance shares. For actual three-year average scores between zero and the 150% maximum, the number of
performance shares each participating named executive officer actually earns will be determined by the Compensation Committee taking into account RAIs actual three-year average score. In addition, if RAI fails to pay cumulative dividends for
the three-year performance period of at least $5.04 per share (an amount equal to the dividend paid for the first quarter of the performance period times the number of quarters in the performance period), then the number of performance shares earned
will be reduced by an amount equal to three times the percentage of the dividend underpayment for the three-year performance period, up to a maximum additional performance share reduction of 50%. The number of performance shares earned after the
performance adjustments generally will vest on March 1, 2019, and will be settled in shares of RAI common stock as soon as practicable after such date. At the time the performance share awards vest, if at all, each participating named executive
officer will receive a cash dividend equivalent payment equal to the aggregate amount of dividends per share declared and paid to RAIs shareholders on RAI common stock during the period from the beginning of the performance period through the
date on which the performance shares are paid, multiplied by the number of performance shares actually earned by the participating named executive officer after the performance adjustments.
In the event of a participating named executive officers death or termination due to permanent disability, in each case prior to the normal
vesting date and while the executive is an active employee of RAI or one of its subsidiaries, any outstanding performance shares will vest on the date of the named executive officers death or termination due to permanent disability on a pro
rata basis based on target performance, with payment of the pro rata amount of the performance shares (plus the associated cash dividend equivalent payment for such shares) to be made as soon as practicable after such event occurs. In the event of a
participating named executive officers retirement or termination of employment without cause where the executive is eligible for and accepts severance benefits under an
RAI-sponsored
severance plan or
agreement with RAI, the amount of performance shares that will vest on a pro rata basis on the March 1, 2019 vesting date will be determined as described above based on the actual performance of RAI and its operating companies over the
three-year performance period, with the payment of the earned number of performance shares (plus the associated cash dividend equivalent payment for such shares) to be made as soon as practicable after the March 1, 2019 vesting date. In all
instances, however, in the event of a change of control of RAI where the outstanding performance shares are not assumed, the amount of performance shares that will vest on the date of the change of control will be equal to the higher of (1) the
target number of performance shares and (2) the amount of performance shares that would be earned based on the actual performance of RAI and its operating companies for those fiscal years completed prior to the change of control and a score of
100% for the year of the change of control and any remaining years in the performance period. The payment of such performance shares will be made as soon as practicable after the change of control. In the event of a participating named executive
officers voluntary termination of employment (except in the case of Mr. Holton, who is eligible for retirement) or termination of employment for cause, the named executive officers outstanding performance shares will be forfeited
and cancelled. For more information about this long-term incentive award, see the disclosure above under
Compensation Discussion and Analysis
Analysis of 2016 Named Executive Officer Compensation
Decisions
Long-Term
or Stock-Based Incentive Compensation
Long-Term Incentive Opportunity
.
2016 Stock-Based Incentive Grant for Ms.
Cameron
. The performance share award reflected in the table above was made to
Ms. Cameron on May 5, 2016 as a target stock-based incentive award for the May 1, 2016 to April 30, 2017 performance period. The number of performance shares (and the associated cash dividend equivalent payment) Ms. Cameron
actually will receive, if any, will be determined at the end of such performance period based first on the maximum payout limitation provided by the performance shares award pool generated under her
pre-established
cash net income performance formula. Then, the
54
Compensation Committee may use negative discretion to reduce the number of performance shares she actually earns to an amount consistent with the performance of RAI and its subsidiaries over the
performance period against the 2016 underlying performance metrics and consideration of her progress on succession planning goals and such other performance factors as the Compensation Committee chooses to consider, but such score may not be higher
than 200% of target. In addition, if RAI fails to pay cumulative dividends for the performance period of at least $1.68 per share (an amount equal to the dividend paid for the first quarter of the performance period times the number of quarters in
the performance period), then the number of performance shares earned will be reduced by an amount equal to three times the percentage of the dividend underpayment for the performance period, up to a maximum performance share reduction of 50%.
Subject to the foregoing, Ms. Camerons performance share award generally will vest on May 5, 2017, and will be settled in shares of RAI common stock as soon as practicable after such date. At the time her performance share award
vests, if at all, Ms. Cameron will receive a cash dividend equivalent payment equal to the aggregate amount of dividends per share declared and paid to RAIs shareholders on RAI common stock during the period from the beginning of the
performance period through the payment of the performance shares, multiplied by the number of performance shares she actually earns after the performance adjustments.
In the event of Ms. Camerons death or termination due to permanent disability, in each case prior to the end of the performance period, any
outstanding performance shares will vest on the date of her death or termination due to permanent disability on a pro rata basis based on target performance, with payment of the pro rata amount of the performance shares (plus the associated cash
dividend equivalent payment for such shares) to be made as soon as practicable after such event occurs. In the event of Ms. Camerons involuntary termination of employment without cause where she is eligible for and accepts severance
benefits under an
RAI-sponsored
severance plan or agreement with RAI prior to the end of the performance period, the amount of performance shares that will vest on a pro rata basis on the May 5, 2017
vesting date will be determined as described above based on the actual performance of RAI and its operating companies over the performance period against the 2016 underlying performance metrics and consideration of her progress on succession
planning goals and such other performance factors as the Compensation Committee chooses to consider, with the payment of the earned number of performance shares (plus the associated cash dividend equivalent payment for such shares) to be made as
soon as practicable after the May 5, 2017 vesting date. In all instances of termination, if the Board determines that Ms. Camerons assignment is complete upon the date of her termination of employment, then Ms. Camerons
performance share award will vest on May 5, 2017 and she will be entitled to the associated cash dividend equivalent payment for such shares. In all instances, however, in the event of a change of control of RAI where the outstanding
performance shares are not assumed, the amount of performance shares that will vest on the date of the change of control will be equal to the higher of (1) the target number of performance shares and (2) the amount of performance shares
that would be earned based on the actual performance of RAI and its operating companies for the performance period. The payment of such performance shares will be made as soon as practicable after the change of control. In the event of
Ms. Camerons voluntary termination of employment or termination of employment for cause, her outstanding performance shares will be forfeited and cancelled. For more information about this stock-based incentive award, see the disclosure
above under
Compensation Discussion and Analysis
Analysis of 2016 Named Executive Officer Compensation Decisions
Long-Term or Stock-Based Incentive Compensation
Stock-Based Incentive Opportunity for Ms.
Cameron
2016 Stock-Based Incentive Grant for Ms.
Cameron
.
Stock-Based Incentive Opportunities for New Named Executive Officer
. The performance share award reflected in the table above was made to
Mr. Fragnito on October 24, 2016 as a prorated target long-term incentive award with a October 1, 2016 to December 31, 2018 performance period. The number of performance shares (and the associated cash dividend equivalent
payment) Mr. Fragnito will receive, if any, will be determined at the end of such performance period based first on the maximum payout limitation provided by the performance shares award pool generated under his
pre-established
cash net income performance formula. Then, the Compensation Committee may use negative discretion to reduce the number of performance shares actually earned to an amount consistent with the
average of RAIs annual incentive award program scores for 2016, 2017 and 2018, but not higher than 150% of his prorated target, in the same manner as described above under
2016 Long-Term Incentives
. In addition, consistent
with the performance share awards made March 1, 2016, if RAI fails to pay cumulative dividends for the full three-
55
year period (2016-2018) of at least $5.04 per share (an amount equal to the dividend paid for the first quarter of 2016 times the number of quarters in the full three-year period from 2016-2018),
then the number of performance shares he earns will be reduced by an amount equal to three times the percentage of the dividend underpayment for 2016-2018 period, up to a maximum additional performance share reduction of 50%. The number of
performance shares earned after the performance adjustments generally will vest on March 1, 2019, and will then be settled in shares of RAI common stock. At the time his performance share award vests, if at all, Mr. Fragnito will receive a
cash dividend equivalent payment equal to the aggregate amount of dividends per share declared and paid to RAIs shareholders on RAI common stock during the period from the beginning of his performance period through the payment of the
performance shares, multiplied by the number of performance shares he actually earns after the performance adjustments.
In the event of
Mr. Fragnitos death or termination due to permanent disability, in each case prior to the normal vesting date and while he is an active employee of RAI or one of its subsidiaries, any outstanding performance shares will vest on the date
of his death or termination due to permanent disability on a pro rata basis based on target performance, with payment of the pro rata amount of the performance shares (plus the associated cash dividend equivalent payment for such shares) to be made
as soon as practicable after such event occurs. In the event of Mr. Fragnitos retirement or involuntary termination of employment without cause where he is eligible for and accepts severance benefits under an
RAI-sponsored
severance plan or agreement with RAI prior to the normal vesting date, the amount of performance shares that will vest on a pro rata basis on the March 1, 2019 vesting date will be determined as
described above based on the actual performance of RAI and its operating companies over the performance period, with the payment of the earned number of performance shares (plus the associated cash dividend equivalent payment for such shares) to be
made as soon as practicable after the March 1, 2019 vesting date. In all instances, however, in the event of a change of control of RAI where the outstanding performance shares are not assumed, the amount of performance shares that will vest on
the date of the change of control will be equal to the higher of (1) the target number of performance shares and (2) the amount of performance shares that would be earned based on the actual performance of RAI and its operating companies
for those fiscal years completed prior to the change of control and a score of 100% for the year of the change of control and any remaining years in the performance period, and the payment of such performance shares will be made as soon as
practicable after the change of control. In the event of Mr. Fragnitos voluntary termination of employment or termination of employment for cause, his outstanding performance shares will be forfeited and cancelled. For more information
about this long-term incentive award, see the disclosure above under
Compensation Discussion and Analysis
Analysis of 2016 Compensation Decisions
Long-Term Incentive
Compensation
Stock-Based Incentive Opportunities for New Named Executive Officer
2016 Long-Term Incentive Opportunity.
The retention grant of restricted stock units reflected in the table above was made to Mr. Fragnito on October 24, 2016 as a target long-term
incentive award with a October 1, 2016 to December 31, 2018 performance period. The number of retention restricted stock units (and the associated cash dividend equivalent payment) that will vest at the end of the first 12 months of the
performance period, if any, will be subject to the maximum payout limitation provided by the award pool generated under the
pre-established
cash net income performance formula for such
12-month
period. The number of the remaining restricted stock units (and the associated cash dividend equivalent payment) that will vest at the end of the final 12 months of the performance period, if any, will be
subject to the maximum payout limitation provided by the award pool generated under the
pre-established
cash net income performance formula for such 12-month period. In each case, the Compensation Committee
may use negative discretion to reduce the number of the retention grant restricted stock units Mr. Fragnito actually earns. The vesting of such restricted stock units is subject to Mr. Fragnitos continued employment with RAI on the
applicable vesting date. Upon vesting, the restricted stock unit grants will be paid in the form of shares of RAI stock plus the associated cash dividend payment for the corresponding period, which will be paid in cash.
In the event of Mr. Fragnitos death, permanent disability or a change of control (if such award is not assumed), in each case while he is an
active employee of RAI or one of its subsidiaries, any outstanding restricted stock units will vest on a pro rata basis, with payment of the pro rata amount of the restricted stock units (plus the associated cash dividend equivalent payment) to be
made as soon as practicable after such event occurs. In the event of Mr. Fragnitos involuntary termination of employment without cause where he is eligible for and accepts severance benefits under an
RAI-sponsored
severance plan or agreement with RAI,
56
any outstanding restricted stock units will vest on a pro rata basis on the first or second vesting date, as applicable. In the event of Mr. Fragnitos voluntary termination of
employment or termination of employment for cause, his outstanding restricted stock units will be forfeited and cancelled. For more information about this stock-based retention incentive award, see the disclosure above under
Compensation
Discussion and Analysis
Analysis of 2016 Compensation Decisions
Long-Term Incentive Compensation
Stock-Based Incentive Opportunities for New Named Executive
Officer
Retention Restricted Stock Units.
For information on the amount of salary and bonus in proportion to
total compensation, see
Compensation Discussion and Analysis
Executive Summary
2016 Pay Mix
above.
The following table sets forth certain information concerning equity incentive plan awards outstanding as of the end of 2016 for each named executive
officer.
Outstanding Equity Awards At 2016 Fiscal
Year-End
Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Awards
|
|
Name
|
|
Grant
Date
|
|
|
Number of
Shares or
Units of Stock
That Have
Not Vested(1)
(#)
|
|
Market Value
of Shares or
Units of Stock
That Have
Not Vested(3)
($)
|
|
|
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested(1)
(#)
|
|
Equity Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other Rights
That Have
Not Vested(3)
($)
|
|
Susan M. Cameron
|
|
|
5/5/2016
|
|
|
|
|
|
|
|
|
164,841(4)
|
|
|
9,237,690
|
|
Debra A. Crew
|
|
|
3/1/2016
|
|
|
|
|
|
|
|
|
70,347(5)
|
|
|
3,942,246
|
|
|
|
|
3/2/2015
|
|
|
|
|
|
|
|
|
77,511(6)
|
|
|
4,343,716
|
|
|
|
|
10/1/2014
|
|
|
66,322(7)
|
|
|
3,716,685
|
|
|
|
|
|
|
|
|
|
|
10/1/2014
|
|
|
|
|
|
|
|
|
74,266(8)
|
|
|
4,161,867
|
|
Andrew D. Gilchrist
|
|
|
3/1/2016
|
|
|
|
|
|
|
|
|
69,674(5)
|
|
|
3,904,531
|
|
|
|
|
3/2/2015
|
|
|
|
|
|
|
|
|
91,422(6)
|
|
|
5,123,289
|
|
|
|
|
3/3/2014
|
|
|
95,386(2)
|
|
|
5,345,431
|
|
|
|
|
|
|
|
Martin L. Holton III
|
|
|
3/1/2016
|
|
|
|
|
|
|
|
|
46,433(5)
|
|
|
2,602,105
|
|
|
|
|
3/2/2015
|
|
|
|
|
|
|
|
|
59,634(6)
|
|
|
3,341,889
|
|
|
|
|
3/3/2014
|
|
|
73,439(2)
|
|
|
4,115,522
|
|
|
|
|
|
|
|
Joseph P. Fragnito
|
|
|
10/24/2016
|
|
|
|
|
|
|
|
|
31,874(9)
|
|
|
1,786,219
|
|
|
|
|
10/24/2016
|
|
|
|
|
|
|
|
|
21,101(10)
|
|
|
1,182,500
|
|
Jeffery S. Gentry
|
|
|
3/1/2016
|
|
|
|
|
|
|
|
|
2,010(5)
|
|
|
112,640
|
|
|
|
|
3/2/2015
|
|
|
|
|
|
|
|
|
18,524(6)
|
|
|
1,038,085
|
|
|
|
|
3/3/2014
|
|
|
42,366(2)
|
|
|
2,374,191
|
|
|
|
|
|
|
|
(1)
|
All share amounts in these columns have been adjusted to reflect the 2015 Stock Split.
|
(2)
|
These awards represent performance shares granted under the Omnibus Plan on March 3, 2014. The performance shares
vested, in accordance with their terms, on March 3, 2017. The number of performance shares set forth in the table represents the number of performance shares each such named executive officer actually earned based on the performance of RAI and
its operating companies over the three-year performance period ended on December 31, 2016. In February 2017, the Compensation Committee approved the maximum performance share award pools generated by the
pre-established
performance formula for each of the named executive officers approved in February 2014 based on the percentage established for such named executive officer and RAIs 2014-2016 cumulative
cash net income of $7.3 billion. The Compensation Committee then paid out an amount of earned performance shares (and the associated cash dividend equivalent payment) less than the
|
57
|
maximum performance share award pool to such named executive officer based on its review and consideration of the three-year average of RAIs annual incentive award program scores for 2014,
2015 and 2016 (131%, 140% and 113%, respectively), which was 128%. In addition, RAI satisfied the three-year cumulative dividend requirement of $4.02 (the amount equal to the dividend paid for the first quarter of the performance period times the
number of quarters in the performance period), so there was no additional reduction to the number of performance shares earned. As a result, the final number of performance shares actually earned was 128% of target. Upon their vesting, the earned
performance shares were settled in shares of RAI common stock. In the case of Dr. Gentry, the amount earned was
pro-rated
based on his departure on April 30, 2016. The associated cash dividend
equivalent payment each named executive officer received was equal to the aggregate amount of dividends per share declared and paid to RAIs shareholders on RAI common stock from the beginning of the performance period through the payout of the
performance shares, multiplied by the number of performance shares actually earned after the performance adjustments.
|
(3)
|
The amounts shown in these columns represent the product of $56.04, the per share closing price of RAI common stock on December 30, 2016 (the last trading day of the year), and the number of performance shares or
restricted stock units (as applicable) reflected in the corresponding column in the table for the named executive officer as of December 31, 2016.
|
(4)
|
This amount represents performance shares granted under the Omnibus Plan on May 5, 2016. These performance shares will vest on May 5, 2017, subject to the achievement of certain performance criteria and a
cumulative dividend requirement. The material terms governing such award are described in the narrative under the heading
2016 Stock-Based Incentive Grant for Ms.
Cameron
following the 2016 Grants of Plan-Based
Awards Table above. The number of performance shares set forth in this table represents the target number of performance shares Ms. Cameron may earn at the end of the
one-year
performance period ending
April 30, 2017. The number of performance shares actually earned by Ms. Cameron will be determined by the Compensation Committee based on the actual performance over the
one-year
performance period,
and such amount may differ significantly from the amount shown in this column.
|
(5)
|
These amounts represent performance shares granted under the Omnibus Plan on March 1, 2016. These performance shares will vest on March 1, 2019, subject to the achievement of certain performance criteria and a
cumulative dividend requirement. The material terms governing such awards are described in the narrative under the heading
2016 Long-Term Incentives
following the 2016 Grants of Plan-Based Awards Table above. The number of
performance shares set forth in this table represents the maximum number of performance shares each such named executive officer may earn at the end of the three-year performance period ending December 31, 2018, based on the actual performance
for the first year of the performance period. In the case of Dr. Gentry, the amount shown in this column represents the hypothetical maximum number of performance shares that he may earn at the end of the three-year performance period based on
RAIs above-target performance for the first year of the performance period for the pro rata portion of his 2016 performance share grant (calculated pursuant to the terms of the 2016 performance share agreement), in connection with his
retirement on April 30, 2016. The number of performance shares actually earned by such named executive officers will be determined by the Compensation Committee based on the actual performance over the entire three-year performance period, and
such amount may differ significantly from the amounts shown in this column.
|
(6)
|
These awards represent performance shares granted under the Omnibus Plan on March 2, 2015. These performance shares
will vest on March 2, 2018, subject to the achievement of certain performance criteria and a cumulative dividend requirement. The number of performance shares set forth in the table represents the maximum number of performance shares each such
named executive officer may earn at the end of the three-year performance period based on the actual performance for the first two years of the performance period. The material terms governing such awards are essentially the same as the terms
governing the performance shares granted on March 1, 2016, as described in the narrative under the heading
2016 Long-Term Incentives
following the 2016 Grants of Plan-Based Awards Table above, except that the three-year
performance period applicable to the 2015 performance shares ends on December 31, 2017, the three-year average annual incentive award score will be based on the 2015, 2016 and 2017 scores, and the three-year cumulative dividend threshold is
$4.02. In the
|
58
|
case of Dr. Gentry, the amount shown in this column represents the hypothetical maximum number of performance shares that he may earn at the end of the three-year performance period based on
RAIs above-target performance for the first two years of the performance period for the pro rata portion of his 2015 performance share grant (calculated pursuant to the terms of the 2015 performance share agreement), in connection with his
retirement on April 30, 2016. The number of performance shares actually earned by such named executive officers will be determined by the Compensation Committee based on the actual performance over the entire three-year performance period, and
such amount may differ significantly from the amounts shown in this column.
|
(7)
|
This award represents performance shares granted to Ms. Crew under the Omnibus Plan on October 1, 2014. These performance shares vested, in accordance with the terms of the award, on March 3, 2017. The
material terms governing such award were essentially the same as the terms governing the performance shares granted to the other named executive officers on March 3, 2014, as described in footnote 2 above, except that the performance period
applicable to her 2014 performance shares was the
27-month
period beginning on October 1, 2014 and ending on December 31, 2016, and the cumulative dividend threshold was $3.015. In February 2017, the
Compensation Committee approved the maximum performance share award pool generated by the
pre-established
performance formula for Ms. Crew approved in August 2014 based on the percentage established for
Ms. Crew and RAIs cumulative cash net income of $5.9 billion for the
27-month
performance period. The final number of performance shares actually earned was 128% of target. Upon their vesting,
the earned performance shares were settled in shares of RAI common stock. The associated cash dividend equivalent payment received was equal to the aggregate amount of dividends per share declared and paid to RAIs shareholders on RAI common
stock from the beginning of the performance period through the payout of the performance shares, multiplied by the number of performance shares actually earned.
|
(8)
|
This amount represents the remaining 50% of the retention grant of restricted stock units granted to Ms. Crew under the Omnibus Plan on October 1, 2014. These remaining restricted stock units will
vest on September 30, 2018, subject to Ms. Crews continued employment on the vesting date. The actual number of the remaining retention restricted stock units (and the associated cash dividend equivalent payment) that will vest at
the end of the three-year performance period, if any, will be subject to the maximum payout limitation provided by an award pool generated under the
pre-established
cash net income performance formula for such
three-year period. The Compensation Committee may use negative discretion to reduce the number of the remaining retention grant restricted stock units Ms. Crew actually earns. The number of restricted stock units set forth in this table
represents the target number of remaining retention restricted stock units Ms. Crew may earn at the end of the three-year vesting period ending September 30, 2018.
|
(9)
|
This award represents performance shares granted to Mr. Fragnito under the Omnibus Plan on October 24, 2016. These performance shares will vest, in accordance with the terms of the award, on March 1,
2019. The material terms governing such award were essentially the same as the terms governing the performance shares granted to the other named executive officers on March 1, 2016, as described in footnote 5 above, except that the performance
period applicable to his 2016 performance shares for purposes of the cash net income pool is the period beginning on October 1, 2016 and ending on December 31, 2018. The number of performance shares actually earned by Mr. Fragnito
will be determined by the Compensation Committee based on the actual performance over the entire performance period, and such amount may differ significantly from the amount shown in this column.
|
(10)
|
This amount represents the retention grant of restricted stock units granted to Mr. Fragnito under the Omnibus Plan on October 24, 2016. These restricted stock units generally will vest on 50% on
December 15, 2017, and 50% on December 15, 2018, subject to Mr. Fragnitos continued employment on the vesting date. The actual number of the retention restricted stock units (and the associated cash dividend equivalent payment)
that will vest at the end of each performance period, if any, will be subject to the maximum payout limitation provided by an award pool generated under the
pre-established
cash net income performance formula
for such period. The Compensation Committee may use negative discretion to reduce the number of the retention grant restricted stock units Mr. Fragnito actually earns. The number of restricted stock units set forth in this table represents the
target number of retention restricted stock units Mr. Fragnito may earn.
|
59
The following table provides information concerning the performance shares and restricted stock units
settled with shares of RAI common stock that the named executive officers vested in during 2016.
2016 Option Exercises
and Stock Vested Table (1)
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
Name
|
|
Number of Shares Acquired
on Vesting
(#)
|
|
Value Realized
on Vesting(2)
($)
|
|
Susan M. Cameron
|
|
402,013
|
|
|
20,044,368
|
|
Debra A. Crew
|
|
41,451
|
|
|
1,954,415
|
|
Andrew D. Gilchrist
|
|
94,216
|
|
|
4,756,966
|
|
Martin L. Holton III
|
|
79,985
|
|
|
4,038,443
|
|
Joseph P. Fragnito
|
|
|
|
|
|
|
Jeffery S. Gentry
|
|
67,535
|
|
|
3,409,842
|
|
(1)
|
None of the named executive officers beneficially owned at any time during 2016 any options to acquire shares of RAI common stock.
|
(2)
|
The amounts shown in this column represent the value of each such named executive officers (other than Mmes. Cameron and Crew) earned performance shares settled in shares of RAI common stock on March 1, 2016,
the vesting date of such performance shares, based on the $50.49 per share closing price of RAI common stock on March 1, 2016.
|
In
the case of Ms. Cameron, the amount shown in this column represents the value of her earned performance shares settled in shares of RAI common stock on May 7, 2016, the vesting date of such performance shares, based on the $49.86 per share
closing price of RAI common stock on May 6, 2016 (the last trading date prior to such vesting date).
In the case of Ms. Crew, the amount
shown in this column represents the value of her earned restricted stock units settled in shares of RAI common stock on September 30, 2016, the vesting date of such restricted stock units, based on the $47.15 per share closing price of RAI
common stock on September 30, 2016.
60
The following table sets forth information concerning each defined benefit plan that provides the named executive
officers with payments or other benefits at, following, or in connection with retirement.
2016 Pension Benefits Table
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Plan Name
|
|
Number of
Years
Credited
Service(1)
(#)
|
|
Present
Value of
Accumulated
Benefit(2)
($)
|
|
|
Payments
During
Last Fiscal
Year
($)
|
|
Susan M. Cameron
|
|
Reynolds American Additional Benefits Plan(3)(5)(6)
|
|
6.337
|
|
|
3,268,842
|
|
|
|
183,318
|
|
|
|
|
|
|
|
|
Retirement Plan for Salaried Employees of
Brown & Williamson Tobacco Corporation
and Certain Affiliates(4)(5)(6)
|
|
18.100
|
|
|
1,755,405
|
|
|
|
74,329
|
|
Debra A. Crew
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew D. Gilchrist
|
|
Reynolds American Retirement Plan
|
|
12.334
|
|
|
330,410
|
|
|
|
0
|
|
|
|
|
|
|
|
|
Reynolds American Additional Benefits Plan(3)(5)
|
|
12.334
|
|
|
1,897,434
|
|
|
|
0
|
|
|
|
|
|
|
|
|
Retirement Plan for Salaried Employees of
Brown & Williamson Tobacco Corporation
and Certain Affiliates(4)(5)
|
|
6.500
|
|
|
335,743
|
|
|
|
0
|
|
|
|
|
|
|
|
|
Supplemental Pension Plan for Executives of Brown & Williamson Tobacco Corporation(3)(5)
|
|
6.500
|
|
|
748,604
|
|
|
|
0
|
|
Martin L. Holton III
|
|
Reynolds American Retirement Plan
|
|
14.838
|
|
|
617,666
|
|
|
|
0
|
|
|
|
|
|
|
|
|
Reynolds American Additional Benefits Plan(3)(5)
|
|
14.838
|
|
|
2,946,786
|
|
|
|
0
|
|
Joseph P. Fragnito
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffery S. Gentry
|
|
Reynolds American Retirement Plan
|
|
29.836
|
|
|
1,055,809
|
|
|
|
39,328
|
|
|
|
|
|
|
|
|
Reynolds American Additional Benefits Plan(3)(5)
|
|
32.836
|
|
|
4,732,787
|
|
|
|
176,292
|
|
(1)
|
The number of years of credited service is shown as of December 31, 2016 (except for Dr. Gentry, whose years of credited service are shown as of his retirement on April 30, 2016). Pursuant to his
severance agreement, upon his termination of employment on April 30, 2016, Dr. Gentry received three additional years of credited service in the Reynolds American Additional Benefits Plan, as discussed below.
|
(2)
|
The actuarial present value of accumulated benefit is shown as of December 31, 2016. The narrative below describes the valuation method and material assumptions applied for purposes of determining the values in
this column.
|
(3)
|
Effective June 30, 2013, the Supplemental Pension Plan for Executives of Brown & Williamson Tobacco Corporation, a
non-qualified
plan referred to as the B&W
Supplemental Plan, the Reynolds American Supplemental Benefits Plan, a
non-qualified
plan referred to as the SBP, and certain other
non-qualified
plans were merged into
the Reynolds American Additional Benefits Plan, a
non-qualified
plan referred to as the ABP. The merged plan was named the RAI
Non-Qualified
Retirement Plan.
|
61
(4)
|
Effective December 31, 2013, certain other qualified plans were merged into the Retirement Plan for Salaried Employees of Brown & Williamson Tobacco Corporation and Certain Affiliates, referred to as the
Legacy Plan. The Legacy Plan was then renamed the Retirement Income Plan for Certain RAI Affiliates.
|
(5)
|
Following the mergers referred to above, each of the plans that merged into the ABP and the Legacy Plan, respectively, retained the same benefits and terms as it had prior to the merger. For purposes of this table and
the narrative that follows, the information describes the benefits and terms of the underlying plans.
|
(6)
|
Prior to rejoining RAI in 2014, Ms. Cameron had retired in 2011 and commenced receiving payments from the ABP and the Legacy Plan based on her prior periods of employment with RAI and B&W, respectively. The
amounts shown under the Payments During Last Fiscal Year column represent the amounts she received under each of such plans during 2016.
|
RAI maintains two defined benefit plans the Reynolds American Retirement Plan, a
tax-qualified
pension equity plan referred to as the PEP, and the ABP (in which all of the named executive officers participate, other than Ms. Crew and Mr. Fragnito, who are not eligible to participate based upon their hire dates, and
Ms. Cameron, who is not eligible to actively participate in these plans based on the date she rejoined RAI).
In addition, Ms. Cameron
accrued benefits for service with B&W before the B&W business combination under two additional defined benefit plans, the obligations of which were assumed by RAI in connection with the B&W business combination the Legacy
Plan and the B&W Supplemental Plan. Her benefits under the B&W Supplemental Plan were paid out in a lump sum upon her retirement in 2011 and, as of December 31, 2016, she had not accrued additional benefits under the B&W
Supplemental Plan. Mr. Gilchrist also has accrued benefits for service with B&W before the B&W business combination under the Legacy Plan and the B&W Supplemental Plan.
Ms. Camerons years of credited service for purposes of the ABP represent her service with RAI after the B&W business combination and
prior to her retirement in 2011. Her years of credited service for purposes of the Legacy Plan represent her service with B&W before the B&W business combination.
Mr. Gilchrists years of credited service for purposes of the PEP and the ABP represent his service with RAI after the B&W business
combination. His years of credited service for purposes of the Legacy Plan and the B&W Supplemental Plan represent his service with B&W before the B&W business combination.
In addition, as noted above, pursuant to his severance agreement, upon his termination of employment on April 30, 2016, Dr. Gentry was
credited with three years of additional service in the ABP.
The calculation of the present value of each accumulated benefit assumes a discount
rate of 4.16% (the rate used by RAI in determining the accumulated pension obligations for financial reporting purposes) and post-commencement mortality based on
RP-2016
Healthy Annuitants table
without collar or amount adjustments, projected using Scale
MP-2016
with generational projection. Benefit values of the PEP and the ABP are based on immediate payment at January 1, 2017. Benefit values
for Ms. Camerons ongoing payments from the ABP and the Legacy Plan, which commenced following her retirement in 2011, are based on amounts payable from January 1, 2017 forward. Benefit values for Mr. Gilchrist for the Legacy
Plan and the B&W Supplemental Plan are based on payment at age 56, the age at which his unreduced benefits could commence assuming continued employment to that age. Benefit values for Dr. Gentrys ongoing PEP and ABP payments, both of
which commenced following his retirement on April 30, 2016 (although payments under the ABP were deferred until November 2016 pursuant to Section 409A of the Code), are based on amounts payable from January 1, 2017 forward.
62
Reynolds American Plans
. The PEP provides a lump sum benefit that is a multiple of final average
earnings payable after termination of employment at any age. The multiple is the sum of the participants core earned percentages (ranging from 4% to 13% per year depending on age) and excess earned percentages (ranging from 0% to 4% per year
depending on age) while covered by the PEP. A participants lump sum benefit is equal to his or her total final average earnings multiplied by his or her total core percentage, plus his or her final average earnings in excess of Social Security
covered compensation multiplied by his or her total excess percentage. For purposes of the PEP, final average earnings is the annualized sum of base salary and bonus in the year earned, and is determined by considering the 36 consecutive months that
yield the highest average during the participants last 60 months of service. Each years compensation for the PEP is limited by the compensation limits under the Code.
The ABP provides a benefit equal to the benefit that would be paid under the PEP if the limits on compensation and benefits under the Code did not apply
and if certain extraordinary items of income that are excluded from compensation under the PEP were included. This benefit is reduced by the PEP benefit and is paid upon termination of employment in monthly annuity payments if the present value of
the total benefit is greater than $10,000. If the present value of the total benefit is $10,000 or less, this benefit is paid in a
one-time
lump sum. The ABP is a
non-qualified
unfunded plan designed to allow participants in the plan to receive a pension benefit equal to the benefit that would have been paid under the PEP had the PEP not been subject to the limits on
compensation and benefits under the Code and had the compensation thereunder been recognized under the PEP. All benefits under the ABP are payable out of the general corporate assets of RAI.
Legacy B&W Plans
. The Legacy Plan provides monthly benefits equal to the product of a participants years of pensionable service (to a
maximum of 38 years) multiplied by her or his pensionable salary, divided by 57 and reduced by a proportionate amount of the participants Social Security benefit. A participants pensionable salary is the average of the
participants base rate of pay in effect for the
36-month
period immediately before termination of employment. Ms. Camerons and Mr. Gilchrists service with RAI is not considered
pensionable service under the Legacy Plan, but her or his base rate of pay with RAI is taken into account in determining her or his pensionable salary.
Benefits are payable at age 65. In addition, early retirement benefits may commence before age 65 to a participant who terminates employment
either after attaining age 55 with at least ten years of service or with at least ten years of service when her or his age plus years of service equal at least 65. If early retirement benefits commence before age 65, they are reduced 0.25%
per month for each month that commencement precedes age 60, unless the participant has 30 years of service at termination, in which case benefits may commence without reduction on or after age 55. An employee who was a participant on
July 1, 1994, who terminates employment with at least ten years of service when her or his age plus years of service equal at least 60 may commence benefits after attaining age 50 with the reduction for commencement before age 60
described above.
The B&W Supplemental Plan is a
non-qualified
pension plan that provides a benefit
equal to the benefit that would have been paid under the Legacy Plan had the Legacy Plan not been subject to limits on compensation and benefits under the Code, reduced by the actuarial value of the benefit payable under the Legacy Plan. In
addition, for certain employees, including Ms. Cameron, the B&W Supplemental Plan included bonuses and deferred compensation in pensionable salary and included additional service in pensionable service. For purposes of this plan, for the
period after the B&W business combination, such participants bonus is deemed to be an amount equal to the participants salary rate multiplied by the average rating under B&Ws Performance Incentive Plan for the three years
preceding the B&W business combination. Benefits are payable upon termination of employment from the general corporate assets of RAI.
63
The following table sets forth information regarding each defined contribution or other plan that provides
for the deferral of compensation on a basis that is not
tax-qualified.
2016
Non-Qualified
Deferred Compensation Table
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Plan Name
|
|
Registrant
Contributions
In Last FY(1)
($)
|
|
Aggregate
Earnings
In Last FY(2)
($)
|
|
Aggregate
Withdrawals/
Distributions(3)
($)
|
|
Aggregate
Balance at
Last FYE(4)
($)
|
Susan M. Cameron
|
|
Reynolds American
Additional Benefits Plan
|
|
362,250
|
|
3,329
|
|
365,579
|
|
0
|
Debra A. Crew
|
|
Reynolds American
Supplemental Benefits Plan
|
|
143,410
|
|
1,614
|
|
145,024
|
|
0
|
Andrew D. Gilchrist
|
|
Reynolds American
Additional Benefits Plan
|
|
44,534
|
|
504
|
|
45,038
|
|
0
|
Martin L. Holton III
|
|
Reynolds American
Supplemental Benefits Plan
|
|
109,833
|
|
1,218
|
|
111,051
|
|
0
|
Joseph P. Fragnito
|
|
Reynolds American
Additional Benefits Plan
|
|
0
|
|
0
|
|
0
|
|
0
|
Jeffery S.
Gentry
|
|
Reynolds American
Additional Benefits Plan
|
|
60,790
|
|
867
|
|
61,657
|
|
0
|
(1)
|
The amounts in this column represent the principal amounts credited during 2016 and also are included in the All Other Compensation column of the 2016 Summary Compensation Table above.
|
(2)
|
The amounts in this column represent the aggregate interest credited during 2016 on each named executive officers account in the ABP or SBP, as applicable, but are not included in the 2016 Summary Compensation
Table.
|
(3)
|
These amounts, which were paid to the respective named executive officers during the first quarter of 2017, represent the sum of the principal amounts and interest credited under the ABP or the SBP, as applicable,
during 2016.
|
(4)
|
These amounts represent the balance in each named executive officers account in the ABP or SBP, as applicable, as of December 31, 2016, after taking into account the payment, described in the preceding
footnote, made with respect to each executives account.
|
RAI maintains two
non-qualified
excess benefit plans within the RAI
Non-Qualified
Benefits Plan the ABP and the SBP for those employees, including the named executive officers, whose benefits under RAIs
tax-qualified
401(k) plan are limited by virtue of certain provisions of the Code. Under both the ABP and the SBP, RAI credits to each named executive officers account an amount, referred to as the principal
amount, equal to the amount RAI would have contributed to such executives account in the
tax-qualified
401(k) plan, but for the Codes compensation limitations. In addition, RAI credits the
principal amount with interest at the same rate as is earned by a certain interest income fund offered under RAIs
tax-qualified
401(k) plan. Unlike with respect to the
tax-qualified
401(k) plan, RAI does not contribute any funds to the
non-qualified
excess benefit plans, but instead credits amounts by book entry to participants
accounts.
Commencing with the amounts credited for the 2004 plan year, RAI distributes, in the first quarter of each year, to each participant in
the
non-qualified
excess benefit plans any amounts that have been credited to such participants account during the prior year. Prior to January 1, 2004, a participant in the
non-qualified
excess benefit plans had the election to defer receipt of the amounts credited to his or her account in any year until the beginning of the next year or until his or her termination of employment. Any
participant in the
non-qualified
excess benefit plans who elected to defer receipt, until after termination of employment, of any amounts that had been credited to his or her account prior to January 1,
2004, will continue to earn interest on such amounts until termination of employment.
64
Termination and Change of Control
Payments
RAI has entered into agreements and has adopted plans that require it to provide compensation and/or other
benefits to each named executive officer in the event of such executives termination of employment under certain circumstances, or upon a change of control of RAI occurring during the executives term of employment. The following table
sets forth the amounts payable to each named executive officer (other than Dr. Gentry) if such executives employment had terminated under different scenarios, and/or a change of control of RAI had occurred, on December 30, 2016 (the
last business day of 2016). Dr. Gentrys employment terminated on April 30, 2016, and, therefore, the information provided below for Dr. Gentry reflects the amounts paid to him based on the nature of his actual termination of
employment.
The table below does not include certain payments or benefits that do not discriminate in favor of RAIs executive officers and
that generally would be available to any salaried employee of RAI or its subsidiaries upon termination of employment, or upon a change of control of RAI. For instance, any participant in RAIs standard annual incentive award program and special
Game Changer award program whose employment were terminated, for any reason other than cause, on the last business day of any year would be entitled to receive such cash annual incentive awards for such year. As a result, the standard annual
incentive award and the Game Changer award for 2016 paid to each of the participating named executive officers (and included in the
Non-Equity
Incentive Plan Compensation column of the 2016 Summary
Compensation Table above) are not included in the table below.
Except as otherwise expressly indicated, the amounts set forth in the following
table do not represent the actual sums a named executive officer would receive if her/his employment were terminated or there were a change of control of RAI. Rather, the amounts below generally represent only estimates, based upon assumptions
described in the footnotes to the table, of certain payments and benefits that the named executive officers who were employed by RAI or any of its subsidiaries on December 30, 2016 would have been entitled to receive had any of the identified
events occurred on such date. Moreover, for all of the named executive officers (other than Dr. Gentry), the amounts set forth in the table necessarily are based upon the benefit plans and agreements that were in effect as of December 30,
2016. Payments which RAI may make in the future upon an employees termination of employment or upon a change of control of RAI will be based upon benefit plans and agreements in effect at that time, and the terms of any such future plans and
agreements may be materially different than the terms of RAIs benefit plans and agreements as of December 30, 2016.
65
Potential Payments Upon Termination or a Change of Control Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Benefits and Payments
|
|
Voluntary
Termination
($)
|
|
Involuntary
Termination
not for
Cause(1)
($)
|
|
Termination
for
Cause(1)
($)
|
|
Qualifying
Termination
on Change of
Control(2)(3)
($)
|
|
Termination
due to
Death or
Disability
($)
|
|
Change of
Control
(3)(4)
($)
|
Susan M. Cameron
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance(5)
|
|
|
|
0
|
|
|
|
|
8,450,000
|
|
|
|
|
0
|
|
|
|
|
10,140,000
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
Performance Shares(6)
|
|
|
|
0
|
|
|
|
|
6,270,888
|
|
|
|
|
0
|
|
|
|
|
9,458,577
|
|
|
|
|
6,270,888
|
|
|
|
|
9,458,577
|
|
|
|
Health-Care Benefits(7)
|
|
|
|
575,146
|
|
|
|
|
575,146
|
|
|
|
|
575,146
|
|
|
|
|
575,146
|
|
|
|
|
575,146
|
(8)
|
|
|
|
0
|
|
Debra A. Crew
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance(5)
|
|
|
|
0
|
|
|
|
|
2,622,510
|
|
|
|
|
0
|
|
|
|
|
3,496,680
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
Performance Shares(6)
|
|
|
|
0
|
|
|
|
|
6,654,979
|
|
|
|
|
0
|
|
|
|
|
8,690,286
|
|
|
|
|
5,486,508
|
|
|
|
|
8,690,286
|
|
|
|
Restricted Stock Units(13)
|
|
|
|
0
|
|
|
|
|
2,487,252
|
|
|
|
|
0
|
|
|
|
|
2,487,252
|
|
|
|
|
2,487,252
|
|
|
|
|
2,487,252
|
|
Andrew D. Gilchrist
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance(5)
|
|
|
|
0
|
|
|
|
|
3,039,060
|
|
|
|
|
0
|
|
|
|
|
3,039,060
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
Performance Shares(6)
|
|
|
|
0
|
|
|
|
|
8,818,363
|
|
|
|
|
0
|
|
|
|
|
10,834,194
|
|
|
|
|
7,201,523
|
|
|
|
|
10,834,194
|
|
|
|
Incremental Pension Benefit(9)
|
|
|
|
0
|
|
|
|
|
977,720
|
|
|
|
|
0
|
|
|
|
|
977,720
|
|
|
|
|
0
|
(12)
|
|
|
|
0
|
|
|
|
Insurance Benefits(10)
|
|
|
|
0
|
|
|
|
|
87,684
|
|
|
|
|
0
|
|
|
|
|
87,684
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
280G Tax
Gross-up(11)
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
7,524,615
|
|
|
|
|
0
|
|
|
|
|
4,840,795
|
|
Martin L. Holton III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance(5)
|
|
|
|
0
|
|
|
|
|
2,600,568
|
|
|
|
|
0
|
|
|
|
|
2,600,568
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
Performance Shares(6)
|
|
|
|
6,403,287
|
|
|
|
|
6,403,287
|
|
|
|
|
0
|
|
|
|
|
7,746,733
|
|
|
|
|
5,208,198
|
|
|
|
|
7,746,733
|
|
|
|
Health-Care Benefits(7)
|
|
|
|
0
|
|
|
|
|
44,379
|
|
|
|
|
0
|
|
|
|
|
44,379
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
Incremental Pension Benefit(9)
|
|
|
|
0
|
|
|
|
|
1,332,945
|
|
|
|
|
0
|
|
|
|
|
1,332,945
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
Insurance Benefits(10)
|
|
|
|
0
|
|
|
|
|
88,442
|
|
|
|
|
0
|
|
|
|
|
88,442
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
280G Tax
Gross-up(11)
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
5,670,664
|
|
|
|
|
0
|
|
|
|
|
0
|
|
Joseph P. Fragnito
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance(5)
|
|
|
|
0
|
|
|
|
|
1,500,000
|
|
|
|
|
0
|
|
|
|
|
2,000,000
|
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
Performance Shares(6)
|
|
|
|
0
|
|
|
|
|
347,193
|
|
|
|
|
0
|
|
|
|
|
1,248,592
|
|
|
|
|
95,089
|
|
|
|
|
1,248,592
|
|
|
|
Restricted Stock Units(14)
|
|
|
|
0
|
|
|
|
|
148,822
|
|
|
|
|
0
|
|
|
|
|
1,192,206
|
|
|
|
|
148,822
|
|
|
|
|
1,192,206
|
|
Jeffery S. Gentry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance(15)
|
|
|
|
|
|
|
|
|
2,128,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Shares(16)
|
|
|
|
|
|
|
|
|
3,372,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental Pension Benefit(17)
|
|
|
|
|
|
|
|
|
1,032,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Benefits(18)
|
|
|
|
|
|
|
|
|
86,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
|
Messrs. Gilchrist and Holton have entered into severance agreements with RAI. Generally, under the severance agreement, the term cause is defined to mean (a) the executives criminal conduct,
(b) the executives deliberate and continued refusal to (i) perform employment duties on a substantially full-time basis or (ii) act in accordance with the specific lawful instructions of an authorized officer or more senior
employee or majority of the Board, or (c) the executives deliberate misconduct which would be materially damaging to RAI without a reasonable good faith belief that the conduct was in the best interest of RAI. Under the severance
agreement, a termination for cause is required to be made by RAIs senior human resources executive.
|
Each of Mmes. Cameron and
Crew and Mr. Fragnito are eligible to participate in the ESP. Under the ESP, the term cause is defined to mean (a) the executives criminal conduct, (b) the executives deliberate and continued refusal to
(i) substantially perform her employment duties or (ii) act in accordance with any specific lawful instructions of an authorized officer or a more senior employee or majority of the Board, (c) the executives deliberate
misconduct which would be materially damaging to RAI without a reasonable good faith belief that the conduct was in the best interest of RAI, (d) the executives material violation of RAIs code of conduct or any policy, or
(e) the executives material breach of any
non-competition,
non-disclosure
of confidential information or commitment to provide assistance agreement or other
material obligation to RAI, except that an executive at the level of Mmes. Cameron and Crew and Mr. Fragnito (who are the only named executive officers who are not a party to a severance agreement, but instead participate in the ESP) will
not be deemed to have been terminated for cause unless the
66
Board, by an affirmative vote of at least
two-thirds
of the Board, adopts a resolution finding that the executive committed an act constituting cause.
Under the severance agreement and the ESP, an executive may terminate employment for good reason, in the absence of a change of control
event, if the executive experiences a more than 20% reduction in the total amount of the executives base salary, targeted annual incentive and targeted long-term incentive award opportunity. In addition, under the severance agreement, unlike
under the ESP, an executive may terminate employment for good reason in the absence of a change in control event, if the executives responsibilities are substantially reduced in importance or if the executive is forced to relocate
a certain distance from the executives current place of employment. Any such termination for good reason, in the absence of a change of control, is treated the same as an involuntary termination not for cause.
(2)
|
The amounts in this column are based on the assumption that on December 30, 2016, (a) a change of control of RAI occurred, and (b) (i) in the case of such named executive officer, after such change of control,
either RAI terminated the executives employment without cause or the executive terminated employment for good reason or (ii) in the case of each of Mmes. Cameron and Crew and Mr. Fragnito, who participate in the ESP, during the
one-year
period prior to the change in control, the executives employment was terminated without cause at the request of a party involved in the change in control transaction (a termination described in this
clause (b) is referred to as a qualifying termination). Under the severance agreement and the ESP, a participant is eligible to receive severance benefits if the executive terminates employment for good reason, or the executives
employment is terminated without cause, within two years after a change of control. A party to the severance agreement, unlike a participant in the ESP, is not eligible to receive severance benefits under the circumstances described in (b)(ii) of
the preceding clause.
|
Following the occurrence of a change of control event, the circumstances that would entitle an executive under
the severance agreement to terminate employment for good reason, generally would be (a) a material reduction in the executives duties from those in effect prior to the change of control, (b) the executive having to relocate a certain
distance from the executives current place of employment, (c) a reduction in the executives pay grade or bonus opportunity, (d) a material breach of the severance agreement, or (e) a material reduction in certain employee
benefits.
Following the occurrence of a change in control event, the circumstances that would entitle an executive under the ESP to terminate
employment for good reason, generally, would be (a) a material reduction in the executives duties from those in effect prior to the change in control, (b) the executive having to relocate a certain distance from the executives
current place of employment, (c) a reduction in the executives base salary, target annual bonus opportunity or target long-term incentive opportunity, (d) a material breach of the ESP, (e) a reduction in the aggregate employee
benefits, or (f) RAIs failure to obtain an agreement from any successor to perform RAIs obligations under the ESP.
(3)
|
A change of control of RAI is generally defined, for purposes of the severance agreement and ESP, to mean the first to occur of the following: (a) the acquisition by a person of 30% or more of the
voting power of RAIs securities ordinarily having the right to vote for the election of directors, except that BATs acquisition of RAIs common stock pursuant to the B&W business combination or as expressly permitted by the
Governance Agreement will not be deemed to be a change of control, (b) the failure of the persons who constituted RAIs Board on July 30, 2004 (or the failure of individuals elected or nominated either by a supermajority of such
persons or pursuant to certain provisions of the Governance Agreement) to be a majority of the Board, and (c) in the case of the severance agreement, the approval by RAIs shareholders, and in the case of the ESP, the consummation, of
certain extraordinary transactions involving RAI, including certain merger transactions or certain sales of all or substantially all of RAIs assets.
|
(4)
|
The amounts in this column are based on the assumption that a change of control of RAI occurred on December 30, 2016, but that the executives employment continued after such date.
|
(5)
|
These amounts represent the value of the following lump sums that would be payable upon the occurrence of the events set
forth in the table pursuant to the severance agreement (in the case of the named executive officers other than Mmes. Cameron and Crew and Mr. Fragnito) and pursuant to the
|
67
|
ESP (in the case of Mmes. Cameron and Crew and Mr. Fragnito) (as described above under
Compensation Discussion and Analysis
Severance Benefits
):
|
|
(a)
|
two times annual base salary and two times target annual incentive in the case of the named executive officers, except Mmes. Cameron and Crew and Mr. Fragnito, payable in a single lump sum on July 1, 2017;
|
|
(b)
|
in the case of Ms. Cameron, a payment equal to two and
one-half
times annual base salary and two and
one-half
times target annual
incentive upon an involuntary termination of employment without cause, or three times annual base salary and three times target annual incentive upon a qualifying termination, in either case payable in a single lump sum on July 1, 2017;
|
|
(c)
|
in the case of Ms. Crew and Mr. Fragnito, a payment equal to one and
one-half
times annual base salary and one and
one-half
times
target annual incentive upon an involuntary termination of employment without cause, or two times annual base salary and two times target annual incentive upon a qualifying termination, in either case, payable in a single lump sum on July 1,
2017; and
|
|
(d)
|
three years of such persons respective financial planning allowance payments, as described in footnote 11 to the 2016 Summary Compensation Table above (other than Mmes. Cameron and Crew and Mr. Fragnito, who
are not entitled to this amount under the ESP), with such amounts payable in a single lump sum on July 1, 2017.
|
As indicated in
the preceding sentence, the lump sum payment under the severance agreement or ESP, as applicable, would be delayed for a period of six months for purposes of compliance with Section 409A of the Code.
The payment of the amounts described in this footnote, and of the benefits described in footnotes 9 and 10, are subject to the named executive
officer complying with certain
non-compete
and confidentiality obligations owing to RAI and its subsidiaries, and cooperating with RAI and its subsidiaries in the prosecution or defense of any litigation. If
the named executive officer refuses to execute a document evidencing the foregoing obligations, then the named executive officer will not be entitled to receive the payments described in this footnote and the benefits described in footnotes 9
and 10; in such event, the executive will be entitled to a lesser benefit under RAIs Separation Pay Plan, provided the named executive officer executes a release of claims against RAI. Under such program, the amount a person receives as
separation pay is based upon years of service, with such amount not to exceed 78 weeks of base pay and 52 weeks of target annual incentive.
(6)
|
These amounts represent the value of the performance shares in which the named executive officer may vest (and the associated dividend equivalent payments), if the employment of such named executive officer had
terminated on December 30, 2016, under the circumstances set forth in the table.
|
For each of the named executive officers (except
for Mmes. Cameron and Crew and Mr. Fragnito), the value reflects the amount of performance shares originally granted on March 1, 2016, March 2, 2015, and March 3, 2014, that may vest (in each case in accordance with the terms of
the grants respective performance share agreement) based on certain assumptions. As of December 30, 2016, Mr. Holton was eligible for retirement under the terms of the performance share grant agreements, and the amounts set forth in
the Voluntary Termination column for him is based on the assumption that he voluntarily retired on December 30, 2016. The terms governing the performance shares granted on March 1, 2016, referred to as the 2016 performance
shares, are summarized in the narrative following the 2016 Grants of Plan-Based Awards Table above. The terms governing the performance shares granted on March 2, 2015, referred to as the 2015 performance shares, and March 3, 2014,
referred to as the 2014 performance shares, are generally the same as the terms governing the 2016 performance shares, except the three-year performance periods applicable to the 2015 performance shares and 2014 performance shares end on
December 31, 2017 and ended on December 31, 2016, respectively; the three-year average annual incentive award score is based on the 2015, 2016 and 2017 scores, and 2014, 2015 and 2016 scores, respectively; the three-year minimum cumulative
dividend threshold for both grants is $4.02; and payouts upon a change of control for both grants are prorated. In contrast, for the 2016 performance shares, the three-year performance period ends on December 31, 2018; the three-year average
annual incentive award score will be based on the 2016, 2017 and 2018 scores; the three-year minimum cumulative dividend threshold is $5.04; and, in the event of a change of control (i) where the performance shares are not assumed
payouts are in full, and (ii) where the
68
performance shares are assumed payouts are in full, but only upon a qualifying termination following the change of control.
The value of the performance shares shown in the table if such named executive officers employment had terminated on December 30, 2016 (a) due
to death or disability is a prorated payout based on target performance, (b) due to a change of control of RAI is based on the following: (i) in the case of the 2016 performance shares (assuming they are not assumed in
connection with the change of control) a full payout based on RAIs actual annual incentive award score for 2016 and the assumption that RAIs annual incentive award scores for 2017 and 2018 would be equal to the target annual
incentive score; (ii) in the case of the 2015 performance shares a prorated payout based on RAIs actual annual incentive award scores for 2015 and 2016 and the assumption that RAIs annual incentive award score for 2017
would be equal to the target annual incentive award score; and (iii) in the case of the 2014 performance shares a prorated payout based on the value of the performance shares actually earned based on the average of the actual annual
incentive award scores for 2014, 2015 and 2016; and in all three cases, the assumption that there is no adjustment to the number of vested performance shares because RAI satisfied the minimum cumulative dividend requirement, and (c) due to
involuntary termination without cause is a prorated payout based on the same actual performance scores and assumed scores for the applicable performance period detailed above for a change of control.
In the case of Ms. Cameron, the value of such performance shares reflects the amount of performance shares originally granted on May 5, 2016
that may vest in accordance with the terms of such grants performance share agreement based on certain assumptions. The terms governing such performance shares are summarized in the narrative following the 2016 Grants of Plan-Based Awards
Table above. The value of the performance shares shown in the table if Ms. Camerons employment had terminated on December 30, 2016, due to death, disability, involuntary termination without cause or due to a change in control of RAI
is based on the assumptions that such performance shares are not assumed in connection with the change in control, the achievement of the applicable performance criteria for the performance period would be equal to the target, and there is no
adjustment to the number of vested performance shares because RAI satisfied the minimum cumulative dividend requirement.
In the case of
Ms. Crew, the value of such performance shares reflects performance shares originally granted on March 1, 2016, March 2, 2015 and October 1, 2014, that may vest (in each case in accordance with the terms of the grants
respective performance share agreement) based on certain assumptions. The terms governing the 2016 performance shares are summarized in the narrative following the 2016 Grants of Plan-Based Awards Table above. The terms governing the 2015
performance shares are the same as described above for the other named executive officers (except Ms. Cameron and Mr. Fragnito). The terms governing the performance shares granted to Ms. Crew on October 1, 2014, referred to as
the 2014 Crew performance shares, are essentially the same as the terms governing the 2014 performance shares granted to the other named executive officers (except Ms. Cameron and Mr. Fragnito), except that the performance period
applicable to the 2014 Crew performance shares was a
27-month
period beginning on October 1, 2014 and ending on December 30, 2016, and the minimum cumulative dividend threshold for her
27-month
performance period was $3.015. The value of the performance shares shown in the table if Ms. Crews employment had terminated on December 30, 2016 due to death or disability, a change in
control of RAI (in the case of the 2016 performance shares assuming they are not assumed in connection with the change in control) and involuntary termination without cause is based on the same actual performance scores and assumed scores relating
to the 2016, 2015 and 2014 performance shares detailed above for the other named executive officers (except Ms. Cameron and Mr. Fragnito).
In the case of Mr. Fragnito, the value of such performance shares reflects the amount of performance shares originally granted on October 24,
2016, referred to as the 2016 Fragnito performance shares, that may vest in accordance with the terms of such grants performance share agreement based on certain assumptions. The terms governing the 2016 Fragnito performance shares are
summarized in the narrative following the 2016 Grants of Plan-Based Awards Table above. The value of the performance shares shown in the table if Mr. Fragnitos employment had terminated on December 30, 2016 due to death or
disability, a change of control of RAI (assuming the 2016 Fragnito performance shares are not assumed in connection with the change in control) and involuntary termination without
69
cause is based on the same actual performance scores and assumed scores relating to the 2016 performance shares detailed above for the other named executive officers (except Ms. Cameron).
For each of the named executive officers, the values in these rows represent: (a) the product of $56.04, the per share closing price of RAI
common stock (since vested performance shares are paid out in shares of RAI common stock) on December 30, 2016, and the number of performance shares as determined based on the assumptions set forth above, plus (b) the associated dividend
equivalent payment for such adjusted number of performance shares.
(7)
|
The amounts listed for Ms. Cameron represent the present value, discounted to December 30, 2016, of retiree health-care benefits that would commence immediately in the event of her voluntary termination,
termination for cause, involuntary termination not for cause or qualifying termination on change in control. Ms. Cameron is already vested in these retiree health-care benefits as of such date. These retiree health-care benefits are reflected
in this table because the benefits Ms. Cameron would receive pursuant to a former B&W plan, which RAI assumed in the B&W business combination, are more generous than the health-care benefits provided under the RAI sponsored plan in
which the other named executive officers participate and which is generally available to employees of RAI.
|
The amounts listed for
Mr. Holton represent the present value, discounted to December 30, 2016, of the incremental retiree health-care benefits resulting from the three additional years of credited service that Mr. Holton would receive under his severance
agreement upon his involuntary termination not for cause or qualifying termination on change of control.
The calculation of the present values
listed for this footnote and footnote 8 are based on a discount rate of 4.12% (the rate used by RAI in determining postretirement health-care obligations for financial reporting purposes) and post-commencement mortality based on RP 2016
Healthy Annuitants table without collar or amount adjustments, projected using Scale MP 2016 with generational projection.
(8)
|
The amount shown for Ms. Cameron represents the present value, discounted to December 30, 2016, of the health-care benefits that would commence immediately for her in the event of termination due to
disability; in the event of her termination due to death, the amount of the survivor benefit would be $252,027.
|
(9)
|
These amounts represent the value of (a) the incremental benefit under RAIs
non-qualified
pension resulting from the three additional years of age and service credit
and (b) an amount equal to the matching and retirement enhancement contributions that would have been contributed to the
non-qualified
defined contribution plan by RAI during the severance period the
named executive officers in this table (other than Mmes. Cameron and Crew and Mr. Fragnito, who are not entitled to such benefit under the ESP) would receive under their severance agreements, with the treatment of salary and annual incentives
as if they were paid at 100% versus
two-thirds,
where applicable. In addition to the amounts in this row, each such named executive officer would receive in these circumstances his accumulated pension benefit;
the present value of such accumulated benefit is set forth in the 2016 Pension Benefits Table above.
|
(10)
|
The insurance benefits represent the value of (a) the premiums which would be paid by RAI on behalf of each named executive officer (other than Mmes. Cameron and Crew and Mr. Fragnito, who are not entitled to
such payments under the ESP) during the severance period for health-care benefits, life insurance and excess liability insurance and (b) the amount equal to the matching contributions to a postretirement health-savings account program that
would have been credited by RAI during the severance period for the benefit of each of the named executive officers (other than Mmes. Cameron and Crew and Mr. Fragnito, who are not entitled to such payments under the ESP).
|
(11)
|
These amounts represent RAIs payments, as soon as practicable after the hypothetical change of control, of
(a) the excise tax that would be imposed on the executive by virtue of the executives receipt of an excess parachute payment within the meaning of Section 280G of the Code and (b) a tax
gross-up
amount relating to the payment of such tax. Under the ESP, unlike the severance agreement, an eligible participant is entitled to a tax reimbursement payment only if the participant was eligible to
participate in the ESP as a Tier I or Tier II Executive as of the close of business on January 31, 2009 and receives total parachute payments, within the meaning of the Code, that exceed 110% of the amount the participant would be
entitled to receive without being subject to the excise tax. Accordingly,
|
70
|
neither Ms. Cameron, Ms. Crew nor Mr. Fragnito is eligible to receive a tax
gross-up
on any excess parachute payments.
|
(12)
|
Mr. Gilchrist would be entitled to an unreduced pension benefit under a certain RAI retirement plan, the obligations of which, with respect to him and other former B&W employees, were assumed by RAI in
connection with the B&W business combination. The value of such benefit is not included in this table because all participants in such plan are entitled to such an unreduced benefit upon termination of employment due to disability.
|
(13)
|
These amounts represent the value of the remaining restricted stock units granted to Ms. Crew on October 1, 2014 that would vest (and the associated dividend equivalent payments), if her employment had
terminated on December 30, 2016, under the circumstances set forth in the table. The value of such restricted stock units reflects a pro rata amount of the remaining retention restricted stock units granted on October 1, 2014, which will
vest on September 30, 2018, subject to Ms. Crews continued employment on the applicable vesting date. The values in these rows represent: (a) the product of $56.04, the per share closing price of RAI common stock (since vested
restricted stock units are paid out in shares of RAI common stock) on December 30, 2016, and the prorated number of restricted stock units, plus (b) the associated dividend equivalent payment for such adjusted number of restricted stock
units.
|
(14)
|
These amounts represent the value of the restricted stock units granted to Mr. Fragnito on October 24, 2016 that would vest (and the associated dividend equivalent payments), if his employment had terminated
on December 30, 2016, under the circumstances set forth in the table. The value of such restricted stock units reflects a pro rata amount of the retention restricted stock units granted on October 24, 2016, which will vest 50%
on December 15, 2017, and 50% on December 15, 2018, subject to Mr. Fragnitos continued employment on the applicable vesting date. The values in these rows represent: (a) the product of $56.04, the per share closing price of
RAI common stock (since vested restricted stock units are paid out in shares of RAI common stock) on December 30, 2016, and the prorated number of restricted stock units, plus (b) the associated dividend equivalent payment for such
adjusted number of restricted stock units.
|
(15)
|
This amount represents the following payments to Dr. Gentry under the terms of his severance agreement as a result of his termination of employment for good reason on April 30, 2016: (a) an amount equal to two
years of his annual base salary; (b) an amount equal to two times his target annual incentive under the annual incentive award program; and (c) an amount equal to the value of the financial planning and counseling services that would have
been provided by RAI to Dr. Gentry during the severance period, in each case as quantified in footnote 11 to the 2016 Summary Compensation Table. These payments and payments made under footnotes 17 and 18 were deferred until November 2016
pursuant to Section 409A of the Code. The payment to Dr. Gentry of the amounts described in this footnote and footnotes 17 and 18 were subject to the same conditions as set forth in the last paragraph of footnote 5.
|
(16)
|
This amount represents the value on December 30, 2016 of the performance shares in which Dr. Gentry may vest (and the associated dividend equivalent payments) based on his termination of employment on
April 30, 2016 and the assumptions set forth below. The value of such performance shares reflects a pro rata amount of the performance shares originally granted on March 1, 2016, March 2, 2015 and March 3, 2014, respectively,
that may vest (in each case in accordance with the terms of the grants respective performance share agreement) based on certain assumptions. See footnote 6 above for additional information on the terms of such performance share grants.
|
The value is based on (a) in the case of the 2016 performance shares RAIs actual annual incentive award score
for 2016 and the assumption that RAIs annual incentive award scores for 2017 and 2018 would be equal to the target annual incentive score; (b) in the case of the 2015 performance shares RAIs actual annual incentive award
scores for 2015 and 2016 and the assumption that RAIs annual incentive award score for 2017 would be equal to the target annual incentive award score; and (c) in the case of the 2014 performance shares the value of the
performance shares actually earned based on the average of RAIs actual annual incentive award scores for 2014, 2015 and 2016; and in all three cases, the assumption that there is no adjustment to the number of vested performance shares because
RAI satisfied the minimum cumulative dividend requirement. See footnotes 2, 5 and 6
71
to the Outstanding Equity Awards At 2016 Fiscal
Year-End
Table above for additional information on the 2014, 2016 and 2015 performance shares,
respectively.
The value in this row represents (a) the product of $56.04, the per share closing price of RAI common stock (since vested
performance shares are paid out in shares of RAI common stock) on December 30, 2016, and the pro rata number of performance shares, as determined based on the assumptions set forth above, plus (b) the associated dividend equivalent payment
for such adjusted number of performance shares.
(17)
|
This amount represents the value of (a) the incremental benefit under RAIs non-qualified pension resulting from the three additional years of age and service credit and (b) the amount equal to the
matching and retirement enhancement contributions that would have been contributed to the
non-qualified
defined contribution plan by RAI during the severance period Dr. Gentry received under his severance
agreement. In addition to the amount in this row, Dr. Gentry received his accumulated pension benefit; the present value of which is set forth in the 2016 Pension Benefits Table above.
|
(18)
|
This amount represents the value of (a) the premiums that have been and will be paid by RAI on behalf of Dr. Gentry during the severance period for health-care benefits, life insurance and excess liability
insurance and (b) the amount equal to the matching contributions to a postretirement health-savings account program that would have been credited by RAI during the severance period for the benefit of Dr. Gentry.
|
Committees and Meetings of the Board of Directors
Compensation and Leadership Development Committee
The Compensation Committee is composed of four directors: Nana Mensah (Chair), Jean-Marc Lévy, Lionel L. Nowell, III and John J. Zillmer,
each of whom has been determined by the Board to be independent as such term is defined by applicable NYSE listing standards and SEC regulations.
Compensation Committee Interlocks and Insider Participation
An SEC rule requires RAI to disclose the existence of certain relationships involving any member of RAIs Compensation Committee (the four members
being set forth above), on the one hand, and RAI, on the other hand. Such relationships, referred to as compensation committee interlocks and insider participation include, among other things, where:
|
|
|
an executive officer of RAI served as a member of the compensation committee of another entity, one of whose executive officers served on RAIs Board or Compensation Committee; or
|
|
|
|
an executive officer of RAI served as a director of another entity, one of whose executive officers served on RAIs Compensation Committee.
|
There were no such compensation committee interlocks or insider participation at RAI during 2016.
Director Compensation
We
provided to our
non-employee
directors (other than Messrs. Abelman and Oberlander, each of whom was a full-time employee of BAT during 2016, and Mr. Daly, who retired from BAT in April 2014)
compensation for their service on the Board during 2016 in the form of retainers and meeting fees, and certain equity awards, all as described in greater detail below. See
Payment for Services of Certain Board
Designees
below for a discussion of the compensation RAI pays or paid for the service of Messrs. Abelman, Daly and Oberlander as directors of RAI. Our
non-employee
directors (other than Messrs.
Abelman, Daly and Oberlander) are collectively referred to as Outside Directors. We do not compensate any director who is an employee of RAI or any of its subsidiaries in his or her capacity as a director, except that RAI does reimburse all
directors for actual expenses incurred in connection with attendance at Board and committee meetings, including transportation, food and lodging expenses. If a guest accompanies a director
72
on a trip to a Board meeting and the guest was not invited by RAI, then charges associated with that guest will not be reimbursed by RAI. Transportation and any additional lodging expenses that
are incurred by a guest and paid for by RAI will be imputed as income to the director. RAI also reimburses Outside Directors for the fees and expenses incurred by them in connection with their attendance at one director education program per year.
The Governance Committee, with the assistance of an outside independent compensation consultant, periodically evaluates and recommends to the full
Board changes to the compensation program for RAIs
non-employee
directors. In 2016, the Governance Committee used Meridian to evaluate and provide recommendations regarding the compensation program for
the
non-employee
directors. No executive officer is involved in approving, or recommending changes to, any elements of the director compensation program.
The following table shows the annual compensation paid by RAI to the Outside Directors and Mr. Daly for their service on the Board during 2016.
2016 Director Compensation Table (1)
|
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|
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Name
|
|
Fees Earned or
Paid in Cash(7)
($)
|
|
|
|
|
Stock
Awards(8)
($)
|
|
|
|
|
|
All Other
Compensation(9)
($)
|
|
|
Total
($)
|
John A. Boehner(2)
|
|
44,610
|
|
|
|
|
|
|
252,769
|
|
|
|
|
|
|
627
|
|
|
|
|
|
298,006
|
John P. Daly(3)
|
|
45,596
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
0
|
|
|
|
|
|
45,596
|
Martin D. Feinstein
|
|
131,000
|
|
|
|
|
|
|
436,480
|
|
|
|
|
|
|
2,914
|
|
|
|
|
|
570,394
|
Luc Jobin
|
|
112,500
|
|
|
|
|
|
|
436,480
|
|
|
|
|
|
|
1,906
|
|
|
|
|
|
550,886
|
Murray S. Kessler
|
|
87,000
|
|
|
|
|
|
|
436,480
|
|
|
|
|
|
|
16,360
|
|
|
|
|
|
539,840
|
Holly Keller Koeppel
|
|
121,500
|
|
|
|
|
|
|
436,480
|
|
|
|
|
|
|
1,390
|
|
|
|
|
|
559,370
|
Robert Lerwill(4)
|
|
39,198
|
|
|
|
|
|
|
414,612
|
|
|
|
|
|
|
0
|
|
|
|
|
|
453,810
|
Jean-Marc Lévy(5)
|
|
35,610
|
|
|
|
|
|
|
252,769
|
|
|
|
|
|
|
486
|
|
|
|
|
|
288,865
|
Nana Mensah
|
|
133,000
|
|
|
|
|
|
|
436,480
|
|
|
|
|
|
|
3,698
|
|
|
|
|
|
573,178
|
Lionel L. Nowell, III
|
|
114,000
|
|
|
|
|
|
|
436,480
|
|
|
|
|
|
|
2,182
|
|
|
|
|
|
552,662
|
Ronald S. Rolfe
|
|
111,000
|
|
|
|
|
|
|
436,480
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
557,480
|
Thomas C. Wajnert(6)
|
|
270,000
|
|
|
|
|
|
|
872,960
|
|
|
|
|
|
|
3,862
|
|
|
|
|
|
1,146,822
|
John J. Zillmer
|
|
130,000
|
|
|
|
|
|
|
436,480
|
|
|
|
|
|
|
4,912
|
|
|
|
|
|
571,392
|
|
|
|
|
(1)
|
During 2016, RAI did not pay any compensation directly to Messrs. Abelman or Oberlander for serving as a director. See
Payment for Services of Certain Board Designees
below for information
regarding the compensation RAI pays to BAT for the Board service of Messrs. Abelman and Oberlander.
|
(2)
|
On September 15, 2016, the Board elected Speaker Boehner to serve as a director.
|
(3)
|
Mr. Daly resigned from the Board effective February 4, 2016. Mr. Daly retired as an employee of BAT effective April 7, 2014. At BATs direction, the fee that normally would have been paid to BAT
for Mr. Dalys service on the Board during 2016 was paid directly to Mr. Daly. See
Payment for Services of Certain Board Designees
below for additional information.
|
(4)
|
Mr. Lerwill resigned from the Board effective June 13, 2016.
|
(5)
|
On September 15, 2016, the Board elected Mr. Lévy to serve as a director.
|
(6)
|
Mr. Wajnert retired from the Board effective December 31, 2016. He served as the
Non-Executive
Chairman for all of 2016.
|
73
(7)
|
The amounts in this column include Board and Board committee retainers paid for service in 2016 and fees paid for Board and Board committee meetings attended in 2016. Amounts are shown in this column notwithstanding a
directors election to defer his or her retainers and meeting fees pursuant to the plan described below under
Deferred Compensation Plan
. For additional information regarding director meeting fees and retainers,
see
2016
Annual Retainers and Meetings Fees
below.
|
(8)
|
The amounts shown in this column represent the aggregate grant date fair value (calculated in accordance with ASC 718) with respect to awards made during 2016 under the Equity Incentive Award Plan for Directors of
Reynolds American Inc., as amended and restated effective December 5, 2013, referred to as the EIAP. The aggregate grant date fair values include the individual grant date fair values for the following stock-based awards under the EIAP:
(a) annual grants to each Outside Director (other than Speaker Boehner and Mr. Lévy) of 8,000 (or, in the case of the
Non-Executive
Chairman, 16,000) deferred stock units or, at the directors
election, 8,000 (or, in the case of the
Non-Executive
Chairman, 16,000) shares of RAI common stock based on the $49.56 per share closing price of RAI common stock on May 5, 2016; (b) in the case of
Speaker Boehner, a prorated portion of the annual grant (5,099 deferred stock units) he received upon his appointment to the Board on September 15, 2016, based on the $47.27 per share closing price of RAI common stock on such date;
(c) in the case of Mr. Lévy, a prorated portion of the annual grant (5,099 deferred stock units) he received upon his appointment to the Board on September 15, 2016, based on the $47.27 per share closing price of RAI common
stock on such date; and (d) quarterly grants to each Outside Director of a number of deferred stock units determined by dividing $10,000 (or, in the case of the
Non-Executive
Chairman, $20,000; and in the
case of Speaker Boehner and Messrs. Lerwill and Lévy $1,739, $8,132 and $1,739, respectively, representing the prorated amount for service of less than a full quarter in the third, second and third quarters of 2016, respectively), by the
average of the final closing price of a share of RAI common stock for each business day during the last month of the applicable calendar quarter, for each such quarterly grant. For additional information regarding these stock-based awards under the
EIAP, see
Equity Awards
below.
|
The amounts shown in this column do not equal the value that any
director actually received during 2016 with respect to his or her EIAP awards. The assumptions upon which the amounts in this column are based are set forth in note 15 to consolidated financial statements contained in our 2016 Annual Report on
Form 10-K.
No Outside Director forfeited any stock awards during 2016.
No stock options were granted to
Outside Directors in 2016, and no stock options were held by Outside Directors as of December 31, 2016.
(9)
|
The amounts shown in this column for 2016 include:
|
|
(a)
|
the value of matching grants in the following amounts Mr. Kessler: $10,000; Mr. Mensah: $1,516; and Mr. Rolfe: $10,000 made on behalf of such directors pursuant to the program described
below under
Other Benefits
Matching Grants Program
;
|
|
(b)
|
the value (based upon the aggregate incremental cost to RJR Tobacco) ascribed to personal flights taken by Messrs. Kessler and Zillmer, or their respective guests, on aircraft fractionally owned by RJR Tobacco (with
such amounts, in the case of Messrs. Kessler and Zillmer, being $68 and $2,730, respectively), which amounts were imputed to them for income tax purposes;
|
|
(c)
|
the cost of life insurance premiums, for all Outside Directors other than Ms. Koeppel and Messrs. Kessler, Lerwill and Rolfe, and excess liability insurance premiums, for all Outside Directors other than Messrs.
Lerwill and Rolfe, paid by RAI for certain insurance offered to the Outside Directors, as described below under
Other Benefits
Insurance and Indemnification Benefits
; and
|
|
(d)
|
in the case of Mr. Kessler, an amount equal to $4,902 for certain life insurance premiums paid by RAI for coverage for Mr. Kessler and his dependents pursuant to an agreement in connection with the Lorillard
acquisition, which amount was imputed to him for income tax purposes.
|
74
2016 Annual Retainers and Meeting Fees
|
|
|
Each Outside Director (excluding the
Non-Executive
Chairman) received an annual retainer of $60,000 (paid in quarterly installments).
|
|
|
|
The
Non-Executive
Chairman received an annual retainer of $270,000 (paid in quarterly installments).
|
|
|
|
Each Outside Director (excluding the
Non-Executive
Chairman) who was a Chair of one of the following standing committees of the Board received a supplemental annual retainer (paid
in quarterly installments) as follows Audit Committee: $20,000; Compensation Committee: $10,000; and Governance Committee: $10,000.
|
|
|
|
Each Outside Director (excluding the
Non-Executive
Chairman) received a Board (or Other Director, if applicable) meeting attendance fee of $1,500, and members of each Board
committee (excluding the
Non-Executive
Chairman) received an attendance fee of $1,500 for each committee meeting attended. In addition, each Outside Director (excluding the
Non-Executive
Chairman) who was invited to attend a meeting of any committee of which he or she was not a member, and attended the meeting of such committee, received the same meeting fee as committee members.
|
Deferred Compensation Plan
Under the Amended and Restated Deferred Compensation Plan for Directors of Reynolds American Inc., referred to as the DCP, Outside Directors may defer
payment of their retainers and meeting fees until termination of service as a director or until a selected year in the future. Participating directors may elect, on an annual basis, to direct RAI to defer their retainers and meeting attendance fees
in 25% increments to a cash account, a stock account or a combination of both. The DCP provides that amounts deferred to a cash account earn interest at the prime rate as set by JPMorgan Chase Bank, and amounts deferred to a stock account mirror the
performance of, and receive dividend equivalents based on, RAI common stock. Participating directors are entitled to receive a distribution, only in the form of cash, of their account balances either in full on the deferral date or in up to ten
annual installments commencing on a selected future date.
Equity Awards
RAI provides its Outside Directors with certain stock-based awards pursuant to the terms of the EIAP. Pursuant to the EIAP, each Outside Director
received on the date of each annual meeting of shareholders (provided the Outside Director remained on the Board after the date of such meeting), a grant of 8,000 (or, in the case of the
Non-Executive
Chairman, 16,000) deferred stock units or, at the directors election, 8,000 (or, in the case of the
Non-Executive
Chairman, 16,000) shares of RAI common stock. If RAI does not hold an annual meeting of
shareholders in any year, then the annual stock award under the EIAP will be made to Outside Directors on the anniversary of the preceding years annual meeting of shareholders. Directors initially elected after September 2012 to serve on the
Board commencing on a date other than the annual meeting date, and therefore not eligible to receive the annual stock award, receive a pro rata portion of the annual award. Shares of RAI common stock awarded to Outside Directors in lieu of deferred
stock units upon a directors initial stock award or any annual stock award under the EIAP will not bear any transfer restrictions, other than any restrictions arising generally by virtue of federal and state securities laws. Each Outside
Director also is entitled to receive a quarterly award of deferred stock units on the last day of each calendar quarter, with the number of units being equal to: $10,000 (or, in the case of the
Non-Executive
Chairman, $20,000) divided by the average closing price of a share of RAI common stock for each business day during the last month of such calendar quarter. If a director has served for less than the entire quarter, the number of units granted will
be prorated based upon the period of such persons actual Board service during the quarter.
75
The deferred stock units granted under the EIAP receive dividends at the same rate as RAI common stock, but
the dividends are credited in the form of additional deferred stock units. The deferred stock units have no voting rights. For all grants made under the EIAP on or prior to December 31, 2007, distribution of a directors deferred stock
units will be made on (or commencing on) January 2 following his or her last year of service on the Board. For all grants under the EIAP after December 31, 2007, distribution of a directors deferred stock units will be made in
accordance with such directors election(s) to receive his or her deferred stock units (1) on (or commencing on) January 2 following his or her last year of service on the Board, or (2) on (or commencing on) the later of
January 2 of a year specified by such director and January 2 following his or her last year of service on the Board. At the election of the director, distributions may be made in one lump sum or in up to 10 annual installments. At the
election of the director, the payment of the initial and annual deferred stock unit grants may be made in cash or in RAI common stock, which shares of stock will not bear transfer restrictions other than any restrictions arising generally by virtue
of federal and state securities laws. Distribution of the deferred stock units received in connection with a quarterly award will be made only in cash. Cash distributions of deferred stock units generally are based on the average closing price of
RAI common stock during December of the year preceding payment. Notwithstanding the foregoing, upon the death of a participating director (whether before or after ceasing to serve as a director), any deferred stock units then outstanding in such
directors account will be distributed in a single lump sum cash amount to the directors designated beneficiary or estate, as the case may be. Such distribution will be made after the end of the quarter in which the participating
directors death occurred and will be based upon the average closing price of RAI common stock during the last month of such quarter.
An
aggregate of 4,000,000 shares of RAI common stock have been authorized for issuance under the EIAP. Shares relating to awards under the EIAP that are forfeited, terminated or settled in cash in lieu of stock will become available for future
grants. The EIAP also affords its administrator, the Governance Committee, the discretion to grant Outside Directors options to acquire shares of RAI common stock. Any such options will have an exercise price equal to the per share closing price of
RAI common stock on the date of grant, will vest and become exercisable in full six months after the date of grant and will have a
ten-year
term. No options were granted to Outside Directors in 2016, and no
options currently are held by Outside Directors under the EIAP.
Other Benefits
Insurance and Indemnification Benefits
.
|
|
|
Each Outside Director is offered, during the term of his or her service on the Board, life insurance coverage having a death benefit of either $50,000 or $100,000. The Outside Director does not pay for such coverage,
but the value of the coverage is imputed to the director for income tax purposes.
|
|
|
|
Each Outside Director is offered, during the term of his or her service on the Board, excess liability insurance coverage of $10 million. The Outside Director does not pay for this coverage, but the value of this
coverage also is imputed to the director. Following the end of an Outside Directors Board service, such excess coverage is extended through the end of the calendar year. Each Outside Director is responsible for maintaining, at his or her own
cost, underlying liability insurance with certain limits depending upon the type of underlying coverage.
|
|
|
|
Each Outside Director is covered by RAIs business travel insurance policy, which provides benefits of up to $500,000 upon an Outside Directors death or accidental injury occurring while the director is
traveling in connection with his or her service on the Board.
|
|
|
|
All directors and officers of RAI and its subsidiaries are covered by RAIs directors and officers liability insurance policy, which has an aggregate coverage limit of $500 million, with an
additional $50 million of coverage for
non-employee
directors and, subject to certain conditions, employee directors.
|
|
|
|
All directors are covered by the indemnification provisions contained in RAIs Articles of Incorporation, and are parties to individual indemnification agreements with RAI.
|
76
Matching Grants Program
.
All Outside Directors are eligible to participate in a
matching grants program sponsored by RAI and the Reynolds American Foundation. Pursuant to this program, RAI or the Reynolds American Foundation will match grants, on a
dollar-for-dollar
basis, that a director makes to an educational, art, cultural or charitable organization. The maximum, aggregate annual amount of the matching grants
for each director is $10,000. The Reynolds American Foundation will provide a matching grant up to the first $7,000, and RAI will provide a matching grant up to the next $3,000, for each qualifying contribution made by an Outside Director. A
director may participate in the matching grants program through the end of the calendar year in which the director terminates his or her service on the Board. The value of matching grants made on behalf of any director is included in the All
Other Compensation column of the 2016 Director Compensation Table above.
Payment for Services of Certain Board
Designees
In general, in consideration for the service of the BAT employee (or, in the case of Mr. Daly, former BAT employee)
directors on the Board, referred to as the BAT employee directors, RAI pays BAT an annual fee, paid on a quarterly basis, per director. Such amounts generally are paid to BAT in lieu of any other compensation (other than the reimbursement of certain
expenses) to which the BAT employee directors otherwise would be entitled in their capacities as members of RAIs Board. Typically, two BAT employee directors serve on the Board at any given time. For 2016, the amount of the annual fee for each
BAT employee director was $474,220. For 2016, the annual fee for the Board service of Mr. Abelman was prorated for the period from February 4, 2016 (the date of his appointment to the Board) through December 31, 2016, and the annual
fee for the Board service of Mr. Daly was prorated for the period from January 1, 2016 through February 4, 2016 (the date of his resignation from the Board). As previously noted, Mr. Daly, although retired from BAT, continued to
serve as a BAT employee director on the Board until his resignation from the Board on February 4, 2016. At BATs direction, RAI paid the fee associated with Mr. Dalys Board service since his retirement from BAT in April 2014
directly to Mr. Daly, rather than to BAT, through the date of his resignation from the Board. The fees for the Board service of Messrs. Abelman (beginning upon his appointment to the Board on February 4, 2016) and Oberlander during
2016 were paid directly to BAT. For 2017, the annual fee for the Board service of each of Messrs. Abelman and Oberlander will be $551,660. The fees for Messrs. Abelman and Oberlander will continue to be paid directly to BAT.
Equity Ownership Guidelines
After completion of five years of service as a member of RAIs Board of Directors, the
Non-Executive
Chairman is expected to hold and retain a minimum of 80,000 shares of RAI common stock, and each other Outside Director is expected to hold and retain a minimum of 40,000 shares of RAI common stock. It is generally expected that a director will
not dispose of RAI common stock during the first five years of service on the Board, unless the director holds and retains RAI common stock in excess of the minimum threshold levels. Any shares of RAI common stock pledged as collateral by a director
are not counted for purposes of the foregoing stock ownership guidelines, under which RAI common stock includes:
|
|
|
shares of RAI common stock beneficially owned by the director;
|
|
|
|
deferred stock units or shares of RAI common stock granted to the director under the EIAP; and
|
|
|
|
deferred stock units received by the director as deferred compensation under the DCP.
|
These stock
ownership guidelines do not apply to any director who is a
non-independent
Investor Director nominated by B&W pursuant to the Governance Agreement. Accordingly, currently these guidelines do not apply to
Messrs. Abelman and Oberlander. Excluding Messrs. Abelman and Oberlander, all directors with at least five years of service currently hold amounts in excess of the minimum threshold level, and those directors with less than five years of
service are making progress in meeting the five-year minimum threshold goals.
77
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Stock Ownership of Principal Shareholders
We have been notified by the persons in the following table that they are beneficial owners (as defined by the rules of the SEC) of more than 5% of RAI
common stock.
|
|
|
|
|
Name and Address of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
Percent of Class(2)
|
|
|
|
British American Tobacco p.l.c.
|
|
601,368,171(1)
|
|
42.14
|
Globe House
4 Temple Place
London, WC2R 2PG
|
|
|
|
|
|
|
|
Louisville Securities Limited
|
|
601,368,171(1)
|
|
42.14
|
Globe House
4 Temple Place
London, WC2R 2PG
|
|
|
|
|
|
|
|
Brown & Williamson Holdings, Inc.
|
|
446,668,038(1)
|
|
31.30
|
103 Foulk Road,
Suite 201-3
Wilmington, Delaware 19803
|
|
|
|
|
(1)
|
Based upon a Schedule 13D/A filed by BAT, B&W and LSL, with the SEC on January 16, 2017, and upon information furnished to RAI by BAT, B&W and LSL, as of March 10, 2017, (a) LSL and BAT hold shared
dispositive and shared voting power over 601,368,171 shares, comprised of the 154,700,133 shares held by LSL and the 446,668,038 shares held by B&W, (b) B&W, LSL and BAT hold shared dispositive and shared voting power over the
446,668,038 shares held by B&W, (c) LSL is record owner of 154,700,133 shares and the beneficial owner of 601,368,171 shares (the 154,700,133 shares plus the 446,668,038 shares held by B&W) by virtue of its indirect ownership of all of
the equity and voting power of B&W, (d) B&W is the record and beneficial owner of 446,668,038 shares, and (e) BAT is the beneficial owner of 601,368,171 shares by virtue of its indirect ownership of all of the equity and voting
power of LSL and B&W.
|
(2)
|
Information in this column is based on 1,427,037,294 shares of RAI common stock outstanding on March 10, 2017.
|
78
Stock Ownership of Management
The following table indicates the number of shares of RAI common stock beneficially owned as of March 10, 2017, by each current director, each named
executive officer and all directors and executive officers as a group, based on information provided to RAI by these individuals. In general, beneficial ownership includes those shares a director or executive officer has the power to
vote, or the power to transfer, and stock options that are exercisable currently or become exercisable within 60 days. Except as described in the footnotes to the table, each person has sole investment and voting power over the shares for which
he or she is shown as beneficial owner.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
|
|
|
Percent of Class(4)
|
|
|
|
Non-Employee
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerome B. Abelman
|
|
|
0
|
|
|
|
|
|
*
|
|
|
|
John A. Boehner(1)
|
|
|
0
|
|
|
|
|
|
*
|
|
|
|
Martin D. Feinstein(1)
|
|
|
48,000
|
|
|
|
|
|
*
|
|
|
|
Luc Jobin(1)
|
|
|
78,000
|
|
|
|
|
|
*
|
|
|
|
Murray S. Kessler(1)
|
|
|
60,516
|
|
|
|
|
|
*
|
|
|
|
Holly Keller Koeppel(1)
|
|
|
8,000
|
|
|
|
|
|
*
|
|
|
|
Jean-Marc Lévy(1)
|
|
|
3,659
|
|
|
|
|
|
*
|
|
|
|
Nana Mensah(1)
|
|
|
95,280
|
|
|
|
|
|
*
|
|
|
|
Lionel L. Nowell, III(1)
|
|
|
33,149
|
|
|
|
|
|
*
|
|
|
|
Ricardo Oberlander
|
|
|
0
|
|
|
|
|
|
*
|
|
|
|
Ronald S. Rolfe(1)
|
|
|
25,267
|
|
|
|
|
|
*
|
|
|
|
John J. Zillmer(1)
|
|
|
106,000
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
Susan M. Cameron(1)(2)
|
|
|
269,001
|
|
|
|
|
|
*
|
|
|
|
Debra A. Crew(2)
|
|
|
59,228
|
|
|
|
|
|
*
|
|
|
|
Andrew D. Gilchrist(2)
|
|
|
42,000
|
|
|
|
|
|
*
|
|
|
|
Martin L. Holton III(2)
|
|
|
95,672
|
|
|
|
|
|
*
|
|
|
|
Joseph P. Fragnito(2)
|
|
|
0
|
|
|
|
|
|
*
|
|
|
|
Jeffery S. Gentry(2)
|
|
|
23,530
|
|
|
|
|
|
*
|
|
|
|
All directors, director nominees and executive officers as a group (consisting of 27 persons)(3)
|
|
|
1,404,301
|
|
|
|
|
|
*
|
|
|
|
(1)
|
The shares beneficially owned do not include the following deferred common stock units, which are RAI common stock equivalents awarded under the EIAP or credited under the DCP: (a) 4,892 units for Ms. Cameron; (b)
5,560 units for Speaker Boehner; (c) 148,275 units for Mr. Feinstein; (d) 22,075 units for Mr. Jobin; (e) 1,317 units for Mr. Kessler; (f) 133,731 units for Ms. Koeppel; (g) 216 units for Mr. Lévy; (h) 57,251
units for Mr. Mensah; (i) 175,881 units for Mr. Nowell; (j) 2,759 units for Mr. Rolfe; and (j) 26,417 units for Mr. Zillmer. In the case of Ms. Cameron, the deferred stock units noted above were awarded in 2014 for her Board
service prior to her
re-appointment
as the President and CEO of RAI. Mmes. Cameron and Crew and Messrs. Abelman and Oberlander do not currently participate in either the EIAP or the DCP.
|
(2)
|
The shares beneficially owned do not include the following performance shares (and restricted stock units in the case of Ms. Crew and Mr. Fragnito) granted under the Omnibus Plan, which upon vesting will be
paid to the participant in RAI common stock: (a) 164,841 performance shares for Ms. Cameron; (b) 281,641 performance shares and restricted stock units for Ms. Crew; (c) 146,327 performance shares for Mr. Gilchrist; (d) 96,888
performance shares for Mr. Holton; (e) 62,957 performance shares and restricted stock units for Mr. Fragnito; and (f) 13,689 performance shares for Dr. Gentry.
|
79
(3)
|
The shares beneficially owned by all directors, director nominees and executive officers as a group: (a) do not include an aggregate of 578,379 deferred common stock units awarded to directors under the EIAP or
credited to directors under the DCP; (b) do not include an aggregate of 1,210,945 performance shares (and restricted stock units in the case of Ms. Crew and Mr. Fragnito) granted to executive officers under the Omnibus Plan; and
(c) include 2,032 shares of stock (as to which beneficial ownership is disclaimed) held by the spouses of two executive officers.
|
(4)
|
The information in this column is based on 1,427,037,294 shares of RAI common stock outstanding on March 10, 2017. For purposes of computing the percentage of outstanding shares held by each person named in the
table, any security that such person has the right to acquire within 60 days is deemed to be held by such person, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
|
For additional information on Related Stockholder Matters, see
The Board of Directors
Governance
Agreement
in Item 10 above. For information regarding securities authorized for issuance under equity compensation plans, see note 15 to consolidated financial statements in Item 8 of Part II to this 2016 Annual Report on
Form
10-K.
80