|
|
COMPENSATION PRACTICES AT A GLANCE
|
|
|
|
DO
provide executive officers with the opportunity to earn market-competitive compensation through a mix of cash and equity compensation with a strong emphasis on performance-based incentive awards.
DO
align pay and performance by linking a substantial portion of compensation to the achievement of pre-established performance metrics that drive stockholder value.
DO
evaluate TSR when determining performance under incentive awards to enhance stockholder alignment.
DO
cap payouts for awards under our annual and long-term incentive plans.
DO
require executive officers to own and retain shares of our common stock that have significant value to further align interests with our stockholders.
DO
enhance executive officer retention with time-based vesting schedules for equity incentive awards.
DO
enable the Board to “claw back” incentive compensation in the event of a financial restatement pursuant to a recoupment policy.
DO
maintain a Compensation Committee comprised solely of independent directors.
DO
engage an independent compensation consultant to advise the Compensation Committee on executive compensation matters.
|
DO NOT
base incentive awards on a single performance metric, thereby discouraging unnecessary or excessive risk-taking.
DO NOT
provide uncapped award opportunities.
DO NOT
have employment agreements with executive officers that provide single-trigger change of control benefits.
DO NOT
permit executive officers or directors to engage in derivative or other hedging transactions in our securities.
DO NOT
provide executive officers with excessive perquisites or other personal benefits.
DO NOT
permit executive officers or directors to hold our securities in margin accounts or pledge our securities to secure loans without pre-approval by the Audit and Compensation Committees (no executive officer or director pledged or held our securities in margin accounts at any time during 2018).
DO NOT
provide for tax gross-up payments for compensation or benefits paid in connection with a change in control.
|
COMPENSATION PHILOSOPHY AND STRUCTURE OVERVIEW
Executive Compensation Philosophy and Objectives:
The Compensation Committee believes that the executive compensation program should emphasize pay-for-performance and reflect the value created for our stockholders, while supporting our business strategies, operational goals and long-range plans. In addition, the Compensation Committee believes that such compensation should assist the Company in attracting and retaining key executives critical to our long-term success.
Pay for Performance
We emphasize pay for performance by designing the executive compensation program to align Company-wide financial and operational achievements through the use of annual cash bonuses and performance-based long-term equity awards granted to its Named Executive Officers.
Attract and Retain Talent
Our executive compensation philosophy also recognizes that, given that the market for experienced management is highly competitive in our industry, the core of our success is our ability to attract and retain the most highly-qualified executives to manage each of our business functions.
Fundamentally, we believe executive officer compensation should be structured to provide competitive base salaries and benefits, which attract and retain superior employees. Additionally, we use annual performance-based cash compensation to motivate executive officers to attain (and reward them for attaining) financial, operational, individual and other goals that are consistent with increasing stockholder value. Our long-term incentive plan employs a combination of restricted stock grants and performance share awards, both of which vest over time, to motivate and/or reward long-term, multi-year performance
and facilitate retention of our executives. Our executives’ performance share awards vest at the end of a multi-year period based on the TSR we deliver relative to our peers, strongly aligning our executives’ interests with those of our stockholders.
Commitment to Compensation Best Practices
We view the components of our executive compensation program as related but distinct, and we regularly reassess the total compensation of our Named Executive Officers to ensure that our overall compensation objectives are met. Our Compensation Committee meets frequently to address compensation matters in a timely manner and regularly reviews our executive compensation program to ensure that it provides competitive pay opportunities to help attract and retain highly-qualified and dedicated executive talent that is critical to our business.
As part of its commitment to strong corporate governance and best practices, our Compensation Committee engaged and received advice on the compensation program from Willis Towers Watson, an independent, third-party compensation consultant, which provided no other services to us in 2018 other than those provided directly to or on behalf of the Compensation Committee.
In addition, we have adopted an insider trading policy and a compensation recoupment policy, as well as stock ownership guidelines for our senior executives and our Board members.
We have considered, among other factors, the following in determining the appropriate level for each compensation component: our understanding of the competitive market based on the input of Willis Towers Watson; the collective experience of members of our Compensation Committee and their review of compensation surveys and studies by its independent compensation consultant (including a study of the compensation practices of our peer group described below); our recruiting and retention goals; our view of internal equity and consistency; the length of service of our executive officers; our overall performance; and other considerations our Board and Compensation Committee determine are relevant. In determining the companies to include in the peer group, Willis Towers Watson and our Compensation Committee selected only real estate investment trusts, and specifically those that invest in asset classes they believed are comparable to the net-leased class in which we invest. The companies in the study were also selected based on market capitalization and enterprise value, as well as portfolio value. Our Compensation Committee used the results of the study of the peer group’s compensation practices and levels as one of many factors to formulate our 2018 executive compensation.
Each of the primary elements of our executive compensation program is discussed in more detail below. While we have identified particular compensation objectives that each element of executive compensation serves, our compensation programs are designed to be flexible and complementary, and to collectively serve all of the executive compensation objectives described above. Accordingly, whether or not specifically mentioned below, we believe that as a part of our overall executive compensation policy, each individual element, to a greater or lesser extent, serves each of our compensation objectives and that collectively, they are effective in achieving our overall objectives.
2018
Say-on-Pay Voting Results:
The Compensation Committee values the perspectives and concerns of our stockholders regarding executive compensation, and
our Board has determined that an advisory vote to approve our executive compensation program will be submitted to our stockholders on an annual basis.
At our 2018 Annual Meeting of Stockholders, 74.14% of shares represented at the meeting, and eligible to vote, cast votes
FOR
our executive compensation program.
Our research further determined that the Company’s six largest stockholders, who collectively control close to half of the Company’s total outstanding shares, all appear to have voted
FOR
last year’s Say on Pay proposal.
Spirit continually maintains an open dialogue with our
stockholders
. Members of our senior management team, including our Chief Executive Officer, Chief Financial Officer and General Counsel,
regularly engage with stockholders, through conference calls, personal meetings and participation at professional investor conferences, to hear stockholder views on the Company’s financial performance, strategic business plans, corporate governance, executive compensation, and related subjects.
In response to insight gained from these investor outreach efforts, in 2018 our Board improved the annual cash bonus program to better align with our pay-for-performance philosophy by increasing the percentage of such bonus predicated on performance against predetermined, objective criteria on financial outcomes from 70% to 75% and decreasing the percentage of such discretionary bonus based on individual performance from 30% to 25%. In addition, in response to investor feedback, in 2018 the Compensation Committee set key performance measures under the cash bonus program which were designed to incentivize the reduction of debt to EDBITDA to strengthen the balance sheet. Furthermore, the Compensation Committee included stock buybacks as a component of the capital deployment metric to address investors’ desire for return of capital in the form of repurchases. The Compensation Committee and the Board value the opinions of our
stockholders
and will continue to consider those opinions when making future executive compensation decisions that align compensation with the creation of value for our stockholders.
COMPENSATION PROGRAM COMPONENTS
Each of the following elements of our compensation program taken separately, and as a whole, are necessary to support the Company’s overall compensation objectives. The following table sets forth the key elements of our Named Executive Officers’ compensation, along with the primary objective associated with each element of compensation:
|
|
|
Compensation Element
|
Primary Objective
|
Base salary
|
To compensate ongoing performance of job responsibilities and provide a fixed and knowable minimum income level as a necessary tool in attracting and retaining executives.
|
Annual performance-based cash compensation
|
To incentivize and reward the attainment of short-term corporate objectives and individual contributions to the achievement of those objectives.
|
Long-term equity incentive compensation (restricted stock and performance share awards)
|
To emphasize long-term performance objectives, align the interests of our executives with stockholder interests, encourage the maximization of stockholder value and retain executives.
|
Severance and change in control benefits
|
To encourage the continued attention and dedication of our executives and provide reasonable individual security to enable our executives to focus on stockholders' best interests.
|
Retirement savings – 401(k) plan
|
To provide retirement savings in a tax-efficient manner.
|
Health and welfare benefits
|
To provide typical protections from health, dental, death and disability risks.
|
Base Salary - Providing Knowable Income Commensurate with Responsibilities and Experience:
We provide our Named Executive Officers with a base salary to compensate them for services rendered to our Company during the fiscal year. The base salary payable to each Named Executive Officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. Generally, initial base salary amounts are established based on consideration of, among other factors, the scope of the Named Executive Officer’s responsibilities, years of service, and general knowledge of our Compensation Committee or Chief Executive Officer of the competitive market based on, among other things, experience with other companies and our industry. The base salaries of our Named Executive Officers are reviewed periodically by our Compensation Committee or Chief Executive Officer and merit salary increases have
been made as deemed appropriate based on such factors including the scope of an executive officer’s responsibilities, individual contribution, prior experience and sustained performance.
Cash Bonus Program - Linking Short
-
Term Financial Performance and Strategic Initiatives to Compensation:
Annual cash bonuses are focused primarily on short-term Company financial performance, as well as individual performance metrics linked to important strategic initiatives. They are earned based upon achievement of Company-wide performance goals and the Compensation Committee’s assessment of individual performance for the applicable year.
Under the 2018 bonus program, 75% of each executive officer’s cash bonus, increased from 70% in 2017, is based on the Company’s achievement in 2018 of performance goals relating to (i) Adjusted Debt
(1)
to Annualized Adjusted EBITDAre
(2)
(a supplemental non-GAAP financial measure meaning earnings of the Company before interest, taxes, depreciation and amortization); (ii) occupancy; (iii) capital deployment (includes acquisitions made in accordance with the Company’s Investment Guidelines and Stock Repurchase Program) and (iv) Shopko Sales. 25% of each executive officer’s cash bonus, decreased from 30% in 2017, is based on individual performance and is not evaluated solely upon the satisfaction of pre-determined performance goals, but evaluated subjectively as well by (a) the Compensation Committee with input from our Chief Executive Officer with respect to the other Named Executive Officers and (b) the Board with respect to our Chief Executive Officer.
(1)
Adjusted Debt represents interest bearing debt (reported in accordance with GAAP) adjusted to exclude unamortized debt discount/premium, deferred financing costs, and reduced by cash and cash equivalents and cash reserves on deposit with lenders as additional security. A reconciliation of interest bearing debt (computed in accordance with GAAP) to Adjusted Debt is included in Annex A.
(2)
Adjusted EBITDAre represents EBITDAre adjusted for transaction costs, revenue producing acquisitions and dispositions for the quarter as if such acquisitions and dispositions had occurred as of the beginning of the quarter, severance charges, real estate acquisition costs, and debt extinguishment gains (losses). A reconciliation of net income (loss) attributable to common stockholders (computed in accordance with GAAP) to EBITDAre and Adjusted EBITDAre is included in the Annex A. Annualized Adjusted EBITDAre is calculated as Adjusted EBITDAre for the quarter, adjusted for items where annualization would not be appropriate, multiplied by four. A reconciliation of Annualized Adjusted EBITDAre is included in Annex A.
When the 2018 Bonus Program was set by the Compensation Committee, the Company was in the midst of working on the spin off transaction. In connection with the spin off, we were planning to spin off our interests in properties leased to Shopko, assets that collateralize Master Trust 2014 and certain other assets into SMTA. Due to the fact that the Company would be spinning off these assets, the Compensation Committee decided to remove AFFO per share as a 2018 bonus metric (which was included in the bonus program for 2016 and 2017) and to utilize adjusted debt to annualized adjusted EBITDAre leverage, occupancy, capital deployment and Shopko sales to better incentivize management to successfully complete the strategic goals of the Company. For the 2019 Bonus Program, the Compensation Committee has reinstated AFFO per share as a performance metric in lieu of the Shopko Sales metric.
Shopko Sales was established as a performance metric in 2018 because of the significant payments the Company receives from SMTA as Asset Manager, as described below, and the Compensation Committee’s determination that monetization and de-risking if the Shopko stores held at SMTA was critical to ensure ongoing and final payment of all fees owed by SMTA to the Company.
The following table reflects the financial and operating performance goals set by our Compensation Committee in 2018, as well as 2018 actual results. The Compensation Committee believes these annual operational and financial goals align with our strategy to attain long-term financial stability that will support sustained cash flows beneficial to our stockholders:
|
|
|
|
|
|
2018 Key Performance Measures
|
Threshold
|
Target
|
Maximum
|
Actual
|
Adjusted Debt to Annualized Adjusted EBITDAre
|
5.65
|
5.35
|
5.05
|
5.10
|
Occupancy
|
97.50%
|
98.25%
|
99.00%
|
99.45%
|
Capital Deployment
|
$350MM
|
$400MM
|
$450MM
|
$478.3MM
|
Shopko Sales
|
$90MM
|
$115MM
|
$140MM
|
$189MM
|
Our results in 2018 relative to the financial and operating performance goals are as follows:
|
|
•
|
Adjusted Debt
(1)
to Annualized Adjusted EBITDAre
(2)
:
Our adjusted debt to annualized adjusted EBITDAre ratio was 5.1x at
December 31, 2018
, which fell within our target range of 5.65x - 5.05x.
|
|
|
•
|
Occupancy:
Our weighted average portfolio occupancy rate for
2018
was 99.45%, which was above our target range of 97.5% to 99.0%.
|
|
|
•
|
Capital Deployment
: Our Capital Deployment for 2018 was $478,267,000
, which was above our target range of $350MM to $450MM. Capital Deployment includes acquisitions made in accordance with the Company's Investment Guidelines and Stock Repurchases. For the purposes of measuring Capital Deployment in connection with the 2018 Bonus Program, the Company acquired $310,102,000 of assets and returned $168,165,000 to shareholders through the repurchase of the Company's common stock for a total Capital Deployment of $478,267,000.
|
|
|
•
|
Shopko Sales
:
Shopko Sales was established as a performance metric in 2018 because of the significant payments the Company receives from SMTA as Asset Manager and the Compensation Committee’s determination that monetization and de-risking of the Shopko stores held at SMTA was critical to ensure ongoing and final payment of all fees owed by SMTA to the Company. Although Shopko was no longer a tenant of the Company following the completion of the spin-off, the Company acts as the external asset manager of SMTA and is also a holder of preferred shares in SMTA stock. Acting as external asset manager for SMTA, the Company began negotiations with respect to a non-recourse mortgage loan secured by a vast majority of the outstanding Shopko real estate shortly after the spin-off was completed. The terms of the non-recourse mortgage loan provided that, subject to certain conditions, SMTA could keep the loan proceeds and walk away from the Shopko properties in the event of a Shopko bankruptcy. The Compensation Committee treated the proceeds of the non-recourse loan as achieving Shopko sales for purposes of the performance metric because the non-recourse loan, in light of the bankruptcy filing of Shopko, resulted in the lender's taking of the Shopko assets that served as collateral for the loan, and no further proceeds will be realizable with respect to the Shopko assets. As described above, SMTA’s ability to pay the above-enumerated fees and payments to Spirit is tied to the realization of SMTA’s strategic plan, including the successful de-risking of Shopko. Spirit’s interests are aligned with those of SMTA in that both parties benefit from mitigating risk related to the Shopko assets. The Compensation Committee recognized this alignment of interests in selecting Shopko Sales as a key performance metric under the 2018 cash bonus program. The Shopko Sales metric for 2018 included sales of Shopko stores in the amount of $46,700,000 and the execution by SMTA of a non-recourse mortgage loan in the amount of $141,900,000 for a total of $188,600,000 in proceeds which was above our target range of $90MM to $140MM.
|
Depending on the actual operational results,
Messrs. Hsieh, Hughes, Heimlich, and Young
were eligible to earn a target cash incentive of 175% for Mr. Hsieh, and 125% for each of Messrs. Hughes, Heimlich and Young, of their annual base salaries, respectively, under the program if the target objectives were achieved. The target cash incentive for Messrs. Hsieh and Young remain unchanged from 2017. In determining each Named Executive Officer’s actual cash bonus under the 2018 bonus program, the incentive opportunity is weighted based on the officer’s core responsibilities within the organization.
In determining the executive’s actual bonus under the 2018 bonus program, the goals were weighted as follows for the applicable executive:
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
Adjusted Debt to Annualized Adjusted EBITDAre
|
Occupancy
|
Capital Deployment
|
Shopko Sales
|
Individual Performance
|
Jackson Hsieh
|
25
|
%
|
25
|
%
|
10
|
%
|
15
|
%
|
25
|
%
|
Michael Hughes
|
30
|
%
|
20
|
%
|
10
|
%
|
15
|
%
|
25
|
%
|
Ken Heimlich
|
20
|
%
|
30
|
%
|
5
|
%
|
20
|
%
|
25
|
%
|
Jay Young
|
25
|
%
|
25
|
%
|
10
|
%
|
15
|
%
|
25
|
%
|
Phillip Joseph, Jr.
(1)
|
|
|
|
|
|
Boyd Messmann
(1)
|
|
|
|
|
|
(1)
Messrs. Joseph and Messmann terminated employment with us in 2018 and were not eligible to receive cash bonuses under the 2018 Bonus Program.
Long Term Incentive Plan - Aligning Executive Compensation with Value Creation:
Our long-term incentive plan employs a combination of restricted stock grants and performance shares which vest over time to motivate and/or reward long-term, multi-year performance and facilitate retention of our executives.
Restricted stock awards, which generally vest over a three-year period, create a balanced focus on the achievement of short-term and long-term financial and operational goals and stock price performance.
Performance share awards are earned based on performance over a three-year performance cycle. Pursuant to the performance share awards, each participant is eligible to vest in and receive shares of the Company’s common stock based on an initial target number of shares granted multiplied by a percentage ranging between 0% and 250% depending on the Company’s TSR during the performance period. The percentage range is based on the Company's TSR compared to that of specified peer groups of companies during the performance period, which for the awards made in 2018 is from January 1, 2018 through December 31, 2020 (and with respect to the awards granted in connection with Mr. Hughes' commencement of employment, April 1, 2018 to April 1, 2021, and Mr. Heimlich's promotion, March 1, 2018 to March 1, 2021). For each performance share that ultimately vests, its holder is entitled to a cash payment equal to the aggregate dividends that would have been paid on the total number of performance shares as if such shares had been outstanding on each dividend record date over the period from the grant date through the issuance of the share. In the event of a non-qualifying termination of a participant prior to the performance period end date, all of the rights to performance shares will be automatically forfeited along with the participants’ rights to the cash payment of any dividend equivalent.
In setting long-term incentive plan award levels, our Compensation Committee considers resulting total compensation to our executives, including all elements of compensation described above, our Company’s performance and the market for compensation of executives of competitors and other comparable market participants.
DETERMINATION OF COMPENSATION
Roles of our Compensation Committee and Chief Executive Officer in Compensation Decisions:
The Compensation Committee of our Board oversees our compensation program for all Named Executive Officers, subject, in the case of our Chief Executive Officer, to the Board’s approval.
Our Chief Executive Officer evaluates the individual performance and contributions of each other Named Executive Officer and reports to the Compensation Committee his recommendations regarding their compensation. Our Chief Executive Officer does not participate in any formal discussion with the Compensation Committee or the Board regarding decisions on his own compensation and recuses himself from meetings when his compensation is discussed.
We do not solely rely on formulaic guidelines to determine the mix or levels of cash and equity-based compensation, but rather maintain a flexible compensation program that allows us to adapt components and levels of compensation to motivate, reward and retain individual Named Executive Officers within the context of our desire to attain financial and operational objectives consistent with our strategic goals and stockholder interests. Subjective factors considered in compensation determinations include the Named Executive Officer’s responsibilities, leadership abilities, skills, contributions as a member of the executive management team and to our overall performance, and whether the total compensation potential and structure is sufficient to ensure the retention of a Named Executive Officer when considering the compensation potential that may be available elsewhere.
Engagement of Compensation Consultants:
For
2018
, the Compensation Committee retained the services of Willis Towers Watson to provide assistance to the Compensation Committee in reviewing market data on compensation, understanding industry executive compensation trends, and determining and managing risks associated with elements of our executive compensation program.
Peer Group Development:
With the assistance of Willis Towers Watson, we have established a peer group of REITs which we use to evaluate our executive and director compensation programs and practices, and which serves as the performance benchmark for our performance stock awards (discussed in more detail below). The Committee generally reviews the peer group annually, and when appropriate makes changes to the peer group. Our goal is to establish a group of REITs that include our direct net lease competitors, as well as REITs representing our labor market for executive talent. When selecting peers we consider factors including asset class, total and equity capitalization, number of employees, and other financial and operational characteristics.
The peer group used for evaluating our 2018 executive pay was established and approved by the Compensation Committee in 2017. As a part of their annual process, the Compensation Committee reviewed the peer group with Willis Towers Watson and determined that no changes were required. Based on their review, the Compensation Committee approved the peer group as detailed below.
|
|
2018 Peer Group
|
SITE Centers*
|
Duke Realty Corporation
|
EPR Properties
|
Federal Realty Investment Trust
|
Gramercy Property Trust Inc.**
|
Healthcare Trust of America, Inc.
|
Lexington Realty Trust
|
National Retail Properties, Inc.
|
Omega Healthcare Investors, Inc.
|
Realty Income Corporation
|
STORE Capital Corporation
|
VEREIT, Inc.
|
W. P. Carey Inc.
|
* DDR Corp. changed its name to SITE Centers following a spin-off transaction in October 2018.
**
Gramercy Property Trust, Inc. was removed from the Peer Group at the end of 2018 list due to a merger transaction that occurred at the end of 2018.
2018
EXECUTIVE COMPENSATION
The following describes the primary components of our
2018
executive compensation program for each of our Named Executive Officers, the rationale for each component and how compensation amounts were determined.
Our Named Executive Officers include our principal executive officer in 2018 (
Mr. Jackson Hsieh)
, our principal financial officers (Mr. Michael Hughes, who became our Chief Financial Officer effective April 1, 2018 and Mr. Phillip D. Joseph, Jr., who previously served as our Chief Financial Officer and whose employment terminated April 20, 2018), and our other most highly compensated executive officers during 2018 (
Mr. Ken Heimlich, who became our Executive Vice President, Asset Management effective March 1, 2018,
Mr. Jay Young, our Executive Vice President, General Counsel and Secretary, and
Mr. Boyd Messmann, our former Executive Vice President, Acquisitions (whose employment terminated on February 22, 2018)).
Please note that in December 2018 we completed a one-for-five reverse stock split. All common, restricted and performance share amounts herein are reflected on a post-split basis. In addition, performance share amounts herein are further adjusted to reflect the spin-off.
Base Salary
: In its review of base salaries for
2018
, the Compensation Committee considered the Company’s operating results and the positioning of the Company’s salaries for the Named Executive Officers as compared to similarly situated executives in the Company’s peer group. Based on that review, the Compensation Committee approved the base salary increases set forth in the table below, which also shows base salary increases for 2019. The 2019 salary increases are consistent with the target salary increases for all non-executive employees of the Company.
|
|
|
|
|
|
|
|
Named Executive Officer
|
2017 Base Salary($)
|
2018 Base Salary($)
(1)
|
2019 Base Salary($)
(1)
|
Jackson Hsieh
|
875,000
|
|
900,000
|
|
900,000
|
|
Michael Hughes
|
—
|
|
450,000
|
|
463,500
|
|
Ken Heimlich
|
255,000
|
|
377,400
|
|
388,722
|
|
Jay Young
|
340,000
|
|
355,000
|
|
365,650
|
|
Phillip Joseph, Jr.
|
415,000
|
|
415,000
|
|
|
Boyd Messmann
|
375,000
|
|
375,000
|
|
|
(1)
Represents annualized base salaries.
Annual Performance-Based Compensation:
We use cash bonuses to motivate our Named Executive Officers to achieve our short-term financial and strategic objectives while making progress towards our longer-term growth and other goals. In
March
2018
, our Compensation Committee approved the
2018
Bonus Program, which ties our executives’ annual cash incentive awards closely to our financial performance, thereby aligning their interests of management with the interests of our stockholders. All of our Named Executive Officers, other than Messrs. Joseph and Messmann, were eligible to participate in the
2018
Bonus Program.
Our Compensation Committee approved threshold, target and maximum bonus opportunities for each executive, taking into consideration the degree of difficulty to achieve the targets, which are set forth below expressed as a percentage of each executive’s annual base salary:
|
|
|
|
|
Named Executive Officer
|
Threshold Bonus
|
Target Bonus
|
Maximum Bonus
|
Jackson Hsieh
|
88%
|
175%
|
350%
|
Michael Hughes
|
63%
|
125%
|
200%
|
Ken Heimlich
|
63%
|
125%
|
200%
|
Jay Young
|
63%
|
125%
|
200%
|
Phillip Joseph, Jr.
(1)
|
|
|
|
Boyd Messmann
(1)
|
|
|
|
(1)
Messrs. Joseph and Messmann terminated employment with us in 2018 and were not eligible to receive cash bonuses under the 2018 Bonus Program.
The Company's performance goals and actual results under the
2018
Bonus Program were as follows:
|
|
|
|
|
|
2018 Key Performance Measures
|
Threshold
|
Target
|
Maximum
|
Actual
|
Adjusted Debt to Annualized Adjusted EBITDAre
|
5.65
|
5.35
|
5.05
|
5.10
|
Occupancy
|
97.50%
|
98.25%
|
99.00%
|
99.45%
|
Capital Deployment
|
$350MM
|
$400MM
|
$450MM
|
$478.3MM
|
Shopko Sales
|
$90MM
|
$115MM
|
$140MM
|
$189MM
|
Our 2018 performance exceeded the maximum performance objectives under the plan in the case of three of the financial performance metrics. Our performance related to our Adjusted Debt to Annualized Adjusted EBITDAre metric was between the Target and Maximum levels established by the Committee.
The weighting of each performance goal for each Named Executive Officer eligible to participate in the
2018
Bonus Program is provided in the following table. In 2018 the weighting of overall Company performance was increased to 75%, with the weighting of individual performance being reduced to 25% for each named executive officer. This adjustment was made to create a stronger focus on Spirit’s overall performance in determining incentive payouts.
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
Adjusted Debt to Annualized Adjusted EBITDAre
|
Occupancy
|
Capital Deployment
|
Shopko Sales
|
Individual Performance
|
Jackson Hsieh
|
25%
|
25
|
%
|
10
|
%
|
15
|
%
|
25%
|
Michael Hughes
|
30%
|
20
|
%
|
10
|
%
|
15
|
%
|
25%
|
Ken Heimlich
|
20%
|
30
|
%
|
5
|
%
|
20
|
%
|
25%
|
Jay Young
|
25%
|
25
|
%
|
10
|
%
|
15
|
%
|
25%
|
Phillip Joseph, Jr.
(1)
|
|
|
|
|
|
Boyd Messmann
(1)
|
|
|
|
|
|
(1) Messrs. Joseph and Messmann terminated employment with us in 2018 and were not eligible to receive cash bonuses under the 2018 Bonus Program.
The total annual cash bonus compensation payments approved by our Compensation Committee are set forth in the table below. The total annual cash bonus is allocated between (a) amounts paid pursuant to achievement of objective pre-approved performance criteria (Adjusted Debt to Annualized Adjusted EBITDAre; Occupancy; Capital Deployment; and Shopko Sales) (“
2018
Non-Equity Performance Incentive Bonus”), and (b) amounts paid pursuant to the Compensation Committee’s subjective evaluation of the executive’s performance in accordance with the criteria of the
2018
Bonus Plan (“
2018
Individual Discretionary Bonus”). When determining the 2018 Individual Discretionary Bonus the Committee considered performance of each executive as it relates to: (i) leadership, (ii) shareholder engagement, (iii) development and execution of overall business strategy, (iv)
risk management, and (v) effective communications with the Board. The annual cash bonus has a pay mix split of 75%, increased from 70% in 2017, based on company financial performance metrics and 25%, decreased from 30% in 2017, based on individual performance.
The table below shows the total target cash bonus, the actual bonus received, and the actual cash bonus compared to the target cash bonus, expressed as a percentage, for each Named Executive Officer under the
2018
Bonus Program (for 2018 all of our Named Executive Officers received a cash bonus below the maximum bonus opportunity):
|
|
|
|
|
|
|
|
Named Executive Officer
|
2018 Target Cash Bonus (% Base Salary)
|
2018 Target Cash Bonus ($)
(1)
|
Total 2018 Cash Bonus Actually Received ($)
(1)
|
Total 2018 Cash Bonus Actually Received (% of Base Salary)
|
Jackson Hsieh
|
175%
|
1,575,000
|
|
3,084,375
|
|
343%
|
Michael Hughes
|
125%
|
562,500
|
|
883,125
|
|
196%
|
Ken Heimlich
|
125%
|
471,750
|
|
745,365
|
|
198%
|
Jay Young
|
125%
|
443,750
|
|
698,906
|
|
197%
|
Phillip Joseph, Jr.
(2)
|
|
|
|
|
|
Boyd Messmann
(2)
|
|
|
|
|
|
(1)
The
2018
Bonus Program consists of two separate measurements/categories. The first category is discretionary and based on individual performance. The second category is objective and is based upon achievement of pre-approved performance criteria of the Company (Adjusted Debt to Annualized Adjusted EBITDAre; Occupancy; Capital Deployment; and Shopko Sales). The annual cash bonus has a pay mix split of 25% based on individual performance and 75% based on company financial performance metrics. The chart above shows the total of the two categories.
(2)
Messrs. Joseph and Messmann terminated employment with us in 2018 and were not eligible to participate in the 2018 Bonus Program.
For
2019
, the Compensation Committee has approved substantially similar Company performance criteria as approved under the
2018
Bonus Program, however instead of Shopko Sales, the Bonus Program will include AFFO per share.
Long-Term Equity-Based Incentives:
The goals corresponding to our long-term equity-based awards are intended to reward and encourage long-term corporate performance based on the value of our stock and, thereby, align our Named Executive Officers’ interests with those of our stockholders.
In
2018
, consistent with previous years, we granted a mix of restricted stock and performance share awards to our Named Executive Officers. The target value of equity incentive awards for our Named Executive Officers is generally allocated equally between restricted stock and performance share awards. When determining LTIP values for Messrs. Hsieh and Young the Compensation Committee took into consideration their extraordinary efforts related to the spin-off transaction, specifically the work done in 2018 to complete the spin off transaction. For Messrs. Heimlich and Hughes, the Compensation Committee took into consideration the promotion to Executive Vice President for Mr. Heimlich, and the commencement of employment as Chief Financial Officer for Mr. Hughes.
The table below reflects the target annual long-term incentive award (“LTIP”) values, and actual allocation of awards (based on grant date value), granted to Messrs. Hsieh, Hughes, Heimlich, and Young.
|
|
|
|
|
|
Named Executive Officer
|
Target LTIP Value (% of Base Salary)
|
Actual LTIP Value (% of Base Salary)
|
% of Actual LTIP Value Awarded in Restricted Stock
|
% of Actual LTIP Value Awarded in Performance Shares
|
Jackson Hsieh
(1)
|
550%
|
550%
|
38%
|
62%
|
Michael Hughes
(2)
|
200%
|
267%
|
50%
|
50%
|
Ken Heimlich
|
200%
|
215%
|
53%
|
47%
|
Jay Young
|
200%
|
275%
|
50%
|
50%
|
Phillip Joseph, Jr.
(3)
|
|
|
|
|
Boyd Messmann
(3)
|
|
|
|
|
(1)
Mr. Hsieh's actual LTIP value not does include the second installment of his one-time promotion performance share award of 45,053 shares with a grant date value of $1,739,724 because this was not part of our annual LTIP program.
(2)
Mr. Hughes' actual LTIP value represents one-time awards received in connection with his commencement of employment with us as Chief Financial Officer and not as part of our annual LTIP program.
(3)
Messrs. Joseph and Messmann terminated employment with us in 2018 and were not eligible to receive awards under our LTIP program.
Restricted Stock Awards:
In
2018
, we made the following grants of restricted stock to certain of our Named Executive Officers.
|
|
|
|
Named Executive Officer
|
Number of Restricted Shares
|
Jackson Hsieh
|
63,299
|
|
Michael Hughes
(1)
|
15,464
|
|
Ken Heimlich
|
11,099
|
|
Jay Young
|
12,484
|
|
Phillip Joseph, Jr.
(2)
|
—
|
|
Boyd Messmann
(2)
|
—
|
|
(1)
Mr. Hughes' restricted stock grant represents awards received in connection with his commencement of employment with us as Chief Financial Officer and not as part of our annual LTIP program.
(2)
Messrs. Joseph and Messmann terminated employment with us in 2018 and were not eligible to receive restricted stock awards in 2018.
These awards were granted to incentivize and retain our Named Executive Officers and to further incentivize the executives to achieve performance expectations that we believe will correlate to increases in long-term stockholder value, which further aligns our Named Executive Officers’ interests with those of our stockholders. In addition, our Named Executive Officers are entitled to receive dividends on unvested shares of restricted stock subject to these awards. These awards generally are subject to vesting over a period of three years from the grant date and are subject to the executive’s continued employment with us.
If any of our Named Executive Officers voluntarily terminate their employment with the Company without "good reason" prior to the vesting of any restricted stock, all unvested restricted stock will be forfeited in its entirety.
For additional information regarding the vesting terms and conditions applicable to all outstanding restricted stock awards held by our Named Executive Officers, refer to “Potential Payments Upon Termination or Change of Control” below.
Performance Share Awards:
In
2018
, our Compensation Committee approved the grant of performance share awards in tandem with dividend equivalent rights to our Named Executive Officers. Pursuant to the performance share awards, each Named Executive Officer who received a performance share award is eligible to vest in and receive a number of shares of our common stock ranging from 0% - 250% of the target number of performance shares granted and set forth in the table below based on the attainment of TSR goals during the performance period running from January 1,
2018
through December 31, 2020 (and with respect to the award granted in connection with Mr. Hughes' commencement of employment, April 1, 2018 to April 1, 2021, and Mr. Heimlich's promotion, March 1, 2018 to March 1, 2021 and with respect to Mr. Hsieh's award in January 2018 in connection with his promotion to Chief Executive Officer in 2017, May 7, 2017 to May 7, 2020), relative to the specified Peer Group and Primary Net Lease Peer Group (the "Peer Groups") of companies defined below, and subject to the Named Executive Officer’s continued employment.
For
2018
, the Peer Group and Primary Net Lease Peer Group (designated below) of companies under our performance share awards, each adopted by our Compensation Committee based on recommendations and assistance from Willis Towers Watson, consisted of the following companies:
|
|
•
|
Duke Realty Corporation;
|
|
|
•
|
Federal Realty Investment Trust;
|
|
|
•
|
Gramercy Property Trust, Inc.;***
|
|
|
•
|
Healthcare Trust of America, Inc.;
|
|
|
•
|
Lexington Realty Trust;
|
|
|
•
|
National Retail Properties, Inc.;*
|
|
|
•
|
Omega Healthcare Investors, Inc.;
|
|
|
•
|
Realty Income Corporation;*
|
|
|
•
|
STORE Capital Corporation;*
|
*The Primary Net Lease Peer Group consisted of: National Retail Properties, Inc., Realty Income Corporation, STORE Capital Corporation, and VEREIT, Inc.
** Previously DDR Corp, however DDR completed a spin-off transaction at the end of 2018 and changed its name to SITE Centers.
***Gramercy Property Trust, Inc. was removed from the Peer Group list at the end of 2018 due to a merger transaction that occurred at the end of 2018.
In determining the companies to include in the Peer Groups, Willis Towers Watson and our Compensation Committee selected only real estate investment trusts, and specifically those that invest in asset classes they believed most comparable to the net-leased class in which we invest. The companies in the study were also selected based on market capitalization and enterprise value, as well as portfolio value. In determining the companies to include, Willis Towers Watson and our Compensation Committee selected those companies in the Peer Group that they believed to be our closest competitors.
For 2018, the Compensation Committee reassessed the Peer Groups of companies under our performance share awards, each adopted by our Compensation Committee based on recommendations and assistance from Willis Towers Watson, and determined no change was warranted.
For
2018
the target performance shares granted to each Named Executive Officer are below:
|
|
|
|
Named Executive Officer
|
Target Number of Performance Shares Granted
(1)
|
Jackson Hsieh
|
115,375
|
|
Michael Hughes
|
17,179
|
|
Ken Heimlich
|
10,723
|
|
Jay Young
|
13,869
|
|
Phillip Joseph, Jr.
(2)
|
|
Boyd Messmann
(2)
|
|
(1)
In connection with the spin-off, each outstanding performance share award was adjusted to cover a "target" number of shares such that the pre-spin-off value of the performance share award was approximately preserved. Amounts shown here and throughout this proxy statement reflect these adjusted amounts.
(2)
Messrs. Joseph and Messmann terminated employment with us in 2018 and were not eligible to receive performance share awards in 2018.
These awards were granted to incentivize and retain our participating Named Executive Officers while imposing performance expectations intended to reward increases in long-term stockholder value, which further aligns our Named Executive Officers’ interests with those of our stockholders.
The number of performance shares that vest is dependent on our TSR achieved during the performance period relative to the TSR achieved by the specified Peer Groups. Between 0% and 200% of the target performance shares will be eligible to vest based on the achievement of minimum, target and maximum TSR goals relative to the TSR achieved by the Peer Groups. The minimum, target and maximum TSR goals are the achievement of a TSR during the performance period that places the Company in the 25th, 50th or 80th percentile, respectively, of the TSRs achieved during the performance period by the companies in the Peer Groups.
The number of performance shares that vest will be further adjusted upward by (1) 0.05% for each 1 basis point (up to 300 basis points) by which the TSR exceeds the TSR of the highest performing member of the Primary Net Lease Peer Group, and (2) by 0.1% for each 1 basis point (up to 100 basis points) by which the TSR exceeds the TSR of the highest performing member of the Primary Net Lease Peer Group by 300 basis points, subject to an aggregate cap on such increase of 25% in the number of performance shares that vest. In addition, the number of performance shares that vest will be further adjusted downward by (1) 0.05% for each 1 basis point (up to 300 basis points) by which the TSR is less than the TSR of the lowest performing member of the Primary Net Lease Peer Group, and (2) by 0.1% for each 1 basis point (up to 100 basis points) by which the TSR is less than the TSR of the lowest performing member of the Primary Net Lease Peer Group by 300 basis points,
subject to a cap on such decrease of 25% in the number of performance shares that vest. However, if our TSR is negative, in no event will more than 100% of the target number of performance shares fully vest and be earned.
If Mr. Hsieh, or any of our Named Executive Officers, voluntarily terminate their employment with the Company without "good reason" prior to the vesting of any performance share, all unvested performance shares will be forfeited in their entirety.
Generally, "good reason" is defined in each of our Named Executive Officer's employment agreements as the occurrence of any of the following circumstances, without the express written consent of the employee, unless such circumstances are fully corrected in all material respects by the Company within 30 days following written notification by the employee to the Company of the occurrence of such circumstances:
(i) material diminution in the employee’s duties, authorities or responsibilities (other than temporarily while physically or mentally incapacitated or as required by applicable law), including without limitation, (A) removal of the employee from their designated role within the Company, (B) the employee no longer reporting directly and exclusively to the CEO (for Messrs. Hughes, Heimlich and Young) or exclusively to the Board (for Mr. Hsieh), or (C) the Company’s common stock ceasing to be publicly traded or, following a Change in Control (as defined in the Plan), the Employee ceases to have their current title of the surviving entity in such transaction (including, without limitation, the ultimate parent of such entity);
(i) relocation of the employee’s primary work location by more than 50 miles from its then current location;
(ii) a material breach by the Company or any of its affiliates of any of their material obligations to the employee; or
(iii) material diminution in the Employee’s Base Salary, Target Bonus or Target LTIP (as defined in each applicable employment agreement).
If an executive experiences a termination of employment without “cause” or for “good reason” during the performance period, then 100% of the target performance shares will vest immediately prior to such termination; therefore, in connection with the terminations of Messrs. Joseph and Messmann in 2018, their outstanding performance share awards vested at target pursuant to terms of their respective employment agreements. In addition, upon a change in control of our Company, the performance shares will vest based on the Company’s achievement of TSR goals as of the change in control.
Each performance share award also entitles its holder to a cash payment equal to the aggregate dividends that would have been paid on the total number of performance shares that vest, had such shares been outstanding on the record date(s) that occur over the period from the applicable grant date through the issuance of the shares, if any.
2016
Performance Share Awards Earned Based on Performance through
2018
.
In
2016
, we granted performance share awards that were eligible to vest at the end of
2018
based on our TSR performance relative to the TSR achieved by two set peer groups during the
2016
—
2018
performance period. Because we did not achieve threshold performance, the full number of outstanding performance shares expired without vesting.
Currently, the performance shares we granted in 2017 (with exception to Mr. Hsieh’s July 25, 2017 award), which would be eligible to vest at the end of 2019, are tracking below achievement of minimum goals and thus would expire without vesting. Mr. Hsieh’s July 25, 2017 performance share award, which was granted in connection with his promotion to Chief Executive Officer, is currently tracking above target.
STOCK OWNERSHIP AND RETENTION GUIDELINES
The Company has adopted stock ownership guidelines for our Named Executive Officers. We believe that linking a significant portion of an officer’s current and potential future net worth to the Company’s success, as reflected in our stock price, helps to ensure that officers have a stake similar to that of our stockholders. Stock ownership guidelines also encourage long-term management of the Company for the benefit of its stockholders. The guidelines require the Named Executive Officers to own the lesser of a minimum number of shares of stock or value as a percentage of base salary. Each officer is expected to satisfy the applicable ownership requirement within five (5) years after first becoming subject to the guidelines. The table below reflects the current stock ownership guidelines:
|
|
|
Position
|
Percentage of Base Salary
|
Chief Executive Officer
|
500%
|
Chief Financial Officer
|
300%
|
Executive Vice President
|
200%
|
The types of ownership arrangements counted towards the guidelines are: common stock, whether held individually, jointly, or in trust with or for the benefit of an immediate family member and unvested restricted stock and performance share awards to the extent they will result in the issuance of common stock to the officer at the time of determination.
All of the Named Executive Officers currently employed by us are in compliance with the stock ownership guidelines due to the outstanding time available under the five (5) year ownership requirement guidelines.
RETIREMENT SAVINGS
We have established a 401(k) retirement savings plan for our employees, including our Named Executive Officers, who satisfy certain eligibility requirements. Our Named Executive Officers are eligible to participate in the 401(k) plan on the same terms as other employees. The Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. Currently, we provide a safe harbor matching contribution equal to 100% of elective deferrals up to 3% plus 50% of each additional deferral up to 5% of the employees compensation. These matching contributions are 100% vested as of the date on which the contribution is made. We believe that providing a vehicle for tax- deferred retirement savings through our 401(k) plan, and making fully vested matching contributions, adds to the overall desirability of our executive compensation package and further incents our employees, including our Named Executive Officers, in accordance with our compensation policies. The plan also allows employees to contribute on an after-tax basis through Roth 401(k) contributions.
EMPLOYEE BENEFITS AND PERQUISITES
All of our full-time employees, including our Named Executive Officers, are eligible to participate in our health and welfare plans, including:
|
|
•
|
Medical and dental benefits, as well as vision discounts;
|
|
|
•
|
Medical and dependent care flexible spending accounts;
|
|
|
•
|
Short-term and long-term disability insurance;
|
|
|
•
|
Accidental death and dismemberment insurance; and
|
We paid our Named Executive Officers’ medical and dental premiums in full for
2018
, under a plan which is also made available to all of our employees.
We design our employee benefits programs to be affordable and competitive in relation to the market, and we modify our employee benefits programs as needed based upon regular monitoring of applicable laws and practices in the competitive market.
These benefits are provided to our Named Executive Officers on the same general terms as they are provided to all of our full-time employees, with the exception of certain additional supplemental long-term disability insurance, which covers participating executives (including our Named Executive Officers). We may also reimburse certain of our Named Executive Officers for reasonable legal fees and expenses incurred in connection with the negotiation of an employment agreement, individual life insurance policies, annual physical exams, and/or for costs associated with relocating and/or temporary living expenses. We believe that providing these benefits is a relatively inexpensive way to enhance the competitiveness of the executives’ compensation packages.
We may provide perquisites or other personal benefits in limited circumstances, where we believe it is appropriate to assist an individual Named Executive Officer in the performance of his duties, to make our Named Executive Officers more efficient and effective, and for recruitment, motivation and/or retention purposes. Future practices with respect to perquisites or other personal benefits for our Named Executive Officers will be approved and subject to periodic review by our Compensation Committee. We do not expect these perquisites to be a material component of our compensation program.
SEVERANCE AND CHANGE OF CONTROL-BASED COMPENSATION
As more fully described below under the caption “Potential Payments Upon Termination or Change of Control,” the employment agreements with our Named Executive Officers that were in effect during
2018
provided for certain payments and/or benefits upon a qualifying termination of employment or in connection with a change of control. We believe that job security and terminations of employment, both within and outside of the change of control context, are causes of significant concern and uncertainty for senior executives and that providing protections to our Named Executive Officers in these contexts is therefore appropriate in order to alleviate these concerns and allow the executives to remain focused on their duties and responsibilities to our Company in all situations. Messrs. Joseph and Messmann terminated their employment in 2018, and in connection with their terminations each received the severance payments and benefits provided in their respective employment agreements upon a termination without cause, as well as accelerated vesting of performance share awards (pursuant to the terms of their respective award agreements). These are described and quantified below under "Potential Payments Upon Termination or Change in Control."
TAX AND ACCOUNTING CONSIDERATIONS
Code Section 162(m):
Section 162(m) of the Code, disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for “covered employees”. Prior to the Tax Cuts and Jobs Act of 2017, covered employees generally consisted of our Chief Executive Officer and each of the next three highest compensated officers serving at the end of the taxable year other than our Chief Financial Officer, and compensation that qualified as “performance-based” under Section 162(m) was exempt from this $1 million deduction limitation. As part of the Tax Cuts and Jobs Act of 2017, the ability to rely on this exemption was, with certain limited exceptions, eliminated; in addition, the determination of the covered employees was generally expanded.
We believe that we qualify as a REIT under the Code and generally are not subject to federal income taxes, provided we distribute to our stockholders at least 90% of our taxable income each year. As a result of our tax status as a REIT, the loss of a deduction under Section 162(m) of the Code may not affect the amount of federal income tax payable by us. However, if any portion of an executive’s compensation is subject to limitation under Section 162(m), the loss of this deduction will increase our earnings and profits for 2018 and, accordingly, increase the amount of distributions paid in 2018 that would be characterized as dividends. In approving the amount and form of compensation for our Named Executive Officers in the future, the Compensation Committee will consider all elements of the cost to us of providing such compensation, including the potential impact of Section 162(m) of the Code. In light of the repeal of the performance-based compensation exception to Section 162(m) of the Code, we may not be able to take a deduction for any compensation in excess of $1 million that is paid to covered employees.
Code Section 409A:
Section 409A of the Code, or Section 409A, requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities, penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is our intention to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including our Named Executive Officers, so that they are either exempt from, or satisfy the requirements of, Section 409A.
Code Section 280G:
Section 280G of the Code, or Section 280G, disallows a tax deduction with respect to excess parachute payments to certain executives of companies which undergo a change of control. In addition, Section 4999 of the Code, or Section 4999, imposes a 20% excise tax on the individual with respect to the excess parachute payment. Parachute payments are compensation linked to or triggered by a change of control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from long- term incentive plans including stock options, restricted stock and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G based on the executive’s prior compensation. In approving the compensation arrangements for our Named Executive Officers, our Compensation Committee considers all elements of the cost to the Company of providing such compensation, including the potential impact of Section 280G. However, the Compensation Committee may, in its judgment, authorize compensation arrangements that could give rise to loss of deductibility under Section 280G and the imposition of excise taxes under Section 4999 when it believes that such arrangements are appropriate to attract and retain executive talent. The Board has adopted a policy that the Company will not enter into in the future, any new plan, program, policy, agreement or arrangement that provides for the payment or the reimbursement of any excise tax imposed under Section 4999 of the Code by operation of Section 280G of the Code.
Accounting for Stock-Based Compensation:
We follow the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, or ASC Topic 718, for our stock-based compensation awards. ASC Topic 718 requires companies to
calculate the grant date “fair value” of their stock-based awards using a variety of assumptions. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based awards in their income statements over the period that an employee is required to render service in exchange for the award. Grants of stock options, restricted stock, performance share awards and other equity-based awards under our equity incentive award plans are accounted for under ASC Topic 718. Our Compensation Committee will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.
COMPENSATION TABLES
Summary Compensation Table:
The following table sets forth information concerning the compensation of our Named Executive Officers for the years ended December 31,
2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
(1)
|
Stock Awards ($)
(2)
|
Non-Equity Incentive Plan Compensation ($)
(3)
|
All Other Compensation ($)
(4)
|
Total ($)
|
Jackson Hsieh President and Chief Executive Officer
|
2018
|
900,000
|
|
787,500
|
|
8,074,517
|
|
2,296,875
|
|
44,342
|
|
12,103,234
|
|
2017
|
773,012
|
|
669,021
|
|
9,712,201
(5)
|
|
580,599
|
|
136,710
|
|
11,871,543
|
|
2016
|
175,224
|
|
1,000,000
|
|
7,122,775
|
|
—
|
|
267,734
|
|
8,565,733
|
|
Michael Hughes Executive Vice President and Chief Financial Officer
(6)
|
2018
|
450,000
|
|
225,000
|
|
1,384,801
|
|
658,125
|
|
11,000
|
|
2,728,926
|
|
Ken Heimlich, Executive Vice President Asset Management
|
2018
|
377,400
|
|
188,700
|
|
937,855
|
|
556,665
|
|
14,595
|
|
2,075,215
|
|
Jay Young, Executive Vice President General Counsel and Secretary
|
2018
|
355,000
|
|
177,500
|
|
1,139,789
|
|
521,406
|
|
9,390
|
|
2,203,085
|
|
2017
|
340,000
|
|
204,000
|
|
368,198
(5)
|
|
93,316
|
|
5,720
|
|
1,011,234
|
|
2016
|
222,917
|
|
107,250
|
|
511,769
|
|
211,535
|
|
4,875
|
|
1,058,346
|
|
Phillip Joseph, Jr., Former Executive Vice President, Chief Financial Officer and Treasurer
|
2018
|
143,551
(7)
|
|
—
|
|
1,190,595
|
|
—
|
|
1,648,901
|
|
2,983,047
|
|
2017
|
415,000
|
|
155,526
|
|
1,078,626
(5)
|
|
194,090
|
|
25,850
|
|
1,869,092
|
|
2016
|
415,000
|
|
149,400
|
|
1,416,189
|
|
439,833
|
|
266,461
|
|
2,686,883
|
|
Boyd Messmann, Former Executive Vice President and Chief Acquisitions Officer
|
2018
|
76,057
(7)
|
|
—
|
|
602,132
|
|
—
|
|
882,857
|
|
1,561,046
|
|
2017
|
375,000
|
|
140,625
|
|
812,207
(5)
|
|
82,742
|
|
16,114
|
|
1,426,688
|
|
2016
|
187,115
|
|
357,500
|
|
355,238
|
|
352,592
|
|
—
|
|
1,252,445
|
|
(1)
The
2018
Bonus Program consists of two separate categories. The first category is discretionary and based on individual performance. The second category is objective and based on achievement of pre-approved performance criteria of the Company. The annual cash bonus has a pay mix split of 25% individual performance and 75% company financial performance metrics. The amounts under this category represent annual cash bonuses determined by the Compensation Committee, or in the case of the Chief Executive Officer, by the Board, based on a subjective performance review of the Named Executive Officers’ individual performance (i.e. the first category). This category represents the amounts payable with respect to the 25% individual performance. See “Compensation Discussion and Analysis -
2018
Executive Compensation - Annual Performance-Based Compensation” for a detailed discussion of the
2018
Bonus Program.
(2)
Amount represents the grant date fair value of restricted stock awards and performance share awards calculated in accordance with ASC Topic 718. Grants remain subject to vesting and/or forfeiture pursuant to their terms. For a discussion of the assumptions used to calculate the value of all restricted stock awards and performance share awards made to Named Executive Officers, refer to Note 9 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31,
2018
. As market condition awards, the grant date fair value of the performance share awards is the full grant date fair value, as adjusted to reflect any reduction in value that is appropriate for the probability that the market condition might not be met. The maximum potential value of the performance share awards granted to Messrs. Hsieh, Hughes, Heimlich and Young (assuming the maximum number of shares are earned and calculated based on the closing price on the grant date) are $10,207,333, $1,500,008, $943,483, and $1,220,311, respectively, assuming the Company achieves the maximum TSR during the performance period.
Information with respect to vesting of these awards is disclosed in the Grants of Plan Based Awards table and the accompanying notes. Mr. Hsieh's 2018 value includes the second installment of Mr. Hsieh's one-time promotion performance share award of 45,053 target shares granted on January 1, 2018 (please see the Narrative Disclosure to the Summary Compensation Table and Grants of Plan-Based Awards Table section for more detail on this award). In addition, with respect to Messrs. Joseph and Messmann, the Company did not incur any additional accounting expense in connection with the acceleration of their restricted stock awards and performance share awards in connection with their terminations of employment in 2018.
(3)
The
2018
Bonus Program consists of two separate categories. The first category is discretionary and based on individual performance. The second category is objective and based on achievement of pre-approved performance criteria of the Company. The annual cash bonus has a pay mix split of 25% individual performance and 75% company financial performance metrics. The amounts under this category represent amounts awarded in connection with the achievement of pre-approved performance criteria of the Company (i.e. the second category). This category represents the amounts payable with respect to the 75% objective company performance. See “Compensation Discussion and Analysis -
2018
Executive Compensation - Annual Performance-Based Compensation” for a detailed discussion of the
2018
Bonus Program.
(4)
Includes compensation and perquisites paid to, or on behalf of, our Named Executive Officers during
2018
as described under “All Other Compensation” below.
(5)
Amount represents the grant date fair value of restricted stock awards and performance share awards granted during 2017 calculated in accordance with ASC Topic 718. Grants remain subject to vesting and/or forfeiture pursuant to their terms. For a discussion of the assumptions used to calculate the value of all restricted stock awards and performance share awards made to Named Executive Officers, refer to Note 9 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. As market condition awards, the grant date fair value of the performance share awards is the full grant date fair value, as adjusted to reflect any reduction in value that is appropriate for the probability that the market condition might not be met. The maximum potential value of the performance share awards granted to Messrs. Hsieh, Young, Joseph and Messmann (assuming the maximum number of shares are earned and calculated based on the closing price on the grant date) are $8,642,597, $424,886, $1,244,875, and $937,440, respectively.
(6)
Mr. Hughes commenced employment with us as our Chief Financial Officer effective April 1, 2018.
(7)
Represents actual salary paid in
2018
through termination.
All Other Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
401(k) Plan Company Contributions ($)
(a)
|
Life Insurance
($)
(b)
|
Supplemental Long-Term Disability ($)
(c)
|
Physical Exam ($)
(d)
|
Payments in Regard to Termination of Employment ($)
(e)
|
Total ($)
|
Jackson Hsieh
|
3,353
|
|
35,000
|
|
3,989
|
|
2,000
|
|
—
|
|
44,342
|
|
Michael Hughes
|
11,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
11,000
|
|
Ken Heimlich
|
11,000
|
|
—
|
|
3,595
|
|
—
|
|
—
|
|
14,595
|
|
Jay Young
|
2,366
|
|
1,495
|
|
5,529
|
|
—
|
|
—
|
|
9,390
|
|
Phillip Joseph, Jr.
|
11,000
|
|
—
|
|
—
|
|
—
|
|
1,637,901
|
|
1,648,901
|
|
Boyd Messmann
|
2,291
|
|
—
|
|
—
|
|
—
|
|
880,566
|
|
882,857
|
|
|
|
(a)
|
Amounts represent Company safe harbor matching contributions to the accounts of our Named Executive Officers in the Company’s 401(k) plan.
|
|
|
(b)
|
Amounts represent life insurance premiums paid by the Company for policies on behalf of our Named Executive Officers.
|
|
|
(c)
|
Amounts represent premium payments plus related tax gross-up payments by the Company for supplemental long-term disability insurance policies for our Named Executive Officers.
|
|
|
(d)
|
Amounts reported represent Company paid amounts for executive physical expenses plus gross-up payments for Named Executive Officers.
|
|
|
(e)
|
Amounts represent severance cash compensation, healthcare coverage (only applicable for Mr. Joseph) and dividend equivalent rights (if applicable) paid in connection with separation from the Company.
|
Grants of Plan-Based Awards in
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts Under Non- Equity Incentive Plan Awards
(1)
|
Estimated Future Payouts Under Equity Incentive Plan Awards
(2)
|
All Other Stock Awards:
Shares of Stock (#)
|
Grant Date Fair Value of Stock Awards ($)
(3)
|
Name
|
Grant Date
|
Threshold ($)
|
Target ($)
|
Max ($)
|
Threshold (#)
|
Target (#)
|
Max (#)
|
Jackson Hsieh
|
|
590,625
|
1,181,250
|
2,362,500
|
|
|
|
|
|
1/1/18
|
|
|
|
22,526
|
45,053
|
112,633
|
|
2,295,300
|
3/1/18
|
|
|
|
35,161
|
70,322
|
175,805
|
|
3,304,218
|
3/1/18
|
|
|
|
|
|
|
63,299
|
2,474,999
|
Michael Hughes
|
|
210,938
|
421,875
|
675,000
|
|
|
|
|
|
4/1/18
|
|
|
|
8,589
|
17,179
|
42,948
|
|
784,798
|
3/29/18
|
|
|
|
|
|
|
15,464
|
600,003
|
Ken Heimlich
|
|
176,906
|
353,813
|
566,100
|
|
|
|
|
|
3/1/18
|
|
|
|
5,361
|
10,723
|
26,808
|
|
503,845
|
3/1/18
|
|
|
|
|
|
|
11,099
|
434,010
|
Jay Young
|
|
166,406
|
332,813
|
532,500
|
|
|
|
|
|
3/1/18
|
|
|
|
6,934
|
13,869
|
34,673
|
|
651,665
|
3/1/18
|
|
|
|
|
|
|
12,484
|
488,124
|
Phillip Joseph, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boyd Messmann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amounts for each Named Executive Officer under these columns represent the potential value of non-discretionary Company performance based cash bonus awards that could have been earned for
2018
(and paid in
2019
) under the
2018
Bonus Program. Under the
2018
Bonus Program, each executive was eligible to earn a cash bonus based on our achievement in
2018
of Company performance goals relating to (i) Adjusted Debt to Annualized Adjusted EBITDAre, (ii) Occupancy, (iii) Capital Deployment, and (iv) Shopko Sales. Each executive’s bonus opportunity was weighted among these performance goals as set forth above.
|
At the threshold, target and maximum levels of achievement of the performance goals, Mr. Hsieh could have earned a bonus equal to 87.5%, 175% and 350%, respectively, of his annual base salary and Messrs. Hughes, Heimlich and Young could have earned a bonus equal to 62.5%, 125% and 200%, respectively, of his annual base salary. Messrs. Joseph and Messmann did not participate in the 2018 Bonus Program, Please also see “Compensation Discussion and Analysis -
2018
Executive Compensation - Annual Performance-Based Compensation” for a detailed discussion of the
2018
Bonus Program.
|
|
(2)
|
The performance share awards were awarded in
2018
for the performance period running from January 1,
2018
through December 31, 2020 (and with respect to the one-time promotion performance share award granted in connection with Mr. Hsieh's promotion to Chief Executive Officer award that was granted in two tranches, the second tranche granted on January 1, 2018 and is the only tranche reflected above). The target number of shares was granted to each Named Executive Officer. The “threshold” number of shares represents approximately 50% of the performance shares granted, which is the number of shares that would vest based on achieving the minimum TSR goal during the performance period relative to that of the Peer Group, as adjusted downward by a factor of 25% of such shares based on the Company’s TSR during the performance period relative to that of the Primary Net Lease Peer Group. The “target” number of shares represents 100% of the performance shares granted, which is the number of shares that would vest based on achieving the target TSR goal during the performance period relative to that of the applicable Peer Group, and not adjusted based on the Company’s TSR during the performance period relative to that of the Primary Net Lease Peer Group. The “maximum” number of shares shown is 250% of the performance shares granted, which is the number of shares that would vest based on achieving the maximum TSR goal during the performance period relative to that of the applicable Peer Group, as adjusted upward by a factor of 25% of such shares based on the Company’s TSR during the performance period relative to that of the Primary Net Lease Peer Group. Please see the section “Compensation Discussion and Analysis-
2018
Executive Compensation-Performance Share Awards” for a detailed discussion of the performance share awards.
|
|
|
(3)
|
Amounts represent the grant date fair value of restricted common stock awards and performance share awards granted during
2018
, calculated in accordance with ASC Topic 718. For a discussion of the assumptions used to calculate the value of all restricted common stock awards and performance share awards made to Named Executive Officers, refer to Note 9 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2018
.
|
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table:
The following provides a description of the material terms of each Named Executive Officer’s employment agreement that was in effect in
2018
. Mr. Joseph's employment with the Company terminated effective April 20, 2018 and Mr. Messmann's employment with the Company terminated effective February 23, 2018.
In addition to the terms described below, each of the employment agreements also provide for certain payments and benefits upon a termination without “cause,” for “good reason” (each, as defined in the applicable employment agreement) or as a result of the Company’s non-extension of the employment term, which are described under the caption “Potential Payments Upon Termination or Change of Control” below.
Jackson Hsieh
Employment Agreement for President and Chief Executive Officer Position:
Pursuant to his employment agreement,
Mr. Hsieh serves as President and Chief Executive Officer of the Company. The term of his employment agreement will expire (unless earlier terminated) on May 7, 2020 and will automatically renew for additional one-year terms. During the employment term, Mr. Hsieh will receive a base salary at an annual rate of not less than $875,000, which is subject to increase at the discretion of the Board or Compensation Committee.
In addition, Mr. Hsieh is eligible to receive an annual cash performance bonus targeted at 175% of his base salary (with a maximum bonus opportunity equal to 350% of his base salary) based on the achievement of performance criteria established by our Board or Compensation Committee at any time prior to the end of the applicable fiscal year, which for
2018
were the criteria of the
2018
Bonus Program discussed above. In February 2018, we increased Mr. Hsieh’s annual base salary to $900,000 and maintained his bonus target and maximum at 175% and 350%, respectively, of his base salary. Additionally, Mr. Hsieh is eligible to receive equity and other long-term incentive awards under any plans that may be adopted by the Company, and the value of his equity awards is targeted at 550% of his base salary.
In recognition of his appointment as Chief Executive Officer, the Company granted Mr. Hsieh an award of 500,000 restricted shares of stock (100,000 restricted shares following the reverse stock split) vesting 33.3% on May 7, 2018, 33.3% on May 7, 2019 and 33.4% on May 7, 2020, and an award of performance shares with a target number of 500,000 shares (100,000 performance shares following the reverse stock split) broken into two tranches with the first tranche (297,234 shares (66,042 following the reverse stock split and as adjusted for the spin-off)) granted on July 25, 2017 and the second tranche (202,766 shares (45,053 following the reverse stock split and as adjusted for the spin-off)) granted on January 1, 2018, both tranches vesting as a one-time cliff on May 7, 2020.
If Mr. Hsieh voluntarily terminates his employment with the Company without "good reason" prior to the vesting of any restricted stock or performance shares, all unvested restricted stock and/or performance shares will be forfeited in their entirety.
Under his employment agreement, Mr. Hsieh is eligible to participate in customary health, welfare and fringe benefit plans. He is also entitled to receive Company-paid premiums for a $3.5 million term life insurance policy, up to $2,000 per year for an annual physical examination and up to $20,000 in legal fees in connection with review and negotiation of his employment agreement. Lastly, the Company paid him $90,000 equal to dividends which would have been due in Q2 of 2017 had his restricted shares been granted on the date of his promotion.
Mr. Hsieh's employment agreement contains customary confidentiality, non-compete, non-solicitation, non-disparagement and inventions/intellectual property provisions.
Michael Hughes
Pursuant to his employment agreement, Mr. Hughes serves as Executive Vice President and Chief Financial Officer of the Company effective April 1, 2018.
The term of his employment agreement will expire (unless earlier terminated) on April 1, 2021 and will automatically renew for additional one-year terms. During the employment term, Mr. Hughes will receive a base salary at an annual rate of not less than $450,000 which is subject to increase at the discretion of the Board or Compensation Committee.
In addition, Mr. Hughes is eligible to receive an annual discretionary cash performance bonus targeted at 125% of his base salary (with a maximum bonus opportunity equal to 200% of his base salary) based on the achievement of performance criteria established by our Board or Compensation Committee at any time prior to the end of the applicable fiscal year, which for
2018
were the criteria of the
2018
Bonus Program discussed above. B
eginning in 2019, Mr. Hughes will become eligible for annual long-term incentive awards with a target date-of-grant value of 200% of his annual base salary granted in two equal portions as time-vesting restricted stock grants, vesting in three equal installments on each anniversary of the grant date and performance shares, vesting in full at the completion of a three-year performance period based on the achievement of applicable performance goals.
In connection with entering into his employment agreement, we granted Mr. Hughes:
(i) an award of restricted shares of the Company’s common stock with a value equal to $600,000, vesting in three equal installments on each anniversary of the grant date (March 29, 2018); and (ii) an award of performance shares with a target number of performance shares equal to $600,000 as of the grant date, vesting in full at the completion of a three-year performance period based on the achievement of applicable performance goals.
Additionally, Mr. Hughes is eligible to receive equity and other long-term incentive awards under any plans that may be adopted by the Company, and the value of his equity award is targeted at 200% of his base salary.
If Mr. Hughes voluntarily terminates his employment with the Company without "good reason" prior to the vesting of any restricted stock or performance shares, all unvested restricted stock and/or performance shares will be forfeited in their entirety.
Under his employment agreement, Mr. Hughes is eligible to participate in customary health, welfare and fringe benefit plans. He is also entitled to receive Company-paid premiums for a $1 million term life insurance policy, up to $2,000 per year for an annual physical examination and up to $20,000 in legal fees in connection with review and negotiation. Mr. Hughes' employment agreement contains customary confidentiality, non-solicitation, non-disparagement and inventions/intellectual property provisions.
Ken Heimlich
Pursuant to his employment agreement, Mr. Heimlich serves as Executive Vice President, Asset Management for the Company effective April 3, 2018. The term of his employment agreement will expire (unless earlier terminated) on April 3, 2021 and will automatically renew for additional one-year terms. During the employment term, Mr. Heimlich will receive a base salary at an annual rate not less than $377,400. Mr. Heimlich is eligible to receive an annual cash discretionary incentive payment under the Company’s annual bonus plan on a target bonus opportunity equal to 125% of Mr. Heimlich's annual base salary and a maximum bonus opportunity equal to 200% of Mr. Heimlich's annual base salary upon attainment of one or more pre-established performance goals established by Board or a committee thereof. Beginning in 2019 Mr. Heimlich will become eligible for annual long-term incentive awards of 200% of his annual base salary, granted in two equal portions of time-vesting restricted stock grants, vesting in three equal installments on each anniversary of the grant date, and performance shares, vesting in full at the completion of a three-year performance period based on the achievement of applicable performance goals.
If Mr. Heimlich voluntarily terminates his employment with the Company without "good reason" prior to the vesting of any restricted stock or performance shares, all unvested restricted stock and/or performance shares will be forfeited in their entirety.
Under his employment agreement, Mr. Heimlich is eligible to participate in customary health, welfare and fringe benefit plans. He is also entitled to receive Company-paid premiums for a $1 million term life insurance policy, up to $2,000 per year for an annual physical examination and up to $10,000 in legal fees in connection with review and negotiation.
Jay Young
Pursuant to his amended and restated employment agreement entered into on April 3, 2018, Mr. Young serves as Executive Vice President, General Counsel and Corporate Secretary of the Company. The term of his employment agreement will expire (unless earlier terminated) on April 3, 2021 and will automatically renew for additional one-year terms. During the employment term, Mr. Young will receive a base salary at an annual rate not less than $355,000. Mr. Young is eligible to receive an annual cash discretionary incentive payment under the Company’s annual bonus plan on a target bonus opportunity equal to 125% of Mr. Young's annual base salary and a maximum bonus opportunity of 200% of Mr. Young's annual base salary upon attainment of one or more pre-established performance goals established by Board or a committee thereof. Beginning in 2019 Mr. Young will become eligible for annual long-term incentive awards of 200% of his annual base salary, granted in two equal portions as time-vesting restricted stock grants, vesting in three equal installments on each anniversary of the grant date, and performance shares, vesting in full at the completion of a three-year performance period based on the achievement of applicable performance goals.
If Mr. Young voluntarily terminates his employment with the Company without "good reason" prior to the vesting of any restricted stock or performance shares, all unvested restricted stock and/or performance shares will be forfeited in their entirety.
Under his
amended and restated
employment agreement, Mr. Young is eligible to participate in customary health, welfare and fringe benefit plans. He is also entitled to receive Company-paid premiums for a $1 million term life insurance policy, up to $2,000 per year for an annual physical examination and up to $10,000 in legal fees in connection with review and negotiation.
Phillip D. Joseph, Jr.
Pursuant to his employment agreement, Mr. Joseph served as Executive Vice President and Chief Financial Officer of the Company. His employment agreement terminated on April 20, 2018. During the employment term Mr. Joseph was entitled to receive a minimum annual base salary of $415,000, which was subject to increase at the discretion of the Board or Compensation Committee. In addition, Mr. Joseph was eligible to receive an annual discretionary cash performance bonus targeted at 125% of his base salary (with a maximum bonus opportunity equal to 200% of his base salary) based on the achievement of performance criteria established by our Board or Compensation Committee at any time prior to the end of the applicable fiscal year.
In connection with entering into his employment agreement, we granted Mr. Joseph a restricted stock award and a performance share award, each with a value equal to $500,000. The restricted stock award vested in substantially equal one-third installments on each of the first three anniversaries of March 1, 2015, subject to Mr. Joseph’s continued employment. The performance share award covered the three-year performance period beginning January 1, 2015. Additionally, Mr. Joseph was eligible to receive equity and other long-term incentive awards under any plans adopted by the Company, and the value of his equity awards was targeted at not less than 250% of his base salary.
Under his employment agreement, Mr. Joseph was eligible to participate in customary health, welfare and fringe benefit plans. He was also entitled to receive Company-paid premiums for a $2 million term life insurance policy and up to $2,000 per year for an annual physical examination.
Mr. Joseph’s employment agreement contained customary confidentiality, non-compete, non-solicitation, non-disparagement and inventions/intellectual property provisions.
Boyd Messmann
Pursuant to his employment agreement, Mr. Messmann served as Executive Vice President and Chief Acquisition Officer of the Company. His employment agreement terminated on February 23, 2018. During the employment term, Mr. Messmann received a base salary at an annual rate of not less than $350,000 which was subject to increase at the discretion of the Board or Compensation Committee.
In addition, Mr. Messmann was eligible to receive an annual discretionary cash performance bonus targeted at 125% of his base salary (with a maximum bonus opportunity equal to 200% of his base salary) based on the achievement of performance criteria established by our Board or Compensation Committee at any time prior to the end of the applicable fiscal year. In February 2017, we increased Mr. Messmann’s annual base salary to $375,000 and maintained his bonus target and maximum at 125% and 200%, respectively, of his base salary.
In connection with entering into his employment agreement, we granted Mr. Messmann
an award of restricted stock of the Company’s common stock with a value equal to $250,000 vesting ratably over three years from the grant date (June 24, 2016).
Additionally, Mr. Messmann was eligible to receive equity and other long-term incentive awards under any plans adopted by the Company, and the value of his equity awards was targeted at not less than 200% of his base salary.
Under his employment agreement, Mr. Messmann was eligible to participate in customary health, welfare and fringe benefit plans. Mr. Messmann’s employment agreement contained customary confidentiality, non-compete, non-solicitation, non-disparagement and inventions/intellectual property provisions.
Outstanding Equity Awards at
2018
Fiscal Year-End:
The following table summarizes the number of shares of our common stock and other securities underlying outstanding equity incentive plan awards for each Named Executive Officer as of December 31,
2018
. Mr. Joseph and Mr. Messmann did not hold any unvested awards as of December 31,
2018
.
|
|
|
|
|
|
|
|
|
|
|
Name
|
Grant Date
|
Stock Awards: Shares Not Vested (#)
(3)
|
Market Value Shares Not
Vested ($)
(1)
|
Equity Incentive Plan Awards: Unearned
Performance
Shares Not Vested (#)
(2)
|
Equity Incentive Plan Awards:
Market or Payout Value Unearned
Performance Shares Not Vested ($)
(1)
|
Jackson Hsieh
|
9/7/16
|
49,976
|
|
1,761,654
|
|
17,608
|
|
620,682
|
|
3/2/17
|
13,517
|
|
476,474
|
|
22,525
|
|
794,006
|
|
7/25/17
|
66,700
(5)
|
|
2,351,175
|
|
165,105
|
|
5,819,951
|
|
1/1/18
|
—
|
|
—
|
|
112,632
(4)
|
|
3,970,278
|
|
3/1/18
|
63,299
|
|
2,231,290
|
|
70,322
|
|
2,478,851
|
|
Michael Hughes
|
3/29/18
|
15,464
|
|
545,106
|
|
17,179
|
|
605,560
|
|
Ken Heimlich
|
3/1/18
|
1,447
|
|
51,007
|
|
—
|
|
—
|
|
3/1/18
|
9,652
|
|
340,233
|
|
10,723
|
|
377,986
|
|
Jay Young
|
5/11/16
|
1,909
|
|
67,292
|
|
—
|
|
—
|
|
3/2/17
|
2,089
|
|
73,637
|
|
3,480
|
|
122,670
|
|
3/1/2018
|
12,484
|
|
440,061
|
|
13,869
|
|
488,882
|
|
|
|
(1)
|
The market value of shares of our common stock that have not vested is calculated based on the closing trading price of our common stock ($35.25) as reported on the NYSE on December 31, 2018.
|
|
|
(2)
|
In accordance with the SEC rules, the number of performance shares shown for 2016, 2017 and 2018 awards represents the number of performance shares that may be earned during the performance period based on target performance (except for Mr. Hsieh's 7/25/17 and 1/1/18 award which is based on maximum performance) compared to the Peer Group and not adjusted based on the Company’s TSR during the performance period relative to that of the Primary Net Lease Peer Group. See the section “Compensation Discussion and Analysis - 2018 Executive Compensation - Performance Share Awards” for a detailed discussion of the performance share awards.
|
|
|
(3)
|
Represents a restricted stock award that will vest in three equal annual installments, generally on the first through third anniversaries of the date of grant, subject to the executive’s continued employment with the Company through the applicable vesting date(s) and conditions of the grant agreement.
|
|
|
(4)
|
Represents the second installment of Mr. Hsieh's
one-time new hire performance share award grant that will cliff vest on May 7, 2020 subject t
o Mr. Hsieh's continued employment with the Company through the applicable vesting date and conditions of his grant agreement and the achievement of applicable performance goals.
|
(5)
Represents one-time promotion related restricted stock award grant that will vest pro rata on May 7, 2018, May 7, 2019 and May 7, 2020 subject to Mr. Hsieh's continued employment with the Company through the applicable vesting date(s) and conditions of his grant agreement.
2018
Option Exercises and Stock Vested:
We have not granted any stock options to our Named Executive Officers. The following table summarizes vesting of restricted stock and performance share awards applicable to our Named Executive Officers during the year ended December 31,
2018
:
|
|
|
|
|
|
Name
|
Shares Acquired Upon Vesting (#)
(1)
|
Value Realized On Vesting ($)
(2)
|
Jackson Hsieh
|
69,092
|
|
2,880,649
|
|
Michael Hughes
|
—
|
|
—
|
|
Ken Heimlich
|
—
|
|
—
|
|
Jay Young
|
2,953
|
|
122,858
|
|
Phillip Joseph, Jr.
|
29,579
|
|
1,190,595
|
|
Boyd Messmann
|
15,399
|
|
602,132
|
|
|
|
(1)
|
Represents restricted stock and performance shares that vested in
2018
. Note that no performance shares were distributed in 2018 due to failure to achieve requisite performance metrics, other than with respect to the acceleration of shares for Messrs. Joseph and Messmann in connection with termination payments pursuant to their individual employment agreements.
|
|
|
(2)
|
Amounts shown are based on the fair market value of our common stock on the applicable vesting date.
|
Potential Payments upon Termination or Change of Control:
Employment Agreements:
Under the employment agreements in place during
2018
for Messrs. Hsieh, Hughes, Heimlich, Young, Joseph and Messmann, if the executive’s employment had been terminated by the Company without “cause,” by the executive for “good reason” (each, as defined in the applicable employment agreement) or by reason of the Company’s failure to extend the term of the executive’s employment agreement at the end of the initial three-year employment term or at the end of the one-year extension period(s) thereafter, then in addition to any accrued amounts such executives would be entitled to receive additional severance payments as outlined below.
Mr. Hsieh would be entitled to receive the following:
|
|
(1)
|
lump-sum totaling two times Mr. Hsieh’s annual base salary then in effect (
unless termination is within 60 days prior to, on, or within 24 months following a change in control, in which case three times Mr. Hsieh’s annual base salary);
|
|
|
(2)
|
a lump-sum payment equal to Mr. Hsieh’s earned but unpaid annual bonus for the prior year, plus a pro-rata portion of Mr. Hsieh’s bonus earned in the year of termination, and an amount totaling two times Mr. Hsieh's target bonus (unless termination is within 60 days prior to, on, or within 24 months following a change in control, in which case three times Mr. Hsieh's target bonus);
|
(3) accelerated vesting of any equity awards; and
(4) up to 24 months of continued health care premiums for Mr. Hsieh and his eligible dependents
Mr. Hughes would be entitled to receive the following:
|
|
(1)
|
lump-sum totaling two times Mr. Hughes' annual base salary then in effect;
|
|
|
(2)
|
a lump-sum payment equal to Mr. Hughes' target bonus for the year of termination;
|
|
|
(3)
|
a lump-sum payment equal to a pro-rata portion of Mr. Hughes' bonus earned in the year of termination and any earned but unpaid annual bonus from the prior year;
|
|
|
(4)
|
accelerated vesting of any equity awards, and
|
|
|
(5)
|
up to 24 months of continued health care premiums for Mr. Hughes and his eligible dependents
|
Mr. Heimlich would be entitled to receive the following:
|
|
(1)
|
lump-sum totaling two times Mr. Heimlich’s annual base salary then in effect;
|
|
|
(2)
|
a lump-sum payment equal to Mr. Heimlich’s target bonus for the year of termination;
|
|
|
(3)
|
a lump-sum payment equal to a pro-rata portion of Mr. Heimlich's bonus earned in the year of termination and any earned but unpaid annual bonus from the prior year;
|
|
|
(4)
|
accelerated vesting of any equity awards, and
|
|
|
(5)
|
up to 12 months of continued health care premiums for Mr. Heimlich and his eligible dependents.
|
Under Mr. Young's amended and restated employment agreement entered into on April 3, 2018, Mr. Young would be entitled to receive the following:
|
|
(1)
|
lump-sum totaling two times Mr. Young’s annual base salary then in effect;
|
|
|
(2)
|
a lump-sum payment equal to Mr. Young’s target bonus for the year of termination;
|
|
|
(3)
|
a lump-sum payment equal to a pro-rata portion of Mr. Young's bonus earned in the year of termination and any earned but unpaid annual bonus from the prior year;
|
|
|
(4)
|
accelerated vesting of any equity awards, and
|
|
|
(5)
|
up to 12 months of continued health care premiums for Mr. Young and his eligible dependents.
|
Each executive’s right to receive the severance payments described above is subject to continued compliance with certain restrictive covenants and his or her delivery of an effective general release of claims in favor of the Company.
Furthermore, under the employment agreements in place during
2018
for Messrs. Hsieh, Hughes, Heimlich, and Young, in the event that the executive is terminated by reason of his or her death or disability, the executive would be entitled to receive, in addition to payment of accrued compensation and benefits through the date of termination, an amount equal to any earned but unpaid prior year’s bonus and also an amount equal to the annual bonus for the year in which the termination occurs based on actual results, pro-rated for the portion of the year of termination during which the executive was employed with the Company and accelerated vesting of all equity awards.
If an executive is terminated by the Company without “cause” or voluntarily terminates his or her employment with the Company for “good reason” during the performance period for the performance shares, then 100% of the target performance shares will vest immediately prior to such termination. In addition, upon a change in control of the Company, the performance shares will vest based on the Company’s achievement of the performance goals as of the change in control.
If an executive voluntarily terminates his or her employment with the Company without "good reason" prior to the vesting of any restricted stock or performance shares, the unvested restricted stock and/or performance shares will be forfeited in their entirety.
Boyd Messmann
: In connection with the termination of his employment in February 2018, we paid Mr. Messmann the severance payments and benefits for which he was eligible under his employment agreement and equity award agreements, including the following, subject in certain cases to continued compliance with restrictive covenants contained in his employment agreement and Mr. Messmann’s timely execution and non-revocation of a general release of claims against the Company:
|
|
•
|
An amount equal to one and a half times his base salary, or $562,500;
|
|
|
•
|
An amount equal to the prior year cash bonus, or $223,367;
|
|
|
•
|
An amount equal to his pro-rata bonus for 2018, or $51,049;
|
|
|
•
|
Accelerated vesting of 8,487 shares of restricted stock and 6,912 of performance shares; and
|
|
|
•
|
Payment of $24,884 payable with respect to dividend equivalents granted in tandem with the performance shares that vested in connection with his termination.
|
Phillip D. Joseph, Jr.
: In connection with the termination of his employment in April 2018, we paid Mr. Joseph the severance payments and benefits for which he was eligible under his employment agreement and equity award agreements, including the following, subject in certain cases to continued compliance with restrictive covenants contained in his employment agreement and Mr. Joseph's timely execution and non-revocation of a general release of claims against the Company:
|
|
•
|
An amount equal to two times his base salary, or $830,000;
|
|
|
•
|
An amount equal to his target bonus, or $518,750;
|
|
|
•
|
An amount equal to his pro-rata bonus for 2018, or $117,252;
|
|
|
•
|
Accelerated vesting of 9,224 shares of restricted stock and 20,355 performance shares;
|
|
|
•
|
Payment of $130,997 with respect to dividend equivalents granted in tandem with the performance shares that vested in connection with his termination; and
|
|
|
•
|
Up to 24 months of continued healthcare premiums for Mr. Joseph and his eligible dependents.
|
Equity Awards:
The restricted stock award agreements covering the restricted stock awards granted to each of our Named Executive Officers provide for accelerated vesting of these awards upon a termination by the Company without “cause” or by the employee for “good reason”, or as a result of the Company’s non-extension of the employment term under the executive’s employment agreement.
Summary of Potential Payments:
In accordance with SEC rules, the following table summarizes the payments that would be made to certain of our Named Executive Officers upon the occurrence of certain qualifying terminations of employment, assuming such Named Executive Officer’s termination of employment with the Company occurred on December 31,
2018
and, where relevant, that a change of control of the Company occurred on December 31,
2018
.
With respect to Messrs. Messmann and Joseph, however, amounts shown in the table below reflect the actual amounts they received upon termination.
Amounts shown in the table below do not include (1) accrued but unpaid salary and (2) other benefits earned or accrued by the Named Executive Officer during his employment that are available to all salaried employees, such as accrued vacation.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Benefit
|
Termination Upon Death ($)
|
Termination Upon Disability
|
Termination Without Cause, For Good Reason or due to Company Non- Renewal of Employment Agreement (No Change of Control) ($)
|
Change of Control (No
Termination)
($)
|
Termination Without Cause, For Good Reason or due to Company Non- Renewal of Employment Agreement (Change of Control) ($)
|
Jackson Hsieh
|
Cash Severance
(1)
|
3,084,375
|
|
3,084,375
|
|
8,034,375
|
|
|
10,509,375
|
|
Accelerated Vesting of
Restricted Stock
(2)
|
6,820,593
|
|
6,820,593
|
|
6,820,593
|
|
|
6,820,593
|
|
Accelerated Vesting of
Performance Shares
(3)
|
7,809,638
|
|
7,809,638
|
|
7,809,638
|
|
9,310,548
|
|
9,310,548
|
|
Dividend Equivalent Rights
|
1,084,002
|
|
1,084,002
|
|
1,084,002
|
|
1,276,853
|
|
1,276,853
|
|
Healthcare coverage
|
|
|
31,511
|
|
|
31,511
|
|
Life Insurance
|
3,500,000
|
|
|
|
|
|
Total
|
22,298,608
|
|
18,798,608
|
|
23,780,119
|
|
10,587,401
|
|
27,948,880
|
|
Michael Hughes
|
Cash Severance
(1)
|
883,125
|
|
883,125
|
|
2,345,625
|
|
|
2,345,625
|
|
Accelerated Vesting of
Restricted Stock
(2)
|
545,106
|
|
545,106
|
|
545,106
|
|
|
545,106
|
|
Accelerated Vesting of
Performance Shares
(3)
|
605,560
|
|
605,560
|
|
605,560
|
|
379,829
|
|
379,829
|
|
Dividend Equivalent Rights
|
36,935
|
|
36,935
|
|
36,935
|
|
23,167
|
|
23,167
|
|
Healthcare coverage
|
|
|
2,230
|
|
|
2,230
|
|
Life Insurance
|
1,000,000
|
|
|
|
|
|
Total
|
3,070,726
|
|
2,070,726
|
|
3,535,456
|
|
402,996
|
|
3,295,957
|
|
Ken Heimlich
|
Cash Severance
(1)
|
745,365
|
|
745,365
|
|
1,971,915
|
|
|
1,971,915
|
|
Accelerated Vesting of
Restricted Stock
(2)
|
391,240
|
|
391,240
|
|
391,240
|
|
|
391,240
|
|
Accelerated Vesting of
Performance Shares
(3)
|
377,986
|
|
377,986
|
|
377,986
|
|
324,949
|
|
324,949
|
|
Dividend Equivalent Rights
|
31,741
|
|
31,741
|
|
31,741
|
|
27,288
|
|
27,288
|
|
Healthcare Coverage
|
|
|
15,755
|
|
|
15,755
|
|
Life Insurance
|
1,000,000
|
|
|
|
|
|
Total
|
2,546,332
|
|
1,546,332
|
|
2,788,637
|
|
352,237
|
|
2,731,147
|
|
Jay Young
|
Cash Severance
(1)
|
698,906
|
|
698,906
|
|
1,852,656
|
|
|
1,852,656
|
|
Accelerated Vesting of
Restricted Stock
(2)
|
580,991
|
|
580,991
|
|
580,991
|
|
|
580,991
|
|
Accelerated Vesting of
Performance Shares
(3)
|
611,552
|
|
611,552
|
|
611,552
|
|
420,285
|
|
420,285
|
|
Dividend Equivalent Rights
|
62,634
|
|
62,634
|
|
62,634
|
|
35,294
|
|
35,294
|
|
Healthcare Coverage
|
|
|
11,739
|
|
|
11,739
|
|
Life Insurance
|
1,000,000
|
|
|
|
|
|
Total
|
2,954,083
|
|
1,954,083
|
|
3,119,572
|
|
455,579
|
|
2,900,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phillip Joseph, Jr.
(4)
|
Cash Severance
|
1,480,652
|
|
|
|
|
|
|
Accelerated Vesting of
Restricted Stock
|
371,274
|
|
|
|
|
|
|
Accelerated Vesting of
Performance Shares
|
819,321
|
|
|
|
|
|
|
Healthcare coverage
|
26,252
|
|
|
|
|
|
|
Dividend Equivalent Rights
|
130,997
|
|
|
|
|
|
|
Total
|
2,828,496
|
|
|
|
—
|
—
|
Boyd Messmann
(4)
|
Cash Severance
|
855,682
|
|
|
|
|
|
Accelerated Vesting of
Restricted Stock
|
331,857
|
|
|
|
|
|
Accelerated Vesting of
Performance Shares
|
270,275
|
|
|
|
|
|
Dividend Equivalent Rights
|
24,884
|
|
|
|
|
|
Total
|
1,482,698
|
|
|
|
—
|
—
|
|
|
(1)
|
Represents cash severance payments provided under the Named Executive Officer’s employment agreement. Amount assumes that the executive has already received any earned prior year’s bonus.
|
|
|
(2)
|
Represents the aggregate value of the Named Executive Officer’s restricted common stock that would have vested on an accelerated basis, determined by multiplying the number of shares of restricted stock that would have been accelerated by the fair market value of our common stock on December 31,
2018
($35.25).
|
|
|
(3)
|
Represents the aggregate value of the Named Executive Officer’s performance shares that would have vested on an accelerated basis, determined by multiplying the target number of performance shares that would have been accelerated by the fair market value of our common stock on December 31,
2018
($35.25). In the event of a change in control of our Company, the number of performance shares that would vest is based on the Company’s achievement of the performance goals as of the change in control (which, for purposes of this table, is presumed to occur on December 31,
2018
).
|
|
|
(4)
|
As mentioned above, the amounts in this table show what Mr. Joseph and Mr. Messmann actually received In connection with their departures from the Company.
|
As required by Section 953(b) of the Dodd-Frank and Item 402(u) of Regulation S-K, we are providing the following information regarding the relationship of the annual total compensation of our Chief Executive Officer to the annual total compensation of our median compensated employee. We consider the pay ratio specified below to be a reasonable estimate, calculated in a manner that is intended to be consistent with the requirements of Item 402(u) of Regulation S-K.
For
2018
, our last completed fiscal year:
|
|
•
|
the annual total compensation of the employee who represents our median compensated employee (other than our Chief Executive Officer) was $126,015; and
|
|
|
•
|
the annual total compensation of our Chief Executive Officer was $12,103,234.
|
Based on this information, for
2018
, our Chief Executive Officer’s annual total compensation was 96 times that of the median compensated employee (other than the Chief Executive Officer).
Determining the Median Employee:
Employee Population
We used our employee population data as of
December 31, 2018
, as the reference date for identifying our median employee. As of such date, our employee population consisted of 89 individuals, all of which were full-time employees.
Methodology for Determining Our Median Employee
To identify the median employee from our employee population, we selected compensation as reported to the IRS on Form W-2 as the most appropriate measure of compensation.
Annual Total Compensation of Median Compensated Employee
With respect to the annual total compensation of the employee who represents our median compensated employee, we calculated the elements of such employee’s compensation for
2018
in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $126,015.
Annual Total Compensation of
Chief Executive Officer
For purposes of determining our pay ratio, we determined Mr. Hsieh’s annual total compensation for
2018
was $12,103,234 which, as required by SEC rules, includes his base salary for
2018
as well as the other compensation granted to and earned by him during
2018
for his services and reflected in the Summary Compensation Table above.
Supplemental Disclosure
:
As mentioned herein, Mr. Hsieh was appointed as Chief Executive Officer in May 2017 and in connection with his promotion was awarded certain one-time grants, including an award of performance shares with a target number of 100,000 shares broken into two tranches with the first tranche (66,042 shares following the reverse stock split and as adjusted for the spin-off) being granted in July 2017 and the second tranche (45,053 shares following the reverse stock split and as adjusted for the spin-off) granted in January 2018. As this one-time grant was made to induce Mr. Hsieh to accept his promotion to Chief Executive Officer in 2017, it is not indicative of Mr. Hsieh's typical annual compensation pursuant to his employment agreement. Therefore, we are providing the following supplemental disclosure reflecting Mr. Hsieh's 2018 compensation, excluding his one-time promotional grant and based on grant date value for his 2018 restricted and performance share awards.
For 2018, our last completed fiscal year:
|
|
•
|
the annual total compensation of the employee who represents our median compensated employee (other than our Chief Executive Officer) was $126,015; and
|
|
|
•
|
the annual total compensation of our Chief Executive Officer, (
excluding the one-time payments made in connection with his promotion to Chief Executive Officer
), was $8,978,715.
|
Based on this information, for 2018, our Chief Executive Officer's compensation was 71 times that of the median compensated employee (other than the Chief Executive Officer).
Spirit is committed to good corporate governance practices, which we believe serve the long-term interests of our stockholders by promoting effective risk oversight and management accountability and by helping us compete more effectively. We are governed by a nine-member Board, which provides guidance and oversight with respect to our financial and operating performance, strategic plans, key corporate policies and decisions, and enterprise risk management. Our Board considers and approves significant acquisitions, dispositions, capital raises as well as other significant transactions and advises and counsels senior management on key financial and business objectives. Members of the Board monitor our progress with respect to these matters on a regular basis with the assistance of our senior management team.
CORPORATE GOVERNANCE HIGHLIGHTS
In furtherance of our commitment to manage the Company for the benefit of our stockholders and maintain good governance practices, we made the following enhancements to our corporate governance practices in 2018 and 2019:
|
|
•
|
Ratified the minimum stock ownership requirement policy applicable to our Board.
|
|
|
•
|
Starting in 2019, our directors will utilize an independent, third party consultant to conduct annual self-evaluations.
|
|
|
•
|
Elected two additional Board members, improving our gender mix of Board members.
|
In addition to the forgoing enhancements, we have in place the following best in class corporate governance practices that we believe are important to best serving our stockholders:
|
|
•
|
Our Bylaws provide stockholders with the power to amend or repeal any provision of our Bylaws and adopt new Bylaws with approval by a majority of the votes entitled to be cast.
|
|
|
•
|
We separate the roles of our independent Chairman and the Chief Executive Officer.
|
|
|
•
|
Our Board evaluates, on an annual basis, each Board member's independence, with the exception of our Chief Executive Officer.
|
|
|
•
|
Our directors, officers and employees are subject to a Code of Business Ethics.
|
|
|
•
|
Our Board has adopted a Whistleblower Policy.
|
|
|
•
|
Our Board regularly meetings in executive sessions with management, our internal and external auditors, and among the independent directors.
|
|
|
•
|
Our directors and named executive officers have minimum stock ownership requirements.
|
|
|
•
|
Our directors, officers and employees are subject to anti-hedging and derivative policies.
|
|
|
•
|
Our Board regularly reviews succession plans for the Chief Executive Officer and other senior management positions.
|
|
|
•
|
We have a Disclosure Committee composed of members of management with established controls and procedures to ensure all required disclosures are timely and accurate.
|
|
|
•
|
Our Board and management routinely evaluate related party transactions.
|
DIRECTOR INDEPENDENCE
NYSE listing standards require NYSE-listed companies to have a majority of independent board members and an audit committee, compensation committee and nominating and corporate governance committee, each composed solely of independent directors. Under the NYSE listing standards, no director of a company qualifies as “independent” unless the board of directors of such company affirmatively determines that the director has no material relationship with such company (either directly, or indirectly as a partner, stockholder or officer of an organization that has a relationship with such company).
In addition, the NYSE listing standards provide that a director is not independent if:
(i)
the director is, or has been within the last three years, an employee of the listed company, or an immediate family member is, or has been within the last three years, an executive officer of the listed company;
(ii)
the director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the listed company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);
(iii)
(A) the director is a current partner or employee of a firm that is the company’s internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and personally works on the listed company’s audit; or (D) the director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on the listed company’s audit within that time;
(iv)
the director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the listed company’s present executive officers at the same time serves or served on that company’s compensation committee; or
(v)
the director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the listed company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues.
Not less than annually, the Board evaluates the independence of each director on a case-by-case basis by considering any matters that could affect his or her ability to exercise independent judgment in carrying out the responsibilities of a director, including all transactions and relationships between such director, members of his or her family and organizations with which such director or family members have an affiliation, on the one hand, and us, our subsidiaries and our management, on the other hand. Any such matters are evaluated from the standpoint of the director and the persons or organizations with which the director has an affiliation. Each director abstains from participating in the determination of his or her independence.
Based on its most recent review, the Board has affirmatively determined that, based on the standards set forth in the NYSE rules and our corporate governance documents, each of the following directors has no direct or indirect material relationship with us and qualifies as "independent" under the NYSE listing standards: Kevin M. Charlton, Todd A. Dunn, Richard I. Gilchrist, Diana M. Laing, Sheli Z. Rosenberg, Thomas D. Senkbeil, Nicholas P. Shepherd and Elizabeth F. Frank. Mr. Hsieh is not considered independent under the NYSE listing standards due to his employment as our Chief Executive Officer and President.
BOARD OF DIRECTORS LEADERSHIP STRUCTURE
Pursuant to our Bylaws, the Board has discretion to determine whether to separate or combine the roles of Chief Executive Officer and Chairman of the Board. At the current time, the Board believes that our existing leadership structure - under which our Lead Independent Director is the Chairman of the Board - effectively allocates authority, responsibility and oversight between management and the independent members of our Board and achieves the optimal governance model for us and for our stockholders.
The roles of Chairman of the Board and Chief Executive Officer have been separate since May 2017. This leadership structure gives primary responsibility for the operational leadership and strategic direction of the Company to our Chief Executive Officer, while the Chairman of the Board facilitates our Board's independent oversight of management and promotes communication between management and our Board.
Richard I. Gilchrist serves as Lead Independent Director and Chairman of the Board. As Chairman, Mr. Gilchrist leads the activities of the Board, including:
|
|
•
|
Calling meetings of the Board and independent directors;
|
|
|
•
|
Setting the agendas and schedules of Board meetings in consultation with the Chief Executive Officer and Secretary;
|
|
|
•
|
Chairing executive sessions of the independent directors;
|
|
|
•
|
Conducting annual performance reviews of the Chief Executive Officer;
|
|
|
•
|
Engaging with stockholders; and
|
|
|
•
|
Performing such other duties as may be assigned from time to time by the Board.
|
BOARD GOVERNANCE DOCUMENTS
The Board maintains charters for all committees. In addition, the Board has adopted a written set of Corporate Governance Guidelines, as well as a Code of Business Conduct and Ethics that applies to the Company’s employees, officers and directors, including our Chief Executive Officer and Chief Financial Officer. To view our committee charters, Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Whistleblower Policy, please visit the Corporate Information section on the Investor Relations page of our website at
w
ww.spiritrealty.com
. Please note that the website and its contents are not a part of this Proxy Statement. Each of these governing documents is also available, free of charge, in print to any stockholder who sends a written request to such effect to Investor Relations, Attention: Investor Relations, Spirit Realty Capital, Inc., 2727 North Harwood Street, Suite 300, Dallas, TX 75201.
BOARD COMMITTEE COMPOSITION AND 2018 MEETING ATTENDANCE
Our Board has three standing committees that perform certain delegated functions for the Board: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. Each committee operates pursuant to a written charter that is available in the Corporate Information section on the Investor Relations page of our website at
www.spiritrealty.com
.
The Audit Committee consists of four directors – Ms. Laing (Chairperson), Messrs. Dunn and Senkbeil and Ms. Frank (Ms. Frank joined the Committee in 2019). Members of the Audit Committee and the Chairperson are appointed annually by the Board and may be removed from the Committee by the Board in its discretion at any time. The Board has determined that all members of the Audit Committee are independent and have sufficient accounting and financial experience and ability to enable them to discharge their responsibilities pursuant to NYSE listing standards. Furthermore, the Board has determined that Diana M. Laing is an audit committee financial expert as defined by the SEC.
The Audit Committee assists the Board in fulfilling its responsibilities relating to our accounting and financial reporting practices, including oversight of the quality and integrity of our financial statements, our compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications, independence and performance, and the performance of our internal control over financial reporting and disclosure controls and procedures. The Company’s management is responsible for establishing and maintaining accounting policies and procedures in accordance with U.S. generally accepted accounting principles (“GAAP”) and other applicable reporting and disclosure standards and for preparing the Company’s financial statements. The Company’s independent registered public accounting firm is responsible for performing audits of the Company’s annual consolidated financial statements and internal controls over financial reporting, and for issuing reports and expressing opinions thereon. The Audit Committee is responsible for the pre-approval of audit and non-audit services performed by the Company’s independent registered public accounting firm.
The Audit Committee maintains free and open communication with the Board, our independent registered public accounting firm, our internal auditor and our financial and accounting management. The Audit Committee regularly meets separately in executive session, outside the presence of management, with our independent registered public accounting firm and our internal auditor – generally, at each regularly scheduled meeting and at other times as necessary or desirable. Our Board has adopted procedures for reporting concerns under our Code of Business Conduct and Ethics and other Company policies, including complaints regarding accounting and auditing matters in accordance with Rule 10A-3 under the Exchange Act. The Code of Business Conduct and Ethics, Whistleblower Policy, and the Audit Committee Charter are available on our corporate website at
w
ww.spiritrealty.com
. A copy of our Code of Business Conduct and Ethics, our Whistleblower Policy, or Audit Committee Charter is also available, free of charge, upon request directed to Investor Relations, Attention: Investor Relations, Spirit Realty Capital, Inc., 2727 North Harwood Street, Suite 300, Dallas, TX 75201, or by submitting an email to InvestorRelations@spiritrealty.com.