UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material under §240.14a-12 |
AAR CORP. | ||||
(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Notice of Annual Meeting of Stockholders to be Held on Wednesday, October 8, 2014 |
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August 29, 2014
To Our Stockholders:
We cordially invite you to attend our 2014 annual meeting of stockholders. Information about the annual meeting is set forth below and in the accompanying proxy statement.
Date |
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Wednesday, October 8, 2014 |
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Time |
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9:00 a.m., Chicago time |
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Place |
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AAR CORP. |
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Purposes |
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At the annual meeting, you will be asked to: |
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| | Elect four Class III directors; Vote on an advisory resolution to approve our Fiscal 2014 executive compensation; Ratify the appointment of KPMG LLP as our independent registered public accounting firm; and Transact any other business that may properly come before the annual meeting or any adjournment or postponement of the annual meeting. |
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Record Date |
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You may vote your shares at the annual meeting if you were a stockholder on August 19, 2014. |
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Voting |
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Your vote is important. We encourage you to vote your shares as soon as possible over the Internet, by telephone, or by completing and
returning the enclosed proxy card in the postage-paid envelope provided. |
By Order of the Board of Directors,
Robert
J. Regan
Vice President, General Counsel and Secretary
Proxy Statement for the 2014 Annual Meeting of Stockholders
Table of Contents
ii
Important Notice Regarding the Availability of Our Proxy Materials
For Our Annual Meeting of Stockholders to be Held on Wednesday, October 8, 2014:
Copies of this Notice and Proxy Statement, our 2014 Annual Report to Stockholders and our Annual Report on Form 10-K for the fiscal year ended May 31, 2014 are available free of charge at www.proxyvote.com.
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This summary highlights certain information addressed in more detail elsewhere in this proxy statement. Please read carefully the entire proxy statement before voting your shares.
Annual Meeting Information
Time and Date |
| Wednesday, October 8, 2014 at 9:00 a.m., Chicago time |
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Place |
| AAR CORP. One AAR Place 1100 North Wood Dale Road Wood Dale, Illinois 60191 |
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Record Date |
| Tuesday, August 19, 2014 |
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Voting |
| Stockholders of record as of the record date may vote by Internet at www.proxy.vote.com; by telephone at 1-800-690-6903; by completing and returning their proxy card or voting information card; or in person at the annual
meeting. |
Proposals To Be Voted On By Our Stockholders
Election of four Class III directors (Proposal 1 pages 5-9):
Name |
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Age |
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Brief Biography |
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Board Recommendation |
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Patrick J. Kelly |
59 | Since 1986, Managing Director of KMK & Associates, LLC (a private equity firm with interests in companies operating in the food, distribution, technology, financial services, real estate and energy industries). | FOR | |||||||||||
Peter Pace |
68 | General, U.S. Marine Corps (Retired). From 2005 to 2007, (Chairman of the Joint Chiefs of Staff. | FOR | |||||||||||
Timothy J. Romenesko |
57 | Since 2007, President and Chief Operating Officer of AAR CORP. From 1994 to 2007, Vice President, Chief Financial Officer and Treasurer of AAR CORP. From 1991 to 1994, Corporate Controller of AAR CORP. | FOR | |||||||||||
Ronald B. Woodard |
71 | Since 2003, Chairman of MagnaDrive, Inc. (an industrial torque transfer equipment company, which he co founded following his retirement from The Boeing Company after 32 years). From 1995 to 1998, President of the Boeing Commercial Airplane Group. | FOR | |||||||||||
Advisory resolution to approve our Fiscal 2014 executive compensation (Proposal 2 pages 10-11). | FOR | |||||||||||||
Ratification of the appointment of KPMG LLP as our independent registered public accounting firm (Proposal 3 page 12). | FOR |
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Fiscal 2014 Business Performance Highlights
AAR CORP. (the "Company") is a leading provider of diversified products and services to the worldwide aviation and government and defense markets. We delivered solid financial results for our fiscal year ended May 31, 2014 ("Fiscal 2014"), despite reductions in demand from our government and defense customers owing principally to the drawdown of the U.S. military presence in Afghanistan.
Our continued focus on our core businesses aviation services and technology products together with ongoing efforts to manage costs and strengthen our balance sheet, contributed to the following performance highlights in Fiscal 2014:
For more information about our financial and operating performance in Fiscal 2014, please see "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on July 17, 2014. For more information about our stock price performance, please see "Comparison of Cumulative Five Year Total Return" in our Form 10-K.
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Executive Compensation Highlights
Stockholder Outreach Program
We conducted a formal stockholder outreach program in Fiscal 2014 following the say-on-pay vote at our 2013 annual meeting. The purpose of the program was to gain a better understanding of concerns related to our executive compensation program and other matters of stockholder interest. Under the program, which was supplemental to our regular ongoing communications with stockholders, we reached out to stockholders owning approximately 75% of our outstanding shares. Participants in the outreach effort included at various times our Chairman and Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer and General Counsel. We also received feedback from two proxy advisory firms, Institutional Stockholder Services ("ISS") and Glass Lewis & Co., Inc. ("Glass Lewis").
The following table identifies the concerns raised by our stock-holders, ISS and Glass Lewis, and the actions we took in Fiscal 2014:
Stockholder Concern |
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AAR Action |
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Tax gross-ups |
| Eliminated all tax gross-ups in the new employment agreement of the Company's Chairman and Chief Executive Officer David P. Storch (we previously committed in 2012 not to provide tax gross-ups in any future executive compensation agreement) | ||
"Single-trigger" vesting upon a change in control |
| Eliminated automatic "single-trigger" vesting and imposed "double-trigger" vesting (which requires a change in control and a termination of employment) in all award agreements under the Company's 2013 stock plan and in Mr. Storch's new employment agreement | ||
Annual cash bonuses |
| Exercised negative discretion to reduce by 30% the performance-based cash bonuses paid to the five named executive officers whose bonuses under the Fiscal 2014 short-term incentive plan were based on Company-wide performance | ||
Variable performance-based compensation |
| Awarded performance-based compensation (consisting of cash bonuses, performance-based restricted stock and stock options) representing 66% of Fiscal 2014 total direct compensation for Mr. Storch and at least 50% for each of the other named executive officers | ||
Return metric and burn rate under long-term incentive plan |
| Added return on invested capital, together with three-year cumulative net income, as the two performance goals for performance-based restricted stock under our Fiscal 2015 long-term incentive plan; also granted significantly fewer shares under the Fiscal 2015 long-term incentive plan consistent with our burn rate commitment under the AAR CORP. 2013 Stock Plan | ||
CEO retirement contribution under the non-qualified deferred compensation plan |
| Reduced this contribution by 50% for Fiscal 2014 and amended the non-qualified deferred compensation plan to provide the Compensation Committee with the ability to exercise negative discretion with respect to contributions for all plan participants | ||
Peer group composition |
| Made changes to our peer group in Fiscal 2014 (and again in Fiscal 2015) to assure that our peer group companies share similar revenue numbers and industry/business classifications (we gave less weight to market capitalization as a factor given that its fluctuations often result in dramatic year-to-year changes in peer groups) | ||
Hedging and pledging of Company stock |
| Prohibited hedging and pledging of Company stock by our directors, officers and employees under our insider trading policy | ||
Independence of Compensation Consultant |
| Determined affirmatively that Mercer (US) Inc. ("Mercer"), the compensation consultant to our Compensation Committee, meets the independence criteria established by the Securities and Exchange Commission ("SEC") | ||
Stockholder rights plan |
| Reviewed by the Board in Fiscal 2014 with outside advisors; confirmed its appropriateness for the Company at this juncture and agreed to revisit the plan closer in time to its expiration date in 2017 | ||
Protections in CEO's employment agreement |
| See "New Employment Agreement with Our Chairman and Chief Executive Officer" on page 54 for a summary of the protections voluntarily forfeited by Mr. Storch and other terms and provisions |
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Chief Executive Officer Compensation
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Fiscal 2013 ($) |
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Fiscal 2014 ($) |
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Compensation Element |
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Actual |
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Target |
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Per Formula |
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Actual |
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Base Salary |
877,838 |
906,449 |
N/A |
906,449 |
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Annual Cash Incentive |
1,350,685 |
1,133,061 |
1,216,498 |
851,548 |
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Long Term Incentive Compensation |
1,314,720 |
2,964,720 |
N/A |
2,964,720 |
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Fiscal 2015 Executive Compensation Actions
Our Compensation Committee made significant changes to the Company's executive compensation program in Fiscal 2015 based on its consideration of the following factors: the macro-environment in which the Company operates its businesses; the Company's performance in Fiscal 2014 and its expected performance in Fiscal 2015; the executive compensation assessment prepared by its independent compensation consultant in July 2014; the Company's commitment to meeting the burn rate parameters under the AAR CORP. 2013 Stock Plan; stockholder concerns identified in our stockholder outreach program; and other relevant items. In sum, the Compensation Committee took the following Fiscal 2015 executive compensation actions:
Key Compensation Policies and Practices
The following policies and practices are key elements of the Company's executive compensation program:
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Corporate Governance Highlights
Good corporate governance is an essential part of the Company's culture. The Board of Directors annually reviews the Company's key corporate governance documents, including the Corporate Governance Guidelines and the Board Committee charters, to ensure that they reflect best practices consistent with the Company's culture and strategy. The creation of a Lead Director position is one recent example of the Company's commitment to corporate governance best practices.
The following table identifies the Company's key corporate governance practices and related information:
Corporate Governance Information |
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As of August 29, 2014 |
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Number of Directors |
| 11 | ||
Number of Independent Directors |
| 9 | ||
Average Age of Directors |
| 65 | ||
Average Tenure of Directors |
| 10 years | ||
Director Retirement Age |
| 72 on nomination date | ||
Lead Director |
| Yes | ||
Stock Ownership Guidelines |
| Yes | ||
Annual Stock Grant to Non Employee Directors |
| Yes | ||
Independent Directors Executive Sessions |
| Yes | ||
Independent Compensation Consultant |
| Yes | ||
Annual Board and Committee Self Evaluations |
| Yes | ||
Code of Business Ethics and Conduct |
| Yes | ||
Ethics Hotline Policy |
| Yes | ||
Related Person Transaction Policy |
| Yes | ||
Disclosure Committee for Financial Reporting |
| Yes | ||
Annual Advisory Stockholder Approval of Executive Compensation |
| Yes |
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One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191
We will hold our 2014 annual meeting of stockholders on Wednesday, October 8, 2014, at 9:00 a.m., Chicago time, at AAR CORP.'s corporate headquarters located at One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191. We cordially invite you to attend the annual meeting and ask that you vote on the proposals described in this proxy statement.
Why am I receiving the proxy materials?
Our Board of Directors is providing these proxy materials to you, beginning on or about August 29, 2014, in connection with its solicitation of proxies for use at the Company's 2014 annual meeting of stockholders.
What information is contained in the proxy materials?
The proxy materials contain information about the proposals to be voted on at the annual meeting, the compensation of our directors and our most highly paid executive officers, corporate governance and other information about the Company.
How do I access the proxy materials electronically?
Again this year we are pleased to be distributing our proxy materials via the Internet under the "notice and access" approach permitted by the rules of the Securities and Exchange Commission ("SEC"). This approach reduces the cost and environmental impact of printing and distributing the proxy materials for our annual meeting.
We mailed a "Notice of Internet Availability of Proxy Materials" to all of our stockholders on or about August 29, 2014. The Notice gives you the choice to receive your proxy materials and vote your shares over the Internet or receive your proxy materials in printed form and vote by mailing back your proxy card. The Notice provides you with instructions on how to:
This proxy statement, our annual report to stockholders for the fiscal year ended May 31, 2014 (referred to in this proxy statement as "Fiscal 2014") and our Fiscal 2014 annual report on Form 10-K may be viewed online at www.proxyvote.com.
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What proposals are stockholders voting on at the annual meeting?
Stockholders will vote on three proposals at the annual meeting:
You are entitled to vote your shares if you were an AAR CORP. stockholder at the close of business on August 19, 2014. This date is referred to in this proxy statement as the "record date."
Stockholder of Record. If you were a "stockholder of record" at the close of business on the record date, you may vote your shares at the annual meeting. You are a "stockholder of record" if your shares are registered in your name with the Company's transfer agent.
Beneficial Owner. If you were a "beneficial owner" of shares at the close of business on the record date, you may vote by giving voting instructions to your broker, bank or other nominee who is the "stockholder of record" of your shares. You are a "beneficial owner" of shares if your shares are held in a stock brokerage account or by a bank or other nominee. The Company has directed brokers, banks and other nominees to obtain voting instructions from their beneficial owners. Proxies submitted by nominees on behalf of beneficial owners will count toward a quorum and will be voted as instructed by the beneficial owners. You will receive additional instructions from your broker, bank or other nominee explaining how you may vote your shares held by your nominee.
A list of stockholders of record entitled to vote will be available at the Company's corporate headquarters for 10 days prior to the meeting and at the meeting location during the meeting.
On the record date, 39,891,158 shares of common stock of the Company were outstanding. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted on at the annual meeting.
How do stockholders vote by proxy or in person?
Stockholders of record at the close of business on the record date may vote on the matters that are before the annual meeting by proxy by completing, signing, dating and returning the enclosed proxy card or by voting by telephone or over the Internet, or in person by attending and voting at the annual meeting.
How do stockholders vote by telephone or over the Internet?
Specific instructions for using the telephone and Internet voting methods are set forth on the proxy card. These instructions are designed to authenticate your identity, allow you to give your voting instructions and confirm that those instructions have been properly recorded. You may vote by telephone or over the Internet 24 hours a day, seven days a week, until 10:59 p.m.
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(Chicago time) on the day prior to the annual meeting. If you vote by telephone or over the Internet, please do not return your proxy card.
How do stockholders revoke a proxy?
You may revoke your proxy (e.g., to change your vote) at any time before it is exercised by:
How will the proxy holders vote the shares?
The proxy holders will vote shares in accordance with instructions on the proxy card. If no instructions are given, the proxy holders will vote the shares as follows:
If any other matter properly comes before the annual meeting, the proxy holders will use their judgment to vote in a manner consistent with the best interest of stockholders. If any director nominee becomes unavailable for election for any reason prior to the annual meeting vote, the Board may reduce the number of directors to be elected or substitute another person as nominee, in which case the proxy holders will vote for the substitute nominee.
What are the quorum and vote requirements?
A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if a majority of the outstanding shares of common stock entitled to vote at the meeting is present in person or by proxy at the annual meeting. Abstentions and broker non-votes, if any, will be counted as present for purposes of determining whether there is a quorum. A "broker non-vote" will occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner.
Please note that brokers will have discretionary authority to vote shares on the ratification of KPMG; however, brokers may not vote shares on the election of directors or on the advisory resolution to approve executive compensation without specific instructions from their beneficial owners. Accordingly, please follow your broker's instructions so that your vote may be counted.
Inspectors of election appointed for the annual meeting will tabulate all votes cast in person or by proxy at the annual meeting. In the event a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned or postponed to solicit additional proxies.
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The following table indicates the vote required for approval of each matter to be presented to the stockholders at the annual meeting and the effect of "withhold" votes, abstentions, and broker non-votes.
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Required Vote |
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Effect of "Withhold" Votes, Abstentions and Broker Non-Votes |
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Proposal 1 |
Affirmative vote of a plurality of the shares of common stock present and entitled to vote (the three nominees who receive the greatest number of votes will be elected directors of the Company). |
"Withhold" votes and broker non-votes will have no effect on the voting for the election of directors." |
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Proposal 2 |
Affirmative vote of a majority of the shares of common stock present and entitled to vote. |
Abstentions will have the effect of a vote "against" and broker non-votes will have no effect on the voting for this matter. |
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Proposal 3 |
Affirmative vote of a majority of the shares of common stock present and entitled to vote. |
Abstentions will have the effect of a vote "against"; there will be no broker non-votes for this matter. |
Who is the Company's proxy solicitor?
The Company has engaged D. F. King & Co., Inc., 48 Wall Street, New York, New York 10005, to assist the Company in soliciting proxies at a total estimated cost of $11,500, plus reasonable out-of-pocket expenses. The cost of soliciting proxies will be paid by the Company. D. F. King & Co., Inc. may solicit proxies by mail, telephone, facsimile, e-mail, or in person. Certain officers, directors and employees of the Company may also solicit proxies for no additional compensation.
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The Company's Restated Certificate of Incorporation and By-Laws provide that the Board of Directors shall consist of between three and 15 directors, with the exact number of directors to be set from time to time by the Board. The number of directors is currently set at 11. The members of the Board are divided into three classes, each having a three-year term that expires in successive years: Class I (three directors), Class II (four directors), and Class III (four directors).
The Board of Directors has nominated four individuals to be elected as Class III directors at the annual meeting, each to serve a three-year term expiring at the 2017 annual meeting or until the individual is succeeded by another qualified director who has been duly elected. The nominees for director in Class III at the annual meeting are Patrick J. Kelly, Peter Pace, Timothy J. Romenesko and Ronald B. Woodard.
Each nominee is currently serving as a director of the Company. Each nominee, other than Mr. Romenesko, has been determined by the Board to be "independent" within the meaning of the rules of the New York Stock Exchange ("NYSE") and the SEC. As President and Chief Operating Officer of the Company, Mr. Romenesko does not qualify as an independent director under the NYSE and SEC rules.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE ELECTION OF ALL OF OUR DIRECTOR NOMINEES.
Information about Our Director Nominees and Our Continuing Directors
Information about the director nominees and continuing directors whose terms expire in future years is set forth below:
OUR DIRECTOR NOMINEES
Class III Directors whose terms expire at the 2014 annual meeting |
Director Since |
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PATRICK J. KELLY, 59: Since 1986, Managing Director of KMK & Associates, LLC (a private equity firm with interests in companies operating in the food, distribution, technology, financial services, real estate and energy industries). |
2006 |
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Director Qualifications: The Board of Directors concluded that Mr. Kelly should serve as a director of the Company based on his leadership and operational experience at various businesses, his background as a long-term chief executive officer and his business expertise gained through his experience at a private equity firm with a diversified portfolio of operating companies. |
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PETER PACE, 68: General, U.S. Marine Corps (Retired). From 2005 to 2007, Chairman of the Joint Chiefs of Staff. |
2012 | |||
Current public company directorships: Pike Electric Corp., Qualys, Inc. and Textura Corporation. |
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Other public company directorships held in the past five years: Laserlock Technologies, Inc. and Wi2Wi Corporation. |
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Director Qualifications: The Board of Directors concluded that General Pace should serve as a director of the Company based on his leadership and management skills and experience from over 40 years of service with the United States Marine Corps, culminating in his appointment as the 16th Chairman of the Joint Chiefs of Staff (the most senior position in the United States Armed Forces), where he served from 2005 to 2007 as the principal military adviser to the President, the Secretary of Defense, the National Security Council and the Homeland Security Council. |
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TIMOTHY J. ROMENESKO, 57: Since 2007, President and Chief Operating Officer of AAR CORP. From 1994 to 2007, Vice President, Chief Financial Officer and Treasurer of AAR CORP. From 1991 to 1994, Corporate Controller of AAR CORP. |
2007 |
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Director Qualifications: The Board of Directors concluded that Mr. Romenesko should serve as a director of the Company based on his current leadership position as President and Chief Operating Officer of the Company, his experience in various accounting and financial capacities during his 33-year career with the Company and his knowledge of the Company's commercial aviation and government and defense services markets. |
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RONALD B. WOODARD, 71: Since 2003, Chairman of MagnaDrive, Inc. (an industrial torque transfer equipment company, which he co-founded following his retirement from The Boeing Company after 32 years). From 1995 to 1998, President of the Boeing Commercial Airplane Group. From 1991 to 1994, Vice President and General Manager of the Renton Division of Boeing Commercial Aircraft. From 1987 to 1991, President of deHavilland Aircraft. Prior to that, Vice President and General Manager of the Materiel Division of Boeing Commercial Aircraft, and various other management positions. |
2004 |
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Current public company directorship: Outerwall, Inc. |
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Other public company directorships held in the past five years: Coinstar, Inc. and Continental Airlines, Inc. |
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Director Qualifications: The Board of Directors concluded that Mr. Woodard should serve as a director of the Company based on his management and manufacturing experience as a senior officer of The Boeing Company, his knowledge of the commercial aviation industry and his experience as a director of other public companies, including Continental Airlines, Inc. |
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OUR CONTINUING DIRECTORS
Class I Directors whose terms expire at the 2015 annual meeting |
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ANTHONY K. ANDERSON, 58: Since 2012, an independent business consultant. From 2006 to April 2012, Vice Chairperson and Managing Partner of Midwest Area at Ernst & Young LLP (a global accounting firm). Prior thereto, served in various management positions during a 35-year career with Ernst & Young LLP. |
2012 |
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Current public company directorships: Avery Dennison Corp., Exelon Corp. and First American Financial Corporation. |
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Director Qualifications: The Board of Directors concluded that Mr. Anderson should serve as a director of the Company based on his 35 years working with a global accounting firm, his accounting and financial knowledge, his leadership in developing management talent programs, his service as a director of other public companies, and his professional, civic and charitable service, including as a director of numerous not-for-profit organizations. |
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MICHAEL R. BOYCE, 66: Since 2005, Chairman and Chief Executive Officer of PQ Corporation (a specialty chemicals and catalyst company). Since 1998, Chairman and Chief Executive Officer of The Peak Group (an operating and acquisition company). From 1990 to 1998, President and Chief Operating Officer of Harris Chemical Group, Inc. (a chemicals company). |
2005 |
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Current public company directorship: Stepan Company. |
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Director Qualifications: The Board of Directors concluded that Mr. Boyce should serve as a director of the Company based on his experience as Chairman and Chief Executive Officer of two leading global organizations, his insight into global manufacturing, supply and distribution practices and his international business development skills. |
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DAVID P. STORCH, 61: Since 2007, Chairman of the Board and Chief Executive Officer of AAR CORP. From 2005 to 2007, Chairman of the Board, President and Chief Executive Officer of AAR CORP. From 1996 to 2005, President and Chief Executive Officer of AAR CORP. From 1989 to 1996, President and Chief Operating Officer of AAR CORP. From 1988 to 1989, Vice President of AAR CORP. |
1989 |
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Current public company directorships: KapStone Paper and Packaging Corp. and Kemper Corporation. |
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Director Qualifications: The Board of Directors concluded that Mr. Storch should serve as a director of the Company based on his current position as Chairman and Chief Executive Officer of the Company, his leadership and management skills, his understanding of the Company's businesses gained during his 35-year career with the Company, his knowledge of the commercial aviation and government and defense services markets, and his leadership role in transforming the Company into a leading international provider of products and services to the commercial aviation and government and defense services markets, with front-end manufacturing and after-market support to domestic and international customers. |
7
Class II Directors whose terms expire at the 2016 annual meeting |
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NORMAN R. BOBINS, 71: Since 2008, Non-Executive Chairman of The PrivateBank and Trust Company - Chicago (a financial services company) and Chief Executive Officer of Norman Bobins Consulting, LLC. From May 2007 until October 2007, Chairman of the Board of LaSalle Bank Corporation. From 2002 to 2007, President and Chief Executive Officer of LaSalle Bank Corporation. From 2006 to 2007, President and Chief Executive Officer of ABN AMRO North America. From 2002 to 2007, Senior Executive Vice President at ABN AMRO Bank N.V., the Dutch parent of LaSalle Bank Corporation. |
2007 |
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Current public company directorships: AGL Resources Inc., Aviv REIT, Inc., PrivateBancorp, Inc. and SIMS Metal Management Limited. |
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Other public company directorships held in the past five years: Global Hyatt Corp. and Nicor Inc. |
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Director Qualifications: The Board of Directors concluded that Mr. Bobins should serve as a director of the Company based on his 44 years of banking experience, his financial and accounting knowledge, his service as a director of other public companies, and his civic involvement as a director of various not-for-profit organizations. |
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RONALD R. FOGLEMAN, 72: Since 1997, President and Chief Operating Officer of B Bar J Cattle & Consulting Company (a consulting company). From 1994 to 1997, General, Chief of Staff of the United States Air Force, Washington, D.C. |
2001 |
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Current public company directorship: Alliant Techsystems, Inc. |
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Director Qualifications: The Board of Directors concluded that General Fogleman should serve as a director of the Company based on his leadership skills and record of accomplishment during a 34-year career with the United States Air Force, his business experience and business relationships gained through his senior management positions at two consulting organizations, his understanding of the government defense and services markets and his service as a director of other public companies. General Fogleman was elected as the Company's Lead Director in April 2013. |
8
JAMES E. GOODWIN, 70: Since 2009, Chairman of Federal Signal Corporation (a safety and security products manufacturer). From 2007 to 2008, Interim President and Chief Executive Officer of Federal Signal Corporation. From 2001 to 2007, an independent business consultant. From 1999 to 2001, Chairman and Chief Executive Officer of UAL, Inc. and United Airlines, Inc., from which he retired after 34 years. From 1998 to 1999, President and Chief Operating Officer of United Airlines, Inc. From 1992 to 1998, Senior Vice President of United Airlines, Inc. |
2002 | |||
Current public company directorships: Federal Signal Corporation and John Bean Technologies Corporation. |
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Other public company directorship held in the past five years: First Chicago Bancorp. |
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Director Qualifications: The Board of Directors concluded that Mr. Goodwin should serve as a director of the Company based on his airline industry experience and expertise, including his leadership positions at UAL, Inc. and United Airlines, Inc., his management experience and his financial expertise, as well as his global consulting experience and his service as a director of other public companies. |
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MARC J. WALFISH, 62: Since 2003, Founding Partner of Merit Capital Partners (a mezzanine investor company). From 1991 to 2003, partner at William Blair Mezzanine Capital Partners. From 1978 to 1991, various positions at Prudential Capital Corporation, most recently as Senior Vice President. |
2003 |
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Director Qualifications: The Board of Directors concluded that Mr. Walfish should serve as a director of the Company based on his experience in the finance industry, including as a founding partner of Merit Capital Partners, a mezzanine investor company, his knowledge of the capital markets and his expertise in corporate finance, strategic planning and risk management. |
9
We are asking our stockholders to approve the following advisory resolution (commonly known as a say-on-pay proposal) on the compensation awarded to our named executive officers for Fiscal 2014 as disclosed in this proxy statement:
"RESOLVED, that the stockholders of the Company approve, on an advisory basis, the compensation of the named executive officers for Fiscal 2014 as reported in this proxy statement pursuant to Item 402 of Regulation S-K under the Securities Exchange Act of 1934, including the Compensation Discussion and Analysis, compensation tables and narrative discussion."
We encourage our stockholders to read the "Compensation Discussion and Analysis" on pages 27-50 and the "Summary Compensation Table" and other compensation tables and related narrative starting on page 52 of this proxy statement. These sections describe our executive compensation policies and practices and provide detailed information about the compensation of our named executive officers.
As described under "Stockholder Outreach Program" in the "2014 Proxy Statement Summary" and "Compensation Discussion and Analysis," the Company conducted a stockholder outreach program in Fiscal 2014 to understand, consider and respond to stockholder concerns. With respect to executive compensation matters, the Company's key actions in Fiscal 2014 included the following:
10
Our Board of Directors recommends a vote "FOR" the Company's Fiscal 2014 say-on-pay proposal. The Board believes that the executive compensation paid to the named executive officers was fair and appropriate in Fiscal 2014 and that the Company has responded appropriately to stockholder concerns in revising its executive compensation program.
Our stockholders, upon the recommendation of our Board of Directors, previously voted that our say-on-pay proposal should be considered by stockholders at each annual meeting given the importance of the Company's executive compensation program. While the say-on-pay vote is not binding on the Board of Directors, the Board reviews and considers the results of the say-on-pay vote (as it did in response to the Fiscal 2013 say-on-pay vote), the opinions of our stockholders and other relevant factors in making future decisions regarding the Company's executive compensation program. Our stockholders will vote next on the frequency of our say-on-pay proposal (i.e., whether to hold a say-on-pay vote annually, every two years or every three years) at our 2017 annual meeting of stockholders.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE ADVISORY RESOLUTION TO APPROVE OUR FISCAL 2014 EXECUTIVE
COMPENSATION.
11
PROPOSAL 3 RATIFICATION OF THE APPOINTMENT OF KPMG LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Company's independent registered public accounting firm reports to, and is engaged at the direction of, the Audit Committee of the Company's Board of Directors.
The Audit Committee appointed KPMG LLP ("KPMG") as the Company's independent registered public accounting firm for Fiscal 2015, after consideration and determination of KPMG's independence in light of all services rendered to the Company and its past performance as the Company's independent registered public accounting firm. The Board of Directors asks that stockholders ratify the appointment of KPMG as the Company's independent registered public accounting firm for Fiscal 2015. Representatives of KPMG are expected to be present at the annual meeting, with the opportunity to make a statement if they so desire and to respond to appropriate questions of stockholders.
Independent Registered Public Accounting Firm Fees and Services
The following table sets forth the aggregate fees billed by KPMG to the Company for Fiscal 2013 and Fiscal 2014 for audit, audit-related and tax services provided by the Company's independent registered public accounting firm.
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Description of Fees |
|
Fiscal 2013 ($) |
|
Fiscal 2014 ($) |
|
||||||||
|
Audit Fees |
1,689,980 | 1,794,370 | |||||||||||
|
Audit-Related Fees1 | 136,375 | 136,000 | |||||||||||
|
Tax Fees2 | 373,317 | 387,109 |
Audit Committee pre-approval is required for any audit, audit-related, tax or other services to be provided by the independent registered public accounting firm.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE RATIFICATION OF THE APPOINTMENT OF KPMG AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2015.
12
Audit Committee Report for Fiscal 2014
The Audit Committee reviews the Company's financial reporting process on behalf of the Board of Directors. The Company's management is primarily responsible for the Company's financial statements and the quality and integrity of the reporting process and systems of internal control. The Company's independent registered public accounting firm is responsible for auditing the Company's financial statements and the effectiveness of internal controls over financial reporting and for expressing opinions thereon.
In fulfilling its oversight responsibilities, the Audit Committee has reviewed and discussed the Company's audited financial statements for Fiscal 2014 with the Company's management and representatives of the Company's independent registered public accounting firm, including a discussion of the reasonableness of significant judgments and accounting estimates, and clarity of disclosures in the financial statements. The Audit Committee also reviewed with management and the independent registered public accounting firm the preparation of the financial statements and related disclosures contained in the Company's earnings announcements and quarterly reports. Management has represented to the Audit Committee that the Company's financial statements were prepared in accordance with United States generally accepted accounting principles ("GAAP"), and the independent registered public accounting firm has expressed an opinion based on their audit that the financial statements are in conformance with GAAP in all material respects. The Audit Committee is not responsible for planning or conducting audits, or the determination that the Company's financial statements are complete and accurate and in accordance with GAAP. That is the responsibility of management and the independent registered public accounting firm.
The Audit Committee reviewed and discussed with the independent registered public accounting firm and management the overall scope and plans for the audit, the quality, adequacy and assessment of the effectiveness of internal controls over financial reporting, and the Internal Audit Department's management, organization, responsibilities, budget and staffing. The Audit Committee also met with the independent registered public accounting firm representatives without management present and discussed the results of their audits, their evaluation of the Company's internal controls over financial reporting, disclosure controls and the overall quality (not just acceptability) of the Company's accounting policies and financial reporting.
The Audit Committee also discussed with the representatives of the independent registered public accounting firm (i) the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 16 ("Communications with Audit Committees"), and (ii) the independent registered public accounting firm's independence from the Company and its management, including the matters in the written disclosures and letter furnished to the Audit Committee by the independent registered public accounting firm and required by applicable requirements of the Public Company Accounting Oversight Board. The Audit Committee determined that the non-audit services provided to the Company by the independent registered public accounting firm are compatible with maintaining the independent registered public accounting firm's independence.
In reliance on its review of the audited financial statements and the discussions referred to above and subject to the limitations on the role and responsibilities of the Audit Committee referred to above and in its charter, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for Fiscal 2014 for filing with the SEC.
13
The Audit Committee also reviewed and assessed the adequacy of the Audit Committee charter and conducted an Audit Committee self-assessment in which it concluded that the Committee operates effectively and successfully carried out all of its charter responsibilities.
Respectfully submitted,
Audit Committee
James
E. Goodwin, Chairman
Anthony K. Anderson
Norman R. Bobins
Patrick J. Kelly
Marc J. Walfish
Ronald B. Woodard
14
The Company is committed to good corporate governance. We regularly review our policies and procedures, giving due consideration to current developments and "best practices." We believe that we comply with all applicable SEC and NYSE rules and regulations, and we have adopted additional corporate governance practices that we believe are in the best interests of the Company and its stockholders.
Copies of the following corporate governance documents are available on the Company's website at www.aarcorp.com under "Investor Relations/Corporate Governance":
These corporate governance documents are also available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Company maintains an Ethics Hotline through an independent third-party provider to receive confidential complaints, information, suggestions or recommendations concerning the Company, its officers, directors, employees, policies, procedures, employment and business practices, accounting or audit matters, financial reporting or compliance with other Company policies or applicable regulatory or legal requirements. The Ethics Hotline is toll-free and permits callers to identify themselves or remain anonymous at their election.
Director Nominations and Qualifications
The Board of Directors, acting through its Nominating and Governance Committee, is responsible for identifying, evaluating and recommending candidates for director. The Nominating and Governance Committee obtains recommendations from management, other directors, business and community leaders and stockholders, and may retain the services of a consultant to assist in identifying candidates. The Nominating and Governance Committee considers all director candidates in the same manner, including director candidates recommended by stockholders, regardless of the source of the recommendation. In its evaluation of director candidates, the Nominating and Governance Committee considers the factors specified in the Company's Corporate Governance Guidelines, including:
15
The Nominating and Governance Committee considers the racial, ethnic and gender diversity of the Board and director candidates, as well as the diversity of their knowledge, skills, experience, background and perspective, to assure that the Company maintains the benefit of a diverse, balanced and effective Board.
A full list of the qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Company's website at www.aarcorp.com under "Investor Relations/Corporate Governance" and is available in print to any stockholder upon written request to the Secretary of the Company at the address listed on the first page of this proxy statement. The Nominating and Governance Committee regularly reviews these qualifications and the performance of individual directors and the Board as a whole.
Following its evaluation of director candidates, the Nominating and Governance Committee recommends its director nominees to the Board of Directors. Based on its review and consideration of the Committee's recommendation, the Board makes the final determination of director nominees to be elected by the Company's stockholders.
Stockholders may submit a proposed nomination to the Nominating and Governance Committee for consideration with respect to the 2015 annual meeting of stockholders by writing to the Secretary, AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191. To be considered, proposed nominations must be received by the Secretary of the Company no later than April 11, 2015, must state the reasons for the proposed nomination and contain the information required under the Company's By-Laws, including the full name and address of each proposed nominee, as well as a brief biographical history setting forth past and present directorships, employment and occupations, information as to stock ownership, other arrangements regarding the common stock, and any other qualifications. Proposed nominations must also include a statement indicating that the proposed nominees have consented to being named in the proxy statement and to serve if elected.
16
A majority of the members of the Board of Directors must be independent directors under the Company's Corporate Governance Guidelines and applicable SEC and NYSE rules. The Nominating and Governance Committee and the Board of Directors review each director annually and make a determination concerning independence after consideration of all known facts and circumstances. The Board has established categorical standards to assist it in determining director independence. The Company's "Categorical Standards for Determining Director Independence" include all of the elements of the applicable SEC and NYSE rules with respect to director independence, as well as those of the Company, and are available on the Company's website. Based on these categorical standards, its review of all relevant facts and information available, and the recommendations of the Nominating and Governance Committee, the Board, at its meeting in July 2014, affirmatively determined that no director has a material relationship with the Company that would impair the director's ability to exercise independent judgment and, accordingly, that each director is an independent director, except for David P. Storch, due to his status as Chairman of the Board and Chief Executive Officer of the Company, and Timothy J. Romenesko, due to his status as President and Chief Operating Officer of the Company. Under the NYSE rules, a director employed by the Company is not an independent director by definition.
Board Leadership and Lead Director
The Board of Directors determines the leadership structure for the Board and the Company in a manner that it believes best serves the interests of the Company's stockholders.
The Corporate Governance Guidelines provides that the Board shall have a Lead Director elected by the independent directors. The Lead Director chairs all executive sessions of the independent directors and works closely with the Chief Executive Officer on Board agendas, schedules and meetings. Ronald R. Fogleman, Chair of the Nominating and Governance Committee, currently serves as the Board's Lead Director.
The Board has no fixed policy with respect to combining or separating the offices of Chairman of the Board and Chief Executive Officer. Currently, the Company's Chief Executive Officer, David P. Storch, is also Chairman of the Board. The Board continues to believe having Mr. Storch as Chairman and Chief Executive Officer is the most effective and appropriate leadership structure for the Board and the Company at this time for the following principal reasons:
17
markets; his shaping of the Company's culture; his understanding of the Company's businesses, employees and customers; and his leadership role in the Company's transformation from a supplier of aircraft parts and aftermarket services for commercial airlines into a leading international provider of products and services to the commercial aviation and government and defense services markets.
The Board of Directors, directly and through its committees, is responsible for overseeing management's process for assessing and managing the Company's exposure to risks. In that role, the Board regularly reviews and responds to management's business strategies and initiatives, the Company's quarterly and annual financial results, and information relating to the Company's competitive position, customer base, and capital and liquidity position. The Board holds an annual strategy session with senior management devoted entirely to a review and consideration of the Company's businesses, markets, customers, competitors, and strategic initiatives and direction. This meeting includes an assessment of the key challenges and risks of the Company's businesses, and the opportunities for addressing and responding to these challenges and risks.
The Audit Committee, on behalf of the Board, oversees the enterprise risk management committee, which is composed of Company employees and is responsible for identifying the principal risks to the Company, developing and implementing risk mitigation strategies, auditing the effectiveness of the risk mitigation strategies and reporting to the Audit Committee. The enterprise risk management committee meets regularly with the Audit Committee to review and discuss the Company's principal risks and outline its risk mitigation approach for addressing these risks. The Audit Committee reports to the Board on risks relating to accounting, financial reporting and legal compliance, risks identified by the Company's internal and external auditors, and matters raised through the Company's Ethics Hotline. The Compensation Committee oversees and reports to the Board on the Company's incentive compensation programs to provide that they are appropriately structured to incentivize officers and key employees while assuring appropriate risk. The Nominating and Governance Committee oversees and reports to the Board on corporate governance risks, including director independence and related party transactions.
The Board and its committees receive information from and have regular access to the individual members of management responsible for managing risk, including the Company's Chief Executive Officer, President, Chief Financial Officer, Group Vice Presidents, Controller, General Counsel and Internal Auditor. The directors meet each quarter with a broader group of the Company's employees at regularly scheduled Board dinners as an informal way of learning
18
more about the Company's businesses and its employees. The Board also schedules at least one meeting per year at a Company facility other than the corporate headquarters to promote interaction with local management and employees and allow directors a first-hand opportunity to inspect the Company's business operations.
Independent directors of the Board meet in executive session without management as part of each regular Board meeting and otherwise when circumstances make it advisable or necessary. The Lead Director presides at the executive sessions of independent directors.
Communications with the Board of Directors
Stockholders and other interested parties may communicate with the Board, the Chairman of the Board, the Lead Director, independent directors as a group, or any individual director or Committee Chairman by mail addressed to:
AAR
CORP.
Attention: Independent Directors, Lead Director or the name of the individual director
c/o Corporate Secretary
One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191
The independent members of the Board of Directors have approved procedures for the processing, review and disposition of all communications sent by stockholders or other interested parties to the Board of Directors.
Corporate Governance Guidelines
The Board of Directors adopted Corporate Governance Guidelines to codify long-standing policies and procedures and to demonstrate its commitment to corporate governance best practices. These Guidelines, under the administration of the Nominating and Governance Committee of the Board of Directors, address director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, management evaluation and succession, and the annual performance evaluation of the Board of Directors. These Guidelines are reviewed and approved annually by the Nominating and Governance Committee and the Board of Directors, most recently in July 2014.
Code of Business Ethics and Conduct
The Company's Code of Business Ethics and Conduct adopted by the Board of Directors applies to all directors, officers, and employees, including the Chairman and Chief Executive Officer, the President and Chief Operating Officer, the Chief Financial Officer, and the Chief Accounting Officer and Controller. The purpose of the Code of Business Ethics and Conduct is to promote the highest ethical standards in the Company's business practices and procedures, including the ethical handling of actual or apparent conflicts of interest; full, fair and timely disclosure; and compliance with applicable laws and governmental rules and regulations. Employees are encouraged to report to the Company any conduct that they believe in good faith to be in violation of the Code of Business Ethics and Conduct. We will post any amendments to the Code of Business Ethics and Conduct and any waivers from the Code granted by the Board to directors or executive officers on the Company's website, as required under SEC rules.
19
Related Person Transaction Policy
The purpose of the Related Person Transaction Policy, as adopted by the Board of Directors, is to provide for the identification, review, and consideration of transactions between the Company or its subsidiaries and any related persons. "Related persons" means: the Company's directors; director nominees; executive officers; greater than five percent beneficial owners of the Company's voting securities; members of their immediate families; and any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner, a principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest.
Under the Policy, any related person transaction involving amounts in excess of $120,000 must be reviewed, considered, and approved by the Board of Directors directly or through the Nominating and Governance Committee. Review of a proposed related person transaction takes into consideration the purpose of, and the potential benefits to the Company from, the related person transaction, and the impact of the related person transaction on a director's independence in the event that the related person is a director or an immediate family member of a director. No member of the Board or the Nominating and Governance Committee may participate in any review, consideration, or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person.
The Policy provides that the Company may undertake certain pre-approved related person transactions (e.g., transactions in which the related person's interest derives solely from his or her service as a director of another corporation or entity that is a party to the transaction) without further specific review, consideration and approval.
The Company has a Founder's Agreement with Ira A. Eichner, the Founder and former Chairman of the Board of the Company. The Founder's Agreement recognizes Mr. Eichner's extraordinary contributions to the Company for over 56 years and the value to the Company of an ongoing relationship with Mr. Eichner. Under the Founder's Agreement. Mr. Eichner receives a quarterly retainer of $25,000. Mr. Eichner also participates in the Company's Non-Employee Directors' Retirement Plan until December 1, 2015 (see "Director Compensation"). Mr. Eichner is Mr. Storch's father-in-law.
20
The Board has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, and an Executive Committee. The following table identifies the current members of each committee:
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Director |
|
Audit Committee |
|
Compensation Committee |
|
Nominating and Governance Committee |
|
Executive Committee |
|
||||||||||
|
Anthony K. Anderson |
X | X | |||||||||||||||||
|
Norman R. Bobins |
X | X | |||||||||||||||||
|
Michael R. Boyce |
X | X | |||||||||||||||||
|
Ronald R. Fogleman |
X | Chair | X | ||||||||||||||||
|
James E. Goodwin |
Chair | X | X | ||||||||||||||||
|
Patrick J. Kelly |
X | X | |||||||||||||||||
|
Peter Pace |
X | X | |||||||||||||||||
|
David P. Storch |
Chair | ||||||||||||||||||
|
Marc J. Walfish |
X | X | X | ||||||||||||||||
|
Ronald B. Woodard |
X | Chair |
Audit Committee
The Audit Committee is comprised entirely of independent directors qualified to serve on the Audit Committee under applicable SEC and NYSE rules and the Company's Categorical Standards for Determining Director Independence. Its members are James E. Goodwin (Chair), Anthony K. Anderson, Norman R. Bobins, Patrick J. Kelly, Marc J. Walfish and Ronald B. Woodard. The Board of Directors has determined that each Audit Committee member is an "audit committee financial expert" within the meaning of applicable SEC rules.
The Audit Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Audit Committee and the Board of Directors at their July 2014 meetings. The full text of the Audit Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Audit Committee is primarily concerned with the integrity of the Company's financial statements, compliance with legal and regulatory requirements and the performance of the Company's internal audit function and independent registered public accounting firm. The Audit Committee performs the specific functions described in its charter, including:
21
The Audit Committee held seven meetings during Fiscal 2014. The Audit Committee Report for Fiscal 2014 appears on pages 13-14.
Compensation Committee
The Compensation Committee is comprised entirely of independent directors as defined under applicable SEC and NYSE rules and the Company's Categorical Standards for Determining Director Independence. Its members are Ronald B. Woodard (Chair), Anthony K. Anderson, Norman R. Bobins, Michael R. Boyce, Ronald R. Fogleman and Peter Pace.
The Compensation Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Compensation Committee and the Board of Directors at their July 2014 meetings. The full text of the Compensation Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Compensation Committee is primarily concerned with establishing, reviewing and approving Chief Executive Officer compensation, reviewing and approving other senior executive compensation and overseeing the Company's stock plans and any other compensation and employee benefit plans. The Compensation Committee performs the specific functions described in its charter, including:
22
The Compensation Committee held five meetings during Fiscal 2014. The Compensation Committee Report on Executive Compensation for Fiscal 2014 appears on page 51. Information about the role of the Compensation Committee consultant and management in the executive compensation process is set forth under "Executive Compensation Compensation Discussion and Analysis" section on pages 46-47.
Nominating and Governance Committee
The Nominating and Governance Committee is comprised entirely of independent directors as defined under applicable SEC and NYSE rules and the Company's Categorical Standards for Determining Director Independence. Its members are Ronald R. Fogleman (Chair), Michael R. Boyce, James E. Goodwin, Patrick J. Kelly, Peter Pace and Marc J. Walfish.
The Nominating and Governance Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Nominating and Governance Committee and the Board of Directors at their July 2014 meetings. The full text of the Nominating and Governance Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Nominating and Governance Committee is responsible for both nominating and governance matters as described in its charter. The Nominating and Governance Committee performs the specific functions described in its charter, including:
The Nominating and Governance Committee held three meetings during Fiscal 2014.
Executive Committee
The Executive Committee is comprised of David P. Storch (Chair), James E. Goodwin, Ronald R. Fogleman and Marc J. Walfish. Messrs. Goodwin, Fogleman and Walfish are independent directors as defined by applicable SEC and NYSE rules. As Chairman and Chief Executive Officer of the Company, Mr. Storch does not qualify as an independent director under the NYSE and SEC rules.
The Executive Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Board of Directors at its July 2014 meeting. The full text of the Executive Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Executive Committee is authorized to meet between meetings of the Board of Directors and exercise certain powers of the Board with respect to urgent matters or other matters referred to
23
it by the Board for deliberation or action, subject to limitations imposed by the Committee's charter, the Board, applicable law and the Company's By-Laws.
The Executive Committee did not meet during Fiscal 2014.
During Fiscal 2014, the Board held five meetings and acted by unanimous written consent on two occasions. All directors attended at least 75% of the Board meetings and meetings of Board committees on which they served in Fiscal 2014.
The Company's Corporate Governance Guidelines provide that directors are expected to attend all stockholder meetings. All members of the Company's Board of Directors attended the Company's 2013 annual meeting of stockholders.
The Board believes that compensation for any director who is not an officer or employee of the Company or any subsidiary should be a mix of cash and equity compensation. Directors who are officers or employees of the Company or any subsidiary receive no additional compensation for service on the Board or any of its committees.
The Board of Directors reviews director compensation annually to ensure that it is fair, appropriate and in line with its peer group companies. At its January 2013 meeting, the Board reviewed the findings of a report by its independent compensation consultant analyzing director compensation information of the Company and its peer group companies. This report showed that the Company's cash compensation for directors was above the median of the Company's peer group, the Company's equity compensation was below the median and total compensation was slightly below the median of the peer group (see pages 35-37 for information relating to the Company's peer group). Based on this information, the Board, upon the recommendation of the Compensation Committee, made no changes to its Fiscal 2014 director compensation program.
The following table identifies the elements of director compensation in effect during Fiscal 2014:
|
||||||||
---|---|---|---|---|---|---|---|---|
|
Compensation Element |
|
Fiscal 2014 Non-Employee Director Compensation Program |
|
||||
|
Annual Retainer |
$50,000 | ||||||
|
Lead Director Annual Retainer |
$30,000 | ||||||
|
Committee Chair Annual Retainer |
$10,000 | ||||||
|
Board and Committee Meeting Fees |
$2,500 per meeting ($1,250 for telephone meetings) |
||||||
|
Annual Stock Award |
5,000 shares of common stock (vesting after one year) |
All retainers are paid quarterly, and meeting fees are paid promptly following each meeting attended. The annual stock award was approved at the Board's January 2014 meeting with an effective date of June 1, 2014. Each non-employee director may elect to defer receipt of the retainers and meeting fees pursuant to the Company's Non-Employee Directors' Deferred Compensation Plan (the "Director Plan"). Under the Director Plan, deferred retainer fees are converted into stock units equivalent to shares of common stock, and deferred meeting fees are
24
credited with interest quarterly based on the 10-Year United States Treasury Bond rate. Distributions of deferred retainer fees under the Director Plan are paid in cash or in shares of common stock of equivalent value, at the participant's election, and distribution of deferred meeting fees are made in cash, in each case upon termination of service on the Board or on the happening of certain other events, as specified in the Director Plan.
Each non-employee director, upon being elected a director, receives term life insurance coverage of $200,000 and is eligible (with spouse) to participate in a Company-paid, annual physical program. The Company also reimburses its directors for travel, lodging and related expenses they incur in attending Board and committee meetings.
General. The following table sets forth all compensation paid to each non-employee director for Fiscal 2014:
|
|||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Name1 |
|
Fees Earned or Paid in Cash ($)2 |
|
Stock Awards ($)3 |
|
Option Awards ($)4 |
|
Non-Equity Incentive Plan Compensation ($) |
|
Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($) |
|
All Other Compensation ($)5 |
|
Total ($) |
|
|||||||||||||||||||||||
|
Anthony K. Anderson |
86,250 | 103,400 | 0 | 0 | 0 | $ | 747 | 190,397 | ||||||||||||||||||||||||||||||
|
Norman R. Bobins |
86,250 | 103,400 | 0 | 0 | 0 | 747 | 190,397 | |||||||||||||||||||||||||||||||
|
Michael R. Boyce |
72,500 | 103,400 | 0 | 0 | 0 | 2,238 | 178,138 | |||||||||||||||||||||||||||||||
|
Ronald R. Fogleman |
120,000 | 103,400 | 0 | 0 | 0 | 2,429 | 225,829 | |||||||||||||||||||||||||||||||
|
James E. Goodwin |
92,500 | 103,400 | 0 | 0 | 0 | 7,247 | 203,147 | |||||||||||||||||||||||||||||||
|
Patrick J. Kelly |
82,500 | 103,400 | 0 | 0 | 0 | 747 | 186,647 | |||||||||||||||||||||||||||||||
|
Peter Pace |
78,750 | 103,400 | 0 | 0 | 0 | 4,596 | 186,746 | |||||||||||||||||||||||||||||||
|
Marc J. Walfish |
80,000 | 103,400 | 0 | 0 | 0 | 2,331 | 185,731 | |||||||||||||||||||||||||||||||
|
Ronald B. Woodard |
96,250 | 103,400 | 0 | 0 | 0 | 747 | 200,397 |
|
|
|
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Name |
|
Annual Retainer ($) |
|
Committee Chair Retainer Fees ($) |
|
Meeting Fees ($) |
|
Lead Director Fee |
|
Total ($) |
|
|||||||||||||||||
|
Anthony K. Anderson |
50,000 | | 36,250 | | 86,250 | |||||||||||||||||||||||
|
Norman R. Bobins |
50,000 | | 36,250 | | 86,250 | |||||||||||||||||||||||
|
Michael R. Boyce |
50,000 | | 22,500 | | 72,500 | |||||||||||||||||||||||
|
Ronald R. Fogleman |
50,000 | 10,000 | 30,000 | 30,000 | 120,000 | |||||||||||||||||||||||
|
James E. Goodwin |
50,000 | 10,000 | 32,500 | | 92,500 | |||||||||||||||||||||||
|
Patrick J. Kelly |
50,000 | | 32,500 | | 82,500 | |||||||||||||||||||||||
|
Peter Pace |
50,000 | | 28,750 | | 78,750 | |||||||||||||||||||||||
|
Marc J. Walfish |
50,000 | | 30,000 | | 80,000 | |||||||||||||||||||||||
|
Ronald B. Woodard |
50,000 | 10,000 | 36,250 | | 96,250 |
25
Fiscal 2015 Director Compensation. At its April 2014 meeting, the Board, upon the recommendation of the Compensation Committee and following a presentation by its independent compensation consultant on director compensation trends and best practices, approved the same director compensation program in Fiscal 2015 that was in effect in Fiscal 2014.
Compensation Committee Interlocks and Insider Participation
Messrs. Anderson, Bobins, Boyce, and Woodard, General Fogleman and General Pace, all of whom are independent non-employee directors, are the current members of the Compensation Committee of the Board of Directors of the Company. During Fiscal 2014, none of the executive officers of the Company served on the board of directors or compensation committee of any entity whose officers served either on the Board of Directors of the Company or on the Compensation Committee of the Board of Directors of the Company.
26
Compensation Discussion and Analysis
This Compensation Discussion and Analysis ("CD&A") describes our Fiscal 2014 executive compensation program. It provides information about the goals and the key elements of the program and explains the reasons behind the Compensation Committee's executive compensation decisions.
Our focus in this CD&A is the Fiscal 2014 compensation of the following "named executive officers" of the Company:
|
||||||||
---|---|---|---|---|---|---|---|---|
|
Name |
|
Title |
|
||||
David P. Storch | Chairman of the Board and Chief Executive Officer | |||||||
Timothy J. Romenesko | President and Chief Operating Officer | |||||||
John C. Fortson | Vice President, Chief Financial Officer and Treasurer since July 25, 2013 | |||||||
Randy J. Martinez | Group Vice President Airlift | |||||||
Robert J. Regan | Vice President, General Counsel and Secretary | |||||||
Michael J. Sharp | Acting Chief Financial Officer and Treasurer through July 25, 2013 and Vice President, Controller and Chief Accounting Officer |
Executive Summary
Goals of Our Executive Compensation Program
The primary goals of our executive compensation program are to:
Fiscal 2014 Business Performance Highlights
AAR CORP. (the "Company") is a leading provider of diversified products and services to the worldwide aviation and government and defense markets. We delivered solid financial results for Fiscal 2014 despite reductions in demand from our government and defense customers owing principally to the drawdown of the U.S. military presence in Afghanistan.
27
Our continued focus on our core businesses aviation services and technology products together with ongoing efforts to manage costs and strengthen our balance sheet, contributed to the following performance highlights in Fiscal 2014:
For more information about our financial and operating performance in Fiscal 2014, please see "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on July 17, 2014. For more information about our stock price performance, please see "Comparison of Cumulative Five-Year Total Return" in our Form 10-K.
Fiscal 2014 Executive Compensation Highlights
Stockholder Outreach Program
We conducted a formal stockholder outreach program in Fiscal 2014 following the say-on-pay vote at our 2013 annual meeting. The purpose of the program was to gain a better understanding of concerns related to our executive compensation program and other matters of stockholder interest. Under the program, which was supplemental to our regular ongoing communications with stockholders, we reached out to stockholders owning approximately 75% of our outstanding shares. Participants in the outreach effort included at various times our Chairman and Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer and General Counsel. We also received feedback from two proxy advisory firms, Institutional Stockholder Services ("ISS") and Glass Lewis & Co., Inc. ("Glass Lewis").
Based on the information gained from our stockholder outreach program, we made significant substantive changes to our executive compensation policies and practices. We believe that, as a result of these changes, our executive compensation program is better designed to enhance stockholder value and attract and retain executive talent pivotal to the Company's success.
28
Here are the highlights of the substantive changes made to our executive compensation program in Fiscal 2014:
29
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Additional Supplemental Company Contribution |
|
|||||||||||
|
Named Executive Officer |
|
Formula Amount |
|
Actual Amount |
|
||||||||
|
David P. Storch |
$ | 495,115 | $ | 247,557 | |||||||||
|
Timothy J. Romenesko |
$ | 187,513 | $ | 93,756 | |||||||||
|
Robert J. Regan |
$ | 81,309 | $ | 40,655 |
Two other named executive officers received the minimum contribution and the sixth named executive officer does not participate in the SKERP.
Chief Executive Officer Compensation
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||||||||||||||||
|
|
|
Fiscal 2013 ($) |
|
Fiscal 2014 ($) |
|
||||||||||||||||||
|
Compensation Element |
|
Actual |
|
Target |
|
Per Formula |
|
Actual |
|
||||||||||||||
|
Base Salary | 877,838 | 906,449 | N/A | 906,449 | |||||||||||||||||||
|
Annual Cash Incentive |
1,350,685 | 1,133,061 | 1,216,498 | 851,548 | |||||||||||||||||||
|
Long-Term Incentive Compensation |
1,314,720 | 2,964,720 | N/A | 2,964,720 |
30
Fiscal 2015 Executive Compensation Actions
Our Compensation Committee made significant changes to the Company's executive compensation program in Fiscal 2015 based on its consideration of the following factors: the macro-environment in which the Company operates its businesses; the Company's performance in Fiscal 2014 and its expected performance in Fiscal 2015; the executive compensation assessment prepared by its independent compensation consultant in July 2014; the Company's commitment to meeting the burn rate parameters under the AAR CORP. 2013 Stock Plan; stockholder concerns identified in our stockholder outreach program; and other relevant items. In sum, the Compensation Committee took the following Fiscal 2015 executive compensation actions:
31
I. Principal Compensation Elements of Our Executive Compensation Program
The table below identifies the principal elements of our Fiscal 2014 executive compensation program, and the subsequent narrative provides a fuller description of each element.
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Compensation Element |
|
Form of Compensation |
|
Performance Criteria |
|
||||||
|
Base salary |
Cash | Individual performance and contributions | |||||||||
|
Annual cash compensation incentive |
Cash | Earnings per share Cash flow from operations Specific business unit goals |
|||||||||
|
Long-term stock incentive compensation |
Stock options | Individual performance and contributions | |||||||||
|
|
|||||||||||
|
Time-based restricted stock | Individual performance and contributions | ||||||||||
|
|
|||||||||||
|
Performance-based restricted stock | Cumulative net income over three years Return on invested capital (implemented for Fiscal 2015) |
||||||||||
|
Retirement benefits |
Eligibility to participate in and receive Company contributions to our 401(k) plan (available to all employees) and, for certain officers, a supplemental deferred compensation plan | Not applicable | |||||||||
|
Perquisites |
Various (see below) | Not applicable |
The Company provides base salaries as a guaranteed minimum amount of compensation in consideration of day-to-day performance. Base salaries are designed to reward individual performance and contributions consistent with an executive officer's position and responsibilities. The Compensation Committee annually reviews the base salaries of all executive officers, including the Chief Executive Officer and the other named executive officers, and may adjust base salaries, typically at the beginning of a fiscal year, based upon consideration of:
32
The Compensation Committee believes that annual incentive opportunities, payable in cash, serve as an appropriate incentive for achievement of the Company's short-term (i.e., one-year) performance goals at either the corporate level or at the business group level. A cash-based incentive provides an opportunity that is consistent with market practice and allows the named executive officers to receive the value of their performance over the measurement period.
Within the first 90 days of each fiscal year, the Company establishes specific performance goals for its executive officers, including the named executive officers, that govern the payment of annual cash incentive awards for that fiscal year. The Company pays an annual cash bonus to each named executive officer, typically measured as a percentage of the executive officer's base salary, based on the extent to which the Company and the executive officer achieve applicable performance goals. Performance at a target level results in a target annual cash bonus, and performance above or below target results in payment of an annual cash bonus at a higher or lower percentage of base salary, respectively. Performance below a minimum threshold results in no annual cash bonus. In all cases, the Compensation Committee has the discretion to not award any annual cash bonuses in a given year. For named executive officers at the corporate level, the annual cash bonus in Fiscal 2014 was based on two performance goals: earnings per share and cash flow from operations. For named executive officers in charge of a business group, the annual cash bonus is based on the performance results of the business group, rather than the Company as a whole.
The Company uses stock compensation to provide long-term incentive opportunities for its named executive officers and certain other officers and key employees. The Company believes that the use of stock compensation rewards executives in a manner that aligns their interests with the interests of the Company's stockholders. Given the importance of this alignment, long-term stock-based compensation typically represents the most significant component of total compensation for the Company's executive officers. Long-term stock incentive compensation awards represent potential compensation at the time of grant; their value is realized by a named executive officer only if applicable performance and vesting conditions are satisfied.
Generally, when determining restricted stock and stock option grant opportunities, the Compensation Committee considers the executive's position and responsibilities in the Company, performance and contributions during the preceding year, capabilities and potential for future contributions to the Company, the number of restricted stock shares and options previously granted to the executive and, for senior management (including the named executive officers), their stock ownership relative to the Company's stock ownership guidelines and the Chief Executive Officer's recommendation. The particular mix of stock awards whether performance-based restricted shares, time-based restricted shares or stock options depends on
33
various factors considered by the Compensation Committee, including the number of shares available for award, the Company's performance priorities and the participants involved. In addition, the value of stock grants in any year will vary depending on the Board's assessment of the Company's business and share price performance in the prior fiscal year.
The Company's named executive officers participate in three retirement plans: the Retirement Plan, the Retirement Savings Plan and the Supplemental Key Employee Retirement Plan (the "SKERP").
34
management's recommendation, reduced by 50% the annual supplemental contributions earned by formula by three named executive officers, including the Chairman and Chief Executive Officer and the President and Chief Operating Officer.
The Company provides certain executive officers, including its named executive officers, with a limited number of perquisites, as identified in the footnote to the "Other Compensation" column of the Summary Compensation Table. The Company believes these perquisites are reasonable, competitive and consistent with the Company's overall executive compensation program. The Compensation Committee reviews on an annual basis the types and costs of perquisites provided by the Company to its executive officers.
II. Fiscal 2014 Executive Compensation
Each year management and the Compensation Committee review the Company's existing executive compensation program and the programs of peer group companies and other companies known for compensation "best practices." The Company seeks to confirm that each of its compensation elements, as well as its compensation structure, fits the Company in light of its history, culture, performance and strategy. Particular attention is given to the Company's stock price performance to ensure proper alignment between executive compensation and stock price performance.
The Compensation Committee took the following key actions in setting and approving executive compensation in Fiscal 2014, each of which is described in detail below:
|
||||||||
---|---|---|---|---|---|---|---|---|
|
Date |
|
Compensation Committee Action |
|
||||
June 2013 | Approved Fiscal 2014 peer group for executive compensation | |||||||
July 2013 | Approved Fiscal 2014 base salaries | |||||||
Approved Fiscal 2014 short-term incentive plan |
||||||||
Approved Fiscal 2014 long-term incentive plan |
||||||||
Approved Fiscal 2014 target total direct compensation for named executive officers |
||||||||
July 2014 | Approved annual cash bonuses awarded under the Fiscal 2014 short-term incentive plan based upon Fiscal 2014 performance |
Total compensation opportunities for the Company's key executives, including each named executive officer, are intended to be competitive with those offered by other companies competing for talent in the Company's employment market.
In June 2013, the Compensation Committee reviewed its peer group for executive compensation purposes using the following criteria: company type (publicly traded on a major exchange); industry classification (using Standard and Poor's GICS codes); annual revenues (one-half to two times the Company's annual revenues); and business model (organizations that conducted business in the Company's two operating segments Aviation Services and Technology
35
Products). The Compensation Committee's objective is to assemble a set of peer group companies to which relevant pay and performance comparisons may be made with the Company.
The Compensation Committee acted on the recommendation of Mercer (US) Inc. ("Mercer"), its independent compensation consultant, and the Company's management to revise the Company's peer group for Fiscal 2014 to consist of the following 18 companies, up from 17 peer companies in Fiscal 2013:
|
Alliant Techsystems, Inc. | Kennametal Inc. | ||||||
|
Applied Industrial Technologies Inc. |
Kratos Defense & Security Solutions, Inc. | ||||||
|
B/E Aerospace, Inc. |
Moog Inc. | ||||||
|
Crane Co. |
MSC Industrial Direct Co., Inc. | ||||||
|
Cubic Corporation |
Rockwell Collins, Inc. | ||||||
|
Curtiss-Wright Corporation |
Spirit AeroSystems Holdings, Inc. | ||||||
|
Esterline Technologies Corporation |
Teledyne Technologies, Inc. | ||||||
|
Hexcel Corporation |
TransDigm Group Inc. | ||||||
|
Kaman Corporation |
Triumph Group, Inc. |
The two companies added to the Fiscal 2014 peer group were Alliant Techsystems, Inc. and Kratos Defense & Security Solutions, Inc. The one company dropped from the Fiscal 2014 peer group was Interline Brands, Inc., which was acquired and is no longer a public company. The Compensation Committee annually revisits the composition of the peer group to ensure that the Company's performance and executive compensation program are measured against those of comparably-sized and situated companies. The mix of the Company's commercial and defense businesses presents a challenge in constructing a peer group, given that many defense contractors have substantially greater resources than the Company.
Following the Compensation Committee's approval of the Fiscal 2014 peer group, Mercer conducted an executive compensation assessment in July 2013, at the direction of the Compensation Committee, to assist with executive compensation decisions. Mercer's executive compensation assessment included (i) a benchmarking analysis showing how the compensation paid to the Company's named executive officers compared to compensation paid to the named executive officers of the Company's peer group companies and (ii) a comparison of the Company's financial performance against the financial performance of its peer group companies. The key findings of the Mercer' executive compensation assessment of the Company are set forth below:
36
The Compensation Committee considered the Mercer executive compensation assessment, including the executive compensation levels of the peer group companies, in approving the Fiscal 2014 base salaries, target annual cash bonuses and target long-term incentive compensation of the Company's named executive officers. In addition, the Compensation Committee recognized that the Company has posted significant stock price increases in the last two fiscal years following a disappointing result in Fiscal 2012, as shown below:
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fiscal Year |
|
Opening Stock Price on June 1 ($) |
|
Closing Stock Price on May 31 ($) |
|
Increase (Decrease) (%) |
|
|||||||||||
|
2014 | 20.06 | 24.30 | 21 | |||||||||||||||
|
2013 |
12.05 | 20.06 | 66 | |||||||||||||||
|
2012 |
25.78 | 12.05 | (53 | ) |
As a part of its approval process, the Compensation Committee took into account that the Company has a higher percentage of defense business than most of its peer group companies, and that defense businesses experienced more modest performance returns than commercial businesses in Fiscal 2014.
Based in part on its consideration of Mercer's executive compensation assessment showing that the Company's performance was below its peers in certain respects, including three-year total stockholder return (due to Fiscal 2012 stock price performance), the Compensation Committee took the actions described in more detail below namely, reduced Fiscal 2014 annual cash bonuses by 30%; reduced Fiscal 2015 stock awards by 43% for the Chairman and Chief Executive Officer and President and Chief Operating Officer and at least 25% for all other named executive officers; and froze Fiscal 2015 base salaries for all named executive officers.
The Compensation Committee generally sets the base salaries of the Company's named executive officers at or around the 50th percentile of salary levels of comparable positions at its peer group companies. The Company does not target base salaries at any specific percentage of total compensation when setting base salary; however, given the Company's emphasis on the link between pay and performance, base salaries are a less significant percentage of total direct compensation compared to the Company's variable performance-based compensation.
The Compensation Committee, at management's recommendation, approved a 2% increase over Fiscal 2013 year-end base salaries for the named executive officers.
37
The table below shows Fiscal 2014 base salaries compared to Fiscal 2013 base salaries for the named executive officers (note that Fiscal 2013 base salaries were the amounts paid in Fiscal 2013, not the year-end base salaries):
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Named Executive Officer |
|
Fiscal 2013 ($) |
|
Fiscal 2014 ($) |
|
||||||||
|
David P. Storch |
877,838 | 906,449 | |||||||||||
|
Timothy J. Romenesko |
483,513 | 499,272 | |||||||||||
|
John C. Fortson |
N/A | 400,000 | |||||||||||
|
Randy J. Martinez |
349,070 | 360,447 | |||||||||||
|
Robert J. Regan |
379,226 | 391,586 | |||||||||||
|
Michael J. Sharp |
312,576 | 360,353 |
The Fiscal 2014 short-term incentive plan provides certain employees, including the named executive officers, with the opportunity to earn an annual cash bonus. This plan works in collaboration with the AAR CORP. Section 162(m) Annual Cash Incentive Plan, which sets a ceiling on the annual cash bonuses payable under the short-term incentive plan to enable the bonuses to qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code, as determined by the Compensation Committee. The Section 162(m) Annual Cash Incentive Plan uses as its performance goal the Company's net income for a given fiscal year. It establishes a maximum award opportunity for each participant, expressed as a percentage of net income (e.g., the maximum annual award is 5% of net income for the Chief Executive Officer, 3% for the President and 2% for all others), and then provides that the Compensation Committee has the discretion to reduce these amounts so that the actual bonuses to be paid to participants will be determined under the Company's Fiscal 2014 short-term incentive plan. In all years since the inception of the Section 162(m) Annual Cash Incentive Plan, including Fiscal 2014, the Compensation Committee has exercised negative discretion to reduce the annual cash bonuses of the named executive officer.
Fiscal 2014 Performance Goals. The Compensation Committee approved, after consideration of peer group information, other market data, and the current state of the business environment in which the Company operates, two performance goals under the Fiscal 2014 short-term incentive plan for corporate officers, including Mr. Storch, Mr. Romenesko, Mr. Fortson, Mr. Regan and Mr. Sharp: earnings per share and cash flow from operations at the targets set forth in the table below:
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Performance Goal |
|
Target |
|
Percentage Weighting |
|
|||||||
|
Earnings per share |
$2.02 | 75 | % | |||||||||
|
Cash flow from operations |
$120 million | 25 | % |
Earnings per share has been used as a performance goal in past years, and cash flow from operations is a new performance goal this year. Previously the Company had used free cash flow, but the Compensation Committee determined that cash flow from operations is a better measure
38
than free cash flow for the Company because it shows how well the Company's businesses are producing cash that will ultimately benefit stockholders, whether in the form of increased investment, stock repurchases or dividend payouts. The choice of earnings per share and cash flow from operations performance goals reflects the Company's continuing emphasis on preserving and growing stockholder wealth and maintaining a strong balance sheet.
The Compensation Committee determined that for purposes of measuring attainment of these performance goals in Fiscal 2014: (i) earnings per share means diluted earnings per share as disclosed by the Company in its periodic reports filed with the SEC, as adjusted for special charges or unusual or infrequent items incurred during the performance period, and (ii) cash flow from operations means cash flow from operations as disclosed by the Company in its periodic reports filed with the SEC, as adjusted for working capital investments in certain original equipment manufacturers' programs, special charges or unusual or infrequent items incurred during the performance period.
The Fiscal 2014 annual cash bonus opportunities at threshold, target and maximum levels, expressed as a percentage of base salary and in dollar amounts for the named executive officers, are set forth in the table below:
|
||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Threshold |
|
Target |
|
Maximum |
|
|||||||||||||||||||||||||||
|
Named Executive Officer |
|
Percent of Base Salary (%) |
|
($) |
|
Percent of Base Salary (%) |
|
($) |
|
Percent of Base Salary (%) |
|
($) |
|
||||||||||||||||||||
David P. Storch | 62.5 | 566,531 | 125.0 | 1,133,061 | 250.0 | 2,266,122 | ||||||||||||||||||||||||||||
Timothy J. Romenesko | 56.8 | 283,677 | 113.6 | 567,354 | 227.2 | 1,134,708 | ||||||||||||||||||||||||||||
John C. Fortson | 45.5 | 181,818 | 90.9 | 363,637 | 181.8 | 727,274 | ||||||||||||||||||||||||||||
Robert J. Regan | 45.5 | 177,994 | 90.9 | 355,988 | 181.8 | 711,976 | ||||||||||||||||||||||||||||
Michael J. Sharp | 38.4 | 138,204 | 76.7 | 276,407 | 153.4 | 552,814 |
For Messrs. Storch, Romenesko, Fortson, Regan and Sharp, an annual cash incentive award required: (i) at the threshold level, attainment of earnings per share of at least $1.62 (80% of the target of $2.02) and cash flow from operations of at least $90 million (75% of the target of $120 million); (ii) at the target level, attainment of 100% of the performance goal targets (earnings per share of $2.02 and cash flow from operations of $120 million); and (iii) at the maximum level, attainment of at least 120% of the earnings per share performance goal targets (earnings per share of at least $2.42) and at least 125% of the cash flow from operations performance goal target (cash flow from operations of at least $150 million).
Mr. Martinez is Aviation Services Group Vice President Airlift and in that capacity he participates in a separate bonus program tied to the performance of this business unit rather than to the overall performance of the Company. Mr. Martinez's Fiscal 2014 performance goals were Airlift's pre-tax income (threshold of $21 million and a target of $26 million) and free cash flow (threshold of $49 million and a target of $61 million). Mr. Martinez's target bonus for Fiscal 2014 was $360,447 and his maximum bonus was $720,894. Mr. Martinez's bonus opportunity was designed to provide appropriate incentive for excellent performance in Airlift's pre-tax income and free cash flow performance.
39
Fiscal 2014 Actual Results. The Company's actual Fiscal 2014 results compared to the targets as follows:
|
|
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Performance Goal |
|
Target |
|
Actual |
|
Actual as Percentage of Target |
|
|||||||||
|
Earnings per share | $2.02 | $1.83 | 90.6 | % | ||||||||||||
|
Cash flow from operations |
$120 million | $167.8 million | 139.8 | % |
There were no adjustments made to earnings per share results of $1.83, and the cash flow from operations of $167.8 million reflects a $28 million adjustment for the Company's working capital investment in a customer program. Excluding this adjustment, cash flow from operations was $139.8 million or 116.5% above the target of $120 million.
Based on the earnings per share and cash flow from operations results, the Fiscal 2014 cash bonuses payable to Messrs. Storch, Romenesko, Fortson, Regan and Sharp under the terms of the Fiscal 2014 short-term incentive plan would have represented 107% of their target annual cash bonuses. However, management instead recommended and the Compensation Committee approved Fiscal 2014 cash bonuses equal to 75.2% of the target bonus awards. This represented a 30% reduction for the named executive officers in the cash bonuses otherwise determined by Formula under the Fiscal 2014 short-term incentive plan. These bonus reductions applied only to the five named executive officers at the corporate level; Mr. Martinez, Group Vice President at the Company's Airlift subsidiary, received his entire earned bonus given the performance of his business unit in Fiscal 2014.
Despite the Company's above-target performance in Fiscal 2014, including its exceptional cash flow results, management and the Compensation Committee reduced Fiscal 2014 annual cash bonuses principally in response to the Company's challenging operational environment, which negatively affected Fiscal 2014 sales (down 4.8% from Fiscal 2013) and caused the Company to effect reductions in force at several businesses to align its staffing resources with business demand and corporate strategy.
The table below reflects the cash bonus reductions, which totaled $868,505 for the listed named executive officers, by showing, for each named executive officer, the target bonus, the bonus determined by the performance formula under the Fiscal 2014 short-term incentive plan and the actual cash bonus approved by the Compensation Committee at management's recommendation.
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Fiscal 2014 Annual Cash Bonus |
|
||||||||||||||||||||
|
Named Executive Officer |
|
Target Bonus ($) |
|
Bonus Determined Under the Short-Term Incentive Plan ($) |
|
Actual Bonus ($) |
|
Percentage Reduction in Actual Bonus Over Bonus Determined Under the Plan (%) |
|
||||||||||||||
|
David P. Storch | 1,133,061 | 1,216,498 | 851,548 | 30 | |||||||||||||||||||
|
Timothy J. Romenesko |
567,354 | 609,133 | 426,393 | 30 | |||||||||||||||||||
|
John C. Fortson |
363,637 | 390,415 | 273,290 | 30 | |||||||||||||||||||
|
Robert J. Regan |
355,988 | 382,202 | 267,541 | 30 | |||||||||||||||||||
|
Michael J. Sharp |
276,407 | 296,762 | 207,733 | 30 |
40
Mr. Martinez received an annual cash bonus of $570,029 based upon Airlift's performance in Fiscal 2014, in which Airlift exceeded its pre-tax income and free cash flow targets.
The Compensation Committee granted awards of performance-based restricted stock, time-based restricted stock and stock options to the named executive officers and certain other officers and key employees under the Fiscal 2014 long-term incentive plan. For the named executive officers, the Compensation Committee allocated the dollar value of the stock awards as follows: performance-based restricted stock 23%; time-based restricted stock 23%; and stock options 54%. Mr. Martinez received only stock option awards in Fiscal 2014, consistent with the Company's general approach in providing Group Vice Presidents with relatively modest equity compensation awards and significant cash bonus opportunities.
The Compensation Committee determines the annual allocation of stock awards among performance-based restricted stock, time-based restricted stock and stock options based on a variety of factors, including: its preference for performance-based awards; the Company's burn rate commitment under the AAR CORP. 2013 Stock Plan; the number of participants in the program; the positions of responsibility, seniority and overall compensation levels of the participants; the Company's performance in the last fiscal year and its forecasted performance in the current fiscal year; the Company's budget for compensation expense; and the Company' stock price. For Fiscal 2014, the Compensation Committee determined that setting performance-based stock awards (performance-based restricted stock and stock options) at 77% and time-based restricted stock at 23% was the proper allocation.
The Fiscal 2014 stock awards represented a 10% increase over the number of shares awarded in Fiscal 2013. The Compensation Committee approved this increase to reward executives for the stock price increase in Fiscal 2013 (up to $20.06 per share from $12.05 per share) and to incentivize Fiscal 2014 performance. The increase also took account of the 40% reduction in the prior year's stock awards due to concerns at that time about the stock price.
Performance-Based Restricted Stock. At its meeting on July 15, 2013 the Compensation Committee approved the following grants of performance-based restricted stock to Mr. Storch, Mr. Romenesko, Mr. Fortson, Mr. Regan and Mr. Sharp for Fiscal 2014, subject to a three-year cumulative net income performance condition and vesting requirements, each as described below (dollar value based on the grant date fair value):
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Performance-Based Restricted Stock |
|
|||||||||||
|
Named Executive Officer |
|
Number of Shares |
|
Dollar Value ($) |
|
||||||||
David P. Storch | 26,400 | 671,352 | ||||||||||||
Timothy J. Romenesko | 13,200 | 335,676 | ||||||||||||
John C. Fortson | 4,750 | 120,793 | ||||||||||||
Robert J. Regan | 7,920 | 201,406 | ||||||||||||
Michael J. Sharp | 3,168 | 80,562 |
Shares of performance-based restricted stock are subject to a performance condition and time-based vesting requirements. If cumulative net income performance for the three-year
41
performance period beginning June 1, 2013 and ending May 31, 2016 is less than $210.4 million (80% of target net income), the performance condition is not met and the shares are forfeited. Cumulative net income performance (i) at a threshold level of $210.4 million (80% of target net income) results in a payout of 50% of the shares, (ii) at a target level of $263 million results in a payment of 100% of the shares, (iii) at a maximum level of $315.6 million (120% of target net income) results in a payout of 200% of the shares, and (iv) at levels between threshold and target and target and maximum, the shares will be paid out on a straight-line basis, in each case subject to time-based vesting requirements. These performance measures are designed to be "stretch" measures, and it is not uncommon for shares of performance-based restricted stock to be forfeited for failing to meet the applicable performance measures (e.g., approximately 25% of the shares of the Fiscal 2012 performance-based restricted stock award were forfeited as a result of the Company not meeting its cumulative net income performance target for the three-year period ending May 31, 2014). The Compensation Committee believes that the performance-based nature of these restricted stock awards provide appropriate incentives to executives in line with the interests of the Company's stockholders.
If the performance condition is met, the shares of performance-based restricted stock vest 331/3% on each of May 31, 2016, May 31, 2017, and May 31, 2018. The Compensation Committee believes that the use of a meaningful time vesting period encourages executives to build their careers with the Company and contributes to greater stability within the Company's executive leadership. Performance-based restricted stock, once vested, is not subject to any further holding requirement beyond the Company's stock ownership guidelines.
Time-Based Restricted Stock. At its meeting on July 15, 2013, the Compensation Committee approved the following grants of time-based restricted stock awards for Fiscal 2014, subject to time-based vesting (dollar value based on the grant date fair value):
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Time-Based Restricted Stock |
|
|||||||||||
|
Named Executive Officer |
|
Number of Shares |
|
Dollar Value ($) |
|
||||||||
David P. Storch | 26,400 | 671,352 | ||||||||||||
Timothy J. Romenesko | 13,200 | 335,676 | ||||||||||||
John C. Fortson | 4,750 | 120,793 | ||||||||||||
Robert J. Regan | 7,920 | 201,406 | ||||||||||||
Michael J. Sharp | 3,168 | 80,562 |
For Fiscal 2014, the Compensation Committee decided to place less emphasis on time-based restricted stock (23% of total stock awards) in favor of greater emphasis on performance-based restricted stock and stock options (77% of total stock awards). The shares of time-based restricted stock vest 50% on May 31, 2017 and 50% May 31, 2018. Time-based restricted stock, once vested, is not subject to any further holding requirements beyond the Company's stock ownership guidelines. The Compensation Committee believes that time-based restricted stock serves a valuable purpose in helping to retain executives and reward them for building a career with the Company.
42
Stock Options. At its meeting on July 15, 2013, the Compensation Committee approved the following grants of stock options to the Company's named executive officers for Fiscal 2014, subject to time-based vesting (dollar value based on a Black-Scholes valuation):
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Stock Options |
|
|||||||||||
|
Named Executive Officer |
|
Number |
|
Dollar Value ($) |
|
||||||||
David P. Storch | 158,400 | 1,622,016 | ||||||||||||
Timothy J. Romenesko | 79,200 | 811,008 | ||||||||||||
John C. Fortson | 44,768 | 458,424 | ||||||||||||
Randy J. Martinez | 27,500 | 281,600 | ||||||||||||
Robert J. Regan | 47,520 | 486,605 | ||||||||||||
Michael J. Sharp | 19,008 | 194,642 |
The stock options have an exercise price of $25.43 share (the closing stock price on the date of grant), vest 20% per year over a five-year period and expire 10 years from the date of grant. Shares issued upon the exercise of vested stock options are not subject to any further holding requirements beyond the Company's stock ownership guidelines. The Compensation Committee views stock options as performance-based incentives that align the interests of the Company's executives with the interests of the Company's stockholders given that stock options provide no value without an increase in the stock price over the option exercise price.
The Compensation Committee reviewed and approved Fiscal 2014 target "total direct compensation" for the named executive officers, consisting of the three compensation elements discussed above: base salary, target annual cash incentive compensation and target long-term stock incentive compensation. Total direct compensation is the sum of base salary, annual cash incentive compensation and long-term stock incentive compensation.
The Compensation Committee historically benchmarks target total direct compensation for the Company's named executive officers in the range of the 50th to 75th percentile of total direct compensation levels of comparable positions at its peer group companies, with benchmarks above the 50th percentile typically requiring performance above the 50th percentile. In addition, the Compensation Committee considers the Company's prior year's financial results in setting target total direct compensation for the upcoming year. In setting target total compensation, the Compensation Committee seeks to promote its goals of motivating and rewarding executives and providing appropriate pay-for-performance incentives.
The table below divides target total direct compensation into its component parts base salary, target annual cash bonuses and target long-term incentive compensation and shows each as a dollar amount and as a percentage of target total direct compensation, as set by the Compensation Committee at the beginning of Fiscal 2014 for each named executive officer. As shown, target total direct compensation is heavily weighted toward variable performance-based compensation (annual cash bonuses and long-term incentive compensation), consistent with the
43
Compensation Committee's view that compensation for the named executive officers should be tied to performance.
|
|
|
Fiscal 2014 Target Total Direct Compensation |
|
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Base Salary |
|
Target Annual Cash Incentive |
|
Target Long-Term Incentive Compensation |
|
||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||
|
Named Executive Officer |
|
Dollar Amount ($) |
|
% of Total Target Direct Compensation |
|
Dollar Amount ($) |
|
% of Total Target Direct Compensation |
|
Dollar Amount ($) |
|
% of Total Target Direct Compensation |
|
||||||||||||||||||||
|
David P. Storch | 906,449 | 18 | 1,133,061 | 23 | 2,964,720 | 59 | |||||||||||||||||||||||||||
|
Timothy J. Romenesko |
499,272 | 20 | 567,354 | 22 | 1,482,360 | 58 | |||||||||||||||||||||||||||
|
John C. Fortson |
400,000 | 27 | 363,637 | 25 | 700,010 | 48 | |||||||||||||||||||||||||||
|
Randy J. Martinez |
360,447 | 36 | 360,447 | 36 | 281,600 | 28 | |||||||||||||||||||||||||||
|
Robert J. Regan |
391,586 | 24 | 355,988 | 22 | 889,417 | 54 | |||||||||||||||||||||||||||
|
Michael J. Sharp |
360,353 | 36 | 276,407 | 28 | 355,766 | 36 |
Actual total direct compensation differs from target total direct compensation by taking into account the actual annual cash bonus rather than the target annual cash bonus. As actual annual cash bonuses were less than target annual cash bonuses in Fiscal 2014, the actual total direct compensation for each named executive officer likewise was less than his target total direct compensation in Fiscal 2014.
The following table shows target total direct compensation versus actual total direct compensation for the named executive officers for Fiscal 2014:
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Fiscal 2014 Total Direct Compensation |
|
|||||||||||
|
Named Executive Officer |
|
Target ($) |
|
Actual ($) |
|
||||||||
David P. Storch | 5,004,230 | 4,722,717 | ||||||||||||
Timothy J. Romenesko | 2,548,986 | 2,408,025 | ||||||||||||
John C. Fortson | 1,463,647 | 1,373,300 | ||||||||||||
Randy J. Martinez | 1,002,494 | 1,212,076 | ||||||||||||
Robert J. Regan | 1,636,991 | 1,548,544 | ||||||||||||
Michael J. Sharp | 992,526 | 923,852 |
III. Fiscal 2015 Executive Compensation Actions
Our Compensation Committee met in July 2014 and approved the following Fiscal 2015 executive compensation actions based on its consideration of performance results for Fiscal 2014, the executive compensation assessment prepared by its independent compensation consultant in July 2014, stockholder concerns identified in our stockholder outreach program and other relevant items:
44
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Named Executive Officer |
|
Fiscal 2014 ($) |
|
Fiscal 2015 ($) |
|
Percentage Difference (%) |
|
|||||||||||
|
David P. Storch | 2,964,720 | 1,695,200 | 43 | |||||||||||||||
|
Timothy J. Romenesko |
1,482,360 | 847,600 | 43 | |||||||||||||||
|
John C. Fortson |
700,010 | 521,600 | 25 | |||||||||||||||
|
Robert J. Regan |
889,417 | 521,600 | 41 | |||||||||||||||
|
Michael J. Sharp |
355,766 | 260,800 | 27 | |||||||||||||||
|
Randy J. Martinez |
281,600 | 208,640 | 26 |
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Percentage of Stock Awards |
|
|||||||||||
|
Type of Long-Term Stock Award |
|
Fiscal 2014 |
|
Fiscal 2015 |
|
||||||||
Performance-Based Restricted Stock | 23 | % | 75 | % | ||||||||||
Time-Based Restricted Stock | 23 | % | 25 | % | ||||||||||
Stock Options | 54 | % | 0 | % |
IV. Key Executive Compensation Policies and Practices
The following are key factors affecting the executive compensation decisions made by the Compensation Committee for the Company's executives, including its named executive officers:
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the Company's Fiscal 2014 stockholder outreach program, including the executive compensation actions taken by the Company in Fiscal 2014.
The Compensation Committee reviews and considers historical compensation data for the Company's executives. This data includes summaries of cash and equity compensation received in past years by each executive. In addition, the Compensation Committee reviews the executives' total annual compensation, including cash and non-cash direct compensation, cumulative benefits and savings under retirement plans and equity compensation programs, perquisites and potential payments on termination of employment, whether on a change in control of the Company or otherwise. It reviews the performance of the Company and the executives during the year, taking into account established goals, leadership qualities, operational performance, business responsibilities, career experience, and long-term potential to enhance stockholder value. In addition to peer group compensation information and general industry compensation information, the Compensation Committee reviews internal pay comparisons among the Company's executives to ensure that the Company's executive compensation program reflects the executives' positions, responsibilities, and contributions to the Company.
The Compensation Committee engaged Mercer as its independent compensation consultant to assist in determining the composition of the Company's Fiscal 2014 peer group for executive compensation purposes and the benchmarking of executive and director compensation for Fiscal 2014. Mercer also provided advice and information on other executive compensation matters, including executive pay philosophy and design, prevailing market practices, relevant legal and regulatory requirements, and peer-group data. The Company paid Mercer $227,672 in Fiscal 2014 for its consulting services to the Compensation Committee on executive compensation matters. In Fiscal 2014, Mercer also provided consulting services on the Company's domestic and international health and benefit plans `for which it received fees of $167,500, and other consulting fees for which it received fees of $140,300.
The Compensation Committee considered whether any conflicts of interest were created by its of Mercer to provide compensation consulting services in Fiscal 2014. Its consideration focused on the following factors: (i) services other than compensation consulting services provided to the Company by Mercer, (ii) total paid by the Company to Mercer for such other services ($307,800), including as a percentage of total revenue of
46
Mercer (.005%), (iii) conflicts of interest policies and procedures of the Company and of Mercer, (iv) the lack of any relationships between Mercer and members of the Company's Board of Directors, (v) Company stock owned by Mercer and its employees and (vi) the lack of any relationships between Mercer and any of the Company's executive officers. Based on this assessment, the Compensation Committee concluded that no conflicts of interest existed with respect to Mercer.
The Company's Human Resources Department assists the Chief Executive Officer by collecting and organizing relevant historical and current compensation information, including information received from the Compensation Committee's consultant, as well as peer group compensation information and industry trends. The Company's Vice President and Chief Human Resources Officer participates in all regularly scheduled Compensation Committee meetings.
The Chief Executive Officer and the Compensation Committee actively discuss compensation decisions for the Company's executives. However, the Compensation Committee has the ultimate decision-making authority and responsibility for compensation decisions affecting the Company's executives, including its named executive officers. The Chief Executive Officer does not play any role in any decision affecting his own compensation.
|
|
|
Ownership Requirement |
|
||||
---|---|---|---|---|---|---|---|---|
|
Directors | 20,000 shares | ||||||
|
Executive Officers |
|||||||
|
Chairman and CEO |
6 times salary | ||||||
|
President and COO |
3 times salary | ||||||
|
Other Executive Officer |
1 times salary |
These stock ownership levels must be achieved within four years of becoming a director or executive officer and then maintained while in that position. Failure to meet these stock ownership levels may result in a reduction in future stock awards. All current directors
47
and executive officers comply with the stock ownership guidelines. Stock values are measured as of each fiscal year-end, with unvested stock awards counted at 50% and stock options not counted at all.
The Compensation Committee determined that the design and operation of the Company's executive compensation program were consistent with the Company's risk management strategies based on the following reasons:
48
Under the Company's Section 162(m) Annual Cash Incentive Plan, the annual cash bonuses qualified in Fiscal 2014 as performance-based compensation under Section 162(m). Stock options and performance-based restricted stock grants awarded under the Stock Benefit Plan also qualified as performance-based
49
compensation. Base salaries and time-based restricted stock grants do not qualify as performance-based compensation.
As required under the United States tax rules, the Company must obtain stockholder approval every five years of the material terms of the performance goals for qualifying performance-based compensation, except where a plan (such as the AAR CORP. 162(m) Annual Cash Incentive Plan) contains only a single performance goal. The Company received stockholder approval of the net income performance goal under the AAR CORP. 162(m) Annual Cash Incentive Plan at its 2010 annual meeting of stockholders and thus does not need any further stockholder approval unless and until it changes or adds to that performance goal. The Company also received stockholder approval of the performance goals under the Company's 2013 Stock Plan at its 2013 annual meeting of stockholders. Accordingly, the Company must seek stockholder approval of the performance goals relating to stock compensation no later than its 2018 annual meeting of stockholders.
50
Compensation Committee Report on Executive Compensation for Fiscal 2014
The Compensation Committee of the Board of Directors of the Company furnishes the following report to the stockholders of the Company in accordance with applicable SEC rules.
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis set forth above with the Company's management. Based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Respectfully submitted,
Compensation Committee
Ronald
B. Woodard, Chairman
Anthony K. Anderson
Norman R. Bobins
Michael R. Boyce
Ronald R. Fogleman
Peter Pace
51
The following table sets forth compensation information for the Company's named executive officers for Fiscal 2014, Fiscal 2013 and Fiscal 2012:
|
||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Name and Principal Position |
|
Year |
|
Salary ($)2 |
|
Bonus ($) |
|
Stock Awards ($)3 |
|
Option Awards ($)4 |
|
Non-Equity Incentive Plan Compensation ($)5 |
|
Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)6 |
|
All Other Compensation ($)7 |
|
Total ($) |
|
||||||||||||||||||||||||||||
DAVID P. STORCH | 2014 | 906,449 | 0 | 1,342,704 | 1,622,016 | 851,548 | 55,793 | 525,062 | 5,303,572 | |||||||||||||||||||||||||||||||||||||||
Chairman of the Board and |
2013 | 877,838 | 0 | 619,200 | 695,520 | 1,350,685 | 60,352 | 639,589 | 4,243,184 | |||||||||||||||||||||||||||||||||||||||
Chief Executive Officer |
2012 | 867,000 | 0 | 2,664,745 | 578,460 | 850,000 | 50,454 | 826,195 | 5,836,854 | |||||||||||||||||||||||||||||||||||||||
TIMOTHY J. ROMENESKO | 2014 | 499,272 | 0 | 671,352 | 811,008 | 426,393 | 39,367 | 202,405 | 2,649,797 | |||||||||||||||||||||||||||||||||||||||
President and Chief |
2013 | 483,513 | 0 | 309,600 | 347,760 | 676,324 | 40,816 | 251,357 | 2,109,370 | |||||||||||||||||||||||||||||||||||||||
Operating Officer |
2012 | 477,544 | 0 | 1,287,491 | 279,483 | 423,277 | 35,958 | 313,361 | 2,817,114 | |||||||||||||||||||||||||||||||||||||||
JOHN C. FORTSON8 | 2014 | 400,000 | 0 | 241,586 | 458,424 | 273,290 | 0 | 37,856 | 1,411,156 | |||||||||||||||||||||||||||||||||||||||
Vice President, Chief Financial Officer and Treasurer |
||||||||||||||||||||||||||||||||||||||||||||||||
RANDY J. MARTINEZ9 | 2014 | 360,447 | 0 | 0 | 281,600 | 570,029 | 0 | 34,533 | 1,246,609 | |||||||||||||||||||||||||||||||||||||||
Aviation Services, |