COMPENSATION DISCUSSION AND ANALYSIS
The Western Union Company provides people and businesses with fast, reliable, and convenient ways to send money and make payments around the world. Western Union offers its services in more than 200 countries and territories. Our business is complex: our regulatory environment is disparate and developing; our consumers are different from those addressed by traditional financial services firms; and our agent and client relationships are numerous and varied.
Managing these complexities is at the center of Western Union’s success, and our leadership must be capable of supporting our Company’s goals amid this complexity.
The Company’s key strategic priorities for 2019 are set forth in the chart below. The performance goals and objectives under our annual incentive and long-term incentive programs were designed to support these strategic priorities.
Please see our 2019 Annual Report on Form 10-K for more information regarding our performance.
See Annex A for a reconciliation of measures that are not based on accounting principles generally accepted in the United States (“GAAP”) to the comparable GAAP measure.
In May 2019, we sold our United States electronic bill payments business known as “Speedpay” and Paymap Inc. (“Paymap”). For the years ended December 31, 2019 and 2018, Speedpay revenues included in our results were $125.4 million and $352.0 million, respectively, and direct operating expenses were $98.2 million and $251.2 million, respectively. For the years ended December 31, 2019 and 2018, Paymap revenues included in our results were $5.3 million and $16.2 million, respectively, and direct operating expenses were $2.2 million and $6.7 million, respectively.
EXECUTIVE COMPENSATION FRAMEWORK
The Company’s executive compensation framework includes the following, each of which the Compensation Committee believes reinforces our executive compensation philosophy and objectives:
- Pay-for-performance and at-risk compensation.
A significant portion of our targeted annual compensation is performance-based and/or subject to forfeiture (“at-risk”), with emphasis on variable pay to reward short- and long-term performance measured against pre-established objectives informed by our Company’s strategy. For 2019, performance-based compensation comprised approximately 83% of the targeted annual compensation for our CEO and, on average, approximately 61% of the targeted annual compensation for our other continuing NEOs. The remaining components of our NEOs’ 2019 targeted annual compensation consisted of base salary and service-based RSUs, with the Compensation Committee viewing RSUs as at-risk as their value fluctuates based on our stock price performance.
- Align compensation with stockholder interests.
Performance measures for incentive compensation are linked to the overall performance of the Company and are designed to be aligned with the creation of long-term stockholder value.
- Emphasis on future pay opportunity vs. current pay.
Our long-term incentive awards are equity-based, use multi-year vesting provisions to encourage retention, and are designed to align our NEOs’ interests with long-term shareholder interests. For 2019, long-term equity compensation comprised approximately 73% of the targeted annual compensation for our CEO and, on average, approximately 59% of the targeted annual compensation for our other continuing NEOs.
- Mix of performance metrics.
The Company utilizes a mix of performance metrics that emphasize both absolute performance goals, which provide the primary links between incentive compensation and the Company’s strategic operating plan and financial results, and a relative performance goal, which measures Company performance in comparison to the S&P 500 Index.
- Stockholder engagement.
The Compensation Committee chair and members of management seek to engage with stockholders regularly to discuss and understand their perceptions or concerns regarding our executive compensation program.
- “Clawback” policy.
The Company may recover incentive compensation paid to certain officers in the event of an accounting restatement or if such officer engaged in detrimental conduct, as defined in the clawback policy. In addition, the Company may recover incentive compensation paid to certain officers for conduct that is determined to have contributed to material compliance failures, subject to applicable laws.
- Robust stock ownership guidelines.
We require our executive officers to own a meaningful amount of Company stock to align them with long-term stockholder interests (6x base salary in the case of our CEO and 3x base salary for our other NEOs).
- Consider compliance in compensation program.
Each NEO is evaluated on what the NEO has done to ensure that the NEO’s business or department is in compliance with applicable U.S. laws, with a failing score in compliance resulting in bonus ineligibility for the NEO for the applicable year.
- Three-year performance period for PSUs.
- Outside compensation consultant retained by the Compensation Committee.
- “Double trigger” severance benefits in the event of a change-in-control.
- Maximum payout caps for annual cash incentive compensation and PSUs.
- No repricing or buyout of underwater stock options.
None of our equity plans permit the repricing or buyout of underwater stock options or stock appreciation rights without stockholder approval, except in connection with certain corporate transactions involving the Company.
- No change-in-control tax gross ups for individuals promoted or hired after April 2009.
Mr. Ersek is the only Company employee who remains eligible for excise tax gross-up payments based on Compensation Committee action in 2009.
- Prohibition against pledging and hedging of Company securities by senior executives and directors.
Please see “Summary of Corporate Governance Practices” for additional details.
- No dividends or dividend equivalents paid on unvested or unearned PSUs or RSUs.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Ersek’s 2019 base salary and annual and long-term incentive award targets remained unchanged from the levels set in 2018. Mr. Ersek’s 2019 compensation continued to be aligned with median compensation for chief executive officers in the 2019 peer group, based on the most recent publicly available information, as compiled by the Compensation Committee’s compensation consultant. For 2019 performance, Mr. Ersek received an annual incentive payout of $1,700,000, reflecting achieved performance of 100% of target, as further described on pages 43-45. In addition, 2019 was the final performance year of the 2017 PSU grants, with the Financial PSUs and TSR PSUs vesting at 100% and 77% of target, respectively.
In 2019, Mr. Ersek’s long-term incentive allocation continued to be comprised of 50% Financial PSUs, 20% TSR PSUs, 20% stock options and 10% service-based RSUs. Further information with respect to the 2019 long-term incentive awards can be found on pages 45-49.
Mr. Ersek’s 2019 compensation was weighted significantly toward variable and performance-based incentive pay over fixed pay, and long-term, equity-based pay over annual cash compensation, because the Compensation Committee desired to tie a significant level of Mr. Ersek’s compensation to the performance of the Company. The percentage of compensation delivered in the form of performance-based compensation is higher for Mr. Ersek than compared to our other NEOs because the Compensation Committee believes that the CEO’s leadership is one of the key drivers of the Company’s success and that a greater percentage of the CEO’s total compensation should be variable as a reflection of the Company’s level of performance. Market data provided by the Compensation Committee’s compensation consultant supported this practice as well.
The following chart illustrates this CEO pay philosophy of heavily weighting targeted CEO compensation toward variable, performance-based pay elements.
Since a significant portion of Mr. Ersek’s compensation is both performance-based and at-risk, we are providing the following supplemental graph to compare Mr. Ersek’s total target direct compensation to the compensation “realizable” by him for each of 2017, 2018 and 2019. For the cumulative period of 2017 to 2019, realizable pay was approximately 67% higher than total target direct compensation for that period primarily due to an increase of approximately 41% in the Company’s closing stock price from the last trading day of 2017 to the last trading day of 2019.
We believe the “realizable” compensation and its relationship to total target direct compensation in each of the years and over the three-year cumulative period are reflective of the Compensation Committee’s emphasis on “pay-for-performance” in that differences between realizable pay and total target direct compensation, as well as fluctuations year-over-year, are primarily the result of our stock performance and our varying levels of achievement against pre-established performance goals under our annual incentive plan for senior executives (the “Annual Incentive Plan”) and our Long-Term Incentive Plan. Please note that during March 2020 our stock price performance and the broader market declined significantly, which we believe was due to the implications of the coronavirus (COVID-19) outbreak among other potential factors. For example, the closing price of our stock price on the Record Date of March 16, 2020 was $20.84 per share. As further described below, the following graph provides supplemental information as of December 31, 2019 and does not reflect fluctuations in our stock price since that date.
CEO TOTAL TARGET DIRECT COMPENSATION
VERSUS TOTAL REALIZABLE COMPENSATION(1)
This graph and the total target direct compensation and total realizable compensation reported in this graph provide supplemental information regarding the compensation paid to Mr. Ersek and should not be viewed as a substitute for the 2019 Summary Compensation Table.
Amounts reported in the calculation of total target direct compensation consist of (a) annualized base salary, (b) target annual incentive opportunities for Mr. Ersek under the Annual Incentive Plan with respect to each of the years shown and (c) the target grant values of the long-term incentives granted to Mr. Ersek under the Long-Term Incentive Plan with respect to each of the years shown.
Amounts reported in the calculation of total realizable compensation consist of (a) annualized base salary, (b) actual annual incentive payments received by Mr. Ersek under the Annual Incentive Plan with respect to each of the years shown, (c) the value realized from the exercise of stock options and for unexercised stock options, the difference between the exercise price and the closing stock price on the last trading day of 2019, reported in the year granted, (d) the value realized upon vesting of PSUs on the vesting date and the value of unvested PSUs based on the closing stock price on the last trading day of 2019 and estimated performance as of December 31, 2019, each reported in the year granted, and (e) the value of unvested RSUs based on the closing stock price on the last trading day of 2019, each reported in the year granted.
2019 SAY ON PAY VOTE
The Company received approximately 93% support for its “say on pay” vote at the Company’s 2019 Annual Meeting of Stockholders. After considering these results, the committee determined that the Company’s executive compensation philosophy, compensation objectives, and compensation elements continued to be appropriate and did not make any specific changes to the Company’s executive compensation program in response to the 2019 “say on pay” vote.
Management and the Compensation Committee Chair regularly reach out to stockholders to better understand their views on the Company’s executive compensation program, the “say on pay” vote and our executive compensation disclosure. In 2019, the Company reached out to stockholders who held approximately 73% of the Company’s outstanding common stock to discuss the Company’s executive compensation program and held discussions with all stockholders who accepted the Company’s invitation. Over the past few years, the committee and management have found these discussions to be very helpful in their ongoing evaluation of the Company’s executive compensation program, and intend to continue to obtain this feedback in the future.
ESTABLISHING AND EVALUATING EXECUTIVE COMPENSATION
This Compensation Discussion and Analysis describes how the Compensation Committee determined 2019 executive compensation, the elements of our executive compensation program and the compensation of each of our NEOs. The information provided should be read together with the information presented in the “Executive Compensation” section of this Proxy Statement. For 2019, the NEOs were:(1)
Jean Claude Farah
For 2019, the NEOs also included Odilon Almeida, former President – Global Money Transfer (not pictured above). Mr. Almeida stepped down as an executive officer, effective June 30, 2019, after which he served in a senior advisory capacity until he departed from the Company on September 30, 2019.
Effective July 1, 2019, Mr. Fellahi was promoted to the position of President, Consumer Money Transfer. Prior to his promotion, Mr. Fellahi served as the Company’s Senior Vice President, Digital Leader.
OUR EXECUTIVE COMPENSATION PHILOSOPHY AND OBJECTIVES
The Compensation Committee has adopted the following compensation objectives and guiding principles to align the Company’s incentive compensation program with the Company’s overall executive compensation philosophy:
Our Executive Compensation Philosophy
The Compensation Committee believes the Company’s executive compensation program should reward actions and behaviors that build a foundation for the long-term strength and performance of the Company, while also rewarding the achievement of short-term performance goals informed by the Company’s strategy.
THE BOARD OF DIRECTORS AND THE COMPENSATION COMMITTEE
The Board of Directors oversees the goals and objectives of the Company and the CEO, evaluates succession planning with respect to the CEO and evaluates the CEO’s performance. The Compensation Committee supports the Board by:
- Establishing the Company’s compensation philosophy;
- Overseeing the development and implementation of the Company’s compensation and benefits policies;
- Reviewing and approving corporate goals and objectives relevant to the compensation of the CEO and other executive officers;
- Approving the compensation levels of each of the executive officers; and
- Approving the compensation of the CEO, with ratification by the independent directors of the Board.
The Compensation Committee’s responsibilities under its charter are further described in the “Corporate Governance—Committees of the Board of Directors” section of this Proxy Statement.
The CEO, while not a member of the Compensation Committee, attended all of the meetings of the Compensation Committee in 2019 to contribute to and understand the committee’s oversight of, and decisions relating to, executive compensation. The CEO did not attend portions of the meetings relating to his compensation. The Compensation Committee regularly conducts executive sessions without management present.
The Compensation Committee also engages in an ongoing dialog with the CEO and the committee’s compensation consultant in the evaluation and establishment of the elements of our executive compensation program. The committee also received input from the Chief People Officer in making executive compensation decisions.
During 2019, Meridian continued to provide executive and director compensation consulting services to the Compensation Committee.
Meridian is retained by and reports directly to the Compensation Committee and participates in committee meetings. Meridian informs the committee on market trends, as well as regulatory issues and developments and how they may impact the Company’s executive compensation program. Meridian also:
- Participates in the design of the executive compensation program to help the committee evaluate the linkage between pay and performance;
- Reviews market data and advises the committee regarding the compensation of the Company’s executive officers;
- Reviews and advises the committee regarding director compensation; and
- Performs an annual risk assessment of the Company’s compensation program, as described in the “Executive Compensation—Risk Management and Compensation” section of this Proxy Statement.
Meridian does not provide any other services to the Company. The Compensation Committee has assessed the independence of Meridian pursuant to the NYSE rules and the Company concluded that the work performed by Meridian for the Compensation Committee did not raise any conflict of interest.
During 2019, management retained the services of Willis Towers Watson PLC (“WTW”) to assist the Company in evaluating the Company’s annual and long-term incentive programs. The Compensation Committee has assessed the independence of WTW pursuant to the NYSE rules and the Company concluded that WTW’s work did not raise any conflict of interest.
SETTING 2019 COMPENSATION
In late 2018, the Compensation Committee, working with Meridian and the CEO, engaged in a detailed review of the Company’s executive compensation program to evaluate whether the design and levels of each compensation element were:
- Appropriate to support the Company’s strategic performance objectives;
- Consistent with the philosophy and objectives described under “—Our Executive Compensation Philosophy and Objectives” above; and
- Reasonable when compared to market pay practices (see “—Market Comparison” below).
For 2019, the Compensation Committee retained the overall structure and design of the 2018 executive compensation program. Accordingly, for 2019, the Company’s executive compensation program continued to be significantly weighted towards performance-based compensation and continued to include a diversified mix of long-term incentive awards, but with certain modifications to the structure of the program.
With respect to setting 2019 compensation levels, Mr. Ersek presented to the Compensation Committee his evaluation and recommendation for each of the other NEOs and their respective salary, annual bonus targets, and long-term incentive award targets. Mr. Ersek based his assessments on a number of factors, including but not limited to: individual performance and relative contributions to the Company’s success; the performance of the executive’s respective business unit or functional area; retention considerations; market data; compensation history; and internal equity. After consideration and discussion, the Committee reviewed and approved Mr. Ersek’s 2019 recommendations for the NEOs other than himself.
Also in early 2019, Mr. Ersek submitted a self-evaluation to the Compensation Committee. The committee shared Mr. Ersek’s goals for the year and his self-evaluation with the independent members of the Board, who then evaluated Mr. Ersek’s performance in 2018 based on his actual performance versus such goals. In setting Mr. Ersek’s 2019 compensation, the committee considered this evaluation, market data regarding chief executive officer compensation levels provided by Meridian, and a tally sheet of Mr. Ersek’s historical and current compensation data. No member of management, including Mr. Ersek, made any recommendations regarding Mr. Ersek’s compensation or participated in the portions of the Compensation Committee meeting or in the meeting of the independent directors of the Board during which Mr. Ersek’s compensation was determined or ratified.
For 2019, the Compensation Committee considered market pay practices when setting executive compensation, but did not target percentile ranks of specific compensation elements or total target direct compensation against the market data. Instead, the committee used market data to assess the overall competitiveness and reasonableness of the Company’s executive compensation program.
While the Compensation Committee considers relevant market pay practices when setting executive compensation, it does not believe it is appropriate to establish compensation levels based only on market practices. The Compensation Committee believes that compensation decisions are complex and require a deliberate review of Company and individual performance and peer compensation levels. The factors that influence the amount of compensation awarded include, but are not limited to:
- Market competition for a particular position;
- Experience and past performance inside or outside the Company;
- Role and responsibilities within the Company;
- Tenure with the Company and associated institutional knowledge;
- Long-term potential with the Company;
- Innovative thinking and leadership;
- Money transfer or financial services industry expertise;
- Personal performance and contributions;
- Succession planning;
- Past and future performance objectives; and
- Value of the position within the Company.
As further discussed below, the committee considered market data from both an executive compensation peer group and a general industry compensation survey, but did not assign a specific weight to either data source.
The Compensation Committee believes that the Company’s executive compensation peer group should reflect the markets in which the Company competes for business, executive talent and capital. Accordingly, the Company’s peer group includes companies meeting either of the following criteria:
- Global brands providing virtual products or services; or
- Companies involved with payment and/or processing services.
The executive compensation peer group used for evaluating 2019 compensation decisions consisted of the companies below, which was the same peer group used for evaluating 2018 compensation decisions. Meridian compiled compensation information from the peer group based on the publicly filed documents of each member of the peer group. Based on the information below, the Company estimates that it is between the 50th and 75th percentile of the peer group in terms of revenues, between the 25th and 50th percentile of the peer group in terms of operating income, and below the 25th percentile of the peer group in terms of market capitalization.
(AS OF 12/31/2018)
|Broadridge Financial Solutions, Inc.||$4,319||$572||$11,237|
|CME Group Inc.||$4,309||$2,672||$67,305|
|Discover Financial Services||$7,674||$3,680||$19,815|
|Euronet Worldwide, Inc.||$2,537||$365||$5,279|
|Fidelity National Information Services, Inc.||$8,423||$1,553||$33,584|
|FleetCor Technologies, Inc.||$2,433||$1,099||$16,464|
|Global Payments Inc.||$3,366||$793||$16,316|
|MoneyGram International, Inc.||$1,448||$76||$129|
|Northern Trust Corporation||$5,955||$1,958||$18,506|
|PayPal Holdings, Inc.||$15,451||$2,219||$99,088|
|State Street Corporation||$11,967||$3,580||$23,937|
|Total System Services, Inc.||$4,028||$839||$14,831|
All data was compiled by Meridian who obtained peer company financial market intelligence from S&P CapitalIQ. The data generally represents revenue and operating income for the most recent four quarters available to Meridian at the time Meridian compiled the data in January 2019. Operating income may reflect measures not in conformity with GAAP.
The Compensation Committee also referenced general industry compensation survey data in evaluating executive pay in order to consider a broader perspective on market practices. To assist the committee in its review of the general industry compensation survey data, Meridian extracts compensation information from the surveys with respect to companies with annual revenues generally ranging from $3 billion to $6 billion. For the 2019 compensation review, Meridian compiled compensation data from general industry compensation surveys provided by Willis Towers Watson (which included data from companies with annual revenues between $3 billion and $6 billion), and peer group data taken directly from peer group proxy statements or from the Equilar Top 25 database. Executive positions were matched to the peer group proxy data and third-party survey data based on job title, functional matches, and pay rank.
In 2019, Meridian was asked to re-evaluate the Company’s peer group. Based on this review, in September 2019, the Compensation Committee approved certain changes to further align the median revenues of the peer group with the Company’s revenues and to include additional peers that, similar to the Company, have significant non-U.S. revenues. As a result, the Compensation Committee added eBay Inc., Intercontinental Exchange, Inc., and Sabre Corporation and removed Intuit Inc. and Navient Corporation. The Compensation Committee also approved the removal of Worldpay, Inc. due to its acquisition in 2019. The revised peer group will be used for evaluating 2020 compensation decisions.
Use of Tally Sheets
The Compensation Committee reviews tally sheets that present historical and current compensation data, valuations of future equity vesting, value of option exercises in the past five years, as well as analyses for hypothetical terminations and retirements to allow the Compensation Committee to consider the Company’s obligations under such circumstances. The tally sheets provide additional context for the committee in determining and assessing NEO compensation.
THE WESTERN UNION 2019 EXECUTIVE COMPENSATION PROGRAM
Pay-For-Performance and At-Risk Compensation
The principal components of the Company’s 2019 annual executive compensation program were annual base salary, annual incentive awards, and long-term incentive awards in the form of PSUs, stock options (for the CEO) and RSUs. The Compensation Committee designed the 2019 executive compensation program so that performance-based pay elements (Annual Incentive Plan awards, PSUs and, if applicable, stock options) would constitute a significant portion of the executive compensation awarded, determined at target levels. The following charts illustrate the mix of the targeted annual compensation for the CEO and the average targeted annual compensation for the other continuing NEOs, and the portion of that compensation that is performance-based and/or at-risk. For purposes of these charts, the percentage of targeted annual compensation was determined based on the annual base salary and target incentive opportunities applicable to the NEO as of December 31, 2019. Mr. Almeida is excluded from the chart below in light of his mid-year departure from the Company.
Total Target Direct Compensation Versus Total Realizable Pay
Since a significant portion of Mr. Ersek’s compensation is both performance-based and at-risk, we are providing the following supplemental graph to compare Mr. Ersek’s total target direct compensation to the compensation “realizable” by him for each of 2017, 2018, and 2019. For the cumulative period of 2017 to 2019, realizable pay was approximately 67% higher than target direct compensation for that period primarily due to an increase of approximately 41% in the Company’s closing stock price from the last trading day of 2017 to the last trading day of 2019.
We believe the “realizable” compensation and its relationship to total target direct compensation in each of the years and over the three-year cumulative period are reflective of the Compensation Committee’s emphasis on “pay-for-performance” in that differences between “realizable” pay and total target direct compensation, as well as fluctuations year-over-year, are primarily the result of our stock performance and our varying levels of achievement against pre-established performance goals under our Annual Incentive Plan and Long-Term Incentive Plan. Please note that during March 2020 our stock price performance and the broader market declined significantly, which we believe was due to the implications of the coronavirus (COVID-19) outbreak among other potential factors. For example, the closing price of our stock price on the Record Date of March 16, 2020 was $20.84 per share. As further described below, the following graph provides supplemental information as of December 31, 2019 and does not reflect fluctuations in our stock price since that date.
CEO TOTAL TARGET DIRECT COMPENSATION
VERSUS TOTAL REALIZABLE COMPENSATION(1)
This graph and the total target direct compensation and total realizable compensation reported in this graph provide supplemental information regarding the compensation paid to Mr. Ersek and should not be viewed as a substitute for the 2019 Summary Compensation Table.
Amounts reported in the calculation of total target direct compensation consist of (a) annualized base salary, (b) target annual incentive opportunities granted to Mr. Ersek under the Annual Incentive Plan with respect to each of the years shown and (c) the target grant values of the long-term incentives granted to Mr. Ersek under the Long-Term Incentive Plan with respect to each of the years shown.
Amounts reported in the calculation of total realizable compensation consist of (a) annualized base salary, (b) actual annual incentive payments received by Mr. Ersek under the Annual Incentive Plan with respect to each of the years shown, (c) the value realized from the exercise of stock options and for unexercised stock options, the difference between the exercise price and the closing stock price on the last trading day of 2019, each reported in the year granted, (d) the value realized upon vesting of PSUs on the vesting date and the value of unvested PSUs based on the closing stock price on the last trading day of 2019 and estimated performance as of December 31, 2019, each reported in the year granted, and (e) the value of unvested RSUs based on the closing stock price on the last trading day of 2019, each reported in the year granted.
ELEMENTS OF 2019 EXECUTIVE COMPENSATION PROGRAM
The following table lists the material elements of the Company’s 2019 executive compensation program for the Company’s NEOs. The committee believes that the design of the Company’s executive compensation program focuses on performance-based compensation elements, provides alignment with the Company’s short and long-term financial and strategic priorities through the annual and long-term incentive programs, and provides alignment with stockholder interests.
See the “Setting 2019 Compensation” section for further information regarding the determination of 2019 compensation levels.
Each of Western Union’s 2019 executive compensation program elements is described in further detail below.
Our philosophy is that base salaries should meet the objectives of attracting and retaining the executives needed to lead the business. Base salary is a fixed compensation component payable in cash. In connection with Mr. Fellahi’s promotion to President, Consumer Money Transfer in July 2019, the Compensation Committee increased Mr. Fellahi’s base salary from $412,000 to $500,000 in order to reflect the increased responsibilities associated with his new role. None of our other NEOs received a salary increase during 2019.
The following table sets forth each NEO’s 2019 base salary level as of December 31, 2019 (or, in the case of Mr. Almeida, at the time of his separation):
|Jean Claude Farah||$500.0|
Annual Incentive Compensation
Our Annual Incentive Plan is designed to motivate and reward our NEOs for achieving short-term performance objectives. We believe the program supports our “pay-for-performance” culture.
Target payout opportunities under the Annual Incentive Plan are expressed as a percentage of a participant’s annual base salary. For 2019, the Compensation Committee increased the target bonus opportunity for Ms. Tsai from 75% to 90% of base salary and for Mr. Fellahi from 80% to 100% of base salary to further align their short-term incentive compensation with market data and the Company’s internal pay practices and, with respect to Mr. Fellahi, to reflect his new role as an executive officer of the Company. None of our other NEOs received an Annual Incentive Plan target increase with respect to 2019.
Potential payouts range from 0% to 175% of target based on the achievement of pre-established financial and strategic goals. Because the committee believes that individual objectives are indicators of the executive’s success in fulfilling the executive’s responsibilities, the total payout under the Annual Incentive Plan for the NEOs other than the CEO is subject to a +/- 25% modifier based on the committee’s assessment versus pre-established individual performance goals. Payouts for the NEOs (other than the CEO) are capped at 200% of each individual’s target bonus opportunity, with the CEO’s payout capped at 175% of his target bonus opportunity.
The Annual Incentive Plan is based on the achievement of financial and strategic goals weighted at 70% and 30%, respectively. The weighting of the performance measures reflects the desire of the Compensation Committee to tie a significant portion of annual incentive compensation to performance measures that the committee believes are meaningful to and readily accessible by our investors, while at the same time emphasizing strategic performance objectives focused on the Company’s growth imperatives.
Financial Performance and Goal Setting. In 2019, Company performance against total revenue and operating income was 62% and 139% of target payout, respectively. Notably, the committee required a year-over-year growth rate of 2.8% for total revenue and 3.2% for operating income in order for the NEOs to earn a target payout. Due to the global nature of our business, our goals are set on a constant currency basis in order to focus our executives on the business operations, which we believe is consistent with market practices.
|TARGET GROWTH RATE
FROM 2018 RESULTS
|2019 TARGET*||2019 ACTUAL
2019 target and actual results exclude Argentina inflation and are shown at constant currency - calculated assuming no changes in the currency exchange rates from 2018 currency exchange rates. For comparative purposes, the 2018 Comparative Results for Revenue and Operating Income represent 2018 actual results under the Annual Incentive Plan, but adjusted to exclude Speedpay and Paymap due to the 2019 dispositions of such businesses. The performance grid provided payout opportunities for performance ranging from $5,287M to $5,527M for revenue and $1,039M to $1,094M for operating income.
When the financial and strategic performance measures were established, and consistent with prior years, the committee determined that the effect of currency fluctuations, acquisitions and divestitures, including related costs, restructuring, and other significant charges not included in the Company’s internal 2019 financial plan should be excluded from the payout calculations to more closely align payouts with the underlying operating performance of the business. Accordingly, during 2019, the performance grid was adjusted to reflect the dispositions of Speedpay and Paymap in May 2019.
As it had in previous years, the Compensation Committee set the 2019 financial performance goals by establishing a grid based on the Company’s revenue and operating income. These performance measures were used in order to tie annual incentive compensation to measures of the Company’s financial performance that the committee deemed meaningful to and readily accessible by our investors.
The Compensation Committee established the performance goal grid and corresponding payout percentages based upon input from management regarding the Company’s expected performance in the upcoming year. The committee designed the grid to encourage strong, focused performance by our executives. The 2019 performance goal grid provided a payout of 100% of target if the Company achieved its internal operating plan for operating income and revenue (revenue of approximately $5.4 billion and operating income of approximately $1.1 billion, each measured on a constant currency basis), with a maximum initial payout level of 175% of target if revenue and operating income grew by 5.9% and 6.5%, respectively, as compared to 2018 actual performance.
Strategic Performance and Goal Setting. Participants in the 2019 Annual Incentive Plan had 30% of their award opportunity tied to the achievement of performance objectives based upon the Company’s strategic operating plan, with a focus on the Company’s growth imperatives (as measured by WU.com revenue and digital revenue generated from third parties providing the Company’s money transfer services, weighted 20%) and compliance execution objectives (weighted 10%). Performance levels of the objectives were designed to be achievable, but required the coordinated, cross-functional focus and effort of the executives. Following the establishment of the strategic performance goals, the Company entered into arrangements with financial institutions and other third parties to enable such entities to offer internet and app-based money transfer services to their own customers under their brands. While these arrangements were not contemplated at the time the strategic goals were established, the committee determined that it was appropriate to include them in its performance assessment as these arrangements were viewed as reflective of the successful execution of the Company’s digital growth imperatives under its strategic operating plan. Based on the achievement of the strategic performance objectives, the committee certified a payout equal to 97% of each NEO’s target allocated to the strategic performance objectives.
Individual Performance Modifier and Goal Setting. Other than for Mr. Ersek, each NEO’s payout under the 2019 Annual Incentive Plan was subject to a +/- 25% modifier based on the committee’s assessment of individual and business unit performance. In making its assessment, the committee considered the recommendations of the CEO based on his review of the performance of each NEO against the individual objectives established by the committee at the beginning of the year.
The committee believes the performance objectives established for each NEO are indicators of the executive’s success in fulfilling the executive’s responsibilities to the Company and support the Company’s strategic operating plan. The committee also believes that including an assessment of contributions towards the Company’s compliance initiatives, customer centric metrics, and leadership in each of the NEO’s individual and business unit objectives reinforces these objectives as priorities throughout the organization. The performance levels of the individual and business unit objectives were designed to be achievable, but required strong and consistent performance by the executive.
Each NEO other than Mr. Ersek is assigned key performance indicators (“KPIs”) under the 2019 Annual Incentive Plan, which are approved by the Compensation Committee. The KPIs for the 2019 Annual Incentive Plan were:
- Business unit and corporate efficiency and cost-savings targets under the 2019 Board-approved plan to change the Company’s operating model and improve its business processes and cost structure (the “2019 Restructuring Initiative”);
- Qualitative and quantitative assessments of leadership; and
- Qualitative assessments of contributions to the Company’s culture of compliance.
Compliance Evaluation. The Company considers evaluation criteria related to compliance in its executive bonus system so that each Company executive is evaluated on what the executive has done to ensure that the executive’s business or department is in compliance with applicable U.S. laws. A failing score in compliance, including with respect to anti-money laundering and anti-fraud programs, will make the executive ineligible for any bonus for that year. In addition, the 2019 award agreements under the Annual Incentive Plan included clawback provisions, specifically authorizing the clawback of annual incentive payments due to compliance failures. In early 2020, the Compensation Committee determined that each NEO met the compliance-related evaluation criteria established by the Company and therefore determined that each actively serving NEO remained eligible for a bonus with respect to 2019.
NEO Payouts Under the 2019 Annual Incentive Plan. The following table sets forth each NEO’s 2019 target award opportunity expressed (i) as a percentage of 2019 base salary and (ii) in dollars and the annual incentive payouts received by each NEO.
BONUS AS A %
AT 101% OF
AT 97% OF
AS A % OF
|Raj Agrawal||100%||$630.0||$447.3||$182.7||14% modifier||$718.2||114%|
|Jean Claude Farah||90%||$450.0||$319.5||$130.5||8% modifier||$486.0||108%|
|Khalid Fellahi(1)||90%||$407.6||$289.4||$118.2||5% modifier||$427.9||105%|
|Caroline Tsai||90%||$405.0||$287.6||$117.4||11% modifier||$449.6||111%|
On July 18, 2019, Mr. Fellahi’s target bonus was increased from 80% to 100% of base salary to reflect his 2019 promotion. The target amounts reported in this table reflect his blended target opportunity.
Mr. Almeida’s final bonus amount reflects his prorated payout based on the portion of the year during which he was employed by the Company.
Long-Term Incentive Compensation
The objectives for the long-term incentive awards for 2019 were to:
- Align the interests of our executives with the interests of our stockholders by focusing on objectives that result in stock price appreciation;
- Increase cross-functional executive focus in the coming years on key performance metrics through Financial PSUs;
- Amplify executive focus on stockholder returns through TSR PSUs; and
- Retain the services of executives through multi-year vesting provisions.
The Company’s long-term incentive program allows the Compensation Committee to award various forms of long-term incentive grants, including stock options, RSUs, performance-based equity and performance-based cash awards. The Compensation Committee approves all equity grants made to our senior executives, with the equity grants made to the CEO ratified by the independent directors of the Board. When making regular annual equity grants, the Compensation Committee’s practice is to approve them during the first quarter of each year as part of the annual compensation review. In addition to the factors listed in the table under “Elements of 2019 Executive Compensation Program,” the Compensation Committee also considers dilution of the Company’s outstanding shares when making equity grants.
2019 Annual Long-Term Incentive Awards. In early 2019, the Compensation Committee granted the NEOs long-term incentive awards under the Long-Term Incentive Plan. In approving the 2019 long-term incentive awards, the committee approved increases to the target award value for Ms. Tsai as compared to 2018 to more closely align her total direct compensation with the median of the market data. The following table sets forth the target award value, as of the date of grant, of the 2019 long-term incentive awards received by each NEO:
|Jean Claude Farah||$1,050.0|
Once the target grant value is set for each NEO, the grant value is then allocated among PSUs, RSUs and stock options, as applicable. In 2019, the committee granted the long-term incentive allocation indicated below:
The committee believes that this mix is appropriate because it is designed to align the interests of our NEOs with the interests of our stockholders, drive long-term performance with respect to strategic measures, support retention of our NEOs and align with market practices as reported by Meridian.
Financial PSUs. The 2019 Financial PSU awards will vest if and only to the extent that specific performance goals for revenue and EBIT are met during the three-year cumulative performance period. The performance objectives under the 2019 Financial PSUs are based on a targeted constant currency compound annual growth rate (“CAGR”) for revenue and EBIT over the cumulative three-year performance period. At the beginning of the performance period, the committee established revenue and EBIT CAGR goals for the performance period, with revenue and EBIT each weighted 50%, a modification from the 2018 Financial PSUs, which weighted revenue 70% and EBIT 30%. The committee approved this design change in order to provide equal emphasis on revenue growth and the generation of earnings, both of which were deemed to support the creation of stockholder value. Under the terms of the awards, as much as 200% of the targeted Financial PSUs may be earned based on the Company’s performance with respect to the revenue and EBIT performance objectives over the three-year performance period. In addition, in order to vest in the award, the award recipient must remain employed through the third anniversary of the grant date (February 2022), except as otherwise provided under the Company’s Executive Severance Policy or the Long-Term Incentive Plan. The PSU performance goals were designed to be challenging but achievable with the coordinated, cross-functional focus and effort of the executives.
The Compensation Committee utilized revenue as an element in both the Company’s Annual Incentive Plan and long-term incentive program. When designing the Company’s 2019 executive compensation program, the Compensation Committee evaluated a range of performance metrics for purposes of the Company’s incentive programs and considered input from management and Meridian. Based on such review, the Compensation Committee determined that revenue continues to be viewed as a core driver of the Company’s performance and stockholder value creation and should remain a component in both the Annual Incentive Plan (measured over one year) and long-term incentive program (measured over three years). In recognition of the Company’s use of revenue in both the Annual and long-term incentive programs, the Compensation Committee continued its historical practice of supplementing the primary performance measures under the Annual Incentive Plan and long-term incentive program with additional performance measures in order to strike an appropriate balance with respect to incentivizing top-line growth, profitability, non-financial business imperatives and stockholder returns over both the short-term and long-term horizons.
Similar to the Annual Incentive Plan, when the financial performance objectives were established for the Financial PSUs, the committee determined that the effect of currency fluctuations, acquisitions and divestitures, including related costs, restructuring, and other significant charges not included in the Company’s internal financial plans should be excluded from the payout calculations. Consistent with the Company’s historical practices, under this plan design, the performance results for the Financial PSUs will be calculated using the prior year’s currency exchange rates.
The following table sets forth each NEO’s threshold, target and maximum award opportunity with respect to the 2019 Financial PSUs:
|2019 FINANCIAL PSU AWARD OPPORTUNITY|
|Jean Claude Farah||14,715||29,429||58,858|
In connection with his departure and as a result of satisfying the age and service requirements for retirement vesting treatment, Mr. Almeida is eligible to receive prorated vesting of his 2019 Financial PSUs based on actual performance results and his period of service during the vesting period.
TSR PSUs. In 2019, the Company continued to grant TSR PSUs to enhance focus on stockholder returns. These TSR PSUs require the Company to achieve 60th percentile relative TSR performance versus the S&P 500 Index over a three-year performance period in order to earn target payout, with 30th percentile relative TSR performance resulting in threshold payout and 90th percentile relative TSR performance resulting in maximum payout.
This portion of the award is also subject to the participant’s continued service through the third anniversary of the grant date (February 2022), except as otherwise provided under the Company’s Executive Severance Policy or the Long-Term Incentive Plan.
The following table sets forth each NEO’s threshold, target and maximum award opportunities with respect to the 2019 TSR PSUs:
|2019 TSR PSU AWARD OPPORTUNITY|
|Jean Claude Farah||7,609||15,218||30,436|
In connection with his departure and as a result of satisfying the age and service requirements for retirement vesting treatment, Mr. Almeida is eligible to receive prorated vesting of his 2019 TSR PSUs based on actual performance results and his period of service during the vesting period.
Annual RSU Awards. Service-vesting RSUs are granted to our NEOs to support retention and alignment of our NEOs’ interests with the interests of our stockholders. The annual RSU grants vest 100% on the third anniversary of the grant date, subject to the NEO’s continued service or as otherwise provided for under the Company’s Executive Severance Policy or the Long-Term Incentive Plan.
The following table sets forth each NEO’s 2019 annual RSU grant:
|EXECUTIVE||ANNUAL RSU GRANT|
|Jean Claude Farah||17,657|
In connection with his departure and as a result of satisfying the age and service requirements for retirement vesting treatment, Mr. Almeida is eligible to receive prorated vesting of his 2019 RSUs based on his period of service during the vesting period.
Stock Option Award. With respect to Mr. Ersek, stock options are granted to further emphasize the achievement of long-term objectives and encourage long-term value creation as the stock options will have value to Mr. Ersek only if the Company’s stock price appreciates from the date of grant. The stock options vest in 25% annual increments over four years, subject to Mr. Ersek’s continued service or as otherwise provided for under the Company’s Executive Severance Policy or the Long-Term Incentive Plan and have a 10-year term. The committee believes that the Company’s 2019 long-term incentive design supports retention and represents a balanced reflection of stockholder returns and financial performance. For 2019, Mr. Ersek received options representing the right to purchase 549,020 shares of the Company’s common stock, subject to the satisfaction of the underlying service-based vesting conditions.
Dividend Equivalents. After reviewing market practices and the input of the Compensation Consultant, during 2019, the Compensation Committee modified the 2019 Financial PSUs and February 2019 RSUs to implement dividend equivalent rights. Because the retroactive implementation of dividend equivalent rights resulted in a modification under applicable accounting rules, the Company is required to report additional compensation in the 2019 Summary Compensation Table associated with such modification. Please see Footnote 2 to the 2019 Summary Compensation Table for further information.
Recognition RSU Awards. In March 2019, Mr. Fellahi received an additional RSU award of 5,647 RSUs with a target grant date fair value of $100,000. The Compensation Committee approved the additional RSU award in recognition of Mr. Fellahi’s role and efforts in developing and executing corporate strategy. Following Mr. Fellahi’s promotion to the role of President, Consumer Money Transfer, in November 2019, Mr. Fellahi received a promotional RSU award of 14,358 RSUs with a target grant date fair value of $400,000. The Compensation Committee approved the promotional RSU award in recognition of Mr. Fellahi’s performance and increased responsibilities associated with his new role. The recognition RSU awards granted to Mr. Fellahi in 2019 each vest 50% on each of the first and second anniversaries of their respective grant dates, subject to Mr. Fellahi’s continued employment through the applicable vesting date or as otherwise provided for under the Company’s Executive Severance Policy or the Long-Term Incentive Plan.
2017 PSU Awards. Under the terms of the 2017 PSUs, 2019 represented the final year of the three-year performance period for the 2017 Financial PSUs and the 2017 TSR PSUs. The 2017 Financial PSUs vested based on the extent to which the Company’s CAGR for revenue and operating income (weighted 70% and 30%, respectively, for the 2017 performance period, and each weighted 50% for the 2018 and 2019 performance periods) met certain performance goals based on each performance year’s actual performance as compared to the prior year, as well as a three-year positive CAGR in both revenue and operating income. The 2017 TSR PSUs vested based on the Company’s achievement of relative TSR performance versus the S&P 500 Index over a three-year performance period. Based on performance over the three-year performance period, as described further below, the 2017 PSUs vested as follows for each of the participating NEOs:
|Jean Claude Farah||31,803||31,803||16,734||12,886|
Ms. Tsai commenced employment with the Company in late 2017 and, accordingly, did not receive 2017 PSUs.
In connection with his departure, Mr. Almeida was eligible to receive prorated vesting of his 2017 PSUs based on actual performance results and period served during the vesting period. The amounts reported represent Mr. Almeida’s prorated payout.
The 2017 Financial PSU and 2017 TSR PSU performance objectives and the achievement levels are set forth in the tables below. While the performance periods for the 2017 PSUs concluded as of December 31, 2019, these awards remained subject to service-based vesting conditions until the third anniversary of the grant date (February 2020). Pursuant to the terms of the underlying award agreements and consistent with the adjustment methodology used in prior years, the Compensation Committee excluded from the 2017 Financial PSU payout calculations charges incurred pursuant to settlement agreements with the United States Department of Justice, certain United States Attorney’s Offices, the United States Federal Trade Commission, the Financial Crimes Enforcement Network of the United States Department of Treasury, and various state attorneys general (the “Joint Settlement Agreements”) and costs associated with a January 4, 2018 consent order, which resolved a matter with the New York Department of financial services (the “NYDFS Consent Order”) relating to facts set forth in the Joint Settlement Agreements after considering that the conduct at issue occurred mainly from 2004 to 2012 and that the Company had since taken substantial remedial measures and implemented compliance enhancements to improve its anti-fraud and anti-money laundering programs. In addition, the committee excluded from the payout calculations costs incurred in connection with (i) the Company’s WU Way program in 2016 and 2017, (ii) a 2017 goodwill impairment relating to our Business Solutions reporting unit (the “WUBS Impairment”), and (iii) the Company’s 2019 Restructuring Initiative. The committee viewed these costs as significant expenses not indicative of the Company’s day-to-day performance. The WUBS Impairment, which was primarily caused by a decrease in projected future revenue growth rates and EBITDA margins for Business Solutions and the impact of United States tax reform legislation enacted in December 2017, was a non-cash item and the impact of the reporting unit’s performance was already reflected in the Company’s overall results. Finally, with respect to the 2019 performance period for the 2017 payout calculation, revenue and operating income were adjusted to exclude Speedpay and Paymap due to the 2019 dispositions of these businesses.
2017 FINANCIAL PSUs
(PERFORMANCE PERIOD 2017-2019)
|PERFORMANCE OBJECTIVES||2017 FINANCIAL PSU PERFORMANCE GOALS||ACTUAL PERFORMANCE*|
|Targeted annual constant currency growth rate for revenue and operating income, comparing 2017 actual performance against 2016 actual performance (weighting 33-1/3%)||Revenue growth rate: 2.5%
Operating income growth rate: 1.2%
Operating income growth
|Targeted annual constant currency growth rate for revenue and operating income, comparing 2018 actual performance against 2017 actual performance (weighting 33-1/3%)||Revenue growth rate: 3.5%
Operating income growth rate: 5.0%
Operating income growth
|Targeted annual constant currency growth rate for revenue and operating income, comparing 2019 actual performance against 2018 actual performance (weighting 33-1/3%)||Revenue growth rate: 5.0%
Operating income growth rate: 5.8%
Revenue growth rate = 74%
Operating income growth
|Overall Attainment Level 100%|
At constant currency, calculated assuming no changes in the currency exchange rates from the prior year’s currency exchange rates.
2017 TSR PSUs
(PERFORMANCE PERIOD 2017-2019)
|PERFORMANCE OBJECTIVE||THRESHOLD||TARGET||MAXIMUM||ACTUAL PERFORMANCE|
|TSR relative to S&P 500 Index*||30th percentile||60th percentile||90th percentile||46th percentile|
|Overall Attainment Level 77%|
Relative TSR performance for purposes of the 2017 TSR PSUs was calculated based on the terms of the 2017 PSU award agreement, which requires using a beginning stock price calculated as the average company closing stock price for all trading days during December 2016 and an ending stock price calculated as the average company closing stock price for all trading days during December 2019. In determining the TSR for the companies in the S&P 500 Index, the S&P companies comprising the S&P Index on December 31, 2019 were used.
Other Elements of Compensation
To remain competitive with other employers and to attract, retain, and motivate highly talented executives and other employees, we provide the benefits listed in the following table to our U.S.-based employees:
|BENEFIT OR PERQUISITE||NAMED
|Supplemental Incentive Savings Plan (a nonqualified defined contribution plan)||✔||✔|
|Severance and Change-in-Control Benefits (Double-Trigger)||✔||✔||✔|
|Health and Welfare Benefits||✔||✔||✔|
Severance and Change-in-Control Benefits. The Company has an Executive Severance Policy for our executive officers. The policy helps accomplish the Company’s compensation philosophy of attracting and retaining exemplary talent. The committee believes it appropriate to provide executives with the rewards and protections afforded by the Executive Severance Policy. The policy reduces the need to negotiate individual severance arrangements with departing executives and protects our executives from termination for circumstances not of their doing. The committee also believes the policy promotes management independence and helps retain, stabilize, and focus the executive officers in the event of a change-in-control. In the event of a change-in-control, the policy’s severance benefits are payable only upon a “double trigger.” This means that severance benefits are triggered only when an eligible executive is involuntarily terminated (other than for cause, death, or disability), or terminates his or her own employment voluntarily for “good reason” (including a material reduction in title or position, reduction in base salary or bonus opportunity or an increase in the executive’s commute to his or her current principal working location of more than 50 miles without consent) within 24 months after the date of a change-in-control. Severance benefits under the policy are conditioned upon the executive executing an agreement and release that includes, among other things, non-competition and non-solicitation restrictive covenants and a release of claims against the Company. Upon his 2019 departure from the Company, Mr. Almeida became eligible for benefits under the terms of the Executive Severance Policy and retirement vesting under the applicable equity award agreements granted under the Long-Term Incentive Plan.
In addition, the Executive Severance Policy prohibits excise tax gross-up payments on change-in-control benefits for those individuals who became executives of the Company after April 2009. Mr. Ersek is the only Company employee who remains eligible for these excise tax gross-up payments because he became an executive of the Company prior to 2009.
As noted below, Mr. Farah is subject to an employment agreement, which is a customary practice for executives located in Dubai. Under the terms of Mr. Farah’s employment agreement, he is required to receive three months’ notice of termination of employment or, in lieu of such notice, three months of pay. In addition, Mr. Farah is also eligible for statutory end of service gratuity/severance amounts in accordance with local law. Any amounts due to Mr. Farah under the Executive Severance Policy will be reduced by any end of service gratuity/severance paid under the terms of his employment agreement or as required by local law.
Please see the “Executive Compensation—Potential Payments Upon Termination or Change-in-Control” section of this Proxy Statement for further information regarding the Executive Severance Policy, including amounts received by Mr. Almeida in connection with his departure, and the treatment of awards upon qualifying termination events or a change-in-control.
Retirement Savings Plans. The Company executives on U.S. payroll are eligible for retirement benefits through a qualified defined contribution 401(k) plan, the Incentive Savings Plan, and a nonqualified defined contribution plan, the Supplemental Incentive Savings Plan (“SISP”). The SISP provides a vehicle for additional deferred compensation with matching contributions from the Company. We maintain the Incentive Savings Plan and the SISP to encourage our employees to save some percentage of their cash compensation for their eventual retirement. Mr. Ersek participates in the qualified defined contribution retirement plan made available to eligible employees in Austria. The committee believes that these types of savings plans are consistent with competitive pay practices, and are an important element in attracting and retaining talent in a competitive market. Please see the 2019 Nonqualified Deferred Compensation Table in the “Executive Compensation” section of this Proxy Statement for further information regarding the Company’s retirement savings plans.
Benefits and Perquisites. The Company’s global benefit philosophy for employees, including executives, is to provide a package of benefits consistent with local practices and competitive within individual markets. While employed with the Company, each of our NEOs participates in the health and welfare benefit plans and fringe benefit programs generally available to all other Company employees in the individual market in which they are located. For example, Mr. Farah resides in Dubai where it is customary to provide certain fringe benefits, including annual housing, education, transportation, health and wellness and technology allowances.
The Company provided its NEOs with limited, yet competitive perquisites and other personal benefits that the Compensation Committee believes are consistent with the Company’s philosophy of attracting and retaining exemplary executive talent and, in some cases, such as the annual physical examination, the Company provides such personal benefits because the committee believes they are in the interests of the Company and its stockholders. The committee periodically reviews the levels of perquisites and other personal benefits provided to NEOs.
During 2018, the Company hired an outside security provider to perform a comprehensive security assessment with respect to certain Company personnel, including Mr. Ersek. Based on its security assessment, the outside security provider recommended certain home security services continue to be provided to Mr. Ersek and that Mr. Ersek continue to use corporate aircraft for certain business and personal travel. Accordingly, the Company paid for certain security services for Mr. Ersek and corporate aircraft for certain personal travel. Because the Company believes it is in the best interests of the Company and its stockholders to protect Mr. Ersek against possible security threats to him and his family members, the Company requires that Mr. Ersek accept such personal security protection. The Company also believes that the costs of this security are appropriate and necessary. Although the Company does not consider Mr. Ersek’s security services to be a perquisite or other personal benefit for the reasons described above, the Company has reported the costs related to security services for Mr. Ersek as well as the costs of corporate aircraft for personal travel in the “2019 All Other Compensation Table.” Occasionally, Mr. Ersek’s spouse or other guests may accompany him on corporate aircraft when the aircraft is already scheduled for business purposes and can accommodate additional passengers. In those cases, there is no additional aggregate incremental cost to the Company and, as a result, no amount is reflected in the “2019 All Other Compensation Table.” Also, in connection with the Company’s sponsorship of certain events and partnerships with various organizations and venues, certain perquisites, including tickets and parking access, are made available to officers and employees of the Company, including Mr. Ersek and the other NEOs. These perquisites have no additional aggregate incremental cost to the Company, and therefore, no amount is reflected in the “2019 All Other Compensation Table.”
Please see the “2019 All Other Compensation Table” in the “Executive Compensation” section of this Proxy Statement for further information regarding benefits and perquisites received by our NEOs in 2019.
Employment Arrangements. The Company generally executes an offer of employment before an executive joins the Company. This offer describes the basic terms of the executive’s employment, including his or her start date, starting salary, bonus target and long-term incentive award target. The terms of the executive’s employment are based thereafter on sustained good performance rather than contractual terms, and the Company’s policies, such as the Executive Severance Policy, will apply as warranted.
Under certain circumstances, the Compensation Committee recognizes that special arrangements with respect to an executive’s employment may be necessary or desirable. For example, Mr. Ersek, the Company, and a subsidiary of the Company entered into agreements in November 2009 relating to his 2009 promotion to Chief Operating Officer, which were amended effective September 2010 to reflect his 2010 promotion to President and CEO. Employment contracts are a competitive market practice in Austria where Mr. Ersek resided at the time he assumed his position as Chief Operating Officer and the Compensation Committee believes the terms of his agreements are consistent with those for similarly situated executives in Austria. Additionally, Mr. Farah and a subsidiary of the Company entered into an employment contract in June 2008 with respect to Mr. Farah’s employment with the Company. Employment contracts are a competitive market practice in Dubai where Mr. Farah resides, and the Compensation Committee believes the terms of his contract are consistent with those for similarly situated executives in Dubai. Please see the “Executive Compensation—Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table—Employment Arrangements” section of this Proxy Statement for a description of the material terms of the employment agreements with Messrs. Ersek and Farah.
Stock Ownership Guidelines
To align our executives’ interests with those of our stockholders and to assure that our executives own meaningful levels of Company stock throughout their tenures with the Company, the Compensation Committee established stock ownership guidelines that require each of the NEOs to own shares of the Company’s common stock worth a specified multiple of base salary. Under the stock ownership guidelines, the executives must retain, until the required ownership guideline levels have been achieved and thereafter if required to maintain the required ownership levels, at least 50% of after-tax shares resulting from the vesting of restricted stock and RSUs, including PSUs. The chart below shows the salary multiple guidelines and the equity holdings that count towards the requirement as of the Record Date. Each actively serving NEO has met, or is progressing towards meeting, his or her respective ownership guideline.
|Hikmet Ersek||6x salary||Meets guideline|
|Raj Agrawal||3x salary||Meets guideline|
|Jean Claude Farah||3x salary||Meets guideline|
|Khalid Fellahi||3x salary||Meets guideline|
|Caroline Tsai||3x salary||Must hold 50% of after-tax shares until guideline is met|
|WHAT COUNTS TOWARD
|WHAT DOES NOT COUNT
TOWARD THE GUIDELINE
|✔ Company securities owned personally||✘ Stock options|
|✔ Shares held in any Company benefit plan||✘ PSUs|
|✔ After-tax value of service-based restricted stock awards and RSUs|
Prohibition Against Pledging and Hedging of the Company’s Securities
The Company’s insider trading policies prohibit the Company’s executive officers and directors from pledging the Company’s securities, and prohibit all Company employees, including executive officers, and directors from engaging in hedging or short-term speculative trading of the Company’s securities, including, without limitation, short sales or put or call options involving the Company’s securities.
The Company maintains a clawback policy under which the Company may, in the Committee’s discretion and subject to applicable law, “clawback” incentive compensation paid to certain officers of the Company (generally defined as an individual subject to Section 16 of the Exchange Act as well as the Company’s Chief Compliance Officer) in the event of an accounting restatement or if such officer engaged in detrimental conduct, as defined in the clawback policy. In addition, the Company is permitted under the clawback policy, in the Committee’s discretion and subject to applicable laws, to clawback incentive compensation paid to such officers for conduct that is determined to have directly contributed to material compliance failures resulting in a failure to comply with applicable laws or regulations. Under this policy, if the Committee determines that incentive compensation is subject to clawback, the Company, subject to the direction of the Committee, has broad discretion to effect recovery of such amounts, including requiring a cash payment, canceling outstanding or deferred awards, reducing future compensation or other appropriate means. The Company continues to monitor this policy to ensure that it is consistent with applicable laws, including any requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).