Encore Capital Group DEF 14A 2012
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
ENCORE CAPITAL GROUP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
ENCORE CAPITAL GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 6, 2012
To Our Stockholders:
We cordially invite you to attend the 2012 annual meeting of stockholders of Encore Capital Group, Inc. Our annual meeting will be held at The Chatwal, 130 West 44th Street, New York, New York 10036, on June 6, 2012, at 8:30 a.m. Eastern time. The annual meeting is being held for the following purposes:
As resolved by our Board of Directors, stockholders of record at the close of business on April 13, 2012 are entitled to notice of and to vote at the annual meeting or any postponement or adjournment thereof.
We have enclosed a copy of our 2011 Annual Report on Form 10-K, which includes our audited consolidated financial statements.
Your vote is important. Whether or not you plan to attend the meeting in person, please submit your vote as soon as possible using one of the voting methods described in the attached materials. Submitting your voting instructions by any of these methods will not affect your right to attend the meeting and vote in person should you so choose.
By Order of the Board of Directors,
J. Brandon Black
President and Chief Executive Officer
April 27, 2012
San Diego, California
TABLE OF CONTENTS
ENCORE CAPITAL GROUP, INC.
3111 CAMINO DEL RIO NORTH, SUITE 1300
SAN DIEGO, CALIFORNIA 92108
This proxy statement relates to the 2012 annual meeting of stockholders of Encore Capital Group, Inc. (Encore or the Company), to be held at The Chatwal, 130 West 44th Street, New York, New York 10036, on June 6, 2012 at 8:30 a.m. Eastern time, or at such other time and place to which the annual meeting may be adjourned or postponed. The enclosed proxy is solicited by our Board of Directors (our Board), and is first being mailed to stockholders entitled to vote at the meeting on or about April 27, 2012.
What is the purpose of the annual meeting?
At our annual meeting, stockholders will act upon the matters outlined in the accompanying notice of meeting, including (i) the election of eight directors and(ii) the ratification of the selection of BDO USA, LLP as our independent registered public accounting firm. Our management will report on Encores progress and respond to questions from stockholders. In addition, representatives of BDO USA, LLP will be given an opportunity to make a statement and to respond to questions regarding the audit of our consolidated financial statements.
Who is entitled to vote?
Only stockholders of record at the close of business on the record date, April 13, 2012, are entitled to receive notice of the annual meeting and to vote the shares that they held on that date at the meeting, or any postponement or adjournment of the meeting.
At the close of business on the record date, April 13, 2012, there were 24,695,920 outstanding shares of our common stock, each of which is entitled to cast one vote.
Who can attend the meeting?
All stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Others may attend the meeting at our discretion. If you have any questions or wish to obtain directions to attend the annual meeting and to vote in person, please call Encores Investor Relations representative at (877) 445-4581.
What constitutes a quorum?
The presence at the meeting, in person or represented by proxy, of a majority of the outstanding shares entitled to vote on the record date will constitute a quorum, which will permit us to hold the annual meeting and conduct business. Proxies received but marked as abstentions, withheld votes and broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting. Abstentions include shares present in person but not voting and shares represented by proxy but with respect to which the holder has abstained from voting. Broker non-votes 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 on that item and has not received instructions from the beneficial owner.
How do I vote by proxy before the meeting?
Before the meeting, you may vote your shares in one of the following three ways if your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company:
Please refer to the proxy card for further instructions on voting via the internet and by telephone.
Please follow the directions on your proxy card carefully. If your shares are held in a brokerage account in the name of a bank, broker or other nominee (this is called street name), then you are the beneficial owner of the shares and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the annual meeting. You have the right to direct your bank or broker on how to vote the shares in your account, and your ability to vote by telephone or via the internet depends on the voting procedures used by your broker. You may receive a separate voting instruction form with this proxy statement, or you may need to contact your broker, bank or other nominee to determine whether you will be able to vote electronically using the internet or telephone.
May I vote my shares in person at the meeting?
Yes. You may vote your shares at the meeting if you attend in person, even if you previously submitted a proxy card or voted by internet or telephone. Whether or not you plan to attend the meeting, however, we encourage you to vote your shares by proxy before the meeting. Please note that if your shares are held in street name and you wish to vote at the meeting, you will not be permitted to do so unless you first obtain a legal proxy issued in your name from the broker, bank or nominee that holds your shares.
What if I submit a proxy and then change my mind?
You may revoke your proxy at any time before it is exercised:
What are the Boards recommendations for how I should vote my shares?
If you sign and return your proxy card with voting instructions, the persons named as proxies will vote the shares represented by your proxy in accordance with your instructions. If you sign and return a proxy card but do not fill out the voting instructions on the proxy, the persons named on the proxy card will vote in accordance with the recommendations of our Board. The Board recommends that you vote your shares as follows:
Proposal 1 FOR the election of the nominated slate of directors for a term of one year.
Proposal 2 FOR the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2012.
With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the Board or, if no recommendation is given, in their own discretion.
What vote is required to approve each item?
Election of Directors. The eight nominees who receive the most votes will be elected to our Board. A properly executed proxy marked WITHHOLD AUTHORITY with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, and will have no effect on the proposal to elect the directors other than that it will be counted for purposes of determining whether there is a quorum present at the annual meeting. Abstentions will have the same effect. Notwithstanding the foregoing, the Company has adopted a Majority Voting Policy that is described on page 11 of this proxy statement.
Ratification of Independent Registered Public Accounting Firm. For the ratification of the independent registered public accounting firm, the affirmative vote of the holders of a majority of the shares represented in person or by proxy and entitled to vote on the item will be required for approval. A properly executed proxy marked ABSTAIN with respect to any such matter will not be voted, although it will be counted for purposes of determining whether there is a quorum. Because abstentions represent shares entitled to vote on any matter presented for stockholder approval, the effect of an abstention will be the same as a vote against a proposal.
Effect of Broker Non-Votes. If you hold your shares in street name through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to some of the matters to be acted upon. Thus, if you do not give your broker or nominee specific instructions, your shares may not be voted on those matters and will not be counted in determining the number of shares necessary for approval. Shares represented by such broker non-votes will, however, be counted in determining whether there is a quorum.
Can I exercise rights of appraisal or other dissenters rights?
No. Under Delaware law, holders of our voting stock are not entitled to demand appraisal of their shares or exercise similar rights of dissenters as a result of the approval of any of the proposals to be presented at the annual meeting.
Who pays for the cost of this proxy solicitation?
We will bear the cost of solicitation of proxies, including the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock. In addition to the solicitation of proxies by mail, our officers, directors and regular employees may solicit proxies in person, by telephone or by facsimile, none of whom will receive additional compensation for those services.
How many annual reports and proxy statements are delivered to the same address?
If you and one or more of our other stockholders share the same address, it is possible that only one annual report and proxy statement was delivered to your address. This is known as householding. Any registered stockholder who wishes to receive separate copies of an annual report or proxy statement at the same address now or in the future may: (i) call Encore at (877) 445-4581, or (ii) mail a request to receive separate copies to: Encore Capital Group, Inc., 3111 Camino Del Rio North, Suite 1300, San Diego, CA 92108, Attention: Corporate Secretary, and we will promptly deliver the annual report and/or proxy statement to you. Stockholders who own our common stock through a broker and who wish to receive separate copies of an annual report and proxy statement should contact their brokers directly. Stockholders currently receiving multiple copies of an annual report and proxy statement at a shared address and who wish to receive only a single copy in the future may direct their request to the same phone number or address listed above.
(PROPOSAL NO. 1)
Our Board currently consists of nine members, each with a term expiring at the 2012 annual meeting. Mr. Mandell notified the Company that he will not be standing for re-election at the 2012 annual meeting. The Nominating Committee of the Board has recommended, and the Board has nominated, the remaining eight incumbent directors for election at the 2012 annual meeting.
In the event that any nominee named below is unable or declines to serve as a director, the Board may change the number of seats on the Board or may designate an alternate nominee to fill the vacancy. If a substitute nominee is named, the proxy holders will vote the proxies held by them for the election of such person, unless contrary instructions are given. We are not aware of any nominee who will be unable or will decline to serve as a director. The term of office for each person elected as a director continues until the next annual meeting of stockholders or until his or her successor has been elected and qualified.
If a quorum is present and voting, the eight nominees receiving the highest number of votes will be elected to the Board.
Set forth below is certain biographical information about each of our nominees to the Board.
J. BRANDON BLACK. Mr. Black has served as a director since May 2005. Mr. Black joined the Company in May 2000, and has served as our President and Chief Executive Officer since October 2005. Mr. Black also served as our President and Chief Operating Officer from October 2004 to October 2005, and as Executive Vice President and Chief Operating Officer from May 2000 to October 2004. From March 1998 until we acquired the Company in 2000, Mr. Black was the Senior Vice President of Operations for West Capital Financial Services Corp. Prior to joining West Capital, Mr. Black worked for First Data Resources during the period of September 1997 through April 1998 and for Capital One Financial Corporation from June 1989 until August 1997. Mr. Black holds a bachelors degree from the College of William and Mary and an MBA from the University of Richmond. Mr. Blacks qualifications to serve on the Board include over 20 years of experience in the credit and collections industry, including many years in senior leadership roles at the Company.
GEORGE LUND. Mr. Lund has served as our Executive Chairman and an officer since July 2009, as the Chairman of our Board since August 2008 and as a director since September 2007. Mr. Lund is the Chairman and CEO of Torch Hill Investment Partners, a private equity firm focusing on defense, intelligence and civil and
corporate security. Prior to joining Torch Hill, he was the Chairman and Chief Executive Officer of BANKFIRST, a national issuer of consumer credit, serving in that capacity from 1986 to 2004. Mr. Lund holds a business administration degree from Southern Methodist University. Mr. Lunds qualifications to serve on the Board include his extensive experience in executive leadership and strategic planning, strong regulatory and government affairs knowledge and deep connections in the financial services industry.
WILLEM MESDAG. Mr. Mesdag has served as a director since May 2007. He has served as the Managing Partner of Red Mountain Capital Partners LLC, an investment advisor, since January 2005, and is President of Red Mountain Capital Management, Inc., its Managing Member. Prior to founding Red Mountain, he was an investment banker at Goldman, Sachs & Co. and a securities lawyer at Ballard, Spahr, Andrews & Ingersoll. He joined Goldman, Sachs & Co. in 1981 and was made a General Partner in 1990. Mr. Mesdag holds a bachelors degree from Northwestern University and a Juris Doctor degree from the Cornell Law School. He serves as a director of Davis Petroleum Acquisition Corp., a private company. He also serves as a director of 3i Group plc and Natures Sunshine Products, Inc., both of which are public companies, one of which has significant international operations and one of which has investments in India. Mr. Mesdags qualifications to serve on the Board include his career as an investment banker and securities lawyer, which give him extensive experience providing strategic and financial advisory services to complex organizations in the consumer credit and financial services industry.
FRANCIS E. QUINLAN. Brigadier General Francis E. Quinlan, United States Marine Corps Reserve (Ret.) was elected a director in September 2011. General Quinlan has practiced law for nearly thirty years, most recently at Newmeyer & Dillion LLP. Before entering the practice of law he was an agent with the Federal Bureau of Investigation. As a reserve officer he performed active duty in command positions at the Squadron, Air Group, Air Wing, Marine Expeditionary Force and Joint Force levels of the United States Marine Corps. He has served for ten years as a board director and chairman of the audit committee of Irvine Company LLC, is founding audit committee chairman and member of the investment committee of the California State Compensation Insurance Fund and was recently elected as chairman of the audit committee of Santa Fe Trust, Inc. Prior to joining the Board, he served on the audit committee of Convoke Systems, Inc. (software services to the debt buying industry). He is Emeritus General Counsel and former audit committee chairman of the Marine Corps University Foundation, Inc. Board of Trustees. Mr. Quinlan holds a Master of Laws in Taxation, has represented major financial institutions in matters ranging from governance and compliance to cyber security and has conducted and directed complex financial, tax, Foreign Corrupt Practices Act, internal fraud and national security investigations in his civilian and military careers. His additional qualifications to serve on the Board include financial forensic accounting training with the FBI, completion of information operations, cyber security and inter-agency professional schools at the national level and corporate network security programs involving multi-national enterprises.
NORMAN R. SORENSEN. Mr. Sorensen has served as a director since December 2011. Mr. Sorensen is Chairman of the International Advisory Council of Principal Financial Group. Previously, he was Chairman of Principal International, serving from 2011 to 2012, and President and CEO of International Asset Management and Accumulation of the Principal Financial Group, serving from 2001 to 2011. He has served as Executive Vice President of both Principal Financial Group, Inc. and Principal Life Insurance Company since 2007, as well as held a number of other senior management positions since 1998. Mr. Sorensen served as a senior executive of American International Group, Inc. from 1989 to 1997. He is also a director of Sara Lee Corporation, serves as Chairman of the International Insurance Society and is a member of the Financial Services Roundtable and the Council on Foreign Relations. Mr. Sorensens qualifications to serve on the Board include his experience as an executive officer of an international financial services and asset management company, with responsibility over international operations and oversight over asset management and financial services functions and multiple divisional chief financial officers. He has also served as an executive officer of several publicly traded companies.
J. CHRISTOPHER TEETS. Mr. Teets has served as a director since May 2007. Mr. Teets has served as a Partner of Red Mountain Capital Partners LLC, an investment advisor, since February 2005. Mr. Teets also serves as a director of Air Transport Services Group, Inc. and Marlin Business Services Corp., both of which are
public companies. Prior to joining Red Mountain Capital Partners LLC, Mr. Teets was an investment banker at Goldman Sachs & Co. Mr. Teets qualifications to serve on the Board include his broad experience in capital markets, providing strategic and financial advisory services, and serving as a public company director.
H RONALD WEISSMAN. Mr. Weissman has served as a director since July 2009. Mr. Weissman has served as Chairman of the board of directors of the Federal Home Loan Banks Office of Finance since August 2009 and as Chairman of its Audit Committee since September 2009. From May 2002 through June 2009, he served as a Senior Partner with Ernst & Young LLP, where he was a member of the Financial Services Office and also served as the leader for the Office of the Chairman Accounts for the Americas International Financial Reporting Standards (IFRS) Network. Prior to joining Ernst & Young LLP in 2002, Mr. Weissman spent 32 years at Arthur Andersen LLP, where he served as an Andersen Worldwide SC partner from 1981 to 2002. He holds an MBA from the Columbia Graduate School of Business and a bachelors degree from Union College. Mr. Weissman is a Certified Public Accountant and holds a Professional Director Certification from the American College of Corporate Directors, a national public company director education and credentialing organization. Mr. Weissmans qualifications to serve on the Board include his deep expertise in the complex accounting principles applicable to financial services companies.
WARREN S. WILCOX. Mr. Wilcox has served as a director since September 2007. He is currently the head of W2 Associates, LLC which advises venture capital firms on investments related to financial services and information management. Prior to W2, Mr. Wilcox was Head of Advisory Services and Executive Vice President of Visa Inc., having served in that capacity since March 2008. Prior to Visa, Mr. Wilcox served as Vice Chairman, Marketing and Planning at WaMu Card Services, a division of Washington Mutual, Inc. He was previously Vice Chairman of Providian Financial Corporation (which WaMu acquired in 2005). Prior to joining Providian in 2002, Mr. Wilcox served as the Executive Vice President, Planning and Development at Fleet Credit Card Services from 1998 to 2001. Before Fleet, Mr. Wilcox spent 13 years at Household Credit Services, where he held a variety of senior management positions. Mr. Wilcox holds a Bachelor of Science degree from Illinois State University and a Master of Science degree in Management from Purdue University. Mr. Wilcoxs qualifications to serve on the Board include three decades of executive experience in the consumer credit industry. He has served as a consumer marketing expert for a series of large financial institutions and has expertise in financial risk management and modeling.
The Board met eight times during 2011 and otherwise acted by unanimous written consent. Each director nominee who served on the Board in 2011 attended at least 75% of the total number of meetings held by the Board and all committees on which such director served during the period he was a director in 2011.
The Board has standing Audit, Nominating and Compensation Committees. During 2011, the members of these Committees were as follows:
Our Board has adopted written charters for the Audit, Nominating and Compensation Committees, and each of those written charters is available on our website at www.encorecapital.com. Click on Investors, then Corporate Governance and then the respective committee charters. The Compensation and Nominating Committees assess the adequacy of their charters from time to time, and the Audit Committee assesses the adequacy of its charter annually. Please note that the information contained on our website is not incorporated by reference in, or considered to be a part of, this proxy statement.
Audit Committee. We have a standing Audit Committee that is responsible for assisting the Board in oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Company. The Audit Committee met six times during 2011, including one special meeting. The Audit Committee did not otherwise act by unanimous written consent.
In performing its duties, the Audit Committee:
Compensation Committee. The Compensation Committee is responsible for discharging the responsibilities of the Board with respect to the compensation of our executive officers, administering all of our equity-based plans and periodically reviewing compensation and equity-based plans, with authority to adopt such plans. The Compensation Committee met three times during 2011 and otherwise acted by unanimous written consent.
Among other things, the Compensation Committee has the authority and responsibility under its charter to:
The Compensation Committee sets performance goals and objectives for the executive officers, evaluates their performance with respect to those goals, sets the executive officers compensation based upon the evaluation of their performance and approves all employment and severance related agreements with such executives. In evaluating executive officer compensation, the Compensation Committee may retain the services of compensation consultants and considers recommendations from the CEO and Executive Chairman with respect to goals and compensation of the other executive officers. The Compensation Committee also periodically reviews compensation for non-employee directors. All decisions with respect to executive and director compensation are approved by the Compensation Committee.
However, when reviewing and setting the compensation, benefits and perquisites of the CEO, neither the CEO nor any employee of the Company other than the Executive Chairman is present. In addition, when the Compensation Committee reviews and sets the compensation, benefits and perquisites of all other executives, the CEO and the Executive Chairman may be present during deliberations at the Compensation Committees discretion, but the CEO may not be present for voting on officer compensation, benefits or perquisites. The Executive Chairman is not present at any meeting at which his compensation is set by the Compensation Committee. Although the CEO generally makes recommendations to the Compensation Committee with respect to executive compensation decisions, including base salaries, cash incentive bonuses and equity-based awards, the Compensation Committee has in the past determined compensation, benefits or perquisites that were different from those recommended by the CEO.
The Compensation Committee approves all grants of equity-based awards, except those awards for the Companys director level or below employees, which approval authority has been delegated to the CEO by the Committee. Equity award grants to executives are determined based on a periodic review by the Compensation Committee regarding appropriate incentives, with recommendations typically originating from management, consistent with the criteria established in the long-term incentive program adopted by the Compensation Committee.
Outside Consultants. The Compensation Committee has the specific authority to hire outside advisors and consultants in its discretion at our expense. In 2011, the Compensation Committee engaged the law firm of Vedder Price, P.C. (Vedder Price) to provide comprehensive legal and executive compensation consulting advice. A more detailed description of Vedder Prices activities for the Compensation Committee is provided in the Compensation Discussion and Analysis section.
Nominating Committee. The function of the Nominating Committee is to consider and recommend qualified candidates for election as directors of the Company. The Nominating Committee met once in 2011 and otherwise acted by unanimous written consent.
Prior to each annual meeting of stockholders, the Nominating Committee identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. If any member of the Board does not wish to continue in service or if the Nominating Committee or the Board decides not to nominate a member for re-election, the Nominating Committee identifies the desired skills and experience of a new nominee in light of the criteria described below. Current members of the Nominating Committee and Board and management are polled for suggestions as to individuals meeting the applicable criteria. Research may also be performed to identify qualified individuals.
We do not have a formal diversity policy, but the Nominating Committee does consider a broad range of factors in evaluating prospective director nominees, including the following:
The Nominating Committee assesses the effectiveness of its efforts when it evaluates the Boards composition as a part of the annual nomination process.
The Nominating Committee will consider stockholder nominations for directors submitted in accordance with the procedure set forth in Section 3.14 of our Bylaws. We consider each candidate equally based on the factors listed above, regardless of whether the candidate is recommended by a stockholder for election to our Board or is recommended by a member of the Board or a third party search firm. The procedures for stockholder nominated director candidates provide that a notice relating to the nomination in connection with an annual meeting must be timely given in writing to: Encore Capital Group, Inc., Attention: Corporate Secretary, 3111 Camino Del Rio North, Suite 1300, San Diego, CA 92108. To be timely, the notice must be delivered within the time period described in the Stockholder Proposals and Nominations section of this proxy statement. Such notice must be accompanied by the nominees written consent to serve if elected, and must contain information relating to the business experience and background of the nominee, and provide information with respect to the nominating stockholder and persons acting in concert with the nominating stockholder and otherwise comply with the requirements outlined in our Bylaws.
Director Independence. The Board has determined that Messrs. Mesdag, Quinlan, Sorensen, Teets, Weissman and Wilcox, who constitute a majority of the Board, are independent directors within the meaning of Nasdaq listing standards. During its independence review, the Board considered transactions and relationships between each director or any member of his immediate family and the Company and its subsidiaries and affiliates. The Board also examined transactions and relationships between directors or their affiliates and members of the Companys senior management or their affiliates. With respect to Mr. Mesdag and Mr. Teets, the Board considered the fact that Mr. Mesdag and Mr. Teets are employees of Red Mountain Capital Partners LLC, an approximately 9.7% stockholder of the Company. The Board concluded that a relationship with a stockholder of the Company in and of itself does not impair a directors independent judgment in connection with his duties and responsibilities as a director of the Company or a member of a committee of the Board. The Board has determined that each member of the Boards Audit, Compensation and Nominating Committees is independent (or similarly designated) based on the Boards application of the standards of Nasdaq, the Securities and Exchange Commission (the SEC) or the Internal Revenue Service (the IRS), as appropriate for such committee membership.
Audit Committee Financial Expert. The Board has determined that at least one member of the Audit Committee, Mr. Weissman, is an audit committee financial expert, as defined in SEC regulations and also possesses the financial sophistication and requisite experience as required under Nasdaq listing standards.
Board Leadership Structure. The Board evaluates its leadership structure on an ongoing basis according to what the Board considers to be best for the Company at any given point in time. Currently, we separate the roles of Chairman and CEO, both of whom serve on the Board and are subject to oversight and review by the independent directors. The Board believes that having a separate Chairman and CEO provides an effective leadership model for the Company at this time and provides the benefit of the distinct abilities and experience of both the Executive Chairman and CEO.
Our Executive Chairman, George Lund, works closely with our management team, including J. Brandon Black, our President and CEO, to develop our corporate strategy and execute on key corporate initiatives. Mr. Black is responsible for setting the strategic direction for the Company and the day to day leadership and performance of the Company. Having the CEO serve on our Board ensures that the Board contains the individual most familiar with the Companys business and industry and promotes open communication between management and our directors. Mr. Lund and Mr. Black provide advice and recommendations to the full Board for the Boards consideration.
The Board has considered the benefits of having the Executive Chairman function as a bridge between management and the Board, ensuring that both groups act with a common purpose. The Board also considered Mr. Lunds knowledge regarding our operations and the industry and markets in which we compete and his ability to promote communication, to synchronize activities between the Board and our senior management, and to provide consistent leadership to both the Board and the Company in coordinating the strategic objectives of both groups. The Board also believes that many elements of the Boards governance structure ensure a strong, independent Board even though the Board does not have an independent chairman. The Board has determined that each of the other directors is independent, and these directors regularly meet in executive sessions. Thus, we believe that the existing Board leadership structure encourages communication between management, the Executive Chairman and the independent directors and provides an appropriate allocation of roles and responsibilities at this time. The Boards role in the risk oversight process has no effect on its leadership structure.
Code of Ethics. The Board has adopted a code of ethics entitled the Standards of Business Conduct applicable to our directors and all employees and officers, including our principal executive officer and our principal financial officer. A copy of the Standards of Business Conduct is available on our website at www.encorecapital.com. Click on Investors, then Corporate Governance and then Standards of Business Conduct. We may post amendments to or waivers of the provisions of the Standards of Business Conduct, if any, made with respect to any of our directors and executive officers on that website, unless otherwise required by Nasdaq listing standards to disclose any waiver in a Current Report on Form 8-K. Please note that the information contained on our website is not incorporated by reference in, or considered to be a part of, this proxy statement.
Risk Oversight. Our Board is actively involved in oversight and review of the Companys risk management efforts either directly or through its standing committees. Assessing and managing risk and communicating risks to the Board is the responsibility of the Companys management. In 2010, the Companys management implemented an Enterprise Risk Management (ERM) program, led by certain officers of the Company, including Paul Grinberg, our Chief Financial Officer (CFO), with oversight from the Board. The ERM program was established to identify and evaluate key business risks within the financial, operational, regulatory and strategic arenas of the Company and to develop risk monitoring processes and response strategies to transfer, avoid, reduce or accept individual risks as appropriate. Additionally, the ERM program assists management in determining appropriate risk tolerance levels that balance risk mitigation with opportunities to create stockholder
value. ERM program leaders make regular reports to the Board regarding the ERM programs risk identification, management and mitigation strategy recommendations.
While the Board has retained the responsibility for general oversight of risks and of our ERM program, the Boards standing committees support the Board by regularly addressing various risks in their respective areas of oversight. Specifically, the Audit Committee primarily oversees those risks that may directly or indirectly impact our financial statements, including the areas of financial reporting, internal controls and compliance with public reporting requirements, while the Compensation Committee assists the Board in fulfilling its risk management oversight responsibilities associated with risks arising from employee compensation policies and practices. Each standing committee provides reports to the full Board at regular meetings concerning the activities of the committee and actions taken by the committee since the last regular meeting. Additionally, each Board committee is composed of all independent directors and all directors are actively involved in the risk oversight function.
Communications with Directors. We have not adopted a formal process for stockholder communications with the Board. Given our size, the Board does not deem it necessary to adopt formally a written policy regarding stockholder communications. Stockholders, however, can contact the Board or an individual director by writing to: Board of Directors, Encore Capital Group, Inc., 3111 Camino Del Rio North, Suite 1300, San Diego, CA 92108, Attention: Corporate Secretary. Absent unusual circumstances or as contemplated by committee charters, communications received in writing are distributed to members of the Board as appropriate depending on the facts and circumstances outlined in the communication received.
Executive Sessions of Independent Directors. Independent Board members meet without management present at least twice a year following regularly scheduled Board meetings.
Policy Regarding Directors Attendance at Annual Meetings. We encourage directors to attend our annual meeting, but we do not have a policy that requires the attendance of all directors at our annual meeting. Each of our current directors who was a director at the time attended the 2011 annual meeting, with the exception of Warren Wilcox who was unable to attend due to a family obligation.
Majority Voting Policy. The Company has adopted a Majority Voting Policy, which states that in an uncontested election (i.e., an election where the only nominees are those recommended by the Board), any nominee for director who receives a greater number of votes withheld from election than votes for such election shall promptly tender a resignation to the Board for consideration.
The Nominating Committee shall promptly consider the resignation offer and recommend to the Board action with respect to the tendered resignation, which may include (i) accepting the resignation, (ii) maintaining the director but addressing the underlying cause of the withheld votes, (iii) determining not to renominate the director in the future, (iv) rejecting the resignation or (v) any other action the Nominating Committee deems to be appropriate and in the best interests of the Company. In considering what action to recommend with respect to the tendered resignation, the Nominating Committee will take into account all factors deemed relevant, including without limitation, any stated reasons why stockholders withheld votes for election from such director, the length of service and qualifications of the director whose resignation has been tendered, the overall composition of the Board, the directors contributions to the Company, the mix of skills and backgrounds of the directors and whether accepting the tendered resignation would cause the Company to fail to meet any applicable requirements of the SEC or the NASDAQ Stock Market.
The Board will act on the Nominating Committees recommendation no later than 90 days following certification of the stockholder vote.
Following the Boards decision on the Nominating Committees recommendation, the Company will promptly disclose the Boards decision with respect to the tendered resignation and will provide a description of the process by which the decision was reached in a Current Report on Form 8-K filed with the SEC.
Except in certain special circumstances, any director who tenders a resignation pursuant to this provision shall not participate in the Nominating Committee review and recommendation process or the Boards consideration regarding the action to be taken with respect to the tendered resignation.
To the extent that one or more directors resignations are accepted by the Board, the Nominating Committee will recommend to the Board whether to fill such vacancy or vacancies or to reduce the size of the Board.
Set forth below is certain biographical information about each of our current executive officers. Executive officers are appointed annually by the Board and serve at the discretion of the Board.
GEORGE LUND and J. BRANDON BLACK. For biographical information on Mr. Lund and Mr. Black, see disclosure in the Directors section above.
PAUL GRINBERG. Mr. Grinberg has served as our Executive Vice President, Chief Financial Officer and Treasurer since May 2005, and he served as Secretary from June 2008 until January 2010. From September 2004 until May 2005, he served as our Senior Vice President of Finance. From May 2003 until joining the Company, Mr. Grinberg was the founder and President of Brio Consulting Group, a company that helped venture and private equity backed companies with financial strategy, M&A and related services. From May 2000 until April 2003, Mr. Grinberg served as Chief Financial Officer of Stellcom, Inc., a systems integration firm focused on providing mobile and wireless engineering solutions to Fortune 1000 companies. From February 1997 until April 2000, Mr. Grinberg served as Executive Vice President and Chief Financial Officer of TeleSpectrum Worldwide, Inc., a publicly traded company that provided outsourced call center solutions to Fortune 500 companies. From September 1983 until January 1997, Mr. Grinberg was employed at Deloitte &Touche LLP, where he served in several capacities, the most recent of which was as a partner in the firms Merger and Acquisition Services Group. Mr. Grinberg also serves as a director, Chairman of the audit committee, Chairman of the compensation committee and member of the nominating committee of Bank of Internet USA, an FDIC insured branchless bank. Mr. Grinberg received his bachelors degree in accounting from Yeshiva University in 1983 and his MBA from Columbia University in 1989, and he is a Certified Public Accountant.
This Executive Summary is divided into the following parts:
The Companys Compensation Philosophy and Purpose
The Companys executive compensation philosophy, and the purpose of this philosophy, is presented below:
FY 2011 Compensation of Our NEOs
Below shows the compensation and the compensation components we used to pay our three NEOs for FY 2011:
Refer to our Summary Compensation Table and accompanying tables for details.
FY 2011 Performance and How It Affected 2011 NEO Compensation
The Company had outstanding performance in FY 2011, similar to its performance in FY 2010.
The Companys annual EBITDA, which is the primary performance metric currently used in the Companys executive compensation programs (other than stock price), increased 24.4% for the previous one-year period, from $100.5 million in FY 2010 to $125.0 million in FY 2011, and 80.6% for the previous two-year period, from $69.2 million in FY 2009. The Compensation Committee took this outstanding performance into account when, in the exercise of its discretion under the Companys compensation programs, it awarded to our NEOs cash bonuses in February 2012 and equity awards in March 2011 and April 2012.
We paid the NEOs the above compensation based on the following:
Salary Paid in FY 2011. 2011 annual base salary was increased by 1.5% in March 2011. Company performance did not affect the annual base salary determinations.
Annual Cash Bonus Paid in February 2012. We have a Key Contributor Plan (KCP) that we use to pay annual cash bonuses to our NEOs and other senior executives. The performance metric under the KCP for FY 2011 was EBITDA, and the performance target was $123.4 million, which was 22.8% over actual EBITDA achieved in FY 2010 and 31.0% greater than the EBITDA target for FY 2010 of $94.2 million. The Compensation Committee noted that the 2011 EBITDA target was an aggressive target. Actual EBITDA achieved for FY 2011 was $125.0 million or 1.3% over target.
Mr. Lund, as Executive Chairman, does not participate in the KCP and received no annual cash bonus. Mr. Black and Mr. Grinberg both have target annual cash bonus levels equal to 100% of their annual base salaries. However, the KCP generally provides the Compensation Committee with discretion to increase bonus payment amounts. Recognizing that the EBITDA target for FY 2011 was 31.0% greater than the EBITDA target for FY 2010, and where actual EBITDA achieved for 2010 was $100.5 million, or 6.7% greater than the 2011
EBITDA target, and after analyzing the annual cash compensation opportunity (taking into account 2011 base salaries) for both Mr. Black and Mr. Grinberg, the Compensation Committee used its discretion to increase the cash bonus payments under the KCP to the same amounts paid for FY 2010.
Equity Grants Awarded in March 2011. We report equity grants awarded to our NEOs with respect to the fiscal year when made. While equity awards have a going-forward long-term incentive feature to them, the size of the award generally is based on past awards and the previous years performance. After taking into account recommendations from the CEO and Senior Vice President of Human Resources, the Compensation Committee exercises its discretion in determining the size of the equity grants made to our NEOs.
Equity Grants Realized in 2011. Our NEOs vested in the following restricted shares and/or RSUs, and exercised the following number of stock options:
Retirement and Deferred Compensation. Other than a standard 401(k) plan applicable to all employees, there are no active retirement arrangements for our NEOs; however, Mr. Black still participates in a frozen deferred compensation plan that is linked to a split-dollar arrangement. The Company does not contribute to this frozen plan. Mr. Black lost $4,861 in his fully vested deferred compensation account in FY 2011.
Perquisites and Other Compensation. There are no perquisite programs for the NEOs at the Company, other than an annual housing allowance for our Executive Chairman of $60,000. There is no other compensation paid to or on behalf of our NEOs other than 401(k) matching contributions contained in the Summary Compensation Table.
FY 2012 NEO Compensation Levels
In February 2012, we increased the annual base salaries of Mr. Black and Mr. Grinberg, effective March 1, 2012. Mr. Blacks base salary was increased from $433,088 to $600,000, a 38.5% increase, and Mr. Grinbergs base salary was increased from $304,435 to $425,000, a 39.6% increase. Mr. Lunds base salary remained at $500,000.
These increases were based on a review by the Compensation Committee of salary levels at many companies similar to the Company by industry, revenue size, market capitalization size, and annual net income production. The Compensation Committee found that the fixed compensation levels of the CEO and the CFO were below what the Compensation Committee considered to be competitive. In addition, as part of its risk management program, the Compensation Committee wanted to rebalance its annual cash compensation levels so that there would be more of a weighting toward fixed annual cash than variable annual cash. A more detailed discussion is provided later in this Compensation Discussion and Analysis.
The annual cash bonus target levels for Mr. Black and Mr. Grinberg remain at 100% of annual base salary. Mr. Lund, as mentioned above, does not participate in an annual cash bonus arrangement.
In addition, although not reflected in the compensation tables appearing after this Compensation and Discussion Analysis, we made the following equity compensation grants to our NEOs on April 6, 2012:
Current Change-in-Control and Employment Termination Arrangements
We do not have formal employment agreements with our NEOs; however, we have entered into severance protection letter agreements with Mr. Black and Mr. Grinberg. In addition, our equity compensation arrangements provide for accelerated vesting in certain instances. The terms and conditions relating to our employment termination arrangements (whether or not in connection with a change in control) is as follows:
The table below shows the dollar amounts that would be payable to our NEOs if there had been a change in control and/or if their employment had been terminated on December 31, 2011 (and using a stock price of $21.26 in all instances) based on the following scenarios:
Other NEO Compensation Changes for FY 2012
The Compensation Committee reviewed the Companys executive compensation practices and made the following changes effective in 2012:
The purpose of this compensation discussion and analysis (CD&A) is to provide information about each material element of compensation earned by our NEOs during our 2011 fiscal year. The following discussion and analysis should be read in conjunction with the 2011 Summary Compensation Table and related tables and narrative that are presented in this proxy statement.
For our 2011 fiscal year, our NEOs were:
This CD&A addresses and provides the context behind the numerical and related information contained in the 2011 Summary Compensation Table and related tables and includes the award of bonuses related to 2011 performance that occurred after the end of our 2011 fiscal year.
Fiscal 2011 Key Developments
Our compensation policy in 2011 was to maintain our existing compensation programs. Highlighted below are some of the key actions and decisions with respect to our executive compensation programs for fiscal 2011 as approved by the Compensation Committee:
No material changes in key compensation features during 2011. There were no material changes to compensation practices for our NEOs in 2011.
Performance-based compensation awards and payouts. Our executive compensation is linked to the achievement of performance targets or specific strategic objectives. As with past years, through the KCP, Mr. Black and Mr. Grinberg (but not Mr. Lund) were eligible to earn cash incentive compensation based upon achievement of specific EBITDA targets for fiscal year 2011 recommended and approved by the Compensation Committee and that are designed to challenge the executive team to high performance.
Last Years Say-on-Pay Advisory Vote on Executive Compensation
At our 2011 annual meeting of stockholders, a non-binding, advisory vote was taken with respect to the compensation of the Companys NEOs (referred to as the say on pay vote). Over 99% of the votes cast were in favor of approval of our executive compensation program. We value this endorsement by our stockholders of our executive compensation program and policies, and the Compensation Committee continues to look for ways to enhance and refine our pay-for-performance-based executive compensation program.
The Compensation Committee considered the results of the 2011 advisory vote and also considered other factors in evaluating the Companys executive compensation programs as discussed in this CD&A, including the advice of the Compensation Committees independent compensation consultant. While these factors impacted the Compensation Committees decisions regarding NEO compensation, the Compensation Committee did not make any changes to the Companys executive compensation program and policies explicitly as a result of the 2011 say on pay advisory vote.
Our Compensation Philosophy and Purpose. The Compensation Committee is chartered with establishing and reviewing the performance and compensation of our NEOs and other executive officers. Incentive compensation arrangements are the cornerstone of the Compensation Committees executive compensation policies. Our compensation philosophy is to establish and maintain base salaries, bonus plans and equity-based compensation plans that will attract and retain qualified executive officers and key employees necessary for our continued successful operation and growth and ensure that management is rewarded appropriately for its contributions to our growth and profitability in alignment with our objectives and stockholder interests.
Ultimately, our compensation philosophy is generally focused on the following:
Role of the Compensation Committee. During fiscal 2011, the Compensation Committee consisted of J. Christopher Teets (Chairman), Timothy J. Hanford (who retired from the Board on June 9, 2011) and Warren Wilcox. Norman Sorensen did not join the Compensation Committee until January 9, 2012. The Compensation Committees primary activity occurs following the close of the fiscal year, when the Committee: (i) approves grants of restricted shares, RSAs, RSUs and stock options; (ii) determines whether performance targets have been satisfied for performance-based RSUs granted during previous fiscal years; (iii) approves total compensation levels for our NEOs for the fiscal year just concluded, including any salary increases and cash bonuses and (iv) approves payments under the KCP applicable to our NEOs for the current fiscal year.
Outside Consultants. The Compensation Committee has the specific authority to hire outside advisors and consultants in its discretion at the expense of the Company. In 2011, the Compensation Committee engaged Vedder Price to fully review its executive compensation documents and to provide a large volume of compensation data from the Equilar, Inc. executive compensation database. A more detailed discussion is provided below under Executive Compensation Comparisons.
Compensation Committees Action in 2011 effective in 2012
Following the Vedder Price review, the Compensation Committee decided to take the following actions with respect to its executive compensation programs in 2012:
Other Compensation Committee Action for 2012
The Compensation Committee is continuing its review of the Companys executive compensation programs during 2012, specifically reviewing the following:
Executive Compensation Comparisons
The Compensation Committee annually takes into consideration evolving market practices, to ensure that it remains informed of current practices when making compensation decisions. In 2011, the Compensation Committee engaged Vedder Price to extract, compile, assemble and provide to the Compensation Committee a large volume of executive compensation data for comparison purposes.
Vedder Price and the Compensation Committee created the following four comparison groups:
A full list of the comparison companies are set forth in Appendices A, B, C and D at the end of this proxy statement. The Compensation Committee reviewed this compensation data and took the data into account in setting compensation levels for our NEOs for 2012; however, the data in and of itself did not determine these compensation levels. While this comparison is similar to benchmarking, the Compensation Committee considers its review of this data to be a comparison and not a benchmarking.
In addition, the Compensation Committee closely reviewed the executive compensation data at a group of peer companies consisting of Asset Acceptance Capital Corp., Asta Funding, Inc., NCO Group, Inc. and Portfolio Recovery Associates, Inc. These companies were selected because they are all publicly traded companies (with the exception of NCO Group, Inc.) and are close industry peers to the Company. As in previous years, the Compensation Committee considers the compensation practices of these peer companies; however, it does not use peer group data to base, justify or provide a framework for compensation decisions. The Compensation Committee also does not target any element of compensation or total compensation to a specific range within the peer group. Rather, it uses peer group data to obtain a general understanding of current compensation practices and to aim to provide total compensation packages that are competitive with prevailing practices in our industry.
Role of Executives in the Compensation Setting Process
The Compensation Committee generally solicits managements assistance in determining executive compensation as it deems appropriate. For 2011, the Compensation Committee determined salary levels, bonus and equity awards for Mr. Black and Mr. Grinberg in collaboration with Mr. Lund. Mr. Lunds salary is determined solely by the Compensation Committee. The Compensation Committee looks to the Human Resources and Legal Departments and its outside advisors for advice regarding the design and implementation of compensation plans, programs and practices. Representatives from those departments, as well as Mr. Lund often attend portions of Compensation Committee meetings to make presentations regarding, and to discuss managements viewpoint of, various compensation issues.
Elements of our Compensation Program
Our compensation plans are designed to provide a competitive total compensation package consistent with our performance in the marketplace. The compensation program for each of our NEOs includes:
While executives have more of their total compensation at risk than other employees, the principles that serve as the basis for our NEO compensation practices apply to the compensation plans for all employees who are eligible for incentive compensation; namely, corporate and individual performance drive incentive compensation.
Processes and Procedures for Considering and Determining Executive and Director Compensation
Base Salary. The first component of our NEO compensation package is base salary. Our philosophy is to pay base salaries that are commensurate with the NEOs experience and expertise, taking into account competitive market data for NEOs with similar backgrounds, experience and expertise. The factors considered by the Compensation Committee in making its evaluation and determination regarding the appropriateness of base salary include:
The Compensation Committee generally reviews each NEOs base salary and benefits on an annual basis and from time to time as it deems appropriate.
With respect to its periodic review of salaries for our NEOs and other executives in 2011, the Compensation Committee considered data provided by our management, which included an assessment of corporate performance, as well as individual performance of each NEO. The base salaries set for 2011 were believed to be consistent with our compensation philosophy, which attempts to establish a strategic balance between pay at risk and market competitiveness.
Mr. Blacks and Mr. Grinbergs base salaries were increased by the Compensation Committee on February 25, 2011 to annual rates of $426,688 and $300,000, respectively, effective March 1, 2011. These approximately 1.5% base salary increases were determined to be consistent with increases in the applicable cost of living and did not constitute merit increases.
There was no change to Mr. Lunds annual base salary in 2011, which remained at $500,000 and which had been set by the Compensation Committee in July 2009 upon his appointment as Executive Chairman. The Compensation Committee believes that Mr. Lunds base salary remains competitive and commensurate with his role and responsibilities at the Company.
We disclose the salary earned in 2011 by our NEOs in the Salary column of the 2011 Summary Compensation Table.
Annual Cash Incentive Bonus. The second component of our NEO compensation package is an annual cash incentive bonus program under our KCP. Pursuant to the terms of the KCP, each NEOs target bonus is a
stated percentage of his annual base salary; however, our NEOs would not receive a bonus if threshold performance goals are not met. The Compensation Committee does have the authority not to award a bonus or to award a bonus that is greater or less than the specified payout under the KCP. Actual bonuses paid to our NEOs under the KCP are based upon (i) achievement of our corporate performance against pre-established, targeted operating measures and (ii) the Compensation Committees discretion to increase or decrease the payout above or below the earned payout. The Compensation Committee believes that variable bonus opportunities provide higher rewards for higher performers and drive the successful achievement of short-term critical business objectives. Mr. Lunds compensation package excludes participation in the KCP otherwise available to the Companys other NEOs.
Based on the Companys annual strategic operational and financial objectives for fiscal year 2011, a Board-approved, Company EBITDA target of $123.4 million, representing a 31% increase over 2010 target EBITDA, was established as the appropriate operating measure by the Compensation Committee for determining bonus awards to our NEOs under the KCP. Payouts at target would be equal to 100% of base salary for each of Mr. Black and Mr. Grinberg. EBITDA is measured according to generally accepted accounting principles and may be adjusted for unusual items at the Compensation Committees discretion. Actual EBITDA for 2011 was $125.0 million, representing an increase of 24.4% over 2010 actual EBITDA and a bonus payout at 101.7% of target. No adjustments were made to the Companys 2011 EBITDA results. After considering the Companys outstanding performance in 2011, and noting both the year-over-year EBITDA growth and maintenance of the Companys stock price during a volatile time period, as well as noting the aggressive EBITDA targets that had been set, the Compensation Committee used its discretion to increase the payout under the KCP by 1.7% above the earned payout which resulted in a bonus payout to each of Mr. Black and Mr. Grinberg at 178% of base salary. Information on the 2011 bonuses awarded to Mr. Black and Mr. Grinberg can be found in the Summary Compensation Table.
Equity-Based Compensation Incentives. The third component of our NEO compensation package is equity-based compensation incentives, which have traditionally taken the form of non-qualified stock options, RSAs and RSUs. The Compensation Committee considers annual grants of stock options, RSAs and RSUs to our NEOs and key employees to more closely align the interests of our executive officers and key employees with the long-term interests of the Company and our stockholders and to assist in promoting executive retention.
Long-Term Incentive Program. The Compensation Committee implemented a long-term incentive program under the our 2005 Stock Incentive Plan (2005 Plan) with the intent of making annual grants of RSUs or RSAs and/or non-qualified stock options to executive officers and other eligible employees. Our standard form of equity award agreement for our executive officers and directors provides for vesting acceleration upon a change in control, death or disability. We believed during the first half of 2011 that this was consistent with the practices of many other companies for their senior executives and allows them to provide continued dedication and efforts in such event without undue concern for their financial security.
We did not consider issuing RSUs prior to 2005. Historically, stock option grants were given favorable accounting and tax treatment and, given that stock option grants are extremely common in the markets in which we operate, we had no compelling reason to look to other forms of equity compensation until the implementation of Statement of Financial Accounting Standards No. 123 (revised) (now referred to as FASB ASC Topic 718) changed the accounting treatment for stock options effective in 2005. Since the implementation of FASB ASC Topic 718, many public companies have begun issuing RSUs. We believe that one advantage to using RSUs is that we can issue fewer shares to achieve the same value when compared to stock option grants, which will be less dilutive to our stockholders. At the same time, grants of RSUs confer potential benefits on the recipient upon vesting regardless of the performance of our stock price.
The aggregate value of annual equity awards granted to our executives and other employees is a discretionary amount determined by the Compensation Committee taking into account the dilutive effect to stockholders, market data, historic award data and availability of shares under the 2005 Plan. The available pool
of shares that are granted to eligible employees each year is targeted at an annual aggregate dilution range of 1.5% to 2.25% of the Companys shares outstanding. The pool is apportioned at the discretion of the Compensation Committee among our NEOs, executive officers and other employees taking into account individual performance, the individuals ability to drive Company results, leadership potential and retention. Equity awards are generally granted as a mix of stock options and time based RSUs or RSAs at a 2:1 ratio. Stock options typically have an exercise price equal to the fair market value on the date of grant and stock options and RSUs generally vest over a three-year period.
Equity-Based Compensation Incentives for 2011. The Company strives to make equity-based compensation grants for a particular year during the first quarter following fiscal year end based on an assessment of the NEOs performance for that fiscal year. Accordingly, in recognition of their services and our outstanding performance in 2010, on March 15, 2011, the Compensation Committee made grants of RSUs and non-qualified stock options to purchase shares of our common stock to our NEOs and other employees. The Compensation Committee approved a grant to each of Mr. Black and Mr. Grinberg in March 2011 23,500 RSUs and 54,000 non-qualified stock options to purchase shares of the Companys common stock at the closing market price on the date of grant. Recommendations from the Executive Chairman and management were taken into account in determining the size of these equity awards. Managements recommendations were based on an assessment of the performance of the NEOs during the fiscal year, an assessment of Company performance during the fiscal year and were generally made within historical equity-based compensation grant practices. The Compensation Committee generally takes managements recommendations under advisement and makes its own independent determination based upon an assessment of the same factors.
In April 2012, the Compensation Committee approved grants of RSAs and non-qualified stock options to purchase shares of our common stock to each of Mr. Black and Mr. Grinberg in the amounts of 23,000 RSAs and 50,000 non-qualified stock options to purchase shares of the Companys common stock at the closing market price on the date of grant. The size of the 2012 equity awards to Mr. Black and Mr. Grinberg were less than the grants made to them in March 2011. In addition, the Company used RSAs instead of RSUs to eliminate any application of IRC Section 409A. The RSAs and non-qualified stock options granted to Mr. Black and Mr. Grinberg were subject to vesting in annual increments over a three-year period. In determining the size of these equity grants, the Compensation Committee took under advisement managements recommendations that were based upon an assessment of the respective NEOs contribution to the Companys financial and operating results during 2011 and were made within historical equity-based compensation grant practices and the Compensation Committees own assessment of these factors, including a comparison of fiscal 2011 performance to fiscal 2010 performance.
Pursuant to the 2005 Plan, the Compensation Committee also approved on August 23, 2007, certain EBITDA targets (the EBITDA Targets) for the grant of performance-based restricted stock units (PSUs) to Mr. Black and Mr. Grinberg. The EBITDA Targets would be achieved and the full amount of the award would be paid if EBITDA increased by 50% from fiscal year 2007 to fiscal year 2011. Based on the achievement of the EBITDA Target of $120 million and pursuant to terms and conditions set forth in their respective PSU grant notices and agreements, the EBITDA Targets were satisfied and 25% of Mr. Blacks and Mr. Grinbergs PSUs vested. This resulted in an award on February 9, 2012 to Mr. Black of 10,612 vested PSUs and to Mr. Grinberg of 2,500 PSUs. Prior to that, based on the achievement of the EBITDA Target of $100 million and pursuant to terms and conditions set forth in their PSU grant notices and agreements, the EBITDA Targets were satisfied and 50% of Mr. Blacks and Mr. Grinbergs PSUs had vested, which resulted in an award on February 14, 2011 to Mr. Black of 21,225 vested PSUs and to Mr. Grinberg of 5,000 PSUs. In establishing the number of PSUs that the NEOs were eligible to receive upon achievement of the EBITDA Targets, the Compensation Committee considered the individuals contribution to the Company, the Companys performance and the Committees own historical grant practices.
Severance Protection Agreements. Both Mr. Black and Mr. Grinberg are parties to executive severance protection agreements which are discussed below in the Potential Payments Upon a Termination or Change in
Control section. The severance protection agreements are designed to compensate the executives for playing a significant role in managing our affairs, and are intended to provide an important safety net that allows these executives to focus on our business and pursue the course of action that is in the best interests of our stockholders by alleviating some concerns regarding their personal financial well-being in the event of a termination or change-in-control transaction. We believe that the provisions of our severance arrangements with Mr. Black and Mr. Grinberg are consistent with the principal objectives of our compensation programs. We believe that the compensation elements that would be triggered upon termination are consistent with the market in which we operate and at appropriate levels when viewed in relation to the benefits the executives provide us and our stockholders and the overall value of the Company. The executives are subject to certain restrictions in exchange for receiving the financial and other benefits under their agreements, as described in more detail in the Potential Payments Upon a Termination or Change in Control section. We believe imposition of these restrictions serves our best interests and the best interests of our stockholders.
Other Benefits and Programs. Our NEOs are eligible to participate in benefit programs designed for all of our full-time employees during the period of their employment. These programs include a tax qualified 401(k) savings plan, and medical, dental, disability and life insurance programs. In addition, our NEOs as well as other key employees were previously eligible to participate in our non-qualified deferred compensation plan; however, as of mid-year 2009, no new deferrals were allowed for 2009, 2010 or 2011. The plan permitted deferral of a portion of the participants compensation until a specified period of time, and the participants were able to invest the amounts deferred in reference accounts that mirror the performance of separate accounts offered by Principal Financial Group. The primary purpose of this plan was to provide an opportunity for additional tax-deferred retirement savings to our executives and key employees whose contributions to our 401(k) plan may be subject to limitation under applicable IRS regulations. More detail related to the operation of our non-qualified deferred compensation plan is provided in the Non-Qualified Deferred Compensation section. We also offer an executive health screening program whereby our executives may obtain a comprehensive physical examination, currently valued at approximately $3,000, once every three years.
We also maintain split-dollar life insurance on certain of our NEOs that is financed by participant contributions to our non-qualified deferred compensation plan. This insurance is maintained for Mr. Black and Mr. Grinberg and in the current approximate amounts listed in the table below. Pursuant to this program, the Compensation Committee authorized the Company to enter into split-dollar agreements with the participants whereby ten percent of the total benefit payable in the event of death would be payable to the beneficiaries of such participants in the following amounts:
Perquisites. We do not provide material executive perquisites to our NEOs.
Compliance with Internal Revenue Code Section 162(m). IRC Section 162(m) generally provides that public companies cannot deduct non-performance based compensation paid to the Companys NEOs, excluding the CFO, in excess of $1 million per year. To the extent feasible, we take IRC Section 162(m) requirements for deductibility into account when structuring executive compensation, and stock options granted to the applicable NEOs are intended to qualify for the performance-based exception. However, the Compensation Committee believes that the Company must be able to attract, retain and reward the executive leadership necessary to execute our business strategy. Therefore, the Compensation Committee may authorize compensation that may not be deductible if it believes this is in the best interests of the Company and our stockholders. For calendar 2011, a portion of the compensation paid to our Executive Chairman and our CEO exceeded the $1 million
deductibility limit by approximately $185,830 and $723,915, respectively. This was due to the vesting of time-based restricted stock and RSUs granted in prior years, in addition to salary and bonus (for the CEO) paid in 2011.
Other Matters Relating to Executive Compensation
Speculative and Hedging Transactions. We have a comprehensive insider trading policy that, among other things, provides that our employees, officers, directors and key consultants shall not engage in speculative transactions such as short sales, or the purchase or sale of puts, calls or other derivatives of our securities. The purpose of this policy, among other things, is to assist our employees in avoiding potential conflicts of interest that could result in unwanted perceptions and negative impact on our stock price. The policy also discourages the purchase of Company securities on margin and contains additional restrictions applicable to insiders, including our executive officers and directors. Insiders are permitted to engage in forward sales, collars or other hedging transactions only with the prior approval of the Board or the Executive Chairman after consultation with a majority of the Board.
Stock Option Grants. While we do not have a formal policy, our stock options and other grants are priced at market value on the date of grant (generally the date of Board or Compensation Committee approval). In March 2011, the Compensation Committee adopted a suggested annual timeline for the award of equity grants to employees of the Company and our subsidiaries. Subject to approval by the Compensation Committee, annual equity awards will typically be made to officers and key employees in March of each year to coincide with an open trading window.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until June 9, 2011, the members of the Compensation Committee were Timothy J. Hanford and J. Christopher Teets. Mr. Hanford retired from the Board effective June 9, 2011, the date of the 2011 annual meeting of stockholders. Prior to February 24, 2011, Mr. Warren Wilcox also served on the Compensation Committee; he then again became a member of the Compensation Committee effective June 9, 2011, the date of the 2011 annual meeting of stockholders. Mr. Norman Sorensen became a member of the Compensation Committee on January 9, 2012. None of the Compensation Committee members had an interlocking relationship, as defined in the SEC rules, with our executive officers or with directors of another entity during the last fiscal year.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on that review and its discussions, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
J. Christopher Teets, Chairman
Norman Sorensen (joined January 9, 2012)
RISKS RELATED TO COMPENSATION POLICIES AND PRACTICES
Following a risk assessment of the Companys compensation policies and practices, the Company does not believe there are any risks from the Companys compensation policies and practices for its employees that are reasonably likely to have a material adverse effect on the Company.
The Compensation Committee assists the Board in fulfilling its risk management oversight responsibilities associated with risks arising from our employee compensation policies and practices. The Compensation Committee reviewed our compensation policies and practices in 2011 and concluded that they are reasonable, align the interests of our employees with our stockholders and do not contain features that may encourage excessive risk. Additionally, we believe that our performance-focused executive compensation policies highlighted below, and described in detail in our Compensation Discussion and Analysis, discourage inappropriate or excessive risk taking by our executive officers:
2011 SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation earned by, or paid to, each of our NEOs for services provided to us and our subsidiaries for the year ended December 31, 2011 and, to the extent any of these officers was a NEO in the prior years, for 2010 and 2009. Our NEOs for 2011 were our Executive Chairman, our President and CEO, and our Executive Vice President, CFO and Treasurer.
2011 GRANTS OF PLAN-BASED AWARDS
The following table sets forth summary information regarding all grants of plan-based awards made to our NEOs during the fiscal year ended December 31, 2011:
2011 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information concerning option awards and RSU awards that were outstanding and vested or unvested as of December 31, 2011 with respect to our NEOs. Vesting of each award accelerates upon death, disability or a change in control.
2011 OPTION EXERCISES AND STOCK VESTED
The following table includes certain information with respect to options exercised and RSU awards that vested for each of our NEOs during the fiscal year ended December 31, 2011.
2011 NON-QUALIFIED DEFERRED COMPENSATION
The table below includes certain information with respect to amounts deferred by our NEOs pursuant to our non-qualified deferred compensation plan as of the fiscal year ended December 31, 2011.
We previously offered our non-qualified deferred compensation plan to our NEOs as well as other key employees; however, since mid-year 2009, no new deferrals were allowed.
The non-qualified deferred compensation plan permitted deferrals of between 5% to 80% of a participants salary and 5% to 100% of a participants paid bonus. Amounts deferred were placed in a trust. For 2011, no employer contributions were made. However, we have, in the past, made contributions for certain executives, subject to vesting restrictions. Participants in the plan can direct the investment of their deferred compensation in reference accounts that mirror the performance of separate accounts offered by Principal Financial Group. The reference accounts available for investment, and the annualized rates of return realized in each during 2011, are listed below.
Participants in our non-qualified deferred compensation plan can elect to withdraw funds in their accounts in one of the following manners:
If the participants employment is terminated prior to the distribution date, subject to compliance with IRC Section 409A and applicable Treasury Regulations, the vested portion of the participants account balance is paid based on the participants prior election upon termination. If the participant dies prior to the distribution date and prior to retirement, all funds become immediately vested and are distributed either in one lump sum or in annual installments to named beneficiaries, in accordance with the participants election. If the participant dies following retirement while distribution payments are being made, payments continue to be made to named beneficiaries. In addition, participants can withdraw all vested funds or a portion of these funds prior to their elected distribution date in the case of certain hardship situations or permanent disability.
POTENTIAL PAYMENTS UPON A TERMINATION OR CHANGE IN CONTROL
This section describes the payments that may be made to our NEOs upon separation pursuant to individual agreements, based on certain assumptions or the circumstances described below. We do not have a separate plan offering separation payments other than the payments offered under these individual agreements, as described in more detail below. For more information on amounts payable to our NEOs under our non-qualified deferred compensation plan upon termination and other elected payout events pursuant to that plan, see the Non-qualified Deferred Compensation table and accompanying narrative above.
Severance Protection Agreements Mr. Black and Mr. Grinberg
On March 9, 2009, the Compensation Committee approved severance protection agreements for Mr. Black and Mr. Grinberg, and the agreements were signed on March 12, 2009. The terms and conditions of the severance protection agreements for Mr. Black and Mr. Grinberg are substantially the same, except as otherwise described below. Mr. Lund does not have a severance protection agreement.
The tables presented in this section were prepared assuming each event triggering a payment or other benefit occurred on December 31, 2011 using the base salaries in effect and the share price of our common stock as of that day (both as required by the SEC). Amounts for accrued but unpaid wages, accrued but unused paid-time off and reimbursable expenses payable upon separation are not reported in the Salary column because those are generally amounts that the employee is legally entitled to or amounts that all employees would be entitled to upon similar termination or resignation.
We note that because a change in control did not occur on December 31, 2011, and the executives were not terminated on that date, these tables are merely estimates intended to give the reader a general idea of possible payments upon a termination or change in control. There can be no assurance that a change in control would produce similar results to those described below if it were to occur in the future.
Payments upon a Termination Without Cause or for Good Reason.
Pursuant to the terms of the March 12, 2009 severance protection agreements, if the employment of Mr. Black or Mr. Grinberg is terminated without Cause (as defined below) or the executive resigns for Good Reason (as defined below) at any time during the term of his respective agreement, upon execution and delivery of a release and waiver of claims, the executive is entitled to continuation of his then-current salary, less applicable taxes and withholdings, for the following periods immediately following the executives date of termination: (i) 24 months in the case of Mr. Black and (ii) 12 months in the case of Mr. Grinberg. The executive would receive these payments in accordance with our regular payroll schedule. In addition, if the executive is terminated without Cause or resigns for Good Reason, he will receive bonus payments in the following amounts: (i) for Mr. Black, two times the average of his last three annual bonus payments on the earlier of when bonuses are paid to other employees for the year of his termination or 75 days following the end of such year, plus an additional amount paid at such time equal to the prorated portion of his target bonus for the year of termination up to the date of termination and (ii) for Mr. Grinberg, his target annual bonus for the year of his termination on the earlier of when bonuses are paid to other employees or 75 days following the end of such year, plus an additional amount paid at such time equal to the prorated portion of his target bonus for the year of termination up to the date of termination. If no target bonus has been set for the year in which termination occurs, (i) Mr. Black will receive a prorated portion of the average of his last three annual bonus payments and (ii) Mr. Grinberg will receive an amount equal to the average of his last three annual bonus payments plus a prorated portion of such average bonus. The terms of the agreement include a provision to pay COBRA continuation premiums for group health benefits or other individual health insurance premiums (to the extent the maximum COBRA period has been exceeded in the case of Mr. Black) for up to (i) 24 months for Mr. Black and
(ii) 12 months for Mr. Grinberg, subject to the executive not obtaining substantially comparable health benefits from a subsequent employer. The total amount of payments that would be owed to Mr. Black and Mr. Grinberg assuming a termination without Cause or resignation for Good Reason on December 31, 2011 are provided in the table below.
Restricted Stock Award Acceleration.
The RSA granted to Mr. Lund on June 15, 2010 in the amount of 70,000 shares vests as follows: 23,000 shares vested on February 20, 2011, 17,000 shares vested on February 20, 2012, 15,000 shares will vest on February 20, 2013 and 15,000 shares will vest on February 20, 2014. In the event that Mr. Lunds continuous service to the Company is terminated due to his death or disability, or by the Company without cause, the award will immediately vest in full. In addition, the Compensation Committee may in its sole discretion accelerate vesting at any time (in whole or in part) provided that such vesting does not cause the Company to lose a tax deduction under Section 162(m) of the Code.
Adjustments to Payments and Timing of Payments.
The timing of any payments to Mr. Black and Mr. Grinberg under their individual severance protection agreements are subject to the applicable requirements of IRC Section 409A and the related Treasury Regulations, and may be delayed as necessary to comply therewith. In addition, all severance payments and benefits payable under the agreements are subject to possible reduction to the extent necessary to avoid penalties assessed under IRC Sections 280G and 4999; specifically, Mr. Blacks and Mr. Grinbergs severance protection agreements provide that if any payment or benefit received pursuant to a change in control of the Company or otherwise that would be subject to the excise tax under IRC Section 4999, then such payment will be reduced so that either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (y) the largest portion, up to and including the total, of the payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the excise tax (all computed at the highest applicable marginal rate), results in his receipt, on an after-tax basis, of the greater amount of the payment.
Restrictive Covenants. As a condition to receiving the payments under their respective individual severance protection agreements, Mr. Black and Mr. Grinberg must agree to a broad release and waiver of claims. The agreements also provide certain notice and related requirements that must be met. In addition, each executive is subject to the following obligations while he is receiving payments and other benefits under the agreement:
Definitions. The term Cause is defined in the severance protection agreements as any one of the following reasons:
The term Good Reason is defined as any one of the following reasons:
The term Change of Control is defined in the 2005 Plan as any one of the following:
The following table summarizes the amounts we estimate would be payable to Messrs. Lund, Black and Grinberg upon a termination without Cause or resignation for Good Reason as outlined in their individual severance protection agreements and described above, assuming the triggering event occurred on December 31, 2011. For Mr. Lund, it includes an RSA granted on June 15, 2010, which vests in full upon termination by the Company without cause:
Change in Control, Death or Disability
Each of the stock options, RSAs and RSUs granted to our NEOs shown in the 2011 Outstanding Equity Awards at Fiscal Year End table provides for accelerated vesting of unvested shares under the option, RSA or RSU upon death or disability or the occurrence of a reorganization event or change in control, as defined in the option, RSA and RSU agreements and our 2005 Plan.
The following table summarizes the fair market value of unvested equity awards held by our NEOs which would accelerate in the event of a change in control, or upon death or disability, assuming a triggering event occurred on December 31, 2011.
Compensation Arrangements with Directors in 2011
The Board had established the following compensation arrangements for each of our non-employee directors, whether or not affiliated with our significant stockholders:
Non-employee directors may elect to receive any retainer in the form of cash, shares of our common stock, RSUs, deferred issuance RSUs, or any combination thereof, provided that any deferral arrangement is subject to applicable legal and regulatory requirements. Non-employee directors who serve on our Board as representatives of certain funds are allowed to assign the cash portion of their fees to the fund they represent and may hold their equity awards under nominee arrangements. All directors are reimbursed for their out-of-pocket expenses incurred in attending Board or committee meetings.
Compensation Arrangements with Directors in 2012
In order to better attract and retain qualified Board members, on December 7, 2011, after reviewing industry-related director compensation data, the Board approved a new director compensation program. The
program went into effect on January 1, 2012, but the below compensation, with the exception of initial appointments to the Board, begins at the annual meeting of stockholders. The following section contains the highlights under the new program.
For service on the Board and attendance at meetings of the Board and its committees, non-employee directors (Eligible Directors) will receive the following compensation:
Director compensation is based on annual service to the Company. All equity award grants are fully vested on the date of grant. Eligible Directors are not permitted to sell their shares until their service to the Company as a director terminates other than shares sold to cover applicable tax obligations related to the delivery of shares. If the Company declares a dividend, Eligible Directors would be paid a dividend in the same method and at the same time as other stockholders of the Company are paid such dividends. In addition, Eligible Directors may no longer elect to have all or a portion of their annual cash retainer paid in equity.
Recognizing that under the new program, the first payment will not be made until the annual meeting of stockholders in June 2012, the following compensation was paid or granted with respect to the transition period during the first six months of the 2012 year that Eligible Directors would otherwise not be compensated for under the new program:
Equity Award for Initial Appointments to the Board
Since Mr. Sorensen joined the Board in December 2011, he was eligible for an initial equity award with a grant-date fair market value of $50,000 granted as RSUs. This award was granted on January 20, 2012.
Starting in January 2012, each Eligible Director who joins the Board is eligible for an initial equity award with a grant-date fair market value of $50,000 (granted as shares of Company common stock or units of Company common stock, to be granted on the fifth business day following the date the Eligible Director becomes a member of the Board).
The following table sets forth the compensation earned by directors that are not also Named Executive Officers for service on our Board during the fiscal year ended December 31, 2011.
Related Person Transaction Policy and Procedures
In 2007, the Audit Committee of our Board adopted a written policy and related procedures concerning related person transactions. Under our written policy, the Audit Committee continues to be responsible for the regular review and approval or disapproval of related person transactions between the Company or a subsidiary of the Company and certain related persons. The policy tracks the SEC rules with respect to defining who and which transactions are covered by the policy. A related person is a director, officer, nominee for director, or 5% stockholder of the Company since the beginning of the last fiscal year and their immediate family members. Transactions covered by the policy are those in which the Company or a subsidiary of the Company is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest. In addition, the Audit Committee has determined that transactions with related persons, to the extent such transactions are not deemed material enough by the SEC to be disclosed or are already disclosed in some manner, are not deemed by the Audit Committee to be related person transactions under our policy.
Related Person Transactions
We have entered into indemnification agreements with each of our officers and directors pursuant to which we agreed to indemnify each officer and director to the fullest extent authorized by law against certain expenses and losses arising out of claims related to the service by such person as an officer or member of our Board or in certain other capacities.
Pursuant to indemnification agreements with our current and former executive officers and directors and underwriting agreements and registration rights agreements that also provide certain rights to indemnification, we have advanced the legal fees incurred on behalf of Messrs. Black, Lund, Weissman, Mandell, Wilcox, Mesdag, Teets and Oros, in the defense of litigation involving a derivative action brought on behalf of a shareholder claiming that some of the Companys collection practices were improper. During 2011, we paid approximately $155,745 in such legal fees and costs incurred, including Encores costs of defense, and in 2012, the Company has accrued approximately $80,000 in legal fees related to such matter.
In March 2011, JCF FPK I LP (JCF), Red Mountain Capital Partners II, L.P. (RM II) and Red Mountain Capital Partners III, L.P. (together with RM II, Red Mountain) sold 2,822,944 shares (the March 2011 Offering) of common stock in an underwritten public offering at a price to the public of $26.00 per share. JCF and RedMountain sold 1,765,717 and 1,057,227 aggregate shares, including shares sold pursuant to the over-allotment option, respectively. The Company did not receive any proceeds from the sale of the shares by JCF and RedMountain. In addition to paying the Companys expenses associated with the March 2011 Offering, the Company reimbursed JCF and Red Mountain for their legal expenses in the amount of approximately $107,000 pursuant to the Amended and Restated Registration Rights Agreement dated as of October 31, 2000.
In November 2011, JCF sold 3,610,000 shares (the November 2011 Offering) of common stock in an underwritten public offering at a price to the public of $24.35 per share. The Company did not receive any proceeds from the sale of the shares by JCF. In addition to paying the Companys expenses associated with the November 2011 Offering, the Company is obligated to reimburse JCF for its legal expenses in the amount of approximately $79,000 pursuant to the Amended and Restated Registration Rights Agreement dated as of October 31, 2000.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information concerning the beneficial ownership of our common stock as of April 13, 2012 by: (i) each director and director nominee; (ii) each Named Executive Officer; (iii) each person who is known by us to be the beneficial owner of more than five percent (5%) of our outstanding common stock; and (iv) all directors and executive officers as a group. Calculations of beneficial ownership are based on 24,695,920 shares of our common stock outstanding on April 13, 2012. Except as otherwise indicated, we believe each person has sole voting and investment power, subject to community property laws.
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about our existing equity compensation plans (including individual compensation arrangements) as of December 31, 2011.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms received by us during the year ended December 31, 2011, or written representations by the reporting persons, we believe that with respect to the fiscal year ended December 31, 2011, all of the reporting persons complied with all applicable filing requirements, with the exception of Messrs. Weissman, Oros, Mesdag and Teets, who each had one late filing due to an administrative error outside of their control.
We have selected BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2012, and we are submitting our selection of BDO USA, LLP for ratification by stockholders at the annual meeting. BDO USA, LLP began auditing our consolidated financial statements with the fiscal year ended December 31, 2001.
Stockholder ratification of the selection of BDO USA, LLP as our independent registered public accounting firm is not required. If our stockholders fail to ratify the election, the Audit Committee and the Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee and the Board in their discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such an appointment would be in our best interests and that of our stockholders.
Approval of this proposal requires the affirmative vote of the holders of a majority of the votes cast in person or by proxy and entitled to vote at the meeting.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We expect representatives of BDO USA, LLP to be available telephonically at the annual meeting and they will be given an opportunity to make a statement if they desire to do so and to respond to appropriate questions regarding BDO USA, LLP s audit of our consolidated financial statements and records for the fiscal year ended December 31, 2011.
Audit and Non-Audit Fees
The following table presents fees billed for professional audit services rendered by BDO USA, LLP as our independent registered public accounting firm for the audit of our annual financial statements for the fiscal years ended December 31, 2011 and 2010, and fees billed for other services rendered by BDO USA, LLP during those periods (in thousands):
Approval of Independent Registered Public Accounting Firm Services and Fees
The Audit Committee has adopted a policy requiring pre-approval of all audit, review and attest engagements and engagements for permitted non-audit services provided by the independent registered public accounting firm to the Company and any of our affiliates. The Audit Committee may pre-approve predictable and recurring services by category on an annual basis. The Audit Committee may delegate pre-approval authority to one or more of its members if the aggregate estimated fees for such services will not exceed $50,000 for any applicable fiscal year. The member to whom such authority is delegated must report any pre-approval granted to the Audit Committee at its next scheduled meeting.
In accordance with applicable SEC regulations, permitted non-audit services may be performed without pre-approval if: (1) the services were not recognized by the Company at the time of engagement to be non-audit services; (2) the aggregate amount of fees for all such services provided constitutes no more than 5% of the total amount of revenues paid by the Company to the independent registered public accounting firm during a fiscal year; (3) the services are brought promptly to the attention of the Audit Committee; and (4) the approval is given prior to the completion of the audit. The CFO is responsible for bringing to the attention of the Audit Committee any such services that were not pre-approved because they were not recognized by the Company at the time of engagement to be non-audit services. The Audit Committee pre-approved 100% of the audit-related services provided by our independent registered public accounting firm for the fiscal years ended December 31, 2011 and 2010.
REPORT OF THE AUDIT COMMITTEE
In accordance with our written charter, the Audit Committee assists the Board in oversight of the quality and integrity of the accounting, auditing, and financial reporting practices of the Company. We currently are composed of three members, each of whom has been determined by the Board to be an independent director, as independence is defined by the listing rules of The Nasdaq Stock Market and the rules and regulations of the SEC.
BDO USA, LLP, the Companys independent registered public accounting firm, has unrestricted access to the Audit Committee. The Audit Committee may invite other members of the Board to attend Audit Committee meetings based upon their expertise, familiarity with the Company and its industry and other factors.
In performing our oversight function, we have reviewed the Companys audited consolidated financial statements for the fiscal year ended December 31, 2011 and met with both management and BDO USA, LLP to discuss those consolidated financial statements. Management has represented to us that the consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. We have (i) received from, and discussed with, BDO USA, LLP written disclosures regarding its independence from the Company under PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, and matters required by Statement on Auditing Standards No. 61 (Communications with Audit Committees), as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T; and (ii) with and without management present, discussed and reviewed the results of BDO USA, LLPs audit of: (A) the Companys consolidated financial statements; and (B) the effectiveness of internal control over financial reporting.
Based on these reviews and discussions, and subject to the limitations on the role of the Audit Committee and the Audit Committees responsibility described in the Audit Committees written charter, the Audit Committee recommended to the Board that the Companys audited consolidated financial statements be included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
H Ronald Weissman, Chairman
J. Christopher Teets
Francis E. Quinlan
STOCKHOLDER PROPOSALS AND NOMINATIONS
Pursuant to SEC Rule 14a-8, Stockholder Proposals, proposals to be considered for inclusion in our proxy materials for the 2013 annual meeting, must be received at our principal executive offices by December 28, 2012 if our 2012 annual meeting is held within 30 days of June 6, 2013. If, however, our 2013 annual meeting is more than 30 days before or after June 6, 2013, proposals for the meeting must be received by a reasonable time before we print and mail our proxy statement for that meeting. Such proposals may be included in our proxy materials if they comply with requirements as to form and substance established by the SEC.
Under our Bylaws, a stockholder who wishes to nominate directors or bring other business before the 2013 annual meeting of stockholders without including the proposal in our proxy materials for that meeting must notify us no earlier than February 6, 2013 and no later than March 8, 2013, unless, for purposes of a stockholder proposal, the date of the 2012 annual meeting of stockholders is called for a date that is not within 30 days before or after June 6, 2013 (in which event the stockholder must notify us by the tenth day following the day on which the notice of the date of the annual meeting is mailed or public disclosure of the date of the annual meeting is made, whichever first occurs). If the stockholder fails to give notice by this date, then the persons named as proxies in the proxies solicited by the Board for the 2013 annual meeting may exercise discretionary voting power regarding any such proposal.
Additional requirements with respect to stockholder proposals and director nominations are set forth in our Bylaws.
Annual Report on Form 10-K
We are providing with this proxy statement a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which includes financial statements, schedules and a list of Exhibits. Any stockholder of record who wishes to receive an additional copy of the annual report or this proxy statement or any of the Exhibits may (i) call Encore at (877) 445-4581 or (ii) mail a request to: Encore Capital Group, Inc., 3111 Camino Del Rio North, Suite 1300, San Diego, CA 92108, Attention: Corporate Secretary, and we will promptly deliver the requested materials to you upon your request.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on June 6, 2012
Our proxy statement and Annual Report on Form 10-K are available at the following website address: http://phx.corporate-ir.net/phoenix.zhtml?c=115920&p=irol-proxy
As of the date of this proxy statement, the Board does not intend to present at the annual meeting any matters other than those described herein and does not presently know of any matters that will be presented by other parties. If any other matter is properly brought before the meeting for action by stockholders, proxies in the enclosed form returned to us will be voted in accordance with the recommendation of the Board or, in the absence of such a recommendation, in accordance with the judgment of the proxy holder.
ENCORE CAPITAL GROUP, INC.
J. Brandon Black
President and Chief Executive
April 27, 2012
Appendix A: Industry Group
Advance America, Cash Advance Centers, Inc.
Affiliated Managers Group Inc.
AGF Management Limited
Artio Global Investors Inc.
Asset Acceptance Capital Corp.
Asta Funding Inc.
Capital Trust Inc
Cash America International Inc.
CBOE Holdings, Inc.
CIT Group Inc.
CME Group Inc.
Compucredit Holdings Corp
Credit Acceptance Corp
DFC Global Corp.
Duff & Phelps Corp
Dun & Bradstreet Corp.
Federal Agricultural Mortgage Corp.
First Cash Financial Services Inc.
GFI Group Inc.
Global Cash Access Holdings, Inc.
Green Dot Corp.
Istar Financial Inc.
Life Partners Holdings Inc.
LPL Investment Holdings Inc.
Moneygram International Inc.
Municipal Mortgage & Equity LLC
Nasdaq OMX Group, Inc.
Net 1 UEPS Technologies Inc.
Netspend Holdings, Inc.
Newstar Financial, Inc.
Nicholas Financial Inc.
Northern Trust Corp.
Online Resources Corp.
Orbitz Worldwide, Inc.
Pinnacle Financial Partners Inc.
Portfolio Recovery Associates Inc.
Primus Guaranty Ltd.
QC Holdings, Inc.
Resource Capital Corp.
Virtus Investment Partners, Inc.
Willis Group Holdings Plc
Willis Lease Finance Corp.
World Acceptance Corp.
Appendix B: Revenue Group
Advanced Bioenergy, LLC
Align Technology Inc.
American States Water Co.
Biomarin Pharmaceutical Inc.
Biomed Realty Trust Inc.
Breitburn Energy Partners L.P.
Build A Bear Workshop Inc.
C&D Technologies Inc.
Cabot Microelectronics Corp.
Calavo Growers Inc.
Capitol Federal Financial Inc.
Casual Male Retail Group Inc.
Cirrus Logic Inc.
Cogo Group, Inc.
Colonial Properties Trust
Consolidated Communications Holdings, Inc.
CPI International, Inc.
Digital River Inc.
Donegal Group Inc.
Doral Financial Corp.
Duff & Phelps Corp.
EMS Technologies Inc.
Entercom Communications Corp.
Evercore Partners Inc.
Frozen Food Express Industries Inc.
General Maritime Corp.
Global Indemnity Plc
Golfsmith International Holdings Inc.
Gran Tierra Energy, Inc.
Grand Canyon Education, Inc.
Great Canadian Gaming Corporation
Green Dot Corp.
Greenlight Capital Re, Ltd.
Gulfmark Offshore Inc.
Hancock Holding Co.
Haynes International Inc.
Horsehead Holding Corp.
Integrated Healthcare Holdings Inc.
Interval Leisure Group, Inc.
Intrepid Potash, Inc.
IPC The Hospitalist Company, Inc.
Johnson Outdoors Inc.
Journal Communications Inc.
Kratos Defense & Security Solutions, Inc.
Krispy Kreme Doughnuts Inc.
Ladish Co Inc.
Lantheus Medical Imaging, Inc.
Lionbridge Technologies Inc.
McCormick & Schmicks Seafood Restaurants Inc.
Medical Action Industries Inc.
Metropolitan Health Networks Inc.
MFA Financial, Inc.
Mid America Apartment Communities Inc.
Movado Group Inc.
MPG Office Trust, Inc.
MTS Systems Corp.
Myriad Genetics Inc.
National Interstate Corp.
National Penn Bancshares Inc.
Netlogic Microsystems Inc.
NewAlliance Bancshares Inc.
Northwest Bancshares, Inc.
Northwest Pipe Co.
Ocwen Financial Corp.
Orion Marine Group Inc.
Ormat Technologies, Inc.
Portfolio Recovery Associates Inc.
Progress Energy Resources Corp.
Prosperity Bancshares Inc.
Quality Systems, Inc.
Ruths Hospitality Group, Inc.
Silicon Graphics International Corp.
Smith & Wesson Holding Corp.
Standard Microsystems Corp.
STR Holdings, Inc.
Symmetry Medical Inc.
TAL International Group, Inc.
Telecommunication Systems Inc.
True Religion Apparel Inc.
Vera Bradley, Inc.
Westwood One Inc.
Wilmington Trust Corp.
Wright Express Corp.
Appendix C: Net Income Group
Advanced Energy Industries Inc.
Ameron International Corp.
Atheros Communications Inc.
Aveva Group Plc.
Avis Budget Group, Inc.
Barnes Group Inc.
BGC Partners, Inc.
Black Box Corp.
Boston Beer Co Inc.
Cabot Microelectronics Corp.
Calfrac Well Services Ltd.
Capital Southwest Corp.
CEC Entertainment Inc.
Central Garden & Pet Co.
China Automotive Systems Inc.
Cohen & Steers Inc.
Contango Oil & Gas Co.
Dorman Products, Inc.
Emergent Biosolutions Inc.
Empire District Electric Co.
Entercom Communications Corp.
Evans Bob Farms Inc.
First Cash Financial Services Inc.
Getty Realty Corp.
Glatfelter P H Co.
Graham Packaging Co Inc.
Green Plains Renewable Energy, Inc.
Group 1 Automotive Inc.
Gulfport Energy Corp.
Hancock Holding Co.
Harte Hanks Inc.
H H Gregg, Inc.
Hibbett Sports Inc.
Holly Energy Partners LP
Hyatt Hotels Corp.
Innophos Holdings, Inc.
International Speedway Corp.
Internet Capital Group Inc.
Intrepid Potash, Inc.
IPG Photonics Corp.
J&J Snack Foods Corp.
Jakks Pacific Inc.
Jones Group Inc.
Laclede Group Inc.
Lee Enterprises, Inc.
LHC Group, Inc.
Maidenform Brands, Inc.
Molina Healthcare Inc.
Monro Muffler Brake Inc.
Nash Finch Co.
Omega Healthcare Investors Inc.
OptionsXpress Holdings, Inc.
Orbital Sciences Corp.
P F Changs China Bistro Inc.
Papa Johns International Inc.
Party City Holdings Inc.
Petrobakken Energy Ltd.
Phillips Van Heusen Corp.
Postrock Energy Corp.
Power Integrations Inc.
Progress Software Corp.
Provident Financial Services Inc.
Rackspace Hosting, Inc.
Ruby Tuesday Inc.
SCBT Financial Corp.
Smart Modular Technologies, Inc.
Speedway Motorsports Inc.
SRAM International Corp
State Bank Financial Corp.
Stein Mart Inc.
Stillwater Mining Co.
STR Holdings, Inc.
Superior Industries International Inc.
Swift Energy Co.
Take Two Interactive Software Inc.
Taubman Centers Inc.
Teletech Holdings Inc.
Terra Nova Royalty Corp.
Tootsie Roll Industries Inc.
UIL Holdings Corp.
United Fire & Casualty Co.
United Online Inc.
Usana Health Sciences Inc.
Vector Group Ltd.
Vera Bradley, Inc.
WebMD Health Corp.
Webster Financial Corp.
Weingarten Realty Investors
World Wrestling Entertainment Inc.
Appendix D: Market Capitalization Group
1st Source Corp.
A123 Systems, Inc.
Advance America, Cash Advance Centers, Inc.
Albany International Corp.
American Axle & Manufacturing Holdings Inc.
American Equity Investment Life Holding Co.
American Science & Engineering, Inc.
American States Water Co.
Ameristar Casinos Inc.
Applied Signal Technology Inc.
Asbury Automotive Group Inc.
Ascent Media Corp.
Ashford Hospitality Trust Inc.
Atlantic Tele Network Inc.
Badger Meter Inc.
Bebe Stores, Inc.
Beneficial Mutual Bancorp Inc.
BGC Partners, Inc.
Bio Reference Laboratories Inc.
Blue Coat Systems Inc
Blue Nile Inc.
Brooks Automation Inc.
CEC Entertainment Inc.
Checkpoint Systems Inc.
Cheniere Energy Inc.
Cincinnati Bell Inc.
Circor International Inc.
Cogent Communications Group Inc.
Colony Financial, Inc.
Columbia Banking System Inc
Compass Diversified Holdings
Consolidated Communications Holdings, Inc.
Constant Contact, Inc.
DG Fastchannel, Inc
Dorman Products, Inc.
Dycom Industries Inc.
Education Realty Trust, Inc.
Electronics for Imaging Inc.
Emergent Biosolutions Inc.
EMS Technologies Inc.
Evercore Partners Inc.
Faro Technologies Inc.
First Midwest Bancorp Inc.
First Potomac Realty Trust
Fortress Investment Group LLC
G III Apparel Group Ltd.
G&K Services Inc.
Getty Realty Corp.
GFI Group Inc.
Glatfelter P H Co.
Golden Star Resources Ltd.
Goodrich Petroleum Corp.
Gorman Rupp Co.
Hanger Orthopedic Group Inc.
Harbinger Group Inc.
Haynes International Inc.
Hercules Offshore, Inc.
Hersha Hospitality Trust
Home Bancshares Inc
Horace Mann Educators Corp.
Hornbeck Offshore Services Inc.
ICU Medical Inc.
Idenix Pharmaceuticals Inc.
Infinity Property & Casualty Corp.
Insituform Technologies Inc
Inter Parfums Inc.
Interactive Intelligence Inc.
International Speedway Corp.
Investors Real Estate Trust
IPC The Hospitalist Company, Inc.
Iridium Communications Inc.
Istar Financial Inc.
Ivanhoe Energy Inc
Kapstone Paper & Packaging Corp.
Kearny Financial Corp.
Kindred Healthcare, Inc.
Koppers Holdings Inc.
Krispy Kreme Doughnuts Inc.
Kulicke&Soffa Industries Inc.
Layne Christensen Co.
Liquidity Services Inc.
Mistras Group, Inc.
MTS Systems Corp.
Nacco Industries Inc.
National Financial Partners Corp.
National Presto Industries Inc.
National Western Life Insurance Co.
Navigators Group Inc.
Netscout Systems Inc.
Netspend Holdings, Inc.
Northfield Bancorp, Inc.
NPS Pharmaceuticals Inc.
Oxford Industries Inc.
P F Changs China Bistro Inc.
Parker Drilling Co.
Pennsylvania Real Estate Investment Trust
Petroleum Development Corp.
Pico Holdings Inc.
Prestige Brands Holdings, Inc.
Primoris Services Corp.
QR Energy, LP
Rex Energy Corp.
Rigel Pharmaceuticals Inc.
RofinSinar Technologies Inc.
Ruby Tuesday Inc.
Safety Insurance Group Inc.
Sagent Pharmaceuticals, Inc.
Saul Centers Inc.
Schulman A Inc.
Smart Modular Technologies, Inc.
Sonic Automotive Inc.
Speedway Motorsports Inc.
Stage Stores Inc.
State Auto Financial Corp.
Steiner Leisure Ltd.
Stewart Enterprises Inc.
Sturm Ruger& Co Inc.
Sunstone Hotel Investors, Inc.
Super Micro Computer, Inc.
Tejon Ranch Co.
Titan Machinery Inc.
Tutor Perini Corp.
Universal Forest Products Inc.
Wells Fargo Advantage Multi-Sector Income Fund
Wright Medical Group Inc.
ENCORE CAPITAL GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS, JUNE 6, 2012
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned acknowledges receipt of the notice of annual meeting of Stockholders to be held on June 6, 2012 and the proxy statement and appoints J. Brandon Black and Paul Grinberg, or either of them, the proxy of the undersigned, with full power of substitution, to vote all shares of common stock of Encore Capital Group, Inc. that the undersigned is entitled to vote, either on his or her own behalf or on behalf of an entity or entities, at the annual meeting of Stockholders of Encore to be held at The Chatwal, 130 West 44th Street, New York, New York 10036, on June 6, 2012, at 8:30 a.m. Eastern time, and at any adjournment or postponement thereof, and to vote in their discretion on such other business as may properly come before the annual meeting and any postponement or adjournment thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
ANNUAL MEETING OF STOCKHOLDERS
ENCORE CAPITAL GROUP, INC.
June 6, 2012
PROXY VOTING INSTRUCTIONS
INTERNET Access www.voteproxy.com and follow the on-screen instructions. Have your proxy card available when you access the web page, and use the Company Number and Account Number shown on your proxy card.
TELEPHONE Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries and follow the instructions. Have your proxy card available when you call, and use the Company Number and Account Number shown on your proxy card.
Vote online/phone until 11:59 PM EST the day before the meeting.
MAIL Date, sign and mail your proxy card in the envelope provided as soon as possible.
IN PERSON You may vote your shares in person by attending the annual meeting.
Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to be Held on June 6, 2012:
The Proxy Statement and the Annual Report on Form 10-K are available at
Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE: x
This Proxy, when properly executed, will be voted as specified above. If no specification is made, this Proxy will be voted FOR the election of the above-listed nominees and FOR Proposal 2. This proxy also confers discretionary authority to vote on such other matters as may come before the annual meeting. The undersigned hereby revokes any proxy or proxies heretofore given to vote such shares at such meeting or at any adjournment or postponement thereof.
MARK X HERE IF YOU PLAN TO ATTEND THE MEETING. ¨
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. ¨
Date: Signature of Stockholder: Date: Signature of Stockholder: