Annual Reports

 
Quarterly Reports

 
8-K

 
Other

  • Form 4 (Mar 1, 2018)
  • SC 13G (Feb 9, 2018)
  • SC 13G (Feb 8, 2018)
  • SC 13G (Feb 1, 2018)
  • SC 13G (Jan 19, 2018)
  • Form 4 (Jan 3, 2018)
ESSENDANT INC DEF 14A 2016
DEF 14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.     )

Filed by the Registrant

Filed by a Party other than the Registrant

Check the appropriate box:

 

¨

Preliminary Proxy Statement

 

¨

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x

Definitive Proxy Statement

 

¨

Definitive Additional Materials

 

¨

Soliciting Material under Rule 14a-12

ESSENDANT 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):

 

x

No fee required.

 

¨

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

(5)

Total fee paid:

 

 

¨

Fee paid previously with preliminary materials.

 

 

¨

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

Amount Previously Paid:

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

(3)

Filing Party:

 

 

 

(4)

Date Filed:

 

 

 

 

 


Table of Contents

LOGO

Essendant Inc.

One Parkway North Boulevard

Deerfield, Illinois 60015

April 13, 2016

Dear Stockholder:

On behalf of the Board of Directors and management of Essendant Inc., I cordially invite you to attend the 2016 Annual Meeting of Stockholders. The Annual Meeting will be held on Wednesday, May 25, 2016, at 2:00 p.m. Central Time, at the Company’s offices located at One Parkway North Boulevard, Deerfield, Illinois.

At this year’s Annual Meeting, the matters to be considered by stockholders are the election of three Class III directors to serve for a three-year term expiring in 2019, the ratification of the selection of the Company’s independent registered public accounting firm for 2016, an advisory vote on executive compensation and the transaction of such other business as may properly come before the meeting. The Board of Directors has unanimously recommended a vote “FOR” election of the nominees named in the accompanying Proxy Statement, “FOR” ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm, and “FOR” approval of our executive compensation.

Whether or not you plan to attend the Annual Meeting, we encourage you to read the accompanying Proxy Statement and vote promptly. To ensure that your shares are represented at the meeting, we recommend that you submit a proxy to vote your shares through the Internet by following the instructions set forth in the Notice of Internet Availability of Proxy Materials. You may also vote by telephone or mail by requesting a paper copy of the proxy materials, which will include a proxy card with instructions on how to vote. The Notice of Internet Availability of Proxy Materials contains instructions on how to request paper copies of the proxy materials. This way, your shares will be voted even if you are unable to attend the meeting. This will not, of course, limit your right to attend the meeting or prevent you from voting in person at the meeting if you wish to do so.

Your Directors and management look forward to personally meeting those of you who are able to attend.

Sincerely yours,

 

LOGO

Charles K. Crovitz

Chairman of the Board

 


Table of Contents

LOGO

Essendant Inc.

One Parkway North Boulevard

Deerfield, Illinois 60015

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 
Date:   Wednesday, May 25, 2016, at 2:00 p.m. Central Time
Location:   Company’s offices located at One Parkway North Boulevard, Deerfield, Illinois
Items of Business:   1.    To elect three Class III directors to serve for a three-year term expiring in 2019;
  2.    To ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2016;
  3.    To cast an advisory vote on executive compensation; and
  4.    To transact such other business as may properly come before the meeting or any adjournments or postponements thereof.

The Board of Directors has unanimously recommended a vote “FOR” election of the nominees, “FOR” ratification of the selection of the independent registered public accounting firm, and “FOR” approval of our executive compensation.

The record date for the Annual Meeting is the close of business on Monday, March 28, 2016. Only stockholders of record as of that time and date are entitled to notice of, and to vote at, the meeting. Record holders of the Company’s Common Stock as of the record date may submit their proxies by following the voting instructions set forth in the Notice of Internet Availability of Proxy Materials.

By Order of the Board of Directors,

 

Eric A. Blanchard

Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 25, 2016

The proxy statement and Form 10-K are available at

essendant.com/proxymaterials

 


Table of Contents

TABLE OF CONTENTS

 

 

Table of Contents

 

     Page  
Proxy and Voting Information      5   
Proposal 1: Election of Directors      9   

General

     9   

Director Nominees

     10   

Continuing Directors

     11   
Governance and Board Matters      14   

Corporate Governance Principles

     14   

Code of Conduct

     14   

Board Independence

     14   

Board Leadership Structure

     15   

Board Diversity

     15   

Board’s Role in Risk Management

     16   

Executive Sessions

     16   

Self-Evaluation

     16   

Board Meetings and Attendance

     17   

Board Committees

     17   

Consideration of Director Nominees

     20   

Communications with the Board and Annual Meeting Attendance

     21   
Executive Compensation      22   

Compensation Discussion and Analysis

     24   

Human Resources Committee Report

     42   

Summary Compensation Table

     43   

Grants of Plan-Based Awards During 2015

     45   

Outstanding Equity Awards at December 31, 2015

     47   

Option Exercises and Stock Vested in 2015

     48   

Retirement Benefits

     48   

Pension Benefits in 2015

     49   

Non-qualified Deferred Compensation in 2015

     49   

Employment Contracts and Employment Termination and Change of Control Arrangements

     50   

Potential Post-Employment Payments

     54   
Director Compensation      58   

General

     58   

Cash Compensation

     58   

Deferred Compensation

     58   

Equity Compensation

     59   

2015 Director Compensation Table

     59   

Directors’ Outstanding Option and Stock Awards at December 31, 2015

     60   
Equity Compensation Plan Information      61   

Overview

     61   
Compensation Committee Interlocks and Insider Participation      62   

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   
       


Table of Contents

TABLE OF CONTENTS

 

 

     Page  
Voting Securities and Principal Holders      63   

Security Ownership of Certain Beneficial Owners

     63   

Security Ownership of Management

     64   

Section 16(a) Beneficial Ownership Reporting Compliance

     64   
Report of the Audit Committee      65   

The Audit Committee

     65   

Audit Committee Charter and Responsibilities

     65   

Audit Committee Report

     66   
Certain Relationships and Related Party Transactions      67   

Related Person Transaction Approval Policy

     67   
Proposal 2: Ratification of Selection of the Company’s Independent Registered Public Accounting Firm      68   

General

     68   

Fee Information

     68   

Audit Committee Pre-Approval Policy

     69   
Proposal 3: Advisory Vote on Executive Compensation      70   
Stockholder Proposals      71   

Deadline for Inclusion in Proxy Statement

     71   

Deadline for Notice of Other Stockholder Proposals/Director Nominations

     71   
Other Business      72   
APPENDIX A – Reconciliation Of Non-GAAP Financial Measures to GAAP Financial Measures      A-1   

 

     
   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

PROXY SUMMARY

 

 

Proxy Summary

This summary highlights selected information that is provided in more detail throughout this Proxy Statement. This summary does not contain all of the information you should consider before voting, and you should read the full Proxy Statement before casting your vote.

 

Annual Meeting Information
Date    May 25, 2016
Time    2:00 p.m. Central Time
Location    Company’s offices located at One Parkway North Boulevard, Deerfield, Illinois
How to Vote     

•    By Internet

   Access www.proxyvote.com

•    By Telephone

   You must request a paper copy of the proxy materials, which will include a proxy card with instructions on how to vote by telephone.

•    By Mail

   You must request a paper copy of the proxy materials, which will include a proxy card with instructions on how to vote by mail.

•    In Person

   Attend the Annual Meeting and vote

Additional information about the Annual Meeting and voting can be found beginning on page 5.

 

LOGO

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  1  

       


Table of Contents

PROXY SUMMARY

 

 

 

LOGO

Voting Matters and Board Recommendations

At this year’s Annual Meeting, our shareholders will vote on the following matters:

 

Proposal

  Board Recommendation    Additional Information

Proposal 1:

Election of Directors

  FOR    See pages 9 through 13 for more information on the nominees.

Proposal 2:

Ratification of Selection of the Company’s Independent Registered Public Accounting Firm

  FOR    See pages 68 and 69 for details.

Proposal 3:

Advisory Vote on Executive

Compensation

  FOR    See page 70 for details.

Executive Compensation Highlights

 

    The primary elements of our compensation program are base salary, annual cash incentive awards and long-term equity incentive awards.

 

    We delivered solid financial performance in 2015 in the face of a challenging economic and industry environment.

 

    However, our performance was below our internal performance goals and as a result our payouts to executives were below target.

 

    Essendant’s compensation philosophy to pay for performance guided the 2015 executive compensation plan.

 

     

 

  2  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

PROXY SUMMARY

 

 

Compensation Summary

 

Name and Principal Position

 

Salary

($)

   

Bonus

($)

   

Stock

Awards

($)

   

Non-Equity

Incentive Plan

Compensation

($)

   

Change in
Pension
Value  and
Nonqualified
Deferred
Compensation
Earnings

($)

   

All Other

Compensation

($)

   

Total

Compensation

($)

 

Robert B. Aiken, Jr.

    530,768        166,000        2,060,502        166,667               19,147        2,943,084   

President and Chief Executive Officer

                                                       

Earl C. Shanks

    63,035               249,995        15,833               290,094        618,956   

Senior Vice President and Chief Financial Officer

                                                       

Timothy P. Connolly

    471,417        53,624        1,221,059        105,150               29,578        1,880,827   

Senior Vice President and Chief Operating Officer

                                                       

Eric Blanchard

    375,000        2,856        656,220        56,250        1,001        31,306        1,122,633   

Senior Vice President, General Counsel and Secretary

                                                       

Richard D. Phillips

    375,000               656,220        46,875               28,748        1,106,843   

Senior Vice President, Strategy and President, ORS Industrial

                                                       

P. Cody Phipps

    775,127               1,439,989                      518,021        2,733,137   

Former President and Chief Executive Officer

                                                       

Todd A. Shelton

    440,000        3,879        1,077,974        77,000               30,470        1,613,923   

Former Senior Vice President and Chief Financial Officer

                                                       

 

LOGO

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  3  

       


Table of Contents

PROXY SUMMARY

 

 

Changes to Executive Compensation Program

 

    In 2015 we revised the Management Cash Incentive Awards Plan, replacing Adjusted Net Income with Adjusted EBIT as a more appropriate annual performance measure and changing the weightings of Adjusted Cost Factor and Adjusted Working Capital Efficiency.

 

    In 2015 we changed our Long-Term Incentive Plan, adopting three-year cliff vesting for performance-based awards, adding Adjusted Working Capital Efficiency as a second performance metric for performance-based awards, and adjusting the allocation of the target value of annual grants between performance-based restricted stock units and time-based restricted stock.

 

    In 2016 we introduced relative Total Stockholder Return (“TSR”) as a performance metric for performance-based awards under our Long-Term Incentive Plan.

Corporate Governance Highlights

 

Board Independence

   

Independent Directors

 

8 out of 9

Independent Chair of the Board

 

Charles Crovitz

Evaluating and Improving Board Performance

   

Board evaluations

 

Annual

Committee evaluations

 

Annual

Aligning Director and Executive Interest with Shareholder Interests

   

Director stock ownership requirements

 

Yes

Executive officer stock ownership requirements

 

Yes

Policy restricting trading and prohibiting hedging and short-selling of ESND stock

 

Yes

Compensation clawback policy for executive officers

 

Yes

 

     

 

  4  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

PROXY AND VOTING INFORMATION                        

 

 

Proxy and Voting Information

The Board of Directors of Essendant Inc. (referred to as “we”, “our” or the “Company” in this Proxy Statement) is soliciting your proxy for use at our 2016 Annual Meeting of Stockholders and any adjournments or postponements thereof (the “Annual Meeting”).

What is a Notice of Internet Availability of Proxy Materials

Under rules of the Securities and Exchange Commission, we are furnishing proxy materials to our stockholders on the Internet, rather than mailing printed copies to our stockholders. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request one as instructed in that notice. Instead, the Notice of Internet Availability of Proxy Materials will instruct you as to how you may access and review the proxy materials on the Internet as well as vote your shares online. You may also vote by telephone or mail by requesting a paper copy of the proxy materials, which will include a proxy card with instructions on how to vote. The Notice of Internet Availability of Proxy Materials contains instructions on how to request paper copies of the proxy materials. We expect to commence mailing the Notice of Internet Availability of Proxy Materials to our stockholders on or about April 13, 2016.

Who May Vote

Holders of record of our Common Stock at the close of business on Monday, March 28, 2016 (the “Record Date”) may vote at the Annual Meeting. On that date, 37,102,335 shares of our Common Stock were issued and outstanding. Each share entitles the holder to one vote.

How to Vote

If you are a holder of record of our Common Stock (meaning, the shares are registered by our transfer agent directly in your own name) on the Record Date, you may submit a proxy with your voting instructions by the applicable deadline shown on the Notice of Internet Availability of Proxy Materials or proxy card using any of the following methods:

 

    Through the Internet: Go to the website http://www.proxyvote.com and follow the instructions on the Notice of Internet Availability of Proxy Materials to view the proxy materials online and vote your shares through the Internet.

 

    By Telephone:
  ¡    You must request a paper copy of the proxy materials, which will include a proxy card with instructions on how to vote by telephone.
  ¡    Please review the Notice of Internet Availability of Proxy Materials for instructions on how to order paper copies of the proxy materials.

 

    By Mail:
  ¡    You must request a paper copy of the proxy materials, which will include a proxy card with instructions on how to vote by mail.
  ¡    Please review the Notice of Internet Availability of Proxy Materials for instructions on how to order paper copies of the proxy materials.

If you choose to submit your proxy with voting instructions by telephone or through the Internet, you will be required to provide your assigned control number shown on the Notice of Internet Availability of Proxy Materials or proxy card before your proxy and voting instructions will be accepted. Once you

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  5  

       


Table of Contents

                         PROXY AND VOTING INFORMATION

 

 

have indicated how you want to vote in accordance with those instructions, you will receive confirmation that your proxy has been submitted successfully by telephone or through the Internet.

If you hold your shares of our Common Stock in “street name” through a broker, bank, custodian, fiduciary or other nominee, you should review the separate Notice of Internet Availability of Proxy Materials supplied by that firm to determine whether and how you may vote by mail, telephone or through the Internet. To vote these shares, you must use the appropriate voting instruction form or toll-free telephone number or website address specified on that firm’s voting instruction form for beneficial owners.

How Proxies Work

Giving your proxy means that you authorize the persons named as proxies to vote your shares at the Annual Meeting in the manner you direct. If you hold any shares in the Company’s Employee Stock Purchase Plan (“ESPP”), your proxy (whether given by mailing the proxy card or voting by telephone or through the Internet) will also serve as voting instructions to Computershare Trust Company, as nominee holder under the ESPP, with respect to the shares allocated to your account in the ESPP.

If you sign and return a proxy card, or use telephone or Internet voting, but do not specify how you want to vote your shares, the proxies will vote your shares “FOR” the election of each of the three director nominees, “FOR” the ratification of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2016, and “FOR” approval of our executive compensation. If you specify how you want to vote your shares on some matters but not others, the proxies will vote your shares as directed on the matters that you specify and as indicated above on the other matters described in this proxy statement. However, if you hold shares in the ESPP, Computershare Trust Company, as nominee holder under the ESPP, will not vote shares allocated to your ESPP account unless you indicate your voting instructions. The proxies will also vote your shares in their discretion on any other business that may properly come before the meeting.

Revocation of Proxies

If you have voted by submitting a proxy, you may revoke your proxy at any time before it is exercised at the Annual Meeting by any of the following methods:

 

    Requesting and submitting a new proxy card that is properly signed with a later date;
    Voting again at a later date by telephone or through the Internet — your latest voting instructions received before the deadline for telephone or Internet voting, 11:59 p.m. Eastern Time on May 24, 2016, will be counted and your earlier instructions revoked;
    Sending a properly signed written notice of your revocation to the Secretary of the Company at Essendant Inc., One Parkway North Boulevard, Deerfield, Illinois 60015-2559; or
    Voting in person at the Annual Meeting. Attendance at the Annual Meeting will not itself revoke an earlier submitted proxy.

A proxy card with a later date or written notice of revocation shall not constitute a revocation of a previously submitted proxy unless it is received by the Secretary of Essendant Inc. before the previously submitted proxy is exercised at the Annual Meeting.

Quorum

To conduct the business of the Annual Meeting, we must have a quorum. Under our current Bylaws, a quorum for the Annual Meeting requires the presence, in person or by proxy, of the holders of a majority

 

     

 

  6  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

PROXY AND VOTING INFORMATION                            

 

 

of the 37,102,335 shares of our Common Stock issued and outstanding on the Record Date. Under Delaware law and our Bylaws, we count instructions to withhold voting authority for director nominees, any abstentions and broker non-votes as present at meetings of our stockholders for the purpose of determining the presence of a quorum.

Shares Held Through Broker or Other Nominee

In general, a broker who holds securities as a nominee in street name has limited authority to vote on matters submitted at a stockholders’ meeting in the absence of specific instructions from the beneficial owner. In the absence of instructions from the beneficial owner or authorization from the regulatory agency of which the broker is a member to vote on specific matters without the need to obtain instructions from the beneficial owner, a broker will specify a “non-vote” on those matters. Brokers are typically permitted to vote for the ratification of the selection of the independent registered public accounting firm if they have not received instructions from the beneficial owner; however, brokers may not vote on the other matters described in this Proxy Statement without specific instructions from the beneficial owner.

Required Votes

Election of Directors

The nominees for director will be elected by a plurality of the votes cast at the Annual Meeting. This means that the three nominees who receive the greatest number of votes will be elected as directors. Broker non-votes and instructions to withhold authority to vote for one or more nominees are not counted for this purpose and will not affect the outcome of this election.

We have adopted a so-called “plurality-plus” standard. In accordance with procedures set forth in the Company’s Corporate Governance Principles, any incumbent director (including the three nominees standing for election at the Annual Meeting) who receives a greater number of votes withheld from his or her election than votes “FOR” his or her election in an uncontested election will be expected to tender his or her resignation for consideration by the Company’s Governance Committee. The Governance Committee will consider the resignation and, within 45 days following the date of the applicable annual meeting, make a recommendation to the Board concerning the acceptance or rejection of the resignation. The Board will then take formal action on the Governance Committee’s recommendation no later than 90 days following the date of the annual meeting. Following the Board’s decision on the Committee’s recommendation, we will publicly disclose the Board’s decision together with an explanation of the process by which the decision was made and, if applicable, the Board’s reason or reasons for rejecting the tendered resignation.

Ratification of Ernst & Young

Ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm will require the affirmative vote of a majority of the shares of Common Stock represented at the Annual Meeting and entitled to vote on such matter. Abstentions will be counted as represented and entitled to vote for purposes of determining the total number of shares that are represented and entitled to vote with respect to this proposal. As a result, an abstention from voting on this proposal will have the same effect as a vote “AGAINST” the matter. Broker non-votes will not be considered as represented and entitled to vote with respect to this proposal and will have no effect on the voting on this matter.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  7  

       


Table of Contents

                         PROXY AND VOTING INFORMATION

 

 

Advisory Vote on Executive Compensation

The vote on the approval of our executive compensation is advisory and non-binding. However, we will consider our stockholders to have approved our executive compensation if the number of votes “FOR” this proposal exceeds the number of votes “AGAINST” this proposal. Accordingly, abstentions and broker non-votes will not affect the outcome of this advisory vote.

We do not know of any other matters to be submitted for stockholder action at the Annual Meeting.

Costs of Proxy Solicitation

We will bear the costs of soliciting proxies for the Annual Meeting. In addition to the solicitation by mail, proxies may be solicited personally or by telephone, facsimile or electronic communication by our directors, officers and other employees. Directors, officers and other employees of the Company who participate in soliciting proxies will not receive any additional compensation from the Company for doing so. Upon request, we will reimburse brokers, banks, custodians and other nominee record holders for their out-of-pocket expenses in forwarding proxy materials to their principals who are the beneficial owners of our Common Stock as of the Record Date.

 

     

 

  8  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

PROPOSAL 1: ELECTION OF DIRECTORS                            

 

 

Proposal 1: Election of Directors

General

The Company’s business and affairs are managed under the direction of our Board of Directors. The Board has responsibility for establishing broad corporate policies relating to the Company’s overall performance rather than day-to-day operating details.

Our Board of Directors currently consists of nine members. The Board is divided into three classes, each of which is elected for a three-year term. The terms of the three current Class III Directors expire in 2016. The Class III Directors are current directors standing as nominees at the Annual Meeting for reelection to a three-year term expiring in 2019.

The nominees have indicated that they are willing and able to serve as Company Directors. If any nominee becomes unavailable for election for any reason, the persons named as proxies in the enclosed proxy card will have discretionary authority to vote the shares they represent for any substitute nominee designated by the Board of Directors, upon recommendation of the Governance Committee.

Information regarding each of the Director nominees and the Directors continuing in office, including his or her age, principal occupation, other business experience during at least the last five years, directorships in other publicly held companies during the last five years and period of service as a Company Director, is set forth below. Also included below is a discussion of the specific experience, qualifications, attributes and skills that led to the conclusion that the Director nominee or Director should serve on the Board.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  9  

       


Table of Contents

                         PROPOSAL 1: ELECTION OF DIRECTORS

 

 

Director Nominees

The nominees for election as Class III Directors at this year’s Annual Meeting, each to serve for a three-year term expiring in 2019, are set forth below:

 

Susan J. Riley

 

Ms. Riley is Chair of the Human Resources Committee and a member of the Audit Committee. Ms. Riley is the Chief Financial Officer of Vestis Retail LLC, a private equity-owned holding company for Bob’s Store, Eastern Mountain Sports, and Sport Chalet. She previously served as a financial consultant for several retail and other companies. From April 2006 through February 2011 Ms. Riley held several senior executive positions, including Executive Vice President, Finance and Administration, at The Children’s Place Retail Stores, Inc., a children’s clothing and accessories retailer. Previously she served as Executive Vice President and Chief Financial Officer of Klinger Advanced Aesthetics, Senior Vice President and Chief Financial Officer of Abercrombie & Fitch Company, Executive Vice President of Business and Finance of Mount Sinai Medical Center of New York, Vice President and Treasurer of Colgate-Palmolive Company, Executive Vice President and Chief Financial Officer of Dial Corporation and Senior Vice President and Chief Financial Officer of Tambrands, Inc. Ms. Riley is also designated as one of the financial experts on the Company’s Audit Committee.

 

Qualification: Ms. Riley’s extensive knowledge in financial matters and her experience as chief financial officer of several companies contribute to the financial expertise on our Board and the Audit Committee. Her experience from serving as a senior executive and board member of several companies, including as the chair of the human resources committee of another board, enables Ms. Riley to provide key insights to our Human Resources Committee and to the Board operations in general. Ms. Riley earned a bachelor’s degree in accounting from the Rochester Institute of Technology and an MBA from Pace University.

Age: 57

Director since: 2012

 

Alexander M. Schmelkin

 

Mr. Schmelkin is a member of the Human Resources and Technology Advisory Committees. Mr. Schmelkin is Co-Founder, Chief Executive Officer and a member of the board of directors of Alexander Interactive, a web design and engineering firm, and has held these positions since 2002. Before founding Alexander Interactive, Mr. Schmelkin co-founded New York-based Davanita Design, which was later acquired by Avatar Technology, where he served as President and Chief Executive Officer of the New York division.

 

Qualification: Mr. Schmelkin brings to the Board and the Technology Advisory Committee extensive experience in technology and e-business, digital expertise and entrepreneurial insights as a CEO. Mr. Schmelkin earned a bachelor’s degree from Cornell University.

Age: 39

Director since: 2012

 

Alex D. Zoghlin

 

Mr. Zoghlin was re-elected to the Company’s Board of Directors in May 2008. Mr. Zoghlin serves as Chair of the Technology Advisory Committee. Mr. Zoghlin is the Group President, Global Operations Center for Hyatt Hotels Corporation, a global hospitality company. Prior to joining Hyatt, Mr. Zoghlin served as the Chief Executive Officer of VHT, Inc., a marketing services provider for the real estate industry, from 2009 to February 2013. He previously served on the Board from November of 2000 until May 2006. He resigned at that time to focus primarily on building G2 Switchworks, a Chicago-based travel/technology firm, where he was President and Chief Executive Officer until its change of ownership in 2008. He previously served as Chairman, President and Chief Executive Officer of neoVentures Inc., a venture capital investment company for emerging technology companies. Prior to that, he was Chief Technology Officer of Orbitz, LLC, a consumer-oriented travel industry portal backed by major airline companies.

 

Qualification: Mr. Zoghlin has a history of demonstrated leadership in enterprise technology and e-commerce. His experience in enterprise-wide programming, developing and implementing web-based solutions enables Mr. Zoghlin to offer key insights to our Technology Advisory Committee, which provides critical guidance on the Company’s portfolio of information technology assets and systems. Mr. Zoghlin also brings an entrepreneurial orientation to the Board’s deliberations. Mr. Zoghlin previously served as a director of State Farm Insurance Co., an insurance and financial services company.

Age: 46

Director since: 2008

(previously served from November 2000 to May 2006)

 

THE COMPANY’S BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR”

THE ELECTION OF EACH OF THE INDIVIDUALS NOMINATED ABOVE.

 

     

 

  10  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

PROPOSAL 1: ELECTION OF DIRECTORS                        

 

 

Continuing Directors

The other Directors, whose terms will continue after this year’s Annual Meeting, are as follows:

Class I Directors — Continuing in Office until 2017 Annual Meeting

 

Jean S. Blackwell

 

Ms. Blackwell serves as Chair of the Governance Committee and a member of the Finance Committee. Ms. Blackwell served as the Chief Executive Officer of the Cummins Foundation and Executive Vice President, Corporate Responsibility of Cummins Inc., an engine manufacturer, from 2008 until her retirement in March 2013. From 2003 until May of 2008, Ms. Blackwell served as the Executive Vice President and Chief Financial Officer for Cummins. Ms. Blackwell also served as Vice President and General Counsel; Vice President, Human Resources; and Vice President, Cummins Business Services. Ms. Blackwell was appointed as Executive Vice President of Cummins in 2005. Prior to joining Cummins, Ms. Blackwell was a partner in the Indianapolis law firm of Bose McKinney & Evans and also worked for the State of Indiana as Budget Director and for the State Lottery Commission as Executive Director.

 

Qualification: Ms. Blackwell has an in-depth knowledge of the business operations of a publicly-traded company from her long tenure at Cummins and a strong financial acumen from her senior management experience. She also brings significant knowledge of human resource practices having served as Vice President of Human Resources at Cummins. Ms. Blackwell holds a BA degree in economics from the College of William and Mary and a law degree (Cum Laude) from the University of Michigan. Ms. Blackwell is a member of the board of directors of Celanese, Inc., a specialty chemicals company, and serves on its audit and nominating and governance committees. She previously served as a director of The Phoenix Companies, a life insurance company.

Age: 61

Director since: 2007

 

Paul S. Williams

 

Mr. Williams is a member of the Audit and Human Resources Committees. Mr. Williams has been a partner at Major, Lindsey & Africa, LLC, a legal executive search firm, since 2005. Prior to joining Major, Lindsey & Africa he served as Executive Vice President, Chief Legal Officer and Secretary of Cardinal Health, Inc.

 

Qualification: Mr. Williams brings extensive experience and knowledge of the business operations of publicly traded companies having served as a business executive and a director of several public company boards. His experience as an executive recruiter allows him to make significant contributions to the Human Resources Committee in its evaluation of compensation practices and succession planning. He also brings deep governance and M&A expertise. Mr. Williams holds a BA degree from Harvard University and a law degree from Yale University. Mr. Williams currently serves on the board of directors of Compass Minerals International, Inc., a salt and specialty fertilizer products company, and serves on its compensation and audit committees. He also serves on the Board of Directors of Bob Evans Farms, Inc., a food service processing and retail company, and serves on its compensation and nominating and governance committees. He previously served as a Director of State Auto Financial Corporation.

Age: 56

Director since: 2014

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  11  

       


Table of Contents

                         PROPOSAL 1: ELECTION OF DIRECTORS

 

 

Class II Directors — Continuing in Office until 2018 Annual Meeting

 

Robert B. Aiken, Jr.

 

Mr. Aiken serves as a member of the Executive Committee. He previously served on the Company’s Board of Directors from December 2010 to May 2014, at which time he stepped down from the Board due to the demands of his position as the Chief Executive Officer of Feeding America, the nation’s leading hunger relief organization. Mr. Aiken was CEO of Feeding America from November 2012 to February 2015. Prior to this role, Mr. Aiken was the CEO of the food company portfolio at Bolder Capital, a private equity firm. Mr. Aiken previously served as Managing Director of Capwell Partners LLC, a private-equity firm focused on companies offering health and wellness products and services. Mr. Aiken was in the private-equity business from February 2010 until his appointment at Feeding America. Prior to that time, Mr. Aiken was the President and Chief Executive Officer of U.S. Foodservice, one of the country’s premier foodservice distributors. Mr. Aiken joined U.S. Foodservice in 2004 and held several senior executive positions including President and Chief Operating Officer and Executive Vice President of Strategy and Governance before being named Chief Executive Officer in 2007. From 2000 until 2004, Mr. Aiken also served as President and Principal of Milwaukee Sign Co., a privately-held manufacturing firm. From 1994 to 2000, Mr. Aiken was an executive with Specialty Foods Corporation, where he held several positions, including President and Chief Executive Officer of Metz Baking Company. Early in Mr. Aiken’s career, he worked as a business lawyer.

 

Qualification: Mr. Aiken brings to the Board of Directors and to the Executive Committee his experience as a chief executive officer of both public and private corporations with significant operations and a large, labor-intensive workforce. He has a broad background in foodservice distribution, with particular expertise in acquisitions, finance, merchandising, operations, sales force effectiveness, supply chain and private label products. Mr. Aiken also holds accounting and law degrees from Georgetown University. Since February 2010, Mr. Aiken has served as a director of Red Robin Gourmet Burgers, a chain of casual dining restaurants.

Age: 53

Director since: 2015

 

Charles K. Crovitz

 

Mr. Crovitz serves as Chair of the Executive Committee and as a member of the Technology Advisory and Governance Committees. In September 2007, Mr. Crovitz was appointed as the Interim Chief Executive Officer of The Children’s Place Retail Stores, Inc., a children’s clothing and accessories retailer, which position he held until his retirement in January 2010. Prior to this appointment, Mr. Crovitz was a member of the executive leadership team of Gap Inc. from 1993 until 2003, most recently serving as Executive Vice President and Chief Supply Chain Officer. During his ten-year career with Gap, Mr. Crovitz was also Executive Vice President, Supply Chain and Technology and Senior Vice President, Strategy and Business Development. Prior to that, he held various positions with Safeway Inc., including serving as a member of the operating committee, Senior Vice President and Chief Information Officer, and Vice President, Director of Marketing for Safeway Manufacturing Group. Mr. Crovitz also spent several years with McKinsey & Company, Inc. where he was an Engagement Manager, leading client service teams in retail, forest products, steel and personal computer industries.

 

Qualification: Mr. Crovitz’ responsibility for information technology during his tenure at Gap and Safeway and his experience in supply chain management are particularly relevant to the strategic direction of the Company. His extensive operating experience allows him to make significant contributions to the Company’s continuing efforts to pursue growth strategies, increase productivity and reduce its cost structure making him an effective Chairman of the Board. Mr. Crovitz also holds an MBA and a law degree from Stanford University. Mr. Crovitz previously served as a board member for The Children’s Place Retail Stores, Inc.

Age: 62

Director since: 2005

 

 

     

 

  12  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

PROPOSAL 1: ELECTION OF DIRECTORS                        

 

 

Roy W. Haley

 

Mr. Haley serves as Chair of the Audit Committee and a member of the Finance and Executive Committees. Mr. Haley also serves as the Non-Executive Chairman of the board of directors of Bluelinx Corporation, a wholesale supplier of building materials. Until his retirement in May 2011, Mr. Haley served as the Executive Chairman of WESCO International, Inc. (“WESCO”), a wholesale supplier of electrical and other industrial supplies and services, and, until September 2009, was the Chief Executive Officer. Prior to joining WESCO in February 1994, he was President and Chief Operating Officer of American General Corporation, one of the nation’s largest consumer financial services organizations. Mr. Haley has served as the Chair of the Company’s Audit Committee for the past 14 years, and served as the chair of the audit committee of Cambrex Corporation. Mr. Haley is also designated as one of the financial experts on the Company’s Audit Committee.

 

Qualification: Mr. Haley has a history of public company board membership and leadership with significant knowledge and operating experience in a distribution company as Chairman and Chief Executive Officer of WESCO. This experience allows him to provide highly informed guidance and counsel regarding the operations and value proposition of a wholesale supplier supplemented with his direct knowledge of the Company’s lines of products. Through his present and past business experiences, Mr. Haley has acquired significant understanding and experience in financial matters of a publicly traded company, internal controls and the functions of an audit committee. Mr. Haley holds a Bachelor of Science in industrial management from Massachusetts Institute of Technology. In addition to his service as a director of WESCO, Mr. Haley served as a director of Cambrex Corporation, a supplier of pharmaceutical and life science industry products and services, for twelve years until his retirement in April 2010. He also served as a director of the Federal Reserve Bank of Cleveland until his retirement in December 2010.

Age: 69

Director since: 1998

 

Stuart A. Taylor, II

 

Mr. Taylor is Chair of the Finance Committee and a member of the Governance Committee. Mr. Taylor is Chief Executive Officer of The Taylor Group LLC, a private equity firm, and has been with The Taylor Group since 2002. Prior to founding The Taylor Group in 2002, Mr. Taylor was Senior Managing Director of Bear Stearns Companies Inc., a brokerage firm. Over a span of 19 years, Mr. Taylor served as Managing Director of CIBC World Markets (US), Managing Director, Automotive Industry Group, BT Alex Brown, Inc. of Bankers Trust Company and as Vice President, Corporate Finance Department of Morgan Stanley & Company, Inc.

 

Qualification: Mr. Taylor has demonstrated leadership as a CEO and is a seasoned investment banker. His extensive experience in finance, business development, strategic diversification and mergers and acquisitions allows him to make significant contributions to the company’s strategic initiatives and to the Finance and Governance Committees. Mr. Taylor holds an MBA in finance from Harvard Business School and an undergraduate degree from Yale University. Mr. Taylor currently serves as a director of Ball Corporation, a metal packaging company, and serves as chair of its human resources committee and a member of its audit committee. He also serves on the board of directors of Hillenbrand, Inc., an industrial company, and serves as the chair of the M&A committee and a member of the audit committee.

Age: 55

Director since: 2011

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  13  

       


Table of Contents

                         GOVERNANCE AND BOARD MATTERS

 

 

Governance and Board Matters

Corporate Governance Principles

The Company is committed to the use of sound corporate governance principles and practices in the conduct of its business. The Company’s Board has adopted the Essendant Inc. Corporate Governance Principles (the “Governance Principles”) to address certain fundamental corporate governance issues. The Governance Principles provide a framework for Company governance activities and initiatives and cover, among other topics, Director independence and qualifications, Board and Committee composition and evaluation, Board access to members of management and independent outside advisors, Board meetings (including meetings in executive session without management present) and succession planning. These principles also provide for the separation of the position of Chairman of the Board, who would normally serve as the Company’s lead independent Director, from that of Chief Executive Officer. The Governance Principles are included under “Governance” as part of the “Investors” section available through the Company’s website at http://www.essendant.com. Neither the Governance Principles nor any other information contained on or available through the Company’s website and referred to in this Proxy Statement is incorporated by reference in, or considered to be part of, this Proxy Statement.

Code of Conduct

The Company’s Board of Directors also has adopted the Essendant Inc. Code of Business Conduct (the “Code of Conduct”). The Code of Conduct applies to all Directors, officers and employees, and covers topics such as compliance with laws and regulations, proper use of the Company’s assets, treatment of confidential information, ethical handling of actual or apparent conflicts of interest, accurate and timely public disclosures, prompt internal reporting of violations and accountability for adherence to its guidelines. A copy of the Code of Conduct is included under “Governance” as part of the “Investors” section available through the Company’s website at http://www.essendant.com.

Board Independence

The Company’s Board of Directors has affirmatively determined that all of its members and the nominees, other than Mr. Aiken, the Company’s President and Chief Executive Officer, are independent within the meaning of the Company’s independence standards set forth in its Governance Principles. The Company’s Governance Principles incorporate the director independence standards of The NASDAQ Stock Market, Inc. (“NASDAQ”), and reflect the Board’s policy that a substantial majority of the Directors who serve on the Company’s Board should be independent Directors. Indeed, for a number of years, a substantial majority of the Company’s Board of Directors has been comprised of independent Directors.

In determining that Mr. Taylor is independent, the Board considered that Mr. Taylor and his spouse are owners of Taylor Made Business Solutions (“TMBS”), where his spouse also serves as the Chief Executive Officer, and that TMBS purchased $11,280 of products and services from Essendant Co. (“ECO”), a wholly-owned subsidiary of the Company, during 2015. The amount of purchases was less than 5% of gross revenues of ECO. The Board concluded that such transactions constituted an insignificant percentage of TMBS’ purchases and the Company’s sales, that Mr. Taylor had no direct involvement in such transactions and that such transactions, therefore, did not affect Mr. Taylor’s independence. Based on the same information and the representations from the Company’s management that such transactions were in the ordinary course of business at the same prices and on the same terms as are available to customers of the Company generally, the Audit Committee of the

 

     

 

  14  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

GOVERNANCE AND BOARD MATTERS                        

 

 

Board concluded that such transactions were exempt under the Company’s related person transaction approval policy. The Governance Committee also reviewed the relationship and determined that there is no conflict with the Company’s Corporate Governance Principles, and that the relationship did not impair Mr. Taylor’s independence.

Board Leadership Structure

The Company’s Bylaws call for the Chairman of the Board to be elected by the Board from among its members and to have the powers and duties customarily associated with the position of a non-executive Chairman. Consistent with the Company’s Corporate Governance Principles, the Board expects that in most circumstances the only member of the Company’s management who would be invited to serve on the Board would be the Company’s chief executive officer. However, the Company’s Bylaws also provide that, while the Chairman may hold an officer position, under no circumstances may the Chairman also serve as the President or Chief Executive Officer of the Company. The Chairman of the Board normally serves as the Company’s lead independent Director and chairs executive sessions of the Board. Charles K. Crovitz has served as the Company’s independent Chairman since December 2011.

These principles are further enhanced in the Company’s Corporate Governance Principles which assist the Board in the exercise of its responsibilities and in serving the best interests of the Company and its stockholders. This structure is intended to serve as a framework within which the Board may conduct its business in accordance with applicable laws, regulations, and other corporate governance requirements.

Board Diversity

The Governance Committee is responsible for evaluating potential candidates for Board membership. In its evaluation process and to ensure that the Board benefits from diverse perspectives, the Committee considers such factors as the experience, perspective, background, skill sets, race, and gender makeup of the current Board as well as the candidate’s individual qualities in leadership, character, judgment and ethical standards. The Committee does not have a separate policy on diversity. However, pursuant to the Company’s Corporate Governance Principles, diversity is one of the criteria to be positively considered for board membership. For this purpose, the Committee considers diversity broadly as set forth above. The Governance Committee believes our directors represent a diverse base of perspectives and reflect the racial and gender diversity of the Company’s employees, customers and shareholders, as well as an appropriate level of tenure, as further illustrated below.

 

LOGO

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  15  

       


Table of Contents

                         GOVERNANCE AND BOARD MATTERS

 

 

Board’s Role in Risk Management

The Board of Directors takes an active role in risk oversight of the Company both as a full Board and through its Committees.

Strategic risk, which is risk related to the Company properly defining and achieving its high-level goals and mission, as well as operating risk, which is risk relating to the effective and efficient use of resources and pursuit of opportunities, are regularly monitored by the full Board through regular and consistent review of the Company’s operating performance and strategic plan. For example, at each of the Board’s five regularly scheduled meetings throughout the year, management provides to the Board presentations on the Company’s various business units as well as the Company’s performance as a whole. In addition, the Board discusses risks related to the Company’s business strategy at the Board’s strategic planning meetings every year in July and September and at other meetings as appropriate. Similarly, significant transactions, such as acquisitions and financings, are brought to the Board and Finance Committee for approval.

Reporting risk and compliance risk are primarily overseen by the Audit Committee. Reporting risk relates to the reliability of the Company’s financial reporting, and compliance risk relates to the Company’s compliance with applicable laws and regulations. The Audit Committee meets at least four times per year and, pursuant to its charter and established processes, receives input directly from management as well as from the Company’s independent registered public accounting firm, Ernst & Young LLP, regarding the Company’s financial reporting process, internal controls, and public filings. The Company’s internal audit function leads an annual risk assessment to refresh its ongoing risk-based work plan which includes coverage of financial, operational, and compliance risks, reporting results to the Audit Committee on a regular basis. The Company’s Disclosure Committee, Compliance Committee, and Enterprise Risk Management Committee, each consisting of senior level staff from the legal, finance, human resources, and information technology departments, as well as each business unit, meet regularly to address financial reporting, compliance issues, and other enterprise-wide risks and identify any additional actions required to mitigate these risks. Each of these management committees reports its activities regularly to the Audit Committee. The Audit Committee also receives regular updates from the Company’s in-house attorneys regarding any Hotline reports, Code of Conduct issues or other legal compliance concerns. See “Board Committees — Audit Committee” below for further information on how the Audit Committee fulfills, and assists the Board of Directors’ oversight of, reporting and compliance risks.

Additionally, the Finance Committee, Technology Advisory Committee, and Human Resources Committee each provide risk oversight and monitoring with respect to the Company’s capital structure and corporate finance, cyber security, deployment of technology, and structure of compensation programs, respectively. See the individual descriptions of these committees for further information regarding their roles.

Executive Sessions

Non-management Directors meet regularly in executive sessions without management. In accordance with the Company’s Governance Principles, executive sessions are held at least four times a year. The Company’s independent Chairman of the Board presides at such sessions.

Self-Evaluation

The Board and each of the Audit, Governance, Human Resources, Executive, Finance, and Technology Advisory Committees conduct an annual self-evaluation, as contemplated by the

 

     

 

  16  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

GOVERNANCE AND BOARD MATTERS                        

 

 

Company’s Governance Principles and the charters of such Board committees. The Board also obtains peer evaluations of individual Director performance in the course of its self-evaluation process.

Board Meetings and Attendance

The Board of Directors held 13 meetings during 2015. Each Director attended more than 75% of the aggregate number of meetings of the Board of Directors and of the Board Committees on which he or she served.

Board Committees

General

The Board of Directors has established six standing committees — an Audit Committee, a Governance Committee, a Human Resources Committee, a Finance Committee, a Technology Advisory Committee, and an Executive Committee. The Governance Committee serves as and performs the functions of a Board nominating committee. Each of the standing committees operates under a written charter adopted by the Board. The charters for the committees are available at essendant.com/proxymaterials.

The current membership and number of meetings held by each such standing committee during 2015 are as follows:

 

Name

  Audit   Governance   Human
Resources
  Executive   Finance   Technology 
Advisory

Robert B. Aiken, Jr.(1)

Director Since: 2015

Previously served as Director from

December 2010 to May 2014.

              ü        

Jean S. Blackwell(2)

Director Since: 2007

      ü(C)           ü    

Charles K. Crovitz

Director Since: 2005

      ü       ü(C)       ü

Roy W. Haley

Director Since: 1998

  ü(C)           ü   ü    

Susan J. Riley

Director Since: 2012

  ü       ü(C)            

Alexander M. Schmelkin

Director Since: 2012

          ü           ü

Stuart A. Taylor, II

Director Since: 2011

      ü           ü(C)    

Paul S. Williams

Director Since: 2014

  ü       ü            

Alex D. Zoghlin

Director Since: 2008

Previously served as Director from

November 2000 to May 2006.

                      ü(C)
Number of Meetings in 2015   7   7   8   6   6   5
(1) On May 4, 2015, Robert B. Aiken, Jr. stepped off the Finance Committee.
(2) On May 20, 2015, Jean S. Blackwell became a member of the Finance Committee.
(C) Committee Chair

Audit Committee. The Board has determined that all of the above members of the Audit Committee are independent pursuant to NASDAQ’s current listing standards and Rule 10A-3 of the Securities Exchange Act of 1934 (the “Exchange Act”). No member of the Audit Committee received any compensation from

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  17  

       


Table of Contents

                         GOVERNANCE AND BOARD MATTERS

 

 

the Company during 2015 other than for services as a member of the Board or one or more of its committees. The Board also has determined that all Audit Committee members are financially literate and have financial management expertise, in accordance with NASDAQ listing standards. In addition, the Board of Directors has determined that Roy W. Haley and Susan J. Riley qualify as “audit committee financial experts” within the meaning of applicable SEC regulations.

The principle functions of the Audit Committee involve assisting the Company’s Board of Directors in fulfilling its oversight responsibilities relating to: (1) the integrity of the Company’s financial statements; (2) the soundness of the Company’s internal control systems; (3) assessment of the independence, qualifications and performance of the Company’s independent registered public accounting firm; (4) performance of the internal audit function; and (5) the Company’s enterprise risk management, legal, regulatory, and ethical compliance programs. The Audit Committee’s seven meetings during 2015 included reviews with management and the Company’s independent registered public accounting firm regarding the Company’s financial statements before their inclusion in the Company’s annual and quarterly reports filed with the SEC. For additional information, see “Report of the Audit Committee.”

The Audit Committee operates under a written charter most recently amended as of October 5, 2015. The charter was last reviewed by the Committee in October 2015.

Governance Committee. The Governance Committee evaluates corporate governance principles and makes recommendations to the full Board regarding governance matters, including evaluating and recommending Director compensation, overseeing the evaluation by the Board of Directors of the performance of the Company’s Chief Executive Officer and the Board, and reviewing succession planning with respect to the Chief Executive Officer. The Company’s Board has determined that all of the members of the Governance Committee are independent pursuant to current NASDAQ listing standards. In performing the functions of a nominating committee, the Governance Committee reviews and makes recommendations to the full Board concerning the qualifications and selection of Director candidates, including any candidates that may be recommended by Company stockholders.

The Governance Committee operates under a written charter most recently amended as of December 8, 2015. The charter was last reviewed by the Committee in December 2015.

Human Resources Committee. The Human Resources Committee of the Board of Directors generally acts as a Board compensation committee. It reviews and approves or makes recommendations to the Board of Directors with respect to compensation, employment agreements, and benefits applicable to executive officers. The Human Resources Committee also oversees the development and administration of compensation and benefits.

The agendas, meetings, and calendar are developed and set by the Chair of the Human Resources Committee with input from the Human Resources Department and the Chief Executive Officer. The Chairman, Chief Executive Officer, other members of management, and outside advisors may be invited to attend all or a portion of a Human Resources Committee meeting, other than an executive session of the Human Resources Committee members, depending on the nature of the agenda items. Neither the Chief Executive Officer nor any other member of management votes on items before the Human Resources Committee; however, the Human Resources Committee and the Board of Directors solicit the views of the Chief Executive Officer on compensation matters, including the compensation of our executive officers.

Among its executive compensation oversight responsibilities, the Human Resources Committee approves the base salaries, annual incentive compensation targets, benefits, and perquisites of our executive officers, other than the Chief Executive Officer. In the case of compensation for the Chief

 

     

 

  18  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

GOVERNANCE AND BOARD MATTERS                        

 

 

Executive Officer, the Human Resources Committee makes a recommendation to the full Board of Directors for approval. The Human Resources Committee generally oversees the development and administration of our compensation and benefits plans, programs, and practices and reviews and makes determinations based on applicable data and analysis. Recommendations are made by the Committee to the Board on overall compensation and benefits objectives. With respect to our annual incentive programs, the Human Resources Committee approves performance targets under our 2015 Long-Term Incentive Plan or criteria applicable to other executive officer bonuses and reviews attainment of such targets or satisfaction of other relevant criteria. The Human Resources Committee also administers and approves equity grants to our executive officers under our 2015 Long-Term Incentive Plan. The Committee also advises and consults with the Governance Committee and the Board on non-employee director compensation.

At the request of the Board, a risk analysis of 2015 compensation policies and practices was conducted. The Human Resources Committee received a report from the Company’s Internal Audit department regarding Aon Hewitt’s analysis of whether the Company’s compensation policies and practices for all employees, including executive officers, are reasonably likely to incent employees to take excessive risks or other actions inconsistent with Company policy that would result in a material adverse effect on the Company. Aon Hewitt identified all compensation policies and practices, analyzed whether they might motivate employees to take inappropriate risks and also considered internal controls that mitigate any such risks. After completion of this analysis, Aon Hewitt and management reported to the Committee their conclusion that none of the Company’s compensation policies and practices is reasonably likely to incent employees to take excessive risks that would result in a material adverse effect on the Company, and the Committee concurred with their conclusion.

The Human Resources Committee may establish its own procedural rules except as otherwise prescribed by the Company’s Bylaws, applicable law, or the NASDAQ listing standards. The Human Resources Committee may delegate any of its responsibilities to a subcommittee comprised of one or more members of the Human Resources Committee, subject to such terms and conditions (including required reporting back to the full Committee) as the Human Resources Committee may prescribe.

The Human Resources Committee has the authority to retain directly (and terminate the engagement of) any outside compensation consultants, outside counsel, or other advisors that the Human Resources Committee in its discretion deems appropriate to assist it in the performance of its functions, with the sole authority to approve related retention terms and fees for any such advisors. We will provide for appropriate funding, as determined by the Human Resources Committee, for payment of compensation to such outside advisors the Human Resources Committee retains.

During 2015 the Human Resources Committee engaged the services of an independent consultant, Meridian Compensation Partners, LLC (“Meridian”). Meridian provided the Human Resources and Governance Committees with updates on compensation trends and regulatory developments, advice on proxy disclosures with regard to compensation matters, and other assistance in related items as requested by the Committees, including review of various materials prepared for the Committees by management. In completing its work, Meridian was engaged directly on behalf of the Committees, did no other work for the Company or any of its senior executives, and had no other ties to the Company. For additional information, see “Executive Compensation — Compensation Discussion and Analysis — Use of Consultants.”

The Human Resources Committee has assessed the independence of Meridian pursuant to the rules of the U.S. Securities and Exchange Commission and NASDAQ and concluded that no conflict of interest exists that would prevent Meridian from independently representing the Human Resources Committee.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  19  

       


Table of Contents

                         GOVERNANCE AND BOARD MATTERS

 

 

The Human Resources Committee operates under a written charter most recently amended as of June 1, 2015. The charter was last reviewed by the Committee in February 2014.

Executive Committee. The Executive Committee has the authority to act upon any corporate matters that require Board approval, except where Delaware law requires action by the full Board or where the matter is required to be approved by a committee of independent Directors in accordance with applicable regulatory requirements.

Finance Committee. The purpose of the Finance Committee is to review and provide guidance to the Company’s Board of Directors and management with respect to the Company’s: (1) present and future capital structure requirements and opportunities; (2) plans, strategies, policies, proposals, and transactions related to corporate finance; (3) potential acquisitions and divestitures; and (4) Company financial risk management activities and plans.

The Finance Committee operates under a written charter most recently amended as of June 1, 2015. The charter was last reviewed by the Committee in February 2014.

Technology Advisory Committee. The purpose of the Technology Advisory Committee is to assist the Company’s Board of Directors in fulfilling its oversight responsibilities relating to: (1) alignment of the Company’s information technology (“IT”) strategic direction, investment needs, and priorities with its overall business and marketing strategies; (2) the Company’s marketing initiatives, including Digital-based marketing and merchandising efforts; (3) assessment of the Company’s portfolio of IT assets and systems; (4) promotion of an effective, efficient, scalable, flexible, secure, and reliable IT infrastructure; and (5) consideration of the impact of emerging IT developments that may affect the IT function’s ability to support the needs of the business.

The Technology Advisory Committee operates under a written charter most recently amended as of February 10, 2016. The charter was last reviewed by the Committee in February 2016.

Consideration of Director Nominees

The Governance Committee periodically assesses the Board’s size and composition and whether there may be any near-term vacancies on the Board due to retirement or otherwise. The Governance Committee uses a variety of methods to identify and evaluate potential Director nominees when the need for a new or additional Director is identified. It may seek or receive candidate recommendations from other Board members, members of the Company’s senior management, stockholders, or other persons. In addition, if and when it deems appropriate, the Governance Committee may retain an independent executive search firm to assist it in identifying potential Director candidates. Any such candidates may be evaluated at regular or special meetings of the Governance Committee and the Governance Committee may solicit input from other Directors.

In evaluating any identified or submitted candidates for the Board, the Governance Committee seeks to achieve a balance of knowledge, skills, experience, and capability on the Board and to address the Board membership criteria set forth in the Company’s Governance Principles. In addition, the Governance Committee believes that candidates must have high personal and professional ethics and integrity, with values compatible with those of the Company; broad and substantial experience at a senior managerial or policy-making level as a basis for contributing wisdom and practical insights; the ability to make significant contributions to the Company’s success; and sufficient time to devote to their duties as a Director. In addition, the Governance Committee believes it is important that each Director represent the interests of all stockholders.

 

     

 

  20  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

GOVERNANCE AND BOARD MATTERS                        

 

 

The Governance Committee’s policy is to consider properly submitted stockholder nominations for Director candidates in the same manner as a committee-recommended nominee. To recommend any qualified candidate for consideration by the Governance Committee, a stockholder should submit a supporting written statement to the Company’s Secretary at Essendant Inc., One Parkway North Boulevard, Deerfield, Illinois 60015-2559 in accordance with the procedures described later in this Proxy Statement under the heading “Stockholder Proposals”. This written statement must contain: (i) as to each nominee, his or her name and all such other information as would be required to be disclosed in a proxy statement with respect to the election of such person as a Director pursuant to the Exchange Act; (ii) the name and address of the stockholder providing such recommendation, a representation that the stockholder is the record owner of shares entitled to vote at the meeting, the number of shares owned, the period of such ownership, and a representation that the stockholder intends to appear in person or by proxy to nominate the person specified in the statement; (iii) whether the nominee meets the objective criteria for independence of directors under applicable NASDAQ listing standards and the Company’s Governance Principles; (iv) a description of all arrangements or understandings, and any relationships, between the stockholder and the nominee or any other person or persons (naming such person(s)) pursuant to which the nomination is to be made by the stockholder; and (v) the written consent of each nominee to serve as a Director if so elected.

Communications with the Board and Annual Meeting Attendance

Any stockholder who desires to contact the Company’s Chairman of the Board, who serves as its lead independent Director, or the other members of the Board of Directors may do so by writing to: Chairman of the Board, or Board of Directors, Essendant Inc., One Parkway North Boulevard, Deerfield, Illinois 60015-2559. All such written communications will be forwarded to and collected by the Company’s Secretary and delivered in the form received to the Chairman of the Board or, if so addressed or deemed appropriate based on the facts and circumstances outlined in the communication, to another member of the Board or a chair of one of its standing committees. However, unsolicited advertisements, invitations or promotional materials may not be forwarded to Directors, in the discretion of the Secretary.

Directors are encouraged to attend annual meetings of the Company’s stockholders. All of the Company’s Directors then serving on the Board of Directors attended the 2015 Annual Meeting of Stockholders.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  21  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

Executive Compensation – Table of Contents

Compensation Discussion and Analysis

 

        
Introduction         
Executive Summary      24   

Key Leadership Changes

     25   

2015 Business Result Highlights and Effect on Incentive Payouts

  

2015 Key Compensation Decisions

     26   

Compensation Governance Practices

     27   

Say-On Pay Vote

     28   

Target Total Compensation

     28   
Compensation Philosophy and Objectives      28   
Compensation Decision-Making Process      29   

Use of Consultants

     29   

Performance Management

     29   
Compensation Competitive Analysis      30   
Elements of Compensation      31   

Base Salary

     31   

Annual Bonus (Management Cash Incentive Awards Plan)

     32   

Sign-On Bonus

     35   

Long-Term Equity Incentive Awards

     35   

Mix of Equity Incentive Awards

     36   

2015 Restricted Stock Awards

     36   

2015 Performance-Based RSU Awards

     36   

Other 2015 Restricted Stock Awards

     37   

Management Team Transition Awards

     37   

New-Hire Awards

     37   

No Performance-Based Restricted Stock Units Earned in 2015

     37   

2016 Compensation Program

     39   
Additional Compensation Policies and Practices      39   

Stock Ownership Guidelines

     39   

Recoupment (“Clawback”) Policy

     40   

Anti-Hedging and Pledging Policies

     41   

Tax Deductibility

     41   

Perquisites and Other Benefits

     41   

Severance Benefits

     42   

 

     

 

  22  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

Other Compensation Information

 

    

 

 
Human Resources Committee Report      42   
Summary Compensation Table      43   
Grants of Plan-Based Awards During 2015      45   
Outstanding Equity Awards at December 31, 2015      47   
Option Exercises and Stock Vested in 2015      48   
Retirement Benefits      48   
Pension Benefits in 2015      49   
Non-qualified Deferred Compensation in 2015      49   
Employment Contracts and Employment Termination and Change of Control Arrangements      50   

CEO Employment Agreement

     50   

Other Named Executive Officer Agreements

     52   

Change of Control Terms Under the Long-Term Incentive Plan

     53   

Change of Control Terms Under the Management Incentive Plan

     54   

Phipps’ Employment and Separation Agreements

     54   

Shelton’s Employment and Separation Payments

     54   
Potential Post-Employment Payments      54   

Severance Benefits

     55   

Retirement, Disability and Death

     56   

Phipps’ Resignation

     56   

Potential Change of Control Payments

     56   

Payments Triggered Upon a Change of Control

     57   

Payments Triggered Upon a Termination Following a Change of Control

     57   

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  23  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

Compensation Discussion and Analysis

The following Compensation Discussion & Analysis (“CD&A”) describes the background, objectives and structure of our 2015 executive compensation programs. This CD&A is intended to be read in conjunction with the tables beginning on page 43, which provide further historical compensation information for our following named executive officers (“NEOs”):

 

Name

  Title

NEOS – Current Employees

   

Robert B. Aiken Jr.

 

President and Chief Executive Officer

Timothy P. Connolly

 

Senior Vice President and Chief Operating Officer

Earl C. Shanks

 

Senior Vice President and Chief Financial Officer

Eric A. Blanchard

 

Senior Vice President, General Counsel and Secretary

Richard D. Phillips

 

Senior Vice President, Strategy, and President, ORS Industrial

NEOS – Former Employees

   

P. Cody Phipps

 

Former President and Chief Executive Officer

Todd A. Shelton

 

Former Senior Vice President and Chief Financial Officer

Cody Phipps resigned effective May 4, 2015.

Todd Shelton resigned as SVP and CFO as of November 12, 2015 and his employment terminated January 15, 2016.

Executive Summary

2015 Business Highlights

Essendant is a leading national wholesale distributor of workplace essentials including traditional office products and office furniture, janitorial, sanitation and breakroom supplies, technology products, industrial supplies, automotive aftermarket tools and equipment. We operated in a challenging environment in 2015. In addition to the continuing secular decline in office products consumption, we responded to a severe downturn in the oilfield and energy sectors that significantly affected the revenues and earnings of our ORS Industrial business. Despite these challenges, we achieved a number of financial, operational, and strategic goals in 2015:

 

    Achieved adjusted earnings per share of $3.08, equal to 2014 performance.1
    Generated $131.3 million of free cash flow.
    Beat our expense budget by $13.8 million.
    Returned $88.5 million to stockholders via dividends and share repurchases.
    Converted 14 distribution centers to a common operating and IT platform as of year-end 2015.
    Restructured the business to create a platform for growth in 2016.
    Rebranded the Company as Essendant, reflecting our goal of being the fastest, most convenient solution for workplace essentials.
    Acquired Nestor Sales to strengthen our position in the automotive category.
    Exited non-strategic businesses.

 

1  A reconciliation of adjusted EPS to GAAP EPS is provided in Appendix A.

 

     

 

  24  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

We believe our pay-for-performance compensation structure, which puts a substantial percentage of executives’ compensation at risk, and our compensation philosophy, which is designed to focus executives on building long-term stockholder value, were key drivers of the Company’s accomplishments in the face of significant market headwinds.

2015 Incentive Payouts

While we delivered solid financial performance in 2015, our performance was below our internal performance goals, which resulted in below-target incentive payouts under our annual cash incentive plan and under outstanding performance-based equity awards.

 

    The Human Resources Committee and the Board assessed the stockholder value created by the management accomplishments and actions described above as well as the performance against the metrics under the 2015 Management Cash Incentive Award Plan (“MIP”).
  ¡    Based on this assessment, the Human Resources Committee and the Board approved a payout of 25% of the target payout under the MIP.
    Based on the Company’s adjusted net income for the two-year period ended December 31, 2015, no additional shares vested as of March 1, 2016 under the performance-based restricted stock unit (“RSU”) awards issued in March 2014. See “—Elements of Compensation—No Performance-Based Restricted Stock Units Earned in 2015”
    Based on the Company’s cumulative economic profit for the three-year period ended December 31, 2015, no additional shares vested as of March 1, 2016 under the RSU awards issued in March 2013. See “—Elements of Compensation—No Performance-Based Restricted Stock Units Earned in 2015”

Key Leadership Changes

We made several changes to our management team in 2015:

 

    On May 4, 2015, the Board of Directors appointed Mr. Aiken Interim President and Chief Executive Officer, following Mr. Phipps’ resignation. Mr. Aiken is a proven executive with a record of successfully leading large distribution companies. He was also integral in driving the Company’s strategic initiatives and achieving corporate objectives as a member of our Board from 2010 to May 2014, and he continued making these contributions upon rejoining the Board in February 2015. After assessing Mr. Aiken’s performance in the interim role, the Board appointed him President and CEO effective July 22, 2015.
    On November 12, 2015, Mr. Shanks joined the Company as Senior Vice President and Chief Financial Officer, following Mr. Shelton’s resignation. To ensure a smooth transition, Mr. Shelton remained with Essendant as a vice president through January 15, 2016.
    On November 12, 2015, we named Mr. Phillips President of our Industrial business. Under Mr. Phillips’ leadership we are refining the industrial channel value proposition to diversify and lessen its dependence on the oilfield and energy sectors.
    Other management changes included several internal promotions, including the promotions of Timothy Connolly to Senior Vice President and Chief Operating Officer, Girisha Chandraraj to Senior Vice President, Marketing and Chief Digital Officer; and Janet Zelenka to Senior Vice President and Chief Information Officer.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  25  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

2015 Key Compensation Decisions

The Company’s executive compensation program is designed to attract and retain talented executives and to reward them appropriately for their contributions to the Company. In making compensation decisions, the Human Resources Committee consults Meridian Compensation Partners, LLC, the Committee’s independent compensation consultant, and analyzes the Company’s compensation practices compared to the practices of a comparison group of companies.

The Human Resources Committee took into consideration several factors to determine 2015 compensation levels for our named executive officers, including our financial and business results and comparative compensation information. Key compensation decisions include:

 

    In July 2015, the Human Resources Committee and the Board as a whole agreed to employment terms with Mr. Aiken to join our Company as President and CEO after serving as Interim President and CEO since May 4, 2015. The terms were arrived at after the Committee and the Board considered peer group and general industry compensation data provided by Meridian. The terms of Mr. Aiken’s interim and permanent employment agreements include:
  ¡    $800,000 base salary
  ¡    Annual cash incentive target opportunity of 125% of base salary, pro-rated for 2015
  ¡    Restricted stock awards with an economic value of $2,000,000 that vest ratably over three years. See “—Elements of Compensation—Long-Term Equity Incentive Awards—New Hire Awards.”
  ¡    Annual equity grants with a target economic value of 300% of base salary, commencing in 2016
  ¡    A $166,000 sign on bonus when he joined the Company as Interim President and CEO. See “—Elements of Compensation—Sign On Bonus.”
    In November 2015, the Committee approved the employment terms for Earl Shanks to join the Company as SVP and CFO. Mr. Shanks’ compensation includes:
  ¡    $475,000 base salary
  ¡    Annual cash incentive target of 80% of base salary, pro-rated for 2015
  ¡    Annual equity grants with a target economic value of 150% of base salary, commencing in 2016
  ¡    A grant of $250,000 of restricted stock award upon hire
  ¡    In March 2016, a performance-based RSU award with a target economic value of $250,000 in addition to his annual March equity grant
  ¡    A lump-sum relocation payment of $285,000 (with no gross up for taxes) based on a formula under the Company’s relocation policy
    The Committee approved increases to Mr. Connolly’s annual salary and long-term equity incentive target in connection with his promotion to Chief Operating Officer.
    The Committee approved an increase to Mr. Blanchard’s annual salary to bring his salary closer to the 50th percentile salary of executives in comparable positions at companies in our comparator group.
    All other components of the current NEOs’ compensation remained at the 2014 levels.
    The Committee approved changes to the design of the Management Cash Incentive Awards Plan, replacing Adjusted Net Income with Adjusted EBIT as a more appropriate annual performance measure and changing the weightings of Adjusted Cost Factor and Adjusted Working Capital Efficiency. See “—Elements of Compensation—Annual Bonus (Management Cash Incentive Awards Plan).”

 

     

 

  26  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                    

 

 

    The Committee approved changes to our 2015 Long-Term Incentive Plan awards to align our award structure with other companies in our industry and to incent executives to achieve long-term objectives that create stockholder value. See “—Elements of Compensation—Long-Term Equity Incentive Awards,” “—2015 Performance-Based RSU Awards” and “—Mix of Equity Incentive Awards.”
  ¡    Vesting of RSUs was changed to cliff-vesting after three years based on cumulative performance against metrics from 2015-2017 (awards granted in prior years had the potential to vest in annual installments)
  ¡    Adjusted Working Capital Efficiency was added as a second performance metric
  ¡    The allocation of the target value of annual grants between performance-based RSUs and time-based restricted stock was changed. For NEOs other than the President and CEO, the target value of annual grants is now divided equally between RSUs and time-based restricted stock. The target value of annual grants to the President and CEO are split 60%-40% between RSUs and restricted stock. In prior years awards to all executive officers were split 70%-30% between RSUs and restricted stock

Compensation Governance Practices

Our solid compensation governance framework and pay-for-performance practices provide appropriate incentives to our executives to achieve our financial and strategic goals without encouraging them to take excessive risks in their business decisions.

 

   
Best Practices We Employ   Practices We Avoid

ü     Pay is closely linked to performance and targeted around the 50th percentile of a Human Resources Committee-approved comparator group of similar size and industry peers

 

×      Supplemental Executive Retirement Plan (SERP) benefits are not provided

ü     Performance metrics are directly tied to drivers of value creation

 

×      Hedging and short sales are not permitted

ü     Executives are subject to stock ownership guidelines consistent with market practices

 

×      Pledging is not permitted without pre-approval

ü     Appropriate caps on incentive plan payouts

 

×      Dividends and dividend equivalents are not provided on unearned performance awards

ü     Incentive compensation “clawback” policy

 

×      Incentive program designs do not encourage excessive risk taking

ü     Change-in-Control (“CIC”) severance requires a double trigger

 

×      Excise tax gross-ups were eliminated for all new agreements after December 31, 2010

ü     Our Human Resources Committee is comprised entirely of independent directors

   

ü     Our Human Resources Committee engages an independent consultant

   

ü     Our Human Resources Committee regularly meets in executive session without management present

   

ü     Annual risk assessment of the compensation program confirms incentives do not encourage excessive risk-taking

   

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  27  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

Say-On-Pay Vote

At the 2015 Annual Meeting, our executive compensation was approved by approximately 99% of the shares voted. The Human Resources Committee views this vote result, which is in line with previous support levels, as a strong expression of our stockholders’ continued satisfaction with our executive compensation structure and philosophy. The Committee considered this strong support in determining to primarily continue the general philosophy and elements of the Company’s executive compensation programs for fiscal year 2016.

Target Total Compensation

The mix of pay between fixed and variable compensation and the portion of variable compensation linked to the value of Company common stock is consistent with the Human Resources Committee’s objective of promoting a strong pay-for-performance culture by putting a substantial percentage of executives’ compensation at risk. As reflected in the following charts, 80% of the Mr. Aiken’s 2016 target compensation will be variable or “at-risk,” and 74% of the 2015 target compensation for our other current NEOs was variable or “at risk.”

 

LOGO

Compensation Philosophy and Objectives

The Company’s executive compensation program is designed to attract and retain talented executives and to reward them appropriately for their contributions to the Company. Our executive compensation program is intended to support our strategic objectives and align the interests of our executives and our stockholders.

 

     

 

  28  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

Our executive compensation program consists of base salary, annual cash incentives, and long-term equity incentives, as well as benefits that are generally available to our salaried employees and limited perquisites. We believe that spreading compensation across these three primary components achieves our compensation objectives as follows:

  ü     Pay-for-Performance

  ü     Competitive executive target pay levels

  ü     Balance fixed and at-risk compensation appropriately

  ü     Balance short-term and long-term goals appropriately

  ü     Align the interests of management and stockholders

  ü     Manage compensation risk

Compensation Decision-Making Process

Use of Consultants

In 2015, Aon Hewitt provided consulting services to management, including consulting on compensation philosophy and plan design, as well as executive job compensation analysis. The Company engages a compensation consulting firm to conduct a formal compensation benchmark study every other year. The information from the studies completed by Aon Hewitt in October 2012 and August 2014 were used to recommend compensation changes in 2014 and 2015, respectively.

The Human Resources Committee has separately retained an independent consultant, Meridian Compensation Partners, LLC, to advise the Committee on compensation matters (including its review of management recommendations with respect to base salary adjustments, annual cash incentive awards and long-term incentive equity awards for executive officers) and to inform the Committee of regulatory developments and implications. Meridian provides no other services to the Company.

Performance Management

The Governance Committee of our Board of Directors oversees the annual evaluation of our President and CEO’s performance. The Human Resources Committee recommends to the independent directors on the Board, for Board approval, adjustments to our President and CEO’s annual base salary, annual cash incentive award targets and long-term incentive targets. Our President and CEO annually reviews the performance of all other executive officers and makes recommendations to the Human Resources Committee, for its approval, with respect to their base salary adjustments and annual cash and long-term incentive targets. The Human Resources Committee approves the final base salary adjustments and incentive targets of the other named executive officers and exercises its discretion in modifying any recommended adjustments or incentive targets.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  29  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

Compensation Competitive Analysis

The Human Resources Committee reviewed the recommendations of management and Aon Hewitt and selected the companies listed below for our 2015 comparator group. The comparator group consists of companies that are comparable to us in revenue or number of employees, are in similar industries to ours, or are wholesalers.

2015 Peer Group

 

Comparator Company

  Revenue
(US$)
    Employees     Type of Industry

Anixter International Inc.

    6,445,500,000        9,100     

Communication products

CDW Corporation

    12,074,500,000        8,200     

Technology products

Fastenal Company

    3,733,500,000        18,417     

Fasteners and other products

Genuine Parts Co.

    15,341,647,000        39,000     

Auto parts

HD Supply Holdings, Inc.

    8,882,000,000        15,000     

Industrial products

Insight Enterprises, Inc.

    5,316,229,000        5,406     

Computer hardware and software

MSC Industrial Direct Co. Inc.

    2,910,379,000        6,642     

Industrial products

Office Depot, Inc.

    16,096,000,000        56,000     

Office products

Patterson Companies, Inc.

    4,375,020,000        7,000     

Dental products

Pitney Bowes

    3,821,504,000        15,000     

Provider of software, hardware and services

Pool Corporation

    2,246,000,000        3,400     

Pools and related backyard products

Staples, Inc.

    22,492,360,000        44,000     

Office products

Steelcase

    3,059,000,000        10,700     

Workplace furnishings products

SYNNEX Corp.

    13,338,397,000        72,500     

Technology products

W.W. Grainger, Inc.

    9,964,953,000        23,600     

Facilities maintenance and other products

WESCO International, Inc.

    7,889,600,000        9,400     

Electrical products

Median of 16 companies    

    7,167,550,000        12,850       

Essendant    

    5,363,046,000        6,224     

Office, facilities and industrial products

(1) Revenue and Employees as of the most recent fiscal year reported by each comparator company as of January 31, 2016.

Due to variances in revenue between the Company and some of the companies in our comparator group, regression analysis— a statistical technique for investigating and modeling the relationship between variables— is used to estimate the effect that revenue variances have on executive compensation and to adjust the Compensation Data for such variances among the companies. This adjusted data is used to create marketplace compensation profiles for our executives. Our total compensation mix is targeted at setting base salary at the 50th percentile of these marketplace compensation profiles and setting annual cash and long-term target incentives at about the 50th percentile. Our targets generally allow us to recruit, motivate, and retain the executive talent necessary to develop and execute our strategy. However, we may depart from these targets when appropriate based on the performance level of an individual, his or her unique contributions to the Company, market factors, retention risks, or other considerations.

 

     

 

  30  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

Elements of Compensation

The chart below shows the elements that make up total direct compensation for our executives. Base salary is fixed pay that recognizes the executive’s role and responsibilities. Annual cash incentive awards are variable and reward achievement of annual financial, operating, and individual goals. Long-term incentives are awarded in the form of performance-based restricted stock units (RSUs) that support the achievement of our three-year financial plan and restricted stock that supports retention and the creation of long-term stockholder value. Annual cash incentives and long-term incentives are awarded under our 2015 Long-Term Incentive Plan (“LTIP”).

 

LOGO

Base Salary

Base salaries are reviewed based on the following factors:

 

  Ø   Job performance: The executive’s performance relative to the specific financial targets or business objectives for the job;
  Ø   Market factors: The market compensation profile for similar jobs and the need to attract and retain qualified candidates for high-demand positions;
  Ø   Potential: The individual’s expected contribution to the Company’s future performance;
  Ø   Retention risk: The need to retain high performing and high potential executives; and
  Ø   Internal value of the executive’s role: The relative importance of the job within the Company’s executive ranks based on the scope of responsibility and performance expectation.

In 2015, Mr. Phipps’ salary was increased to match the 50th percentile for chief executive officers of our comparator group. Mr. Blanchard’s salary was increased to bring it closer to the 50th percentile. Mr. Connolly’s salary was increased in connection with his promotion to Chief Operating Officer.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  31  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

Annual Bonus (Management Cash Incentive Awards Plan)

All of our named executive officers participated in the MIP, which promotes the Company’s pay-for-performance philosophy by providing executives with direct financial incentives in the form of annual cash incentive awards for achieving Company performance goals.

Each named executive officer’s annual cash incentive award target under the MIP is set as a percentage of his or her base salary, which generally approximates the median for annual cash incentives awarded to similar level positions, subject to adjustment by the Human Resources Committee (or, in the case of the CEO’s award target, by the independent directors on the Board) to reflect the executive’s responsibilities, job performance and contribution to overall business goals. Each year, the Committee establishes target financial performance measures at levels that are consistent with our expectations. In 2015, the Committee established these measures based on the expectation that our long-term diluted earnings per share percentage growth rate will be in the high single digits.

The threshold, target and maximum levels of each performance measure are set each year with the following objectives:

 

    the relative difficulty of achieving each level is consistent from year to year;
    the target level is challenging but achievable, reflects planned Company performance and generally exceeds industry performance expectations;
    the performance ranges within which threshold and maximum incentive payouts can be earned are generally consistent with the range of financial results within which performance is expected to occur; and
    a threshold payment is made to reward partial achievement of the targets and a maximum payment rewards attainment of an aggressive, but potentially achievable, level of performance.

The table below shows the threshold, target, and maximum performance measure levels the Human Resources Committee established during the first quarter of 2015. This mix of performance measures encourages employees to focus appropriately on the Company’s key financial and strategic objectives. The potential payout on each performance measure was 0% to 200% of the target award related to that measure, depending on whether our performance on that measure was at or below threshold (payout of 0%), between threshold and target (payout greater than 0% but less than 100%), between target and maximum (payout between 100% and 200%), or at or above maximum (payout of 200%). For performance between Threshold and Target or Target and Maximum, the achievement percentage for each performance measure was determined by linear interpolation. The Committee certified the following actual performance level and percentage of target payout for each of the 2015 MIP performance measures for the named executive officers.

2015 Performance Metrics

 

Metric

   Weight    Threshold    Target    Maximum    2015 Actual
Performance

Adjusted EBIT

   60%    $205.2M    $225.7M    $246.2M    $195.1

Adjusted Cost Factor

   20%    15.75%    15.25%    14.75%    16.20%

Adjusted Working Capital Efficiency

   20%    16.47%    15.97%    15.47%    17.27%

 

     

 

  32  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

For purposes of the MIP, “EBIT” is defined as earnings before interest and taxes after eliminating unusual or non-recurring items; “cost” is defined as operating expenses plus cost components of gross margin covering occupancy, advertising materials, distress loss, net delivery freight and net advertising freight; and “working capital” is defined as total current assets (excluding cash and cash equivalents) less total current liabilities (excluding short term debt). The Committee approved adjustments to the performance measures to eliminate the net impact of the following events (the “Adjustments”) on EBIT, cost as a percentage of net sales, and working capital as a percentage of net sales (as so adjusted, “Adjusted EBIT,” “Adjusted Cost Factor,” and “Adjusted Working Capital Efficiency,” respectively): write offs of previously capitalized costs from financing activities; the impact on financial results of any acquisitions or dispositions during 2015, such impact to be as projected in the final financial valuation of the transaction presented to the Board prior to the Board’s approval of the transaction; charitable contributions to the Essendant Charitable Foundation; impairment of goodwill and other intangible assets; curtailment, settlement or termination of any pension plans; litigation or claim judgments and settlements; and restructuring costs and extraordinary items identified in the Company’s audited financial statements, including footnotes.

Although management exceeded cost savings targets in 2015, our results fell short of the threshold levels of the MIP performance metrics. The Human Resources Committee determined that Adjusted Cost Factor, as defined, would not appropriately reward management for their cost savings achievements. The Adjusted Cost Factor definition measured costs against net sales after giving effect to the Adjustments (“Adjusted Revenue”). Revenue experienced declines in 2015 due primarily to weakness in the energy and industrial sectors; decreased sales of paper and janitorial and sanitation products were also contributing factors. Actual 2015 costs (as defined for purposes of MIP after giving effect to the Adjustments described above and the adjustments to operating expenses shown on Appendix A (to the extent not reflected in the Adjustments) and after eliminating reductions in variable costs attributable to the shortfall in actual net sales compared to net sales under our 2015 operating plan (“Plan Revenue”)) were $870 million, compared to 2015 operating plan costs of $883 million. Applying $870 million of costs against Plan Revenue would have resulted in an Adjusted Cost Factor of 15.01%, better than a MIP target of 15.25%. Although that level of achievement would have resulted in an overall MIP payout of approximately 30%, the Committee, taking into consideration all aspects of our performance, determined that a payout of 25% of MIP target was appropriate.

For each named executive officer, 20% of the payout approved by the Human Resources Committee for all executive officers as a group was subject to an adjustment by the Human Resources Committee (or the independent directors on the Board, in the case of Mr. Aiken), based on the Committee’s/Board’s assessment of the executive’s individual performance against specific individual performance targets. For outstanding performance, the executive’s total payout could have been increased up to 10%, from 25% to 27.5%. For unsatisfactory performance, the executive’s total payout could have been decreased as much as 20%, from 25% to 20%. The Human Resources Committee and, for Mr. Aiken, the Board assessed the achievements for each named executive officer against the performance goals and determined not to adjust the payouts for individual performance factors.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  33  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

2015 Payouts

 

     Target     Actual 2015  

Name

      % of Base    
Salary
        % of MIP    
Target
   

    Amount    

($)

 

Current NEOs

                       

Robert B. Aiken Jr.(1)

    125     25        $166,667   

Timothy P. Connolly

    90     25        $105,150   

Earl C. Shanks(1)

    80     25        $15,833   

Eric A. Blanchard

    60     25        $56,250   

Richard D. Phillips

    50     25        $46,875   

Former NEOs

                       

P. Cody Phipps(2)

    125            $0   

Todd A. Shelton

    70     25        $77,000   

 

(1) Mr. Aiken’s and Mr. Shanks’ 2015 cash incentive payouts were pro-rated based on the date their employment with the Company commenced.
(2) Mr. Phipps was not eligible to receive any award under the 2015 MIP.

The annual cash incentive award payout chart below reflects our achievement of the MIP performance measures for the past ten years and underscores our pay-for-performance approach. As shown in the chart, the MIP payout has been at or above the overall target level three times in the last ten years, but during that period we have never achieved the maximum performance level. The annual incentive payout percentage over the last ten years (excluding 2009 in which executive officers did not participate in the MIP) has averaged 83%:

 

LOGO

In order for the Company to receive an income tax deduction for MIP amounts payable to MIP participants who are “covered employees” for purposes of Section 162(m) of the Internal Revenue Code (the “Code”), the payouts to Mr. Connolly, Mr. Blanchard, and Mr. Phillips as calculated under the MIP are paid from a separate pool established under the stockholder-approved LTIP (the “MIP incentive pool”). Mr. Aiken and Mr. Shanks were not covered by the MIP incentive pool because they joined the Company after the MIP incentive pool was established. The MIP incentive pool for 2015 was an amount

 

     

 

  34  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

equal to 10% of 2015 EBIT (as defined under the MIP). The Committee used its discretion to reduce the payouts to each participant covered by the MIP incentive pool to equal the 25% payout described above.

Sign On Bonus

Mr. Aiken received a $166,000 sign on bonus for joining the Company as Interim President and CEO. This bonus was paid to compensate Mr. Aiken for compensation he gave up as the Company asked him to leave his prior employer.

Long-Term Equity Incentive Awards

In 2015 the Human Resources Committee awarded long-term equity incentive awards to the Company’s executives, including the named executive officers. Executives participate in these programs based on their: (1) ability to make a substantial contribution to the Company’s financial results, (2) level of responsibility, (3) market practice for comparable roles, (4) performance, and (5) leadership potential. Executive participation (other than the CEO) is determined by the Committee based on the recommendations of the CEO, rather than automatically based on title, position, or salary level. The economic value of each named executive officer’s total LTIP awards is generally targeted at about the median value of equity awards to executives in similar positions based on comparator group and general industry compensation data, subject to adjustment by the Committee to reflect the foregoing factors, as well as the Company’s desire to retain executives.

As part of our recurring LTIP grant process, the targeted economic value of 2015 LTIP awards for each NEO was as follows:

 

Name

  Target Economic
Value of 2015
LTIP Awards
% of Base Salary
  Grant Date Value
of RSU Awards
  Grant Date Value
of Restricted
Stock Awards

Current NEOs

           

Robert B. Aiken Jr.(1)

         

Timothy P. Connolly(2)

  110%/160%   $221,100   $400,000

Earl C. Shanks(1)

         

Eric A. Blanchard

  100%   $187,500   $187,500

Richard D. Phillips

  100%   $187,500   $187,500

Former NEOs

           

P. Cody Phipps

  300%   $1,440,000  

Todd A. Shelton

  140%   $308,000   $308,000

 

(1)   Mr. Aiken’s and Mr. Shanks’ 2015 LTIP awards were the product of negotiations in recruiting them to the Company rather than being a targeted percentage of their base salaries. See “—Other 2015 Restricted Stock Awards—New-Hire Awards.”
(2)   The target economic value of Mr. Connolly’s 2015 LTIP awards was increased from 110% to 160% of base salary in connection with his promotion to Chief Operating Officer.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  35  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

Mix of Equity Incentive Awards

Our regular long-term equity compensation program consisted of two types of awards:

 

    Performance-based RSU awards; and
    Time-based restricted stock awards

Prior to 2015, awards to all NEOs were divided 70%-30% between performance-based RSUs and time-based restricted stock. In 2015 the Human Resources Committee and, for the President and the CEO, the Board modified the allocation between performance-based RSUs and time-based restricted stock to align with allocation practices typically used by companies in our comparator group and by industry generally. The economic grant date value of the awards made to Mr. Connolly, Mr. Blanchard, Mr. Phillips and Mr. Shelton was split evenly between performance-based RSUs and time-based restricted stock. The economic grant date value of Mr. Phipps’ 2015 performance-based RSU award was 60% of his full-year target. Mr. Phipps did not receive the balance of his 2015 full-year target economic value because he resigned prior to the September 2015 grant of time-based restricted stock.

All of the long-term equity incentive awards granted to Mr. Aiken and Mr. Shanks in 2015 were time-based restricted awards. See “—Other 2015 Restricted Stock Awards—New Hire Awards.” Commencing in 2016, the target economic value of Mr. Aiken’s long-term equity award will be split 60%-40% between performance-based RSUs and time-based restricted stock, and the target value of Mr. Shanks’ award will be split evenly between performance-based RSU awards and time-based restricted stock.

2015 Restricted Stock Awards

Except for the November 2015 award to Mr. Shanks discussed below, restricted stock granted to named executive officers in 2015 vests in three equal, annual increments, except that if the aggregate adjusted diluted earnings per share of the Company for the four quarters preceding a vesting date do not exceed $0.50, the restricted stock scheduled to vest on that date will be forfeited. (The $0.50 earnings per share requirement is designed to provide tax deductibility as described below. See “—Additional Compensation Policies and Practices —Tax Deductibility.”)

The Committee also approved and granted restricted stock awards that were not part of the annual granting cycle. See “—Other 2015 Restricted Stock Awards.”

2015 Performance-Based RSU Awards

In 2015, the Committee changed the design of the long-term performance award based on market best practices and the Committee’s determination of the most appropriate structure to incentivize and reward executives for pursuing the creation of long-term stockholder value. The 2015 awards, granted on March 15, 2015, have a three-year cumulative performance period, with cliff-vesting at the end of that time, and utilize two performance metrics: Adjusted Working Capital Efficiency (as defined above) and Adjusted Cumulative Net Income (defined as the sum of the Company’s net income for the three years ending December 31, 2017, as recalculated based on the Adjustments described on page 33). Prior to 2015, performance-based RSUs were eligible for annual vesting. The change to three-year cliff vesting avoids the complexity of rolling vesting and aligns with the vesting schedule for performance-based equity awards typically used by companies in our comparator group and by industry generally.

 

     

 

  36  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

Other 2015 Restricted Stock Awards

Management Team Transition Awards

Upon Mr. Phipps’ resignation, the Board wanted to ensure the continuity of the management team going forward. The experience and seniority of our leadership team is critical to our future success. Given the CEO change and the related uncertainty, the independent directors of the Board approved one-time retention awards for Messrs. Connolly, Shelton, Blanchard, and Phillips with a target economic value equal to 150% of each executive’s annual LTIP award target. Each awardee received fifty percent of this award in the form of restricted stock in June 2015, with grant date values of $599,982, $461,981, $281,261, and $281,261, repayments respectively. The Board believes that restricted stock is a strong retention vehicle. The remaining fifty percent of each award was delivered as a performance-based RSU grant in March 2016. The Company’s objective is to attract and retain the best talent available and to invest in those individuals who deliver long-term productivity; as such, the Board believed these awards were in the long-term interests of the Company and its stockholders.

New-Hire Awards

In connection with his appointment as President and CEO of the Company, initially on an interim basis and then on a permanent basis, Mr. Aiken received restricted stock awards with a grant date value of $2 million. The amount of these awards was determined based on comparison data, Mr. Aiken’s prior executive experience, and Essendant’s compensation practices for its previous president and chief executive officer. The Human Resources Committee and the Board approved these awards as time-based restricted stock because Mr. Aiken joined the Company after the Board had established the performance requirements for the 2015 performance-based awards and because Mr. Aiken did not have a management role in establishing the performance plan. Commencing in 2016, 60% of Mr. Aiken’s annual LTIP award is expected to be performance based and 40% is expected to be time based.

In connection with his hiring as CFO, Mr. Shanks received $250,000 in restricted stock in November 2015. In March 2016 Mr. Shanks received an award of performance-based RSUs with a target economic value of $250,000. The March 2016 award was in addition to his annual March award. The November 2015 award will cliff vest three years from the grant date. The March 2016 award will cliff vest three years from the grant date to the extent the applicable performance metrics have been achieved. In 2016 Mr. Shanks will also be eligible for annual LTIP awards, which are expected to be divided equally between performance-based RSUs and time-based restricted stock.

No Performance-Based Restricted Stock Units Earned in 2015

The 2013 and 2014 performance-based RSUs were scheduled to vest in three annual increments targeted at 1/3 of the number of units granted, but ranging from:

 

    0 to 66.67% of the number of units granted based on the Company’s achievement of the applicable performance metric within a projected range for the first year of the performance period;
    0 to 133.33% of the number of units granted (less any previously-vested units) based on the Company’s achievement of the applicable performance metric within a projected range for the first two years of the performance period; and
    0 to 200% of the number of units granted (less any previously-vested units) based on the Company’s achievement of applicable performance metric within a projected range for the first year of the performance period for the full three-year performance period.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  37  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

The performance metric for the 2013 RSUs was economic profit.2 The performance metric for the 2014 RSUs was adjusted net income.3

Company’s Cumulative Economic Profit and Adjusted Net Income Goals and

Corresponding Performance Factors During the Performance Periods Indicated

 

2013 RSU Awards ($ million)

 

  1 Year Period Ended
December 31, 2013
    2 Year Period Ended
December 31, 2014
    3 Year Period Ended
December 31, 2015
 
  EP Goal     Perf. Factor     EP Goal     Perf. Factor     EP Goal     Perf. Factor  

Maximum

    35M        200 %     83M        200 %     144M        200 %

Target

    23M        100 %     47M        100 %     72M        100 %

Threshold

    12M        0 %     24M        0 %     36M        0 %

Actual

    24M        104 %     33M        40 %     48M        30 %
           

2014 RSU Awards ($ million)

 

  1 Year Period Ended
December 31, 2014
    2 Year Period Ended
December 31, 2015
             
  Adjusted Net
Income Goal
    Perf. Factor     Adjusted Net
Income Goal
    Perf. Factor              

Maximum

    142M        200 %     293M        200 %    

Target

    135M        100 %     273M        100 %    

Threshold

    126M        0 %     245M        0 %    

Actual

    129M        36 %     234M        0 %    

The number of RSU awards earned by each executive as of any vesting date was calculated using the following formula:

(Performance Factor x Cumulative Unit Percentage x Number of RSUs Awarded) – Number of Previously Earned RSUs

The Performance Factor for each vesting date was derived from the table above based on the Company’s cumulative economic profit or adjusted net income, as applicable, through the applicable vesting date. The Performance Factors as of the vesting date for the performance periods ended December 31, 2015 under the 2013 and 2014 RSU awards were 30% and 0%, respectively. The December 31, 2015 Cumulative Unit Percentage was 66 2/3% for the 2014 RSUs and 100% for the 2013 RSUs. The Number of RSUs Awarded was the number of RSUs granted to the applicable

 

2  For purposes of the March 2013 restricted stock unit award, economic profit was defined as after-tax earnings before interest and taxes, after applying a capital charge based on the Company’s long-term weighted average cost of capital. Total capital used to calculate the capital charge included all assets and liabilities except cash and debt (including securitized accounts receivable). Both after-tax earnings and total capital were also adjusted to remove the impact of certain other pre-determined items in calculating the economic profit as defined in each respective award.
3  For purposes of the March 2014 restricted stock unit award, adjusted net income was defined as net income as reported in our audited financial statements, adjusted to eliminate the net impact of write offs of previously capitalized costs from refinancing activities; the impact on financial results during the year of completion and the year following of any acquisitions or dispositions with revenue for the most recently completed fiscal year of more than $50 million, such impact to be as projected in the final financial valuation of the transaction and its impacts presented to the Board prior to the Board’s approval of the transaction; the effects on financial results of charitable contributions to the Essendant Charitable Foundation; the effects of amounts accrued or paid related to prior period claims sold to Kemper Insurance; the expense associated with impairment of goodwill and other intangible assets; the interest expenses and any accrued interest associated with the cost of repurchases of our stock or issuance of dividends; the effects of any termination of any interest rate swap agreement; changes in the carrying value within the Company’s Other Comprehensive Income of the assets and liabilities associated with pension plans and interest rate swap agreements; and the effects of the termination, immunization, or changes in accounting principles of the Company pension plans, if any.

 

     

 

  38  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

executive by the Company. The Number of Previously Earned RSUs was the number of RSUs that had been earned on prior vesting dates.

Under the formula for determining the number of RSUs earned as of each vesting date, no RSUs would be earned if the economic profit or the adjusted net income, as applicable, as of the vesting date was equal to or less than the Threshold amount specified in the table. Based on the Company’s cumulative economic profit for the three-year period ended December 31, 2015, and the Company’s cumulative adjusted net income for the two-year period ended December 31, 2015, no additional shares vested on March 1, 2016 under the RSU award agreements issued in March 2013 and March 2014. These results demonstrate the alignment of compensation delivery with performance measure achievement.

2016 Compensation Program

The Human Resources Committee approved the following aspects of the 2016 compensation program for executive officers:

 

    No annual salary adjustments will be considered until the completion of Essendant’s bi-annual executive compensation study in July 2016.
    Annual cash incentive awards reflecting individual incentive targets, performance objectives, and other design features generally consistent with those provided in the 2015 MIP and the MIP incentive pool.
    March 15, 2016 RSU awards approved for the current NEOs.
  ¡    The RSU award to Mr. Aiken was designed to deliver 60% of his 2016 annual LTIP economic value target.
  ¡    The RSU awards to Mr. Connolly, Mr. Shanks, Mr. Blanchard, and Mr. Phillips were designed to deliver 50% of their 2016 annual LTIP economic value target (representing their annual performance-based RSU award). Additionally, the RSU awards to Mr. Connolly, Mr. Blanchard, and Mr. Phillips were designed to deliver the remaining half of their 2015 Management Team Transition Awards that were approved in June 2015, and the RSU award to Mr. Shanks was designed to deliver an additional $250,000 target economic value as contemplated by the employment terms approved for him by the Committee in November 2015.
  ¡    The terms of the awards are generally the same as those set forth in the March 15, 2015 grant, except the March 2016 awards introduced relative Total Stockholder Return (“TSR”) as a performance metric. TSR will be calculated over a three-year period and weighted 15%. The weighting of adjusted cumulative net income will be reduced to 60% and the weighting of adjusted working capital efficiency will remain at 25%. The addition of TSR and the weighting of the three performance metrics continue the Committee’s practice of focusing performance measures on the factors that drive stockholder value.

Additional Compensation Policies and Practices

Stock Ownership Guidelines

The Company and its stockholders are best served by managing the business with a long-term perspective while delivering strong annual results. We believe stock ownership is an important tool to strengthen the alignment of interests of stockholders, directors, and executive officers. Our guidelines specify that each director and executive officer should retain 100% of any shares of Company common stock acquired (net of required tax withholding) through equity-based grants made by the Company

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  39  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

under our incentive plans, until he or she attains and continues to maintain ownership equal to at least the multiple of cash retainer or annual base salary set forth in the table below. As of December 31, 2015 all of the current directors and NEOs had attained such ownership, except for Mr. Aiken and Mr. Shanks, who joined the Company in 2015, and Mr. Williams, who joined the Board in 2014. All directors and executive officers complied with the retention aspects of the stock ownership guidelines in 2015.

 

NEO

  Title   Required Salary Multiple

Robert B. Aiken, Jr.

  President and CEO   Five x base salary

Timothy P. Connolly

  Senior Vice President and COO   Three x base salary

Earl C. Shanks

  Senior Vice President and CFO   Three x base salary

Eric A. Blanchard

  Senior Vice President, General
Counsel and Secretary
  One x base salary

Richard D. Phillips

  Senior Vice President, Strategy
and President, ORS Industrial
  One x base salary

Independent Directors

      Five x annual cash retainer

The value of all of the following types of Company stock, stock units or stock options owned by or granted to the participant qualifies toward the participant’s attainment of the target multiple of pay:

 

    Vested and unvested restricted stock/stock units
    Shares owned outright/shares beneficially owned
    Shares owned through the Company’s employee stock purchase plan or 401(k) plan
    Shares attained through a deferred stock unit plan
    Vested in-the-money stock options reflecting the gross value equal to the spread between the strike price (closing stock price on the date of grant) and the fair market value

Based on an amendment to the stock ownership guidelines adopted by the Human Resources Committee in February 2014, unvested restricted stock units that are subject to performance conditions will cease to count toward share ownership in February 2017.

The Board and the Committee may reduce future long-term incentive grants or other compensation provided to executives who do not comply with the guidelines.

Recoupment (“Clawback”) Policy

Under our clawback policy, we are allowed to recoup incentive compensation previously paid to our executive officers if there is a restatement of financial statements or if any executive commits fraud or engages in other misconduct. The Committee adopted this policy in anticipation of SEC rules that will require such policies, and we intend to make any changes to our policy that may be required to comply with those final rules. Our form RSU and restricted stock award agreements include provisions requiring the forfeiture of any such awards, shares issued under such awards, and proceeds from the sale of any shares issued under such awards if the participant breaches certain covenants, including non-competition and non-solicitation restrictions that apply during the term of employment and for two years thereafter.

 

     

 

  40  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

Anti-Hedging and Pledging Policies

Under our insider trading policy, directors and executive officers, as well as other employees, are prohibited from the following activities with respect to Company common stock:

 

  ü   Hedging their interest or otherwise speculating in Company shares by selling short or trading or purchasing “put” or “call” options on our common stock or engaging in similar transactions; and

 

  ü   Pledging any shares of our common stock without prior clearance from the Company.

As of January 1, 2016, no shares of Company common stock were pledged by any director or executive officer.

Tax Deductibility

Section 162(m) of the Code generally limits the corporate tax deduction for compensation paid to the chief executive officer and the three other most highly compensated executives (other than the CFO) to $1 million annually, unless certain requirements are satisfied. To maximize the corporate tax deduction, the MIP, the LTIP and the MIP incentive pool were designed so that certain awards under those plans can comply with the requirements of Section 162(m) of the Code and the MIP and the MIP incentive pool were established under the stockholder-approved LTIP. As the $1 million limit does not apply to compensatory amounts that qualify as performance-based compensation under Section 162(m), certain of our performance-based awards made pursuant to these plans are intended to qualify for corporate tax deductibility.

We intend to use performance-based compensation to minimize the effect of the limits imposed by Section 162(m) to the extent that compliance with Code requirements does not conflict with our compensation objectives. In some cases, however, we believe the loss of some portion of a corporate tax deduction may be necessary and appropriate in order to provide the compensation necessary to attract and retain qualified executives.

Perquisites and Other Benefits

We provide cash allowances in lieu of separate perquisite programs such as auto allowances, financial planning reimbursements, physical examination reimbursements, and supplemental liability insurance. Based on the Compensation Data, the independent directors on the Board approve the perquisite allowance for Mr. Aiken and the Human Resource Committee approves the perquisite allowances for the other named executive officers.

Other executive benefits include:

 

  Ø   Group life insurance and accidental death and dismemberment insurance equal to 2 1/2 times the executive’s base salary, up to a maximum benefit of $1.2 million.
  Ø   $200,000 of business travel insurance.
  Ø   Supplemental Long-Term Disability Insurance

Our executives are eligible to participate in all of our other employee benefit plans, such as medical, dental, vision, long-term disability and 401(k) plan. Executives hired prior to January 1, 2008 are also eligible to receive a pension benefit from our frozen pension plan. See “Executive Compensation – Retirement Benefits.” We believe these benefits support our goal of attracting and retaining key executive talent, as well as promote the health, well-being, and financial security of our executives.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  41  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

Severance Benefits

We have entered into employment agreements with each of the NEOs except Mr. Shanks. Mr. Shanks is covered by the Company’s Executive Severance Plan. The employment agreements and the Executive Severance Plan provide for severance benefits in the event of termination by the Company without cause or by the executive for good reason. These benefits are intended to attract and retain executives and to facilitate an orderly transition upon certain terminations. See “Executive Compensation – Employment Contracts and Employment Termination and Change of Control Arrangements.”

The named executive officers’ benefits in the event of a change of control have a “double trigger,” meaning the executives are not automatically entitled to severance upon a change of control. Rather, they are entitled to receive severance following a change of control only if, within the period of time specified in their respective employment contracts or the Executive Severance Plan, their employment is terminated by the Company without cause or by the executive for good reason.

Change of control severance benefits help to maintain the named executive officers’ objectivity in decision-making on potential corporate transactions and provide another vehicle to align the interests of the named executive officers with the interests of our stockholders. The use of a double-trigger for the payment of change of control severance benefits encourages executives to remain with us through the closing of a change of control transaction, providing stability at a critical time.

Human Resources Committee Report

The Human Resources Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussions, the Human Resources Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K.

The Human Resources Committee:

Susan J. Riley, Chair

Alexander M. Schmelkin

Paul S. Williams

 

     

 

  42  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

Summary Compensation Table

The following table summarizes the compensation of all persons serving as principal executive officer (CEO) and principal financial officer (CFO) in fiscal 2015 and the next three highest compensated executive officers who were serving as such at December 31, 2015.

 

  Name and Principal Position   Year     Salary(1)
($)
    Bonus(2)
($)
    Stock
Awards(3)
($)
    Option
Awards(4)
($)
   

Non-Equity
Incentive Plan
Compensation(5)

($)

   

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(6)

($)

    All Other
Compensation(7)
($)
   

Total

Compensation

($)

 

Robert B. Aiken, Jr.

    2015        530,768        166,000        1,999,963               166,667               19,147        2,882,545   

President and Chief Executive Officer

                                                                       

Timothy P. Connolly

    2015        471,417        53,624        1,221,059               105,150               29,578        1,880,827   

Senior Vice President and

    2014        402,000        50,000        692,576               289,440        12,266        29,147        1,475,429   

Chief Operating Officer

    2013        398,000               433,664        442,195        255,496               32,813        1,562,168   

Earl C. Shanks

    2015        63,035               249,995               15,833               287,889        616,751   

Senior Vice President and

Chief Financial Officer

                                                                       

Eric A. Blanchard

    2015        375,000               656,220               56,250        1,001        31,306        1,119,777   

Senior Vice President, General

    2014        330,500               330,462               169,384        5,311               835,658   

Counsel and Secretary

    2013        330,500               334,106        330,495        179,197               32,308        1,206,606   

Richard D. Phillips

    2015        375,000               656,220               46,875               28,748        1,106,843   

Senior Vice President,

    2014        375,000               392,495               150,000               28,408        945,903   

Strategy and President-ORS Industrial

    2013        356,730        150,000        312,036        374,992        155,745               28,154        1,377,657   

P. Cody Phipps

    2015        275,127               1,439,989                        518,021        2,233,137   

Former President and

    2014        750,000               1,859,983               660,000        12,944        37,548        3,320,475   

Chief Executive Officer

    2013        750,000               1,799,953        1,799,996        745,470               37,700        5,133,119   

Todd A. Shelton

    2015        440,000               1,077,974               77,000               30,470        1,625,444   

Former Senior Vice President

    2014        440,000               620,966               246,400               30,354        1,337,720   

and Chief Financial Officer

    2013        423,334               456,972        456,490        264,775               35,515        1,637,086   

 

(1) Reflects base salary amounts earned during the years listed, including any portions deferred under the 401(k) Savings Plan and the Deferred Compensation Plan of the Company’s wholly owned subsidiary, Essendant Co.
(2) Mr. Aiken received a cash sign-on bonus in the amount of $166,000 related to his transition to CEO. Mr. Connolly received the first half of his cash bonus related to his promotion to President, Business Transformation and Supply Chain in the amount of $50,000 in January 2014 and received the second half of the bonus in the amount of $50,000 payable in January 2015. Mr. Phillips received a cash sign-on bonus in the amount of $150,000.
(3) Amounts shown represent the grant date fair value of restricted stock awards and performance-based RSU awards that were granted in each year, computed in accordance with Financial Standards Board Accounting Standards Codification (ASC) Topic 718, Compensation—Stock Compensation and represent the probable outcome of the performance condition. For a discussion of the assumptions used in calculating these values. See Note 5, “Share-Based Compensation,” to the Company’s audited financial statements contained in our annual report on Form 10-K for the year ended December 31, 2015 and Note 3, “Share-Based Compensation,” to the Company’s audited financial statements contained in our annual reports on Form 10-K for the years ended December 31, 2014 and 2013. Assuming the highest level of performance was achieved, the grant date fair value of RSU awards in 2015 to the NEOs would have been $442,160 for Mr. Connolly, $374,924 for Mr. Blanchard, $374,924 for Mr. Phillips, $2,879,978 for Mr. Phipps, and $615,996 for Mr. Shelton.
(4) Amounts shown are based upon the fair value of option awards estimated on the grant date using a Black-Scholes option valuation model. For a discussion of the assumptions used in calculating these values, see Note 3, “Share-Based Compensation,” to the Company’s audited financial statements contained in our annual reports on Form 10-K for the year ended December 31, 2013.
(5) The amounts shown represent annual cash incentives earned based on 2015 performance and paid in March of 2016. These amounts were paid under the MIP pursuant to the Company’s LTIP. See “—Compensation Discussion and Analysis—Elements of Compensation—Annual Cash Incentive Awards.”
(6)

This amount represents the positive change in value under the Company’s Pension Plan for the NEOs who are eligible for the Pension Plan. In addition, the pension value for Messrs. Connolly and Phipps declined by $879 and $312, respectively, in 2015, and the pension value for Messrs. Connolly, Blanchard and Phipps declined by $3,391, $173 and $3,014, respectively, in 2013. Earnings on deferred compensation are not reflected in this column because the investment options under the non-qualified Deferred Compensation Plan are

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  43  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

  the same choices available to all employees under the 401(k) Savings Plan and the named executive officers do not receive preferential earnings on their investments.
(7) The amounts shown for 2015 include the following:

 

Name   401(k) Match     Cash Perq
Allowance
    Other Perqs(8)     Severance
Payments(9)
    Total All Other
Compensation
 
Robert B. Aiken, Jr.            15,909        3,238                19,147   
Timothy P. Connolly     7,950        18,000        3,628                29,578   
Earl C. Shanks     594        2,250        285,045                287,889   
Eric A. Blanchard     7,950        18,000        5,356                31,306   
Richard D. Phillips     7,950        18,000        2,798                28,748   
P. Cody Phipps     7,833        8,182        2,006        500,000        518,021   
Todd A. Shelton     7,950        20,000        2,520                30,470   

 

(8) Other perquisites include (1) the taxable cost of group-term life insurance, (2) cell phone stipend, and (3) spousal travel and entertainment. Mr. Shanks received a lump sum relocation payment of $285,000.
(9) Mr. Phipps entered into a separation agreement pursuant to which the Company agreed to pay him $500,000 over a six month period in consideration for transition services and his release of any claims against the Company.

 

     

 

  44  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

Grants of Plan-Based Awards During 2015

The compensation plans under which the grants in the following table were made are described under “—Compensation Discussion and Analysis—Elements of Compensation—Long-Term Equity Incentive Awards.” The LTIP permits different types of awards, including but not limited to stock options, restricted stock awards, stock appreciation rights, cash incentives awards, and performance-based awards. The LTIP requires that in the event of a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), outstanding equity awards will be proportionately adjusted.

 

                   Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards(MIP)
(1)
    Estimated Future Payouts Under
Equity Incentive Plan Awards
(2)
                  
NAME   GRANT
DATE
    Committee
of the
Board of
Directors
Action
Date
    Threshold
($)
  Target ($)     Maximum
($)
    Threshold
($)
   

Target

($)

    Maximum
($)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
  Exercise or
Base Price
of Option
Awards
(S/Shr)
 

Grant Date
Fair Value
of
Stock and
Option
Awards

($)

 

Robert B. Aiken, Jr.

    6/5/2015        6/3/2015                            0        499,989        499,989                39.71   

Robert B. Aiken, Jr.

    9/1/2015        7/22/2015                            0        1,499,974        1,499,974                33.25   

Robert B. Aiken, Jr.

                        666,667        1,333,334                                           

Timothy P. Connolly

    3/15/2015        2/10/2015                            0        221,080        442,160                38.82   

Timothy P. Connolly

    6/1/2015        5/19/2015                            0        599,982        599,982                39.85   

Timothy P. Connolly

    9/1/2015        7/13/2015                            0        399,998        399,998                33.25   

Timothy P. Connolly

                        420,600        841,200                                           

Earl C. Shanks

    12/1/2015 (3)      11/5/2015                            0        249,995        249,995                36.64   

Earl C. Shanks

                        63,333        126,666                                           

Eric A. Blanchard

    3/15/2015        2/10/2015                            0        187,462        374,924                38.82   

Eric A. Blanchard

    6/1/2015        5/19/2015                            0        281,261        281,261                39.85   

Eric A. Blanchard

    9/1/2015        7/13/2015                            0        187,497        187,497                33.25   

Eric A. Blanchard

                        225,000        450,000                                           

Richard D. Phillips

    3/15/2015        2/10/2015                            0        187,462        374,924                38.82   

Richard D. Phillips

    6/1/2015        5/19/2015                            0        281,261        281,261                39.85   

Richard D. Phillips

    9/1/2015        7/13/2015                            0        187,497        187,497                33.25   

Richard D. Phillips

                        187,500        375,000                                           

P. Cody Phipps

    3/15/2015        2/10/2015                            0        1,439,989        2,879,978                38.82   

P. Cody Phipps

                        1,000,000        2,000,000                                           

Todd A. Shelton

    3/15/2015        2/10/2015                            0        307,998        615,996                38.82   

Todd A. Shelton

    6/1/2015        5/19/2015                            0        461,981        461,981                39.85   

Todd A. Shelton

    9/1/2015        7/13/2015                            0        307,995        307,995                33.25   

Todd A. Shelton

                        308,000        616,000                                           

 

(1) These columns indicate the range of possible payouts for 2015 performance under the Company’s MIP as described in “—Compensation Discussion and Analysis—Annual Cash Incentive Awards.” The actual payouts for 2015, as reflected in the Summary Compensation Table, were as follows: Mr. Aiken, $166,667; Mr. Connolly, $105,150; Mr. Shanks, $15,833; Mr. Blanchard, $56,250; Mr. Phillips, $46,875; Mr. Shelton, $77,000. Mr. Phipps resigned on May 4, 2015 and did not receive a payout.
(2) Restricted stock unit (“RSU”) awards granted pursuant to the Company’s LTIP on March 15, 2015 will cliff vest on March 1, 2018 to the extent the Company achieves its cumulative net income and working capital efficiency goals for the performance period. Participants may earn a threshold of zero to a maximum of 200% of their target equity incentive award over the three-year period. See “—Compensation Discussion and Analysis—Elements of Compensation—Long-Term Equity Incentive Awards” for more information.

 

       
 

 

2016 PROXY STATEMENT  

 

 

   LOGO

   

 

  45  

       


Table of Contents

                         EXECUTIVE COMPENSATION

 

 

   Restricted stock awards granted pursuant to the Company’s LTIP on September 1, 2015 vest in three annual increments on each September 1st, provided that the Company’s aggregate adjusted diluted earnings per share exceed $0.50 for the four calendar quarters immediately preceding the vesting date.
(3) The restricted stock award granted to Mr. Shanks on December 1, 2015 pursuant to the Company’s LTIP, in connection with his acceptance of employment, will vest on December 1, 2018, provided that the Company’s aggregate adjusted diluted earnings per share exceed $0.50 for the four calendar quarters immediately preceding the vesting date.

 

     

 

  46  

   

 

 

 

 

LOGO  

 

 

  

 

 

 

  2016 PROXY STATEMENT

 

     


Table of Contents

EXECUTIVE COMPENSATION                        

 

 

Outstanding Equity Awards at December 31, 2015

 

            Option Awards     Stock Awards(1)  
 NAME   GRANT
DATE
    Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
    Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
    Option
Exercise
Price
    Option
Expiration
Date
   

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Yet
Vested
(2)

(#)

   

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Yet
Vested
(3)

($)

 

Robert B. Aiken, Jr.

    6/5/2015                                        12,591        409,333   

Robert B. Aiken, Jr.

    9/1/2015                                        45,112        1,466,591   

Timothy P. Connolly

    3/1/2013                                        2,686        87,322   

Timothy P. Connolly

    4/1/2013               34,861        38.69        4/1/2023                   

Timothy P. Connolly

    9/1/2013                                        1,114        36,216   

Timothy P. Connolly

    1/1/2014                                        5,447        177,082   

Timothy P. Connolly

    3/15/2014                                        5,110        166,126   

Timothy P. Connolly

    9/1/2014                                        2,176        70,742   

Timothy P. Connolly

    3/15/2015                                        5,695        185,144   

Timothy P. Connolly

    6/1/2015                                        15,056        489,471   

Timothy P. Connolly

    9/1/2015                                        12,030        391,095   

Eric A. Blanchard

    9/1/2006        36,530               22.99        9/1/2016                   

Eric A. Blanchard

    9/1/2007        18,096               29.51        9/1/2017                   

Eric A. Blanchard

    3/1/2013                                        2,098        68,206   

Eric A. Blanchard

    4/1/2013               26,055        38.69        4/1/2023                   

Eric A. Blanchard

    9/1/2013                                        832        27,048   

Eric A. Blanchard

    3/15/2014                                        3,814        123,993   

Eric A. Blanchard

    9/1/2014                                        1,627        52,894   

Eric A. Blanchard

    3/15/2015                                        4,829        156,991   

Eric A. Blanchard

    6/1/2015                                        7,058        229,456   

Eric A. Blanchard

    9/1/2015                                        5,639        183,324   

Richard D. Phillips

    4/1/2013               29,563        38.69        4/1/2023                   

Richard D. Phillips

    5/17/2013                                        1,976        64,240   

Richard D. Phillips

    9/1/2013                                        941        30,592   

Richard D. Phillips

    3/15/2014                                        4,328        140,703   

Richard D. Phillips

    9/1/2014                                        2,133        69,344   

Richard D. Phillips

    3/15/2015                                        4,829        156,991   

Richard D. Phillips

    6/1/2015                                        7,058        229,456   

Richard D. Phillips

    9/1/2015                                        5,639        183,324   

Earl C. Shanks

    12/1/2015                                        6,823        221,816   

Todd A. Shelton

    9/1/2006