Our management has a strong focus on delivering long-term profitable growth for, and returning value to, our shareholders. This long-term focus has contributed significantly to the Company’s total shareholder return as seen below. Also, below is a normalized earnings per share graph and an adjusted operating cash flow graph representing the Company’s 2016 performance.
Source: S&P Capital IQ
Adjusted Earnings Per Share and Adjusted Operating Cash Flow are non-GAAP financial measures. Please see Annex A for disclosures and reconciliations to the appropriate GAAP measure.
As detailed in the Q&A with our Chairman & CEO earlier in this proxy statement, the Company delivered outstanding financial results in 2016, including the following:
Over the course of the past several years, acting in the interests of the stockholders, the Compensation Committee in conjunction with management has adjusted compensation programs toward greater performance-based compensation. In addition, we have collectively modified or eliminated certain components of our programs to better align them with prevailing standards. The following are highlights of our compensation programs, including our emphasis on pay commensurate with performance and actions taken to align aspects of our programs with evolving standards.
The Company’s compensation philosophy as implemented through the Compensation Committee is to align executive compensation with the performance of the Company and the individual by using several compensation components for our executives.
Our overall compensation philosophy is to target our direct compensation for executives within a competitive range of benchmark pay levels of general industry companies (the “Peer Group” (see Annex B), with opportunities to exceed the target direct compensation levels through annual performance-based incentives paid in cash and through long-term performance-based incentives paid in cash and stock. However, if performance targets are not met, then the resulting performance-based award payouts will be below target levels. We believe these target levels of direct compensation are appropriate to motivate, reward, and retain our executives, each of whom has leadership talents and expertise that make them attractive to other companies. In making annual compensation decisions, the Compensation Committee reviews each executive’s total compensation, as well as the compensation components, for reasonableness and comparability to market levels and the prior year’s compensation.
The compensation components are designed to motivate our senior leadership to operate as a team to achieve Company-wide goals. This approach serves to align the compensation of our most senior leadership team with the performance of the Company.
In the first quarter of each year, our independent consultant presents to the Compensation Committee comparative market information, including benchmarking data discussed below. For the Chairman and the CEO, the Compensation Committee is exclusively responsible for the final determination of all components of compensation, but may request input or recommendations from Company management. For other Named Executive Officers, the Compensation Committee receives additional recommendations from our CEO for all components of compensation. In the first quarter of each year, the Compensation Committee reviews the market data and recommendations and sets the compensation components of annual base salary, annual performance-based incentives, and long-term incentives for that year. Below is a graph aligning CEO pay and performance, using the five year total shareholder return.
Below is an overview of SCI’s elements of compensation and a graph showing the percentage of the total for each element.
Over 70% of our NEOs compensation is performance-based.
Annual Base Salary
|Fixed cash element of compensation established within a competitive range of benchmark pay levels.||Serves to attract and retain executive talent and may vary with individual or due to marketplace competition or economic conditions.||Reduced peer group for 2016 benchmark studies.|
|Performance–based element of compensation tied to the attainment of performance measures. Paid in cash.||Rewards achievement of shorter term financial and operational objectives that we believe are primary drivers of our common stock price over time.||A fourth performance measure (Return on Equity) was added to the Incentive Compensation Plan in 2015.|
|Stock Options – granted at an exercise price equal to 100% of the fair market value of SCI common stock on the grant date.||Rewards for the Company’s stock price appreciation.|
|Restricted Stock – awards are made in February each year at the same time as the stock option grants and vest at a rate of one-third per year.||Supports retention and furthers stock ownership.|
|TSR Performance Units – The Performance Unit Plan measures the three-year total shareholder return (“TSR”) relative to a comparator group of public companies (see Annex B).||Rewards for effective management of Company business over a multi-year period and delivering superior TSR.||Reduced peer group for 2016 comparator group.|
|Retirement Plans – Executive Deferred Compensation Plan and 401(k) Plan.||Provide financial security for retirement.|
|Perquisites and Personal Benefits – reasonable benefits as described on page 38.||To enhance executive performance by facilitating effective management of personal matters.|