DEF 14A of Vse Corp
Filed Apr 2, 2024 · FY20230000102752-24-000033
DIRECTOR NOMINEES
DIRECTOR NOMINEES
DIRECTOR NOMINEES
| Name | Director Since | Occupation | Committee Membership | | Ralph E. Eberhart | 2007 | Non-Executive Chairman; General, U.S. Air Force (Ret.), formerly Commander of several major Commands and Unified Commands, including, Commander of U.S. Northern Command and North American Aerospace Defense Command (NORAD) | | | John A. Cuomo | 2019 | President and Chief Executive Officer | | | Anita D. Britt | 2022 | Former Chief Financial Officer at Perry Ellis International | AC*; CHRC | | Edward P. Dolanski | 2022 | Former President, U.S. Government Services at Boeing Global Services and Former CEO at Aviall, Inc. | AC, CHRC | | Mark E. Ferguson III | 2017 | Admiral, US Navy (Ret.), Former Commander of the U.S. Naval Forces Europe/Africa and Vice Chief of Naval Operations | AC, NCGC* | | Lloyd E. Johnson | 2022 | Former Global Managing Director, Finance and Internal Audit, Accenture Corporation | CHRC, NCGC | | John E. Potter | 2014 | President and CEO of the Metropolitan Washington Airports Authority | CHRC*, NCGC | | Bonnie K. Wachtel | 1991 | Principal and Director of Wachtel & Co., Inc. | AC, NCGC |
DIRECTOR NOMINEES
*= Chair of committee; AC= Audit Committee; CHRC= Compensation and Human Resources Committee; NCGC= Nominating and Corporate Governance Committee
ELECTION OF DIRECTORS
ELECTION OF DIRECTORS
ELECTION OF DIRECTORS
| What am I voting on? Stockholders are being asked to elect each of the eight director nominees named in this Proxy Statement to hold office until the annual meeting of stockholders in 2025 and until his or her successor is elected and qualified. Voting Recommendation: FOR the election of each of the eight director nominees. Vote Required: A director will be elected by a plurality of the votes cast. Broker Discretionary Voting Allowed? No, broker non-votes have no effect. Abstentions: No effect. |
ELECTION OF DIRECTORS
Director Nominees On March 5, 2024, Mr. Koonce notified the Company that he would not be standing for re-election and that he would retire from the Board effective at the conclusion of his term upon the adjournment of the Annual Meeting. In connection with Mr. Koonce’s retirement, the Board approved a decrease in the size of the Board from nine directors to eight directors, effective upon the conclusion of Mr. Koonce’s term upon adjournment of the Annual Meeting. Each nominee listed below is currently serving as a VSE director and was elected by the stockholders at the 2023 Annual Meeting of Stockholders (the “2023 Annual Meeting”). Each nominee elected as a director will serve until the next annual meeting of stockholders and until his or her successor is elected and qualified. If any nominee should become unable to serve for any reason, the proxies will be voted for such substitute nominee as shall be designated by the Board. The eight nominees for election as VSE directors, their committee assignments, if elected, following the Annual Meeting and certain information regarding them are as follows:
ELECTION OF DIRECTORS
| JOHN CUOMO | | | Age: 50 Director Since: 2019 Other public company boards: None | Background: Chief Executive Officer and President of VSE since April 2019. Previously Mr. Cuomo served as Vice President and General Manager of Boeing Distribution Services Inc., an aircraft parts and consumables distributor and subsidiary of The Boeing Company, from October 2018 to March 2019. Prior to Boeing’s acquisition of the Aerospace Solutions Group of KLX Inc. (KLX) in October 2018, Mr. Cuomo served as Group Vice President and General Manager for KLX Aerospace Solutions beginning December 2014. Mr. Cuomo has 20 years of experience in the aerospace and defense distribution and services market. Prior to his role at KLX, Mr. Cuomo served in multiple roles and functions at B/E Aerospace from April 2000 to December 2014, including Vice President & General Manager and Senior Vice President, Global Sales, Marketing & Business Development. | | | Key Qualifications and Skills: Experience includes 20+ years as a public company leader in the aerospace and defense distribution and services market industry, including as an officer of Boeing Distribution Services Inc., KLX Aerospace Solutions and B/E Aerospace. |
ELECTION OF DIRECTORS
| ANITA D. BRITT | | | Age: 60 Director Since: 2022 Independent Board Committees: •Audit (Chair) •Compensation & Human Resources Other public company boards: •Delta Apparel, Inc. •urban-gro, Inc. •Smith & Wesson Brands, Inc. | Background: Former Chief Financial Officer at Perry Ellis International from 2009 to 2017. Previously, Ms. Britt also held senior financial leadership positions at Jones Apparel Group and Urban Brands. She currently serves on the board of directors for urban-gro, Smith & Wesson Brands and Delta Apparel. Ms. Britt is a Certified Public Accountant; a Board Leadership Fellow as designated by the National Association of Corporate Directors; and holds a Carnegie Mellon Cybersecurity Oversight Certification and a Harvard Kennedy School Executive Education Certificate in Cybersecurity: The Intersection of Policy and Technology. | | | Key Qualifications and Skills: Ms. Britt has extensive corporate finance and capital markets experience, including mergers and acquisitions, in both public and private sectors. She brings board and business leadership experience. Ms. Britt is a Certified Public Accountant and is a member of the American Institute of Certified Public Accountants and the Pennsylvania Institute of Certified Public Accountants. |
ELECTION OF DIRECTORS
| EDWARD P. DOLANSKI | | | Age: 56 Director Since: 2022 Independent Board Committees: •Audit •Compensation & Human Resources Other public company boards: None | Background: Co-founder of First Watch Group, a management consulting firm. Previously, Mr. Dolanski held a variety of senior leadership roles at The Boeing Company. During his 13 years with Boeing, Mr. Dolanski served as President, U.S. Government Services at Boeing Global Services; President, Boeing Global Services & Support; and President and Chief Executive Officer of Aviall Inc., a Boeing subsidiary and the world's largest provider of new aviation parts and related aftermarket services. Before joining Boeing, Mr. Dolanski was with the Raytheon Company for 8 years in a variety of roles, including Vice President, Mission Support, Network Centric Systems; Vice President, Aftermarket Businesses and Customer Support, Raytheon Aircraft Company (Hawker & Beechcraft); and Chief Information Officer, Aircraft Integration Systems. His experience also includes 14 years with Walmart Stores where he held progressively senior positions at the corporate office within information technology and supply chain management. Mr. Dolanski holds a Corporate Governance certification from The Wharton School and also serves on several private and public boards including Catalyze Partners, Valence Surface Technologies, and as Chairman of MD Helicopters. | | | Key Qualifications and Skills: Experience in commercial aftermarket aerospace, business and general aviation distribution and maintenance, repair and overhaul (MRO) through senior leadership roles at Boeing and Raytheon in a career spanning more than 30 years. Governance experience as a member of the Catalyze Partners Board of Advisors, Business Executives for National Security (BENS) and the Texas Blockchain Council Advisory Board, and as a member of the Texas Diversity Council board of directors where he has been recognized with several diversity awards, including DiversityFIRST and CEO Champions of Diversity. Mr. Dolanski serves on several Boards including Catalyze Partners, Valence Surface Technologies and as Chairman of MD Helicopters. |
ELECTION OF DIRECTORS
| RALPH E. EBERHART | | | Age: 77 Director Since: 2007 Independent - Board Chair Other public company boards: •Jacobs Solutions, Inc. | Background: General, U.S. Air Force (Ret.), formerly Commander of several major Commands and Unified Commands, including Commander of U.S. Northern Command, North American Aerospace Defense Command (NORAD), U.S. Space Command, Air Force Space Command, Air Combat Command & U.S. Forces, Japan. He also served as Vice Chief of the U.S. Air Force. General Eberhart retired from the U.S. Air Force in 2005 after 36 years of military service. He was then appointed as President (2004-2020), and served as Chair, of the Armed Forces Benefit Association (AFBA), a non-profit association, and as Chair of its related enterprise, 5Star Life Insurance Co. until 2022. General Eberhart has served on the boards of several privately and publicly held companies, including Terma North America, Inc., Triumph Group, Inc. (Chair of the Board) and Rockwell Collins. | | | Key Qualifications and Skills: Experience as President (2004-2020) and Chair of the Armed Forces Benefit Association (until 2022) providing insight into challenges associated with managing complex organizations and holding management accountable for company performance. Expertise in the defense industry due to 36 years of experience in the U.S. Air Force, serving as Commander of several major Commands and Unified Commands, including Commander of U.S. Northern Command, North American Aerospace Defense Command (NORAD), U.S. Space Command, Air Force Space Command, Air Combat Command & U.S. Forces, Japan. He has also served as Vice Chief of the U.S. Air Force. |
ELECTION OF DIRECTORS
| MARK E. FERGUSON III | | | Age: 67 Director Since: 2017 Independent Board Committees: •Audit •Nominating & Corporate Governance (Chair) Other public company boards: •Pacific Gas and Electric Corporation | Background: Admiral, US Navy (Ret.), formerly the Commander of the U.S. Naval Forces Europe and Africa and Vice Chief of Naval Operations, he retired from the US Navy after 38 years of service as a nuclear-trained surface warfare officer. He served as a senior advisor to McKinsey & Company in the Aerospace and Defense practice from 2016 to 2020. Admiral Ferguson has served as the Chief Executive Officer of MK3 Global LLC, a private consulting firm since July 2016. | | | Key Qualifications and Skills: Expertise in the defense industry due to 38 years of experience in the U.S. Navy and senior positions in the U.S. military, including service as Commander, U.S. Naval Forces Europe, and Africa, and as Commander, NATO Joint Force Command, Naples, Italy. He also served as the Vice Chief of Naval Operations from 2011 to 2014. Expertise in commercial aerospace and defense with McKinsey & Company from 2016 to 2020. Holds a master’s degree in computer science from the Naval Postgraduate School and has expertise in cyber defense, congressional and regulatory affairs, strategic planning, and personnel and operations management. Graduate of the National Association of Corporate Directors (NACD) Cyber Risk Oversight Program; Holds a certificate in Cyber Security Oversight from Carnegie Mellon University. Serves as Chair of the People and Compensation Committee at Pacific Gas and Electric Corporation. |
ELECTION OF DIRECTORS
| LLOYD E. JOHNSON | | | Age: 69 Director Since: 2022 Independent Board Committees: •Compensation & Human Resources •Nominating & Corporate Governance Other public company boards: •Haemonetics Corporation •Apogee Enterprises •Beazer Homes USA | Background: Former Global Managing Director, Finance and Internal Audit at Accenture Corporation from 2004 to 2015. Prior to that, Mr. Johnson served as Executive Director, M&A and General Auditor for Delphi Automotive PLC from 1999 to 2004 and held senior financial leadership positions at Emerson Electric Corporation, Sara Lee Corporation and Shaw Food Services. Mr. Johnson is a Certified Public Accountant and holds the National Association of Corporate Directors Directorship Certification designation. | | | Key Qualifications and Skills: Board financial expert with experience in accounting, finance, and audit. Experience on numerous company boards, with expertise in corporate governance, ethics, and risk management, as well as experience in ESG, cybersecurity, mergers and acquisitions, manufacturing, and distribution. |
ELECTION OF DIRECTORS
| JOHN E. POTTER | | | Age: 68 Director Since: 2014 Independent Board Committees: •Compensation & Human Resources (Chair) •Nominating & Corporate Governance Other public company boards: None | Background: President and Chief Executive Officer of the Metropolitan Washington Airports Authority, an independent airport authority, since July 2011. He served as the United States Postmaster General and Chief Executive Officer of the United States Postal Service from 2001 to 2010. | | | Key Qualifications and Skills: Extensive management experience, leadership ability and record of accomplishment having served as United States Postmaster General for 10 years and held various management positions within the United States Postal Service prior to such appointment. More than 12 years of experience as President and Chief Executive Officer of the Metropolitan Washington Airports Authority, managing large, complex, and multifaceted transportation infrastructure projects. Provides insight into manufacturing, supply and distribution practices of large supply chain management organizations. |
ELECTION OF DIRECTORS
| BONNIE K. WACHTEL | | | Age: 68 Director Since: 1991 Independent Board Committees: •Audit •Nominating & Corporate Governance Other public company boards: •WaveDancer Inc. | Background: Principal and Director, Wachtel & Co., Inc., since September 1984. Ms. Wachtel also serves as a director of WaveDancer, Inc. (formerly Information Analysis Inc.), a provider of IT services and software, and served on the Board of The ExOne Company, a 3D printing solutions provider, from 2013 until the firm was acquired in 2021. She has served as a director of six NASDAQ listed companies and served on the hearing panel for NASDAQ Listing Qualifications from 2006 to 2016. Ms. Wachtel is a Chartered Financial Analyst and member of the District of Columbia Bar. | | | Key Qualifications and Skills: Experience as Supervisory Control Principal and Director of Wachtel & Co., Inc., which provides management experience in financial systems, people, and processes. Service with the Listing Qualifications Panel of NASDAQ and holding of Chartered Financial Analyst certification provides expertise in the functioning of capital markets and insight into the enhancement of stockholder value. |
ELECTION OF DIRECTORS
The Board unanimously recommends that Stockholders vote “FOR” the election of each of the eight persons nominated to serve as a Director of VSE for the ensuing year. Board, Committees and Corporate Governance As of the date of this Proxy Statement, the Board consists of nine members, all of whom were elected by the stockholders in 2023. On March 5, 2024, Mr. Koonce informed the Board of his decision to not stand for re-election and to retire from the Board, effective upon adjournment of the Annual Meeting. The size of the Board will be automatically reduced to eight directors upon Mr. Koonce's retirement. All of the nominees for directors are “independent” as defined by the applicable rules of The NASDAQ Stock Market, Inc. (“NASDAQ”), except for Mr. Cuomo. Our Chair is an independent director and, accordingly, we do not have a lead independent director. The independent directors who served during 2023 regularly had the opportunity to meet without any management members present. During 2023, there were five regular and eleven special Board meetings. Each of the directors attended at least 75% of the total number of Board meetings (in person or by telephone) and at least 75% of the meetings of Board committees on which he or she served (during the period that he or she served) in 2023. We do not have a specific policy regarding attendance at the annual stockholders meeting. All directors, however, are encouraged to attend if available, and we try to ensure that at least one independent director attends the annual stockholders meeting and is available to answer stockholder questions. All directors who served during 2023 virtually attended our 2023 Annual Meeting of stockholders. Board Committees and Membership The Board has an Audit Committee, a Nominating and Corporate Governance Committee, and a Compensation and Human Resources Committee. The current charters for each of the Board committees are available on our website, www.vsecorp.com. The Board committee members, as of the date of this 2024 Proxy Statement, are identified in the following table. As described above, Mr. Koonce is not seeking re-election and his term on the Board will end following completion of the Annual Meeting. He will cease to be a member of any Board committees at such time.
ELECTION OF DIRECTORS
| Director | Audit Committee | Compensation and Human Resources Committee | Nominating and Corporate Governance Committee | | Anita D. Britt | Chair | X | | | Ralph E. Eberhart | | | | | Edward P. Dolanski | X | X | | | Mark E. Ferguson III | X | | Chair | | Lloyd E. Johnson | | X | X | | Calvin S. Koonce | | X | X | | John E. Potter | | Chair | X | | Bonnie K. Wachtel | X | | X |
ELECTION OF DIRECTORS
Audit Committee The primary purpose of the Audit Committee is to oversee our accounting and financial reporting processes and the audits of our financial statements. The Audit Committee is directly responsible for, among other things, the appointment, compensation, retention, and oversight of our independent registered public accounting firm. The Audit Committee also provides oversight of the Company's enterprise risk management framework, including review of our guidelines and policies with respect to risk assessment and risk management, specifically our risk exposures in the areas of independent audit, financial reporting, internal controls and disclosure controls and internal audit, and evaluates the action management has taken to identify, monitor and control such exposures. In addition, the Audit Committee is charged with oversight responsibility for VSE's data privacy and cybersecurity risks. Protection of our customers and employee data is a fundamental priority for our Board and management team. Our management team provides quarterly updates to the Audit Committee and the Board on our cybersecurity risks and actions taken to help mitigate such risks. The management team reports on compliance and regulatory issues, continuously evolving threats, and mitigating actions. Our Board of Directors ("Board") and Audit Committee have oversight responsibility for cybersecurity risks and incidents, including compliance with disclosure requirements, collaborating with law enforcement in connection with any incidents, and assessing related effects on financial and other risks. Findings and recommendations are reported, as deemed appropriate, to the full Board. Senior management, including our Chief Information Security Officer (CISO), engages in regular discussions with the Audit Committee regarding cybersecurity risks, trends, and any potentially material incidents that may arise. Furthermore, the Board receives briefings on cybersecurity matters from the CISO on our cybersecurity and information security policies and practices. As of the Annual Meeting, the Audit Committee will be comprised of Ms. Britt (Chair), Mr. Dolanski, Mr. Ferguson and Ms. Wachtel. All of the Audit Committee members during the past fiscal year were independent in accordance with applicable rules of the SEC and NASDAQ, including Rule 10A-3 of the Securities Exchange Act of 1934 (the “Exchange Act”). Each Audit Committee member has the ability, experience, and skills to read and understand fundamental financial statements, including our consolidated balance sheet and consolidated statements of income, comprehensive income, stockholders’ equity and cash flows. The Board has determined that the Audit Committee's Chair, Ms. Britt, is an “audit committee financial expert” as defined in SEC Regulation S-K Item 407(d) (5). The Audit Committee met five times during 2023. Compensation and Human Resources Committee The primary purpose of the Compensation Committee is to oversee our compensation structure, to review and provide guidance to the Board regarding the compensation of VSE’s directors and officers, including the compensation of VSE’s Chief Executive Officer and other executive officers, to review and provide guidance regarding employment agreements, to administer equity and other compensation plans, to administer the Company's clawback policy, to manage succession planning for the executive team, and to perform such other duties and responsibilities as are consistent with the committee’s charter. The Compensation Committee reviews our guidelines and policies with respect to risk assessment and risk management, specifically our risk exposures related to compensation of directors, executives and management and the administration of our performance incentive and employee benefit plans, and evaluates the actions management has taken to identify, monitor and control such exposures. Each of the Compensation Committee members is independent in accordance with applicable rules of the SEC and NASDAQ, including Rule 10C-1 of the Exchange Act. The Compensation Committee met seven times during 2023. The Compensation Committee has the authority to retain outside counsel or other experts or consultants as needed. The Compensation Committee may form and delegate authority to subcommittees, or to one or more designated members of the Compensation Committee, to make equity compensation awards to non-officer employees under the VSE Corporation 2006 Restricted Stock Plan. Additional information on the role and responsibilities of the Compensation Committee, as well as the role of compensation consultants and executive officers in determining or recommending the amount or form of executive compensation, is provided below in the “Compensation Discussion and Analysis” section. As of the Annual Meeting, the Compensation Committee will be comprised of Mr. Potter (Chair), Ms. Britt, Mr. Dolanski, Mr. Johnson and Mr. Koonce. As described above, Mr. Koonce is not seeking re-election and his term on the Board will end following completion of the Annual Meeting. He will cease to be a member of the Compensation Committee at such time. Nominating and Corporate Governance Committee The primary purpose of the Nominating and Corporate Governance Committee is to make recommendations to the Board with respect to nominees to be proposed for election as directors and to review corporate policies regarding, among other things, business conduct, securities trading, indemnification of VSE directors and officers, and conflicts of interest involving VSE directors, officers and employees. The Nominating and Corporate Governance Committee also reviews our guidelines and policies with respect to risk assessment and risk management, specifically the Company's risk exposures in the areas of corporate governance, compliance and ethics, as well as succession planning for the directors, and the actions management has taken to identify, monitor and control such exposures. In addition, the Nominating and Corporate Governance Committee oversees the annual review and evaluation of the Board's performance and the performance of the Board's committees. Each of the Nominating and Corporate Governance Committee members is independent in accordance with applicable NASDAQ rules. The Nominating and Corporate Governance Committee met three times during 2023. As of the Annual Meeting, the Nominating and Corporate Governance Committee will be comprised of Mr. Ferguson (Chair), Mr. Johnson, Mr. Koonce, Mr. Potter and Ms. Wachtel. As described above, Mr. Koonce's term on the Board will end following completion of the Annual Meeting. He will cease to be a member of the Nominating and Corporate Governance Committee at such time. Oversight of Risk Management The Board has overall responsibility for oversight of our risk management plans, policies and practices. Each Board committee has been assigned oversight of certain risks associated with its respective activities as discussed in this 2024 Proxy Statement, and each committee’s charter reflects these risk oversight responsibilities. The Board has approved a risk management policy that delineates the risk oversight responsibilities of management, the Board and its committees. The Company has also adopted an enterprise risk management framework that continuously monitors and evaluates our business and operational risks and is a key driver of VSE's overall risk mitigation efforts. Our Audit Committee reviews and oversees our enterprise risk management process. Director Nominations and Qualifications
ELECTION OF DIRECTORS
Stockholders may recommend persons to be nominated for election as directors of VSE at the annual meeting of stockholders. To be considered, such recommendation must be submitted in accordance with VSE’s by-laws and must be received in writing by VSE’s Corporate Secretary no later than 90 days before the date in the year of the annual meeting that corresponds to the date on which the annual meeting was held during the immediate prior year. Nominations for the 2025 Annual Meeting of Stockholders (the “2025 Annual Meeting”) should be received by the Corporate Secretary no later than Thursday, February 20, 2025. Such recommendation shall be accompanied by the proposing stockholder’s name, evidence that such stockholder is a beneficial owner of Stock, and the candidate’s name, biographical data and qualifications. The policy of the Nominating and Corporate Governance Committee is to consider properly submitted stockholder nominations for candidates for Board membership as described below. In evaluating such nominations, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the directorship criteria discussed below. Under these criteria for Board nominations, Board members should have the highest professional and personal ethics and values, consistent with longstanding VSE values and standards. Factors discussed by the Board as relevant to the selection of Board nominees may include nature and length of business experience, including experience in business areas related to our two business segments, race, gender, age and factors that promote alignment of the Board with the interests of stockholders. Board members should be committed to enhancing stockholder value and have sufficient time to satisfy their duties as VSE directors and provide insight and practical wisdom based on experience. A Board member’s service as a member of other boards of directors of publicly traded companies should be limited so that the director is able, given his or her individual circumstances, to effectively perform his or her duties as a Board member. The Nominating and Corporate Governance Committee periodically reviews diversity of potential Board nominees, potential retirement time frames, transition planning with regard to succession, and optimal Board size. The Nominating and Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. This committee periodically assesses the appropriate size of the Board, and whether any Board vacancies are expected due to retirement or otherwise. If vacancies are anticipated or otherwise arise, the Nominating and Corporate Governance Committee will consider various potential candidates for director. Candidates may come to the attention of the Nominating and Corporate Governance Committee through Board members, professional search firms, stockholders or other persons. These candidates are evaluated by the Nominating and Corporate Governance Committee and may be considered at any point during the year. As described above, the Nominating and Corporate Governance Committee will consider properly submitted stockholder nominations for candidates for Board membership. Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by the Nominating and Corporate Governance Committee at a regularly scheduled meeting. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials will be forwarded to the Nominating and Corporate Governance Committee. This committee also will review materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a stockholder. Board Diversity As required under NASDAQ rules, the Board Diversity Matrix below presents the Board’s diversity statistics for 2023.
ELECTION OF DIRECTORS
| Board Diversity Matrix | | | | | | Total Number of Directors 9 | | | | | | | Female | Male | Non‐Binary | Did Not Disclose Gender | | Part I: Gender Identity | | | | | | Directors | 2 | 7 | 0 | 0 | | Part II: Demographic Background | | | | | | African American or Black | 0 | 1 | 0 | 0 | | Alaskan Native or Native American | 0 | 0 | 0 | 0 | | Asian | 0 | 0 | 0 | 0 | | Hispanic or Latino | 0 | 0 | 0 | 0 | | Native Hawaiian or Pacific Islander | 0 | 0 | 0 | 0 | | White | 2 | 6 | 0 | 0 | | Two or More Races or Ethnicities | 0 | 0 | 0 | 0 | | LGBTQ+ | 1 | | | | | Did Not Disclose Demographic Background | 0 | | | |
ELECTION OF DIRECTORS
To see our Board Diversity Matrix for 2022, please see VSE's proxy statement filed with the SEC on March 20, 2023. Leadership Structure of the Board The positions of Chair of the Board and VSE’s Chief Executive Officer (“CEO”) are separated at VSE. The Board believes that this separation of positions best serves the Company’s current needs and effectively maintains independent oversight of management. Communications with the Board Individuals may communicate with the Board by submitting an email to the Board at board@vsecorp.com. Communications that are intended specifically for non-employee directors should be sent to the email address above to the attention of the Corporate Secretary. Communications to the Board by mail can be addressed to the Board of Directors or a particular Board member c/o VSE Corporation, 6348 Walker Lane, Alexandria, Virginia 22310-3226. Code of Business Conduct and Ethics The Board has adopted a Code of Business Conduct and Ethics that applies to all of VSE’s directors, officers, including VSE’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and employees. The Code of Business Conduct and Ethics is posted on VSE’s website at www.vsecorp.com. VSE intends to satisfy the disclosure requirements regarding any waiver or amendment of the Code of Business Conduct and Ethics with respect to VSE’s principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions, by posting such required information on VSE’s website. Corporate Governance Guidelines The Board has adopted Corporate Governance Guidelines, which together with the Certificate of Incorporation, bylaws, committee charters and other key governance practices and policies, provide the framework for the Company’s corporate governance. The Board recognizes that ensuring that the Company observes good corporate governance practices is an ongoing endeavor. As a result, our Corporate Governance Guidelines and governance practices and policies are subject to annual review by the Board to determine if they continue to promote the best interests of the Company and its stockholders and comply with all applicable laws, regulations and NASDAQ requirements. As a result of this ongoing review, the charter for each of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee and the Corporate Governance Guidelines were reviewed, amended and adopted by the Board on December 18, 2023. The Corporate Governance Guidelines, by-laws and committee charters are posted on VSE’s website at www.vsecorp.com. Compensation Committee Interlocks and Insider Participation During 2023, the Compensation Committee consisted of five non-employee directors (Mr. Potter, Mr. Johnson, Mr. Koonce, Ms. Britt and Mr. Dolanski). No committee member was at any time during 2023 or at any other time an officer or employee of VSE. No executive officer of VSE serves or has served as a member of the compensation committee (or other committee performing similar functions) of another entity that had an executive officer who served on VSE’s Compensation Committee during 2023. No executive officer of VSE served on the board of directors or compensation committee (or other committee performing similar functions) of any entity that had one or more executive officers serving as members of the Board or Compensation Committee during 2023. Mr. Koonce is a significant stockholder of VSE. See “Security Ownership of Certain Beneficial Owners and Management” below. Certain Relationships and Related Transactions There is no family relationship between any director or executive officer of VSE and any other director or executive officer of VSE. Pursuant to the Company’s policies, including the Code of Business Conduct and Ethics, any related party transactions would be subject to the prior consideration and approval of the Board, including a majority vote of the disinterested directors. 2023 Director Compensation Compensation of Non-Employee Directors for 2023 For 2023, the Company paid each non-employee director an annual cash retainer of $75,000. The Chair of the Board was paid an additional annual fee of $75,000 for his service as Chair. The Chairs of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee were each paid an additional annual fee of $20,000 (increased from 2022 fee of $15,000), $15,000 (increased from 2022 fee of $12,000) and $12,500 (increased from 2022 fee of $10,000), respectively, for their service as Chairs of the committees. Cash retainer fees are paid quarterly in arrears. Non-employee directors do not receive fees for attending Board or committee meetings. Each non-employee director was also eligible for an annual equity grant with a targeted value of $100,000. As a result, each non-employee director was granted 2,146 shares of Stock on January 3, 2023 pursuant to our 2006 Restricted Stock Plan, except for Mr. Koonce who received $100,000 cash in lieu of the equity grant. The closing price of our Stock was $46.60 per share on January 3, 2023. No compensation is paid to any non-employee director for personal services rendered to VSE pursuant to a consulting or similar agreement between the director and VSE, or any of VSE’s subsidiaries, unless authorized as a special assignment by the Board. No such authorization was requested for or on behalf of any director in 2023. The foregoing procedures do not restrict reimbursement for expenses incurred by a director for attending meetings of the Board or Board committees. The following table provides information related to the compensation of each of the Company’s non-employee directors for fiscal year 2023.
ELECTION OF DIRECTORS
| Name | Fees earned or paid in cash ($) (1) | Stock awards ($) (2) | Total ($) | | Ralph E. Eberhart | 150,000 | 100,004 | 250,004 | | Mark E. Ferguson III | 87,500 | 100,004 | 187,504 | | Calvin S. Koonce (3) | 75,000 | 100,004 | 175,004 | | James F. Lafond | 39,584 | 100,004 | 139,588 | | John E. Potter | 90,000 | 100,004 | 190,004 | | Bonnie K. Wachtel | 75,000 | 100,004 | 175,004 | | Edward P. Dolanski | 75,000 | 100,004 | 175,004 | | Anita D. Britt | 88,333 | 100,004 | 188,337 | | Lloyd E. Johnson | 75,000 | 100,004 | 175,004 |
ELECTION OF DIRECTORS
Notes to Director Compensation Table 1.General Eberhart elected to have $12,500 of his cash compensation for services as a VSE director in the first quarter of 2023, and $5,000 of his cash compensation for such services in the second quarter of 2023, be paid in Stock. As a result, General Eberhart received 280 shares of Stock in lieu of cash on March 27, 2023, and 96 shares of Stock in lieu of cash on June 23, 2023. In accordance with SEC rules, the total dollar amount associated with such elections ($17,500) is reflected in this column but the amount recognized by the Company for financial statement reporting purposes, in accordance with Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Topic 718, is based on the closing price of our Stock on March 27, 2023 ($44.71 per share) and June 23, 2023 ($51.93 per share), as applicable. Mr. Dolanski elected to have $18,750 of his cash compensation for services as a VSE director in the first quarter of 2023, and $18,750 of his cash compensation for such services in the second quarter of 2023, be paid in Stock. As a result, Mr. Dolanski received 419 shares of Stock in lieu of cash on March 27, 2023 and 361 shares of Stock in lieu of cash on June 23, 2023. In accordance with SEC rules, the total dollar amount associated with such elections ($37,500) is reflected in this column but the amount recognized by the Company for financial statement reporting purposes, in accordance with FASB ASC Topic 718, is based on the closing price of our Stock on March 27, 2023 ($44.71 per share) and June 23, 2023 ($51.93 per share), as applicable. Mr. Lafond received a pro-rated amount of $31,250 for the annual Board retainer and $8,334 for the Audit Committee chair fee based on Mr. Lafond's service period from January to May 2023. Ms. Britt received a pro-rated amount of $13,333 for serving as Audit Committee chair from May to December 2023. 2. Pursuant to the 2006 Restricted Stock Plan, each non-employee director was granted an award of 2,146 shares of Stock on January 3, 2023. The grant date fair value for purposes of FASB ASC Topic 718 (Compensation-Stock Compensation) is based on the closing price of our Stock on January 3, 2023 ($46.60 per share). None of the non-employee directors held option awards or unvested stock awards as of December 31, 2023. 3. Mr. Koonce received $100,000 in cash in lieu of his 2023 director Stock grant. Director Stock Ownership Guidelines To help ensure alignment of the interests of our non-employee directors with those of our stockholders, our non-employee directors are required to comply with the Company’s Stock Ownership Guidelines. Each current non-employee director is required to maintain ownership of Stock with a market value equal to five times the director’s annual cash retainer. New directors and officers will be expected to retain their Stock grants to achieve over time the required thresholds referenced above, but they will not be required to purchase Stock on the open market to achieve such thresholds. All of our non-employee directors are currently in compliance with the stock ownership guidelines.
COMPENSATION DISCUSSION AND ANALYSIS
| What We Do: | | | ✓ | Alignment with Stockholders. Long-term incentive awards vest over a period of several years to reward sustained Company performance over time. | | ✓ | Pay for Performance. Our executive compensation program is weighted heavily towards performance-based variable compensation. | | ✓ | Share Ownership Guidelines. Our NEOs must hold equity of a value equivalent to multiples of their base salaries (5x for CEO and 3x for all other NEOs). | | ✓ | Annual “Say-on-Pay” Vote. We seek an annual non-binding advisory vote from our stockholders to approve compensation paid to our NEOs as disclosed in our Proxy Statement. | | ✓ | Clawback Policy. We maintain a Nasdaq-compliant compensation clawback policy that provides for the recovery of certain incentive-based compensation of our executive officers if we are required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws. | | ✓ | Double-Trigger Severance. We provide only double-trigger change-in-control cash severance and equity acceleration. | | ✓ | Annual Risk Assessments. The Compensation Committee analyzes business and market risks in setting executive compensation each year. | | ✓ | Peer Group Comparison. The Compensation Committee annually analyzes executive compensation relative to peer companies, with the support of an independent compensation consultant. | | ✓ | Decisions by Independent Compensation Committee. Executive compensation is approved by our Compensation Committee which is comprised solely of independent directors. | | ✓ | Independent Compensation Consultant. The Compensation Committee retains its own independent compensation consultant to advise on compensation matters. | | What We Do Not Do: | | | ✗ | No Tax Gross-Ups in Change in Control Agreements. We do not provide excise tax gross ups in connection with a change in control. | | ✗ | No Hedging or Pledging of Company Stock. Our policies prohibit the hedging or pledging of our Stock by our executives and directors. | | ✗ | No Excessive Perquisites. We do not provide excessive perquisites to our NEOs. | | ✗ | No Dividends on Unvested Equity. We do not pay dividends on restricted stock units until units are vested. |
COMPENSATION DISCUSSION AND ANALYSIS
| Element | Type | Form | Key Characteristics | Purpose | | Base Salary | Fixed | Cash | Annual adjustments based on individual performance, market pay levels and internal pay equity. | Attracts, retains and rewards NEOs by providing a competitive fixed amount of compensation for service that reflects skill, responsibility, and experience. | | Annual Cash Incentive | Variable | Cash | Variable cash compensation, based on pre-established financial, strategic, and operational goals and individual performance. | Focuses NEOs on achievement of short-term financial, operational, and strategic goals. Aligns interests of NEOs with stockholders by promoting strong revenue, operating profit, and free cash flow and achievement of other key corporate objectives. | | Long-Term Incentive | Variable | Restricted Stock Units | Service-based restricted stock units (“RSUs”) that vest annually over a three-year period. | Helps retain NEOs through multi-year vesting of equity and deferred compensation awards. Motivates and rewards NEOs for the achievement of long-term corporate performance. Aligns NEOs’ interests with long-term stockholder interests. | | | | Performance Restricted Stock Units | Performance-based restricted stock units (“PRSUs”) that vest based on pre-established financial goals over a three-year performance period. | | | | | Deferred Supplemental Compensation | Annual award of up to 15% of base salary with total funding capped based on a pre-established financial goal. | |
COMPENSATION DISCUSSION AND ANALYSIS
Management reviews the Company’s overall compensation structure, considering such factors as the overall mix of compensation, the performance metrics that are used under the Company’s incentive programs, the length of vesting periods where applicable, and the overall relationship of the Company’s compensation programs to the Company’s business risk. In March 2024, the Compensation Committee’s independent compensation consultant conducted a risk assessment of the Company’s overall compensation structure. Based on the risk assessment conducted by the Compensation Committee’s independent compensation consultant, the Compensation Committee has concluded that the Company’s compensation policies and procedures do not create risks that are reasonably likely to have a material adverse effect on the Company. Peer Group and Competitive Market Analysis Each year the Compensation Committee, in consultation with management and with support from its independent compensation consultant, reviews and approves a peer group that is used to provide relevant market context for the Compensation Committee’s decisions. The Compensation Committee does not apply a formulaic approach to setting the NEOs’ compensation at any specific level or percentile against this peer group. However, the Compensation Committee periodically reviews peer group compensation data to assess the competitiveness of our executive compensation practices, structures, and levels. For purposes of 2023 compensation decisions, the Compensation Committee used the peer group that was recommended by NFP in mid-2022, which peer group includes (among other companies) certain peers used by ISS. In general, the peer group reflected similarly sized (based on revenue, market capitalization, enterprise value, asset size, and total stockholder return) publicly traded companies in the diversified support services industry (specifically including aerospace and defense, automotive trading companies and distributors). The revised peer group that was recommended by NFP (the “2023 Compensation Peer Group”), and adopted by the Compensation Committee, was consistent with the markets in which we operated. During the third quarter of 2023, the Compensation Committee and NFP reviewed the existing 2023 Compensation Peer Group in preparation for 2024 and to account for the announced planned disposition of the Federal and Defense business segment. Based on the newly revised peer group, NFP recommended adjustments to the 2023 Compensation Peer Group for the Compensation Committee's consideration. The recommendations included the removal of five of the seventeen peer companies within the Company's 2023 Compensation Peer Group and the addition of four replacement peers that operate in Aviation and Fleet markets. NFP advised the Compensation Committee that with the recommended changes to the 2023 Compensation Peer Group, the Company then aligned with approximately the market 42nd percentile of the recommended peer group in terms of the Company's average percentile ranking on revenue, market capitalization, enterprise value, asset size and three-year total shareholder return. Based upon this review, the Compensation Committee approved the adjustments to the peer group described above (such adjusted peer group, the “2024 Compensation Peer Group”). The following illustrates NFP’s recommendations for the Company’s 2023 and 2024 Compensation Peer Groups:
COMPENSATION DISCUSSION AND ANALYSIS
| Peer Company | 2023 Compensation Peer Group (1) | 2024 Compensation Peer Group | | AAR Corp. | ✓ | ✓ | | AeroVironment, Inc. | ✓ | | | AerSale Corporation | ✓ | ✓ | | Astronics Corporation | ✓ | ✓ | | CRA International, Inc. | ✓ | | | Dorman Products, Inc. | ✓ | ✓ | | Ducommun Incorporated | ✓ | ✓ | | H&E Equipment Services, Inc. | ✓ | ✓ | | Heritage-Crystal Clean, Inc | ✓ | ✓ | | Horizon Global Corporation | ✓ | | | Huron Consulting Group Inc. | ✓ | | | ICF International, Inc. | ✓ | ✓ | | Kaman Corporation | ✓ | ✓ | | Kratos Defense & Security Solutions, Inc. | ✓ | | | Motorcar Parts of America, Inc. | ✓ | ✓ | | Standard Motor Products, Inc. | ✓ | ✓ | | Stoneridge, Inc. | ✓ | ✓ | | Air Transport Services Group, Inc. | | ✓ | | Barnes Group Inc. | | ✓ | | Hexcel Corporation | | ✓ | | Triumph Group, Inc. | | ✓ |
COMPENSATION DISCUSSION AND ANALYSIS
(1) For the 2023 Compensation Peer Group, as compared to our prior peer group, we removed Vectrus, Inc., because it merged with another company in 2022. (2) For the 2024 Compensation Peer Group, NFP recommended the removal of Horizon Global Corporation because it was acquired in 2023; the removal of Kratos Defense & Security Solutions, Inc. and AeroVironment, Inc. due to their involvement in the federal and defense services industry; and the removal of Huron Consulting Group Inc. and CRA International, Inc. due to their industries being dissimilar to those of the Company. NFP recommended the addition of Air Transport Services Group, Inc., Hexcel Corporation, Barnes Group Inc., and Triumph Group, Inc. as new members of the peer group because they operate in compatible industries. 2023 Components of Executive Compensation The three key elements of our executive compensation program are base salary, annual cash incentive awards, and long-term incentives, including equity-based incentive awards and deferred supplemental compensation. The following sets forth the program design and, where applicable, metrics and 2023 payouts with respect to each component of our 2023 NEO compensation program. Base Salary Base salary is the principal “fixed” cash element of our executive compensation. We believe that competitive base salaries are a necessary element of overall compensation in order to attract and retain highly qualified executive officers. The Compensation Committee also believes that it is important that each NEO receives a market-competitive base salary that provides an appropriate balance between fixed and “at risk” compensation. In addition, while we believe that compensation for the executive team should be weighted towards long-term equity compensation, we recognize the need to broadly align salaries with our peers and the companies we compete with for talent. The initial base salary of each NEO was established in connection with his or her hiring. The Compensation Committee reviews base salaries on an annual basis and may adjust them from time to time, with a goal of providing competitive, fixed cash compensation to the executive officers. The Compensation Committee generally references base salaries near the median for comparable positions in our peer group when making base salary determinations. For 2023, based on the 2023 Compensation Peer Group data and the recommendation of NFP, the Compensation Committee approved increases to the base salaries of each of the NEOs to reflect a market adjustment to align their base salaries more closely the 2023 Compensation Peer Group median. The 2023 base salaries for the NEOs (which were effective as of January 1, 2023), as compared to their 2022 base salaries, are set forth below:
COMPENSATION DISCUSSION AND ANALYSIS
Annual Incentive Award Our NEOs are eligible to earn an annual cash incentive designed to reward and promote the achievement of the Company’s short-term annual business objectives while enhancing stockholder value. The 2023 annual incentive award program (the “2023 AIP”) was based primarily on achieving certain annual financial results established by the Compensation Committee and approved by the Board at the beginning of the year. The Compensation Committee maintains discretion on AIP allocation for all NEOs. The performance metrics for the 2023 AIP are based upon revenue, adjusted operating profit, adjusted free cash flow and a subjective component centered on achievement of operating plan objectives. The Compensation Committee selected revenue, adjusted operating profit, and adjusted free cash flow because they are key financial and operational metrics that measure the Company performance as aligned with shareholder value creation. For purposes of the 2023 AIP, adjusted operating profit means operating income before taxes and interest adjusted for items identified as part of the Company's reported adjusted EBITDA. For purposes of the 2023 AIP, adjusted free cash flow means cash provided from operating activities less capital expenditures adjusted for items identified as part of the Company’s reported adjusted EBITDA. Except for adjusted free cash flow, which is measured on a consolidated basis for the Company, each of the other metrics for the segment presidents are based on applicable segment performance. In establishing the goals for each metric, the Compensation Committee considered how achievement of the performance goals could be impacted by events expected to occur in the future, and how likely it would be for the goals to be achieved. We believe that the target goals have been established at levels that should be appropriately challenging to attain and require considerable effort on the part of each NEO to achieve considering both business and market conditions. Achievement of above-target goals (where applicable) is considered to be a “stretch” target given market conditions. The performance metrics for the 2023 AIP also include a subjective component for each NEO, which is based on individual performance as well as contribution to the management team’s execution of the overall vision and strategy for the Company. The weightings utilized for each metric are detailed below. Corporate. The 2023 AIP for Messrs. Cuomo and Griffin and Ms. Tehrani consisted of four weighted elements as illustrated in the table below:
COMPENSATION DISCUSSION AND ANALYSIS
Target 2023 Annual Incentive Award After reviewing the 2023 Compensation Peer Group data and in consultation with NFP, the Compensation Committee set the target bonus percentages and amounts for each NEO for the 2023 AIP. To receive a payout under the 2023 AIP, a NEO must be an employee during the fiscal year that the bonus payment is earned and at the time when the bonus payment is made. The NEOs’ threshold, target, and maximum opportunities under the 2023 AIP awards (expressed as dollar amounts and as percentages of base salary) were as follows:
COMPENSATION DISCUSSION AND ANALYSIS
For 2023, Mr. Griffin’s AIP target opportunity was increased from 65% of base salary to 75% of base salary. In addition, for 2023, based on the 2023 Compensation Peer Group data and the recommendation of NFP, each NEO's AIP threshold and the maximum value were increased from their respective 2022 AIP target values as follows: Mr. Cuomo's AIP threshold value was increased from 15% of base salary to 50% of base salary and his maximum value was increased from 125% of base salary to 200% of base salary; Mr. Griffin's AIP threshold value was increased from 15% of base salary to 37.5% of base salary and his maximum value was increased from 110% of base salary to 150% of base salary; and each of Messrs. Wheeler and Thomas and Ms. Tehrani's AIP threshold value was increased from 12% of base salary to 25% of base salary and each of their maximum value was increased from 80% of base salary to 100% of base salary, respectively. These increases were to continue to align AIP award values more closely with the 2023 Compensation Peer Group median. As a result, starting in 2023, all NEO’s can earn between 50% (at threshold) and 200% (at maximum) of their target opportunity based on achievement of applicable performance goals. The Compensation Committee determined that these changes would allow the Company to be market competitive, provide for incentives that are intended to attract, retain and motivate the current executive officers and help align executive and shareholder wealth creation over the long term. In July 2023, in recognition of the fact that the Federal and Defense business segment and its financial results were moved to discontinued operations, the Compensation Committee determined that it was appropriate to adjust the target goal levels for VSE revenue, VSE adjusted operating profit, and VSE adjusted free cash flow, for purposes of the 2023 AIP, to exclude the expected contributions of the FDS business segment. The Committee also determined that the 2023 results for each metric would be calculated excluding contributions of the FDS business segment. Also in July 2023, in recognition of the acquisition of Desser Holding Company LLC (“Desser Aerospace”), the Compensation Committee determined that it was appropriate to further adjust the target goal levels for VSE revenue, VSE adjusted operating profit, VSE adjusted free cash flow, Aviation segment revenue, and Aviation segment adjusted operating profit, for purposes of the 2023 AIP, to account for the expected contributions of the Desser Aerospace business following the acquisition. 2023 Annual Incentive Award Payouts For 2023, the Compensation Committee reviewed the performance for each metric to determine the level at which the annual incentive award would be paid out for the year. For purposes of the 2023 AIP, the Compensation Committee approved non-recurring one-time adjustments to operating profit and free cash flow. Operating profit and free cash flow adjustments included items identified as part of the Company’s reported adjusted EBITDA in accordance with the program design and as publicly disclosed in the Company's earnings releases. Adjusted EBITDA represents net income before interest expense, income taxes, amortization of intangible assets and depreciation and other amortization adjusted for discrete items such as acquisition, integration and restructuring costs (related to the acquisition of Precision Aerospace, Desser Aerospace and Honeywell Fuel Control), and non-recurring professional fees (related to the Company's equity offering and debt issuance). Following its review, the Compensation Committee recommended, and the Board approved, the 2023 AIP award payouts for the NEOs. For each of the Corporate, Fleet, and Aviation segments, the table below sets forth the actual performance level with respect to each of the 2023 AIP metrics as approved by the Compensation Committee.
COMPENSATION DISCUSSION AND ANALYSIS
| 2023 Annual Incentive Award Performance | | | | | | | | Name | Segment | Revenue | Adjusted Operating Profit | VSE Adjusted Free Cash Flow | Subjective | % of Base Salary | | John Cuomo | Corporate | Above Target | Maximum | Above Target | Maximum | 172% | | Stephen D. Griffin | Corporate | Above Target | Maximum | Above Target | Maximum | 129% | | Farinaz S. Tehrani | Corporate | Above Target | Maximum | Above Target | Maximum | 86% | | Chad Wheeler | Fleet Segment | Below Target | Above Target | Above Target | Above Target | 60% | | Benjamin Thomas | Aviation Segment | Maximum | Maximum | Above Target | Maximum | 98% |
COMPENSATION DISCUSSION AND ANALYSIS
| Name (1) | 2023 Base Salary | Target ($) | Total Actual 2023 AIP Payout | Actual as a % of Target | Actual as a % of Salary | | John A. Cuomo | $848,000 | $848,000 | $1,458,560 | 172% | 172% | | Stephen D. Griffin | $464,400 | $348,300 | $599,076 | 172% | 129% | | Farinaz Tehrani | $371,000 | $185,500 | $319,060 | 172% | 86% | | Chad M. Wheeler | $392,840 | $196,420 | $235,704 | 120% | 60% | | Benjamin Thomas | $368,880 | $184,440 | $361,502 | 196% | 98% |
COMPENSATION DISCUSSION AND ANALYSIS
Long-term Incentive Award Each year, we grant NEOs long-term incentive awards in the form of equity and cash-based awards. The two components of the Company’s 2023 long-term incentive program are the LTI Program (as defined below) and our Deferred Supplemental Compensation Plan (“DSC Plan”). The Compensation Committee determines the amount of these awards, as well as the mix or weighting of these awards. Long-term Incentive Equity Program In 2023, NEOs were eligible to receive restricted stock units, consisting of both service-based restricted stock units ("RSUs") that vest over a three-year vesting period and performance-based RSUs ("PRSUs") that are earned based on performance over three individual performance years during a three-year performance period. The RSU and PRSU awards comprise the current long-term incentive equity program for our NEOs (the “LTI Program”). Service-based RSUs provide a retention incentive, and PRSUs both provide a retention incentive and tie compensation to financial performance. For 2021 and 2022 PRSU awards, performance is tied to adjusted return on equity (“ROE”) and for 2023 PRSU awards, performance is tied to adjusted EBITDA. For 2023, the Compensation Committee approved a change to the PRSU awards to shift from adjusted ROE to adjusted EBITDA as reported with the Company’s quarterly earnings to better align with the peer group and with shareholder incentives. The following illustrates VSE’s 2023 LTI Program structure:
COMPENSATION DISCUSSION AND ANALYSIS
| | TIME-BASED | | | | Restricted Stock Units (RSUs) 100% of Base Salary for CEO 50% of Base Salary for CFO 45% of Base Salary for other NEOs | RETENTION Fixed number of RSUs that vest ratably over three years | | LONG-TERM EQUITY INCENTIVE AWARDS | | | | | PERFORMANCE-BASED | | | | Performance-based Restricted Stock Units (PRSUs) 150% of Base Salary for CEO 70% of Base Salary for CFO 62.5% of Base Salary for other NEOs | PERFORMANCE/GROWTH Conditional number of shares payable based on VSE's ROE for 2021 and 2022 awards and adjusted EBITDA for 2023 award; one-third eligible to vest during each year of the three-year performance period |
COMPENSATION DISCUSSION AND ANALYSIS
When considering the total long-term equity-based incentive award amount granted to each NEO, the Compensation Committee generally reviews the comparison to the peer group, the relative value of each compensation element, VSE’s recent performance, the expense of such awards, and the impact on dilution. Time-based RSUs. The Compensation Committee grants time-based RSUs to assist in retaining NEOs and increase their stock ownership, which further aligns our NEOs’ interests with those of stockholders. For 2023, the time-based RSUs represent between 40% and 42% of the total annual long-term equity incentive awards for the NEOs. The following table sets forth the time-based RSUs that were granted to the NEOs in March of 2023. The units generally vest in three equal installments in March 2024, 2025, and 2026, subject to continuous employment.
COMPENSATION DISCUSSION AND ANALYSIS
| Executive | Base Salary | Target % of Salary | Target RSU Award Value | # of RSUs Granted | | John A. Cuomo | $848,000 | 100% | $848,000 | 20,081 | | Stephen D. Griffin | $464,400 | 50% | $232,200 | 5,498 | | Farinaz S. Tehrani | $371,000 | 45% | $166,950 | 3,953 | | Chad M. Wheeler | $392,840 | 45% | $176,778 | 4,186 | | Benjamin Thomas | $368,880 | 45% | $165,996 | 3,931 |
COMPENSATION DISCUSSION AND ANALYSIS
For 2023, based on the 2023 Compensation Peer Group data and the recommendation of NFP, each NEO's PRSU target value was increased from their respective 2022 PRSU target values as follows: Mr. Cuomo's PRSU target value was increased from 130% of base salary to 150% of base salary; Mr. Griffin's PRSU target value was increased from 55% of base salary to 70% of base salary; and each of Messrs. Wheeler and Thomas and Ms. Tehrani's PRSU target value was increased from 55% of base salary to 62.5% of base salary, respectively. All awards have a potential maximum value equivalent to 200% of target subject to the achievement of the applicable performance goals, which differs from our prior-year PRSU awards, which did not permit an above-target payout. These changes were intended to continue to align target long-term incentive award values and design features more closely with the 2023 Compensation Peer Group median. The Compensation Committee determined that this alignment would allow the Company to be market competitive, provide for awards that are intended to attract, retain and motivate the current executive officers and help align executive and shareholder wealth creation over the long term. In early 2024, the Compensation Committee recommended, and the Board approved, the PRSU payouts for the 2023 performance year under the 2023-2025 PRSU awards, based on 2023 adjusted EBITDA performance of $113.8 million. Based on such adjusted EBITDA performance, the 2023-2025 PRSU payout resulted in the NEOs earning 200% of the target number of units allocated to the 2023 performance year. The following table details the number of PRSUs earned under the 2023-2025 PRSU awards for the 2023 performance year that generally vest in March of 2024:
COMPENSATION DISCUSSION AND ANALYSIS
| Executive | Maximum Potential 2023-2025 PRSUs Vesting in 2024 | Actual 2023-2025 PRSUs Vesting in 2024 | | | (# of Shares) | (# of Shares) | | John A. Cuomo | 20,080 | 20,080 | | Stephen D. Griffin | 5,132 | 5,132 | | Farinaz S. Tehrani | 3,660 | 3,660 | | Chad M. Wheeler | 3,876 | 3,876 | | Benjamin Thomas | 3,639 | 3,639 |
COMPENSATION DISCUSSION AND ANALYSIS
| Executive | Maximum Potential 2022-2024 PRSUs Vesting in 2024 | Actual 2022-2024 PRSUs Vesting in 2024 | | | (# of Shares) | (# of Shares) | | John A. Cuomo | 8,006 | 8,006 | | Stephen D. Griffin | 1,821 | 1,821 | | Farinaz S. Tehrani | 1,482 | 1,482 | | Chad M. Wheeler | 1,599 | 1,599 | | Benjamin Thomas | 1,473 | 1,473 |
COMPENSATION DISCUSSION AND ANALYSIS
| Executive | Maximum Potential 2021-2023 PRSUs Vesting in 2024 | 2021-2023 PRSUs Vesting in 2024 for 2023 Performance Year | Additional Catch-Up 2021-2023 PRSUs Vesting in 2024 for Full Period | | | (# of Shares) | (# of Shares) | (# of Shares) | | John A. Cuomo | 7,481 | 5,159 | 2,322 | | Stephen D. Griffin | 2,567 | 1,771 | 796 | | Farinaz S. Tehrani | 1,953 | 1,348 | 605 | | Chad M. Wheeler | 2,424 | 1,672 | 752 | | Benjamin Thomas | 1,926 | 1,328 | 598 |
COMPENSATION DISCUSSION AND ANALYSIS
Other Compensation In addition to the elements of total direct compensation described above, our executive compensation program includes other elements of compensation that are designed primarily to attract, motivate, and retain executives critical to our long-term success and to provide a competitive compensation structure. VSE executive officers, including the NEOs, are eligible to participate in the VSE Employee 401(k) Plan, which is an Internal Revenue Service qualified plan available to all eligible employees. During 2023, VSE paid a 401(k) matching contribution equal to 100% of the employee deferral on the first 3% of the employee pay deferred and 50% of the employee deferral on the next 2% of the employee pay deferred, with all such contributions fully vested when made. Specific amounts contributed to the VSE 401(k) Plan on behalf of the NEOs are included in the “2023 Summary Compensation Table” under the heading “All Other Compensation” set forth below. We offer an employee stock purchase plan to our employees (including the NEOs) that generally allows participants to purchase VSE common stock at a discount. We believe this plan further enhances the alignment between the interests of our employees (including our NEOs) with those of our stockholders. Employment Agreements and Severance Arrangements During 2023, the Company was a party to employment agreements with each of the NEOs. These agreements provide for severance benefits that are payable upon a termination without “cause” or for “good reason,” either prior to or in connection with a change in control of the Company. In general, the severance provisions under our agreements are designed to promote stability and continuity of senior management. The actual severance benefits set forth in the employment agreements were determined based on the Compensation Committee’s judgment and advice received by the Compensation Committee from its independent compensation consultant. Information regarding the key terms of these agreements is summarized in the “Executive Compensation” section below under the caption “Potential Payments Upon Termination or Change in Control.” Stock Ownership Guidelines The Compensation Committee believes that meaningful stock ownership by our officers is important in aligning management’s interests with the interests of our stockholders. We have implemented stock ownership guidelines that require our continuing NEOs to maintain consistent ownership of VSE common stock based on a multiple of the executive’s annual base salary as set forth below:
EXECUTIVE COMPENSATION
| Item and Value Added (Deducted) | 2023 | | For Mr. Cuomo: | | | - change in actuarial present value of pension benefits | $— | | + service cost of pension benefits | $— | | + prior service cost of pension benefits | $— | | - Summary Compensation Table “Stock Awards” column value | $(2,120,021) | | - Summary Compensation Table “Option Awards” column value | $— | | + Covered Year-end fair value of outstanding equity awards granted in Covered Year | $4,865,311 | | +/- change in fair value (from prior year-end to Covered Year-end) of equity awards outstanding at Covered Year-end that were granted in prior years | $928,090 | | + vesting date fair value of equity awards granted and vested in Covered Year | $— | | +/- change in fair value (from prior year-end to vest date in Covered Year) of prior-year equity awards vested in Covered Year | $(95,324) | | -prior year-end fair value of prior-year equity awards forfeited in Covered Year | $— | | +includable dividends/earnings paid or accrued on equity awards during Covered Year | $— |
EXECUTIVE COMPENSATION
| Item and Value Added (Deducted) | 2023 | | For Non-PEO NEOs (Average): | | | - change in actuarial present value of pension benefits | $— | | + service cost of pension benefits | $— | | + prior service cost of pension benefits | $— | | - Summary Compensation Table “Stock Awards” column value | $(443,732) | | - Summary Compensation Table “Option Awards” column value | | | + Covered Year-end fair value of outstanding equity awards granted in Covered Year | $1,008,170 | | +/- change in fair value (from prior year-end to Covered Year-end) of equity awards outstanding at Covered Year-end that were granted in prior years | $242,817 | | + vesting date fair value of equity awards granted and vested in Covered Year | $— | | +/- change in fair value (from prior year-end to vest date in Covered Year) of prior-year equity awards vested in Covered Year | $(17,132) | | - prior year-end fair value of prior-year equity awards forfeited in Covered Year | $— | | + includable dividends/earnings paid or accrued on equity awards during Covered Year | $— |