DEF 14A of Distribution Solutions Group, Inc.
Filed Apr 10, 2024 · FY20230000703604-24-000047
PROPOSAL 1: ELECTION OF DIRECTORS
PROPOSAL 1: ELECTION OF DIRECTORS Stockholders are entitled to cumulative voting in the election of directors. Under cumulative voting, each stockholder is entitled to that number of votes equal to the number of directors to be elected, multiplied by the number of shares such stockholder owns, and such stockholder may cast his or her votes for one nominee or distribute them in any manner he or she chooses among any number of nominees. Unless otherwise indicated on the proxy card, votes may, in the discretion of the proxies, be equally or unequally allocated among the nominees named below. Directors will be elected by a plurality of the votes cast at the meeting by the holders of shares represented in person or by proxy. Thus, assuming a quorum is present, the seven persons receiving the greatest number of votes will be elected as directors and votes that are withheld will have no effect. The Amended and Restated By-Laws of the Company provide that the Board of Directors shall consist of such number of members, between five and nine, as the Board determines from time to time. The Company is currently evaluating whether it will fill the resulting vacancy on the Board to replace it's departing director, Mr. Albert, who as previously disclosed will not stand for reelection at the Annual Meeting. At the annual meeting, seven directors are to be elected to serve until the 2025 annual meeting of stockholders. The chart below summarizes the demographics of the seven nominees of our Board of Directors.
PROPOSAL 1: ELECTION OF DIRECTORS
| THE SEVEN NOMINEES FOR THE BOARD OF DIRECTORS |
Directors to Serve Until 2025
Directors to Serve Until 2025
Directors to Serve Until 2025
| Name | Age | First Year Elected/Appointed Director | | I. Steven Edelson | 64 | 2009 | | Lee S. Hillman | 68 | 2004 | | J. Bryan King | 53 | 2017 | | Mark F. Moon | 61 | 2019 | | Bianca A. Rhodes | 65 | 2021 | | M. Bradley Wallace | 51 | 2023 | | Robert S. Zamarripa | 68 | 2022 |
Directors to Serve Until 2025
I. Steven Edelson has served as co-founder and now a non-Managing Director of International Facilities Group, a leading facilities development and management company, since June 1995. Mr. Edelson is the founding principal of IFG Development Group, which provides development advisory services, as well as acts in a development capacity in multiple areas of the real estate industry. Mr. Edelson also serves as Principal and Managing Director of The Mercantile Capital Group, a Chicago-based private equity investment firm. Mr. Edelson is a co-founder of GFRB LLC., a global distribution company that specializes in supply chain optimization. Mr. Edelson is a Director of Bionanosim a leading drug delivery and drug discovery company based in Israel. Mr. Edelson is also a member of the Board of Governors of the Hebrew University in Jerusalem. Mr. Edelson is a Trustee at the Truman Institute for Peace and is the proud recipient of the 2005 Ellis Island Congressional Medal of Honor. In 2014, Mr. Edelson became a NACD Board Leadership Fellow. These professional experiences, along with Mr. Edelson's particular knowledge and experience in capital management, qualify him to serve as a Director. Lee S. Hillman has served as the lead independent director of DSG (f/k/a Lawson Products, Inc.), since March 2017. Mr. Hillman has served as President of Liberation Advisory Group, a private management consulting firm, since 2003. Mr. Hillman has also served as Chief Executive Officer of Performance Health Systems, LLC, a business distributing Power Plate™ and bioDensity® branded, specialty health and exercise equipment since 2012, and its predecessor since 2009. From February 2006 to May 2008, Mr. Hillman served as Executive Chairman and Chief Executive Officer of Power Plate International (“Power Plate”) and from 2004 through 2006 as CEO of Power Plate North America. Previously, from 1996 through 2002, Mr. Hillman was CEO of Bally Total Fitness Corporation, then the world’s largest fitness membership club business. Mr. Hillman currently serves as chair of the Audit Committee and member of the Compensation Committee of Franklin BSP Capital Corporation and chair of the Audit Committee of Benefit Street Partners Multifamily Trust, Inc. Previously he has served as a member of the Board of Directors of Franklin BSP Lending Corporation, HC2 Holdings, Inc., HealthSouth Corporation, Wyndham International, RCN Corporation (where he was Chairman of the Board), Bally Total Fitness Corporation (where he was Chairman of the Board), Holmes Place, Plc., Continucare Corp. and Professional Diversity Network, Inc. He also served as a member of the Board of Trustees of the Adelphia Recovery Trust. These professional experiences, along with Mr. Hillman’s particular knowledge and experience in accounting, finance and restructuring businesses and having served as Chief Executive Officer, Chief Financial Officer, and/or director of other publicly traded U.S. and international companies and as a former audit partner of an international accounting firm, qualify him to serve as a Director. J. Bryan King, CFA, is a Principal of Luther King Capital Management Corporation ("LKCM"), an SEC-registered investment advisor with approximately $26.3 billion of assets under management as of December 31, 2023, and Founder and Managing Partner of LKCM Capital Group and LKCM Headwater Investments, the private capital investment group of LKCM. On April 27, 2022, the Board of Directors of the Company appointed Mr. King to serve as President and Chief Executive Officer of DSG (f/k/a Lawson Products, Inc.), effective May 1, 2022, which is in addition to his role as Chairman of the Board of the Company. Mr. King has acted as an investment manager responsible for lower middle market investments in public and private companies since 1994 when he joined his first distribution company board. Those private capital focused partnerships manage over approximately $3 billion of flexible private capital focused on long-term investment strategies to drive stockholder value through building more profitable and durable businesses. The LKCM investment team and their affiliates and related parties generally represent approximately 30% of the capital in the partnerships, and outside capital is predominantly limited to taxable investors with prior significant experience building businesses similar to those in which LKCM invests. In 2003, Mr. King established the LKCM Distribution Holdings advisory board of operating partners, key limited partners, and relevant thought leaders to support LKCM Capital Group and its affiliates' investment activities in value-added distribution and related service offerings. In specialty distribution, Mr. King has Chaired and/or been the Managing Partner with direct controlling oversight of DSG (f/k/a Lawson Products, Inc.), TestEquity, Gexpro Services, Relevant Industrial Solutions, Critical Rental Solutions, Commercial Buildings Solutions, Industrial Distribution Group (IDG), Rawson, Golden State Medical Supply, and the ERIKS North American assets, including Lewis-Goetz (LGG), and XMEK (f/k/a ERIKS Seals and Plastics). He also has served in various capacities, including Chairman, on and alongside of many other boards of both public and private companies, as well as numerous not for profit and community organizations. Mr. King graduated from Princeton University, where he was a two sport varsity athlete and today serves on the advisory board for the Princeton University Museum of Art. He also graduated from Harvard Business School, as well as Texas Christian University where he serves on the Executive Committee of Trustees and chairs the Investment Committee with oversight over the TCU Endowment, and previously chaired the Fiscal Affairs, and Audit and Risk Management committees. These professional experiences, along with Mr. King's particular knowledge and expertise in finance and capital management, qualify him to serve as a Director. Mark F. Moon has served as President of MFM Advisory Services since 2016 and as an advisor and operating partner for LKCM since 2016. In 2016, Mr. Moon joined the Board of Directors for BearCom LLC, which is the largest value-added distributor of two-way radio communications and solutions. Mr. Moon also served on the Board of Directors for TestEquity prior to the business combination with Lawson Products and Gexpro Services. Mr. Moon served for more than thirty years with Motorola Solutions, Inc. from 1985 to 2016. During this time, he held a variety of leadership roles culminating in the responsibility for leading 10,000+ employees located in 100+ countries. Prior to his retirement, he served as President with responsibilities for the strategy of the company and leading all aspects of global operations including Sales and Marketing, Product Research and Development, Software and Services, and Supply Chain. In addition, Mr. Moon served as Chairman of the Board of Directors for Vertex Standard, as a member of the Board of Directors for the National Fallen Firefighters Foundation and as a member of the Advisory Board of the Georgia Institute of Technology’s School of Industrial and Systems Engineering where he was named to the Academy of Distinguished Engineering Alumni in 2014. These professional experiences, along with Mr. Moon’s particular knowledge and expertise in sales and marketing, global operations and supply chain management qualify him to serve as a Director.
Directors to Serve Until 2025
Bianca A. Rhodes has served as the President and Chief Executive Officer of Knight Aerospace Medical Systems, LLC, a global leader in custom air medical transport products, since 2014. Ms. Rhodes currently serves as a member of the Board of Directors for Intuity Medical, Inc. and Dura Software. Prior to this time, she founded CrossRhodes Consulting where she advised private enterprises on financial and operating issues helping them to raise capital and structure buyouts while also managing a family real estate business. Ms. Rhodes began her career as a commercial banker with the National Bank of Commerce in San Antonio and later joined TexCom Management Services, a computer leasing company. At TexCom she was instrumental in the sale of the company to Intelogic Trace (NYSE:IT) where she became the CFO. Additionally, she has served as CFO of Kinetics Concepts Inc. (NASDAQ:KNCI), a global corporation that produces medical technology for wounds and wound healing. During her tenure there, she engineered a successful turnaround, significantly increasing the company’s value, prior to going private. These professional experiences, along with knowledge and experience acquired in managing distribution and technology firms, qualify Ms. Rhodes to serve as a Director. M. Bradley Wallace has served as a Founding Partner of LKCM Headwater Investments, the private capital investment group of LKCM, where he is responsible for all aspects of the investment process including sourcing and analyzing new investment opportunities and overseeing the implementation of post-transaction operational initiatives, several of which have been within the Industrial Distribution sector. Mr. Wallace has served on the board of several portfolio companies of LKCM Headwater Investments, including the Chairman of the Board of Gexpro Services prior to the business combination with Lawson Products and TestEquity, Alliance Consumer Group, Pavement Maintenance Group, and Partner Industrial. Mr. Wallace also serves as an investment professional for LKCM Capital Group, he served for two years as the Chief Financial Officer for a $200M retail chain, where he was responsible for restructuring the business and integration of several acquisitions subsequent to LKCM Capital Group’s initial purchase of the assets out of bankruptcy. Prior to joining LKCM, Mr. Wallace served as Principal and Portfolio Manager for KBK Capital, where he served on the investment committee and was responsible for senior debt, mezzanine and private equity transactions. While at KBK, he served as a Director and interim Chief Executive Officer of a food manufacturing and distribution company, overseeing the restructuring of its management. Mr. Wallace began his career in finance as an originator and manager of $100 million factoring and asset-based lending portfolio. Mr. Wallace graduated with a Bachelor of Business Administration and a Masters of Business Administration, with the honor of Top Scholar, from Texas Christian University. These professional experiences, along with Mr. Wallace’s particular knowledge and expertise in finance, investments, and accounting qualify him to serve as a Director. Robert S. Zamarripa founded Zam Capital, a business advisory and investment company in 2012. Additionally, Mr. Zamarripa founded ZJR, an industrial real estate holding company in 1988 and is currently a managing partner. Mr. Zamarripa founded OneSource Distributors in 1983, serving as Chairman and Chief Executive Officer until 2013. OneSource is a leading electrical, utility and industrial automation distributor in the United States and Mexico. OneSource is recognized as an industry leader in providing technology driven value and supply chain services to its customers. Additionally, OneSource was recognized as the fifth largest Hispanic owned business in the United States by Hispanic Business Magazine in 2011. OneSource was ranked as one of the top 20 largest Electrical Distributors in the United States in 2011 by Electrical Wholesale Magazine. Mr. Zamarripa has served on the Board of Directors for Flow Control Group (2021 - present), SourceAlliance.com (1990 - 1992) and IMARK Group (2008 - 2012). Additionally, Mr. Zamarripa has served in advisory board positions for the following electrical, industrial and automation equipment manufacturers: Rockwell Automation, Eaton Corporation, General Electric Company, Hoffman Engineering, Hubbell Inc., Thomas and Betts Corporation, ABB and Leviton Manufacturing Co. Inc. In addition, Mr. Zamarripa served as a strategic advisor to a special committee of the Company’s Board of Directors in connection with the business combination between Lawson Products, TestEquity and Gexpro Services. Mr. Zamaripa graduated with a Bachelor of Arts from the University of California, Santa Barbara. These professional experiences, along with knowledge and experience acquired in managing and leading distribution firms, qualify Mr. Zamarripa to serve as a Director. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THESE NOMINEES.
Compensation Practices, Philosophy and Objectives
Compensation Practices, Philosophy and Objectives Our Compensation Committee has oversight for the executive compensation programs for the three operating companies’ NEOs and executive officers. The Company's combined executive compensation programs reward executives for the development and execution of successful business strategies that lead to profitable growth. To deliver the appropriate mix of compensation for each NEO, we provided annual cash compensation, which included a base salary and an annual incentive opportunity based on pre-established performance goals related to each operating company’s performance relative to their annual budget, and a long-term incentive opportunity, which is largely based on increases to share price of the Company's common stock from the date of grant. We believe the mix of these forms of compensation, in the aggregate, balances the reward for each NEOs’ and other executive’s contributions to our Company. Combining salary and our equity award program, we strive to offer a total level of compensation that is competitive within specific roles and geographical markets. Additionally, our compensation programs are designed to encourage and reward the creation of long-term stockholder value. Lastly, Executives, who have duties and responsibilities at both the operating company as well as the DSG/holding company levels will generally be tied to annual incentive plan performance goals of the operating company he or she is aligned with for the plan year. Furthermore, we believe that compensation for individuals who are responsible for DSG’s strategic direction and operations should be motivated to achieve sustainable stockholder value and/or tangible milestones rather than to simply remain at DSG or maintain the status quo. Therefore, we are increasingly emphasizing for our executive officers the grant of above-market stock option awards, which have zero initial value and accumulate value, only to the extent that our stock price significantly increases following their grant, through the applicable vesting dates and until such stock options are ultimately exercised and the underlying shares are sold. Our Chairman, CEO and President, Mr. King, does not accept any form of compensation from the Company in connection with his role with the Company. The Company guides its executive compensation programs with a compensation philosophy expressed in these three principles: (1) Talent Acquisition & Retention. We believe that having qualified people at every level of our Company is critical to our success. Our compensation programs are designed to encourage talented executives to join and continue their careers as part of our senior management team. (2) Accountability for DSG's Business Performance. To achieve alignment between the interests of our executives and our stockholders, we used short-term and long-term incentive awards. Our NEOs' compensation increased or decreased based on how well they achieved the established performance goals and the increase in stockholder value. (3) Accountability for Individual Performance. We believe teams and individuals should be rewarded when their contributions are exemplary and significantly support Company performance and value creation. When making compensation decisions, the various elements of compensation were evaluated together, and the level of compensation opportunity provided for one element may have impacted the level and design of other elements. We attempted to balance our NEO total compensation program to promote the achievement of both current and long-term performance goals. Lastly, we evaluate our compensation philosophy and programs regularly and evolve them as circumstances merit with oversight by the Compensation Committee, particularly with respect to executive and director compensation.
Peer Group for Compensation Benchmarking
Peer Group for Compensation Benchmarking Prior to the 2022 merger, for the Lawson operating company we maintained two peer groups of public companies - a “core” and a “supplemental" group of companies - to assist the Company, the Compensation Committee and the Board to understand the current competitiveness of the total direct compensation ("TDC") of its NEOs as compared to market practices. The Company used the data from the peer groups to benchmark TDC, which includes the level of base salaries and the mix, form and size of annual and long-term incentives provided to executives of similar companies to Lawson in terms of industry and size. However, as a result of the Company’s merger in 2022, the size of the Company in terms of revenue, profit and market cap increased substantially. Additionally, as a result of the merger, we have executives who may be employed as an officer in DSG, or in one of the Company’s operating companies – Lawson, Gexpro Services or TestEquity – for which it may be more appropriate to use a different peer benchmark than that used for a DSG executive. In addition, the Board of Directors is responsible for governance oversight over DSG, as well as the operating companies. In order to maintain appropriate market benchmarks for our executives and Directors, the Compensation Committee engaged FGMK, LLC ("FGMK"), an independent advisory firm, to review the peer groups to determine their continued relevance for helping make sound compensation decisions. First, as a result of this review, we established a peer group of 13 companies aligned with the size and industry classification of DSG. The DSG peer group had a median revenue of approximately $1.469 billion and a market capitalization of $1.499 billion for 2023 compared to DSG’s 2023 revenue of $1.570 billion and market capitalization of $1.478 billion.
Peer Group for Compensation Benchmarking
| Distribution Solutions Group, Inc. Peer Group | | | Applied Industrial Technologies, Inc. | Kadant Inc. | | Barnes Group Inc. | MRC Global Inc. | | DXP Enterprises, Inc. | DNOW Inc. | | Global Industrial Company | Park-Ohio Holdings Corp. | | H&E Equipment Services, Inc. | Tennant Company | | Helios Technologies, Inc. | TriMas Corporation | | Herc Holdings Inc. | |
Peer Group for Compensation Benchmarking
Second, the industry and size of the core and supplemental peer groups remained aligned with the three operating companies, accordingly we intended to continue to utilize a core and supplemental peer group at the operating company level. However, due to industry consolidation and a significantly reduced number of companies in the core peer group in 2023, we combined various companies from our previous core peer group utilized with selected companies from the supplemental peer group to create a new operating company peer group (“the OPG”). The OPG consists of 14 companies with similar industry classification and revenues to that of the operating companies. The OPG companies had 2023 median revenue of approximately $452 million as compared to the operating companies’ 2023 revenue of $525 million for Lawson, $406 million for Gexpro and $642 million for TestEquity. The OPG includes the following companies:
Peer Group for Compensation Benchmarking
| Operating Company (Lawson, TestEquity or Gexpro Services) Peer Group | | | AMPCO-Pittsburgh Corp. | Hurco Companies, Inc. | | Ascent Industries Co. | Insteel Industries, Inc. | | Columbus McKinnon Corporation | NN, Inc. | | The Eastern Company | Perma-Pipe International Holdings, Inc. | | L.B. Foster Company | The L.S. Starrett Company | | The Gorman-Rupp Company | Twin Disc, Incorporated | | Haynes International, Inc. | Trex Company, Inc. |
Peer Group for Compensation Benchmarking
The Compensation Committee believes that the proxy peer group benchmarking provides an accurate indicator of total compensation paid by companies with executives that have skills and responsibilities similar to the Company’s executives. Compensation for the Company’s executives is generally managed within the ranges of compensation paid by companies in their applicable peer group.
NEO Compensation Competitiveness Compared to the Peer Group
NEO Compensation Competitiveness Compared to the Peer Group Annually, as part of our determination of the competitiveness of our executive officers' TDC to market practices, we have analyzed and reported on each NEO’s actual TDC (current base salary, three-year average AIP bonus payout and the three-year average LTI grant value) compared to the peer groups' median and 75th percentiles. Since Mr. King does not receive compensation for his services to the Company, a benchmarking is not necessary. Accordingly, we are providing our benchmark analysis for only two of our three current NEOs, Messrs. Lanuza and Knutson. Mr. Knutson has the dual role of CFO of DSG and Lawson. Accordingly, we are providing a comparison of his TDC to CFOs of the DSG peer group. Since Mr. Lanuza serves as an executive of Lawson and not DSG, we compared his TDC to CEOs of the OPG.
NEO Compensation Competitiveness Compared to the Peer Group
| | Median TDC, in ($000s) | 75th Percentile TDC, in ($000s) | Company TDC, in ($000s) | | Title | | | | | Ronald J. Knutson (1) | 1,650.5 | 1,845.0 | 1,492.4 | | Executive Vice President, Chief Financial Officer and Treasurer | | | | | Cesar A. Lanuza (2) | 2,043.5 | 2,575.0 | 2,163.7 | | President and Chief Executive Officer, Lawson | | | |
NEO Compensation Competitiveness Compared to the Peer Group
(1) Represents the NEO's 2023 Base Salary, average AIP earned for 2021 - 2023 performance cycle and the average grant date fair value from the 2021 - 2023 equity awards granted. (2) Represents the NEO's 2023 Base Salary, average AIP earned for 2022 - 2023 performance cycle and the average grant date fair value from the 2022 - 2023 equity awards granted.
Role of the Independent Compensation Consultant
Role of the Independent Compensation Consultant The Compensation Committee has the authority to engage and has from time to time engaged the services of outside consultants to assist in making decisions regarding the establishment of DSG’s compensation philosophy and programs, including for executives and directors. In 2023, the Compensation Committee engaged FGMK to perform benchmarking analyses of executive officer and director compensation and make recommendations on peer group determination, performance metrics and incentive opportunity levels for the NEOs, as well as for independent members of the Board of Directors. FGMK was asked to make recommendations related to equity award incentives, including plan design, performance metrics and goals, and related incentive opportunities and estimated plan costs. FGMK performs no other services for the Company. The Compensation Committee has reviewed the independence of FGMK in light of SEC rules and Nasdaq listing standards regarding compensation consultants and has concluded that FGMK's work for the Compensation Committee does not raise any conflict of interest. All work performed by FGMK is subject to review and approval of the Compensation Committee who has the right to terminate FGMK at any time.
Elements of Total Compensation
Elements of Total Compensation In determining the type and amount of compensation for each eligible executive at our operating companies, other than our Chairman, President and CEO, we have used both annual cash compensation, which includes a base salary and an annual incentive award, as well as a long-term incentive opportunity, which is equity based. Our compensation programs have been designed to encourage and reward the creation of long-term stockholder value, while at the same time avoiding the encouragement of unnecessary or excessive risk-takings. The Compensation Committee believes the mix of these forms of compensation, in the aggregate, supported the Company's overall compensation objectives of attracting top talent for executive positions, incentivizing such executive officers, motivating and rewarding the achievement of individual and company goals and aligning the interests of executive officers with those of our stockholders. Our annual and long-term incentive plans provided for additional compensation for achievement above set performance targets such that an executive's compensation may reach the 75th percentile of market levels based upon performance. Going forward, the Compensation Committee intends to evaluate the elements of the total compensation opportunities available to executives in light of the relatively new corporate structure of DSG. The following table describes each executive compensation element utilized in 2023 for our NEOs based on the philosophy and objectives described above as well as each element's link to our compensation philosophy.
Elements of Total Compensation
| Compensation Element | Philosophy Statement | Talent Acquisition and Retention | Accountability for Business Performance (Align to Stockholder Interests) | Accountability for Individual Performance (Support Company Performance and Value Creation) | | Base Salary | We intend to provide base pay competitive to the market of industry peers across other industries where appropriate. Our goal is to strike a balance between attracting and retaining talent, expecting superior results and finding individuals who can focus on transforming our business. Base salary maintains a standard of living, is used to compete in the market for talent and forms the foundation for other reward vehicles. | X | | | | Annual Incentive Plan (1) | The 2023 AIP, as defined in the Annual Incentive Plan section, was designed to reward specific annual performance against business measures, such as Sales Revenue, Adjusted EBITDA, Working Capital and Enterprise Value, set by the Board at the start of the plan year. The amount of the 2023 AIP reward was determined by formula and can vary from 0% to 150% of an individual executive's original target incentive. | X | X | X | | Long-Term Incentive Plan ("LTIP") | The LTIP was designed to align NEOs with the long-term interests of stockholders. Starting in 2022, the primary focus of the long-term incentive program transitioned to equity awards primarily granted in the form of non-qualified stock options that are significantly "out of the money" and will only realize value in the event of significant appreciation in the Company's stock price. RSUs were granted as a retention incentive aligned with future changes to share price. | X | X | X | | Other Compensation and Benefit Programs | DSG's operating companies offer employee benefits programs that provide protections for health, welfare and retirement. These programs are standard within the United States and include healthcare, life, disability, dental and vision benefits, as well as a 401(k) program and other federally provided programs outside of the United States. A deferred compensation program is also provided to a select group of our management, including our NEOs, to provide for tax-advantaged savings beyond the limits of qualified plans. | X | | |
Base Salary
Base Salary The Compensation Committee is responsible for reviewing our Chief Executive Officer’s and other executive officers’ base salaries. The base salaries of all executive officers are reviewed and adjusted when necessary to reflect individual roles, performance and the competitive market. Except for Mr. King, annual base salary and cash bonuses are the primary cash-based element of our executive officers’ compensation structure. We provide NEOs and other employees, except for Mr. King, who does not receive any compensation from the Company in connection with his roles of Chairman, President & CEO, with a base salary to compensate them for services rendered during the fiscal year. Base salary represents the only fixed component of the three elements of our executive compensation program and is intended to provide a baseline minimum amount of annual compensation for our NEOs. Our base salary philosophy is intended to keep our fixed costs at an appropriate level for each role. In setting base salaries for the CEO and other executives, the Compensation Committee considers: •Competitive market data based upon peer group benchmarking; •The experience, skills and competencies of the individual; •The duties and responsibilities of the respective executive; •The ability of the individual to effectively transform our company and culture; and •The individual's ability to achieve superior results. We typically consider adjustments to NEO base salaries on an annual basis as part of our review process, as well as upon a promotion. The following table sets forth information regarding the annualized base salary rates at the end of 2022 and 2023 for our NEOs:
Annual Incentive Plan
Annual Incentive Plan We require our NEOs to be focused on achievement of the critical, strategic and tactical objectives that lead to annual success. Mr. Lanuza, as CEO of Lawson, and Mr. Knutson, in his dual role as CFO of DSG and CFO of Lawson, participated in the 2023 Lawson AIP ("AIP"). As mentioned above, executives, who have duties and responsibilities at both the operating company as well as the DSG/holding company levels will generally be tied to annual incentive plan performance goals of the operating company he or she is aligned with for the plan year. Therefore, Mr. Knutson's performance goals and associated incentive compensation opportunity is aligned with the AIP. Mr. King, does not receive any compensation from the Company in connection with his roles of Chairman, CEO & President, therefore did not participate in the AIP. 2023 AIP Pursuant to the terms of the 2023 AIP, each NEO was granted a threshold, target and maximum bonus award opportunity expressed as a percentage of base salary. These bonus award opportunities range from 0% to 150% of the target AIP opportunity for our NEOs, with the exception of the DSG Enterprise Value performance goal which opportunity ranges from 0% to 125% of the target AIP opportunity. At the beginning of each year, the Compensation Committee approves the assignment of a threshold, target and maximum objective for each financial performance measure. The target objectives for each performance goal for our NEOs, other than DSG Enterprise Value, are established based upon the operating budget approved by the Board. Actual year-end financial results for such measures are compared to plan objectives in order to determine the amount of any AIP bonus. If actual financial results fall between the threshold and target or the target and maximum objectives, bonuses are proportionately increased as a result of the threshold or target objective being exceeded. Notwithstanding the other provisions of the AIP, the Committee may reduce or eliminate any bonus payable to a NEO based upon the Committee's determination of individual performance or other factors it deems relevant. The Compensation Committee may not increase any bonus payable to a NEO.
Compensation Performance Metrics, Targets & Weighting
Compensation Performance Metrics, Targets & Weighting The DSG operating companies, including the NEOs aligned with Lawson, utilized pre-established performance criteria for their respective annual incentive plans that are intended to align executive compensation with its 2023 business objectives. The Adjusted EBITDA, Adjusted Net Sales and Working Capital metrics and results described below are based on the Lawson operating company.
•DSG Enterprise Value
| | AIP Performance Targets | | | | | Threshold | Target | Maximum | | Adjusted EBITDA | $51,345 | $60,406 | $66,447 | | Payout percentage | 50% | 100% | 150% | | Adjusted Net Sales | $522,740 | $544,521 | $560,857 | | Payout percentage | 50% | 100% | 150% | | Working Capital | 23.70% | 22.70% | 21.70% | | Payout percentage | 50% | 100% | 150% | | DSG Enterprise Value | 20.00% | 25.00% | 35.00% | | Payout percentage | 50% | 100% | 125% |
•DSG Enterprise Value
| | 2023 AIP Target | | 2023 AIP Goal Weighting | | | | | | Amount | Percent of Base Salary | Adjusted EBITDA | Adjusted Net Sales Dollars | Working Capital | DSG Enterprise Value | | J. Bryan King | $— | —% | —% | —% | —% | —% | | Ronald J. Knutson | 384,000 | 80% | 30% | 30% | 20% | 20% | | Cesar A. Lanuza | 600,000 | 100% | 30% | 30% | 20% | 20% |
•DSG Enterprise Value
| | | 2023 AIP Performance Targets | | | | | Actual Payout Percentages | Threshold | Target | Maximum | | Adjusted EBITDA | | $51,345 | $60,406 | $66,447 | | Payout percentage | 150.0% | 50% | 100% | 150% | | Adjusted Net Sales | | $522,740 | $544,521 | $560,857 | | Payout percentage | 57.0% | 50% | 100% | 150% | | Working Capital | | 23.70% | 22.70% | 21.70% | | Payout percentage | 96.1% | 50% | 100% | 150% | | DSG Enterprise Value | | 20.00% | 25.00% | 35.00% | | Payout percentage | 105.7% | 50% | 100% | 125% |
2023 AIP – Performance Results and Bonus Payments
2023 AIP – Performance Results and Bonus Payments The actual financial results finished above stretch objective for Adjusted EBITDA, between threshold and target objectives for Adjusted Net Sales and Working Capital and between target and stretch objective for DSG Enterprise Value. This resulted in 2023 AIP payouts equal to 102.5% of the aggregate target award opportunity for our NEOs.
2023 AIP – Performance Results and Bonus Payments
| | 2023 AIP Payout | | | | Target Payout | Actual Payout | | J. Bryan King (1) | $— | $— | | Ronald J. Knutson | 384,000 | 393,446 | | Cesar A. Lanuza | 600,000 | 614,760 |
2023 AIP – Performance Results and Bonus Payments
(1) Mr. King is not an active participant in the AIP plan and does not accept cash incentives based on performance.
Equity-Based Incentives/Long-Term Incentive Plan ("LTIP")
Equity-Based Incentives/Long-Term Incentive Plan ("LTIP")
Equity-Based Incentives
Equity-Based Incentives In 2023, the primary focus of the long-term incentive program transitioned to equity awards primarily granted in the form of non-qualified stock options that were significantly "out of the money" at grant and will only realize value in the event of significant appreciation in the Company's stock price. We also continue to utilize RSUs as a retention tool as appropriate. Senior executives leading the other operating companies prior to the merger date are entitled to equity-based incentives that are separate and apart from the equity awards described herein. Our equity award program is the primary vehicle for offering long-term incentives to our NEOs and other eligible executives. We grant incentive equity awards pursuant to the Distribution Solutions Group, Inc. Equity Compensation Plan, as amended, which was last approved by our stockholders in 2022. Historically, we have awarded MSUs, SPRs, RSUs, PAs, RSAs and non-qualified stock option awards. We are increasingly emphasizing for our NEOs, and other eligible executives, the grant of non-qualified stock option awards, which have value only to the extent, if any, that our stock price increases following their grant. Accordingly, all equity awards granted to our NEOs after the strategic combination of DSG were in the form of non-qualified stock option awards, with the exception of a RSU grant to Mr. Knutson described below. As a result, a significant portion of our NEOs’ total compensation is entirely at risk, depending on long-term stock price performance. Stock Split On August 15, 2023, DSG announced that its Board of Directors approved and declared a two-for-one stock split (the “Stock Split”) which entitled each stockholder of record as of the close of business on August 25, 2023 to receive one additional share of DSG common stock for each share of DSG common stock then-held. The additional shares were distributed after the close of trading on August 31, 2023, and shares of DSG common stock began trading at the split-adjusted basis on September 1, 2023. Accordingly, all share and per share amounts have been retroactively adjusted to reflect the impact of the Stock Split for all periods presented herein. For illustrative purposes, with respect to any references to DSG's stock price and awards granted to our NEOs prior to the Stock Split, we have adjusted these to reflect the post-Stock Split price and award level. Background - LTIP The Compensation Committee directly engaged independent compensation consultant FGMK to make LTIP recommendations intended to be competitive with market practices, aligned with the Company's business goals, supportive of the Company's strategy for retaining and motivating leadership talent, and to reward superior performance. The LTIP design process allows the Committee to evaluate and consider the specific plan components each year. The LTIP is designed to incentivize financial performance over a longer time period than the AIP. The LTIP opportunity is formulated to be competitive with market practices and aligned with our compensation philosophy and objectives. January 27th Grant In 2022, the Committee reviewed the historical practice of granting annual LTIP awards and made the decision to make grants intended to cover participants LTIP opportunity for a longer performance cycle. This grant was granted to participants, including Mr. Knutson, on January 27, 2023 consisting of non-qualified stock options. One-fifth of the award shall vest on each of January 27, 2024, April 1, 2024, April 1, 2025, April 1, 2026 and April 1, 2027 contingent upon Mr. Knutson's continued employment through such date. The non-qualified stock options were granted to align participants with stockholders to drive Company enterprise value and growth in stock price, with exercise prices that were above the fair market value of DSG as of the grant date. For additional details on Mr. Knutson's grant, please see the Outstanding Equity Awards on December 31, 2023, table on page 45. In addition to the non-qualified stock options, Mr. Knutson was granted 20,000 RSUs. One-fifth of the award shall vest on each of January 27, 2024, April 1, 2024, April 1, 2025, April 1, 2026 and April 1, 2027 contingent upon Mr. Knutson's continued employment through such date. RSUs were granted to Mr. Knutson as a retention incentive which are aligned to the long-term interests of stockholders by rewarding him for Lawson's share price change. 2021-2023 LTIP In 2021, long-term incentive awards were granted to the NEOs using three LTI award opportunities: twenty percent (20%) of the total target opportunity was granted in the form of RSUs, forty percent (40%) in PAs, and forty percent (40%) in MSUs. The target value on the grant date of each award and the total 2021-2023 LTIP opportunity to each NEO is as follows:
Equity-Based Incentives
| Executive | RSU Target Award (1) | PA Target Award (1) | MSU Target Award (1) | Total 2021-2023 Opportunity | | J. Bryan King (2) | $— | $— | $— | $— | | Ronald J. Knutson | 61,108 | 122,216 | 122,216 | 305,540 | | Cesar A. Lanuza (2) | — | — | — | — |
Equity-Based Incentives
(1) Additional shares are granted to Mr. Knutson in consideration for the two-year post-vest holding period applicable to vested shares. The additional shares are based on a two-year discount of 17.0%, as determined by an independent valuation. The additional shares over his Target award granted were as follows: 490 RSUs, 980 PAs and 1,234 MSUs. (2) Messrs. King and Lanuza were not participants in the 2021 - 2023 LTIP. •The RSUs vested in full upon the completion of the three-year performance cycle on December 31, 2023, as Mr. Knutson remained continuously employed by Lawson and the Company through such date. Mr. Knutson is subject to a two-year post-vest holding requirement on shares received from RSUs settled as part of the 2021-2023 LTIP. He cannot transfer or otherwise dispose of one-hundred percent (100%) of these shares until January 1, 2026. •The PAs vested at 108.8% of the Target award based on Lawson's ROIC performance against annual ROIC targets set in conjunction with the approved Lawson operating plan, see details below. The PA payout was calculated based on Lawson's 3-year cumulative average ROIC results of 26.8% relative to the cumulative 3-year average ROIC Target performance goal of 26.1%. PAs vested as Company common stock. Mr. Knutson is subject to a two-year post-vest holding requirement on PAs awarded as part of the 2021-2023 LTIP. He cannot transfer or otherwise dispose of one-hundred percent (100%) of these awards until January 1, 2026.
Historical Equity Compensation
Historical Equity Compensation Mr. King did not receive any equity compensation for his services as President & CEO of the Company because he elected not to receive any form of equity compensation for his services.
Pay vs. Performance Table
Pay vs. Performance Table The goal of the Pay Versus Performance (“PVP”) disclosure is to report the Compensation Actually Paid ("CAP") to our proxy officers as of FYE as compared to the Company’s Performance. Company performance is defined as cumulative total shareholder return (“TSR”) for the company and the peer group for the same period as under S-K, Item 201(e) (i.e., the performance graph). As required by Item 402(v) of Regulation S-K, we are providing the following information regarding the relationship between executive compensation and our financial performance for each of the last three completed calendar years. In determining the “compensation actually paid” to our NEOs, we are required to make various adjustments to amounts that have been previously reported in the Summary Compensation Table ("SCT") in previous years, as the SEC’s valuation methods for this section differ from those required in the SCT. The table below summarizes compensation values both previously reported in our SCT, as well as the adjusted values required in this section for the 2021, 2022 and 2023 calendar years.
Pay vs. Performance Table
| Year | SCT Total for PEO (1) | Compensation Actually Paid to PEO (1) | SCT Total for PEO (2) | Compensation Actually Paid to PEO (2) | Average SCT Total for Non-PEO NEOs (3) | Average Compensation Actually Paid to Non-PEO NEOs (3) | Value of Initial Fixed $100 Investment Based on TSR (4) | Net Income (5) | | 2023 | $— | $— | $— | $— | $1,990,077 | $4,474,898 | $124.0 | $(8,967)(6) | | 2022 | — | — | 211,021 | 192,805 | 1,904,708 | 2,046,997 | 72.4 | 7,406(7) | | 2021 | — | — | 1,474,586 | 1,229,865 | 720,115 | 986,948 | 107.5 | (5,052)(8) |
Pay vs. Performance Table
(1) Represents Mr. King who was elected as PEO effective May 1, 2022. Mr. King does not receive any compensation in connection with his role. (2) Represents Mr. DeCata and his role as PEO through his resignation date effective May 1, 2022. (3) Represents the following NEOs for each year: •2021: Messrs. Knutson and McCarthy, both of which were NEOs of Lawson prior to the merger date. •2022: Messrs. Knutson and Lanuza. •2023: Messrs. Knutson and Lanuza. (4) The values disclosed in this column represent the measurement period value of an investment of $100 in our units as of December 31, 2020, and then valued again on each of December 31, 2021, December 31, 2022 and December 31, 2023. (5) Net income is shown in $000s. (6) DSG consolidated operating results, including the results of acquisition activity subsequent to the date of acquisition. (7) Includes the operating results of TestEquity and Gexpro Services for the full year, as well as the operating results of Lawson subsequent, but not prior to the April 1, 2022 Merger Date, in accordance with GAAP accounting guidance for reverse acquisitions, as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Our NEOs during the 2021 - 2023 period were all Lawson employees. (8) Includes the operating results of TestEquity and Gexpro Services only in accordance with GAAP accounting guidance for reverse acquisitions, as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
PEO Summary Compensation Table Total to Compensation Actually Paid Reconciliation
PEO Summary Compensation Table Total to Compensation Actually Paid Reconciliation As discussed, Mr. King does not receive any compensation from the Company in his role as President & CEO. As such, there is not a reconciliation to compensation actually paid.
Average Non-PEO Summary Compensation Table Total to Compensation Actually Paid Reconciliation
Average Non-PEO Summary Compensation Table Total to Compensation Actually Paid Reconciliation
Average Non-PEO Summary Compensation Table Total to Compensation Actually Paid Reconciliation
| Year | Salary | Bonus and Non-Equity Incentive Compensation | Other Compensation (1) | SCT Table Total | Deductions from SCT Total (2) | Additions to SCT Total (3) | Compensation Actually Paid to Non-PEO NEOs | | 2023 | $535,313 | $504,103 | $26,687 | $1,990,077 | $923,975 | $3,408,796 | $4,474,898 |
Average Non-PEO Summary Compensation Table Total to Compensation Actually Paid Reconciliation
(1) This column reflects “All Other Compensation” reported in the SCT for each year shown. (2) This column reflects the aggregate grant date fair value of equity-based awards granted each year as reported in the Stock Awards and SPR/Option Awards columns of the SCT for the applicable year, calculated in accordance with FASB ASC Topic 718. We do not sponsor or maintain any defined benefit pension plans and therefore, no deduction was made related to pension value. (3) This column reflects the value of equity-based awards calculated in accordance with Item 402(v) of Regulation S-K as required pursuant to SEC rules and based on the Company's closing stock price on December 29, 2023 (the last trading day of the year) of $31.56. Compensation actually paid is determined by taking the “Total Compensation” column amount from the SCT for each covered fiscal year and adjusting as follows for our PEO and Non-PEO Named Executive Officers, respectively. No adjustments are provided for Mr. King as PEO since he does not receive any compensation with respect to his service to the Company.
Adjustments to Determine Average Compensation Actually Paid for Non-PEO NEOs
Adjustments to Determine Average Compensation Actually Paid for Non-PEO NEOs
Adjustments to Determine Average Compensation Actually Paid for Non-PEO NEOs
| Covered Fiscal Year | 2023 | | Average SCT Total for Non-PEO NEOs | $1,990,077 | | Pension Adjustments (1) | | | Subtract “Change in Actuarial Present Value” reported in the SCT for the covered fiscal year | — | | Add pension value attributable to covered fiscal year’s “service cost” | — | | Add pension value attributable to the entire “prior service cost” of benefits granted (or credit for benefits reduced) in a plan amendment made in the covered fiscal year attributable to prior service periods | — | | Equity Adjustments (2) | | | Subtract fair value (as of grant date) reported in the “Stock Awards” and “Option Awards” columns in the SCT for the covered fiscal year | 923,975 | | Add fair value (as of end of year) of equity awards granted during the covered fiscal year that remain unvested as of year end | 1,799,490 | | Add fair value (as of vesting date) of equity awards granted during the covered fiscal year that vest during the covered year | — | | Add the change in fair value from the prior year-end to the covered fiscal year-end for equity awards granted in prior fiscal years that were outstanding and unvested at the end of the prior year | 1,249,900 | | Add the change in fair value from the prior year-end to covered year-end for equity awards granted in prior fiscal years that vested during covered fiscal year | 359,406 | | Subtract fair value (as of end of prior year) for equity awards granted in prior fiscal years that were forfeited during covered fiscal year | — | | Add incremental fair value (as of modification date) of equity awards modified during covered fiscal year | — | | Add dividends or other earnings paid on equity awards during covered fiscal year prior to vesting date of award that are not otherwise included in the total compensation for the covered fiscal year | — | | Total Adjustments | $4,474,898 |
Adjustments to Determine Average Compensation Actually Paid for Non-PEO NEOs
(1) We do not sponsor or maintain any defined benefit pension plans and therefore, so no adjustments were made related to pension value. (2) The fair value or incremental fair value of all incentive equity awards is determined in accordance with ASC 718, “Compensation – Stock Compensation.” The assumptions used for the fair value valuations in this table were completed using assumptions that did not differ materially from those assumptions used to determine the grant date fair value of our equity awards reflected in the Summary Compensation Table. In order to properly value the option awards using the Black-Scholes model we use for such grant date fair value, we made appropriate adjustments to the grant date assumptions to reflect changes in the historical and implied stock price volatility, expected life (including remaining vesting periods, remaining expiration periods and option gain levels), dividend yield and risk-free interest rates as of each measurement date. The value of outstanding performance-based awards in the covered fiscal year is based upon the probable outcome of the performance conditions as of the last day of the fiscal year. As shown in the tables above, changes in the market price of our granted equity awards following the date of the grant impacts the level of compensation that is actually paid to our NEOs. To assist in understanding the changes in value of the equity awards reflected above, the following table reflects the value of one share of our common stock as of each of the following dates. If that date reflects a non-business day, the value reported is the last trading date of the applicable calendar year. As shown, the annual stock price appreciation from year-ending 2022 to 2023 is 71.2%. (1) Stock price reflects the post-Stock Split adjusted price level. (2) Stock price reflects the Lawson year-end stock price prior to the DSG merger date. (3) Stock price reflects the merger date of the operating companies that comprise DSG.
Other NEOs Compensation Aligns With Performance
Other NEOs Compensation Aligns With Performance The total compensation cost for our other NEOs, Messrs. Lanuza and Knutson, continues to be aligned with Lawson's business results and the market value of the Company. A meaningful portion of the total compensation of these NEOs is provided in the form of non-qualified stock options of the Company, as well as MSUs and PAs, that are related to historical long-term incentive plans, with the actual value of these awards tied 100% to the Company’s performance. For the 2021-2023 performance cycle, we are disclosing the granted pay opportunity, realizable and realized compensation for each NEO: •Mr. Lanuza was awarded an above-market grant of 450,000 non-qualified stock options in 2022, with the entire award “out-of-the-money". As of grant date, the Company's stock price was $17.69 per share. •Mr. Knutson's 2021 and 2023 LTI opportunities are described above and in the "Elements of Total Compensation" section. The chart below illustrates the aggregate realizable and aggregate realized compensation for the NEOs over the three-year performance period. Realizable compensation is lower than the granted pay opportunity due to a majority of the granted and outstanding awards consisting of non-qualified stock options that are "out of the money" and will only realize value in the event of further appreciation in the Company's stock price. (1) The 2021-2023 aggregate granted pay opportunity, realizable and realized compensation for Messrs. Knutson covers the entire performance cycle for Mr. Knutson, as well as from Mr. Lanuza's hire date of April 4, 2022 through December 31, 2023. (2) In the chart above, “Granted Pay Opportunity” equals the sum of the three prior years (i.e., 2021-2023): (i) salary (as reported in the SCT on page 43), (ii) target award opportunity of AIP, and (iii) the grant date fair-value of LTIP awards as reported in the SCT. (3) In the chart above, “Realizable Pay” equals the sum of the three prior years: (i) salary earned, (ii) AIP earned, and (iii) the value of all earned long-term incentive awards for the completed performance cycle, as well as unvested LTIP awards for the ongoing performance cycle. All unvested long-term incentive awards are valued based on our stock price as of December 29, 2023 (the last trading day of the year) of $31.56. The Company's trailing weighted average 60-trading day closing stock price as of December 31, 2023 was $28.25, therefore the 2021-2023 MSU award was not awarded, as the 60-trading day weighted average closing stock price did not exceed $35.75. (4) In the chart above, “Realized Pay” equals the sum of the three prior years: (i) salary earned, (ii) AIP earned, and (iii) the value of all earned LTIP awards for the completed performance cycle.
Corporate Governance Practices Impacting Executive Compensation
Corporate Governance Practices Impacting Executive Compensation The continued focus on our overall pay-for-performance philosophy is supported by the Company's compensation governance framework, which is demonstrated by the following policies: •Anti-Hedging Policy - Our Anti-Hedging policy prohibits our directors, NEOs and other key executive officers from hedging the economic interest in the Company securities that they hold (as described in more detail under "Anti-Hedging Policy" on page 22). •Clawback Policy - Our Clawback Policy protects the Company in the event that the Company is required to prepare an accounting restatement (as described in more detail under "Clawback Policy" on page 22). •Gross-Up on Change-in-Control Payments - We do not pay tax gross-ups for change in control ("CIC") payments under Code Section 280G. •Independent Compensation Consultant - The Compensation Committee's engagement of an independent compensation consultant that does not provide any services to management and that had no prior relationship with management prior to the engagement. •Compensation Practices Not Permitted: ◦A supplemental executive retirement plan (SERP); ◦Single-trigger golden parachute payments; ◦Perquisites for former or retired executives; ◦Personal use of corporate aircraft, personal security systems maintenance and/or installation, car allowance, or executive life insurance; and ◦Payments for cause terminations or resignations other than for good reason following a change-in-control.
Separation and Change-in-Control
Separation and Change-in-Control Employment and Change-in-Control Agreements Messrs. Lanuza and Knutson have employment agreements with Lawson as further described in the "Compensation Agreements" section on page 41. Employment and change-in-control contracts help attract executives to work for the Company and its subsidiaries by protecting them from certain risks, such as position elimination in the event of a business reorganization or a change-in-control or sale of the Company or any of its subsidiaries. The executives or their heirs may receive benefits per the terms of their employment agreement in case of the executive's disability or death.
2023 SUMMARY COMPENSATION TABLE
2023 SUMMARY COMPENSATION TABLE The following table sets forth the compensation for the last two fiscal years awarded to or earned by individuals who served during 2023 as the Company's CEO and each of the Company's two other most highly compensated executive officers in 2023.
2023 SUMMARY COMPENSATION TABLE
| | | | | | | SPR/ | Non-Equity | | | | | | | | | Stock | Option | Incentive Plan | All Other | | | Name and Principal | | | Salary | Bonus | Awards | Awards | Compensation | Compensation | | | Position | | Year | ($)(1) | ($) | ($)(2) | ($)(3) | ($)(4) | ($)(5) | Total ($) | | J. Bryan King (6) | | 2023 | — | — | — | — | — | — | — | | | Chairman, President and Chief Executive Officer | 2022 | — | — | — | — | — | — | — | | Ronald J. Knutson | | 2023 | 470,625 | — | 406,600 | 1,441,350 | 393,446 | 23,848 | 2,735,869 | | | Executive Vice President, Chief Financial Officer and Treasurer | 2022 | 423,943 | — | — | — | 383,749 | 21,218 | 828,910 | | Cesar A. Lanuza | | 2023 | 600,000 | — | — | — | 614,760 | 29,526 | 1,244,286 | | | President and Chief Executive Officer, Lawson | 2022 | 448,079 | — | — | 1,993,250 | 519,379 | 19,798 | 2,980,506 |
2023 SUMMARY COMPENSATION TABLE
(1) The amounts listed in this column represent the base salary paid to the NEOs in 2023. (2) The amounts reported in this column for 2023 reflect the aggregate grant date fair value of RSUs awarded under the Distribution Solutions Group, Inc. Equity Compensation Plan, as amended, during 2023. The grant date fair value of the RSUs has been determined in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 718. For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the RSUs, please see Note 10 to our consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. (3) The amounts reported in this column for 2023 represent the grant date fair value of nonqualified stock options under the Distribution Solutions Group, Inc. Equity Compensation Plan, as amended, granted during 2023. The grant date fair value of the options has been determined in accordance with ASC Topic 718. For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the options, please see Note 10 to our consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. (4) Amounts represent AIP bonuses earned (rather than paid) in the respective year. The AIP bonuses awarded in 2023 reported above were paid out in 2024. For a discussion of our AIP, see the subsections of this proxy statement above entitled “Non-Equity (Annual) Incentive Plan ("AIP")”. (5) See All Other Compensation table for details regarding the amounts in this column for 2023. (6) Mr. King does not receive any compensation in connection with his roles of Chairman, President & CEO.
OUTSTANDING EQUITY AWARDS ON DECEMBER 31, 2023
OUTSTANDING EQUITY AWARDS ON DECEMBER 31, 2023
OUTSTANDING EQUITY AWARDS ON DECEMBER 31, 2023
| | Stock Performance Rights and Stock Option Awards (1) | | | | Stock Awards | | | | Number of Securities Underlying Unexercised Options/SPRs | | Options/SPR Exercise Price ($) | Options/ SPR Expiration Date | Number of shares or units of stock that have not vested (#) | Market value of shares or units of stock that have not vested ($)(2) | | Named Executive Officer | Exercisable (#) | Unexercisable (#) | | | | | | J. Bryan King (3) | | | | | | | | Ronald J. Knutson | 15,966 | — | 11.38(4) | 12/31/2024 | | | | | 17,484 | — | 12.35(5) | 12/31/2025 | | | | | 10,034 | — | 15.27(6) | 12/31/2026 | | | | | — | 96,000 | 27.50(7) | 1/27/2033 | | | | | — | 30,000 | 40.00(7) | 1/27/2033 | | | | | — | 60,000 | 55.00(7) | 1/27/2033 | | | | | — | 60,000 | 70.00(7) | 1/27/2033 | | | | | | | (8) | | 20,000 | 631,200 | | Cesar A. Lanuza | 40,000 | 160,000 | 27.50(9) | 4/12/2032 | | | | | 10,000 | 40,000 | 40.00(9) | 4/12/2032 | | | | | 20,000 | 80,000 | 55.00(9) | 4/12/2032 | | | | | 20,000 | 80,000 | 70.00(9) | 4/12/2032 | | |
OUTSTANDING EQUITY AWARDS ON DECEMBER 31, 2023
(1) The data in these columns includes SPR grants, which have similar characteristics to options as they are tied to performance of the Company’s stock price but are settled in cash upon exercise. (2) RSUs are valued at closing stock price at December 29, 2023 (the last trading day of the year) of $31.56. (3) Mr. King does not have any outstanding equity awards as of December 31, 2023. (4) Represents the SPRs granted on 1/12/17 as part of the 2017-2019 LTIP, which vested on 12/31/2019. (5) Represents the SPRs granted on 1/8/18 as part of the 2018-2020 LTIP, which vested on 12/31/2020. (6) Represents the SPRs granted on 3/5/19 as part of the 2019-2021 LTIP, which cliff vest on 12/31/2021 subject to the recipient’s continued employment with the Company. (7) Mr. Knutson was awarded an option to purchase 246,000 shares of Company common stock in connection with his employment agreement dated January 27, 2023. The options were granted as follows: (a) 96,000 of the options have an exercise price of $27.50, (b) 30,000 of the options have an exercise price of $40.00, (c) 60,000 of the options have an exercise price of $55.00 and (d) 60,000 of the options have an exercise price of $70.00. One-fifth of each tranche of options vest and became exercisable on the following dates: January 27, 2024, April 1, 2024, April 1, 2025, April 1, 2026 and April 1, 2027. (8) Represents the RSUs granted on 1/27/23 as part of Mr. Knutson's employment agreement, which vest in one-fifth increments on the following dates: January 27, 2024, April 1, 2024, April 1, 2025, April 1, 2026 and April 1, 2027. (9) Mr. Lanuza was awarded an option to purchase 450,000 shares of Company common stock in connection with his employment agreement dated April 4, 2022. The options were granted as follows: (a) 200,000 of the options have an exercise price of $27.50, (b) 50,000 of the options have an exercise price of $40.00, (c) 100,000 of the options have an exercise price of $55.00 and (d) 100,000 of the options have an exercise price of $70.00. One-fifth of each tranche of options vest and became exercisable on the first, second, third, fourth and fifth anniversaries of the grant date.
NON-QUALIFIED DEFERRED COMPENSATION
NON-QUALIFIED DEFERRED COMPENSATION Under the executive deferral plan, certain executives, including NEOs, may defer portions of their base salary, bonus, and LTIP award amounts. Deferral elections are made by eligible executives by the end of the year proceeding the plan year for which the election is made. An executive may defer a minimum of $2,000 aggregate of base salary, bonus and/or LTIP award. The maximum deferral amount for any plan year is 80% of base salary, 100% of bonus and 100% of LTIP amounts. Lawson also makes a contribution to the 2004 Deferral Plan equal to the amount the executives, including NEOs, would have received under the applicable tax-qualified 401(k) plan, but for Internal Revenue Code limits. The investment options available to an executive include funds generally similar to or as available through its qualified retirement plan. Lawson does not provide for any above market return for participants in the 2004 Executive Deferral Plan. An executive may elect to receive distributions under three scenarios, receiving benefits in either a lump sum or in annual installments up to five years in the event of termination and up to fifteen years in the event of death or disability. Upon demonstrating an unforeseeable financial emergency and receipt of approval from the Compensation Committee, an executive may interrupt deferral or be allowed to access funds in his deferred compensation account.
NON-QUALIFIED DEFERRED COMPENSATION
| Named Executive Officer | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($)(2) | Aggregate Earnings in Last FY ($) | Aggregate Withdrawals/Distributions in Last FY ($) | Aggregate Balance at Last FYE ($)(3) | | J. Bryan King | — | — | — | — | — | | Ronald J. Knutson | 78,689 | 6,328 | 904,238 | — | 2,811,105 | | Cesar A. Lanuza | — | 12,150 | 229 | — | 18,639 |
NON-QUALIFIED DEFERRED COMPENSATION
(1) Represents contributions in 2024 pertaining to 2023 earnings. (2) Represents profit sharing and 401(k) contributions in excess of the 2023 IRS annual compensation limit of $330,000. (3) Amounts reported at the beginning of the fiscal year were $0, $1,821,850, and $6,260 for Messrs. King, Knutson and Lanuza, respectively.
DIRECTOR COMPENSATION IN 2023
DIRECTOR COMPENSATION IN 2023
Director Compensation
Director Compensation The Compensation Committee is responsible for reviewing director compensation and making adjustments to the structure when necessary to reflect material changes to the complexity of the Company. The Board's governance responsibility significantly expanded and increased in complexity as a result of the transition from overseeing the former Lawson operating company to DSG. As a result, the Board requested an updated peer group benchmarking analysis from FGMK and then approved changes to director compensation during its July 22, 2022 meeting which was approved and went into effect January 1, 2023. The prior director compensation program was aligned with Lawson only, whereas DSG is a significantly larger and more complex entity. Therefore, starting in 2023, the Company's non-employee directors were eligible to receive an annual cash retainer of $75,000 (paid on a quarterly basis) for participating in the Board and Board committee meetings. Our non-employee directors also received a regular cycle annual RSU grant with a grant date fair value of $125,000 that cliff-vests upon the one-year anniversary of the date of grant. Directors' travel expenses for attending meetings are reimbursed by the Company. The Compensation Committee meets annually to review and approve director compensation. Director fees are pro-rated for periods of service less than a full year. The independent Lead Director and the Chairpersons of the respective Board committees are also eligible for cash retainers as follows:
Director Compensation
| Committee Chairperson | Additional Cash Retainer ($) | | Independent Lead Director | 50,000 | | Audit | 25,000 | | Compensation | 20,000 | | Nominating and Corporate Governance | 10,000 |
Director Compensation Table
Director Compensation Table The following table shows compensation earned in 2023 by non-employee directors.
Director Compensation Table
| Director | 2023 Fees Earned or Paid in Cash ($) | 2023 Stock Awards ($) (1) | 2023 Total ($) | | Andrew B. Albert | 95,000 | 125,000 | 220,000 | | I. Steven Edelson | 87,500 | 125,000 | 212,500 | | Lee S. Hillman | 170,000 | 125,000 | 295,000 | | J. Bryan King (2) | — | — | — | | Mark F. Moon | 87,500 | 125,000 | 212,500 | | Bianca A. Rhodes | 90,000 | 125,000 | 215,000 | | M. Bradley Wallace (3) | — | — | — | | Robert S. Zamarripa | 92,500 | 125,000 | 217,500 |
Director Compensation Table
(1) Represents the grant date fair value of the RSUs under the Distribution Solutions Group, Inc. Equity Compensation Plan, as amended, for 2023 board service. The grant date fair value of the RSUs has been determined in accordance with ASC Topic 718. For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the RSUs, please see Note 10 to our consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. As of December 31, 2023, each of our non-employee directors held 5,482 unvested RSUs, with the exception of J. Bryan King and M. Bradley Wallace, who did not receive any RSUs for their 2023 board service. (2) J. Bryan King waived his right to the regular cycle annual RSU grant for 2023, as well as any director fees for 2023. (3) M. Bradley Wallace waived his right to the regular cycle annual RSU grant for 2023, as well as any director fees for 2023.