DEF 14A of KVH Industries Inc \de\, Apr 29, 2024

DEF 14A of KVH Industries Inc \de\

Filed Apr 29, 2024 · FY20230001104659-24-053986

Open on EDGAR

  1. 2023 EXECUTIVE COMPENSATION HIGHLIGHTS

    | What We Do | What We Don’t Do | | ✔ Offer competitive compensation that attracts and retains executive talent, including selective retention bonuses during periods of significant transition ✔ Seek to align the interests of our named executive officers with those of our stockholders and reward the creation of long-term value for KVH stockholders through equity grants ✔ Emphasize variable performance-based compensation over fixed compensation ✔ Align payout of annual incentives to drivers of stockholder value, such as adjusted operating income, gross profit, operating expenses and adjusted earnings before interest, taxes, depreciation, and amortization ✔ Balance the importance of achieving long-term strategic priorities and critical short-term goals linked to long-term objectives ✔ Align individual performance goals with our business strategy ✔ Cap incentive payments ✔ Benchmark compensation against that of a broad group of companies ✔ Implement a policy to recover erroneously awarded incentive compensation from our executive officers, regardless of fault or responsibility ✔ Impose minimum vesting periods of one year, with minor exceptions ✔ Require a “double trigger” for executives to receive cash severance and equity vesting upon a change of control | ✘ No tax gross-ups ✘ No guaranteed salary increases ✘ No evergreen provisions in our equity plan ✘ No “liberal share recycling” of restricted stock or other full-value awards under our equity plan ✘ No repricing of stock options or stock appreciation rights without stockholder approval ✘ No discounted stock options or stock appreciation rights ✘ No buyouts of stock options or stock appreciation rights without stockholder approval ✘ No “liberal” definition of change of control in our equity plan |

  2. Average NEO Compensation Mix

    | For 2023, we had a non-equity incentive compensation plan intended to reward our named executive officers for achievement of both financial and individual performance goals for that year. The financial performance goal for 2023 was based on adjusted operating income and represented 75% of each named executive officer’s target bonus opportunity; the individual performance component represented the remaining 25%. In March 2024, after assessing our financial performance for 2023, our compensation committee determined that we did not achieve our threshold goal for adjusted operating income for 2023 and therefore did not award any non-equity incentive compensation with respect to that goal. For individual performance goals, our compensation committee determined that our named executive officers achieved 100% of those goals. The aggregate incentive compensation actually received by our named executive officers ranged from approximately 12% to 22% of their respective base salaries, which was substantially below the targeted range of 50% to 90% of their respective base salaries. |

  3. Director Nominee

    Director Nominee

  4. Director

    Proposal 2 concerns an advisory vote on our executive compensation program. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and Section 14A of the Securities Exchange Act of 1934, as amended, or the Exchange Act, our stockholders are entitled to vote to approve the compensation of our named executive officers at least once every three years. This proposal is commonly referred to as a “say on pay” proposal. At our 2023 annual meeting of stockholders, our stockholders voted in favor of holding future “say on pay” votes every year, as recommended by our board of directors. At the 2023 annual meeting, approximately 74% of the votes cast on the non-binding proposal to approve our executive compensation for 2022 were voted in favor of approval. Although we held numerous discussions with our stockholders after the 2023 annual meeting, the issues raised by stockholders with us related primarily to our financial results, strategic priorities, the potential for one or more strategic transactions, our use of cash and other matters, rather than executive compensation matters. Because we did not receive meaningful feedback from stockholders regarding our executive compensation program, our compensation committee did not make material modifications to the program that it had implemented earlier in 2023. As set forth in more detail in the executive compensation tables and the accompanying narrative disclosure elsewhere in this proxy statement, we have designed our executive compensation program to provide an appropriate mix of fixed and variable pay to balance executive retention and recruitment with rewards for achieving short-term operational goals and long-term stockholder value. Our 2023 executive compensation program provided for (a) fixed compensation in the form of salaries designed to provide a competitive baseline of compensation, (b) short-term variable compensation in the form of a cash-based incentive compensation program designed to reward achievement of our financial and business goals for 2023, (c) long-term variable compensation in the form of equity awards designed to reward our executives primarily through increases in the price of our common stock and (d) a retention bonus for our chief executive officer pursuant to the terms of his 2022 employment agreement. We believe that our executive compensation program appropriately implemented our pay-for-performance philosophy and gave appropriate incentives to our named executive officers to continue their employment and increase stockholder value. Highlights of our executive compensation program include the following: Base Salary. Base salaries of our named executive officers provide fixed compensation to reward individual value that the executive brings to us through experience and past and expected future contributions to our success, while factoring in our specific needs and the base salaries of executives with comparable responsibilities at similar organizations. The compensation committee generally sets base salaries and other compensation after reviewing competitive practices. The compensation committee believes that aligning the base salaries of our named executive officers with appropriate benchmarks is especially critical to a competitive compensation program, as other elements of our compensation are determined as a percentage of base salary. Annual Cash-based Incentive Compensation. In 2023, we continued to utilize a cash-based incentive compensation plan that tied executive pay to the achievement of our financial performance goals and certain individual performance goals. The incentive program was intended to award compensation based on the degree to which our actual financial results met the financial goals of our internal business plan and the degree to which the executives met their individual performance goals. The incentive program for 2023 was substantially similar to the incentive program for 2022. For 2023, 75% of each executive’s target bonus opportunity was based on achievement of our goal for adjusted operating income, and the remaining 25% was based on achievement of individual performance goals. For our chief executive officer, who formally assumed that role in June 2022, the target amount of incentive compensation for 2023 and 2022 was 90% and 80% of base salary, respectively. Each other named executive officer’s target amount of incentive compensation for both 2023 and 2022 was 50% of base salary. For the financial performance component of the 2023 plan, the plan provided that payouts would begin when adjusted operating income achieved 50% of budget, at which point executives would earn 50% of the targeted amount. For achievement of less than 50% of budget, the executives would not earn any incentive compensation. Executives would earn the targeted incentive compensation payouts when performance equaled budget and would earn the maximum payout of 200% of the targeted amount when adjusted operating income equaled or exceeded 150% of plan. In March 2024, after assessing our financial performance for 2023, our compensation committee determined that we did not achieve our threshold goal for adjusted operating income for the year and therefore did not award any non-equity incentive compensation with respect to that goal. For individual performance goals, our compensation committee determined that our named executive officers achieved 100% of those goals.

  5. PROPOSAL 2 – NON-BINDING SAY ON PAY VOTE

    PROPOSAL 2 – NON-BINDING SAY ON PAY VOTE The aggregate incentive compensation actually received by our named executive officers ranged from approximately 12% to 22% of their respective base salaries, which was substantially below the targeted range of 50% to 90% of their respective base salaries. Long-Term Equity Incentives. Equity incentives are designed to reward the achievement of long-term growth in the price of our common stock. The equity grants to our named executive officers in 2023 consisted of both options and restricted stock awards, with four-year vesting periods designed to support the retention of our named executive officers and encourage the executives to focus on the long-term performance of our stock price. Consistent with prior years, the compensation committee generally decided to grant a mix of restricted stock and option awards in order to balance the benefit of option awards, which more closely align the interests of our executives with the interests of our stockholders because options generate cash value only with stock price appreciation, with the benefit of restricted stock awards, which support greater executive retention while aligning the executive’s compensation with shareholder interests. The compensation committee believed that granting equity incentives was the best method of motivating the named executive officers to manage our operations in a manner that is consistent with the long-term interests of our stockholders. The grant date fair values of the equity awards granted to our named executive officers in 2023 ranged from approximately 67% to 99% of the survey data median for annual grants for their respective positions. CEO Retention Bonus. In addition to the executive compensation program implemented by our compensation committee for 2023, our chief executive officer was also eligible under the terms of his 2022 employment agreement to receive a retention bonus if he continued his employment with us through December 31, 2023. Originally, the retention bonus had been payable to Mr. Bruun if he were to continue his employment with us through December 31, 2022. This arrangement mirrored the terms of retention bonuses payable to other executive officers. However, in October 2022, Mr. Bruun agreed to extend the retention period by an additional year. Because Mr. Bruun continued his employment through December 31, 2023, he earned the retention bonus. For more information, see “Compensation of Directors and Executive Officers — Executive Compensation — Executive Agreements — Employment Agreements.” In March 2024, following the announcement of the staged wind-down of manufacturing activities at our Middletown, Rhode Island facility and a related reduction-in-force, our Compensation Committee decided to award discretionary bonuses to certain continuing employees to improve morale and promote retention of those employees. The Compensation Committee decided that our continuing executive officers, including Mr. Bruun, should participate in this bonus program. Pursuant to this program, Mr. Bruun received a discretionary bonus of $113,074 in March 2024. Because of their planned departures, neither of our other named executive officers for 2023 received a bonus under this program. Pay Practices. We do not use certain executive pay practices that stockholder advocates consider to be problematic. For example, we do not provide extensive perquisites to our named executive officers, we have a “double-trigger” requirement for executives to receive cash severance and equity vesting upon a change of control, and we do not provide any tax gross-ups. We also have no guaranteed salary increases. Consultant Independence. Our compensation committee’s independent consultant is retained directly by the compensation committee, provides no other services to us, and has provided the compensation committee with a written attestation of its independence from management. Stockholders are being asked to vote on the following resolution: RESOLVED: That the compensation paid to the corporation’s named executive officers, as disclosed in the corporation’s proxy statement for the 2024 annual meeting of stockholders pursuant to Item 402 of Regulation S-K promulgated by the Securities and Exchange Commission, including the executive compensation tables and accompanying narrative disclosures, be, and it hereby is, approved. Approval of this proposal requires the affirmative vote of the holders of a majority of the votes cast on the proposal at the annual meeting. As an advisory vote, this proposal is not binding. The outcome of this advisory vote will not determine or overrule any decision by our directors or officers, create or imply any change to the fiduciary duties of our directors or officers or create or imply any additional fiduciary duties for our directors or officers. However, our compensation committee and board of directors value the opinions expressed by our stockholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for named executive officers.

  6. Nasdaq Board Diversity Matrix

    | COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS |

  7. Summary Compensation Table For 2023

    Summary Compensation Table For 2023 The following table provides information concerning the compensation earned by our chief executive officer and each of our two most highly compensated executive officers other than the chief executive officer (collectively with the chief executive officer, our “named executive officers”) during 2023. In 2023, the salary and bonus (including the non-equity incentive plan compensation) of our named executive officers as a percentage of total compensation ranged from 60% to 68%.

  8. Summary Compensation Table For 2023

    | Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($)(5) | Total ($) | | Brent C. Bruun President and Chief Executive Officer | 2023 | 503,295 | 382,147 | 231,496 | 227,389 | 113,073 | 14,900 | 1,472,300 | | | 2022 | 435,991 | 101,000 | 205,024 | 214,246 | 375,231 | 24,150 | 1,355,641 | | Roger A. Kuebel Chief Financial Officer | 2023 | 337,750 | 1,000 | 125,852 | 123,618 | 42,250 | 9,025 | 639,495 | | | 2022 | 325,000 | 304,750 | 118,721 | 121,817 | 191,111 | 8,125 | 1,069,524 | | Robert J. Balog Chief Operating Officer | 2023 | 357,191 | 1,000 | 131,464 | 129,129 | 44,526 | 11,900 | 675,210 | | | 2022 | 339,488 | 255,616 | 124,018 | 127,247 | 166,494 | 14,650 | 1,027,513 |

  9. Summary Compensation Table For 2023

    (1) Amounts for 2023 reflect annual holiday bonuses and, in the case of Mr. Bruun, a retention award granted in 2022, earned on December 31, 2023 and paid in 2024. Amounts for 2022 reflect (a) in the case of Mr. Kuebel and Mr. Balog, retention awards granted in 2022, earned on December 31, 2022 and paid in 2023, (b) in the case of Mr. Bruun and Mr. Kuebel, bonuses awarded for executing the sale of the inertial navigation business, and (c) annual holiday bonuses. (2) Amounts shown do not reflect compensation actually received by the named executive officer. Instead, the amounts shown represent the aggregate grant date fair value, computed using the closing price of our common stock on the date of grant in accordance with Accounting Standards Codification 718, Compensation – Stock Compensation (ASC 718), of restricted stock awards granted during each year, excluding the impact of estimated forfeitures related to service-based vesting conditions. (3) Amounts shown do not reflect compensation actually received by the named executive officer. Instead, the amounts shown represent the aggregate grant date fair value, computed using the Black-Scholes option pricing model in accordance with ASC 718, of options granted during each year, excluding the impact of estimated forfeitures related to service-based vesting conditions. The assumptions made to determine the value of these awards are set forth in Note 6 of our Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 15, 2024. (4) For 2023, the table reflects amounts that were earned under our management incentive compensation plan for 2023 performance and that were determined and paid in March 2024. For 2022, the table reflects amounts that were earned under our management incentive compensation plan for 2022 performance that were determined and paid in March 2023. (5) Amounts reflect the value of 401(k) matching contributions and, in the case of Mr. Bruun, a housing allowance. Mr. Bruun’s housing allowance was $5,000 and $15,000 for 2023 and 2022, respectively. Mr. Balog also received an automobile allowance of $2,000 and $5,500 for 2023 and 2022, respectively. Our named executive officers did not receive any other perquisites or personal benefits. For information regarding the material terms of our management incentive plan for 2023 and equity awards granted in 2023, see “Proposal 2 – Non-Binding Say on Pay Vote – Annual Cash-Based Incentive Compensation” and “Long-Term Equity Incentives” beginning on page 8 and the table below entitled “Outstanding Equity Awards at December 31, 2023”, including the footnotes.

  10. Outstanding Equity Awards at December 31, 2023

    Outstanding Equity Awards at December 31, 2023 The following table provides information concerning outstanding equity awards held by the named executive officers on December 31, 2023. The table gives effect to the acceleration of the vesting of certain awards on December 31, 2022.

  11. Outstanding Equity Awards at December 31, 2023

    | | Option Awards | | | | Stock Awards | | | | Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($)(1) | Option Expiration Date(2) | Grant Date of Shares of Stock That Have Not Vested | Number of Shares of Stock That Have Not Vested (#)(3) | Market Value of Shares of Stock That Have Not Vested ($)(4) | | Brent C. Bruun | | | | | 8/2/2020 | 4,756 | 25,017 | | | | | | | 3/31/2021 | 6,406 | 33,696 | | | | | | | 6/8/2022 | 14,025 | 73,772 | | | | | | | 10/11/2022 | 4,251 | 22,360 | | | | | | | 3/7/2023 | 23,598 | 124,125 | | | 49,669 | | 9.33 | 6/5/2024 | | | | | | 40,235 | 13,411 | 8.12 | 8/2/2025 | | | | | | 17,344 | 17,342 | 12.68 | 3/31/2026 | | | | | | 12,784 | 38,352 | 8.09 | 5/2/2027 | | | | | | 3,849 | 11,545 | 8.82 | 10/11/2027 | | | | | | | 56,072 | 9.81 | 3/7/2028 | | | | | Roger A. Kuebel | | | | | 6/8/2022 | 10,740 | 56,492 | | | | | | | 3/7/2023 | 12,829 | 67,481 | | | 37,500 | 37,500 | 12.68 | 3/31/2026 | | | | | | 9,791 | 29,372 | 8.09 | 5/2/2027 | | | | | | | 30,483 | 9.81 | 3/7/2028 | | | | | Robert J. Balog | | | | | 8/2/2020 | 3,805 | 20,114 | | | | | | | 3/31/2021 | 5,124 | 26,952 | | | | | | | 6/8/2022 | 11,220 | 59,017 | | | | | | | 3/7/2023 | 13,401 | 70,489 | | | 39,735 | | 9.33 | 6/5/2024 | | | | | | 32,188 | 10,729 | 8.12 | 8/2/2025 | | | | | | 13,875 | 13,874 | 12.68 | 3/31/2026 | | | | | | 10,228 | 30,681 | 8.09 | 5/2/2027 | | | | | | | 31,842 | 9.81 | 3/7/2028 | | | |

  12. Outstanding Equity Awards at December 31, 2023

    (1) Options vest and become exercisable in equal installments on the first four anniversaries of the grant date. (2) Each option was granted five years before the option expiration date and has a five-year term. (3) Restricted stock awards vest in equal installments on the first four anniversaries of the grant date. Market value is calculated by multiplying the number of restricted stock awards that have not vested by $5.26, which was the closing price of our common stock on the Nasdaq Global Select Market on December 29, 2023, the last trading day of 2023.

  13. Pay for Performance Table

    | Year | Summary Compensation Table Total for Mr. Bruun | Compensation Actually Paid to Mr. Bruun | Summary Compensation Table Total for Mr. Kits van Heyningen | Compensation Actually Paid to Mr. Kits van Heyningen | Average Summary Compensation Table Total for Non-PEO NEOs | Average Compensation Actually Paid to Non-PEO NEOs | Value of Initial Fixed $100 Investment Based On Total Shareholder Return(1) | Net Income ($000s) | | (a) | (b) | (c) | (b1) | (c1) | (d) | (e) | (f) | (h) | | 2023 | 1,472,301 | 952,348(2) | —(2) | —(2) | 657,352 | 344,596(2) | $46.34 | $(15,422) | | 2022 | 1,355,641 | 1,399,233(3) | 768,470(3) | 708,143(3) | 1,048,519 | 1,081,702(3) | $90.04 | $24,101 | | 2021 | — | — | 1,242,088(4) | 750,061(4) | 655,119 | 517,921(4) | $80.97 | $(9,763) |

  14. Director Compensation

    Director Compensation

  15. Director Compensation Program for 2023

    Director Compensation Program for 2023 Our director compensation program for 2023 was designed to provide a majority of the directors’ compensation in the form of equity awards and the remainder of the directors’ compensation in cash in the form of annual retainers and meeting fees. Directors who were employees did not receive separate compensation for their services as directors. We paid directors serving as employees as set forth in the “Summary Compensation Table For 2023”. Our director compensation program for 2023 continued the program in place at the end of 2022. Under that program, non-employee directors receive an annual cash retainer of $26,250 as well as $2,625 for each regularly scheduled quarterly board meeting that they attend. Three directors received an additional $1,000 for attending two ad hoc committee meetings in 2023. In addition, non-employee directors receive an annual restricted stock award having a fair market value of $75,000 on the date of grant. In addition, directors serving in the capacities indicated in the following table receive additional annual restricted stock awards having a fair market value in the amount indicated in the following table for each such position:

  16. Director Compensation Program for 2023

    | Position | Annual Value of Restricted Stock Awards ($) | | Non-Employee Chair of the Board or Lead Independent Director | 7,500 | | Audit Committee Chair | 18,000 | | Audit Committee Member (other than Chair) | 9,000 | | Compensation Committee Chair | 10,000 | | Compensation Committee Member (other than Chair) | 5,000 | | Nominating and Corporate Governance Committee Chair | 10,000 | | Nominating and Corporate Governance Committee Member (other than Chair) | 5,000 |

  17. Director Compensation Program for 2023

    All of these awards vest in four equal quarterly installments and vest in full on the earlier of the first anniversary of the date of grant or the date of the next annual meeting of stockholders. Directors who are newly appointed to any of these positions receive a pro rata award based on their period of service in that position. In addition, all outstanding equity awards held by non-employee directors vest in full immediately prior to the consummation of a change in control (as defined in our Amended and Restated 2016 Equity and Incentive Plan (the “2016 Plan”) at the time of such change in control).

  18. Director Compensation Table for 2023

    Director Compensation Table for 2023 The following table provides information regarding the compensation of our directors who were not named executive officers for 2023.

  19. Director Compensation Table for 2023

    | Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($)(2) | | James S. Dodez(3) | 6,250 | — | 6,250 | | Cielo M. Hernandez | 36,750 | 103,001 | 139,751 | | David B. Kagan | 37,750 | 84,008 | 121,758 | | Cathy-Ann Martine-Dolecki | 36,750 | 90,008 | 126,758 | | David M. Tolley | 37,750 | 92,127 | 129,877 | | Charles R. Trimble | 36,750 | 90,008 | 126,758 | | Stephen Deckoff | 31,500 | 75,001 | 106,501 |

  20. Director Compensation Table for 2023

    (1) Amounts shown do not reflect compensation actually received by the director. Instead, the amounts shown represent the aggregate grant date fair value, computed using the market price on the date of grant in accordance with ASC 718, of restricted stock awards granted during 2023, excluding the effect of estimated forfeitures. (2) Amounts shown reflect actual cash earned during 2023 as well as the aggregate grant-date fair value of stock awards granted during 2023. Refer to the “Outstanding Director Equity Awards at December 31, 2023” table for information concerning outstanding equity awards held by our non-employee directors. Mr. Dodez’s term of office as a director ended at the annual meeting of stockholders on June 7, 2023.