DEF 14A of Archrock, Inc.
Filed Mar 12, 2024 · FY20230001140361-24-012859
CORPORATE GOVERNANCE
| ✓ | Below median director compensation with emphasis on equity component |
EXECUTIVE COMPENSATION
| ✓ | Annual review and consideration of our peer group |
EXECUTIVE COMPENSATION
| ✓ | Three-year performance periods for long-term incentive awards |
EXECUTIVE COMPENSATION
| ✓ | Separate performance measures for short-term and long-term incentives |
EXECUTIVE COMPENSATION
| ✓ | Regular review of burn rate and dilution associated with long-term incentives |
EXECUTIVE COMPENSATION
| ✓ | Double trigger change of control agreements |
OVERVIEW OF 2024 DIRECTOR NOMINEES(1)
OVERVIEW OF 2024 DIRECTOR NOMINEES(1) _____________ (1)Gender/Racial Diversity is calculated based on the number of members of our Board who identify as either a traditionally underrepresented gender or a traditionally underrepresented race/ethnicity divided by the total number of directors.
NOMINEES FOR DIRECTOR
NOMINEES FOR DIRECTOR The following biographical information is furnished with respect to each director nominee, together with a discussion of each nominee’s experience, qualifications and attributes or skills that were considered in their nomination to the Board.
NOMINEES FOR DIRECTOR
| | ANNE-MARIE N. AINSWORTH Age 67 Independent Director since April 2015 Member, Audit Committee Chair, Governance and Sustainability Committee | Qualifications • Extensive leadership experience in the oil and gas industry • Familiarity with governance issues, having served as chief executive officer of both public and private energy companies • Experience operating a portfolio of energy assets including direct responsibility for safety |
NOMINEES FOR DIRECTOR
| • | President, Chief Executive Officer and director of the general partner of Oiltanking Partners, L.P. (a provider of terminal, storage and transportation services to the crude oil, refined petroleum and liquefied petroleum gas industries) and President and Chief Executive Officer of Oiltanking Holding Americas, Inc. from 2012 to 2014 |
NOMINEES FOR DIRECTOR
| • | Senior Vice President, Refining of Sunoco, Inc. (a petroleum and petrochemical manufacturer) from 2009 to 2012 |
NOMINEES FOR DIRECTOR
| • | General Manager of the Motiva Enterprises, LLC, refinery in Norco, Louisiana from 2006 to 2009 |
NOMINEES FOR DIRECTOR
| • | Director, Management Systems and Process Safety at Shell Oil Products U.S. from 2003 to 2006, and Vice President of Technical Assurance at Shell Deer Park Refining Company from 2000 to 2003 |
NOMINEES FOR DIRECTOR
Board Service
NOMINEES FOR DIRECTOR
| • | Director, member of the governance, nominating and corporate social responsibility committee as well as the safety, environment and operational excellence committee of Pembina Pipeline Corporation (a Canadian oil and gas pipeline company) |
NOMINEES FOR DIRECTOR
| • | Director and member of the audit committee and ESG and nominating committee of Kirby Corporation (an operator of inland and offshore tank barge fleets in the U.S. and provider of diesel engine services) |
NOMINEES FOR DIRECTOR
| • | Director and chair of the environmental, health, safety and public policy committee of HF Sinclair Corp. (an independent petroleum refiner in the U.S.) |
NOMINEES FOR DIRECTOR
| • | Former director of Seventy Seven Energy Inc. from 2014 to 2015 |
NOMINEES FOR DIRECTOR
Education
NOMINEES FOR DIRECTOR
| • | BS, Chemical Engineering, cum laude, University of Toledo |
NOMINEES FOR DIRECTOR
| • | MBA, Rice University, where she also served as an Adjunct Professor from 2000 to 2009 |
NOMINEES FOR DIRECTOR
| • | Graduate, Institute of Corporate Directors Education Program, Rotman School of Management, University of Calgary, with ICD.D designation |
NOMINEES FOR DIRECTOR
| | D. BRADLEY CHILDERS Age 59 President and Chief Executive Officer, Archrock Non-Independent Director since April 2013 | Qualifications • Intimate knowledge of our strategy, operations and markets • Deep understanding of operational opportunities and challenges acquired through prior operating roles • Business judgment, management experience and leadership skills that are highly valuable in assessing our business strategies and accompanying risks |
NOMINEES FOR DIRECTOR
Career Highlights
NOMINEES FOR DIRECTOR
| • | President and Chief Executive Officer since 2011, Senior Vice President from 2007 to 2011, as well as various senior management roles with Exterran Energy Solutions, L.P., a predecessor subsidiary, from 2008 to 2011, and with Universal Compression Holdings, Inc. (“UCI”), a predecessor company from 2002 to 2007 |
NOMINEES FOR DIRECTOR
| • | President, Chief Executive Officer and Chairman of the Board of Archrock GP LLC, the managing general partner of Archrock Partners, L.P., a master limited partnership in which we owned an equity interest (the “Partnership”) from 2011 until the Partnership’s merger into a wholly-owned subsidiary of Archrock, Inc. in 2018 (the “Partnership Merger”) |
NOMINEES FOR DIRECTOR
| • | Various roles with Occidental Petroleum Corporation (an international oil and gas exploration and production company) and its subsidiaries from 1994 to 2002 |
NOMINEES FOR DIRECTOR
| • | Director of Ionada as part of Archrock’s 2023 investment in such company |
NOMINEES FOR DIRECTOR
| • | Director of Yellowstone Academy (a non-profit private school) since 2014 |
NOMINEES FOR DIRECTOR
| • | Former Chairman of the Board of the Partnership from 2008 until the Partnership Merger in 2018 |
NOMINEES FOR DIRECTOR
Education
NOMINEES FOR DIRECTOR
| • | BA, Claremont McKenna College |
NOMINEES FOR DIRECTOR
| • | JD, University of Southern California |
NOMINEES FOR DIRECTOR
| | GORDON T. HALL Age 64 Independent Director since March 2002 Member, Audit and Compensation Committees | Qualifications • Thorough understanding of our operational and strategic opportunities and challenges • Experience as a research analyst covering oil field services companies provides a broad-based understanding of the industry, as well as mergers, acquisitions and capital markets transactions • Extensive energy company board service |
NOMINEES FOR DIRECTOR
Career Highlights
NOMINEES FOR DIRECTOR
| • | Independent Chairman of the Board since November 2015, having served as Vice Chairman and Lead Independent Director from 2013 to 2015 |
NOMINEES FOR DIRECTOR
| • | Chairman of the Board of Exterran Holdings, Inc. from 2007 to 2013 and Chairman of the Board of Hanover Compressor from 2005 to 2007 (both predecessor companies) |
NOMINEES FOR DIRECTOR
| • | Retired as Managing Director, Senior Oil Field Services Analyst and Co-Head of the Global Energy Group, Credit Suisse (an investment banking firm) in 2002 after 15 years with the firm |
NOMINEES FOR DIRECTOR
| • | Former non-executive treasurer of Gordon College (2019 to 2023) and professor in the Master of Science in Financial Analysis Program from 2018 to 2020 and interim Chief Financial Officer in 2018 |
NOMINEES FOR DIRECTOR
Board Service
NOMINEES FOR DIRECTOR
| • | Member of the board of trustees, and former member of the executive board of trustees, chairman of the finance committee and non-executive treasurer of Gordon College (2019 to 2023) |
NOMINEES FOR DIRECTOR
| • | Former director of Noble Corporation from 2010 to 2021, of Weatherford International plc from 2019 (upon emergence from Weatherford’s Chapter 11 reorganization) to 2020, of Select Energy Services from 2012 to 2015, of Grant Prideco, Inc. from 2007 until its acquisition by National Oilwell Varco, Inc. in 2008 and of Hydril Company from 2002 until its merger with Tenaris S.A. in 2007 |
NOMINEES FOR DIRECTOR
Education
NOMINEES FOR DIRECTOR
| • | BBA, Mathematics, Gordon College |
NOMINEES FOR DIRECTOR
| • | SM, M.I.T. Sloan School of Management |
NOMINEES FOR DIRECTOR
| | FRANCES POWELL HAWES Age 69 Independent Director since April 2015 Chair, Audit Committee Member, Governance and Sustainability Committee | Qualifications • Over 20 years of service as a financial advisor and CFO for both private and public companies resulting in financial expertise, business knowledge and leadership experience • Extensive understanding of the audit function and risk management • Financial consulting and advisory experience • National Association of Corporate Directors Cyber Risk Oversight Certificate |
NOMINEES FOR DIRECTOR
Career Highlights
NOMINEES FOR DIRECTOR
| • | CFO of New Process Steel, L.P. (a privately held steel distribution company) from 2012 to 2013 |
NOMINEES FOR DIRECTOR
| • | Senior Vice President and CFO of American Electric Technologies, Inc. (a publicly traded provider of power delivery solutions) from 2011 to 2012 |
NOMINEES FOR DIRECTOR
| • | CFO, Executive Vice President and Treasurer of NCI Building Systems, Inc. (a publicly traded firm providing engineered building solutions) from 2005 to 2008 |
NOMINEES FOR DIRECTOR
| • | CFO and Treasurer of Grant Prideco, Inc. (a manufacturer of engineered tubular products for the energy industry) from 2000 to 2001 |
NOMINEES FOR DIRECTOR
| • | Chief Accounting Officer, Vice President Accounting and Controller of Weatherford International Ltd. (a multinational oil field service company), having advanced through a number of positions of increasing responsibility, from 1989 to 2000 |
NOMINEES FOR DIRECTOR
| • | Director, chair of the audit committee and member of the nominating, corporate governance, environmental and social committee of Vital Energy, Inc. (a company focused on the exploration, development and acquisition of oil and natural gas properties in the Permian region of the U.S.) |
NOMINEES FOR DIRECTOR
| • | Director and audit committee member of PGT Innovations, Inc. (a manufacturer of premium windows and doors) |
NOMINEES FOR DIRECTOR
| • | Director of Financial Executives International, Houston Chapter |
NOMINEES FOR DIRECTOR
| • | Director of Memorial Assistance Ministries (a non-profit focused on basic needs in the Houston area) since 2024 |
NOMINEES FOR DIRECTOR
| • | Former director of Energen Corporation from 2013 to 2018 and of Express Energy Services from 2011 to 2014 |
NOMINEES FOR DIRECTOR
Education
NOMINEES FOR DIRECTOR
| • | BBA, Accounting, University of Houston |
NOMINEES FOR DIRECTOR
| • | Certified Public Accountant |
NOMINEES FOR DIRECTOR
| | J.W.G. “WILL” HONEYBOURNE Age 72 Independent Director since April 2006 Member, Compensation and Governance and Sustainability Committees | Qualifications • Thorough understanding of the challenges and opportunities of markets and financing through current and former energy company board service, for both publicly listed and privately held companies, and as managing director of a private equity firm focused on the energy industry • Executive and operations leadership experience with oilfield services companies • Technical background in petroleum engineering, experience in the commercialization of technical services and prior service on the boards of energy sector technology companies |
NOMINEES FOR DIRECTOR
Career Highlights
NOMINEES FOR DIRECTOR
| • | Partner at First Reserve, a private equity firm he joined as Managing Director in 1999. Serves on the firm’s Investment Committee, which is responsible for the investment program supervision including strategy, risk management and capital allocation |
NOMINEES FOR DIRECTOR
| • | Senior Vice President of Western Atlas International (a seismic and wireline logging company) from 1996 to 1998 |
NOMINEES FOR DIRECTOR
| • | President and CEO of Alberta-based Computalog from 1993 to 1995 |
NOMINEES FOR DIRECTOR
| • | Earlier career with Baker Hughes, included positions as Vice President and General Manager at INTEQ and President of EXLOG |
NOMINEES FOR DIRECTOR
| • | Member of the Society of Petroleum Engineers and the Society of Exploration Geophysicists |
NOMINEES FOR DIRECTOR
Board Service
NOMINEES FOR DIRECTOR
| • | Former director of Barra Energia Petróleo e Gás (a private Brazilian oil and gas exploration and production company) from 2010 to 2022 |
NOMINEES FOR DIRECTOR
| • | Former director of Red Technology Alliance from 2006 to 2010 |
NOMINEES FOR DIRECTOR
| • | Former director of Acteon Group from 2006 to 2012 |
NOMINEES FOR DIRECTOR
| • | Former non-executive chairman of KrisEnergy from 2009 to 2017 |
NOMINEES FOR DIRECTOR
| • | Prior service on multiple energy sector boards of both privately held and publicly listed companies |
NOMINEES FOR DIRECTOR
| • | Director of Blue Wing Adobe Trust (a non-profit dedicated to the preservation, restoration and adaptive reuse of Sonoma’s historic buildings) |
NOMINEES FOR DIRECTOR
| • | BSc, Oil Technology, Imperial College, London University |
NOMINEES FOR DIRECTOR
| | JAMES H. LYTAL Age 66 Independent Director since April 2015 Chair, Compensation Committee Member, Governance and Sustainability Committee | Qualifications • Over 40 years of experience in the midstream oil and gas sector, including executive leadership and advisory roles • Deep familiarity with the management of midstream assets • Through extensive board service, experience with public company executive compensation and governance matters |
NOMINEES FOR DIRECTOR
| • | Advisor for Global Infrastructure Partners (a leading global, independent infrastructure investor) from 2009 to June 2021 |
NOMINEES FOR DIRECTOR
| • | Executive Vice President, Enterprise Products Partners (a North American midstream energy services provider) from 2004 to 2009 |
NOMINEES FOR DIRECTOR
| • | President of Leviathan Gas Pipeline Partners, which later became El Paso Energy Partners, and then Gulfterra Energy Partners, from 1994 to 2004 |
NOMINEES FOR DIRECTOR
| • | Held a series of commercial, engineering and business development positions with various companies engaged in oil and gas exploration and production and gas pipeline services from 1980 to 1994 |
NOMINEES FOR DIRECTOR
Board Service
NOMINEES FOR DIRECTOR
| • | Director and chairman of the audit committee of Rice Acquisition Corp. II (a special purpose acquisition company) until June, 2023 |
NOMINEES FOR DIRECTOR
| • | Director of ColdStream Energy, LLC (a privately held oil and gas energy services company) |
NOMINEES FOR DIRECTOR
| • | Former director and member of the audit committee and chairman of the conflicts committee of Rice Midstream Management LLC, the managing general partner of Rice Midstream Partners, L.P. from 2015 until it was acquired in 2018 |
NOMINEES FOR DIRECTOR
| • | Former director of Gulfterra Energy Partners from 1994 to 2004 |
NOMINEES FOR DIRECTOR
| • | Former director of Azure Midstream Partners GP, LLC, the general partner of Azure Midstream Partners, LP from 2013 to 2017, including service as member of the audit committee and chairman of the conflicts committee |
NOMINEES FOR DIRECTOR
| • | Former director and chairman of the compensation committee and member of the audit committee of SemGroup Corporation from 2011 until it was acquired in 2019 |
NOMINEES FOR DIRECTOR
Education
NOMINEES FOR DIRECTOR
| • | BS, Petroleum Engineering, The University of Texas at Austin |
NOMINEES FOR DIRECTOR
| | LEONARD W. MALLETT Age: 67 Independent Director since January 2021 Member, Compensation Committee | Qualifications • Significant executive leadership experience with responsibility for engineering, strategic sourcing and health, safety and environmental training, compliance and reporting • Operations experience and technical expertise, including construction, start-up and operation of natural gas and oil pipeline gathering, transportation and processing facilities |
NOMINEES FOR DIRECTOR
Career Highlights
NOMINEES FOR DIRECTOR
| • | Executive Vice President and Chief Operations Officer of Summit Midstream Partners, LP (a midstream provider of natural gas, oil and water gathering services) from 2015 to 2019; Interim Chief Executive Officer during 2019 |
NOMINEES FOR DIRECTOR
| • | Senior Vice President, Engineering, Enterprise Products Partners L.P. (a midstream natural gas and oil pipeline company) from 2008 to 2015 and Senior Vice President of Environmental Health and Safety from 2006 to 2008 |
NOMINEES FOR DIRECTOR
| • | Served in roles of increasing responsibility with TEPPCO (a master limited partnership that provided oil and natural gas pipelines and storage and related facilities) from 1979 to 2006, including as Senior Vice President of Operations |
NOMINEES FOR DIRECTOR
| • | Formerly held leadership roles with the Pipeline Research Council International, the Office of Pipeline Safety and the Clean Channel Association |
NOMINEES FOR DIRECTOR
Board Service
NOMINEES FOR DIRECTOR
| • | Director of Bravo Infrastructure Group (a privately held holding company for solar panel installation companies) |
NOMINEES FOR DIRECTOR
| • | Former director of Summit Midstream GP, LLC, the general partner of Summit Midstream Partners, LP, 2019 |
NOMINEES FOR DIRECTOR
| • | BS, Mechanical Engineering, Prairie View A&M University |
NOMINEES FOR DIRECTOR
| • | MBA, Houston Baptist University |
NOMINEES FOR DIRECTOR
| • | Kellogg Executive Development Program at Northwestern University |
NOMINEES FOR DIRECTOR
| | JASON C. REBROOK Age 50 Non-Independent Director since July 2020 | Qualifications • Over 25 years of experience in capital markets, acquisitions, divestures and operations in both the upstream and midstream sectors • Operating experience and understanding of the unique risks, opportunities and challenges of the oil and gas industry • Leadership experience in a highly entrepreneurial and successful privately-held company |
NOMINEES FOR DIRECTOR
Career Highlights
NOMINEES FOR DIRECTOR
| • | Chief Executive Officer and director of Harvest Midstream Company (a privately-held midstream company services provider) since 2018 and Chief Executive Officer of JDH Capital Company |
NOMINEES FOR DIRECTOR
| • | President of Hilcorp Energy Company (a privately held oil and gas production company) from 2018 to January 2021 and Executive Vice President from 2009 to 2018, having joined Hilcorp in 2008 as Asset Team Manager of the company’s Gulf of Mexico properties |
NOMINEES FOR DIRECTOR
| • | Previously served as Senior Vice President, Oil & Gas, GE Capital and in both domestic and international assignments with Chevron Corporation |
NOMINEES FOR DIRECTOR
| • | Member of Young Presidents’ Organization, Duke University’s Energy Task Force, the Society of Petroleum Engineers, the Independent Petroleum Association of America and the Greater Houston Partnership |
NOMINEES FOR DIRECTOR
Board Service
NOMINEES FOR DIRECTOR
| • | Director of privately-held companies Hilcorp Energy Company, Baywater Drilling, LLC, Kenai Logistics, LLC and STX Beef, LLC |
NOMINEES FOR DIRECTOR
| • | Member of the board of trustees for Marietta College |
NOMINEES FOR DIRECTOR
| • | Former director of privately-held companies Elite Compression Services, LLC from 2012 to 2019 and Texas Coastal Ventures, LLC from 2016 to 2019 |
NOMINEES FOR DIRECTOR
Education
NOMINEES FOR DIRECTOR
| • | BS, Petroleum Engineering, Marietta College |
NOMINEES FOR DIRECTOR
| • | MBA, Duke University’s Fuqua School of Business |
NOMINEES FOR DIRECTOR
| | EDMUND P. SEGNER, III Age 70 Independent Director since July 2018 Member, Audit and Governance and Sustainability Committees | Qualifications • Technical experience and financial acumen • Thorough understanding of the energy industry and operational challenges unique to the industry • Experience with compensation, financing matters and the evaluation of acquisition opportunities through service as a president and director of other publicly-traded companies |
NOMINEES FOR DIRECTOR
Career Highlights
NOMINEES FOR DIRECTOR
| • | Professor in the Practice of Engineering Management in the Department of Civil and Environmental Engineering at Rice University (Houston) since 2007 |
NOMINEES FOR DIRECTOR
| • | President, Chief of Staff and Director from 1999 to 2007 and principal financial officer from 2003 to 2007, EOG Resources, Inc. (a publicly traded independent oil and gas exploration and production company) |
NOMINEES FOR DIRECTOR
| • | Director and member of the audit and finance committees of Vital Energy, Inc. (a company focused on the exploration, development and acquisition of oil and natural gas properties in the Permian region of the U.S.) |
NOMINEES FOR DIRECTOR
| • | Former director of HighPoint Resources (a company engaged in exploration and production of natural gas and oil reserves in the U.S. Rocky Mountain region) from 2009 and until its merger with Bonanza Creek Energy, Inc. in 2021 |
NOMINEES FOR DIRECTOR
| • | BS, Civil Engineering, Rice University |
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| • | MA, Economics, University of Houston |
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| • | Certified Public Accountant |
NOMINEES FOR DIRECTOR
| GOVERNANCE |
RISK OVERSIGHT
| Board of Directors | ● Strategic, financial and execution risk associated with the annual performance plan and long-term plan, including major operational and sustainability initiatives ● Risks associated with capital management, including financing, dividends and capital expenditures ● Mergers, acquisitions and divestitures ● Major litigation, disputes and regulatory matters ● Management succession planning ● Emissions-related risks and opportunities that may impact our business strategy ● Oversight of the ERM program |
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION Our Compensation Committee is responsible for recommending director compensation to the full Board for approval. Director compensation is designed to ensure we can attract and retain outstanding directors who meet the qualifications outlined in the Board’s Corporate Governance Principles, ensure alignment with long-term stockholder interests and recognize the substantial time commitments associated with service on the Board. Each non-employee member of the Board is compensated in cash and equity. Mr. Hall receives additional cash compensation to reflect his additional responsibilities as Chairman of the Board. As President and Chief Executive Officer of Archrock, Mr. Childers does not receive additional compensation for service on the Board. Our independent compensation consultant conducted a comprehensive market review of director compensation in October 2023, evaluating data derived from the proxy statements of our peer companies and the National Association of Corporate Directors Compensation Survey for energy industry companies with 2022 revenues between $500 million and $2 billion. The review indicated that the structure of our director compensation program was consistent with our peer group and our typical director compensation was below the median of the peer group. The Compensation Committee, with input from our independent compensation consultant, continues to monitor director compensation in conjunction with review of our peer group. Cash Compensation. Each non-employee director earned an annual cash retainer (the “Base Retainer”) for his or her service during 2023. The Chairman of the Board and the chairs of our Audit Committee, Compensation Committee and Governance and Sustainability Committee each received an additional retainer for their services. All retainers are paid in arrears in equal quarterly installments. Directors are also reimbursed for reasonable expenses incurred to attend Board and committee meetings. The Base Retainer for 2023 remained the same as 2022 at $100,000.
DIRECTOR COMPENSATION
| Description of Director Remuneration | Annualized Cash Compensation $ | | Base Retainer | 100,000 | | Additional Retainers(1) | | | Chairman of the Board | 100,000 | | Audit Committee Chair | 22,500 | | Compensation Committee Chair | 20,000 | | Governance and Sustainability Committee Chair | 20,000 |
DIRECTOR COMPENSATION
(1)On December 14, 2023 the Compensation Committee, with input from our independent compensation consultant, approved increased additional retainers for the Chairman of the Board and each committee chair ($120,000 for the Chairman of the Board, $30,000 for the Audit Committee Chair and $25,000 for each of the Compensation Committee and Governance and Sustainability Chair) effective January 1, 2024. Equity-Based Compensation. On January 26, 2023, our Compensation Committee approved the grant of restricted stock or restricted stock units with a deferred delivery date to each non-employee director with a grant date value equal to approximately $130,000. The number of shares awarded was determined based on the market closing price of our common stock on the grant date ($9.42) and resulted in the award of 13,800 restricted shares or restricted stock units to each non-employee director. The equity award was one-quarter vested on the grant date, and on each of June 1, September 1 and December 1, 2023. On December 14, 2023 the Compensation Committee, with input from our independent compensation consultant, approved an increase in the grant of restricted stock or restricted stock units to each non-employee director for 2024 from approximately $130,000 to approximately $135,000, effective January 1, 2024. Stock Ownership Requirements. Our stock ownership policy requires each non-employee director to own an amount of our common stock equal to at least five times the Base Retainer amount (which equals $500,000 of our common stock) within five years of his or her election to the Board. We measure the stock ownership of our directors annually as of each June 30. All directors are in compliance with our stock ownership policy. Director Stock and Deferral Plan. Under our Directors’ Stock and Deferral Plan (the “Directors’ Plan”), directors may elect to receive all or a portion of their cash compensation for Board service in the form of our common stock and may defer their receipt of the stock. No director elected to participate in the Directors’ Plan during 2023. Total Director Compensation. The following table shows the total compensation paid to each non-employee director for his or her service during 2023. As shown below, excluding our Chairman of the Board, the equity (at-risk) portion of compensation is greater than 50% of each director’s total compensation.
DIRECTOR COMPENSATION
| Director | Fees Earned in Cash ($) | Stock Awards ($)(1) | All Other Compensation ($)(2) | Total ($) | | Anne-Marie N. Ainsworth | 120,000 | 129,996 | 5,227 | 255,223 | | Gordon T. Hall | 200,000 | 129,996 | 5,227 | 335,223 | | Frances Powell Hawes | 122,500 | 129,996 | 5,227 | 257,723 | | J.W.G. Honeybourne | 100,000 | 129,996 | 5,227 | 235,223 | | James H. Lytal | 120,000 | 129,996 | 5,227 | 255,223 | | Leonard W. Mallett | 100,000 | 129,996 | 5,227 | 235,223 | | Jason C. Rebrook | 100,000 | 129,996 | 5,227 | 235,223 | | Edmund P. Segner, III | 100,000 | 129,996 | — | 229,996 |
DIRECTOR COMPENSATION
(1)Represents the grant date fair value of our common stock calculated in accordance with ASC 718 (defined below under “Tax and Accounting Considerations – Accounting for Stock-Based and Unit-Based Compensation”). In lieu of restricted stock, Mr. Segner elected to receive restricted stock units with deferred delivery. (2)Represents the payment of dividends on unvested restricted stock. Dividend equivalent rights were accrued on the restricted stock units issued to Mr. Segner and will be paid upon distribution of the shares underlying the units according to the terms of the Archrock, Inc. 2020 Stock Incentive Plan.
2023 PERFORMANCE HIGHLIGHTS
| ● TRIR for 2023 was 0.05 and included no major accidents. Safety has been a metric in our short-term incentive program for the past 17 years and continues to be an operational priority. |
OUR BEST PRACTICES
| Governance • 100% independent directors on our Compensation Committee • Independent compensation consultant engaged by our Compensation Committee • Annual review and approval of our compensation strategy and program design by our Compensation Committee, including an annual market best practices and peer group review | Compensation Program Design • Includes a mix of short- and long-term compensation, with a majority of executive compensation at risk based on Company performance • No “single trigger” change of control benefits • No tax gross-ups for change of control benefits or other executive compensation arrangements • Extremely limited perquisites | | Policies • Equity awards subject to vesting over three years • Stock ownership guidelines for executive officers and directors • Adoption of policies related to executive compensation clawback and prohibition on short sales, hedging, or pledging of our securities • Bi-annual risk assessment of our executive compensation program | Performance-Based Compensation Features • A quantitative environmental metric, a safety calculation and a diversity and inclusion metric in the annual incentive program • Separate performance metrics included in the annual and long-term incentive programs • Three-year performance periods on all long-term incentive awards • All performance-based payouts are capped |
ELEMENTS OF COMPENSATION
| Key Elements of Compensation | Description | Pay Competitively | Pay for Performance | Stockholder Alignment | | Base salary | Fixed cash income Establishes a base level of compensation that is essential to attract and retain talent | ✓ | | ✓ | | Annual performance-based incentive compensation | Variable cash incentive award earned annually Based upon achievement of key annual financial, operational, safety, and individual performance goals that are expected to contribute to long-term stockholder returns | ✓ | ✓ | ✓ | | Long-term incentive compensation (“LTI Awards”) | Provided through a combination of restricted stock and performance units vesting over a minimum period of three years Promotes stockholder alignment by tying a significant portion of executive compensation directly to stockholder value | ✓ | ✓ | ✓ |
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
| External Factors | Internal Factors | | Data and analysis provided by our Compensation Committee’s independent compensation consultant | Individual goal setting, performance and demonstrated leadership | | Feedback provided from our stockholders and the results of our annual advisory say-on-pay vote | Each executive’s relative scope of responsibility and potential | | Best practices in executive compensation | Company performance and operating unit performance (where applicable), as well as each executive’s impact on performance | | Applicable macroeconomic and market considerations | Our Chief Executive Officer’s recommendations (other than with respect to his own compensation) | | | Current and past total compensation, including an annual review of base salary, short-term incentive pay and the value of LTI Awards received | | | Internal pay equity and retention considerations |
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
| ● | provide data and analysis to inform our Compensation Committee in selecting an appropriate peer group; |
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
| ● | provide a review of market trends in executive compensation, including base salary, annual incentives, LTI Awards and total direct compensation; and |
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
| ● | provide information on how trends in best practices, new rules, regulations and laws impact executive and director compensation practice and administration. |
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
Following review and consultation with Pearl Meyer, our Compensation Committee determined that Pearl Meyer is independent and that no conflict of interest, either currently or during 2023, results from this engagement. Our Compensation Committee continues to monitor the independence of its compensation consultant on a periodic basis. For 2023, Pearl Meyer provided analysis of data derived from (a) proxy statements filed by the companies in our peer group, as further described below, and (b) surveys of the compensation practices of companies in the energy industry and across a variety of industries, in each case with annual revenues within a reasonable and comparable range relative to Archrock. In performing its compensation analysis, Pearl Meyer generally placed more weight on the proxy compensation data for Named Executive Officers at our peer companies than on the information derived from the broader compensation surveys, where sufficient data was available. Pearl Meyer also provided input to our Compensation Committee in their review and determination of the appropriate types and mix of LTI Awards and the performance factors and related payout percentages for performance-based compensation awarded in 2023. 2023 Peer Group. Our Compensation Committee annually reviews the composition of the peer group, based on input from its compensation consultant, and modifies it as circumstances, including industry consolidation and other competitive forces, warrant. Since there are few publicly traded companies that directly match our profile, our Compensation Committee uses a peer group that includes a diverse group of midstream, oilfield services and related companies with primarily domestic operations. The analysis presented by Pearl Meyer includes a review of each company’s financial data and business profile (including geographic footprint), and includes companies considered talent competitors, companies that identify us as a peer and companies identified by proxy advisory firms as potential peers. In consultation with Pearl Meyer, our Compensation Committee made the following changes to the 2023 peer group for the evaluation of 2023 total compensation as well as relative stock price performance for long-term incentive compensation over the period of January 1, 2023 through December 31, 2025:
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
(1)Crestwood Midstream Partners LP was included in the peer group for a portion of 2023; it merged with Energy Transfer in November of 2023 and was subsequently removed. Our Compensation Committee considered the peer group to be appropriate based on the following:
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
| ● | The companies in the peer group had estimated 2022 revenue ranging from approximately $282 million to $9.53 billion. |
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
| ● | The number, size and type of companies included in the peer group provide a reasonable comparator group for purposes of evaluating stock price performance. |
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
| ● | The peer group includes companies with which we may compete for technical and managerial talent and that provide an appropriate reference point for assessing the competitiveness of our executive compensation program. |
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
| ● | The peer group provides an appropriate number of companies to provide a blend of data that is useful for determining the general positioning of our executive compensation. Executive compensation is targeted at the median of the market data, although individual pay levels may vary from median depending upon multiple factors including individual responsibilities, impact to the organization, tenure in position and individual performance. |
HOW OUR COMPENSATION COMMITTEE DETERMINES EXECUTIVE COMPENSATION
| ● | recommending corporate performance goals on which performance-based compensation will be based; and |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION During the first quarter of each year, our Compensation Committee adopts a program to provide the short-term cash incentive element of our Named Executive Officers’ compensation for that year. In early 2023, our Compensation Committee adopted the short-term incentive program for 2023 (the “2023 Incentive Program”). Each Named Executive Officer’s potential cash payout under the 2023 Incentive Program ranged from 0% to 200% of his or her incentive target, as described below. Under the 2023 Incentive Program, our Compensation Committee determined payouts to the Named Executive Officers using the following formula: * Adjusted EBITDA performance of <80% of target performance will result in a payout factor of 0%. Adjusted EBITDA, a non-GAAP measure, is defined as net income (loss) excluding income taxes, interest expense, depreciation and amortization, long-lived and other asset impairment, restructuring and other charges, unrealized change in fair value of investment in unconsolidated affiliate, non-cash stock-based compensation expense, amortization of capitalized implementation costs and other items. See the inside cover of the 2023 Annual Report for a reconciliation of net income (loss) to Adjusted EBITDA. Our Compensation Committee believes Adjusted EBITDA is a comprehensive measure of financial performance, requiring focus on various components of financial and operating health, and an appropriate measure of management’s ability to run the business on an annual basis. The above formula is designed to create a focus on the overall success of the Company as well as the achievement of line of sight performance objectives. In addition, our Compensation Committee retains discretion to include or exclude exceptional, non-recurring items, which could result in unintended consequences and an erroneous performance achievement to the advantage or detriment of our Named Executive Officers. 2023 Incentive Program Target. Each Named Executive Officer’s cash incentive target was a specified percentage of Eligible Earnings during 2023 as provided in the table below. The table below presents each Named Executive Officer’s 2023 cash incentive target as a specified percentage of his or her Eligible Earnings and a potential payout assuming the achievement of Company, Operating Unit (where applicable), and individual results are achieved at 100%.
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| | | 2023 Incentive Program Target | | | Name | 2023 Eligible Earnings ($) | Percent (%) of Eligible Earnings | ($) | | Childers | 875,000 | 125 | 1,093,750 | | Aron | 538,462 | 90 | 484,615 | | Hildebrandt | 488,462 | 75 | 366,346 | | Ingersoll | 413,462 | 75 | 310,096 | | Thode | 413,462 | 75 | 310,096 |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
To place additional emphasis on performance-based compensation, our Compensation Committee determined to increase the 2023 incentive target for Messrs. Childers and Aron by an additional 5% and 10%, respectively, of eligible earnings as shown in the chart. Weighting of Performance Criteria. Adjusted EBITDA, Environmental, Safety and Diversity and Inclusion, and where applicable, operating unit financial and operational metrics for 2023, were weighted as follows:
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| | % Weighting for Each Named Executive Officer | | | | Performance Criteria | Childers, Aron, Hildebrandt | Ingersoll | Thode | | Adjusted EBITDA | 80% | 70% | 70% | | Environmental, Safety and Diversity & Inclusion(1): | | | | | Environmental | 5% | 5% | 5% | | Safety (2) | 5% TRIR 5% PVIR | 10% TRIR | 5% Operations TRIR 5% Operations PVIR | | Diversity & Inclusion | 5% | 5% | 5% | | Operating Unit Metrics | Not applicable | 10% | 10% |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
(1)For these factors, if the objective for 2023 was achieved, the payout percentage was based on the same achievement percentage as Adjusted EBITDA. If the objective was not achieved, there was no payout of cash incentive for that factor. (2)TRIR is total recordable incident rate and PVIR is preventable vehicle incident rate.
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| | Adjusted EBITDA Target and Results. Our Compensation Committee set the performance target for 2023 Adjusted EBITDA at $412 million based on an aggressive approach to capital discipline, the continued sales of non-core assets and anticipated favorable market conditions. Adjusted EBITDA for 2023 was achieved at $450 million, which based on the chart below, would result in a payout of 146%. |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| 2023 Adjusted EBITDA Performance Range ($) | | | | 2023 Performance Results | | | | | Below Threshold | Threshold | Target | Maximum | Achievement | | Payout | Weighting | | (0% payout) | (50% payout) | (100% payout) | (200% payout) | ($) | (%) | (%) | (%) | | < 330M | 330M | 412M | 494M | 450M | 146% | 170%(1) | 70-80 |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
(1)Given record achievements of the Company in 2023, the Compensation Committee utilized its discretion in providing an actual payout of 170%. See “Committee Adjustments for Key Strategic Accomplishments.”
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| | Environmental, Safety and Diversity & Inclusion Targets and Results. |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| Environmental Target | Safety Target | Diversity & Inclusion Target | | (5%) | (10%) | (5%) | | This metric was to begin generating revenue directly for the Company or indirectly for ECOTEC through the Company’s proprietary methane mitigation skid and/or methane monitoring services of ECOTEC’s various products/services, such that when the sales and services are added together the equipment is located at 10 sites. | We view safety performance as a core indicator of our success; therefore, our Compensation Committee has included safety as a standalone component of our incentive program for over 17 years. Our safety results include all permanent and part-time employees and contractors and are measured against over 4 million man hours worked and over 22 million miles driven in 2023. To achieve a payout, 2023 performance had to meet or be better than our safety criteria as indicated in the chart below. | Our management team took a thoughtful approach to a serious issue that can have a disproportionately adverse impact on certain groups in our communities. We examined external data, best practices and our own performance regarding diversity and inclusion. |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| Environmental Results (5%) | Safety Results (10%) | | | | | Diversity & Inclusion Results (5%) | | Methane mitigation skids and methane monitoring equipment was placed in use at 15 sites, which would result in payout of 146%.(1) | 2023 Performance | | | | | We documented and demonstrated diversity and inclusion in the Company’s recruitment and manager training practices, which would result in payout of 146%.(1) | | | 2023 Safety Criteria | | Results | Achievement | Payout | | | | TRIR(2) | </= 0.50 | 0.05 | 146% | 170%(1) | | | | PVIR(3) | </= 0.50 | 0.18 | 146% | 170%(1) | |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
(1)Given record achievements of the Company in 2023, the Compensation Committee utilized its discretion in providing actual payout of 170%. See “Committee Adjustments for Key Strategic Accomplishments.” (2)TRIR (calculated pursuant to OSHA guidelines) = TRIR x 200,000/divided by the total hours worked during the year. (3)PVIR (calculated pursuant to API guidelines) = PVIR x 1,000,000 miles/divided by mileage driven during the year. Committee Adjustments for Key Strategic Accomplishments. In making final payout decisions under our 2023 short-term incentive program, the Compensation Committee desired also to take into account the broader record financial and strategic achievements of the Company in 2023. Such achievements include (i) Total Shareholder Return of 85%, (ii) a 6.9% increase in dividend per share, (iii) initiation of a stock-buyback program, (iv) robust dividend coverage of 2.8x, (v) more than doubling earnings per share vs. 2022 and (vi) achieving a compression fleet utilization of over 96%. The Compensation Committee believes that our record 2023 financial performance was attributable in large part to the execution and leadership of our named executive officers and strong operational performance of our officer and employee teams. As a result, the Compensation Committee determined in its discretion to adjust the payout upward incrementally throughout the Company for eligible employees under the 2023 short-term incentive program to reflect a record year. This resulted in an enhanced payout for our named executive officers at a level of 170%.
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| | Operating Unit Targets and Results. Operating Unit performance criteria are applicable to Mr. Ingersoll, Sales and Operations Support, and to Mr. Thode, Operations, and include more granular and specific line of sight performance goals necessary to maintain our focus on operating efficiencies at the business unit level and critical to the Company’s success. |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| | 2023 Performance Results | | | | 2023 Operating Unit Performance Criteria(1) | Weighting (%) | Achievement (%) | Combined Weighting (%) | | Sales and Operations Support – Ingersoll Horsepower Bookings Aftermarket Services Gross Margin | 70 30 | 200.0% 200.0% | 10 | | Operations – Thode Total Downtime Events/Unit/Month Aftermarket Services Gross Margin | 70 30 | 96.6% 200.0% | 10 |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
(1)Specific performance targets with respect to the achievement of operating unit performance are not disclosed because they are derived from internal analyses reflecting our business strategy. We believe their disclosure would provide our competitors, customers and other third parties with significant insights regarding our confidential business strategies that could cause us substantial competitive harm. Individual Performance. In early 2023, our Compensation Committee approved individual performance objectives for Mr. Childers related to the Company’s financial and operational performance, strategic initiatives (including as related to new ventures opportunities, leverage reduction and other initiatives), leadership goals and Company culture initiatives. Upon conclusion of fiscal year 2023, our Compensation Committee met with Mr. Childers to discuss his performance relative to the approved individual objectives. Thereafter, our Compensation Committee met in executive session and reported its assessment to the full Board. The Board delivered its evaluation to Mr. Childers, the result of which is summarized below and in “Executive Summary – 2023 Performance Highlights”. Our Compensation Committee considered each Named Executive Officers’ accomplishments during 2023, including implementation of operational improvements, demonstrated leadership, capital discipline, leverage and cash flow, and progress on other initiatives, analysis and reporting. Following such assessments of individual performance during 2023, our Compensation Committee and Board concluded that all Named Executive Officers exceeded expectations, but in light of the committee’s adjustment of the short-term incentive payout in connection with the Company performance component, as described above under “Committee Adjustments for Key Strategic Accomplishments”, the committee declined to further adjust the short-term incentive payout of our executives. Our Compensation Committee also considered each Named Executive Officer’s (including Mr. Childers’) individual contribution toward significant strategic initiatives and accomplishments that were not specifically enumerated in the 2023 Incentive Program performance criteria but are critical to our long-term strategic objectives. Specifically, our Compensation Committee considered the following:
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| ● | Our team continued to deliver exceptional operational and financial performance in a volatile market, and met the existing and additional compression needs of our customers despite continued heightened capital discipline. We achieved significant bookings and ended the year with an all-time high utilization rate of over 96%. |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| ● | We continued to execute on our strategy to monetize smaller non-core natural gas compression or other assets. Large horsepower, the more stable segment of the compression market, now represents 85% of our total fleet. |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
The chart below provides each Named Executive Officer’s target cash incentive, multiplied by the achievement percentages for Company and operating unit performance and individual performance and the payout earned.
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
| Name | 2023 Cash Incentive Target ($) | Company/ Operating Unit Performance (%)X | Individual Performance (%)(1) | = | Performance Achievement (%) | = | Total Payout Earned ($) | | Childers | 1,093,750 | 170 | 100 | | 170 | | 1,859,375 | | Aron | 484,615 | 170 | 100 | | 170 | | 823,846 | | Hildebrandt | 366,346 | 170 | 100 | | 170 | | 622,788 | | Ingersoll | 310,096 | 173 | 100 | | 173 | | 536,467 | | Thode | 310,096 | 165.8 | 100 | | 165.8 | | 514,011 |
ANNUAL PERFORMANCE-BASED INCENTIVE COMPENSATION
(1)As discussed above, the Compensation Committee and Board determined that all Named Executive Officers exceeded expectations but in light of the committee’s adjustment of the Company payout, the committee declined to further adjust the payout of our executives.
LONG-TERM INCENTIVE COMPENSATION
LONG-TERM INCENTIVE COMPENSATION During 2023, our long-term incentive program consisted of the following LTI Awards:
LONG-TERM INCENTIVE COMPENSATION
| Award Type | LTI Mix | Features | | Restricted Stock | 60% | ● Time-vested awards that vest one-third per year ● Supports retention objectives and incentivizes employees to work toward long-term performance goals by aligning their interests with stockholder interests ● Dividends are paid on unvested shares as and when they are paid to our stockholders | | Cash Available for Dividend (“CAD”) Performance Units | 10% | ● Performance awards that are earned based upon achievement of cumulative cash available for dividend for the three-year performance period, January 1, 2023 through December 31, 2025 ● Performance goals are intended to drive consistent stockholder returns ● Payout will range between 0% to 200% of units awarded at target ● Earned units cliff-vest following conclusion of the three-year performance period ● Units are denominated in shares but settled in cash based on the stock price on the date of vesting; the awards are non-dilutive ● Dividend equivalents (“DERs”) are accrued during the performance period and are paid based on the actual number of units earned and vested | | Leverage Performance Units | 10% | ● Performance awards that are earned based upon achievement of leverage reduction targets over the three-year performance period, January 1, 2023 through December 31, 2025 ● Performance goals are intended to improve our financial profile ● Payout will range between 0% to 200% of units awarded at target ● Earned units cliff-vest following conclusion of the three-year performance period ● Units are denominated in shares but settled in cash based on the stock price on the date of vesting; the awards are non-dilutive ● Dividend equivalents are accrued during the performance period and are paid based on the actual number of units earned and vested |
LONG-TERM INCENTIVE COMPENSATION
| Total Stockholder Return (“TSR”) Performance Units | 20% | ● Performance awards that are earned based upon relative and absolute TSR rank relative to our peer group over the three-year performance period, January 1, 2023 through December 31, 2025 ● Performance goals are intended to drive long-term consistent stockholder value ● Payout will range between 0% to 250% of units awarded at target ● Earned units cliff-vest following conclusion of the three-year performance period ● Units are denominated in shares and settled in shares on a one-for-basis, complimentary to the underlying performance criteria and the value creation aspect of the award ● Dividend equivalents are accrued during the performance period and are paid based on the actual number of units earned and vested |
LONG-TERM INCENTIVE COMPENSATION
Long-Term Incentive Plans. Grants of restricted stock and performance-based restricted stock units were made under the Archrock, Inc. 2020 Stock Incentive Plan, which was approved by our stockholders in April 2020. The 2020 Stock Incentive Plan is administered by our Compensation Committee. Timing of Awards. We generally seek to grant equity incentive awards on a regular and predictable cycle, and we have historically granted during the first quarter of each year. Our Compensation Committee establishes its schedule for granting annual LTI Awards several months in advance and does not grant such awards based on knowledge of material nonpublic information. Equity-based awards are occasionally granted at other times during the year, such as upon the hiring of a new employee or following the promotion of an employee. Named Executive Officers’ 2023 LTI Awards. In determining the grant of 2023 LTI Awards, our Compensation Committee considered the factors discussed above under “How Our Compensation Committee Determines Executive Compensation,” and also reviewed share utilization with respect to the 2020 Stock Incentive Plan, and potential overhang and burn rate under various award scenarios. Our Compensation Committee also considered the retention aspect of awards as well as performance metrics that balance short- and long-term objectives. The following chart provides the total value of each Named Executive Officer’s 2023 LTI Award based on the grant date market value of our stock and the number of shares and units awarded (in the case of performance-based units, listed at target payout).
LONG-TERM INCENTIVE COMPENSATION
| Name | Target Long-Term Incentive Grant Date Value ($) | Restricted Stock (#) | CAD Performance Units (#) | Leverage Performance Units (#) | TSR Performance Units (#) | | Childers | 4,600,000 | 292,933 | 48,832 | 48,832 | 97,664 | | Aron | 1,700,000 | 108,280 | 18,046 | 18,046 | 36,093 | | Hildebrandt | 1,100,000 | 70,063 | 11,677 | 11,677 | 23,354 | | Ingersoll | 750,000 | 47,770 | 7,961 | 7,961 | 15,923 | | Thode | 750,000 | 47,770 | 7,961 | 7,961 | 15,923 |
LONG-TERM INCENTIVE COMPENSATION
2023 Performance-Based LTI Awards. CAD and Leverage Performance Units. The percentage of 2023 CAD and Leverage Performance Units that may be earned will be based on the achievement of the performance factors over a three-year performance period as indicated in the chart below.
LONG-TERM INCENTIVE COMPENSATION
| | Performance Achievement and Payout | | | | | Performance Factor Measured from January 1, 2023 to December 31, 2025 | Below Threshold (0% payout) | Threshold (50% payout) | Target (100% payout) | Maximum (200% payout) | | Cumulative CAD Adjusted EBITDA, minus Maintenance and other Capital Expenditures, minus Cash Taxes, minus Cash Interest measured for the three-year performance period | <$494M | $494M | $617M | $741M | | Leverage(1) The ratio of (a) Total Indebtedness as of the performance period end to (b) EBITDA (earnings before interest, taxes, depreciation and amortization) for the period of four (4) consecutive fiscal quarters most recently ended (i.e., EBITDA as of the performance period end) | >4.5x | 4.0x | 3.75x | =/<3.5x |
LONG-TERM INCENTIVE COMPENSATION
(1)The calculation of Leverage includes the Parent and its Restricted Subsidiaries on a consolidated basis in accordance with GAAP. All capitalized terms have the meaning ascribed to them under the Company’s revolving credit agreement. At the conclusion of the performance period, a number of CAD and Leverage Performance Units ranging from 0% to 200% of the total number of units granted will be earned. If the Company’s performance falls between the levels specified in the chart, the percentage of CAD and Leverage Performance Units that will be earned will be determined using straight-line interpolation between such levels. No payout will be earned if the Company’s CAD and Leverage performance is below the threshold level. The earned CAD and Leverage Performance Units are also subject to three-year cliff vesting on January 25, 2026, subject to continued employment through the vesting date. In addition, the award is subject to accelerated vesting as described below under “Potential Payments upon Termination or Change of Control”. Each earned CAD and Leverage Performance Unit is payable in cash based on the market closing price of our common stock on the date of vesting. The award includes tandem DERs which are accrued during the performance period and will be paid based on the number of units earned and vested. TSR Performance Units. The percentage of 2023 TSR Performance Units that may be earned will be based on our absolute and relative TSR performance rank relative to the companies in our 2023 peer group at the conclusion of the three-year performance period.
LONG-TERM INCENTIVE COMPENSATION
| | Performance Achievement and Payout(1) | | | | | | | | | | Absolute Annualized TSR Performance | | | | | Performance Factor | | | | | | | | Total Shareholder Return (2) | Rank(3) | Below -20% | -10% | 0% | 10% | Above 20% | | | 1 | 150% | 175% | 200% | 225% | 250% | | | 2 | 138% | 161% | 184% | 207% | 230% | | | 3 | 126% | 147% | 168% | 189% | 209% | | | 4 | 113% | 132% | 151% | 170% | 189% | | | 5 | 101% | 118% | 135% | 152% | 169% | | | 6 | 89% | 104% | 119% | 133% | 148% | | | 7 | 77% | 89% | 102% | 115% | 128% | | | 8 | 66% | 77% | 88% | 100% | 111% | | | 9 | 57% | 66% | 75% | 85% | 94% | | | 10 | 47% | 54% | 62% | 70% | 78% | | | 11 | 30% | 40% | 49% | 55% | 61% | | | 12 | 20% | 28% | 36% | 41% | 45% | | | 13 | 0% | 0% | 0% | 25% | 35% | | | 14 | 0% | 0% | 0% | 0% | 25% |
LONG-TERM INCENTIVE COMPENSATION
(1)Payouts assume no changes in the 2023 peer group. In the event a company in the peer group becomes insolvent or liquidates, that company shall remain in the group, but will be moved to the lowest rank. In the event a company is acquired or merged into another company and is not the surviving company, or as a result of any other corporate transaction, such company shall be removed from the peer group and the percentile payouts shall be ratably adjusted. (2)Total Shareholder Return is the Average Fair Market Value at the end of the performance period plus dividends paid over the performance period divided by the Average Fair Market Value at the beginning of the performance period. Average Fair Market Value as of any given date is the average fair market value of a share of Archrock common stock during the 20 consecutive trading dates ending on and including such date. (3)Rank is based on 2023 Peer Group. Based on (i) our ordinal rank in the peer group and (ii) our annualized TSR performance, at the conclusion of the performance period, a number of TSR Performance Units ranging from 0% to 250% of the total number of TSR Performance Units granted will become earned. If the Company’s annualized absolute TSR performance falls between the levels specified in the chart above, the percentage of TSR Performance Units that will be earned will be determined using straight-line interpolation between such levels. No payout will be earned if the Company’s TSR rank and annualized performance is below the threshold level. The earned TSR Performance Units are also subject to three-year cliff vesting on January 25, 2026, subject to continued employment through the vesting date. In addition, the award is subject to accelerated vesting as described below under “Potential Payments upon Termination or Change of Control”. Each earned TSR Performance Unit is payable as a share of common stock upon vesting. The award includes tandem DERs which are accrued during the performance period and will be paid based on the number of units earned and vested. 2021 Performance Units. In 2021, our Compensation Committee awarded performance units to our Named Executive Officers measured over the period of January 1, 2021 through December 31, 2023 (the “2021 Performance Units”) based on the following performance criteria:
LONG-TERM INCENTIVE COMPENSATION
| ● | total stockholder return (the “2021 TSR Performance Units”), the payment of which was based on our stock price performance relative to our 2021 peer group. Archrock ranked 8th among the 11 other companies included in the comparison (reduced from 14 companies due to mergers and acquisitions). Based on this result, our Compensation Committee determined that the 2021 TSR Performance Units were payable at 71% of target. |
LONG-TERM INCENTIVE COMPENSATION
| ● | growth in cash available for dividend (the “2021 CAD Performance Units”), the payment of which was based on the average annual dividend growth rate per share. The average annual dividend growth rate over the performance period was $614 million. Based on this result, our Compensation Committee determined that the 2021 CAD Performance Units were payable at 132% of target. |
LONG-TERM INCENTIVE COMPENSATION
| ● | Leverage (the “2021 Leverage Performance Units”), the payment of which was based on the ratio of (a) Total Indebtedness as of the Performance Period end to (b) EBITDA (earnings before interest, taxes, depreciation and amortization) for the period of four consecutive fiscal quarters most recently ended. The Leverage ratio over the performance period was 3.53x. Based on this result, our Compensation Committee determined that the 2021 Leverage Performance Units were payable at 197% of target. |
LONG-TERM INCENTIVE COMPENSATION
The following chart provides the number of 2021 Performance Units awarded and earned and paid based on actual performance. Each earned 2021 TSR Performance Unit was settled as a share of common stock and cash dividends accrued over the performance period were paid based on the number of units earned. Each earned 2021 CAD and Leverage Performance Unit was settled in cash and cash dividends accrued over the performance period were paid based on the number of units earned.
LONG-TERM INCENTIVE COMPENSATION
| | 2021 TSR Performance Units | | 2021 CAD Performance Units | | 2021 Leverage Performance Units | | | Name | Payable at Target | Paid Based on Performance | Payable at Target | Paid Based on Performance | Payable at Target | Paid Based on Performance | | Childers | 76,635 | 54,410 | 38,318 | 50,580 | 38,317 | 75,484 | | Aron | 20,560 | 14,597 | 10,280 | 13,570 | 10,280 | 20,251 | | Hildebrandt | 15,887 | 11,279 | 7,944 | 10,487 | 7,943 | 15,647 | | Ingersoll | 11,214 | 7,961 | 5,607 | 7,401 | 5,607 | 11,046 | | Thode | 11,214 | 7,961 | 5,607 | 7,401 | 5,607 | 11,046 |
LONG-TERM INCENTIVE COMPENSATION
Vesting of LTI Awards. All annual awards granted to employees, including our Named Executive Officers, include a minimum three-year vesting period. Upon a Termination Due to Death or Disability. The award agreements for all outstanding equity awards provide that, upon a termination due to death or disability, the award will accelerate in full. Upon a Change of Control. The award agreements for all outstanding equity awards are structured as “double trigger” arrangements, that is, they provide that no portion of the award shall be subject to accelerated vesting solely upon a change of control. Instead, such awards will be subject to accelerated vesting only in the event of termination of employment by the Company without cause or by the executive for good reason six months prior to or within eighteen months following a change of control. In both instances, performance units will accelerate (a) in full based on the achievement of the applicable performance measures if such achievement has been or can be determined by our Compensation Committee in good faith or (b) if our Compensation Committee cannot reasonably determine the achievement percentage, then achievement at the target performance level.
LONG-TERM INCENTIVE COMPENSATION
| OTHER COMPENSATION POLICIES, PRACTICES AND GUIDELINES |
COMPENSATION-RELATED POLICIES
COMPENSATION-RELATED POLICIES Stock Ownership Requirements. Our Compensation Committee believes that stock ownership requirements closely align our Named Executive Officers’ interests with those of our stockholders by ensuring they hold a meaningful ownership stake in our Company. Our Chief Executive Officer is required to hold an aggregate amount of our common stock with a market value of at least five times his annual base salary (two times annual base salary in the case of our other Named Executive Officers). Our Compensation Committee reviews the stock ownership of our Named Executive Officers annually as of June 30. As of the date of this Proxy Statement, all Named Executive Officers subject to the stock ownership guidelines were in compliance with the guidelines. Prohibition on Hedging and Pledging. Company policy prohibits all employees and directors from entering into any transaction designed to hedge or offset any decrease in the market value of our equity securities, including purchasing financial instruments (such as variable forward contracts, equity swaps, collars or exchange funds), or otherwise trading in market options (such as puts or calls), warrants, or other derivative instruments of our equity securities. In addition, our Named Executive Officers and directors may not pledge, hypothecate or otherwise encumber shares of the Company’s common stock as collateral for indebtedness. Executive Compensation Recoupment. The Company has adopted a Clawback policy effective as of October 2, 2023 in compliance with New York Stock Exchange listing rules. The Clawback policy requires the recovery of erroneously awarded incentive-based compensation received by Officers in the three completed fiscal years immediately preceding the date on which the Board concludes or reasonably should have concluded that the Company is required to prepare an accounting restatement due to the noncompliance of the Company with any financial reporting requirement under securities laws. For this purpose, “Officers” include Mmes. Henderson and Hildebrandt and Messrs. Aron, Childers, Ingersoll and Thode and would include any executive officer (as defined in Rule 10D-1(d) of the Exchange Act) during the applicable three-year period. Additionally, “incentive-based compensation” generally means all bonuses and other incentive and equity compensation (including, but not limited to, stock options), the amount, payment and/or vesting of which was calculated based on such restated financial reporting measures. Each Officer has acknowledged that he or she agrees to be bound by the terms of and comply with the Company’s Clawback policy.
TAX AND ACCOUNTING CONSIDERATIONS
TAX AND ACCOUNTING CONSIDERATIONS Section 162(m) of the Code. Section 162(m) of the Code generally disallows the deductibility of certain compensation expenses in excess of $1,000,000 to certain executive officers within a fiscal year. Compensation that is “performance-based” may be excluded from this limitation only if it is payable pursuant to a binding written agreement in effect on November 2, 2017 that is not materially modified. We believe that maintaining the discretion to evaluate the performance of and compensate our executive officers is an important part of our responsibilities and benefits our stockholders, even if compensation may be non-deductible under Section 162(m) of the Code. In light of the repeal of the performance-based compensation exception to Section 162(m) of the Code, our Compensation Committee expects in the future to approve compensation that is non-deductible for income tax purposes. Section 280G of the Code. Section 280G of the Code disallows a tax deduction for excess parachute payments to certain executives of companies that undergo a change of control. In addition, Section 4999 of the Code imposes a 20% excise tax on the individual with respect to the excess parachute payment. Parachute payments are compensation linked to or triggered by a change of control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from LTI plans including stock options and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G of the Code based on the executive’s average prior compensation. Since 2009, we have had a policy of prohibiting tax gross-ups on income attributable to change of control agreements and other executive benefit agreements, which is discussed further in “Potential Payments upon Termination or Change of Control”. Accounting for Stock-Based and Unit-Based Compensation. We have followed Financial Accounting Standards Board Accounting Standards Codification 718, “Stock Compensation” (“ASC 718”) in accounting for stock-based and unit-based compensation awards. ASC 718 requires companies to calculate the grant date “fair value” of their stock-based and unit-based awards using a variety of assumptions. ASC 718 also requires companies to recognize the compensation cost of their stock-based and unit-based awards in their income statements over the period that an employee is required to render service in exchange for the award. We expect that we will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our stock incentive plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.
SUMMARY COMPENSATION
| Name and Title | Year | Salary ($) (1) | Stock Awards ($) (2) | Non-Equity Incentive Plan Compensation ($) (3) | All Other Compensation ($) (4) | Total ($) | | D. Bradley Childers | 2023 | 875,000 | 5,211,360 | 1,859,375 | 75,000 | 8,020,736 | | President and Chief | 2022 | 849,760 | 4,879,884 | 1,400,000 | 62,988 | 7,192,632 | | Executive Officer | 2021 | 710,937 | 4,375,869 | 1,453,200 | 69,266 | 6,609,272 | | | 2020 | 782,452 | 4,245,524 | 1,021,000 | 74,272 | 6,123,248 | | Douglas S. Aron | 2023 | 538,462 | 1,925,922 | 823,846 | 55,600 | 3,343,830 | | Senior Vice President and | 2022 | 490,769 | 1,626,606 | 573,533 | 52,511 | 2,743,458 | | Chief Financial Officer | 2021 | 437,000 | 1,173,997 | 560,243 | 39,224 | 2,210,464 | | | 2020 | 448,462 | 1,061,376 | 347,477 | 50,178 | 1,907,493 | | Stephanie C. Hildebrandt | 2023 | 488,462 | 1,246,179 | 622,788 | 48,695 | 2,406,124 | | Senior Vice President, | 2022 | 443,077 | 975,968 | 485,435 | 46,132 | 1,950,612 | | General Counsel and Secretary | 2021 | 399,000 | 907,169 | 479,556 | 32,972 | 1,818,697 | | | 2020 | 409,231 | 849,090 | 260,437 | 39,549 | 1,558,308 | | Jason G. Ingersoll | 2023 | 413,462 | 849,651 | 536,467 | 40,456 | 1,840,035 | | Senior Vice President, | 2022 | 371,538 | 704,848 | 484,328 | 35,594 | 1,596,308 | | Sales and Operations Support | 2021 | 342,000 | 640,341 | 383,160 | 27,750 | 1,393,251 | | | 2020 | 350,385 | 636,816 | 213,000 | 33,020 | 1,233,221 | | Eric W. Thode | 2023 | 413,462 | 849,651 | 514,011 | 40,603 | 1,817,727 | | Senior Vice President, | 2022 | 371,538 | 704,848 | 398,602 | 38,765 | 1,513,753 | | Operations | 2021 | 337,500 | 640,341 | 403,757 | 31,213 | 1,412,811 | | | 2020 | 329,808 | 530,688 | 286,760 | 19,500 | 1,166,756 |
GRANTS OF PLAN-BASED AWARDS
GRANTS OF PLAN-BASED AWARDS The following table shows the short- and long-term incentive plan awards granted to the Named Executive Officers in 2023.
GRANTS OF PLAN-BASED AWARDS
| | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | | Estimated Possible Payouts Under Equity Incentive Plan Awards (2) | | | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | Grant Date Fair Value of Stock Awards ($) (4) | | Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | Childers | 1/26/2023 | — | 1,093,750 | 2,187,500 | — | 97,664 | 195,328 | — | 919,995 | | | 1/26/2023 | | | | | 97,664 | 244,160 | | 1,531,372 | | | 1/26/2023 | | | | | | | 292,993 | 2,759,994 | | Aron | 1/26/2023 | — | 495,000 | 990,000 | — | 36,092 | 72,184 | — | 339,987 | | | 1/26/2023 | | | | | 36,093 | 90,233 | | 565,938 | | | 1/26/2023 | | | | | | | 108,280 | 1,019,998 | | Hildebrandt | 1/26/2023 | — | 375,000 | 750,000 | — | 23,354 | 46,708 | — | 219,995 | | | 1/26/2023 | | | | | 23,354 | 58,385 | | 366,191 | | | 1/26/2023 | | | | | | | 70,063 | 659,993 | | Ingersoll | 1/26/2023 | — | 318,750 | 637,500 | — | 15,922 | 31,844 | — | 149,985 | | | 1/26/2023 | | | | | 15,923 | 39,808 | | 249,673 | | | 1/26/2023 | | | | | | | 47,770 | 449,993 | | Thode | 1/26/2023 | — | 318,750 | 637,500 | — | 15,922 | 31,844 | — | 149,985 | | | 1/26/2023 | | | | | 15,923 | 39,808 | | 219,673 | | | 1/26/2023 | | | | | | | 47,770 | 449,993 |
GRANTS OF PLAN-BASED AWARDS
| (1) The amounts in these columns show the range of potential payouts under the 2023 Incentive Program. The actual payouts under the plan were determined in February 2024 and paid in March 2024, and are included in the Summary Compensation table for 2023. |
GRANTS OF PLAN-BASED AWARDS
| (2) The amounts in these columns show the range of potential payouts of performance units awarded under the 2020 Stock Incentive Plan and cliff vest at the conclusion of a three-year performance period, subject to continued employment. “Target” is 100% of the number of 2023 performance units awarded. “Threshold” is the lowest possible payout (0% of the grant), and “Maximum” is the highest possible payout (200% - 250% of the grant). The entries include (a) CAD and Leverage Performance Units, which are combined in the chart with each performance objective weighted at 50% of the total award (cash settled) and (b) TSR Performance Units (stock settled). See also “Long-Term Incentive Compensation – 2023 Performance-Based LTI Awards” for more information regarding these awards. |
GRANTS OF PLAN-BASED AWARDS
| (3) Shares of restricted stock awarded under the 2020 Stock Incentive Plan that vest one-third per year over a three-year period, subject to continued service through each vesting date. |
GRANTS OF PLAN-BASED AWARDS
| (4) The grant date fair value of performance units (at target) and restricted stock is calculated in accordance with ASC 718. For a discussion of valuation assumptions, see Note 18 (Stock-Based Compensation) to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END The following table shows our Named Executive Officers’ equity awards and equity-based awards denominated in our common stock outstanding at December 31, 2023.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| | Stock Awards (1) | | | | | Name | Number of Shares or Units of Stock That Have Not Vested (#) (2) | Market Value of Shares or Units of Stock That Have Not Vested ($) (3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Yet Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Yet Vested ($) (3) | | Childers | 583,658 | 8,988,333 | 76,635 (4) | 1,180,179 | | | | | 107,014 (5) | 1,648,016 | | | | | 97,664 (6) | 1,504,026 | | | | | 76,635 (7) | 1,180,179 | | | | | 107,015 (8) | 1,648,031 | | | | | 97,664 (9) | 1,504,026 | | Aron | 200,183 | 3,082,818 | 20,560 (4) | 316,624 | | | | | 35,670 (5) | 549,318 | | | | | 36,092 (6) | 555,817 | | | | | 20,560 (7) | 316,624 | | | | | 35,671 (8) | 549,333 | | | | | 36,093 (9) | 555,832 | | Hildebrandt | 128,755 | 1,982,827 | 15,887 (4) | 244,660 | | | | | 21,402 (5) | 329,591 | | | | | 23,354 (6) | 359,652 | | | | | 15,887 (7) | 244,660 | | | | | 21,403 (8) | 329,606 | | | | | 23,354 (9) | 359,652 | | Ingersoll | 89,899 | 1,384,445 | 11,214 (4) | 172,696 | | | | | 15,456 (5) | 238,022 | | | | | 15,922 (6) | 245,199 | | | | | 11,214 (7) | 172,696 | | | | | 15,457 (8) | 238,038 | | | | | 15,923 (9) | 245,214 | | Thode | 89,899 | 1,384,445 | 11,214 (4) | 172,696 | | | | | 15,456 (5) | 238,022 | | | | | 15,922 (6) | 245,199 | | | | | 11,214 (7) | 172,696 | | | | | 15,457 (8) | 238,038 | | | | | 15,923 (9) | 245,214 |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| (1) No options were outstanding at December 31, 2023. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| (2) Includes shares of restricted stock that vest at the rate of one-third per year beginning on the initial vesting date shown below, subject to continued service through each vesting date. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| Name | Unvested Shares | Initial Vesting Date | | Childers | 76,635 | 3/5/22 | | | 214,030 | 1/25/23 | | | 292,993 | 1/25/24 | | Aron | 20,560 | 3/5/22 | | | 71,343 | 1/25/23 | | | 108,280 | 1/25/24 |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| Name | Unvested Shares | Initial Vesting Date | | Hildebrandt | 15,887 | 3/5/22 | | | 42,805 | 1/25/23 | | | 70,063 | 1/25/24 | | Ingersoll | 11,214 | 3/5/22 | | | 30,915 | 1/25/23 | | | 47,770 | 1/25/24 | | Thode | 11,214 | 3/5/22 | | | 30,915 | 1/25/23 | | | 47,770 | 1/25/24 |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| (3) Based on the market closing price of our common stock on December 31, 2023: $15.40. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| (4) Unearned 2021 CAD Performance and Leverage Units that were outstanding as of December 31, 2023 and cliff vested on March 5, 2024. Amounts shown are the number of units awarded at target performance. The number of actual units paid were determined by our Compensation Committee following the conclusion of the three-year performance period, January 1, 2021 through December 31, 2023, as discussed under “Long-Term Incentive Compensation – 2021 Performance Units.” |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| (5) Unearned 2022 CAD Performance and Leverage Units that cliff vest on January 25, 2025, subject to continued service through the vest date. Amounts shown are the number of units awarded at target performance. The number of actual units paid will be determined by our Compensation Committee following the conclusion of the three-year performance period, January 1, 2022 through December 31, 2024. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| (6) Unearned 2023 CAD Performance and Leverage Units that cliff vest on January 25, 2026, subject to continued service through the vest date. Amounts shown are the number of units awarded at target performance. The number of actual units paid will be determined by our Compensation Committee following the conclusion of the three-year performance period, January 1, 2023 through December 31, 2025. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| (7) Unearned 2021 TSR Performance Units that were outstanding as of December 31, 2023 and cliff vested on March 5, 2024. Amounts shown are the number of units awarded at target performance. The number of actual units paid were determined by our Compensation Committee following the conclusion of the three-year performance period, January 1, 2021 through December 31, 2023, as discussed under “Long-Term Incentive Compensation – 2021 Performance Units.” |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| (8) Unearned 2022 TSR Performance Units that cliff vest on January 25, 2025, subject to continued service through the vest date. Amounts shown are the number of units awarded at target performance. The number of actual units paid will be determined by our Compensation Committee following the conclusion of the three-year performance period, January 1, 2022 through December 31, 2024. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| (9) Unearned 2023 TSR Performance Units that cliff vest on January 25, 2026, subject to continued service through the vest date. Amounts shown are the number of units awarded at target performance. The number of actual units paid will be determined by our Compensation Committee following the conclusion of the three-year performance period, January 1, 2023 through December 31, 2025. |
STOCK VESTED
STOCK VESTED The following table shows the value realized by the Named Executive Officers upon the vesting of equity awards covering our common stock during 2023. No stock options were outstanding or exercised during 2023.
STOCK VESTED
| | Stock Awards | | | Name | Number of Shares and Units Acquired on Vesting (#) (1) | Value Realized on Vesting ($) (2) | | Childers | 374,627 | 3,868,013 | | Aron | 103,977 | 1,066,724 | | Hildebrandt | 75,486 | 780,026 | | Ingersoll | 55,318 | 571,401 | | Thode | 50,544 | 521,756 |
STOCK VESTED
| (1) Includes our restricted stock and stock- and cash-settled performance units that vested during 2023. |
STOCK VESTED
| (2) The value realized for vested awards was determined by multiplying the fair market value of our common stock (the market closing price of our common stock on the vesting date) by the number of shares or units that vested, plus dividend equivalents attributable to the 2020 Performance Units, which were accrued over the three-year performance and vesting period and paid upon vesting, in the amount of $194,611 for Mr. Childers, $48,652 for Mr. Aron, $38,921 for Ms. Hildebrandt, $29,191 for Mr. Ingersoll and $24,326 for Mr. Thode. Shares and units vested on various dates throughout the year; therefore, the value listed represents the aggregate value of all shares and units that vested for each Named Executive Officer in 2023. |
NONQUALIFIED DEFERRED COMPENSATION
NONQUALIFIED DEFERRED COMPENSATION The following table shows the Named Executive Officers’ compensation for 2023 under our nonqualified deferred compensation plan.
NONQUALIFIED DEFERRED COMPENSATION
| Name | Executive Contributions in Last Fiscal Year ($) | Company Contributions in Last Fiscal Year ($) (1) | Aggregate Earnings/ (Losses) in Last Fiscal Year ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year End ($) | | Childers | 52,500 | 58,500 | 198,581 | — | 1,070,979 | | Aron | 33,360 | 39,100 | 62,928 | — | 429,635 | | Hildebrandt | 29,247 | 32,195 | 50,744 | — | 262,388 | | Ingersoll | 17,956 | 23,956 | 36,970 | — | 225,435 | | Thode | 40,603 | 24,103 | 25,060 | — | 181,077 |
NONQUALIFIED DEFERRED COMPENSATION
| (1) The amounts in this column represent Company contributions to each Named Executive Officer’s Deferred Compensation Plan account earned in 2023 but paid in the first quarter of 2024. These amounts are included in “All Other Compensation” in the Summary Compensation table for 2023 and in “Aggregate Balance at Last Fiscal Year End” in this table. |
NONQUALIFIED DEFERRED COMPENSATION
Under our Deferred Compensation Plan, eligible employees are permitted to defer receipt of up to 90% of their base salary and bonus. We also make certain employer matching contributions designed to serve as a make-up for the portion of the employer matching contributions that cannot be made under our 401(k) Plan due to Code limits. The amounts deferred under each participant’s Deferred Compensation Plan account are deemed to be invested in investment alternatives chosen by the participant from a range of choices established by the plan administrator. The balances of participant accounts are adjusted to reflect the gains or losses that would have been obtained if the participant contributions had actually been invested in the applicable investment alternatives. Participants may elect to defer the distribution of their account balances until the occurrence of a specified future date or event, including: (a) a future date while the participant is employed by us, as specified by the participant, (b) the participant’s separation from service (within the meaning of Section 409A of the Code), including due to death, or (c) the participant’s disability. Participants may also elect whether to receive distributions of their account balances in a single lump-sum amount or in annual installments to be paid over a period of two to ten years. Payment of a participant’s account will be made or commence, as applicable, as follows:
NONQUALIFIED DEFERRED COMPENSATION
| ● | for lump sum payments, on the earlier of: (x) in the case of a specified in-service date, January 1 of such year and (y) in the case of a separation from service or disability, the date of the participant’s separation of service or, if earlier, disability and |
NONQUALIFIED DEFERRED COMPENSATION
| ● | for installment payments, the earlier of: (x) in the case of a specified in-service date, January 1 of such year and (y) in the case of a separation from service or disability, January 1 of the calendar year immediately following the date of the participant’s separation of service or, if earlier, disability. |
NONQUALIFIED DEFERRED COMPENSATION
The Deferred Compensation Plan is administered by our Compensation Committee. The Deferred Compensation Plan is an unfunded plan for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. We have established a “rabbi trust” to satisfy our obligations under the Deferred Compensation Plan.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL The following table shows the potential payments to the Named Executive Officers upon a theoretical termination of employment or change of control (as applicable) occurring on December 31, 2023. The amounts shown are, as applicable, based on each Named Executive Officer’s annual base salary and assumes an Archrock common stock value of $15.40 per share, the December 31, 2023 market closing price. The actual amount paid out to an executive upon an actual termination or change of control can only be determined at the time of such event.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
| Name | Termination Due to Death or Disability ($) (1) | Termination Without Cause or Resignation with Good Reason ($) (2) | Change of Control Without a Qualifying Termination ($) (3) | Change of Control with a Qualifying Termination ($) (3) | | D. Bradley Childers | | | | | | Cash Severance | — | 3,062,500(4) | — | 7,000,000(5) | | Restricted Stock (6) | 8,988,333 | 4,332,241 | — | 8,988,333 | | Performance Awards (7) | 8,664,456 | 5,560,406 | — | 8,664,456 | | Other Benefits (8) | — | 25,737 | — | 201,474 | | Total Pre-Tax Benefit | 17,652,789 | 12,980,884 | — | 24,854,263 | | Douglas S. Aron | | | | | | Cash Severance | — | 1,540,000(4) | — | 2,585,000(5) | | Restricted Stock (6) | 3,082,818 | 1,421,802 | — | 3,082,818 | | Performance Awards (7) | 2,843,548 | 1,736,232 | — | 2,843,548 | | Other Benefits (8) | — | 24,263 | — | 159,727 | | Total Pre-Tax Benefit | 5,926,367 | 4,722,298 | — | 8,671,093 | | Stephanie C. Hildebrandt | | | | | | Cash Severance | — | 1,250,000(4) | — | 2,125,000(5) | | Restricted Stock (6) | 1,982,827 | 933,915 | — | 1,982,827 | | Performance Awards (7) | 1,867,820 | 1,168,552 | — | 1,867,820 | | Other Benefits (8) | — | 22,420 | — | 142,231 | | Total Pre-Tax Benefit | 3,850,647 | 3,374,887 | — | 6,117,878 | | Jason G. Ingersoll | | | | | | Cash Severance | — | 1,062,500(4) | — | 1,806,250(5) | | Restricted Stock (6) | 1,384,445 | 655,960 | — | 1,384,445 | | Performance Awards (7) | 1,311,864 | 826,236 | — | 1,311,864 | | Other Benefits (8) | — | 27,592 | — | 136,095 | | Total Pre-Tax Benefit | 2,696,309 | 2,572,288 | — | 4,638,654 | | Eric W. Thode | | | | | | Cash Severance | — | 1,062,500(4) | — | 1,806,250(5) | | Restricted Stock (6) | 1,384,445 | 655,960 | — | 1,384,445 | | Performance Awards (7) | 1,311,864 | 826,236 | — | 1,311,864 | | Other Benefits (8) | — | 24,486 | — | 130,178 | | Total Pre-Tax Benefit | 2,696,309 | 2,569,182 | — | 4,632,737 |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
| (1) “Disability” is defined in the 2013 and 2020 Stock Incentive Plans. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
| (2) “Cause” and “Good Reason” are defined in the severance benefit agreements. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
| (3) “Qualifying Termination” is defined in the change of control agreements. No payments may be made in the event of a change of control absent a Qualifying Termination. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
| (4) If the executive had been terminated without Cause or resigned with Good Reason on December 31, 2023, under the executive’s severance benefit agreement his or her cash severance would consist of (a) the sum of the executive’s base salary and target annual incentive opportunity (calculated as a percentage of annual base salary for 2023), plus (b) the executive’s target annual incentive opportunity (calculated as a percentage of annual base salary for 2023). |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
| (5) If the Company consummated a change of control that was followed by the executive’s Qualifying Termination on December 31, 2023, under the executive’s change of control agreement his or her cash severance would consist of (a) two times (three times for Mr. Childers) the sum of the executive’s base salary and target annual incentive opportunity (calculated as a percentage of annual base salary for 2023), plus (b) the executive’s target annual incentive opportunity (calculated as a percentage of his or her annual base salary for 2023). |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
| (6) The amounts in this row represent the value of the accelerated vesting of the executive’s unvested restricted stock based on the December 31, 2023 closing price of our common stock. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
| (7) The amounts in this row represent the value of the accelerated vesting of the executive’s unvested performance awards based on the December 31, 2023 market closing price of our common stock. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
| (8) The amounts in this row represent each Named Executive Officer’s right to the payment, as applicable, of (a) in the event of a termination without Cause or voluntary resignation for Good Reason, a lump sum payment comprised of the executive’s medical benefit premiums for a one year period and the amount of the administrative fee assessed under COBRA, or (b) in the event of a Qualifying Termination in connection with a change of control, a lump sum payment comprised of the executive’s medical benefit premiums for a two year period, the amount of the administrative fee assessed under COBRA and two times the Company contributions for the preceding 24 months under the 401(k) Plan and deferred compensation plan. |
CEO PAY RATIO
CEO PAY RATIO As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information regarding the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Childers, our Chief Executive Officer. We consider the pay ratio specified below to be a reasonable estimate, calculated in a manner that is intended to be consistent with Item 402(u) of Regulation S-K. Mr. Childers had an annual total compensation of $8,020,736 in 2023 as reflected in the “Total” column of our Summary Compensation table included in this Proxy Statement. With respect to the annual total compensation of the median employee, we identified and calculated the elements of such employee’s compensation for 2023 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation for 2023 of $114,309. As a result, we estimate that Mr. Childers’ 2023 annual total compensation was approximately 70 times that of the median of the annual total compensation of all of our employees (other than the CEO). Archrock has elected to identify its median employee every three years unless there is a significant change in employee population or employee compensation arrangements. In determining the median employee, Archrock prepared a listing of all employees (including full-time, part-time, seasonal and temporary employees) as of December 31, 2023 and the total compensation of each such employee for fiscal year 2023. The median employee was selected from this list and will not change for 2024 and 2025. Our Compensation Committee believes this is reasonable on the basis there has been no significant change in its employee population, employee compensation arrangements, or the compensation of the median employee. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. Because the SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
PAY VERSUS PERFORMANCE
PAY VERSUS PERFORMANCE In accordance with rules adopted by the Securities and Exchange Commission pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we provide the following disclosure regarding executive compensation for our principal executive officer (“PEO”) and Non-PEO NEOs and Company performance for the fiscal years listed below. Our Compensation Committee did not consider the pay versus performance disclosure below in making its pay decisions for any of the years shown. Please refer to the Compensation Discussion and Analysis for the complete discussion as to how pay was determined.
PAY VERSUS PERFORMANCE
| Year | Summary Compensation Table (“SCT”) Total for Childers (PEO) (1) ($) | Compensation Actually Paid to Childers (PEO) (1,2,3) ($) | Average SCT Total for Non-PEO NEOs (1) ($) | Average Compensation Actually Paid to Non-PEO NEOs (1,2,3) ($) | Value of Initial Fixed $100 Investment Based On: (4) | | Net Income ($MM) | Adjusted EBITDA (5) ($MM) | | | | | | | TSR ($) | Peer Group TSR ($) | | | | 2023 | 8,020,736 | 17,142,980 | 2,351,929 | 4,321,844 | 202 | 147 | 105 | 450 | | 2022 | 7,192,632 | 7,318,092 | 1,951,033 | 1,976,804 | 112 | 129 | 44 | 363 | | 2021 | 6,609,272 | 3,716,961 | 1,708,806 | 1,212,821 | 87 | 106 | 28 | 326 | | 2020 | 6,123,248 | 6,701,111 | 1,466,445 | 1,427,338 | 94 | 77 | (68) | 415 |
PAY VERSUS PERFORMANCE
| (1) Mr. Childers was our PEO for each year presented. The individuals comprising the Non-PEO NEOs for each year presented are: Ms. Hildebrandt and Messrs. Aron, Ingersoll and Thode. |
PAY VERSUS PERFORMANCE
| (2) The amounts shown for Compensation Actually Paid have been calculated in accordance with Item 402(v) of Regulation S-K and do not reflect compensation actually earned, realized, or received by the Company’s NEOs. These amounts reflect the SCT Total with certain adjustments as described in footnote 3 below. |
PAY VERSUS PERFORMANCE
| (3) “Compensation Actually Paid” reflects the exclusions and inclusions of certain amounts for the PEO and the Non-PEO NEOs as set forth below. Equity values are calculated in accordance with FASB ASC Topic 718. Amounts under Exclusion of Stock Awards are the totals from the Stock Awards column set forth in the SCT. |
PEO – Mr. Childers
| Year | SCT Total for PEO ($) | Exclusion of Equity Awards for PEO ($) | Inclusion of Equity Values for PEO ($) | Compensation Actually Paid to PEO ($) | | 2023 | 8,020,736 | (5,211,360) | 14,333,604 | 17,142,980 | | 2022 | 7,192,632 | (4,879,884) | 5,005,344 | 7,318,092 | | 2021 | 6,609,272 | (4,375,869) | 1,483,558 | 3,716,961 | | 2020 | 6,123,248 | (4,245,524) | 4,823,387 | 6,701,111 |
NON-PEO NEOs – Ms. Hildebrandt and Messrs. Aron, Ingersoll and Thode
| Year | Average Summary SCT ($) | Average Exclusion of Equity Awards ($) | Average Inclusion of Equity Values ($) | Average Compensation Actually Paid ($) | | 2023 | 2,351,929 | (1,217,851) | 3,187,765 | 4,321,844 | | 2022 | 1,951,033 | (1,003,068) | 1,028,839 | 1,976,804 | | 2021 | 1,708,806 | (840,462) | 344,477 | 1,212,821 | | 2020 | 1,466,445 | (769,493) | 730,386 | 1,427,338 |
NON-PEO NEOs – Ms. Hildebrandt and Messrs. Aron, Ingersoll and Thode
| (5) We determined Adjusted EBITDA to be the most important financial performance measure used to link Company performance to Compensation Actually Paid to our PEO and other NEOs in 2023. Adjusted EBITDA is a Non-GAAP measure, and is defined in the Compensation Discussion and Analysis under “Annual Performance-Based Incentive Compensation.” Reconciliations of this non-GAAP financial measure to the most directly comparable GAAP measure may be found in the Company’s Fiscal Year 2023, 2022, 2021 and 2020 earnings releases, each filed on Form 8-K. This performance measure may not have been the most important financial performance measure for years 2022, 2021 and 2020 and we may determine a different financial performance measure to be the most important measure in future years. |
Description of Relationship Between PEO and Other NEO Compensation Actually Paid and Company TSR
Description of Relationship Between PEO and Other NEO Compensation Actually Paid and Company TSR As demonstrated by the following chart, the amount of Compensation Actually Paid to our PEO and the average of Compensation Actually Paid to our other NEOs is aligned with the Company’s cumulative TSR over the three years presented in the chart. The alignment of Compensation Actually Paid with the Company’s TSR over the period is because a significant portion of the Compensation Actually Paid to our PEO and other NEOs is comprised of equity awards. As described in more detail in the section “Executive Compensation – Compensation Discussion and Analysis”, for the 2023 year for example, approximately 70% and 55% of the value of total compensation awarded to our PEO and other NEOs, respectively, was comprised of equity awards, including restricted stock awards and performance units. The below chart also compares our cumulative TSR over the three most recently completed fiscal years to that of the AMNAX Index over the same period.
Description of Relationship Between PEO and Other NEO Compensation Actually Paid and Net Income
Description of Relationship Between PEO and Other NEO Compensation Actually Paid and Net Income The following chart sets forth the relationship between Compensation Actually Paid to our PEO, the average of Compensation Actually Paid to our other NEOs, and our net income during the three most recently completed fiscal years. While the Company does not use net income as a performance measure in its overall executive compensation program, the measure of net income is generally correlated with the measure of Adjusted EBITDA, which the Company does use when setting goals in the Company’s annual incentive program and CAD and Leverage Performance Units. As described in more detail in the section “Executive Compensation – Compensation Discussion and Analysis”, for the 2023 year, approximately 17% and 20%, respectively, of the value of total compensation awarded to our PEO and our other NEOs, respectively, consisted of amounts under the Company’s short-term incentive program.
Description of Relationship Between PEO and NEO Compensation Actually Paid and Adjusted EBITDA
Description of Relationship Between PEO and NEO Compensation Actually Paid and Adjusted EBITDA The following chart demonstrates the general alignment between Compensation Actually Paid to our PEO, the average of Compensation Actually Paid to our other NEOs, and our Adjusted EBITDA during the three most recently completed fiscal years. As noted above, Adjusted EBITDA is a non-GAAP measure; reconciliations of this non-GAAP financial measure to the most directly comparable GAAP measure may be found in the Company’s Fiscal Year 2023, 2022, 2021 and 2020 earnings releases, each filed on Form 8-K. While the Company uses numerous financial and non-financial performance measures for the purpose of evaluating performance for the Company’s compensation programs, the Company has determined that Adjusted EBITDA is the financial performance measure that, in the Company’s assessment, represents the most important performance measure (that is not otherwise required to be disclosed in the table) used by the Company to link compensation actually paid to the company’s NEOs, for the most recently completed fiscal year, to Company performance. The Company utilizes Adjusted EBITDA when setting goals in the Company’s short-term incentive program, as well as serving as a component for setting goals for a portion of the Performance Units that are awarded to the NEOs.