DEF 14A of Telos Corp
Filed Apr 9, 2024 · FY20230001140361-24-018919
PROPOSAL 1: Election of Directors
PROPOSAL 1: Election of Directors The Board of Directors of Telos recommends that the Director Nominees named below be elected by the holders of the Company’s Common Stock. The election of directors requires a plurality of the voting power of the shares of our Common Stock present in person or represented by proxy at the 2024 Annual Meeting and entitled to vote thereon. Only votes cast “FOR” a nominee will be counted in the election of directors. Broker non-votes and abstentions will not be counted. Votes that are withheld with respect to one or more nominees will result in those nominees receiving fewer votes but will not count as a vote against the nominees.
Director Nominees
Director Nominees The Company’s Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, has nominated the following individuals for election as directors by the holders of the Common Stock, to serve until his or her successor is elected and qualified: John B. Wood, David Borland, Bonnie Carroll, Derrick D. Dockery, Brad Jacobs, Maj. Gen. (ret) John W. Maluda, and Fredrick D. Schaufeld. Each of our directors is a United States citizen.
Director Nominees
| John B. Wood Age | 60 | President, Chief Executive Officer, Chairman of the Board of the Company. Mr. Wood joined the Company in 1992 as Executive Vice President and Chief Operating Officer and in 1994 was named President and Chief Executive Officer (“CEO”) until March 2000, when he was appointed to the newly created position of Executive Chairman of the Board. In 2002, he became Chairman of the Board subsequent to a restructuring of the Board of Directors. In January 2003, Mr. Wood resumed the positions of President and CEO. Prior to joining the Company, Mr. Wood worked on Wall Street for Dean Witter Reynolds, UBS Securities, and his own boutique investment bank. Mr. Wood graduated from Georgetown University where he earned a Bachelor of Science in Business Administration in finance and computer science. Mr. Wood also serves on several advisory boards. As the Chief Executive Officer of the Company, Mr. Wood provides the Board with not only the knowledge of the daily workings of the Company, but also with the essential experience and expertise that can be provided only by a person who is intimately involved in running the Company. Due to Mr. Wood’s broad knowledge and experience with the Company and its offerings, he is considered to have cybersecurity expertise. His experience with the Company’s stockholders, partners, customers, and vendors, resulting from his long tenure with the Company are invaluable to the Board. | | David Borland Age | 76 | President, Borland Group, an information technology consulting company, since January 2004. Mr. Borland was elected to the Board of Directors in March 2004 after retiring as Deputy Chief Information Officer (“CIO”) of the U.S. Army with more than 30 years of experience in the U.S. Government. Mr. Borland’s U.S. Army career experience also includes serving as Vice Director of Information Systems for Command, Control, Communications, and Computers; Director of the Information Systems Selection and Acquisition Agency; and numerous other positions. From 1966 through 1970, Mr. Borland served in the U.S. Air Force. Mr. Borland received numerous awards, including the Meritorious Presidential Rank Award for Senior Executive Service Members (1996 and 2003), the Distinguished Presidential Rank Award (2000), and the U.S. Army Decoration for Exceptional Civilian Service (1998 and 2003). Mr. Borland holds a Master’s Degree in Finance from George Washington University. Mr. Borland’s industry experience and extensive service with the U.S. Army and the U.S. Air Force make him a valuable member of the Board of Directors. |
Director Nominees
| Bonnie Carroll Age | 66 | President and Founder, Tragedy Assistance Program for Survivors (TAPS), a non-profit organization that provides comfort, care, and resources to family members grieving the death of a member of the military, since 1994. Ms. Carroll was elected to the Board in September 2020. Ms. Carroll has also held appointments in the government, including White House Liaison at the Department of Veteran Affairs under President George W. Bush, Executive Assistant to the President for Cabinet Affairs under President Reagan, and the Senior Advisor to the Iraqi Ministry of Communications during Operation Iraqi Freedom. Ms. Carroll retired as a Major in the Air Force Reserve following 31 years of service, where her career included serving as Chief, Casualty Operations, HQ USAF. Prior to joining the USAFR, Maj. Carroll served 16 years as both a noncommissioned officer and then a commissioned officer in the Air National Guard as a Transportation Officer, Logistics Officer, and Executive Officer. Ms. Carroll holds a degree in Public Administration and Political Science from American University and has completed the Harvard University John F. Kennedy School of Government’s Executive Leadership Program on International Conflict Resolution. She is a graduate of several military service schools, including the USAF Logistics Officer Course, Squadron Officers School, Defense Equal Opportunity Management Institute, Academy of Military Science and USAF Basic Training (Honor Graduate). Ms. Carroll received the Presidential Medal of Freedom from President Barack Obama and the Zachary and Elizabeth Fisher Distinguished Civilian Humanitarian Award from the Department of Defense. Ms. Carroll’s extensive service in the military, civilian agencies, and non-profit work serving family members of military service men and woman, and the recognition of her service by the highest level of government, make her a valuable member of the Board of Directors. | | Derrick D. Dockery Age | 43 | U.S. Government Affairs at TikTok, a popular video streaming and sharing app, since June 2020. Mr. Dockery was elected to the Board on January 19, 2022. Mr. Dockery is the Co-Founder of Yellow Ribbons United, a non-profit founded in 2013, which leverages professional sports platforms and resources of corporate America to increase awareness of issues affecting retired and active-duty military personnel and their families. From 2013 to 2019, Mr. Dockery worked at the U.S. House of Representatives for Speaker Paul Ryan (2016-2019) as Business and Intergovernmental Coalition Director; Chairman Jason Chaffetz, House Oversight and Government Reform Committee (2015-2016) as Communications and Coalitions Coordinator; and Chairman Paul Ryan, House Budget Committee Office (2013-2015) as Communications Press Assistant. From 2003 to 2013, Mr. Dockery played professional football as an offensive lineman for the Dallas Cowboys, Washington Redskins (now called the Commanders), and the Buffalo Bills. Mr. Dockery holds a Bachelor of Science in Education with a minor in Communications from the University of Texas in Austin, Texas and a Master of Business Administration from George Washington University in Washington, D.C. Mr. Dockery’s experience working in Congress and his relationships in the business community make him a valuable member of the Board of Directors. |
Director Nominees
| Brad Jacobs Age | 66 | Adjunct Professor at Rollins College in Florida and Consultant since January 2015. Mr. Jacobs was elected to the Board on January 19, 2022. Mr. Jacobs is a consultant for various law firms regarding U.S. Department of Defense and agency bid protests. From November 2000 until September 2014, Mr. Jacobs served in various finance roles at BAE Systems, Inc., which has 43,700 employees worldwide and generated $12 billion in sales in 2013. At BAE Systems, Inc., he held the following positions: Senior Vice President, Finance (March 2009 to September 2014); Vice President, Finance, Mergers & Acquisitions (September 2007 to February 2009); and Vice President, Finance, Electronics & Integrated Solutions Operating Group (November 2000 to August 2007). From March 1992 until November 2000, Mr. Jacobs worked in various management roles at Lockheed Martin Company. Mr. Jacobs also serves on the Board of Tragedy Assistance Program for Survivors (TAPS) and the Jewish Federation for Greater Orlando. Mr. Jacobs holds a Bachelor of Science in Finance (with honors in Economics) from the University of Maryland and a Master of Science in Industrial Administration from Purdue University. Mr. Jacobs’s education, his extensive experience with major defense contractors, and his focus on financial matters within those companies, make him a valuable member of the Board of Directors. | | John W. Maluda (Maj. Gen. USAF, Ret.) Age | 70 | Retired, U.S. Air Force Major General. General Maluda was elected to the Board in October 2009. He retired from the U.S. Air Force in September 2009 after more than 34 years of continuous active duty. At the time of his retirement, General Maluda was Director of Cyberspace Transformation and Strategy, in the Office of the Secretary of the Air Force, and Chief Information Officer. In that capacity, he shaped doctrine, strategy, and policy for communications and information activities and served as the functional advocate for 30,000 personnel. Prior to that, General Maluda was Vice Commander, 8th Air Force, at Barksdale Air Force Base, Louisiana. General Maluda enlisted in the Air Force in 1973 and received his commission in 1978 as a distinguished graduate of the ROTC program at Troy State University in Alabama. His career highlights include serving at three major commands, with unified combatant commands, a defense agency, the White House and the Air Staff. General Maluda’s staff experience included positions at Headquarters U.S. Air Force, Air Combat Command, and U.S. Air Force in Europe, Air Force Special Operations Command, U.S. Space Command and the White House Communications Agency. General Maluda holds a Bachelor of Science in Electrical Engineering from Auburn University, a Master’s Degree in Systems Management from the University of Southern California, and Master’s Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization. General Maluda’s comprehensive experience with the U.S. Air Force, cybersecurity expertise as a former CIO, and broad industry insight make him a valuable member of the Board of Directors. |
Director Nominees
| Fredrick D. Schaufeld Age | 64 | Co-founder and Managing Director of SWaN & Legend Venture Partners (SWaN) since 2006. Mr. Schaufeld was elected to the Board in November 2020. Mr. Schaufeld is a Partner in Monumental Sports and Entertainment, which owns the Washington Capitals (NHL), Wizards (NBA), Mystics (WNBA), Capital City Go-Go (NBA-G) and the Capital One Arena. He is a Partner in the Washington Nationals (MLB), Team Liquid (e-Sports), the Professional Fighters League (PFL) and the Hill Top House Hotel, Harpers Ferry. Mr. Schaufeld also owns American Bike Ride, the parent of DC Bike Ride. Prior to SWaN, Mr. Schaufeld founded and led NEW Corp. (NEW), which was acquired by Asurion (now NEW Asurion) in 2008. Mr. Schaufeld currently sits on the boards of several private companies. Mr. Schaufeld is the recipient of Ernst & Young’s “Entrepreneur of the Year” award, has been nominated to membership in the Horatio Alger Association, and is a member of the Economic Club of Washington, D.C., the Young Presidents Organization (YPO) and its Peace Action Network Arab American Action Forum. Mr. Schaufeld also sits of the board of several charitable organizations, including the Wolf Trap Foundation. Mr. Schaufeld received his Bachelor’s degree in Government from Lehigh University. Mr. Schaufeld’s extensive experience in business and finance, as well as his service to various local charitable organizations, make him a valuable member of the Board of Directors. |
Compensation of Directors
Compensation of Directors On May 8, 2023, the Compensation Committee recommended, and Board of Directors approved, the three-part pay structure for the directors for 2023. First, each director received $35,000 as a basic retainer, plus $5,000 per committee assignment. Second, each director received a long-term incentive award of 55,555 restricted share units, valued at $100,000 as of the grant date, vesting after one year on May 8, 2024. Third, each director received 50,000 non-qualified stock options (“NSOs”), vesting in one year on May 8, 2024, with a strike price of $1.80, exercisable within ten years of the grant. In addition, the chairpersons of the Audit Committee, Compensation Committee and Nominating Committee received 10,000 NSOs, 8,000 NSOs, and 2,000 NSOs, respectively, under the same terms. As previously disclosed, General Maluda, through his entity, JK Maluda LLC, and the Company were parties to a consulting agreement under which General Maluda provided certain consulting services to the Company. For his services from January 1 through June 30, 2023, General Maluda received a grant on January 3, 2023 of Telos’ restricted share units valued at $87,500 (16,849 restricted share units), of which 8,430 shares vested on March 8, 2023 and 8,429 shares vested on May 18, 2023. For services rendered from July 1 to December 31, 2023, General Maluda received a retainer of $7,500 per month; $21,000 for attending seven events ($3,000 per event), such as trade shows or customers meetings; and a bonus payment of $25,000 for his role in facilitating the renewal and extension of a specific contract. The consulting agreement expired on December 31, 2023. The following table summarizes the director compensation paid during the year ended December 31, 2023, other than for Mr. John Wood (who was not paid separate compensation for his service as a director and whose compensation is described elsewhere in this proxy statement). The directors did not receive any perquisites and the Company made no charitable donations under their names. DIRECTOR COMPENSATION FOR 2023
Compensation of Directors
| Name | Cash Compensation | Stock Award(2) | Option Awards(3) | Total | | David Borland | $22,500 | $100,000 | $93,600 | $216,100 | | Bonnie L. Carroll | 25,000 | 100,000 | 90,000 | 215,000 | | Derrick D. Dockery | 22,500 | 100,000 | 90,000 | 212,500 | | Brad Jacobs | 20,000 | 100,000 | 108,000 | 228,000 | | John W. Maluda(1) | 108,500 | 100,000 | 90,000 | 298,000 | | Fredrick D. Schaufeld | 22,500 | 100,000 | 104,400 | 226,900 | | TOTAL | $221,000 | $600,000 | $576,000 | $1,397,000 |
Compensation of Directors
| (1) Includes amount paid pursuant to a consulting agreement with the Company for 2023. |
Compensation of Directors
| (2) The grant date fair value of the RSUs granted to each of the directors on May 8, 2023. See assumptions made in the valuation of these awards for financial statement reporting purposes in Note 2 - Summary of Significant Accounting Policies to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. |
Compensation of Directors
| (3) The grant date fair value of the stock options granted to each of the directors on May 8, 2023, which vest on May 8, 2024 and have an exercise price of $1.80 per share. See assumptions made in the valuation of these awards for financial statement reporting purposes in Note 2 - Summary of Significant Accounting Policies to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. These stock options are the only outstanding stock options held by these directors. |
Compensation Discussion and Analysis
| • | Annual incentive compensation for NEOs was predicated on meeting a combination of high-priority performance targets drawn from the Company’s 2023 budget and growth plan: Revenue, Adjusted EBITDA, and Bookings. Ultimately, the Company exceeded the high end of its targets for each of these performance metrics, resulting in incentives earned by the NEOs. |
Compensation Discussion and Analysis
| • | Long-term incentive compensation to NEOs was deferred, in recognition of the fact that two-year equity grants had been made in 2022 (a portion of which vested in 2023) and in light of concerns over share availability, shareholder dilution and, later, the failure of the Company’s say-on-pay proposal. |
Compensation Discussion and Analysis
| • | We refreshed our compensation peer group, resulting in reduced median revenues of the companies in that group, to align with the reduction in our revenues year over year. |
Compensation Discussion and Analysis
| • | To incentivize the success of critical Company objectives, we provided NEOs the opportunity to receive annual bonuses upon meeting a revenue target, finalization of a critical contract award for the Company, and the successful expansion of enrollment centers for our TSA PreCheck services. |
Compensation Discussion and Analysis
| • | Long-term incentive compensation will be overwhelmingly performance-based, keyed to TSA PreCheck enrollment expansion through 2026, increased revenue and free cash flow in 2025, and an increased stock price sustained over time, prior to the end of 2026. |
Compensation Discussion and Analysis
| • | To encourage key employees to put forth maximum efforts for both our short-term and long-term success; |
Compensation Discussion and Analysis
| • | To drive achievement of our long-term growth, profitability and other objectives; |
Compensation Discussion and Analysis
The individual components of the 2023 compensation program — consisting of base salary, annual incentive compensation or bonus (which we call the Annual Incentive Plan or “AIP”), equity incentive compensation (called a Long-Term Incentive or “LTI”), and perquisites — are designed to meet these objectives and together are intended to be competitive in the marketplace. The overall compensation package is based on the following considerations:
Compensation Discussion and Analysis
| • | Compensation should be a mix of annual and long-term compensation. Ideally, long-term compensation for at least our named executive officers will constitute a majority of the total compensation, in order to encourage retention and attainment of long-term performance goals. |
Compensation Discussion and Analysis
| • | Compensation should be a mix of cash and equity, with cash rewarding achievement of goals and equity encouraging retention and long-term performance aligned with the interests of our stockholders. |
Compensation Discussion and Analysis
| What we DO | What we DON’T do | | Align annual bonuses with a minimum threshold level of achievement for funding and objective and challenging performance measures. | No “golden parachute” gross-ups. | | Ensure that the majority of executive target compensation is equity-based, thereby aligning executives’ interests with shareholders’ interests. | No guaranteed bonuses or base salary increases for executive officers. | | For 2024, we will ensure that more than approximately 73% of CEO and Executive Vice President NEO compensation is directly “at risk” because it is contingent on meeting Company performance targets. | No options or SARs granted below fair market value. | | Maintain a Compensation Committee comprised solely of independent directors. | No repricing of stock options without stockholder approval. | | Review executive compensation strategy, competitiveness, and risk against a peer group, annually. | No excessive severance. | | Retain an independent compensation consultant to provide expert advice on the design and evaluation of our compensation policies and practices. | No excessive perquisites. | | Maintain a Clawback Policy. | No executive retirement plans other than those offered to all employees. |
Compensation Discussion and Analysis
| • | The scope of each NEO’s role and responsibilities compared to other similarly-situated executives at the companies in our compensation peer group; |
Compensation Discussion and Analysis
| • | The potential of each individual executive officer to contribute to our long-term financial, operational, and strategic objectives; |
Compensation Discussion and Analysis
| • | The compensation practices of our compensation peer group and the positioning of each NEO’s compensation in a ranking of compensation levels based on an analysis of competitive market data; |
Compensation Discussion and Analysis
| • | Providing annual peer group development, and review and advice on proposed executive compensation and awards and plan designs; |
Compensation Discussion and Analysis
| • | Providing annual proxy study of named executive officers and independent director pay practices; |
Compensation Discussion and Analysis
| • | Providing equity plan recommendations and annual and long-term incentive plan reviews; and |
Compensation Discussion and Analysis
The Compensation Committee has determined that the work of Lockton and its employees as compensation consultants to the Compensation Committee has not created any conflict of interest. While the data and input provided by Lockton is a factor in its analysis of various compensation elements and has been relied upon by the Compensation Committee, the Compensation Committee makes the final determination on all compensation decisions. Competitive Positioning For purposes of assessing our executive compensation against the compensation market, the Compensation Committee reviews and considers the compensation levels and practices of a select group of peer companies. Recognizing that executive compensation in 2023 would be largely the second year of a two-year program started in 2022 (most likely deferring long-term incentive awards for NEOs, for example), and to ensure continuity, the Compensation Committee chose to maintain the peer group it had used with respect to benchmarking executive compensation in 2022. The following companies had been selected because of the similarity of the nature of their business to ours and their relative size (at the time of selection): CrowdStrike Holdings, Inc., LiveRamp Holdings, Inc., Okta, Inc., OneSpan, Inc., Perficient, Inc., Qualys, Inc., Rapid7, Inc., SecureWorks Corp., Tenable Holdings, Inc., Varonis Systems, Inc., and ZScaler, Inc. (Three companies that had been compensation benchmark peers in 2022 — Zix Corporation, Sailpoint Technologies Holdings, Inc., and Ping Identity Holding Corporation — were removed from the peer group because they were no longer public companies.) As is described in greater detail below, subsequent to the failure of the Company’s say-on-pay proposal at its 2023 Annual Meeting, the Compensation Committee decided to re-examine the peer group, and in 2024 refreshed that group to more accurately reflect the current size of our Company. Elements of Compensation Base Salary We provide each of our executive officers with a base salary to compensate them for services rendered during the fiscal year. The relative levels of base salary are designed to reflect each executive officer’s professional expertise and scope of responsibility and accountability within the Company, our financial performance, and the executive officer’s individual performance. Base salaries generally are established at levels sufficient to attract and retain an effective management team when considered together with the performance-based components of our overall compensation program. Generally, we establish the initial base salaries of our NEOs through arm’s-length negotiation at the time we hire the individual, taking into account their position, qualifications, experience, salary expectations, and the base salaries of our other NEOs. Thereafter, the Compensation Committee reviews the base salaries of our NEOs each year as part of its annual compensation review, with input from Mr. Wood (except with respect to his own base salary) and makes adjustments as it determines to be reasonable and necessary to reflect the scope of a NEO’s performance, individual contributions and responsibilities, position in the case of a promotion, and market conditions. For 2023, after considering the base salaries of peer executives and in light of the various factors described above, the Compensation Committee did not believe an adjustment to base salaries was warranted. The 2023 annual base salaries of the NEOs were:
Compensation Discussion and Analysis
Annual Incentive Plan (“AIP”) Under the AIP, the NEOs are eligible for incentive bonus awards. The purpose of the AIP is to provide each of our NEOs the opportunity annually to earn a bonus award as an incentive to put forth maximum efforts for both our short-term and long-term success and to drive achievement of our growth and profitability objectives. The AIP is based upon one or more financial performance targets as determined by the Compensation Committee on an annual basis. Awards under the AIP are an integral component of compensation that link and reinforce executive decision-making and performance with the annual objectives of the Company. The AIP is administered by the Compensation Committee and determinations by the Compensation Committee are final, conclusive and binding on all parties. The Compensation Committee has the discretion to determine the appropriate performance targets, the amount of the awards, and the leverage features described below. The amount of the awards, performance targets, and leverage features generally are established in writing during the first quarter of each year. The AIP and the annual incentives potentially payable under it for our NEOs are generally competitive with similar annual incentive compensation earned by senior executives at our peer companies, as evaluated by Lockton and reported to the Compensation Committee. For 2023, the Compensation Committee selected annual performance criteria that reflected the Company’s strategic goals to grow, to work towards a return to profitability, and to increase new business. Accordingly, the Committee selected Revenue, Adjusted EBITDA and Bookings as the performance criteria for the AIP, because they measured the success of the Company’s annual operating plan. Revenue meant our GAAP revenue as defined in our periodic reports filed with the SEC for fiscal year 2023. As discussed on page 35 in our 2023 Form 10-K, Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss), adjusted for non-operating expense/(income), interest expense, provision for/(benefit from) income taxes, depreciation and amortization, restructuring expenses and stock-based compensation expense. The Compensation Committee has the discretion to pay AIP in the form of stock, cash, or a combination thereof to optimize liquidity and share dilution in the best interest of shareholders. In addition, the Compensation Committee has the authority to exclude non-recurring, irregular and one-time items when determining Adjusted EBITDA. The Compensation Committee defined Bookings as, for the entirety of the calendar year, all orders with a defined quantity or value, including new program wins, renewals, task orders on contract vehicles (IDIQs, GWACs, etc.), product and service orders on existing contracts, modifications and plus ups to existing contracts, etc., regardless of when the orders convert to revenue. In addition, to incentivize capture of new contract vehicles (IDIQs, GWACs, etc.), each new contract vehicle won during the calendar year with no defined quantity or value would contribute 25 percentage points to the payout calculation for the bookings goal, provided the bookings metric did not exceed two hundred percent (200%) leverage. Highlighting our emphasis on business generation, the Bookings goal was weighted as fifty percent (50%) of the AIP, while the Revenue and the Adjusted EBITDA goals were weighted as twenty five percent (25%) each. The dollar values of the performance criteria in our 2023 AIP were directly related to the objectives contained in our 2023 budget and our long-term strategies. We believe that annual incentive metrics should drive performance for the particular year in question, which mandates a realistic assessment for the year ahead. In a year where the Company forecasts a significant decline in revenue, for example, it makes little sense to set an annual incentive pegged to an unachievable increase in annual revenue. In March 2023, the Company issued guidance forecasting 2023 revenue to be between $115 and $140 million, and 2023 Adjusted EBITDA to be between ($27 million) and ($17 million). Accordingly, for the 2023 AIP Revenue goal, the Committee selected $132.5 million, at the high end of the guided range of annual revenue. For the 2023 AIP Adjusted EBITDA goal, the Committee selected ($17 million) which was at the high end of the guidance range. The Company does not publicly disclose Bookings forecasts, but based on internal business generation targets, the Committee selected a 2023 AIP bookings goal of $127.5 million (in contracts with a specific value – as noted, contract vehicles without a dollar value also counted towards the goal.) The Compensation Committee established that amounts of the target AIP awards to the NEOs would range from 75% to a maximum of 100% of their annual salaries (with the CEO set at 100% of his annual salary and all other NEOs set at 75% of their annual salaries), subject to leveraging to incentivize performance beyond the set goals. The amount of leverage ranged from 0% to 200% (except for Mr. Wood, who was capped at a leverage ratio of 100% for all AIP components) on a straight-line basis between two low and high “thresholds” for each goal, as follows: For the Revenue goal, less than $120 million would result in no payout, and equal to or greater than $145 million would result in leverage of 200%. For the Adjusted EBITDA goal, losses greater than ($22 million) would result in no payout, and losses less than or equal to ($12 million) would result in leverage of 200%. For the Bookings goal, less than $95 million in bookings would result in no payout, and equal to or greater than $160 million would result in leverage of 200%.
Compensation Discussion and Analysis
| 2023 AIP Performance Goals, Leverage and Weighting | | | | | | Goal | 0% | Target | 200% | Weight | | Revenue | <$120M | $132.5M | ≥$145M | 25% | | Adjusted EBITDA | <($22M) | ($17M) | ≥($12M) | 25% | | Bookings | <$95M | $127.5M | ≥$160M | 50% |
Compensation Discussion and Analysis
| Named Executive Officer | AIP Award | | John B. Wood | $600,000 | | Mark Bendza | 615,000 | | Mark D. Griffin | 592,500 | | Hutch Robbins | 577,500 |
Compensation Discussion and Analysis
The Committee further elected to pay such bonuses in cash in order to eliminate any impact of the 2023 AIP awards on share count dilution. Other senior staff members were eligible to participate in the AIP in 2023, and the total amount available for such incentives was approved by the Compensation Committee. Senior staff performance goals are set by management, based on performance of their business segment or the Company as a whole or a combination of both. For 2023, any award payout was paid in cash. Long-Term Incentive Plan The purpose of the 2016 LTIP is to enhance our ability to attract, motivate and retain highly qualified employees, to improve our business results and earnings by providing such persons an opportunity to acquire or increase a direct proprietary interest through ownership of equity in the operations and future success of the Company, and to align the employees’ interests and efforts with the interests of our stockholders. The 2016 LTIP allows for the award of a number of types of equity or equity-based incentives, including stock options, restricted shares, and restricted share units, among others, and the incentives can be structured to be either time-based or performance-based. Time-based incentives encourage retention and provide for incremental recognition of equity compensation over the vesting period. Performance-based incentives allow for additional awards based on over-achievement, while also withholding compensation for under-performance, of defined objective performance criteria. Performance-based restricted share units (“PSUs”), if the performance criteria are satisfied while the executive or senior officer continues in service, would settle in our Common Stock. The Compensation Committee decides what form of incentive to use on a grant-by-grant basis, depending on the circumstances. When approving an incentive for an executive or senior officer, the Compensation Committee considers the executive or senior officer’s current role and contribution to the Company, the anticipated role and contribution of the executive or senior officer to the Company’s long-term financial and performance goals, the executive or senior officer’s performance and achievements, and the industry practices and norms as evidenced by our peer group of companies. The Compensation Committee also takes into account the amount of long-term incentives granted in prior years, existing levels of stock ownership by executive or senior officers, and the aggregate grants of incentives to all executive or senior officers. The Compensation Committee also considers the other elements of incentive compensation available to executive or senior officers and the performance metrics associated with those incentives, with a view toward providing an appropriately diverse set of performance criteria and objectives to incentivize both service to the Company over time as well as performance, and to avoid or minimize multiple forms of compensation for the same achievement. In general, the executive or senior officers with higher levels and amounts of responsibility are eligible to receive larger equity awards and have a larger proportion of their compensation paid in the form of equity as opposed to cash-based compensation. Finally, the Compensation Committee reviews proposed equity awards to executive or senior officers against benchmarking and peer group data and utilizes that data to ensure that the level of equity awards to our executive or senior officers generally are competitive and in alignment with our peer group companies and industry expectations. The 2016 LTIP and the grant award agreements issued under it provide for clawback of equity awards to the extent permissible by law and the Company’s policy. For 2022, the Compensation Committee approved LTI grants to the executive officers consisting of RSUs vesting over a two-year period, on December 1, 2022 and December 1, 2023. Also, to provide a methodical and fair approach, the award value was adjusted downward by the amount of prior awards that vested or were scheduled to vest in 2022 and 2023. The LTI target grant values aimed to align the executive officer compensation with the target total direct compensation of officers in the peer group at approximately the 50th percentile. Overall NEO pay mix was more heavily weighted toward long-term incentives, ranging from 70% to 82% of total direct compensation, which emphasized the alignment between executive compensation and shareholder value. In 2023, the Compensation Committee made no LTI grants to NEOs, for several reasons. First, at the time the Committee was considering such awards during the first quarter of 2023, the LTIP lacked sufficient shares available to make incentive awards roughly in line with median peer compensation of a similar type. Second, the low prices of Telos’ shares in the latter portions of the first quarter of 2023 gave the Committee concern regarding the dilutive effect of awards made at that time. After the Company’s 2023 Annual Meeting of Stockholders, and the failure of the Company’s say-on-pay proposal, the Committee felt that it needed to first engage with stockholders concerning compensation structure and to revisit the issue of LTI for NEOs in 2024. The Company did issue long-term incentive compensation equity awards under the 2016 LTIP to non-executive officer employees in 2023, which included senior management, consultants, as well as to members of our board of directors. Perquisites We provide certain perquisites to our executive officers in order to allow the executives to work more efficiently and to help us remain competitive by retaining talented and dedicated executives. These perquisites are limited to reimbursement for golf club membership, and, in certain circumstances, commuting costs. The Compensation Committee believes that the perquisites are consistent with our overall compensation program, although Lockton has advised us that our perquisites in certain respects are below market. No changes to our perquisites are currently contemplated by the Compensation Committee or the senior executive team. See “All Other Compensation” of the Summary Compensation Table below for the amounts of the perquisites provided to the named executive officers. Executive Officer Employment Agreements We are party to employment agreements with each of the named executive officers. All of the agreements provide for payment of a base salary, bonus, eligibility for stock option and restricted share grants under our stock option and restricted share plans, and vacation days. Each of the agreements also provides for eligibility to participate in all plans that we maintain for our salaried senior executives, including, without limitation, pension, profit-sharing or other retirement plans, life, accident, disability, medical, hospital or similar group insurance programs and any other benefit plan, subject to the normal terms and conditions of such plans. According to the employment agreements, in the case of termination of the employment agreement for cause, or if the executive terminates the agreement for any reason (after providing 30 days prior written notice to us of such termination), such executive would only be entitled to receive the following:
Compensation Discussion and Analysis
| • | any bonus which has been earned by the respective executive, but which remains unpaid as of the date of the executive’s termination of employment, at such time and in such manner as if the executive had continued to be employed by us, and |
Compensation Discussion and Analysis
| • | immediate vesting of the unvested portion of any outstanding stock options and any outstanding shares of restricted stock, |
Compensation Discussion and Analysis
| • | the cash equivalent of premium payments for continued coverage under the medical, dental, short and long-term disability, and life insurance and other similar plans equal to 24 months in the case of Mr. Wood, 18 months for Mr. Griffin, and 12 months for Messrs. Bendza and Robbins, |
Compensation Discussion and Analysis
Under the agreements, termination by the Company “without cause” means involuntary termination at our discretion which is not based on cause, death, or disability. “Cause” is defined as gross negligence or willful and continued failure by the executive to substantially perform his duties as an employee of ours (other than any such failure resulting from incapacity due to physical or mental illness) or the executive’s dishonesty, fraudulent misrepresentation, willful misconduct, malfeasance, violation of fiduciary duty relating to our business, or conviction of a felony. The executive is deemed “disabled” if he is eligible for disability benefits under our long-term disability plan, or has a physical or mental disability which renders the executive incapable, after reasonable accommodation, of performing substantially all of executive’s duties under the agreement for a period of 180 consecutive or non-consecutive days in any 12-month period. Upon termination of employment due to a “change in control” (as defined in the employment agreements and summarized below) of the Company, for Messrs. Wood and Griffin, or termination without cause within 12 months of a change in control for Messrs. Bendza and Robbins, each of the executives would be entitled to a lump-sum payment in the following amounts in addition to the amounts payable to the executive if the Company terminates the agreement for cause or the executive terminates the agreement for any reason:
Compensation Discussion and Analysis
After receiving the results of the 2023 say-on-pay vote, the Compensation Committee reached out to 25 of the largest stockholders of the Company (excluding Company employees and directors) to solicit their views on executive compensation at Telos and the reasons underlying their votes (for or against) the say-on-pay resolution. On October 2, 2023, CFO Mark Bendza, on behalf of Compensation Committee Chair Fredrick Schaufeld, contacted 25 stockholders who collectively owned (at that time) approximately 50% of the Company’s Common Stock, seeking to meet with them to ensure that the Committee had the opportunity to benefit from the stockholders’ insights concerning Telos’ executive compensation plan, policies and practices, and to answer any questions those stockholders may have regarding that subject. Five stockholders, who collectively held (at that time) approximately 18.7% of the Company’s Common Stock, accepted the Committee’s invitation to meet. Between October 9 and October 25, 2023, Messrs. Schaufeld, Bendza, and Robbins participated in separate virtual meetings with these five stockholders to solicit their feedback as described above. On November 10, 2023, Mr. Bendza, again on behalf of Mr. Schaufeld, re-contacted the remaining 20 stockholders who had not initially accepted the invitation to meet, again seeking the opportunity to speak with them. No additional stockholders accepted the invitation. Our meetings with these stockholders involved wide-ranging discussions of Company financial performance, governance and executive compensation. Several stockholders expressed their view that the result of the say-on-pay vote was more a response to Company financial performance than a specific issue with compensation. Themes we heard from our stockholders included: Ensuring that our executive compensation structure incentivized greater total stockholder return; aligning incentive compensation to stockholder interests; focusing compensation on incentivizing improved cash flow and revenue generation; and, increasing the use of meaningful performance-based metrics in long term incentive compensation. Mr. Schaufeld reported the results of these meetings to the Compensation Committee. In addition to feedback from our stockholders, the Compensation Committee considered the viewpoints of Institutional Shareholder Services (ISS) with respect to Telos’ compensation practices, as reported by ISS prior to our 2023 Annual Meeting. The valuable feedback we received from our stockholder outreach came after 2023 executive compensation had been approved, and more than one year after LTI grants for the NEOs (a portion of which vested in 2023) had been approved and issued. (As noted elsewhere in this Proxy, there were no LTI grants for NEOs approved in 2023.) Accordingly, the Committee was unable to take these insights into account in setting the 2023 executive compensation program; however, our stockholders’ input was taken into consideration by the Compensation Committee in connection with setting the Company’s compensation program for 2024. The primary feedback we received from our stockholders and the Compensation Committee’s response thereto is set forth in tabular format below, after our discussion of the critical changes made to our executive compensation program in 2024. Major Adjustments to Our Executive Compensation Program in 2024 In the first quarter of 2024, the Compensation Committee met to address changes necessary to the Company’s executive compensation program with the benefit of what it had heard concerning that program from stockholders and third parties. At the time of the Committee’s meetings this year, there were no LTI grants for NEOs outstanding (other than the comparatively smaller new hire retention grants outstanding for Messrs. Bendza and Robbins). Refreshed Peer Group The Compensation Committee first refreshed the group of peer companies used to benchmark executive compensation. As noted above, three companies in the Company’s 2022 peer group were no longer public companies. Furthermore, the Compensation Committee felt that the four largest companies (by revenue) in the peer group (CrowdStrike, Okta, Zscaler, and Perficient) were too large to serve as comparable companies. In assessing potential peers, the Compensation Committee considered the nature of a potential peer’s business and industry, its size by revenue, its history as a public company, number of employees, market capitalization, net income, the market from which it competes for employee talent, and its “connection strength” – the extent and/or number of interrelationships between peers and peers of peers (e.g., whether a company was a peer of a peer company, or selected the Company as a peer.) To that end, the Committee benefitted from resources and recommendations from Lockton and Equilar, Inc., a provider of executive compensation benchmarking services. The Compensation Committee was particularly mindful that the Company generally competes for employee talent and business with companies that are much larger – by headcount, revenue, and assets – than Telos. After due consideration, the Compensation Committee selected the following companies to serve as a compensation benchmark peer group for 2024:
Compensation Discussion and Analysis
Continue Focus on Key Company Performance Metrics for the Annual Incentive Plan In keeping with its goal of aligning compensation to successful Company performance and selectively choosing performance metrics that are most critical to near and long-term Company growth, the Compensation Committee agreed to use the following as performance metrics for the AIP portion of the NEOs’ 2024 compensation (as in the past, 100% of any annual incentive for NEOs will be performance-based):
Compensation Discussion and Analysis
The precise amounts, allocations and weighting of these AIP awards will be finalized in the second quarter. Change Long-Term Incentive Awards from Exclusively Time-Based to Approximately 79% Performance-Based In an effort to more fully align executive compensation with Company success, the Compensation Committee determined that NEO long-term incentive awards for 2024 – assuming stockholder approval of the amendments to the 2016 LTIP set forth in this Proxy – would be primarily performance-based. Specifically, the percentage of performance-based awards in the NEOs’ long-term incentive compensation would increase from 0% in 2022 (the last year in which LTI awards were made to our NEOs) to approximately 100% for the CEO, and approximately 79% for the other NEOs, in 2024. Focusing on the long-term growth of the Company, the Compensation Committee selected the following performance-based metrics for long-term incentives to be issued in 2024:
Compensation Discussion and Analysis
These metrics tie directly into important Company goals: i) expanding TSA PreCheck enrollment sites, to drive greater revenue and profit; ii) higher revenue and free cash flow, year over year, and iii) increasing, and maintaining an increase in, the share price of our securities aligns directly with stockholder interests. Note that the long-term incentive metric for revenue addresses 2025 revenue, while the annual incentive metric will address 2024 revenue, so the same revenue figures are not used twice. The Committee also intends to make a time-based incentive award – much smaller as a percentage of total long-term incentive compensation than performance-based awards – vesting two years after issuance to non-CEO NEOs and senior management. By increasing the percentage of long-term incentive compensation that is performance-based, and maintaining the 100% performance-based nature of our annual incentive compensation, the Compensation Committee intends to place approximately 96% of CEO total direct compensation, and approximately 73-75% of Executive Vice President NEOs total direct compensation, “at risk” in 2024. Response to Stockholder Engagement With respect to the principal points, we heard from our stockholders, our Board made the following changes to our compensation structure (in summary):
Compensation Discussion and Analysis
| Stockholder Feedback | Company Response | | Ensure that the compensation structure incentivizes greater total stockholder return. | Commit to increasing the percentage of long-term incentives based on meeting performance metrics from 0% in 2022 to approximately 100% for our CEO (and approximately 79% for the other NEOs) in 2024. One critical component of 2024 long-term incentive awards will be a performance-based metric keyed to a sustained stock price target, thereby directly aligning compensation with stockholder return. | | Align incentive compensation to stockholder interests. | For 2024, approximately 96% percent of CEO total direct compensation (and approximately 73-75% of Executive Vice President NEOs total direct compensation) will be contingent on meeting Company performance goals, thereby further aligning executive interests with stockholder interests. | | Focus compensation on improved cash flow and meaningful revenue generation. | Revenue remains a critical component of annual incentive compensation, and 2025 revenue and free cash flow will form a critical component of long-term incentive awards. | | Increase the use of meaningful performance-based metrics in long-term incentive compensation | Long-term incentive compensation will be overwhelmingly performance-based, keyed to TSA PreCheck enrollment expansion, revenue and cash flow, and an increased stock price. |
Summary Compensation Table
Summary Compensation Table The following table summarizes the compensation for the years ended December 31, 2023, 2022 and 2021 by the chief executive officer, chief financial officer, and the two other most highly-compensated executive officers.
Summary Compensation Table
| Name and Principal Position | Year | Salary | Bonus | Non-Equity Incentive Plan Compensation(1) | Stock Award(2) | All Other Compensation(6) | Total | | John B. Wood Chairman, President and CEO | 2023 | $600,000 | — | $600,000 | — | $49,826 | $1,249,826 | | | 2022 | 600,000 | $10,000(5) | — | $10,078,653 | 38,691 | 10,727,344 | | | 2021 | 604,167 | — | — | 11,555,141 | 37,866 | 12,197,174 | | Mark Bendza(3) Executive V.P. and CFO | 2023 | 410,000 | — | 615,000 | — | 9,480 | 1,034,480 | | | 2022 | 410,000 | — | — | 4,258,185 | 9,327 | 4,677,512 | | | 2021 | 170,833 | — | — | 4,123,255 | 3,255 | 4,297,343 | | Mark G. Griffin(3) Executive V.P., Security Solutions | 2023 | 395,010 | — | 592,500 | — | 13,680 | 1,001,190 | | | 2022 | 395,010 | — | — | 4,303,691 | 12,660 | 4,711,361 | | | 2021 | 353,751 | — | — | 29,507,109 | 6,180 | 29,867,040 | | Hutch Robbins(4) Executive V.P., General Counsel | 2023 | 385,000 | — | 577,500 | — | 31,680 | 994,180 | | | 2022 | 336,875 | — | — | 4,232,414 | 28,370 | 4,597,659 |
Summary Compensation Table
| (1) The amounts in this column reflect the Annual Incentive Plan awards earned by our NEOs. |
Summary Compensation Table
| (2) Represents the grant date fair value of the RSUs and PSUs issued under our 2016 LTIP. See assumptions made in the valuation of these awards for financial statement reporting purposes in Note 2 - Summary of Significant Accounting Policies to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. |
Summary Compensation Table
| (3) Mr. Bendza and Mr. Griffin were Named Executive Officers for the first time in 2021. |
Summary Compensation Table
| (4) Mr. Robbins was a Named Executive Officer for the first time in 2022. |
Summary Compensation Table
| (5) Amount represents an anniversary bonus. |
Summary Compensation Table
| (6) Amounts presented consist of the following in 2023: |
Summary Compensation Table
| Name | Life Insurance and Long-Term Disability Premiums | 401(k) Company Match | Perquisites(1) | Total All Other Compensation | | John B. Wood | $26,504 | $11,250 | $12,072 | $49,826 | | Mark Bendza | 480 | 9,000 | — | 9,480 | | Mark D. Griffin | 480 | 13,200 | — | 13,680 | | Hutch Robbins | 480 | 13,200 | 18,000 | 31,680 |
Summary Compensation Table
| (1) Includes reimbursement for golf club membership and commuting costs. |
GRANTS OF PLAN-BASED AWARDS
GRANTS OF PLAN-BASED AWARDS The following table provides information about the AIP awards granted to our named executive officers during fiscal year 2023. No stock grants were awarded in 2023.
GRANTS OF PLAN-BASED AWARDS
| | Grant Date | Estimated Future Payouts under Non-Equity Incentive Plan Awards | | | | | Target | Maximum | | John B. Wood | 3/22/2023 | $600,000 | $600,000 | | Mark Bendza | 3/22/2023 | 307,500 | 615,000 | | Mark D. Griffin | 3/22/2023 | 296,250 | 592,500 | | Hutch Robbins | 3/22/2023 | 288,750 | 577,500 |
GRANTS OF PLAN-BASED AWARDS
As described in the Compensation Discussion and Analysis on pages 28-29, the Compensation Committee approved AIP awards for the 2023 performance period that are described in the above table as Non-Equity Incentive Plan Awards. The actual amounts paid for fiscal year 2023 performance are set forth in the Summary Compensation Table. The amounts of the target AIP awards to the named executive officers ranged from 75% to a maximum of 100% of the annual salaries of the various executives (with the CEO set at 100% of his annual salary and all other senior officers set at 75% of their salaries), subject to leveraging in accordance with the AIP awards. The amount of leverage ranges from a low of 0%, in which case no AIP award would be earned, to a high of 200%, with the performance at target set to a leverage amount of 100% of the named executive officer’s potential AIP award. Also as described in the Compensation Discussions and Analysis on pages 28-29, exceeding the minimum performance goals for the AIP award (described above as 0% leverage) would result in an award payment.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END The following table sets forth certain information regarding outstanding equity awards as of December 31, 2023 for the Company’s named executive officers:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| Name | Unvested Restricted Share Units as of 12/31/2023 | Fair Market Value as of 12/31/2023 | | John B. Wood | 57,648(1) | $210,415 | | Mark Bendza | 15,360(2) | 56,064 | | Mark D. Griffin | 12,354(1) | 45,092 | | Hutch Robbins | 85,544(3) | 312,236 |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| (1) All vested on January 19, 2024. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| (2) All scheduled to vest on July 19, 2024. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| (3) 42,771 RSUs vested on February 1, 2024. 42,773 RSUs are scheduled to vest on February 1, 2025. |
STOCK VESTED
STOCK VESTED The following table sets forth certain information regarding the vesting of shares of restricted stock held by named executive officers during fiscal year 2023:
STOCK VESTED
| Name | Number of shares acquired on vesting | Value Realized on vesting(1) | | John B. Wood | 581,532 | $2,513,817 | | Mark Bendza | 290,399 | 1,101,667 | | Mark D. Griffin | 553,415 | 2,559,257 | | Hutch Robbins | 162,560 | 723,814 |
STOCK VESTED
| (1) Based on the closing market prices on vesting dates. |
STOCK VESTED
Potential Payments Upon Termination or Change in Control As disclosed above, the Company has entered into employment agreements with certain executive officers which provide for potential payments upon termination or change in control. The table below summarizes the potential payouts to Messrs. Wood, Bendza, Robbins and Griffin for the termination events described above assuming such termination occurred on December 31, 2023, the last business day of the Company’s last completed fiscal year.
STOCK VESTED
| | Salary Continuation for 24, 18 or 12 Months | Bonuses to be Earned | Accrued and Unused Vacation 12/31/23 | Continuation of Medical / Welfare Benefits for 24, 18 or 12 Months(1) | 401(k) Company Match for 24, 18 or 12 Months | Total | Number of Restricted Shares that Would Vest | | John B. Wood | | | | | | | | | Termination without cause | $1,200,000 | $— | $58,027 | $94,982 | $26,400 | $1,379,409 | 57,648 | | Termination upon death/disability | 1,200,000 | — | 58,027 | 94,982 | $26,400 | 1,379,409 | 57,648 | | Termination upon change in control | 1,200,000 | 1,000,000 | 58,027 | 94,982 | $26,400 | 2,739,408 | 57,648 | | Termination for cause | — | — | 58,027 | — | — | 58,027 | — | | Voluntary termination | — | — | 58,027 | — | — | 58,027 | — | | Mark Bendza | | | | | | | | | Termination without cause | 410,000 | — | 33,115 | 18,046 | 13,200 | 474,361 | 15,360 | | Termination upon death/disability | 410,000 | — | 33,115 | 18,046 | 13,200 | 474,361 | 15,360 | | Termination upon change in control | 410,000 | 858,187 | 33,115 | 18,046 | 13,200 | 1,332,549 | 15,360 | | Termination for cause | — | — | 33,115 | — | — | 33,115 | — | | Voluntary termination | — | — | 33,115 | — | — | 33,115 | — | | Mark D. Griffin | | | | | | | | | Termination without cause | 395,010 | — | 67,702 | 32,201 | 19,800 | 514,713 | 12,354 | | Termination upon death/disability | 395,010 | — | 67,702 | 32,201 | 19,800 | 514,713 | 12,354 | | Termination upon change in control | 395,010 | 592,500 | 67,702 | 32,201 | 19,800 | 1,107,213 | 12,354 | | Termination for cause | — | — | 67,702 | — | — | 67,702 | — | | Voluntary termination | — | — | 67,702 | — | — | 67,702 | — | | Hutch Robbins | | | | | | | | | Termination without cause | 385,000 | — | 36,186 | 18,046 | 13,200 | 452,432 | 85,544 | | Termination upon death/disability | 385,000 | — | 36,186 | 18,046 | 13,200 | 452,432 | 85,544 | | Termination after change in control | 385,000 | 866,250 | 36,186 | 18,046 | 13,200 | 1,318,682 | 85,544 | | Termination for cause | — | — | 36,186 | — | — | 36,186 | | | Voluntary termination | — | — | 36,186 | — | — | 36,186 | |
STOCK VESTED
| (1) For Mr. Wood, this includes the cash equivalent of premium payments for continued coverage under the medical, dental, short and long-term disability, and life insurance and other similar plans, and payment of premiums for continuation of an Executive Life Policy, in which the executive is the holder of the policy. For the other executives, this includes the cash equivalent of premium payments for continued coverage under the medical, dental, short and long-term disability, and life insurance and other similar plans. |
2023 CEO Pay Ratio
2023 CEO Pay Ratio As of December 31, 2023, Telos and its consolidated subsidiaries together had approximately 619 employees, with 89% in the United States and 11% in the Philippines. The Company has elected to identify the median employee using our employee population as of December 31, 2023, which is within the last three months of our last completed fiscal year. To identify the employee with compensation at the median of all employees for our 2023 fiscal year, the Company used the “annual rate” as reflected in our accounting systems as of December 31, 2023, for all of its employees, including part-time, and temporary employees. The annual rate for salaried employees reflects base salary paid on an annual basis, excluding the CEO. For hourly employees, the annual rate is arrived using the hourly rate and total paid hours. The Company did not make any cost-of-living adjustments despite the variety of labor markets in which our employees work, nor did it make adjustments to account for the variety of compensation arrangements used to pay employees in varying roles (e.g., the Company did not include overtime, commissions, bonuses or other types of non-fixed compensation). Using this methodology, the Company identified the median employee as a full-time salaried employee located in the United States. Once our median employee was identified, the Company calculated the median employee’s total compensation in accordance with the requirements of the Summary Compensation Table. The median employee’s annual total compensation for the 2023 fiscal year was $104,200. Annual total compensation includes base salary, leave cash-out, any applicable bonus payment, and Company contributions to the Company’s 401(k) plan on behalf of the employee. As calculated using the methodology required for the Summary Compensation Table, the total annualized compensation of Mr. Wood was $1,249,826 and the total annual compensation of the median employee was $104,200, which yields a ratio of 12 to 1.
Pay Versus Performance
Pay Versus Performance
Pay Versus Performance
| | | | | | Value of Initial Fixed $100 Investment Based on: | | | | | Year | Summary Compensation Table Total for PEO(1) | Compensation Actually Paid to PEO(2) | Average Summary Compensation Table Total for Non-PEO Named Executive Officers(3) | Average Compensation Actually Paid to Non-PEO Named Executive Officers(4) | Total Shareholder Return | Peer Group(5) Total Shareholder Return | Net Income | Total Revenue | | 2023 | $1,249,826 | $(12,929) | $1,009,950 | $622,506 | $21.47 | $124.27 | $(34,473,000) | $145,378,000 | | 2022 | 10,727,344 | 2,383,319 | 4,645,884 | 605,348 | 29.94 | 64.89 | (53,428,000) | 216,887,000 | | 2021 | 12,197,174 | 5,857,632(7) | 8,744,031 | 4,489,920(8) | 90.71 | 149.93 | (43,134,000) | 242,433,000 | | 2020 | 3,242,786 | 3,242,786 | 1,398,079 | 1,398,079 | 194.00(6) | 136.17(6) | 6,841,000 | 179,917,000 |
Pay Versus Performance
| (1) The Principal Executive Officer (PEO) for the reporting periods is Mr. John B. Wood, Chairman and Chief Executive Officer. |
Pay Versus Performance
| (2) The calculations for compensation actually paid (for both PEO and NEOs) are set forth below the footnotes to this table. |
Pay Versus Performance
| (3) The Named Executive Officers (NEOs), other than the PEO, for 2023 were Messrs. Bendza, Griffin, and Robbins. For 2022, the NEOs were: Messrs. Bendza, Robbins, Griffin and Brendan Malloy. For 2021, the NEOs were: Messrs. Bendza, Malloy, Griffin, Edward Williams, Jefferson Wright, and Ms. Michele Nakazawa. For 2020, the NEOs were Messrs. Williams, Wright, Malloy, and Ms. Nakazawa. |
Pay Versus Performance
| (4) Average compensation actually paid to non-PEO NEOs in 2021 and 2022 is significantly impacted by a one-time equity award to Mark Griffin in 2021, valued at $29 million at the time of grant. Mr. Griffin’s award was granted to reflect his role in the creation of value in Telos ID as reflected in its purchase price in connection with our IPO, and to align his compensation with similarly-situated Company executives. |
Pay Versus Performance
| (5) The Peer Group consists of: CrowdStrike Holdings, Inc., LiveRamp Holdings, Inc., Okta, Inc., OneSpan, Inc., Perficient, Inc., Qualys, Inc., Rapid7, Inc., SecureWorks Corp., Tenable Holdings, Inc., Varonis Systems, Inc., and ZScaler, Inc. |
Pay Versus Performance
| (6) From registration date, Nov 18, 2020, until year end. |
Pay Versus Performance
| (7) Incorrectly reported as $3,635,332 in the 2023 Proxy Statement. See the table below. |
Pay Versus Performance
| (8) Incorrectly reported as $4,003,784 in the 2023 Proxy Statement. See the table below. |
Pay Versus Performance
Compensation actually paid or “CAP” are amounts calculated in accordance with applicable SEC rules and do not, necessarily, correlate to the total amount of cash or equity compensation that the executive actually realized or was paid during any fiscal year. The CAP is a calculation that includes, for example, the increase (or decrease) in value of certain elements of compensation (i.e., equity compensation) over the fiscal year, even if granted in a prior year. The amounts that the executive will ultimately receive with respect to these types of compensation (i.e., when and if the equity awards vest) are likely to be different from the amounts disclosed in this Pay versus Performance disclosure.
Pay Versus Performance
| | PEO | | | | Non-PEO NEOs | | | | | | 2023 | 2022 | 2021 | 2020 | 2023 | 2022 | 2021 | 2020 | | Summary Compensation Table Total | $1,249,826 | $10,727,344 | $12,197,174 | $3,242,786 | $1,009,950 | $4,645,884 | $8,744,031 | $1,398,079 | | Reported Value of Equity Awards | | (10,078,653) | (11,555,141) | — | | (4,243,650) | (8,374,035) | — | | Year End Fair Value of Equity Awards Granted during the Year that are Outstanding and Unvested at End of Year | | 2,612,682 | 5,215,599 | — | | 1,129,533 | 3,542,591 | — | | Year over Year Change in Fair Value of Equity Awards Granted in Prior Years that are Outstanding and Unvested at End of Year | (83,013) | (2,789,110) | — | — | (54,364) | (1,393,982) | — | — | | Fair Value as of Vesting Date of Equity Awards Granted and Vested in the Year | | 2,095,291 | — | — | | 861,098 | 577,333 | — | | Year over Year Change in Fair Value of Equity Awards Granted in Prior Years that Vested in the Year | (446,181) | (184,235) | — | — | (245,902) | (393,536) | — | — | | Fair Value at the End of the Prior Year of Equity Awards that Failed to Meet Vesting Conditions in the Covered Fiscal Year | (733,561) | — | —(1) | — | (87,178) | — | —(1) | — |
Pay Versus Performance
| | PEO | | | | Non-PEO NEOs | | | | | | 2023 | 2022 | 2021 | 2020 | 2023 | 2022 | 2021 | 2020 | | Value of Dividends or Other Earnings Paid on Stock or Option Awards Not Otherwise Reflected in Fair Value or Total Compensation | | — | — | — | — | — | — | — | | Total Equity Award Adjustments | (1,262,755) | (8,344,025) | (6,339,542) | — | (387,444) | (4,040,536) | (4,254,111) | — | | Reported Change in the Actuarial Present Value of Pension Benefits | | — | — | — | | — | — | — | | Pension Benefit Adjustments | | — | — | — | | — | — | — | | Compensation Actually Paid | (12,929) | 2,383,319 | 5,857,632 | 3,242,786 | 622,506 | 605,348 | 4,489,920 | 1,398,079 |
Pay Versus Performance
| (1) The Proxy Statement for our 2023 Annual Meeting of Stockholders incorrectly reported this figure in 2021 as ($2,222,300) for the CEO and ($447,103) for the average Non-PEO NEO. The awards reflected in our prior year Proxy Statement for this Item for 2021 were forfeited in 2023, and should not have been included (as deductions) in the calculations of Compensation Actually Paid for 2021. As a result, the Compensation Actually Paid to our CEO and Non-PEO NEOs for 2021 has been corrected in the table above. |
Amended and Restated 2016 Omnibus Long-Term Incentive Plan
| (a) amounts that do not constitute nonqualified deferred compensation subject to Section 409A of the Code shall be reduced first; and |