DEF 14A of Compass Diversified Holdings
Filed Apr 10, 2024 · FY20230001140361-24-019145
Our Board
Our Board
Board Composition
Board Composition Our business and affairs are managed under the direction of our Board. We currently have nine (9) directors. Our Board has the ability to decrease or increase its size to no less than five (5) or up to thirteen (13) directors, respectively. Pursuant to the Company’s Sixth Amended and Restated Operating Agreement dated as of August 3, 2021, as amended by the First Amendment dated as of February 11, 2022, which we refer to herein as the “LLC Agreement”, the Company’s Allocation Member (as defined in the LLC Agreement) has the right to appoint director(s) to the Board based on overall Board size and any such appointed directors are not required to stand for election by our shareholders. For our 2024 Annual Meeting, eight (8) directors, all of whom are independent, have been nominated for election by our shareholders and Mr. Elias J. Sabo, our Chief Executive Officer, is currently serving as a director appointed by the Allocation Member. Our Board was historically divided into three classes serving staggered three-year terms. As part of a continued emphasis on strong corporate governance practices, in February of 2022, the Board approved an amendment to the LLC Agreement to declassify the Board. Therefore, at each year’s annual shareholders’ meeting, each director (other than any director appointed by the Allocation Member) will be elected for a term of office to expire at the next annual meeting following his or her election.
Director Independence
Director Independence The Trust’s common shares are listed on the New York Stock Exchange, or NYSE, under the symbol “CODI.” Under the rules of the NYSE, independent directors must comprise a majority of our Board. In addition, the rules of the NYSE require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and governance committees be independent. Audit committee and compensation committee members must also satisfy the independence criteria set forth in Rule 10A-3 and Rule 10C-1, respectively, under the Securities Exchange Act of 1934, as amended. Under the rules of the NYSE, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board, or any other board committee: (i) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries, or (ii) be an affiliated person of the listed company or any of its subsidiaries. In determining independence of a member of the compensation committee, the following factors must be considered pursuant to Rule 10C-1: (i) the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by the issuer to such director, and (ii) whether the director is affiliated with the issuer, a subsidiary of the issuer or an affiliate of a subsidiary of the issuer. Pursuant to our governing documents, our Board will always consist of at least a majority of independent directors and all directors serving on our standing committees will also be independent. Our Board has evaluated information requested from and provided by each director concerning his or her background, employment, and affiliations, including family relationships, and reviewed the materiality of any relationship that each of our directors has with the Trust or the Company, either directly or indirectly. Based on this review, the Board has determined that the following directors are “independent directors” as defined by the NYSE: Mr. Alexander S. Bhathal, Mr. James J. Bottiglieri, Mr. Gordon M. Burns, Mr. Harold S. Edwards, Mr. Larry L. Enterline, Ms. Heidi Locke Simon, Ms. Nancy B. Mahon, and Ms. Teri R. Shaffer. We have three standing committees: the audit committee (“Audit Committee”), the compensation committee (“Compensation Committee”) and the nominating and corporate governance committee (“Nominating/Governance Committee”). Our Board has also determined that those directors who serve on our Audit Committee, Compensation Committee and Nominating/Governance Committee satisfy the independence standards for those committees established by the rules of the NYSE and the applicable SEC rules.
Election of Directors
Election of Directors Eight (8) directors will be elected at the Annual Meeting and each will serve for a one-year term that expires at our 2025 Annual Meeting of shareholders. Each of Mr. Alexander S. Bhathal, Mr. James J. Bottiglieri, Mr. Gordon M. Burns, Mr. Larry L. Enterline, Mr. Harold S. Edwards, Ms. Heidi Locke Simon, Ms. Nancy B. Mahon, and Ms. Teri R. Shaffer was nominated by the Board for election by our shareholders upon the recommendation of the Board’s Nominating/Governance Committee. Proxies cannot be voted for a greater number of persons than the number of nominees named.
2024 Director Nominees
2024 Director Nominees The following describes the experience, education and other qualifications of each of the director nominees to be voted on for election at the 2024 Annual Meeting. Each of the eight (8) nominees currently serves on our Board.
2024 Director Nominees
| Larry L. Enterline Chair of our Board since July 2022 Director since July 2019 | Independent Experience: • Chief Executive Officer of Vulcan Holdings Inc., a private investment and consulting services company (April 2010 to present) • Chief Executive Officer of Fox Factory Holding Corp., a former subsidiary of the Company (March 2011 to June 2019) • Chief Executive Officer of COMSYS IT Partners Inc., an IT staffing and solutions company (February 2006 to April 2010) • Served in various management roles earlier in his career, including Senior Vice President of Worldwide Sales and Service Organization at Scientific-Atlanta Inc., a Georgia-based manufacturer of cable television, telecommunications and broadband equipment Other Boards: • Greentech Environmental, a private air purifications systems provider, Executive Chair (August 2021 to December 2022) • Fox Factory Holding Corp. (NASDAQ:FOXF) (2013 to 2021); Executive Chair (June 2019 to April 2021) Education: • Graduate of Case Western Reserve University and The Monte Ahuja College of Business at Cleveland State University Qualifications: • Significant insight regarding operations, supply chain optimization and continuous improvement • Unique perspective due to having led a business through a significant growth transition and eventual initial public offering • Capabilities in the areas of strategic planning and organizational development • Experience in information technology services industry |
2024 Director Nominees
| Alexander S. Bhathal Director since January 2022 | Committees: Compensation; Nominating/Governance Independent Experience: • Managing Partner of RAJ Capital Management and its affiliates (2006 to present) • Co-owner and executive director of Sacramento Basketball Holdings, which owns, among other things, the Sacramento Kings franchise of the National Basketball Association (2013 to present) • Senior Operating partner for Rx3 Growth Partners, a consumer growth fund (present) • Previously, Chief Executive Officer of RAJ Swim, a designer manufacturer, and marketer of designer and private label swimwear under nationally recognized brands Other Boards: • Raj Capital Management and its affiliates (2006 to present) • Revitate, a diversified investment management platform supporting strategies in real estate, sports, and consumer brands that seek to deliver positive economic and social impact, Founder and Executive Chair (July 2021 to present) • Mark IV Capital (2021 to present) • Aspyr Holdings (Orange Theory Fitness franchises) (2020 to present) Education: • Graduate of University of California Los Angeles and the USC Marshall School of Business at the University of Southern California • Harvard Business School Presidents Program in Leadership (2015 to 2021) Qualifications: • Experience leading organizations with established ESG goals committed to positive economic and social impact • Asset management experience in a variety of sectors • Extensive understanding of investment activities |
2024 Director Nominees
| James J. Bottiglieri Director since December 2005 | Committees: Audit; Nominating/Governance Independent Experience: • Chief Financial Officer of the Company and an Executive Vice President of the Company’s Manager (2005 to 2013) • Senior Vice President and Controller of WebMD Health Corporation • Previously with Star Gas Corporation and a predecessor firm to KPMG LLP Other Boards: • Horizon Technology Finance Corporation (NASDAQ:HRZN) (2010 to present) Education: • Graduate of Pace University Qualifications: • Intimate understanding of our business and operations and the business and operations of our subsidiaries • Substantial expertise in accounting, tax and other financial matters • “Audit Committee Financial Expert” as defined by applicable SEC rules and regulations |
2024 Director Nominees
| Gordon M. Burns Director since May 2008 | Committees: Nominating/Governance (Chair); Compensation Independent Experience: • Private investor (1998 to present) • Previously responsible for investment banking at UBS Securities • Managing Director at Salomon Brothers Inc. Other Boards: • Aztar Corporation (NYSE:AZR) (1998 through 2007) Education: • Graduate of Yale University and the Harvard Business School Qualifications: • Extensive knowledge of and significant experience in investment and financing activities • Insights gleaned from having been involved with several public and private companies as they have gone through important transitions, including mergers and acquisitions, divestitures and management succession • Co-founder and board member (past and present) for several entities focused on cybersecurity, including an entity serving the commercial marketplace, which assists developers in designing more secure software for customers including Amazon Web Services, Google, and Microsoft, and four entities that provided services to national security defense programs including the National Security Agency, Central Intelligence Agency and the Pentagon |
2024 Director Nominees
| Harold S. Edwards Director since April 2006 | Committees: Compensation (Chair); Audit Independent Experience: • President and Chief Executive Officer of Limoneira Company (November 2003 to present) • President of Puritan Medical Products, a division of Airgas Inc. • Held management positions with Fisher Scientific International, Inc., Cargill, Inc., Agribrands International, the Ralston Purina Company, and Mission Produce, Inc. Other Boards: • Limoneira Company (NASDAQ:LMNR) (2009 to present) • Calavo Growers, Inc. (NASDAQ:CVGW) (2005 to 2022) • Inventure Foods, Inc. (NASDAQ:SNAK) (2014 to 2017) Education: • Graduate of Lewis and Clark College and The Thunderbird School of Global Management at Arizona State University Qualifications: • As a seasoned public company leader, possesses significant strategic leadership expertise, strong financial acumen and experience guiding organizations through periods of growth and expansion or other significant organizational milestones • Hands-on management perspective, particularly in the areas of operations, executive compensation, succession planning and issues confronting a diversified array of companies |
2024 Director Nominees
| Heidi Locke Simon Director Since July 2023 | Committees: Audit Independent Experience: • Partner at Bain & Company from 1993 to 2012 • Investment Banking Analyst at Goldman, Sachs & Co. Other Boards: • Teekay Corporation (NYSE: TK) (September 2017 to present) • Reflex Protect, Inc. (August 2021 to present) • Turning Green (October 2004 to present) • Teekay GP LLC, the General Partner of Teekay LNG Partners (NYSE: TGP) (June 2021 to January 2021) Education: • Graduate of Middlebury College and the Harvard Business School Qualifications: • National Association of Corporate Directors (NACD) Certified Director • Holds CERT Cybersecurity Oversight Certification from Carnegie Mellon • “Audit Committee Financial Expert” as defined by applicable SEC rules and regulations • Management consulting and investment banking expertise • Significant board experience in public, private and non-profit sectors including various board leadership roles |
2024 Director Nominees
| Nancy B. Mahon Director Since May 2023 | Committees: Nominating/Governance Independent Experience: • Chief Sustainability Officer of The Estée Lauder Companies Inc. (January 2023 to present) • Senior Vice President, Global Corporate Citizenship and Sustainability at Estée Lauder (April 2016 to January 2023) • Senior Vice President, Social Initiatives, MAC Cosmetics, Bobbi Brown & La Mer (July 2011 to March 2016) Other Boards: • Board of Trustees New York University School of Law Foundation (October 2018 to present) • TPG Pace Beneficial Finance Corporations I and II (NYSE: TPGY-UN and YTPG) (October 2020 to April 2023) • Chairperson of The Presidential Advisory Council on HIV/AIDS (PACHA) of the U.S. Department of Health and Human Services (December 2011 to December 2016) Education: • Graduate of Yale University and the New York University School of Law Qualifications: • Rock Center for Corporate Governance Directors’ College executive education program at Stanford Law School • Certification in Brand Marketing from The Wharton School • Yale School of Management Certification as Woman on Boards • Admitted to the State Bar of California, the United States Court of Appeals for the Ninth Circuit, and the United States District Court for the Northern District of California • Proven executive leader with demonstrated expertise in ESG issues, branded consumer products and enterprise strategy |
2024 Director Nominees
| Teri R. Shaffer Director since July 2022 | Committees: Audit (Chair) Independent Experience: • Americas and Regional Financial Audit Information Technology Leader for Ernst & Young (2016 to 2022) • Previously served in various other leadership roles at Ernst & Young since 1984 Education: • Graduate of Oklahoma State University and the Hult International Business School Qualifications: • National Association of Corporate Directors (NACD) Certified Director • Harvard Business School Corporate Director Certificate • Certified Public Accountant • Significant experience in auditing, internal controls, technology, risk management and cybersecurity • Certified Information Security Manager; holds the CERT Cybersecurity Governance Certification from Carnegie Mellon • “Audit Committee Financial Expert” as defined by applicable SEC rules and regulations |
Appointed Director
Appointed Director The following describes the experience, education and other qualifications of the director appointed by our Allocation Member to serve as a member of our Board again for fiscal year 2024.
Appointed Director
| Elias J. Sabo Chief Executive Officer of the Company Director since May 2018 | Appointed Director Not Standing for Election Experience: • Chief Executive Officer (2018 to present) • Founding partner of the Company’s Manager in 1998 • Investment Committee Member of the Company’s Manager (1998 to present) • Member of the organization’s ESG Committee (2022 to present) • Central role in directing the Company’s strategy • Served as the Chair of Fox Factory Holding Corp. (NASDAQ:FOXF), a former Company subsidiary (2007 to 2017) • Worked in the acquisition department of Colony Capital, LLC, a Los Angeles-based real estate private equity firm (1992 to 1996) • Healthcare investment banker for CIBC World Markets, formerly Oppenheimer & Co. (1996 to 1998) Education: • Graduate of Rensselaer Polytechnic Institute Qualifications: • Leadership experience • Extensive understanding of investment activities • Public company experience with respect to governance and risk management • Deep understanding of the operations, history, and culture of the Company and its subsidiaries, as well as historic knowledge that provides continuity to our Board |
Appointed Director
| Board of Directors, Executive Officers and Committees |
Certain Information Regarding our Directors and Executive Officers
Certain Information Regarding our Directors and Executive Officers The name and age of each director, nominee and executive officer and the positions held by each of them as of March 26, 2024 are as follows:
Certain Information Regarding our Directors and Executive Officers
| Director | Age | Serving as Officer or Director Since | Position(s)/Committee(s) | | Larry L. Enterline | 71 | 2019 | Chair/Director | | Alexander S. Bhathal | 48 | 2022 | Director; Compensation & Nominating/Governance | | James J. Bottiglieri | 68 | 2005 | Director; Audit & Nominating/Governance | | Gordon M. Burns | 71 | 2008 | Director; Nominating/Governance (Chair) & Audit | | Harold S. Edwards | 58 | 2006 | Director; Compensation (Chair) & Audit | | Heidi Locke Simon | 56 | 2023 | Director; Audit | | Nancy B. Mahon | 59 | 2023 | Director; Nominating/Governance | | Teri R. Shaffer | 62 | 2022 | Director; Audit (Chair) | | Elias J. Sabo | 53 | 2018 | Director/Chief Executive Officer | | Ryan J. Faulkingham | 47 | 2013 | Chief Financial Officer/Co-Compliance Officer |
Certain Information Regarding our Directors and Executive Officers
Ryan J. Faulkingham has served as Chief Financial Officer and Co-Compliance Officer of the Company since November 2013. He also serves on the Investment Committee of the Company’s Manager, as well as the organization’s ESG Committee. Mr. Faulkingham joined the Company in 2008 and previously was the Company’s Director of Financial Reporting. Prior to joining us in 2008, Mr. Faulkingham served as a Vice President at Merrill Lynch & Co., a financial management and advisory company, where he prepared regulatory filings, performed technical accounting research and implemented policies to ensure compliance with internal control standards. From 2003 to 2006, he served as Manager, Accounting and External Reporting at WebMD Health Corp., a medical information company, serving as a key contributor to the company’s 2005 initial public offering and lead finance member for numerous mergers and acquisitions. Prior to that, Mr. Faulkingham had a career in public accounting first at Arthur Andersen LLP and later at KPMG LLP, both public accounting firms. He received a BS in Accounting from Lehigh University and an MBA from Fordham University. Mr. Faulkingham serves as a director for our Velocity Outdoor Inc. subsidiary and as an observer to the boards of directors of all our other subsidiary companies.
Material Legal Proceedings Involving Directors and Executive Officers
Material Legal Proceedings Involving Directors and Executive Officers Currently, there are no material proceedings to which any of our directors, director nominees, officers, affiliates, any owners of record or beneficially of more than five percent of any class of voting securities, or any associate of any such director, director nominee, officer, affiliate, or security holder is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.
Other Related Person Transactions
| Director Compensation |
Non-Management Director Compensation Fiscal Year 2023
Non-Management Director Compensation Fiscal Year 2023 The elements of our annual non-management director compensation for fiscal 2023 were as follows:
Non-Management Director Compensation Fiscal Year 2023
| Annual Non-Management Director cash retainer | $100,000 | | Annual Non-Management Director equity retainer (1) | $110,000 | | Annual Nominating & Corporate Committee chair cash retainer (2) | $10,000 | | Annual Compensation Committee chair cash retainer (2) | $10,000 | | Annual Audit Committee chair cash retainer (2) | $40,000 | | Annual cash retainer for independent Chair | $157,500 | | Annual equity retainer for independent Chair | $132,500 |
Non-Management Director Compensation Fiscal Year 2023
| (1) Each director may elect to receive this amount in cash. |
Non-Management Director Compensation Fiscal Year 2023
| (2) This is in addition to the annual director cash and equity retainers payable to all non-management directors. |
Non-Management Director Compensation Fiscal Year 2023
All cash retainers are paid in equal installments, quarterly in arrears. Directors do not receive additional compensation for attendance at Board or committee meetings. Directors (including the Board Chair) are reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the Board or its committees. The Company also reimburses directors for all reasonable and authorized business expenses related to service to the Company by the directors, in their capacity as directors, including director training, continuing education programs, director certification programs, and membership to organizations that provide thought leadership and peer-to-peer networking opportunities for directors, as applicable, in accordance with the policies of the Company as in effect from time to time. While directors may elect to receive such amount in cash, the annual “equity retainer” portion of our non-management directors’ compensation is strongly encouraged to be used by our directors to purchase shares of Trust common stock. Consequently, each non-management director who elects to use such award to purchase shares of Trust common stock receives that number of shares of Trust common stock that can be purchased with such amount at the market price for shares of Trust common stock on the date of purchase. During 2023, and historically, such “equity retainer” was paid to our directors in January of each year, in respect of their service for the prior fiscal year. Consistent with prior years, in early 2024, the Compensation Committee conducted a survey of the director compensation practices of other companies that it considered reasonably comparable to the Company. The Compensation Committee also considered the time commitment, responsibilities, and related burdens of Board service over the Company’s history. Based upon this review, the Compensation Committee recommended to the full Board that (i) the “equity retainer” portion of the non-management director compensation for fiscal year 2024 be increased from $110,000 per annum to $120,000 per annum and that such “equity retainer” be paid to directors following their election at each of the Company’s annual shareholders’ meetings in respect of their service for the twelve-month calendar period up and until the next annual meeting of shareholders, and (ii) the cash retainer portion of the non-management director compensation for fiscal year 2024 remain at $100,000 per annum. The full Board ratified the Compensation Committee’s recommendations.
Compensation All Directors
| Name | Fees Earned or Paid in Cash ($) | Stock Awards(1) ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total | | Larry L. Enterline | $157,500 | $132,500 | — | — | — | — | $290,000 | | Alexander S. Bhathal | $100,000 | $110,000 | — | — | — | — | $210,000 | | James J. Bottiglieri(2) | $120,000 | $110,000 | — | — | — | — | $230,000 | | Gordon M. Burns(3) | $110,000 | $110,000 | — | — | — | — | $220,000 | | Harold S. Edwards(4) | $110,000 | $110,000 | — | — | — | — | $220,000 | | Heidi Locke Simon(5) | $78,913 | $0 | — | — | — | — | $78,913 | | Nancy B. Mahon(6) | $35,165 | $66,301 | — | — | — | — | $101,466 | | Teri R. Shaffer(7) | $120,000 | $110,000 | — | — | — | — | $230,000 | | Elias J. Sabo | $0 | $0 | — | — | — | — | $0 | | C. Sean Day(8) | $130,000 | $0 | — | — | — | — | $130,000 | | Sarah G. McCoy(9) | $40,110 | $43,699 | — | — | — | — | $83,809 | | Totals | $1,001,688 | $792,500 | $ —(10) | $ —(10) | $ —(10) | $ —(10) | $1,794,188 |
Executive Summary
Executive Summary
Executive Summary
| • | The Company had a strong year, producing net revenues of $2.1 billion, and Adjusted EBITDA, a non-GAAP financial measure, of $340.9 million, an increase of 11% over 2022. See pages 113-120 of our Annual Report on Form 10-K under the heading “Reconciliation of Non-GAAP Financial Measures” for reconciliations to the most directly comparable GAAP financial measures. |
Executive Summary
| • | We are externally managed and CODI has no employees of its own. Management, including the services of our Chief Executive Officer and our Chief Financial Officer, are seconded from our Manager. The cost of our management is instead borne through management fee payments, which are used to compensate the team managing our organization. The costs of the Chief Financial Officer and the Chief Financial Officer’s staff are reimbursed by the Company. |
Executive Summary
| • | In February of 2024, we announced the completion of our partnership with The Honey Pot Company, a leading better-for-you feminine care brand, for an enterprise value of $380 million. |
Executive Summary
| • | We continued to advance our key ESG initiatives. Throughout 2023, we further embedded ESG considerations into our acquisition strategies and the oversight of our operations, including our subsidiaries. In 2024, we look forward to unveiling our inaugural Sustainability Report(2), which will showcase our efforts in reducing greenhouse gas emissions, advancing human capital initiatives, and enhancing our governance protocols. We developed a comprehensive reporting guideline handbook for our subsidiaries, ensuring each has successfully met their ESG and minimum standard reporting requirements via our specialized ESG technology platform designed for efficient data gathering. Additionally, we refined our community mission statement and fortified our collaborative partnerships. |
Executive Summary
| • | We continued our efforts to recruit new directors with diverse backgrounds, skills, and experiences, and fill leadership positions on our Board with diverse candidates to further enhance our Board. Ms. Teri R. Shaffer assumed the role of chair of our Audit Committee in April of 2023. Ms. Nancy B. Mahon joined our Board in May of 2023. Ms. Heidi Locke Simon joined our Board in July of 2023. |
Executive Summary
| • | In December of 2023, we announced the completion of a private placement of approximately 3.6 million of our common Trust shares to a mutual fund managed by Allspring Global Investments, LLC for $21.18 per share, or an aggregate sale price of approximately $75.2 million. |
Executive Summary
| • | In November of 2023, we completed an opportunistic divestiture of our Marucci Sports subsidiary to Fox Factory Holding Corp. (Nasdaq: FOXF) for an enterprise value of $572 million. We realized a pre-tax gain of $241.4 million on the sale of Marucci Sports. |
Executive Summary
| • | We were able to execute on our business strategy despite macro-economic headwinds impacting all businesses through much of 2023. We believe that our ability to execute on our strategy despite difficult business conditions is a meaningful competitive advantage. |
How We Determine the Amount of Each Element of Executive Compensation for our Chief Financial Officer
How We Determine the Amount of Each Element of Executive Compensation for our Chief Financial Officer To determine the amount of our Chief Financial Officer’s compensation, we consider competitive market practices by reviewing publicly available information across our industry and related industries. Mercer (USA) Inc., a third-party consulting firm, was engaged by the Company in early 2023 to provide executive compensation benchmarking services with respect to the compensation of our Chief Financial Officer. Mercer provided a peer analysis but did not make specific compensation recommendations. When establishing Mr. Faulkingham’s 2024 base salary, the Compensation Committee and management considered several factors including: his seniority, the functional role of his position, the level of his responsibility, the ability to replace him, and his base salary during the prior year. The Compensation Committee also considered feedback received from our shareholders who engage in regular communications with our management team, the most recent advisory votes on executive compensation, which were supported by a majority of our shareholders in each of fiscal years 2023, 2022 and 2021, and whether such compensation continues to achieve the objective of appropriately rewarding our Chief Financial Officer for his contributions to our business, including its growth and profitability. Our Chief Financial Officer’s compensation is reviewed on an annual basis. Factors considered in determining increases to our Chief Financial Officer’s salary level are the employment market for chief financial officers of public entities comparable to the Company in size, industry and complexity, the breadth and scope of the responsibilities of the Chief Financial Officer within our organization, his performance in prior years (as assessed by our Compensation Committee in accordance with the factors outlined below) and the retention of our Chief Financial Officer. We expect the salary of our current Chief Financial Officer, Mr. Faulkingham, to increase annually with adjustments largely reflecting additional responsibilities assumed, growth of the Company and the related increase in the complexity of the position of Chief Financial Officer within our organization, to appropriately reward Mr. Faulkingham for his contributions to our growth and profitability, thereby retaining his services and to compensate for cost-of-living increases. The annual cash bonus element of our executive compensation policy is determined on a discretionary basis and is largely based upon the job performance of our Chief Financial Officer in completing his responsibilities. In determining the amount of Mr. Faulkingham’s annual cash bonus, our Compensation Committee assesses his performance in respect of: (i) the nature and quality of the internal and financial reporting controls; (ii) management of the Company’s financial accounting staff; (iii) the performance of the Company’s financial accounting function and its ability to perform assigned tasks on a timely basis; (iv) his and the financial accounting staff’s interactions with the Company’s outside independent auditors on the strength of the controls environment, the strength of the Company’s finance function generally and the level of cooperation received by such independent auditors in the conduct of the Company’s audit; (v) his and the financial accounting staff’s interaction with the management of our subsidiary businesses; and (vi) his lead role in capital raises and in investor relations. Our Chief Financial Officer’s bonus is not based upon the performance of the Company and is unrelated to the amount of his base salary.
Summary Compensation Table – Fiscal Year 2023
Summary Compensation Table – Fiscal Year 2023 The following Summary Compensation Table summarizes the total compensation accrued for our named executive officers in each of 2023, 2022 and 2021 and should be read in conjunction with the Compensation Discussion and Analysis.
Summary Compensation Table – Fiscal Year 2023
| | | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | | Name & Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | | Elias J. Sabo (1) (2) Chief Executive Officer | 2023 | — | — | — | — | — | — | — | — | | | 2022 | — | — | — | — | — | — | — | — | | | 2021 | — | — | — | — | — | — | — | — | | Ryan J. Faulkingham (2) Chief Financial Officer | 2023 | 474,000 | 575,000 | — | — | — | — | 68,449 (3) | 1,117,449 | | | 2022 | 459,000 | 556,000 | — | — | — | — | 57,780 (3) | 1,072,780 | | | 2021 | 450,000 | 540,000 | — | — | — | — | 53,399 (3) | 1,043,399 |
Summary Compensation Table – Fiscal Year 2023
| (1) Mr. Sabo, our Chief Executive Officer, who is seconded to us by our Manager does not receive compensation for his services directly from us. Mr. Sabo also provides other services to our Manager and our Manager does not compensate Mr. Sabo specifically for his services to us. We pay our Manager a quarterly management fee and Mr. Sabo, as an equity member of our Manager, receives periodic cash distributions from our Manager after payment of operating costs, compensation and other expenses related to our Manager’s employees and its other members. The amount of such distribution, which relates not only to the management fee paid by us but also the Manager’s other income is derived by the Manager and is not within our control. Accordingly, no compensation information for Mr. Sabo is reflected in the above summary compensation table. We incurred approximately $68.4 million, $62.6 million, and $46.4 million of management fees under the Management Services Agreement during each of 2023, 2022, and 2021, respectively, the payments made by the Company of such management fees in each year were reduced dollar-for-dollar by approximately $6.5 million, $6.0 million, and $4.9 million respectively, due to offsetting management fees paid by our subsidiaries under offsetting management services agreements with our Manager during each of 2023, 2022, and 2021, respectively. See the sections titled “CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS – Contractual Arrangements with Related Persons – Management Services Agreement” and “CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS – Contractual Arrangements with Related Persons – Offsetting Management Services Agreements” for additional information about the Management Services Agreement and offsetting management services agreements. |
Summary Compensation Table – Fiscal Year 2023
| (2) Mr. Sabo and Mr. Faulkingham do not participate in any Company sponsored stock award, stock option, non-equity incentive or nonqualified deferred stock compensation plans. |
Summary Compensation Table – Fiscal Year 2023
| (3) Includes the following payments paid on behalf of Mr. Faulkingham: |
Summary Compensation Table – Fiscal Year 2023
| | Healthcare Contributions | Insurance Premiums | 401-K Contributions | Total | | Year | ($) | ($) | ($) | ($) | | 2023 | 38,206 | 3,843 | 26,400 | 68,449 | | 2022 | 29,847 | 3,533 | 24,400 | 57,780 | | 2021 | 26,888 | 3,311 | 23,200 | 53,399 |
Grants of Plan-Based Awards
Grants of Plan-Based Awards None of our named executive officers participate in or have account balances in any Company sponsored plan-based award programs.
Outstanding Equity Awards at Fiscal Year-End; Option Exercises and Stock Vested
Outstanding Equity Awards at Fiscal Year-End; Option Exercises and Stock Vested None of our named executive officers have ever held options to purchase interests in us or other awards with values based on the value of our interests.
Pension Benefits
Pension Benefits None of our named executive officers participate in or have account balances in qualified or nonqualified defined benefit plans sponsored by us.
Nonqualified Deferred Compensation
Nonqualified Deferred Compensation None of our named executive officers participate in or have account balances in nonqualified defined contribution plans or other deferred compensation plans maintained by us.
Potential Payments upon Termination or Change-in-Control
Potential Payments upon Termination or Change-in-Control The following summarizes potential payments payable to our named executive officers upon termination of employment or a change-in-control.
CEO Pay Ratio
CEO Pay Ratio Our Chief Executive Officer and Chief Financial Officer are employees of our Manager and have been seconded to us to perform services on our behalf, as more fully described in the Management Services Agreement between the Company and the Manager. The Company does not compensate our Chief Executive Officer for the services that he provides to the Company as Chief Executive Officer. Rather, a management fee is paid to our Manager quarterly in respect of the services it performs for the Company pursuant to the Management Services Agreement and the Manager allocates a portion of such management fee to cover the Manager’s operating costs, overhead and other expenses, including the costs and expenses related to the compensation of all of the Manager’s personnel, other than the Chief Financial Officer and the Chief Financial Officer’s staff. The costs and expenses related to the compensation of our Chief Financial Officer and the Chief Financial Officer’s staff paid by our Manager are reimbursed by the Company. Our Chief Executive Officer, as an equity owner of the Manager, along with the other equity owners of the Manager, receives certain distributions from the Manager after payment by the Manager of the aforementioned costs and expenses. No CEO Pay Ratio is provided in this Proxy Statement because our Chief Executive Officer receives no compensation from the Company for his services to us, the amount of payments or distributions by our Manager to our Chief Executive Officer are not within our control and are derived not only from the management fee paid by us but also the Manager’s other income, our Manager does not compensate Mr. Sabo specifically for his services to us, and Mr. Sabo also provides other services to our Manager unrelated to us.
CEO Pay Ratio
| Pay Versus Performance |
CEO Pay Ratio
As required by Item 402(v) of Regulation S-K, which was mandated by Section 953(a) of the Dodd-Frank Act, we are providing the following information about the relationship between “compensation actually paid” to our principal executive officer “PEO” and “compensation actually paid” to our non-PEO named executive officers “NEOs”, and the financial performance of the Company during the years ended December 31, 2023, 2022, 2021, and 2020, respectively, in each case calculated in a manner consistent with SEC rules. This section should be read in conjunction with the Compensation Discussion and Analysis set forth on pages 31 to 40 of this Proxy Statement, which includes additional discussion of the objectives of our executive compensation for our named executive officers and how it aligned with the Company’s financial and operational performance. Included in the table below is the annual compensation paid to our named executive officers and our financial performance for each of the four previous fiscal years.
CEO Pay Ratio
| Year | Summary compensation table total for PEO(1) | Compensation actually paid to PEO(1) | Average summary compensation table total for non-PEO NEOs(2)(3) | Average compensation actually paid to non-PEO NEOs(3) | Value of initial fixed $100 investment based on: | | Net income in (000’s) | | | | | | | Total shareholder return(4) | Peer group total shareholder return(5) | | | 2023 | — | — | $1,117,449 | $1,117,449 | $116.99 | $125.55 | $262,405 | | 2022 | — | — | $1,072,780 | $1,072,780 | $90.35 | $107.05 | $51,438 | | 2021 | — | — | $1,043,399 | $1,043,399 | $145.03 | $122.65 | $126,809 | | 2020 | — | — | $1,026,683 | $1,026,683 | $84.50 | $97.82 | $27,197 |
CEO Pay Ratio
| (1) Mr. Elias J. Sabo, our Chief Executive Officer, who is seconded to us by our Manager, does not receive compensation for his services directly from us. Mr. Sabo also provides other services to our Manager and our Manager does not compensate Mr. Sabo specifically for his services to us. We pay our Manager a quarterly management fee and Mr. Sabo, as an equity member of our Manager, receives periodic cash distributions from our Manager after payment of operating costs, compensation and other expenses related to our Manager’s employees and its other members. The amount of such distributions, which relates to not only the management fee paid by us but also the Manager’s other income, is derived by the Manager and is not within our control. Accordingly, no compensation information for Mr. Sabo is reflected in the “summary compensation table total for PEO” or the “compensation actually paid to PEO” columns. |
CEO Pay Ratio
| (2) Mr. Ryan J. Faulkingham, our Chief Financial Officer, was the Company’s only non-PEO named executive officer compensated by the Company for the periods reported in this table. Accordingly, the amounts reported in these columns reflect the summary compensation table totals and the compensation actually paid to Mr. Faulkingham for the years 2023, 2022, 2021, and 2020, respectively. |
CEO Pay Ratio
| (3) Mr. Faulkingham does not participate in any Company sponsored defined benefit or actuarial pension plans, or any Company sponsored stock award, stock option, non-equity incentive or nonqualified deferred stock compensation plans. Therefore, the compensation actually paid to Mr. Faulkingham was equal to his summary compensation table totals for each of 2023, 2022, 2021, and 2020, respectively. |
CEO Pay Ratio
| (4) Our total shareholder return assumes the investment of $100 in our common stock on the last trading day before the earliest fiscal year in the above table through and including the end of the fiscal year for which total shareholder return is depicted. |
CEO Pay Ratio
| (5) Represents total shareholder return for NYSE Financial Sector Index. |
Relationship Between Company TSR and Compensation Actually Paid to PEO and NEOs
Relationship Between Company TSR and Compensation Actually Paid to PEO and NEOs Although the Company did not rely on any performance measures to link the compensation of its Chief Financial Officer, the Company’s only non-PEO named executive officer, to the performance of the Company, the above table illustrates the relationship between the compensation actually paid during fiscal years 2020, 2021, 2022, and 2023, respectively, to our Chief Financial Officer versus the Company’s TSR during the same periods. As described in the Compensation Discussion and Analysis contained in this Proxy Statement, during fiscal years 2020, 2021, 2022, and 2023 the Company did not compensate our PEO.
Relationship Between Compensation Actually Paid to PEO and NEOs and Net Income
Relationship Between Compensation Actually Paid to PEO and NEOs and Net Income Although the Company did not rely on any performance measures to link the compensation paid by the Company to our Chief Financial Officer, the Company’s only non-PEO named executive officer, to the performance of the Company, the above table illustrates the relationship between the compensation actually paid during fiscal years 2020, 2021, 2022, and 2023, respectively, to our Chief Financial Officer versus net income during the same periods. As described in the Compensation Discussion and Analysis contained in this Proxy Statement, during fiscal years 2020, 2021, 2022, and 2023 the Company did not compensate our PEO.
Relationship Between Compensation Actually Paid Versus Company Selected Measure
Relationship Between Compensation Actually Paid Versus Company Selected Measure As noted above, for the fiscal year ended December 31, 2023, the Company did not compensate its PEO and the Company did not rely on any performance measures to link the compensation of its Chief Financial Officer, the Company’s only other named executive officer, to the performance of the Company. Accordingly, a description regarding the relationship between the compensation actually paid versus the “company selected performance measure” is not provided. Information regarding the compensation of our named executive officer is set forth in the Compensation Discussion and Analysis contained in this Proxy Statement.
Relationship Between Compensation Actually Paid Versus Company Selected Measure
| Compensation Committee Report |
Relationship Between Compensation Actually Paid Versus Company Selected Measure
The Compensation Committee makes recommendations to the Board of Directors concerning the compensation of the Company’s named executive officer. We have reviewed and discussed with management the Compensation Discussion and Analysis to be included in the Company’s Schedule 14A Proxy Statement, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended. Based on the reviews and discussions referred to above, the Compensation Committee recommended to the Board, and the Board has approved, the inclusion of the Compensation Discussion and Analysis referred to above in the Company’s 2024 Proxy Statement.