DEF 14A of Fortrea Holdings Inc.
Filed Mar 28, 2024 · FY20230001193125-24-080827
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
| Executive Compensation | 25 | | Compensation Discussion & Analysis | 25 | | Summary Compensation Table | 39 | | Grants of Plan-Based Awards | 40 | | Equity Incentive Awards | | | Outstanding Equity Awards at Fiscal Year-End | 41 | | Option Exercises and Stock Vested | 42 | | Nonqualified Deferred Compensation | 42 | | Potential Payments Upon Termination or Change in Control | 43 | | Pay versus Performance | 45 | | Proposal 3: Advisory Vote on the Compensation of Our Named Executive Officers | 47 | | Vote Required | 48 | | Recommendation of the Board of Directors | 48 | | Proposal 4: Approval of the Frequency of Future Advisory Votes on Named Executive Officers’ Compensation | 49 | | Vote Required | 49 | | Recommendation of the Board of Directors | 49 | | Director Compensation | 50 | | 2023 Director Compensation Table | 50 | | Equity Compensation Plan Information | 51 | | Security Ownership of Certain Beneficial Owners and Management | 52 | | Certain Relationships | 54 | | Delinquent Section 16(a) Reports | 54 | | Compensation Committee Interlocks and Insider Participation | 54 | | Stockholders’ Proposals | 54 | | Other Matters | 55 | | Solicitation of Proxies | 55 | | Fortrea’s Annual Report on Form 10-K | 56 | | Appendix A - Supplemental Non-GAAP Financial Information Used in Compensation Performance Metrics | 57 |
Where can I find the voting results of the Annual Meeting?
Where can I find the voting results of the Annual Meeting? We plan to announce preliminary voting results at the Annual Meeting and we will report the final results in a Current Report on Form 8-K, which we intend to file with the SEC after the Annual Meeting. At the Annual Meeting, two (2) Class I Directors are to be elected to hold office until the Annual Meeting of Stockholders to be held in 2027 and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. We currently have seven (7) directors on our Board, including two (2) Class I Directors. Our current Class I Directors are Edward Pesicka, who has served on our Board since June 29, 2023, and David Smith, who has served on our Board since June 15, 2023. The Board has nominated Edward Pesicka and David Smith for election as Class I Directors at the Annual Meeting. Proxies cannot be voted for a greater number of persons than the number of nominees named in this proposal. Each share of Common Stock is entitled to one vote on each of the director nominees and one vote on each other matter that is properly presented at the 2024 Annual Meeting. In accordance with Fortrea’s Amended and Restated Bylaws (the “Bylaws”), director nominees in an uncontested election must receive a majority of the votes cast to be elected, which under the Bylaws means that the number of shares voted “FOR” a director must exceed 50% of the votes cast with respect to that director. The Board has adopted a policy under which an incumbent director who does not receive the required vote for election as provided in the Bylaws will submit their resignation for consideration by the Board. Abstentions and broker non-votes are not considered to be votes cast and, accordingly, will have no effect on the outcome of the vote on this proposal. As set forth in our Amended and Restated Certificate of Incorporation, the Board is currently divided into three classes with staggered, three-year terms. At each annual meeting, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election, except as described below. The current class structure is as follows: Class I, whose current term expires at the Annual Meeting and whose new term will expire at the 2027 Annual Meeting; Class II, whose current term expires at the 2025 Annual Meeting and whose subsequent term will expire at the 2028 Annual Meeting; and Class III, whose current term expires at the 2026 Annual Meeting and whose subsequent term will expire at the 2028 Annual Meeting. Commencing at the 2028 Annual Meeting and at all subsequent Annual Meetings, the Board will no longer be classified, and all directors will be elected for a term of office to expire at the next succeeding Annual Meetings. The current Class II Directors are Betty Larson and Dr. Amrit Ray and the current Class III Directors are Thomas Pike, R. Andrew Eckert, and Peter M. Neupert. There are no family relationships among any of our executive officers or directors. For information regarding each of their compensation arrangements, see “Director Compensation” and “Executive Compensation.” If you submit a proxy but do not indicate any voting instructions, the persons named as proxies will vote the shares of Common Stock represented thereby for the election as Class I Directors of the persons whose names and biographies appear below. All of the persons whose names and biographies appear below are currently serving as our directors. In the event any of the nominees should become unable to serve, or for good cause will not serve as a director, it is intended that votes will be cast for a substitute nominee designated by the Board or the Board may elect to reduce its size. The Board has no reason to believe that the nominees named below will be unable to serve if elected. Each of the nominees has consented to being named in this proxy statement and to serve if elected.
Director Candidate Qualifications
Director Candidate Qualifications When evaluating prospective candidates for director, the Nominating, Corporate Governance and Compliance Committee establishes and recommends to the Board the appropriate skills and characteristics required of Board members for the selection of new directors, and evaluates the qualifications of potential candidates for director, including any nominees submitted by stockholders. The Nominating, Corporate Governance and Compliance Committee also evaluates director independence and diversity. Our current directors’ primary skills and experiences are highlighted in the following matrix. The matrix is intended as a high-level summary and not an exhaustive list of each director’s skills or contributions to our Board.
Director Candidate Qualifications
| Experience, Expertise or Attribute | Thomas Pike | Andy Eckert | Peter Neupert | Betty Larson | David Smith | Amrit Ray | Edward Pesicka | | General Management and Business Operations | X | X | X | X | X | X | X | | CEO Experience | X | X | X | | | | X | | CFO Experience | | | | | X | | X | | Technology | X | X | X | | | | | | Finance/Accounting | X | X | X | | X | | X | | Mergers and Acquisitions | X | X | X | X | X | X | X | | Risk Management | X | | X | X | X | | X | | International Business | X | X | X | X | X | X | X | | Healthcare/Drug Development | X | X | X | X | X | X | X | | Human Resources | | | | X | | | | | Quality and Regulatory | | | | | | X | | | Diversity | | | | X | | X | | | Science and Medicine | X | | | | X | X | | | Spin Experience | | X | | X | X | X | |
Director Candidate Qualifications
NOMINEES FOR CLASS I DIRECTORS (TERMS TO EXPIRE AT THE 2027 ANNUAL MEETING) The current members of the Board who are also nominees for election to the Board as Class I Directors are as follows:
Director Candidate Qualifications
| Name | Age | Served as a Director Since | Position with Fortrea | | Edward Pesicka | 57 | 2023 | Director | | David Smith | 58 | 2023 | Director |
Director Candidate Qualifications
The principal occupations and business experience, for at least the past five years, of each Class I Director Nominee for election at the 2024 Annual Meeting are as follows:
Director Candidate Qualifications
| Age: 57 Director Since: June 29, 2023 | Edward Pesicka Mr. Pesicka was appointed to our Board of Directors in connection with the Spin. Since March 2019, Mr. Pesicka has served as President and Chief Executive Officer, as well as on the board of directors, of Owens & Minor, Inc., a global healthcare solutions company. From January 2016 until March 2019, Mr. Pesicka was an independent consultant and advisor in the healthcare, life science and distribution industries. From January 2000 until April 2015, Mr. Pesicka served in various roles of increasing responsibility at Thermo Fisher Scientific Inc., an American supplier of scientific instrumentation, reagents and consumables and software services, including Chief Commercial Officer and Senior Vice President from January 2014 to April 2015. Prior to Thermo Fisher Scientific, Mr. Pesicka spent eight years with TRW, Inc., an aerospace company, in its finance department and three years with PricewaterhouseCoopers as an auditor. Mr. Pesicka earned an MBA from Weatherhead School of Management at Case Western Reserve University and a BA in Business Administration and Management from Muskingum College. Since 2019, Mr. Pesicka has served as a director of Owens & Minor, Inc. |
Director Candidate Qualifications
| Age: 58 Director Since: June 15, 2023 | David Smith Mr. Smith was appointed to our Board of Directors in connection with the Spin. Mr. Smith has over 25 years of pharmaceutical industry experience. Mr. Smith served as Executive Vice President and Chief Financial Officer for Charles River Laboratories International, Inc., an American pre-clinical contract research organization supporting the global pharmaceutical industry. Mr. Smith joined Charles River in April 2014 through their acquisition of the Galapagos Services Division, which was carved out from its parent company Galapagos NV, a Belgium pharmaceutical research company. Mr. Smith served as the Chief Executive Officer for that division and, on its acquisition, continued to manage its operation as Corporate Vice President at Charles River. In October that year, Mr. Smith was promoted to Corporate Senior Vice President with responsibilities for all Discovery Services at Charles River. In the following February, he was nominated as the successor to the incumbent Chief Financial Officer, formerly taking the helm in August 2015, a post Mr. Smith held until his retirement in May 2022. During Mr. Smith’s tenure as Chief Financial Officer, Charles River entered the S&P 500 in May 2021. Previously, Mr. Smith also served as Chief Financial Officer at Cambridge University Hospitals in the United Kingdom and Galapagos NV. He held management positions at AstraZeneca in the Netherlands, Hungary, Sweden and the U.K. and held a variety of leadership roles, including in the R&D division where he helped determine which molecules progressed through the pipeline. Mr. Smith trained as a Chartered Accountant in the U.K., with what is now called PwC, before relocating with the firm to Dubai. Mr. Smith obtained his Bachelor of Sciences Honors degree in Molecular Biophysics at the University of Leeds, UK. |
Director Candidate Qualifications
CLASS II DIRECTORS (TERMS TO EXPIRE AT THE 2025 ANNUAL MEETING) The current members of the Board who are Class II Directors are as follows:
Director Candidate Qualifications
| Name | Age | Served as a Director Since | Position with Fortrea | | Dr. Amrit Ray | 51 | 2023 | Director | | Betty Larson | 48 | 2023 | Director |
Director Candidate Qualifications
The principal occupations and business experience, for at least the past five years, of each Class II Director are as follows:
Director Candidate Qualifications
| Age: 51 Director Since: June 29, 2023 | Dr. Amrit Ray Dr. Ray was appointed to our Board of Directors in connection with the Spin. Dr. Ray has over 25 years of biopharmaceutical industry experience. Dr. Ray is a physician researcher and advisor to life sciences companies. From March 2022 until December 2022, Dr. Ray served as the Chief Patient Officer at Biohaven Pharmaceuticals, a biopharmaceutical company. From 2017 until January 2021, Dr. Ray served as the Global President, Head of R&D and Medical, overseeing all aspects of R&D worldwide for the Essential Health and later Upjohn divisions at Pfizer, a biopharmaceutical company. Previously from 2009-2017, Dr. Ray served in positions of increasing responsibility including as the Chief Medical Officer and as the Chief Safety Officer for global pharmaceuticals at Johnson & Johnson, a healthcare company. Dr. Ray earned degrees in Immunology and in Medicine at Edinburgh University, and an MBA from the Tuck School of Business at Dartmouth College. Dr. Ray is a Visiting Professor of Practice at the Faculty of Medical Sciences of Newcastle University, UK, and serves on the Board of Trustees at The Hastings Center for Bioethics. Since 2022, Dr. Ray has served as a director of Ultragenyx Pharmaceutical Inc., a biopharmaceutical company. |
Director Candidate Qualifications
| Age: 48 Director Since: June 29, 2023 | Betty Larson Ms. Larson was appointed to our Board of Directors in connection with the Spin. Since 2023, Ms. Larson has served as Chief People Officer of GE HealthCare Technologies Inc., a medical technology, pharmaceutical diagnostics and digital solutions company. From March 2022 until January 2023, Ms. Larson served as the Chief People Officer of GE’s Healthcare business. Since early 2022, Ms. Larson has been directly involved in leading the HR, Communications and Corporate Marketing organizations for GE HealthCare which spun-out from GE in January of 2023. Leading teams responsible for the development and activation of the new company brand, purpose and culture. From 2017 until 2022, Ms. Larson served as executive Vice President and Chief Human Resources Officer at Becton, Dickinson and Company, a global medical technology company. In 2017 and through 2018, Ms. Larson played a key role in the $24 billion acquisition of C.R. Bard, Inc. and was directly accountable for HR and Communications following acquisition and through integration. While also at Becton Dickinson, Ms. Larson was on the Steering Committee and responsible for all HR, Communications and Social Investing decisions related to the spin-out of Becton’s diabetes business, now Embecta a public company since 2022. Prior to that role, Ms. Larson served as Chief Human Resources Officer for C. R. Bard, Inc, a leading medical technology company in the fields of vascular, urology and surgical specialty products. She started her career at Baxter International, an American multinational healthcare company, where she held a variety of leadership roles during her 16-year tenure. Ms. Larson earned a bachelor’s degree in psychology and a master’s degree in human resources from the University of Illinois, and an MBA from Northwestern University. Ms. Larson recently tendered her offer to resign from the Board in connection with an upcoming significant change in her principal occupation, as required by our Corporate Governance Guidelines. In the event the Board accepts Ms. Larson’s offer to resign, we intend to initiate a search for a director to fill any vacancy upon Ms. Larson’s departure. |
Director Candidate Qualifications
CLASS III DIRECTORS (TERMS TO EXPIRE AT THE 2026 ANNUAL MEETING) The current members of the Board who are Class III Directors are as follows:
Director Candidate Qualifications
| Name | Age | Served as a Director Since | Position with Fortrea | | Thomas Pike | 64 | 2023 | Chief Executive Officer and Chairman of the Board | | R. Andrew Eckert | 62 | 2023 | Lead Independent Director | | Peter M. Neupert | 68 | 2023 | Director |
Director Candidate Qualifications
The principal occupations and business experience, for at least the past five years, of each Class III Director are as follows:
Director Candidate Qualifications
| Age: 64 Director Since: June 29, 2023 | Thomas Pike Mr. Pike has served as our Chief Executive Officer and Chairman of our Board of Directors since the Spin. Mr. Pike has more than 30 years of industry experience. Mr. Pike joined Labcorp in January 2023 as president and chief executive officer of its Drug Development, Clinical Development and Commercialization Services business unit. Prior to joining Labcorp, he co-founded, advised and served as a director for several healthcare and technology services companies, including companies with a focus on patients and clinical research sites from 2017 to 2023. Prior to that, Mr. Pike served as CEO and board member of Quintiles Transnational Holdings, Inc. (“Quintiles”), a leading fully integrated biopharmaceutical services company offering clinical, commercial and consulting solutions worldwide. Under Mr. Pike’s leadership, Quintiles was named one of the world’s Most Ethical Companies and Most Admired Companies by Fortune magazine. During his tenure, he also led the launch of Q2 Solutions, a clinical trial laboratory services organization, in a joint-venture transaction. Mr. Pike led Quintiles through a successful IPO, helping it grow into a Fortune 500 company with 36,000 employees worldwide. Mr. Pike retired as vice chairman of the merged Quintiles and IMS Health. Prior to Quintiles, Mr. Pike had a distinguished career at Accenture in executive roles, including Chief Risk Officer and Managing Director of the North America Health and Products business areas. Prior to that, he was the global Chief Operating Officer for Accenture’s Resources operating group, and he also served as Accenture’s Chief Strategy Officer and a member of the executive leadership team for Accenture’s IPO in July 2001. Earlier, he was at McKinsey & Company and, since 2019, serves on the board of Martin Marietta Materials, Inc. Mr. Pike earned his Bachelor of Science in accounting from the University of Delaware. |
Director Candidate Qualifications
| Age: 62 Director Since: June 29, 2023 | R. Andrew Eckert Mr. Eckert was appointed to our Board of Directors in connection with the Spin. Since December 2022, Mr. Eckert has served as a Senior Advisor to Permira, a global private equity firm. Mr. Eckert served as the Chief Executive Officer of Zelis Inc., a provider of healthcare cost management and payment solutions, from August 2020 until August 2021, and as the President and Chief Executive Officer of Acelity L.P., a global wound care company, from 2017 until October 2019. Mr. Eckert earned an MBA from Stanford University Graduate School of Business and a BS in Industrial Engineering from Stanford University. Since January 2016, Mr. Eckert has served as director of Becton, Dickinson and Company, a global medical technology company. In addition, Mr. Eckert’s prior board service includes Varian Medical Systems, Inc., a medical device and software company, where he served as a director from 2005 to 2014 and as Chairman of the Board from 2014 to 2021. |
Director Candidate Qualifications
| Age: 68 Director Since: June 29, 2023 | Peter M. Neupert Mr. Neupert was appointed to our Board of Directors in connection with the Spin. Mr. Neupert served as an Operating Partner at Health Evolution Partners, a private equity fund, from February 2012 to July 2014. Prior to joining Health Evolution Partners, Mr. Neupert served as Corporate Vice President, Health Solutions Group at Microsoft from August 2005 to January 2012, and as the Chief Executive Officer and Chairman of the board of directors of Drugstore.com, which he joined in July 1998. Prior to drugstore.com, Mr. Neupert was Corporate Vice President for News and Publishing at Microsoft, where he created and led MSNBC.com and MSNBC Cable and managed Microsoft’s other online publishing entities including Slate.com. Since 2013, Mr. Neupert has served as a director of Labcorp and as a director of Adaptive Biotechnologies Corporation. Mr. Neupert previously served as a member of the board of directors of NextGen Healthcare, Inc., a public software company, and several private companies. Mr. Neupert served as a member of the Board of Trustees of Fred Hutchinson Cancer Research Center from June 2007 to June 2020. Mr. Neupert holds an MBA from the Tuck School of Business at Dartmouth College and a BA in Philosophy from Colorado College. |
Director Candidate Qualifications
Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm Our Audit Committee has appointed Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2024. The Labcorp Audit Committee engaged Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal years ending December 31, 2022, and December 31, 2023 and the Fortrea Audit Committee ratified the engagement for fiscal year 2023 after the Spin. Our Board has directed that the appointment for the fiscal year ending December 31, 2024 be submitted to our stockholders for ratification. Although ratification of our appointment of Deloitte & Touche LLP is not required, we value the opinions of our stockholders and believe that stockholder ratification of our appointment is a good corporate governance practice. Neither the accounting firm nor any of its members has any direct or indirect financial interest in or any connection with us in any capacity other than as our auditors, providing audit and non-audit related services. A representative of Deloitte & Touche LLP is expected to attend the Annual Meeting and to have an opportunity to make a statement and be available to respond to appropriate questions from stockholders. In the event that the appointment of Deloitte & Touche LLP is not ratified by the stockholders, the Audit Committee will consider this fact when it appoints the independent registered public accounting firm for the fiscal year ending December 31, 2025. Even if the appointment of Deloitte & Touche LLP is ratified, the Audit Committee retains the discretion to appoint a different independent registered public accounting firm at any time if it determines that such a change is in the interests of the Company.
The Audit Committee
| Name | Biographical Information | | Thomas Pike Age: 64 Chief Executive Officer and Chairman of the Board | See biography on page 11 of this proxy statement. | | Jill McConnell Age: 50 Chief Financial Officer | Jill McConnell has served as our Chief Financial Officer since the Spin and previously served as Chief Financial Officer of the Labcorp Drug Development Segment since 2018. In the approximately 20 years prior to 2018, Ms. McConnell served in a variety of finance roles of increasing responsibility at GSK, a British multinational pharmaceutical and biotechnology company, including Senior Vice President and Chief Financial Officer of its ViiV Healthcare division and Vice President and Head of Finance of its US Pharmaceuticals division, among others. Ms. McConnell received a BA degree from Gettysburg College, and an MBA, Health & Medical Services from Saint Joseph’s University. | | Mark Morais, Age: 48 Chief Operating Officer and President, Clinical Services | Mark Morais has served as our Chief Operating Officer and President, Clinical Services, since the Spin. Previously, Mr. Morais served as President of Clinical Services and Commercial Solutions, within the Labcorp Drug Development Segment, since September 2020 and Chief Operating Officer and President of Labcorp Clinical Development, since October 2022. Prior to September 2020, Mr. Morais served as Senior Vice President Strategic Deal Development, Enterprise Client Solutions and Alliance Management at Covance, Labcorp’s drug development company, from May 2018 to September 2020 and from December 2016 to May 2018 he served as Covance’s Vice President of Strategic Deal Development and Pricing. Prior to Covance, Mr. Morais also served in various positions of increasing responsibility at Quintiles from April 2001 to January 2017. Mr. Morais earned a BS degree from North Carolina State University. |
2023 Compensation Highlights
| • | The Labcorp CHCC negotiated Mr. Pike’s salary in November and December 2022 as part of the negotiation of his employment agreement, which was extended in January 2023, and the salaries for Ms. McConnell and Mr. Morais were adjusted by Labcorp to take effect at the time of the Spin. As such, the Fortrea MDCC determined not to adjust 2023 base salaries for the NEOs that have historically taken effect at mid-year. |
2023 Compensation Highlights
| • | Under the terms of the employment agreement previously approved by, and entered into with, Labcorp and subsequently ratified by our Board after the Spin, Mr. Pike received a one-time sign on equity grant of Restricted Stock Units (“RSUs”) in January 2023 and received additional equity consisting of RSUs and stock options in August 2023 because the Spin was completed. Under the terms of Mr. Pike’s employment agreement, Mr. Pike’s 2023 equity grants were intended to provide an equivalent value of three years of equity grants, and no further equity grants are intended to be made during the remaining initial term of his employment agreement, which ends on December 31, 2025. In accordance with these terms, Mr. Pike did not receive an equity grant in 2024. |
2023 Compensation Highlights
| • | Labcorp awarded both Ms. McConnell and Mr. Morais a cash bonus in order to incentivize them to work through and past the Spin. |
2023 Compensation Highlights
| • | Labcorp increased target bonuses for Ms. McConnell and Mr. Morais to take effect at the time of the Spin. |
2023 Compensation Highlights
| • | 2023 long-term incentive (“LTI”) grants were made in June by Labcorp and August by Fortrea to Ms. McConnell and Mr. Morais, in addition to the annual February grant made by Labcorp, to account for their increased role as NEOs of a stand-alone public company. In addition, these equity grants to Ms. McConnell and Mr. Morais were intended to provide competitive compensation while increasing their share ownership and alignment with stockholders. |
2023 Compensation Highlights
| • | For the first six months of 2023, the Labcorp portion of the bonus pool was funded by Labcorp in an aggregate of $17 million, and the Fortrea MDCC applied a 61.07% business performance factor across all participants in the pool. For the six months after the Spin, the Fortrea portion of the 2023 bonus was not funded. The Labcorp portion was approved by the Labcorp CHCC at the time of the Spin. Fortrea’s portion was not funded because actual Adjusted EBITDA was below the target for the second half of 2023. This resulted in an overall payout of approximately 20% of target 2023 bonus for Ms. McConnell and Mr. Morais (after adjusting for higher salaries and target bonuses post-Spin). |
2023 Compensation Highlights
| • | No discretionary adjustment was made to the bonus pool as the Fortrea MDCC believes that it is important to pay for performance. In accordance with Mr. Pike’s Employment Agreement, entered into by Labcorp and ratified by Fortrea after the Spin (discussed below), Mr. Pike received his guaranteed 2023 bonus. |
2024 Compensation Highlights
| • | Approved the 2024 Fortrea Bonus Plan, under which achievement is based on the following financial performance and strategic objectives: (i) Financial metrics, including Adjusted EBITDA, which aligns with the interests of stockholders, and net new business, which focuses on growth; and (ii) Strategic components based on the successful exit of the TSAs, which is critical to Fortrea’s success as an independent company; and |
2024 Compensation Highlights
| • | Approved the 2024 Long-term Incentive Plan (“LTIP”), under which achievement is based on the following absolute and relative metrics: (i) Financial metrics, including revenue and Adjusted EBITDA Margin, which continues the focus on growth and profitability; and (ii) A relative Total Stockholder Return modifier that measures Fortrea’s long-term stockholder return versus an industry-relevant index to align with stockholders over the longer-term. |
2023 NAMED EXECUTIVE OFFICERS
| • | Determined 2023 annual incentive design, including performance goals and metrics for 2023. These metrics did not initially contemplate the impact of the Spin and were tied to Labcorp performance. |
2023 NAMED EXECUTIVE OFFICERS
| • | Awarded both Ms. McConnell and Mr. Morais a cash bonus in order to incentivize them to work through and past the Spin. |
2023 NAMED EXECUTIVE OFFICERS
| • | Granted annual long-term incentive awards in February 2023, based on each executive’s role and expected contribution. |
2023 NAMED EXECUTIVE OFFICERS
| • | Revised 2023 annual incentive design to include performance goals and metrics that fully contemplated the impact of the Spin. Performance goals and funding for the second half of 2023 were tied to Fortrea performance. |
2023 NAMED EXECUTIVE OFFICERS
| • | Granted one-time RSU awards in June 2023 to certain employees, including two of our NEOs, to incentivize the employees to work through the Spin and the critical initial period of building and operating a new independent public company. |
2023 NAMED EXECUTIVE OFFICERS
| • | Approved one-time Founders Grants in the form of time-based RSUs under the Fortrea Inc. 2023 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) for all bonus-eligible employees (excluding our NEOs) that were intended to engage and align employees with the interests of our stockholders during the critical time following the Spin and provide a meaningful ownership stake in the Company from our “Day 1.” |
2023 NAMED EXECUTIVE OFFICERS
| • | Approved the Initial Equity Grant under Mr. Pike’s employment agreement, which together with the Sign-On Grant, was intended to provide an equivalent value of three years of grants. There is no current plan to provide additional equity grants through the remaining initial term of his employment agreement, which ends on December 31, 2025. In accordance with Mr. Pike’s employment agreement, Mr. Pike did not receive an equity grant in 2024. |
2023 NAMED EXECUTIVE OFFICERS
| • | Adopted an Executive Severance Plan. |
2023 NAMED EXECUTIVE OFFICERS
| • | Engaged a new, independent compensation consultant, Pay Governance, to assist the Fortrea MDCC with evaluating Fortrea’s go-forward compensation plans to support the strategic direction of the Company following its Spin from Labcorp. |
2023 NAMED EXECUTIVE OFFICERS
| | What We Do | What We Don’t Do | | Compensation Program Elements | • Use balanced mix of cash and equity compensation and annual and long-term incentives. • Provide competitive target total compensation to our NEOs. • Engage independent compensation consultant to provide Fortrea MDCC advice and market trends on executive compensation. | • No single trigger arrangements. • No uncapped incentive opportunities. • No hedging or pledging of our shares. | | Pay for Performance | • Align executive compensation with the execution of our business strategy by using performance metrics that reward behaviors that support our business objectives and long-term stockholder value. • Balance performance metrics in our incentive plans so that undue weight is not given to any one metric, and measure performance over annual and multi-year performance periods. • Use relative total stockholder return metric in long-term plan for strong alignment with stockholders. | • While we emphasize “at risk” pay tied to performance, our program does not encourage excessive risk-taking by management. • No guaranteed salary increases or incentive awards for executive officers, outside new-hire arrangements. • No defined benefit plans or retirement plans outside the 401(k) Plan available to all eligible employees. | | Strong Compensation Policies | • Robust share ownership guidelines. • Insider Trading Policy prohibits pledging shares or hedging against the economic risk of ownership. • Executive Severance Plan and equity agreements provide “Double-trigger” change in control agreements with our executive officers, and double-trigger vesting provisions for equity compensation awards. • Clawback policies tied to financial restatements or breaches of restrictive covenants. | • No back-dating of stock options. No repricing of equity awards allowed without stockholder approval. • No individual change of control agreements with NEOs (other than as set out in Mr. Pike’s employment agreement). • No excise tax “gross-ups” in our change in control agreements. |
Role of our Independent Compensation Consultant
Role of our Independent Compensation Consultant Pursuant to its charter, the Fortrea MDCC has the sole discretion to retain or obtain advice from compensation consultants. During 2023, prior to the Spin, Labcorp retained FW Cook as a compensation consultant to assist on Fortrea-related matters, and after the Spin, Fortrea MDCC continued its engagement of FW Cook as a compensation consultant to assist in its evaluation of executive compensation. FW Cook conducted various market studies and advised the Fortrea MDCC on general executive compensation matters to assist in fulfilling its duties post-Spin. In November 2023, the Fortrea MDCC retained Pay Governance to act as the compensation consultant to assist in its evaluation of executive compensation in 2024. For 2023, after the Spin, FW Cook and Pay Governance reported directly to the Fortrea MDCC, participated in meetings with the Fortrea MDCC, communicated with the Fortrea MDCC Chair between meetings as necessary and worked with management at the direction of the Fortrea MDCC. The Fortrea MDCC reviewed FW Cook’s independence and Pay Governance’s independence and concluded that both FW Cook and Pay Governance are independent and conflict-free advisors to the Company pursuant to the standards of the Dodd-Frank Wall Street Reform and Consumer Protection Act and applicable rules of Nasdaq.
Use of Peer Group and Market Data
Use of Peer Group and Market Data In February 2023, the Labcorp CHCC established a peer group for Fortrea with input from FW Cook for use in benchmarking executive and non-employee director compensation levels and other pay practices. In establishing the peer group, Labcorp and FW Cook considered competitors based on Fortrea’s projected size and business profile using objective screening criteria including revenue and market capitalization of similar publicly traded organizations. The peer group consisted of sixteen companies that would be used as a reference to determine 2023 pay opportunity levels for the NEOs. The table below presents the peer group companies:
Use of Peer Group and Market Data
| Bausch Health Companies | Jazz Pharmaceuticals plc | | Bio-Rad Laboratories | Medpace Holdings, Inc. | | Bruker Corporation | Organon & Co. | | Catalent, Inc. | Perrigo Company plc | | Charles River Laboratories | Syneos Health | | Exelixis, Inc. | Teleflex Incorporated | | ICON plc | Viatris Inc. | | IQVIA Holdings, Inc. | Vir Biotechnology, Inc. |
Use of Peer Group and Market Data
This peer group served as the primary market reference point and was supplemented with other market data, where appropriate. For 2023 with the assistance of FW Cook, the Labcorp CHCC compared our size and complexity of operations to those of the companies identified in the peer group set forth above. The Fortrea MDCC reviewed and ratified this peer group and also compared the peer group’s current executive compensation and compensation mix (percent of base salary, short-term, and long-term incentive) to our current practices. FW Cook provided recommendations for adjustments based on current practices and policies within the peer group and trends within the industry.
Principal Elements of Executive Compensation
Mr. Pike’s employment at Labcorp commenced effective January 9, 2023. Annual Bonus (Non-Equity Short-Term Incentive Compensation)
Fiscal Year 2023 Earned Annual Bonus
Fiscal Year 2023 Earned Annual Bonus Based on the performance achievements described below, the following annual incentive bonuses were earned by our NEOs for 2023 performance. In accordance with Mr. Pike’s employment agreement, which was entered into with Labcorp on January 5, 2023, Mr. Pike was entitled to a guaranteed bonus payment of no less than 100% of his 2023 base salary, or $1,100,000.
Fiscal Year 2023 Earned Annual Bonus
| Executive | Applicable Bonus Plan | Prorated Base Salary | Bonus Target (% of Base Salary) | Fortrea Business Performance Factor | Individual Performance Modifier | Actual Bonus Payout | | Thomas Pike | Contractually Agreed | $1,100,000 | N/A | N/A | N/A | $1,100,000 | | Jill McConnell | Labcorp Bonus Plan | $203,917 | 50% | 61.07% | 100% | $62,266 | | | Fortrea Bonus Plan | $252,055 | 85% | 0% | 100% | $0 | | Mark Morais | Labcorp Bonus Plan | $205,199 | 50% | 61.07% | 100% | $62,658 | | | Fortrea Bonus Plan | $252,055 | 85% | 0% | 100% | $0 |
Fiscal Year 2023 Earned Annual Bonus
For additional information related to the Labcorp Bonus Plan and the Fortrea Bonus Plan, please see the narrative below.
Labcorp Bonus Plan: January 1, 2023 to June 30, 2023 Bonus Plan Design
Labcorp Bonus Plan: January 1, 2023 to June 30, 2023 Bonus Plan Design Prior to Fortrea being established as an independent, publicly traded company, our NEOs were subject to the Labcorp Bonus Plan (“LBP”). The program, which was designed and approved by the Labcorp CHCC, represents Labcorp’s performance projections through Spin. The LBP covers the majority of Labcorp executives and management eligible for bonuses, including the applicable Fortrea NEOs and other eligible Fortrea employees. The LBP is designed to compensate Labcorp executives for achieving annual goals that further Labcorp’s strategy and create stockholder value. Bonus awards for the applicable Fortrea NEOs under the LBP were based on two performance factors:
Labcorp Bonus Plan: January 1, 2023 to June 30, 2023 Bonus Plan Design
| • | a Business Performance Factor, which is based on Labcorp financial metrics; and |
Labcorp Bonus Plan: January 1, 2023 to June 30, 2023 Bonus Plan Design
| • | the executive’s Individual Performance Modifier. |
Labcorp Bonus Plan: January 1, 2023 to June 30, 2023 Bonus Plan Design
Ms. McConnell’s Business Performance Factor was based entirely on enterprise financial metrics while Mr. Morais’ Business Performance Factor was based on a combination of enterprise, business segment, and business unit metrics. Under the initial metrics used to determine funding, the Labcorp CHCC approved a projected funding of the LBP to be $17 million for the first half of 2023, the time period prior to Spin. This LBP amount was designated for employee participants who went to Fortrea in the Spin.
Labcorp Bonus Plan: Treatment at time of Spin
Labcorp Bonus Plan: Treatment at time of Spin In connection with the Spin, the Labcorp CHCC approved a projected LBP performance factor that was applied to the bonus target, on a prorated basis as of June 30, 2023. The total amount of bonuses for all eligible Fortrea employees was aggregated on an individual basis and provided to Fortrea as an accrued liability to be allocated to eligible participants in line with the normal annual bonus performance measurement period, ending December 31, 2023, and payment schedule. Labcorp funded the LBP for bonus eligible participants that transitioned from Labcorp to Fortrea at $17 million, and the Fortrea MDCC applied a 61.07% business performance factor across all participants. For Ms. McConnell and Mr. Morais, the following table describes how the final payout associated with the LBP was determined:
Labcorp Bonus Plan: Treatment at time of Spin
| Executive | LBP Prorated Base Salary | Bonus Target (% of Base Salary) | Fortrea Business Performance Factor | Individual Performance Modifier | Actual Bonus Payout | | Jill McConnell | $203,917 | 50% | 61.07% | 100% | $62,266 | | Mark Morais | $205,199 | 50% | 61.07% | 100% | $62,658 |
Fortrea Bonus Plan: July 1, 2023 to December 31, 2023 Bonus Plan Design and Performance
Fortrea Bonus Plan: July 1, 2023 to December 31, 2023 Bonus Plan Design and Performance Effective July 1, 2023, Labcorp increased the target payout, as a percent of base salary, for Ms. McConnell and Mr. Morais to 85% from their pre-Spin target of 50%. After the Spin, the Fortrea MDCC evaluated the bonus target percentages and determined not to make any changes to the bonus target percentages for our NEOs. The following factors were considered by the Fortrea MDCC in evaluating bonus target payout decisions:
Fortrea Bonus Plan: July 1, 2023 to December 31, 2023 Bonus Plan Design and Performance
| • | Individual attributes of each NEO – such as responsibilities, skills, leadership and experience |
Fortrea Bonus Plan: July 1, 2023 to December 31, 2023 Bonus Plan Design and Performance
| • | The executive officer’s expected ongoing contributions to the Company |
Fortrea Bonus Plan: July 1, 2023 to December 31, 2023 Bonus Plan Design and Performance
| • | Overall market competitiveness of the executive officer’s target bonus |
Fortrea Bonus Plan: July 1, 2023 to December 31, 2023 Bonus Plan Design and Performance
After the Spin, the Fortrea MDCC established a post-Spin bonus plan under the Omnibus Incentive Plan called the Fortrea Bonus Plan (“FBP”). The performance criteria for the FBP’s sole metric, Adjusted EBITDA, was established based on expectations of Fortrea’s performance for the second half of the Company’s 2023 fiscal year. The design of the FBP was such that the resulting Adjusted EBITDA performance would have been applied to the prorated base salary and bonus target of the applicable NEOs. Because we did not meet the target level of second half 2023 Adjusted EBITDA under the FBP, there was no payment under the FBP. When factoring the bonus earned under both the LBP and the FBP, the overall payout was approximately 20% of target for Ms. McConnell and Mr. Morais (after adjusting for higher salaries and target bonuses).
Labcorp and Fortrea Bonus Arrangements with respect to Mr. Pike
Labcorp and Fortrea Bonus Arrangements with respect to Mr. Pike Under Mr. Pike’s employment agreement, which was entered into with Labcorp on January 5, 2023, Mr. Pike was entitled to a guaranteed bonus payment of no less than 100% of his 2023 base salary, or $1,100,000.
Cash Awards
Cash Awards Labcorp awarded each of Ms. McConnell and Mr. Morais a $200,000 cash bonus in order to incentivize them to work through and past the Spin. The cash award was paid in two installments, the first 30 days following the Spin and the second on the six-month anniversary of the Spin. Long-Term Equity Incentive Compensation and Conversion of Prior Awards Our long-term incentive plan is intended to motivate the attainment of our long-term goals and provide direct alignment to the experience of stockholders through the link to key financial measures and stock price performance. In 2023, awards were granted as a combination of Performance Share Awards (“PSAs”), RSUs and stock options, balancing complementary priorities of financial performance, stockholder value creation, alignment of interests and executive retention.
January 2023 Long-Term Incentive Award in Connection to Mr. Pike Commencing Employment
January 2023 Long-Term Incentive Award in Connection to Mr. Pike Commencing Employment In connection with Mr. Pike’s employment agreement with Labcorp, upon the commencement of Mr. Pike’s employment at Labcorp, he was awarded an RSU award valued at $4,000,000. This award vests in three equal installments on the first, second and third anniversary of the grant date. See below in the section entitled “August 2023 Long-Term Incentive Award in Connection to Mr. Pike’s Employment Agreement” for information regarding additional equity awards that were made post-Spin as required pursuant to Mr. Pike’s employment agreement. At time of Spin, this award was converted to Fortrea equity per the below discussion “Conversion of Labcorp Long-Term Incentive Awards (approved by Labcorp CHCC).”
February 2023 Long-Term Incentive Awards (approved by Labcorp CHCC)
February 2023 Long-Term Incentive Awards (approved by Labcorp CHCC) The design and values of the annual long-term incentive awards granted in February 2023 were established and approved by the Labcorp CHCC prior to the Spin and were associated with the roles and responsibilities that the applicable NEOs held at the time of grant. For Ms. McConnell and Mr. Morais, this means that the February 2023 long-term incentive award values reflected the roles that each of them held at Labcorp at the time of grant and did not reflect the subsequently approved 2023 long-term incentive target values for their roles at Fortrea, which commenced July 1, 2023. Ms. McConnell and Mr. Morais’ awards were granted as a combination of PSAs (60%) and RSUs (40%)
February 2023 Long-Term Incentive Awards (approved by Labcorp CHCC)
| Executive | February 2023 Target Award Value(1) | | Jill McConnell | $450,000 | | Mark Morais | $600,000 | | (1) The value of granted PSAs assumes 100% of target performance is achieved | |
February 2023 Long-Term Incentive Awards (approved by Labcorp CHCC)
At the time of grant, awards were subject to the following conditions:
February 2023 Long-Term Incentive Awards (approved by Labcorp CHCC)
| Vehicle | Key Features | | PSAs | • Awards vest subject to performance goals based on Labcorp’s three-year EPS growth (70%) and three-year Revenue growth (30%) with the final payout being modified by Labcorp’s relative Total Stockholder Return in comparison to peers by +/- 25% • For achievement of goals at or above maximum, awards could vest up to 200% of target; threshold performance would result in vesting of 50% of target with no payout below threshold performance • Dividend equivalents accrue and are paid on awards in cash following the final performance and payout determination | | RSUs | • Awards vest in equal tranches on the first, second and third anniversary of the date of grant • Dividend equivalents accrue on outstanding awards, and are only paid in cash at the time of vesting |
February 2023 Long-Term Incentive Awards (approved by Labcorp CHCC)
In connection with Spin, unvested Labcorp PSAs and RSUs, including those made in 2023, were converted into Fortrea PSAs and RSUs as summarized below.
Conversion of Labcorp Long-Term Incentive Awards (approved by Labcorp CHCC)
Conversion of Labcorp Long-Term Incentive Awards (approved by Labcorp CHCC) Prior to the Spin, the Labcorp CHCC established an approved methodology for converting unvested Labcorp long-term incentive awards into Fortrea long-term incentive awards. This was done to fairly preserve value by mitigating any impact in stock price volatility that may be experienced for Labcorp and Fortrea common stock before and after Spin. The methodology was applied consistently for all unvested Labcorp long-term incentive awards held by Fortrea employees. The Equity Adjustment Ratio was calculated by dividing Labcorp’s pre-Spin 10-trading day average stock price by Fortrea’s post-Spin 10-trading day average stock price. The resulting calculation is as follows: Labcorp’s Pre-Spin 10-trading day average stock price = $235.171 Fortrea’s Post-Spin 10-trading day average stock price = $33.054 = Equity Adjustment Ratio = 7.1148 The Equity Adjustment Ratio was applied to all unvested RSUs held by Fortrea employees. All original award terms and vesting schedules for the RSUs were maintained with no acceleration. Unvested PSAs were converted depending on how much of the three-year performance period had elapsed at the time of Spin, with the value preserved either on an actual or target basis as follows:
Conversion of Labcorp Long-Term Incentive Awards (approved by Labcorp CHCC)
| PSA Cycle | Treatment | | 2021 – 2023 | • Converted to RSUs based on Labcorp performance of 30 months (out of 36-month performance measurement period) utilizing the stated Equity Adjustment Ratio • At time of Spin, the Labcorp CHCC considered Labcorp’s performance in connection with the previously approved cumulative EPS growth, cumulative Revenue and relative Total Stockholder return through June 30, 2023. The Labcorp CHCC approved a combined payout factor of 200% of target, reflecting performance through June 30, 2023 • For example, 100 outstanding 2021 Labcorp PSAs were measured at 200% payout, resulting in an actual payout of 200 PSAs. These 200 Labcorp PSAs were then converted Fortrea RSUs: 200 x 7.1148 = 1,423 Fortrea RSUs • Awards continued to be subject to the original three-year vesting period | | 2022 – 2024 | • 50% of the awards were converted to RSUs based on Labcorp performance of 18 months (out of 36-month performance measurement period) utilizing the stated Equity Adjustment Ratio • The other 50% of the awards were converted to Fortrea PSAs using the stated Equity Adjustment Ratio • For those converted to RSUs at time of Spin, the Labcorp CHCC considered Labcorp’s performance in connection with the previously approved cumulative EPS growth, cumulative Revenue and relative Total Stockholder return through June 30, 2023. The Labcorp CHCC approved a combined payout factor of 58.3% of target, reflecting performance through June 30, 2023 • For example, 50% of 100 outstanding 2022 Labcorp PSAs were measured at 58.3% payout, resulting in an actual payout of 29 PSAs. These 29 Labcorp PSAs were then converted Fortrea RSUs: 29 x 7.1148 = 206 Fortrea RSUs. The other 50% of the outstanding 2022 PSAs were converted to Fortrea PSAs: 50 x 7.1148 = 355 Fortrea PSAs • Awards continued to be subject to the original three-year vesting period | | 2023 – 2025 | • Converted into Fortrea PSAs based on the target number of shares • For example, 100% of 100 outstanding 2023 Labcorp PSAs were converted to Fortrea PSAs: 100 x 7.1148 = 711 Fortrea PSAs • Awards continue to be subject to the original three-year vesting period |
Conversion of Labcorp Long-Term Incentive Awards (approved by Labcorp CHCC)
Any newly converted Fortrea PSAs, are subject to Fortrea-specific performance metrics as determined by the Fortrea MDCC. Both the 2022 and 2023 outstanding converted PSAs utilize revenue (50% weight) and Adjusted EBITDA (50% weight) for the remaining portion of the performance measurement period.
Engagement Awards (approved by Labcorp)
Engagement Awards (approved by Labcorp) Prior to the Spin, in June 2023, Labcorp approved “Engagement Awards” to certain key employees who were critical to the continued success of the business and separation, including Ms. McConnell and Mr. Morais. Engagement awards were granted in the form of RSUs with vesting occurring in equal installments on the first, second and third anniversary of the grant date. The amounts described in the table below represent the targeted value:
August 2023 Long-term Incentive Awards (approved by Fortrea MDCC)
August 2023 Long-term Incentive Awards (approved by Fortrea MDCC) As a result of the Spin, Ms. McConnell and Mr. Morais received a portion of their long-term incentive grant in February 2023. Given this grant did not consider each of Ms. McConnell or Mr. Morais’ roles and responsibilities for the entire 2023 year, the Fortrea MDCC approved an incremental long-term incentive grant in August 2023 to provide both competitive total compensation for 2023 as well as additional retentive power through equity to Ms. McConnell and Mr. Morais. These awards were granted in the form of RSUs with vesting occurring in equal installments on the first, second and third anniversary of the grant date. The amounts described in the table below represent the targeted value:
August 2023 Long-term Incentive Awards (approved by Fortrea MDCC)
| Executive | August 2023 Award Value | | Jill McConnell | $900,000 | | Mark Morais | $900,000 |
August 2023 Long-Term Incentive Award in Connection to Mr. Pike’s Employment Agreement
August 2023 Long-Term Incentive Award in Connection to Mr. Pike’s Employment Agreement In connection with Mr. Pike’s employment agreement between Labcorp and Mr. Pike, following completion of the Spin and after ratification and modification of the split of equity between RSUs and options by the Fortrea Board, Mr. Pike received Fortrea equity awards with an aggregate grant date value of $20,000,000 (the “Initial Fortrea Equity Grant”) on August 17, 2023. These awards were composed of 50% RSUs and 50% stock options, and in each case will vest equally in three installments with the first two installments occurring on the first and second anniversary of the grant date, respectively, and the third occurring on January 9, 2026. Following the expiration of the initial term of the employment agreement the Fortrea Board will determine any additional equity awards, provided that the first equity award following the expiration of the initial term of the employment agreement will have an aggregate target grant date fair value of approximately $8,000,000 (subject to rounding). Retirement Plans, Deferred Compensation Plan Perquisites:
August 2023 Long-Term Incentive Award in Connection to Mr. Pike’s Employment Agreement
| • | Retirement Plans: Our NEOs were eligible to participate in both Labcorp and Fortrea’s 401(k) plan, which are defined contribution retirement savings plans. Participation in the plan is available to substantially all eligible US-based employees, including executives. |
August 2023 Long-Term Incentive Award in Connection to Mr. Pike’s Employment Agreement
| • | Deferred compensation Plan: At the end of 2021, Labcorp froze both the Laboratory Corporation of America Holdings Deferred Compensation Plan and the Covance Deferred Compensation Plan and established a new plan, the Laboratory Corporation of America Holdings Nonqualified Deferred Compensation Plan (“Labcorp NQDC Plan”), effective January 1, 2022. Fortrea adopted the Fortrea Inc. Nonqualified Deferred Compensation Plan (“Fortrea NQDC Plan”) and assumed the obligations and liabilities associated with Company participants in the Labcorp NQDC Plan. The Fortrea NQDC Plan allows participants to defer up to 50% of their base salary and up to 90% of their annual incentive or bonus. The Fortrea NQDC Plan provides for similar investment options as our 401(k) plan. The Fortrea NQDC Plan does not provide any match on employee contributions. The Fortrea NQDC Plan accounts are paid based on the participant’s selection at the time of the deferral, subject to the requirements of Section 409A of the Internal Revenue Code and may be paid in a lump sum, or a series of annual installments. Participants may elect to receive these distributions upon separation from service or upon the occurrence of one or more specified dates. All Fortrea NQDC Plan accounts are considered unfunded general contractual obligations and are subject to the claims of our general, unsecured creditors. |
August 2023 Long-Term Incentive Award in Connection to Mr. Pike’s Employment Agreement
| • | Perquisites: Our NEOs were eligible to receive a reimbursement for financial and tax planning services, long-term disability, and a wellness exam in 2023, all of which were determined by Fortrea to be appropriate benefits that help ensure that Fortrea executives maintain appropriate fiscal and physical health, which contributes to stable executive leadership for Fortrea. Fortrea believes that the perquisites it provides are appropriate and beneficial to Fortrea. The maximum reimbursement allowed is $20,000 for financial and tax planning services and $1,500 for the wellness exam. Enhanced long-term disability is made available to all employees as a voluntary benefit, and in the case of the NEOs is paid for by the Company. |
Termination and Change-in-Control Payments
Termination and Change-in-Control Payments Ms. McConnell and Mr. Morais are covered by Fortrea’s Master Senior Executive Severance Plan (the “Executive Severance Plan”) that provides participants with financial protection in circumstances involving a qualifying termination. For additional information on the termination benefits under the Executive Severance Plan, see “Potential Payments Upon Termination or Change in Control.” In addition, the Omnibus Incentive Plan provides that if awards are assumed or substituted in connection with a change in control, only a qualifying termination event will result in accelerated vesting (i.e., “double trigger”). The plan does not provide for any tax gross-ups. Fortrea believes these provisions are consistent with current market practice.
Summary Compensation Table
Summary Compensation Table The following table sets forth the portion of compensation paid to the NEOs that is attributable to services performed during the fiscal years ended December 31, 2023, and 2022. As discussed in this proxy statement, we became an independent public company effective June 30, 2023. The information provided below includes compensation earned by our NEOs for services provided to Labcorp and us prior to the Spin.
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus (2)($) | Stock Awards (3)($) | Option Awards (4)($) | Non-Equity Incentive Plan Compensation (5)($) | All Other Compensation (6)($) | Total ($) | | Thomas Pike(1) Chief Executive Officer | | | | | | | | | | | 2023 | $1,078,846 | $0 | $14,128,948 | $9,999,692 | $1,100,000 | $12,909 | $26,320,395 | | Jill McConnell Chief Financial Officer | | | | | | | | | | | 2023 | $455,607 | $200,000 | $2,343,409 | $0 | $62,266 | $17,513 | $3,078,275 | | | 2022 | $411,215 | $0 | $460,682 | $0 | $174,355 | $29,557 | $1,075,809 | | Mark Morais Chief Operating Officer; President, Clinical Services | | | | | | | | | | | 2023 | $456,900 | $200,000 | $2,497,701 | $0 | $62,658 | $12,914 | $3,230,173 | | | 2022 | $413,800 | $0 | $358,899 | $0 | $96,111 | $27,541 | $896,351 |
Summary Compensation Table
| (1) Mr. Pike joined Labcorp in January 2023 as president and chief executive officer of its Drug Development, Clinical Development and Commercialization Services business unit and was appointed Chief Executive Officer of Fortrea effective June 30, 2023. Under the terms of Mr. Pike’s employment agreement, Mr. Pike’s 2023 equity grants are intended to provide an equivalent value of three years of grants and the employment agreement does not contemplate additional equity grants through the remaining initial term of his employment agreement, which ends on December 31, 2025. In accordance with these terms, Mr. Pike did not receive an equity grant in 2024. |
Summary Compensation Table
| (2) The amounts shown in the table represent one-time cash bonuses paid to Ms. McConnell and Mr. Morais. 50% was paid within 30 days of the completion of the Spin, and the remaining 50% was paid as of the 6-month anniversary of the Spin. |
Summary Compensation Table
| (3) Amounts represent the aggregate grant date fair value of RSU and PSA awards in the year of grant in accordance with the same standard applied for financial accounting purposes, Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. If valued assuming a maximum payout on the Performance Share program, the value of the 2023 awards would be: Ms. McConnell, $564,224; and Mr. Morais $754,100. See Grants of Plan-Based Awards Table for additional details. |
Summary Compensation Table
| (4) Amounts represent the aggregate grant date fair value of stock options computed in accordance with FASB ASC Topic 718 in the year of grant. A discussion of the assumptions used in calculating these values can be found in Note 14 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. This column does not represent the stock-based compensation expense recognized in the Company’s financial statements for the year ended December 31, 2023. |
Summary Compensation Table
| (5) Amounts in this column reflect the amounts earned by Ms. McConnell and Mr. Morais during 2023 pursuant to the LBP prior to the Spin and the FBP following Spin. Per Mr. Pike’s employment agreement, he was entitled to a minimum payout of 100% of his base salary (or $1,100,000) for the resulting combined outcome of the LBP and the FBP. |
Summary Compensation Table
| (6) Amounts shown in this column include Company-paid supplemental long-term disability insurance provided to the executive as well as Fortrea’s company-provided match to the 401(k) on the same basis as provided to U.S.-based employees, inclusive of those contributions made by Labcorp under the plan prior to the Spin. The supplemental long-term disability insurance benefit is considered taxable to the executive and no gross-ups are provided to offset the taxable amount and contributions to qualified defined contribution plans. For 2023, the 401(k) provided a Company match of 100% of the first 5% of the employee’s contribution. Additional details are provided in the table below: |
Summary Compensation Table
| Executive | Supplemental Long-term Disability Insurance ($) | Fortrea’s Contributions to Qualified Defined Contribution Plan ($) | | Thomas Pike | $2,332 | $10,577 | | Jill McConnell | $1,013 | $16,500 | | Mark Morais | $1,014 | $11,900 |
Grants of Plan-Based Awards
Grants of Plan-Based Awards The following table summarizes the awards granted to each of the NEOs during the fiscal year ended December 31, 2023.
Grants of Plan-Based Awards
| | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)(2) | | | Estimated Future Payouts Under Equity Incentive Plan Awards (3)(4)(5) | | | All Other Stock Awards: Number of Shares of Stock or Units (3)(4)(6) (#)(i) | All Other Option Awards: Number of Securities Underlying Options (7) (#)(j) | Exercise or Base Price of Option Awards ($/Sh)(k) | Grant Date Fair Value of Stock and Option Awards (8) ($)(l) | | Name (a) | Grant Date (b) | Threshold ($)(c) | Target ($)(d) | Maximum ($)(e) | Threshold (#)(f) | Target (#)(g) | Maximum (#)(h) | | | | | | Thomas Pike(9) | | $1,100,000 | $1,650,000 | $3,300,000 | — | — | — | — | — | — | | | | 1/9/2023 | — | — | — | — | — | — | 120,668 | — | — | $4,128,946 | | | 8/17/2023 | — | — | — | — | — | — | 377,074 | — | — | $10,000,002 | | | 8/17/2023 | — | — | — | — | — | — | — | 799,272 | $26.52 | $9,999,692 | | Jill McConnell | | $158,103 | $316,205 | $632,411 | | | | | | | | | | 2/7/2023 | | | | 3,807 | 7,613 | 15,226 | — | — | — | $282,112 | | | 2/7/2023 | — | — | — | — | — | — | 5,052 | — | — | $175,557 | | | 6/1/2023 | — | — | — | — | — | — | 33,013 | — | — | $985,731 | | | 8/17/2023 | — | — | — | — | — | — | 33,937 | — | — | $900,009 | | Mark Morais | | $158,423 | $316,846 | $633,693 | | | | | | | | | | 2/7/2023 | | | | 5,088 | 10,175 | 20,350 | — | — | — | $377,050 | | | 2/7/2023 | — | — | — | — | — | — | 6,760 | — | — | $234,911 | | | 6/1/2023 | — | — | — | — | — | — | 33,013 | — | — | $985,731 | | | 8/17/2023 | — | — | — | — | — | — | 33,937 | — | — | $900,009 |
Grants of Plan-Based Awards
| (1) Amounts represent the range of possible payouts denominated in dollars pursuant to the total of a prorated amount of the LBP and the FBP, as established by Labcorp’s CHCC in February 2023 as well as Fortrea’s MDCC in August 2023. Pursuant to both the LBP and FBP, the base salary and target bonus factor used to calculate target bonus amounts are prorated to reflect changes during 2023. Actual amounts paid out pursuant to the plan are included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table above. For a discussion of the performance criteria applicable to these awards, see “Compensation Discussion and Analysis - Labcorp Bonus Plan: January 1, 2023 to June 30, 2023 Bonus Plan Design” and “Compensation Discussion and Analysis—Fortrea Bonus Plan: July 1, 2023 to December 31, 2023 Bonus Plan Design and Performance.” |
Grants of Plan-Based Awards
| (2) Per Mr. Pike’s employment agreement, he was entitled to a minimum payout of 100% of his base salary (or $1,100,000) for the resulting combined outcome of the Labcorp Bonus Plan and Fortrea Bonus Plan. |
Grants of Plan-Based Awards
| (3) For equity awards granted prior to June 30, 2023, the number of equity shares provided in the table above represent the number of Fortrea shares resulting from the conversion of Labcorp grants to Fortrea awards. Effective June 30, 2023, outstanding Labcorp equity awards were converted to Fortrea equity awards using a conversion ratio approved by the Labcorp CHCC. For a discussion of the conversion ratio applicable to these awards, see “Compensation Discussion and Analysis – Conversion of Labcorp Long-term Incentive Awards (approved by Labcorp CHCC).” |
Grants of Plan-Based Awards
| (4) Awards granted after June 30, 2023, represent Fortrea issued equity awards where no conversion occurred. |
Grants of Plan-Based Awards
| (5) Estimated Future Payouts Under Equity Incentive Plan Awards represent the range of estimated potential shares to be earned under PSAs that were converted from Labcorp equity awards to Fortrea equity awards. As of July 1, 2023, the Fortrea MDCC adopted new performance goals specific to Fortrea. The PSAs vest at the end of the performance period ending December 31, 2025 provided that certain performance metrics are met. For a discussion of the performance criteria applicable to these awards, see “Compensation Discussion and Analysis—Long-Term Equity Incentive Compensation and Conversion of Prior Awards” above. |
Grants of Plan-Based Awards
| (6) Amounts represent RSU awards that vest ratably over three years, beginning on the first anniversary of the grant date, based on continued service. RSU awards granted to Mr. Pike on August 17, 2023 vest equally in three tranches with the first two occurring on the first and second anniversary of the grant date, and the third occurring on January 9, 2026. |
Grants of Plan-Based Awards
| (7) Amount represents stock options that vest equally in three tranches with the first two occurring on the first and second anniversary of the grant date, and the third occurring on January 9, 2026. |
Grants of Plan-Based Awards
| (8) Amounts represent the full grant date fair value of RSUs and PSAs as computed in accordance with FASB ASC Topic 718 for stock-based compensation, but excluding the effect of estimated forfeitures. The amounts shown in this column will likely vary from the amount actually realized by any NEO based on a number of factors, including the number of shares that ultimately vest, the satisfaction or failure to meet any performance criteria, the timing of any exercise or sale of shares, and the price of Fortrea’s common stock. The value for stock options is calculated using the Black-Scholes option pricing model. The value of the PSAs granted in February 2023 if they are achieved at the maximum payout is as follows: Ms. McConnell - $564,224 and Mr. Morais - $754,100. |
Grants of Plan-Based Awards
| (9) Mr. Pike was appointed Chief Executive Officer effective June 30, 2023. Under the terms of Mr. Pike’s employment agreement, his 2023 equity grants were intended to provide an equivalent value of three years of equity grants and no further equity grants are intended to be made during the remaining initial term of his employment agreement, which ends on December 31, 2025. |
Outstanding Equity Awards at Fiscal Year-End
Outstanding Equity Awards at Fiscal Year-End The following table provides information concerning outstanding equity awards for each of our NEOs as of December 31, 2023. As of December 29, 2023, the last trading day of 2023, the fair market value of a share of our common stock was $34.90. The following table shows the number of shares underlying exercisable and unexercisable options, as well as unvested RSUs and unearned performance share units, held by our Named Executive Officers at December 31, 2023. Market or payout values in the table below are based on the closing price of Fortrea common stock as of December 29, 2023.
Outstanding Equity Awards at Fiscal Year-End
| | | Option Awards | | | | Stock Awards | | | | | Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable(1) | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock that have Not Yet Vested (#)(2,3) | Market Value of Shares of Units of Stock that have Not Yet Vested ($)(6) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3,4, 5) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(6) | | Thomas Pike(7) | 1/9/2023 | | | | | 120,668 | $4,211,313 | | | | | 8/17/2023 | — | 799,272 | 26.52 | 8/17/2033 | 377,074 | $13,159,883 | | | | Jill McConnell | 2/2/2021 | | | | | 22,484 | $784,692 | | | | | 2/11/2022 | | | | | 5,116 | $178,548 | 3,487 | $121,696 | | | 2/7/2023 | | | | | 5,052 | $176,315 | 7,613 | $265,694 | | | 6/1/2023 | | | | | 33,013 | $1,152,154 | | | | | 8/17/2023 | | | | | 33,937 | $1,184,401 | | | | Mark Morais | 2/2/2021 | | | | | 17,155 | $598,710 | | | | | 12/15/2021 | | | | | 406 | $14,169 | | | | | 2/11/2022 | | | | | 3,993 | $139,356 | 2,704 | $94,370 | | | 2/7/2023 | | | | | 6,760 | $235,924 | 10,175 | $355,108 | | | 6/1/2023 | | | | | 33,013 | $1,152,154 | | | | | 8/17/2023 | | | | | 33,937 | $1,184,401 | | |
Outstanding Equity Awards at Fiscal Year-End
| (1) Stock options granted to Mr. Pike vest equally in three tranches with the first two occurring on the first and second anniversary of the grant date, and the third occurring on January 9, 2026. |
Outstanding Equity Awards at Fiscal Year-End
| (2) RSUs vest ratably over three years, beginning on the first anniversary of the grant date. RSUs granted to Mr. Pike on August 17, 2023 vest equally in three tranches with the first two occurring on the first and second anniversary of the grant date, and the third occurring on January 9, 2026. |
Outstanding Equity Awards at Fiscal Year-End
| (3) At time of Spin, the PSAs granted on February 2, 2021 to Ms. McConnell and Mr. Morais were scored for performance across a 30-month period and converted to Fortrea RSUs. For a discussion of the conversion ratio applicable to these awards, see “Compensation Discussion and Analysis – Conversion of Labcorp Long-term Incentive Awards (approved by Labcorp CHCC).” |
Outstanding Equity Awards at Fiscal Year-End
| (4) At time of Spin, 50% of the PSAs granted on February 11, 2022 to Ms. McConnell and Mr. Morais were scored for performance across an 18-month period and converted to Fortrea RSUs. The other 50% of shares granted on February 11, 2022 were converted to Fortrea PSAs with new performance criteria established by the Fortrea MDCC and are representative of Fortrea performance goals from time of Spin until December 31, 2024. For a discussion of the conversion ratio applicable to these awards, see “Compensation Discussion and Analysis – Conversion of Labcorp Long-term Incentive Awards (approved by Labcorp CHCC).” |
Outstanding Equity Awards at Fiscal Year-End
| (5) Aggregate market value is calculated based on the Fortrea common stock price on December 29, 2023, the last trading day of 2023, which was $34.90 per share, multiplied by the number of shares or units, respectively, for each unvested performance or stock award. |
Outstanding Equity Awards at Fiscal Year-End
| (6) At time of the Spin, the PSAs granted on February 7, 2023 to Ms. McConnell and Mr. Morais were converted to Fortrea PSAs with new performance criteria established by the Fortrea MDCC and are representative of Fortrea performance goals from time of Spin until December 31, 2025. These PSAs are reflected as the number of shares deliverable at target performance. The actual number of shares will be determined on December 31, 2025. |
Outstanding Equity Awards at Fiscal Year-End
| (7) Mr. Pike was appointed Chief Executive Officer effective June 30, 2023. Under the terms of Mr. Pike’s employment agreement, his 2023 equity grants were intended to provide an equivalent value of three years of equity grants and no further equity grants are intended to be made during the remaining initial term of his employment agreement, which ends on December 31, 2025. |
Option Exercises and Stock Vested
Option Exercises and Stock Vested The following table summarizes option exercises and stock vested with respect to each of the NEOs during the fiscal year ended December 31, 2023:
Option Exercises and Stock Vested
| Executive | Option Awards | | Stock Awards | | | | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | | Thomas Pike | — | — | — | — | | Jill McConnell(1) | — | — | 2,816 | $649,580 | | Mark Morais(2) | — | — | 2,133 | $415,298 |
Option Exercises and Stock Vested
| (1) Represents one-third of the Labcorp RSUs granted on February 4, 2020 that vested on February 6, 2023 at $244.50 per share, the closing price of Labcorp common stock on that date; one-third of the Labcorp RSUs granted on February 2, 2021 that vested on February 2, 2023 at $254.99 per shares, the closing price of Labcorp common stock on that date; one-third of the Labcorp RSUs granted on February 11, 2022 that vested on February 13, 2023 at $248.13 per share, the closing price of Labcorp common stock on that date; and 134.2% of the Labcorp performance share award granted on February 4, 2020 that vested on March 30, 2023 at $224.70 per share, the closing price of Labcorp common stock on that date. |
Option Exercises and Stock Vested
| (2) Represents one-third of the Labcorp RSUs granted on February 4, 2020 that vested on February 6, 2023 at $244.50 per share, the closing price of Labcorp common stock on that date; one-third of the Labcorp RSUs granted on February 2, 2021 that vested on February 2, 2023 at $254.99 per shares, the closing price of Labcorp common stock on that date; one-third of the Labcorp RSUs grants on February 11, 2022 that vested on February 13, 2023 at $248.13 per share, the closing price of Labcorp common stock on that date; one-third of the Labcorp RSUs granted on December 15, 2021 that were converted to Fortrea common stock upon Spin and vested on December 15, 2023 at $32.44 per share, the closing price of Fortrea common stock on that date; and 134.2% of the Labcorp performance share award granted on February 4, 2020 that vested on March 30, 2023 at $224.70 per share, the closing price of Labcorp common stock on that date. |
Nonqualified Deferred Compensation
Nonqualified Deferred Compensation Fortrea adopted the Fortrea NQDC Plan and assumed the obligations and liabilities associated with Company participants in the Labcorp NQDC Plan. The Fortrea NQDC Plan allows participants to defer up to 50% of their base salary and up to 90% of their annual incentive or bonus. The Fortrea NQDC Plan provides for similar investment options as our 401(k) plan. The Fortrea NQDC Plan does not provide any match on employee contributions. The Fortrea NQDC Plan accounts are paid based on the participant’s selection at the time of the deferral, subject to the requirements of Section 409A of the Internal Revenue Code and may be paid in a lump sum, or a series of annual installments. Participants may elect to receive these distributions upon separation from service or upon the occurrence of one or more specified dates. All Fortrea NQDC Plan accounts are considered unfunded general contractual obligations and are subject to the claims of our general, unsecured creditors. Any amounts provided in Executive Contributions Last Fiscal Year shown in the table below are exclusively associated with the Fortrea NQDC Plan, which assumed contributions and balances from the Labcorp NQDC Plan. Amounts provided in the Aggregate Earnings In Last Fiscal Year shown in the table below are associated with investment performance of assets over the course of 2023 in both the Fortrea NQDC Plan as well as the frozen Covance Deferred Compensation Plan.
Nonqualified Deferred Compensation
| Name | Executive Contributions in Last Fiscal Year ($) | Aggregate Earnings in Last Fiscal Year ($) | Aggregate Withdrawals/Distributions ($) | Aggregate Balance at Last Fiscal Year-End | | Thomas Pike | — | — | — | — | | Jill McConnell | — | — | — | — | | Mark Morais | $13,707 | $24,197 | $0.00 | $119,530 |
Potential Payments Upon Termination or Change in Control
Potential Payments Upon Termination or Change in Control The tables that follow provide information related to compensation payable to each NEO, assuming termination of such executive’s employment on December 31, 2023, or assuming a change in control with a corresponding qualifying termination occurring on December 31, 2023. Amounts also assume the price of our common stock was $34.90, the closing price on December 29, 2023, the last trading day of 2023.
Potential Payments Upon Termination per Employment Arrangements of Mr. Pike
Potential Payments Upon Termination per Employment Arrangements of Mr. Pike Pursuant to the Pike Employment Agreement, if Mr. Pike’s employment is terminated without “cause” or by Mr. Pike for “good reason” (as such terms as defined in the Pike Employment Agreement), or if Fortrea does not renew the term, Mr. Pike will receive a partial year bonus as well as severance benefits (subject to his execution of a release of claims) equal to (i) two times the sum of his base salary and average annual bonus for the last three years if the applicable termination does not occur within 36 months following a “change in control” (as defined in the Pike Employment Agreement) of Fortrea, or (ii) three times the sum of his base salary and average annual bonus for the last three years, if the applicable termination of employment occurs within 36 months following a change in control of Fortrea. The Pike Employment Agreement contains a cutback provision, which provides that if any payments to Mr. Pike would constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, then those payments will be subject to a reduction in order to avoid application of any applicable Section 280G excise tax, but only if the reduction would result in a greater net after-tax amount payable to Mr. Pike. Vesting of the equity grants made to Mr. Pike called for under the Pike Employment Agreement described above as the Sign-On Equity Grant and the Initial Fortrea Equity Grant will be accelerated upon a “separation from service” due to Mr. Pike’s death, disability, or termination without “cause” or for “good reason” within 24 months after a “change in control” (as such terms are defined in the award agreement). The Sign-On Equity Grant and the Initial Fortrea Equity Grant also include certain accelerated vesting provisions in the event of termination of Mr. Pike’s employment for similar reasons as described above outside of a change in control or in the event of his “retirement” as defined in the award agreement.
Potential Payments Upon Termination per Executive Severance Plan
Potential Payments Upon Termination per Executive Severance Plan Ms. McConnell and Mr. Morais are eligible to participate in the Executive Severance Plan adopted by Fortrea in connection with the Spin, which provides participants with financial protection in circumstances involving a qualifying termination (which will generally include an involuntary termination without “cause” or voluntary termination with “good reason” (as such terms are defined in the Executive Severance Plan)). The severance payments for executives employed at or above Executive Vice President under the Executive Severance Plan in the event of a qualifying termination will be equal to the sum of the executive’s annual base salary and annual target bonus for the year of the qualifying termination (or, in the event that the qualifying termination occurs within 24 months following a “change in control” (as defined in the Executive Severance Plan), two times the sum of the executive’s annual base salary and annual target bonus for the year of the qualifying termination).
Potential Payments Upon Termination per Executive Severance Plan
| Name | Benefit | Early or Normal Retirement(1) | Involuntary Not for Cause or Good Reason Termination | For Cause | Change-In- Control | Disability(2) | Death(3) | | Thomas Pike | Severance – Base Salary | — | $2,200,000 | — | $3,300,000 | — | — | | | Severance – Fortrea Bonus Plan | — | $4,950,000 | — | $6,600,000 | $1,100,000 | $1,100,000 | | | Non-Qualified Stock Options | — | — | — | $6,697,899 | $6,697,899 | $6,697,899 | | | Restricted Stock Units(4) | — | $197,290 | — | $13,751,787 | $13,751,787 | $13,751,787 | | | Performance Shares(4) | — | — | — | | — | — | | | Health & Welfare Plans(5)(6) | — | — | — | — | $700,000 | $1,500,000 | | | Total | — | $7,347,290 | — | $30,349,686 | $22,249,686 | $23,049,686 | | Jill McConnell | Severance – Base Salary | — | $500,000 | — | $1,000,000 | — | — | | | Severance – Fortrea Bonus Plan | — | $425,000 | — | $850,000 | — | — | | | Non-Qualified Stock Options | — | — | — | — | — | — | | | Restricted Stock Units(4) | — | $1,281,109 | — | $3,405,333 | $3,405,333 | $3,405,333 | | | Performance Shares(4) | — | $169,719 | — | $387,390 | $387,390 | $387,390 | | | Health & Welfare Plans(5)(6) | — | $38,547 | — | $38,547 | $400,000 | $1,000,000 | | | Total | — | $2,414,375 | — | $5,681,270 | $4,192,723 | $4,792,723 | | Mark Morais | Severance – Base Salary | — | $500,000 | — | $1,000,000 | — | — | | | Severance – Fortrea Bonus Plan | — | $425,000 | — | $850,000 | — | — | | | Non-Qualified Stock Options | — | — | — | | — | — | | | Restricted Stock Units(4) | — | $1,117,498 | — | $3,324,714 | $3,324,714 | $3,324,714 | | | Performance Shares(4) | — | $181,306 | — | $449,477 | $449,477 | $449,477 | | | Health & Welfare Plans(5)(6) | — | $20,591 | — | $20,591 | $400,000 | $1,000,000 | | | Total | — | $2,247,024 | — | $5,647,411 | $4,074,191 | $4,774,191 |
Potential Payments Upon Termination per Executive Severance Plan
| (1) None of the NEOs are retirement eligible. |
Potential Payments Upon Termination per Executive Severance Plan
| (2) Under Disability, amounts represent the value to be paid to respective executive under Fortrea’s short and long-term disability plans. Fortrea’s short-term disability allows for 100% of the executive’s salary to be paid for 6 months. Fortrea’s supplemental long-term disability program, which the NEOs are eligible for, allows for a payment of up to $25,000 per month, with the maximum benefit to be determined by the length of eligibility and age. For the sake of this calculation, a term of one year has been used to determine the amount paid to the executive. |
Potential Payments Upon Termination per Executive Severance Plan
| (3) Under Death, amount represents the death benefit under Fortrea’s company-sponsored life insurance plan - 2x an executive’s annual base pay with a maximum of $1.5 million. |
Potential Payments Upon Termination per Executive Severance Plan
| (4) Amounts represented by RSUs include 2021 and 2022 PSAs that converted to RSUs at time of Spin |
Potential Payments Upon Termination per Executive Severance Plan
| (5) Under Involuntary Not for Cause or Good Reason as well as Change-in-Control, Health & Welfare represent one year of reimbursement of executive for COBRA coverage for medical, dental and vision, an additional Medical Stipend which was determined to be $17,773 for Ms. McConnell and $8,795 for Mr. Morais. Per his employment agreement, Mr. Pike is not eligible for these benefits in the event of these two termination scenarios. |
Potential Payments Upon Termination per Executive Severance Plan
| (6) Any executive perquisites are cancelled effective date of separation. However, executives are eligible for reimbursement of eligible expenses up to effective date of termination. |
Potential Payments Upon Termination per Executive Severance Plan
Pay versus Performance The disclosure included in this section is prescribed by SEC rules and does not necessarily align with how the Company or the Fortrea MDCC views the link between our performance and our NEOs’ pay. For a discussion of how the Company views its executive compensation structure, including alignment with Company performance, see the Compensation Discussion and Analysis beginning on page 25. Due to the mid-year timing of our separation from Labcorp, many of the decisions impacting our 2023 NEO compensation were made by Labcorp and were grounded in Labcorp’s compensation philosophy, programs and policies. Moving forward from July 1, 2023, using the information, procedures and policies developed by Labcorp, the Fortrea MDCC and our Board of Directors makes independent decisions related to compensation. The Fortrea MDCC did not consider the pay versus performance disclosure below in making its pay decisions. In accordance with SEC rules, the following table sets forth information concerning compensation actually paid (“CAP”), Total Shareholder Return (“TSR”), Net Income, and Adjusted EBITDA. These disclosures and the calculating of CAP is required by the SEC’s rules. Neither CAP nor the amount reported in the Summary Compensation Table (“SCT”) reflect the amount of compensation actually paid, earned or received during the applicable year. Per SEC rules, CAP was calculated by adjusting SCT Total values for the applicable year as described in the footnotes to the following table.
Potential Payments Upon Termination per Executive Severance Plan
| | | | | | VALUE OF INITIAL $100 INVESTMENT BASED ON: (4) | | | | | | FISCAL YEAR (1) | SCT TOTAL PAY FOR CEO (2) | CAP TO CEO (3) | AVERAGE SCT TOTAL PAYT FOR OTHER NEOS (2) | AVG. CAP TO OTHER NEOS (3) | COMPANY TSR | PEER GROUP TSR | NET INCOME (LOSS) ($ Millions) (5) | | ADJUSTED EBITDA ($ Millions) (6) | | 2023 | $26,320,395 | $34,238,046 | $3,154,484 | $3,349,885 | $102.60 | $103.20 | ($ | 3) | $306 |
Potential Payments Upon Termination per Executive Severance Plan
| (1) For 2023, the CEO was Thomas Pike and the other NEOs were Jill McConnell and Mark Morais. |
Potential Payments Upon Termination per Executive Severance Plan
| (2) These amounts reflect (i) the total compensation reported in the SCT for the applicable year in the case of our CEO; and (ii) the average of the total compensation reported in the SCT for the applicable year for our Other NEOs. See the footnotes to the SCT for further detail regarding the amounts in this column. |
Potential Payments Upon Termination per Executive Severance Plan
| (3) Amounts reported in these columns represent CAP; adjustments were made to the amounts reported in the SCT for the applicable year. A reconciliation of the adjustments for our CEO and for the average of the Other NEOs is set forth in the following tables, which describe the adjustments, each of which is prescribed by the SEC rule to calculate the CAP amounts from SCT amounts. |
Potential Payments Upon Termination per Executive Severance Plan
| YEAR | SCT TOTAL PAY FOR CEO | MINUS STOCK AWARD VALUE & OPTION AWARD VALUE REPORTED IN SCT FOR THE COVERED YEAR | PLUS YEAR END FAIR VALUE OF EQUITY AWARDS GRANTED DURING THE COVERED YEAR THAT REMAIN OUTSTANDING AND UNVESTED AS OF LAST DAY OF THE COVERED YEAR | PLUS YEAR OVER YEAR CHANGE IN FAIR VALUE AS OF THE LAST DAY OF THE COVERED YEAR OF OUTSTANDING AND UNVESTED EQUITY AWARDS GRANTED IN PRIOR YEARS | PLUS YEAR OVER YEAR CHANGE IN FAIR VALUE AS OF THE VESTING DATE OF EQUITY AWARDS GRANTED IN PRIOR YEARS THAT VESTED DURING THE COVERED YEAR | MINUS FAIR VALUE AT THE END OF THE PRIOR YEAR OF EQUITY AWARDS THAT FAILED TO MEET VESTING CONDITIONS IN THE COVERED YEAR | PLUS VALUE OF DIVIDENDS OR OTHER EARNINGS PAID ON STOCK OR OPTION AWARDS NOT OTHERWISE REFLECTED IN FAIR VALUE OR TOTRAL COMPENSATION FOR THE COVERED YEAR | MINUS CHANGE IN PENSION VALUE REPORTED IN SCT FOR COVERED YEAR | PLUS PENSION ADJUSTMENT | CEO CAP | | 2023 | $26,320,395 | $24,128,640 | $32,021,869 | $0 | $0 | $0 | $24,422 | $0 | $0 | $34,238,046 |
Potential Payments Upon Termination per Executive Severance Plan
| YEAR | SCT AVERAGE FOR OTHER NEOS | MINUS STOCK AWARD VALUE & OPTION AWARD VALUE REPORTED IN SCT FOR THE COVERED YEAR | PLUS YEAR END FAIR VALUE OF EQUITY AWARDS GRANTED DURING THE COVERED YEAR THAT REMAIN OUTSTANDING AND UNVESTED AS OF LAST DAY OF THE COVERED YEAR | PLUS YEAR OVER YEAR CHANGE IN FAIR VALUE AS OF THE LAST DAY OF THE COVERED YEAR OF OUTSTANDING AND UNVESTED EQUITY AWARDS GRANTED IN PRIOR YEARS | | PLUS YEAR OVER YEAR CHANGE IN FAIR VALUE AS OF THE VESTING DATE OF EQUITY AWARDS GRANTED IN PRIOR YEARS THAT VESTED DURING THE COVERED YEAR | | MINUS FAIR VALUE AT THE END OF THE PRIOR YEAR OF EQUITY AWARDS THAT FAILED TO MEET VESTING CONDITIONS IN THE COVERED YEAR | PLUS VALUE OF DIVIDENDS OR OTHER EARNINGS PAID ON STOCK OR OPTION AWARDS NOT OTHERWISE REFLECTED IN FAIR VALUE OR TOTRAL COMPENSATION FOR THE COVERED YEAR | MINUS CHANGE IN PENSION VALUE REPORTED IN SCT FOR COVERED YEAR | PLUS PENSION ADJUSTMENT | AVERAGE OTHER NEO CAP | | 2023 | $3,154,484 | $2,420,555 | $2,670,583 | ($ | 52,524) | ($ | 9,173) | $0 | $7,070 | $0 | $0 | $3,349,885 |
Potential Payments Upon Termination per Executive Severance Plan
FORTREA • 2024 Proxy Statement
Relationship Between Compensation Actually Paid (“CAP”) and Financial Performance Measures
Relationship Between Compensation Actually Paid (“CAP”) and Financial Performance Measures Given the Spin in July 2023, our fiscal year 2023 compensation program did not reflect a typical public company compensation program design. The following, in accordance with the SEC rules, describes the relationship between TSR, Net Income and Adjusted EBITDA to compensation actually paid for fiscal year 2023. The cumulative TSR performance as of December 31, 2023 based on a $100 investment in Fortrea and the Nasdaq Healthcare Index on July 1, 2023 is $102.60 and $103.20, respectively. Fortrea had a net loss of $3 million and Adjusted EBITDA of $306 million for the fiscal year ending December 31, 2023. The CAP of our CEO, and the average CAP of our other NEOs, was $34,238,046 and $3,349,885, respectively. Because of the Spin in July 2023, our TSR is for one partial year and there is no link yet to the CAP for our CEO and our other NEOs. For 2023, we did not consider TSR and net income in the design of our executive compensation program and, as a result, net income and TSR did not directly impact the amount of compensation actually paid to the NEOs. For additional details regarding how Adjusted EBITDA was utilized under our fiscal year 2023 compensation program to link pay with performance, please refer to the discussion of Annual Bonus (Non-Equity Short-Term Incentive Compensation) on page 32. 46 2024 Proxy Statement • FORTREA PROPOSAL 3:
2023 Director Compensation Table
2023 Director Compensation Table The following table sets forth summary compensation information for our directors for the fiscal year ended December 31, 2023:
2023 Director Compensation Table
| Name | Fees Earned or Paid in Cash ($) | Restricted Stock units ($) | Total ($) | | R. Andrew Eckert | $127,500 | $210,000 | $337,500 | | Betty Larson | $67,500 | $210,000 | $277,000 | | Peter Neupert | $87,500 | $210,000 | $297,500 | | Edward Pesicka | $67,500 | $210,000 | $277,000 | | Dr. Amrit Ray | $67,500 | $210,000 | $277,000 | | David Smith | $92,500 | $210,000 | $302,500 | | Thomas Pike | $0 | $0 | $0 |
2023 Director Compensation Table
| (1) Mr. Pike receives no cash or equity compensation for his service as a member of the Board of Directors. See “Executive Compensation” for discussion of Mr. Pike’s compensation as Chief Executive Officer. |
2023 Director Compensation Table
| (2) All RSUs granted to any directors have been valued based on the fair value of the RSUs using the market value as of the data of grant. A discussion of the assumptions used in calculating these values can be found in Note 14 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. |
2023 Director Compensation Table
| (3) The aggregate number of RSUs outstanding for each director appears in “Security Ownership of Certain Beneficial Owners and Management.” |
2023 Director Compensation Table
In connection with our 2023 Spin, members of the Board of Directors were granted RSUs as detailed above. The terms of the RSUs provide for vesting of the RSUs in full on July 18, 2024, subject to the director’s continued service as a director. Equity Compensation Plan Information The following table provides certain information as of December 31, 2023 regarding Fortrea’s equity compensation plans.
2023 Director Compensation Table
| Plan | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted- average exercise price of outstanding options, warrants and rights (b)(1) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (c) | | Equity compensation plans approved by security holders | 4,753,313 | $26.52 | 6,166,524 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 4,753,313 | $26.52 | 6,166,524 |
2023 Director Compensation Table
| (1) Represents the weighted-average exercise price of the outstanding stock options and does not include RSUs or performance shares. |
2023 Director Compensation Table
Security Ownership of Certain Beneficial Owners and Management Common Stock The following table sets forth certain information with respect to holdings of our Common Stock by (i) stockholders who beneficially owned more than 5% of the outstanding shares of our Common Stock, and (ii) each of our directors (which includes all nominees), each of our named executive officers and all directors and executive officers as a group as of March 20, 2024, unless otherwise indicated. The number of shares beneficially owned by each stockholder is determined under rules issued by the SEC. Under these rules, beneficial ownership includes any shares as to which a person or an entity has sole or shared voting power or investment power. Applicable percentage ownership is based on 89,374,032 shares of Common Stock outstanding and entitled to vote as of March 20, 2024. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options, warrants or other rights held by such person that are currently exercisable or will become exercisable within 60 days of March 20, 2024 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed below is 8 Moore Drive, Durham, North Carolina 27709. We believe, based on information provided to us, that each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.
2023 Director Compensation Table
| Name of Beneficial Owner | Common Stock Beneficially Owned | Percentage | | 5% or Greater Stockholders | | | | BlackRock, Inc.(1) | 17,454,885 | 19.53% | | The Vanguard Group(2) | 9,945,449 | 11.13% | | Sessa Capital (Master), L.P.(3) | 6,375,000 | 7.13% | | Starboard Value LP(4) | 6,136,000 | 6.87% | | Named Executive Officers | | | | Thomas Pike(5) | 47,827 | * | | Jill McConnell(6) | 20,717 | * | | Mark Morais(7) | 18,406 | * | | Non-Employee Directors | | | | R. Andrew Eckert(8) | — | * | | Betty Larson(8) | — | * | | Peter Neupert(9) | 21,996 | * | | Edward Pesicka(8) | — | * | | Dr. Amrit Ray(8) | — | * | | David Smith(8) | — | * | | All executive officers and directors as a group (9 persons)(10) | 108,946 | * |
2023 Director Compensation Table
| * Less than one percent. |
2023 Director Compensation Table
| (1) Based solely on information contained in a Schedule 13G filed with the SEC on January 25, 2024 by BlackRock, Inc. reporting sole voting power of 17,103,759 shares, shared voting power of 0 shares, sole dispositive power of 17,454,885 shares and shared dispositive power of 0 shares. The address for BlackRock, Inc. is 50 Hudson Yards, New York, New York 10001. |