DEF 14A of Watsco Inc
Filed Apr 26, 2024 · FY20230001193125-24-118178
Directors & Executive Officers
Directors & Executive Officers Our Amended and Restated Articles of Incorporation and our By-laws provide that our Board shall consist of no fewer than three nor more than nine members, and that it shall be divided, as nearly as possible into three equal divisions, each of which serves for a three-year term. We refer to directors elected by holders of our Common stock as Common Directors and we refer to directors elected by holders of our Class B common stock as Class B Directors. The names of our directors, executive officers and director nominees and their respective ages, positions (including designation as a Common Director or Class B Director), biographies and, in the case of directors, their qualifications to serve as directors, are set forth below.
Directors & Executive Officers
| Name | Age | Position | Expiration of Term | | Cesar L. Alvarez | 76 | Class B Director and Co-Vice Chairman | 2026 | | J. Michael Custer | 61 | Class B Director | 2025 | | Denise Dickins | 62 | Class B Director | 2026 | | Ana Lopez-Blazquez | 66 | Common Director | 2026 | | John A. Macdonald (1) | 67 | Common Director | 2024 | | Ana M. Menendez | 59 | Chief Financial Officer & Treasurer | | | Valerie F. Schimel | 45 | Class B Director | 2025 | | Director Nominees (2) | | | | | Barry S. Logan | 61 | Executive Vice President & Secretary and Common Director | 2027 | | Aaron J. Nahmad | 42 | President, Co-Vice Chairman, and Class B Director | 2027 | | Albert H. Nahmad | 83 | Chairman & Chief Executive Officer and Class B Director | 2027 |
Directors & Executive Officers
| (1) Mr. Macdonald will serve out his term on our Board, which expires at the annual meeting. |
Directors & Executive Officers
| (2) Each nominee has been reviewed and recommended for nomination by our Nominating & Governance Committee and has consented to serve as a director if elected. |
Directors & Executive Officers
Cesar L. Alvarez has been a part of our Board since 1997, excluding a brief hiatus between 2015 and 2017. Cesar is the Senior Chairman of Greenberg Traurig, P.A., an international law firm that he helped build into one of the top ten law firms in the U.S. With degrees in law and an MBA from the University of Florida, Cesar brings significant legal expertise to our Board, including experience in securities laws, mergers and acquisitions, and corporate law. He serves on boards of two other public companies, including Precigen, Inc. (chair of the nominating and governance committee), a clinical stage pharmaceutical company and The St. Joe Company (member of the audit, compensation and governance committees), a long-standing Florida-based land development company. His entrepreneurial spirit, business background in helping build his firm, and extensive experience in corporate governance make him a vital member of our Board. Present Roles: Cesar serves as our Co-Vice Chairman and is a member of the Strategy Committee. J. Michael Custer has been a valued member of our Board of Directors since 2018. As the leader of the tax services practice at Kaufman Rossin, one of the nation’s top 100 accounting firms, Mike brings a wealth of expertise to our Board. With more than 30 years of experience advising companies across various industries, he offers proficiency in accounting, financial and tax matters, leadership development, management skills, and corporate governance. As a member of the Audit Committee, Mike’s knowledge of audit, accounting, and tax plays an essential role in our acquisition-related activities and long-term planning. Present Roles: Mike is the Company’s Lead Independent Director, Chair of the Nominating & Governance Committee, and a member of the Audit Committee. Denise Dickins, Ph.D., has served as a Board member since 2007. As Professor Emeritus at East Carolina University, Denise brings extensive auditing, accounting, and corporate governance expertise to our Board. Prior to her educational career, she worked in varying capacities for Arthur Andersen LLP, including Partner in Charge of the South Florida Audit Division and has served on the board of several publicly traded companies. She currently serves on the board of NV5 Global, Inc. (member of the audit committee and chair of the compensation committee) and is a member of the Investor Advisory Group of the Public Company Accounting Oversight Board. Her experience as an instructor, certified public accountant, and certified internal auditor has equipped her with invaluable skills in chairing our Audit and Compensation Committees. Present Roles: Denise serves as Chair of the Audit Committee and Compensation Committee. Ana Lopez-Blazquez joined our Board of Directors in 2023 after serving as a member of our Advisory Board since 2021. As Executive Vice President, Chief Strategy & Transformation Officer for Baptist Health, Ana has displayed strong leadership and expertise in strategy and business transformation. Her entrepreneurial background, established over her 35-year career at Baptist Health and her deep understanding of financial and regulatory matters make her an essential addition to our Board. Present Roles: Ana is a member of the Audit Committee and Compensation Committee. John A. Macdonald joined our Board of Directors in 2021 after serving as a member of our Advisory Board since 2019. As the first employee and long-term CEO of Enercare, Inc., John demonstrated his entrepreneurial capabilities by building the company into one of the largest and most innovative home services providers in North America. Today, he serves as Chairman of Parity, Inc., a Toronto-based software company focused on reducing carbon emissions for multi-tenant buildings. John’s industry experience, public company leadership, financial acumen, and deep understanding of technology make him an important asset to our Board. Ana M. Menendez joined Watsco in 1998 and has served as our Chief Financial Officer since 2003, as Assistant Secretary since 1999, and as Treasurer since 1998. As a certified public accountant, Ana oversees all financial and accounting aspects of our Company, including taxes, risk management, benefits, treasury and cash management, the system of internal control, and other compliance activities. Ana also provides strategic guidance and direction to our Company’s operations and, over her career, has established important partnerships with our primary financial institutions. She is a former member and board chair of the Miami branch of the Federal Reserve Bank of Atlanta. Valerie F. Schimel joined our Board in 2022 after serving as a member of our Advisory Board since 2019. As a successful entrepreneur, Valerie is the founder and CEO of Munchkin Fun LLC, Florida’s largest digital parenting publication, and the founder of Joju LLC, a producer and marketer of fashion-forward sun protective clothing. Additionally, Valerie is the President of the Albert H. and Jane D. Nahmad Family Foundation, supporting youth and education in Miami-Dade County. She is the daughter of Albert H. Nahmad. Her entrepreneurial background, technology expertise, and social/community involvement make her an important addition to our Board. Present Roles: Valerie is a member of the Nominating & Governance Committee and Strategy Committee.
Director Nominees
Director Nominees Barry S. Logan joined Watsco in 1992 and serves as the Executive Vice President & Secretary, responsible for leading the Company’s strategic initiatives and business development efforts. He has held various leadership roles during his career, including serving as Chief Financial Officer from 1997 to 2003. Mr. Logan joined our Board in March 2024 and previously served as a Watsco director from 2011 to 2018. Barry was Watsco’s fourth corporate employee and is an integral participant in the Company’s business development initiatives, financial, and other strategic activities. He is also the principal contact for engagement with our shareholders. Aaron J. (A.J.) Nahmad joined Watsco in 2005 and has been our President since 2016 and a director since 2011. A.J. has played a pivotal role in fostering a culture of innovation within the Company, leading to the development of advanced technology platforms that prioritize our customer-experience and modernization of outdated business processes into digital, data-driven processes. With a team of approximately 300 technologists, the Company continues to invest in technology adoption and use by customers, leaders, and managers throughout the marketplace. A.J. holds a B.A. from the University of Pennsylvania and an M.B.A. from New York University’s Leonard N. Stern School of Business. He is the son of Albert H. Nahmad. Present Roles: A.J. serves as our Co-Vice Chairman and is a member of the Nominating & Governance Committee and Strategy Committee. Albert H. Nahmad is our visionary founder, and has been our leader, Chairman, and CEO since 1972. He has been instrumental in shaping Watsco’s entrepreneurial culture, expanding our business through acquisitions, and fostering strategic business relationships. Under his leadership, Watsco has grown from a market capitalization of $22 million in 1989 to $7.3 billion at the end of 2023, generating a compounded annual growth rate of total shareholder return of 19%. As an industry leader, Watsco now serves more than 125,000 active contractor customers through a network of 690 locations. Present Roles: Albert is our Chairman and Chairs our Strategy Committee.
Board Leadership Structure
| • | Establishing a director compensation philosophy. |
Board Leadership Structure
| Name | Fees Earned or Paid in Cash ($) | Option Awards ($)(1) | Total ($) | | Cesar L. Alvarez | — | — | — | | J. Michael Custer | $10,000(2) | $156,593 | $166,593 | | Denise Dickins | $50,000(3) | — | $50,000 | | Ana Lopez-Blazquez | — | $129,028 | $129,028 | | John A. Macdonald (4) | — | — | — | | Bob L. Moss (5) | — | — | — | | Steven (Slava) Rubin (6) | — | — | — | | Valerie F. Schimel | — | — | — |
Environmental, Social, and Governance (ESG)
Mr. Rubin was appointed to the Advisory Board in March 2024. He previously served as a Watsco director from 2018 to 2024. He is the Managing Partner of humbition, an early-stage venture fund, and is also the co-founder of Vincent and Indiegogo, Inc. Mr. Rubin is a graduate of The Wharton School at the University of Pennsylvania. Gary L. Tapella Mr. Tapella was appointed to the Advisory Board in February 2022. He previously served as a Watsco director from 2006 to 2010. He is an Operating Partner of One Rock Capital Partners, LLC, a value-oriented, operationally focused private equity firm with $5 billion of capital commitments. Prior to joining One Rock he was an Operating Partner at Ripplewood Holdings, LLC from 2005 to 2009. Mr. Tapella retired from Rheem Manufacturing Company in 2005 as President and Chief Executive Officer following a 36-year career with the company. His experience there included managing Rheem’s Canadian and Singapore based pan-Asian companies and he served as Senior Vice President International and Chief Operating Officer.
Introduction
Introduction Our executive compensation program is grounded in the principle that compensation should be highly dependent on long-term shareholder returns. This key tenet of our compensation philosophy has driven the unique design of our program for many years and has enabled our leadership team to remain solidly focused on long-term performance. Watsco entered the HVAC/R distribution industry in 1989. Since that time, we have generated cumulative total shareholder return of 38,554% (19% compounded annual growth rate). Our approach to long-term incentives is unique. Unlike most companies, which grant their officers and employees restricted shares that vest over a period of a few years, our restricted share awards cliff-vest toward the end of an employee’s career (age 62 or older). For employees extending their careers beyond age 62, vesting may occur even later. If, for any reason other than death or disability, a holder of restricted shares leaves the Company, 100% of his or her restricted shares are forfeited. This means our key leaders do not know and cannot realize the value of their restricted share awards until they have spent their entire careers with the Company. Restricted share awards are subject to significant market, performance, and forfeiture risks. During the vesting period, shares of restricted stock include the right to vote and the right to receive dividends. The Company began granting restricted shares in 1997. As of the record date, more than 160 of the Company’s key leaders, including the NEOs, hold restricted share awards that cliff-vest between 2024 and 2054. Since inception, approximately 92% of the restricted shares granted by us have either vested or remain unvested with only 8% forfeited by former employees. We believe granting restricted shares that vest at retirement age balances strategic risk-taking and long-term value creation, creates an ownership culture, and aligns the interests of high-performing leaders with the interests of our shareholders. Additionally, we believe these awards help build a sustainable future by ensuring that our executives make the right long-term business decisions that will survive well past their retirement. On a weighted-average basis, our NEO’s respective restricted share awards have been outstanding for approximately 13 years. Unvested restricted stock awards for our Chairman & CEO vest in 2026 (at age 86), 2028 (at age 88) and in 2029 (at age 89). Unvested restricted stock awards for our President do not begin to vest until 2043 (at age 62). This long-term vesting demonstrates the program’s distinct nature and the long-term perspective that is at the core of the Company’s unique compensation philosophy. This compensation discussion and analysis (referred to as CD&A) explains the executive compensation program for our NEOs, who are listed below. It also describes the Compensation Committee’s process for making compensation decisions in 2023.
Introduction
| Name | Title | Years at Watsco | | Albert H. Nahmad | Chairman & Chief Executive Officer (CEO) | 51 | | Aaron J. (A.J.) Nahmad | President | 18 | | Barry S. Logan | Executive Vice President & Secretary (EVP) | 32 | | Ana M. Menendez | Chief Financial Officer & Treasurer (CFO) | 25 |
Introduction
2023 Business Performance. Results in 2023 were achieved against the backdrop of record-setting performance in 2022 and 2021. Outperformance during 2022 and 2021 was driven by unusually high levels of replacement demand, above-average inflationary pricing actions by the Company’s suppliers that benefited sales and gross margins, and generally stronger end user-markets.
Introduction
| • | Earnings per share of $13.67 in 2023 versus $15.41 in 2022 ($14.20 on an adjusted, non-GAAP basis in 2022). Refer to the Appendix on page A-1 for information regarding non-GAAP measures. |
Introduction
| • | Record sales of $7.28 billion versus $7.27 billion in 2022. |
Introduction
| • | Operating income decreased 4% to $795 million (operating margin of 10.9%). |
Introduction
| • | Dividend payments in 2023 increased 15% (our 49th consecutive year of paying dividends). |
Philosophy, Culture & Performance
Philosophy, Culture & Performance Executive Compensation Philosophy. We measure success by our ability to create shareholder returns over significantly long periods of time. The vision and leadership of our entrepreneurial business leaders are at the core of our performance, and it is their continued commitment to drive sustainable growth that we believe will contribute to our ongoing success. To this end, we must attract, motivate, and retain high-caliber talent. Pay-For-Performance & Ownership Culture. For employees throughout Watsco, including our NEOs, we maintain a performance-based culture that provides for a variety of potential rewards. Our equity-based plans include 401(k) matching contributions to eligible employees, a voluntary employee stock purchase plan, and the granting of stock options and restricted stock awards based on individual merit and performance. The equity-based compensation plans are intended to promote long-term performance and foster an “ownership culture” whereby management and employees think and act as owners of the Company. As described above, our restricted stock program is unique because an employee’s restricted shares vest entirely toward the end of his or her career (age 62 or later), subjecting such awards to significant market, performance, and forfeiture risks. Concentrated Use of Long-Term Incentives Using Restricted Stock. For our Chairman & CEO, President, and other NEOs, the primary component of long-term incentive compensation is restricted stock that cliff-vests at retirement. Long-term incentive compensation grants of restricted stock are subject to significant market, performance, and forfeiture risks, which means that our key leaders do not know and cannot realize the value of their restricted share awards until they have spent their respective careers with the Company. This compensation strategy has been consistent over the Company’s history and is rooted in the principle that long-term, equity-based compensation is the most effective method to balance the management of long-term opportunities along with long-term risks and to align the interests of executives with those of our shareholders. Due to the unusually long vesting periods and risks of forfeiture, and as supported by independent valuations obtained by the Company, the Compensation Committee believes the present value of such awards is likely significantly less than the “face value” when issued that is reported in the Summary Compensation Table below. The Company believes this balance of risk and reward over long periods is more effective than more conventional equity-based programs that provide considerably shorter-term vesting and payouts, and effectively aligns the development of a leader’s wealth with shareholder wealth. The program also serves as an important method to retain key leaders for the duration of their careers. Overall Performance. Total shareholder return (referred to as TSR) measures share price appreciation including the reinvestment of dividends. The Company views TSR as the simplest and most fundamental method of measuring long-term value creation for shareholders and considers it as a metric in determining long-term incentive awards. Based on data provided by FactSet Research Systems Inc. (referred to as FactSet), the Company’s compounded annual growth rate (referred to as CAGR) in comparison to a variety of public-company market indices as of December 31, 2023, was as follows:
Governance, Compensation Actions & Summary of Details
| • | 90% of NEO compensation for 2023 was performance-based (primarily consisting of restricted stock with cliff-vesting periods of six years for our Chairman & CEO and 20 years for our President). |
Governance, Compensation Actions & Summary of Details
| • | No severance agreements. |
Governance, Compensation Actions & Summary of Details
| • | No employment agreements, other than with the Chairman & CEO. |
Governance, Compensation Actions & Summary of Details
| • | Cap on the value of equity compensation that may be earned by the Chairman & CEO and President. |
Governance, Compensation Actions & Summary of Details
Determination of Executive Compensation. The Board delegates responsibility for determining the compensation structure of our Chairman & CEO and our President to the Compensation Committee. For our other NEOs, our Chairman & CEO determines their compensation after review and consultation with the Compensation Committee. The Compensation Committee currently consists of two independent directors appointed by the Board. In providing input regarding the other NEOs’ compensation, the Compensation Committee considers each NEO’s responsibilities, the overall financial performance of the Company, the performance of the department or function that such NEO leads, and their collective success in meeting the Company’s strategic priorities. The Compensation Committee has the opportunity to meet with the NEOs at various times during the year, which allows the Compensation Committee to form its own independent evaluation of each individual’s performance. The Compensation Committee has engaged Pearl Meyer, an independent compensation consulting firm, to periodically provide advice, relevant market data, various peer group comparisons, and best practices with respect to the compensation of our Chairman & CEO and President. The Compensation Committee assessed the independence of Pearl Meyer based on the specific criteria under applicable SEC and NYSE rules and determined that no conflict of interest is raised by Pearl Meyer’s work for the Compensation Committee. Elements of Executive Compensation. NEO compensation may consist of base salary, an annual cash incentive or bonus (applicable to our NEOs other than our Chairman & CEO), stock option awards, and restricted share awards, the composition of which is determined annually. As described above, our philosophy focuses on long-term performance which typically results in base salaries that may be considered by some to be below market, and long-term restricted stock-based incentives that may be considered by some to be above market. Different from most companies, our long-term incentive awards are highly dependent on current and long-term shareholder returns. As required, restricted stock grants in 2023 are reported at their respective fair values in the Summary Compensation Table in accordance with applicable accounting principles, not at their market value on their vesting date. During the vesting period for restricted stock awards, recipients are entitled to receive cash dividends and recipients are entitled to vote their restricted shares on all matters on which our shareholders are entitled to vote. Base Salary. Base salary is designed to adequately compensate and reward the NEOs for their day-to-day performance. The Compensation Committee determines base salary for our Chairman & CEO and for our President. Our Chairman & CEO determines base salaries for our other NEOs after review and consultation with the Compensation Committee. When setting and adjusting each NEO’s salary level, the executive’s roles and responsibilities, experience, potential, and performance are considered. Other factors are considered such as the annual merit increase, if any, paid to all other Company employees, general business conditions, and succession planning. These factors are not weighted. Adjustments to base salary are discretionary and based on an overall collective assessment of all these factors. Salaries paid to the NEOs in 2023 are shown in the Summary Compensation Table. Peer Comparisons. Given our unique compensation structure that focuses primarily on equity awards with long-term vesting periods under our restricted stock program, the Compensation Committee has determined that neither base salary nor any other element of executive compensation is directly comparable to peer group or compensation survey data. Instead, reasonable judgment is used to set a base salary that, when combined with all other compensation elements, results in a competitive pay package intended to align with the executive compensation philosophy of the Company of long-term TSR, while retaining high-performing executives. This unique philosophy is regularly discussed and evaluated through extensive institutional shareholder engagement. The Compensation Committee believes the program’s philosophy and effectiveness have been validated over the years. Annual Cash Bonus. Our EVP and CFO may receive a discretionary annual cash bonus as determined by our Chairman & CEO and President after review and consultation with the Compensation Committee. Some of the factors considered include, but are not limited to, the overall financial performance of the Company, the performance of the department or function that person leads, and an assessment of his or her achievement of strategic priorities. For 2023, no cash bonuses were approved for our EVP or CFO. Short-Term Incentive. In 2023, our President was eligible to receive a short-term incentive of up to $450,000, payable in Class B common stock, based on the achievement of specified year-over-year performance criteria established by the Compensation Committee, which included targeted: (a) improvement of inventory turns; (b) growth of sales of parts and supplies; (c) gross margin expansion; (d) freight cost decrease; and (e) establish and develop action plans related to net carbon reduction targets. For 2023, no short-term incentive was approved for our President. Long-Term Share-Based Incentive Compensation. Our long-term share-based incentive compensation plan is administered through the 2021 Plan. As of December 31, 2023, the 2021 Plan had approximately 375 participants, including the NEOs. Awards may consist of: (i) non-qualified stock options that vest in installments over three and four years from the date of grant, and (ii) awards of restricted stock with long duration vesting periods (age 62 or later). For the NEOs, as described above, our philosophy is heavily weighted toward awards of restricted stock, which create an owner-oriented culture; therefore, the discretionary allocation between non-qualified stock options and restricted stock generally favors the latter. For 2023, no stock options were awarded to the NEOs. Restricted stock awards are subject to forfeiture until certain specified events occur (upon reaching age 62 or later, death, long-term disability, or a change in control of the Company). Shares of restricted stock awarded include the right to vote and the right to receive dividends. Awards of restricted stock may be in either shares of Common stock or Class B common stock, none of which may be sold or disposed of prior to vesting, and which may be forfeited in the event of termination of employment prior to the end of the restriction period. Generally, restricted shares of Class B common stock have been awarded as the Board considers long-term continuity, stability, and consistency of culture as important long-term contributors to the Company’s future success. The Company also believes other stakeholders, including its largest vendor partners, are comforted by and have made long-term commitments to the Company as a result of this long-term continuity, stability, and consistency. The grant date fair value of the awards shown in the Summary Compensation Table is calculated in accordance with FASB ASC Topic 718. That amount is amortized ratably over the period from the date of grant through the date of cliff-vesting. Due to the unusually long vesting periods and associated risks of forfeiture, the present value of such awards is likely significantly less than the grant date fair value. A summary of restricted stock awards currently held by our NEOs, including the range of years during which such shares were granted, the range of cliff-vesting dates, and the weighted-average years remaining until the cliff-vesting date is reached as of the record date, April 5, 2024 was as follows:
Governance, Compensation Actions & Summary of Details
| Name | Common Shares | Class B Common Shares | Range of Years for Grants of Restricted Stock Awards(1) | Range of Dates for Cliff-Vesting of Restricted Stock Awards(2) | Weighted average Years Remaining Until Cliff-Vest Date | | Albert H. Nahmad | — | 1,480,794 | 1998 through 2023 | October 2026, 2028, and 2029 | 3.8 years | | Aaron J. Nahmad | — | 272,132 | 2011 through 2023 | October 2043 and 2045 | 19.6 years | | Barry S. Logan | 108,750 | 113,037 | 1997 through 2021 | December 2024, 2026, and 2029 | 1.1 years | | Ana M. Menendez | 40,000 | 40,037 | 1999 through 2017 | December 2026 and 2028 | 3.5 years |
Governance, Compensation Actions & Summary of Details
Use of Objective, Simple Performance Measures to Determine Share-Based Compensation. The Compensation Committee considers two performance measures to determine whether, and how much, share-based compensation is awarded to the Chairman & CEO and President: (i) earnings per share (referred to as EPS) and (ii) stock price. If either measure increases, then restricted stock is awarded for that year. If neither measure increases, then no restricted stock is awarded for that year. For example, no restricted stock awards were granted to our Chairman & CEO in 2007 or 2008 due to EPS and stock price performance during those years. The use of these criteria is centered on the philosophy that total long-term shareholder return is the primary method of measuring the success of the Company. We also believe EPS and stock price are objective, simple and require no interpretation. The Compensation Committee recognizes that external factors can influence our stock price in the short term, but we believe that there is equal probability that such external factors can be positive or negative. A greater consideration is that the ultimate value of an award under our cliff-vesting program is not known on the date of the award – but rather only on the date on which it vests, which can be years or even decades after an award. Short-term external factors become irrelevant over such a long period of vesting, and long-term performance dictates the value of the restricted stock awards. EPS is defined as diluted EPS calculated in accordance with U.S. generally accepted accounting principles, referred to as GAAP. Generally, we do not consider any “non-GAAP” adjustments to EPS that have the effect of increasing EPS. Common stock price is the closing date price of Watsco’s shares as reported by the NYSE. However, in 2022, the Company received an unusual tax benefit associated with the vesting of 975,622 shares of restricted stock. In accordance with GAAP, this benefit had the effect of increasing EPS for 2022, and we did not include such benefit in determining the change in diluted EPS for purposes of assessing the performance of the Chairman & CEO or President for 2022 or for purposes of measuring EPS growth for 2023 against 2022 (i.e., the same 2022 EPS figure, which was net of the tax benefit, was used for determining awards for purposes of both 2022 and 2023. Compensation & Long-Term Incentive for Our Chairman & CEO. The Chairman & CEO’s compensation is composed of base salary and a restricted share award contingent upon the attainment of specified performance criteria. He is not eligible to receive any cash incentive. For 2023, Mr. Nahmad’s base salary remained unchanged at $600,000. In terms of his long-term incentive award, the Compensation Committee determines annual performance factors within the first 90 days of each calendar year and formalizes such factors as an amendment to the Chairman & CEO’s employment agreement (such agreement and amendments are referred to together as the Employment Agreement). The 2023 amendment to the Employment Agreement was originally filed with the SEC as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. We refer to this amendment as the 2023 Amendment. The 2023 Amendment provided that a 2023 performance award, if any: (a) shall be made through a grant of restricted Class B common shares with a cliff-vest date of October 15, 2029 (at age 89), subject to forfeiture prior to this date as set forth in the restricted stock agreement; (b) is subject to his employment for the entire year unless the Compensation Committee specifically determines otherwise; (c) is subject to a maximum of $10 million; and (d) shall use the following performance factors to determine the amount of the award: EPS growth (i) No incentive is earned if 2023 EPS did not exceed $14.20(1), or (ii) $43,500 in value is awarded for each one cent of EPS growth in 2023 (if less than $14.91(2)), or (iii) $65,000 in value is awarded for each one cent of EPS growth in 2023 (if equal to or greater than $14.91(2)), plus Common stock price growth (i) No incentive is earned if the price of Watsco’s Common stock did not exceed $249.40(3) on December 31, 2023, or (ii) $1,200 in value awarded for each one cent of increase in the price of Watsco’s Common stock over the prior year (if less than $299.28(4)), or (iii) $1,800 in value is awarded for each one cent of increase in the price of Watsco’s Common stock over the prior year (if equal to or greater than $299.28(4))
Governance, Compensation Actions & Summary of Details
| (1) Represents 2022 EPS on an adjusted basis, excluding a tax benefit of $1.21 per share from restricted stock vesting. |
Governance, Compensation Actions & Summary of Details
| (2) Represents a 5% increase over 2022’s EPS on an adjusted basis, excluding a tax benefit of $1.21 per share from restricted stock vesting. |
Governance, Compensation Actions & Summary of Details
Watsco’s 2023 EPS was $13.67 per share and the price of its Common stock was $428.47 as of December 31, 2023. The calculated gross value of the 2023 award was approximately $32.2 million, which exceeded the maximum of $10.0 million. Therefore, the value of the 2023 award earned by our Chairman & CEO was limited to $10.0 million (23,685 restricted Class B common shares) as reflected in the Summary Compensation Table. Mr. Nahmad also received $193.00 in cash in lieu of a fractional share. Compensation & Long-Term Incentive for Our President. Our President’s 2023 compensation program included a base salary of $600,000. Our President was also eligible to receive a short-term incentive of up to $450,000 in the form of Class B common stock, based upon the attainment of specified performance criteria (as described above) and a long-term incentive award in the form of Class B common stock, which cliff-vest on October 17, 2043. The long-term incentive award is limited to a maximum of $10 million. For 2023, no short-term incentive was approved for our President. The 2023 long-term incentive award considered two components: (a) To recognize 2023 performance, 75% of the award was to be issued in 2024 (referred to as the Current-Year Performance Award), and (b) To encourage and reward the development of shareholder value over a longer period, 25% of the award was to be issued as restricted stock units (RSUs) that are potentially convertible into shares of Class B restricted stock contingent upon the Company’s stock price performance over the three-year period ending December 31, 2025 (referred to as the Three-Year Performance Award). Generally, RSUs convert one-for-one if the average annual stock price increase is 10% or greater for the three-years and two-for-one if the average annual stock price increase is 20% or greater. For 2023, our President’s equity-based incentive used the following performance criteria factors: EPS growth (i) No incentive is earned if 2023 EPS did not exceed $14.20(1), or (ii) $43,500 in value is awarded for each one cent of EPS growth in 2023 (if less than $14.91(2)), or (iii) $65,000 in value is awarded for each one cent of EPS growth in 2023 (if equal to or greater than $14.91(2)), plus Common stock price growth (i) No incentive is earned if the price of Watsco’s Common stock did not exceed $249.40(3) on December 31, 2023, or (ii) $1,200 in value is awarded for each one cent of increase in the price of Watsco’s Common stock from the prior year (if less than $299.28(4)), or (iii) $1,800 in value is awarded for each one cent of increase in the price of Watsco’s Common stock from the prior year (if equal to or greater than $299.28(4))
Governance, Compensation Actions & Summary of Details
| (1) Represents 2022 EPS on an adjusted basis, excluding a tax benefit of $1.21 per share from restricted stock vesting. |
Governance, Compensation Actions & Summary of Details
| (2) Represents a 5% increase over 2022’s EPS on an adjusted basis, excluding a tax benefit of $1.21 per share from restricted stock vesting. |
Governance, Compensation Actions & Summary of Details
Watsco’s 2023 EPS was $13.67 per share and the price of its Common stock was $428.47 as of December 31, 2023. The calculated gross value of the 2023 award was approximately $32.2 million, which exceeded the maximum of $10.0 million. therefore, the value of the 2023 award was limited to $10.0 million and comprised (a) a Current-Year Performance Award of $7.5 million paid by issuing 17,764 shares of restricted Class B common stock with a cliff-vest date of October 17, 2043, subject to forfeiture as contained in the restricted stock agreement and $39.20 in cash in lieu of a fractional share, and (b) a Three-Year Performance Award of RSUs valued at $2.5 million, which may be converted into shares of Class B restricted stock if the following three-year growth targets are achieved:
Governance, Compensation Actions & Summary of Details
| Average Annual Three-Year Increase in Watsco’s Share Price (2023 through 2025) | RSU Conversion Factor | | 0% | 0% | | 10% | 100% | | 20% (maximum) | 200% |
Governance, Compensation Actions & Summary of Details
Our President’s Three-Year Performance Award for 2022 (referred to as the 2022 RSUs) was valued at $2.5 million. The conversion of the 2022 RSUs into shares of Class B restricted stock if similar growth targets for the three-year period ending December 31, 2024 are achieved. Our President’s Three-Year Performance Award for 2021 (referred to as the 2021 RSUs) was valued at $2.5 million. The Compensation Committee determined an RSU conversion factor of 200% based on the average stock-price performance growth of 30% over the three-year period ended December 31, 2023. Accordingly, the 2021 RSUs were converted into 12,118 shares of restricted Class B common stock with a gross value of approximately $5.0 million that cliff-vest of October 17, 2043. $113.20 was also paid in cash in lieu of a fractional share. As it relates to RSU awards to our President in general, the Compensation Committee has discretion to determine the final RSU conversion factor based on the achieved growth rates. Restricted shares of Class B common stock issued upon conversion of the RSUs, if any, shall cliff-vest on October 17, 2043, and are subject to the terms, conditions and risks of forfeiture contained in the related restricted stock agreements. Valuation of Restricted Shares. Although restricted shares granted in 2023 are presented in the Summary Compensation Table at grant date fair value, calculated in accordance with FASB ASC Topic 718, due to the unusually long vesting periods and associated market and forfeiture risks, the present value of such awards is likely significantly less. Long-Term Incentives for our Other NEOs. For our other NEOs, the Chairman & CEO considers and recommends discretionary stock option awards and restricted share awards, which are subject to the review and approval of the Compensation Committee. The decision to grant stock options and/or restricted stock awards to our other NEOs is based on the subjective weighting of the following criteria, together with the overall performance of the Company:
Summary Compensation Table
Summary Compensation Table The following table sets forth the compensation earned by the NEOs for services rendered for the years ended December 31, 2023, 2022, and 2021.
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Restricted Stock Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | All Other Compensation ($)(4) | Total Compensation ($) | | Albert H. Nahmad Chief Executive Officer | 2023 | $600,000 | — | $9,999,807 | $193 | $458,336 | $11,058,336 | | | 2022 | $600,000 | — | $9,999,901 | $99 | $493,941 | $11,093,941 | | | 2021 | $300,000 | — | $9,999,877 | $123 | $372,518 | $10,672,518 | | Aaron J. Nahmad President | 2023 | $600,000 | — | $12,499,848 | $152 | $14,750 | $13,114,750 | | | 2022 | $600,000 | $200,000 | $9,999,752 | $248 | $7,625 | $10,807,625 | | | 2021 | $600,000 | $300,000 | $9,768,244 | $306 | $7,250 | $10,675,800 | | Barry S. Logan Executive Vice President | 2023 | $435,000 | — | — | — | $14,515 | $449,515 | | | 2022 | $435,000 | — | — | — | $7,625 | $442,625 | | | 2021 | $435,000 | — | $1,460,050 | — | $33,527 | $1,928,577 | | Ana M. Menendez Chief Financial Officer | 2023 | $350,000 | — | — | — | $8,250 | $358,250 | | | 2022 | $350,000 | — | — | — | $7,625 | $357,625 | | | 2021 | $350,000 | — | — | — | $7,250 | $357,250 |
Summary Compensation Table
| (1) For 2022, amount represents short-term incentive award for our President composed of 632 shares of Class B common stock with a fair market value of $199,914 (computed in accordance with FASB ASC Topic 718) and $86 in cash in lieu of a fractional share. For 2021, amount for our President represents short-term incentive paid in cash. |
Summary Compensation Table
| (2) The amounts in this column represent the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718. Compensation expense related to restricted stock awards is recognized over the relevant vesting period for each NEO. The annual expense for the 2023 restricted stock awards to be included in the Company’s annual financial results is approximately $1,429,000 for Albert H. Nahmad’s restricted stock award (vesting date is October 15, 2029) and approximately $595,000 for Aaron J. Nahmad’s restricted stock awards (vesting date is October 17, 2043). Although such awards are presented in the Summary Compensation Table at grant date fair value computed in accordance with FASB ASC Topic 718, due to the unusually long vesting periods and associated risks of forfeiture, the present value of such awards is likely significantly less. Shares of restricted stock awarded include the right to vote and the right to receive dividends. For additional information regarding assumptions underlying the valuation of equity awards and the calculation method, please refer to Note 10 to our consolidated financial statements, which are contained in our Annual Report to Shareholders, filed with the SEC as Exhibit 13 to our 2023 Annual Report on Form 10-K. |
Summary Compensation Table
| (3) Represents the cash value of fractional shares earned in connection with an annual incentive award. |
Summary Compensation Table
| (4) For Albert H. Nahmad, “all other compensation” in 2023 included (i) $8,250 related to the 401(k) Plan matching contribution, (ii) $10,262 related to additional health insurance benefits paid by the Company for Mr. Nahmad and his spouse, such as deductibles and co-insurance, among others, (iii) $6,500 for a comprehensive annual executive physical paid by the Company, and (iv) $433,324 of incremental variable operating costs incurred related to Mr. Nahmad’s use of our aircraft for personal travel pursuant to his Employment Agreement. For Aaron J. Nahmad and Mr. Logan, “all other compensation” in 2023 comprises $6,500 for a comprehensive annual executive physical and 401(k) Plan matching contributions. For Ms. Menendez, “all other compensation” in 2023 comprises 401(k) Plan matching contributions. |
2023 Grants of Plan-Based Awards
2023 Grants of Plan-Based Awards This table provides information with respect to grants of plan-based awards to our NEOs for 2023.
2023 Grants of Plan-Based Awards
| Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | | Estimated Future Payouts Under Equity Incentive Plan Awards | | | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock and Option Awards ($)(1) | | | | | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | | Albert H. Nahmad | 12/31/23 | — | — | — | — | — | — | 23,685(2) | | 9,999,807 | | Aaron J. Nahmad | 12/31/23 12/31/23 12/31/23 | $— 0 —(3) | $— 2,500,000 —(3) | $— 5,000,000 —(3) | — — — | — — — | — — — | 17,764 — 12,118(2) (4) | $ $ | 7,499,961 — 4,999,887 |
2023 Grants of Plan-Based Awards
| (1) The grant date fair value of the restricted stock awards represents the total amount of share-based compensation expense that will be recognized over the vesting period, which extends to October 15, 2029, for Albert H. Nahmad and October 17, 2043, for Aaron J. Nahmad. The annual expense to be included in the Company’s financial results in prospective years is approximately $1,429,000 for Albert H. Nahmad’s restricted stock award and approximately $595,000 for Aaron J. Nahmad’s restricted stock awards. Although such awards are presented in the above table at grant date fair value calculated in accordance with FASB ASC Topic 718, due to the unusually long vesting periods and associated risks of forfeiture, the present value of such awards is likely significantly less. Shares of restricted stock awarded provide the recipient with the right to vote and the right to receive dividends on such shares. |
2023 Grants of Plan-Based Awards
| (2) Represents the 2023 long-term incentive award for our Chairman & CEO and the Current-Year Award for our President. For further information, see the discussion in the CD&A above. |
2023 Grants of Plan-Based Awards
| (3) Represents the amount of our President’s 2023 Current-Year Performance Award that may be earned dependent upon the Company’s stock price performance measured for the three-year period ending December 31, 2025. |
2023 Grants of Plan-Based Awards
| (4) Represents our President’s 2021 Three-Year Performance Award. For further information, see the discussion in the CD&A above. |
Outstanding Equity Awards at December 31, 2023
Outstanding Equity Awards at December 31, 2023 The following table summarizes stock awards outstanding at December 31, 2023 for the NEOs. All such awards represent restricted stock. There were no other equity awards outstanding for the NEOs at December 31, 2023.
Outstanding Equity Awards at December 31, 2023
| Name | Restricted Stock Awards | | | | | Number of Shares or Units of Stock That Have Not Vested (#)(3) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | | Albert H. Nahmad | 1,457,109 | $615,191,420 | — | | Aaron J. Nahmad | 242,250 | $102,277,950 | $10,000,000 | | Barry S. Logan | 221,787 | $94,320,334 | — | | Ana M. Menendez | 80,037 | $34,042,421 | — |
Outstanding Equity Awards at December 31, 2023
| (1) The market value is based on the respective closing market prices of our Common stock and Class B common stock on December 31, 2023, as reported by the NYSE. Shares vest upon dates specified in the restricted stock agreements or upon earlier death, disability or upon a change in control of the Company. See |
Outstanding Equity Awards at December 31, 2023
| “CD&A – Governance, Compensation Actions & Summary of Details – Long-Term Share-Based Incentive Compensation” for additional information on the vesting dates of outstanding awards. |
Outstanding Equity Awards at December 31, 2023
| (2) Represents the maximum value of RSUs related to our President’s 2022 and 2023 Three-Year Performance Awards that are potentially convertible into shares of Class B restricted stock contingent upon the Company’s stock price performance for the three-year periods ending December 31, 2024 and 2025, respectively. As of December 31, 2023, the achievement level with respect to these measures was estimated at the maximum. Accordingly, the value of the RSUs that are expected to convert into shares of Class B restricted stock reported in the table reflects the amount based on maximum performance. The actual number of RSUs that will convert to Class B restricted stock for the 2022 and 2023 Three-Year Performance Awards are not yet determinable. |
Outstanding Equity Awards at December 31, 2023
| (3) For Albert H. Nahmad, excludes 23,685 shares earned for the year ended December 31, 2023, that were issued in 2024. For Aaron J. Nahmad, excludes 29,882 shares earned for the year ended December 31, 2023, that were issued in 2024. Each such award was granted under their respective 2023 long-term incentive programs, as described above. |
Potential Payments upon Termination or Change of Control
Potential Payments upon Termination or Change of Control Agreements for awards of restricted stock have provisions that provide for accelerated vesting due to a change in control of the Company, or upon the death or disability of the executive. If vesting is accelerated under these agreements, any unrecognized share-based compensation expense would be immediately recognized. There are no other agreements or arrangements with our NEOs that provide for compensation or other benefits upon a change in control of the Company. The table below illustrates the value of the accelerated vesting of the equity awards for each NEO had Watsco experienced a change in control on December 31, 2023, along with the amount of unrecognized share-based compensation that would be recognized in our consolidated statement of income. The amounts presented in the table below are estimates and do not necessarily reflect the actual value of the benefits that would be received by the NEOs, which would only be known at the time that a change in control occurs.
Potential Payments upon Termination or Change of Control
| Name | Stock Options | Restricted Stock(1) | Unrecognized Share-Based Compensation(2) | | Albert H. Nahmad | — | $625,191,227 | $52,443,023 | | Aaron J. Nahmad | — | $114,894,130 | $49,617,274 | | Barry S. Logan | — | $85,750,934 | $1,710,103 | | Ana M. Menendez | — | $23,330,671 | $888,337 |
Potential Payments upon Termination or Change of Control
| (1) This value is based on the respective closing prices on the NYSE for shares of our Common stock ($428.47) and Class B common stock ($422.20) on December 31, 2023, multiplied by the number of restricted shares of Common stock or Class B common stock, as applicable that would have been subject to accelerated vesting. The amount realized would be taxable compensation to the NEO and, subject to the provisions of Section 162(m), may result in tax benefits for the Company. |
Potential Payments upon Termination or Change of Control
| (2) Represents the amount of share-based compensation expense that would be immediately recognized in the event of accelerated vesting. |
PAY RATIO
PAY RATIO As a result of the rules the SEC adopted as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are providing the following disclosure about the relationship of the total annual compensation of our CEO to the median total annual compensation of our employees for the year ended December 31, 2023. The methodology used to identify the median employee and the compensation measure used for this analysis are described below.
Supplemental Pay Ratio Disclosure
Supplemental Pay Ratio Disclosure The required compensation measure used for our CEO and included in the pay ratio above does not represent his annual cash compensation. As described in the section titled “Compensation & Long-Term Incentive for Our Chairman & CEO” beginning on page 32 of this Proxy Statement, total compensation includes the grant date fair value of $9,999,807 for a restricted stock award that does not vest until 2029. Excluding this restricted stock award, the annual cash compensation of our CEO was $1,058,529, and the pay ratio of our CEO to our median employee was 18:1.
PAY VERSUS PERFORMANCE
PAY VERSUS PERFORMANCE As a result of rules the SEC adopted as required by Dodd-Frank, we are providing the following: (1) tabular compensation and performance disclosures for 2023, 2022, 2021, and 2020 (Pay versus Performance Table); (2) an unranked list of four performance measures that we consider to be our most important measures used to align Compensation Actually Paid (referred to as CAP) to our NEOs for 2023 to Company performance; and (3) additional disclosure relative to the relationship between the CAP set forth in the Pay versus Performance Table and each of the performance measures set forth in the Pay versus Performance Table and between the Company’s and the Peer Group TSR, in each case over 2020-2023. For further information concerning our executive compensation philosophy and how executive compensation is aligned with the Company’s performance, refer to the CD&A.
Pay versus Performance Table
Pay versus Performance Table
Pay versus Performance Table
| Year | Summary compensation table total for CEO(1) | CAP to CEO(2) | Average summary compensation table total for non-CEO NEOs(3) | Average CAP to non-CEO NEOs(4) | Value of initial fixed $100 investment based on: | | Net income(7) | EPS(8) | | | | | | | Cumulative TSR(5) | S&P 400 Industrials Index Cumulative TSR(6) | | | | (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | | 2023 | $11,058,336 | $265,777,742 | $4,640,838 | $35,470,387 | $270.02 | $174.04 | $634,139,000 | $13.67 | | 2022 | $11,093,941 | $(80,040,484) | $3,869,292 | $(3,773,733) | $152.56 | $132.42 | $703,696,000 | $14.20 | | 2021 | $10,672,518 | $199,630,477 | $4,320,542 | $16,803,335 | $185.42 | $149.62 | $498,735,000 | $10.78 | | 2020 | $10,688,592 | $143,282,126 | $3,299,119 | $11,133,498 | $130.51 | $116.49 | $323,172,000 | $7.01 |
Pay versus Performance Table
| (1) The dollar amounts reported in column (b) are the amounts of total compensation reported for Albert H. Nahmad, our CEO since 1972 and our principal executive officer, for each corresponding year in the total column of the Summary Compensation Table (“SCT”). |
Pay versus Performance Table
| (2) The dollar amounts reported in column (c) represent the amount of CAP to our CEO, as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual amount of compensation earned by or paid to our CEO during the applicable year. The following adjustments were made to our CEO’s total compensation for each year as reported in the SCT to determine the CAP: |
Pay versus Performance Table
| Year | Reported SCT total for CEO | Reported value of equity awards(a) | Year-end fair value of outstanding and unvested equity awards granted in the year(b) | Year-over- year change in fair value of outstanding unvested equity awards (c) | Fair value at vesting date of equity awards granted and vested in the year(d) | Year-over- year change in fair value of equity awards granted in prior years that vested in the same year(e) | Fair value at the end of the prior year of equity awards forfeited in the year(f) | Dividends paid on equity awards in current year prior to vesting(g) | CAP to CEO | | 2023 | $11,058,336 | $(9,999,807) | $9,999,807 | $240,536,763 | — | — | — | $14,182,643 | $265,777,742 | | 2022 | $11,093,941 | $(9,999,901) | $9,999,901 | $(75,214,733) | — | $(34,234,576) | — | $18,314,885 | $(80,040,484) | | 2021 | $10,672,518 | $(9,999,877) | $9,999,877 | $170,971,417 | — | — | — | $17,986,542 | $199,630,477 | | 2020 | $10,688,592 | $(9,999,942) | $9,999,942 | $116,544,498 | — | — | — | $16,049,036 | $143,282,126 |
Pay versus Performance Table
The equity award adjustments for each applicable year include the addition or subtraction, as applicable, of the following:
Pay versus Performance Table
| (a) The grant date fair value of equity awards represents the total of the amounts reported in the “Restricted Stock Awards” column in the SCT for the applicable year for our CEO. |
Pay versus Performance Table
| (b) The year-end fair value of any equity awards granted in the applicable year that are outstanding and unvested as of the end of the year. |
Pay versus Performance Table
| (c) The amount of change as of the end of the applicable year (from the end of the prior fiscal year) in fair value of any awards granted in prior years that are outstanding and unvested as of the end of the applicable year. For 2022, the decrease is due to a decline in Class B common stock price from $306.82 at December 31, 2021, to $271.73 at October 15, 2022, which impacted the fair value of vested restricted stock. |
Pay versus Performance Table
| (d) For awards that are granted and vest in same applicable year, the fair value as of the vesting date. |
Pay versus Performance Table
| (e) For awards granted in prior years that vest in the applicable year, the amount equal to the change as of the vesting date (from the end of the prior fiscal year) in fair value. For 2022, the decrease is due to a decline in Class B common stock price from $306.82 at December 31, 2021 to $252.51 at December 31, 2022, which impacted the fair value of unvested restricted stock. |
Pay versus Performance Table
| (f) For awards granted in prior years that are determined to fail to meet the applicable vesting conditions during the applicable year, a deduction for the amount equal to the fair value at the end of the prior fiscal year. |
Pay versus Performance Table
| (g) The dollar value of dividends paid on restricted stock in the applicable year prior to the vesting date that are not otherwise reflected in the fair value of such award or included in any other component of total compensation for the applicable year. |
Pay versus Performance Table
| (3) The dollar amounts reported in column (d) represent the average of the amounts reported for our NEOs as a group (excluding Albert H. Nahmad, who has served as our CEO since 1972) in the total column of the SCT in each applicable year. The NEOs (excluding our CEO) used to calculate the average amounts in each applicable year are Aaron J. Nahmad, Mr. Logan, and Ms. Menendez. |
Pay versus Performance Table
| (4) The dollar amounts reported in column (e) represent the average amount of CAP to the NEOs as a group (excluding our CEO), as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual average amount of compensation earned by or paid to the NEOs as a group (excluding our CEO) during the applicable year. The following adjustments were made to average total compensation for the NEOs as a group (excluding our CEO) for each year as reported in the SCT to determine the CAP, using the same methodology described above in footnote 2 immediately above: |
Pay versus Performance Table
| Year | Average SCT total for non- CEO NEOs | Average reported value of equity awards | Year-end average fair value of outstanding and unvested equity awards granted in the year | Year-over- year average change in fair value of outstanding unvested equity awards | Average fair value at vesting date of equity awards granted and vested in the same year | Year- over-year average change in fair value of equity awards granted in prior years that vested in the year | Average fair value at the end of the prior year of equity awards forfeited in the year | Average dividends paid on equity awards in current year prior to vesting | Average CAP to non-CEO NEOs | | 2023 | $4,640,838 | $(4,166,616) | $4,205,393 | $29,037,720 | — | — | — | $1,753,052 | $35,470,387 | | 2022 | $3,869,292 | $(3,333,250) | $3,276,738 | $(9,026,173) | — | — | — | $1,439,660 | $(3,773,733) | | 2021 | $4,320,542 | $(3,742,765) | $3,750,159 | $11,281,327 | — | — | — | $1,194,072 | $16,803,335 | | 2020 | $3,299,119 | $(2,720,859) | $2,720,859 | $6,833,888 | — | — | — | $1,000,491 | $11,133,498 |
Pay versus Performance Table
| (5) Cumulative TSR is calculated by (i) dividing the sum of the cumulative amount of dividends for the measurement period, assuming dividend reinvestment and (ii) the difference between the price of Watsco’s Common stock at the end and the beginning of the measurement period by the price of Watsco’s Common stock at the beginning of the measurement period. |
Pay versus Performance Table
| (6) Given our position as the largest and only publicly traded distributor of HVAC/R equipment, parts and supplies in North America, our unique, sole line of business, the nature of our customers (air conditioning and heating contractors), and the products and markets we serve, we cannot reasonably identify an appropriate peer group; therefore, the peer group used for this purpose is the S&P 400 Industrials Index, a published industry index, because it more closely relates to the industry in which we operate. |
Pay versus Performance Table
| (7) The dollar amounts reported represent the amount of net income reflected in our audited consolidated financial statements for the applicable year rounded to the nearest hundred thousand. |
Pay versus Performance Table
| (8) For 2022, amount represents Adjusted EPS, a non-GAAP measure, which is EPS excluding the impact of a $1.21 per share tax benefit resulting from our CEO’s vesting of 975,622 shares of Class B restricted stock on October 15, 2022. See the Appendix on page A-1 for information regarding non-GAAP measures. |
Analysis of the Information Presented in the Pay Versus Performance Table
Analysis of the Information Presented in the Pay Versus Performance Table While we use financial and non-financial performance measures to align executive compensation with our performance, not all of those performance measures are presented in the Pay Versus Performance Table. Moreover, we generally seek to incentivize long-term performance, and therefore do not specifically align our performance measures with CAP (as computed in accordance with Item 402(v) of Regulation S-K) for a particular year. See discussion of the relationships between information presented in the Pay Versus Performance Table below.
Compensation Actually Paid and Cumulative Total Shareholder Return
Compensation Actually Paid and Cumulative Total Shareholder Return The CAP vs. Cumulative TSR graph below depicts the amount of CAP to our CEO and the average amount of CAP to our NEOs as a group (excluding our CEO) over the four years 2020-2023. The alignment of CAP with our cumulative TSR over the period presented is the result of a significant portion of the CAP to our NEOs being comprised of restricted awards that cliff-vest at retirement, in particular CAP to our CEO, as he has served as our CEO since 1972 and holds a significant amount of restricted stock. As reflected in the graph below, both the Company’s TSR and our NEO’s CAP declined in 2022, despite the Company continuing to deliver solid financial results and outpacing the S&P 400 Industrials Index. The decline is primarily due to a decrease in stock price, which impacted the fair value of the NEOs’ unvested restricted stock.
Compensation Actually Paid and Net Income
Compensation Actually Paid and Net Income As illustrated by the graph below, the CAP to our CEO and the average amount of CAP to our NEOs as a group (excluding our CEO) is generally aligned with the Company’s net income over the four years presented in the Pay Versus Performance Table, except for 2022. As noted earlier, in 2022 the CAP to our CEO and our other NEOs declined due to a stock price decline comparing December 31, 2022, to December 31, 2021. Also, 2022 net income included a $49.0 million tax benefit resulting from our CEO’s vesting of 975,622 shares of Class B restricted stock on October 15, 2022. We do not use net income as a performance measure in our executive compensation program.
Compensation Actually Paid and Earnings Per Share
Compensation Actually Paid and Earnings Per Share As illustrated by the following graph, the CAP to our CEO and the average CAP to our NEOs as a group (excluding our CEO) is generally aligned with our EPS over the four years presented in the Pay Versus Performance Table. While we use several performance measures for the purpose of evaluating the performance of our NEOs, we have assessed and determined that EPS is the most important performance measure used to link NEO’s CAP to Company performance, followed by stock price. In support of this determination, 100% of the annual long-term incentive for our CEO and President have been linked to EPS and stock price performance. As noted earlier, the CAP to our CEO and our other NEOs declined in 2022 due to stock price decline.
Compensation Actually Paid and Earnings Per Share
| * For 2022, amount represents Adjusted EPS, a non-GAAP measure, which is EPS excluding the impact of a $1.21 per share tax benefit resulting from our CEO’s vesting of 975,622 shares of Class B restricted stock on October 15, 2022. See the Appendix on page A-1 for information regarding non-GAAP measures. |
PROPOSAL NO. 1 – ELECTION OF DIRECTORS
PROPOSAL NO. 1 – ELECTION OF DIRECTORS The Nominating & Governance Committee recommended for nomination, and the Board of Directors nominated, the following persons for election as members of our Board of Directors at the annual meeting of shareholders.
PROPOSAL NO. 1 – ELECTION OF DIRECTORS
| Name | Term Expiring | | Common stock | | | Barry S. Logan | 2027 annual meeting of shareholders | | Class B common stock | | | Aaron J. Nahmad | 2027 annual meeting of shareholders | | Albert H. Nahmad | 2027 annual meeting of shareholders |
PROPOSAL NO. 1 – ELECTION OF DIRECTORS
The section titled “Directors & Executive Officers” beginning on page 5 of this Proxy Statement contains more information about the leadership skills and other experience that caused the Nominating & Governance Committee and the Board of Directors to determine that these nominees should serve as directors of the Company. We believe that each of these directors possesses the experience, skills, and qualities to fully perform his or her duties as a director and contribute to our success. Our directors have been nominated because they possess the highest standards of personal integrity, interpersonal and communication skills, are highly accomplished in their fields, understand the interests and issues that are important to our shareholders, and are able to dedicate sufficient time to fulfilling their obligations as directors. Our directors as a group complement each other with their respective experiences, skills, and qualities. While our directors make up a diverse group in terms of age, gender, ethnic background, and professional experience, together they comprise a cohesive body in terms of Board process and collaboration. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE DIRECTOR NOMINEES.