UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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☒ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
☐ | Soliciting Material Pursuant to Section 240.14a-12 |
DARLING INGREDIENTS INC.
(Name of Registrant as specified in its charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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March 27, 2019
Dear Fellow Stockholders:
I hope you will join us at the 2019 Annual Meeting of Stockholders of Darling Ingredients Inc. The attached Notice of Annual Meeting of Stockholders and Proxy Statement will serve as your guide to the business to be conducted.
We first want to thank you for your investment in Darling Ingredients and for the confidence you put in our Board to oversee your interests in our business. Once again last year, as part of our effort to continuously get better, we reached out to stockholders representing approximately 75% of our outstanding shares and held direct conversations with every stockholder who responded to our engagement request, with the Chairman of our Compensation Committee leading the discussions regarding, among other things, compensation practices, corporate governance and Board composition.
Among the items we improved upon in 2018 was our Corporate Social Responsibility disclosures, which better demonstrate our commitment to drive meaningful progress toward a cleaner, safer and sustainable environment. In addition, we continued our commitment to Board refreshment with the recent appointment of Nicole Ringenberg to our Board. Nicoles appointment aligns well with our governance strategy, and, after a 32-year career with Monsanto Company, she brings unique and strategic insights related to sustainable agricultural solutions, global operations with an emphasis on Asia, corporate finance expertise, and advancing diversity across our workforce.
We also continued to execute on our world of growth strategy in 2018, with the completion of four bolt-on acquisitions and the commissioning of seven new and expanded plants, all of which increase our production capacity for premium, sustainable ingredients. In addition, Diamond Green Diesel (DGD), our joint venture with Valero Energy Corporation that converts sustainable low carbon feedstocks produced by the Darling system (such as animal fats, recycled greases and used cooking oil), inedible corn oil, or other feedstocks that become economically and commercially viable into renewable diesel, completed the expansion of its production facility to increase annual production capacity from 160 million gallons to 275 million gallons of renewable diesel and to expand its outbound logistics to better service the many developing low carbon fuel markets around North America and worldwide. Furthermore, we approved DGD moving forward with an additional expansion project expected to be completed in the fourth quarter of 2021, which will grow the facilitys annual production capacity by an additional 400 million gallons of renewable diesel and provide the capability to produce and sell renewable naphtha. Renewable diesel is a biomass-based fuel that is interchangeable with petroleum-based diesel fuel but has a carbon lifecycle low enough to meet the most stringent low-carbon fuel standards.
Once again, on behalf of the entire Board, wed like to express our appreciation for your continued support of Darling Ingredients.
Randall C. Stuewe | Charles Macaluso | |
Chairman and CEO | Lead Director |
251 OConnor Ridge Boulevard, Suite 300
Irving, Texas 75038
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 2019
To the Stockholders of Darling Ingredients Inc.:
An Annual Meeting of Stockholders of Darling Ingredients Inc. (the Company) will be held on Tuesday, May 7, 2019, at 10:00 a.m., local time, at the Four Seasons Resort and Club, 4150 N. MacArthur Blvd., Irving, Texas 75038, for the following purposes (which are more fully described in the accompanying Proxy Statement):
1. | To elect as directors of the Company the eleven nominees named in the accompanying proxy statement to serve until the next annual meeting of stockholders (Proposal 1); |
2. | To ratify the selection of KPMG LLP, independent registered public accounting firm, as the Companys independent registered public accountant for the fiscal year ending December 28, 2019 (Proposal 2); |
3. | To vote to approve, on an advisory basis, executive compensation (Proposal 3); and |
4. | To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof in accordance with the provisions of the Companys bylaws. |
The Board of Directors recommends that you vote to approve Proposals 1, 2 and 3.
The Board has fixed the close of business on March 13, 2019, as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and any adjournment or postponement thereof.
This year we will again seek to conserve natural resources and reduce annual meeting costs by electronically disseminating annual meeting materials as permitted under rules of the Securities and Exchange Commission. Many stockholders will receive a Notice of Internet Availability of Proxy Materials containing instructions on how to access annual meeting materials via the Internet. Stockholders can also request mailed paper copies if preferred.
Your vote is important. You are cordially invited to attend the Annual Meeting. However, whether or not you expect to attend the Annual Meeting, please vote your proxy promptly so your shares are represented. You can vote by Internet, by telephone or by signing, dating and mailing the enclosed proxy.
A copy of our Annual Report for the year ended December 29, 2018 is enclosed or otherwise made available for your convenience.
By Order of the Board,
John F. Sterling
Secretary
Irving, Texas
March 27, 2019
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This summary highlights selected information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider in deciding how to vote. You should read the Proxy Statement carefully before voting. This Proxy Statement and the enclosed proxy is first being sent or made available to stockholders on or about March 27, 2019.
INTERNET | TELEPHONE | IN PERSON | ||||||||
Visit the applicable voting website: www.proxyvote.com |
Within the United States, U.S. Territories and Canada, call toll-free: 1-800-690-6903 |
If you received a proxy card, complete, sign and mail your proxy card in the self-addressed envelope provided. |
For instructions on attending the 2019 Annual Meeting in person, please see the Question and Answer section beginning on page 65 |
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HOW YOU CAN ACCESS THE PROXY MATERIALS ONLINE
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 7, 2019. The Proxy Statement and the 2018 Annual Report to security holders are available at www.proxydocs.com/DAR.
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MEETING AGENDA AND VOTING RECOMMENDATIONS
PROPOSAL |
BOARD RECOMMENDATION
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PAGE | ||||
1. | The election of the eleven nominees identified in this Proxy Statement as directors, each for a term of one year (Proposal 1)
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FOR | 13 | |||
2. | The ratification of the selection of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 28, 2019 (Proposal 2)
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FOR | 63 | |||
3.
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An advisory vote to approve executive compensation (Proposal 3)
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FOR | 64 |
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2019 Proxy Statement 1 |
PROXY SUMMARY
BOARD HIGHLIGHTS
During fiscal 2018, the Board continued its commitment to Board refreshment with the appointment in November 2018 of Nicole M. Ringenberg to the Board and as a member of the audit committee (for which she was designated as an audit committee financial expert in accordance with the requirements of the NYSE and the SEC). With her many years of senior management experience at a Fortune 200 company, Ms. Ringenberg possesses skills and experience that complement and enhance those of our other Board members. Following Ms. Ringenbergs appointment, sixty-four percent (64%) of our current directors have served on the Board for less than five years. All of our current directors have been nominated by the Board for reelection at the Annual Meeting. We believe that our director nominees exhibit an effective mix of skills, experience and fresh perspective. For more information on all of the director nominees, see page 13 of this Proxy Statement.
COMPANY HIGHLIGHTS
Our company is a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients, creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, technical, fuel, bioenergy, and fertilizer industries. Our long-term strategy is to be recognized as the global leader in the production, development and value-adding of sustainable animal and nutrient recovered ingredients.
2018 PERFORMANCE HIGHLIGHTS
Fiscal 2018 presented a challenging operating environment, as our business continued to experience the impacts of a continued multi-year deflationary cycle within the agriculture sector and continued pricing pressure from increased global supplies of grains, proteins and oilseeds. Despite these challenging operating conditions, we continued to successfully execute on our strategy to de-lever and to achieve operational and financial improvements intended to stabilize and grow profitability in businesses and geographic areas where sustainable and predictable margins can be achieved, as exemplified by the following:
Key Operating Accomplishments
∎ | Invested $108 million in growth acquisitions with no net borrowings, resulting in a reduction in the companys total debt to EBITDA ratio to 3.13 from 3.47 in 2017. |
∎ | DGD finished the year debt free, while at the same time expanding production capacity by 70%. |
∎ | Improved working capital (inventory, receivables, prepaids, accounts payable and accrued expenses) by $10.5 million year-over-year. |
∎ | Diminished the impact of declining finished product prices on margins by appropriately adjusting raw material pricing globally. |
∎ | Increased our total system raw material volumes by 3.3% year-over-year, thereby increasing the amount of our finished product for sale. |
Growth Achievements
∎ | Completed the expansion of Diamond Green Diesels (DGDs) production facility to increase annual production capacity from 160 million gallons to 275 million gallons of renewable diesel and to expand outbound logistics to better service the many developing low carbon fuel markets around North America and worldwide. DGD is our joint venture with Valero Energy Corporation, that converts animal fats, recycled greases, used cooking oil, inedible corn oil, soybean oil, or other feedstocks that become economically and commercially viable into renewable diesel, a biomass-based fuel that is interchangeable with petroleum-based diesel fuel but has a carbon lifecycle low enough to meet the most stringent low-carbon fuel standards. |
∎ | Approved the DGD joint venture moving forward with an additional expansion project expected to be completed in the fourth quarter of 2021, which will grow the facilitys annual production capacity by an additional 400 million gallons from the current capacity of 275 million gallons of renewable diesel to 675 million gallons of renewable diesel, provide the capability to separate naphtha, a byproduct of the production process, for sale into low carbon fuel markets and expand inbound and outbound logistics to better service the many developing low carbon fuel markets around North America and worldwide. |
2 2019 Proxy Statement |
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PROXY SUMMARY
∎ | Implemented a growth strategy for our collagen peptide business, through approval of expansion projects in Belgium (Ghent), Brazil (Amparo and Epitacio) and France (Angoulême), thereby enabling us to better serve the fast-growing markets for this specialty protein ingredient. |
∎ | Completed bolt-on acquisitions in the United States of a rendering and used cooking oil collection business, thereby helping us to better serve our customers and the growing feedstock demand from DGD, and a wet pet food ingredient business, thereby further expanding our premium protein business for the growing pet food industry. |
∎ | Completed the acquisition of a food grade animal fat processing business in Poland, thereby enlarging our production portfolio with high-end food grade fats and strengthening our current position in Poland, an important growth area. |
∎ | Expanded our organic fertilizer business through upgrades to our existing facilities in the United States and the acquisition of a new organic fertilizer production facility in California to meet the needs of organic growers operating in California and the entire western region of the United States. |
∎ | Completed construction of a new rendering plant in Grapeland, Texas, a new digester facility in Denderleeuw, Belgium, and a new blood processing facility in Mering, Germany, as well as a major expansion project at our rendering facility in Los Angeles, California. |
∎ | Completed a major expansion project at our existing facility in Wahoo, Nebraska and continued construction of a new rendering plant next to our existing facility in Wahoo, Nebraska. |
∎ | Completed construction and startup of our first-full scale black soldier fly protein conversion facility in EnviroFlight, LLC, our joint venture with Intrexon Corporation. |
Realigned Capital Structure for Operating Conditions and Future Growth
∎ | Successfully refinanced the companys 4.75% senior Euro-notes due 2022 through the issuance of new 3.625% senior Euro-notes due 2026, thereby reducing interest costs and providing more flexibility going forward. |
EXECUTIVE COMPENSATION HIGHLIGHTS
Pay for Performance. A large portion of our executives total direct compensation is at-risk through long-term equity awards and annual cash incentive awards. These awards are linked to actual performance and include a significant portion of equity. Our compensation committee has designed our executive compensation program to deliver pay in alignment with corporate, business unit and individual performance primarily based on the following three factors, which in turn are expected to align executive pay with returns to stockholders over time:
∎ | Expansion of our company, both organically and through acquisitions, as well as through investments, such as DGD, within the context of the business cycle, as our scale creates the platform for future growth and influences the stability of our companys earnings; |
∎ | Our effectiveness in deploying capital when compared to our Performance Peer Group (as defined on page 33 of this Proxy Statement); and |
∎ | The total shareholder return of our company as compared to our Performance Peer Group. |
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2019 Proxy Statement 3 |
PROXY SUMMARY
As the following chart shows, by designing our executive compensation program based on these factors, the realizable pay levels provided by our executive compensation program to our CEO are aligned to our stock price performance over the long-term:
INDEX YEAR | ||||||||||||||||||||||||
2013 |
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2013 |
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2014 |
* |
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2015 |
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2016 |
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2017 |
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2018 |
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CEO Pay Measure: |
||||||||||||||||||||||||
Realizable Pay 1-Year |
$ |
8,463 |
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$ |
3,609 |
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$ |
7,148 |
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$ |
8,183 |
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$ |
4,292 |
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% Change |
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-57 |
% |
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98 |
% |
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14 |
% |
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-48 |
% | ||||||||||||
Realizable Pay 1-Year (excl. Special) |
$ |
6,647 |
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$ |
3,609 |
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$ |
7,148 |
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$ |
8,183 |
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$ |
4,292 |
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% Change |
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-46 |
% |
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98 |
% |
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14 |
% |
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-48 |
% | ||||||||||||
TSR Index Measure: |
||||||||||||||||||||||||
1-Year TSR Indexed to 2013=100 |
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100.0 |
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87.4 |
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50.6 |
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62.2 |
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87.3 |
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91.7 |
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1-Year TSR % |
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-12.6 |
% |
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-42.1 |
% |
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22.7 |
% |
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40.4 |
% |
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5.0 |
% |
NOTES:
Total Shareholder Return (TSR) performance is indexed to 2013, where 2013 equals 100 on the Index.
Realizable pay reflects the actual cash and intrinsic value of equity incentives awarded in a given year, using the stock price at the end of the year. For example, for 2018, realizable pay equals base salary plus annual incentives earned for 2018 performance plus options granted on January 29 , 2018 and shares to be issued in the first quarter of 2021, assuming target PSU performance for 2018 to 2020 for PSUs awarded on January 29, 2018, plus the reported Summary Compensation Table values for Change in Pension Value and Non-Qualified Deferred Compensation Earnings and All Other Compensation.
* | In 2014, the figures above also show the potential realizable value based on the December 31, 2014 stock price of a special award of performance share units awarded at the closing of the acquisition of VION Ingredients. One-third of the award relating to 2014 performance was earned and vested; the remaining two-thirds of the award relating to 2015 and 2016 annual performance results were not earned and were forfeited. The committee does not consider special award programs to be part of the ongoing compensation program. |
Our compensation committee believes that our executive compensation program effectively aligns pay with performance based on the key factors discussed above, thereby aligning executive pay with returns to stockholders and creating a growth-oriented, long-term value proposition for our stockholders. For more information, see Compensation Discussion and Analysis Executive Overview Pay for Performance included in the Proxy Statement.
Say On Pay Advisory Vote Results and Stockholder Engagement Process. We have conducted a stockholder engagement process for the past several years and routinely interact with stockholders throughout the year about executive compensation and other matters. Stockholders are also provided an annual opportunity to provide feedback through an advisory say on pay vote on executive compensation. For 2016, our executive compensation program was significantly redesigned in response to stockholder feedback and say on pay results. At our 2017 and 2018 Annual Meetings, approximately 98.6% and
4 2019 Proxy Statement |
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PROXY SUMMARY
97.1%, respectively, of the votes cast were in favor of the advisory vote to approve executive compensation. Additionally, in 2018, members of our compensation committee and management reached out to stockholders representing approximately 75% of our outstanding shares and held direct conversations with every stockholder who responded to our engagement request. Overall, we spoke with stockholders representing approximately 38.5% of our outstanding shares, with the chairman of our compensation committee leading the discussions. Stockholder engagement and the outcome of the say on pay vote results will continue to inform future compensation decisions.
Compensation Program Enhancements. Over the last several years, the compensation committee and our Board significantly changed our compensation program after reviewing trends in executive compensation and pay-related governance policies and in response to say on pay results and stockholder feedback. We believe that these changes, which included the changes shown in the chart below, significantly enhanced our compensation program by sharpening alignment between executive compensation and the interests of our stockholders.
Adopted separate metrics for our annual incentive bonus and LTI programs Re-evaluated our peer group to better align with our company Adopted double-trigger vesting for change in control in our long-term equity awards Shifted from a backward-looking/ trailing perfromance measurement to a forward-looking performance measurement for our LTI plan Adjusted LTI value mix to 60% PSUs and 40% stock options Reduced the maximum annual incentive payout from 300% to 200% of target Added a relative total shareholder return metric in the LTI program
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2019 Proxy Statement 5 |
PROXY SUMMARY
GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY HIGHLIGHTS
Our company has a history of strong corporate governance. By evolving our governance approach in light of best practices, our Board drives sustained stockholder value and best serves the interests of our stockholders.
WHAT WE DO
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WHAT WE DONT DO
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✓ | Majority voting for directors |
x | No supermajority voting requirements in bylaws or charter | |||
✓ | 100% independent Board committees |
x | No poison pill | |||
✓ | 100% directors owning stock |
x | No supplemental executive retirement plans | |||
✓ | Annual election of directors |
x | No change in control excise tax gross-ups | |||
✓ | Compensation recoupment (clawback) policy |
x | No discounted stock options, reload stock options or stock option re-pricing without stockholder approval | |||
✓ | Right to call special meeting threshold set at 10% |
x | No automatic single-trigger vesting of equity compensation upon a change in control | |||
✓ |
Provide a majority of compensation in performance-based compensation |
x | No short-term trading, short sales, transactions involving derivatives, hedging or pledging transactions for executive officers | |||
✓ | Pay for performance based on measurable goals for both annual and long-term awards |
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✓ | Balanced mix of awards tied to annual and long-term performance |
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✓ | Stock ownership and retention policy |
Corporate Social Responsibility/Sustainability
In addition, for us, respect for the environment and a commitment to the development of sustainable natural ingredients are the foundation on which our company is built. In this regard, we continuously look for new and better ways to optimize nutrition and healthfor both people and animalsand to minimize our environmental impact, all while creating value for our stockholders. Our commitment to social responsibility goes beyond compliance. We operate in ways that, wherever possible, leave a positive impact on the environment, food and feed safety and peoples communities and work places. In this regard, during fiscal 2018, we updated the Social Responsibility/Sustainability portion of our corporate website to better reflect and report on our corporate social responsibility and sustainability practices. In addition, during fiscal 2018 Diamond Green Diesel, our joint venture with Valero Energy Corporation, (i) completed the expansion of its production facility to increase the annual production capacity at the facility from 160 million gallons to 275 million gallons of renewable diesel, a biomass-based fuel produced from animal fats, recycled greases, used cooking oil, inedible corn oil, soybean oil, or other feedstocks that become economically and commercially viable that is interchangeable with petroleum-based diesel fuel but has a carbon lifecycle low enough to meet the most stringent low-carbon fuel standards, and (ii) approved and began work on an additional project to further expand the annual production capacity to 675 million gallons. For more information, please see our Corporate Social Responsibility webpage (https://commitment.darlingii.com/).
6 2019 Proxy Statement |
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251 OConnor Ridge Boulevard, Suite 300
Irving, Texas 75038
PROXY STATEMENT
FOR AN ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 2019
This Proxy Statement is provided to the stockholders of Darling Ingredients Inc. (Darling, we or our company) in connection with the solicitation of proxies by our Board of Directors (the Board) to be voted at an Annual Meeting of Stockholders to be held at the Four Seasons Resort and Club, 4150 N. MacArthur Blvd., Irving, Texas 75038, at 10:00 a.m., local time, on Tuesday, May 7, 2019, and at any adjournment or postponement thereof (the Annual Meeting).
This Proxy Statement and the enclosed proxy is first being sent or made available to stockholders on or about March 27, 2019. This Proxy Statement provides information that should be helpful to you in deciding how to vote on the matters to be voted on at the Annual Meeting.
We are asking you to elect the eleven nominees identified in this Proxy Statement as directors of Darling until the next annual meeting of stockholders, to ratify our selection of KPMG LLP as our registered public accounting firm for our fiscal year ending December 28, 2019, and to vote to approve, on an advisory basis, our executive compensation.
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2019 Proxy Statement 7 |
CORPORATE GOVERNANCE
Board Leadership Structure
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2019 Proxy Statement 9 |
CORPORATE GOVERNANCE
Code of Business Conduct
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2019 Proxy Statement 11 |
CORPORATE GOVERNANCE
Stock Ownership Guidelines
12 2019 Proxy Statement |
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ELECTION OF DIRECTORS |
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Our current Board consists of eleven members. The nominating and corporate governance committee recommended and the Board approved the nomination of the following eleven nominees for election as directors at the Annual Meeting: Charles Adair, D. Eugene Ewing, Linda Goodspeed, Dirk Kloosterboer, Mary R. Korby, Cynthia Pharr Lee, Charles Macaluso, Gary W. Mize, Michael E. Rescoe, Nicole M. Ringenberg and Randall C. Stuewe. Each of the director nominees currently serves on the Board and was elected by the stockholders at our 2018 Annual Meeting of Stockholders, except for Ms. Ringenberg who was added by the directors to the Board on November 5, 2018. Ms. Ringenberg was recommended by a third-party search firm that we had engaged to identify suitable director candidates.
At the Annual Meeting, the nominees for director are to be elected to hold office until the next annual meeting of stockholders and until their successors have been elected and qualified. Each of the nominees has consented to serve as a director if elected. If any of the nominees become unable or unwilling to stand for election as a director (an event not now anticipated by the Board), proxies will be voted for a substitute as designated by the Board. The following sets forth information regarding the age, gender and tenure of the Board nominees as a whole.
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2019 Proxy Statement 13 |
PROPOSAL 1 ELECTION OF DIRECTORS
Nominees
Set forth below is the age, principal occupation and certain other information for each of the nominees for election as a director.
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PROPOSAL 1 ELECTION OF DIRECTORS
Nominees
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2019 Proxy Statement 15 |
PROPOSAL 1 ELECTION OF DIRECTORS
Nominees
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PROPOSAL 1 ELECTION OF DIRECTORS
Nominees
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2019 Proxy Statement 17 |
PROPOSAL 1 ELECTION OF DIRECTORS
Nominees
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PROPOSAL 1 ELECTION OF DIRECTORS
Nominees
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2019 Proxy Statement 19 |
PROPOSAL 1 ELECTION OF DIRECTORS
Nominees
20 2019 Proxy Statement |
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Executive Officers and Directors
Our executive officers and directors, their ages and their positions as of March 13, 2019, are as follows. Our executive officers serve at the discretion of the Board.
NAME |
AGE |
POSITION | ||
Randall C. Stuewe |
56 |
Chairman of the Board and Chief Executive Officer | ||
Brad Phillips |
59 |
Executive Vice President Chief Financial Officer | ||
John O. Muse |
70 |
Executive Vice President Chief Administrative Officer | ||
John Bullock |
62 |
Executive Vice President Specialty Ingredients and Chief Strategy Officer | ||
Rick A. Elrod |
58 |
Executive Vice President Darling U.S. Rendering Operations | ||
Jan van der Velden |
55 |
Executive Vice President International Rendering and Specialties | ||
Jos Vervoort |
60 |
Executive Vice President Rousselot | ||
John F. Sterling |
55 |
Executive Vice President General Counsel and Secretary | ||
Charles Adair (2) |
67 |
Director | ||
D. Eugene Ewing (1) (3) (4) |
70 |
Director | ||
Linda Goodspeed (2) |
57 |
Director | ||
Dirk Kloosterboer |
64 |
Director | ||
Mary R. Korby (2) (3) |
74 |
Director | ||
Cynthia Pharr Lee (1) (2) |
70 |
Director | ||
Charles Macaluso (3) |
75 |
Director | ||
Gary W. Mize (1) (2) |
68 |
Director | ||
Michael E. Rescoe (1) (4) |
66 |
Director | ||
Nicole M. Ringenberg (1) (4) |
57 |
Director |
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2019 Proxy Statement 21 |
OUR MANAGEMENT
Executive Officers and Directors
For a description of the business experience of Messrs. Stuewe, Adair, Ewing, Kloosterboer, Macaluso, Mize and Rescoe and Mses. Goodspeed, Korby, Pharr Lee and Ringenberg, see Proposal 1 Election of Directors.
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Compensation Discussion and Analysis
The following discussion and analysis contains statements regarding future individual and company performance targets and goals. These targets and goals are disclosed in the limited context of our companys compensation programs and are not statements of managements expectations or estimates of results or other guidance.
Our Compensation Discussion and Analysis describes the key features of our executive compensation program and the compensation committees (the committees) approach in deciding fiscal 2018 compensation for our named executive officers (also referred to as our NEOs):
NAME
|
TITLE
| |
Randall C. Stuewe |
Chairman and Chief Executive Officer | |
Brad Phillips |
Executive Vice President Chief Financial Officer | |
Jan van der Velden |
Executive Vice President International Rendering and Specialties | |
Rick A. Elrod |
Executive Vice President Darling U.S. Rendering Operations | |
Jos Vervoort |
Executive Vice President Rousselot | |
All of our NEOs are based in the United States, except for Messrs. van der Velden and Vervoort, who are based in Europe at our corporate offices in Son, the Netherlands. Messrs. van der Veldens and Vervoorts compensation is denominated in euros and translated into U.S. dollars herein at the average exchange rate during 2018 of 1.181820.
COMPANY PERFORMANCE HIGHLIGHTS
Our Business
Our company is a global developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients, creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, industrial, fuel, bioenergy, and fertilizer industries. With operations on five continents, the company collects and transforms all aspects of animal by-product streams into usable and specialty ingredients, such as collagen, edible fats, feed-grade fats, animal proteins and meals, plasma, pet food ingredients, organic fertilizers, yellow grease, fuel feedstocks, green energy, natural casings and hides. The company also recovers and converts recycled oils (used cooking oil and animal fats) into valuable feed and fuel ingredients, and collects and processes residual bakery products into feed ingredients. In addition, the company provides environmental services, such as grease trap collection and disposal services to food service establishments. Our operations are organized into three segments: Feed Ingredients, Fuel Ingredients and Food Ingredients. Our Fuel Ingredients segment includes our share of the results of our equity investment in Diamond Green Diesel Holdings LLC (DGD), a joint venture with Valero Energy Corporation, to convert animal fats, recycled greases, used cooking oil, inedible corn oil, soybean oil, or other feedstocks that become economically and commercially viable into renewable diesel, a biomass-based fuel that is interchangeable with petroleum-based diesel fuel but has a carbon lifecycle low enough to meet the most stringent low-carbon fuel standards.
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2019 Proxy Statement 23 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Pay for Performance
The committee has designed our executive compensation program to deliver pay in alignment with corporate, business unit and individual performance primarily based on the following three factors, which in turn are expected to align executive pay with returns to stockholders over time:
∎ | Expansion of our company, both organically and through acquisitions, as well as through investments, such as DGD, within the context of the business cycle, as our scale creates the platform for future growth and influences the stability of our companys earnings; |
24 2019 Proxy Statement |
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
∎ | Our effectiveness in deploying capital when compared to our Performance Peer Group (as defined on page 33 below); and |
∎ | The total shareholder return of our company as compared to our Performance Peer Group. |
Pricing of our finished products is heavily influenced by global grain and oilseed supplies, meat production trends, crude oil pricing and foreign currency values. We have diversified our business significantly during the last few years and remain a growth-oriented company focused on creating long-term value for our stockholders. However, deflationary cycles within the global commodity markets can have a significant impact on the price of our common stock, as it did in 2015. As such, we believe that the current best indicator of our long-term performance versus our Performance Peer Group is a comparison of how competitively we deploy capital versus our Performance Peer Group as measured by a return on capital standard. The other primary factor in aligning our pay and performance is whether we have remained a growth-oriented company as measured by EBITDA, which is also the numerator for return on capital.
Performance against pre-established EBITDA goals was a key element of our 2018 annual incentive plan. In the last several years, we have used key acquisitions and a joint venture project to transform our platform and build future value through segment and product diversification and global expansion. EBITDA growth exceeding that of the median of our Performance Peer Group will result in greater annual incentive plan payouts, while shortfalls in EBITDA will result in below target payouts. As the chart below indicates, our CEOs total realizable compensation is well-aligned with our EBITDA performance.
(1) | For comparison purposes, 2016 Proforma Adjusted Combined EBITDA (non-GAAP) is also shown using 2014 exchange rates for the comparative period to enhance the visibility of the underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations. Our company had no material foreign operations prior to fiscal 2014, which is the year that our company acquired our Darling Ingredients International businesses from VION Holding, N.V. |
(2) | For comparison purposes, 2017 Proforma Adjusted Combined EBITDA (non-GAAP) is also shown using 2014 exchange rates, which results in an increase of $50.8 million in EBITDA, and including $92.9 million in EBITDA attributable to DGD and our North American biofuel operations that relates to 2017 performance. The $92.9 million in EBITDA relates to U.S. blenders tax credits for which DGD and our company are eligible, which for fiscal 2017 were not retroactively approved by Congress until February 2018. Although this $92.9 million in EBITDA is not included in the companys or DGDs 2017 financial statements, since it directly related to 2017 performance and was included in the companys internal 2017 operating plan, in accordance with the annual incentive plan it was included for purposes of determining the achievement level of adjusted EBITDA used to calculate the payouts under the 2017 annual incentive plan. |
(3) | For comparison purposes, 2018 Proforma Adjusted Combined EBITDA (non-GAAP) is also shown using 2014 exchange rates, which results in an increase of $33.3 million in EBITDA, and excludes the $92.9 million in EBITDA related to U.S. blenders tax credits attributable to DGD and our North American biofuel operations that was received in 2018 but relates to 2017 performance, as further described above. As of the date of this Proxy Statement, Congress had not yet acted to reinstate the blenders tax credit for calendar year 2018. Should Congress retroactively reinstate the blenders tax credit for 2018 at its historic level of $1.00 per gallon, this would result in an additional estimated $87.4 million in EBITDA related to 2018 performance ($8.7 million attributable to Darlings North American biofuel operations and $78.7 million attributable to Darlings share of DGD), which would result in a supplemental payment to the participants under the 2018 annual incentive program. For more information, see Components of Fiscal 2018 Executive Compensation Program Annual Incentive Compensation 2018 Performance Results and Award Payouts contained later in this Compensation Discussion and Analysis section of the Proxy Statement beginning on page 39. |
|
2019 Proxy Statement 25 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
YEAR
|
2014*
|
2015
|
2016
|
2017
|
2018
|
|||||||||||||||
CEO Pay Measure:
|
||||||||||||||||||||
Realizable Pay 1-Year
|
$
|
8,463
|
|
$
|
3,609
|
|
$
|
7,148
|
|
$
|
8,183
|
|
|
$4,292
|
| |||||
% Change
|
|
-57
|
%
|
|
98
|
%
|
|
14
|
%
|
|
-48
|
%
| ||||||||
Realizable Pay 1-Year (excl. Special)
|
$
|
6,647
|
|
$
|
3,609
|
|
$
|
7,148
|
|
$
|
8,183
|
|
|
$4,292
|
| |||||
% Change
|
|
-46
|
%
|
|
98
|
%
|
|
14
|
%
|
|
-48
|
%
| ||||||||
Absolute Performance Measure:
|
||||||||||||||||||||
Reported Proforma Adjusted Combined EBITDA (non-GAAP)
|
$
|
594.2
|
|
$
|
558.3
|
|
$
|
534.2
|
|
$
|
480.8
|
|
|
$596.8
|
|
NOTES:
EBITDA includes our DGD joint venture, but excludes transaction-related costs and foreign currency exchange impact on EBITDA. See Appendix A for a reconciliation to GAAP.
Realizable pay reflects the actual cash and intrinsic value of equity incentives awarded in a given year, using the stock price at the end of the year. For example, for 2018, realizable pay equals base salary plus annual incentives earned for 2018 performance plus options granted on January 29, 2018 and shares to be issued in the first quarter of 2021, assuming target PSU performance for 2018 to 2020 for PSUs awarded on January 29, 2018, plus the reported Summary Compensation Table values for Change in Pension Value and Non-Qualified Deferred Compensation Earnings and All Other Compensation.
* | In 2014, the figures above also show the potential realizable value based on the December 31, 2014 stock price of a special award of performance share units awarded at the closing of the acquisition of VION Ingredients. One-third of the award relating to 2014 performance was earned and vested; the remaining two-thirds of the award relating to 2015 and 2016 annual performance results were not earned and were forfeited. The committee does not consider special award programs to be part of the ongoing compensation program. |
We have used a return on capital standard as the performance measure under our long-term incentive (LTI) program since 2010. As in 2017, for 2018, we used return on capital employed (as defined, ROCE) as the performance metric for our LTI program, together with a relative total shareholder return (TSR) modifier. Our compensation committee believes, given the substantial growth of our company over the last ten years, that ROCE most appropriately measures our ongoing operating performance against peers because it excludes goodwill from the calculation and thereby focuses on the value of a particular asset and the working capital needed to operate that asset. Our return on capital targets are set to reflect the median historical performance levels for our Performance Peer Group. The following chart shows that by aligning our executive compensation with EBITDA and capital deployment performance, with a TSR modifier, the realizable pay levels provided by our executive compensation program to our CEO are aligned to our stock price performance over the long-term:
26 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
INDEX YEAR
|
||||||||||||||||||||||||
2013 |
|
2013 |
|
|
2014 |
* |
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
| ||||||
CEO Pay Measure: |
||||||||||||||||||||||||
Realizable Pay 1-Year |
$ |
8,463 |
|
$ |
3,609 |
|
$ |
7,148 |
|
$ |
8,183 |
|
$ |
4,292 |
| |||||||||
% Change |
|
-57 |
% |
|
98 |
% |
|
14 |
% |
|
-48 |
% | ||||||||||||
Realizable Pay 1-Year (excl. Special) |
$ |
6,647 |
|
$ |
3,609 |
|
$ |
7,148 |
|
$ |
8,183 |
|
$ |
4,292 |
| |||||||||
% Change |
|
-46 |
% |
|
98 |
% |
|
14 |
% |
|
-48 |
% | ||||||||||||
TSR Index Measure: |
||||||||||||||||||||||||
1-Year TSR Indexed to 2013=100 |
|
100.0 |
|
|
87.4 |
|
|
50.6 |
|
|
62.2 |
|
|
87.3 |
|
|
91.7 |
| ||||||
1-Year TSR % |
|
-12.6 |
% |
|
-42.1 |
% |
|
22.7 |
% |
|
40.4 |
% |
|
5.0 |
% |
NOTES:
Total Shareholder Return (TSR) performance is indexed to 2013, where 2013 equals 100 on the Index.
Realizable pay reflects the actual cash and intrinsic value of equity incentives awarded in a given year, using the stock price at the end of the year. For example, for 2018, realizable pay equals base salary plus annual incentives earned for 2018 performance plus options granted on January 29, 2018 and shares to be issued in the first quarter of 2021, assuming target PSU performance for 2018 to 2020 for PSUs awarded on January 29, 2018, plus the reported Summary Compensation Table values for Change in Pension Value and Non-Qualified Deferred Compensation Earnings and All Other Compensation.
* | In 2014, the figures above also show the potential realizable value based on the December 31, 2014 stock price of a special award of performance share units awarded at the closing of the acquisition of VION Ingredients. One-third of the award relating to 2014 performance was earned and vested; the remaining two-thirds of the award relating to 2015 and 2016 annual performance results were not earned and were forfeited. The committee does not consider special award programs to be part of the ongoing compensation program. |
The committee believes that our executive compensation program effectively aligns pay with performance based on the key factors discussed above, thereby aligning executive pay with returns to stockholders and creating a growth-oriented, long-term value proposition for our stockholders.
SAY ON PAY ADVISORY VOTE RESULTS AND STOCKHOLDER ENGAGEMENT PROCESS
We have conducted a stockholder engagement process for the past several years and routinely interact with stockholders throughout the year about executive compensation and other matters. Stockholders are also provided an annual opportunity to provide feedback through an advisory say on pay vote on executive compensation. For 2016, our executive compensation program was significantly redesigned in response to stockholder feedback and say on pay results. At our 2017 and 2018 Annual Meetings, approximately 98.6% and 97.1%, respectively, of the votes cast were in favor of the advisory vote to approve executive compensation. Additionally, in 2018, members of the committee and management reached out to stockholders representing approximately 75% of our outstanding shares and held direct conversations with every stockholder who responded to our engagement request. Overall, we spoke with stockholders representing approximately 38.5% of our outstanding shares, with the chairman of our compensation committee leading the discussions. In the past four years, as part of our ongoing stockholder engagement process, the chairman of our compensation committee, together with members of senior management, have spoken with stockholders representing a substantial portion of our outstanding shares, as well as two different proxy advisory firms. These discussions, together with the 2017 and 2018 say on pay results, indicated strong support for our significantly redesigned executive compensation program and influenced the committees decision to maintain a consistent overall approach for 2018 and 2019. Stockholder engagement and the outcome of the say on pay vote results will continue to inform future compensation decisions.
|
2019 Proxy Statement 27 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
BEST PRACTICES AND GOOD GOVERNANCE
Compensation Program Enhancements
Over the last several years, the committee and our Board significantly changed our compensation program after reviewing trends in executive compensation and pay-related governance policies and in response to say on pay results and stockholder feedback. We believe that these changes, which included the changes shown in the chart below, significantly enhanced our compensation program by sharpening alignment between executive compensation and the interests of our stockholders.
28 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Ongoing Best Practices
The committee believes that our executive compensation program, as adjusted for these actions, continues to follow best practices aligned to long-term stockholder interests, as summarized below:
✓
|
WHAT WE DO
|
|||
✓ |
Significant portion of compensation is provided in the form of performance-based incentives
|
Consistent with goal of creating a performance-oriented environment. For CEO, 80% of annual target total direct compensation is performance-based. | ||
✓ |
Alignment of pay and performance based on measurable goals for both annual and long-term awards |
Annual incentive awards are based on internal EBITDA goals and the committees review of strategic, operational and personal goals. PSUs are earned based on three-year average ROCE goals relative to peer companies, with a relative TSR modifier.
| ||
✓ |
Balanced mix of awards tied to annual and long-term performance |
For CEO, target annual incentive award opportunity and target long-term incentive award opportunity represent 20% and 60% of annual target total direct compensation, respectively. 100% of annual and long-term awards for NEOs are performance-based.
| ||
✓ |
Targeted pay at 50th percentile of peers |
Committee targets total direct compensation at the 50th percentile of peers for commensurate performance.
| ||
✓ |
Benchmark peers of similar revenues and business complexities |
Committee benchmarks our executive compensation program and reviews the composition of our peer groups annually with the assistance of the independent compensation consultant.
| ||
✓ |
Maximum payout caps for annual cash incentive compensation and performance stock unit awards
|
Committee establishes a maximum limit on the number of PSUs and the amount of annual cash incentive that can be earned. | ||
✓ |
Include double-trigger change in control provisions in equity awards
|
Award agreements provide for vesting following a change in control only if there is also an involuntary termination of employment (double-trigger).
| ||
✓ |
Robust stock ownership and retention policy |
CEO must hold at least 5x base salary in company stock; other NEOs must hold at least 2.5x. Executives are also required to hold at least 75% of after-tax shares until the ownership requirement is met.
| ||
✓ |
Compensation recoupment
(clawback)
|
Recovery of annual or long-term incentive compensation based on achievement of financial results that were subsequently restated due to misconduct.
| ||
✓ |
Retention of an independent compensation consultant to advise the committee
|
Compensation consultant (Pearl Meyer) provides no other services to the company.
| ||
X
|
WHAT WE DONT DO
|
|||
x |
No change in control excise tax gross-ups |
Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests.
| ||
x |
No excessive perquisites |
We offer only limited benefits as required to remain competitive and to attract and retain highly talented executives.
| ||
x |
No guaranteed annual salary increases or bonuses |
For NEOs, annual salary increases are based on evaluations of individual performance, market data and economic conditions, while their annual cash incentives are tied to corporate and individual performance.
| ||
x |
No dividends on unearned PSUs |
Dividend equivalents are accrued but not paid on PSUs until the performance conditions are satisfied and the PSUs vest after the performance measurement period.
| ||
x |
No supplemental executive retirement plans |
Consistent with focus on performance-oriented environment; reasonable and competitive retirement programs are offered.
| ||
x |
No discounted stock options, reload stock options or stock option re-pricing without stockholder approval
|
Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests. | ||
x |
No short-term trading, short sales, transactions involving derivatives, hedging or pledging transactions for executive officers
|
Consistent with focus on performance-oriented environment and commitment to best practices aligned to long-term stockholder interests. |
|
2019 Proxy Statement 29 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
EXECUTIVE COMPENSATION HIGHLIGHTS
The committee has designed our executive compensation program to deliver pay in alignment with corporate, business unit and individual performance. A large portion of total direct compensation is at-risk through long-term equity awards and annual cash incentive awards. These awards are linked to actual performance and include a significant portion of equity. See charts on page 35 for more information regarding the target annual compensation mix for our CEO and other NEOs.
Fiscal 2018 Compensation Actions at a Glance
A substantial amount of the NEOs fiscal 2018 compensation was in the form of annual and long-term incentives, providing, as in prior years, a strong incentive to increase stockholder value. 80% of our CEOs and 65% of the other NEOs annual target total direct compensation was performance-based. The following summarizes the key compensation decisions for the NEOs for fiscal 2018:
◾ | Base Salary: The committee approved base salary increases in 2018 for each of our NEOs. Mr. Stuewe received a 9% increase over the prior year, while certain of the other NEOs received larger percentage increases due to promotions and increases in responsibility. |
◾ | Annual Incentive Bonus: In fiscal 2018, the Company achieved global adjusted EBITDA of approximately 94.9% of target, and each of our NEOs achieved a substantial amount of their strategic, operational and personal (SOP) goals. As a result, Mr. Stuewe earned a 2018 annual incentive bonus equal to about 81.2% of his target and the other NEOs earned payouts ranging from about 72.7% to 186.2% of target. |
◾ | Long-Term Incentive (LTI) Awards: As in the prior year, LTI awards had a target grant date value of 60% of the annual target total compensation for our CEO and 44% of the annual target total compensation for each of our other NEOs, and were delivered through a target value mix of performance share units (PSUs) (60%) tied to three-year, forward looking performance and stock options (40%). |
These compensation decisions are discussed in more detail in this Compensation Discussion and Analysis and shown in the Summary Compensation Table and Grants of Plan-Based Awards Table that follow.
Compensation Program Objectives and Philosophy
The committee has designed our executive compensation program to serve several key objectives:
:=n | attract and retain superior employees in key positions, with compensation opportunities that are competitive relative to the compensation paid to similarly-situated executives at companies similar to us by generally setting target levels of annual total direct compensation opportunity for the NEOs at or near the 50th percentile of target total compensation for similarly situated executives at an identified group of peer companies; |
:=n | reward the achievement of specific annual, long-term and strategic goals; and |
:=n | align the interests of our NEOs with those of our stockholders by placing a significant portion of total direct compensation at risk (80% for our CEO), and rewarding performance that exceeds that of our peer companies, through the use of equity-based LTI awards and a share ownership and retention policy, with the ultimate objective of improving stockholder value over time. |
30 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In the chart below, we have summarized how the 2018 executive compensation program supports these executive compensation program objectives.
OBJECTIVE
|
HOW WE MET THIS OBJECTIVE IN 2018
| |
Attract and retain superior employees in key positions, with compensation opportunities that are competitive relative to the compensation offered to similarly situated executives at companies similar to us.
|
∎ Designed the executive compensation program to provide a mix of base salary, target annual cash incentive awards and target LTI award values that is aligned with the programs principles and objectives and is competitive with the target compensation levels offered by our Pay Levels Peer Group. | |
Reward the achievement of specific annual, long-term and strategic goals. |
∎ Provided substantial amount (80% in the case of the CEO and 65% in the case of the other NEOs) of annual target total compensation in performance-based incentive awards tied to the achievement of annual, long-term, and strategic goals or, in the case of stock options, stock price appreciation. | |
∎ Provided sufficiently challenging upside opportunities on annual and long-term incentive compensation for exceeding target goals, balanced with reductions from target opportunities for performance below target goals. | ||
∎ Tied payouts under the annual incentive plan to corporate and/or regional/business line financial objectives, as well as strategic, operational and personal goals, to focus executives on areas over which they have the most direct impact, while continuing to motivate decision-making that is in the best interests of our company as a whole. | ||
∎ Based annual incentive awards primarily on quantifiable performance goals established by the committee at the beginning of the fiscal year, with payouts determined only after the committee reviews and certifies performance results. PSUs granted as part of LTI are tied to three-year, forward looking performance with vesting based on actual performance against goals established at the beginning of the performance period.
| ||
Align the interests of our NEOs with those of our stockholders by rewarding performance that exceeds that of our peer companies, through the use of equity-based LTI awards and a share ownership and retention policy, with the ultimate objective of improving stockholder value over time. |
∎ Tied payout of PSUs granted to our NEOs as part of LTI to three-year, forward-looking performance based on average ROCE with a TSR modifier, relative to our Performance Peer Group, while stock options granted as part of LTI require stock price appreciation to deliver value to the executive. | |
∎ Continued our stock ownership policy with guidelines of 5x annual base salary (for the CEO) and 2.5x annual base salary (for the other NEOs). | ||
∎ Continued our stock retention policy whereby each NEO must retain at least 75% of any shares of our common stock received in connection with incentive awards (after sales for the payment of taxes and shares withheld to cover the exercise price of stock options) until the NEO is in compliance with our stock ownership guidelines.
|
ROLES OF COMPENSATION COMMITTEE, MANAGEMENT AND INDEPENDENT CONSULTANTS
|
2019 Proxy Statement 31 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Use of an Independent Compensation Consultant
The committees charter allows the committee to engage an independent compensation consultant to advise the committee on the design of our executive compensation. As in the prior year, for fiscal 2018, the committee engaged Pearl Meyer, an independent executive compensation consulting firm, to counsel the committee on various factors relating to the development of our 2018 executive compensation program.
Pearl Meyer is engaged directly by, and is fully accountable to, the committee. The committee has determined, after considering independence factors provided by the SEC and the NYSE, that Pearl Meyer does not have any conflicts of interest that would prevent them from being objective.
Use of Peer Companies in Setting Executive Compensation and Measuring Performance
32 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In light of these challenges, the committee uses two peer groups one to assess the companys performance with respect to annual and long-term incentive plans (the Performance Peer Group) and a second to assess executive compensation opportunities (the Pay Levels Peer Group). Notably, at the time that the committee approved the design of the 2018 executive compensation program, 70% of the companies in the Pay Levels Peer Group were also members of the Performance Peer Group. The committee reviews the peer groups annually to determine whether any changes should be made to the members of the peer groups. Members of the Performance Peer Group and Pay Levels Peer Group used for the 2018 executive compensation program are listed below.
|
OVERLAP IN BOTH PEER GROUPS
|
PAY LEVELS PEER GROUP ONLY
| ||
Aceto Corp. Archer-Daniels-Midland Company Bunge Limited Cal-Maine Foods, Inc. Casella Waste Systems Inc. FutureFuel Corp. Innophos Holdings Inc Koninklijke DSM N.V. Pacific Ethanol, Inc. Potash Corp. of Saskatchewan, Inc.* REX American Resources Corporation Sanderson Farms, Inc. SunOpta Inc. Tyson Foods, Inc. Waste Management, Inc.
|
Celanese Corporation Clean Harbors, Inc. Covanta Holding Corporation FMC Corp. Green Plains Inc. Ingredion Incorporated International Flavors & Fragrances Inc. Renewable Energy Group, Inc. Republic Services, Inc. Seaboard Corp. Sensient Technologies Corporation Stepan Company The Andersons, Inc. The Mosaic Company |
Colfax Corporation Graphic Packaging Holding Company Meritor, Inc. PolyOne Corporation Sonoco Products Co. The Valspar Corporation** |
* | Potash Corp. of Saskatchewan, Inc. was subsequently removed from the Performance Peer Group due to its acquisition by Nutrien Ltd. |
** | The Valspar Corporation was subsequently removed from the Pay Levels Peer Group due to its acquisition by The Sherwin-Williams Company. |
|
2019 Proxy Statement 33 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Changes to Peer Groups for Fiscal 2019 and Beyond
During fiscal 2018, the committee undertook its annual review of the peer groups to determine whether any changes should be made to the members of the peer groups for fiscal 2019 and beyond. Among the factors considered by the committee were the loss of certain members of the peer groups and changes to the companys businesses and business mix since the peer groups were originally identified. As a result of this review, the committee determined that the composition of the current peer groups was still generally appropriate; however, the committee did make a few changes to the composition, resulting in the peer groups for fiscal 2019 shown in the table below.
PERFORMANCE PEER GROUP ONLY
|
OVERLAP IN BOTH PEER GROUPS
|
PAY LEVELS PEER GROUP ONLY
| ||
Archer-Daniels-Midland Company Bunge Limited Cal-Maine Foods, Inc. Casella Waste Systems Inc. FutureFuel Corp. Innophos Holdings Inc Koninklijke DSM N.V. Maple Leaf Foods Inc. Pacific Ethanol, Inc. REX American Resources Corporation Sanderson Farms, Inc. Tate & Lyle plc Tyson Foods, Inc. |
Celanese Corporation Clean Harbors, Inc. Covanta Holding Corporation FMC Corp. Green Plains Inc. Ingredion Incorporated International Flavors & Fragrances Inc. Renewable Energy Group, Inc. Seaboard Corp. Sensient Technologies Corporation Stepan Company The Andersons, Inc. The Mosaic Company |
Colfax Corporation Graphic Packaging Holding Company Meritor, Inc. Methanex Corporation PolyOne Corporation Sonoco Products Co. |
34 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Mix of Salary and Incentive Awards (at Target)
Our executive compensation program is designed to deliver pay in alignment with corporate, business unit and individual performance, with a large portion of total direct compensation at-risk through long-term equity awards and annual cash incentive awards. The following charts illustrate the mix of total direct compensation elements for our NEOs at target performance. These charts demonstrate our executive compensation programs focus on variable, performance driven cash and equity-based compensation, a large portion of which is at-risk and delivered as long-term equity awards and annual cash incentive awards.
CHIEF EXECUTIVE OFFICER AND OTHER NEO'S - TARGET ANNUAL COMPENSATION MIX CEO Other NEOs
* | Equity consists of performance-based stock units and stock options. |
|
2019 Proxy Statement 35 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Components of Fiscal 2018 Executive Compensation Program
For fiscal 2018, the compensation for the NEOs included the following components:
Fiscal 2018 Compensation Components at a Glance
COMPENSATION COMPONENT
|
DESCRIPTION | |
Base Salary |
∎ Fixed compensation component. | |
∎ Periodically reviewed by the committee and adjusted based on competitive practices and economic conditions.
| ||
Annual Incentive Bonus |
∎ Short-term variable compensation component, performance-based, and payable in cash. | |
∎ Each NEO has a target award expressed as a percentage of salary: | ||
Mr. Stuewe: 100% of base salary | ||
Other NEOs: 60% of base salary | ||
∎ Payouts based on (i) 2018 global and/or regional/business line EBITDA goals (65% weighting) and (ii) individual SOP goals (35% weighting). | ||
EBITDA based on overall company performance for Messrs. Stuewe and Phillips. | ||
For Messrs. Elrod, van der Velden and Vervoort, the EBITDA portion is based 65% on their respective regional/business line performance and in the case of Mr. Elrod, 35% on overall company performance, and in the case of Messrs. van der Velden and Vervoort, 35% on overall international performance. | ||
Payouts range from 0% to a maximum of 200% of target.
| ||
Long-Term Incentive Compensation |
∎ Long-term variable compensation component, performance-based grants settled in company stock. | |
∎ Each NEO has a target award expressed as a percentage of salary: | ||
Mr. Stuewe: 300% of base salary | ||
Other NEOs: 125% of base salary | ||
∎ Target award value is granted in a combination of performance share units (PSUs) and stock options. | ||
For all NEOs, weighted 60% PSUs and 40% stock options. | ||
∎ Annual, overlapping PSU grants are tied to three-year, forward-looking performance on average ROCE relative to our Performance Peer Group, with a TSR modifier. Actual awards may vary between 0% and a maximum of 225% of the target number of PSUs, depending on the performance level achieved. | ||
∎ Number of PSUs earned to be reduced (up to 30%) or increased (capped at maximum payout) based on our companys total shareholder return (TSR) over the performance period relative to our Performance Peer Group. | ||
∎ Annual stock option grant vests 33-1/3% on the 1st, 2nd and 3rd anniversaries of grant.
| ||
Retirement and Health and Welfare Benefits |
∎ For U.S. based NEOs, 401(k) plan and frozen pension plan. | |
∎ Group health, life and other standard welfare plan benefits. | ||
∎ Benefits for Messrs. van der Velden and Vervoort are per their employment agreements and customary for a Europe-based executive. | ||
∎ Termination/severance benefits per employment/severance agreement.
|
36 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
To motivate performance, each of our NEOs was provided with an annual incentive award opportunity for fiscal 2018 tied to (i) global and/or regional/business line EBITDA goals and (ii) the performance of the individual with respect to key SOP goals. The range of award payouts that an executive could earn (0% to 200% of target), as well as the performance goals, were established at the beginning of the year. Additional detail with respect to the design of the fiscal 2018 annual incentive program is provided below.
Annual Incentive Award Formula
In determining payouts under the fiscal 2018 annual incentive program, the committee used the following formula for the NEOs:
|
2017 Proxy Statement 37 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
38 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
2018 Performance Results and Award Payouts
For fiscal 2018, we achieved global adjusted EBITDA of approximately $527.1 million, which was approximately 94.9% of the target EBITDA and which resulted in award payouts equal to approximately 74.4% of target payout on the global EBITDA portion of the performance goal. This amount excludes $92.9 million in EBITDA relating to U.S. blenders tax credits (BTCs) attributable to DGD and our North American biofuel operations which related to 2017 performance but was not included in the companys or DGDs financial statements until the first quarter of 2018, but which was included in the adjusted EBITDA used to calculate the annual incentive payouts for fiscal 2017. As a biodiesel blender, DGD, as well as the companys own North American biodiesel operations, are eligible to receive a U.S. BTC. Although the BTC expired on December 31, 2016, in February 2018 it was retroactively reinstated by Congress for calendar year 2017. As of the date of this Proxy Statement, Congress had not yet acted to reinstate the BTC for calendar year 2018. In the event that Congress does subsequently approve the retroactive reinstatement of the BTC for calendar year 2018, the participants in the 2018 annual incentive program will receive at that time any additional amount that would have been payable under the 2018 annual incentive program after taking into account the increased EBITDA relating to 2018 performance resulting from the reinstated BTC.
In addition, based on the committees review of the performance assessments of our NEOs, the following achievement percentages were assigned for the SOPs: 93.75% for Mr. Stuewe; 83.75% for Mr. Phillips; 88.75% for Mr. Elrod; 90% for Mr. van der Velden; and 100% for Mr. Vervoort. For Mr. Stuewe, the committee noted the following achievements with respect to his stated SOP goals:
GOAL
|
RESULT
| |
Further Develop Global R&D Program
|
∎ Formation of a Corporate Innovation Board within the Company to identify, evaluate and develop new ideas and technologies.
| |
Further develop Sustainability and Corporate Social Responsibility Approach |
∎ Initiated expansion of sustainability and corporate social responsibility programs, which initiative led to the updating of the Social Responsibility/Sustainability portion of our corporate website to better reflect and report on our corporate social responsibility and sustainability practices.
|
The chart below provides a summary of the awards earned for fiscal 2018 EBITDA and SOP performance by each NEO. The higher percentage payouts for Messrs. van der Velden and Vervoort were driven by strong overall international performance and strong performance from their respective regional/business lines, none of which are impacted by the BTC.
Award Payouts Based on Actual Performance
EXECUTIVE
|
FISCAL 2018 TARGET BONUS OPPORTUNITY
|
EBITDA PAYOUT* (65% WEIGHTING)
|
SOP PAYOUT (35% WEIGHTING)
|
TOTAL AI PAYOUT
|
TOTAL PAYOUT AS A PERCENT OF TARGET
| ||||||||||||||||||||
Mr. Stuewe |
$ |
1,200,000 |
$ |
580,219 |
$ |
393,750 |
$ |
973,969 |
|
81.2 |
% | ||||||||||||||
Mr. Phillips |
$ |
225,000 |
$ |
107,092 |
$ |
64,923 |
$ |
172,015 |
|
76.5 |
% | ||||||||||||||
Mr. van der Velden |
$ |
283,637 |
$ |
345,917 |
$ |
167,636 |
$ |
513,553 |
|
181.1 |
% | ||||||||||||||
Mr. Elrod |
$ |
278,640 |
$ |
116,094 |
$ |
86,553 |
$ |
202,647 |
|
72.7 |
% | ||||||||||||||
Mr. Vervoort |
$ |
212,728 |
$ |
257,521 |
$ |
138,665 |
$ |
396,186 |
|
186.2 |
% |
|
2017 Proxy Statement 39 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
* | As discussed above, these payout amounts may increase for Messrs. Stuewe, Phillips and Elrod should Congress subsequently approve the retroactive reinstatement of the BTC for calendar year 2018. The table below shows the additional amounts that we expect that these NEOs would receive in such event pursuant to the terms of the 2018 annual incentive program. Messrs. van der Veldens and Vervoorts annual incentive payout is not impacted by the BTC. |
EXECUTIVE
|
POTENTIAL SUPPLEMENTAL (From BTC)
|
TOTAL AI
|
TOTAL PAYOUT
| ||||||||||||
Mr. Stuewe |
$ |
908,409 |
$ |
1,882,378 |
156.9% | ||||||||||
Mr. Phillips |
$ |
162,986 |
$ |
335,001 |
148.9% | ||||||||||
Mr. Elrod |
$ |
274,187 |
$ |
476,834 |
171.1% |
LONG-TERM INCENTIVE COMPENSATION
Overview
Each of our NEOs was provided with long-term incentive award opportunities for fiscal 2018 that were tied to our performance. The principal objectives of the LTI design are to (i) motivate our NEOs to drive sustained long-term stockholder value creation, (ii) grant award opportunities that are based on the competitive market, but then adjusted for our performance, (iii) provide the NEOs with equity ownership opportunities that will further enhance their alignment with our stockholders interests and (iv) serve as an important retention tool. The committee believes that providing long-term equity-based awards incentivizes executives to balance short- and long-term decisions, which helps to mitigate excessive risk-taking by our executives. Under our LTI program first put in place in 2016, grants are generally made in the first quarter of each year; however, in limited, special situations, equity awards may be granted at other times to attract new executives and to retain existing executives. No such special awards were granted to any NEOs during 2018.
For 2016 and beyond, after reviewing trends in executive compensation and pay-related governance policies and in response to the results of our say on pay votes and stockholder feedback, the committee made significant changes to the companys LTI program. As illustrated in the charts below, under our current LTI program, participants receive (i) annual, overlapping grants of PSUs tied to three-year, forward-looking performance based on average return on capital employed (ROCE) relative to our Performance Peer Group and (ii) annual stock option grants that vest 33-1/3% on the 1st, 2nd and 3rd anniversaries of grant. LTI target level performance for the PSUs is based upon achievement of 50th percentile ROCE performance relative to our Performance Peer Group, subject to adjustment by a total shareholder return (TSR) modifier that reduces (or increases) the number of PSUs earned if TSR relative to our Performance Peer Group ranks near the bottom (or near the top).
For performance between the 30th and 80th percentiles, the number of PSUs earned will be interpolated between threshold-target and target-maximum.
The committee views this program to be aligned with the objectives of motivating and rewarding executives for performance on key long-term measures, while also promoting retention of executive talent, and the program is well-designed to drive stockholder value creation and focus executives on areas over which they have the most direct impact.
Additional detail with respect to the design of the long-term incentive program is provided below.
40 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Mix of Equity Awards
Under the 2017 Omnibus Incentive Plan, the committee may grant various types of equity-based awards. As in the prior year, the committee provided long-term incentives for fiscal 2018 to the NEOs through a target value mix of stock options (40%) and PSUs (60%). The committee, with input from its independent compensation consultant, believes that this mix is consistent with market practice for these types of awards.
Stock Options. Stock option awards reflect the pay for performance principles of our executive compensation program by directly linking long-term incentives to stock price appreciation. Stock options require stock price appreciation to deliver value to an executive. We determined the January 2018 grant of nonqualified stock options by converting 40% of the target LTI value for each NEO to a number of stock options using an estimated Black-Scholes option value. Stock options were granted to each NEO, and other eligible management employees, and the exercise price of such options was established on January 29, 2018. All of the options granted to our NEOs are nonqualified stock options with ten-year terms that vest in one-third increments on the first three anniversaries of the grant date. Information regarding the grant date fair value and the number of stock options awarded in 2018 under the 2018 LTI program to each of our NEOs is set forth in the Grants of Plan-Based Awards Table on page 46.
Performance Share Unit Awards. PSUs are tied to our companys long-term performance to ensure that our NEOs pay is directly linked to the achievement of sustained long-term operating performance. Reflective of the desire to balance prudent use of capital and returns to our stockholders, the committee has determined that awards will be earned based on our ROCE relative to our Performance Peer Group for a three-year, forward-looking cycle. Awards based on ROCE are also subject to potential adjustment based on our TSR relative to the Performance Peer Group over the same period. Dividend equivalent units related to PSUs will be accrued and paid in company stock at the same time as PSUs, but only if and to the extent PSUs are earned.
As in the prior year, for purposes of the 2018 executive compensation program, ROCE was determined as follows:
ROCE | = |
earnings |
÷ | CAPITAL EMPLOYED | where | CAPITAL EMPLOYED | = | the sum of (i) current assets (excluding cash) less current liabilities (excluding the current portion of any long-term debt), plus (ii) gross property, plant and equipment (including gross intangibles but excluding goodwill), plus (iii) equity in nonconsolidated subsidiaries |
In addition, under our executive compensation program, the committee adjusts the ROCE performance results (or components thereof) to exclude the impact of extraordinary, unusual or unanticipated events, such as acquisitions, divestitures or mergers, stock splits or stock dividends or other similar material circumstances affecting or with respect to our company or any member of the Performance Peer Group during the performance period. The committee determines whether any such adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the PSUs with the goal of fairly comparing our companys performance with the performance of the companies in the Performance Peer Group over the performance period.
TSR is defined for purposes of the PSUs as follows:
TSR | = |
cumulative amount of dividends for the performance period, assuming dividend reinvestment |
+ | the increase or decrease in the Average Stock Price from the first day of the performance period to the last day of the performance period |
÷ | the Average Stock Price determined as of the first day of the performance period |
where | Average Stock Price is the average of the closing transaction prices of a share of our common stock, as reported on the NYSE, for 20 trading days immediately preceding the date for which the average stock price is being determined |
The committee selected ROCE and TSR as the performance measures for the PSUs because they:
∎ | Measure performance in a way that is tracked and well-understood by investors. |
∎ | Capture both income and balance sheet impacts, including capital management actions. |
∎ | Take into effect long-term stockholder value. |
|
2019 Proxy Statement 41 |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In addition, the committee believes that, given the substantial growth of our company over the last ten years, the use of ROCE is the most appropriate measure of our companys operating performance against its peers, since it excludes goodwill from the calculation and thereby better focuses on the value of a particular asset and the working capital needed to operate that asset.
ROCE Performance Levels
PERFORMANCE LEVEL
|
2018-2020 AVERAGE ROCE VS. PERFORMANCE PEERS |
PAYOUT % OF TARGET # OF PSUs | ||
Below Threshold |
At or less than 30th percentile |
0% | ||
Target |
At 50th percentile |
100% | ||
Maximum |
Above 80th percentile |
225% |
For performance between the 30th and 80th percentiles, the number of PSUs earned will be interpolated between threshold-target and target-maximum.
TSR Modifier
The number of PSUs determined to be earned based on ROCE as provided above shall be further adjusted in accordance with the schedule set forth below, based on our companys TSR relative to the TSR of the companies in the Performance Peer Group during the three-year performance period:
COMPANYS TSR VS. PERFORMANCE PEERS
|
VESTING ADJUSTMENT
| |
At or less than 30th percentile |
30% reduction in shares eligible for vesting | |
Greater than 30th percentile (but less than or |
No adjustment | |
Above 80th percentile |
30% increase in shares
eligible for vesting, subject to a |
2018 Long-Term Incentive Awards
As previously mentioned, the committee decided to deliver 60% of the target LTI value in PSUs. The chart below summarizes the target LTI awards for the NEOs for fiscal 2018. Information regarding the fair market value and number of PSUs that the NEOs may earn at the end of the 2018-2020 performance period, subject to the performance metrics described above, is shown in the Grants of Plan-Based Awards Table on page 46. The starting value for the award, however, does not represent the actual compensation the NEOs will realize. These awards are intended to focus the NEOs on future company performance, and the actual value realized by an NEO will depend on our performance over time and the NEOs continued employment with our company.
Fiscal 2018 Target Long-Term Incentive Awards
EXECUTIVE
|
PERCENT OF BASE SALARY
|
IN DOLLARS
|
TARGET NUMBER OF PSUs
|
NUMBER OF STOCK OPTIONS
| ||||||||||||||||
Mr. Stuewe |
|
300 |
% |
$ |
3,600,000 |
|
|
104,854 |
|
|
226,059 |
| ||||||||
Mr. Phillips |
|
125 |
% |
$ |
468,750 |
|
|
13,653 |
|
|
29,435 |
| ||||||||
Mr. van der Velden |
|
125 |
% |
$ |
599,375 |
* |
|
17,458 |
|
|
37,637 |
| ||||||||
Mr. Elrod |
|
125 |
% |
$ |
580,500 |
|
|
16,908 |
|
|
36,452 |
| ||||||||
Mr. Vervoort |
|
125 |
% |
$ |
449,531 |
* |
|
13,093 |
|
|
28,228 |
|
* | The target number of PSUs and stock options were calculated for Messrs. van der Velden and Vervoort using this dollar amount, which was the amount of their respective base salaries in U.S. dollars using the exchange rate at December 29, 2017 of 1.198750 dollars per euro. |
2016-2018 PSU Award Determinations
42 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The compensation committee of the Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on that review and those discussions, the compensation committee recommends to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
THE COMPENSATION COMMITTEE
Mary R. Korby, Chairman
Charles Adair
Linda Goodspeed
Cynthia Pharr Lee
Gary W. Mize
44 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to the total compensation paid or earned by each of our named executive officers for our fiscal years 2018, 2017 and 2016.
NAME AND PRINCIPAL POSITION |
YEAR | SALARY | BONUS | STOCK AWARDS |
OPTION AWARDS |
NON-EQUITY INCENTIVE PLAN COMPEN- SATION (2) |
CHANGE IN PENSION VALUE AND NONQUALIFIED DEFERRED COMPEN- SATION EARNINGS (3) |
ALL OTHER COMPEN- SATION |
TOTAL | |||||||||||||||||||||||||||
Randall C. Stuewe
Chairman and Chief Executive Officer |
2018 | $1,200,000 | | $2,159,992 | (1) | $1,439,996 | (1) | $973,969 | $0 | $72,321 | (4) | $5,846,278 | ||||||||||||||||||||||||
2017 | 1,100,000 | | 1,980,000 | 1,319,998 | 1,928,988 | 45,184 | 69,407 | 6,443,577 | ||||||||||||||||||||||||||||
2016 | 1,000,000 | | 1,791,163 | 1,200,420 | 976,600 | 21,004 | 65,300 | 5,054,487 | ||||||||||||||||||||||||||||
Brad Phillips (9)
Executive Vice President Chief Financial Officer |
||||||||||||||||||||||||||||||||||||
2018 | 369,143 | | 281,252 | (1) | 187,501 | (1) | 172,015 | 0 | 51,108 | (5) | 1,061,019 | |||||||||||||||||||||||||
Jan van der Velden (10)
Executive Vice President International Rendering and Specialties |
2018 | 472,728 | | 359,635 | (1) | 239,748 | (1) | 513,553 | 0 | 100,840 | (6) | 1,686,504 | ||||||||||||||||||||||||
2017 | 394,929 | | 277,200 | 184,802 | 473,915 | 0 | 87,798 | 1,418,644 | ||||||||||||||||||||||||||||
Rick A. Elrod
Executive Vice President Darling U.S. |
2018 | 464,400 | | 348,305 | (1) | 232,199 | (1) | 202,647 | | 41,032 | (7) | 1,288,583 | ||||||||||||||||||||||||
2017 | 450,000 | | 337,502 | 224,999 | 515,122 | | 34,147 | 1,561,770 | ||||||||||||||||||||||||||||
2016 | 425,000 | | 253,749 | 170,061 | 201,020 | | 33,385 | 1,083,215 | ||||||||||||||||||||||||||||
Jos Vervoort (11)
Executive Vice President Rousselot |
||||||||||||||||||||||||||||||||||||
2018 | 354,546 | | 269,719 | (1) | 179,813 | (1) | 396,186 | 0 | 68,526 | (8) | 1,268,790 | |||||||||||||||||||||||||
1. | In the case of the stock awards column, represents the aggregate full grant date fair value computed in accordance with FASB ASC Topic 718 of the PSUs (the 2018 LTIP PSUs) granted to the named executive officers on January 29, 2018 under the 2018 LTI program. In the case of the option awards column, represents the aggregate full grant date fair value computed in accordance with FASB ASC Topic 718 of the stock option award granted to the named executive officers on January 29, 2018 under the 2018 LTI program. Amounts reported for these awards may not represent the amounts that the named executive officers will actually realize from the awards. Whether, and to what extent, a named executive officer realizes value will depend on our companys actual operating performance, stock price fluctuations and the named executive officers continued employment. See Components of Fiscal 2018 Executive Compensation Program Long-Term Incentive Compensation on page 40. In addition, see Note 13 of the consolidated financial statements in our Annual Report for the fiscal year ended December 29, 2018 regarding assumptions underlying valuation of equity awards. |
2. | The amounts reported in the Non-Equity Incentive Plan Compensation column reflect the amounts earned and payable to each named executive officer for fiscal 2018, 2017 and 2016, as the case may be, under the applicable annual incentive plan. For fiscal 2018, these amounts are the actual amounts earned under the awards described in the fiscal 2018 Grants of Plan-Based Awards table on page 46. For fiscal 2018, payments under the annual incentive plan were calculated as described in Components of Fiscal 2018 Executive Compensation Program Annual Incentive Compensation on page 37. As further discussed on page 39, these amounts for certain of the NEOs may increase should Congress subsequently approve the retroactive reinstatement of the BTC for calendar year 2018. |
3. | The item for fiscal 2018 represents the change in the actuarial present value of the named executive officers accumulated benefits under the applicable retirement plan from January 1, 2018 to December 31, 2018. This change is the difference between the fiscal 2017 and fiscal 2018 measurements of the present value, assuming that benefit is not paid until age 62 for Messrs. Stuewe and Phillips and age 65 for Messrs. van der Velden and Vervoort. The change in pension value for Messrs. Stuewe, Phillips, van der Velden and Vervoort was negative($16,186) for Mr. Stuewe, ($30,617) for Mr. Phillips, ($59,091) for Mr. van der Velden and ($31,909) for Mr. Vervoortdue primarily to changes in interest rate assumptions. Under SEC rules, these negative amounts are not included in the Summary Compensation Table. Each of these amounts was computed using the same assumptions used for financial statement reporting purposes under FAS 87, Employers Accounting for Pensions as described in Note 15 of the consolidated financial statements in our Annual Report for the fiscal year ended December 29, 2018. |
4. | Represents $24,000 in auto allowance, $10,392 in club dues paid by our company, $17,304 in group life and $20,625 in employer contributions and employer discretionary contributions to our companys 401(k) plan. |
5. | Represents $9,554 in auto allowance, $10,392 in club dues paid by our company, $10,537 in group life and $20,625 in employer contributions and employer discretionary contributions to our companys 401(k) plan. |
6. | Represents $29,069 in auto allowance, $2,127 in personal allowance, $8,421 in club dues paid by our company and $61,223 in employer pension contributions. |
7. | Represents $16,531 in group life and $24,502 in employer contributions and employer discretionary contributions to our companys 401(k) plan. |
8. | Represents $14,608 in auto allowance, $2,364 in personal allowance, and $51,554 in employer pension contributions. |
9. | Mr. Phillips did not become a named executive officer until fiscal 2018. Accordingly, no information is given in this table for fiscal years prior to fiscal 2018. |
|
2019 Proxy Statement 45 |
EXECUTIVE COMPENSATION
Summary Compensation Table
10. | Mr. van der Velden did not become a named executive officer until fiscal 2017. Accordingly, no information is given in this table for 2016. Mr. van der Velden is paid in euros, and his annual base salary in fiscal 2018 was 400,000. Accordingly, all amounts in the Summary Compensation Table other than the amounts in the Stock and Option Awards columns, as well as all dollar amounts of compensation noted elsewhere in this Proxy Statement for Mr. van der Velden (except for the value of shares of common stock and equity awards), represent data converted from euros. For 2018, compensation was converted at the average exchange rate during 2018 of 1.181820 dollars per euro. |
11. | Mr. Vervoort did not become a named executive officer until fiscal 2018. Accordingly, no information is given in this table for fiscal years prior to 2018. Mr. Vervoort is paid in euros, and his annual base salary in fiscal 2018 was 300,000. Accordingly, all amounts in the Summary Compensation Table other than the amounts in the Stock and Option Awards columns, as well as all dollar amounts of compensation noted elsewhere in this Proxy Statement for Mr. Vervoort (except for the value of shares of common stock and equity awards), represent data converted from euros. For 2018, compensation was converted at the average exchange rate during 2018 of 1.181820 dollars per euro. |
The following table sets forth certain information with respect to the plan-based awards granted to the named executive officers during the fiscal year ended December 29, 2018.
NAME | GRANT DATE |
ESTIMATED FUTURE
PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (1) |
ESTIMATED FUTURE
PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS (2) |
ALL OTHER STOCK AWARDS: NUMBER OF SHARES OF STOCK OR UNITS (#) |
ALL OTHER OPTION AWARDS: NUMBER OF SECURITIES UNDERLYING OPTIONS (#) (3) |
EXERCISE OR BASE PRICE OF OPTION AWARDS ($/SH) |
GRANT DATE FAIR VALUE OF STOCK AND OPTION AWARDS (4) |
|||||||||||||||||||||
THRESHOLD ($) |
TARGET ($) |
MAXIMUM ($) |
THRESHOLD (#) |
TARGET (#) |
MAXIMUM (#) | |||||||||||||||||||||||
Randall C. Stuewe |
1/29/18 | $615,000 | $1,200,000 | $2,400,000 | ||||||||||||||||||||||||
1/29/18 | 5,243 | 104,854 | 235,922 | $2,159,992 | ||||||||||||||||||||||||
1/29/18 | 226,059 | $18.82 | $1,439,996 | |||||||||||||||||||||||||
Brad Phillips |
1/29/18 | $115,313 | $ 225,000 | $ 450,000 | ||||||||||||||||||||||||
1/29/18 | 683 | 13,653 | 30,719 | $ 281,252 | ||||||||||||||||||||||||
1/29/18 | 29,435 | $18.82 | $ 187,501 | |||||||||||||||||||||||||
Jan Van der Velden |
1/29/18 | $143,364 | $ 283,637 | $ 567,274 | ||||||||||||||||||||||||
1/29/18 | 873 | 17,458 | 39,279 | $ 359,635 | ||||||||||||||||||||||||
1/29/18 | 37,637 | $18.82 | $ 239,748 | |||||||||||||||||||||||||
Rick A. Elrod |
1/29/18 | $142,803 | $ 278,640 | $ 557,280 | ||||||||||||||||||||||||
1/29/18 | 845 | 16,908 | 38,042 | $ 348,305 | ||||||||||||||||||||||||
1/29/18 | 36,452 | $18.82 | $ 232,199 | |||||||||||||||||||||||||
Jos Vervoort |
1/29/18 | $109,024 | $ 212,728 | $ 425,456 | ||||||||||||||||||||||||
1/29/18 | 655 | 13,093 | 29,460 | $ 269,716 | ||||||||||||||||||||||||
1/29/18 | 28,228 | $18.82 | $ 179,813 |
1. | Represents the range of annual cash incentive award opportunities pursuant to the annual incentive bonus component of the 2018 executive compensation program. The minimum potential payout for each of the named executive officers was zero. The threshold and target amounts assume achievement of 100% of the SOPs of the personal objective component of the annual incentive bonus payable pursuant to the 2018 executive compensation program, while the maximum amount assumes achievement of 200% of the SOPs. The performance period began on December 31, 2017 and ended on December 29, 2018. Actual payments under these awards have already been determined and paid and are included in the Non-Equity Incentive Plan Compensation column of the fiscal year 2018 Summary Compensation Table. For a detailed discussion of the annual incentive bonus for fiscal year 2018, see Components of Fiscal 2018 Executive Compensation Program Annual Incentive Compensation on page 37. Amounts shown for Mr. Phillips are on an annualized basis. Actual payout of his award was calculated based on his promotion date of January 15, 2018. Amounts shown for Messrs. van der Velden and Vervoort are based on their annual base salary in fiscal 2018 of 400,000 and 300,000, respectively, and have been converted to U.S. Dollars using the conversion rate of $1.181820 dollars per euro, which is the full year average rate of the euro to the U.S. Dollar for 2018. |
2. | Represents the range of shares that may be released at the end of the performance period for PSUs awarded pursuant to the long-term incentive component of the 2018 executive compensation program, which performance period is December 31, 2017 January 2, 2021. The minimum potential payout for each of the named executive officers under these PSUs is zero. Payment of the award is subject to the achievement of certain performance metrics during the performance period. For a detailed discussion of the PSU awards, see Components of Fiscal 2018 Executive Compensation Program Long-Term Incentive Compensation on page 40. |
46 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Grants of Plan-Based Awards
3. | On January 29, 2018, our compensation committee granted stock options to the named executive officers pursuant to the long-term incentive component of the 2018 executive compensation program. The exercise price of such stock options was determined based on the closing price of our companys common stock on the NYSE on the grant date of the options. The stock options vest in three equal annual installments on each of the first three anniversaries of the date of grant and generally remain exercisable until the tenth anniversary of the date of grant. For a detailed discussion of the stock option awards, see Components of Fiscal 2018 Executive Compensation Program Long-Term Incentive Compensation on page 40. |
4. | This column shows the full grant date fair value of equity awards under FASB ASC Topic 718 granted to the named executive officers in 2018. Generally, the full grant date fair value is the amount the Company would expense in its financial statements over the awards vesting schedule. For stock options, fair value is calculated based on the grant date fair values estimated by using the Black-Scholes option pricing model for financial purposes, $6.37 per option for the grants on January 29, 2018. See Note 13 of the consolidated financial statements in our Annual Report for the fiscal year ended December 29, 2018 regarding assumptions underlying valuation of equity awards. Actual amounts ultimately realized by the named executive officers from the disclosed stock and option awards will likely vary based on a number of factors, including the amounts of the actual awards, our operating performance, stock price fluctuations, differences from the valuation assumptions used and the timing of exercise or applicable vesting. |
|
2019 Proxy Statement 47 |
EXECUTIVE COMPENSATION
Employment Agreements
48 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Outstanding Equity Awards at Fiscal Year-End
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information with respect to unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer that were outstanding as of December 29, 2018:
OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||
NAME | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE |
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE |
OPTION EXERCISE PRICE ($) |
OPTION EXPIRATION DATE |
NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED (#) |
MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED (6) ($) |
EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED (7) (#) |
EQUITY INCENTIVE PLAN AWARDS: MARKET OR PAYOUT VALUE OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED (8) ($) |
||||||||||||||||||||
Randall C. Stuewe |
21,581 | | $ 8.21 | 03/09/2020 | 46,530 | (5) | $885,931 | 284,854 | $5,423,620 | |||||||||||||||||||
36,285 | | $14.50 | 03/08/2021 | |||||||||||||||||||||||||
69,484 | | $16.98 | 03/06/2022 | |||||||||||||||||||||||||
73,772 | | $16.53 | 03/05/2023 | |||||||||||||||||||||||||
61,124 | | $19.94 | 03/04/2024 | |||||||||||||||||||||||||
302,700 | | $14.76 | 03/10/2025 | |||||||||||||||||||||||||
274,312 | 137,157 | (1) | $ 8.51 | 02/25/2026 | ||||||||||||||||||||||||
221,015 | 73,671 | (2) | $11.97 | 03/07/2026 | ||||||||||||||||||||||||
101,382 | 202,765 | (3) | $12.29 | 02/06/2027 | ||||||||||||||||||||||||
| 226,059 | (4) | $18.82 | 01/29/2028 | ||||||||||||||||||||||||
Brad Phillips |
2,172 | 1,085 | (1) | $ 8.51 | 02/25/2026 | 488 | (5) | 9,292 | 20,880 | 397,555 | ||||||||||||||||||
4,070 | 8,142 | (3) | $12.29 | 02/06/2027 | ||||||||||||||||||||||||
| 29,435 | (4) | $18.82 | 01/29/2028 | ||||||||||||||||||||||||
Jan van der Velden |
6,354 | | $14.76 | 03/10/2025 | 5,290 | (5) | 100,722 | 42,658 | 812,208 | |||||||||||||||||||
29,378 | 14,690 | (1) | $ 8.51 | 02/25/2026 | ||||||||||||||||||||||||
7,180 | 2,394 | (2) | $11.97 | 03/07/2026 | ||||||||||||||||||||||||
14,193 | 28,388 | (3) | $12.29 | 02/06/2027 | ||||||||||||||||||||||||
| 37,637 | (4) | $18.82 | 01/29/2028 | ||||||||||||||||||||||||
Rick A. Elrod |
4,778 | | $16.53 | 03/05/2023 | 9,888 | (5) | $188,268 | 47,590 | $ 906,114 | |||||||||||||||||||
4,077 | | $19.94 | 03/04/2024 | |||||||||||||||||||||||||
3,245 | | $14.76 | 03/10/2025 | |||||||||||||||||||||||||
19,431 | 19,430 | (1) | $ 8.51 | 02/25/2026 | ||||||||||||||||||||||||
13,419 | 4,473 | (2) | $11.97 | 03/07/2026 | ||||||||||||||||||||||||
17,281 | 34,562 | (3) | $12.29 | 02/06/2027 | ||||||||||||||||||||||||
| 36,452 | (4) | $18.82 | 01/29/2028 | ||||||||||||||||||||||||
Jos Vervoort |
9,082 | 4,542 | (1) | $ 8.51 | 02/25/2026 | 1,000 | (5) | $ 19,040 | 31,093 | $ 592,011 | ||||||||||||||||||
10,138 | 20,277 | (3) | $12.29 | 02/06/2027 | ||||||||||||||||||||||||
| 28,228 | (4) | $18.82 | 01/29/2028 |
1. | These stock options were granted on February 25, 2016 and vest in equal installments on the first three anniversary dates of the grant. |
2. | These stock options were granted on March 7, 2016 and vest in four equal installments, with the first installment vesting immediately upon the grant date and the remaining three installments vesting on the next three anniversary dates of the grant. |
3. | These stock options were granted on February 6, 2017 and vest in equal installments on the first three anniversary dates of the grant. |
4. | These stock options were granted on January 29, 2018 and vest in equal installments on the first three anniversary dates of the grant. |
5. | These shares are part of an award granted on March 7, 2016, which award vests in four equal installments, with the first installment vesting immediately upon the grant date and the remaining three installments vesting on the next three anniversary dates of the grant. |
6. | Value stated is the number of unvested shares multiplied by the closing price of a share of our common stock on December 28, 2018 ($19.04). |
|
2019 Proxy Statement 49 |
EXECUTIVE COMPENSATION
Outstanding Equity Awards at Fiscal Year-End
7. | Reflects unearned PSU awards (at the target performance level) granted on February 6, 2017 and January 29, 2018, pursuant to the long-term incentive components of the 2017 and 2018, respectively, executive compensation programs. |
8. | Value stated is the number of unearned PSUs in the 2017 and 2018 performance awards (based on the target performance level) multiplied by the closing price of a share of our common stock on December 28, 2018 ($19.04), details of which are shown in the table below. The PSUs for the 2016-2018 performance cycle are not included in the table, as they are considered earned as of December 29, 2018, and are reported in the Option Exercises and Stock Vested Table in this Proxy Statement. These awards were earned based on performance as of December 29, 2018. |
2017 PSUs | 2018 PSUs | |||||||
TARGET SHARES (#) |
VALUE ($) |
TARGET SHARES (#) |
VALUE ($) | |||||
Randall C. Stuewe |
180,000 | $3,427,200 | 104,854 | $1,996,420 | ||||
Brad Phillips |
7,227 | 137,602 | 13,653 | 259,953 | ||||
Jan van der Velden |
25,200 | 479,808 | 17,458 | 332,400 | ||||
Rick A. Elrod |
30,682 | 584,185 | 16,908 | 321,928 | ||||
Jos Vervoort |
18,000 | 342,720 | 13,093 | 249,291 |
These PSUs will be earned over three-year performance periods ending December 28, 2019 and January 2, 2021, respectively. |
Option Exercises and Stock Vested
The following table lists the number of shares acquired and the value realized as a result of option exercises by the named executive officers during the fiscal year ended December 29, 2018, and the value of any restricted stock and PSUs that vested during the fiscal year ended December 29, 2018.
OPTION AWARDS (1) | STOCK AWARDS (2) | |||||||
SHARES ACQUIRED ON EXERCISE (#) |
VALUE REALIZED ON EXERCISE ($) |
SHARES ACQUIRED ON VESTING (#) |
VALUE REALIZED ON VESTING ($) | |||||
Randall C. Stuewe |
| | 377,659 | $7,133,983 | ||||
Brad Phillips |
| | 3,118 | 58,846 | ||||
Jan van der Velden |
| | 39,147 | 740,149 | ||||
Rick A. Elrod |
| | 51,820 | 979,968 | ||||
Jos Vervoort |
| | 10,381 | 197,094 |
1. | Represents the number of stock options exercised in fiscal 2018. The value realized upon exercise is equal to the number of options exercised multiplied by the difference between the closing price of a share of our common stock on the date of exercise and exercise price. |
2. | Represents the number of (i) PSUs for the 2016-2018 performance period that ended on December 29, 2018 and (ii) shares of restricted stock that vested in fiscal 2018. The value realized upon vesting is computed by multiplying the number of PSUs or restricted stock, as the case may be, by the closing stock price on the date of vesting. These PSUs are subject to a two-year post-vesting holding requirement. |
Details regarding the PSUs and restricted stock that vested and the value realized are set forth below:
2016-2018 PSUs | RESTRICTED STOCK | |||||||
(#) | VALUE ($) |
(#) | VALUE ($) | |||||
Randall C. Stuewe |
283,336 | $5,394,717 | 94,323 | $1,739,266 | ||||
Brad Phillips |
2,243 | 42,707 | 875 | 16,139 | ||||
Jan van der Velden |
30,345 | 577,769 | 8,802 | 162,380 | ||||
Rick A. Elrod |
40,139 | 764,247 | 11,681 | 215,721 | ||||
Jos Vervoort |
9,381 | 178,614 | 1,000 | 18,480 |
50 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Pension Benefits
The following table shows the present value of accumulated benefits payable to each of the eligible named executive officers, including the number of years of service credited to each eligible named executive officer, under our Salaried Employees Retirement Plan or Netherlands PGB, former SPS Pension Plan, as applicable, determined using interest rate and post-retirement mortality rate assumptions. For Messrs. Stuewe and Phillips, these values are calculated assuming retirement at age 62, the earliest age at which a participant can receive an unreduced retirement benefit from our Salaried Employees Retirement Plan. Our Salaried Employees Retirement Plan was frozen effective December 31, 2011. For Messrs. van der Velden and Vervoort, these values are calculated assuming retirement at age 65 for benefits accrued up to January 1, 2014, age 67 for benefits accrued from January 1, 2014 through December 31, 2017, and age 68 for benefits accrued from January 1, 2018. Information regarding both plans and the terms and conditions of payments and benefits available under the plans can be found under the heading Other Features of our Compensation Program Retirement Benefits and Perquisites on page 43.
NAME | PLAN NAME | NUMBER OF YEARS CREDITED SERVICE (#) |
PRESENT VALUE OF ACCUMULATED BENEFIT ($) |
PAYMENTS DURING LAST FISCAL YEAR ($) | ||||
Randall C. Stuewe |
Salaried Employees Retirement Plan | 8.83 | $272,492 | | ||||
Brad Phillips |
Salaried Employees Retirement Plan | 23.17 | 744,048 | | ||||
Jan van der Velden |
NetherlandsPGB, former SPS Pension Plan | 29.50 | 798,910 | | ||||
Rick A. Elrod |
| | | | ||||
Jos Vervoort |
NetherlandsPGB, former SPS Pension Plan | 12.80 | 236,364 | |
The present value of accumulated benefits has been calculated as of December 29, 2018, which is the measurement date for financial statement reporting purposes. The present value of accumulated benefits has been calculated assuming the retirement ages described above, and no pre-retirement death, disability, or withdrawal was assumed. All other assumptions used (including a 4.10% discount rate for Messrs. Stuewe and Phillips, a 2.40% discount rate for Messrs. van der Velden and Vervoort and a projection of the PFG2013-10 MI scale, which scale is based on the RPEC_2014_v2017 model reflecting historical U.S. mortality data to 2015, published by the Society of Actuaries in October of 2017, male and female, for Messrs. Stuewe and Phillips and the Prognosetafel AG 2016 with correction High-Middle for Messrs. van der Velden and Vervoort) are consistent with the assumptions used for our companys audited financial statements for the fiscal year ended December 29, 2018. See Note 15 of the consolidated financial statements in our Annual Report for the fiscal year ended December 29, 2018 for more information regarding the assumptions underlying the valuation of the pension benefits.
Nonqualified Deferred Compensation
NAME | EXECUTIVE CONTRIBUTIONS IN LAST FY ($) (1) |
COMPANY CONTRIBUTIONS IN LAST FY ($) |
AGGREGATE EARNINGS IN LAST FY ($) |
AGGREGATE WITHDRAWALS/ DISTRIBUTIONS ($) |
AGGREGATE BALANCE AT LAST FY END ($) | |||||
Randall C. Stuewe |
5,394,717 | | 90,945 | | 7,297,575 | |||||
Brad Phillips |
42,707 | | 720 | | 57,767 | |||||
Jan van der Velden |
577,769 | | 9,741 | | 781,573 | |||||
Rick A. Elrod |
764,247 | | 12,883 | | 1,033,796 | |||||
Jos Vervoort |
178,614 | | 3,010 | | 241,599 |
1. | Represents value of the PSUs for the 2016-2018 performance period that were earned based on performance as of December 29, 2018 (as reflected in the Option Exercises and Stock Vested table included elsewhere in this Proxy Statement), but the receipt of which was deferred due to a two-year post vesting holding requirement. The value is computed by multiplying the number of PSUs earned by the closing stock price on December 28, 2018 ($19.04). Subject to certain limited exceptions, settlement of the vested PSUs shall be effected in the form of issuance of whole shares of our common stock to the recipient, within 90 days following the earlier to occur of (i) December 29, 2020 and (ii) the recipients termination of service. The value of these awards is not included in the Summary Compensation table for fiscal 2018 as the aggregate full grant date fair value computed in accordance with FASB ASC Topic 718 was included as compensation in the year the award was granted. |
|
2019 Proxy Statement 51 |
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
Potential Payments upon Termination or Change of Control
Mr. Stuewes employment agreement includes provisions pursuant to which he is entitled to the following severance and other payments upon his termination:
Pursuant to Mr. Stuewes employment agreement, subject to certain exceptions, during Mr. Stuewes employment with our company and for a period of (i) two years thereafter in the event of termination without cause, (ii) three years thereafter in the event of termination upon a change of control and (iii) one year thereafter in each other instance (the Restricted Period), Mr. Stuewe may not have any ownership interest in, or be an employee, salesman, consultant, officer or director of, any entity that engages in the United States, Canada or Mexico in a business that is similar to that in which our company is engaged in the territory. Subject to certain limitations, Mr. Stuewes employment agreement also prohibits him from soliciting our companys customers, employees or consultants during the Restricted Period. Further, Mr. Stuewe is required by his employment agreement to keep all confidential information in confidence during his employment and at all times thereafter.
Mr. Stuewes employment agreement contains a provision that provides that in the event it shall be determined that any payment or distribution by our company to Mr. Stuewe or for his benefit would be subject to the excise tax imposed by Section 4999 (or any successor provisions) of the Internal Revenue Code of 1986, as amended (the Code), or any interest or penalty is incurred by Mr. Stuewe with respect to such excise tax, then such payments shall be reduced (but not below zero) if and to the extent that such reduction would result in Mr. Stuewe retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the excise tax), than if Mr. Stuewe received all of such payments. The employment agreement provides that our company shall reduce or eliminate any such payments, by first reducing or eliminating the portion of such payments which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the determination. Additionally, Mr. Stuewes employment agreement contains provisions intended to comply with Section 409A of the Code and the guidance promulgated thereunder.
52 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
BY COMPANY WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON |
RETIREMENT | DEATH OR DISABILITY |
BY COMPANY WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON FOLLOWING A CHANGE OF CONTROL |
|||||||||||||
Randall C. Stuewe |
||||||||||||||||
Compensation |
$ | 2,400,000 | (1) | | | $ | 3,600,000 | (2) | ||||||||
Annual Incentive Bonus (3) |
973,969 | | $ | 973,969 | 973,969 | |||||||||||
Life Insurance Benefits |
| | 2,400,000 | (4) | | |||||||||||
Health and Welfare |
45,999 | (5) | | | 67,624 | (6) | ||||||||||
Disability Income |
| | 874,055 | (7) | | |||||||||||
Equity Awards |
7,219,699 | (8) | $ | 4,368,670 | (9) | 7,219,699 | (10) | 9,693,046 | (11) | |||||||
Pension Accrual (12) |
| | | | ||||||||||||
Relocation Expenses |
(13) | | | (13) |
1. | Reflects the lump-sum value of the compensation to be paid to Mr. Stuewe in accordance with his employment agreement, which is two times his base salary at the highest rate in effect in the preceding twelve months. |
2. | Reflects the lump-sum value of the compensation to be paid to Mr. Stuewe in accordance with his employment agreement, which is three times his base salary at the highest rate in effect in the preceding twelve months. |
3. | Reflects amount due Mr. Stuewe under the annual incentive bonus component of the 2018 executive compensation program, which would be payable to Mr. Stuewe under his employment agreement since our companys performance in fiscal 2018 would have entitled him to the bonus as of the assumed date of termination. |
4. | Reflects the lump-sum proceeds payable to Mr. Stuewes designated beneficiary upon his death, which is two times his then-effective base salary from a group life insurance policy (that is generally available to all salaried employees) and a supplemental executive life policy maintained by our company at its sole expense. |
|
2019 Proxy Statement 53 |
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
5. | Reflects the estimated lump-sum present value of all future premiums paid to or on behalf of Mr. Stuewe for medical, dental, life and accidental death and dismemberment, as well as short and long-term disability, which, in accordance with the terms of Mr. Stuewes employment agreement, are to continue for a two-year period after his employment is terminated. |
6. | Reflects the estimated lump-sum present value of all future premiums paid to or on behalf of Mr. Stuewe for medical, dental, life and accidental death and dismemberment, as well as short and long-term disability, which, in accordance with the terms of Mr. Stuewes employment agreement, are to continue for a three-year period after his employment is terminated following a change of control. |
7. | Reflects the lump-sum present value of all future payments that Mr. Stuewe would be entitled to receive under his employment agreement upon disability. Mr. Stuewe would be entitled to receive disability benefits until he reaches age 65. |
8 | With respect to a termination by the company without cause, reflects the acceleration of vesting of 100% of Mr. Stuewes (A) unvested stock options awarded on February 25, 2016, March 7, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. In addition, in the event of either a termination by the company without cause or a resignation for good reason, Mr. Stuewe would remain eligible to vest in a prorated portion of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, based on actual performance through the end of the respective performance periods. For purposes of calculating the payout of PSUs outstanding at December 29, 2018, we have assumed that target performance was achieved, which leads to a value of $2,950,273 based on the closing price of our common stock on December 28, 2018 of $19.04 per share, which would be the only amount payable to Mr. Stuewe with respect to equity awards following a resignation for good reason outside the context of a change of control. |
9. | Reflects the acceleration of vesting of 100% of Mr. Stuewes unvested stock options awarded on February 6, 2017 and January 29, 2018. In addition, Mr. Stuewe would remain eligible to vest in a prorated portion of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, based on actual performance through the end of the respective performance periods. For purposes of calculating the payout of PSUs outstanding at December 29, 2018, we have assumed that target performance was achieved, which leads to a value of $2,950,273 based on the closing price of our common stock on December 28, 2018 of $19.04 per share. The award documents underlying these equity grants define Retirement as a grantees termination of service, other than for cause, after the attainment of (i) at least 55 years of age with at least ten years of Service or (ii) at least 65 years of age. |
10. | Reflects the acceleration of vesting of (i) 100% of Mr. Stuewes (A) unvested stock options awarded on February 25, 2016, March 7, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, and (ii) a prorated portion of the target level amount of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. |
11. | Reflects the acceleration of vesting of (i) 100% of Mr. Stuewes (A) unvested stock options awarded on February 25, 2016, March 7, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, and (ii) the target level amount of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. It should be noted that the amount of the PSUs that vest would be increased in the event that the compensation committee determines that, at the time of the change of control, the projected level of performance through the end of the performance period is greater than target level. |
12. | Pursuant to his employment agreement, under certain circumstances Mr. Stuewe is entitled to the lump-sum present value for pension benefits that would have accrued under our companys salaried employees pension plan for the two-year period following termination. As previously noted, our companys salaried employees pension plan was frozen effective December 31, 2011, including all future service and wage accruals. Accordingly, no amounts would be owed to Mr. Stuewe under this provision of his employment agreement. |
13. | Pursuant to the terms of his employment agreement, if Mr. Stuewe is terminated by our company without cause or resigns for good reason (whether following a change of control or not), we will reimburse him for reasonable relocation expenses, which will be limited to realtor fees and closing costs for the sale of his Texas residence as well as costs of moving from Texas to California. These expenses are not reasonably estimable. |
54 2019 Proxy Statement |
|
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
BY COMPANY WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON (1) |
RETIREMENT | DEATH OR DISABILITY |
RESIGNATION FOR GOOD REASON FOLLOWING A CHANGE OF CONTROL |
|||||||||||||
Brad Phillips |
||||||||||||||||
Compensation |
$ 375,000 | (2) | | | | |||||||||||
Life Insurance Benefits |
| | $1,850,000 | (3) | | |||||||||||
Health and Welfare |
3,997 | (4) | | | | |||||||||||
Disability Income |
| | 613,769 | (5) | | |||||||||||
Executive Outplacement |
10,000 | (6) | | | | |||||||||||
Equity Awards |
260,537 | (7) | $ | 239,820 | (8) | 260,537 | (9) | $ | 470,414 | (10) | ||||||
Rick A. Elrod |
||||||||||||||||
Compensation |
464,400 | (2) | | | | |||||||||||
Life Insurance Benefits |
| | 1,850,000 | (3) | | |||||||||||
Health and Welfare |
19,963 | (4) | | | | |||||||||||
Disability Income |
| | 660,625 | (5) | | |||||||||||
Executive Outplacement |
10,000 | (6) | | | | |||||||||||
Equity Awards |
1,162,569 | (7) | 738,079 | (8) | 1,162,569 | (11) | 1,571,916 | (12) |
1. | All benefits payable to Messrs. Phillips and Elrod upon termination without cause may end or be reduced due to their obligations to seek other employment as required by their respective severance agreements. |
2. | Payable only in the case of a termination by our company without cause and reflects 12 months of compensation based on the noted executive officers base salary at December 29, 2018, to be paid to the noted executive officer in accordance with the terms of his severance agreement. |
3. | Reflects the lump-sum proceeds payable to the noted executive officers designated beneficiary upon his death, which is two times his then-effective base salary, capped at $350,000, from a group life insurance policy that is generally available to all Darling salaried employees and is maintained by our company at its sole expense, plus, an additional amount equal to three times his then-effective base salary, capped at $1,500,000, from a supplemental executive life policy maintained by our company at its sole expense. |
4. | Payable only in the case of a termination by our company without cause and reflects the lump-sum present value of all future premiums paid to or on behalf of the applicable executive officer for medical, dental, life and accidental death and dismemberment insurance, as well as short and long-term disability insurance, which, in accordance with the terms of the severance agreement, are to continue for up to one year following termination. |
5. | Reflects the lump-sum present value of all future payments that the noted executive would be entitled to receive upon disability under a long-term disability policy maintained by our company at its sole expense. The noted executive would be entitled to receive up to 60% of his base salary annually, with the monthly benefit limited to no greater than $10,000, until the age of 65. |
6. | Payable only in the case of a termination by our company without cause and reflects the present value of outplacement fees to be paid by our company to assist the executive officer in obtaining employment following termination. |
7. | With respect to a termination by the company without cause, reflects the acceleration of vesting of 100% of (A) unvested stock options awarded on (i) February 25, 2016, February 6, 2017 and January 29, 2018 to each of Messrs. Phillips and Elrod and (ii) March 7, 2016 to Mr. Elrod and (B) shares of unvested restricted stock awarded on March 7, 2016 to Messrs. Phillips and Elrod, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. In addition, in the event of either a termination by the company without cause or a resignation for good reason, Messrs. Phillips and Elrod would remain eligible to vest in a prorated portion of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, based on actual performance through the end of the respective performance periods. For purposes of calculating the payout of PSUs outstanding at December 29, 2018, we have assumed that target performance was achieved, which leads to a value of $178,386 for Mr. Phillips and $496,766 for Mr. Elrod based on the closing price of our common stock on December 28, 2018 of $19.04 per share, which would be the only amount payable to Messrs. Phillips and Elrod with respect to equity awards following a resignation for good reason outside the context of a change of control. |
8. | Reflects the acceleration of vesting of 100% of unvested stock options awarded on February 6, 2017 and January 29, 2018 to each of Messrs. Phillips and Elrod. In addition, Messrs. Phillips and Elrod would remain eligible to vest in a prorated portion of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, based on actual performance through the end of the respective performance periods. For purposes of calculating the payout of PSUs outstanding at December 29, 2018, we have assumed that target performance was achieved, which leads to a value of $178,386 for Mr. Phillips and $496,766 for Mr. Elrod based on the closing price of our common stock on December 28, 2018 of $19.04 per share. The award documents underlying these equity grants define Retirement as a grantees termination of service, other than for cause, after the attainment of (i) at least 55 years of age with at least ten years of Service or (ii) at least 65 years of age. |
9. | Reflects the acceleration of vesting of (i) 100% of (A) unvested stock options awarded on February 25, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, and (ii) a prorated portion of the target level amount of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. |
|
2019 Proxy Statement 55 |
EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
10. | Reflects the acceleration of vesting of (i) 100% of (A) unvested stock options awarded to Mr. Phillips on February 25, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, and (ii) the target level amount of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. It should be noted that the amount of the PSUs that vest would be increased in the event that the compensation committee determines that, at the time of the change of control, the projected level of performance through the end of the performance period is greater than target level. |
11. | Reflects the acceleration of vesting of (i) 100% of (A) unvested stock options awarded on February 25, 2016, March 7, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, and (ii) a prorated portion of the target level amount of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. |
12. | Reflects the acceleration of vesting of (i) 100% of (A) unvested stock options awarded on February 25, 2016, March 7, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, and (ii) the target level amount of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. It should be noted that the amount of the PSUs that vest would be increased in the event that the compensation committee determines that, at the time of the change of control, the projected level of performance through the end of the performance period is greater than target level. |
BY COMPANY WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON |
RETIREMENT | DEATH OR DISABILITY |
RESIGNATION FOR GOOD REASON FOLLOWING A CHANGE OF CONTROL |
|||||||||||||
Jan van der Velden |
||||||||||||||||
Compensation |
$986,281 | (1) | | $118,182 | (2) | | ||||||||||
Life Insurance Benefits |
| | 413,637 | (3) | | |||||||||||
Disability Income |
| | 827,274 | (4) | | |||||||||||
Equity Awards |
902,904 | (5) | $ | 630,571 | (6) | 902,904 | (7) | $1,284,440 | (8) | |||||||
Jos Vervoort |
||||||||||||||||
Compensation |
750,732 | (1) | | 88,637 | (2) | | ||||||||||
Life Insurance Benefits |
| | 354,546 | (3) | | |||||||||||
Disability Income |
| | 709,092 | (4) | | |||||||||||
Equity Awards |
521,524 | (5) | 454,657 | (6) | 521,524 | (9) | 801,958 | (10) |
1. | Payable only in the case of a termination by our company without cause and reflects amount based on a court formula pursuant to case law of the Netherlands, which would equal the noted executive officers base salary plus the amount due him under the annual incentive bonus component of the 2018 executive compensation program. |
2. | Reflects three months of compensation based on the noted executive officers base salary at December 29, 2018. |
3. | Reflects the lump-sum proceeds payable to the noted executive officer from a group life insurance policy that is generally available to all Darling Ingredients International salaried employees and is maintained by our company at its sole expense. |
4. | Reflects amount owed to the noted executive officer pursuant to the laws of the Netherlands and his employment agreement, as well as the lump-sum proceeds payable to the noted executive officer from a group disability policy that is generally available to all Darling Ingredients International salaried employees and is maintained by our company at its sole expense. |
5. | With respect to a termination by the company without cause, reflects the acceleration of vesting of 100% of (A) unvested stock options awarded on (i) February 25, 2016, February 6, 2017 and January 29, 2018 to each of Messrs. van der Velden and Vervoort and (ii) March 7, 2016 to Mr. van der Velden and (B) shares of unvested restricted stock awarded on March 7, 2016 to each of Messrs. van der Velden and Vervoort, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. In addition, in the event of either a termination by the company without cause or a resignation for good reason, Messrs. van der Velden and Vervoort would remain eligible to vest in a prorated portion of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, based on actual performance through the end of the respective performance periods. For purposes of calculating the payout of PSUs outstanding at December 29, 2018, we have assumed that target performance was achieved, which leads to a value of $430,672 for Mr. van der Velden and $311,577 for Mr. Vervoort based on the closing price of our common stock on December 28, 2018 of $19.04 per share, which would be the only amount payable to Messrs. van der Velden and Vervoort with respect to equity awards following a resignation for good reason outside the context of a change of control. |
6. | Reflects the acceleration of vesting of 100% of unvested stock options awarded on February 6, 2017 and January 29, 2018. In addition, Messrs. van der Velden and Vervoort would remain eligible to vest in a prorated portion of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, based on actual performance through the end of the respective performance periods. For purposes of calculating the payout of PSUs outstanding at December 29, 2018, we have assumed that target performance was achieved, which leads to a value of $430,672 for Mr. van der Velden and $311,577 for Mr. Vervoort based on the closing price of our common stock on December 28, 2018 of $19.04 per share. The award documents underlying these equity grants define Retirement as a grantees termination of service, other than for cause, after the attainment of (i) at least 55 years of age with at least ten years of Service or (ii) at least 65 years of age. |
56 2019 Proxy Statement |
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EXECUTIVE COMPENSATION
Potential Payments upon Termination or Change of Control
7. | Reflects the acceleration of vesting of (i) 100% of (A) unvested stock options awarded on February 25, 2016, March 7, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, and (ii) a prorated portion of the target level amount of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. |
8. | Reflects the acceleration of vesting of (i) 100% of (A) unvested stock options awarded on February 25, 2016, March 7, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, and (ii) the target level amount of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. It should be noted that the amount of the PSUs that vest would be increased in the event that the compensation committee determines that, at the time of the change of control, the projected level of performance through the end of the performance period is greater than target level. |
9. | Reflects the acceleration of vesting of (i) 100% of (A) unvested stock options awarded on February 25, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, and (ii) a prorated portion of the target level amount of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. |
10. | Reflects the acceleration of vesting of (i) 100% of (A) unvested stock options awarded on February 25, 2016, February 6, 2017 and January 29, 2018 and (B) shares of unvested restricted stock awarded on March 7, 2016, and (ii) the target level amount of the PSUs awarded under our companys 2017 and 2018 executive compensation programs, with the value in each case based on the closing price of our common stock on December 28, 2018 of $19.04 per share. It should be noted that the amount of the PSUs that vest would be increased in the event that the compensation committee determines that, at the time of the change of control, the projected level of performance through the end of the performance period is greater than target level. |
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are providing the following disclosure about the relationship of the annual total compensation of an employee identified as the median compensated individual to the annual total compensation of Mr. Stuewe, our Chief Executive Officer.
Ratio
For 2018,
∎ | The median of the annual total compensation of all of our employees, other than Mr. Stuewe, was $49,246. |
∎ | Mr. Stuewes annual total compensation, as reported in the Total column of the 2018 Summary Compensation Table on page 45, was $5,846,278. |
∎ | Based on this information, the ratio of the annual total compensation of Mr. Stuewe to the median of the annual total compensation of all employees is estimated to be 119 to 1. |
Identification of Median Employee
Because there has been no change in our employee population or employee compensation arrangements that we believe would significantly impact the pay ratio disclosure, as permitted by Item 402(u) of Regulation S-K, we are using the same median employee in the pay ratio calculation as we used in the prior fiscal year. For the prior fiscal year, we selected December 31, 2017 as the date on which to determine our median employee. For purposes of identifying the median employee, we considered base salary, overtime and bonus payments over the 12-month period ended December 31, 2017.
Using this methodology, we determined that our median employee was a full-time, hourly employee working in the United States. In determining the annual total compensation of the median employee, we calculated such employees compensation in accordance with Item 402(c)(2)(x) of Regulation S-K as required pursuant to SEC executive compensation disclosure rules. This calculation is the same calculation used to determine total compensation for purposes of the 2018 Summary Compensation Table with respect to each of the named executive officers. The ratio represents a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
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2019 Proxy Statement 57 |
EXECUTIVE COMPENSATION
Compensation of Directors
The following table sets forth certain information regarding the fees earned or paid in cash and stock awards granted to each director who did not serve as an employee of our company during the fiscal year ended December 29, 2018.
NAME | FEES EARNED OR PAID IN CASH ($) |
STOCK AWARDS ($) (1) |
OPTION AWARDS ($) (2) |
TOTAL ($) | ||||
Charles Adair |
$101,500 | $110,000 | | $211,500 | ||||
D. Eugene Ewing |
123,000 | 110,000 | | 233,000 | ||||
Linda Goodspeed |
98,000 | 110,000 | | 208,000 | ||||
Dirk Kloosterboer |
83,975 | 110,000 | | 193,975 | ||||
Mary R. Korby |
117,250 | 110,000 | | 227,250 | ||||
Cynthia Pharr Lee |
96,000 | 110,000 | | 206,000 | ||||
Charles Macaluso |
206,500 | 110,000 | | 316,500 | ||||
Gary W. Mize |
100,500 | 110,000 | | 210,500 | ||||
Michael E. Rescoe |
96,500 | 110,000 | | 206,500 | ||||
Nicole M. Ringenberg |
14,617 | 55,753 | | 70,370 |
1. | The aggregate number of stock awards outstanding at December 29, 2018 for the directors listed above are as follows: Adair, 13,664; Ewing, 40,453; Goodspeed, 13,664; Kloosterboer, 20,338; Korby, 29,425; Pharr Lee, 19,867; Macaluso, 51,504; Mize, 19,867; Rescoe, 13,664; and Ringenberg, 2,703. |
2. | The aggregate number of option awards outstanding at December 29, 2018 for the directors listed above are as follows: Adair, none; Ewing, none; Goodspeed, none; Kloosterboer, 219,753; Korby, none; Pharr Lee, none; Macaluso, 8,000; Mize, none; Rescoe, none; Ringenberg, none. |
58 2019 Proxy Statement |
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BENEFICIAL OWNERS AND MANAGEMENT |
Security Ownership of Certain Beneficial Owners
The following table and notes set forth certain information with respect to the beneficial ownership of shares of our common stock based on Schedule 13G or Schedule 13D filings, as the case may be, as of December 29, 2018, by each person or group within the meaning of Rule 13d-3 under the Exchange Act who is known to our management to be the beneficial owner of more than five percent of our outstanding common stock and is based upon information provided to us by those persons.
NAME AND ADDRESS OF BENEFICIAL OWNER |
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP |
PERCENT OF CLASS | ||
Blackrock, Inc. 55 East 52nd Street, New York, NY 10055 |
24,292,062 (1) | 14.80% | ||
The Vanguard Group, Inc. 100 Vanguard Blvd., Malvern, PA 19355 |
17,160,068 (2) | 10.42% | ||
FMR LLC 245 Summer Street Boston, MA 02210 |
16,188,897 (3) | 9.83% | ||
Dimensional Fund Advisors LP Building One, 6300 Bee Cave Road Austin, TX 78746 |
13,555,210 (4) | 8.23% |
1. | BlackRock, Inc. is a parent holding company in accordance with Rule 13d-1 (b)(1)(ii)(G) of the Exchange Act and has dispositive power with respect to all of the above shares and sole voting power with respect to 23,894,872 of the above shares. |
2. | The Vanguard Group, Inc. (Vanguard) is an investment adviser in accordance with Section 240.13d-1 (b)(1)(ii)(E) of the Exchange Act and has sole power to vote or direct votes with respect to 161,439 of the above shares and sole dispositive power with respect to 16,986,391 of the above shares. Vanguard has shared power to vote or direct votes with respect to 28,271 of the above shares and shared dispositive power with respect to 173,677 of the above shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 145,406 of the shares as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 44,304 of the shares as a result of its serving as investment manager of Australian investment offerings. |
3. | Reflects the securities beneficially owned, or that may be deemed to be beneficially owned, by FMR LLC, certain of its subsidiaries and affiliates, and other companies (collectively, the FMR Reporters). FMR LLC has sole dipositive power with respect to all of the above shares and sole voting power with respect to 2,083,087 of the above shares. FMR LLC is a parent holding company in accordance with Section 240.13d-1 (b) (1) (ii) (G) of the Exchange Act. Abigail P. Johnson is a Director, the Chairman and the Chief Executive Officer of FMR LLC. Members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act of 1940 (Fidelity Funds) advised by Fidelity Management & Research Company (FMR Co), a wholly owned subsidiary of FMR LLC, which power resides with the Fidelity Funds Boards of Trustees. FMR Co carries out the voting of the shares under written guidelines established by the Fidelity Funds Boards of Trustees. |
4. | Dimensional Fund Advisors LP is an investment advisor in accordance with Section 240.13d-1 (b)(1)(ii)(E) of the Exchange Act and has dispositive power with respect to all of the above shares and sole voting power with respect to 13,270,631 of the above shares. |
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2019 Proxy Statement 59 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management
Security Ownership of Management
The following table and notes set forth certain information with respect to the beneficial ownership of shares of our common stock, as of March 13, 2019, by each director, each nominee for director, each named executive officer and by all directors and executive officers as a group:
NAME OF BENEFICIAL OWNER |
COMMON STOCK OWNED |
UNEXERCISED PLAN OPTIONS (2) |
COMMON STOCK BENEFICIALLY OWNED (3) |
PERCENT OF COMMON STOCK OWNED | ||||||||||||||||
Randall C. Stuewe |
711,740 | 1,549,218 | 2,260,958 | 1.36 | % | |||||||||||||||
Charles Adair |
15,664 | (1) | 0 | 15,664 | * | |||||||||||||||
Rick A. Elrod |
106,486 | 115,566 | 222,052 | * | ||||||||||||||||
D. Eugene Ewing |
40,453 | (1) | 0 | 40,453 | * | |||||||||||||||
Linda Goodspeed |
13,664 | (1) | 0 | 13,664 | * | |||||||||||||||
Dirk Kloosterboer |
187,680 | (1) | 219,753 | 407,433 | * | |||||||||||||||
Mary R. Korby |
29,425 | (1) | 0 | 29,425 | * | |||||||||||||||
Cynthia Pharr Lee |
20,067 | (1) | 0 | 20,067 | * | |||||||||||||||
Charles Macaluso |
84,699 | (1) | 4,000 | 88,699 | * | |||||||||||||||
Gary W. Mize |
19,867 | (1) | 0 | 19,867 | * | |||||||||||||||
Brad Phillips |
56,778 | 21,210 | 77,988 | * | ||||||||||||||||
Michael E. Rescoe |
13,664 | (1) | 0 | 13,664 | * | |||||||||||||||
Nicole M. Ringenberg |
2,703 | (1) | 0 | 2,703 | * | |||||||||||||||
Jan van der Velden |
88,918 | 56,861 | 145,779 | * | ||||||||||||||||
Jos Vervoort |
17,012 | 43,309 | 60,321 | * | ||||||||||||||||
All executive officers and directors as a group (18 persons) |
1,928,333 | 2,424,989 | 4,353,322 | 2.63 | % |
* | Represents less than one percent of our common stock outstanding. |
1. | Represents stock owned, as well as 6,567 restricted stock units awarded to each of Messrs. Adair, Ewing, Kloosterboer, Macaluso, Mize and Rescoe and Mses. Goodspeed, Korby and Pharr Lee and 2,703 restricted stock units awarded to Ms. Ringenberg that vest within 60 days of March 13, 2019. |
2. | Represents options that are or will be vested and exercisable within 60 days of March 13, 2019. |
3. | Except as otherwise indicated in the column Unexercised Plan Options and footnote 1 and for unvested shares of restricted stock for which recipients have the right to vote but not dispositive power, the persons named in this table have sole voting and investment power with respect to all shares of capital stock shown as beneficially owned by them. |
60 2019 Proxy Statement |
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Our Code of Conduct addresses our companys procedures with respect to the review and approval of related party transactions that are required to be disclosed pursuant to SEC regulations. The Code of Conduct provides that any transaction or activity, in which Darling is involved, with a related party (which is defined as an employees child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, or any person (other than a tenant or employee) sharing the household of an employee of ours, or any entity that is either wholly or substantially owned or controlled by an employee of ours or any of the foregoing persons and any trust of which an employee of ours is a trustee or beneficiary) shall be subject to review by our general counsel so that appropriate measures can be put into place to avoid either an actual conflict of interest or the appearance of a conflict of interest. Any waivers of this conflict of interest policy must be in writing and be pre-approved by our general counsel.
Since January 1, 2018, no transaction has been identified as a reportable related person transaction.
Section 16(a) of the Exchange Act requires our directors and executive officers and any persons who own more than ten percent of our common stock to file with the SEC various reports as to ownership of the common stock. These persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on our review of the copies of the reports furnished to us, the aforesaid Section 16(a) filing requirements were met on a timely basis during fiscal 2018, except that, due to an inadvertent administrative error, a required Form 4 was not filed on a timely basis to report an exercise of options by Mr. Macaluso; however, the Form 4 was promptly filed after becoming aware of the error.
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2019 Proxy Statement 61 |
QUESTIONS AND ANSWERS ABOUT VOTING AND THE ANNUAL MEETING
How will votes be counted?
66 2019 Proxy Statement |
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QUESTIONS AND ANSWERS ABOUT VOTING AND THE ANNUAL MEETING
Who will count the votes?
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2019 Proxy Statement 67 |
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Our management is not aware of any other matters to be presented for action at the Annual Meeting; however, if any matters are properly presented for action, it is the intention of the persons named in the enclosed form of proxy to vote in accordance with their best judgment on these matters.
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The SEC has adopted rules that permit companies and intermediaries (e.g., banks, brokers, trustees or other nominees) to satisfy the delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as householding, potentially means extra convenience for stockholders and cost savings for companies. Each stockholder who participates in householding will continue to receive a separate proxy card (if the proxy materials are received by mail).
A number of brokers with account holders who are our stockholders will be householding our proxy materials. A single proxy statement report will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement, please notify your bank, broker, trustee or other nominee and direct a written request to Darling Ingredients Inc., Attn: Investor Relations, 251 OConnor Ridge Boulevard, Suite 300, Irving, Texas 75038 or make an oral request by telephone at (972) 717-0300. If any stockholders in your household wish to receive a separate copy of this Proxy Statement, they may call or write to Investor Relations and we will promptly provide additional copies. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request householding of their communications should contact their bank, broker, trustee or other nominee.
68 2019 Proxy Statement |
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THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
A PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT TO VOTE YOUR SHARES OF THE COMPANYS COMMON STOCK
AT THE ANNUAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT
IS DATED MARCH 27, 2019. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS
PROXY STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
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Stockholder Proposals for 2020
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2019 Proxy Statement 69 |
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Non-GAAP Reconciliations
Adjusted EBITDA is presented in the Proxy Statement not as an alternative to net income, but rather as a measure of the Companys operating performance and is not intended to be a presentation in accordance with GAAP. Since EBITDA (generally, net income plus interest expenses, taxes, depreciation and amortization) is not calculated identically by all companies, this presentation may not be comparable to EBITDA or adjusted EBITDA presentations disclosed by other companies. Adjusted EBITDA is calculated in this presentation and represents, for any relevant period, net income/(loss) plus depreciation and amortization, goodwill and long-lived asset impairment, interest expense, (income)/loss from discontinued operations, net of tax, income tax provision, other income/(expense) and equity in net (income)/loss of unconsolidated subsidiary. Management believes that Adjusted EBITDA is useful in evaluating the Companys operating performance compared to that of other companies in its industry because the calculation of Adjusted EBITDA generally eliminates the effects of financing income taxes and certain non-cash and other items that may vary for different companies for reasons unrelated to overall operating performance.
As a result, the Companys management uses Adjusted EBITDA as a measure to evaluate performance and for other discretionary purposes. However, Adjusted EBITDA is not a recognized measurement under GAAP, should not be considered as an alternative to net income as a measure of operating results or to cash flow as a measure of liquidity, and is not intended to be a presentation in accordance with GAAP. In addition, the Company evaluates the impact of foreign exchange on operating cash flow, which is defined as segment operating income (loss) plus depreciation and amortization.
Reconciliation of Net Income to (Non-GAAP) Adjusted EBITDA and (Non-GAAP) Pro Forma Adjusted EBITDA
2018 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
Net Income DII | 101,496 | 128,468 | 102,313 | 78,531 | 64,215 | 108,967 | ||||||||||||||||||
Depreciation & amortization | 321,192 | 302,100 | 289,908 | 269,904 | 269,517 | 98,787 | ||||||||||||||||||
Interest expense | 86,429 | 88,926 | 94,187 | 105,530 | 135,416 | 38,108 | ||||||||||||||||||
Income tax expense/(benefit) | 12,031 | (69,154 | ) | 15,315 | 13,501 | 13,141 | 54,711 | |||||||||||||||||
Restructuring and impairment charges | 14,965 | | | | | | ||||||||||||||||||
Foreign currency loss/(gain) | 6,431 | 6,898 | 1,854 | 4,911 | 13,548 | (28,107 | ) | |||||||||||||||||
Other expense/(income), net | 7,562 | 8,801 | 6,533 | 6,839 | (299 | ) | 3,547 | |||||||||||||||||
Debt Extinguishment costs | 23,509 | | | | | | ||||||||||||||||||
Loss on disposal of subsidiaries | 12,545 | 885 | | | | | ||||||||||||||||||
Equity in net (income)/loss of unconsolidated subsidiaries | (159,229 | ) | (28,504 | ) | (70,379 | ) | (73,416 | ) | (65,609 | ) | (7,660 | ) | ||||||||||||
Net income attributable to noncontrolling interests | 4,448 | 4,886 | 4,911 | 6,748 | 4,096 | | ||||||||||||||||||
Adjusted EBITDA (non-GAAP) | 431,379 | 443,306 | 444,642 | 412,548 | 434,025 | 268,353 | ||||||||||||||||||
Non-cash inventory step-up associated with Vion acquisition | | | | | 49,803 | | ||||||||||||||||||
Acquisition and integration-related expenses | | | 401 | 8,299 | 24,667 | 23,271 | ||||||||||||||||||
Darling Ingredients International13th week | | | | | 4,100 | | ||||||||||||||||||
Pro forma Adjusted EBITDA (non-GAAP) | 431,379 | 443,306 | 445,043 | 420,847 | 512,595 | 291,624 | ||||||||||||||||||
Foreign currency exchange impact | (8,565 | ) | (5,682 | ) | 1,980 | 48,961 | | | ||||||||||||||||
Pro forma Adjusted EBITDA to Foreign Currency (non-GAAP) |
422,814 | 437,624 | 447,023 | 469,808 | 512,595 | 291,624 | ||||||||||||||||||
DGD Joint Venture EBITDA | 174,013 | 43,198 | 87,224 | 88,494 | 81,639 | 16,490 | ||||||||||||||||||
Pro forma Adjusted Combined EBITDA (non-GAAP) | 596,827 | (1) | 480,822 | (2)(3) | 534,247 | (3)(4) | 558,302 | 594,234 | 308,114 |
1. | This amount does not include $33.3 million in EBITDA when currency adjusted using 2014 exchange rates, but does include $92.9 million in EBITDA related to blenders tax credits attributable to 2017 performance but not booked until the first quarter of 2018, as further described in footnote 2 below. |
2. | This amount does not include an additional (i) $92.9 million in EBITDA related to blenders tax credits for 2017, $80.3 million of which was booked by DGD and $12.6 million of which was booked by our company in the first quarter of 2018 and (ii) $50.8 million in EBITDA when currency adjusted using 2014 exchange rates. Our company had no material foreign operations prior to fiscal 2014, which is the year that our company acquired our Darling Ingredients International businesses from VION Holding, N.V. |
70 2019 Proxy Statement |
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APPENDIX A
Non-GAAP Reconciliations
3. | In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and the Net Periodic Postretirement Benefit Cost. As a result of our companys adoption of this new standard, the amount of Pro forma Adjusted Combined EBITDA (non-GAAP) shown above for fiscal 2017 and 2016 differs from the amounts previously included in the companys proxy statements filed in connection with the companys 2017 and 2018 annual stockholder meetings. |
4. | This amount does not include an additional $52.1 million in EBITDA when currency adjusted using 2014 exchange rates. |
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2019 Proxy Statement 71 |
DARLING INGREDIENTS INC. 251 OCONNOR RIDGE BLVD., SUITE 300 IRVING, TX 75038 ATTN: MARTIJN VAN STEENPAAL VOTE BY INTERNETwww.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees For Against Abstain 1a. Randall C. Stuewe ?0 0 0 For Against Abstain 1b. Charles Adair 0 0 0 1i. Gary W. Mize 0 0 0 1c. D. Eugene Ewing 0 0 0 1j. Michael E. Rescoe 0 0 0 1d. Linda Goodspeed 0 0 0 1k. Nicole M. Ringenberg 0 0 0 1e. Dirk Kloosterboer 0 0 0 The Board of Directors recommends you vote FOR proposals 2 and 3. For Against Abstain 1f. Mary R. Korby 0 0 0 2. Proposal to ratify the selection of KPMG LLP as 0 0 0 the Companys independent registered public accounting firm for the fiscal year ending 1g. Cynthia Pharr Lee 0 0 0 December 28, 2019. 1h. Charles Macaluso 0 0 0 3. Advisory vote to approve executive 0 0 0 compensation. For address change/comments, mark here. 0 NOTE: Such other business as may properly come R1.0.1.18 (see reverse for instructions) before the meeting or any adjournment thereof. 1 _ Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or 0000408120 partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement is/ are available at www.proxyvote.com ProxyDARLING INGREDIENTS INC. Annual Meeting of Stockholders May 7, 2019 This proxy is solicited by the Board of Directors KNOW ALL MEN BY THESE PRESENTS, that the undersigned stockholder of DARLING INGREDIENTS INC., a Delaware corporation (the Company), does hereby constitute and appoint John F. Sterling and Brad Phillips, or either one of them, with full power to act alone and to designate substitutes, the true and lawful proxies of the undersigned for and in the name and stead of the undersigned, to vote all shares of Common Stock of the Company which the undersigned would be entitled to vote if personally present at the Annual Meeting of Stockholders to be held at the Four Seasons Resort and Club at 4150 N. MacArthur Blvd., Irving, Texas 75038, on May 7, 2019 at 10:00 a.m., local time, and at any and all adjournments and postponements thereof (the Annual Meeting), on all matters that may come before such Annual Meeting. Said proxies are instructed to vote on the following matters in the manner herein specified. IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF COMMON STOCK COVERED HEREBY WILL BE VOTED AS SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE, SUCH SHARES WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND AS THE PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. Address change/comments: (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) (CONTINUED AND TO BE MARKED, DATED AND SIGNED ON THE OTHER SIDE)