KBR004PXY2016
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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KBR, INC.
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To Our Stockholders,
2015 was a defining year for KBR; a year in which we transformed KBR structurally and culturally. The success of this transformation has made KBR a more sustainable business and helped ensure that we continue to win the right work and deliver on our promise to our customers. I am immensely proud and grateful for the hard work of every employee who helped make this possible.
KBR is a company of people, more than 22,000 employees doing business in over 80 countries, and it is to our people to whom we owe our best effort.
The theme of this year’s Proxy Statement – “A Personal Relationship with Safety” – reflects our commitment to the health and safety of our people, our clients and partners, and the communities and environments in which we do business.
For KBR, safety is more than policies or procedures; it is our vision for a culture of safety, all-day every-day where safe execution is non-negotiable and no unsafe incidents or behaviours are tolerated. This vision is embodied in KBR’s Zero Harm 24/7 initiative which empowers all of our employees, clients and contractors to display the courage to care by looking out for each other and for our environment. We envision the KBR Zero Harm philosophy extending into the personal lives of all employees where our people make safety-conscious decisions based on personal values.
Establishing and incorporating health, safety, security and environmental responsibility and accountability is a priority within our organization and it also creates value for our customers. Just as customers rely on our expertise to make the most efficient use of their assets, they also depend on us to help meet their objectives of financial performance, worker safety and environmental protection.
At KBR we understand that safety is a journey that never ends. That is why we begin every meeting with a health, safety, security, or environmental moment, discussing specific on-the-job risks and how to mitigate them. It is also why KBR maintains Health, Safety, Security and Environment as a core value for all employees and a key element in our Code of Business Conduct.
Recently, at KBR projects and offices around the globe, we set aside a day for “recognition and reflection” on Zero Harm. Zero Harm Day was an opportunity to recognize the remarkable safety improvements and achievements we have celebrated over the past year. Over the course of 2015, KBR’s total recordable incident rate improved by 30%. Multiple KBR projects have achieved millions of work hours without any recordable incidents and our total number of recordable incidents has dropped by 33% this past year.
However, Zero Harm Day also provided opportunity to remember that when it comes to safety, nothing less than Zero Harm is success. At KBR, safety is personal and we will continue to do everything we can to work safely all day, every day, to ensure our goal of zero incidences is achieved.
We are honoured to have the opportunity to work with clients around the world building the projects of the future in safe and healthy work environments and helping to contribute to a better future for everyone, leaving the places we live and work in as good as, or even better, than we found them.
Sincerely,
Stuart J. B. Bradie
President and Chief Executive Officer
March 31, 2016
Thursday, May 12, 2016
9:00 a.m.
601 Jefferson Street, Houston, Texas 77002
KBR, Inc., a Delaware corporation, will hold its Annual Meeting of Stockholders on Thursday, May 12, 2016, at 9:00 a.m., local time, in The Texas Room, located at 601 Jefferson Street, Houston, Texas 77002. At the meeting, stockholders will be asked to consider and act upon the following matters discussed in the attached proxy statement:
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To elect as directors the nominees named in the attached proxy statement.
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To consider and act upon a proposal to ratify the appointment of KPMG LLP as the independent registered public accounting firm to audit the consolidated financial statements for KBR as of and for the year ending December 31, 2016.
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To consider and act upon an advisory vote to approve the named executive officer compensation as described in the Compensation Discussion and Analysis herein.
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To approve an amendment and restatement of the Stock Plan.
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To transact any other business that properly comes before the meeting or any adjournment or postponements of the meeting.
These items are fully described in the following pages, which are made a part of this Notice. The Board of Directors has set Thursday, March 17, 2016, at the close of business, as the record date for the determination of stockholders entitled to notice of and to vote at the meeting and at any adjournment or postponement of the meeting.
We request that you vote your shares as promptly as possible. If you have shares registered in your own name, you may vote your shares in a number of ways:
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electronically via the Internet at www.proxyvote.com,
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by telephone, if you are in the U.S. or Canada, by calling 1-800-690-6903, or
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by marking your votes, dating and signing the proxy card or voting instruction form enclosed and returning it in the postage-paid envelope provided.
If you hold KBR shares with a broker or bank, you may also be eligible to vote via the Internet or by telephone if your broker or bank participates in the proxy voting program provided by Broadridge Investor Communication Services.
March 31, 2016
By Order of the Board of Directors,
Eileen Akerson
Secretary
IF YOU PLAN TO ATTEND:
Attendance at the meeting is limited to stockholders. No guests will be admitted. Admission will be on a first-come, first-served basis. Registration will begin at 8:00 a.m., and the meeting will begin promptly at 9:00 a.m. Each stockholder holding KBR shares in brokerage accounts is required to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Please note that you may be asked to present valid picture identification, such as a driver’s license or passport.
Table of Contents
- 2016 Proxy Statement 6
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Proxy Statement
General Information
The accompanying proxy is solicited by the Board of Directors of KBR, Inc. (“KBR,” the “Company,” “we” or “us”). By executing and returning the enclosed proxy or by following the enclosed voting instructions, you authorize the persons named in the proxy to represent you and vote your shares on the matters described in the Notice of Annual Meeting of Stockholders.
Subject to space availability, all stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Admission to the meeting will be on a first-come, first-served basis and no guests will be admitted. Registration will begin at 8:00 a.m., and the meeting will begin at 9:00 a.m. Please note that you may be asked to present valid picture identification, such as a driver’s license or passport, when you check in at the registration desk.
If you hold your shares in “street name” (that is, through a broker or other nominee), you are required to bring a copy of a brokerage statement reflecting your stock ownership as of the record date.
No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the meeting.
If you attend the meeting, you may vote in person. If you are not present, your shares can be voted only if you have followed the instructions for voting via the Internet or by telephone, or returned a properly executed proxy; and in these cases, your shares will be voted as you specify. If no specification is made, the shares will be voted in accordance with the recommendations of the Board of Directors. You may revoke the authorization given in your proxy at any time before the shares are voted at the meeting.
The record date for determination of stockholders entitled to vote at the meeting is Thursday, March 17, 2016. KBR’s common stock, par value $0.001, is the only class of capital stock that is outstanding. As of March 17, 2016, there were 142,317,863 shares of common stock outstanding. Each of the outstanding shares of common stock is entitled to one vote on each matter submitted to the stockholders for a vote at the meeting. A complete list of stockholders entitled to vote will be kept at our offices at the address specified below for ten days prior to, and will be available at, the meeting.
Votes cast by proxy or in person at the meeting will be counted by the persons appointed by us to act as election inspectors for the meeting. Except as set forth below, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter will be the act of the stockholders. Except as set forth below, shares for which a holder has elected to abstain on a matter will count for purposes of determining the presence of a quorum and will have the effect of a vote against the matter.
Directors are elected by a majority of votes cast (the number of shares voted “for” a candidate must exceed the number of shares voted “against” the candidate). Shares present but not voting on the election of directors will be disregarded, except for quorum purposes, and will have no legal effect.
The amendment and restatement of our Stock Plan requires the approval of a majority of votes cast and shares for which a holder has elected to abstain on this proposal are counted as a vote “Against” the proposal (the number of shares “For” this proposal must exceed the sum of the number of shares voted “Against” plus the number of abstentions).
The election inspectors will treat shares held in street name, which cannot be voted by a broker on specific matters in the absence of instructions from the beneficial owner of the shares, known as broker non-vote shares, as shares that are present and entitled to vote for purposes of determining the presence of a quorum. In determining the outcome of any matter for which the broker does not have discretionary authority to vote, however, those shares will not have any effect on that matter. Those shares may be entitled to vote on other matters for which brokers may exercise their own discretion.
The proxy solicitor, the election inspectors and the tabulators of all proxies, ballots and voting tabulations that identify stockholders are independent and are not employees of KBR.
This proxy statement, the form of proxy and voting instructions are being made available to stockholders on or about March 31, 2016, at www.proxyvote.com. You may also request a printed copy of this proxy statement and the form of proxy by any of the following methods: (a) telephone at 1-800-579-1639; (b) internet at www.proxyvote.com; or (c) e-mail at sendmaterial@proxyvote.com. Our Annual Report to Stockholders, including financial statements, for the fiscal year ended December 31, 2015, is being made available at the same time and by the same methods. The Annual Report is not to be considered as a part of the proxy solicitation material or as having been incorporated by reference.
Our principal executive office is located at 601 Jefferson Street, Suite 3400, Houston Texas 77002 and our website address is www.kbr.com. Information contained on our website, including information referred to in this proxy statement, is not to be considered as part of the proxy solicitation material and is not incorporated into this proxy statement.
- 2016 Proxy Statement 7
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Proxy Summary
This summary highlights information contained elsewhere in this proxy statement. For more information about these topics, we encourage you to review the complete proxy statement prior to voting.
DELIVERING ON OUR STRATEGY
In December 2014, at the initiation of our newly-appointed chief executive officer (“CEO”), we began implementation of the strategic plan that was outlined to our stockholders. In 2015, we made significant progress against our strategic initiatives, as outlined below:
Strategic Initiatives
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Exit non-strategic businesses
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Completed two of three fixed-priced EPC Power projects; final project targeted completion Q1 2017
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Sold Building Group; pre-tax gain $28 million; cash proceeds $23 million
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Sold U.S. Infrastructure business; pre-tax gain $7M; cash proceeds $18 million
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Closed U.S. Minerals office
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Businesses under review
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Transferred U.S. Industrial Services Business to Brown & Root (B&R) JV
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Transferred Canadian Pipe Fabrication/Module Assembly Business to EPIC JV
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Reduce costs by $200 million by Y/E 2016
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More than $165 million identified and actioned to-date
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Achieve Target Margins by Y/E 2016:
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E&C (High single digits)
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GS (Low teens) – Excluding legacy legal costs
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GS 2015: 9.0% (excluding $18 million in legacy legal fees) (see GAAP reconciliation on page 69 of this proxy statement)
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Resolve outstanding disputes
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U.S. Government audits through 2011 largely completed. Only $9 million in questioned costs out of approximately $46 billion audited remain open
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LogCAP III tort cases – Sodium Dichromate cases dismissed on merits. Subject to appeal.
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PEMEX – awaiting court decision
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Employ a balanced capital allocation policy
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Returned $109 million to shareholders in 2015; $1.1 billion since January 2007
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Paid a competitive yielding dividend
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Purchased 21% of pipe fabrication business (BCP)
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Acquired technology subsidiaries from Chematur (closed Jan 2016)
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Under our new strategy, our focus is winning the right work, executing on our commitments, and driving out unnecessary cost. We are delivering on our strategy, our teams are aligned as “ONE KBR,” we are working with a sense of urgency and passion, we are focusing on what we believe is important, and we have clear accountability and empowerment.
- 2016 Proxy Statement 8
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FINANCIAL HIGHLIGHTS
As seen in our 2015 10-K, which was filed on February 26, 2016, our fiscal 2015 consolidated results reflect continued strength in our operational performance and progress towards achieving the strategic objectives outlined above. KBR’s transformation is well underway. Our efforts to implement the strategic objectives have translated into better than expected earnings per share in 2015. In addition, our one-year relative shareholder return has dramatically improved from 2014.
PAY FOR PERFORMANCE PHILOSOPHY
AT WORK
We delivered on our transformation strategy in 2015. Appropriately, our Named Executive Officers (“NEOs”) received above target payouts under our 2015 Short-Term Incentive Plan that reflected their strong performance in delivering on the strategy outlined above. This strong performance is also reflected in KBR’s total shareholder return for 2015, which ranked 3rd out of 10 among our TSR peer group (defined in the Compensation Discussion and Analysis of this proxy statement under the section titled “KBR Long-Term Performance Cash Awards”).
Our three-year total shareholder return from January 1, 2013, to December 31, 2015, trailed below the median of our TSR peer group and largely reflects performance prior to the strategy implementation announced in December 2014. Consequently, the long-term performance cash awards payable for the three-year period ending on December 31, 2015, earned zero, which represented 60% of our NEOs’ annual long-term incentive compensation opportunity when granted in 2013.
These results demonstrate a compensation program designed on the principles of “Pay for Performance.” Our incentive plan payouts are more fully described in our Compensation Discussion and Analysis section of this proxy statement. Even though we believe our compensation program reflects pay for performance, our Compensation Committee exercised negative discretion to reduce the 2015 Short-Term Incentive Plan payouts for our NEOs below the achieved metrics (for a more detailed description of how the negative discretion was applied, see the section titled “Short-Term Incentives (Annual)” in our Compensation Discussion and Analysis section of this proxy statement).
CHANGES MADE TO NEO’s 2015
COMPENSATION
Based on prior year performance, peer-comparative data, and the recommendation of our CEO, our Compensation Committee approved zero 2015 base salary increases for all NEOs (except for a newly promoted NEO, Mr. Mujib). In addition, our Compensation Committee approved zero 2015 short-term incentive target increases and zero 2015 long-term incentive target increases for all NEOs, excluding the CEO and Mr. Mujib.
Based on peer-comparative data for his level of compensation, on his non-involvement (pre-hire) in the 2013 financial and operational challenges, and on our Board’s satisfaction with his personal engagement in formulating and leading KBR’s business transformation actions (our CEO’s performance is more fully described on page 27 of this proxy statement in the section titled “Performance Highlights”), our Compensation Committee and Board approved modest increases to our CEO’s short- and long-term incentive targets for 2015 but made no increase to his base salary. The CEO’s 2015 total target compensation was kept below the median total target compensation for our E&C Peer Group (our E&C Peer Group is described in our Compensation Discussion and Analysis portion of this proxy statement in the section titled “Benchmarking Compensation”).
- 2016 Proxy Statement 9
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With respect to Mr. Mujib, based on peer comparative data, his promotion, and his leadership in planning and implementing our strategic plan, our Compensation Committee approved modest increases to Mr. Mujib’s short- and long-term incentive targets for 2015. Mr. Mujib’s total target compensation was kept below the median total target compensation for our E&C peer Group.
ZERO HARM – A PERSONAL RELATIONSHIP
WITH SAFETY
In alignment with our commitment to Safety, our CEO launched our Zero Harm initiative company-wide in 2014, which is aimed at continuously decreasing our recordable incident rates in an effort to become a safety industry leader. Our initiative incorporates three dynamic components – Zero Harm, 24/7, and Courage to Care. Every Monday a teleconference is hosted by KBR leadership with the various business units and their respective projects from around the globe. The purpose of this teleconference is to review the previous week’s incidents to ensure steps have been taken to prevent recurrence and to share information globally. These weekly calls are also used to screen incidents for inclusion in Regional and Global Incident Review Board sessions. To further underscore our commitment to safety, we increased the weighting of the safety performance metric under our short-term incentive plan from 5% in 2014 to 10% in 2015. As our safety results show, our actions are working toward our goal of Zero Harm. Our total recordable incident rate (“TRIR”) dropped from 0.38 in 2013 to 0.30 in 2014, and to 0.21 in 2015. In addition to our improvement in lagging indicator metrics we have realized a higher level of engagement in health, safety, and environment (HSE) specific leading indicator activities like Courage to Care Conversations and Leadership SAFE Tours.
ASPIRE – LAUNCH OF GROUP
TO PROMOTE GENDER DIVERSITY AT KBR
In January 2016, our CEO helped launch ASPIRE, a new employee resource group with a mission to cultivate women leaders and promote gender diversity through a collaborative community for the benefit of all employees and KBR. ASPIRE’s vision is to make KBR an employer of choice where women are influencing, leading, and learning. ASPIRE is leading the way in KBR’s focus on promoting diversity of all types across our workforce.
- 2016 Proxy Statement 10
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At our 2016 Annual Meeting of Stockholders, ten directors are to be elected to hold office until the 2017 Annual Meeting of Stockholders. All directors are elected annually, with nominees standing for election to one-year terms. The members of our Board of Directors hold office until their successors are elected and qualified or until their earlier resignation or removal. The size of our Board of Directors is currently set at ten members.
Each nominee has indicated his willingness to serve, if elected. If any of the nominees declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election, the proxies may be voted for such substitute nominee as we may designate. We have no reason to believe that any of the nominees will be unable to serve if elected. If a quorum is present, the nominees for director receiving the majority of votes will be elected directors.
Board Composition
A top priority of the Board and the Nominating and Corporate Governance Committee is ensuring that the Board of Directors is composed of directors who bring a variety of skills relevant to our business, provide expertise that is useful to KBR and complementary to the background and experience of other Board members, and effectively represent the long-term interests of our stockholders.
Over the last 2 years, our Board of Directors has gone through significant changes, as follows:
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Five New Directors Elected/Appointed;
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All New Directors have Extensive Knowledge of KBR’s Business, its Clients, and/or our Industry;
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Independent Director Became Chairman of the Board;
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Rotation of Half of all Committee Memberships and Chairs;
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New CEO Added to the Board;
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Four Directors Retired; and
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Average Tenure Dropped to its Lowest Level since 2011 (4.7 years).
For additional information regarding the qualifications the Nominating and Corporate Governance Committee and the Board consider in the nomination process, see “Corporate Governance — Nominating and Corporate Governance Committee — Qualifications of Directors.”
The Board of Directors recommends that you vote FOR the election of all the director nominees listed below. Properly dated and signed proxies, and proxies properly submitted over the Internet and by telephone, will be so voted unless stockholders specify otherwise.
Directors are elected by a majority of votes cast (the number of shares voted “For” a candidate must exceed the number of shares voted “Against” the candidate). Shares present but not voting on the election of directors will be disregarded, except for quorum purposes, and will have no effect on the election of directors.
The following biographical information is furnished with respect to each of the director nominees for election at the meeting. The information includes age as of March 17, 2016, present position, if any, with KBR, period served as director, and other business experience during at least the past five years.
Nominees for Director – Term
Ending 2016
Mark E. Baldwin
Director Since October 2014
Age 62
Member of the Audit Committee and the Health, Safety, Security, Environment and Social Responsibility Committee
Mark E. Baldwin served as the Executive Vice President and Chief Financial Officer of Dresser-Rand Group, Inc., from 2007 until his retirement in 2013. Prior to joining Dresser-Rand, he served as the Executive Vice President, Chief Financial Officer, and Treasurer of Veritas DGC Inc. from 2004 through 2007, and Operating Partner at First Reserve Corporation from 2003 through 2004. Mr. Baldwin served as Executive Vice President and Chief Financial Officer for NextiraOne from 2001 through 2002, and as Chairman of the Board and Chief Executive Officer for Pentacon Inc., from 1997 through 2001. From 1980 through 1997, Mr. Baldwin served in a variety of finance and operations positions with Keystone International Inc., including Treasurer, Chief Financial Officer, and President of the Industrial Valves and Controls Group.
Mr. Baldwin has a B.S. in Mechanical Engineering from Duke University and an MBA from Tulane University.
Mr. Baldwin currently serves as a director of TETRA Technologies, Inc., where he is also the Chairman of the Audit Committee. He was previously a director of Seahawk Drilling, Inc.
The Board believes that Mr. Baldwin’s experience in the oil services industry provides valuable insight into different aspects of the oil and gas industry, one of KBR’s most important markets. Also, his experience as a chief financial officer of a public company and qualification as an audit committee financial expert under the rules of the NYSE provide the Board and Audit Committee important perspective on KBR’s financial reporting and governance obligations.
- 2016 Proxy Statement 11
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James R.
Blackwell
Director Since August 2014
Age 57
Member of the Compensation Committee and the Nominating and Corporate Governance Committee
James R. Blackwell began his career as a roustabout with Gulf Oil, which merged with Standard Oil Company of California to form Chevron. Mr. Blackwell worked his way up to Executive Vice President, Technology and Services, with responsibility for a portfolio that included the major capital projects organization for Chevron.
The Mississippi native holds bachelor’s degrees in biology and environmental technology from the University of Southern Mississippi. He subsequently graduated with a Master’s degree in petroleum engineering from Tulane University.
Currently, Mr. Blackwell is a director of Harbour Energy Ltd. and a member of the Board of Trustees at Saint Mary’s College of California. He previously served as a director of the National Action Council for Minorities in Engineering, Inc. and the National Bureau of Asian Research. He is a member of the CSIS U.S.-China Policy Roundtable and the CSIS U.S.-ASEAN Strategy Commission.
The Board concluded that Mr. Blackwell should continue to serve as a Director because of his extensive senior management experience at Chevron Corporation, which enables him to advise management on a wide range of strategic, financial, and governance matters related to the oil and gas industry. His experience with the capital projects for one of KBR’s major customers also provides insight into the budgetary priorities and processes for KBR’s most important market.
Stuart J.
B. Bradie
Director Since August 2014
Age 49
Stuart J. B. Bradie assumed the role of President and Chief Executive Officer for KBR, Inc. on June 2, 2014. He leads KBR from its global headquarters in Houston, Texas.
With more than 25 years of industry experience, Mr. Bradie joined KBR from WorleyParsons Ltd., where he held the position of Group Managing Director - Operations and Delivery. In that role, Mr. Bradie led the Group’s global operations across over 40 countries in the hydrocarbons, mining and chemicals, power and infrastructure sectors. He joined WorleyParsons in 2001 and was previously Managing Director across Europe, Africa, Asia and the Middle East.
Prior to joining WorleyParsons, Mr. Bradie held Managing Director and Country Manager roles with PT Kvaerner Indonesia and Kvaerner Philippines.
Mr. Bradie has a Bachelor’s Degree in Mechanical Engineering from Aberdeen University and a Master of Business Administration from the Edinburgh Business School, Heriot Watt University.
The Board concluded that Mr. Bradie should continue to serve as a Director because of his role as the Chief Executive Officer of KBR.
Loren K.
Carroll
Director Since April 2007
Age 72
Chairman of the Board
Loren K. Carroll is currently an independent consultant and business advisor. From March 1994 until April 2006, Mr. Carroll served as President and Chief Executive Officer of M-I SWACO and Executive Vice President and Chief Financial Officer of Smith International, Inc., the world’s leading supplier of drilling fluids and related equipment and services to the oil and gas industry. M-I SWACO was owned 60% by Smith International, Inc. Mr. Carroll began his career with Smith International, Inc. in 1984. Prior to that time, Mr. Carroll was a managing partner with Arthur Andersen & Co.
Mr. Carroll graduated from California State University at Long Beach with a Bachelor of Science Degree in Accounting.
Mr. Carroll currently serves on the board of directors of CGG and is a member of its Audit Committee. He previously served as a director of Forest Oil Corporation where he was also Chairman of the Nominating and Corporate Governance Committee and a member of the Compensation Committee.
The Board concluded that Mr. Carroll should continue to serve both as a Director and as non-executive Chairman of the Board primarily because of his long-term experience dealing with the hydrocarbons industry as the chief executive of M-I SWACO and as the chief financial officer of Smith International, Inc. Mr. Carroll also qualifies as an audit committee financial expert under the rules of the New York Stock Exchange (“NYSE”) and provides the Board the insights from over 40 years of experience in finance and accounting, including experience as a managing partner at a major accounting firm.
Jeffrey E.
Curtiss
Director Since November 2006
Age 67
Chairman of the Audit Committee and a member of the Nominating and Corporate Governance Committee
Jeffrey E. Curtiss is a private investor. From January 2000 to June 2006, Mr. Curtiss served as the Senior Vice President and Chief Financial Officer of Service Corporation International, a leading provider of funeral and cemetery services. Previously, Mr. Curtiss was the Senior Vice President and Chief Financial Officer of Browning-Ferris Industries, Inc. from January 1992 to July 1999.
Mr. Curtiss received law degrees from two universities in 1971 and 1975. He received his CPA certificate from Colorado in 1971 and became a CFA charterholder in 2006.
Mr. Curtiss was the President of the CFA Society of Houston during the 2012-2013 fiscal year and remains on its Board of Directors. He also serves as a director of the Houston Chapter of Financial Executives International.
After assessing Mr. Curtiss’s experience and skills, the Board concluded that he should continue to serve as a Director, primarily on the basis of his extensive experience supervising the finance and accounting functions for large organizations similar in size and complexity to KBR. In addition, Mr. Curtiss has legal training and qualifies as an audit committee financial expert under the rules of the NYSE and provides expertise that assists the Board and the Audit Committee in their risk oversight function.
- 2016 Proxy Statement 12
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Umberto della
Sala
Director Since January 2015
Age 67
Member of the Compensation Committee and the Health, Safety, Security, Environment and Social Responsibility Committee
Umberto della Sala retired from Foster Wheeler AG., a global engineering, procurement and construction company, on December 31, 2013. Mr. della Sala spent his entire career with Foster Wheeler starting in 1973 as a process engineer of its environmental division and enjoying positions of increasing responsibility culminating in his serving as its President and Chief Operating Officer from 2007 until his retirement and as its interim Chief Executive Officer from October 2010 through September 2011. Mr. della Sala also served on the Foster Wheeler Board of Directors from 2011 to May 2014.
Mr. della Sala holds a Laurea in Chemical Engineering from Politecnico di Milano.
Mr. della Sala is acting as Industrial Advisor to the Italian Strategic Fund (FSI). In this connection, he serves as Chairman of the Board of Ansaldo Energia and is a director of Trevi Finanziaria Industriale SPA and Kedrion SPA, of which FSI owns minority participations. Prior to March 1, 2016, Mr. della Sala served on the Supervisory Board of Stork Technical Services.
Mr. della Sala brings 40 years of experience in engineering, procurement, and construction with one of the most important companies in KBR’s peer group, including having served as its chief executive officer. The Board concluded that Mr. della Sala should continue to serve as a Director not only due to his long-term experience in the industry but also for his extensive experience in foreign markets.
General Lester
L. Lyles, USAF (Ret.)
Director Since November 2007
Age 69
Chairman of the Health, Safety, Security, Environment and Social Responsibility Committee and a member of the Audit Committee
Lester L. Lyles, a retired Four-Star General of the U. S. Air Force, has been an independent consultant since 2003. Prior to that time, he served in the U.S. Air Force for over 35 years as: Commander of the Space and Missile Systems Center from 1994 to 1996; Director of the Ballistic Missile Defense Organization from 1996 to 1999; Vice Chief of Staff of the Headquarters of the U.S. Air Force from 1999 to 2000; and Commander of the U.S. Air Force Materiel Command from 2000 to 2003.
General Lyles holds a Bachelor of Science degree in mechanical engineering from Howard University in Washington D.C. and a Master of Science degree in mechanical and nuclear engineering from the Air Force Institute of Technology Program from New Mexico State University in Las Cruces. He is a graduate of the Defense Systems Management College, Fort Belvoir, Virginia, the Armed Forces Staff College, Norfolk, Virginia, the National War College, Fort Lesley J. McNair, Washington, D.C., and the National and International Security Management Course at Harvard University, Cambridge, Massachusetts. General Lyles received Honorary Doctor of Laws degrees from New Mexico State University and Urbana University.
General Lyles currently serves as Chairman of the Board of Directors of the United Services Automobile Association. He is also a director of General Dynamics Corporation, where he serves on the Audit Committee, and Baltelle Memorial Institute, a nonprofit organization. General Lyles is a member of the International Security Advisory Board at the U.S. State Department and a member of the NASA Advisory Council. He has served on the Defense Science Board in the Pentagon since 2009, and he served on the President’s Intelligence Advisory Board in the White House from 2009-2013. General Lyles served as a director of the Dayton Power and Light Company until its acquisition by The AES Corporation in 2012. He served as a director of Precision Castparts Corp. until its acquisition by Berkshire Hathaway in February 2016. General Lyles was inducted into the National Academy of Engineering in 2009.
In light of the importance of KBR’s relationship with the U.S. government as a primary provider of logistical support for U.S. forces deployed in the Middle East and elsewhere, the Board of Directors considered General Lyles’s distinguished experience in the U.S. Air Force, especially his command of the Air Force Materiel Command, as the most important factor in concluding that General Lyles should continue to serve on the Board. In addition, General Lyles qualifies as an audit committee financial expert under the rules of the NYSE and provides expertise that assists the Board and the Audit Committee with their risk oversight function.
Jack B. Moore
Director Since January 2012
Age 62
Chairman of the Compensation Committee and a member of the Nominating and Corporate Governance Committee
Jack B. Moore is Chairman of the Board for Cameron International Corporation. He also served as Cameron’s Chief Executive Officer until October 2015. Mr. Moore was named President and Chief Executive Officer in April 2008 and became Cameron’s Chairman of the Board in May 2011. He joined Cameron’s Drilling & Production Systems group in July 1999 as Vice President and General Manager, Western Hemisphere, and was named President of this group in July 2002. He became President and Chief Operating Officer in January 2007 and has been a Director of Cameron since 2007. Prior to joining Cameron, Mr. Moore held various management positions with Baker Hughes Incorporated where he was employed for twenty-three years.
Mr. Moore holds a B.B.A. degree from the University of Houston and is a graduate of the Advanced Management Program at Harvard Business School.
Mr. Moore serves on the boards of directors of the American Petroleum Institute (API), the National Ocean Industries Association (NOIA), and the Petroleum Equipment Suppliers Association. He also serves in positions of leadership for the Greater Houston Partnership, Spindletop Charities, Memorial Drive United Methodist Church, and The University of Houston C.T. Bauer College of Business Dean’s Executive Board.
The Board concluded that Mr. Moore should continue to serve on the Board because he has a wealth of experience in the oilfield service sector and so brings important insight into the hydrocarbons sector, which includes many of the Company’s most important customers. Additionally, his positions as President and Chief Executive Officer and Chief Operating Officer of a public company provide the Board with an independent perspective on the needs and pressures facing a senior executive. Mr. Moore’s experience in manufacturing also provides perspective from outside of service focused companies such as the Company. In addition, Mr. Moore qualifies as an audit committee financial expert under the rules of the NYSE and provides expertise that assists the Board with its risk oversight function.
- 2016 Proxy Statement 13
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Ann D. Pickard
Director Since December 2015
Age 60
Member of the Audit Committee and the Health, Safety, Security, Environment and Social Responsibility Committee
Ann D. Pickard retired from Royal Dutch Shell plc (“Shell”) on February 1, 2016. Ms. Pickard held numerous positions of increasing responsibility during her 15-year tenure with Shell. She last served as Executive Vice President, Arctic and was responsible for Shell’s Arctic exploration efforts. This followed three successful years as Executive Vice President of Shell’s Exploration and Production business and Country Chair of Shell in Australia where she oversaw Gas Commercialization, Manufacturing, Chemicals, Supply and Distribution, Retail, Lubricants, Trading and Shipping, and Alternative Energy. Ms. Pickard was previously Shell’s Regional Executive Vice President for Sub Saharan Africa. Based in Lagos, Nigeria, she was accountable for Shell’s Exploration & Production, Natural Gas, and Liquefied Natural Gas (LNG) activities in the region. Before that, Ms. Pickard was Director, Global Businesses and Strategy and a member of the Shell Gas & Power Executive Committee with responsibility for Global LNG, Power, and Gas & Power Strategy. Ms. Pickard joined Shell in 2000 after an 11-year tenure with Mobil prior to its merger with Exxon. Ms. Pickard has significant business experience throughout South America, Australia, the countries of the former Soviet Union, the Middle East, and Africa.
Ms. Pickard holds a Bachelor of Arts degree from the University of California, San Diego and a Master of Arts degree from the University of Pennsylvania.
Ms. Pickard serves on the Board of Directors of Woodside Petroleum Ltd. In addition, Ms. Pickard is a member of the Global Agenda Council on the Arctic for the World Economic Forum, the Advisory Council of the Eurasia Foundation, Catalyst, and Chief Executive Women. She was formerly a member of the Westpac Banking Corporation Board of Directors.
The Board concluded that Ms. Pickard should continue to serve on the Board because of her extensive senior management experience and extensive foreign market experience during her tenure with Shell. In addition, Ms. Pickard qualifies as an audit committee financial expert under the rules of the NYSE. Ms. Pickard was recommended to the Board by our Chief Executive Officer, Mr. Bradie, and a former KBR Board member, Linda Cook. In addition, a background check was performed by an independent executive search firm.
Richard J.
Slater
Director Since November 2006
Age 69
Chairman of the Nominating and Corporate Governance Committee and a member of the Compensation Committee
Richard J. Slater has been Chairman of ORBIS LLC, an investment and corporate advisory firm, since February 2003. Previously, Mr. Slater served in various executive positions with Jacobs Engineering Group Inc. (“JEG”), beginning in May 1980. Mr. Slater was employed as a consultant to the chief executive officer of JEG from January 2003 to October 2006, and prior to that, he served as Executive Vice President, Operations from March 1998 to December 2002.
Mr. Slater received a degree in Civil Engineering from the University of Aston.
Mr. Slater served as non-executive Chairman of Bluebeam Software Inc. from 2006 to 2013. He was an independent director of Reliance Steel & Aluminum Co. from 2006 to 2009. Mr. Slater was also a member of the Board of Trustees of Claremont Graduate University.
Mr. Slater had over 20 years’ experience with JEG, including five years as JEG’s Executive Vice President of Worldwide Operations. The Board concluded that Mr. Slater should continue to serve as a Director primarily because of his relevant executive experience supervising domestic and international engineering and infrastructure construction projects and acquisitions.
- 2016 Proxy Statement 14
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Security Ownership of Certain Beneficial Owners and Management
The table below sets forth certain information, as of March 10, 2016, regarding the beneficial ownership of KBR’s common stock by persons known by KBR to beneficially own more than five percent of its outstanding common stock, each director or nominee, each of the named executive officers referenced in the Summary Compensation Table contained in this Proxy Statement, and all directors and executive officers as a group. Information regarding five percent stockholders in the table and footnotes is based on the most recent Statement on Schedule 13G or 13D or amendment thereto filed by each such person with the Securities and Exchange Commission (the “SEC”), except as otherwise known to KBR. To our knowledge, except as otherwise noted in the footnotes to this table or as provided by applicable community property laws, each individual has sole voting and investment power with respect to the shares of common stock listed in the second column below as beneficially owned by the individual.
Name and Address of Beneficial Owner(1)
|
|
Shares of KBR Common
Stock Beneficially Owned
|
Number of
Shares(2)
|
|
Percentage of
Class
|
BlackRock, Inc.(3)
55 East 52nd Street, New York City, New York 10022
|
|
10,811,691
|
|
7.50
|
%
|
Huber Capital Management, LLC(4)
2321 Rosecrans Avenue, Suite 3245, El Segundo, California 90245
|
|
10,353,378
|
|
7.18
|
%
|
The Vanguard Group(5)
100 Vanguard Boulevard, Malvern, Pennsylvania 19355
|
|
9,718,028
|
|
6.73
|
%
|
T. Rowe Price Associates, Inc.(6)
100 East Pratt Street, Baltimore, Maryland 21202
|
|
9,718,921
|
|
6.70
|
%
|
T. Rowe Price Mid-Cap Value Fund, Inc.(7)
100 East Pratt Street, Baltimore, Maryland 21202
|
|
7,679,608
|
|
5.30
|
%
|
Systematic Financial Management, L.P.(8)
300 Frank W. Burr Boulevard, Glenpointe East, 7th Floor, Teaneck, New Jersey 07666
|
|
7,649,857
|
|
5.30
|
%
|
Barrow, Hanley, Mewhinney & Strauss, LLC(9)
2200 Ross Avenue, 31st Floor, Dallas, Texas 75201
|
|
7,281,950
|
|
5.05
|
%
|
Stuart J. B. Bradie(10)(11)
|
|
90,679
|
|
*
|
|
Brian K. Ferraioli(10)(11)
|
|
38,144
|
|
*
|
|
Ivor J. Harrington(10)(11)
|
|
113,162
|
|
*
|
|
Roy B. Oelking(10)(11)
|
|
110,311
|
|
*
|
|
Farhan Mujib(10)(11)
|
|
69,139
|
|
*
|
|
Mark E. Baldwin(10)(11)
|
|
13,112
|
|
*
|
|
James R. Blackwell(10)(11)
|
|
12,523
|
|
*
|
|
Loren K. Carroll(10)(11)
|
|
37,807
|
|
*
|
|
Jeffrey E. Curtiss(10)(11)
|
|
48,973
|
|
*
|
|
Umberto della Sala(10)(11)
|
|
7,334
|
|
*
|
|
Lester L. Lyles(10)(11)
|
|
28,210
|
|
*
|
|
Jack B. Moore(10)(11)
|
|
18,826
|
|
*
|
|
Ann D. Pickard(11)
|
|
–
|
|
*
|
|
Richard J. Slater(10)(11)
|
|
53,692
|
|
*
|
|
All directors and executive officers as a group (23 persons)(10)(11)
|
|
861,095
|
|
*
|
|
*
Less than one percent (1%).
(1)
The address of each of the named executive officers and directors is c/o KBR, Inc., 601 Jefferson Street, Suite 3400, Houston, Texas 77002.
(2)
Beneficial ownership means the sole or shared power to vote, or to direct the voting of, shares of KBR common stock, or investment power with respect to KBR common stock, or any combination of the foregoing. Each director and executive officer and the directors and executive officers as a group beneficially own less than 1% of the outstanding shares of KBR common stock.
(3)
Based solely on a Schedule 13G filed January 26, 2016, BlackRock, Inc. is deemed to be the beneficial owner of 10,811,691 shares as a result of being a parent holding company or control person in accordance with §240.13d-1(b)(1)(ii)(G).
(4)
Based solely on a Schedule 13G filed February 12, 2016, Huber Capital Management, LLC is deemed to be the beneficial owner of 10,353,378 shares as a result of being an investment adviser in accordance with §240.13d-1(b)(1)(ii)(E).
(5)
Based solely on a Schedule 13G filed February 10, 2016, The Vanguard Group is deemed to be the beneficial owner of 9,718,028 shares as a result of being an investment adviser in accordance with §240.13d-1(b)(1)(ii)(E).
(6)
Based solely on a Schedule 13G filed February 9, 2016, T. Rowe Price Associates, Inc. is deemed to be the beneficial owner of 9,718,921 shares as a result of being an investment adviser in accordance with §240.13d-1(b)(1)(ii)(E).
(7)
Based solely on a Schedule 13G filed February 9, 2016, T. Rowe Price Mid-Cap Value Fund, Inc. is deemed to be the beneficial owner of 7,679,608 shares as a result of being an investment company in accordance with §240.13d-1(b)(1)(ii)(D).
(8)
Based solely on a Schedule 13G filed February 11, 2016, Systematic Financial Management, L.P. is deemed to be the beneficial owner of 7,649,857 shares as a result of being an investment adviser in accordance with §240.13d-1(b)(1)(ii)(E).
(9)
Based solely on a Schedule 13G filed February 2, 2016, Barrow, Hanley, Mewhinney & Strauss, LLC is deemed to be the beneficial owner of 7,281,950 shares as a result of being an investment adviser in accordance with §240.13d-1(b)(1)(ii)(E).
(10)
Includes the following shares of restricted stock and/or restricted stock units that have vested or will vest on or before May 9, 2016: Mr. Bradie, 49,621; Mr. Ferraioli, 10,787; Mr. Harrington, 48,341; Mr. Oelking, 27,491; Mr. Mujib, 9,723; Mr. Baldwin, 13,112; Mr. Blackwell, 12,523; Mr. Carroll, 37,807; Mr. Curtiss, 48,973; Mr. della Sala, 7,334; General Lyles, 28,210 (4,097 of which were deferred into the nonqualified elective deferral plan for non-executive directors); Mr. Moore, 18,826; Mr. Slater, 53,692 (23,669 of which were deferred into the nonqualified elective deferral plan for non-executive directors); and all executive officers as a group, 213,907. Includes the following shares that may be acquired upon the exercise of options that are exercisable or will become exercisable on or before May 9, 2016: Mr. Bradie, 41,058; Mr. Ferraioli, 27,357; Mr. Harrington, 64,821; Mr. Oelking, 82,820; Mr. Mujib, 59,416; and all executive officers as a group, 426,711.
(11)
Does not include the following shares of restricted stock units as to which the holder has no voting power and no investment power, but which convert to common stock on a 1-to-1 ratio upon vesting, which for some restricted stock units requires that certain performance measures be met: Mr. Bradie, 334,789; Mr. Ferraioli, 115,590; Mr. Harrington, 28,287; Mr. Oelking, 122,637; Mr. Mujib, 105,963; and all executive officers and directors as a group, 1,036,087.
|
- 2016 Proxy Statement 15
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Executive Officers
The following biographical information is furnished with respect to each of KBR’s executive officers. The information includes age as of March 17, 2016, present position, KBR employment history, and other business experience.
Eileen G.
Akerson
Executive Vice President, General Counsel and Corporate Secretary
Age 50
Eileen G. Akerson became KBR’s Executive Vice President and General Counsel effective November 1, 2014, and was appointed Corporate Secretary in April 2015. Previously, Ms. Akerson served in an operational role as Senior Vice President, Commercial responsible for project commercial management and oversight of the review and approval process for significant transactions and joint venture relationships. Prior to that role, she served as Vice President – Legal & Chief Counsel and was responsible for managing the legal functions for the Hydrocarbons Business Group. She also provided advice and counsel to senior management on company policies affecting ethics and compliance matters. Before joining KBR in 1999, Ms. Akerson worked as an attorney for Spriggs & Hollingsworth in Washington D.C.
Ms. Akerson earned a Bachelor of Arts degree at Catholic University of America and a Doctor of Jurisprudence from Catholic University of America Columbus School of Law. Eileen is a member of the bars of Texas, Connecticut and the District of Columbia.
Jan Egil
Braendeland
Executive Vice President, Global Sales
Age 48
Jan Egil Braendeland is KBR’s Executive Vice President, Global Sales. Previously, he served as President, Engineering & Construction (E&C) Europe, Eurasia & Africa (EEA). Before that, he served as President, Oil & Gas, appointed to this position after re-joining KBR in July 2013. Mr. Braendeland brings a consistent record of successful leadership with 22 years of experience in the upstream industry, including broad international experience in Norway, Singapore, Brazil, Angola, South Africa, Algeria, and the United Kingdom. Mr. Braendeland was previously employed by KBR for 18 years, where he held various leadership positions, the last being Senior Vice President, Business Development, Oil & Gas. He also worked for a brief period at another firm as Senior Vice President, Global Business Development, Upstream.
Mr. Braendeland holds a Master of Science in Marine Engineering and Naval Architecture from the Norwegian Institute of Technology and a postgraduate diploma in business and administration from the University of Surrey in England.
John T. Derbyshire
President, Technology & Consulting
Age 65
John T. Derbyshire is KBR’s President, Technology & Consulting. He joined KBR in 2008. Mr. Derbyshire’s 37 years of experience have focused on managing companies involved in engineering design, technology licensing, project execution, and customer services. Previously, he served as President, KBR Technology and was responsible for KBR’s global technology licensing business, delivering technology, proprietary equipment, engineering, and consulting services to the refining, petrochemical, coal monetization, and synthesis gas segments. Prior to that role, Mr. Derbyshire was Senior Vice President, Commercial Management for the Technology Business Unit. Before joining KBR, Mr. Derbyshire was Vice President and General Manager of Invensys Process Systems global solutions business and held numerous executive leadership roles at Aspen Technology. He also served as a Vice President, Sales and Marketing at ABB Process Automation.
Mr. Derbyshire holds a Bachelor of Science in Chemical Engineering from the University of Salford in the UK.
Brian K. Ferraioli
Executive Vice President and Chief Financial Officer
Age 60
Brian K. Ferraioli is KBR’s Executive Vice President and Chief Financial Officer. He joined KBR in late October 2013 and brings more than 37 years of financial and accounting experience in the engineering and construction industries. Prior to joining KBR, Mr. Ferraioli held the position of Executive Vice President and Chief Financial Officer at The Shaw Group in Baton Rouge, Louisiana until its sale in early 2013. Before joining Shaw in July 2007, he served in numerous roles at Foster Wheeler AG in Clinton, New Jersey. Mr. Ferraioli began his Foster Wheeler career in 1979 as an internal auditor and rose through the corporate ranks, ultimately becoming a Vice President and Corporate Controller.
Mr. Ferraioli holds a Master of Business Administration with honors from Columbia University and a Bachelor of Science in Accounting from Seton Hall University.
Mr. Ferraioli is a member of the Board of Directors of The Babcock & Wilcox Co. in Charlotte, North Carolina and is the Chair of their Audit Committee.
- 2016 Proxy Statement 16
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K. Graham Hill
Executive Vice President, Global Business Development & Strategy
Age 62
K. Graham Hill is KBR’s Executive Vice President responsible for Global Business Development & Strategy. He joined KBR in November 2014. Mr. Hill has 39 years of experience in the hydrocarbons industry in all aspects of contracting, commercial foundations for mutual success, negotiation, and all technical aspects of the EPC business. Prior to joining KBR, he held the position of Senior Vice President of Global Business Development at WorleyParsons.
Mr. Hill holds a Master of Chemical Engineering degree from the University of Cambridge, England. He is a Fellow of the Institution of Chemical Engineers (FIChemE), UK and a Chartered Engineer (CEng). Mr. Hill is a graduate of the Australian Institute of Company Directors (GrAICD).
J. Jay Ibrahim
President E&C EMEA
Age 55
J. Jay Ibrahim is KBR’s President, Engineering & Construction (E&C) Europe, Middle East and Africa (EMEA). He joined KBR in May 2015. Mr. Ibrahim has 21 years of experience in the Middle East Region, having served in a variety of engineering, project management, business development, and business management roles for Parsons E&C/WorleyParsons. He leads KBR’s continued expansion in the Middle East Region, which is expected to provide growth opportunities throughout the hydrocarbons value-chain (upstream, midstream, and downstream). Mr. Ibrahim brings to KBR a wealth of experience in complex contract negotiations, business analysis and management, and long-range strategic planning in international markets across multiple business sectors. He has a background in developing customer relationships, with a focus on profitable business and achieving corporate goals.
Mr. Ibrahim holds a master’s degree in Mechanical Engineering from Wichita State University, Kansas and a Diploma in Advanced Management from Harvard University, Massachusetts.
Ian J. Mackey
Executive Vice President, Global Human Resources
Age 50
Ian J. Mackey is KBR’s Executive Vice President, Global Human Resources. He joined KBR in January 2015. Mr. Mackey is highly experienced in leading human resources in the engineering and construction industry with extensive experience in global businesses. Mr. Mackey was previously the Global People Director at WorleyParsons Services where he was responsible for the overall strategy and delivery of all human resources activities for the company. Before joining WorleyParsons in 2006, Mr. Mackey spent nine years as the Director of Human Resources at Carillion PLC.
Farhan Mujib
Executive Vice President, Commercial
Age 52
Farhan Mujib is KBR’s Executive Vice President, Commercial and continues to lead the KBR Transformation. He joined KBR in 1988. During his 27-year career, Mr. Mujib has worked in Africa, Australia, Asia, Europe, the Americas, and the Middle East, employing his in-depth knowledge of international project requirements, cultural sensitivities, and business practices to manage a number of major developments. Prior to this role, he was Executive Vice President, Global Operations and also served in roles with increasing responsibility that included Senior Vice President-Project Management with accountability for major gas monetization projects executed from KBR’s London office as well as sponsor roles on major LNG/GTL projects in Australia and Africa.
Mr. Mujib holds a Bachelor of Science in Civil Engineering from the University of Engineering and Technology in Lahore, Pakistan; a Master of Engineering from the Asian Institute of Technology in Bangkok, Thailand; and a Master of Business Administration from Macquarie University in Sydney, Australia. He is a Fellow, Institution of Engineers, Australia and is a Chartered Professional Engineer.
- 2016 Proxy Statement 17
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Roy B. Oelking,
Jr.
President E&C Americas
Age 63
Roy B. Oelking, Jr. is KBR’s President, E&C Americas and is responsible for E&C Americas in Offshore Hydrocarbons, Onshore Hydrocarbons (including Downstream), and the Global Project Management Office (PMO). Mr. Oelking is also a member of the Board of Directors of Brown & Root Industrial Services, the asset services arm of KBR in North America. He joined KBR in November 2008. Previously, Mr. Oelking was President of KBR’s Hydrocarbons Business Group since March 2011, which served the Oil & Gas, both upstream and downstream, and Technology industries. Prior to that role, Mr. Oelking was President of KBR’s Oil and Gas division since November 2009. When he joined KBR, Mr. Oelking brought 35 years of experience in project management, engineering, and construction of oil and gas projects in the Americas, Middle East, Asia Pacific, Africa, and Russia, as Senior Vice President – Upstream with WorleyParsons from 2003 and with J. Ray McDermott for the previous 29 years.
Mr. Oelking holds a Bachelor of Science in Civil Engineering from Tulane University.
Major General
Andrew R. D. Pringle, CB, CBE (Ret.)
President Government Services
Age 69
Major General Andrew R. D. Pringle, CB, CBE, a retired British Army officer, is KBR’s President, Government Services. He joined KBR in April 2008. Since joining KBR, Major General Pringle has served as Vice President Government and Defence, Europe Middle East and Africa (EMEA); Vice President International Government Defence and Support Services; and President Infrastructure Government and Power EMEA. He has 14 years of industry experience. Major General Pringle retired from the British Army in October 2001 after a broad range of combatant command and operational staff appointments during a 37-year career. Following his retirement, he developed a wide-ranging, defence-related consultancy business serving clients in Europe, the U.K., and the U.S.
Major General Pringle earned an Honours Degree in Applied Science from The Royal Military College of Science. He is a graduate of the Army Staff College, the Higher Command and Staff Course, and The Royal College of Defence Studies.
Nelson E. Rowe,
Sr.
Vice President and Chief Accounting Officer
Age 51
Nelson E. Rowe, Sr. is KBR’s Vice President and Chief Accounting Officer. He was appointed to this position in March 2014. Previously, Mr. Rowe served as KBR’s Vice President and Business Group Controller, most recently supporting the Infrastructure, Government & Power and Services Business Groups. He joined KBR in March 2011. Mr. Rowe brings a broad range of leadership experience to KBR from positions held in Aerospace, Automotive, Computers & Electronics, Consumer / Industrial Products, and the Oil and Gas Industries. Prior to joining KBR, he was Vice President, Finance & IT of Dresser, Inc. from March 2006 to March 2011 and Director, Operations Finance of Dresser Wayne from February 2004 to March 2006. Mr. Rowe accomplished his objective to facilitate stronger processes in strategic planning, financial analysis and modeling, auditing / accounting, and operations management. During his tenure with Dresser, Mr. Rowe received his Six Sigma Black Belt and Lean Champion certifications. He also received his Six Sigma Green Belt certification at Allied-Signal Aerospace. These certifications demonstrate the leadership and expertise in the application of statistical problem solving tools that unlock value across all business processes.
Mr. Rowe received both the Bachelor of Science Degree in Accounting and Master of Science Degree in Management – Strategic Management and Finance Concentration from Purdue University. While at Purdue, he was given the Cornell A. Bell Award in recognition of outstanding contributions to Purdue University.
David Zelinski
President E&C Americas (Onshore)
Age 54
David Zelinski is KBR’s President – Onshore for E&C Americas. He joined KBR in May 2012. Previously, Mr. Zelinski served as KBR’s President, Downstream and was responsible for all engineering, procurement, and construction services for Downstream projects, globally. Prior to joining KBR, he was with Fluor Corporation from 2004 serving as Senior Vice President and Business Line Leader for the Downstream Business Line of Fluor’s Energy and Chemicals Group from June 2010 to May 2012, and as Business Line Sales Lead, Downstream from 2004 through 2010. Before that role, he was Vice President, Corporate for Colt Engineering Corporation in Calgary, Alberta. Mr. Zelinski has 30 years of industry experience in the engineering and construction of large energy projects on a global basis.
Mr. Zelinski holds a Bachelor of Science in Chemical Engineering from the University of Calgary and a Master of Business Administration from the University of Western Ontario.
- 2016 Proxy Statement 18
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Corporate Governance
CORPORATE GOVERNANCE MATERIALS
We are committed to good corporate governance and to effective communication with our stockholders. The roles, duties and responsibilities of the Board of Directors and each committee of the Board of Directors are summarized below. To ensure that our stockholders have access to our governing documents, we provide copies of our Code of Business Conduct and Corporate Governance Guidelines and the charters of each of the committees of our Board of Directors on our website at www.kbr.com, and copies will be provided to any stockholder who requests them by writing to our Investor Relations Department at: 601 Jefferson Street, Suite 3400, Houston, Texas 77002.
ROLE OF THE BOARD OF DIRECTORS
The Board of Directors represents the interests of our stockholders in perpetuating a successful business. It is the responsibility of the Board of Directors to provide oversight of the effectiveness of management’s policies and decisions, including the execution of its strategies, with a commitment to enhancing stockholder value over the long term. To this end, Board members are expected to act in the best interests of all stockholders, be knowledgeable about our businesses, exercise informed and independent judgment and maintain an understanding of general economic trends and conditions as well as trends in corporate governance. In addition, it is our Board’s policy that Board members are expected to make every effort to attend the meetings of the Board and committees of the Board upon which they serve, as well as stockholder meetings. All of KBR’s incumbent directors attended 75% or more of the aggregate of all meetings of the Board and of committees on which they served during the periods that they served during 2015, except for General Lyles. General Lyles attended 91% of the regularly scheduled, in-person meetings of the Board and committees of the Board upon which he served during 2015. However, General Lyles was unable to attend several of our telephonic sessions of the Board and committees of the Board, a majority of which were impromptu sessions to ratify actions that were previously discussed at regular meetings of the Board and committees of the Board. When these telephonic sessions are combined with the 91% of in-person meetings of the Board and committees of the Board that he attended, General Lyles’s attendance was below 75%. General Lyles’s attendance fell below 75% of the combined in-person meetings and telephonic sessions of the Board and committees of the Board upon which he served because of matters of national security related to his positions on the Defense Science Board, which advises the U.S. Department of Defense, and the International Security Advisory Board, which advises the U.S. Department of State. General Lyles is a vital member of our Board and is critical to our pursuit of government projects.
Our Corporate Governance Guidelines provide that all Directors should attend our annual stockholder meetings and all of our directors attended our 2015 Annual Meeting of Stockholders.
INDEPENDENCE STANDARDS
At this time, all of our directors are independent, as set forth in our Corporate Governance Guidelines and outlined below, except our President and Chief Executive Officer, Mr. Bradie, who does not qualify as an independent director.
A director will be considered independent under our Corporate Governance Guidelines if he or she:
•
has no material relationship with KBR;
•
has not been employed by us or any affiliate of ours during the preceding three years, and no member of the director’s immediate family has been employed as an executive officer of ours or any of our affiliates during the preceding three years;
•
has not received, and does not have an immediate family member who has received, during any twelve-month period within the preceding three years, more than $100,000 in direct compensation from KBR, other than director’s fees, committee fees or pension or deferred compensation for prior service;
•
is not a partner or an employee of KBR’s independent auditor, and was not during the past three calendar years a partner or employee of KBR’s independent auditor who personally worked on KBR’s audit;
•
does not have an immediate family member who is a partner of KBR’s independent auditor or an employee of KBR’s independent auditor who participates in that firm’s audit, assurance or tax compliance (but not tax planning) practice or was during the past three calendar years a partner or employee of KBR’s independent auditor who personally worked on KBR’s audit;
•
is not a current employee and does not have an immediate family member who is a current executive officer of any company that has made payments to, or received payments from, KBR or any of its affiliates in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues; and
•
has not (and has not had a family member who) within the preceding three years served as an executive officer with a company for which a KBR executive served on its compensation committee.
The definition of independence and compliance with this policy will be reviewed periodically by the Nominating and Corporate Governance Committee. All directors complete independence questionnaires at least annually and our Board makes determinations of the independence of its members under the listing standards of the NYSE and the SEC requirements for Audit Committee members. Our Board believes that its membership should include no more than two directors who are also employees of KBR. While this number is not an absolute limitation, other than the Chief Executive Officer, who should at all times be a member of the Board, employee directors should be limited only to those officers whose positions or potential make it appropriate for them to sit on the Board.
- 2016 Proxy Statement 19
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AUDIT COMMITTEE FINANCIAL EXPERT
DETERMINATIONS
Our Board has determined that each member of its Audit Committee is financially literate and qualifies as an “audit committee financial expert,” as defined in Item 407(d) of Regulation S-K and, as described above, that each member of the Audit Committee is independent, as defined by our Corporate Governance Guidelines, the NYSE’s listing standards and Rule 10A-3 under the Securities Exchange Act of 1934.
BOARD OF DIRECTORS LEADERSHIP
STRUCTURE
Since March 31, 2014, Mr. Carroll, the Company’s former Lead Director, began serving as non-executive Chairman of the Board. Our non-executive Chairman leads the Board. Mr. Carroll has significant board experience, as described in his biographical information in this proxy statement, and works closely with Mr. Bradie and the Board on risk oversight and governance matters. Prior to being non-executive Chairman of the Board, Mr. Carroll served as the company’s Lead Director, as well as Chairman of the Nominating and Corporate Governance Committee, since 2012, and a director since April 2007. Our CEO is responsible to the Board for the overall management and functioning of the company.
KBR’s Corporate Governance Guidelines provide for the Chairman of the Board, if the Chairman of the Board is independent, to perform a strong role in the leadership of the Board, as follows:
•
The Chairman of the Board presides at executive sessions of the non-executive directors at each regular Board meeting and sets the agenda for these sessions.
•
The Chairman of the Board approves meeting agendas for each regular Board and committee meeting and approves the information to be sent to the directors with respect to each meeting.
•
The Chairman of the Board presides at the executive session of the Board to evaluate the performance of our CEO. In addition, he has a key role in communicating to the CEO, after approval by the Compensation Committee, the evaluation and compensation of the CEO for the next full year and the results of the Board’s review and approval of management succession plans and development programs.
KBR’s Corporate Governance Guidelines provide for the following checks and balances regarding the role of the CEO:
•
The CEO may not serve on any committees of the Board, as only non-executive directors may do so.
•
One of the elements of the CEO’s evaluation is the extent to which he keeps the Board informed on matters affecting the company and its operating units.
•
At least two-thirds of the Board must be independent directors. In practice, our CEO has been the only executive director at KBR since its inception as an independent public company. Each of our other directors is independent, as defined under the listing standards of the NYSE.
KBR’s Board of Directors has determined that its current leadership structure is appropriate as of the date of this proxy statement, given the complexity and global nature of KBR’s business and the risks inherent in our business. The Board believes that Mr. Carroll, acting in his role as non-executive Chairman, is well positioned to facilitate communications with the Board of Directors and stockholders about our complex business. During Mr. Carroll’s service on the Board, KBR’s business has undergone significant transformation, including reorganization into more strategically-aligned business groups, and evolution from a wholly-owned subsidiary with significant support from its parent company into an independent operating company.
RISK OVERSIGHT ROLE OF THE BOARD
OF DIRECTORS
KBR’s Board of Directors considers risk oversight to be an integral part of its role, and discussions regarding risks faced by the company are part of its meetings and deliberations throughout the year. As part of the implementation of KBR’s new strategy, KBR’s management improved its enterprise risk management system to provide greater executive oversight for managing risks and provided semi-annual reports to the Board regarding significant strategic, operational, financial, and hazard risks determined by management to have a potential significant impact on the company as a whole. The risk report involves both current and emerging risks and is the culmination of a process involving input from all business groups and executive leadership. Management’s assessment of risk included specific strategic, operational, financial and hazard risks, the perceived trend for each of those specific risks — whether increasing, decreasing or stable — and the measures being taken to monitor and mitigate those risks.
In addition to the enterprise risk management process described above, the Board also engages in risk oversight through the project approval process, whereby projects reaching a threshold level of expected revenues require Board approval. Fixed-price contracts have a lower threshold level than reimbursable-type contracts because of their potential price and financial risks. In reviewing projects, the Board is presented with management’s assessment of a particular project’s cost exposure associated with operations risk, liabilities and funding risks, among others. In this manner, KBR’s Board is engaged in risk oversight at the outset of the largest projects, which could have a material effect on KBR’s operations.
The Board also engages in risk oversight through the approval of acquisitions proposed by management where the purchase consideration exceeds a certain threshold. The review conducted by the Board includes presentations by management regarding the strategic fit of the acquired business within the Company’s existing operations and offerings; the commercial, legal, and financial risks identified in the diligence process, among others, and the measures to be implemented by management to mitigate those risks; the valuation analysis and projected returns on investment; agreement terms, including conditions to close, ability to terminate and terms of indemnification protection; details on the planned
- 2016 Proxy Statement 20
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integration, including budgets and employee resources; and metrics identified for measuring the success of the acquisition. In this process, the Board engages in oversight of the various risks associated with acquiring and integrating new businesses, which, if not successfully performed, could have a material effect on KBR’s operations and financial condition. The Board is also engaged in risk oversight through regular reports from its Audit Committee. The Audit Committee is charged with reviewing with management the company’s major financial risk exposures, as well as other areas of risk exposure if requested to do so by the Board, and the steps management has taken to monitor and mitigate those exposures. The Audit Committee receives periodic reports from management on these areas of potential exposure, including litigation, liquidity and capital resources, financial reporting and disclosures, regulatory and tax risks, among others. The Audit Committee also receives in-depth periodic reports from management regarding specific processes designed to monitor and manage risk, such as internal controls testing program development and foreign exchange risk management. The Audit Committee also receives periodic reports from management on cyber security measures and assessments performed on their efficacy. The Audit Committee conducts private sessions with KBR’s Chief Financial Officer, Vice President of Internal Audit and General Counsel at each regular meeting and with KBR’s independent auditors at each meeting prior to the release of quarterly and annual results. The Audit Committee Chairman gives a report of the Audit Committee’s activities to the full Board at each regular meeting and in this manner the entire Board is informed of matters that the Audit Committee determines warrant full Board discussion. Additional risk oversight reviews undertaken by the Audit Committee in 2015 are included in the Audit Committee Report on page 57.
Finally, the Health, Safety, Security, Environment and Social Responsibility Committee has the responsibility for the oversight of KBR’s activities in managing its major risk exposures within the health, safety and sustainable development areas. The Health, Safety, Security, Environment and Social Responsibility Committee receives periodic reports from KBR’s Chief HSSE Officer relating to these risk exposures and the company’s efforts to mitigate those risks.
DIRECTORS’ MEETINGS AND
STOCKHOLDER COMMUNICATIONS WITH DIRECTORS
The Board of Directors will meet each year immediately following the Annual Meeting of Stockholders to transact such business as may properly be brought before the meeting. Additional regular meetings of the Board of Directors may be held without notice at such times as the Board of Directors may determine, but shall consist of at least four other regularly scheduled meetings. Special meetings may be called by the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Corporate Secretary or a majority of the directors in office. KBR’s Bylaws permit action to be taken without a meeting if all members of the Board of Directors consent to such action in writing or by electronic transmission. During 2015, the Board of Directors held nine meetings. The Chairman of the Board presides at all Board meetings.
During each regular Board meeting, KBR’s non-executive directors, all of whom have been determined by our Board to be independent under the standards of our Corporate Governance Guidelines and the NYSE, meet in scheduled executive sessions. Our non-executive Chairman of the Board, Mr. Carroll, presides at all executive sessions of the Board. During 2015, the non-executive directors met without management four times.
In addition, each December our non-executive directors meet in executive session to evaluate the performance of our Chief Executive Officer. In evaluating our CEO, the non-executive directors consider qualitative and quantitative elements of the CEO’s performance, including:
•
keeping the Board informed on matters affecting KBR and its operating units;
•
performance of the business (including such measurements as total stockholder return and achievement of financial objectives and goals);
•
development and implementation of initiatives to provide long-term economic benefit to KBR;
•
accomplishment of strategic objectives; and
•
development of management.
In addition, the non-executive directors annually review management succession plans and development programs for senior members of executive management. The evaluation and compensation for the next full year, and management succession plans and development programs will be communicated to the CEO only after review and approval by the Compensation Committee and the full Board of Directors (other than the CEO).
MANAGEMENT SUCCESSION PLANNING
The Board of Directors considers management evaluation and CEO succession planning an important responsibility of the Board. Our Corporate Governance Guidelines, which are available on our website at www.kbr.com/About/Corporate-Governance/, provide that the Board’s responsibility for effective governance of the corporation includes reviewing succession plans and management development programs for members of executive management. The Board of Directors, with input from the Nominating and Corporate Governance Committee, the Chairman of the Board, and the CEO, regularly reviews KBR’s succession plan for all senior management positions. The review process includes identification of internal candidates, any development needs for such candidates, and a determination of whether a search for external candidates would be more appropriate.
Issues relating to CEO succession planning are also addressed regularly, and no less than annually, by the entire Board. This process is led by the non-executive Chairman of the Board on behalf of the non-executive directors. As set out in our Corporate Governance Guidelines, KBR’s non-executive directors review succession plans and management development programs for members of executive management, including the CEO, on at least an annual basis. While the Nominating and Corporate Governance Committee performs the initial review of the succession plans and makes recommendations to the Board as necessary, the entire Board has primary responsibility for CEO succession planning and develops both long-term and contingency plans for succession of the CEO. This process necessarily involves the development and review of criteria for the CEO position that reflect the Company’s business strategy, and identifying and developing internal candidates or identifying the need
- 2016 Proxy Statement 21
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for external candidates, as appropriate. Additionally, one of the elements that the CEO is evaluated upon each year by the Compensation Committee is the existence and completeness of a succession plan, including assessment and development of internal candidates for the CEO and top level executive positions. The evaluation and compensation of the CEO for the next full year, including an evaluation of the completeness of aspects of the management succession plans and development programs that are the responsibility of the CEO, are communicated to the CEO by the non-executive Chairman of the Board after review and approval by the Compensation Committee and the full Board of Directors (other than the CEO).
THE BOARD OF DIRECTORS AND STANDING
COMMITTEES OF DIRECTORS
KBR’s Bylaws authorize the Board of Directors to appoint such committees as they deem advisable, with each committee having the authority to perform the duties as determined by the Board. A substantial portion of the analysis and work of the Board is done by standing Board committees. A director is expected to participate actively in the meetings of each committee to which he or she is appointed. At this time, the Board of Directors has four standing committees to which it has delegated certain duties and responsibilities: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Health, Safety, Security, Environment and Social Responsibility Committee. Each of the standing committees is comprised entirely of non-executive and, in the business judgment of the Board, independent, directors. The members and chairmen of the respective committees are indicated below:
|
Audit Committee
|
Compensation
Committee
|
Health, Safety, Security,
Environment and Social
Responsibility Committee
|
Nominating and
Corporate Governance
Committee
|
Mark E. Baldwin
|
X
|
|
|
|
X
|
|
|
|
James R. Blackwell
|
|
|
X
|
|
|
|
X
|
|
Loren K. Carroll
|
|
|
|
|
|
|
|
|
Jeffrey E. Curtiss
|
X
|
*
|
|
|
|
|
X
|
|
Umberto della Sala
|
|
|
X
|
|
X
|
|
|
|
Lester L. Lyles
|
X
|
|
|
|
X
|
*
|
|
|
Jack B. Moore
|
|
|
X
|
*
|
|
|
X
|
|
Ann D. Pickard
|
X
|
|
|
|
X
|
|
|
|
Richard J. Slater
|
|
|
X
|
|
|
|
X
|
*
|
* Chairman
|
|
The Board of Directors has approved a charter for each of the standing committees, which sets forth the duties and responsibilities delegated to each of the committees by the Board of Directors and governs the committee’s actions. The purpose, duties and responsibilities of each committee are briefly described below.
AUDIT COMMITTEE
The Audit Committee currently comprises Ms. Pickard and Messrs. Baldwin, Curtiss, and Lyles. Mr. Curtiss serves as Chairman. The Audit Committee met eight times in 2015. A copy of the Audit Committee’s charter is available on the Corporate Governance page of our website, www.kbr.com.
The Audit Committee reviews and reports to the Board of Directors the scope and results of audits by our principal independent public accountants and our internal auditing staff and reviews with the principal independent public accountants the effectiveness of our system of internal controls. It reviews transactions between us and our directors and officers, our policies regarding those transactions and compliance with our Code of Business Conduct. The Audit Committee also engages our principal independent registered public accounting firm for each fiscal year, reviews the audit and other professional services rendered by our principal independent registered public accounting firm and periodically reviews the independence of our principal independent registered public accounting firm. Additional information about the Audit Committee and its responsibilities is included in the section of this proxy statement entitled “Audit Committee Report” and in the charter of the Audit Committee, which was adopted by the Board of Directors.
- 2016 Proxy Statement 22
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COMPENSATION COMMITTEE
The Compensation Committee currently comprises Messrs. Blackwell, della Sala, Moore, and Slater. Mr. Moore serves as Chairman. The Board of Directors has determined that each member of the Compensation Committee is independent as defined in the listing standards of the NYSE. The Compensation Committee met six times during 2015.
The Compensation Committee reviews and recommends to the Board of Directors the compensation and benefits of our executive officers, establishes and reviews general policies relating to our compensation and benefits and administers the compensation plans described in the Compensation Discussion and Analysis below. The Compensation Committee’s responsibilities include, but are not limited to:
•
evaluating and advising the Board regarding the compensation policies applicable to our executive officers, including guidance regarding the specific relationship of corporate performance to executive compensation;
•
reviewing and recommending to the Board: the corporate goals and objectives relevant to compensation for the CEO; the CEO’s performance in light of these established goals and objectives; the CEO’s compensation, including salary, bonus, incentive and equity compensation based on this evaluation and considering, with respect to the long-term incentive compensation component of the CEO’s compensation, KBR’s performance and relative stockholder return, the value of similar incentive awards to chief executive officers at comparable companies, the awards given to the CEO in past years and any other factors it deems relevant;
•
reviewing the CEO’s recommendations with respect to, and approving, the compensation to be paid to KBR’s other executive officers in accordance with the general compensation policies established by the Board;
•
reviewing and making recommendations to the Board with respect to incentive compensation and other stock-based plans;
•
assisting the full Board with respect to the administration of KBR’s incentive compensation and other stock-based plans;
•
maintaining appropriate, regular contact with KBR management;
•
reviewing and discussing with management the “Compensation Discussion and Analysis” and determining whether to recommend to the Board that it be included in KBR’s annual proxy statement or annual report on Form 10-K;
•
preparing and publishing, over the names of the members of the Compensation Committee, an annual executive compensation report as required by the SEC to be included in KBR’s annual proxy statement or annual report on Form 10-K;
•
evaluating its own performance and reviewing the adequacy of its charter, at least annually;
•
reviewing the risk assessment of KBR’s compensation plans to ensure that the programs do not create risks that are reasonably likely to have a material adverse effect on KBR;
•
approving disclosures and making recommendations to the Board regarding the disclosures on KBR’s Advisory Vote To Approve Named Executive Officer Compensation and the Advisory Vote On The Frequency of Advisory Votes To Approve Named Executive Officer Compensation to be included in KBR’s annual proxy statement or annual report on Form 10-K and to disclose on Form 8-K, if required, the frequency in which KBR will hold the Advisory Vote To Approve Named Executive Officer Compensation;
•
periodically reviewing the compensation paid to non-executive directors (including Board and committee chairpersons) in the form of annual retainers and meeting fees, if any, and making recommendations to the Board regarding any adjustments; and
•
selecting a compensation consultant or other adviser to the Compensation Committee after considering the factors identified by the SEC (as well as any other factors identified by the NYSE) as affecting the independence of such consultant or adviser, including, but not limited to the following:
–
the provision of other services to KBR by the employer of the compensation consultant or other adviser;
–
the amount of fees received from KBR by the employer of the compensation consultant or other adviser, as a percentage of the total revenue of the employer of the compensation consultant or other adviser;
–
the policies and procedures of the compensation consultant or other adviser that are designed to prevent conflicts of interest;
–
any business or personal relationship of the compensation consultant or other adviser with a member of the Compensation Committee;
–
any stock of KBR owned by the compensation consultant or other adviser; and
–
any business or personal relationship of the compensation consultant or other advisor or the compensation consultant or other advisor’s employer with any of executive officers of KBR.
HEALTH, SAFETY, SECURITY, ENVIRONMENT
AND SOCIAL RESPONSIBILITY COMMITTEE
The Health, Safety, Security, Environment and Social Responsibility Committee currently comprises Messrs. Baldwin, della Sala, and Lyles and Ms. Pickard. General Lyles serves as Chairman. The Health, Safety, Security, Environment and Social Responsibility Committee met twice in 2015.
The Health, Safety, Security, Environment and Social Responsibility Committee’s responsibilities include, but are not limited to:
•
reviewing the status of KBR’s health, safety, security, environmental, and social responsibility policies and performance, including processes to ensure compliance with applicable laws and regulations;
•
reviewing KBR’s health, safety, security, environmental, and social responsibility performance to determine consistency with policies and goals;
•
reviewing and providing input to KBR on the management of current and emerging health, safety, security, environmental, and social responsibility issues;
•
overseeing KBR’s activities in managing its major risk exposures within the health, safety, security, environmental, and social responsibility areas;
•
reviewing KBR’s political and charitable contributions and social responsibility activities; and
•
Reviewing KBR’s public sustainability report.
- 2016 Proxy Statement 23
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NOMINATING AND CORPORATE GOVERNANCE
COMMITTEE
The Nominating and Corporate Governance Committee currently comprises Messrs. Blackwell, Curtiss, Moore, and Slater. Mr. Slater serves as Chairman. The Board of Directors has determined that each member of the Nominating and Corporate Governance Committee is independent as defined in the listing standards of the NYSE. The Nominating and Corporate Governance Committee met four times during 2015.
The Nominating and Corporate Governance Committee’s responsibilities include, but are not limited to:
•
developing, implementing and periodically reviewing KBR’s corporate governance guidelines;
•
developing and implementing a process to assess Board and committee effectiveness;
•
identifying individuals qualified to become Board members, consistent with Board-approved criteria;
•
performing an annual evaluation of our independent directors; and
•
determining the composition of the Board and its committees, including selection of the Director nominees for the next annual meeting of stockholders.
STOCKHOLDER NOMINATIONS OF DIRECTORS
Stockholders may suggest candidates for nomination by the Nominating and Corporate Governance Committee by contacting the Committee in the manner provided below under “Contact the Board.” If selected for nomination by the Nominating and Corporate Governance Committee, as described below under “Process for the Selection of New Directors,” such candidate will be included in KBR’s proxy statement for the annual meeting of stockholders.
Nominations by stockholders may also be made at an annual meeting of stockholders in the manner provided in our Bylaws, although such nominees will not necessarily be included in KBR’s proxy statement. The Bylaws provide that a stockholder entitled to vote for the election of Directors may make nominations of persons for election to the Board at a meeting of stockholders by complying with required notice procedures. Nominations shall be made pursuant to written notice to our Secretary at the address set forth on page 68 of this proxy statement, and must be received at our principal executive offices not less than ninety (90) days, nor more than one hundred twenty (120) days, prior to the anniversary date of the immediately preceding annual meeting of stockholders. The notice shall set forth the information required by our Bylaws, including:
•
as to each person the stockholder proposes to nominate for election or reelection as a Director:
–
the name, age, business address and residence address of the person;
–
the principal occupation or employment of the person;
–
the class and number of shares of KBR common stock that are beneficially owned by the person;
–
all other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended;
–
such person’s written consent to serve as a director if elected;
–
a description of all direct and indirect compensation and other material monetary or other arrangements between the stockholder and such person; and
–
such person’s completed director’s and officer’s questionnaire and agreement not to enter into certain arrangements; and
•
as to the stockholder giving the notice:
–
the name and record address of the stockholder;
–
the class and number of shares of KBR common stock that are beneficially owned by the stockholder;
–
a representation that the stockholder intends to appear in person or by proxy at the meeting to propose the nomination;
–
any hedging or other transactions entered into with the effect or intent to mitigate loss to, or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, the stockholder with respect to KBR’s shares; and
–
a representation whether the stockholder intends to solicit proxies from the holders of at least the percentage of common stock required to elect the nominee.
The proposed nominee may be required to furnish other information as KBR may reasonably require to determine the eligibility of the proposed nominee to serve as a director. At any meeting of stockholders, the presiding officer may disregard the purported nomination of any person not made in compliance with these procedures.
QUALIFICATIONS OF DIRECTORS
Candidates nominated for election or re-election to the Board of Directors should possess the following qualifications:
•
personal characteristics:
–
highest personal and professional ethics, integrity and values;
–
an inquiring and independent mind;
–
practical wisdom and mature judgment;
•
broad training and experience at the policy-making level in business, government, education or technology;
•
expertise that is useful to KBR and complementary to the background and experience of other Board members, so that an optimum balance of members on the Board can be achieved and maintained;
•
willingness to devote the required amount of time to carrying out the duties and responsibilities of Board membership;
•
commitment to serve on the Board for several years to develop knowledge about KBR’s principal operations;
- 2016 Proxy Statement 24
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•
willingness to represent the best interests of all stockholders and objectively appraise management performance; and
•
involvement only in activities or interests that do not create a conflict with the Director’s responsibilities to KBR and its stockholders.
The Nominating and Corporate Governance Committee is responsible for assessing the appropriate mix of skills and characteristics required of Board members in the context of the needs of the Board at a given point in time and shall periodically review and update the criteria. Diversity in personal background, race, gender, age and nationality for the Board as a whole may be taken into account in considering individual candidates, but KBR does not have a policy with regard to any particular aspect of diversity of its directors.
PROCESS FOR THE SELECTION OF NEW
DIRECTORS
The Board is responsible for filling vacancies on the Board. The Board has delegated to the Nominating and Corporate Governance Committee the duty of selecting and recommending prospective nominees to the Board for approval. The Nominating and Corporate Governance Committee considers suggestions of candidates for Board membership made by current Committee and Board members, KBR management, and stockholders. Each of the nominees for director at this meeting is an incumbent director recommended by the non-executive directors. The Committee may also retain an independent executive search firm to identify candidates for consideration. The Nominating and Corporate Governance Committee will also consider candidates nominated by the stockholders in accordance with our Bylaws. A stockholder who wishes to recommend a prospective candidate should notify KBR’s Secretary, as described in this proxy statement.
When the Nominating and Corporate Governance Committee identifies a prospective candidate, the Committee determines whether it will carry out a full evaluation of the candidate. This determination is based on the information provided to the Committee by the person recommending the prospective candidate, and the Committee’s knowledge of the candidate. This information may be supplemented by inquiries to the person who made the recommendation or to others. The preliminary determination is based on the need for additional Board members to fill vacancies or to expand the size of the Board, and the likelihood that the candidate will meet the Board membership criteria listed above. The Committee will determine, after discussion with the non-executive Chairman of the Board and other Board members, whether a candidate should continue to be considered as a potential nominee. If a candidate warrants additional consideration, the Committee may request an independent executive search firm to gather additional information about the candidate’s background, experience and reputation, and to report its findings to the Committee. The Committee then evaluates the candidate and determines whether to interview the candidate. Such an interview would be carried out by one or more members of the Committee and others as appropriate. Once the evaluation and interview are completed, the Committee recommends to the Board which candidates should be nominated. The Board makes a determination of nominees after review of the recommendation and the Committee’s report.
CODE OF ETHICS
KBR has adopted a “code of ethics,” as defined in Item 406(b) of Regulation S-K. KBR’s code of ethics, known as its Code of Business Conduct, applies to all directors, officers and employees of KBR, including, but not limited to, its principal executive officer, principal financial officer, principal accounting officer and controllers, and also applies to all employees of KBR and KBR’s agents. KBR has posted its Code of Business Conduct on its website, www.kbr.com. In addition, KBR intends to satisfy the disclosure requirements regarding any amendment to, or waiver from, a provision of the Code of Business Conduct that relates to any element of the definition of code of ethics set forth in Item 406(b) of Regulation S-K, including the requirements of Item 5.05 of Form 8-K, by posting such information on its website, www.kbr.com. The most recent revisions to the Code of Ethics were approved by the Board of Directors in February 2016.
CONTACT THE BOARD
To foster better communication with our stockholders, KBR has established a process for stockholders and other interested parties to communicate with the Audit Committee and the Board of Directors. The process has been approved by our Board and its Audit Committee and is designed to meet the requirements of the NYSE and the SEC. You may communicate with our Board of Directors or the non-executive directors via mail (Board of Directors c/o Director of Business Conduct, KBR, Inc., P.O. Box 3406, Houston, Texas 77253-3406), telephone (1-855-231-7512 (toll-free from the U.S. or Canada) or 1-503-619-1884 (calling collect from any other country)), or e-mail (fhoukbrbod@kbr.com). Information regarding these methods of communication is also on our website, www.kbr.com, under “Corporate Governance.”
Our Director of Business Conduct reviews all communications directed to the Audit Committee and the Board of Directors. The Chairman of the Audit Committee is promptly notified of any significant communication involving accounting, internal controls, auditing matters or any other significant communications. Communications addressed to a named director are promptly sent to the director. Communications directed to the non-executive directors are promptly sent to the non-executive Chairman of the Board. A report summarizing the significant communications is sent to each director quarterly and copies of communications are available for review by any director, except that those designated for the non-executive directors are not available to executive directors. The process has been approved by both the Audit Committee and the Board, and is designed to meet the requirements of the NYSE and the SEC. Concerns may be reported anonymously or confidentially.
- 2016 Proxy Statement 25
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Compensation Discussion and Analysis
EXECUTIVE SUMMARY
NAMED EXECUTIVE OFFICERS
This Compensation Discussion and Analysis provides a detailed description of our compensation philosophy, objectives, policies, and practices in place during 2015, and explains the factors considered by the Compensation Committee of our Board of Directors (our “Compensation Committee” or the “Committee”) in making compensation decisions during 2015. This Compensation Discussion and Analysis focuses on the compensation of our Named Executive Officers or “NEOs” for 2015, namely:
Name
|
Title
|
Stuart J. B. Bradie
|
President and Chief Executive Officer
|
Brian K. Ferraioli
|
Executive Vice President and Chief Financial Officer
|
Ivor J. Harrington
|
President E&C APAC
|
Farhan Mujib
|
Executive Vice President Commercial
|
Roy B. Oelking
|
President E&C Americas
|
These NEOs, together with the other members of our Senior Executive Management whose compensation is determined by our Compensation Committee and our Board of Directors, are referred to as our “Senior Executive Management.”
FINANCIAL AND PERFORMANCE HIGHLIGHTS
Transformational Year
2015 was a very challenging market for global hydrocarbons. As a result, it was challenging for our industry. Total shareholder return was on average negative for our TSR peer group. There were only three companies among the ten in our TSR peer group that had positive total shareholder return in 2015. KBR was one of those three companies.
2015 was a transformational year for us. Our rapid implementation of KBR’s transformation action-plan has led us to emerge as a stronger company. In December 2014, at the initiation of our newly-appointed CEO, we began implementation of our strategic plan for a major transformation of KBR. In 2015, we made significant progress on our strategic plan, as outlined below:
Strategic Initiatives
|
Status
|
•
Exit non-strategic businesses
|
•
Completed two of three fixed-priced EPC Power projects; final project targeted completion
Q1 2017
•
Sold Building Group; pre-tax gain $28 million; cash proceeds $23 million
•
Sold U.S. Infrastructure business; pre-tax gain $7M; cash proceeds $18 million
•
Closed U.S. Minerals office
|
•
Businesses under review
|
•
Transferred U.S. Industrial Services Business to Brown & Root (B&R) JV
•
Transferred Canadian Pipe Fabrication/Module Assembly Business to EPIC JV
|
•
Reduce costs by $200 million by Y/E 2016
|
•
More than $165 million identified and actioned to-date
|
•
Achieve Target Margins by Y/E 2016:
•
E&C (High single digits)
•
GS (Low teens) – Excluding legacy legal costs
|
•
GS 2015: 9.0% (excluding $18 million in legacy legal fees) (see GAAP reconciliation on page 69 of this proxy statement)
|
•
Resolve outstanding disputes
|
•
U.S. Government audits through 2011 largely completed. Only $9 million in questioned costs out of approximately $46 billion audited remain open
•
LogCAP III tort cases – Sodium Dichromate cases dismissed on merits. Subject to appeal.
•
PEMEX – awaiting court decision
|
•
Employ a balanced capital allocation policy
|
•
Returned $109 million to shareholders in 2015; $1.1 billion since January 2007
•
Paid a competitive yielding dividend
•
Purchased 21% of pipe fabrication business (BCP)
•
Acquired technology subsidiaries from Chematur (closed Jan 2016)
|
- 2016 Proxy Statement 26
Back to Contents
Financial Highlights
As seen in our 2015 10-K, which was filed on February 26, 2016, our fiscal 2015 consolidated results reflect continued strength in our operational performance and progress towards achieving the strategic objectives outlined above. KBR’s transformation is well underway. Our efforts to implement the strategic objectives have translated into better than expected earnings per share in 2015. In addition, our one-year relative shareholder return has dramatically improved from 2014.
Performance Highlights
2015 was the first full year for our CEO at KBR. In 2015, Mr. Bradie’s performance exceeded our expectations. Not only was he instrumental in making significant progress against our strategic objectives, as noted above, his leadership has transformed KBR. Mr. Bradie has reorganized and refreshed our leadership team. His efforts to simplify and focus our Company on its strengths through divestiture of nonstrategic businesses, acquisitions of complementary businesses, aggressive cost control, and deploying a balanced capital allocation policy have better positioned KBR to be competitive in the future. Further, Mr. Bradie’s accomplishments in 2015 have helped KBR maintain a strong balance sheet, which provides KBR with the strength, optionality and ability to move quickly as opportunities arise. KBR has done this while still paying a competitive yielding dividend.
It is also Mr. Bradie’s efforts that have established a performance culture throughout our organization that is accountable and focuses on what is core to KBR’s growth. This performance culture, which begins with our CEO and is executed by our Senior Executive Management, has been responsible for our transformation.
Our CEO and Senior Executive Management have been instrumental in helping KBR win new contracts during the challenging year for our industry. Specifically, in June, KBR in a joint venture with Kvaerner signed a contract with Statoil for the complete delivery of platform topsides to the Johan Sverdrup field development. The agreement has an estimated total value for the Kvaerner-KBR partnership of approximately NOK 6.7 billion (which equalled approximately $850 million USD when it was announced). In addition, we won a large engineering, procurement and construction contract (EPC) with Yara International and BASF Group’s new joint production company to provide ammonia synthesis licensed technology and to build a world-scale ammonia plant. It is wins like these that are evidence of the efforts of our Senior Executive Management team.
Our commitment to safety is evidenced by the Zero Harm initiative that was launched company-wide and is aimed at continuously decreasing our recordable incident rates in an effort to become an industry safety leader. As our safety results show, our actions are working toward our goal of Zero Harm. Our total recordable incident rate dropped from .30 in 2014 to .21 in 2015.
Pay for Performance in 2015
We delivered on our transformation strategy in 2015. Appropriately, our Named Executive Officers received above target payouts under our 2015 Short-Term Incentive Plan that reflected their strong performance in delivering on the strategy outlined to our stockholders in December 2014. This strong performance is also reflected in KBR’s total shareholder return for 2015 that ranked 3rd out of 10 among our TSR peer group.
Our three-year total shareholder return from January 1, 2013, to December 31, 2015, trailed below the median of our TSR peer group and largely reflects performance prior to the strategy implementation announced in December 2014. Consequently, the long-term performance cash awards payable for the three-year period ending on December 31, 2015 earned zero, which represented 60% of our NEOs’ annual long-term incentive compensation opportunity when granted in 2013.
These results demonstrate a compensation program designed on the principles of “Pay for Performance” and fully aligned with our strong operating performance in 2015. Even though we believe our compensation program reflects pay for performance, our Compensation Committee exercised negative discretion to reduce the 2015 Short-Term Incentive Plan payouts for our NEOs below the achieved metrics (for a more detailed description of how the negative discretion was applied, see the section titled “Short-Term Incentives (Annual)” below).
Changes Made to NEOs’ 2015
Compensation
Based on prior year performance, peer-comparative data, and the recommendation of our CEO, our Compensation Committee approved zero 2015 base salary increases for all NEOs (except for a newly promoted NEO, Mr. Mujib). In addition, our Compensation Committee approved zero 2015 short-term incentive target increases and zero 2015 long-term incentive target increases for all NEOs, excluding the CEO and Mr. Mujib.
- 2016 Proxy Statement 27
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Based on peer-comparative data for the CEO’s level of compensation, on his non-involvement (pre-hire) in the 2013 financial and operational challenges, and on our Board’s satisfaction with his personal engagement in formulating and leading KBR’s business transformation actions (our CEO’s performance is more fully described on page 27 of this proxy statement in the section titled “Performance Highlights”), our Compensation Committee and Board approved modest increases to our CEO’s short- and long-term incentive targets for 2015 but made no increase to his base salary. The CEO’s 2015 total target compensation was kept below the median total target compensation for our E&C Peer Group (our E&C Peer Group is described below in the section titled “E&C Peer Group”).
With respect to Mr. Mujib, based on peer comparative data, his promotion, and his leadership in planning and implementing our strategic plan, our Compensation Committee approved modest increases to Mr. Mujib’s short- and long-term incentive targets for 2015. Mr. Mujib’s total target compensation was kept below the median total target compensation for our E&C peer Group.
OVERVIEW OF EXECUTIVE COMPENSATION
PHILOSOPHY, POLICIES AND PRACTICES
Philosophy
Our Compensation Committee regularly reviews the elements of the individual compensation packages for our CEO and Senior Executive Management. Our Compensation Committee delegates to our CEO the duty to approve and administer the individual compensation packages for our other executives and employees, excluding our Senior Executive Management, subject to the Committee’s annual review of the delegation.
Our compensation plans are designed to achieve the following primary objectives:
•
provide a clear and direct relationship between executive pay and Company (and Business, as applicable) performance, both on a short-and long-term basis;
•
emphasize operating and financial performance measures;
•
link executive pay to measures of stockholder value;
•
support our business strategies and management processes in order to motivate our executives; and
•
generally target base salary, short-term incentives, long-term incentives, and total compensation levels near the 50th percentile of the competitive market for good performance and above the 50th percentile of the competitive market for consistent, outstanding performance over time, but also consider other factors, including differences in our position responsibilities compared to our peers, experience, retention risk, and internal equity.
Our executive compensation program is regularly reviewed to ensure that the program’s components continue to align with the above objectives and that the program is administered in a manner consistent with established compensation policies.
Policies and Practices
Below is a summary of our compensation policies and practices in place during 2015 for our Named Executive Officers:
Clawbacks
|
•
If our Committee determines that a NEO (or any other employee) has been paid incentive compensation (both cash and equity) based on restated financial results, the Committee may seek recovery of any overpayments.
|
Stock Ownership Guidelines
|
•
We require our NEOs to own a significant amount of stock to align their interests with our stockholders.
|
No Pledging
|
•
No officers may pledge Company stock.
|
No Hedging
|
•
No officers may hedge Company stock.
|
No Option Repricing
|
•
We prohibit the repricing of KBR stock options.
|
Market Comparison
|
•
Base salary, short-term incentives, long-term incentives and total compensation levels are generally targeted near the median of peer companies for good performance, and above the 50th percentile of the competitive market for consistent, outstanding performance over time, but also consider other factors, including differences in our position responsibilities compared to our peers, experience, retention risk, and internal equity.
|
Performance-Based Compensation
|
•
A majority of our NEOs’ compensation is performance-based compensation and is paid on the achievement of absolute and relative performance goals.
|
Double-Trigger
|
•
Severance and change-in-control agreements require a double-trigger change-in-control termination (i.e., the occurrence of both a change-in-control and a termination of employment within two years following the change-in-control event) in order for an executive to receive change-in-control benefits.
|
No Employment Agreements
|
•
No employment agreements are provided.
|
No Tax Gross-Ups
|
•
No excise tax gross-up agreements are provided.
|
No House Buyouts
|
•
No house buyouts are provided to any NEOs.
|
We encourage you to read the following detailed discussion and analysis of our executive compensation program, including the tables that follow the Compensation Discussion and Analysis.
- 2016 Proxy Statement 28
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Third-Party Consultants
Under its charter, our Compensation Committee is authorized to retain a compensation consultant and has the sole authority to approve the consultant’s fees and other retention terms. While our Compensation Committee believes that using third-party consultants is an efficient way to keep current regarding competitive compensation practices, our Compensation Committee does not accord undue weight to the advice of outside professional advisors, but instead makes changes in our compensation program in light of whether the program’s intended objectives are being achieved. In 2015, our Compensation Committee used the services of one compensation consulting firm, Meridian Compensation Partners, LLC (“Meridian”). Our Compensation Committee engaged and managed its relationship with the Meridian executive compensation consultants directly. In addition, Meridian reported directly to the Compensation Committee with respect to all executive compensation matters.
The nature and scope of Meridian’s engagement by the Compensation Committee included advising the Compensation Committee, as it needed, with respect to all executive compensation matters under the Compensation Committee’s purview. The material elements of the instructions or directions given to Meridian with respect to the performance of its duties to the Compensation Committee included engaging Meridian to provide the Compensation Committee with: (1) a 2015 proxy update; (2) a review of the peer groups used to assess the competitiveness of our executive compensation programs for the 2015-2016 compensation cycle; (3) regular updates of the valuation of our long-term performance cash awards; (4) a competitive market study of executive compensation for the Senior Executive Management; (5) regular updates on notable legislative and regulatory activities; (6) a review of the risk profile of the proposed long-term incentive performance metrics for 2016; (7) a review of the CEO’s 2016 executive compensation recommendations for our Senior Executive Management; (8) a review of the CEO’s compensation for 2016; and (9) a review of non-executive director compensation for 2016.
Outside of providing executive and director advisory services to our Compensation Committee, Meridian provided no other services to us or our affiliates. In May 2015, after the Compensation Committee reviewed the independence factors approved by the SEC for implementation by the NYSE in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) for compensation consultants and considered Meridian’s independence based on such factors, the Compensation Committee confirmed Meridian’s independence and approved the continued retention of Meridian.
E&C Peer Group
In the design and administration of our 2015 executive compensation programs for our Named Executive Officers, our Compensation Committee considered competitive market data from our Engineering and Construction (“E&C”) Peer Group. Our Compensation Committee also used its discretion and business judgment in determining overall compensation.
The E&C Peer Group is comprised of nine companies with primary operations in the engineering, construction, and services industry, against which we believe KBR most competes for employees and business. The compensation data for our E&C Peer Group was obtained from publicly available sources, including proxy statements and Form 4 and 8-K disclosures, and was not adjusted. The E&C Peer Group used for 2015 compensation decisions consisted of the companies in the table below, which includes revenue, asset, and market cap data relevant at the time these companies were relied upon for making the decisions on 2015 compensation.
Data in billions – as of 12/31/2014 (except as noted below)
Company
|
Revenues
|
|
Assets
|
|
Market Cap
|
|
AECOM Technology Corporation(1)
|
$
|
8.357
|
|
$
|
6.123
|
|
$
|
3.264
|
|
Chicago Bridge & Iron Company N.V.
|
$
|
12.975
|
|
$
|
9.381
|
|
$
|
4.526
|
|
EMCOR Group, Inc.
|
$
|
6.425
|
|
$
|
3.389
|
|
$
|
2.917
|
|
Fluor Corporation
|
$
|
21.532
|
|
$
|
8.194
|
|
$
|
9.472
|
|
Foster Wheeler AG(2)
|
$
|
2.445
|
|
$
|
2.521
|
|
$
|
3.267
|
|
Jacobs Engineering Group Inc.(3)
|
$
|
12.695
|
|
$
|
8.243
|
|
$
|
5.786
|
|
McDermott International, Inc.
|
$
|
2.301
|
|
$
|
3.444
|
|
$
|
0.692
|
|
Quanta Services, Inc.
|
$
|
7.851
|
|
$
|
6.312
|
|
$
|
6.032
|
|
URS Corporation(4)
|
$
|
5.092
|
|
$
|
8.655
|
|
$
|
4.188
|
|
Median (including KBR)
|
$
|
7.138
|
|
$
|
6.218
|
|
$
|
3.728
|
|
KBR, INC.
|
$
|
6.366
|
|
$
|
4.199
|
|
$
|
2.459
|
|
(1)
AECOM Technology Corporation’s Revenue, Assets, and Market Cap are as of 9/30/2014, Fiscal Year End.
(2)
Foster Wheeler AG’s Revenue and Assets are as of 9/30/2014, not Fiscal Year End, but last reported quarter prior to its acquisition by AMEC plc (now Amec Foster Wheeler plc). Foster Wheeler AG’s Market Cap is as of 8/29/2014.
(3)
Jacobs Engineering Group Inc.’s Revenue is as of 9/26/2014; its Assets are as of 12/26/2014 and Market Cap is as of 12/31/2014, not Fiscal Year End, but last reported quarter.
(4)
URS Corporation’s Revenue and Assets are as of 7/4/2014, not Fiscal Year End, but last reported quarter prior to its acquisition by AECOM Technology Corporation. Market Cap is as of 8/29/2014.
|
In addition to publicly-available data for the E&C Peer Group, a supplemental group of companies was selected to provide additional data for assessing the competitiveness of our compensation programs for our Named Executive Officers. The Diversified Peer Group consisted of 20 companies that were participants in the Equilar Executive Compensation Survey (which was used by Meridian to analyze peer company compensation data that was not publicly available), crossing multiple manufacturing and operations-focused industries of similar size and scope as KBR. The companies were generally selected based on company revenue, size, complexity and performance, and the nature of their principal business operations with specific emphasis on engineering, heavy manufacturing, and industrial services. Special consideration was also given to companies based in Houston. The Compensation Committee believes the Diversified Peer Group appropriately represents both the local Houston and the broader market for key management and technical talent. The companies that comprised the Diversified Peer Group used for 2015 compensation decisions were: AECOM Technology Corporation; The Babcock & Wilcox Company; CH2M Hill Companies, Ltd.; Colfax Corporation; EMCOR Group, Inc.; Flowserve Corporation; Fluor Corporation; Granite Construction Inc.; Illinois Tool Works; Ingersoll-Rand, PLC.; Jacobs Engineering Group Inc.; Leidos Holdings Inc.; Newell Rubbermaid Inc.; Parsons Corp.; Rockwell Collins, Inc.; Terex Corporation; Tetra Tech, Inc.; Textron Inc.; Trinity Industries; and Waste Management, Inc.
- 2016 Proxy Statement 29
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During 2015, our Compensation Committee asked Meridian to review the appropriateness of the E&C and Diversified Peer Groups used in the assessment of the competitiveness of our executive compensation programs. The review considered several factors relating to the companies in both our E&C and Diversified Peer Groups, including an analysis of certain financial metrics drawn from the Equilar Executive Compensation Survey (i.e., revenue, net assets, market capitalization, enterprise value, and number of employees), the business strategies of the peer group companies, the effects of corporate transactions, and the availability of market data. As a result of the review, effective for 2016 compensation decisions, our Compensation Committee maintained the same E&C Peer Group except for the following changes: (1) removed URS Corporation because it was acquired by AECOM Technology Corporation (2) removed Foster Wheeler AG because it was acquired by AMEC plc, and (3) added CH2M Hill Companies Ltd. In addition, our Compensation Committee made slight changes to our Diversified Peer Group. The changes to our Diversified Peer Group were made due to several peers not participating in the Equilar Executive Compensation Survey.
Role of Compensation Committee
and CEO
During 2015, our CEO made recommendations to our Compensation Committee regarding the compensation and incentives for our Senior Executive Management other than himself. Our CEO also:
•
recommended performance measures, target goals and award schedules for short-term and long-term incentive awards, and reviewed performance goals for consistency with our projected business plan;
•
reviewed competitive market data for Senior Executive Management positions; and
•
developed specific recommendations regarding the amount and form of equity compensation to be awarded to our Senior Executive Management.
Based on the CEO’s recommendations and in concert with him, our Compensation Committee’s role is to annually review and approve the compensation and incentive awards for our Senior Executive Management.
Changes Made in 2015 to KBR’s
Compensation Program
In 2015, our Compensation Committee determined to continue with our current compensation practices relatively unchanged except for: (1) revising the 2015 Short-Term Incentive Plan (Annual) to include metrics consistent with KBR’s strategic plan and (2) adding a second performance metric to our KBR Long-Term Performance Cash Awards so that awards granted in 2015 are based 50% on job income sold and 50% on relative total shareholder return over a three-year performance period, rather than based solely on total shareholder return. We decided to move job income sold from the annual incentive plan to our three-year performance awards because job income sold, we believe, is one of the most important gauges of our Company’s performance. Given the longevity of the projects we work on, the long-term job income sold metric will ensure that we are able to measure adjustments, both up and down, on projects over a three-year period. We maintained the mix of our long-term incentives with KBR Long-Term Performance Cash Awards still comprising a larger percentage (60%) of our NEOs’ target dollar value of long-term incentives than did restricted stock units and stock options (together, 40%). All of the changes made to our 2015 long-term incentives were made based on the Compensation Committee’s review of the competitiveness of KBR’s compensation program with our E&C Peer Group and a review of our strategic plan.
STOCKHOLDER ADVISORY VOTE ON COMPENSATION
We believe we have a well-designed executive compensation program. The most recent stockholder advisory proposal on executive compensation (“Say-on-Pay Proposal”) was presented to our stockholders during the Company’s annual meeting of stockholders on May 14, 2015. At that 2015 annual meeting, approximately 79% of the votes cast (in person and by proxy) on the Say-on-Pay Proposal were voted in favor of the proposal.
Our Compensation Committee considered the results to be an affirmation of the stockholders’ support of our compensation policies and decisions. Our Company maintains a regular dialogue with our stockholders on a broad range of topics, including governance and executive compensation, and we will continue to consider the outcome of our Say-on-Pay Proposal when determining future compensation policies and decisions for our NEOs.
SUMMARY OF 2015 COMPENSATION TO
NAMED EXECUTIVE OFFICERS
2015 Target Base Salary, Short-
and Long-Term Incentives
The table below reflects target annual compensation and is not intended to replace the more detailed information provided in the Summary Compensation Table. The target dollar amounts for restricted stock units and stock options are rounded to the next whole share upon grant, as reflected in the Summary Compensation Table. Note: Mr. Mujib’s 2015 base salary and short-term incentive were paid in British Pounds. The amounts in the table below for 2015 base salary and target 2015 short-term incentive reflect the U.S. Dollar amounts, which were converted from British Pounds. The conversion rate for Mr. Mujib’s base salary was 1.55, which reflected the rate reported by Bloomberg on January 1, 2015, when base salary was set. The conversion rate for Mr. Mujib’s short-term incentive was 1.3917 as reported by Bloomberg on February 29, 2016, which was the date paid. Mr. Mujib’s 2015 base salary in British Pounds was £354,747, and his target 2015 short-term incentive was £319,272.
|
|
2015 Base
Salary
|
Target
2015
Short-Term
Incentive
|
|
Target 2015 Long-Term Performance Incentives
|
|
Total
Amount
|
Restricted
Stock Units
Dollar
Amount
|
|
Stock
Options
Dollar
Amount
|
|
Performance
Cash Award
Dollar
Amount
|
Mr. Bradie
|
$
|
1,000,000
|
$
|
1,100,000
|
$
|
1,125,000
|
$
|
675,000
|
$
|
2,700,000
|
$
|
6,600,000
|
Mr. Ferraioli
|
$
|
650,000
|
$
|
585,000
|
$
|
350,000
|
$
|
210,000
|
$
|
840,000
|
$
|
2,635,000
|
Mr. Harrington
|
$
|
630,000
|
$
|
567,000
|
$
|
375,000
|
$
|
225,000
|
$
|
900,000
|
$
|
2,697,000
|
Mr. Mujib
|
$
|
550,000
|
$
|
444,331
|
$
|
350,000
|
$
|
210,000
|
$
|
840,000
|
$
|
2,394,331
|
Mr. Oelking
|
$
|
630,000
|
$
|
567,000
|
$
|
375,000
|
$
|
225,000
|
$
|
900,000
|
$
|
2,697,000
|
- 2016 Proxy Statement 30
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Performance-Based Compensation
A significant portion of our NEOs’ target annual compensation in 2015 was performance-based compensation. The following circle charts show the percentage of our CEO’s and other NEOs’ 2015 total target annual compensation that is performance-based compensation and the percentage that is not performance-based compensation. The circle charts reflect target annual compensation, except where actual is noted, and are not intended to replace the more detailed information provided in the Summary Compensation Table.
ELEMENTS OF COMPENSATION
Our executive compensation program has been designed to ensure that KBR is able to attract and retain ideal executives for applicable positions and that its compensation plans support KBR’s strategies, focus efforts, help achieve business success, and align with KBR’s stockholders’ interests. There is no pre-established formula for the allocation between cash and non-cash compensation or short-term and long-term compensation. Instead, each year our Compensation Committee determines, at its discretion and business judgment, the appropriate level and mix of short-term and long-term incentive compensation for our Senior Executive Management to reward near-term superior performance and to encourage commitment to our long-range strategic business goals. To determine the appropriate combination of elements, we consider our philosophy to condition the majority of Named Executive Officer compensation on Company performance.
As illustrated in the below charts, our 2015 executive compensation program consisted of the following core elements (at target): base salary, short-term incentives (annual), and long-term incentives. The circle charts are not intended to replace the more detailed information provided in the Summary Compensation Table.
- 2016 Proxy Statement 31
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In addition to the core elements outlined above, our 2015 executive compensation program included the following supplemental benefits: supplemental retirement, severance and change-in-control protection, and other generally available benefits, which are not reflected in the circle charts. Each element of our executive compensation program is described below.
A. BASE SALARY
We pay our Senior Executive Management base salaries to support our market-competitiveness with respect to annual pay for the skills and experience necessary to meet the requirements of the executive’s role. To determine base salary for our Senior Executive Management, our Compensation Committee relied primarily on (1) market data for comparable positions within the E&C Peer Group, (2) individual performance, and (3) internal pay equity. In addition to considering market comparisons in making salary decisions, our Compensation Committee exercised discretion and judgment based on the following factors:
•
level of responsibility;
•
experience in current role and equitable compensation relationships among our executives;
•
performance and leadership; and
•
external factors involving competitive positioning, general economic conditions, and marketplace compensation trends.
No specific formula is applied to determine the weight of each factor, and the factors are considered by our Compensation Committee in its discretion. Salary reviews are conducted annually in which individual performance is evaluated; however, individual salaries are not necessarily adjusted each year. Our Compensation Committee generally established base salaries at competitive levels, primarily using the median pay levels of comparable positions in the E&C Peer Group as reference points.
Based on these factors (and, in the case of Named Executive Officers other than Mr. Bradie, Mr. Bradie’s recommendations,) our Compensation Committee approved the following new base salaries for our Named Executive Officers, effective January 1, 2015:
Name
|
Increase (% of 2014
Base Salary)
|
2015 Base Salary
|
|
Basis for Decision
|
|
Mr. Bradie
|
$
|
0 (0%)
|
$
|
1,000,000
|
|
E&C Peer Group data.
|
Mr. Ferraioli
|
$
|
0 (0%)
|
$
|
650,000
|
|
E&C Peer Group data and internal equity.
|
Mr. Harrington
|
$
|
0 (0%)
|
$
|
630,000
|
|
E&C Peer Group data and internal equity.
|
Mr. Mujib
|
$
|
50,000 (10%)
|
$
|
550,000
|
|
E&C Peer Group data and promotion.
|
Mr. Oelking
|
$
|
0 (0%)
|
$
|
630,000
|
|
E&C Peer Group data and internal equity.
|
Mr. Mujib’s raise reflected his promotion to Executive Vice President, Commercial. In this new role, Mr. Mujib became responsible for commercial rigor and risk management across the entire Company on major pursuits, projects, and transactions. His new role is key to our transformation and the success of KBR. Previously, Mr. Mujib was Executive Vice President of Operations.
B. SHORT-TERM INCENTIVES (ANNUAL)
Our Compensation Committee established the KBR Senior Executive Performance Pay Plan (the “Performance Pay Plan”) to reward Senior Executive Management for improving financial results for stockholders of KBR and to provide a means to connect cash compensation directly to KBR’s short-term performance. The Performance Pay Plan is a performance program under the stockholder-approved KBR, Inc. 2006 Stock and Incentive Plan, as amended and restated (the “KBR Stock and Incentive Plan”). We provide for short-term incentives in order to motivate and reward achievement of, and performance in excess of, KBR’s annual goals.
In December 2014, our Compensation Committee met to determine the 2015 target award percentages of base salary for our Named Executive Officers under the Performance Pay Plan. The target award percentages of base salary among our Named Executive Officers were generally set to be consistent with the median target awards of similar positions within our E&C Peer Group as provided below. The short-term incentive award opportunities were based on a percentage of base salary assuming attainment of specified threshold, target, and maximum performance levels, which were, respectively: (i) for Mr. Bradie, 27.5%, 110%, and 220% and (ii) for Messrs. Ferraioli, Harrington, Mujib, and Oelking, 22.5%, 90%, and 180%.
Name
|
Increase to Target
Short-Term Award
% of Base Salary
|
2015 Target
Short-Term Award
% of Base Salary
|
|
Basis for Decision
|
Mr. Bradie
|
10%
|
110%
|
|
E&C Peer Group data and performance (see rationale in “Changes Made to NEOs’ 2015 Compensation” on page 27).
|
Mr. Ferraioli
|
0%
|
90%
|
|
E&C Peer Group data and internal equity.
|
Mr. Harrington
|
0%
|
90%
|
|
E&C Peer Group data and internal equity.
|
Mr. Mujib
|
10%
|
90%
|
|
E&C Peer Group data, promotion, and internal equity (see rationale in “Changes Made to NEOs’ 2015 Compensation” on page 27).
|
Mr. Oelking
|
0%
|
90%
|
|
E&C Peer Group data and internal equity.
|
- 2016 Proxy Statement 32
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Fiscal year 2015 was the first full year after Mr. Bradie’s arrival at KBR in June 2014 and after the initiation of our strategic plan in December 2014. The metrics below reflect the new vision and strategy of our Company. The metrics were revised from our 2014 short-term incentive plan to focus our Senior Executive Management on the key measures of success in connection with the execution of our strategic plan. In addition, our Compensation Committee took measures to ensure that targets remained challenging and competitive. Our Compensation Committee adopted the following performance metrics (and weightings) for our Named Executive Officers:
Performance Metric
|
Weighting
|
|
Rationale
|
KBR Corporate Controllable Gross Cost Overhead (“OH”)
OH measures total overhead. Also, this acts as a requirement to receive any payout with respect to the “Strategic Initiatives.”
|
45%
|
|
Lowering overhead through efficiencies and innovation is essential for our businesses. Not only does it increase profitability, but it allows us to be more competitive and successful in winning new contracts and maintaining existing ones. Target is 50% of the two-year, pre-established cost reduction measure that was noted in our strategy to investors in December 2014. A 45% weighting on OH was intended to drive our strategy of transforming KBR into a more cost effective business that will position us well for project awards. OH is a transparent metric and also includes the effects of labor chargeability to projects. Once Target OH is met, the amount paid can be reduced depending on the NEO’s individual performance.
|
KBR Earnings Per Share (“EPS”)
Measures net income divided by the weighted average number of fully diluted Company shares outstanding.
|
25%
|
|
This metric helps to align our Senior Executive Management with the interests of our stockholders because strong EPS generally increases the value of our stock. EPS was set at a challenging level given the difficult energy market. Buybacks are considered in reviewing EPS achievement. EPS was adjusted for the share repurchase activity to provide for an accurate comparison against the pre-established target.
|
KBR Operating Cash Flow (“OCF”)
KBR OCF measures the amount of cash generated by KBR’s operations.
|
20%
|
|
KBR’s OCF Target is based on its 2015 budgeted Cash Flow from Operations. This metric was aligned with our strategic transformation plan. This metric was established to ensure that our Senior Executive Management focuses on generating cash flow. Threshold is Target minus 25%, and Maximum is Target plus 25%.
|
KBR Consolidated Safety
Safety measures the total recordable incident rate (“TRIR”), which is calculated as the number of recordable incidents for every 200,000 work-hours.
|
5%
|
|
This historic metric measures the safety of all Company employees and affiliates. Safety incentives also help reduce costs for the Company. KBR’s 2015 Consolidated Safety Target is approximately a 20% improvement over the 2014 actual rate. Threshold is Target minus approximately 10%, and Maximum is Target plus approximately 10%.
|
Completed Safe Tours
Safe Tours measures the number of safe tours completed by KBR leadership.
|
5%
|
|
This is intended to be a forward-looking metric to promote the safety of all Company employees and affiliates. Safety incentives also help reduce costs for the Company. KBR’s 2015 Completed Safe Tours target number was derived from the goal to have at least one safe tour per week (excluding two weeks for vacation). Threshold is Target minus 10%, and Maximum is Target plus 10%. A SAFE Tour is a project or site visit by a member of our Senior Executive Management team where the member must ensure implementation of KBR’s Zero Harm 24/7 initiative. The objective of the SAFE Tour is to exhibit visible leadership and commitment to health, safety, security and environment from the highest level of our Company. It requires a significant commitment from each of our Senior Executive Management.
|
We believe the above metrics are the most important measures to drive KBR’s growth and to increase our stockholder’s value. We believe OH reduction is especially important in a challenging market because of the need to manage our non-chargeable time.
OH reduction was achieved by both Company cost savings initiatives and improved chargeability to projects. OH includes the effect of labor cost absorption. Labor cost absorption is a risk in a challenging market that directly affects overhead savings. If we do not win the projected projects / contracts in which we can allocate our labor costs, our OH can increase. Accordingly, this metric is transparent and includes both increases and decreases to OH. OH cost savings initiatives included, among other reductions, reducing travel, decreasing our real estate footprint, divesting non-strategic businesses, entering into strategic alliances, and managing our labor cost absorption.
KBR income, which was a metric in our 2014 Performance Pay Plan, was not included as a metric in the 2015 Performance Pay Plan because our new CEO believed that EPS already measured earnings, and he wanted to focus attention on OH reduction given our need to implement our transformation plan (see the section titled “Transformational Year” on page 26 of this proxy statement).
Target Award Level
When establishing target levels for the incentive reward schedule for 2015, the Compensation Committee considered, among other things, projected Company performance, strategic business objectives, and forecasted general business and industry conditions. Generally, award target levels reflect the objectives set by our Compensation Committee and are generally intended to approximate the 50th percentile of our E&C Peer Group (using the Diversified Peer Group data for additional input) for good performance and above the 50th percentile for consistent, outstanding performance, but our Compensation Committee also considers other factors as noted earlier in this Compensation Discussion and Analysis. At the time the target levels are established, the outcome is intended to be substantially uncertain but achievable, and to require better than expected performance from our executives. Our Compensation Committee adopted target levels for its annual incentive reward schedule that maintained the same rigor as the performance targets from the prior year, especially in light of the challenging hydrocarbons market.
- 2016 Proxy Statement 33
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Our Compensation Committee established the target award levels below, with actual results and payouts certified in February 2016.
2015 SHORT-TERM INCENTIVES TABLE
Weight
|
Measure
|
Threshold for Strategic Initiatives Funding
|
Actual
Result
|
Payout
|
45%
|
OH Reduction (Strategic Initiatives)
|
The maximum available percentage payout for OH Reduction is two times the weighting if ≥ $100MM of overhead is reduced. The final payout is subject to the individual rating for Strategic Initiatives as noted below. If at least $100MM is not achieved, payout for the Strategic Initiatives will be zero.
|
$165MM
|
90%
|
Weight
|
Measure
|
Threshold
|
Target
|
|
Maximum
|
Actual
Result
|
Payout
|
25%
|
KBR EPS
|
$.75
|
$1.00
|
|
$1.20
|
$1.40
|
50%
|
20%
|
KBR OCF
|
$(213MM)
|
$(170MM)
|
|
$(128MM)
|
$47MM
|
40%
|
5%
|
Consolidated Safety (TRIR)
|
.26
|
.24
|
|
.22
|
.21
|
10%
|
5%
|
Safe Tours Completed
|
45
|
50
|
|
55
|
71
|
10%
|
|
200%
|
The Compensation Committee reduced payouts for both safety metrics (TRIR and Safe Tours)
and for the strategic initiatives, as noted below.
|
Final Payout, see below.
|
Exercise of Negative Discretion
for Safety Measures
In 2015, we exceeded our maximum goal under both safety metrics, TRIR and Safe Tours Completed. Despite our strong safety results, the Compensation Committee exercised negative discretion to reduce payouts for both safety metrics by 50% each because of a fatality in 2015. The Compensation Committee applied this 50% reduction to every KBR employee in the Performance Pay Plan. This demonstrates the importance of safety to KBR.
OH Reduction (Strategic Initiatives)
The OH Reduction metric provides the funding under which the Strategic Initiatives can be paid. The metric is based on a single performance threshold, which requires a reduction of at least $100 million in corporate controllable gross cost overhead. If overhead is not reduced by at least $100 million, then the NEOs will not receive any payouts under the Strategic Initiatives component of the Performance Pay Plan.
The OH Reduction metric is intended to incentivize the NEOs to drive OH reductions consistent with KBR’s strategic plan. The OH Reduction metric is also intended to allow for full tax deductibility of the payouts related to our NEOs’ strategic initiatives. The strategic initiatives are intended to be sub-performance metrics that are subject to satisfying the OH Reduction performance metric. The Compensation Committee awarded NEOs a reduced percentage of the OH Reduction metric payout that was achieved above, which was 90%, based on their individual performance against their strategic initiatives as reflected below. However, in no event may the rating for strategic initiatives exceed the actual achieved percentage payout of 90%.
OH Reduction is a transparent metric that also includes the effects of labor chargeability on projects that we expect to have or win during the year. Specifically, we forecast that the majority of our employees will be working (and chargeable) on projects that we expect to have during the year and will not be part of our overhead. If for some reason we do not have the projects or win the work that we expected to win, those employees will no longer be chargeable to a project and will consequently raise our overhead. These can be key employees that we need to retain to have them available when we do move forward on a project. In the difficult hydrocarbons market, where many clients have reduced their capital expenditures, the management of this varying cost is a key part of our Senior Executive Management’s objectives.
STI Payout for the CEO
The CEO’s performance against his strategic initiatives earned him the following payout:
CEO and Target
|
Maximum STI Payout
per Actual Metrics
Results
|
Negative Discretion for
Safety
|
Rating for Strategic
Initiatives out of
90% Available
As Noted Above
|
Total Payout
|
Mr. Bradie
Target 110%
|
$2,200,000
200% of target
|
$(110,000)
(-10%)
|
70%
(-20%)
|
$1,870,000
170% of target
|
The CEO’s strategic initiatives included delivering on the preset initiatives of our strategy (see the section titled “Transformational Year” on page 26 of this proxy statement) and his performance in general (see the section titled “Performance Highlights” on page 27 of this proxy statement). In addition, the CEO accomplished the following pre-established goals: (1) earned EBITDA greater than $300 million ($334.7 million); (2) achieved greater than 15% reduction in injury/illness (30% reduction); (3) resolved a significant number of ongoing commercial/legal disputes to KBR’s advantage; and (4) managed talent by implementing a new succession plan, finalizing the reorganization of our Senior Executive Management, and achieving retention of our Senior Executive Management. Since joining KBR in June 2014, Mr. Bradie was faced with many challenges. Not only did he address operational difficulties that were discovered shortly before he joined KBR and therefore were unrelated to his tenure, Mr. Bradie transformed KBR in the middle of one of the toughest global hydrocarbons markets KBR has endured as an independent public company. 2015 was also a year in which many of our current and potential hydrocarbons customers limited their capital expenditures. Confronted with these challenges, Mr. Bradie transformed KBR ahead of schedule and was able to exceed our EPS guidance in 2015.
- 2016 Proxy Statement 34
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STI Payout for the NEOs
In addition, the NEOs (excluding the CEO) delivered results against their strategic initiatives that earned them the following payouts:
NEO and Target
|
Maximum STI
Payout per Actual
Metric Results
|
Negative Discretion
for Safety
|
Rating for Strategic
Initiatives out of
90% Available
As Noted Above
|
Total Payout
|
Mr. Ferraioli
Target 90%
|
$
|
1,170,000
200% of target
|
$
|
(58,500)
(-10%)
|
|
43.20%
(-46.80%)
|
$837,720
143.2% of target
|
Mr. Harrington
Target 90%
|
$
|
1,134,000
200% of target
|
$
|
(56,700)
(-10%)
|
|
29.70%
(-60.30%)
|
$735,399
129.7% of target
|
Mr. Mujib
Target 90%
|
$
|
888,662
200% of target
|
$
|
(44,433)
(-10%)
|
|
50.40%
(-39.60%)
|
$668,274
150.4% of target
|
Mr. Oelking
Target 90%
|
$
|
1,134,000
200% of target
|
$
|
(56,700)
(-10%)
|
|
38.25%
(-51.75%)
|
$783,878
138.3% of target
|
The NEO’s strategic initiatives included implementing the strategy of the Company, managing and looking for opportunities to reduce their controllable overhead, ensuring robust succession planning is in place and progressing, and demonstrating leadership by promoting ONE KBR throughout the organization. Other than Mr. Mujib, all of the NEOs listed in the table above were awarded less than target (45% out of 90%) for their strategic initiatives. Mr. Mujib received an above-target rating for his strategic initiatives because he took on a new role for KBR and performed well. He was also instrumental in leading the implementation of our strategic plan. Note: Mr. Mujib’s amounts are payable in British Pounds and have been converted to U.S. Dollars at the exchange rate when paid, which was 1.3917 as reported by Bloomberg on February 29, 2016. Mr. Mujib’s total STI payout in British Pounds was £480,186. Mr. Ferraioli received his rating because he was instrumental in reducing costs well below the strategic target, and he exceeded his goals for outsourcing. He was also instrumental in helping to communicate our strategy to our stockholders. Mr. Oelking received his rating because of his success in leading the formation of Brown & Root Industrial Services and his proactive involvement in the performance turnaround in the module fabrication in Canada.
C. LONG-TERM PERFORMANCE INCENTIVES
Under the KBR Stock and Incentive Plan, our Compensation Committee made the following grants to our Named Executive Officers in 2015: (1) KBR Long-Term Performance Cash Awards, (2) KBR Restricted Stock Units, and (3) KBR Stock Options. A description of the KBR Stock and Incentive Plan, the methodology used by our Compensation Committee to determine the mix of awards to grant, and the KBR Long-Term Performance Cash Awards, KBR Restricted Stock Units, and KBR Stock Options granted under the KBR Stock Incentive Plan are provided below.
Our internal stock award process is designed and administered to provide equity award grant dates that are prospective and not retrospective, or back-dated. Stock awards approved by our Compensation Committee are generally effective on the date of the meeting at which the approval occurs. Stock option grants approved by our Compensation Committee are never issued with an exercise price below the fair market value of our common stock on the date of grant.
KBR Stock and Incentive Plan
We use long-term performance incentives to achieve the following objectives:
•
reward consistent achievement of value creation and operating performance goals;
•
align management’s interests with stockholders’ interests; and
•
encourage long-term perspectives and commitment.
Long-term incentives represent the largest component of total executive compensation opportunity for our executives. We believe this is appropriate given our belief that executive pay should be closely tied to stockholders’ interests.
The KBR Stock and Incentive Plan provides for a variety of cash and stock-based awards, including nonqualified and incentive stock options, restricted stock/units, performance shares/units, stock appreciation rights, and stock value equivalents, also known as phantom stock. The KBR Stock and Incentive Plan allows the Compensation Committee the discretion to select from among these types of awards to establish individual long-term incentive awards. Our Compensation Committee met in December 2014 to review the amount of shares available under the KBR Stock and Incentive Plan for future stock-based awards and to review the CEO’s recommendations on the value of the long-term incentive awards to our Senior Executive Management. In addition, the Committee met in February 2015 to review and approve the amount and appropriate mix of long-term incentive awards to be granted to our Named Executive Officers.
- 2016 Proxy Statement 35
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For purposes of establishing the target dollar value of the long-term incentive awards, our Compensation Committee engaged Meridian to review our Named Executive Officers’ long-term incentive compensation. In February 2015, the Compensation Committee elected not to increase the long-term incentive target dollar values of our Named Executive Officers, except for Messrs. Bradie and Mujib, as described below:
| Name |
Increase (% of Target 2014
Long-Term
Incentive Award) |
2015 Long-Term Incentive Target
Dollar Value of Award |
|
Basis for Decision |
|
| Mr. Bradie |
$ |
500,000 (12.5%) |
$ |
4,500,000 |
|
E&C Peer Group data and in connection with his strong performance (see rationale in “Changes Made to NEOs’ 2015 Compensation” on page 27). |
| Mr. Ferraioli |
$ |
0 (0%) |
$ |
1,400,000 |
|
E&C Peer Group data and internal equity. |
| Mr. Harrington |
$ |
0 (0%) |
$ |
1,500,000 |
|
E&C Peer Group data and internal equity. |
| Mr. Mujib |
$ |
300,000 (27%) |
$ |
1,400,000 |
|
E&C Peer Group data, internal equity, and promotion (see rationale in “Changes Made to NEOs’ 2015 Compensation” on page 27). |
| Mr. Oelking |
$ |
0 (0%) |
$ |
1,500,000 |
|
E&C Peer Group data and internal equity. |
Using the long-term incentive target dollar value of award for each Named Executive Officer listed above, our Compensation Committee granted our Named Executive Officers a mixture of 60% performance cash awards (based on target value), 25% restricted stock units, and 15% stock options under the KBR Stock and Incentive Plan. The Committee concluded that this mix of performance cash awards, restricted stock units, and stock options was consistent with the Company’s pay for performance objectives. Specifically, the stock options and 50% of the performance cash awards are directly tied to our stock price performance and, therefore, directly to stockholder value, and restricted stock units provide a significant incentive for our Named Executive Officers to remain with the Company. The other 50% of the performance cash awards focus executives to improve long-term job income sold. Our Compensation Committee reviewed the mix of equity awards of our E&C Peer Group and Diversified Peer Group. Our Compensation Committee awarded a much higher percentage of performance cash awards (60%) than either of our peer groups because our Compensation Committee believes that emphasizing job income sold and sustained total shareholder return is more likely to increase sustained stockholder value. Our Compensation Committee decided in favor of granting stock options in addition to restricted stock units under the KBR Stock and Incentive Plan because stock option value is directly tied to our stock appreciation.
KBR Long-Term Performance Cash
Awards
The KBR Long-Term Performance Cash Awards are long-term incentive awards designed to provide selected executives with specified incentive opportunities contingent on the level of achievement of a pre-established corporate performance objective. When establishing target levels of corporate performance, our Compensation Committee considered, among other things, projected Company performance, strategic business objectives, and forecasted general business and industry conditions. At the time the target levels were established, the outcome was intended to be substantially uncertain, but achievable. The KBR Long-Term Performance Cash Awards may only be paid in cash, which minimizes stockholder dilution.
The 2015 KBR Long-Term Performance Cash Awards were granted to our Named Executive Officers in February 2015. Each KBR Long-Term Performance Cash Award has a target value of $1.00. For the 2015 KBR Long-Term Performance Cash Awards, the Compensation Committee reduced the weighting of the total shareholder return (“TSR”) performance measure from 100% to 50% and added job income sold (“JIS”) as a second performance measure, also weighted 50%. JIS was moved from the short-term annual Performance Pay Plan because our CEO believed it was more appropriate to measure JIS over a longer, three-year period given the long-term nature of our projects and the operational problems we experienced before our CEO’s tenure. The long-term tracking of JIS ensures that contract amendments and scope adjustments (both increases and decreases) are captured. TSR and JIS is measured over a three-year performance period beginning January 1, 2015, and ending December 31, 2017, as indicated below:
The Compensation Committee determined the number of KBR Long-Term Performance Cash Awards for each Named Executive Officer by multiplying the total long-term incentive target value by 60% and dividing the product by $1.00 (the target value of each KBR Long-Term Performance Cash Award). The Compensation Committee established the amount of the total long-term incentive value as described above in the section titled “KBR Stock and Incentive Plan.” Our Compensation Committee decided to use $1.00 as the target value for each KBR Long-Term Performance Cash Award for the purpose of administering and communicating the award to participants. In addition, the use of $1.00 as a target value for each KBR Long-Term Performance Cash Award is a means of expressing the value of each award since the number of KBR Long-Term
- 2016 Proxy Statement 36
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Performance Cash Awards were granted based on the total target value of long-term incentive awards. The actual value of a KBR Long-Term Performance Cash Award may increase to a maximum of 200% of $1.00, or $2.00, or decrease to below threshold to 0% of $1.00, or $0.00. The value of KBR Long-Term Performance Cash Awards for performance between threshold and target or target and maximum will be calculated using linear interpolation. A 3-year performance award cycle was adopted because of the ability to provide for retention.
TSR is measured based on a sustained approach rather than a cumulative (point to point) approach. The Compensation Committee believes that the cumulative approach to measure TSR did not discern sustained performance over the three-year performance period. To measure sustained performance, each peer group company’s TSR is calculated every quarter during the three-year performance period, and KBR’s average quarterly indexed TSR is ranked relative to the average quarterly indexed TSR of KBR’s peers. The average TSR for a company for the three-year performance period is the sum of the TSRs of the company measured at the end of each calendar quarter during the three-year performance period, divided by 12. The Compensation Committee believes that the sustained approach is better because it does not overemphasize a single ending point, but rather considers how investors may fare at different points over the entire three-year performance period.
Our 2015 TSR peer group includes: AECOM Technology Corporation, Chicago Bridge & Iron Company N.V., Chiyoda Corporation, EMCOR Group, Inc., Fluor Corporation, Jacobs Engineering Group Inc., McDermott International, Inc., Quanta Services, Inc., and Technip. This is unchanged from the 2014 TSR peer group, except that the 2015 TSR Peer Group does not include URS Corporation because AECOM acquired it in October 2014.
The 2015 TSR peer group is slightly different than our E&C Peer Group used for market comparison of the compensation of our Named Executive Officers, as described above under the section titled “E&C Peer Group.” In our E&C Peer Group, we excluded two foreign companies used for our TSR percentage, Chiyoda Corporation and Technip, due to difficulties in determining compensation data for foreign companies.
The TSR percentage is calculated by subtracting KBR’s TSR ranking as compared to the peer group from the total number of companies in the peer group, including KBR, dividing the difference by the number of companies in the peer group excluding KBR, and multiplying the quotient by 100%. Assuming a peer group of 10 companies (including KBR), the TSR rankings and corresponding payout percentages are shown in the table that follows.
2015 PERFORMANCE CASH AWARD
Performance Level
|
TSR Ranking
|
Percentile*
|
Payout
|
Maximum
|
1
|
100.0
|
%
|
200.0
|
%
|
|
2
|
88.9
|
%
|
197.3
|
%
|
|
3
|
77.8
|
%
|
169.5
|
%
|
|
4
|
66.7
|
%
|
141.8
|
%
|
Target
|
5
|
55.6
|
%
|
114.0
|
%
|
|
6
|
44.4
|
%
|
86.0
|
%
|
|
7
|
33.3
|
%
|
58.3
|
%
|
Threshold
|
8
|
22.2
|
%
|
30.5
|
%
|
|
9
|
11.1
|
%
|
0.0
|
%
|
|
10
|
0.0
|
%
|
0.0
|
%
|
After the end of each performance award cycle, our Compensation Committee will determine the extent to which the performance goal has been achieved, and the amount of the performance award attributable to the TSR performance measure will be computed for each selected executive in accordance with the table above. For results between Threshold and Target and Target and Maximum, the Performance Percentage earned is determined by linear interpolation between the two applicable standards based on the results achieved for the TSR performance measure.
The remaining 50% of the KBR Long-Term Performance Cash Awards will be determined based on JIS over the same 3-year performance period. JIS is the Company’s and its consolidated subsidiaries job income from (i) new projects awarded and (ii) earnings growth from contract amendments (increases or decreases), or scope adjustments (increases or decreases) to existing projects. JIS is calculated as the average of the achievement levels of the JIS performance metric for each year during the three-year performance period. For 2015, Target JIS was $365MM, Maximum JIS was 133 1/3% of Target, and Threshold JIS was 66 2/3% of Target. Like the TSR portion of the 2015 KBR Long-Term Performance Cash Awards, achievement of Threshold pays out at 25%, Target at 100%, and Maximum at 200%, all weighted 50%. This metric differs from the JIS metric we used in our short-term incentive plan in 2014 because it excludes JIS from (1) mega projects (individual projects having a value greater than or equal to $500MM in gross revenue) and (2) nonstrategic businesses that we noted to our stockholders we would exit as part of our strategic plan. The Compensation Committee excluded mega projects to demonstrate transparency of the performance of the underlying business in a challenging market. For the second and third years in the JIS performance period, the Compensation Committee will set the JIS Target to ensure that it remains rigorous. The Compensation Committee decided to establish the JIS Target one year at a time due to the inability to forecast JIS beyond one year in the challenging hydrocarbons market. No award will be paid for JIS under the KBR Long-Term Performance Cash Awards until after the end of the three-year performance period when the average JIS earned will be calculated using the average JIS percentage achieved during each year in the three-year performance period.
In February 2016, our Compensation Committee certified the results for the KBR Long-Term Performance Cash Awards that were granted in March 2013, which were based solely on a TSR performance measure. The following table is a summary of the 2013 KBR Long-Term Performance Cash Awards for the January 1, 2013, to December 31, 2015, performance period and amounts actually paid for each of our Named Executive Officers, which were $0. Messrs. Bradie and Ferraioli did not participate because they were not employees of the Company when the 2013 KBR Long-Term Performance Cash Awards were granted.
- 2016 Proxy Statement 37
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PAYOUT TABLE FOR 2013-2015 KBR LONG-TERM PERFORMANCE CASH AWARD PERIOD
Named Executive Officer
|
2013 Long-Term Incentive Payout
|
|
Total Shareholder Return
|
Target
($)
|
Max
($)
|
Actual
($)
|
Target
(%)
|
Max
(%)
|
Actual
(% rank)
|
Ivor J. Harrington
|
690,000
|
1,380,000
|
0
|
|
50th
|
100th
|
22.2
|
Farhan Mujib
|
450,000
|
900,000
|
0
|
|
50th
|
100th
|
22.2
|
Roy B. Oelking
|
780,000
|
1,560,000
|
0
|
|
50th
|
100th
|
22.2
|
For the 2013 KBR Long-Term Performance Cash Awards, a TSR ranking below the 25th percentile results in zero payout, a ranking in the target 50th percentile results in target payout, and a ranking in the maximum 100th percentile results in a maximum payout. Therefore, the ranking of 22.2 percentile resulted in no payout as the ranking was below threshold for TSR. Each of the Named Executive Officer’s 2013 KBR Long-Term Performance Cash Award was 0% of the combined target payout shown in the table.
As can be seen by the results of the KBR Long-Term Performance Cash Awards granted in 2013, the KBR Long-Term Performance Cash Awards accomplished the goals that they were designed to promote, sustained alignment with the interests of our stockholders.
KBR Restricted Stock Units
During 2015, our Compensation Committee granted our Named Executive Officers restricted stock units that are subject to a three-year graded vesting schedule, based on service with the Company. In addition, dividend equivalents are paid on restricted stock units at the same time dividends are paid to common stockholders. The Compensation Committee determined the number of restricted stock units for each Named Executive Officer by multiplying the total long-term incentive target value by 25% and dividing the product by the closing price of our common stock on the date of grant. The Compensation Committee established the amount of the total long-term incentive value as described above in the section titled “KBR Stock and Incentive Plan.” The Compensation Committee selected a three-year vesting schedule to facilitate retention and provide incentives to enhance long-term value. The three-year schedule meets the minimum vesting period generally mandated in the KBR Stock and Incentive Plan (other than with respect to a small, limited number of awards) for grants of restricted stock units.
KBR Stock Options
During 2015, our Compensation Committee granted our Named Executive Officers nonqualified stock options that are subject to a three-year graded vesting schedule, based on service with the Company. The KBR Stock and Incentive Plan has no minimum vesting period mandated for stock options; however, the Compensation Committee imposed a three-year vesting period consistent with past practice. The exercise price of our nonqualified stock options is equal to the closing price of our common stock on the grant date. The Compensation Committee determined the number of nonqualified stock options for each Named Executive Officer by multiplying the total long-term incentive target value by 15% and dividing the product by the Black Scholes’ value of the nonqualified stock option on the date of grant. The Compensation Committee established the amount of the total long-term incentive value as described above in the section titled “KBR Stock and Incentive Plan.”
OTHER COMPENSATION ELEMENTS
NONQUALIFIED DEFERRED COMPENSATION
We maintain the following active nonqualified deferred compensation plans in which one or more of our Named Executive Officers participate: (1) KBR Elective Deferral Plan and (2) KBR Benefit Restoration Plan. Our Compensation Committee approved these plans in April 2007 in order to provide a continuation of benefits to our employees who were entitled to such benefits under our prior parent’s nonqualified plans. Both of these plans are available to all KBR employees who meet the limits imposed by the Internal Revenue Code or the Employee Retirement Income Security Act. Our Compensation Committee continues to maintain these plans because they are offered by many of the companies in our E&C Peer Group.
KBR Elective Deferral Plan
Our Named Executive Officers may participate in the KBR Elective Deferral Plan, a nonqualified deferred compensation plan, to meet their retirement and other future income needs. No Company contributions are made to fund deferrals to the KBR Elective Deferral Plan. Deferrals are entirely employee funded. Benefits under this plan are payable upon a termination of employment (or a specified future date).
KBR Benefit Restoration Plan
Our Named Executive Officers may participate in the KBR Benefit Restoration Plan, a nonqualified plan that provides a vehicle to restore qualified plan benefits that are reduced because of limitations imposed under the Internal Revenue Code or due to participation in other Company sponsored plans. Benefits under this plan are payable upon a termination of employment.
KBR Supplemental Executive Retirement
Plan
(Frozen Effective January 1, 2012)
The KBR Supplemental Executive Retirement Plan (the “SERP”) was established to provide competitive retirement benefits (based on a review of our E&C Peer Group and Diversified Peer Group data) to selected executives of KBR. Beginning in 2012 our Compensation Committee froze future SERP contributions to simplify our compensation program and to be consistent with our E&C Peer Group. Benefits under the SERP are payable upon a termination of employment.
Defined Benefit Pension Plan
Our Named Executive Officers do not participate in any KBR sponsored defined benefit pension plans.
- 2016 Proxy Statement 38
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SEVERANCE AND CHANGE-IN-CONTROL
PROTECTION
In 2008, our Compensation Committee desired for our Named Executive Officers and certain other senior executive officers of the Company to enter into severance and change-in-control agreements (the “Agreement”) with the Company for several reasons. Providing termination benefits under a severance and change-in-control agreement allows the Company to be competitive with the practices of its E&C Peer Group as well as the general market. Also, the specific terms for receiving termination benefits under the Agreement provide a means to motivate and retain key employees of the Company. Noncompetition and clawback provisions provide protection for the Company by ensuring that the Company’s trade secrets and confidential information are safeguarded and that the Company retains rights to recover any termination benefits paid in the event of material evidence of an executive’s malfeasance. In addition, the Compensation Committee elected for the Agreement to require a double-trigger change-in-control termination (i.e., the occurrence of both a change-in-control and a termination of employment within two years following the change-in-control event) in order for an executive to receive change-in-control benefits. In March 2009 our Compensation Committee publicly committed to rejecting any proposals that request new excise tax gross-ups. Our Compensation Committee reconfirms that commitment, which is evidenced by each new Agreement we have entered into since March 2009, none of which have provided an excise tax gross-up. None of our NEOs’ Agreements contain an excise tax gross-up.
The Compensation Committee offered the Agreement to Mr. Oelking in December 2011, Mr. Harrington in July 2012, Mr. Mujib in February 2013, Mr. Ferraioli in October 2013, and Mr. Bradie in June 2014 because each of our other members of Senior Executive Management at those times had an Agreement. The Agreement will terminate automatically on the earlier of (i) the executive’s termination of employment with the Company or (ii) in the event of a change-in-control during the term of the Agreement, two years following the change-in-control. The Agreement provides for (i) severance termination benefits (prior to a change-in-control), (ii) double-trigger change-in-control termination benefits (on or after a change-in-control), and (iii) death, disability, and retirement benefits. As a condition of receipt of these benefits (other than the death and disability benefits), the executives must first execute a release and full settlement agreement. The Agreement contains customary confidentiality, noncompetition, and nonsolicitation covenants, as well as a mandatory arbitration provision. In addition, the Agreement contains a clawback provision that allows the Company to recover any benefits paid under the Agreement if the Company determines within two years after the executive’s termination of employment that his employment could have been terminated for cause as defined within the Agreement. The Agreement provides that all unvested stock options, stock appreciation rights, restricted stock, restricted stock units, and performance cash awards granted to the executive by the Company will be forfeited upon severance. Such awards, however, will fully vest (prorata for KBR Long-Term Performance Cash Awards granted prior to 2015) upon a double-trigger change-in-control termination. The terms of the Agreements for each NEO are further described and quantified below in the section titled “Potential Payments Upon a Termination or a Change in Control.”
OTHER BENEFITS
Generally, our Named Executive Officers participate in the same retirement and health and welfare programs as our other employees. In 2015, our Named Executive Officers participated in the Company’s 401(k) plan. Pursuant to this plan, we made employer matching contributions equal to 5.5% of eligible compensation. Their health care and insurance coverage is the same as that provided to other active employees, except that the Named Executive Officers are eligible to receive an executive physical. Executives are provided physicals as part of our Zero Harm initiative.
Our Compensation Committee generally does not offer perquisites to our Named Executive Officers, unless generally available to other Company employees. Our executives do not have company cars or car allowances, housing, or travel allowances, except in the case of relocation related travel, housing, and car allowances. In connection with Mr. Bradie’s (and his family’s) transatlantic relocation from the United Kingdom to Houston, Texas, the Compensation Committee approved allowances for international travel for his family, short-term use of a car, financial planning, and relocation costs. We did not provide any home buyout protection for his relocation. These allowances are one-time allowances and intended to help with Mr. Bradie’s transatlantic relocation to Houston, Texas. In addition, Mr. Bradie and his family received a limited number (that must be used within 12 months of his start date) of flights for returning to their home country to allow for an easier transition to Houston.
To allow for maximum efficiency and productive use of time, one Company-leased car and a driver is provided in Houston for use by our Named Executive Officers and others for business purposes, except that our Named Executive Officers may use the Company-leased car and a driver for limited personal use only if the car is not being used by another Named Executive Officer for business purposes at that time. In addition, Named Executive Officers are eligible to receive limited financial planning advice.
In connection with his international (Singapore) assignment, Mr. Harrington received the standard allowances for a car, housing, school, and relocation costs. In addition, Mr. Harrington was included in our standard tax equalization program. Mr. Mujib received a car allowance in the United Kingdom, which is consistent with standard allowances for similarly situated employees in the United Kingdom. Mr. Mujib was also included in our standard tax equalization program. Our standard tax equalization program is available to all U.S. employees on international assignment.
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IMPACT OF EXECUTIVE CONDUCT OR
A RESTATEMENT OF EARNINGS ON COMPENSATION (CLAWBACK POLICY)
If we determine at any time within two years after the termination of our Named Executive Officers that such senior executive’s employment could have been terminated for Cause, as defined in the senior executive’s Agreement, we retain the rights to recover any severance benefits (both cash and equity) provided under the Agreement to such senior executive. In such case, the senior executive agrees to promptly repay such amounts to us.
In addition, our Company’s cash and equity incentive programs allow the Compensation Committee to seek recovery of any incentives that are determined to be an overpayment due to any restatement of our financial results that impact the performance metrics on which the incentive awards were calculated. The Compensation Committee will adopt all clawback provisions required by the Dodd-Frank Act.
IMPACT OF ACCOUNTING, REGULATORY,
AND TAX REQUIREMENTS ON COMPENSATION
We apply the fair value recognition provisions of FASB ASC 718-10 for share-based payments to account for and report equity-based compensation. FASB ASC 718-10 requires equity-based compensation expense to be measured based on the grant-date fair value of the award. For performance-based awards, compensation expense is measured based on the grant-date fair value of the award and the fair value of that award is re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period or the vesting period are recognized as compensation cost on a straight line basis over that period. Compensation expense was recognized for restricted stock awards.
The grant-date fair value of employee share options is estimated using option-pricing models. If an award is modified after the grant date, incremental compensation cost is recognized immediately before the modification. The benefits of tax deductions in excess of the compensation cost recognized for the options (excess tax benefits) are classified as addition to paid-in-capital, and cash retained as a result of these excess tax benefits is presented in the statement of cash flows as financing cash inflows.
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation paid to the CEO or any of the three other most highly compensated officers (excluding the CEO and the Chief Financial Officer) to the extent the compensation exceeds $1 million in any year. Qualifying performance-based compensation is not subject to this sanction if certain requirements are met.
Our policy is to utilize available tax deductions whenever appropriate and consistent with our compensation philosophy. When designing and implementing our compensation programs, we consider all relevant factors, including the availability of tax deductions with respect to compensation. Accordingly, we have attempted to preserve the Federal tax deductibility of compensation in excess of $1 million a year to the extent doing so is consistent with the intended objectives of our compensation philosophy. However, we may from time to time pay compensation to our executives that may not be fully deductible.
The KBR Stock and Incentive Plan was designed to allow qualification of stock options, stock appreciation rights, and performance share awards, as well as short-term and long-term cash performance plans under Section 162(m) of the Internal Revenue Code.
Section 304 of the Sarbanes-Oxley Act of 2002 applies to any cash or equity-based incentive compensation paid to specified executives where the payment was predicated upon the achievement of certain financial results that were subsequently the subject of restatement.
We are administering all nonqualified, deferred compensation plans and payouts applicable to our Named Executive Officers with the intent to be exempt from, or in compliance with, the provisions of Section 409A of the Internal Revenue Code added under the American Jobs Creation Act of 2004.
STOCK OWNERSHIP GUIDELINES FOR
OFFICERS
The Nominating and Corporate Governance Committee of our Board of Directors determined that we should establish stock ownership guidelines for certain of our officers and its subsidiaries in an effort to link more closely the financial interests of these officers with those of our stockholders.
Our Board of Directors adopted the following ownership guidelines for our common stock, $0.001 par value (“Common Stock”), for the officers at the levels indicated below:
Group
|
Ownership Level
|
CEO
|
5x base salary
|
Level 1 Executives
(Direct reports to CEO)
|
3x base salary
|
Level 2 Executives
(Direct reports to Level 1 Executives and at least a vice president)
|
1x base salary
|
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Our Board of Directors approved that: (a) each such officer will have five years after the adoption of these guidelines or his or her appointment to an applicable office, whichever is later, to achieve the indicated ownership level; (b) all beneficially owned shares of Common Stock and vested and unvested restricted stock and restricted stock units are counted towards achievement of the ownership guideline; (c) once an officer has achieved the applicable level of Common Stock ownership he or she is not required to retain or purchase additional shares if a decline in the price for the Common Stock causes his or her holdings to be less than the applicable ownership level; (d) the value of shares of Common Stock is determined as the closing price of the Common Stock for the particular date; and (e) on and after each officer’s 60th birthday, the officer’s required ownership level is reduced to fifty percent (50%) of the ownership level provided for above; provided, however, no such adjustment will be made for the ownership levels of the CEO, Chief Operating Officer (if any), CFO, and General Counsel. All of our Named Executive Officers meet our Stock Ownership Guidelines or are on track to meet the guidelines within the five year period described above.
NO PLEDGING
Our Board of Directors approved as part of the stock ownership guidelines above that no officer of the Company may pledge, hypothecate, create any lien or security interest on, or enter into a margin contract secured by, any shares, options to purchase shares, or any other interest in shares of Common Stock.
MINIMUM HOLDING PERIOD FOR RESTRICTED
STOCK UNITS AND STOCK OPTIONS
In October and December 2010, our Compensation Committee reviewed whether or not to adopt a holding period for our restricted stock units and stock options. The Compensation Committee elected not to adopt a minimum holding period because we have (i) strong stock ownership guidelines and (ii) adopted a long vesting schedule for our restricted stock units.
ANTI-HEDGING POLICY
Our anti-hedging policy prohibits all of our Board of Directors, employees, and agents from (i) speculative trading in our securities; (ii) engaging in hedging transactions using our securities; (iii) “short selling” our securities; and (iv) trading derivative securities, such as put options, call options, swaps, or collars related to our securities.
CONCLUSION
In a highly competitive market for executive talent, we believe our customers’ and employees’ interests, as well as those of our stockholders and other stakeholders, are well served by our compensation programs. These programs are reasonably positioned to our E&C Peer Group, encourage and promote our compensation objectives with a strong emphasis on pay for performance, and permit the exercise of our Compensation Committee’s discretion in the design and implementation of compensation packages. Going forward, we will continue to review our compensation plans periodically to determine what revisions, if any, should be made.
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Compensation Committee Report
The foregoing report of the Compensation Committee shall not be deemed to be “soliciting material” or to otherwise be considered “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference into such filing.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis, as provided above, with KBR’s management. Based on its review, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. Respectfully submitted,
The Compensation Committee of Directors
Jack B. Moore, Chairman
James R. Blackwell
Umberto della Sala
Richard J. Slater
March 9, 2016
Compensation Committee Interlocks and Insider Participation
As of the date of this proxy statement, our Compensation Committee consists of Messrs. Moore, Blackwell, della Sala, and Slater, all of whom are independent, non-executive directors. None of our Compensation Committee members has served as an officer or employee of KBR. Further, none of KBR’s executive officers has served as a member of a board of directors or compensation committee of any entity that had one or more of its executive officers serving on the Board or the Compensation Committee of KBR.
- 2016 Proxy Statement 42
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Executive Compensation
SUMMARY COMPENSATION
The following table sets forth information regarding the compensation of our Named Executive Officers during the 2015, 2014, and 2013 calendar years as applicable to each NEO’s service with KBR.
Name and Principal Position
|
Year
|
Salary
($)(1)
|
Bonus
($)(7)(9)
|
Stock Awards
($)(2)(3)
|
Option Awards
($)(2)(3)
|
Non-Equity
Incentive Plan
Compensation
($)(4)
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(5)
|
All
Other
Compensation
($)(6)
|
Total
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
Stuart J. B. Bradie(7)
|
2015
|
1,038,485
|
—
|
2,533,062
|
675,004
|
1,870,000
|
5,391
|
151,363
|
6,273,305
|
President & CEO
|
2014
|
538,474
|
500,000
|
4,637,415
|
—
|
500,000
|
—
|
386,985
|
6,562,874
|
Brian K. Ferraioli(8)
|
2015
|
675,022
|
—
|
788,076
|
210,005
|
837,720
|
11,313
|
65,490
|
2,587,626
|
EVP & CFO
|
2014
|
650,021
|
—
|
776,739
|
210,000
|
—
|
2,901
|
188,295
|
1,827,956
|
|
2013
|
87,503
|
—
|
2,000,050
|
—
|
—
|
86
|
12,240
|
2,099,879
|
Ivor J. Harrington(9)
|
2015
|
654,242
|
—
|
844,354
|
225,003
|
735,399
|
15,197
|
289,267
|
2,763,462
|
President E&C APAC
|
2014
|
628,004
|
100,000
|
832,200
|
225,005
|
—
|
5,681
|
64,232
|
1,855,122
|
|
2013
|
586,032
|
200,000
|
2,627,969
|
287,502
|
141,522
|
11
|
59,052
|
3,902,088
|
Roy B. Oelking
|
2015
|
654,242
|
—
|
844,354
|
225,003
|
783,878
|
40,585
|
68,944
|
2,617,007
|
President E&C Americas
|
2014
|
628,050
|
—
|
832,200
|
225,005
|
—
|
28,688
|
60,192
|
1,774,135
|
|
2013
|
582,546
|
—
|
2,709,868
|
325,006
|
300,859
|
24,185
|
43,177
|
3,985,641
|
Farhan Mujib
EVP Operations
|
2015
|
543,372
|
—
|
788,076
|
210,005
|
668,274
|
1,945
|
207,353
|
2,419,025
|
(1)
Salary equals base pay paid to each Named Executive Officer during the applicable year, including any elective deferrals into the Kellogg Brown & Root, Inc. Retirement and Savings Plan or the KBR Elective Deferral Plan. The actual salary paid may fluctuate due to the number of pay periods during the calendar year and the timing of payroll processing at each calendar-year end. In 2015, there were 27 pay periods instead of 26 pay periods for Messrs. Bradie, Ferraioli, Harrington, and Oelking due to the January 1, 2016 payment that occurred on December 31, 2015. The amount of Mr. Mujib’s salary in this column was converted from British Pounds to U.S. Dollars using the exchange rate applicable for each month that his salary was paid. The exchange rates used were the rates reported by Bloomberg on the last business day of the month prior to payment. The exchange rates ranged from $1.3917 to $1.5712.
(2)
The amounts in columns (e) and (f) represent the aggregate grant date fair value of awards granted in 2013, 2014, and 2015, pursuant to the KBR Stock and Incentive Plan. The fair values were determined in accordance with FASB ASC 718, “Stock Compensation.” Assumptions used in the calculation of these amounts are described in note 1 under “Significant Accounting Policies” and note 18 under “Share-based Compensation and Incentive Plans” of our audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2015, and the comparable disclosures in 2013 and 2014. Mr. Bradie was not granted stock options in 2014 due to his mid-year start date. Mr. Ferraioli was not granted stock options in 2013 due to his October start date, but he was granted restricted stock units in December, which is reflected above.
(3)
For Mr. Bradie, $2,669,513 of his 2014 stock awards amount in column (e) is dependent on having total shareholder return (“TSR”) of at least 6% each year. An assumption has been made (in accordance with FASB ASC 718, excluding the effect of estimated forfeitures) that the probable outcome is that the Company will have positive net income and TSR of at least 6%, as applicable, for the years in question. This is both the probable and maximum performance for the restricted stock/units in column (e) and the stock options in column (f), which are one and the same. With respect to the performance cash awards granted in 2013 and 2014, which are based 100% on TSR, and the performance cash awards granted in 2015, which are based 50% on TSR, and are included in the value of stock awards in column (e), the assumptions assume the probable outcome of the TSR performance condition, which is computed in accordance with FASB ASC 718 (excluding the effect of estimated forfeitures). At maximum performance, each performance award unit reported in column (e) would be equal to $2.00. This would give (i) Mr. Bradie a stock awards value under column (e) of $6,525,012 in 2015; (ii) Mr. Ferraioli a stock awards value under column (e) of $2,030,016 in 2015 and $2,030,019 in 2014; (iii) Mr. Harrington a stock awards value under column (e) of $2,175,004 in 2015, $2,175,000 in 2014, and $3,552,569 in 2013; (iv) Mr. Oelking a stock awards value under column (e) of $2,175,004 in 2015, $2,175,000 in 2014, and $3,755,068 in 2013; and (v) Mr. Mujib a stock awards value under column (e) of $2,030,016 in 2015. Mr. Bradie was not granted stock options or performance cash awards in 2014 due to his mid-year start date. Mr. Ferraioli was not granted stock options or performance cash awards in 2013 due to his late October start date.
(4)
Amounts reportable in column (g) relate to payments under our Performance Pay Plan for 2013, 2014, and 2015. Benefits under our Performance Pay Plan are payable by their terms during the first quarter of the following year. Mr. Harrington’s 2013 earnings reflect a reduction that was recovered for a Performance Pay Plan clawback of an after-tax amount of $14,530 and an amount withheld for tax purposes of $5,470 that was recovered by KBR from the Internal Revenue Service. The amount of Mr. Mujib’s payment in this column was converted from British Pounds to U.S. Dollars using the exchange rate applicable for the month that his Performance Pay Plan benefit was paid. The amount paid to Mr. Mujib in British Pounds was £480,186. The exchange rate used was 1.3917 as reported by Bloomberg on February 29, 2016.
|
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(5) The amounts shown in column (h) include the following:
Name
|
Year
|
SERP
|
Benefit Restoration
|
Elective Deferral
|
Total(A)
|
Bradie
|
2015
|
—
|
5,391
|
—
|
5,391
|
|
2014
|
—
|
—
|
—
|
—
|
Ferraioli
|
2015
|
—
|
9,134
|
2,179
|
11,313
|
|
2014
|
—
|
1,594
|
1,307
|
2,901
|
|
2013
|
—
|
—
|
86
|
86
|
Harrington
|
2015
|
—
|
15,197
|
—
|
15,197
|
|
2014
|
—
|
5,681
|
—
|
5,681
|
|
2013
|
—
|
11
|
—
|
11
|
Oelking(B)
|
2015
|
—
|
30,710
|
9,875
|
40,585
|
|
2014
|
—
|
21,318
|
7,370
|
28,688
|
|
2013
|
17,350
|
1,953
|
4,882
|
24,185
|
Mujib
|
2015
|
—
|
1,945
|
—
|
1,945
|
(A)
Any amounts reportable here and in column (h) of the Summary Compensation Table are payable in connection with KBR’s nonqualified deferred compensation plans, the KBR Supplemental Executive Retirement Plan (“SERP”), KBR Benefit Restoration Plan (“Benefit Restoration”), and KBR Elective Deferral Plan (“Elective Deferral”). These amounts reflect above-market or preferential earnings on nonqualified deferred compensation.
(B)
Mr. Oelking is the only Named Executive Officer who is a participant in the SERP.
|
(6) The amounts shown in column (i) above include the following:
Name
|
Year
|
Company
Retirement
Plan
Match(A)
|
Benefit
Restoration
Award(B)
|
Dividends(C)
|
Vacation
Payoff
|
Housing
Allowance(D)
|
Company
Car(E)
|
Relocation
Costs(F)
|
School
Fees(G)
|
Standard
Tax
Equa-
lization(H)
|
Travel(I)
|
Charity
Match(J)
|
Executive
Physicals(K)
|
Financial
Planning
|
Total
|
Bradie
|
2015
|
14,143
|
42,542
|
40,174
|
—
|
9,994
|
584
|
28,223
|
—
|
—
|
5,120
|
—
|
2,150
|
8,433
|
151,363
|
|
2014
|
13,750
|
15,316
|
9,057
|
—
|
54,254
|
38,909
|
138,612
|
—
|
—
|
97,087
|
—
|
—
|
20,000
|
386,985
|
Ferraioli
|
2015
|
14,438
|
22,551
|
28,442
|
—
|
—
|
59
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
65,490
|
|
2014
|
14,300
|
21,451
|
22,811
|
—
|
81,975
|
20,623
|
—
|
—
|
—
|
26,635
|
500
|
—
|
—
|
188,295
|
|
2013
|
1,196
|
3,610
|
—
|
—
|
900
|
3,355
|
3,179
|
—
|
—
|
—
|
—
|
—
|
—
|
12,240
|
Harrington
|
2015
|
14,575
|
21,408
|
29,508
|
17,192
|
60,905
|
34,397
|
75,190
|
21,974
|
—
|
11,518
|
—
|
2,150
|
450
|
289,267
|
|
2014
|
14,283
|
20,240
|
28,455
|
—
|
—
|
66
|
—
|
—
|
—
|
—
|
1,188
|
—
|
—
|
64,232
|
|
2013
|
14,023
|
18,207
|
2,281
|
—
|
—
|
—
|
24,541
|
—
|
—
|
—
|
—
|
—
|
—
|
59,052
|
Oelking
|
2015
|
13,967
|
21,408
|
31,419
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
2,150
|
—
|
68,944
|
|
2014
|
14,300
|
20,243
|
25,649
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
60,192
|
|
2013
|
14,025
|
18,015
|
2,229
|
—
|
—
|
—
|
—
|
—
|
—
|
8,908
|
—
|
—
|
—
|
43,177
|
Mujib
|
2015
|
50,968
|
—
|
18,532
|
—
|
—
|
13,785
|
—
|
—
|
122,443
|
—
|
—
|
—
|
1,625
|
207,353
|
(A)
The amount of Mr. Mujib’s Company retirement plan matching contribution in this column was converted from British Pounds to U.S. Dollars using the exchange rate applicable for the month paid. The exchange rates used were the same rates used for Mr. Mujib’s base salary as described in footnote (1) to the Summary Compensation Table above.
(B)
Messrs. Bradie, Ferraioli, and Oelking’s amounts in this column for 2014 were adjusted after further review to reflect their actual amounts received.
(C)
Dividends reflect amounts paid on non-performance related stock awards. Dividends are not paid on unvested performance awards. The amount of Mr. Mujib’s dividends in this column was converted from British Pounds to U.S. Dollars using the exchange rate applicable for the month paid. The rates for the months of when the dividends were paid ranged from 1.4818 to 1.5712 as reported by Bloomberg on the last business day of the month prior to the month in which the dividend was paid.
(D)
The amounts in this column represent housing allowances provided to Messrs. Bradie and Ferraioli in connection with their initial business-related moves and Mr. Harrington in connection with his international assignment, which are consistent with the Company’s standard KBR Relocation Policy offered to all employees who receive a relocation package. The amount of Mr. Harrington’s housing allowance was converted from Singapore Dollars to U.S. Dollars using the exchange rate applicable for the month paid. The exchange rates used were the rates reported by Bloomberg on the last business day of the month prior to payment. The exchange rates ranged from 0.7031 to 0.7555.
(E)
The amounts in this column represent: (i) costs for Messrs. Bradie, Harrington, and Ferraioli’s personal use of the Company-leased car and driver, (ii) payments for agreed upon rental cars for Messrs. Bradie (in 2014) and Ferraioli (in 2013 and 2014), which were one-time and limited in duration, and (iii) Messrs. Harrington and Mujib’s car allowances in connection with their international assignments. The amount of Mr. Harrington’s car allowance in this column was converted from Singapore Dollars to U.S. Dollars using the monthly conversion rate. The amount of Mr. Mujib’s car allowance in this column was converted from British Pounds to U.S. Dollars using the exchange rate applicable for the month paid. The exchange rates used were the same rates used for Mr. Mujib’s base salary as described in footnote (1) to the Summary Compensation Table above.
(F)
The amounts in this column represent closing and/or other relocation costs in connection with Messrs. Bradie, Ferraioli, and Harrington’s business-related relocations, which are consistent with the Company’s standard KBR Relocation Policy offered to all employees who receive a relocation package. Messrs. Bradie, Ferraioli and Harrington did not receive any home-loss buyout protection in connection with their relocations. The relocation payments are one-time and limited in duration.
(G)
The amount in this column represents school fees paid by the Company for Mr. Harrington’s dependent while Mr. Harrington was located in Singapore on international assignment. The amount in this column was converted from Singapore Dollars to U.S. Dollars using the exchange rate applicable for the month paid.
(H)
Messrs. Harrington and Mujib’s tax equalizations are the payments of the taxes associated with their international assignments, which are consistent with the Company’s standard KBR Relocation Policy that is offered to all employees who receive a relocation package.
(I)
The travel payments for Mr. Bradie are payments for his family to travel between the United Kingdom and Houston, Texas to assist with the international relocation. The travel expenses for Mr. Ferraioli represent reimbursement for trips between Florida and Houston, Texas as originally agreed in his offer letter and extended through to December 31, 2014. The travel expenses for Mr. Harrington relate to travel by him and his dependent between Singapore and Houston, Texas to assist with the international relocation. The travel expenses for Mr. Oelking relate to spousal travel for Board of Director meetings.
(J)
In 2014, Messrs. Ferraioli and Harrington participated in the Company’s U.S. charity matching program, which was offered to all U.S.-based Company employees with terms similar to what was offered to Messrs. Ferraioli and Harrington. The Company matched between 50% and 100% for each eligible donation, up to the maximum dollar amount allowed for each category of charity.
(K)
The amounts in this column represent costs for executive physicals required by the Company. The Company believes the health of its leadership impacts how it delivers for the organization. Taking a proactive approach to health and wellness with a focus on prevention is in alignment with the Company’s Zero Harm and Wellness Program initiatives and ensures business stability.
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- 2016 Proxy Statement 44
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(7)
Mr. Bradie’s base salary for 2014 represents his salary for the seven months he was employed in 2014. Mr. Bradie’s bonus in column (d) reflects a one-time, make-whole $500,000 sign-on payment made pursuant to his offer letter in 2014. This payment compensated Mr. Bradie for the forfeited annual incentive payment that would have been paid to him by his former employer in June 2014. KBR did not include any future short-term incentive payouts. This one-time, make-whole bonus is not part of KBR’s compensation program and did not continue in the future for Mr. Bradie.
(8)
Mr. Ferraioli’s base salary for 2013 represents his salary for the two months he was employed in 2013. Mr. Ferraioli did not receive a sign-on bonus because he did not forfeit any compensation or equity with his prior employer so that he could accept KBR’s offer of employment. Mr. Ferraioli was already separated from his prior employer when he received KBR’s offer of employment. Mr. Ferraioli did not receive a short-term incentive (annual) plan payout or a stock grant in 2013 because he was new to KBR.
(9)
Mr. Harrington’s employment with the Company ceased effective February 12, 2016. Mr. Harrington’s bonuses in column (d) reflect $200,000 (50%) of his sign-on payment deferred to 2013 pursuant to his 2012 offer letter and $100,000 (25%) of his sign-on payment deferred to 2014 pursuant to his 2012 offer letter. These bonuses are not part of KBR’s compensation program and did not continue in the future for Mr. Harrington. KBR did not include any future short-term incentive plan payouts for Mr. Harrington in his offer letter. Mr. Harrington’s sign-on payment compensated him for equity that he forfeited with his prior employer. However, Mr. Harrington’s sign-on payment was paid in three portions over three years so that it would reduce KBR’s obligation in a fiscal year and reduce KBR’s losses if Mr. Harrington had left KBR prior to 2014.
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- 2016 Proxy Statement 45
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GRANTS OF PLAN-BASED AWARDS
The following table provides information regarding awards in 2015 under the KBR Senior Executive Performance Pay Plan and the KBR Stock and Incentive Plan.
Name
|
Grant
Type(1)
|
Grant
Date
|
Number Of
Non-Equity
Incentive
Plan Units
Granted
|
Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards(2)
|
|
Estimated Future Payouts Under
Equity Incentive Plan Awards(2)
|
All Other
Stock
Awards:
Number
Of Shares
Of Stock
Or Units
(#)(3)
|
All Other
Option
Awards:
Number
Of
Securities
Underlying
Options
(#)(4)
|
Exercise
Or Base
Price Of
Option
Awards
($/Sh)
|
Grant
Date Fair
Value Of
Stock And
Option
Awards
($)(5)
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
|
(h)
|
(i)
|
(j)
|
(k)
|
(l)
|
(m)
|
(n)
|
Stuart J. B. Bradie
|
STI
|
—
|
—
|
275,000
|
1,100,000
|
2,200,000
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
PAs-TSR
|
02/25/15
|
—
|
—
|
—
|
—
|
|
337,500
|
1,350,000
|
2,700,000
|
—
|
—
|
—
|
1,408,050
|
|
PAs-JIS
|
02/25/15
|
1,350,000
|
337,500
|
1,350,000
|
2,700,000
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
RSUs
|
02/25/15
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
61,950
|
—
|
—
|
1,125,012
|
|
NQSOs
|
02/25/15
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
—
|
123,176
|
18.16
|
675,004
|
Brian K. Ferraioli
|
STI
|
—
|
—
|
146,250
|
585,000
|
1,170,000
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
PAs-TSR
|
02/25/15
|
—
|
—
|
—
|
—
|
|
105,000
|
420,000
|
840,000
|
—
|
—
|
—
|
438,060
|
|
PAs-JIS
|
02/25/15
|
420,000
|
105,000
|
420,000
|
840,000
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
RSUs
|
02/25/15
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
19,274
|
—
|
—
|
350,016
|
|
NQSOs
|
02/25/15
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
—
|
38,322
|
18.16
|
210,005
|
Ivor J. Harrington
|
STI
|
—
|
—
|
141,750
|
567,000
|
1,134,000
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
PAs-TSR
|
02/25/15
|
—
|
—
|
—
|
—
|
|
112,500
|
450,000
|
900,000
|
—
|
—
|
—
|
469,350
|
|
PAs-JIS
|
02/25/15
|
450,000
|
112,500
|
450,000
|
900,000
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
RSUs
|
02/25/15
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
20,650
|
—
|
—
|
375,004
|
|
NQSOs
|
02/25/15
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
—
|
41,059
|
18.16
|
225,003
|
Roy B. Oelking
|
STI
|
—
|
—
|
141,750
|
567,000
|
1,134,000
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
PAs-TSR
|
02/25/15
|
—
|
—
|
—
|
—
|
|
112,500
|
450,000
|
900,000
|
—
|
—
|
—
|
469,350
|
|
PAs-JIS
|
02/25/15
|
450,000
|
112,500
|
450,000
|
900,000
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
RSUs
|
02/25/15
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
20,650
|
—
|
—
|
375,004
|
|
NQSOs
|
02/25/15
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
—
|
41,059
|
18.16
|
225,003
|
Farhan Mujib(6)
|
STI
|
—
|
—
|
111,083
|
444,331
|
888,662
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
PAs-TSR
|
02/25/15
|
—
|
—
|
—
|
—
|
|
105,000
|
420,000
|
840,000
|
—
|
—
|
—
|
438,060
|
|
PAs-JIS
|
02/25/15
|
420,000
|
105,000
|
420,000
|
840,000
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
RSUs
|
02/25/15
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
19,274
|
—
|
—
|
350,016
|
|
NQSOs
|
02/25/15
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
—
|
38,322
|
18.16
|
210,005
|
(1)
During fiscal year 2015, the Named Executive Officers received the following types of plan-based awards: Short-Term Incentive (Annual) (“STI”); Performance Cash Awards (“PAs”), which are based 50% on total shareholder return (“TSR”) and 50% on job income sold (“JIS”); Restricted Stock Units (“RSUs”); and Nonqualified Stock Options (“NQSOs”). All awards were granted under the KBR Stock and Incentive Plan, except that the STI was granted under the KBR Senior Executive Performance Pay Plan, which is a performance plan under the KBR Stock and Incentive Plan.
(2)
Equity Incentive Plan Awards have a target value of $1.00 per unit (not the value of the Company’s common stock), and the amounts above represent the total dollar value of the incentive opportunity. Actual STI and PA payments may equal amounts between performance level percentages based on the achievement levels of performance metrics. Estimated 2015 STI payments are calculated using the Participant’s annual base salary as determined on January 1, 2015 (or the first day the Participant becomes eligible to participate in the KBR Senior Executive Performance Pay Plan if such day occurs after the first day of January). Estimated payments of the portions of the PAs based 50% on TSR and 50% on JIS are each calculated using half of the Participant’s total KBR Long-Term Performance Cash Award granted in 2015.
(3)
The restricted stock units in column (k) vest equally over three years.
(4)
The stock options in column (l) vest equally over three years.
(5)
The amounts in column (n) are calculated for RSUs based on the product of the number of RSUs granted and the closing price of the Company’s common stock on the Grant Date, are calculated for NQSOs based on the product of the number of NQSOs granted and the Black Scholes’ valuation of the NQSOs on the Grant Date, and are calculated for PAs based on each PA unit having a grant date fair value of $1.04. These amounts reflect the aggregate grant date fair value computed in accordance with FASB ASC 718.
(6)
Mr. Mujib’s actual 2015 STI payment was paid in British Pounds. The STI amounts in columns (e) through (g) reflect calculations based on Mr. Mujib’s base salary converted from British Pounds to U.S. Dollars using the exchange rate for the month it was paid. The exchange rate used was 1.3917 as reported by Bloomberg on the last business day of February 2016. The PA amounts in columns (e) through (j) reflect calculations based on Mr. Mujib’s 2015 KBR Long-Term Performance Cash Award, which was granted in U.S. Dollars. Mr. Mujib’s actual 2015 PA payment, if any, will be paid in British Pounds (assuming he is still working in the United Kingdom on the payment date), converted from U.S. Dollars just prior to the payment date.
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- 2016 Proxy Statement 46
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NARRATIVE DISCLOSURE TO SUMMARY
COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS TABLE
NO EMPLOYMENT AGREEMENTS
Our Named Executive Officers do not have employment agreements. Each of our Named Executive Officers entered into severance and change-in-control agreements that only provide for severance-type benefits (including severance following a change in control) (see the section titled “Severance and Change-in-Control Protection” for more detail).
LONG-TERM INCENTIVES
During fiscal year 2015, our Named Executive Officers received the following types of plan-based awards under the KBR Stock and Incentive Plan (under which the Performance Pay Plan was adopted): (1) an annual short-term incentive (“STI”) award, which is based on achieving pre-established metrics and is paid in cash (see the section titled “Short-Term Incentives (Annual)” for more detail), (2) long-term performance cash awards (“PAs”), which are based 50% on total shareholder return (“TSR”) and 50% on job income sold (“JIS”), (3) restricted stock units (“RSUs”), and (4) nonqualified stock options (“NQSOs”).
The PAs were granted on February 25, 2015. Each PA has a target value of $1.00. The actual payout, if earned, of a PA at the end of the performance period will be determined based 50% on the level of achievement during the performance period of the performance objectives based on the comparison of the average TSR of the Company’s common stock at the end of the performance period to the average TSR of each of the common stocks of the members of the peer group for the performance period and 50% on JIS. Specifically, each peer group company’s TSR is measured every quarter, indexed back to the start of the year, and KBR’s similarly calculated average quarterly indexed TSR is ranked relative to its peers. The average quarterly indexed Company’s TSR rank is measured over the 3-year performance period, which runs from January 1, 2015, to December 31, 2017.
The remaining 50% of the PAs will be determined based on JIS over the same 3-year performance period. JIS is the Company’s and its consolidated subsidiaries job income from (i) new projects awarded and (ii) earnings growth from contract amendments (increases or decreases), or scope adjustments (increases or decreases) to existing projects. JIS is calculated as the average of the achievement levels of the JIS performance metric for each year during the three-year performance period. Like the TSR portion of the 2015 PAs, achievement of Threshold pays out at 25%, Target at 100%, and Maximum at 200%, all weighted 50%. No award will be paid for JIS under the PAs until after the end of the three-year performance period when the average JIS earned will be calculated using the average JIS percentage achieved during each year in the three-year performance period.
100% of the 2013 and 2014 grants and the 50% TSR portion of the 2015 grants of KBR Long-Term Performance Cash Awards are reported in the “Stock Awards” column of the Summary Compensation Table for 2013, 2014, and 2015, the years in which the awards were granted (rather than in the “Non-Equity Incentive Plan Compensation” column in the year they were earned (2015, 2016, and 2017)), because the TSR portion of KBR Long-Term Performance Cash Awards fell within the scope of ASC 718. However, the payouts for the 50% JIS portion of the 2015 KBR Long-Term Performance Cash Awards will be reported in the “Non-Equity Incentive Plan” column of the Summary Compensation Table in the year earned because the JIS portion does not fall within the scope of ASC 718.
In February 2015, our Compensation Committee approved long-term incentive target values of $4,500,000 for Mr. Bradie, $1,400,000 for Mr. Ferraioli, $1,500,000 for Mr. Harrington, $1,400,000 for Mr. Mujib, and $1,500,000 for Mr. Oelking. The Compensation Committee established these long-term incentive target values as described in the “Compensation Discussion and Analysis” section of this proxy statement under the section titled “KBR Stock and Incentive Plan.” Long-term incentive awards were delivered through a combination of cash-based PAs and equity-based RSUs and NQSOs.
The Compensation Committee determined the number of PAs for each Named Executive Officer by multiplying the total long-term incentive target value by 60% and dividing the product by $1.00 (the target value of each PA). Our Compensation Committee decided to use $1.00 as the target value for each PA for the purpose of administering and communicating the award. In addition, the use of $1.00 as a target value for each PA is a means of expressing the value of each award since the number of PAs were granted based on the total target value of long-term incentive awards. The actual value of a PA may increase to a maximum of 200% of $1.00, or $2.00, or decrease to below threshold to 0% of $1.00, or $0.00. The value of PAs for performance between threshold and target or target and maximum will be calculated using linear interpolation. A 3-year performance award cycle was adopted because of the ability to provide for retention and to align the long-term interest of the Named Executive Officers with our stockholders.
The RSUs granted on February 25, 2015, under the KBR Stock and Incentive Plan vest in increments of 33 1/3% annually over three years. The Compensation Committee determined the number of RSUs for each Named Executive Officer by multiplying the total long-term incentive target value by 25% and dividing the product by the closing price of our common stock on the date of grant.
The NQSOs were granted under the KBR Stock and Incentive Plan. Options vest in increments of 33 1/3% annually over three years. Using the total long-term incentive target values, our Compensation Committee determined the number of NQSOs for each Named Executive Officer by multiplying the total long-term incentive value by 15% and dividing the product by the Black Scholes’ value of the NQSO on the date of grant. Options have an exercise price equal to the closing price of our common stock on the date of grant.
- 2016 Proxy Statement 47
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SHORT-TERM INCENTIVES (ANNUAL)
Our Named Executive Officers were eligible to participate in the KBR Senior Executive Performance Pay Plan (the “Performance Pay Plan”) for the 2015 calendar year. Payouts under the Performance Pay Plan are based on our Named Executive Officer’s individual performance and on the levels of achievement of the Performance Pay Plan’s performance metrics.
The pre-established performance metrics for the 2015 calendar year are described in the Compensation Discussion and Analysis above.
During 2015, the short-term incentive award opportunities were based on a percentage of base salary assuming attainment of specified threshold, target, and maximum performance levels, which were, respectively: (i) for Mr. Bradie, 27.5%, 110%, and 220% and (iii) for Messrs. Ferraioli, Harrington, Mujib, and Oelking 22.5%, 90%, and 180%.
SALARY AND SHORT-TERM INCENTIVE
IN PROPORTION TO TOTAL COMPENSATION
Assuming target performance with respect to the long-term incentive awards under our KBR Stock and Incentive Plan, our CEO, Mr. Bradie, received approximately 46.4% of his total compensation in the form of base salary and annual cash-based STI awards, and our Named Executive Officers (other than our CEO) generally received on average approximately 53.7% of their total compensation in the form of base salary and annual cash-based STI awards. Please see the “Compensation Discussion and Analysis” section of this proxy statement for a description of the philosophy and objectives of our compensation program.
- 2016 Proxy Statement 48
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OUTSTANDING EQUITY AWARDS
AT
FISCAL YEAR END
The following table provides information on the exercise and holdings of previously awarded equity grants outstanding as of December 31, 2015.
Name
|
Grant Date(1)
|
Option Awards
|
|
Stock Awards
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(2)
|
Equity
Incentive
Plan
Awards: # of
Securities
Underlying
Unexercised
Unearned
Options
(#)(2)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares or Units
of Stock That
Have Not
Vested
(#)(3)
|
Market Value
of Shares or
Units of
Stock That
Have Not
Vested
($)(4)
|
Equity Incentive
Plan Awards: #
of Unearned
Shares, Units or
Other Rights
That Have Not
Vested
(#)(5)
|
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested
($)(6)
|
(a)
|
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|
(g)
|
(h)
|
(i)
|
(j)
|
Stuart J. B. Bradie
|
02/25/2015
|
—
|
123,176
|
—
|
18.16
|
02/25/2025
|
|
61,950
|
1,048,194
|
1,350,000
|
337,500
|
|
12/21/2014
|
—
|
—
|
—
|
—
|
—
|
|
—
|
—
|
76,604
|
1,296,140
|
|
07/02/2014
|
—
|
—
|
—
|
—
|
—
|
|
60,383
|
1,021,680
|
24,702
|
417,958
|
TOTAL
|
|
—
|
123,176
|
—
|
—
|
—
|
|
122,333
|
2,069,874
|
1,451,306
|
2,051,598
|
Brian K. Ferraioli
|
02/25/2015
|
—
|
38,322
|
—
|
18.16
|
02/25/2025
|
|
19,274
|
326,116
|
420,000
|
105,000
|
|
03/05/2014
|
7,291
|
14,584
|
—
|
27.85
|
03/05/2024
|
|
8,379
|
141,773
|
840,000
|
210,000
|
|
12/12/2013
|
—
|
—
|
—
|
—
|
—
|
|
65,000
|
1,099,800
|
—
|
—
|
TOTAL
|
|
7,291
|
52,906
|
—
|
—
|
—
|
|
92,653
|
1,567,689
|
1,260,000
|
315,000
|
Ivor J. Harrington
|
02/25/2015
|
—
|
41,059
|
—
|
18.16
|
02/25/2025
|
|
20,650
|
349,398
|
450,000
|
112,500
|
|
03/05/2014
|
7,812
|
15,626
|
—
|
27.85
|
03/05/2024
|
|
8,977
|
151,891
|
900,000
|
225,000
|
|
12/12/2013
|
—
|
—
|
—
|
—
|
—
|
|
65,000
|
1,099,800
|
—
|
—
|
|
03/06/2013
|
14,509
|
7,255
|
—
|
30.24
|
03/06/2023
|
|
3,423
|
57,917
|
690,000
|
172,500
|
|
07/09/2012
|
42,500
|
—
|
—
|
24.98
|
07/09/2022
|
|
1,060
|
17,935
|
1,060
|
17,935
|
TOTAL
|
|
64,821
|
63,940
|
—
|
—
|
—
|
|
99,110
|
1,676,941
|
2,041,060
|
527,935
|
Roy B. Oelking
|
02/25/2015
|
—
|
41,059
|
—
|
18.16
|
02/25/2025
|
|
20,650
|
349,398
|
450,000
|
112,500
|
|
03/05/2014
|
7,812
|
15,626
|
—
|
27.85
|
03/05/2024
|
|
8,977
|
151,891
|
900,000
|
225,000
|
|
12/12/2013
|
—
|
—
|
—
|
—
|
—
|
|
65,000
|
1,099,800
|
—
|
—
|
|
03/06/2013
|
16,402
|
8,201
|
—
|
30.24
|
03/06/2023
|
|
3,871
|
65,497
|
780,000
|
195,000
|
|
03/07/2012
|
15,480
|
—
|
—
|
35.27
|
03/07/2022
|
|
850
|
14,382
|
853
|
14,433
|
|
03/09/2011
|
7,803
|
—
|
—
|
—
|
—
|
|
449
|
7,597
|
—
|
—
|
|
03/10/2010
|
5,623
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
—
|
TOTAL
|
|
53,120
|
64,886
|
—
|
—
|
—
|
|
99,797
|
1,688,565
|
2,130,853
|
546,933
|
Farhan Mujib
|
02/25/2015
|
—
|
38,322
|
—
|
18.16
|
02/25/2025
|
|
19,274
|
326,116
|
420,000
|
105,000
|
|
05/14/2014
|
—
|
—
|
—
|
—
|
—
|
|
21,241
|
359,398
|
—
|
—
|
|
03/05/2014
|
5,729
|
11,459
|
—
|
27.85
|
03/05/2024
|
|
6,584
|
111,401
|
660,000
|
165,000
|
|
12/12/2013
|
—
|
—
|
—
|
—
|
—
|
|
32,500
|
549,900
|
—
|
—
|
|
03/06/2013
|
9,462
|
4,732
|
—
|
30.24
|
03/06/2023
|
|
2,233
|
37,782
|
450,000
|
112,500
|
|
02/01/2013
|
6,007
|
3,004
|
—
|
31.42
|
02/01/2023
|
|
1,194
|
20,202
|
—
|
—
|
|
04/04/2012
|
4,151
|
—
|
—
|
35.14
|
04/04/2022
|
|
429
|
7,259
|
—
|
—
|
|
08/22/2011
|
532
|
—
|
—
|
25.99
|
08/22/2021
|
|
29
|
491
|
—
|
—
|
|
04/01/2011
|
1,779
|
—
|
—
|
38.33
|
04/01/2021
|
|
98
|
1,658
|
—
|
—
|
|
03/10/2010
|
2,343
|
—
|
—
|
21.19
|
03/10/2020
|
|
—
|
—
|
—
|
—
|
|
06/26/2009
|
678
|
—
|
—
|
18.66
|
06/26/2019
|
|
—
|
—
|
—
|
—
|
|
03/06/2009
|
2,496
|
—
|
—
|
11.71
|
03/06/2019
|
|
—
|
—
|
—
|
—
|
TOTAL
|
|
33,177
|
57,517
|
—
|
—
|
—
|
|
83,582
|
1,414,207
|
1,530,000
|
382,500
|
(1)
The awards granted consist of KBR restricted stock units (“RSUs”), performance cash awards based on total shareholder return (“TSR”), or options under the KBR Stock and Incentive Plan.
(2)
All options listed in columns (c) and (d) vest at a rate of 33 1/3% per year over the 3-year vesting period.
(3)
All RSUs listed in this column that were granted on March 6, 2013, and earlier vest at a rate of 20% per year over the 5-year vesting period. The RSUs granted on December 12, 2013, and May 14, 2014, cliff vest 100% on December 12, 2016. The RSUs granted on March 5, 2014, and February 25, 2015, vest at a rate of 33 1/3% per year over the 3-year vesting period. With respect to the RSUs granted to Mr. Bradie on July 2, 2014, 41,169 vest at a rate of 20% per year over the 5-year vesting period and 41,170 vest at a rate of 33 1/3% per year over the 3-year vesting period.
(4)
Market value in this table is based upon a fair market value of $16.92 per share for KBR common stock, the closing price on December 31, 2015.
(5)
The number of unearned shares includes 20% of Mr. Oelking’s March 7, 2012, and 20% of Mr. Harrington’s July 9, 2012, RSU grants under column (g), the earnings of which are subject to the Company having net income greater than or equal to zero for the calendar year preceding each vesting date. With respect to Mr. Bradie, the number of unearned shares includes 80% of the 30,877 RSUs that were granted on July 2, 2014, and vest at a rate of 20% per year over the 5-year vesting period subject to KBR having TSR of at least 6% in the immediately preceding year and 66 2/3% of the 114,905 RSUs that were granted on December 21, 2014, and vest at a rate of 33 1/3% per year over the 3-year vesting period subject to KBR having TSR of at least 6% each year. In addition, this column includes 100% of the performance cash awards granted in 2014 and 50% of the performance cash awards granted in 2015 that are based on TSR. These performance cash awards are payable only in cash and cliff-vest, if earned, at the end of the three-year vesting periods (December 31, 2016 and December 31, 2017, respectively).
(6)
This column includes the value of both performance cash awards based on TSR and performance RSUs. With respect to the performance cash awards, this column represents the threshold cash payout for the number of performance cash awards based on TSR. Under the SEC rules, we are required to report the threshold payout if the previous fiscal year’s performance did not exceed threshold performance. The payout of these performance cash awards is not calculated based on the Company’s stock price and accordingly was calculated by using a threshold cash payout amount of $.25 for each performance award unit. With respect to the performance RSUs granted in previous years, this column represents the target value of such awards, which is the fair market value of $16.92 per share for KBR common stock on December 31, 2015. Under SEC rules, if an award provides only for a single estimated payout, that amount should be reported.
|
- 2016 Proxy Statement 49
Back to Contents
OPTION EXERCISES AND STOCK VESTED
The following table shows information for 2015 regarding the exercise of stock options and the vesting of restricted stock and restricted stock units.
Name
|
Option Awards
|
|
Stock Awards
|
|
Number of Shares
Acquired on Exercise
(#)
|
Value Realized on
Exercise
($)
|
Number of Shares
Acquired on Vesting
(#)(1)
|
Value Realized on
Vesting
($)(2)
|
(a)
|
|
(b)
|
(c)
|
|
(d)
|
