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. )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to § 240.14a-12 |
United Rentals, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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UNITED RENTALS, INC.
100 First Stamford Place, Suite 700
Stamford, Connecticut 06902
March 26, 2019
Dear Fellow Stockholders:
You are cordially invited to attend this year’s annual meeting of stockholders, which will be held on Wednesday, May 8, 2019, at the Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich, Connecticut. The meeting will start at 9:00 a.m., Eastern time.
Under U.S. Securities and Exchange Commission rules that allow companies to furnish proxy materials to stockholders over the Internet, we have elected to deliver our proxy materials to the majority of our stockholders over the Internet. This delivery process allows us to provide stockholders with the information they need, while at the same time conserving natural resources and lowering the cost of delivery. On March 26, 2019, we mailed to our stockholders a Notice and Access to Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our 2019 proxy statement and annual report for the fiscal year ended December 31, 2018. The Notice also provides instructions on how to vote online or over the telephone and includes instructions on how to receive, free of charge, a paper copy of the proxy materials by mail.
Details of the business expected to come before the annual meeting are provided in the enclosed Notice of Annual Meeting of Stockholders and proxy statement. Your vote is important. Whether or not you intend to be present at the meeting, it is important that your shares be represented. In addition to voting in person, stockholders of record may vote via a toll-free telephone number or over the Internet. Stockholders who received a paper copy of the proxy materials by mail may also vote by promptly completing, signing and mailing the enclosed proxy card in the return envelope provided.
Thank you for your continued support.
Sincerely,
JENNE K. BRITELL |
MICHAEL J. KNEELAND |
Chairman |
Chief Executive Officer |
UNITED RENTALS, INC.
100 First Stamford Place, Suite 700
Stamford, Connecticut 06902
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
The annual meeting of stockholders of United Rentals, Inc. (the “Annual Meeting”) will be held at the Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich, Connecticut, on Wednesday, May 8, 2019, at 9:00 a.m., Eastern time, for the following purposes:
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To elect the 12 directors nominated and recommended by the Board of Directors, as named in the accompanying proxy statement; |
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To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019; |
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To approve our executive compensation on an advisory basis; |
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To approve our 2019 Long Term Incentive Plan; |
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To consider a stockholder proposal on right to act by written consent, if properly presented at the meeting; and |
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To transact such other business, if any, properly brought before the meeting. |
The meeting may be adjourned or postponed from time to time. At any reconvened or rescheduled meeting, action with respect to the matters specified in this notice may be taken without further notice to stockholders, except as may be required by our By-Laws. Stockholders of record at the close of business Eastern time on March 11, 2019, are entitled to notice of, and to vote on, all matters at the meeting and any reconvened or rescheduled meeting following any adjournment or postponement.
We are pleased to take advantage of U.S. Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders over the Internet. We believe these rules allow us to provide you with the information you need while lowering the costs of printing and delivering proxy materials and reducing the environmental impact of the Annual Meeting.
March 26, 2019
By Order of the Board of Directors, |
JOLI L. GROSS |
Corporate Secretary |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on Wednesday, May 8, 2019. Prior to May 8, 2019, the Notice and Proxy Statement for the 2019 Annual Meeting of Stockholders and the Company’s 2018 Annual Report to Stockholders are available electronically at https://materials.proxyvote.com/911363. These materials are also available at https://www.unitedrentals.com/en/our-company/investor-relations/annual-reports-proxy-statements.
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This summary highlights information about United Rentals, Inc. (the “Company” or “United Rentals”) and certain information contained elsewhere in this proxy statement (“Proxy Statement”) for our 2019 annual meeting of stockholders (“Annual Meeting”). This summary does not contain all of the information that you should consider in voting your shares. You should read the entire Proxy Statement carefully before voting.
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Voting Matters and Board Recommendations |
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Proposal
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Board Vote Recommendation |
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Proposal 1 – Election of Directors |
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Proposal 2 – Ratification of Appointment of Public Accounting Firm |
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Proposal 3 – Advisory Approval of Executive Compensation |
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Proposal 4 – Approval of 2019 Long Term Incentive Plan |
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Proposal 5 – Stockholder Proposal on Right to Act by Written Consent |
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Casting Your Vote |
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How to Vote
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Stockholder of Record (Shares registered in your name with American Stock
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Street Name Holders (Shares held through a Broker, Bank or Other Nominee)
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Visit the applicable voting |
www.voteproxy.com |
Refer to voting |
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In the United States call:
In foreign countries call: |
1-800-PROXIES (776-9437)
1-718-921-8500 |
Refer to voting |
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To the extent you have requested paper copies of proxy materials, sign, date and return your completed proxy card by mail.
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For instructions on attending the Annual Meeting in person, please see “Voting—Voting at the Annual Meeting” on page 9. |
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1
Following our Annual Meeting on May 8, 2019, and as part of a previously announced leadership succession plan: • Matthew J. Flannery will become the Company’s Chief Executive Officer (“CEO”), succeeding Michael J. Kneeland; • Jenne K. Britell, our current Chairman, will not stand for re-election as she has reached the retirement age under our Corporate Governance Guidelines; • Michael J. Kneeland will retire as Chief Executive Officer and become non-executive Chairman; and • Bobby J. Griffin will become Lead Independent Director. The Board and management sincerely thank Dr. Britell for her years of service on the Board and her dedication to the Company. |
Board Nominees You are being asked to vote on the following 12 nominees for director. In furtherance of the leadership succession plan discussed above, the Board nominated Mr. Flannery to stand for election as a new director this year. All directors are elected annually by a majority of the votes cast. All nominees meet the New York Stock Exchange (“NYSE”) governance standards for director independence, except for Messrs. Kneeland and Flannery, who are not independent due to their employment (or, in the case of Mr. Kneeland, former employment as of May 8, 2019) with the Company. Information about each director’s experiences, qualifications, attributes and skills can be found beginning on page 13.
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Name |
Age |
Director Since |
Principal Occupation |
Independent |
Current |
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José B. Alvarez |
56 |
2009 |
Faculty, Harvard Business School, Retired Executive Vice President–Global Business Development, Royal Ahold NV
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Yes |
NC, SC |
Marc A. Bruno |
47 |
2018 |
Chief Operating Officer, Sports, Leisure, Corrections, Facilities and K-12, Aramark Corporation
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Yes |
CC, NC |
Matthew J. Flannery |
54 |
N/A |
President and Chief Operating Officer, United Rentals, Inc. (will become CEO on May 8, 2019)
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No |
N/A** |
Bobby J. Griffin |
70 |
2009 |
Retired President–International Operations, Ryder System, Inc.
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Yes |
AC, NC, SC*** |
Kim Harris Jones |
59 |
2018 |
Former Senior Vice President and Corporate Controller of Mondelez International
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Yes |
AC, CC |
Terri L. Kelly |
57 |
2018 |
Former President and Chief Executive Officer, W. L. Gore & Associates
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Yes |
CC, SC |
Michael J. Kneeland |
65 |
2008 |
Chief Executive Officer, United Rentals, Inc. (will retire as CEO and become non-executive Chairman on May 8, 2019)
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No |
SC** |
Gracia C. Martore |
67 |
2017 |
Retired President and Chief Executive Officer, TEGNA Inc., formerly known as Gannett Co., Inc.
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Yes |
CC, NC |
Jason D. Papastavrou, Ph.D. |
56 |
2005 |
Chief Executive Officer and Chief Investment Officer, ARIS Capital Management
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Yes |
AC |
Filippo Passerini |
61 |
2009 |
Operating Executive–U.S. Buyouts, Carlyle Group and former President, Global Business Services and Chief Information Officer, Procter & Gamble
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Yes |
AC, CC*** |
Donald C. Roof |
67 |
2012 |
Retired Executive Vice President and Chief Financial Officer, Joy Global Inc. (n/k/a Komatsu Mining Corp.)
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Yes |
AC, CC, NC |
Shiv Singh |
41 |
2017 |
Founder and Chief Executive Officer, Savvy Matters, LLC |
Yes |
AC, SC |
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* AC – Audit Committee; CC – Compensation Committee; NC – Nominating and Corporate Governance Committee; SC – Strategy Committee ** When Mr. Flannery becomes CEO and Mr. Kneeland becomes non-executive Chairman, Mr. Flannery will join the Strategy Committee and Mr. Kneeland will leave the Strategy Committee. *** Mr. Griffin will become Lead Independent Director on May 8, 2019, at which point he will leave the Audit Committee and the Strategy Committee, and Mr. Passerini will join the Strategy Committee and leave the Compensation Committee. |
2
Board Refreshment Board composition remains a priority for the Company as evidenced by its recent refreshment efforts. Our Board engaged an independent consulting and search firm beginning in 2016 to assist in developing a long-term succession plan to identify, recruit and appoint new directors whose qualifications bring further strength to our Board. As a result of these efforts, three of our long-serving directors did not stand for re-election in 2017; one long-serving director did not stand for re-election in 2018; and Dr. Britell, our current Chairman, will not stand for re-election this year. In addition, Mr. Singh and Ms. Martore joined the Board as new directors in 2017; Mr. Bruno and Mses. Kelly and Harris Jones joined the Board as new directors in 2018; and Mr. Flannery is being nominated as a new director this year. |
3
We value our stockholders’ perspective on our business and each year we proactively interact with stockholders through numerous stockholder engagement activities. In 2018 and early 2019, these included our biennial investor day, our 2018 annual stockholder meeting, quarterly earnings calls, various investor conferences and several (non-deal) road shows. In addition, at the Board’s request, management continued the momentum from the Company’s 2017 stockholder outreach program with another outreach program in 2018, as detailed below.
2018 Stockholder Outreach Program
The purpose of our 2018 Stockholder Outreach Program (our “2018 Program”) was to engage with our top stockholders about key environmental, social, governance and compensation topics specific to the Company, and about other topics and trends our stockholders wished to discuss with us.
In November 2018, we contacted governance professionals at 13 of our top holders, representing approximately 34% of total outstanding shares. Of the 13 holders, we had calls with seven holders, representing approximately 29% of total outstanding shares, during November 2018 through January 2019.
Our 2018 Program discussed below did not involve direct discussion between a stockholder and an independent director because no stockholder requested such a discussion. However, the Board hosted three institutional investors for a panel discussion about environmental, social and governance matters in May 2018 as discussed under “Board Matters—Director Orientation and Continuing Education.” Further, upon stockholder request, the Board will make an independent director available for direct discussion with a stockholder, as appropriate, as it did in response to one stockholder request in 2017. For information about how to communicate directly with our Board, see “Corporate Governance Matters—Direct Communications with Directors.”
What Was Discussed
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Results
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During the calls, we spent a significant amount of time discussing: • stockholders’ right to act by written consent; • Board composition and diversity, including the Board’s recent refreshment, and feedback on the new director skills matrix in our 2018 proxy statement; • our leadership succession plan announced in January 2019 (on calls scheduled after the public announcement); • Board oversight of environmental and social risks; • the Company’s executive compensation peer group; • the performance metrics in our short- and long term incentive plans; and • the rationale for the use of three 1-year measurement periods for our performance-based restricted stock unit (“PRSU”) performance metrics. |
• The results of our outreach program were reported to the Nominating and Corporate Governance Committee and Compensation Committee and elevated to the Board, as necessary. • As a result of the feedback we received, we enhanced our proxy statement disclosures to better communicate our practices, including with respect to Board composition, Board evaluations and Board oversight of environmental and social matters. • In addition, we noted that the Compensation Committee reviews the executive compensation peer group annually, and added disclosure to clarify the performance metrics in our incentive plans. • Further, as disclosed in “Compensation Discussion & Analysis,” for 2019, the Compensation Committee approved the return to a more balanced portfolio of incentive metrics for our annual and long-term incentive plans. |
These engagement activities, and the feedback we receive, are informative and helpful to us in our ongoing effort to increase stockholder value. Our Investor Relations department is the contact point for stockholder interaction with United Rentals. Stockholders may also access investor information about the Company through our website. For questions concerning Investor Relations, please contact Ted Grace, Vice President–Investor Relations, at 203-618-7122.
4
2018 was an exceptional year for the Company. Total revenue increased 21.2% to $8.047 billion and rental revenue increased 21.4% to $6.940 billion from 2017, both of which were Company records. These increases included the impact of the acquisitions of NES Rentals Holdings II, Inc. (“NES”) in April 2017, Neff Corporation (“Neff”) in October 2017, BakerCorp International Holdings, Inc. (“BakerCorp”) in July 2018, and Vander Holding Corporation and its subsidiaries (“BlueLine”) in October 2018. On a pro forma basis reflecting the impact of the NES, Neff, BakerCorp and BlueLine acquisitions (i.e., including the standalone pre-acquisition results of NES, Neff, BakerCorp and BlueLine for 2017 and 2018), rental revenue increased 10.5% year-over-year, reflecting growth of 6.9% in the volume of equipment on rent and a 2.6% increase in rental rates. Year-over-year, for 2018, adjusted EBITDA(1) increased 22.1% to $3.863 billion and adjusted EBITDA margin increased 40 basis points to 48.0%. Return on invested capital (ROIC)(2) increased to a Company record of 11.0%, while net cash provided by operating activities was $2.853 billion. Free cash flow,(3) excluding merger and restructuring related payments, was also a Company record at $1.334 billion.
The Company’s specialty segment, Trench, Power and Fluid Solutions, experienced solid growth in 2018. Rental revenue for the segment increased by 40.7% year-over-year, including a 19.0% increase on a same store basis. Rental gross margin decreased by 140 basis points to 48.2%, primarily due to the impact of the BakerCorp acquisition. For more information regarding the Company’s 2018 performance, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (“Form 10-K”).
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1 |
Adjusted EBITDA is a non-GAAP financial measure, as defined in our Form 10-K. Please refer to our Form 10-K for the adjusted EBITDA-to-GAAP reconciliations. Adjusted EBITDA margin represents adjusted EBITDA divided by total revenue. |
2 |
ROIC is a non-GAAP financial measure that is calculated as after-tax operating income for the trailing 12 months divided by average stockholders’ equity, debt and deferred taxes, net of average cash. To mitigate the volatility related to fluctuations in the Company’s tax rate from period to period, the U.S. federal corporate statutory tax rates of 21% for 2018 and 35% for 2017 and 2016 were used to calculate after-tax operating income. If the 21% U.S. federal corporate statutory tax rate following the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was applied to ROIC for all historic periods, the Company estimates that ROIC would have been 10.8%, 10.6% and 10.0% for 2018, 2017 and 2016, respectively. |
3 |
Free cash flow is a non-GAAP financial measure, as defined in our Form 10-K. Please refer to our Form 10-K for a free cash flow-to-GAAP reconciliation. Free cash flow in narrative above chart excludes $63 million of merger and restructuring related payments while free cash flow in chart includes merger and restructuring related payments. |
5
Executive Compensation Overview
Our executive compensation program aims to attract, retain, and reward high caliber management talent who will lead our business and execute our strategy for long-term profitable growth.
Principal Elements of Pay: Our program emphasizes variable pay that aligns compensation with performance and stockholder value and has three key elements: base salary, annual incentive compensation and long-term incentive compensation. Each of these elements serves a specific purpose in our compensation strategy.
Pay Element
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How It’s Paid
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Purpose
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Base Salary |
Cash (Fixed) |
Provide a competitive base salary relative to similar positions in the market and enable the Company to attract and retain highly skilled executive talent. |
Annual Incentive Compensation Plan (“AICP”) |
Cash and Vested Shares of Company Stock (Variable) |
Focus executives on achieving annual financial and strategic objectives that promote growth, profitability and returns. |
Long-Term Incentive Plan (“LTIP”) |
Equity (Variable) |
Provide incentive for executives to reach financial goals and align their long-term economic interests with those of stockholders through meaningful use of equity compensation.
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Pay Mix: The mix of pay elements is heavily leveraged toward variable, performance-based compensation. The significant majority of named executive officer (“NEO”) pay was variable based upon target total direct compensation for fiscal year 2018: 89% for the CEO and an average of 77% for our other NEOs, excluding William Plummer who is no longer employed by the Company.
Stockholder Support: At the Company’s 2018 annual meeting of stockholders, we received substantial support for our executive compensation program, with over 93% of the stockholders who voted on the “say on pay” proposal approving the compensation of our NEOs, which was consistent with the positive feedback we received in discussions with our stockholders throughout the year. We interpreted this exceptionally strong level of support as affirmation of the overall structure of our program and our approach to making compensation decisions. Based on stockholder feedback during our 2018 Stockholder Outreach Program, the Compensation Committee decided to refine our program by returning to a more balanced portfolio of incentive metrics for our annual and long-term incentive plans.
Compensation Governance: Our program is built on the foundation of the following best practices and policies:
What We Do |
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What We Don’t Do |
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Heavy emphasis on variable (“at-risk”) compensation |
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× |
No significant perquisites |
✓ |
Stock ownership guidelines supported by net share retention requirements |
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× |
No supplemental executive retirement plans |
✓ |
Double-trigger equity vesting upon a change in control |
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No history of re-pricing equity awards |
✓ |
Clawback contract provisions and anti-hedging/pledging policy |
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× |
No option or stock appreciation rights granted below fair market value |
✓ |
Engage an independent compensation consultant |
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No tax gross-ups |
6
2018 Pay Decisions: The Compensation Committee took the following compensation-related actions for fiscal 2018: ● Base salaries: In 2018, the CEO and other NEOs received increases ranging from 3.0% to 9.99%, except for Mr. Flannery, who received a 15.4% base salary increase in connection with his promotion from Executive Vice President to President. ● Incentive compensation: Consistent with the Company’s record performance, funding for both our AICP and LTIP was above target. AICP bonuses were funded at 130.5% of target, and LTIP awards were earned at 183.1% of target. For specific details about the executive compensation program, please refer to the Compensation Discussion & Analysis (“CD&A”) starting on page 37 of this Proxy Statement. |
Company Awards |
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2018 AWARDS AND RECOGNITIONS
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National Diversity Excellence Award Association of Builders and Contractors (eighth consecutive year, supplier category)
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Top 10 Military Friendly spouse employer G.I. Jobs (fifth consecutive year) |
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Best for Vets Military Times (fifth consecutive year)
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Top Workplaces in CT for 2018 The Hearst Connecticut Media Group (first submission/award) |
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#7 Top Military Friendly employer – G.I. Jobs (tenth consecutive year, >$1B revenue category)
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America’s Best Employers Forbes magazine (first year) |
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Top Military Friendly Supplier Diversity – G.I. Jobs (third consecutive year as a top employer) |
Global 2000: World’s Best Employers Forbes magazine (first year) |
Top Veteran Friendly Companies List, Best of Best Results List U.S. Veterans Magazine (third consecutive year)
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Proud Sponsor of the United Compassion Fund, an employee-funded 501(c)(3) program for assisting United Rentals employees in need |
#3 Overall All-America Executive Team, Business, Education & Professional Services Category Institutional Investor
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7
UNITED RENTALS, INC.
100 First Stamford Place, Suite 700
Stamford, Connecticut 06902
March 26, 2019
Proxy Statement
Annual Meeting of Stockholders
We are providing this Proxy Statement in connection with the solicitation by the Board of Directors (the “Board”) of United Rentals, Inc. (the “Company”) of proxies to be voted at our 2019 annual meeting of stockholders (the “Annual Meeting”) to be held at the Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich, Connecticut, on Wednesday, May 8, 2019, at 9:00 a.m., Eastern time, and at any reconvened or rescheduled meeting following any adjournment or postponement.
This Proxy Statement contains important information for you to consider when deciding how to vote. Please read this information carefully.
Internet Availability of Proxy Materials
We are making this Proxy Statement and our 2018 annual report to stockholders available to our stockholders over the Internet. On March 26, 2019, we mailed our stockholders a Notice and Access to Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our proxy materials, including this Proxy Statement and our 2018 annual report. Stockholders will be able to access all proxy materials over the Internet free of charge, with such materials being searchable and printable. The Notice also provides instructions on how to vote over the Internet, by telephone or by mail. If you received the Notice by mail, you will not receive a printed copy of the proxy materials in the mail unless you specifically request these materials.
Internet distribution of proxy materials is designed to expedite receipt by stockholders, lower the cost of our Annual Meeting, and reduce the environmental impact of such meeting. However, if you received the Notice by mail and would like to receive a printed copy of our proxy materials, free of charge, please follow the instructions for requesting such materials contained in the Notice.
Record Date
The record date for determining stockholders entitled to notice of, and to vote at, the Annual Meeting (and at any reconvened or rescheduled meeting following any adjournment or postponement) has been established as the close of business, Eastern time, on March 11, 2019.
Voting Securities Outstanding on Record Date
As of the record date, there were 78,793,943 shares of our common stock outstanding and entitled to vote. From April 26, 2019 to May 7, 2019, a list of the stockholders entitled to vote at the Annual Meeting will be available for inspection during ordinary business hours at our principal executive offices located at 100 First Stamford Place, Suite 700, Stamford, Connecticut. The list will also be available at the Annual Meeting.
Right to Vote
With respect to each matter properly brought before the Annual Meeting, each holder of our common stock as of the record date will be entitled to one vote for each share held on the record date.
8
Voting Before the Annual Meeting
If you are a stockholder of record, meaning that you hold your shares in certificate form or through an account with our transfer agent, American Stock Transfer & Trust Company, you have three options to vote before the Annual Meeting:
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VIA THE INTERNET—Visit the website http://www.voteproxy.com and follow the on-screen instructions. Please be sure to make reference to the Notice or, to the extent applicable, your proxy card when you access the web page and use the Company Number and Account Number contained therein. The submission of your proxy via the Internet is available 24 hours a day. To be valid, a submission via the Internet must be received by 11:59 p.m., Eastern time, on Tuesday, May 7, 2019. |
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BY TELEPHONE—Call 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 in foreign countries from any touch-tone telephone and follow the instructions. Please be sure to make reference to the Notice or, to the extent applicable, your proxy card when you call and use the Company Number and Account Number contained therein. The submission of your proxy by telephone is available 24 hours a day. To be valid, a submission by telephone must be received by 11:59 p.m., Eastern time, on Tuesday, May 7, 2019. |
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BY MAIL—To the extent you have requested paper copies of the proxy materials, sign, date and return your completed proxy card by mail. To be valid, a submission by mail must be received by 5:00 p.m., Eastern time, on Tuesday, May 7, 2019. |
If you indicate a choice with respect to any matter to be acted upon when voting via the Internet (or by telephone or on your returned proxy card, if applicable) and you do not validly revoke it, your shares will be voted in accordance with your instructions. If you do not vote via the Internet or by telephone, or sign, date and return a proxy card, you must attend the Annual Meeting in person in order to vote.
If you hold your shares in “street name” through an account with a bank or broker, you will receive voting instructions from your bank or broker.
Voting at the Annual Meeting
If you are a stockholder of record, you may vote your shares at the Annual Meeting if you attend in person. If you intend to vote your shares at the Annual Meeting, you will need to bring valid picture identification with you. We will confirm that you were a stockholder of record on the record date and will provide you with a blank proxy card, which will serve as a ballot on which to record your vote.
If you hold your shares in “street name,” you must obtain a legal proxy from your bank or broker in order to vote at the Annual Meeting. A legal proxy is an authorization from your bank or broker to vote the shares it holds in its name. In addition to a legal proxy, you will need to bring with you valid picture identification and a recent account statement from your bank or broker, confirming your holdings on the record date. Based on these documents, we will confirm that you have proper authority to vote and will provide you with a blank proxy card to serve as a ballot.
Even if you plan to attend the Annual Meeting, we encourage you to vote your shares before the meeting via the Internet, by telephone or by mail.
Directions to the Annual Meeting are available by calling the Hyatt Regency Greenwich at 203-637-1234 or visiting its website at https://www.hyatt.com/en-US/hotel/connecticut/hyatt-regency-greenwich/gwich?src=corp_lclb_gmb_seo_nam_gwich.
9
Failure to Provide Specific Voting Instructions
If you are a stockholder of record and you properly sign, date and return a proxy card, but do not indicate how you wish to vote with respect to a particular nominee or proposal, then your shares will be voted as follows:
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FOR the election of all 12 nominees for director named in “Proposal 1—Election of Directors” |
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FOR “Proposal 2—Ratification of Appointment of Public Accounting Firm” |
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FOR “Proposal 3—Advisory Approval of Executive Compensation” |
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FOR “Proposal 4—Approval of 2019 Long Term Incentive Plan” |
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AGAINST “Proposal 5—Stockholder Proposal on Right to Act by Written Consent” |
If you hold your shares in “street name” through an account with a bank or broker, you will receive voting instructions from your bank or broker. Banks and brokers have the authority under NYSE rules to vote shares for which their customers do not provide voting instructions on routine matters. The proposal to ratify the appointment of our independent registered public accounting firm is considered a routine matter under NYSE rules. This means that banks and brokers may vote in their discretion on this matter on behalf of clients who have not furnished voting instructions at least 10 days before the date of the Annual Meeting. However, some brokers will only vote uninstructed shares in the same proportion as all other shares are voted with respect to a proposal. Unlike the proposal to ratify the appointment of our independent registered public accounting firm, proposals 1, 3, 4 and 5 are each non-routine matters for which brokers do not have discretionary voting power and for which specific instructions from beneficial owners are required. As a result, brokers are not allowed to vote on these proposals on behalf of beneficial owners if such owners do not return specific voting instructions.
Quorum
The presence at the Annual Meeting, in person or represented by proxy, of a majority of the outstanding shares entitled to vote will constitute a quorum for the transaction of business. If a share is deemed present at the Annual Meeting for any matter, it will be deemed present for all other matters. Abstentions and broker non-votes are treated as present for quorum purposes.
Right to Revoke Proxies
If you are a stockholder of record (even if you voted via the Internet, by telephone or by mail), you retain the power to revoke your proxy or change your vote. You may revoke your proxy or change your vote at any time prior to its exercise by (i) sending a written notice of such revocation or change to United Rentals, Inc., 100 First Stamford Place, Suite 700, Stamford, Connecticut 06902, Attention: Corporate Secretary, which notice must be received by 5:00 p.m., Eastern time, on Tuesday, May 7, 2019, (ii) voting in person at the Annual Meeting, (iii) submitting a new proxy via the Internet or by telephone that is received by 11:59 p.m., Eastern time, on Tuesday, May 7, 2019, or (iv) executing and mailing a later-dated proxy card to American Stock Transfer & Trust Company, Operations Center, 6201 15th Avenue, Brooklyn, New York 11219, which proxy card must be received by 5:00 p.m., Eastern time, on Tuesday, May 7, 2019.
“Street name” stockholders who wish to revoke a proxy already returned on their behalf must direct the institution holding their shares to do so.
Method and Cost of Solicitation
In addition to solicitation by mail, our directors, officers and employees may solicit proxies by telephone, electronic communication or other means. We have also retained Innisfree M&A Incorporated, a proxy solicitation firm, to assist us in soliciting proxies, for an estimated fee of $22,500, plus reimbursement of reasonable out-of-pocket expenses and disbursements. Our directors, officers and employees receive no additional compensation for solicitation of proxies.
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We will bear all costs associated with soliciting proxies for the Annual Meeting. We will, upon request, and in accordance with applicable regulations, reimburse banks, brokers, other institutions, nominees and fiduciaries for their reasonable expenses in forwarding solicitation materials to beneficial owners.
Matters to Be Acted Upon
As discussed in more detail under “Proposal 1—Election of Directors,” each director is required to be elected by a majority of votes cast with respect to such director, i.e., the number of votes cast “for” must exceed the number of votes cast “against.” Abstentions and shares not represented at the meeting will have no effect on the election of directors. Brokers are not entitled to vote on director elections if not furnished voting instructions by their client. As a result, broker non-votes will not be treated as votes cast and will have no effect on the election of directors.
The matter described in “Proposal 2—Ratification of Appointment of Public Accounting Firm” is required to be approved by the affirmative vote of the majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter. Abstentions will have the same effect as a vote against this proposal, whereas shares not represented at the meeting will not be counted for purposes of determining whether such matter has been approved. Brokers may vote in their discretion on this proposal on behalf of clients who have not furnished voting instructions. As a result, broker non-votes will not arise in connection with, and thus will have no effect on, this proposal.
With respect to “Proposal 3—Advisory Approval of Executive Compensation,” the affirmative vote of a majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter is required for approval of the compensation of our named executive officers. Abstentions will have the same effect as a vote against this proposal, whereas shares not otherwise represented at the meeting will have no effect on the outcome of this proposal. Brokers are not entitled to vote on Proposal 3 if not furnished voting instructions by their client. As a result, broker non-votes will have no effect on the outcome of Proposal 3. Voting for Proposal 3 is being conducted on an advisory basis and, therefore, the voting results will not be binding on the Company, the Board or the Compensation Committee.
With respect to “Proposal 4—Approval of 2019 Long Term Incentive Plan,” the affirmative vote of a majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter is required for approval. Abstentions will have the same effect as a vote against this proposal, whereas shares not otherwise represented at the meeting will have no effect on the outcome of this proposal. Brokers are not entitled to vote on Proposal 4 if not furnished voting instructions by their client. As a result, broker non-votes will have no effect on the outcome of Proposal 4.
With respect to “Proposal 5—Stockholder Proposal on Right to Act by Written Consent,” the affirmative vote of holders of a majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter is required for approval. Abstentions will have the same effect as a vote against this proposal, whereas shares not otherwise represented at the meeting will have no effect on the outcome of this proposal. Brokers are not entitled to vote on Proposal 5 if not furnished voting instructions by their client. As a result, broker non-votes will have no effect on the outcome of Proposal 5. Voting for Proposal 5 is being conducted on an advisory basis and, therefore, the voting results will not be binding on the Company.
The Board unanimously recommends that you vote:
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FOR the election of all 12 nominees recommended by the Board; |
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FOR the ratification of the appointment of our public accounting firm; |
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FOR the resolution approving the compensation of our named executive officers on an advisory basis; |
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FOR the approval of our 2019 Long Term Incentive Plan; and |
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AGAINST the stockholder proposed resolution asking the Board to take steps to permit stockholders to act by written consent. |
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ELECTION OF DIRECTORS
General
Our Board is currently comprised of the following 12 directors: Jenne K. Britell, José B. Alvarez, Marc. A Bruno, Bobby J. Griffin, Kim Harris Jones, Terri L. Kelly, Michael J. Kneeland, Gracia C. Martore, Jason D. Papastavrou, Filippo Passerini, Donald C. Roof and Shiv Singh. All directors, except for Ms. Harris Jones, were elected annually for one-year terms, which expire at the Annual Meeting. Ms. Harris Jones was appointed to the Board on September 1, 2018, and her term expires at the Annual Meeting.
The Board, upon the recommendation of the Nominating and Corporate Governance Committee (the “N&CG Committee”), has nominated 11 of the 12 current directors to stand for election at the Annual Meeting: José B. Alvarez, Marc A. Bruno, Bobby J. Griffin, Kim Harris Jones, Terri L. Kelly, Michael J. Kneeland, Gracia C. Martore, Jason D. Papastavrou, Filippo Passerini, Donald C. Roof and Shiv Singh. In addition, in furtherance of our previously announced leadership succession plan, the Board has nominated Matthew J. Flannery to stand for election as a new director at the Annual Meeting. Each director elected at the Annual Meeting will hold office until our 2020 annual meeting of stockholders (the “2020 Annual Meeting”) and, subject to the resignation policy described below, until such director’s successor is elected and qualified.
In 2016, we amended our Corporate Governance Guidelines to add a director retirement age policy. The director retirement age policy provides that directors reaching the age of 76 will not stand for re-election. In accordance with the guidelines, Dr. Britell will not stand for re-election at the Annual Meeting. We sincerely thank Dr. Britell for her years of service on the Board and her dedication to the Company.
Voting
Our By-Laws require a director to be elected by a majority of votes cast with respect to such director in uncontested elections. The number of votes cast “for” a director must exceed the number of votes cast “against” that director. Abstentions and shares not represented at the meeting have no effect on the election of directors. Directors will continue to be elected by a plurality of votes cast in contested elections. A “contested election” takes place at any meeting in respect of which (i) our corporate secretary receives a notice pursuant to our By-Laws that a stockholder intends to nominate a director or directors and (ii) such proposed nomination has not been withdrawn by such stockholder on or prior to the 10th day preceding the date on which the Company first mails its notice of meeting for such meeting to its stockholders.
If a nominee who is serving as a director is not elected at the Annual Meeting, under Delaware law, the director would continue to serve on the Board as a “holdover director” until his or her successor is elected and qualified. However, under our Corporate Governance Guidelines, any director who fails to be elected by a majority vote must offer to tender his or her resignation to the Board on the date of the certification of the election results. The N&CG Committee will then consider the resignation offer and make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. The Board will accept such resignation unless it determines that the best interests of the Company and its stockholders would not be served in doing so. The Board will act on the N&CG Committee’s recommendation within 90 days from the date of the certification of the election results, unless such action would cause the Company to fail to comply with any requirement of the NYSE or any rule or regulation under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in which event the Company will take action as promptly as is practicable while continuing to meet those requirements. The Board will promptly disclose its decision and the rationale behind it in a Form 8-K report furnished to the Securities and Exchange Commission (“SEC”). The director who offers to tender his or her resignation will not participate in the N&CG Committee’s recommendation or in the Board’s decision.
If a nominee who is not already serving as a director is not elected at an Annual Meeting, under Delaware law, that nominee would not be a “holdover director” and the process described above would not apply.
Eleven of the nominees for election at the Annual Meeting are currently serving on the Board. Each person nominated has agreed to continue to serve if elected. If any nominee becomes unavailable for any reason to serve as a director at the time of the Annual Meeting, then the shares represented by each proxy may be voted for such other person as may be determined by the holders of such proxy.
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The Board unanimously recommends a vote FOR the election of each of Dr. Papastavrou, Mses. Harris Jones, Kelly and Martore and Messrs. Alvarez, Bruno, Flannery, Griffin, Kneeland, Passerini, Roof and Singh to hold office until the 2020 Annual Meeting (designated as Proposal 1) and until such director’s successor is elected and qualified.
Information Concerning Director Nominees and Board Consideration of Director Nominee Experience and Qualifications
In addition to the independence matters described under “Corporate Governance Matters—Director Independence,” the Board and the N&CG Committee considered the specific experience, qualifications, attributes and skills of the director nominees named herein and concluded that based on the aforementioned factors, and including each director nominee’s demonstrated business acumen, ability to exercise sound judgment, integrity and collegiality, such individuals should serve as directors of the Company. The following is a summary of our director nominees’ aggregate prioritized competencies. The list of prioritized competencies is reviewed at least annually by the N&CG Committee and the Board and updated, if necessary, to reflect any changes in the Company’s strategy.
Number of director nominees possessing each competency Public Company CEO: current or recently retired CEO of a public company of scale 3 P&L Owner: president or executive with P&L ownership in a company of scale with experience and a strong ability to think strategically and critically assess and act on opportunities and threats 8 International Expertise: experience leading (as a P&L owner) a global business and understanding the challenges of entering new markets and navigating local and regional geopolitical sensitivities 7 Financial Acumen: current or retired CFO, banker or public company qualified financial expert or recently retired audit partner from a big four accounting firm with experience in accounting, reporting, capital allocation, financial markets, M&A and post-merger integration 7 Digital: executive with a millennial/next generation “futurist” mindset as well as an understanding of social media, e-commerce and leveraging technology platforms for business innovation and transformation 3 Sales & Marketing: chief marketing officer or other senior executive with experience leading and executing sales & marketing strategies in a business-to-business environment with an industrial business, with preference for those that have developed digital strategies 6 Rental Industry: current or retired executive from the equipment rental industry (or major customer, original equipment manufacturer, or related industry) with a strong understanding of its operations and ideally deep insight into the non-residential construction business 3 Capital Intensive Industry: experience as an executive (preference for a P&L owner) working in a capital intensive industry where utilization of capital equipment is a key business driver 9
* Diverse represents our female directors and ethnically diverse directors.
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The following is a summary of the age, period of service as a director, current committee membership, business experience, attributes and skills and other directorships for each director nominee.
José B. Alvarez
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Independent Director
Age: 56
Director Since: 2009
Board Committees:
● N&CG
● Strategy |
BACKGROUND:
Mr. Alvarez has been on the faculty of the Harvard Business School since February 2009. Until December 2008, he was the executive vice president—global business development for Royal Ahold NV, one of the world’s largest grocery retailers. Mr. Alvarez joined Royal Ahold in 2001 and subsequently held several key senior management positions, including president and chief executive officer of the company’s Stop & Shop and Giant-Landover brands. Previously, he served in executive positions at Shaw’s Supermarket, Inc. and American Stores Company.
ATTRIBUTES AND SKILLS:
Mr. Alvarez held several key management positions with Royal Ahold NV, one of the world’s largest grocery retailers, providing him with business leadership experience in, and valuable knowledge of, the global retail industry. These experiences, together with his other public company directorships and academic credentials as a member of the Harvard Business School faculty, allow him to contribute to the Company and the Board a combination of strategic thinking and industry knowledge with respect to marketing and retailing. Mr. Alvarez holds an MBA degree from the University of Chicago Graduate School of Business and an AB degree from Princeton.
OTHER DIRECTORSHIPS:
Mr. Alvarez served previously as a director of The TJX Companies, Inc. and Church & Dwight Co., Inc. |
Marc A. Bruno |
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Independent Director
Age: 47
Director Since: 2018
Board Committees:
● Compensation
● N&CG |
BACKGROUND:
Mr. Bruno has been the Chief Operating Officer, Sports, Leisure, Corrections, Facilities, and K-12 for Aramark Corporation since 2014. In his current role, Mr. Bruno directs hospitality, retail merchandise and facility programs for premier sports and entertainment facilities, meeting venues, parks and cultural attractions as well as food and support solutions for business dining, K-12 clients and correctional facilities. Since joining Aramark as a campus hire in 1993, Mr. Bruno has risen through the ranks by serving in a variety of sales and operating roles in the U.S. and internationally. Mr. Bruno also leads Aramark’s Olympic projects, for which the company has served as the dining and catering services provider for 16 Olympic Games. His involvement with the project spans six Olympics, dating back to the 1996 Atlanta Games. In 2010, SportsBusiness Journal named Mr. Bruno to its annual global list of “Forty Under 40,” recognizing the best and brightest young executives in the sports business industry. Mr. Bruno is a graduate of the Cornell University School of Hotel Administration and earned an MBA from the Harvard Business School. |
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ATTRIBUTES AND SKILLS:
Mr. Bruno has divisional P&L oversight and reports directly to the Chairman and Chief Executive Officer at Aramark. In addition to logistics operations, he has also overseen construction projects at Aramark. Over the course of his career, Mr. Bruno successfully demonstrated Aramark’s commitment to service excellence and played a vital role in earning new business.
OTHER DIRECTORSHIPS:
Mr. Bruno serves on the board of directors of Special Olympics of Pennsylvania and Alex’s Lemonade Stand Foundation. Previously, Mr. Bruno served on the board of directors of the San Antonio Spurs and Boston University School of Hospitality. |
Matthew J. Flannery |
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Director Nominee, President and Chief Operating Officer
Age: 54
Director Since: N/A
Board Committees: N/A
(information as of March 26, 2019 shown above; effective May 8, 2019, will become CEO, while remaining as President, and will join the Strategy Committee) |
BACKGROUND:
Mr. Flannery currently serves as our president and chief operating officer. As previously announced, Mr. Flannery will become the Company’s chief executive officer, while remaining as president, on May 8, 2019. Prior to March 2018, he was executive vice president and chief operating officer, a title he had held since April 2012. Mr. Flannery has extensive experience in all areas of the Company’s operations, having previously served as executive vice president—operations and sales, senior vice president—operations east and in two regional vice president roles in aerial operations. Mr. Flannery has also served as a district manager, district sales manager and branch manager of the Company. Mr. Flannery joined the Company in 1998 as part of the Company’s acquisition of Connecticut-based McClinch Equipment. Mr. Flannery graduated from Hofstra University.
ATTRIBUTES AND SKILLS:
Mr. Flannery has over two decades of sales, management and operations experience in the rental industry, including a number of senior management positions with the Company. He has extensive experience and knowledge in all areas of the Company’s operations and of the competitive environment in which the Company operates. Further, he has demonstrated strategic, operational and financial acumen that the Board believes has been of significant value to the Company.
OTHER DIRECTORSHIPS:
None. |
Bobby J. Griffin |
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Independent Director
Age: 70
Director Since: 2009
Board Committees:
● Audit
● N&CG |
BACKGROUND:
From March 2005 to March 2007, Mr. Griffin served as president—international operations for Ryder System, Inc., a global provider of transportation, logistics and supply chain management solutions. Beginning in 1986, Mr. Griffin served in various other management positions with Ryder, including as executive vice president—international operations from 2003 to March 2005 and executive vice president—global supply chain operations from 2001 to 2003. Prior to Ryder, Mr. Griffin was an executive at |
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(committees as of March 26, 2019 shown above; effective May 8, 2019, will become Lead Independent Director, will step down as Strategy Committee Chairman and leave the Audit and Strategy Committees)
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ATE Management and Service Company, Inc., which was acquired by Ryder in 1986.
ATTRIBUTES AND SKILLS:
Mr. Griffin has notable business experience in the areas of transportation, logistics and supply chain management, including extensive international experience, due to his past senior leadership positions with Ryder System, Inc. In addition to these attributes, Mr. Griffin’s public company directorship experience provides a valuable perspective for the Board and the Company.
OTHER DIRECTORSHIPS:
Mr. Griffin also serves as a director of Hanesbrands Inc., WESCO International, Inc. and Atlas Air Worldwide Holdings, Inc. Previously, Mr. Griffin served as a director of Horizon Lines, Inc. from May 2010 until April 2012. |
Kim Harris Jones |
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Independent Director
Age: 59
Director Since: 2018
Board Committees:
● Audit
● Compensation |
BACKGROUND:
Ms. Harris Jones most recently served as Senior Vice President and Corporate Controller of Mondelez International from 2012 until 2015. She previously served as Senior Vice President and Corporate Controller at Kraft Foods Inc. from 2009 until 2012 before Mondelez was formed by Kraft’s split into two domestic and international publicly-traded corporations. Prior to her time at Kraft, Ms. Harris Jones had a 17-year career at Chrysler LLC, where she started as a Senior Manager, Labor Relations in Benefits Finance then served in a variety of leadership positions, most notably as Senior Vice President and Corporate Controller from 2008 to 2009. Before Chrysler, she spent six years at General Motors. Ms. Harris Jones earned a BBA in accounting and an MBA in finance from the University of Michigan.
ATTRIBUTES AND SKILLS:
Ms. Harris Jones was named to the list of “25 Women to Watch” by CFO Magazine and to the “75 Most Powerful Women in Business” by Black Enterprise Magazine. She is an experienced former finance executive who has spent time in automotive and consumer businesses. More recently, she has accumulated experience as a board director. Ms. Harris Jones has extensive management, financial and business experience at large complex corporations undergoing significant corporate growth and change. |
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OTHER DIRECTORSHIPS/MEMBER ROLES:
Ms. Harris Jones also serves on the Board of Directors of TrueBlue, Inc., Ethiopian North American Health Professionals Association and the finance committee of the Consortium for Graduate Study in Management and is a member of the Executive Leadership Council. |
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Terri L. Kelly |
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Independent Director
Age: 57
Director Since: 2018
Board Committees:
● Compensation
● Strategy |
BACKGROUND:
Ms. Kelly is the former President and CEO of W.L. Gore & Associates (“Gore”), a highly innovative, privately-held family-owned enterprise with more than $3 billion in annual revenues. She served in this capacity from 2005 through March 2018. Gore specializes in advanced materials that are utilized in a wide array of high-value products from GORE-TEX® fabric, implantable medical devices, venting products, and electronic cables. Gore is well known for its unique management philosophy and culture, and is consistently recognized as a top workplace across the globe. Ms. Kelly joined Gore as an Engineer in 1983 and has expertise across multiple industries including consumer products, defense, industrial, medical devices, and pharmbio. As CEO, she led this global organization of close to 10,000 associates with over 45 manufacturing and sales locations. Ms. Kelly graduated summa cum laude from the University of Delaware with a bachelor’s degree in mechanical engineering.
ATTRIBUTES AND SKILLS:
Ms. Kelly has strong business and technical acumen with key competencies in creating a collaborative and empowered work environment to achieve successful business outcomes. She is adept at leading an organization through significant transformation, and evolving the culture and behaviors to meet changing business needs. Ms. Kelly possesses strong organizational and communication skills with experience integrating across multiple functions to maximize success. Her other areas of expertise include new product development, innovation, portfolio management, brand management, associate engagement and leadership development.
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OTHER DIRECTORSHIPS/MEMBER ROLES:
Ms. Kelly serves as a member of the Board of Directors for the Nemours Foundation (one of the nation’s leading children’s health systems), and serves as a Trustee for the University of Delaware. Ms. Kelly is also a Supervisory Board member of ASML, a manufacturer of semiconductor equipment based in the Netherlands. In addition, she is a member of the Management Executive Society and the International Women’s Forum. She previously served as a member of the Economic and Advisory Council for the Federal Reserve Bank of Philadelphia. |
Michael J. Kneeland |
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Director and Chief Executive Officer
Age: 65
Director Since: 2008
Board Committees:
● Strategy
(information as of March 26, 2019 shown above; effective May 8, 2019, |
BACKGROUND:
Mr. Kneeland was appointed chief executive officer of United Rentals, and a director of the Company, in 2008. As previously announced, Mr. Kneeland will retire as CEO on May 8, 2019, at which point he will become non-executive Chairman of the Company’s Board. From 2008 until March 2018, he also served as president. Previously, he served as interim chief executive officer from 2007 to 2008. Mr. Kneeland joined United Rentals in 1998 as district manager upon the Company’s acquisition of Equipment Supply Company. In 1999, his responsibilities were expanded to include multiple districts within United Rentals’ aerial operations. He was subsequently named vice president-aerial operations in 2000, and vice president-southeast region in 2001, before being appointed executive vice president-operations in 2003. His more than 35 years of management experience in |
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Gracia C. Martore |
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Independent Director
Age: 67
Director Since: 2017
Board Committees:
● Compensation
● N&CG |
BACKGROUND:
Ms. Martore most recently served as President and Chief Executive Officer and Director of TEGNA Inc. (“TEGNA”), formerly known as Gannett Co., Inc., a role she held from October 2011 until June 2017. Prior to that and beginning in 1985, Ms. Martore served in various other management positions with TEGNA, including as President and Chief Operating Officer and Executive Vice President and Chief Financial Officer. Prior to TEGNA, Ms. Martore worked for 12 years in the banking industry. Ms. Martore graduated from Wellesley College. While there, she was named a Wellesley Scholar for academic excellence.
ATTRIBUTES AND SKILLS:
Ms. Martore has financial expertise, broad business experience and extensive management, leadership, operational and transformation expertise as a result of her 32 years of experience in a variety of senior leadership roles at TEGNA. She was a driving force in growing Gannett, the nation’s largest local media company, which doubled its broadcast portfolio under her leadership. She also led the separation of Gannett into two publicly traded companies. Ms. Martore has won numerous business and industry honors for her leadership, including receiving the CEO Lifetime Achievement Award from the Washington Business Journal, being named as one of “50 Most Powerful Women in Business” by Fortune Magazine for three consecutive years, named to Forbes’ “100 Most Powerful Women” list, |
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as well as previously being named by Institutional Investor magazine as one of the Best CFO’s in America and Best CFO in America in the publishing and advertising agencies category for three consecutive years. Ms. Martore’s background, experience and judgment as chief executive officer and chief financial officer of a major publicly traded company provide her with leadership, business, financial and governance skills that will benefit the Company and the Board.
OTHER DIRECTORSHIPS:
Ms. Martore is also a director of Omnicom Group, Inc., WestRock Company, The Associated Press and FM Global. She also serves on the Board of Trustees of Wellesley College. Ms. Martore previously served as a Director of TEGNA. |
Jason D. Papastavrou, Ph.D. |
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Independent Director
Age: 56
Director Since: 2005
Board Committees:
● Audit |
BACKGROUND:
Dr. Papastavrou has served as chief executive officer and chief investment officer of ARIS Capital Management, an investment management firm, since founding the company in January 2004. He previously held senior positions at Banc of America Capital Management and at Deutsche Asset Management. Dr. Papastavrou, who holds a Ph.D. in electrical engineering and computer science from the Massachusetts Institute of Technology, taught at Purdue University’s School of Industrial Engineering and is the author of numerous academic publications.
ATTRIBUTES AND SKILLS:
Dr. Papastavrou currently serves as the chief executive officer and chief investment officer of ARIS Capital Management, and has held senior positions at other investment management firms, such as Banc of America Capital Management and Deutsche Asset Management. Collectively, these experiences allow him to contribute to the Board and the Company a valuable perspective on finance and risk-related matters.
OTHER DIRECTORSHIPS:
Dr. Papastavrou is also a director of XPO Logistics, Inc. |
Filippo Passerini |
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Independent Director
Age: 61
Director Since: 2009
Board Committees:
● Audit
● Compensation
(committees as of March 26, 2019 shown above; effective May 8, 2019, will join and become Chairman of |
BACKGROUND:
Mr. Passerini is an Operating Executive in U.S. Buyouts at Carlyle Group. Prior to joining Carlyle Group in 2015, he served as Procter & Gamble Company’s Group President, Global Business Services (GBS) and Chief Information Officer (CIO), positions he held since February 2008 and July 2004, respectively. Mr. Passerini joined Procter & Gamble, a leading multinational manufacturer of consumer goods, in 1981 and held executive positions in the United Kingdom, Greece, Italy, Turkey, Latin America and the United States. On behalf of the Procter & Gamble organization, he oversaw service operations in 70 countries and led the integration of Procter & Gamble’s IT and services groups to form GBS, one of the largest and most progressive shared services organizations in the world. |
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Donald C. Roof |
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Independent Director
Age: 67
Director Since: 2012
Board Committees:
● Audit
● Compensation
● N&CG |
BACKGROUND:
Mr. Roof became a director of the Company on April 30, 2012, in connection with the acquisition of RSC Holdings Inc. (“RSC”). Mr. Roof served as a Director of RSC and RSC Equipment Rental from August 2007 to April 2012. Mr. Roof served as Executive Vice President and Chief Financial Officer of Joy Global Inc. (n/k/a Komatsu Mining Corp.) (“Joy”), a worldwide manufacturer of mining equipment, from 2001 to 2007. Prior to joining Joy, Mr. Roof served as President and Chief Executive Officer of American Tire Distributors/Heafner Tire Group, Inc. from 1999 to 2001 and as Chief Financial Officer from 1997 to 1999. ATTRIBUTES AND SKILLS:
Mr. Roof has significant experience in finance and accounting, general management, business development and strategic planning, board experience/governance, and other functions, including merchandising and distribution as evidenced by his over 35 years of experience serving in executive positions ranging from President/CEO to Executive Vice President/CFO with an international manufacturer of mining equipment and a distributor and retailer of tires and related products, as well as his years of experience serving on the board of directors and audit committees of other public companies. Mr. Roof had significant experience during his career in capital raising, mergers and acquisitions, and operating in highly-leveraged situations. OTHER DIRECTORSHIPS:
Mr. Roof has previously served on the board of directors and audit committee of two additional NYSE companies, Accuride Corporation from March 2005 through January 2010, and Fansteel, Inc. from September 2000 through March 2003. |
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Shiv Singh |
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Independent Director
Age: 41
Director Since: 2017
Board Committees:
● Audit
● Strategy |
BACKGROUND:
Mr. Singh advises Fortune 500 companies and early-stage startups on marketing and digital transformation as the Founder & CEO of Savvy Matters, LLC since August 2018. Prior to this, from August 2013 until August 2018, Mr. Singh served as senior vice president in the innovation and strategic partnerships group at Visa Inc. (“Visa”), where he was responsible for driving the go-to-market strategy for some of the company’s most disruptive products and innovations. In this role, he was also focused on guiding major Visa clients around the future of payments and their own go-to-market strategies. Prior to this, Mr. Singh served in various senior brand and marketing roles at Visa, where he was responsible for launching the Visa brand and communications platform, driving Visa’s digital marketing transformation including the re-imagination of Visa.com across 120 countries, managing global media partnerships and leading marketing innovation programs. Prior to joining Visa, from June 2010 to July 2013, Mr. Singh was the Global Head of Digital at PepsiCo Beverages, responsible for all digital engagement in paid, owned, and social media across consumer marketing, shopper marketing, and food service marketing. From 1999 to 2010, Mr. Singh served in various positions at Razorfish, most recently as VP and Global Social Media Lead.
ATTRIBUTES AND SKILLS:
Mr. Singh has significant experience in marketing, with a focus on digital marketing, as evidenced by his 17 years in the industry and receipt of various industry awards, including being inducted into the American Advertising Federation Hall of Achievement in November 2016, being recognized by AdWeek as a Top 50 marketer in 2015 and being recognized by Ad Age as a 2009 Media Maven. Mr. Singh is the co-author of Savvy- Navigating Fake Companies, Fake Leaders and Fake News in the Post-Trust Era. He is also author of the book, “Social Media Marketing for Dummies” and has written for the Harvard Business Review online, Ad Age magazine, The Huffington Post and other publications. Collectively, Mr. Singh’s experiences allow him to contribute to the Board and provide the Company a fresh and valuable perspective on digital marketing and related matters.
OTHER DIRECTORSHIPS:
None. |
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General
The tables below identify, and provide certain information concerning, our current executive officers other than our current Chief Executive Officer and current President and Chief Operating Officer, whose information is included above.
Dale A. Asplund |
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Executive Vice President—Business Services and Chief Information Officer
Age: 51
Current Position Since: 2017
With Company Since: 1998 |
Mr. Asplund was promoted to executive vice president—business services and chief information officer in January 2017, after previously serving as senior vice president—business services and chief information officer since April 2012 and senior vice president—business services since 2011. Joining the Company in 1998, he has held various senior positions that included responsibility for supply chain, fleet management and shared services. Mr. Asplund previously worked for United Waste Systems, Inc. as a divisional manager. |
Jessica T. Graziano |
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Executive Vice President and Chief Financial Officer
Age: 46
Current Position Since: 2018
With Company Since: 2014 |
Ms. Graziano was promoted to executive vice president and chief financial officer in October 2018, after previously serving as senior vice president—controller and principal accounting officer since March 2017, with responsibility for oversight of the Company’s accounting, insurance and financial planning and analysis departments. From joining the Company in December 2014 to March 2017, she was vice president—controller and principal accounting officer. Before joining the Company, Ms. Graziano served as senior vice president—chief accounting officer, corporate controller and treasurer of Revlon, Inc. since April 2013. Prior to that, she served as Revlon’s senior vice president—global operations finance from December 2010 through March 2013 and as Revlon’s vice president and controller—U.S. customer finance from July 2009 to December 2010. Prior to Revlon, Ms. Graziano held other financial positions with UST Inc. (Altria Group) and KPMG LLP. Ms. Graziano holds a Bachelor’s degree from Villanova in Accountancy and an MBA in Finance from Fairfield University and is a certified public accountant. |
Paul I. McDonnell |
|
Executive Vice President—Sales and Specialty Operations
Age: 53 Current Position Since: 2018
With Company Since: 1999 |
Mr. McDonnell was promoted to executive vice president—sales and specialty operations in November 2018, after previously serving as senior vice president—sales and specialty operations since January 2017. Mr. McDonnell’s tenure with United Rentals began as district manager in 1999, followed by a promotion to region vice president. In 2008, he was named senior vice president of specialty operations, and in 2016, his role expanded to include the combined responsibilities of sales and specialty operations. He has over 20 years of sales, management and operations experience in the rental industry. Mr. McDonnell joined United Rentals in 1999 upon the acquisition of D&E Steelplate Rental. |
22
Craig A. Pintoff |
|
Executive Vice President—Chief Administrative and
Age: 49
Current Position Since: 2017
With Company Since: 2003 |
Mr. Pintoff was promoted to executive vice president—chief administrative and legal officer in March 2017, with responsibility for leading the Company’s legal and human resources functions, after previously serving as senior vice president, general counsel and human resources since January 2016. Mr. Pintoff has led the United Rentals human resources team since 2005, first as vice president, then, from April 2011 to March 2017, as senior vice president, and since March 2017, as executive vice president. He joined United Rentals in 2003 as director-legal affairs. Prior to joining the Company, Mr. Pintoff was chief benefits and employment counsel for Crompton Corporation in Connecticut. Previously, he was an attorney for White & Case LLP in Manhattan. Mr. Pintoff holds a Juris Doctor from Columbia Law School and an LL.M. from New York University School of Law. |
Jeffrey J. Fenton |
|
Senior Vice President—Business Development
Age: 62
Current Position Since: 2012
With Company Since: 2012 |
Mr. Fenton joined the Company as senior vice president—business development in 2012. Prior to joining the Company, he was a Principal of Devonshire Advisors LLC for nine years, and held senior executive and board positions with General Electric (“GE”), BlueLinx Holdings Inc., Global MotorSports Group, Transamerica Trailer Leasing and Maxim Crane Works Holdings, Inc. During his over 20 years with GE, he served in numerous positions culminating in chief executive officer of GE Capital Modular Space and was an officer of GE Capital. Mr. Fenton is also a director of ModusLink Global Solutions, Inc. |
Andrew B. Limoges |
|
Vice President, Controller and Principal Accounting Officer
Age: 37
Current Position Since: 2018
With Company Since: 2017 |
Mr. Limoges was promoted to vice president—controller and principal accounting officer in October 2018, after previously serving as director of accounting and finance since joining the Company in April 2017. Prior to joining the Company, Mr. Limoges was group controller of DMGT US from August 2016 to April 2017 and worked within the financial audit practice of Ernst & Young from July 2003 to July 2016, where he led teams that served a wide variety of public and private companies. Mr. Limoges, who is a certified public accountant, received a degree in business administration from the University of Vermont. |
23
General
Our Board is currently comprised of the following 12 directors: Jenne K. Britell, José B. Alvarez, Marc A. Bruno, Bobby J. Griffin, Kim Harris Jones, Terri L. Kelly, Michael J. Kneeland, Gracia C. Martore, Jason D. Papastavrou, Filippo Passerini, Donald C. Roof and Shiv Singh.
The Board, upon the recommendation of the N&CG Committee, has nominated 11 of the 12 current directors to stand for re-election: Dr. Papastavrou, Mses. Harris Jones, Kelly and Martore and Messrs. Alvarez, Bruno, Griffin, Kneeland, Passerini, Roof and Singh. In addition, the Board, upon recommendation of the N&CG Committee, has nominated Mr. Flannery to stand for election as a new director. All directors will be elected annually for one-year terms.
Jenne K. Britell, our current Chairman, will not stand for re-election as she has reached the retirement age under our Corporate Governance Guidelines. The Board and management sincerely thank Dr. Britell for her years of service on the Board and her dedication to the Company.
Meetings of the Board and its Committees
During 2018, the Board met 12 times. During 2018, each then-current member of the Board attended at least 75% of the aggregate of (i) the total number of Board meetings held during the period for which he or she was a director and (ii) the total number of meetings of each committee of the Board on which the director served during the period for which he or she was on the committee.
Committees of the Board
The following table summarizes the current composition (as of March 26, 2019) of the four current standing committees of the Board: the Audit Committee, the Compensation Committee, the N&CG Committee, and the Strategy Committee. Our Chairman is not a member of any of the Board’s standing committees. However, the Chairman usually attends meetings of the Board’s committees, as all directors are invited.
|
|
Audit Committee |
|
Compensation Committee |
|
N&CG Committee |
|
Strategy Committee |
José B. Alvarez |
|
|
|
|
|
Chairman |
|
X |
Marc A. Bruno |
|
|
|
X |
|
X |
|
|
Bobby J. Griffin* |
|
X |
|
|
|
X |
|
Chairman |
Kim Harris Jones |
|
X |
|
X |
|
|
|
|
Terri L. Kelly |
|
|
|
X |
|
|
|
X |
Michael J. Kneeland* |
|
|
|
|
|
|
|
X |
Gracia C. Martore |
|
|
|
X |
|
X |
|
|
Jason D. Papastavrou, Ph.D. |
|
Chairman |
|
|
|
|
|
|
Filippo Passerini* |
|
X |
|
X |
|
|
|
|
Donald C. Roof |
|
X |
|
Chairman |
|
X |
|
|
Shiv Singh |
|
X |
|
|
|
|
|
X |
*Effective May 8, 2019, Bobby Griffin will become Lead Independent Director and Michael Kneeland will become non-Executive Chairman. At that time, Mr. Kneeland will leave the Strategy Committee, Mr. Griffin will step down as Strategy Committee Chairman and leave the Audit and Strategy Committees and Filippo Passerini will join and become Chairman of the Strategy Committee and leave the Compensation Committee.
Compensation Committee Interlocks and Insider Participation
None of the current members of the Compensation Committee has ever been an officer or employee of the Company or its subsidiaries or had any relationship with the Company requiring disclosure as a related party transaction under applicable rules of the SEC. During fiscal year 2018, none of our executive officers served as a member of the compensation committee of another entity, one of whose executive officers served on our Compensation Committee; none of our executive officers served as a director of another entity, one of whose executive officers served on our Compensation Committee; and none of our executive officers served as a member of the compensation committee of another entity, one of whose executive officers served as a member of our Board.
24
We have a separately-designated Audit Committee established in accordance with the Exchange Act. The Audit Committee operates pursuant to a charter that complies with the corporate governance standards of the NYSE. You can access this document on our website at http://www.unitedrentals.com (go to “Company” tab → “Investor Relations” → “Corporate Governance”) or in print upon written request to our corporate secretary at United Rentals, Inc., 100 First Stamford Place, Suite 700, Stamford, Connecticut 06902.
The general purpose of the Audit Committee is to:
|
● |
assist the Board in monitoring (i) the integrity of the Company’s financial statements, (ii) the independent registered public accounting firm’s qualifications and independence, (iii) the performance of the Company’s internal audit function and independent registered public accounting firm, and (iv) the Company’s compliance with legal and regulatory requirements; |
|
● |
assist the Board in overseeing (i) the process by which management identifies and assesses the Company’s exposure to risk, including, but not limited to, financial risk and cybersecurity risk, and (ii) the Company’s risk management infrastructure; and |
|
● |
prepare the report required by the rules and regulations of the SEC to be included in the Company’s annual proxy statement and any other reports that the rules and regulations of the SEC may require of a company’s audit committee. |
The Audit Committee also has the sole authority to appoint or replace the independent registered public accounting firm (subject to stockholder ratification) and to approve compensation arrangements for the independent registered public accounting firm.
The current members of the Audit Committee are Dr. Papastavrou, Ms. Harris Jones and Messrs. Griffin, Passerini, Roof and Singh. Effective May 8, 2019, Mr. Griffin will leave the Audit Committee. Each member of the Audit Committee meets the general independence requirements of the NYSE and the additional independence requirements for audit committees specified by Rule 10A-3 under the Exchange Act. The Board has determined that each of Messrs. Griffin and Roof, Dr. Papastavrou and Ms. Harris Jones qualifies as an “audit committee financial expert” as defined by the SEC and has “accounting or related financial management expertise” within the meaning of the corporate governance standards of the NYSE, and that each member of the Audit Committee is financially literate within the meaning of the corporate governance standards of the NYSE.
In 2018, the Audit Committee met six times.
Compensation Committee
The Compensation Committee operates pursuant to a charter that complies with the corporate governance standards of the NYSE. You can access this document on our website at http://www.unitedrentals.com (go to “Company” tab → “Investor Relations” → “Corporate Governance”) or in print upon written request to our corporate secretary at United Rentals, Inc., 100 First Stamford Place, Suite 700, Stamford, Connecticut 06902.
The general purpose of the Compensation Committee is to:
|
● |
aid the Board in discharging its responsibilities relating to (i) the oversight of executive officer and director compensation, (ii) the development of compensation policies that support the Company’s business goals and objectives, and (iii) the oversight of the relationship between risk management policies and practices, corporate strategy and senior executive compensation; and |
|
● |
prepare and furnish the annual Compensation Committee Report for inclusion in the Company’s annual proxy statement in accordance with the applicable rules and regulations of the SEC and assist management in the preparation of the Compensation Discussion and Analysis. |
For additional information concerning the Compensation Committee, see “Executive Compensation—Compensation Discussion and Analysis.”
25
The current members of the Compensation Committee are Messrs. Bruno, Passerini and Roof and Mses. Harris Jones, Kelly and Martore. Effective May 8, 2019, Mr. Passerini will leave the Compensation Committee. Each member of the Compensation Committee meets the independence requirements of the NYSE. In addition, each member qualifies as a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.
The Compensation Committee may select and retain outside compensation consultants to advise with respect to director, chief executive officer or executive officer compensation; it may also terminate engagements with outside compensation consultants. The Compensation Committee also has the authority to obtain advice and assistance from internal or external legal, accounting and other advisors. Although the Company pays for any compensation consultant, the Compensation Committee, in its sole discretion, approves the fees and other terms related to the consultant’s engagement. The Compensation Committee’s use of compensation consultants is described below under “Executive Compensation—Compensation Discussion and Analysis.”
The Compensation Committee may delegate all or any portion of its duties and responsibilities to a subcommittee consisting of one or more members of the Compensation Committee.
In 2018, the Compensation Committee met seven times.
N&CG Committee
The N&CG Committee operates pursuant to a charter that complies with the corporate governance standards of the NYSE. You can access this document on our website at http://www.unitedrentals.com (go to “Company” tab → “Investor Relations” → “Corporate Governance”) or in print upon written request to our corporate secretary at United Rentals, Inc., 100 First Stamford Place, Suite 700, Stamford, Connecticut 06902.
The general purpose of the N&CG Committee is to:
|
● |
develop criteria for evaluating prospective candidates to the Board (or its committees) and identify and recommend such candidates to the Board; |
|
● |
take a leadership role in shaping the corporate governance of the Company and developing the Company’s Corporate Governance Guidelines; and |
|
● |
coordinate and oversee the evaluation processes for the Board and management which are required by the Company’s Corporate Governance Guidelines. |
In 2018, the N&CG Committee amended its charter to take formal responsibility for oversight of the Company’s environmental, social and governance policies and practices, including review of related metrics. For additional information concerning this committee, see “Corporate Governance Matters—Director Nomination Process.”
The current members of the N&CG Committee are Messrs. Alvarez, Bruno, Griffin and Roof and Ms. Martore. Each member of the N&CG Committee meets the independence requirements of the NYSE.
In 2018, the N&CG Committee met eight times.
Strategy Committee
The Strategy Committee assists management and the Board in overseeing the development and implementation of the Company’s corporate strategy. You can access the Strategy Committee’s charter on our website at http://www.unitedrentals.com (go to “Company” tab → “Investor Relations” → “Corporate Governance”) or in print upon written request to our corporate secretary at United Rentals, Inc., 100 First Stamford Place, Suite 700, Stamford, Connecticut 06902.
26
The general purpose of the Strategy Committee is to:
|
● |
identify and set strategic goals and develop and refine an overall corporate strategy to meet and/or achieve such goal; |
|
● |
identify significant opportunities and challenges, including potential mergers and acquisitions, competition in the industry, regulatory considerations, changes in economic and market conditions and emerging trends, particularly with respect to disruptive technology and products; and |
|
● |
assess the Company’s performance with respect to strategy execution and implementation as well as regularly provide feedback to management and the Board. |
The current members of the Strategy Committee are Messrs. Alvarez, Griffin, Kneeland and Singh and Ms. Kelly. Effective May 8, 2019, Messrs. Griffin and Kneeland will leave the Strategy Committee and Messrs. Flannery and Passerini will join the Strategy Committee.
In 2018, the Strategy Committee met three times.
Risk Oversight
The Board has overall responsibility for risk oversight, including, as a part of regular Board and committee meetings, general oversight of the way the Company’s executives manage risk. A fundamental part of risk oversight is not only understanding the material risks the Company faces and the steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. Our Board’s involvement in reviewing our business strategy is integral to the Board’s assessment of management’s tolerance for risk and also its determination of what constitutes an appropriate level of risk for the Company. As part of its risk oversight responsibility, the Board regularly covers legal and regulatory matters; finance; compensation; cybersecurity; and climate, environmental, health and safety concerns, among others. The Board has also empowered its committees with risk oversight responsibilities as noted below.
The Compensation Committee has responsibility for reviewing incentive compensation arrangements to confirm that incentive pay does not encourage unnecessary risk taking and oversees the relationship between risk management policies and practices, corporate strategy and senior executive compensation.
The N&CG Committee has responsibility for reviewing the Company’s environmental, social and governance policies and practices, including review of related risks.
The Audit Committee shares responsibility for risk management with senior management and the Company’s Enterprise Risk Management Council (the “ERM Council”), which is comprised of senior representatives from field operations and from each of the primary corporate functions. Risks are initially identified by each department and then communicated to senior management and the ERM Council for the development of appropriate risk management programs and policies which are subsequently implemented at the department or other appropriate level within the Company. The Audit Committee oversees the process by which management identifies and assesses the Company’s exposure to risk (including, but not limited to, financial risk and cybersecurity risk), and helps ensure that the risk management infrastructure established by management is capable of managing those risks. In addition, the Audit Committee periodically reviews and assesses critical risk management policies and infrastructure implemented by management and recommends improvements where appropriate. The Audit Committee coordinates communications regarding risk among the various Board committees and keeps risk on both the full Board’s and management’s agenda on a regular basis.
27
In addition to the work done by the Compensation Committee, Audit Committee, ERM Council and senior management, the Company’s Internal Audit department conducts an annual risk assessment. Such assessment consists of reviewing the risks identified by the Audit Committee and the ERM Council as well as risks identified during the prior year’s risk assessment and the audit work performed during the year. In addition, the Internal Audit department collaborates with the ERM Council to identify discrete risks and common risk themes to be considered in developing the internal audit plan.
The Board, Audit Committee, ERM Council and senior management devote significant resources to cybersecurity and risk management processes to adapt to the changing cybersecurity landscape and respond to emerging threats in a timely and effective manner. This includes taking steps to reduce the potential for fraud and service disruptions. The Company has been focused on, among other matters, expanding investments in information technology security, expanding end-user training, using layered defenses, identifying and protecting critical assets, and engaging experts. We also continuously test defenses by performing simulations and drills at both a technical and management level. Further, we conduct external audits of our cybersecurity capabilities in alternating years. These tests and audits are useful tools for ensuring that we maintain a robust cybersecurity program to protect our investors, customers, employees, vendors, and intellectual property.
The Audit Committee performs an annual review of the Company’s cybersecurity program, which includes discussion of management’s actions to identify and detect threats, as well as planned actions in the event of a response or recovery situation. The Audit Committee’s annual review also includes review of recent enhancements to the Company’s defenses and management’s progress on its cybersecurity strategic roadmap. In addition, the Board receives quarterly reports on cybersecurity, which include a review of key performance indicators, test results and related remediation, and recent threats and how the Company is managing those threats. Further, at least annually, the Board receives an update on the Company’s Crisis Management Plan which covers, among other things, potential cybersecurity incidents. To aid the Board with its cybersecurity oversight responsibilities, the Board hosted a cybersecurity and data privacy expert for a presentation in 2018, as discussed below under “Director Orientation and Continuing Education.” Additionally, during 2017, the Board hosted a training session with a cybersecurity expert focused on the Board’s oversight role.
Director Attendance at Previous Annual Meeting
We encourage our directors to attend the annual meeting of stockholders, and we typically schedule Board and committee meetings to coincide with the annual meeting. All of our 2018 director nominees attended the 2018 annual meeting of stockholders.
Board and Committee Self-Evaluations
We have continued to strengthen our annual Board and Board committee self-evaluation process. The process is overseen by the N&CG Committee and varies year to year. For 2017 and 2018, an independent third-party law firm led the process.
For 2017, the N&CG Committee determined to use a holistic self-evaluation process, whereby our directors completed anonymous written questionnaires focused on how the Board and each committee performed as a unit. The results of the questionnaires were compiled by an independent law firm and the independent law firm then conducted a discussion with the Board and each committee. The Board believes that this holistic approach was appropriate for 2017 given the Board’s refreshment plan which began in 2016 with a comprehensive evaluation of the Board.
For 2018, the N&CG Committee determined that individual-level interviews by an independent law firm partner would encourage candor and be the most effective method for conducting self-evaluations. Interview topics generally included, among other matters, Board composition and structure, Board committees and their leadership, meeting topics and process, information flow, Board oversight of strategic planning and risk management, and access to management. The law firm partner, who leads her law firm’s corporate governance team, used insights from the individual interviews to lead a full Board discussion in October 2018. Following this discussion, the Board implemented certain enhancements and other modifications identified during the process.
28
For 2019, the N&CG Committee determined to use the same overall process as used in 2017: directors will complete written questionnaires focusing on how the Board and each committee perform as a unit, and an independent third party will facilitate the process and provide feedback to the Board and its committees.
Director Orientation and Continuing Education
All new directors participate in an extensive director orientation program which enables them to quickly become active, knowledgeable and effective members of the Company’s Board. The program includes, among other things, receiving extensive written materials covering the Company, meetings with key members of management, and a branch visit. The process is tailored to take into account the individual needs of each new director, including their experience level and the committees to which they have been assigned.
The N&CG Committee is responsible for overseeing the new director orientation program. The Executive Vice President—Chief Administrative and Legal Officer and Senior Vice President, General Counsel and Corporate Secretary are responsible for administering the program and reporting to the N&CG Committee the status of the orientation process with respect to each new director. The orientation process is designed to provide new directors with comprehensive information about the Company’s business, strategic plan, financial performance and compensation practices, as well as the policies, procedures and responsibilities of the Board and its committees.
The Board also provides continuing education for all directors through individual speakers who make presentations in connection with in-person Board meetings. For example, during 2018, the Board hosted: (i) governance professionals from three institutional investors for a panel discussion about environmental, social and governance matters; (ii) a speaker about corporate strategy; and (iii) a cybersecurity and privacy expert for a presentation about board oversight of privacy and data protection, including the General Data Protection Regulation (Regulation (EU) 2016/679). The Company receives feedback from the directors on potential topics that would be useful for these presentations. In addition to facilitating these customized in-house programs, we also provide opportunities for directors to attend commercial director education seminars hosted by third parties. The N&CG Committee reviews the company’s director education process periodically to ensure the continuing education provided remains relevant and helpful.
29
Corporate Governance Guidelines
We have adopted Corporate Governance Guidelines to promote the effective functioning of the Board. The guidelines address, among other things, criteria for selecting directors and director duties and responsibilities. In 2016, we amended the guidelines to add a director retirement age policy. The director retirement age policy provides that directors reaching the age of 76 will not stand for re-election. We have also adopted categorical independence standards (in addition to the requirements of the NYSE) by which we assess the independence of our directors. You can access these documents on our website at http://www.unitedrentals.com (go to “Company” tab → “Investor Relations” → “Corporate Governance”) or in print upon written request to our corporate secretary at United Rentals, Inc., 100 First Stamford Place, Suite 700, Stamford, Connecticut 06902.
Code of Ethical Conduct
We have adopted a Code of Ethical Conduct for our employees, officers and directors. You can access this document on our website at http://www.unitedrentals.com (go to “Company” tab → “Investor Relations” → “Corporate Governance”). This document is also available in print to any stockholder upon written request to our corporate secretary at United Rentals, Inc., 100 First Stamford Place, Suite 700, Stamford, Connecticut 06902. The Code constitutes a “code of ethics” as defined by the rules of the SEC. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to the Code of Ethical Conduct or waivers from any provision of the Code of Ethical Conduct applicable to our principal executive officer, principal financial officer and controller by posting such information on our website at the location set forth above within four business days following the date of such amendment or waiver. We actively monitor internal compliance with our Code through an annual survey, which is given to (i) all salaried employees; and (ii) hourly employees in a financial, information technology or sourcing role. We also require that all employees complete an online training course covering our Code of Conduct.
Statement on Modern Slavery and Human Trafficking
We have adopted a Statement on Modern Slavery and Human Trafficking, which highlights the policies and measures we have implemented under the United Kingdom Modern Anti Slavery Act of 2015. The statement was approved by our Board and can be accessed on our website at http://www.unitedrentals.com (go to “Company” tab → “Investor Relations” → “Corporate Governance”).
Proxy Access
On September 8, 2016, the Board approved amendments to the Company’s By-Laws, effective immediately, to implement proxy access, which provides stockholders the ability to nominate individuals for election as a director and to have the nominee included in the Company’s proxy statement and proxy. The Board’s voluntary adoption of proxy access followed a careful evaluation by the N&CG Committee and Board over the course of several meetings of stockholder views, policies and votes at other companies on proxy access, evolving practices at other large corporations, relevant academic research, the potential impact on the Company of the adoption of proxy access, alternatives to proxy access and proxy access frameworks adopted by other companies. Section 3.10 of the Company’s By-Laws permits a stockholder, or a group of up to 20 stockholders, owning at least 3% of the Company’s outstanding common stock continuously for at least three years to nominate and include in the Company’s proxy materials director nominees constituting up to the greater of (i) 20% of the Board or (ii) two directors, provided that the stockholders and the nominees satisfy the requirements specified in the By-Laws. The Board’s adoption of proxy access enhanced stockholders’ rights without taking away any of the existing rights stockholders had to nominate directors.
30
Removal of Supermajority Voting Requirements
As a result of the Board’s ongoing review of corporate governance best practices, and following a vote at the Company’s 2016 annual meeting on a stockholder proposal, the Board determined that it was in the Company stockholders’ best interest to include a Board proposal in the Company’s 2017 proxy statement to amend the Company’s Restated Certificate of Incorporation to eliminate each voting requirement that called for a greater than simple majority vote (the “Simple Majority Amendment”). At the Company’s 2017 annual meeting, stockholders voted to approve the Simple Majority Amendment. Effective May 4, 2017, the Company’s Restated Certificate of Incorporation was amended to remove supermajority voting requirements.
Stockholders’ Ability to Call Special Meetings of Stockholders
At the Company’s 2017 annual meeting held on May 4, 2017, stockholders voted on two proposals—one stockholder proposal and one Board proposal—proposing to give stockholders the right to call special meetings of stockholders. The stockholder proposal was advisory and proposed a 10% threshold. The Board proposal was binding and proposed a 25% threshold. Both proposals passed. Effective May 4, 2017, the Company’s Restated Certificate of Incorporation was amended to eliminate the provision limiting stockholders’ ability to call special meetings. This allowed the Board to immediately amend the Company’s By-Laws to implement the right for one or more stockholders who own at least 25% of the Company’s outstanding shares of common stock in the aggregate to request that the Board call a special meeting of stockholders.
After due consideration of feedback from the Company’s comprehensive 2017 stockholder outreach program (described more fully on page 4 of the Company’s 2018 proxy statement) and corporate governance best practices, the Board determined that it was in the Company’s best interests not to lower the ownership threshold for stockholders to be able to call special meetings from 25% to 10%.
Board Leadership Structure and Role of Our Lead Independent Director
Our Board has separated the roles of Chairman of the Board and Chief Executive Officer. We believe that separating the roles of Chairman and Chief Executive Officer better enables the Board to provide oversight and guidance to management, especially in relation to the Board’s essential role in risk management oversight. Furthermore, this separation provides for focused engagement between these two roles in their respective areas of responsibility, while still providing for collaborative participation.
As previously announced, Dr. Britell, our current Chairman, will not stand for re-election at the Annual Meeting, at which time Michael Kneeland will retire as Chief Executive Officer and become Chairman. In light of Mr. Kneeland becoming Chairman, our independent directors have appointed Bobby Griffin to become Lead Independent Director, also effective at the Annual Meeting. As Lead Independent Director, Mr. Griffin’s responsibilities will include:
|
● |
Chairing executive sessions of independent directors, and briefing the Chairman and management on issues arising from those executive sessions; |
|
● |
Helping to formulate and approve meeting agendas and materials; |
|
● |
Acting as an independent resource for the Chief Executive Officer and committee chairs, as necessary; |
|
● |
Working with the N&CG Committee Chairman to oversee the annual Board self-evaluation process; |
|
● |
Facilitating discussion among independent directors on key issues outside of Board meetings; |
|
● |
Helping to build consensus and encourage a culture of engagement, open dialogue, and transparency; and |
|
● |
Serving as a non-exclusive conduit to the Chief Executive Officer and/or Chairman of views, concerns and issues of independent directors. |
31
We believe this structure of a separate Chairman and Chief Executive Officer, combined with a Lead Independent Director, enables each person to focus on different aspects of company leadership and reinforces the independence of our Board as a whole. We believe this structure also results in an effective balancing of responsibilities, experience and independent perspective; establishes and preserves management accountability; provides a structure that allows the Board to set objectives and monitor performance; and enhances stockholder value.
Director Independence
In assessing director independence, we follow the criteria of the NYSE. In addition, and without limiting the NYSE independence requirements, we apply our own categorical independence standards. Under these standards, we do not consider a director to be independent if he or she is, or in the past three years has been:
|
● |
employed by the Company or any of its affiliates; |
|
● |
an employee or owner of a firm that is one of the Company’s or any of its affiliates’ paid advisors or consultants (unless the Company’s relationship, or the director’s relationship, with such firm does not continue after the director joins the Board, or the Company’s annual payments to such firm did not exceed 1% of such firm’s revenues in any year); |
|
● |
employed by a significant customer or supplier; |
|
● |
party to a personal service contract with the Company or the Chairman, Chief Executive Officer or other executive officer of the Company or any of its affiliates; |
|
● |
an employee or director of a foundation, university or other non-profit organization that receives significant grants or endowments from the Company or any of its affiliates or a direct beneficiary of any donations to such an organization; |
|
● |
a relative of any executive officer of the Company or any of its affiliates; or |
|
● |
part of an interlocking directorate in which the Chief Executive Officer or other executive of the Company serves on the Board of a third-party entity (for-profit or not-for-profit) employing the director. |
A substantial majority of our directors must be independent under our Corporate Governance Guidelines, which are more stringent than NYSE rules in this regard. Eleven of our 12 current directors have been determined by the N&CG Committee and the Board to be independent under the criteria of the NYSE: Jenne K. Britell; José B. Alvarez; Marc A. Bruno; Bobby J. Griffin; Kim Harris Jones; Terri L. Kelly; Gracia C. Martore; Jason D. Papastavrou; Filippo Passerini; Donald C. Roof and Shiv Singh. In addition, the Board has determined that each of these directors and director nominees also meets the categorical independence standards described above. Michael J. Kneeland and director nominee Matthew J. Flannery are not considered independent because of their employment (or, in the case of Mr. Kneeland, former employment, as of May 8, 2019) with the Company.
In accordance with SEC regulations, with respect to the directors that we have identified as being independent under NYSE rules, we discuss below any relationships considered by the Board in making its independence determinations. Given the size of the Company and the nature of its business, it has purchase, finance and other transactions and relationships in the normal course of business with companies with which certain Company directors or their relatives are associated. Each such transaction and relationship was determined by the Board to be an “immaterial relationship” that would not disqualify the particular director from being classified as an independent director.
In particular, the N&CG Committee and the Board took into account that Filippo Passerini is an Operating Executive at The Carlyle Group, an investment manager with, as of December 31, 2018, $216 billion in assets under control across 343 investment vehicles. Because of the size of The Carlyle Group and the nature of its business, The Carlyle Group has ownership in certain entities with which the Company does business. In all instances, the amount of payments made to or received from each entity represented less than $1 million per year. In addition, the N&CG Committee and the Board considered that Marc Bruno is Chief Operating Officer for Sports, Leisure, Corrections, Facilities, and K-12 at Aramark Corporation
32
(“Aramark”) and that the Company pays fees to and generates revenue from Aramark. The annual fees that the Company pays to Aramark and the annual revenue that the Company generates from Aramark did not exceed $1 million per year or 1% of Aramark’s consolidated gross revenues. The Board and the N&CG Committee believe that all of these transactions and relationships during fiscal year 2018 were on arm’s-length terms that were reasonable and competitive and the directors did not personally benefit from such transactions. Because of the Company’s extensive operations, the number of Company store locations and employees, and the thousands of products rented and sold by each store location, transactions and relationships of this nature are expected to take place in the ordinary course of business in the future.
Executive Sessions of the Board
Our Corporate Governance Guidelines currently provide that our non-management directors should meet at least twice a year in executive sessions without the presence of management. The purpose of such executive sessions is to facilitate free and open discussion among the participants. The Chairman of the Board (or, in the absence of the Chairman, the Chairman of the Audit Committee or such other independent director as may be selected by the Board) should preside over executive sessions and, as required, provide feedback to the Chief Executive Officer, and to such other officers as is appropriate, based upon the matters discussed at such meetings. During 2018 Board and committee meetings, our non-management directors met in executive session without the presence of management seven times.
Effective at the Annual Meeting, when Michael Kneeland retires as Chief Executive Officer and becomes Chairman, and Bobby Griffin becomes Lead Independent Director, our Corporate Governance Guidelines will be revised to reflect that our independent directors should meet at least twice a year in executive sessions, and that the Lead Independent Director should preside over these executive sessions and, as required, provide feedback to the Chairman and Chief Executive Officer and such other officers as is appropriate.
Director Nomination Process
General
The Board has established the N&CG Committee, as described above. The responsibilities of this committee include, among other things: (i) developing criteria for evaluating prospective candidates to the Board or its committees; (ii) identifying individuals qualified to become members of the Board or its committees; and (iii) recommending to the Board those individuals that should be nominees for election or re-election to the Board or otherwise appointed to the Board or its committees (with authority for final approval remaining with the Board).
For information on how stockholders may submit director recommendations, see “Other Matters—Submission of Stockholder Proposals for the 2020 Annual Meeting—Stockholder Nominees for Inclusion in the 2020 Proxy Statement (Proxy Access)” and “Other Matters—Submission of Stockholder Proposals for the 2020 Annual Meeting—Other Stockholder Proposals or Nominees for Presentation at the 2020 Annual Meeting (Advance Notice).”
Process for Identifying and Evaluating Candidates
The N&CG Committee may identify potential Board candidates from a variety of sources, including recommendations from current directors or management, recommendations of security holders or any other source the N&CG Committee deems appropriate. The N&CG Committee may also engage a search firm to assist in identifying director candidates. The N&CG Committee has been given sole authority to select, retain and terminate any such search firm and to approve its fees and other retention terms.
In considering candidates for the Board, the N&CG Committee evaluates the entirety of each candidate’s credentials. In accordance with our Corporate Governance Guidelines, the N&CG Committee considers, among other things: (i) business or other relevant experience; (ii) expertise, skills and knowledge; (iii) contacts in the communities in which the Company does business and in the Company’s industry or other industries relevant to the Company’s business; (iv) personal qualities and characteristics, accomplishments, integrity and reputation in the business community; (v) the extent to which the
33
candidate will enhance the objective of having directors with diverse viewpoints, backgrounds, experience, expertise, skills and other demographics; (vi) willingness and ability to commit sufficient time to Board and committee duties and responsibilities; and (vii) qualification to serve on Board committees, such as the Audit Committee or the Compensation Committee. The N&CG Committee recommends candidates based on its consideration of each individual’s specific skills and experience and its annual assessment of the composition and needs of the Board as a whole, including with respect to diversity. Consideration of diversity as one of many attributes relevant to a nomination to the Board is implemented through the N&CG Committee’s standard evaluation process. In particular, the N&CG Committee obtains and reviews profiles and engages in thorough discussions at Committee meetings in an effort to identify the best candidates. Once preliminary candidates are identified, the N&CG Committee Chairman, the Chairman and/or Chief Executive Officer conduct preliminary interviews with those individuals. After the preliminary interview stage, final candidates interview with all members of the Board, which the Board believes creates “buy-in” from all parties and helps attract quality candidates and populate an effective Board. The effectiveness of the Board’s diverse mix of viewpoints, backgrounds, experience, expertise, skills and other demographics is considered as part of the N&CG Committee’s assessment.
The 12 nominees for election as directors at the Annual Meeting are: José B. Alvarez, who has been a director since January 2009; Marc A. Bruno, who has been a director since May 2018; Matthew J. Flannery, who will become CEO immediately after the Annual Meeting and who is a new director nominee; Bobby J. Griffin, who has been a director since January 2009 and who will become Lead Independent Director immediately after the Annual Meeting; Kim Harris Jones, who has been a director since September 2018; Terri L. Kelly, who has been a director since May 2018; Michael J. Kneeland, who is the Company’s current CEO and immediately after the Annual Meeting will become Chairman, and has been a director since August 2008; Gracia C. Martore, who has been a director since June 2017; Jason D. Papastavrou, who has been a director since June 2005; Filippo Passerini, who has been a director since January 2009; Donald C. Roof, who has been a director since April 2012; and Shiv Singh, who has been a director since May 2017. The N&CG Committee reviewed and evaluated, in addition to each nominee’s background and experience and other criteria set forth in the Company’s Corporate Governance Guidelines, each director’s independence, each incumbent director’s performance during his or her recent tenure with the Board, and whether each was likely to continue to contribute positively to the Board.
Board Refreshment
Board composition remains a priority for the Company as evidenced by its continuing refreshment efforts. We strive to maintain a Board composed of directors who bring diverse viewpoints, perspectives and areas of expertise, exhibit a variety of key skills and relevant professional experiences, and effectively represent the long-term interests of our stockholders. We believe that longer-serving directors, in particular, bring critical skills to the boardroom due to their experience, institutional knowledge and understanding of the challenges facing the Company. However, we are also cognizant of the need to maintain a balanced mix of tenures.
Director succession presents an opportunity for the Company to expand and replace key skills and experience, build on its record of board diversity and bring fresh perspectives to the boardroom. Accordingly, our Board engaged an independent consulting and search firm (the “Firm”) beginning in 2016 to assist in developing a long-term succession plan to identify, recruit and appoint new directors whose qualifications would bring further strength to our Board. During 2016, the Firm interviewed each then-current director and members of senior management and worked with the Board to identify key Company strategies and related prioritized competencies for directors. The prioritized competencies are listed under the “Proposal 1 – Election of Directors” section of this Proxy Statement. The prioritized competencies were then used to develop a skills matrix for directors and a long-term succession plan, both of which were used to guide new director appointments during 2016, 2017, 2018 and 2019.
In addition, in furtherance of our commitment to board refreshment, on October 17, 2016, we amended our Corporate Governance Guidelines to add a director retirement age policy. The director retirement age policy provides that directors reaching the age of 76 will not stand for re-election.
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As a result of the director retirement age policy and our ongoing board refreshment initiative, three of our long-serving directors did not stand for re-election in 2017; one long-serving director did not stand for re-election in 2018; and Dr. Britell, our current Chairman, will not stand for re-election this year. In addition, Mr. Singh and Ms. Martore joined the Board as new directors in 2017; Mr. Bruno, Ms. Kelly and Ms. Harris Jones joined the Board as new directors in 2018; and Mr. Flannery is being nominated as a new director this year.
Direct Communications with Directors
We have adopted procedures to enable our security holders and other interested parties to communicate with the Board or with any individual director or directors. If you wish to send a communication, you should do so in writing. Security holders and other interested parties may send communications to the Board or the particular director or directors, as the case may be, in the manner described in the Company’s written policy available on its website at http://www.unitedrentals.com (go to “Company” tab → “Investor Relations” → “Corporate Governance”).
Environmental and Social Highlights
Management and our Board understand the importance of acting responsibly as a business, an employer and a corporate citizen, and we are committed to incorporating environmental and social and governance considerations into how we do business. In furtherance of this commitment, the N&CG Committee amended its charter in 2018 to take formal responsibility for oversight of the Company’s environmental, social and governance policies and practices, including review of related metrics.
Each year, we publish a corporate responsibility report showcasing our commitment to balancing the social, economic and environmental aspects of our business. The 2017 report is available on our website at http://www.unitedrentals.com under the “Company—About Us” tab or using the following link: https://www.unitedrentals.com/sites/default/files/2018-11/2017CSR.PDF. The information presented below is intended to be a summary. For further details about our commitment to improving the social, economic and environmental aspects of our business, please see our corporate responsibility report.
Environment
We believe that our primary business—the rental of equipment—is an environmentally friendly model because it reduces ownership of assets and allows for the maximum utilization of assets that have already been manufactured. Additionally, as highlighted in our corporate responsibility report, we are focused on improving our environmental performance, and the environmental performance of our customers, in a variety of ways. For example, every Company branch uses a Company-provided scorecard to track energy use and identify potential areas of improvement. In addition, the Company’s FAST (field automation systems technology) initiative helps optimize routes and loads, thus reducing fuel consumption. Further, each Company driver’s idle time is measured and documented on an individual driver scorecard. These scorecards are a key part of each driver’s performance evaluation, which ties to individual compensation. We also have an ongoing lighting retrofit program aimed at reducing energy use at our branch locations and improving work conditions for our employees. UR Control®, our online rental management platform, assists customers in renting only the equipment they need and off-renting equipment they do not need, thus reducing underutilized equipment at jobsites and in transit. Additionally, we have invested in telematics as a way to increase the efficiency of our larger equipment. We believe there are substantial benefits to using telematics, including: (i) visibility into runtime and equipment utilization; (ii) the ability to locate equipment; and (iii) proactive fuel alerts.
Social
Safety is one of our core values and 92% of our branches were injury-free in 2018. We lead our industry in safety performance and rank in the top quartile across all industry sectors. United Academy®, the safety training curriculum we use to train our own employees, is also used by our customers to leverage our expertise and to help them establish a safety culture of their own. Also, safety performance is included as a qualitative goal used to assess the CEO’s and other senior executives’ individual performance.
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In addition, we are passionate about building a diverse workforce and realizing the benefits that come from sharing a variety of perspectives. Our approach to diversity and inclusion (“D&I”) is comprehensive. With support from the Board and executive team, the Company drives its D&I initiatives through many efforts, including its employee resource groups: Together United, Women United, and Veterans United. Further, recruitment of diverse employees is included as a qualitative goal used to assess the CEO’s and senior executives’ individual performance.
We also take pride in welcoming transitioning military personnel to our workforce, and are dedicated to recruiting qualified veterans. In recognition of our efforts, we were selected as a Top Veteran-Friendly Company in 2018, for the third consecutive year, by U.S. Veterans Magazine. The magazine polled hundreds of Fortune 1000 companies for this year’s “Best of the Best” evaluations. This distinction recognizes our commitment to providing opportunities to America’s veterans and transitioning service members. Further, we safeguard the jobs of our employees who serve in the uniformed services. We provide pay during active duty deployments, support reserve training commitments, and provide job protection for both service members and eligible family members during an active leave or medical leave. For additional military and veteran awards, see the “Proxy Statement Summary—2018 Awards and Recognitions” section of this Proxy Statement.
Additionally, we are the proud sponsor of the United Compassion Fund, an employee-funded 501(c)(3) charity which assists United Rentals employees in need (e.g., employees affected by natural disasters, serious illnesses or accidents). In 2018, our employees contributed $993,400 to the United Compassion Fund, assisting 129 United Rentals families. Through support from employees, directors and the Company, almost $3.3 million has been donated to the fund since inception. Administrative costs and fees associated with the fund are paid for by the Company, so every dollar contributed goes directly to assisting those in need.
Environmental and Social Risk Management
We believe that effective management of environmental and social risks helps us by furthering our strategy for consistently providing superior customer service and by helping to optimize our operations.
Our Board delegates authority for day-to-day management of environmental and social topics to management. The Board oversees environmental and social issues and is in touch with stakeholder concerns through a number of processes. For example, the Board has a formal schedule for consideration of safety matters and reviews results from all employee engagement surveys, which typically occur every 18 months. In addition, the Board reviews workplace diversity annually, and receives monthly updates on diversity metrics. Further, the N&CG Committee, pursuant to its recently revised charter, reviews the Company’s environmental and social policies and practices, including review of related metrics, at least once a year.
Environmental and social risks are also part of our ERM Council’s comprehensive risk management program, which is discussed in the “Board Matters—Risk Oversight” section of this Proxy Statement. As part of this program, the Board reviews the effectiveness of the Company’s risk management and due diligence processes related to environmental and social topics. In addition, the Board actively considers environmental and social issues in connection with the Board’s involvement in the Company’s strategic planning process.
Political Activities and Public Policy Participation
As noted in our Code of Ethical Conduct, the Company prohibits political contributions of any kind (money, time, goods or services), directly or indirectly, even when permitted by law. In addition, the Company is restricted from financially supporting events where a portion of the funds will be used, directly or indirectly, to fund political candidates or political parties, election campaigns or related expenses, such as communications. Moreover, the Company requests that its trade and industry associations not use Company funds for political expenditures. The Company may make expenditures to advocate particular viewpoints on public policy issues or support intermediaries that advocate on the Company’s behalf. The Company’s legal department oversees this type of advocacy on behalf of the Company.
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Compensation Discussion and Analysis (“CD&A”)
Our executive compensation program aims to attract, retain, and reward high caliber management talent who will lead our business and execute our strategy for long-term profitable growth. This CD&A outlines our 2018 executive compensation philosophy and objectives, describes the elements of our executive compensation program, and explains how the Compensation Committee (the “Committee”) of the Company’s Board of Directors (the “Board”) arrived at its compensation decisions for our 2018 named executive officers (“NEOs”) listed below:
NEO
|
Principal Position and Title
|
Michael Kneeland
|
Chief Executive Officer(1)
|
Jessica Graziano
|
Executive Vice President and Chief Financial Officer(2)
|
Matthew Flannery
|
President and Chief Operating Officer(3)
|
Dale Asplund
|
Executive Vice President, Business Services and Chief Information Officer
|
Craig Pintoff
|
Executive Vice President, Chief Administrative and Legal Officer
|
William Plummer
|
Former Executive Vice President and Chief Financial Officer(4)
|
(1) |
Mr. Kneeland remained as Chief Executive Officer but ceased to be President upon Mr. Flannery’s promotion to such role, effective March 8, 2018. |
(2) |
Ms. Graziano was promoted to Executive Vice President and Chief Financial Officer, effective October 12, 2018. |
(3) |
Mr. Flannery was promoted to President, effective March 8, 2018, assuming the title from Mr. Kneeland. He continued in his role as Chief Operating Officer. |
(4) |
Mr. Plummer retired as Executive Vice President and Chief Financial Officer on October 12, 2018. He remained with the Company until January 31, 2019 in an advisory capacity and provided transition services in connection with the transfer of his responsibilities. |
The Board appointed Jessica Graziano as Executive Vice President and Chief Financial Officer, effective October 12, 2018, to succeed William Plummer upon his retirement. Ms. Graziano joined United Rentals in December 2014 as Controller and Principal Accounting Officer and was promoted to Senior Vice President in March 2017. In this role, she worked closely with the senior leadership team to oversee the Company’s accounting, financial planning and analysis, and insurance departments. Ms. Graziano has more than two decades of financial management experience. Mr. Plummer remained with the Company until January 31, 2019 in an advisory capacity and provided transition services in connection with the transfer of his responsibilities.
In January 2019, the Board appointed Matthew Flannery, the Company’s President and Chief Operating Officer, to become Chief Executive Officer (while remaining as President). Additionally, the Board appointed Michael Kneeland, the current Chief Executive Officer, to become non-executive Chairman. The appointments will become effective at the Company’s annual meeting of stockholders on May 8, 2019, when Mr. Kneeland will retire as Chief Executive Officer.
Executive Summary
2018 Business Highlights
2018 was an exceptional year for the Company. Total revenue increased 21.2% to $8.047 billion and rental revenue increased 21.4% to $6.940 billion from 2017, both of which were Company records. These increases included the impact of the acquisitions of NES Rentals Holdings II, Inc. (“NES”) in April 2017, Neff Corporation (“Neff”) in October 2017, BakerCorp International Holdings, Inc. (“BakerCorp”) in July 2018, and Vander Holding Corporation and its subsidiaries (“BlueLine”) in October 2018. On a pro forma basis reflecting the impact of the NES, Neff, BakerCorp and BlueLine acquisitions (i.e., including the standalone pre-acquisition results of NES, Neff, BakerCorp and BlueLine for 2017 and 2018), rental revenue increased 10.5% year-over-year, reflecting growth of 6.9% in the volume of equipment on rent and a 2.6% increase in rental rates.
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Year-over-year, for 2018, adjusted EBITDA(1) increased 22.1% to $3.863 billion and adjusted EBITDA margin increased 40 basis points to 48.0%. Return on invested capital (ROIC)(2) increased to a Company record of 11.0%. Economic profit improvement (EPI)(3), which measures the year-over-year improvement in the Company’s economic profit assuming a constant weighted cost of capital and which reflects management’s ability to grow the business and generate profitable returns, was $328 million for 2018, compared with $47 million for 2017.
1 |
Adjusted EBITDA is a non-GAAP financial measure, as defined in the Form 10-K. Please refer to the Form 10-K for the adjusted EBITDA-to-GAAP reconciliations. Adjusted EBITDA margin represents adjusted EBITDA divided by total revenue. |
2 |
ROIC is a non-GAAP financial measure that is calculated as after-tax operating income for the trailing 12 months divided by average stockholders’ equity, debt and deferred taxes, net of average cash. To mitigate the volatility related to fluctuations in the Company’s tax rate from period to period, the U.S. federal corporate statutory tax rates of 21% for 2018 and 35% for 2017 and 2016 were used to calculate after-tax operating income. If the 21% U.S. federal corporate statutory tax rate following the enactment of the Tax Cuts and Jobs Act of 2017 was applied to ROIC for all historic periods, the Company estimates that ROIC would have been 10.8%, 10.6% and 10.0% for 2018, 2017 and 2016, respectively. |
3 |
EPI is a non-GAAP financial measure defined as the year-over-year change in the spread between ROIC and the Company’s weighted cost of capital, which is the weighted average after-tax cost of the Company’s debt and equity capital sources and which is assumed to be a constant 10%. |
The Company’s specialty segment, Trench, Power and Fluid Solutions, experienced solid growth in 2018. Rental revenue for the segment increased by 40.7% year-over-year, including a 19.0% increase on a same store basis. Rental gross margin decreased by 140 basis points to 48.2%, primarily due to the impact of the BakerCorp acquisition. For more information regarding the Company’s 2018 performance, please refer to the Form 10-K.
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Much of our success in 2018 can be attributed to the skilled implementation of the Company’s business strategy by our senior management and the Board, who continue to collaborate to create long-term value for our stockholders. In particular, management successfully led the Company’s business through a significant amount of change and growth during the NES, Neff, BakerCorp and BlueLine integrations. The chart below shows the total cumulative return of the Company’s stock since December 31, 2015, compared with the S&P 500 and our 2018 Executive Compensation Peer Group (as defined on page 44 of this Proxy Statement).
2018 Incentive Compensation Highlights
Consistent with our record performance in 2018, we excelled against our internal business plan, which included the forecasted financial impact of our major acquisitions during the year. Specifically, the Committee revised goals under the incentive compensation plans concurrent with the acquisition of BakerCorp in July 2018, and further adjusted the goals concurrent with the acquisition of BlueLine in October 2018. The adjustments included significant increases to the adjusted EBITDA and total revenue goals to prevent any potential unfair windfall, and minor decreases to the EPI and ROIC goals to prevent any potential unfair penalization. Based on our results, the funding of the annual incentive amounts was above target for both our Annual Incentive Compensation Plan (“AICP”) and our Long-Term Incentive Plan (“LTIP”) relative to the adjusted goals. AICP bonuses were funded at 130.5% of target, and LTIP awards were earned at 183.1% of target.
For details, please refer to “The 2018 Executive Compensation Program in Detail” section starting on page 45 of this Proxy Statement.
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Our executive compensation program emphasizes variable pay that aligns compensation with performance and stockholder value. For the NEOs, the mix of compensation elements is heavily weighted toward variable, performance-based compensation with a balanced focus on growth, profitability, and returns. The CEO’s compensation has a greater emphasis on variable compensation than that of the other NEOs because his actions have a greater influence on the performance of the Company as a whole.
As shown below, the significant majority of NEO pay continues to be variable (89% for the CEO and an average of 77% for our other NEOs, excluding Mr. Plummer who is no longer employed by the Company) based upon annual target total direct compensation (“TTDC”) for fiscal year 2018. Note that these charts do not include any one-time grants or awards outside of annual TTDC.
2018 “Say on Pay” Results and Stockholder Engagement
At the Company’s 2018 annual meeting of stockholders, we received substantial support for our executive compensation program, with over 93% of the stockholders who voted on the advisory “say on pay” proposal approving the compensation of our NEOs, which was consistent with the positive feedback we received in discussions with our stockholders throughout the year.
We value our stockholders’ perspective on our business and each year proactively interact with stockholders through numerous stockholder engagement activities. In 2018, these included our biennial investor day, our annual meeting of stockholders, quarterly earnings calls, various investor conferences, and several (non-deal) road shows. In addition, at the Board’s request, management conducted the 2018 Stockholder Outreach Program to engage with our top stockholders about key governance and compensation topics specific to the Company, along with other topics and trends our stockholders wished to discuss. Details about the 2018 Stockholder Outreach Program are outlined on page 4 of this Proxy Statement.
For example, during some of our outreach discussions, we heard from investors that they were seeking more clarity around the performance metrics in our short- and long-term incentive plans. As a capital-intensive business, the performance metrics utilized in our AICP and LTIP are intended to align management’s interests with those of our stockholders by rewarding profitable growth and returns above our cost of capital. For 2018, the AICP and LTIP used the mix of performance measures shown in the following table to support our emphasis on growth, profitability and returns.
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Additionally, during our outreach discussions, stockholders indicated that they wanted to see the Company more heavily weight EPI and ROIC in its incentive plans. Accordingly, for 2019, the Committee approved the return to a more balanced portfolio of incentive metrics in the AICP and LTIP, as summarized below:
2019 Performance Measures In Our Incentive Plans |
||||
Plan: |
AICP |
LTIP |
||
Metrics: |
Adjusted EBITDA |
EPI |
Revenue |
ROIC |
Weightings: |
50% |
50% |
50% |
50% |
Overall, our stockholders continue to be broadly supportive of our approach to executive compensation and we are committed to keeping our program aligned with our business strategy and investor expectations.
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Summary of Our Executive Compensation Practices
|
|
|
||
What We Do
|
|
What We Don’t Do
|
||
|
|
|
|
|
✓ |
Heavy emphasis on variable (“at-risk”) compensation
|
|
× |
No significant perquisites |
|
|
|
|
|
✓ |
Stock ownership guidelines supported by net share retention requirements
|
|
× |
No supplemental executive retirement plans |
|
|
|
|
|
✓ |
Double-trigger equity vesting following a change in control
|
|
× |
No history of re-pricing equity awards |
|
|
|
|
|
✓ |
Clawback contract provisions and anti-hedging/pledging policy
|
|
× |
No option or stock appreciation rights granted below fair market value |
|
|
|
|
|
✓ |
Engage an independent compensation consultant
|
|
×
|
No tax gross-ups
|
What Guides Our Program
Our Compensation Philosophy
The foundation of our compensation philosophy is to ensure that our executive compensation program is designed to align with the Company’s business strategy and drive long-term stockholder value. Our compensation philosophy is supported by three pillars: stockholder alignment, market competitiveness, and internal balance. These pillars are reinforced by the following objectives:
Stockholder Alignment
|
Market Competitiveness
|
Internal Balance
|
|
|
|
• Align the interests of executives with those of our stockholders through equity compensation that correlates with long-term stockholder value • Make efficient use of equity-based compensation • Encourage significant management ownership and retention of our common stock |
• Attract, retain, and motivate a leadership team capable of maximizing the Company’s performance • Set target total direct compensation at competitive levels • Be competitive with the programs at companies with which the Company competes for talent |
• Link substantial portions of compensation to Company, business unit, and individual performance • Reward the appropriate balance of short-term and long-term financial and strategic business results • Maintain alignment of incentive compensation metrics across senior executives and the general employee population
|
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The Principal Elements of Pay: Total Direct Compensation
Our compensation philosophy is supported by the following principal elements of pay:
|
|
|
Pay Element
|
How It’s Paid
|
Purpose
|
|
|
|
Base Salary |
Cash (Fixed) |
Provide a competitive base salary relative to similar positions in the market and enable the Company to attract and retain highly skilled executive talent
|
|
|
|
AICP |
Cash and Vested Shares of Company Stock (Variable)
|
Focus executives on achieving annual financial and strategic objectives that promote growth, profitability, and returns
|
|
|
|
LTIP |
Equity (Variable) |
Provide incentive for executives to reach financial goals and align their long-term economic interests with those of stockholders through meaningful use of equity compensation
|
As discussed below, we also provide our NEOs with a 401(k) retirement plan, limited perquisites and other personal benefits, as well as severance and change in control protection.
2018 Target Total Direct Compensation (TTDC)
The following table shows the 2018 TTDC opportunity for each of the NEOs.
|
|
TTDC(1) |
|
|
|||||
NEO |
|
Base Salary(2) |
Target AICP |
Target LTIP |
Total |
||||
Michael Kneeland |
|
$1,000,000 |
|
$1,500,000 |
|
$6,250,000 |
|
$8,750,000 |
|
Jessica Graziano |
|
$485,000 |
|
$436,500 |
|
$1,000,000 |
|
$1,921,500 |
|
Matthew Flannery |
|
$750,000 |
|
$750,000 |
|
$2,200,000 |
|
$3,700,000 |
|
Dale Asplund |
|
$575,000 |
|
$517,500 |
|
$1,350,000 |
|
$2,442,500 |
|
Craig Pintoff |
|
$550,008 |
|
$495,007 |
|
$1,350,000 |
|
$2,395,015 |
|
William Plummer |
|
$636,593 |
|
$572,934 |
|
$1,600,000 |
|
$2,809,527 |
|
(1) |
The above table is not a substitute for the Summary Compensation Table set forth on page 59 of this Proxy Statement. The amounts in this table differ from the amounts determined under SEC rules as reported for 2018 in the Summary Compensation Table. In particular, the target LTIP values for all of the NEOs deviate from the grant date fair value amounts in the Summary Compensation Table due to the SEC’s reporting requirements. Please see page 51 of this Proxy Statement for further explanation. |
(2) |
Annual base salaries were effective as of April 1, 2018, other than for Mr. Flannery (who was promoted to President and Chief Operating Officer on March 8, 2018, at which time his base salary shown above became effective), and for Ms. Graziano (who was appointed Executive Vice President and Chief Financial Officer effective October 12, 2018, at which time her base salary shown above became effective). |
Our Decision-Making Process
The Role of the Compensation Committee
The Committee is made up of independent, non-employee members of the Board and oversees the executive compensation program for our NEOs. The Committee works very closely with its independent compensation consultant and management to evaluate the effectiveness of the Company’s executive compensation program throughout the year. The Committee’s specific responsibilities are set forth in its charter, which can be found on the Company’s website at http://www.unitedrentals.com under “Corporate Governance” in the Investor Relations section.
The Committee makes all final compensation and equity award decisions regarding our NEOs. The Committee seeks to ensure that the total compensation paid to our NEOs is fair, reasonable, and competitive, provides an appropriate balance of base pay and short-term and long-term incentives, and does not cause unnecessary risk-taking.
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Our CEO, CFO, and Executive Vice President—Chief Administrative and Legal Officer each have two key responsibilities with respect to the executive compensation program:
|
● |
Develop proposals regarding compensation program design and administration for the Committee’s review and approval. Management considers the business strategy, key operating goals, economic environment, and organizational culture in formulating proposals. Proposals are then brought to the Committee for thorough discussion. The Committee ultimately has the authority to approve or disapprove management’s proposals. |
|
● |
Make recommendations for compensation actions each year (these executives do not make recommendations on their own pay). To make such recommendations, management considers market data; the individual responsibilities, contributions, performance, and capabilities of each of the NEOs; and the compensation arrangements that management believes will drive the desired results and behaviors of each NEO. These considerations are used to determine if any change in compensation or award is warranted, as well as the amount and type of any proposed change or award. After consulting with the Executive Vice President—Chief Administrative and Legal Officer, the CEO makes compensation recommendations, other than with respect to his own compensation, to the Committee. The Committee reviews management’s recommendations; considers input from its independent compensation consultant; and subsequently approves, suggests changes, or seeks further analysis or background on the proposal. |
The Role of the Independent Compensation Consultant
The Committee has engaged Pearl Meyer & Partners, LLC (“Pearl Meyer”) as its independent compensation consultant. Pearl Meyer reports directly to the Committee and does not provide any other services to the Company. In May 2018, the Committee performed an independence assessment of Pearl Meyer pursuant to SEC and NYSE rules and standards. In performing its evaluation, the Committee took into consideration a letter from Pearl Meyer confirming its independence based on factors set forth in the NYSE rules for compensation committee advisors. At the culmination of the evaluation, the Committee determined that Pearl Meyer is an independent advisor.
As the Committee’s compensation consultant, Pearl Meyer generally reviews, analyzes, and provides advice about the Company’s executive compensation programs for senior executives. Pearl Meyer considers the objectives of these programs, compares the programs to designated Executive Compensation Peer Group companies (discussed below under “The Role of Benchmarking and the Executive Compensation Peer Group”) and best practices, and provides information and advice on competitive compensation practices and trends, along with specific views on the Company’s compensation programs. In 2018, Pearl Meyer also provided advice to the Committee on director compensation and related market practices. Pearl Meyer regularly attends Committee meetings and also responds on a regular basis to questions from members of the Committee, providing them with analysis and insights with respect to the design and implementation of current or proposed compensation programs.
The Role of Benchmarking and the Executive Compensation Peer Group
The Company competes with business entities across multiple industries for top executive-level talent. To this end, the Committee evaluates, on an annual basis, industry-specific and general market compensation practices and trends to ensure that our program and NEO pay opportunities remain appropriately competitive.
The Committee compares each component of the total compensation package to the compensation components of comparable executive positions of a peer group of publicly traded companies (the “Executive Compensation Peer Group”). If information for a sufficient number of comparable positions in the Executive Compensation Peer Group for the applicable year is not publicly available, the Committee will also consider comparisons with general industry executive compensation benchmarking data from Towers Watson’s U.S. CDB General Industry Executive Database.
44
The companies that make up the Executive Compensation Peer Group and the General Industry Executive Database may vary from year to year. While the Committee does not use a specific formula to determine the allocation between performance-based and fixed compensation, it does review total compensation and competitive benchmarking when determining such allocation.
In setting 2018 target compensation levels for the NEOs, the Company used the Executive Compensation Peer Group detailed below. This Executive Compensation Peer Group was determined by the Committee based on an in-depth review from its independent compensation consultant, which included an assessment of potential comparators to evaluate the degree to which the current peers have kept pace with the Company’s growth and evolution and an examination of the broader marketplace to identify appropriate and relevant additions to the peer group. The 2018 TTDC opportunities, consisting of base salary, target AICP, and annual LTIP awards, were determined to be, on average, competitive with the market median.
|
|
Executive Compensation Peer Group
|
|
|
|
Avis Budget Group, Inc.
|
Masco Corporation*
|
|
|
C.H. Robinson Worldwide, Inc.*
|
Republic Services, Inc.
|
|
|
Cintas Corporation
|
Rockwell Automation Inc. * |
|
|
Dover Corporation*
|
Ryder System, Inc.
|
|
|
Fortive Corporation*
|
Waste Management, Inc. |
|
|
H.D. Supply Holdings, Inc.
|
WESCO International, Inc.
|
|
|
Ingersoll-Rand Plc*
|
W.W. Grainger, Inc.
|
|
|
J.B. Hunt Transport Services, Inc.
|
Xylem Inc.*
|
*These companies were added to the Executive Compensation Peer Group in 2018 to improve the overall comparability of the group to the Company ─ in particular, to better reflect the Company’s market valuation. In addition, the following four companies were removed to due to size differences: Hertz Global Holdings, MSC Industrial Direct Co., Inc., Pitney Bowes and Trinity Industries, Inc.
Peer Data ($M)(1) |
|||||||||
Percentile |
|
|
Annual Revenue |
|
|
Market Cap |
|
|
Enterprise Value |
75th |
|
|
$10,392 |
|
|
$21,484 |
|
|
$22,256 |
50th |
|
|
$8,164 |
|
|
$14,507 |
|
|
$16,992 |
25th |
|
|
$7,141 |
|
|
$11,265 |
|
|
$14,153 |
URI(2) |
|
|
$7,582 |
|
|
$14,537 |
|
|
$23,625 |
Percentile Rank |
|
|
30th |
|
|
50th |
|
|
>75th |
(1) |
As presented to the Committee in May 2018. Market-based metrics are as of March 2018 and revenue is as of the end of each company’s then most recent quarter. |
(2) |
The Company’s annual revenue is estimated 2018 revenue as of March 2018 and does not reflect actual results. The Company’s market-based metrics are as of March 2018. |
The 2018 Executive Compensation Program in Detail
Base Salary
Base salary represents annual fixed compensation and is a standard element of compensation necessary to attract and retain talent. Base salary levels are reviewed annually. When making adjustments, the Committee considers the Company’s overall performance; the executive’s individual performance; the executive’s experience, career potential, and tenure with the Company; the applicable terms, if any, of the executive’s employment agreement; and competitive market practices. Decisions are generally made during the first quarter of the fiscal year and effective in April.
45
During the first quarter of 2018, based on the annual review and to better align base salaries with the market, the Committee determined to increase base salaries for Messrs. Kneeland, Asplund, Pintoff and Plummer by $50,000, $24,986, $49,955, and $18,542, respectively, effective April 1, 2018. Mr. Kneeland’s base salary had not previously been increased since October 22, 2012. The Committee also decided to increase Mr. Flannery’s salary by $99,979, effective March 8, 2018, in connection with his promotion from Executive Vice President to President. The Committee also approved a base salary of $485,000 for Ms. Graziano, effective October 12, 2018, in connection with her promotion to Executive Vice President and Chief Financial Officer. The table below shows the updates to the NEO’s salaries:
NEO |
|
|
2017 |
|
|
2018 |
|
|
% Increase |
|
|
|
$950,000 |
|
|
$1,000,000 |
|
|
5.26% |
|
|
Jessica Graziano(1) |
|
|
$— |
|
|
$485,000 |
|
|
—% |
|
Matthew Flannery |
|
|
$650,021 |
|
|
$750,000 |
|
|
15.38% |
|
Dale Asplund |
|
|
$550,014 |
|
|
$575,000 |
|
|
4.54% |
|
Craig Pintoff |
|
|
$500,053 |
|
|
$550,008 |
|
|
9.99% |
|
William Plummer |
|
|
$618,051 |
|
|
$636,593 |
|
|
3.00% |
|
(1) |
Ms. Graziano was not a NEO prior to her promotion to Executive Vice President and Chief Financial Officer in October 2018, so her 2017 base salary is not disclosed. |
During the first quarter of 2019, based on the annual review, the Committee determined to increase base salaries for Ms. Graziano and Messrs. Asplund and Pintoff by $21,834, $18,715 and $17,874, respectively, effective April 1, 2019. The Committee also determined to increase Mr. Flannery’s salary by $100,000, effective May 1, 2019, in connection with his promotion to Chief Executive Officer.
Annual Incentive Compensation Plan
2018 AICP At-A-Glance
46
Target bonus opportunities are expressed as a percentage of base salary, and are established based on the NEO’s level of responsibility and ability to impact the Company’s overall results. The Committee also considers market data in setting target award amounts. Following Ms. Graziano’s promotion to Executive Vice President and Chief Financial Officer in October 2018, target award opportunities for 2018 were as follows:
NEO |
|
Target AICP (as a % of Base Salary) |
Michael Kneeland |
|
150% |
Jessica Graziano(1) |
|
90% |
Matthew Flannery |
|
100% |
Dale Asplund |
|
90% |
Craig Pintoff |
|
90% |
William Plummer |
|
90% |
(1) |
Ms. Graziano was promoted to her current position of Executive Vice President and Chief Financial Officer in October 2018. As a result, Ms. Graziano’s target award opportunity was 80% of her then-current base salary for the first nine months of 2018 and 90% of her current base salary for the last three months of 2018. |
2018 Funding Levels and Results
The chart below shows the 2018 goals set for adjusted EBITDA and EPI, as well as actual results.
|
|
|
|
|
2018 Performance Metrics ($M)(1) |
|||
Payout Level |
|
% of Target |
|
|
Adjusted EBITDA (70% weighting)(1)(2) |
|
|
EPI (30% weighting)(1)(2) |
Maximum |
|
200% |
|
|
$3,960 |
|
|
$426 |
Target |
|
100% |
|
|
$3,760 |
|
|
$268 |
Threshold |
|
50% |
|
|
$3,360 |
|
|
($48) |
Actual Results(2)(3) |
|
$3,867 |
|
|
$328 |
|||
|
|
133.4% of Target |
|
|
123.8% of Target |
|||
Funded Amount |
|
|
130.5% of Target |
(1) |
Reflects the revised goals under the incentive plans in connection with the acquisition of BakerCorp in July 2018 and the acquisition of BlueLine in October 2018. The revised goals included significant increases to the adjusted EBITDA goals (to prevent any potential unfair windfall) and minor decreases to the EPI goals (to prevent any potential unfair penalization). |
(2) |
For purposes of the AICP, adjusted EBITDA is as defined in our Form 10-K, with an additional adjustment to normalize for the foreign exchange rate impact. EPI is a non-GAAP financial measure defined as the year-over-year change in the spread between ROIC (defined on page 5 of this Proxy Statement) and the Company’s weighted cost of capital, which is the weighted average after-tax cost of the Company’s debt and equity capital sources. For the EPI calculation, we assumed a constant weighted cost of capital of 10%. |
(3) |
The actual percent of target achieved is calculated based on straight-line interpolation between incremental goal levels established between Target and Maximum. |
2018 Individual Performance Adjustment
Once the initial level of incentive funding is determined based on the achievement of the adjusted EBITDA and EPI goals as described above, the Committee may adjust each NEO’s funding level by 90% to 110% based on the achievement of individual performance goals. The Committee retains discretion to further adjust the award upward or downward based on its overall assessment of performance.
To assess individual performance, the Committee selected qualitative goals tied to key strategic initiatives, as well as each NEO’s respective areas of responsibility. For Messrs. Kneeland, Flannery and Plummer, and Ms. Graziano, the Committee selected individual discretionary goals tied to: branch productivity; safety performance; recruitment of diverse employees; customer service at our branch operations; and online digital strategy, none of which are dispositive or individually weighted.
47
For Mr. Asplund, individual discretionary goals were tied to: increased efficiency in fleet management; credit and collections improvements; efficient use of shared services; and information and technology matters, none of which are dispositive or individually weighted. For Mr. Pintoff, individual discretionary goals were tied to: corporate governance matters; litigation management; coordination of board activities; securities and other regulatory filings; business development; talent management; succession planning; recruitment of diverse employees; training and development; and reduction in legal and human resources expenses, none of which are dispositive or individually weighted.
2018 AICP Pay Outcomes
Based on the above adjusted EBITDA and EPI results, the funding of the annual incentive amounts was set at 130.5% of each NEO’s applicable bonus target, subject to adjustment up or down between 90% and 110% of the funded amount based on the achievement of the specific performance metrics assigned to the NEO.
To further align the economic interests of our NEOs with those of our stockholders, earned annual incentive amounts were generally delivered as 75% in cash and 25% in vested shares of the Company’s common stock for 2018. Mr. Plummer’s earned annual incentive amount was delivered 100% in cash because he retired from the Company prior to the payment of 2018 bonuses. The following table lists the actual awards and bonuses earned by the NEOs in 2018 (and paid in 2019).
|
|
Actual Payout |
|
|
Actual Payout ($) |
|||
NEO |
|
(as a % of Funded Amount) |
|
|
Cash(1) |
|
|
Vested Shares(2) |
Michael Kneeland |
|
110% |
|
|
$1,614,941 |
|
|
$538,327 |
Jessica Graziano(3) |
|
110% |
|
|
$377,753 |
|
|
$125,994 |
Matthew Flannery |
|
110% |
|
|
$807,470 |
|
|
$269,226 |
Dale Asplund(4) |
|
110% |
|
|
$594,335 |
|
|
$148,688 |
Craig Pintoff |
|
110% |
|
|
$532,944 |
|
|
$177,706 |
William Plummer(5) |
|
100% |
|
|
$747,668 |
|
|
$— |
(1) |
Amounts rounded to the nearest dollar. |
(2) |
Amounts reflect the March 11, 2019 grant date value of vested shares, as rounded up to the nearest whole share and amounts rounded to the nearest dollar. |
(3) |
Ms. Graziano was promoted to her current position of Executive Vice President and Chief Financial Officer in October 2018. Ms. Graziano’s pro-rated target AICP award opportunity was based on the time she served in her prior role and the time she served in her current role, which amount was 80% of her then-current base salary for the first nine months of 2018 and 90% of her current base salary for the last three months of 2018. |
(4) |
For Mr. Asplund, who elected to defer a portion of his annual incentive payment under the Executive Nonqualified Excess Plan (discussed on page 55 of this Proxy Statement), the 75% cash and 25% stock split is applied to the non-deferred portion of his earned amount (and the deferred portion is shown in the cash column in the table above). |
(5) |
Mr. Plummer did not participate in the cash and stock split program, as he was not an active employee at the time of the bonus payment. Therefore, his bonus amount was paid in all cash, subject to his Executive Nonqualified Excess Plan deferral. |
As discussed below under “Stock Ownership Guidelines,” the NEOs are required to hold between three and six times their respective base salaries in the Company’s common stock, depending on their position. Until this guideline is met, each NEO must retain 50% of the Company’s common stock received upon the exercise, vesting, or payment of equity-based awards granted by the Company, including the shares paid in respect of his or her 2018 annual incentives. Each of the NEOs was in compliance with the guidelines as of December 31, 2018.
48
Long-Term Incentive Plan (“LTIP”) (Equity Compensation)
Equity compensation directly aligns the interests of the NEOs with those of our stockholders. In 2018, the Company granted annual equity compensation awards under our Second Amended and Restated 2010 Long-Term Incentive Plan (the “2010 LTIP”) as follows (these charts do not include any one-time grants or awards):
Performance-based restricted stock units (“PRSUs”) are earned and vest only when a specified performance level is achieved. Time-based restricted stock units (“RSUs”) vest ratably over a three-year period based solely on continued service. Time-based RSUs help to secure and retain executives and instill an ownership mentality. Historically, the Company’s PRSUs and time-based RSUs have not earned any dividend equivalents.
2018 LTIP Awards
In determining the size of each equity award granted, the Committee considers a variety of factors, including benchmarking data on competitive long-term incentive values, the percentage of long-term incentive value to be allocated to PRSUs and time-based RSUs, and the NEO’s position within the Company. The actual number of PRSUs and time-based RSUs granted is calculated by dividing the dollar value of the award by the closing price of the Company’s stock on the equity award grant date. The table below shows the PRSUs and time-based RSUs awarded for fiscal 2018 for each of the NEOs (the table below does not reflect any one-time grants or awards):
|
|
2018 LTIP Awards |
|
|||||
NEO |
|
2018 PRSUs(1) |
|
|
2018 Time-Based RSUs(2) |
|
||
Michael Kneeland |
|
|
27,029 |
|
|
|
6,757 |
|
Jessica Graziano(3) |
|
|
1,571 |
|
|
|
673 |
|
Matthew Flannery |
|
|
8,325 |
|
|
|
3,568 |
|
Dale Asplund |
|
|
5,109 |
|
|
|
2,189 |
|
Craig Pintoff |
|
|
5,109 |
|
|
|
2,189 |
|
William Plummer(4) |
|
|
6,055 |
|
|
|
2,595 |
|
(1) |
Earned PRSUs vest in one-third increments annually, subject to the satisfaction of the performance criteria described below. |
(2) |
Time-based RSUs vest in one-third increments on each anniversary of the grant date, generally subject to continued employment. For more details about the retirement treatment of Mr. Plummer’s LTIP awards, please refer to “Termination and Change in Control Benefits” on page 53 of this Proxy Statement. |
(3) |
In addition to her annual LTIP award, Ms. Graziano also received a one-time grant of 3,627 time-based RSUs during 2018 in recognition of her increased responsibilities and promotion to Chief Financial Officer. These time-based RSUs are not included in the table above. These time-based RSUs vest in one-third increments on each anniversary of the grant date, subject to continued employment, with full vesting on the third anniversary of the grant date. |
(4) |
In addition to his annual LTIP award, Mr. Plummer also received 3,514 time-based RSUs during 2018 to encourage him to remain with the Company during a transition period. However, in connection with his retirement, he forfeited two-thirds of the time-based RSUs from this award. For more details about the retirement treatment of Mr. Plummer’s LTIP awards, please refer to “Termination and Change in Control Benefits” on page 53 of this Proxy Statement. |
49
A Closer Look at Performance-Based RSUs (“PRSUs”)
Performance criteria for our PRSUs measure year-over-year performance over the course of a three-year period, rather than measure performance once at the end of the three-year period, to better account for the dynamic nature of our business. Accordingly, one-third of our NEOs’ PRSUs are eligible to vest each year, in an amount ranging from 0% to 200% of target, based on achievement of annual performance metrics and generally subject to the NEO’s continued employment through fiscal year-end. We measure performance annually because we operate in a highly cyclical and volatile business environment in which forecasting multi-year performance is extremely difficult and possibly counterproductive. By reestablishing goals annually, we ensure that we always have the appropriate criteria and rigor tied to the incentive performance targets. We maintain a long-term perspective by requiring multi-year vesting and denominating our awards in stock, which, coupled with our robust stock ownership guidelines, effectively aligns management’s long-term interests with those of our stockholders.
50
Understanding the Differences:
Reported PRSUs in the Summary Compensation Table vs. Target PRSUs Approved by the
Compensation Committee
As discussed above, PRSUs vest annually over a three-year period based on the attainment of performance goals that are set and measured in each year of the three-year period. While the annual goal-setting feature is appropriate due to the highly-cyclical and volatile business environment in which we operate, it can result in differences, due to stock price fluctuations as further discussed below, between the reported PRSU award grant date fair value (“GDFV”) in the Summary Compensation Table and the target PRSU award GDFV that is approved by the Committee based on targeted market position and performance. In the discussion below, the reported PRSU award GDFV is referred to as the “reported GDFV” and the target PRSU award GDFV is referred to as the “target GDFV”. This discussion and the table below are not intended to be replacements or substitutes for the Summary Compensation Table set forth on page 59 of this Proxy Statement.
The differences between the reported GDFV and the target GDFV are due to the SEC requirement that PRSU award values disclosed in the Summary Compensation Table reflect the GDFV of the PRSU as determined under SEC reporting rules, which stipulate that grant date is established when the underlying terms of the award are fixed. Because our PRSU goals are set on an annual basis, the grant date and associated award fair value are established annually over the three-year performance period—resulting in differences between what is reported in the Summary Compensation Table (further described in footnote 3 thereto) and the amount of the award the Committee originally awarded. When the grant date stock price has declined, relative to the stock price at the time of the original award, reported GDFV will be lower than target GDFV. When the grant date stock price has increased, relative to the stock price at the time of the original award, as the 2017 and 2018 grant date stock prices did, reported GDFV will exceed target GDFV.
The table below shows how the reported GDFV for our CEO has deviated from target GDFV over the past four years. For 2017 and 2018, the CEO’s reported GDFV was meaningfully above target GDFV. This was a direct result of our strong stock price performance reflected in the 2017 and 2018 grant date stock prices.
|
2015 |
2016 |
2017 |
2018 |
Stock Price at Grant |
$87.05 |
$59.85 |
$129.78 |
$184.99 |
Target PRSU GDFV Approved by the Committee (000’s) |
$5,000 |
$5,000 |
$5,000 |
$5,000 |
Reported PRSU GDFV in the Summary Compensation Table (000’s) |
$5,104 |
$3,914 |
$7,766 |
$9,194 |
Difference Between Target and Reported for CEO (000's) |
$104 |
($1,086) |
$2,766 |
$4,194 |
As reflected in the table above, the target GDFV for the CEO for each year since 2015 was $5,000,000, which vests over a three-year period. The reported GDFV for 2018 includes one-third of each of the 2016, 2017 and 2018 awards that vest based on 2018 performance. The reported GDFV exceeded target GDFV for 2018 because the stock price on the 2018 grant date ($184.99) exceeded the stock prices on the grant dates (at the time of the original awards) of the 2016 and 2017 awards ($59.85 and $129.78, respectively). If the CEO’s PRSU awards had been reported in the Summary Compensation Table using the target GDFV, his total 2018 compensation would have been $9,404,199, which is $4,194,003 less than what was reported as determined under SEC reporting rules.
51
Based on 2018 results, the Committee determined that 183.1% of the target PRSUs were earned for the performance cycle. These PRSUs were settled in shares of the Company’s common stock in the first quarter of 2019.
For 2018, the Committee selected total revenue and ROIC (as defined on page 5 of this Proxy Statement) as the relevant performance metrics. The chart below shows the performance goals set for total revenue and ROIC, as well as actual results. Consistent with our program structure, these metrics applied to the first tranche of PRSUs awarded in 2018; the second tranche of PRSUs awarded in 2017; and the third tranche of PRSUs awarded in 2016.
|
|
|
|
2018 Performance Metrics ($M) |
|
Payout Level |
% of Target |
|
|
Total Revenue (70% weighting)(1) |
ROIC (30% weighting)(1) |
Maximum |
200% |
|
|
$7,990 |
11.45% |
Target |
100% |
|
|
$7,723 |
10.64% |
Threshold |
50% |
|
|
$7,056 |
8.63% |
Actual(1)(2) |
|
$8,059 |
11.00% |
||
|
|
200.0% of Target |
143.8% of Target |
||
Earned Amount |
|
|
183.1% of Target |
(1) |
Reflects the revised goals under the incentive plans in connection with the acquisitions of BakerCorp in July 2018 and BlueLine in October 2018. The revised goals included significant increases to the total revenue goals (to prevent any potential unfair windfall) and minor decreases to the ROIC goals (to prevent any potential unfair penalization). For purposes of the PRSUs, total revenue and ROIC include an adjustment to normalize for the foreign exchange rate impact. |
(2) |
The actual percent of target achieved for ROIC is calculated based on straight-line interpolation between incremental goal levels established between Target and Maximum. |
Other Practices, Policies and Guidelines
Stock Ownership Guidelines
Stock ownership guidelines are a key vehicle for aligning the interests of management and the Company’s stockholders. A meaningful direct ownership stake by our NEOs demonstrates to our investors that each NEO has a strong commitment to the Company’s success. The Committee maintains stock ownership guidelines for our NEOs and other Company officers with a title of vice president and above. For 2018, our stock ownership guidelines were as follows:
Title |
Multiple of Base Salary |
CEO |
6.0x |
Executive Vice Presidents |
3.0x |
Senior Vice Presidents |
2.0x |
Vice Presidents and Region Vice Presidents |
1.0x |
Shares that count toward meeting these ownership guidelines include: shares directly owned by the executive; shares beneficially owned by the executive, such as shares held in “street name” through a broker or shares held in trust; unvested restricted stock or RSUs that vest solely based on continued service; and the value of the spread (the difference between the exercise price and the full market value of the Company’s common stock) of fully vested stock options.
52
Until the guidelines are met, NEOs and other officers are required to retain 50% of the net shares of the Company’s common stock received upon future vestings. NEOs and other Company officers have five years from becoming a covered employee or when moving to a position with a higher ownership level to come into compliance with the guidelines. Each of the NEOs was in compliance with these guidelines as of December 31, 2018.
Anti-Hedging Policy; Anti-Pledging Policy
The Company prohibits transactions designed to limit or eliminate economic risks to our NEOs from owning the Company’s common stock, such as transactions involving options, puts, calls, or other derivative securities tied to the Company’s common stock. Our insider trading policy also prohibits the pledging of Company stock, including use as collateral for a margin loan, by directors, officers, employees, and consultants of the Company and its subsidiaries.
Clawback
For all PRSU, time-based RSU and stock option awards granted since 2009, including those held by each of the NEOs, the award agreements include an “injurious conduct” provision that requires forfeiture of the award or, to the extent the award has vested or been exercised within six months prior to the occurrence of the relevant conduct, mandates reimbursement of shares or amounts realized. The injurious conduct concept is generally focused on actions that would constitute “cause” under an employment agreement, namely, actions that are in material competition with the Company or breach the executive’s duty of loyalty to the Company. In addition, we include “clawback” provisions in our NEOs’ employment agreements, including those with respect to Messrs. Kneeland, Plummer, Flannery and Pintoff and Ms. Graziano, that generally require reimbursement of amounts paid under performance provisions (in the case of cash incentives and PRSUs) if amounts were paid or shares vested based on financial results that subsequently become subject to certain “mandatory” restatements that would have led to lower payments or forfeiture of all or a portion of the shares subject to an award.
Termination and Change in Control Benefits
The provision of reasonable severance benefits is common among similar companies and is essential to recruiting and retaining key executives. Accordingly, the employment agreements with our NEOs generally provide for varying levels of severance in the event that the Company terminates the executive’s employment without “cause” or the executive resigns for “good reason” (each as defined in the applicable employment agreement, as described in more detail under “Benefits upon Termination of Employment”). Upon a qualifying termination, Mr. Kneeland would receive 450% of his base salary paid over a two-year period; Ms. Graziano would receive 190% of her base salary paid over a one-year period; Mr. Flannery would receive 380% of his base salary paid over a two-year period; Mr. Asplund would receive 100% of his base salary paid over a one-year period; and Mr. Pintoff would receive 180% of his base salary paid over a one-year period. Prior to his retirement from the Company, upon a qualifying termination, Mr. Plummer would have received 190% of his base salary paid over a one-year period. Upon a qualifying termination, the Company would also provide each NEO with COBRA continuation coverage for a 12- to 18-month period.
Severance payments to the NEOs are conditioned on the execution of a release of claims in favor of the Company. In addition, each of the NEOs is subject to non-competition and non-solicitation restrictions for a period of time following their termination, as described in more detail under “Benefits upon Termination of Employment.” All unvested PRSUs, time-based RSUs and stock options granted to each of the NEOs since 2011 provide for forfeiture on the NEO’s termination of employment for any reason, except in the case of a qualifying termination following a change in control or upon death, disability or retirement, each as described below. Following a termination without cause or a resignation for good reason, vested stock options will remain outstanding and exercisable for 30 days following such termination, and will remain outstanding and exercisable for one year following a termination as a result of death or permanent disability.
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Upon a termination as a result of death or permanent disability, for PRSU awards made in 2016, a pro rata portion of the awards will vest, based on the number of days between the beginning of the applicable performance period and the date of termination. For time-based RSU awards made in 2016, upon a termination as a result of death or permanent disability, a pro rata portion of one tranche (one-third of the total number of units) of the awards will vest, based on target performance and the number of days elapsed between the preceding vesting date and the date of termination. For PRSU awards made beginning in 2017, upon an awardee’s death, all units that could have been earned for the performance period in which the termination occurs will vest based on target performance, and upon an awardee’s permanent disability, all units that could have been earned for the performance period in which the termination occurs will vest based on actual performance. The time-based RSU awards made beginning in 2017 provide for vesting of all outstanding units upon death or permanent disability.
Upon a termination as a result of retirement, time-based RSUs granted in 2016 will vest upon retirement and be delivered on the normal settlement schedule, and time-based RSUs awarded beginning in 2017 will vest and be delivered upon such retirement. Outstanding PRSU awards will remain outstanding and vest based on actual performance for the full performance period and be delivered on the normal settlement schedule.
For the NEOs other than Mr. Kneeland, retirement requires: (1) attainment of age 60; (2) age plus years of continuous service equal to at least 70; and (3) at least one year’s prior written notice of retirement. For Mr. Kneeland, retirement treatment is only available for grants outstanding for at least six months prior to retirement and requires attainment of age 65. Retirement treatment is generally not available for one-time retention equity awards and will not be available for the awards granted to Mr. Kneeland in the first quarter of 2019. Mr. Kneeland had satisfied the conditions for retirement under his outstanding equity awards as of December 31, 2018, with the exception of one outstanding award of retention RSUs granted to him in 2016, which cliff vested in full on March 7, 2019 under the preexisting terms of the award.
In connection with Mr. Plummer’s retirement, and as previously disclosed in the Company’s Current Report on Form 8-K filed on July 2, 2018, the Committee determined that Mr. Plummer was eligible to receive retirement treatment for certain of his outstanding equity awards in accordance with the preexisting terms of the applicable award agreements. In addition to meeting the age and service requirements outlined above, the Committee determined that Mr. Plummer satisfied the written notice of retirement requirement based on his contributions to the Company and the successful transition of his role to Ms. Graziano. Specifically, Mr. Plummer’s unvested annual awards of PRSUs and time-based RSUs granted in 2016, 2017 and 2018 will be treated and vest in accordance with their terms, with PRSUs continuing to vest and be earned based on actual performance in accordance with their terms. In addition, in recognition of Mr. Plummer’s exceptional service and contributions to the Company, the one-time award of 10,026 time-based RSUs awarded to Mr. Plummer on March 7, 2016 and one-third of the one-time award of 3,514 time-based RSUs (i.e., 1,172 RSUs) awarded to Mr. Plummer on March 6, 2018 vested upon Mr. Plummer’s retirement from the Company on January 31, 2019.
The prospect of a change in control of the Company can cause significant distraction and uncertainty for executive officers and, accordingly, the Committee believes that appropriate change in control provisions are important tools for aligning executive interests in change in control scenarios with those of stockholders. In addition, changes to the Company following a change in control may affect the ability to achieve previously set performance measures. Consequently, outstanding RSUs and stock option awards held by the NEOs provide for “double trigger” treatment upon a change in control. A “change in control” for this purpose is defined in the employment agreement for Mr. Kneeland, in the applicable award agreement or in the LTIP, as set forth in more detail under “Benefits upon a Change in Control.” If the change in control results in shares of common stock of the Company (or any direct or indirect parent entity) being publicly traded and the grantee’s employment is terminated by the Company without “cause” or by the individual for “good reason” within the 12 months following the change in control, then all such RSUs and stock options will vest in full, and all performance conditions for PRSUs will be deemed satisfied at the target level. However, in the limited circumstances that the change in control results in none of the common stock of the Company (or any direct or indirect parent entity) being publicly traded following a change in control, then all outstanding awards will vest in full, and all performance conditions for PRSUs will be deemed satisfied at their target level upon the date of such change in control.
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The Internal Revenue Code imposes an excise tax on the value of certain payments that are contingent upon a change in control, referred to as parachute payments, which exceed a safe harbor amount. The Company does not provide any executive with a gross-up for any excise tax that may be triggered. Mr. Kneeland’s employment agreement provides that if he receives payments that would result in the imposition of the excise tax, such payments will be reduced to the safe harbor amount so that no excise tax is triggered if the net after-tax benefit to him is greater than the net after-tax benefit that he would receive if no reduction occurred.
The severance and change in control provisions of our NEOs’ employment agreements and other arrangements are described in detail in the sections “Benefits upon Termination of Employment” and “Benefits upon a Change in Control,” respectively.
Employment Agreements
We have entered into employment agreements with each of the NEOs: for Mr. Kneeland, effective August 22, 2008; for Mr. Plummer, effective December 1, 2008; for Mr. Flannery, effective March 12, 2010; for Mr. Asplund, effective April 28, 2008; for Mr. Pintoff, effective January 20, 2016; and for Ms. Graziano, effective October 12, 2018.
The employment agreements generally provide that the NEOs are entitled to participate in, to the extent otherwise eligible under the terms thereof, the Company’s benefit plans and programs, and receive the benefits and perquisites generally provided by us to our executives, including family medical insurance (subject to applicable employee contributions). Upon a termination of employment (including, for Mr. Kneeland, a termination following a change in control of the Company), the employment agreements provide for the benefits described above under “Termination and Change in Control Benefits,” and below under “Benefits upon Termination of Employment” and “Benefits upon a Change in Control.”
The employment agreements also generally provide that, during the period of employment, the NEO shall not engage in any activity that would conflict with the executive’s duties and cannot engage in any other employment. In addition, the employment agreements generally provide for two-year (one-year for Messrs. Plummer and Pintoff and Ms. Graziano) post-termination non-compete and non-solicit restrictions.
Indemnification Agreements
We have entered into indemnification agreements with each of the NEOs. These agreements provide, among other things, for us to indemnify and advance expenses to the NEOs against specified claims and liabilities that may arise in connection with each NEO’s services to the Company.
Other Benefits and Perquisites
Nonqualified Deferred Compensation Plan
The Company’s nonqualified deferred compensation plan, the Executive Nonqualified Excess Plan (“ENEP”), is an unfunded plan. The participants in the plan are unsecured general creditors of the Company. The ENEP permits a select group of management and other highly compensated employees, including the NEOs, to defer all or part of their base salary and annual incentive compensation. Deferred amounts are credited with earnings (or losses) based on the investment experience of measurement indices selected by the participant from among the choices offered by the plan. The ENEP also provides for additional credits that are discretionary on the part of the Company. The Company did not make any contributions to the ENEP in 2018.
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The Company maintains a 401(k) plan for all employees, and provides discretionary employer-matching contributions (subject to certain limitations, including an annual limit of $3,000 for 2018 for our NEOs) based on an employee’s contributions.
Perquisites and Other Personal Benefits
We maintain various employee benefit programs, including health and medical benefits, for all of our employees, including our NEOs. In addition, all executives who are senior vice presidents or above, including the NEOs, are eligible to receive an annual wellness exam.
The Company does not have a formal perquisite policy, although the Committee periodically reviews perquisites for our NEOs. Rather, there are certain specific perquisites and benefits with which the Company has agreed to compensate particular executives based on their specific situations. Among these are relocation costs, including temporary housing and living expenses, and use of Company vehicles. In order to make travel time more conducive to work-related activities, we may periodically provide our executives with business-class travel on commercial airlines when traveling for work-related matters.
For 2018, none of the NEOs received perquisites or personal benefits with a total value exceeding $10,000, with the exception of Mr. Kneeland, whose Company-paid supplemental life insurance premium was $10,405. Please see the “All Other Compensation” column of the “Summary Compensation Table” on page 59 of this Proxy Statement for more information.
Tax and Accounting Considerations
The Committee considers certain tax implications when designing the Company’s executive compensation programs, including the deductibility of compensation paid to our NEOs. Section 162(m) of the Internal Revenue Code generally limits the deductibility of compensation paid to certain executive officers in excess of $1 million during a year. Prior to the enactment of the Tax Cuts and Jobs Act of 2017 (“Tax Act”), compensation that qualified as "performance-based compensation" under Section 162(m) was exempt from this $1 million limit. However, the Tax Act generally eliminated this performance-based compensation exemption for taxable years beginning after December 31, 2017. The Committee believes that tax deductibility is only one of several relevant considerations in setting compensation, and that the tax deduction limitation should not be permitted to compromise the Committee's ability to structure its compensation to attract, retain and appropriately motivate executive officers, thus providing benefits to the Company and its stockholders that outweigh the potential benefit of the tax deduction. Accordingly, the Committee has discretion to approve and authorize compensation that is not deductible for federal income tax purposes.
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Compensation and Risk Management
The Committee performs an annual risk assessment of our executive compensation programs. In 2018, the Committee considered both risk mitigators and risk aggravators—that is, elements of the executive compensation architecture that potentially mitigate excessive risk or encourage risk-taking, respectively. On balance, the Committee found that the sum total of the risk mitigators greatly outweighed the risk aggravators. The risk mitigators include: the opportunity for stockholders to cast advisory votes on executive compensation, stock ownership guidelines for executives, an independent compensation committee and compensation consultant, clawback provisions in employment and equity award agreements, a clearly defined pay philosophy, peer group and market positioning to support the Company’s business objectives, provisions enabling the use of negative discretion in certain payouts, and an effective balance of cash and equity compensation. In performing its assessment, the Committee took into account the annual risk review of the Company’s compensation programs led by the Enterprise Risk Management (“ERM”) Council comprised of senior representatives from field operations and from each of the primary corporate functions.
The ERM Council leads a review of the Company’s compensation policies and practices annually to ensure that they appropriately balance short-term and long-term goals and risks and rewards. Specifically, this review includes the annual cash incentive program that covers all senior management and a broad employee population, and equity compensation. These plans are designed to focus senior management and employees on increasing stockholder value and enhancing financial results. Based on this comprehensive review in 2018, we concluded that our compensation program does not encourage excessive risk-taking. We are confident that our program is aligned with the interests of our stockholders and rewards for performance.
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The Compensation Committee has reviewed the Compensation Discussion & Analysis required by Item 402(b) of Regulation S-K and discussed that analysis with management and with the Compensation Committee’s independent compensation consultant. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion & Analysis be included in the Company’s annual report on Form 10-K and in this Proxy Statement.
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